View all news

Redwood Trust Reports Second Quarter 2010 Results

Wednesday, August 04, 2010

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



GAAP




Estimate of
Non-GAAP



As Reported


Adjustments


Economic
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.

Contact: Mike McMahon, +1-415-384-3805, or Diane Merdian, +1-415-380-2331, both of Redwood Trust, Inc.

Multimedia Files:

View all news