Redwood Trust Reports Second Quarter 2009 Results
MILL VALLEY, Calif., Aug. 5 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the second quarter of 2009 of $7 million, or $0.10 per share. This compares to a net loss of $35 million, or $0.65 per share, for the first quarter of 2009, and a net loss of $46 million, or $1.40 per share, for the second quarter of 2008.
Redwood estimated that it incurred a taxable loss of $12 million, or $0.16 per share, during the second quarter of 2009. This compares to an estimated taxable loss of $14 million, or $0.22 per share, for the first quarter of 2009, and estimated taxable income of $4 million, or $0.11 per share, for the second quarter of 2008.
Key metrics are highlighted below:
-- Investment cash flow increased to $64 million, up from $57 million in
the first quarter of 2009, and business cash flow after operating and
interest expenses increased to $55 million, compared to $45 million in
the prior quarter;
-- GAAP book value per share at the end of the second quarter was $10.35
per share, an increase of $1.95 or 23%, from the end of the first
quarter, and economic book value per share increased to $11.30, up $1.29
or 13%, from the end of the prior quarter; and
-- $341 million was invested during the second quarter and an additional
$158 million was invested in July, primarily in selected seasoned senior
RMBS, bringing total capital invested thus far in 2009 to $597 million.
Please see the tables that follow for reconciliations between GAAP and non-GAAP metrics. Additional information on Redwood's business and financial results and on non-GAAP metrics is available in its Quarterly Report on Form 10-Q for the three months ended June 30, 2009 which was filed today with the Securities and Exchange Commission. The Form 10-Q is available on Redwood's website at www.redwoodtrust.com.
The accounting concepts and disclosures relating to our financial statements are complex. Today, the company also released the Redwood Review covering the second quarter of 2009. The Redwood Review is an additional publication that provides information about the company. The Redwood Review is available on the company's website 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, 2008, and in our Quarterly Report on Form 10-Q for the three months ended June 30, 2009, in each case under the caption under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are described below and 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.
Important factors, among others, that may affect our actual results include: changes in interest rates; changes in mortgage prepayment rates; the timing of credit losses within our portfolio; our exposure to adjustable-rate and negative amortization mortgage loans; the state of the credit markets and other general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the concentration of the credit risks we are exposed to; the ability of counterparties to satisfy their obligations to us; legislative and regulatory actions affecting the mortgage industry or our business; the availability of high quality assets for purchase at attractive prices; declines in home prices and commercial real estate prices; increases in mortgage payment delinquencies; changes in the level of liquidity in the capital markets which may adversely affect our ability to finance our real estate asset portfolio; changes in liquidity in the market for real estate securities, the re-pricing of credit risk in the capital markets, inaccurate ratings of securities by rating agencies, rating agency downgrades of securities, and increases in the supply of real estate securities available-for-sale, each of which may adversely affect the values of securities we own; the extent of changes in the values of securities we own and the impact of adjustments reflecting those changes on our income statement and balance sheet, including our stockholders' equity; our ability to maintain the positive stockholders' equity necessary to enable us to pay the dividends required to maintain our status as a real estate investment trust for tax purposes; our ability to generate the amount of cash flow we expect from our investment portfolio; changes in our investment, financing, and hedging strategies and the new risks that those changes may expose us to; changes in the competitive landscape within our industry, including changes that may affect our ability to retain or attract personnel; our failure to manage various operational risks associated with our business; our failure to maintain appropriate internal controls over financial reporting; our failure to properly administer and manage our securitization entities; risks we may be exposed to if we expand our business activities, such as risks relating to significantly increasing our direct holdings of loans; limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940; our ability to successfully invest our cash available for investment and raise additional capital to fund our investing activity; and other factors not presently identified.
REDWOOD TRUST, INC.
Consolidated Income
Statement
-------------------
($ in millions, except Second First Fourth Third Second
share data) Quarter Quarter Quarter Quarter Quarter
2009 2009 2008 2008 2008
---- ---- ---- ---- ----
Interest income $74 $82 $123 $131 $137
Interest expense (39) (48) (99) (92) (98)
--- --- --- --- ---
Net interest income 35 34 24 39 39
Provision for loan
losses (15) (16) (19) (18) (10)
Market valuation
adjustments, net (29) (43) (111) (127) (60)
--- --- ---- ---- ---
Net interest loss after
provision and
market valuation
adjustments (9) (25) (106) (106) (31)
Operating expenses (11) (11) (14) (17) (15)
Realized gains, net 26 - 6 - 3
Benefit from (provision
for) income taxes 1 - (4) 10 (1)
--- --- --- --- ---
Net income (loss) 7 (36) (118) (113) (44)
Less: Net (loss) income
attributable to
noncontrolling interest - (1) (2) (2) 2
--- --- --- --- ---
GAAP net income (loss) $7 $(35) $(116) $(111) $(46)
=== ==== ===== ===== ====
Average diluted shares
(thousands) 66,446 53,632 33,366 33,334 32,871
GAAP earnings (loss)
per share (diluted) $0.10 $(0.65) $(3.46) $(3.34) $(1.40)
Regular dividends
declared per common
share $0.25 $0.25 $0.75 $0.75 $0.75
REDWOOD TRUST, INC.
