MILL VALLEY, Calif.--(BUSINESS WIRE)--May 3, 2005--Redwood Trust,
Inc. (NYSE:RWT) today reported GAAP earnings of $61 million ($2.42 per
share) for the first quarter of 2005.
Our core earnings were $1.82 per share for the first quarter, an
increase of 6% relative to first quarter 2004 core earnings of $1.71
per share but a slight decrease from fourth quarter 2004 core earnings
of $1.86 per share. Core earnings exclude gains and losses from asset
sales, calls, and market value changes that are included in reported
GAAP earnings. We believe core earnings can be a meaningful measure of
Redwood's financial performance in addition to reported GAAP results
because core earnings highlights that portion of our reported earnings
that is more likely to be ongoing in nature. A reconciliation of our
core earnings to GAAP earnings appears in the tables below.
Redwood declared dividends of $0.70 per share for the first
quarter of 2005.
Doug Hansen, Redwood's President, said, "Our portfolio of
high-quality real estate assets continues to produce strong cash flows
and earnings, and real estate credit trends remain favorable."
Hansen continued, "As noted in the past, we expect our quarterly
core earnings per share results will most likely decline somewhat
during 2005 as our highest yielding assets from the past pay down or
are called away."
"We are continuing to face increased levels of competition for
asset acquisitions at a time when the supply of new high-quality real
estate loan originations is declining," said Hansen. "We were able to
source a reasonable amount of attractive new assets for our permanent
asset portfolio during the first quarter, although our acquisition
rate is slowing. Given current market conditions, we expect that our
rate of asset acquisition will continue to decline."
"We have a material amount of cash that is not yet invested,"
Hansen continued. "In addition, we are actively working on a number of
additional asset sales and capital recycling opportunities that could
generate more cash. We are willing to hold this cash while looking
patiently for attractive long-term high-quality investment
opportunities. Even if current market conditions persist, we do expect
to invest our unutilized cash over time and to continue to grow by
employing capital in both new and existing products. Accordingly, we
are continuing to make significant new investments in staff,
infrastructure, and information technologies."
"We expect our assets will continue to generate strong cash
flows," said Hansen. "We expect to continue to post results and pay
dividends that are attractive on an absolute basis, so long as real
estate credit results for high-quality residential and commercial real
estate loans are reasonably favorable."
Review of the First Quarter of 2005
From the fourth quarter of 2004 to the first quarter of 2005, GAAP
return on equity rose slightly from 25.0% to 27.0% and core return on
equity declined slightly from 23.5% to 22.9%. Our use of "core equity"
is described below.
Redwood's estimated total taxable income (pre-tax income as
calculated according to the tax rules) was $1.89 per share for the
first quarter of 2005, $2.46 for the fourth quarter of 2004, and $2.57
per share for the first quarter of 2004. Estimated REIT taxable income
(which excludes income earned in taxable non-REIT subsidiaries) was
$1.84 per share for the first quarter of 2005, $2.09 per share for the
fourth quarter of 2004, and $2.15 per share for the first quarter of
2004.
Permanent assets are the assets we own and hold in portfolio for
the long term to earn interest income and to benefit from asset
appreciation and call gains. Redwood's total permanent asset
acquisitions for the first quarter were $50 million, including $0.5
million residential credit-enhancement securities (CES) and $0.5
million interest-only (IO) securities acquired from Sequoia
residential securitizations we sponsored, $21 million residential
credit-enhancement securities (CES) acquired from securitizations
sponsored by others, $14 million commercial real estate CES, $3
million commercial real estate loans, and $11 million collateralized
debt obligation (CDO) equity securities acquired from the $300 million
Acacia CDO 7 securitization we sponsored during the first quarter.
Permanent asset acquisitions for the four quarters of 2004 were $54
million, $80 million, $75 million, and $64 million, respectively.
Redwood's asset acquisitions from Sequoia and Acacia securitizations
do not appear as assets on our Consolidated Balance Sheets as these
securitizations are accounted for as financings for GAAP purposes.
We sold $27 million (market value) permanent assets during the
first quarter of 2005, generating GAAP gains of $8 million and
estimated tax gains of $7 million. An additional $14 million permanent
assets were called during the first quarter, generating GAAP gains of
$8 million and estimated tax gains of $6 million. GAAP gains from
these sales and calls represent the primary difference between GAAP
and core earnings for the first quarter.
Total permanent assets increased by 6% (from $626 million to $660
million) during the first quarter as a net result of $50 million new
acquisitions, $32 million market value appreciation, and $11 million
net discount amortization income accruals, offset by $40 million sales
(including $13 million of sales to Acacia CDO 7), $7 million calls,
and $12 million principal pay downs.
