Redwood Trust Reports First Quarter 2011 Results
MILL VALLEY, Calif., May 5, 2011 /PRNewswire/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the first quarter of 2011 of $18 million, or $0.22 per fully diluted share. This compares to net income of $15 million, or $0.18 per fully diluted share, for the fourth quarter of 2010, and net income of $47 million, or $0.58 per fully diluted share, for the first quarter of 2010.
Redwood also reported estimated taxable income of $5 million, or $0.06 per share, during the first quarter of 2011. This compares to an estimated taxable loss of $6 million, or $0.07 per share, for the fourth quarter of 2010, and taxable income of $1 million, or $0.01 per share, for the first quarter of 2010.
At March 31, 2011, GAAP book value was $13.76 per share, an increase of $0.13 per share from December 31, 2010, and management's estimate of non-GAAP economic value was $14.45 per share, an increase of $0.14 per share from December 31, 2010.
During the first quarter of 2011, Redwood acquired $101 million of residential mortgage loans, originated $12 million of commercial loans, and acquired $13 million of residential securities. On March 1, 2011, Redwood's Sequoia securitization entity closed a $295 million residential mortgage-backed securitization. At March 31, 2011, cash and cash equivalents totaled $220 million.
Please see the tables that follow for reconciliations between GAAP and non-GAAP metrics. Additional information on Redwood's business, financial results, and non-GAAP metrics is available in The Redwood Review, which is available on Redwood's website at www.redwoodtrust.com, and in Redwood's most recent Quarterly Report on Form 10-Q, which is filed with the Securities and Exchange Commission, and which is also available on Redwood's website.
Cautionary Statement: This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "anticipate," "estimate," "will," "should," "expect," "believe," "intend," "seek," "plan" and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our most recent Annual Report on Form 10-K under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the Securities and Exchange Commission (SEC), including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
REDWOOD TRUST, INC.
Consolidated Income
Statements(1) First Fourth Third Second First
($ in millions, except share
data) Quarter Quarter Quarter Quarter Quarter
2011 2010 2010 2010 2010
Interest income $ 54 $ 56 $ 59 $ 56 $ 59
Interest expense (22) (22) (24) (21) (18)
Net interest income 32 34 35 35 41
Provision for loan losses (3) (8) (2) (4) (9)
Market valuation
adjustments, net (6) - (2) (7) (11)
Net interest income after
provision and 24 26 31 24 21
market valuation adjustments
Operating expenses (12) (13) (12) (11) (18)
Realized gains on sales and
calls, net 4 2 2 16 44
Provision for income taxes - - - - -
Net income 16 15 21 29 47
Less: Net (loss) income
attributable to
noncontrolling interest (2) - 1 - -
Net Income Attributable to
Redwood Trust, Inc. $ 18 $ 15 $ 20 $ 29 $ 47
Average diluted shares
(thousands) 79,372 78,944 78,961 78,852 78,542
Diluted earnings per share $ 0.22 $ 0.18 $ 0.25 $ 0.35 $ 0.58
Regular dividends declared
per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
(1) Certain totals may not foot due to rounding.
REDWOOD TRUST, INC. Consolidated Balance Sheets(1) 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar ($ in millions, except share data) 2011 2010 2010 2010 2010 Residential real estate loans $ 3,796 $ 3,797 $ 3,733 $ 3,790 $ 3,645 Commercial real estate loans 62 50 19 20 17 Real estate securities, at fair value: Trading securities 322 330 310 276 289 Available-for-sale securities 782 825 798 741 847 Other investments - - - 4 11 Cash and cash equivalents 220 47 189 288 242 Other assets 101 95 113 100 144 Total Assets $ 5,283 $ 5,144 $ 5,162 $ 5,219 $ 5,195 Short-term debt $ - $ 44 $ - $ - $ - Other liabilities 104 123 163 142 207 Asset-backed securities issued - Sequoia entities 3,646 3,458 3,568 3,681 3,557 Asset-backed securities issued - Acacia entities 311 303 264 253 280 Long-term debt 140 140 140 140 140 Total liabilities 4,201 4,068 4,135 4,216 4,184 Stockholders’ equity 1,075 1,065 1,016 991 998 Noncontrolling interest 7 11 11 12 13 Total equity 1,082 1,076 1,027 1,003 1,011 Total Liabilities and Equity $ 5,283 $ 5,144 $ 5,162 $ 5,219 $ 5,195 Shares outstanding at period end (thousands) 78,139 78,125 77,984 77,908 77,751 GAAP book value per share $ 13.76 $ 13.63 $ 13.02 $ 12.71 $ 12.84 (1) Certain totals may not foot due to rounding.
