Redwood Trust Reports Third Quarter 2010 Results
MILL VALLEY, Calif., Nov. 3, 2010 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the third quarter of 2010 of $20 million, or $0.25 per fully diluted share. This compares to net income of $29 million, or $0.35 per fully diluted share, for the second quarter of 2010, and net income of $27 million, or $0.34 per fully diluted share, for the third quarter of 2009.
Redwood also reported an estimated taxable loss of $9 million, or $0.11 per share, during the third quarter of 2010. This compares to estimated taxable loss of $3 million, or $0.03 per share, for the second quarter of 2010, and a taxable loss of $23 million, or $0.30 per share, for the third quarter of 2009.
At September 30, 2010, GAAP book value was $13.02 per share, an increase of $0.31 per share from June 30, 2010, and management's estimate of non-GAAP economic value was $13.73 per share, an increase of $0.36 per share from June 30, 2010.
During the third quarter of 2010, Redwood acquired $50 million of residential securities. Redwood ended the quarter with a total securities portfolio of $797 million, up from $734 million at the beginning of the quarter, and with $189 million of cash and cash equivalents.
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 Redwood's Quarterly Report on Form 10-Q for the three months ended September 30, 2010, which was filed today with the Securities and Exchange Commission, and 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 third 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 Annual Report on Form 10-K for the year ended December 31, 2009, 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 Third Second First Fourth Third
($ in millions, except share
data) Quarter Quarter Quarter Quarter Quarter
2010 2010 2010 2009 2009
Interest income $ 59 $ 56 $ 58 $ 62 $ 70
Interest expense (24) (21) (18) (21) (25)
Net interest income 35 35 40 41 45
Provision for loan losses (2) (4) (9) (9) (10)
Market valuation adjustments,
net (2) (7) (11) (4) (11)
Net interest income after
provision and 31 24 20 28 24
market valuation adjustments
Operating expenses (12) (11) (17) (11) (15)
Realized gains, net 2 16 44 20 18
Benefit from income taxes - - - 3 -
Net income 21 29 47 40 27
Less: Net income attributable
to noncontrolling interest 1 - - - -
GAAP Net Income $ 20 $ 29 $ 47 $ 40 $ 27
Average diluted shares
(thousands) 78,961 78,852 78,542 78,101 78,059
Diluted earnings per share $ 0.25 $ 0.35 $ 0.58 $ 0.51 $ 0.34
Regular dividends declared
per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
REDWOOD TRUST, INC.
Consolidated Income Statements Nine Months Ended
($ in millions, except share data) September 30,
2010 2009
Interest income $ 174 $ 226
Interest expense (63) (112)
Net interest income 111 114
Provision for loan losses (16) (41)
Market valuation adjustments, net (20) (83)
Net interest income (loss) after provision and 75 (10)
market valuation adjustments
Operating expenses (41) (36)
Realized gains, net 62 44
Benefit from income taxes - 1
Net income (loss) 96 (1)
Less: Net income attributable to noncontrolling interest 1 -
GAAP Net Income (Loss) $ 95 $ (1)
Average diluted shares (thousands) 78,764 65,363
Diluted earnings (loss) per share $ 1.18 $ (0.02)
Regular dividends declared per common share $ 0.75 $ 0.75
REDWOOD TRUST, INC. Consolidated Balance Sheets 30-Sep 30-Jun 31-Mar 31-Dec 30-Sep ($ in millions, except share data) 2010 2010 2010 2009 2009 Real estate loans $ 3,752 $ 3,810 $ 3,662 $ 3,740 $ 3,831 Real estate securities, at fair value: Trading securities 310 276 289 278 275 Available-for-sale securities 798 741 847 810 787 Other investments - 4 11 20 29 Cash and cash equivalents 189 288 242 243 217 Other assets 113 100 144 162 146 Total Assets $ 5,162 $ 5,219 $ 5,195 $ 5,253 $ 5,285 Short-term debt $ - $ - $ - $ - $ - Other liabilities 163 142 207 181 203 Asset-backed securities issued - Sequoia entities 3,568 3,681 3,557 3,645 3,728 Asset-backed securities issued - Acacia entities 264 253 280 298 288 Long-term debt 140 140 140 140 140 Total liabilities 4,135 4,216 4,184 4,264 4,359 Stockholders’ equity 1,016 991 998 972 907 Noncontrolling interest 11 12 13 17 19 Total equity 1,027 1,003 1,011 989 926 Total Liabilities and Equity $ 5,162 $ 5,219 $ 5,195 $ 5,253 $ 5,285 Shares outstanding at period end (thousands) 77,984 77,908 77,751 77,737 77,669 GAAP book value per share $ 13.02 $ 12.71 $ 12.84 $ 12.50 $ 11.68
REDWOOD TRUST,
INC.