During the first quarter of 2005, we sponsored two Sequoia
securitizations (Sequoia 2005-1 and Sequoia 2005-2), securitizing $767
million high-quality residential real estate loans. On average during
2004, we sponsored the securitization of $2.4 billion residential
loans per quarter. Our residential loan securitization volume and our
securitization margin (the gain-on-sale we generate for tax purposes
in our taxable non-REIT subsidiaries when we sponsor a residential
securitization) have declined. A flatter yield curve (higher
short-term interest rates relative to longer-term interest rates) has
reduced homeowner interest in the short-term adjustable rate loans
(ARMs) we have been acquiring for sale to Sequoia. In addition,
homeowners have increasingly favored competing short-term ARM products
(negative amortization option ARMs and Moving Treasury Average ARMs),
reducing interest in our core LIBOR-index ARM product. Our
securitization margins have declined due to increased demand from
banks for whole loans for their portfolios and increased
securitization competition from Wall Street firms and others. We
expect that our taxable income gains from securitization in 2005 will
be substantially reduced from the $32 million taxable income gains we
earned in 2004. The securitizations we sponsor are treated as
financings for GAAP purposes, so no gain or loss on the sale of
accumulated securitization assets to securitization entities is
recorded in our GAAP statements.
As a result of sales of residential CES and prepayments within the
loan pools underlying the CES we own, total residential real estate
credit managed by Redwood increased only slightly to $152 billion at
the end of the first quarter from $149 billion at year-end. Seriously
delinquent loans (over 90 days, in foreclosure, in bankruptcy, or real
estate owned) within Redwood's managed residential loans increased
during the first quarter while remaining at low levels. Serious
delinquencies were $217 million (0.14% of loan balances) at
quarter-end and $164 million (0.11% of loan balances) at the beginning
of the quarter. One year ago, serious delinquencies were $146 million
(0.16% of loan balances of $89 billion).
Credit losses for Redwood's managed residential loans were $1.4
million for the first quarter, $0.7 million for the fourth quarter of
2004, and $0.1 million for the first quarter of 2004. Our residential
credit loss rates remain under one basis point (0.01%) of loan
balances on an annual basis.
At March 31, 2005, Redwood credit-enhanced (assumed first-loss
credit risk on) $13 billion commercial real estate loans. Serious
delinquencies on these loans at quarter-end totaled $5 million (0.04%
of loan balances), and there were no commercial credit losses during
the quarter.
Credit results for the remainder of our permanent assets were also
strong during the first quarter of 2005.
During the quarter, interest rates rose, the yield curve
flattened, prepayment rates for the adjustable-rate residential loans
underlying our residential CES and IO securities (including assets
acquired from Sequoia) increased, and prepayment rates for fixed-rate
and hybrid residential loans underlying our residential CES decreased.
We believe our balance sheet and operations are well balanced with
respect to changes in interest rates and prepayment rates, and that
there has been no major effect of these current trends on our results
and cash flows.
Operating expenses (before excise taxes and variable stock option
expense, but including FAS123 expenses for the granting of stock
options) for the first quarter of 2005 were $10.7 million and our
efficiency ratio (operating expenses as a percent of net interest
income) was 18%. In the first quarter of 2004, operating expenses were
$8.3 million and our efficiency ratio was also 18%. From the first
quarter of 2004 to the first quarter of 2005, our operating expenses
grew by 30% while our business (as measured by the size of our
permanent asset portfolio) grew by 64%.
Redwood continues to use only equity capital (no debt) to fund its
permanent assets. We utilize debt only to fund assets accumulated and
held temporarily as inventory for sale to future securitizations.
At March 31, 2005, the assets Redwood owns (excluding assets owned
by securitization entities that are consolidated for GAAP) included
permanent assets of $660 million, assets held temporarily as inventory
for sale to future securitizations of $379 million, unrestricted cash
of $65 million, interest rate agreements of $28 million, and net
working capital and fixed assets of $43 million, for a total of $1.1
billion. These assets were funded with Redwood debt of $199 million
and equity of $948 million. Our debt-to-capital ratio was 17% and our
debt-to-equity ratio was 0.2X.
Redwood issued 344,755 new common shares through its Direct Stock
Purchase and Dividend Reinvestment Plan in the first quarter at an
average net price to Redwood of $55.83 per share, raising $19 million
new equity capital.
At quarter-end, after setting aside the capital we need to run our
current business under our risk-adjusted capital guidelines, and
setting aside cash equaling the estimated REIT taxable income we will
distribute as dividends prior to September 2006, we had $80 million of
excess cash available to invest in new permanent assets.
Reported GAAP book value per share at quarter-end was $38.67 per
share, an increase of 8% during the quarter. Adjusted core book value
per share at quarter-end was $31.03 per share, an increase of 4%
during the quarter. Core book value is reported GAAP book value less
unrealized asset market value appreciation. Adjusted core book value
is core book value less REIT taxable income earned that will need to
be distributed as dividends prior to September 2006. We believe
adjusted core equity is a good measure of the amount of capital we
have available in the long-term to run our business. A reconciliation
of adjusted core equity to GAAP equity appears in the tables below.
Update for the Second Quarter of 2005 (through May 2, 2005)
Permanent asset acquisitions completed during the second quarter
of 2005 to date have totaled $7 million, including $0.8 million
residential CES and $0.4 million IO securities acquired from the $365
million Sequoia 2005-3 residential securitization we sponsored in
April, and $6 million residential CES acquired from securitizations
sponsored by others. To date in the second quarter, we have not sold
permanent assets.
