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Redwood Trust Reports First Quarter 2011 Results

Thursday, May 05, 2011

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 nonGAAP economic value is calculated using bidside asset marks (or estimated bidside values) and offerside marks for our financial liabilities (or estimated offeredside 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 10Q.
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.

Contact: Diane Merdian, +1-415-380-2331 , or Mike McMahon, +1-415-384-3805

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