Consolidating
Income Statement
Three Months
Ended September
30, 2010 Other
($ in millions) Redwood 2010 Consolidated Intercompany Redwood
(Parent) Sequoia Entities Adjustments Consolidated
Interest income $ 17 $ 2 $ 30 $ - $ 49
Net discount
amortization 10 - - - 10
Total interest
income 27 2 30 - 59
Interest expense (3) (1) (20) - (24)
Net interest
income 24 1 10 - 35
Provision for
loan losses - - (2) - (2)
Market valuation
adjustments, net - - (2) - (2)
Net interest
income after
provision 24 1 6 - 31
and market
valuation
adjustments
Operating
expenses (12) - - - (12)
Realized gains on
sales and calls,
net 2 - - - 2
Income from 2010
Sequoia 1 - - (1) -
Income from Other
Consolidated
Entities 5 - - (5) -
Noncontrolling
interest - - (1) - (1)
Provision for
income taxes - - - - -
Net Income $ 20 $ 1 $ 5 $ (6) $ 20
Consolidating
Income Statement
Nine Months Ended
September 30,
2010 Other
($ in millions) Redwood 2010 Consolidated Intercompany Redwood
(Parent) Sequoia Entities Adjustments Consolidated
Interest income $ 50 $ 3 $ 93 $ - $ 146
Net discount
(premium)
amortization 29 1 (2) - 28
Total interest
income 79 4 91 - 174
Interest expense (6) (3) (54) - (63)
Net interest
income 73 1 37 - 111
Provision for
loan losses - - (16) - (16)
Market valuation
adjustments, net (7) - (13) - (20)
Net interest
income after
provision 66 1 8 - 75
and market
valuation
adjustments
Operating
expenses (40) - (1) - (41)
Realized gains on
sales and calls,
net 55 - 7 - 62
Income from 2010
Sequoia 1 - - (1) -
Income from Other
Consolidated
Entities 13 - - (13) -
Noncontrolling
interest - - (1) - (1)
Provision for
income taxes - - - - -
Net Income $ 95 $ 1 $ 13 $ (14) $ 95
REDWOOD TRUST,
INC.
Consolidating
Balance Sheet
September 30, 2010 Other
($ in millions) Redwood 2010 Consolidated Intercompany Redwood
(Parent) Sequoia Entities Adjustments Consolidated
Real estate loans $ 64 $ 193 $ 3,495 $ - $ 3,752
Real estate
securities, at
fair value:
Trading securities 23 - 287 - 310
Available-for-sale
securities 774 - 24 - 798
Other investments - - - - -
Cash and cash
equivalents 189 - - - 189
Investment in 2010
Sequoia 26 - - (26) -
Investment in
Other Consolidated
Entities 89 - - (89) -
Total earning
assets 1,165 193 3,806 (115) 5,049
Other assets 59 2 52 - 113
Total Assets $ 1,224 $ 195 $ 3,858 $ (115) $ 5,162
Short-term debt $ - $ - $ - $ - $ -
Other liabilities 68 1 94 - 163
Asset-backed
securities issued - 168 3,664 - 3,832
Long-term debt 140 - - - 140
Total liabilities 208 169 3,758 - 4,135
Stockholders’
equity 1,016 26 89 (115) 1,016
Noncontrolling
interest - - 11 - 11
Total equity 1,016 26 100 (115) 1,027
Total Liabilities
and Equity $ 1,224 $ 195 $ 3,858 $ (115) $ 5,162
REDWOOD TRUST, INC.
Tax / GAAP Differences
Three Months Ended September 30, 2010*
($ in millions, except per share data)
Tax GAAP Differences
Interest income $ 37 $ 59 $ (22)
Interest expense (3) (24) 21
Net Interest Income 34 35 (1)
Provision for loan losses - (2) 2
Realized credit losses (31) - (31)
Market valuation adjustments, net - (2) 2
Operating expenses (12) (12) -
Realized gains on sales and calls, net - 2 (2)
Provision for income taxes - - -
Less: Net income attributable to noncontrolling
interest - 1 (1)
Net (Loss) Income $ (9) $ 20 $ (29)
Estimated (loss) income per share $ (0.11) $ 0.25 $ (0.36)
* Reconciliation of taxable income to GAAP income for prior quarters is
provided in filings for those quarters.