Our credit results have remained excellent during the second
quarter of 2005 to date.
Calls of residential CES were $7 million principal value in April,
generating estimated gains of $3 million for GAAP and $2 million for
tax.
Additional Information
Please see our supplemental information package, released today on
our web site (www.redwoodtrust.com) and included as an exhibit to our
Current Report on Form 8-K, for more information about the first
quarter of 2005. In addition, our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2005 contains additional information about
the first quarter.
As is our current practice, we plan to simultaneously release our
second quarter earnings release, Quarterly Report on Form 10-Q, and
supplemental information package. Our current plan is to release these
documents for the second quarter of 2005 no later than the SEC filing
deadline for our Quarterly Report on Form 10-Q of August 9, 2005.
Redwood Trust invests in, credit-enhances, and securitizes
residential and commercial real estate loans and securities. The
company is a leader in the real estate loan marketplace, with assets
backed by $151 billion of residential real estate loans, representing
approximately 10% of the U.S. jumbo residential real estate loan
market.
CAUTIONARY STATEMENT
This press release contains forward-looking statements within the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Statements that are not historical in nature, including the
words "anticipated," "estimated," "should," "expect," "believe,"
"intend," and similar expressions, are intended to identify
forward-looking statements. These forward-looking statements are
subject to risks and uncertainties, including, among other things,
those described in our 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 are
detailed from time to time in reports filed by us with the Securities
and Exchange Commission, or SEC, including Forms 10-Q and 8-K.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise. In light of these risks, uncertainties,
and assumptions, the forward-looking events mentioned, or discussed
in, this press release might not occur. Accordingly, our actual
results may differ from our current expectations, estimates, and
projections.
Important factors that may impact our actual results include
changes in interest rates and market values; changes in prepayment
rates; general economic conditions, particularly as they affect the
price of earning assets and the credit status of borrowers; the level
of liquidity in the capital markets as it affects our ability to
finance our real estate asset portfolio; and other factors not
presently identified. For a discussion of risk factors, readers should
review the section of our Annual Report on Form 10-K entitled "Risk
Factors." This press release contains statistics and other data that
in some cases have been obtained from, or compiled from information
made available, by servicers and other third-party service providers.
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
CONSOLIDATED INCOME STATEMENT 2005 2004 2004 2004 2004
------------------------------ ------- ------- ------- ------- -------
Interest Income $237.2 $205.2 $180.1 $138.0 $124.8
Interest Expense (176.0) (147.2) (114.8) (90.4) (79.5)
------------------------------ ------- ------- ------- ------- -------
Net Interest Income $61.2 $58.0 $65.3 $47.6 $45.3
Operating Expenses (10.7) (7.9) (8.0) (8.9) (8.3)
Net Recognized Gains (Losses)
and Valuation Adjustments 15.0 8.9 20.5 12.3 17.4
Variable Stock Option
(Expense) Income 0.1 (0.0) (0.2) 0.6 (1.4)
Excise Tax (Expense) Credit (0.3) 0.2 (0.3) (0.2) (0.3)
Provision For Income Taxes (4.7) (4.8) (5.0) (1.5) (1.9)
Reversal of Deferred Tax
Valuation Allowance 0.0 0.0 0.0 5.2 0.0
------- ------- ------- ------- -------
GAAP Earnings $60.6 $54.4 $72.3 $55.1 $50.8
Less: Net Recognized (Gains)
Losses and Valuation
Adjustments (15.0) (8.9) (20.5) (12.3) (17.4)
Less: Variable Stock Option
(Expense) Income (0.1) 0.0 0.2 (0.6) 1.4
Less: One Time Deferred Tax
(Benefit) 0.0 (0.0) (0.0) (5.2) 0.0
------------------------------ ------- ------- ------- ------- -------
Core Earnings (1) $45.5 $45.5 $52.0 $37.0 $34.8
Average Diluted Shares
(thousands) 25,021 24,491 22,728 21,325 20,399
GAAP Earnings per Share
(Diluted) $2.42 $2.22 $3.18 $2.58 $2.49
Core Earnings per Share (1) $1.82 $1.86 $2.29 $1.74 $1.71
Estimated Total Taxable Income
Per Share Outstanding $1.89 $2.46 $2.53 $3.35 $2.57
Estimated REIT Taxable Income
Per Share Outstanding $1.84 $2.09 $2.10 $2.81 $2.15
Dividends Per Common Share
(Regular) $0.70 $0.67 $0.67 $0.67 $0.67
Dividends Per Common Share
(Special) $0.00 $5.50 $0.00 $0.00 $0.50
------------------------------ ------- ------- ------- ------- -------
Total Dividends per Common
Share $0.70 $6.17 $0.67 $0.67 $1.17
GAAP Net Interest Income /
Average GAAP Equity 27.3% 26.7% 32.6% 28.7% 31.0%
Core Net Interest Income /
Average Core Equity (2) 30.8% 29.9% 37.5% 32.6% 35.7%
GAAP ROE: GAAP Earnings/ Avg
GAAP Common Equity 27.1% 25.0% 36.1% 33.2% 34.8%
Core ROE: Core Earnings / Avg
Common Core Equity 22.9% 23.5% 29.9% 25.4% 27.5%
(1) Core earnings is not a measure of earnings in accordance with
GAAP. It is calculated as GAAP earnings from ongoing operations
less net recognized gains (losses) and valuation adjustments
(which include gains and losses from sales and calls and valuation
adjustments on certain assets hedges) and other temporary or
one-time adjustments. Management believes that core earnings
provides relevant and useful information regarding results from
operations in addition to GAAP measures of performance. This is,
in part, because market valuation adjustments on only a portion of
the company's assets and stock options and none of its liabilities
are recognized through the income statement under GAAP and thus
GAAP valuation adjustments may not be fully indicative of changes
in market values on the balance sheet as a whole or a reliable
guide to current operating performance. Furthermore, gains or
losses realized upon sales of assets vary based on portfolio
management decisions; a sale of an asset for a gain or a loss may
or may not affect on going earnings from operations. Because all
companies and analysts do not calculate non-GAAP measures such as
core earnings in the same fashion, core earnings as calculated by
the company may not be comparable to similarly titled measures
reported by other companies.