Consolidated Income Statement
----------------------------- Six Months Ended
($ in millions, except share data) June 30,
2009 2008
---- ----
Interest income $156 $313
Interest expense (87) (225)
--- ----
Net interest income 69 88
Provision for loan losses (31) (18)
Market valuation adjustments, net (72) (254)
--- ----
Net interest loss after provision and
market valuation adjustments (34) (184)
Operating expenses (22) (31)
Realized gains, net 26 3
Benefit from (provision for) income taxes 1 (3)
--- ---
Net loss (29) (215)
Less: Net (loss) income attributable to
noncontrolling interest (1) 2
--- ---
GAAP net loss $(28) $(217)
==== =====
Average diluted shares (thousands) 59,138 32,691
GAAP earnings (loss) per share (diluted) $(0.48) $(6.65)
Regular dividends declared per common share $0.50 $1.50
REDWOOD TRUST, INC.
Consolidated Balance Sheet
-------------------------- 30-Jun 31-Mar 31-Dec 30-Sep 30-Jun
($ in millions, except share data) 2009 2009 2008 2008 2008
---- ---- ---- ---- ----
Real estate loans $3,966 $4,541 $4,659 $6,101 $6,377
Real estate securities, at fair value:
Trading securities 253 264 340 574 841
Available-for-sale securities 551 255 233 288 400
Other investments 47 62 78 79 79
Cash and cash equivalents 337 333 126 177 148
Other assets 131 126 146 155 201
--- --- --- --- ---
Total Assets $5,285 $5,581 $5,582 $7,374 $8,046
Short-term debt $- $- $- $7 $9
Other liabilities 185 198 252 167 166
Asset-backed securities issued -
Sequoia 3,843 4,418 4,508 5,930 6,175
Asset-backed securities issued -
Acacia 287 291 347 673 935
Long-term debt 150 150 150 150 150
--- --- --- --- ---
Total liabilities 4,465 5,057 5,257 6,927 7,435
Stockholders' equity 802 506 302 412 564
Noncontrolling interest 18 18 23 35 47
--- --- --- --- ---
Total equity 820 524 325 447 611
------ ------ ------ ------ ------
Total Liabilities and Equity $5,285 $5,581 $5,582 $7,374 $8,046
====== ====== ====== ====== ======
Shares outstanding at period end
(thousands) 77,503 60,228 33,471 33,238 33,184
GAAP book value per share $10.35 $8.40 $9.02 $12.40 $17.00
REDWOOD TRUST, INC.