REDWOOD TRUST, INC.
Tax / GAAP Differences
Nine Months Ended September 30, 2010*
($ in millions, except per share data)
Tax GAAP Differences
Interest income $ 108 $ 174 $ (66)
Interest expense (6) (63) 57
Net Interest Income 102 111 (9)
Provision for loan losses - (16) 16
Realized credit losses (80) - (80)
Market valuation adjustments, net - (20) 20
Operating expenses (32) (41) 9
Realized gains on sales and calls, net - 62 (62)
Provision for income taxes - - -
Less: Net income attributable to noncontrolling
interest - 1 (1)
Net (Loss) Income $ (10) $ 95 $ (105)
Estimated (loss) income per share $ (0.13) $ 1.18 $ (1.31)
* Reconciliation of taxable income to GAAP income for prior quarters is
provided in filings for those quarters.
REDWOOD TRUST, INC.
Book Value Per Share and Management's Estimate of
Non-GAAP Economic Value Per Share*
($ in millions,
except per share
data)
September 30, 2010
Management's
GAAP Estimate of Non-GAAP
As Reported Adjustments Economic Value
Cash and cash
equivalents $ 189 $ $ 189
Real estate loans
at Redwood 64 64
Real estate
securities at
Redwood
Residential 788 788
Commercial 8 8
CDO 1 1
Subtotal real
estate securities 797 797
Investments in the
Fund 14 14
Investments in
Sequoia entities 97 (19) (a) 78
Investments in
Acacia entities 4 (3) (b) 1
Other assets (d) 59 59
Total assets 1,224 1,202
Long-term debt (140) 77 (c) (63)
Other liabilities
(d) (68) (68)
Stockholders'
Equity $ 1,016 $ 1,071
Book Value Per
Share $ 13.02 $ 13.73
(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 $97 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 September 30, 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 $63 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. As a result of declining interest rates during the third quarter
of 2010, the fair value of the interest rate hedges related to this long-term
debt declined by $11 million, and is reflected in shareholders’ equity on our
balance sheet.
(d) Other assets are comprised of $4 million of accrued interest receivable and
$55 million of other assets. Other liabilities are comprised of dividends
payable of $19 million and accrued interest and other liabilities of $49
million.
* This table presents supplemental components of book value at September 30,
2010, as reported under GAAP and as estimated by us using fair values for our
investments and long-term debt. We show our investments in the Fund, and the
Sequoia and Acacia entities as separate line items to highlight our specific
ownership interests, as the underlying assets and liabilities of these entities
are legally not ours. Our non-GAAP estimated economic value is calculated using
bid-side asset marks (or estimated bid-side values) and offer-side marks for
our financial liabilities (or estimated offered-side values), as required to
determine fair value under GAAP. For additional information to consider when
reviewing this table, please see “Factors Affecting Management’s Estimate
of Economic Value” in our Quarterly Report on Form 10-Q for the three months
ended September 30, 2010.
REDWOOD TRUST, INC.
Sources and Uses of Cash (a)
($ in millions)
Three Months Ended
September 30, 2010 June 30, 2010
Beginning cash balance $ 288 $ 242
Sources of cash
Securities at Redwood - principal and
interest
Residential senior 36 42
Residential Re-REMIC 2 2
Residential subordinate 9 8
Commercial and CDO 2 1
Securities at Redwood - sales - 116
Investments in Consolidated Entities 11 8
Total sources of cash 60 177
Uses of cash
Acquisitions of loans (62) -
Acquisitions of securities (b) (48) (55)
Investment in 2010 Sequoia - (28)
Cash operating expenses (9) (10)
Interest expense on long-term debt (2) (1)
Derivative margin posted (17) (20)
Dividends (20) (20)
Changes in working capital (1) 3
Total uses of cash (159) (131)
Net (uses) sources of cash (99) 46
Ending Cash Balance $ 189 $ 288
(a) The sources and uses of cash in the table above are derived from our
GAAP Consolidated Statements of Cash Flow 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 in the third quarter of 2010 were $50 million, $3
million which are not reflected in this table because they did not
settle until early October. Also, $1 million of acquisitions made in the
second quarter that did not settle until early July are reflected in
this table.
SOURCE Redwood Trust, Inc.
Released November 3, 2010