(2) Core equity is calculated as GAAP equity less unrealized gains and
losses on certain assets and hedges. (A reconciliation of
core-equity to GAAP equity appears in the table presenting balance
sheet data.) Management believes measurements based on core equity
provide relevant and useful information regarding its results of
operations in addition to GAAP measures of performance. This is,
in part, because market valuation adjustments reflected in GAAP
equity represent unrealized gains and losses on a portion of the
balance sheet only and may not be reflective of the equity
available to invest in operations. Because all companies and
analysts do not calculate non-GAAP measures in the same fashion,
core equity and ratios using core equity as calculated by the
company may not be comparable to similarly titled measures
reported by other companies.
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
CONSOLIDATED BALANCE 31-Mar 31-Dec 30-Sept 30-Jun 31-Mar
SHEET 2005 2004 2004 2004 2004
------------------------- -------- -------- -------- -------- --------
Residential Real Estate
Loans $21,493 $22,208 $21,558 $19,916 $18,086
Residential Home Equity
Lines of Credit (HELOC) 279 296 317 327 --
Residential Loan Credit -
Enhancement Securities 611 562 497 442 375
Commercial Real Estate
Loans 57 54 33 34 22
Securities Portfolio 1,534 1,395 1,239 1,095 937
Cash and Cash Equivalents 65 57 76 38 58
Other Assets 246 206 192 163 113
------------------------- -------- -------- -------- -------- --------
Total Consolidated Assets $24,285 $24,778 $23,912 $22,015 $19,591
Redwood Trust Debt $199 $203 $246 $270 $278
Consolidated Asset-Back
Securities Issued 23,057 23,630 22,680 20,923 18,630
Other Liabilities 81 81 84 64 75
Common Equity 948 864 902 758 608
------------------------- -------- -------- -------- -------- --------
Total Liabilities and
Equity $24,285 $24,778 $23,912 $22,015 $19,591
Total GAAP Equity $948 $864 $902 $758 $608
Less: Accumulated Other
Comprehensive Income (125) (105) (96) (111) (79)
------------------------- -------- -------- -------- -------- --------
Core Equity $823 $759 $806 $647 $529
Less: Undistributed REIT
Taxable Income (63) (38) (139) (110) (69)
------------------------- -------- -------- -------- -------- --------
Adjusted Core Equity $760 $721 $667 $537 $460
Common Shares Outstanding
at Period End
(thousands) 24,514 24,154 23,346 21,511 19,796
GAAP Equity (GAAP Book
Value) per Common Share $38.67 $35.78 $38.63 $35.24 $30.72
Core Equity (Core Book
Value) per Common Share
(1) $33.58 $31.42 $34.50 $30.06 $26.75
Adjusted Core Equity per
Share (2) $31.03 $29.86 $28.55 $24.96 $23.25
Average Total
Consolidated Assets $24,563 $24,320 $22,877 $20,610 $18,386
Average Consolidated
Earning Assets $24,043 $23,890 $22,461 $20,283 $18,158
Average Debt and Asset
Backed Securities Issued $23,602 $23,304 $22,011 $19,890 $17,747
Average Total GAAP Equity $895 $870 $802 $664 $584
(1) Core equity is calculated as GAAP equity less unrealized gains and
losses on certain assets and hedges. A reconciliation of core
equity to GAAP equity appears in the table presenting balance
sheet data. Management believes measurements based on core equity
provide relevant and useful information regarding its results of
operations in addition to GAAP measures of performance. This is,
in part, because market valuation adjustments reflected in GAAP
equity represent unrealized gains and losses on a portion of the
balance sheet only and may not be reflective of the equity
available to invest in operations. Because all companies and
analysts do not calculate non-GAAP measures in the same fashion,
core equity and ratios using core equity as calculated by the
company might not be comparable to similarly titled measures
reported by other companies.
