Redwood Trust Reports Fourth Quarter 2010 Results
MILL VALLEY, Calif., Feb. 24, 2011 /PRNewswire/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the fourth quarter of 2010 of $15 million, or $0.18 per fully diluted share. This compares to net income of $20 million, or $0.25 per fully diluted share, for the third quarter of 2010, and net income of $40 million, or $0.51 per fully diluted share, for the fourth quarter of 2009.
Redwood also reported an estimated taxable loss of $6 million, or $0.07 per share, during the fourth quarter of 2010. This compares to an estimated taxable loss of $9 million, or $0.11 per share, for the third quarter of 2010, and a taxable loss of $35 million, or $0.44 per share, for the fourth quarter of 2009.
At December 31, 2010, GAAP book value was $13.63 per share, an increase of $0.61 per share from September 30, 2010, and management's estimate of non-GAAP economic value was $14.31 per share, an increase of $0.58 per share from September 30, 2010.
During the fourth quarter of 2010, Redwood acquired $195 million of residential mortgage loans, originated $30 million of commercial loans, and acquired $26 million of residential securities. At December 31, 2010, cash and cash equivalents totaled $47 million.
Please see the tables that follow for reconciliations between GAAP and non-GAAP metrics. Additional information on Redwood's business, financial results, and on non-GAAP metrics is available in The Redwood Review, which is available on Redwood's website at www.redwoodtrust.com, and in Redwood's most recent Annual Report on Form 10-K, which is filed with the Securities and Exchange Commission, and which is also available on Redwood's website at www.redwoodtrust.com.
The accounting concepts and disclosures relating to Redwood's financial statements are complex. The Redwood Review is an additional publication that provides information about Redwood. Today, The Redwood Review was released covering the fourth quarter of 2010 and is available on our website.
Cautionary Statement: This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "anticipate," "estimate," "will," "should," "expect," "believe," "intend," "seek," "plan" and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our most recent Annual Report on Form 10-K under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the Securities and Exchange Commission (SEC), including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
REDWOOD TRUST, INC.
Consolidated Income
Statements Fourth Third Second First Fourth
($ in millions, except share
data) Quarter Quarter Quarter Quarter Quarter
2010 2010 2010 2010 2009
Interest income $ 56 $ 59 $ 56 $ 59 $ 62
Interest expense (22) (24) (21) (18) (21)
Net interest income 34 35 35 41 41
Provision for loan losses (8) (2) (4) (10) (9)
Market valuation adjustments,
net - (2) (7) (11) (4)
Net interest income after
provision and 26 31 24 20 28
market valuation adjustments
Operating expenses (13) (12) (11) (18) (11)
Realized gains on sales and
calls, net 2 2 16 44 20
Benefit from income taxes - - - - 3
Net income 15 21 29 46 40
Less: Net income attributable
to noncontrolling interest - 1 - - -
GAAP Net Income $ 15 $ 20 $ 29 $ 46 $ 40
Average diluted shares
(thousands) 78,944 78,961 78,852 78,542 78,101
Diluted earnings per share $ 0.18 $ 0.25 $ 0.35 $ 0.58 $ 0.51
Regular dividends declared
per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
REDWOOD TRUST, INC.
Consolidated Income Statements Twelve Months Ended
($ in millions, except share data) December 31,
2010 2009
Interest income $ 230 $ 288
Interest expense (85) (132)
Net interest income 145 156
Provision for loan losses (24) (49)
Market valuation adjustments, net (20) (88)
Net interest income after provision and 101 19
market valuation adjustments
Operating expenses (54) (47)
Realized gains on sales and calls, net 64 63
Benefit from income taxes - 4
Net income 111 39
Less: Net income attributable to noncontrolling interest 1 -
GAAP Net Income $ 110 $ 39
Average diluted shares (thousands) 78,811 68,991
Diluted earnings per share $ 1.36 $ 0.55
Regular dividends declared per common share $ 1.00 $ 1.00
REDWOOD TRUST, INC. Consolidated Balance Sheets 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec ($ in millions, except share data) 2010 2010 2010 2010 2009 Real estate loans $ 3,847 $ 3,752 $ 3,810 $ 3,662 $ 3,740 Real estate securities, at fair value: Trading securities 330 310 276 289 278 Available-for-sale securities 825 798 741 847 810 Other investments - - 4 11 20 Cash and cash equivalents 47 189 288 242 243 Other assets 95 113 100 144 162 Total Assets $ 5,144 $ 5,162 $ 5,219 $ 5,195 $ 5,253 Short-term debt $ 44 $ - $ - $ - $ - Other liabilities 123 163 142 207 181 Asset-backed securities issued - Sequoia entities 3,458 3,568 3,681 3,557 3,645 Asset-backed securities issued - Acacia entities 303 264 253 280 298 Long-term debt 140 140 140 140 140 Total liabilities 4,068 4,135 4,216 4,184 4,264 Stockholders’ equity 1,065 1,016 991 998 972 Noncontrolling interest 11 11 12 13 17 Total equity 1,076 1,027 1,003 1,011 989 Total Liabilities and Equity $ 5,144 $ 5,162 $ 5,219 $ 5,195 $ 5,253 Shares outstanding at period end (thousands) 78,125 77,984 77,908 77,751 77,737 GAAP book value per share $ 13.63 $ 13.02 $ 12.71 $ 12.84 $ 12.50
REDWOOD TRUST,
INC.
