Redwood Trust Reports First Quarter 2010 Results
MILL VALLEY, Calif., May 5 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the first quarter of 2010 of $47 million, or $0.58 per share. This compares to net income of $40 million, or $0.51 per share, for the fourth quarter of 2009, and a net loss of $35 million, or $0.65 per share, for the first quarter of 2009.
Redwood also reported that it had estimated taxable income of $1 million, or $0.01 per share, during the first quarter of 2010. This compares to an estimated taxable loss of $34 million, or $0.44 per share, for the fourth quarter of 2009, and a taxable loss of $14 million, or $0.22 per share, for the first quarter of 2009.
At March 31, 2010, GAAP book value was $12.84 per share, an increase of $0.34 per share, or 3%, from December 31, 2009, and management's estimate of non-GAAP economic value was $13.32 per share, an increase of $0.29 per share, or 2%, from December 31, 2009.
During the first quarter of 2010, Redwood acquired $189 million of residential securities and sold $124 million of securities. Redwood ended the quarter with a total securities portfolio of $840 million, up from $781 million at the beginning of the quarter, and with $242 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 March 31, 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 first quarter of 2010 and is available at www.redwoodtrust.com.
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 First Fourth Third Second First
($ in millions, except share
data) Quarter Quarter Quarter Quarter Quarter
2010 2009 2009 2009 2009
Interest income $ 58 $ 62 $ 70 $ 74 $ 82
Interest expense (18) (21) (25) (39) (47)
Net interest income 40 41 45 35 35
Provision for loan losses (9) (9) (10) (15) (15)
Market valuation adjustments,
net (11) (4) (11) (29) (44)
Net interest income (loss)
after provision and 20 28 24 (9) (24)
market valuation adjustments
Operating expenses (17) (11) (15) (10) (11)
Realized gains, net 44 20 18 25 -
Benefit from income taxes - 3 - 1 -
Net income (loss) 47 40 27 7 (35)
Less: Net (loss) income
attributable to noncontrolling
interest - - - - -
GAAP net income (loss) $ 47 $ 40 $ 27 $ 7 $ (35)
Average diluted shares
(thousands) 78,542 78,101 78,223 66,446 53,632
Diluted earnings (loss) per
share $ 0.58 $ 0.51 $ 0.34 $ 0.10 $ (0.65)
Regular dividends declared per
common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
REDWOOD TRUST, INC. Consolidated Balance Sheets 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar ($ in millions, except share data) 2010 2009 2009 2009 2009 Real estate loans $ 3,662 $ 3,740 $ 3,831 $ 3,966 $ 4,541 Real estate securities, at fair value: Trading securities 289 278 275 253 264 Available-for-sale securities 847 810 787 551 255 Other investments 11 20 29 47 62 Cash and cash equivalents 242 243 217 337 333 Other assets 144 162 146 131 126 Total Assets $ 5,195 $ 5,253 $ 5,285 $ 5,285 $ 5,581 Short-term debt $ - $ - $ - $ - $ - Other liabilities 207 181 203 185 198 Asset-backed securities issued - Sequoia entities 3,557 3,645 3,728 3,843 4,418 Asset-backed securities issued - Acacia entities 280 298 288 287 291 Long-term debt 140 140 140 150 150 Total liabilities 4,184 4,264 4,359 4,465 5,057 Stockholders’ equity 998 972 907 802 506 Noncontrolling interest 13 17 19 18 18 Total equity 1,011 989 926 820 524 Total Liabilities and Equity $ 5,195 $ 5,253 $ 5,285 $ 5,285 $ 5,581 Shares outstanding at period end (thousands) 77,751 77,737 77,669 77,503 60,228 GAAP book value per share $ 12.84 $ 12.50 $ 11.68 $ 10.35 $ 8.40
REDWOOD TRUST,
INC.
Consolidating
Income Statement
Three Months
Ended March 31,
2010
($ in millions) The Securitization Intercompany Redwood
Redwood Fund Entities Adjustments Consolidated
Interest income $ 18 $ 1 $ 31 $ - $ 50
Net discount
(premium)
amortization 9 1 (2) - 8
Total interest
income 27 2 29 - 58
Management fees 1 - - (1) -
Interest expense (1) - (17) - (18)
Net interest
income 27 2 12 (1) 40
Provision for
loan losses - - (9) - (9)
Market valuation
adjustments, net (3) - (8) - (11)
Net interest
income after
provision 24 2 (5) (1) 20
and market
valuation
adjustments
Operating
expenses (17) (1) - 1 (17)
Realized gains,
net 38 (1) 7 - 44
Income from the
Fund and
Securitization
Entities 2 - - (2) -
Noncontrolling
interest - - - - -
Benefit from
income taxes - - - - -
Net income $ 47 $ - $ 2 $ (2) $ 47
REDWOOD TRUST, INC.