(2) As a REIT we have minimum dividend distribution requirements. We
thus have future payment obligations, but these are not recognized
in GAAP accounting until dividends are declared. Cash that we have
earned but that we must pay out as dividends is not cash that will
be available to us to acquire long-term assets and build our
business. Thus, we calculate adjusted core equity in order to
provide additional information about our equity available after
the distribution of our dividend requirements and review of equity
available to fund our long-term assets.
REDWOOD TRUST, INC.
(All dollars in millions)
31-Mar 31-Dec 30-Sep 30-Jun 31-Mar
LEVERAGE RATIOS (1) 2005 2004 2004 2004 2004
------------------------- -------- -------- -------- -------- --------
Total Reported
Consolidated Assets $24,285 $24,778 $23,912 $22,015 $19,591
Less: Assets Consolidated
from Securitization
Entities (23,138) (23,711) (22,764) (20,987) (18,705)
------------------------- -------- -------- -------- -------- --------
Redwood's Permanent
Assets and Inventory
Assets $1,147 $1,067 $1,148 $1,028 $886
Total Redwood Debt and
Consolidated ABS Issued
Securities $23,256 $23,833 $22,926 $21,193 $18,908
Less: Consolidated ABS
Issued Securities (23,057) (23,630) (22,680) (20,923) (18,630)
------------------------- -------- -------- -------- -------- --------
Redwood's Debt $199 $203 $246 $270 $278
Redwood Debt $199 $203 $246 $270 $278
Redwood Equity 948 864 902 758 608
------------------------- -------- -------- -------- -------- --------
Redwood Capital $1,147 $1,067 $1,148 $1,028 $886
Redwood Debt to GAAP
Equity 0.2x 0.2x 0.3x 0.4x 0.5x
GAAP Equity / Redwood's
Direct Assets 83% 81% 79% 74% 69%
Redwood Debt to Capital
Ratio 17% 19% 21% 26% 31%
(1) The Asset-Backed Securities reported on our GAAP balance sheet as
liabilities consist of asset-backed securities issued by
bankruptcy-remote securitization entities. The owners of these
securities have no recourse to Redwood and must look only to the
assets of the securitization entities for repayment. Both the
assets and liabilities of these entities, however, are
consolidated on Redwood's balance sheet for GAAP reporting
purposes. Management believes that an analyst could achieve
insight into Redwood's business and balance sheet by
distinguishing between debt that must be repaid by Redwood and
Asset-Backed Securities that are consolidated onto Redwood's
balance sheet from other entities. This table shows leverage
ratios calculated for Redwood using measures that incorporate
Redwood's debt only.
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
2005 2004 2004 2004 2004
-------- -------- -------- -------- --------
Consolidated Residential
Real Estate Loans (1)
-------------------------
Start of Period Balances $22,208 $21,558 $19,916 $18,086 $16,239
Acquisitions 832 1,792 2,898 2,703 2,322
Sales Proceeds (Not
Including Sales to
Consolidated Asset-
Backed Securities
Trusts) 0 (1) (113) 0 0
Principal Pay Downs (1,539) (1,133) (1,144) (858) (460)
Net Amortization Expense (7) (6) 2 (14) (12)
Net Charge Offs
(Recoveries) 0 0 0 0 0
Credit Provisions (1) (2) (1) (1) (3)
Net Recognized Gains
(Losses) 0 0 0 0 0
------------------------- -------- -------- -------- -------- --------
End of Period Balances $21,493 $22,208 $21,558 $19,916 $18,086
Average Amortized Cost
During Period, Net of
Credit Reserves $21,640 $21,717 $20,484 $18,754 $16,916
Interest Income $195 $169 $148 $110 $99
Yield 3.60% 3.11% 2.89% 2.34% 2.34%
Principal Value of Loans $21,307 $22,024 $21,382 $19,767 $17,951
Credit Reserve (24) (23) (21) (20) (19)
Net Premium to be
Amortized 210 207 197 169 154
------------------------- -------- -------- -------- -------- --------
Residential Real Estate
Loans $21,493 $22,208 $21,558 $19,916 $18,086
Credit Reserve, Start of
Period $23 $21 $20 $19 $16
Net Charge-Offs 0 0 0 0 0
Credit Provisions 1 2 1 1 3
------------------------- -------- -------- -------- -------- --------
Credit Reserve, End of
Period $24 $23 $21 $20 $19
Delinquencies (90 days,
in foreclosure, in
bankruptcy, or real
estate owned) $16 $13 $11 $5 $3
Delinquencies as % of
Residential Loans 0.08% 0.06% 0.05% 0.03% 0.02%
Net Charge-offs as % of
Residential Loans
(Annualized) 0.01% 0.01% 0.00% 0.00% 0.00%
Reserve as % of
Residential Loans 0.11% 0.10% 0.10% 0.10% 0.10%
Reserve as % of
Delinquencies 151% 173% 198% 374% 548%
(1) Includes loans securitized by securitization entities sponsored by
Redwood that are consolidated on Redwood's GAAP balance sheet as
well as loans owned directly by Redwood on a temporary basis prior
to sale to a securitization entity.