REDWOOD TRUST,
INC.
Consolidating
Income Statement
(1)
Three Months Ended
March 31, 2011 Other
($ in millions) Redwood New Consolidated Intercompany Redwood
(Parent) Sequoia Entities Adjustments Consolidated
Interest income $ 16 $ 3 $ 25 $ - $ 43
Net discount
(premium)
amortization 12 - (1) - 11
Total interest
income 28 3 24 - 54
Interest expense (3) (2) (17) - (22)
Net interest
income 26 0 6 - 32
Provision for loan
losses - - (3) - (3)
Market valuation
adjustments, net 1 - (7) - (6)
Net interest
income (loss)
after provision
and market
valuation
adjustments 26 0 (3) - 24
Operating expenses (11) - (0) - (12)
Realized gains
(losses) on sales
and calls, net 7 - (3) - 4
Income from New
Sequoia 0 - - (0) -
Loss from Other
Consolidated
Entities (4) - - 4 -
Noncontrolling
interest - - 2 - 2
Provision for
income taxes - - - - -
Net Income (Loss) $ 18 $ 0 $ (4) $ 4 $ 18
(1) This table presents the estimated effect of Redwood, New Sequoia, and our
Other Consolidated Entities on our consolidated GAAP Statement of Income for
the three months ended March 31, 2011. The allocation of income and expense
between these entities is consistent with the manner in which management
analyzes them. Certain totals may not foot due to rounding.
REDWOOD TRUST,
INC.
Consolidating
Balance Sheet(1)
March 31, 2011 Other
($ in millions) Redwood New Consolidated Intercompany Redwood
(Parent) Sequoia Entities Adjustments Consolidated
Residential real
estate loans 55 $ 408 $ 3,333 $ - $ 3,796
Commercial real
estate loans 42 - 20 - 62
Real estate
securities, at
fair value:
Trading securities 21 - 301 - 322
Available-for-sale
securities 767 - 15 - 782
Cash and cash
equivalents 220 - - - 220
Investment in New
Sequoia 39 - - (39) -
Investment in
Other Consolidated
Entities 71 - - (71) -
Total earning
assets 1,215 408 3,669 (110) 5,182
Other assets 34 4 63 - 101
Total Assets $ 1,249 $ 412 $ 3,732 $ (110) $ 5,283
Short-term debt $ - $ - $ - $ - $ -
Other liabilities 34 - 70 - 104
Asset-backed
securities issued - 373 3,584 - 3,957
Long-term debt 140 - - - 140
Total liabilities 174 373 3,654 - 4,201
Stockholders’
equity 1,075 39 71 (110) 1,075
Noncontrolling
interest - - 7 - 7
Total equity 1,075 39 78 (110) 1,082
Total Liabilities
and Equity $ 1,249 $ 412 $ 3,732 $ (110) $ 5,283
(1) This table presents the estimated effect of Redwood, New Sequoia, and our
Other Consolidated Entities on our GAAP Consolidated Balance Sheet at March 31,
2011. The allocation of assets and liabilities between these entities is
consistent with the manner in which management analyzes them. Certain totals
may not foot due to rounding.
REDWOOD TRUST, INC.
Tax / GAAP Differences(1)
Three Months Ended March 31, 2011
($ in millions, except per share data)
Tax GAAP Differences
Interest income $ 34 $ 54 $ (20)
Interest expense (3) (22) 19
Net Interest Income 31 32 (1)
Provision for loan losses - (3) 3
Realized credit losses (15) - (15)
Market valuation adjustments, net - (6) 6
Operating expenses (11) (12) 1
Realized gains on sales and calls, net - 4 (4)
Provision for income taxes - - -
Less: Net loss attributable to noncontrolling
interest - (2) 2
Net Income $ 5 $ 18 $ (13)
Estimated income per share $ 0.06 $ 0.22 $ (0.16)
(1) Certain totals may not foot due to rounding.
REDWOOD TRUST, INC.
