MILL VALLEY, Calif., Nov. 3, 2010 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. today reported net income for the third quarter of 2010 of $20 million, or $0.25 per fully diluted share. This compares to net income of $29 million, or $0.35 per fully diluted share, for the second quarter of 2010, and net income of $27 million, or $0.34 per fully diluted share, for the third quarter of 2009.
Redwood also reported an estimated taxable loss of $9 million, or $0.11 per share, during the third quarter of 2010. This compares to estimated taxable loss of $3 million, or $0.03 per share, for the second quarter of 2010, and a taxable loss of $23 million, or $0.30 per share, for the third quarter of 2009.
At September 30, 2010, GAAP book value was $13.02 per share, an increase of $0.31 per share from June 30, 2010, and management's estimate of non-GAAP economic value was $13.73 per share, an increase of $0.36 per share from June 30, 2010.
During the third quarter of 2010, Redwood acquired $50 million of residential securities. Redwood ended the quarter with a total securities portfolio of $797 million, up from $734 million at the beginning of the quarter, and with $189 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 September 30, 2010, which was filed today with the Securities and Exchange Commission, and is also available on Redwood's website at http://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 third 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 Third Second First Fourth Third ------------------- ($ in millions, except share data) Quarter Quarter Quarter Quarter Quarter 2010 2010 2010 2009 2009 ---- ---- ---- ---- ---- Interest income $59 $56 $58 $62 $70 Interest expense (24) (21) (18) (21) (25) --- --- --- --- --- Net interest income 35 35 40 41 45 Provision for loan losses (2) (4) (9) (9) (10) Market valuation adjustments, net (2) (7) (11) (4) (11) --- --- --- --- --- Net interest income after provision and 31 24 20 28 24 market valuation adjustments Operating expenses (12) (11) (17) (11) (15) Realized gains, net 2 16 44 20 18 Benefit from income taxes - - - 3 - --- --- --- --- --- Net income 21 29 47 40 27 Less: Net income attributable to noncontrolling interest 1 - - - - --- --- --- --- GAAP Net Income $20 $29 $47 $40 $27 === === === === === Average diluted shares (thousands) 78,961 78,852 78,542 78,101 78,059 Diluted earnings per share $0.25 $0.35 $0.58 $0.51 $0.34 Regular dividends declared per common share $0.25 $0.25 $0.25 $0.25 $0.25 REDWOOD TRUST, INC. Consolidated Income Statements Nine Months Ended ------------------------------ ($ in millions, except share data) September 30, 2010 2009 ---- ---- Interest income $174 $226 Interest expense (63) (112) --- ---- Net interest income 111 114 Provision for loan losses (16) (41) Market valuation adjustments, net (20) (83) --- --- Net interest income (loss) after provision and 75 (10) market valuation adjustments Operating expenses (41) (36) Realized gains, net 62 44 Benefit from income taxes - 1 --- --- Net income (loss) 96 (1) Less: Net income attributable to noncontrolling interest 1 - GAAP Net Income (Loss) $95 $(1) === === Average diluted shares (thousands) 78,764 65,363 Diluted earnings (loss) per share $1.18 $(0.02) Regular dividends declared per common share $0.75 $0.75 REDWOOD TRUST, INC. Consolidated Balance Sheets 30-Sep 30-Jun 31-Mar --------------------------- ($ in millions, except share data) 2010 2010 2010 ---- ---- ---- Real estate loans $3,752 $3,810 $3,662 Real estate securities, at fair value: Trading securities 310 276 289 Available-for-sale securities 798 741 847 Other investments - 4 11 Cash and cash equivalents 189 288 242 Other assets 113 100 144 --- --- --- Total Assets $5,162 $5,219 $5,195 ====== ====== ====== Short-term debt $ - $ - $ - Other liabilities 163 142 207 Asset-backed securities issued - Sequoia entities 3,568 3,681 3,557 Asset-backed securities issued - Acacia entities 264 253 280 Long-term debt 140 140 140 --- --- --- Total liabilities 4,135 4,216 4,184 Stockholders' equity 1,016 991 998 Noncontrolling interest 11 12 13 --- --- --- Total equity 1,027 1,003 1,011 Total Liabilities and Equity $5,162 $5,219 $5,195 ====== ====== ====== Shares outstanding at period end (thousands) 77,984 77,908 77,751 GAAP book value per share $13.02 $12.71 $12.84 Consolidated Balance Sheets 31-Dec 30-Sep --------------------------- ($ in millions, except share data) 2009 2009 ---- ---- Real estate loans $3,740 $3,831 Real estate securities, at fair value: Trading securities 278 275 Available-for-sale securities 810 787 Other investments 20 29 Cash and cash equivalents 243 217 Other assets 162 146 --- --- Total Assets $5,253 $5,285 ====== ====== Short-term debt $ - $ - Other liabilities 181 203 Asset-backed securities issued - Sequoia entities 3,645 3,728 Asset-backed securities issued - Acacia entities 298 288 Long-term debt 140 140 --- --- Total liabilities 4,264 4,359 Stockholders' equity 972 907 Noncontrolling interest 17 19 --- --- Total equity 989 926 Total Liabilities and Equity $5,253 $5,285 ====== ====== Shares outstanding at period end (thousands) 77,737 77,669 GAAP book value per share $12.50 $11.68 REDWOOD TRUST, INC. Three Months Ended September 30, 2010 Other 2010 ($ in millions) Redwood Sequoia Consolidated (Parent) Entities -------- -------- Interest income $17 $2 $30 Net discount amortization 10 - - --- --- --- Total interest income 27 2 30 Interest expense (3) (1) (20) --- --- --- Net interest income 24 1 10 Provision for loan losses - - (2) Market valuation adjustments, net - - (2) --- --- --- Net interest income after provision 24 1 6 and market valuation adjustments Operating expenses (12) - - Realized gains on sales and calls, net 2 - - Income from 2010 Sequoia 1 - - Income from Other Consolidated Entities 5 - - Noncontrolling interest - - (1) Provision for income taxes - - - Net Income $20 $1 $5 === === === Consolidating Income Statement ------------------------------ Three Months Ended September 30, 2010 ($ in millions) Intercompany Redwood Adjustments Consolidated ----------- ------------ Interest income $ - $49 Net discount amortization - 10 --- --- Total interest income - 59 Interest expense - (24) --- --- Net interest income - 35 Provision for loan losses - (2) Market valuation adjustments, net - (2) --- --- Net interest income after provision - 31 and market valuation adjustments Operating expenses - (12) Realized gains on sales and calls, net - 2 Income from 2010 Sequoia (1) - Income from Other Consolidated Entities (5) - Noncontrolling interest - (1) Provision for income taxes - - Net Income $(6) $20 === === Consolidating Income Statement -------------------- Nine Months Ended September 30, 2010 Other 2010 ($ in millions) Redwood Sequoia Consolidated (Parent) Entities -------- -------- Interest income $50 $3 $93 Net discount (premium) amortization 29 1 (2) --- --- --- Total interest income 79 4 91 Interest expense (6) (3) (54) --- --- --- Net interest income 73 1 37 Provision for loan losses - - (16) Market valuation adjustments, net (7) - (13) --- --- --- Net interest income after provision 66 1 8 and market valuation adjustments Operating expenses (40) - (1) Realized gains on sales and calls, net 55 - 7 Income from 2010 Sequoia 1 - - Income from Other Consolidated Entities 13 - - Noncontrolling interest - - (1) Provision for income taxes - - - Net Income $95 $1 $13 === === === Consolidating Income Statement ------------------------------ Nine Months Ended September 30, 2010 ($ in millions) Intercompany Redwood Adjustments Consolidated ----------- ------------ Interest income $ - $146 Net discount (premium) amortization - 28 --- --- Total interest income - 174 Interest expense - (63) --- --- Net interest income - 111 Provision for loan losses - (16) Market valuation adjustments, net - (20) --- --- Net interest income after provision - 75 and market valuation adjustments Operating expenses - (41) Realized gains on sales and calls, net - 62 Income from 2010 Sequoia (1) - Income from Other Consolidated Entities (13) - Noncontrolling interest - (1) Provision for income taxes - - Net Income $(14) $95 ==== === REDWOOD TRUST, INC. Consolidating Balance Sheet --------------------------- September 30, 2010 Other ($ in millions) Redwood 2010 Consolidated (Parent) Sequoia Entities -------- ------- -------- Real estate loans $64 $193 $3,495 Real estate securities, at fair value: Trading securities 23 - 287 Available-for-sale securities 774 - 24 Other investments - - - Cash and cash equivalents 189 - - Investment in 2010 Sequoia 26 - - Investment in Other Consolidated Entities 89 - - --- --- --- Total earning assets 1,165 193 3,806 Other assets 59 2 52 Total Assets $1,224 $195 $3,858 ====== ==== ====== Short-term debt $ - $ - $ - Other liabilities 68 1 94 Asset-backed securities issued - 168 3,664 Long-term debt 140 - - --- --- --- Total liabilities 208 169 3,758 Stockholders' equity 1,016 26 89 Noncontrolling interest - - 11 --- --- --- Total equity 1,016 26 100 Total Liabilities and Equity $1,224 $195 $3,858 ====== ==== ====== Consolidating Balance Sheet --------------------------- September 30, 2010 ($ in millions) Intercompany Redwood Adjustments Consolidated ----------- ------------ Real estate loans $ - $3,752 Real estate securities, at fair value: Trading securities - 310 Available-for-sale securities - 798 Other investments - - Cash and cash equivalents - 189 Investment in 2010 Sequoia (26) - Investment in Other Consolidated Entities (89) - --- --- Total earning assets (115) 5,049 Other assets - 113 Total Assets $(115) $5,162 ===== ====== Short-term debt $ - $ - Other liabilities - 163 Asset-backed securities issued - 3,832 Long-term debt - 140 --- --- Total liabilities - 4,135 Stockholders' equity (115) 1,016 Noncontrolling interest - 11 --- --- Total equity (115) 1,027 Total Liabilities and Equity $(115) $5,162 ===== ====== REDWOOD TRUST, INC. Tax / GAAP Differences ---------------------- Three Months Ended September 30, 2010* ($ in millions, except per share data) Tax GAAP Differences --- ---- ----------- Interest income $37 $59 $(22) Interest expense (3) (24) 21 --- --- --- Net Interest Income 34 35 (1) Provision for loan losses - (2) 2 Realized credit losses (31) - (31) Market valuation adjustments, net - (2) 2 Operating expenses (12) (12) - Realized