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
2005 2004 2004 2004 2004
------- ------- ------- ------- -------
Consolidated Residential Home
Equity Lines of Credit
(HELOC)
Start of Period Balances $296 $317 $327 $0 $0
Acquisitions 0 0 0 335 0
Sales Proceeds (Not Including
Sales to Consolidated Asset-
Backed Securities Trusts) 0 0 0 0 0
Principal Pay Downs (16) (20) (8) (8) 0
Net Amortization Expense (1) (1) (1) (0) 0
Net Charge Offs (Recoveries) 0 0 0 0 0
Credit Provisions 0 0 (1) (0) 0
Net Recognized Gains (Losses)
& Valuation Adjustments 0 0 0 0 0
------------------------------ ------- ------- ------- ------- -------
End of Period Balances $279 $296 $317 $327 $0
Average Amortized Cost During
Period, Net of Credit
Reserves $285 $303 $323 $124 $0
Interest Income $3 $2 $1 $1 $0
Yield 3.59% 2.87% 2.00% 1.73% 0.00%
Principal Value of Loans $273 $289 $309 $317 $0
Credit Reserve (1) (1) (1) (0) 0
Net Premium to be Amortized 7 8 9 10 0
------------------------------ ------- ------- ------- ------- -------
Residential Home Equity Lines
of Credit $279 $296 $317 $327 $0
Credit Reserve, Start of
Period $1 $0 $0 $0 $0
Net Charge-Offs 0 0 0 0 0
Credit Provisions 0 1 1 0 0
------------------------------ ------- ------- ------- ------- -------
Credit Reserve, End of Period $1 $1 $1 $0 $0
Delinquencies (90 days, in
foreclosure, in bankruptcy,
or real estate owned) $0.2 $0.3 $0.3 $0.0 $0.0
Delinquencies as % of HELOCs 0.06% 0.10% 0.09% 0.00% 0.00%
Net charge-offs as % of HELOCs
(Annualized) 0.00% 0.00% 0.00% 0.00% 0.00%
Reserve as % of HELOCs 0.22% 0.24% 0.17% 0.08% 0.00%
Reserve as % of Delinquencies 363% 240% 202% 0.00% 0.00%
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
2005 2004 2004 2004 2004
--------- --------- --------- -------- --------
Consolidated
Residential Loan
Credit-Enhancement
Securities (1)
----------------------
Start of Period
Balances $562 $497 $442 $375 $379
Acquisitions 68 73 83 75 38
Sales Proceeds (Not
Including Sales to
Consolidated Asset-
Backed Securities
Trusts) (27) 0 0 0 (22)
Principal Pay Downs
(Including Calls) (24) (30) (45) (48) (35)
Net Amortization
Income 8 8 9 9 9
Unrealized (Losses)
Gains Reported
Through Balance Sheet 9 4 (12) 18 (12)
Realized Gains and
Market Valuation
Losses Reported in
Income Statement 15 10 20 13 18
---------------------- --------- --------- --------- -------- --------
End of Period Balances $611 $562 $497 $442 $375
Average Amortized Cost
During Period, Net of
Credit Reserves $493 $425 $369 $317 $287
Interest Income $20 $17 $16 $16 $16
Yield 15.91% 15.99% 17.36% 20.27% 21.64%
Principal Value of
Redwood's Credit-
Enhancement
Securities $979 $934 $831 $713 $634
Internally Designated
Credit Protection on
Loans Credit-Enhanced (366) (343) (299) (236) (217)
Net Discount to be
Amortized (89) (107) (109) (122) (111)
---------------------- --------- --------- --------- -------- --------
Net Investment in
Credit-Enhancement
Securities $524 $484 $423 $355 $306
Net Unrealized Gains
(Losses) 87 78 74 87 69
---------------------- --------- --------- --------- -------- --------
Residential Loan
Credit-Enhancement
Securities $611 $562 $497 $442 $375
Securities Senior to
Redwood's Interests $129,081 $125,485 $120,685 $96,322 $70,684
Principal Value of
Redwood's Credit-
Enhancement
Securities 979 934 831 713 634
Securities Junior to
Redwood's Interests 67 68 69 70 44
---------------------- --------- --------- --------- -------- --------
Underlying Residential
Real Estate Loan
Balances $130,127 $126,487 $121,585 $97,105 $71,362
Internally Designated
Credit Protection on
Loans Credit-Enhanced $366 $340 $299 $236 $217
External Credit
Enhancement on Loans
Credit-Enhanced 67 68 69 70 44
---------------------- --------- --------- --------- -------- --------
Total Credit
Protection (2) $433 $408 $368 $306 $261
Delinquencies (90
days, in foreclosure,
in bankruptcy, or
real estate owned) $201 $151 $174 $131 $143
Redwood's Net Charge-
Offs $(1) $(1) $(1) $(2) $(0)
Losses to Securities
Junior to Redwood's
Interests 0 (0) (0) (0) (0)
---------------------- --------- --------- --------- -------- --------
Total Underlying Loan
Credit Losses $(1) $(1) $(1) $(2) $(0)
Delinquencies as % of
Underlying Loans 0.15% 0.12% 0.14% 0.14% 0.20%
Total Pool Credit
Losses/Underlying
Loans (Annualized) 0.01% 0.01% 0.01% 0.01% 0.01%
Total Credit
Protection as % of
Underlying Loans 0.33% 0.32% 0.30% 0.32% 0.37%
Total Credit
Protection as % of
Delinquencies 216% 273% 211% 233% 183%
(1) Includes credit-enhancement securities acquired from
securitizations sponsored by third parties. Does not include
residential CES acquired from securitizations sponsored by us.