Consolidating Income Statement
------------------------------
Three Months Ended June 30, 2009
Inter-
($ in millions) company Redwood
The Adjust- Consoli-
Redwood Fund Sequoia Acacia ments dated
--------- ------ --------- -------- -------- ---------
Interest income $18 $1 $34 $22 $(1) $74
Net discount
(premium)
amortization 3 $1 (4) - - $-
--- --- --- --- --- ---
Total interest
income 21 2 30 22 (1) 74
Management fees 1 $- - - (1) -
Interest
expense (2) $- (23) (16) 2 (39)
--- --- --- --- --- ---
Net interest
income $20 $2 $7 $6 $- $35
Provision for
loan losses - - (15) - - (15)
Market
valuation
adjustments,
net (32) (1) (1) 5 - (29)
--- --- --- --- --- ---
Net interest
(loss) income
after provision
and market
valuation
adjustments (12) 1 (9) 11 - (9)
Operating
expenses (11) - - - - (11)
Realized
gains, net 7 - 19 - - 26
Income from
the Fund,
Sequoia, and
Acacia 22 - - - (22) -
Noncontrolling
interest - - - - - -
Benefit from
(provision
for) income
taxes 1 - - - - 1
--- --- --- --- --- ---
Net income
(loss) $7 $1 $10 $11 $(22) $7
=== === === === ==== ===
Consolidating Income Statement
------------------------------
Six Months Ended June 30, 2009
Inter-
($ in millions) company Redwood
The Adjust- Consoli-
Redwood Fund Sequoia Acacia ments dated
--------- ------ --------- -------- -------- ---------
Interest income $43 $4 68 45 - $160
Net discount
(premium)
amortization (1) 1 (4) - - (4)
--- --- --- --- --- ---
Total interest
income 42 5 64 45 - 156
Management fees 2 $- - - (2) -
Interest
expense (3) $- (48) (37) 1 (87)
--- --- --- --- --- ---
Net interest
income $41 $5 $16 $8 $(1) $69
Provision for
loan losses - - (31) - - (31)
Market
valuation
adjustments,
net (58) (5) (2) (7) - (72)
--- --- --- --- --- ---
Net interest
(loss) income
after provision
and market
valuation
adjustments (17) - (17) 1 (1) (34)
Operating
expenses (22) - - - - (22)
Realized
gains, net 7 - 19 - - 26
Income from
the Fund,
Sequoia, and
Acacia 3 - - - (3) -
Noncontrolling
interest - 1 - - - 1
Benefit from
(provision
for) income
taxes 1 - - - - 1
--- --- --- --- --- ---
Net (loss)
income $(28) $1 $2 $1 $(4) $(28)
==== === === === === ====
REDWOOD TRUST, INC.
Consolidating Balance Sheet
---------------------------
June 30, 2009
Inter-
($ in millions) company Redwood
The Adjust- Consoli-
Redwood Fund Sequoia Acacia ments dated
-------- ----- -------- ------- -------- --------
Real estate
loans $3 $- $3,955 $8 $- $3,966
Real estate securities,
at fair value:
Trading securities 4 - - 249 - 253
Available-for-sale
securities 513 38 - 55 (55) 551
Other investments - - - 47 - 47
Cash and cash
equivalents 337 - - - - 337
Investment in the
Fund 22 - - - (22) -
Investment in Sequoia 82 - - - (82) -
Investment in Acacia 4 - - - (4) -
--- --- --- --- --- ---
Total earning
assets 965 38 3,955 359 (163) 5,154
Other assets 22 4 27 78 - 131
--- --- --- --- --- ---
Total Assets $987 $42 $3,982 $437 $(163) $5,285
==== === ====== ==== ===== ======
Short-term debt $- $- $- $- $- $-
Other liabilities 35 2 2 146 - 185
Asset-backed
securities issued -
Sequoia - - 3,898 - (55) 3,843
Asset-backed
securities issued -
Acacia - - - 287 - 287
Long-term debt 150 - - - - 150
--- --- --- --- --- ---
Total liabilities 185 2 3,900 433 (55) 4,465
Stockholders' equity 802 22 82 4 (108) 802
Noncontrolling
interest - 18 - - - 18
--- --- --- --- --- ---
Total equity 802 40 82 4 (108) 820
---- --- ------ ---- ----- ------
Total Liabilities
and Equity $987 $42 $3,982 $437 $(163) $5,285
==== === ====== ==== ===== ======
REDWOOD TRUST, INC.
GAAP and Taxable (Loss)
Income Differences
-----------------------
($ in millions, except Second First Fourth Third Second
share data) Quarter Quarter Quarter Quarter Quarter
2009 2009 2008 2008 2008
---- ---- ---- ---- ----
GAAP net income (loss) $7 $(35) $(116) $(111) $(46)
Difference in taxable
(loss) income calculations
---------------------------
Amortization and credit
losses (41) (22) (1) (7) (10)
Operating expenses 1 - (1) 3 1
Realized gains, net - - (5) - (3)
Market valuation
adjustments, net 22 43 111 127 61
Provision for income
taxes (1) - 4 (10) 1
-- --- --- --- ---
Total differences in
GAAP and taxable (loss)
income (19) 21 108 113 50
---- ---- --- --- ---
Taxable (loss) income $(12) $(14) $(8) $2 $4
==== ==== === === ===
Taxable (loss) income
per share $(0.16) $(0.22) $(0.25) $0.07 $0.11
REDWOOD TRUST, INC.
GAAP and Taxable (Loss) Income
Differences
------------------------------ Six Months Ending
($ in millions, except share data) June 30,
2009 2008
---- ----
GAAP net loss $(28) $(217)
Difference in taxable
(loss) income calculations
---------------------------
Amortization and credit losses (63) (9)
Operating expenses 1 2
Realized gains, net - (3)
Market valuation adjustments, net 65 254
Provision for income taxes (1) 3
--- ---
Total differences in GAAP and taxable
(loss) income 2 247
---- ---
Taxable (loss) income $(26) $30
==== ===
Taxable (loss) income per share $(0.38) $0.72
REDWOOD TRUST, INC.