Consolidating
Income
Statement
Three Months
Ended December
31, 2010 Other
($ in
millions) Redwood Consolidated Intercompany Redwood
(Parent) New Sequoia Entities Adjustments Consolidated
Interest
income $ 16 $ 2 - $ 27 $ - $ 45
Net discount
(premium)
amortization 12 - - (1) - 11
Total interest
income 28 2 26 - 56
Interest
expense (3) (1) - (18) - (22)
Net interest
income 25 1 8 - 34
Provision for
loan losses - - (8) - (8)
Market
valuation
adjustments,
net 2 - - - (2) - - -
Net interest
income after
provision 27 1 (2) - 26
and market
valuation
adjustments
Operating
expenses (13) - - - (13)
Realized gains
on sales and
calls, net 1 - 1 - 2
Income from
New Sequoia 1 - - (1) -
Loss from
Other
Consolidated
Entities (1) - - 1 -
Net Income
(Loss) $ 15 $ 1 $ (1) $ - $ 15
Consolidating
Income
Statement
Twelve Months
Ended December
31, 2010 Other
($ in
millions) Redwood Consolidated Intercompany Redwood
(Parent) New Sequoia Entities Adjustments Consolidated
Interest
income $ 66 $ 5 - $ 120 $ - $ 191
Net discount
(premium)
amortization 41 1 - (3) - 39
Total interest
income 107 6 117 - 230
Interest
expense (8) (5) - (72) - (85)
Net interest
income 99 1 45 - 145
Provision for
loan losses - - - - (24) - - (24)
Market
valuation
adjustments,
net (4) - - - (16) - - (20)
Net interest
income after
provision 95 1 5 - 101
and market
valuation
adjustments
Operating
expenses (53) - - - (1) - - (54)
Realized gains
on sales and
calls, net 56 - - - 8 - - 64
Income from
New Sequoia 1 - - - - - (1) -
Income from
Other
Consolidated
Entities 11 - - - - - (11) -
Noncontrolling
interest - - - - (1) - - (1)
Net Income $ 110 $ 1 $ 11 $ (12) $ 110
REDWOOD TRUST,
INC.
Consolidating
Balance Sheet
December 31, 2010 Other
($ in millions) Redwood Consolidated Intercompany Redwood
New
(Parent) Sequoia Entities Adjustments Consolidated
Real estate loans $ 285 $ 145 $ 3,417 $ - $ 3,847
Real estate
securities, at
fair value:
Trading securities 21 - 309 - 330
Available-for-sale
securities 802 - 23 - 825
Other investments - - - - -
Cash and cash
equivalents 47 - - - 47
Investment in New
Sequoia 24 - - (24) -
Investment in
Other Consolidated
Entities 81 - - (81) -
Total earning
assets 1,260 145 3,749 (105) 5,049
Other assets 35 2 58 - 95
Total Assets $ 1,295 $ 147 $ 3,807 $ (105) $ 5,144
Short-term debt $ 44 $ - $ - $ - $ 44
Other liabilities 46 - 77 - 123
Asset-backed
securities issued - 123 3,638 - 3,761
Long-term debt 140 - - - 140
Total liabilities 230 123 3,715 - 4,068
Stockholders’
equity 1,065 24 81 (105) 1,065
Noncontrolling
interest - - 11 - 11
Total equity 1,065 24 92 (105) 1,076
Total Liabilities
and Equity $ 1,295 $ 147 $ 3,807 $ (105) $ 5,144
REDWOOD TRUST, INC.
Tax / GAAP Differences
Three Months Ended December 31, 2010
($ in millions, except per share data)
Tax GAAP Differences
Interest income $ 28 $ 56 $ (28)
Interest expense (2) (22) 20
Net Interest Income 26 34 (8)
Provision for loan losses - (8) 8
Realized credit losses (20) - (20)
Market valuation adjustments, net - - -
Operating expenses (12) (13) 1
Realized gains on sales and calls, net - 2 (2)
Provision for income taxes - - -
Less: Net income attributable to noncontrolling
interest - - -
Net (Loss) Income $ (6) $ 15 $ (21)
Estimated (loss) income per share $ (0.07) $ 0.19 $ (0.26)
REDWOOD TRUST, INC.
Tax / GAAP Differences
Twelve Months Ended December 31, 2010
($ in millions, except per share data)
Tax GAAP Differences
Interest income $ 137 $ 230 $ (93)
Interest expense (9) (85) 76
Net Interest Income 128 145 (17)
Provision for loan losses - (24) 24
Realized credit losses (100) - (100)
Market valuation adjustments, net - (20) 20
Operating expenses (44) (54) 10
Realized gains on sales and calls, net - 64 (64)
Provision for income taxes - - -
Less: Net income attributable to noncontrolling
interest - 1 (1)
Net (Loss) Income $ (16) $ 110 $ (126)
Estimated (loss) income per share $ (0.20) $ 1.36 $ (1.56)
REDWOOD TRUST, INC.