(2) Total credit protection represents the aggregate of the internally
designated credit reserve and the amount of any junior securities
with respect to each credit-enhanced security. The credit
protection amount for any credit-enhanced security is only
available to absorb losses on the pool of loans related to that
security. To the extent such losses exceed the credit protection
amount for that security, a charge-off of the net investment in
that security would result.
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
TOTAL MANAGED
RESIDENTIAL LOANS (1) 2005 2004 2004 2004 2004
--------------------- --------- --------- --------- --------- --------
Residential Real
Estate Loans Owned
by Redwood $256 $193 $259 $161 $97
Residential Real
Estate Loans
Securitized by
Redwood 21,237 22,015 21,299 19,755 17,989
Residential Real
Estate Loans
Securitized by
Others 130,127 126,487 121,585 97,105 71,362
--------------------- --------- --------- --------- --------- --------
Total Residential
Real Estate Loans
Managed $151,620 $148,695 $143,143 $117,021 $89,448
Credit Reserve on
Residential Loans
Securitized by
Redwood $24 $23 $21 $20 $19
Internally Designated
Credit Reserve on
Loans Securitized by
Others 366 343 299 236 217
--------- --------- --------- --------- --------
Redwood's Total
Residential Credit
Protection $390 $366 $320 $256 $236
External Credit
Enhancement on Loans
Securitized by
Others 67 68 69 70 44
--------------------- --------- --------- --------- --------- --------
Total Credit
Protection (2) $457 $434 $389 $326 $280
Total Credit
Protection as % of
Total Residential
Loans 0.30% 0.29% 0.27% 0.28% 0.31%
Delinquencies for
Residential Loans
owned by Redwood $0 $0 $0 $0 $0
Delinquencies for
Residential Loans
Securitized by
Redwood 16 13 11 5 3
Delinquencies for
Residential Loans
Securitized by
Others 201 151 174 131 143
--------------------- --------- --------- --------- --------- --------
Total Residential
Loan Serious
Delinquencies $217 $164 $185 $136 $146
Delinquencies as % of
Total Residential
Loans 0.14% 0.11% 0.13% 0.12% 0.16%
Total Credit
Protection as % of
Delinquencies 211% 263% 211% 239% 191%
Net Charge-Offs on
Residential Loans
Owned by Redwood $0 $0 $0 $0 $0
Net Charge-Offs on
Residential Loans
Securitized by
Redwood $0 $0 $0 $0 $0
Net Charge-Offs on
Residential Loan
Securitized by
Others (1) (1) (1) (2) 0
--------------------- --------- --------- --------- --------- --------
Redwood's Shares of
Net Credit (Losses)
Recoveries ($1) ($1) ($1) ($2) $0
Credit Losses to
External Credit
Enhancement 0 0 0 0 0
--------------------- --------- --------- --------- --------- --------
Total Residential
Credit Losses ($1) ($1) ($1) ($2) $0
Total Credit Losses
as % of Total
Residential Loans
(Annualized) 0.01% 0.01% 0.01% 0.01% 0.01%
(1) Includes loans securitized by Sequoia securitization entities
sponsored by Redwood from which Redwood has acquired the
residential CES plus loans securitized by third parties from which
Redwood has required the residential credit-enhanced securities,
plus loans held temporarily by Redwood prior to securitization.
(2) The credit reserve on residential real estate loans owned is only
available to absorb losses on the residential real estate loan
portfolio. The internally designated credit reserve on loans
credit-enhanced and the external credit enhancement on loans
credit-enhanced are only available to absorb losses on the pool of
loans related to each individual credit-enhancement security.
External credit protection absorbs losses before Redwood is
exposed to losses in such securities.