Book Value Per Share and Management's Estimate of
Non-GAAP Economic Value Per Share(1)
($ in millions,
except per share
data)
March 31, 2011
Components of GAAP Estimate of Non-GAAP
Book Value Adjustments Economic Value
Cash and cash
equivalents $ 220 $ $ 220
Real estate loans at
Redwood
Residential 55 55
Commercial 42 42
Subtotal real estate
loans 97 97
Real estate
securities at Redwood
Residential 780 780
Commercial 7 7
CDO 1 1
Subtotal real estate
securities 788 788
Investments in
Sequoia entities 97 (4) (2) 93
Investments in Acacia
entities 2 (1) (3) 1
Investments in the
Fund 11 11
Other assets (5) 34 34
Total assets 1,249 1,244
Short-term debt - -
Long-term debt (140) 59 (4) (81)
Other liabilities (5) (34) (34)
Stockholders' Equity $ 1,075 $ 1,129
Book Value Per Share $ 13.76 $ 14.31
(1) This table presents supplemental components of book value at March 31, 2011. The components of GAAP book value are derived from our GAAP consolidated balance sheet and based upon the carrying values of the assets and liabilities at Redwood as well as the estimated net carrying values of our investments in consolidated entities, whose assets and liabilities are reported on our GAAP consolidated balance sheet. We show our investments in the Sequoia and Acacia entities and the Fund as separate line items to highlight our specific ownership interests, as the underlying assets and liabilities of these entities are legally not ours even though we are required to consolidate them for financial reporting purposes. Allocations between these entities for purposes of this presentation are consistent with the manner in which management analyzes them. Additional aggregated amounts are noted in footnote (5) below. The components of management’s estimate of non-GAAP economic value are based on the estimated fair values of the assets and liabilities at Redwood as well as the estimated fair values of our investments in consolidated entities and our long-term debt. Our estimated non‐GAAP 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 Quarterly Report on Form 10‐Q. Certain totals may not foot due to rounding. (2) Our investments in Sequoia entities consist of interest-only securities and senior and subordinate securities issued by Sequoia entities. We calculated the $93 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 estimate of carrying value of these investments represents the difference between the assets and liabilities owned by the Sequoia entities. (3) The estimated carrying value of our investments in Acacia entities was $2 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. (4) At March 31, 2011, 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 $81 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. (5) Other assets are comprised of $4 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 $14 million.
REDWOOD TRUST, INC.
Sources and Uses of Cash (1)
($ in millions)
Three Months Ended
March 31, 2011 December 31, 2010
Beginning cash balance $ 47 $ 189
Sources of cash(2)
Loans at Redwood 6 6
Proceeds from securitization 296 -
Securities at Redwood - principal and
interest
Residential senior 33 42
Residential Re-REMIC 2 2
Residential subordinate 9 8
Commercial and CDO - 1
Sales of securities(3) 30 -
Investments in Consolidated Entities(1) 15 11
Short-term debt financing - 44
Derivative margin returned, net 3 26
Changes in working capital 3 3
Total sources of cash 397 143
Uses of cash
Acquisitions of residential loans (101) (195)
Origination of commercial loans (12) (30)
Acquisitions of securities(4) (13) (29)
Investment in New Sequoia (15) -
Short-term debt repayment (44) -
Cash operating expenses (17) (9)
Interest expense on long-term debt (2) (2)
Dividends (20) (20)
Total uses of cash (224) (285)
Net sources (uses) of cash 173 (142)
Ending Cash Balance $ 220 $ 47
(1) 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. Certain totals may not foot due to rounding. (2) Cash flow from securities and investments can be volatile from quarter to quarter depending on the level of invested capital, the timing of credit losses, acquisitions, sales, and changes in prepayments and interest rates. Therefore, (i) cash flow generated by these investments is not necessarily reflective of the long-term economic yield we will earn on the investments in a given period; and, (ii) it is difficult to determine what portion of the cash received from an investment is a return “of” principal and what portion is a return “on” principal in a given period. (3) Total sales of securities in the first quarter of 2011 were $35 million. Securities sales of $5 million made in the first quarter that did not settle until early April are not reflected in this table. (4) Total acquisitions of securities in the fourth quarter of 2010 were $26 million. Securities acquisitions of $3 million made in the third quarter that settled in October are also reflected in this table.
SOURCE Redwood Trust, Inc.
Released May 5, 2011