Redwood Trust Reports Second Quarter 2010 Results
MILL VALLEY, Calif., Aug. 4 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the second quarter of 2010 of $29 million, or $0.35 per fully diluted share. This compares to net income of $47 million, or $0.58 per fully diluted share, for the first quarter of 2010, and net income of $7 million, or $0.10 per fully diluted share, for the second quarter of 2009.
Redwood also reported an estimated taxable loss of $3 million, or $0.03 per share, during the second quarter of 2010. This compares to estimated taxable income of $1 million, or $0.01 per share, for the first quarter of 2010, and a taxable loss of $12 million, or $0.16 per share, for the second quarter of 2009.
At June 30, 2010, GAAP book value was $12.71 per share, a decrease of $0.13 per share from March 31, 2010, and management's estimate of non-GAAP economic value was $13.37 per share, an increase of $0.05 per share from March 31, 2010.
During the second quarter of 2010, Redwood acquired $23 million of residential securities and sold $116 million of securities. Redwood ended the quarter with a total securities portfolio of $734 million, down from $840 million at the beginning of the quarter, and with $288 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 June 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 second 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 Second First Fourth Third Second
($ in millions, except share
data) Quarter Quarter Quarter Quarter Quarter
2010 2010 2009 2009 2009
Interest income $ 56 $ 58 $ 62 $ 70 $ 74
Interest expense (21) (18) (21) (25) (39)
Net interest income 35 40 41 45 35
Provision for loan losses (4) (9) (9) (10) (15)
Market valuation adjustments,
net (7) (11) (4) (11) (29)
Net interest income (loss)
after provision and 24 20 28 24 (9)
market valuation adjustments
Operating expenses (11) (17) (11) (15) (10)
Realized gains, net 16 44 20 18 25
Benefit from income taxes - - 3 - 1
Net income 29 47 40 27 7
Less: Net income attributable
to
noncontrolling interest - - - - -
GAAP net income $ 29 $ 47 $ 40 $ 27 $ 7
Average diluted shares
(thousands) 78,852 78,542 78,101 78,223 66,446
Diluted earnings per share $ $0.35 $ 0.58 $ 0.51 $ 0.34 $ 0.10
Regular dividends declared
per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
REDWOOD TRUST, INC.
Consolidated Income Statement Six Months Ended
($ in millions, except share data) June 30,
2010 2009
Interest income $ 115 $ 156
Interest expense (39) (87)
Net interest income 76 69
Provision for loan losses (14) (31)
Market valuation adjustments, net (18) (72)
Net interest loss after provision and 44 (34)
market valuation adjustments
Operating expenses (29) (22)
Realized gains, net 60 26
Benefit from income taxes - 1
Net income (loss) 75 (29)
Less: Net (loss) income attributable to noncontrolling
interest - (1)
GAAP net income (loss) $ 75 $ (28)
Average diluted shares (thousands) 78,662 59,138
Diluted earnings (loss) per share $ 0.94 $ (0.48)
Regular dividends declared per common share $ 0.50 $ 0.50
REDWOOD TRUST, INC. Consolidated Balance Sheets 30-Jun 31-Mar 31-Dec 30-Sep 30-Jun ($ in millions, except share data) 2010 2010 2009 2009 2009 Real estate loans $ 3,810 $ 3,662 $ 3,740 $ 3,831 $ 3,966 Real estate securities, at fair value: Trading securities 276 289 278 275 253 Available-for-sale securities 741 847 810 787 551 Other investments 4 11 20 29 47 Cash and cash equivalents 288 242 243 217 337 Other assets 100 144 162 146 131 Total Assets $ 5,219 $ 5,195 $ 5,253 $ 5,285 $ 5,285 Short-term debt $ - $ - $ - $ - $ - Other liabilities 142 207 181 203 185 Asset-backed securities issued - Sequoia entities 3,681 3,557 3,645 3,728 3,843 Asset-backed securities issued - Acacia entities 253 280 298 288 287 Long-term debt 140 140 140 140 150 Total liabilities 4,216 4,184 4,264 4,359 4,465 Stockholders’ equity 991 998 972 907 802 Noncontrolling interest 12 13 17 19 18 Total equity 1,003 1,011 989 926 820 Total Liabilities and Equity $ 5,219 $ 5,195 $ 5,253 $ 5,285 $ 5,285 Shares outstanding at period end (thousands) 77,908 77,751 77,737 77,669 77,503 GAAP book value per share $ 12.71 $ 12.84 $ 12.50 $ 11.68 $ 10.35
REDWOOD TRUST, INC.