Consolidating
Balance Sheet
March 31, 2010
($ in millions) The Securitization Intercompany Redwood
Redwood Fund Entities Adjustments Consolidated
Real estate loans $ 2 $ - $ 3,660 $ - $ 3,662
Real estate
securities, at fair
value:
Trading securities 20 - 269 - 289
Available-for-sale
securities 820 27 - - 847
Other investments - - 11 - 11
Cash and cash
equivalents 242 - - - 242
Investment in the
Fund 16 - - (16) -
Investment in
Securitization
Entities 78 - - (78) -
Total earning assets 1,178 27 3,940 (94) 5,051
Other assets 23 3 118 - 144
Total Assets $ 1,201 $ 30 $ 4,058 $ (94) $ 5,195
Short-term debt $ - $ - $ - $ - $ -
Other liabilities 63 1 143 - 207
Asset-backed
securities issued - - 3,837 - 3,837
Long-term debt 140 - - - 140
Total liabilities 203 1 3,980 - 4,184
Stockholders’
equity 998 12 78 (94) 994
Noncontrolling
interest - 17 - - 17
Total equity 998 29 78 (94) 1,011
Total Liabilities
and Equity $ 1,201 $ 30 $ 4,058 $ (94) $ 5,195
REDWOOD TRUST, INC.
Tax / GAAP Differences
Three Months Ended March 31, 2010*
(In Millions, Except per Share Data)
Tax GAAP Differences
Interest income $ 37 $ 58 $ (21)
Interest expense (1) (18) 17
Net Interest Income 36 40 (4)
Provision for loan losses - (9) 9
Realized credit losses (24) - (24)
Market valuation adjustments, net - (11) 11
Operating expenses (11) (17) 6
Realized gains, net - 44 (44)
Benefit from income taxes - - -
Less: Net loss attributable to noncontrolling
interest - - -
Net Income $ 1 $ 47 $ (46)
Estimated income (loss) per share $ 0.01 $ 0.58 $ (0.57)
* 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)
March 31, 2010
Management's
GAAP Estimate of Non-GAAP
As Reported Adjustments Economic Value
Cash and cash equivalents $ 242 $ $ 242
Real estate securities at
Redwood
Residential 830 830
Commercial 9 9
CDO 1 1
Subtotal real estate
securities 840 840
Investments in the Fund 16 16
Investments in Sequoia
entities 77 (29) (a) 48
Investments in Acacia
entities (b) 1 1
Total cash, securities and
investments 1,176 1,147
Long-term debt (140) 67 (c) (73)
Other assets/liabilities,
net (d) (38) (38)
Stockholders' Equity $ 998 $ 1,036
Book Value Per Share $ 12.84 $ 13.32
(a) Our investments in Sequoia entities consist predominately of interest-only securities, and, to a smaller extent, senior and subordinate securities issued by Sequoia entities. We calculated the $48 million estimate of economic value for these securities using the same valuation process that we follow to fair value our other real estate securities. In contrast, the $77 million of GAAP carrying value of these investments represents the difference between the assets and liabilities owned by the Sequoia entities.
(b) The GAAP carrying value and the fair value of our investments in Acacia entities 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 March 31, 2010, we had $140 million of long-term debt outstanding at an interest rate of LIBOR plus 225 basis points due in 2037. We calculated the $73 million estimate of economic value of this debt using the same valuation process used to fair value our other financial assets and liabilities.
(d) Other assets/liabilities, net are comprised of $2 million of real estate loans, $4 million of accrued interest receivable, and $19 million of other assets, less dividends payable of $19 million and accrued interest and other liabilities of $44 million (which includes $33 million for pending acquisitions).
* This table presents supplemental non-GAAP components of book value at March 31, 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 March 31, 2010.
REDWOOD TRUST, INC.
Sources and Uses of Cash*
(In Millions)
Three Months Ended
March 31, 2010 December 31, 2009
Beginning cash balance $ 243 $ 217
Business cash flow:
Cash flow from investments 193 134
Asset management fees 1 1
Operating expenses (16) (11)
Interest expense on long-term debt (1) (1)
Total business cash flow 177 123
Other sources and uses:
Changes in working capital (2) (9)
Acquisitions** (156) (68)
Dividends (20) (20)
Net other uses (178) (97)
Net sources of cash (1) 26
Ending cash balance $ 242 $ 243
* 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 first quarter 2010 were $189 million, of which $33 million of these acquisitions were settled in early April. In the fourth quarter of 2009, all acquisitions settled within the period.
SOURCE Redwood Trust, Inc.
Released May 5, 2010