Book Value Per Share
The following supplemental non-GAAP components of book value addresses our assets and liabilities at June 30, 2009, 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 estimated economic value is calculated using bid-side asset marks and offer-side marks for our financial liabilities, as required to determine fair value under GAAP. This method of calculating economic value more closely represents liquidation value and does not represent the higher amount we would have to pay at the offered-side to replace our existing assets. For additional information to consider when reviewing the following supplemental non-GAAP components of book value, please see "Factors Affecting Management's Estimate of Economic Value" in our Quarterly Report on Form 10-Q for the period ending June 30, 2009.
June 30, 2009
-------------
Management's
As Estimate of
(In Millions, Except per Reported Economic
Share Data) (GAAP) Adjustments Value
-------- ----------- -----
Cash and cash equivalents $337 $ $337
Real estate securities at Redwood
Residential 499 499
Commercial 16 16
CDO 2 2
--- ---
Subtotal real estate securities 517 517
Investments in the Fund 22 22
Investments in Sequoia 82 (26) (a) 56
Investments in Acacia 4 1 (b) 5
--- ---
Total securities and investments 625 600
Long-term debt (150) 99 (c) (51)
Other assets/liabilities, net (d) (10) (10)
--- ---
Stockholders' Equity $802 $876
==== ====
Book Value Per Share $10.35 $11.30
------ ------
(a) Our Sequoia investments consist of senior and subordinate securities
and interest-only securities issued by Sequoia entities. We calculated the
$56 million estimate of economic value for these securities using the same
valuation process that we followed to fair value our other real estate
securities. In contrast, the $82 million of GAAP carrying value of these
investments represents the difference between residential real estate
loans owned by the Sequoia entities and the asset-backed securities (ABS)
issued by these entities to third-party investors. Under GAAP, we account
for these loans and ABS issued at cost.
(b) Our $5 million estimate of economic value represents the fair value
of our investment in ABS issued by Acacia using the same valuation
process we followed to value our other real estate securities, plus the
net present value of projected cash flows from our Acacia management
fees. In contrast, the $4 million of GAAP carrying value of these
investments represents the difference between real estate securities
owned by the Acacia entities and the ABS issued by these entities to
third-party investors. Under GAAP, we account for these securities and
ABS issued at fair value.
(c) As of June 30, 2009, we had $150 million of 30-year long-term debt
that matures in 2037 at an interest rate of LIBOR plus 225 basis
points. Under GAAP, this debt is carried at cost. Economic value can be
difficult to estimate due to a generally inactive trading market for this
debt. In July 2009, we repurchased $10 million of this debt at a market
price equal to 34% of face value and utilized this price to calculate our
$51 million estimate of economic value.
(d) Other assets/liabilities, net are comprised of $3 million of real
estate loans, $2 million of deferred taxes, $7 million of accrued
interest receivable, and $13 million of other assets, less dividends
payable of $19 million and accrued interest and other liabilities of
$16 million.
REDWOOD TRUST, INC.
Sources and Uses of Cash
Our quarterly sources and uses of our cash is one of the financial metrics on which we focus. Therefore, as a supplement to the Consolidated Statement of Cash Flows in our Quarterly Report on Form 10-Q for the period ending June 30, 2009, we show in the table below (i) the beginning cash balance at March 31, 2009 and the ending cash balance at June 30, 2009, which are GAAP amounts, and (ii) the components of sources and uses of cash organized in a manner consistent with the way management analyzes them. The presentation of our sources and uses of cash for the second quarter of 2009 is derived by aggregating and netting all items within our GAAP Consolidated Statement of Cash Flows that were attributable to the second quarter of 2009.
Three Months Ended
June 30,
(In Millions) 2009
------------- -----
Beginning Cash Balance at 3/31/09 $333
Business cash flows:
Cash flow from investments 64
Asset management fees 1
Operating expenses (8)
Interest expense on long-term debt (2)
--
Total Business Cash Flows 55
Other sources and uses:
Proceeds from asset sales 57
Proceeds from equity issuance 238
Changes in working capital 4
Acquisitions (334)
Dividends paid (16)
---
Total Other Uses (51)
---
Net Sources of Cash 4
---
Ending Cash Balance at 6/30/09 $337
====
SOURCE Redwood Trust, Inc.
Released August 5, 2009