Consolidating
Income Statement
Three Months Ended
June 30, 2010 Other
($ in millions) Redwood 2010 Consolidated Intercompany Redwood
Parent Sequoia Entities Adjustments Consolidated
Interest income $ 16 $ 1 $ 30 $ - $ 47
Net discount
(premium)
amortization 10 - (1) - 9
Total interest
income 26 1 29 - 56
Management fees - - - - -
Interest expense (2) (1) (18) - (21)
Net interest income 24 - 11 - 35
Provision for loan
losses - - (4) - (4)
Market valuation
adjustments, net (4) - (3) - (7)
Net interest income
after provision 20 - 4 - 24
and market
valuation
adjustments
Operating expenses (11) - - - (11)
Realized gains, net 16 - - - 16
Income from Other
Consolidated
Entities 4 - - (4) -
Noncontrolling
interest - - - - -
Benefit from income
taxes - - - - -
Net income $ 29 $ - $ 4 $ (4) $ 29
Consolidating
Income Statement
Six Months Ended
June 30, 2010 Other
($ in millions) Redwood 2010 Consolidated Intercompany Redwood
Parent Sequoia Entities Adjustments Consolidated
Interest income $ 33 $ 1 $ 63 $ 1 $ 98
Net discount
(premium)
amortization 19 - (2) - 17
Total interest
income 52 1 61 1 115
Management fees 1 - - (1) -
Interest expense (3) (1) (35) - (39)
Net interest income 50 - 26 - 76
Provision for loan
losses - - (14) - (14)
Market valuation
adjustments, net (7) - (12) - (19)
Net interest income
after provision 43 - - - 43
and market
valuation
adjustments
Operating expenses (28) - - - (28)
Realized gains, net 54 - 6 - 60
Income from Other
Consolidated
Entities 6 - - (6) -
Noncontrolling
interest - - - - -
Benefit from income
taxes - - - - -
Net income $ 75 $ - $ 6 $ (6) $ 75
REDWOOD TRUST, INC.
Consolidating
Balance Sheet
June 30, 2010 Other
($ in millions) Redwood 2010 Consolidated Intercompany Redwood
Parent Sequoia Entities Adjustments Consolidated
Real estate loans $ 3 $ 226 $ 3,581 $ - $ 3,810
Real estate
securities, at fair
value:
Trading securities 18 - 258 - 276
Available-for-sale
securities 716 - 52 (27) 741
Other investments - - 4 - 4
Cash and cash
equivalents 288 - - - 288
Investment in 2010
Sequoia 28 - - (28) -
Investment in Other
Consolidated
Entities 91 - - (91) -
Total earning
assets 1,144 226 3,895 (146) 5,119
Other assets 41 3 56 - 100
Total Assets $ 1,185 $ 229 $ 3,951 $ (146) $ 5,219
Short-term debt $ - $ - $ - $ - $ -
Other liabilities 54 1 87 - 142
Asset-backed
securities issued - 200 3,761 (27) 3,934
Long-term debt 140 - - - 140
Total liabilities 194 201 3,848 (27) 4,216
Stockholders’
equity 991 28 91 (119) 991
Noncontrolling
interest - - 12 - 12
Total equity 991 28 103 (119) 1,003
Total Liabilities
and Equity $ 1,185 $ 229 $ 3,951 $ (146) $ 5,219
REDWOOD TRUST, INC.