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
Commercial Real Estate Loans 2005 2004 2004 2004 2004
------------------------------ ------- ------- ------- ------- -------
Start of Period Balances $54 $33 $34 $22 $22
Acquisitions 7 21 0 17 0
Sales Proceeds (Not Including
Sales to Consolidated Asset-
Backed Securities Trusts) 0 0 0 (2) 0
Principal Pay Downs (5) 0 0 (3) 0
Net Amortization Income 0 0 (1) 0 0
Credit Provisions 1 0 0 0 0
Net Loss Adjustments through
I/S 0 0 0 0 0
------------------------------ ------- ------- ------- ------- -------
End of Period Balances $57 $54 $33 $34 $22
Average Amortized Cost During
Period, Net of Credit
Reserves $56 $40 $33 $26 $22
Interest Income $1.6 $1.2 $1.0 $0.9 $0.7
Yield 11.32% 11.67% 12.40% 13.29% 12.56%
Principal Value of Loans $67 $65 $43 $43 $31
Credit Reserve and Credit
Protection (8) (9) (9) (8) (8)
Net Discount to be Amortized (2) (2) (1) (1) (1)
------------------------------ ------- ------- ------- ------- -------
Commercial Mortgage Loans $57 $54 $33 $34 $22
Commercial Real Estate Loan
Delinquencies $0 $0 $0 $0 $0
Commercial Real Estate Loan
Net Charge-Offs $0 $0 $0 $0 $0
Commercial Real Estate Loan
Credit Provisions $1 $0 $0 $0 $0
Commercial Real Estate Loan
Credit Reserves and Credit
Protection $8 $9 $8 $8 $8
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
Securities Portfolio 2005 2004 2004 2004 2004
------------------------------ ------- ------- ------- ------- -------
Start of Period Balances $1,395 $1,239 $1,095 $937 $845
Acquisitions 181 181 151 193 86
Sales Proceeds (Not Including
Sales to Consolidated Asset-
Backed Securities Trusts) (12) 0 0 (9) 0
Principal Pay Downs (27) (25) (18) (10) (10)
Net Amortization Income
(Expense) (1) 0 0 (1) 0
Net Unrealized Gains (Losses) (2) 0 11 0 16
Net Recognized Gains (Losses)
& Valuation Adjustments 0 0 0 (15) 0
------------------------------ ------- ------- ------- ------- -------
End of Period Balances $1,534 $1,395 $1,239 $1,095 $937
Average Amortized Cost During
Period $1,443 $1,279 $1,149 $980 $862
Interest Income $18 $15 $13 $11 $10
Yield 4.97% 4.85% 4.62% 4.30% 4.46%
Principal Value of Securities 1,611 1,425 1,243 $1,097 $921
Net (Discount) Premium to be
Amortized (92) (47) (20) (7) (4)
Net Unrealized Gains (losses) 15 17 16 5 20
------------------------------ ------- ------- ------- ------- -------
Securities Portfolio $1,534 $1,395 $1,239 $1,095 $937
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
Differences Between GAAP Net Income and Estimated Total Taxable and
REIT Taxable Income
Estimated Estimated Estimated
First Fourth First
Quarter Quarter Quarter
2005 2004 2004
--------- --------- ---------
GAAP Net Income $60.6 $54.4 $50.8
Interest Income and Expense Differences (20.1) (6.2) (1.1)
Provision for Credit Losses - GAAP 1.0 1.7 2.5
Tax Deductions for Realized Credit
Losses (0.4) (0.2) 0.0
Long-Term Compensation Differences 1.9 (2.5) 2.9
Stock Option Exercise Deductions
Differences (0.5) (3.1) (12.1)
Depreciation of Fixed Asset Differences 0.1 (0.2) 0.0
Other Operating Expense Differences 0.1 (2.2) 0.0
Sales of Assets to Third Parties
Differences (0.9) 1.9 (0.6)
Call Income from Residential CES
Differences (2.3) (2.9) (1.9)
Tax Gain on Securitizations 2.5 10.1 0.0
Tax Gain on Intercompany Sales and
Transfers 3.3 3.1 7.5
GAAP Market Valuation Write Downs (EITF
99-20) 0.4 1.6 0.6
Interest Rate Agreements Differences 0.2 (0.7) 0.0
Provision for Excise Tax - GAAP 0.3 (0.2) 0.3
Provision for Income Tax Differences 0.1 4.8 1.9
--------- --------- ---------
Total Taxable Income (Pre-Tax) $46.3 $59.4 $50.8
(Earnings) Losses From Taxable
Subsidiaries (1.2) (9.0) (8.3)
REIT Taxable Income (Pre-Tax) $45.1 $50.4 $42.5
GAAP Income per Share Based on Average
Diluted Shares During Period (2) $2.42 $2.22 $2.49
Total Taxable Income per Share Based on
Shares Outstanding at Period End $1.89 $2.46 $2.57
REIT Taxable Income per Share Based on
Shares Outstanding at Period End $1.84 $2.09 $2.15
(1) Estimated total taxable income and estimated REIT taxable income
are not GAAP performance measures but are important measures as
they are the basis of our dividend distributions to shareholders.
(2) Historic periods may be lower than previously reported earnings
per share numbers as a result of the application of EITF 03-6
(Participating Securities and the Two-Class Method under FASB
Statement No. 128) requirement that prior period basic and diluted
earnings per share be restated for participating securities. Under
the provision of EITF 03-6 our convertible preferred stock that
was converted in the second quarter of 2003 is a participating
security and thus our reported earnings per share for periods 2003
and earlier are revised downwards by up to 2% per period.
CONTACT: Redwood Trust, Inc.
Harold Zagunis, 415-389-7373
SOURCE: Redwood Trust, Inc.