Book Value Per Share and Management's Estimate of Non-GAAP Economic Value Per
Share*
($ in millions, except per share data)
December 31, 2010
Management's
GAAP Estimate of Non-GAAP
As Reported Adjustments Economic Value
Cash and cash equivalents $ 47 $ $ 47
Real estate loans at Redwood
Residential 255 255
Commercial 30 30
Subtotal real estate loans 285 285
Real estate securities at
Redwood
Residential 814 814
Commercial 8 8
CDO 1 1
Subtotal real estate
securities 823 823
Investments in the Fund 14 14
Investments in Sequoia
entities 87 (9) (a) 78
Investments in Acacia
entities 4 (3) (b) 1
Other assets (d) 35 35
Total assets 1,295 1,283
Short-term debt (44) (44)
Long-term debt (140) 65 (c) (75)
Other liabilities (d) (46) (46)
Stockholders' Equity $ 1,065 $ 1,118
Book Value Per Share $ 13.63 $ 14.31
(a) Our investments in Sequoia entities consist of interest-only securities
and senior and subordinate securities issued by Sequoia entities. We
calculated the $78 million estimate of non-GAAP economic value for these
securities using the same valuation process that we follow to fair value our
other real estate securities. In contrast, the $87 million GAAP carrying value
of these investments represents the difference between the assets and
liabilities owned by the Sequoia entities.
(b) The GAAP carrying value of our investments in Acacia entities was $4
million and management's estimate of the non-GAAP economic value of those
investments was $1 million, which primarily reflects the present value of the
management fees we expect to earn from these entities. The equity interests
and securities we own in the Acacia entities have minimal value.
(c) At December 31, 2010, we had $140 million of long-term debt outstanding
with a stated interest rate of LIBOR plus 225 basis points due in 2037. During
the first half of 2010, through interest rate hedging arrangements, we
effectively fixed the interest rate on this long-term debt at 6.75% (excluding
issuance costs). We calculated the $75 million estimate of non-GAAP economic
value of this long-term debt based on its stated interest rate using the same
valuation process used to fair value our other financial assets and
liabilities.
(d) Other assets are comprised of $5 million of accrued interest receivable
and $30 million of other assets. Other liabilities are comprised of dividends
payable of $20 million and accrued interest and other liabilities of $26
million.
* This table presents supplemental components of book value at December 31,
2010, as reported under GAAP and as estimated by us using fair values for our
investments and long-term debt. We show our investments in the Fund, and the
Sequoia and Acacia entities as separate line items to highlight our specific
ownership interests, as the underlying assets and liabilities of these
entities are legally not ours. Our non-GAAP estimated economic value is
calculated using bid-side asset marks (or estimated bid-side values) and
offer-side marks for our financial liabilities (or estimated offered-side
values), as required to determine fair value under GAAP. For additional
information to consider when reviewing this table, please see “Factors
Affecting Management’s Estimate of Economic Value” in our most recent
Annual Report on Form 10-K.
REDWOOD TRUST, INC.
Sources and Uses of Cash (a)
($ in millions)
Three Months Ended
December 31, 2010 September 30, 2010
Beginning cash balance $ 189 $ 288
Sources of cash
Loans at Redwood 6 -
Securities at Redwood - principal and
interest
Residential senior 42 36
Residential Re-REMIC 2 2
Residential subordinate 8 9
Commercial and CDO 1 2
Securities at Redwood - sales - -
Investments in Consolidated Entities 11 11
Short-term debt financing 44 -
Derivative margin returned, net 26 -
Changes in working capital 3 -
Total sources of cash 143 60
Uses of cash
Acquisitions of residential loans (195) (62)
Origination of commercial loans (30) -
Acquisitions of securities(b) (29) (48)
Cash operating expenses (9) (9)
Interest expense on long-term debt (2) (2)
Derivative margin posted, net - (17)
Dividends (20) (20)
Changes in working capital - (1)
Total uses of cash (285) (159)
Net uses of cash (142) (99)
Ending Cash Balance $ 47 $ 189
(a) The sources and uses of cash in the table above are derived from our
GAAP Consolidated Statements of Cash Flows by aggregating and netting cash
flow in a manner consistent with the way management analyzes it. This table
excludes the gross cash flow generated by our Sequoia and Acacia
securitization entities and the Fund (cash flow that is not available to
Redwood), but does include the cash flow distributed to Redwood as a result
of our investments in these entities. The beginning and ending cash balances
presented in the table above are GAAP amounts.
(b) Total acquisitions of securities in the fourth quarter of 2010 were $26
million. Securities acquisitions of $3 million made in the third quarter
that did not settle until early October are also reflected in this table.
SOURCE Redwood Trust, Inc.
Released February 24, 2011