Tax / GAAP Differences
Three Months Ended June 30, 2010*
(In Millions, Except per Share Data)
Tax GAAP Differences
Interest income $ 34 $ 56 $ (22)
Interest expense (3) (21) 18
Net Interest Income 31 35 (4)
Provision for loan losses - (4) 4
Realized credit losses (24) - (24)
Market valuation adjustments, net - (7) 7
Operating expenses (10) (11) 1
Realized gains, net - 16 (16)
Benefit from income taxes - - -
Less: Net loss attributable to noncontrolling
interest - - -
Net (Loss) Income $ (3) $ 29 $ (32)
Estimated (loss) income per share $ (0.03) $ 0.35 $ (0.38)
* Reconciliation of GAAP income for prior quarters is provided in filings for
those quarters.
REDWOOD TRUST, INC.
Tax / GAAP Differences
Six Months Ended June 30,
2010*
(In Millions, Except per Share
Data)
Tax GAAP Differences
Interest income $ 72 $ 115 $ (43)
Interest expense (3) (39) 36
Net Interest Income 69 76 (7)
Provision for loan losses - (14) 14
Realized credit losses (49) - (49)
Market valuation adjustments,
net - (18) 18
Operating expenses (21) (29) 8
Realized gains, net - 60 (60)
Benefit from income taxes - - -
Less: Net loss attributable to noncontrolling
interest - - -
Net (Loss) Income $ (1) $ 75 $ (76)
Estimated (loss) income per
share $ (0.02) $ 0.94 $ (0.96)
* Reconciliation of 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)
June 30, 2010
Management's
Estimate of
GAAP Non-GAAP
Economic
As Reported Adjustments Value
Cash and cash equivalents $ 288 $ $ 288
Real estate securities at Redwood
Residential 725 725
Commercial 8 8
CDO 1 1
Subtotal real estate securities 734 734
Investments in the Fund 15 15
Investments in Sequoia entities 101 (25) (a) 76
Investments in Acacia entities (b) 3 (2) 1
Total cash, securities and
investments 1,141 1,114
Long-term debt (140) 78 (c) (62)
Other assets/liabilities, net (d) (10) (10)
Stockholders' Equity $ 991 $ 1,042
Book Value Per Share $ 12.71 $ 13.37
(a) Our investments in Sequoia entities consist of interest-only securities
and senior and
subordinate securities issued by Sequoia entities. We calculated the $76
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 $101 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 $3
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 June 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 six months
of 2010, through
interest rate hedging arrangements, we effectively fixed the interest rate on
this long-term debt at
6.75%. We calculated the $62 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 second
quarter of 2010, the fair value of the interest rate hedges related to this
long-term debt declined
by $20 million, as reflected in shareholders' equity on our balance sheet.
(d) Other assets/liabilities, net are comprised of $3 million of real estate
loans, $4 million of
accrued interest receivable, and $37 million of other assets, less dividends
payable of $19 million
and accrued interest and other liabilities of $35 million (which includes $1
million for pending
acquisitions).
* This table presents supplemental components of book value at June 30, 2010,
as reported
under GAAP and as estimated by us using fair values for our investments. 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
June 30, 2010.
REDWOOD TRUST, INC.
Sources and Uses of Cash*
(In Millions)
Three Months Ended
June 30, 2010 March 31, 2010
Beginning cash balance $ 242 $ 243
Business cash flow:
Cash flow from investments (including sales
proceeds) 177 193
Asset management fees - -
Operating expenses (10) (15)
Interest expense on long-term debt (1) (1)
Total business cash flow 166 177
Other sources and uses:
Investment in 2010 Sequoia (28) 0
Changes in working capital 3 (2)
Acquisitions** (55) (156)
Derivative margins posted, net (20) 0
Dividends (20) (20)
Net other uses (120) (178)
Net sources (uses) of cash 46 (1)
Ending cash balance $ 288 $ 242
* 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.
** Total acquisitions in the second quarter of 2010 were $23 million, $1
million which are not reflected in this table because they did not settle
until early July. Also, $33 million of acquisitions made in the first
quarter that did not settle until early April are reflected in this table.
SOURCE Redwood Trust, Inc.
Released August 4, 2010