gains on sales and calls, net - 2 (2) Provision for income taxes - - - Less: Net income attributable to noncontrolling interest - 1 (1) Net (Loss) Income $(9) $20 $(29) === === ==== Estimated (loss) income per share $(0.11) $0.25 $(0.36) * Reconciliation of taxable income to GAAP income for prior quarters is provided in filings for those quarters. REDWOOD TRUST, INC. Tax / GAAP Differences ---------------------- Nine Months Ended September 30, 2010* ($ in millions, except per share data) Tax GAAP Differences --- ---- ----------- Interest income $108 $174 $(66) Interest expense (6) (63) 57 --- --- --- Net Interest Income 102 111 (9) Provision for loan losses - (16) 16 Realized credit losses (80) - (80) Market valuation adjustments, net - (20) 20 Operating expenses (32) (41) 9 Realized gains on sales and calls, net - 62 (62) Provision for income taxes - - - Less: Net income attributable to noncontrolling interest - 1 (1) Net (Loss) Income $(10) $95 $(105) ==== === ===== Estimated (loss) income per share $(0.13) $1.18 $(1.31) * Reconciliation of taxable income to GAAP income for prior quarters is provided in filings for those quarters. REDWOOD TRUST, INC. Book Value Per Share and Management's Estimate of Non-GAAP Economic Value Per Share* ------------------------------------------------------------------- ($ in millions, except per share data) September 30, 2010 ------------------ Management's Estimate of Non- GAAP GAAP As Reported Adjustments Economic Value --------- ----------- -------------- Cash and cash equivalents $189 $ $189 Real estate loans at Redwood 64 64 Real estate securities at Redwood Residential 788 788 Commercial 8 8 CDO 1 1 --- --- Subtotal real estate securities 797 797 Investments in the Fund 14 14 Investments in Sequoia entities 97 (19) (a) 78 Investments in Acacia entities 4 (3) (b) 1 Other assets (d) 59 59 --- --- Total assets 1,224 1,202 Long-term debt (140) 77 (c) (63) Other liabilities (d) (68) (68) Stockholders' Equity $1,016 $1,071 ====== ====== Book Value Per Share $13.02 $13.73 (a) Our investments in Sequoia entities consist of interest-only securities and senior and subordinate securities issued by Sequoia entities. We calculated the $78 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 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 $4 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 September 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 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 $63 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 third quarter of 2010, the fair value of the interest rate hedges related to this long-term debt declined by $11 million, and is reflected in shareholders' equity on our balance sheet. (d) Other assets are comprised of $4 million of accrued interest receivable and $55 million of other assets. Other liabilities are comprised of dividends payable of $19 million and accrued interest and other liabilities of $49 million. * This table presents supplemental components of book value at September 30, 2010, as reported under GAAP and as estimated by us using fair values for our investments and long-term debt. We show our investments in the Fund, and the Sequoia and Acacia entities as separate line items to highlight our specific ownership interests, as the underlying assets and liabilities of these entities are legally not ours. Our non-GAAP estimated economic value is calculated using bid-side asset marks (or estimated bid-side values) and offer-side marks for our financial liabilities (or estimated offered-side values), as required to determine fair value under GAAP. For additional information to consider when reviewing this table, please see "Factors Affecting Management's Estimate of Economic Value" in our Quarterly Report on Form 10-Q for the three months ended September 30, 2010. REDWOOD TRUST, INC. Sources and Uses of Cash (a) ---------------------------- ($ in millions) Three Months Ended ------------------ September 30, 2010 June 30, 2010 -------------- ------------- Beginning cash balance $288 $242 Sources of cash Securities at Redwood - principal and interest Residential senior 36 42 Residential Re-REMIC 2 2 Residential subordinate 9 8 Commercial and CDO 2 1 Securities at Redwood - sales - 116 Investments in Consolidated Entities 11 8 --- --- Total sources of cash 60 177 Uses of cash Acquisitions of loans (62) - Acquisitions of securities (b) (48) (55) Investment in 2010 Sequoia - (28) Cash operating expenses (9) (10) Interest expense on long- term debt (2) (1) Derivative margin posted (17) (20) Dividends (20) (20) Changes in working capital (1) 3 --- --- Total uses of cash (159) (131) Net (uses) sources of cash (99) 46 Ending Cash Balance $189 $288 ==== ==== (a) 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. (b) Total acquisitions in the third quarter of 2010 were $50 million, $3 million which are not reflected in this table because they did not settle until early October. Also, $1 million of acquisitions made in the second quarter that did not settle until early July are reflected in this table.
Redwood Trust, Inc.
CONTACT: Diane Merdian, +1-415-380-2331, or Mike McMahon,
+1-415-384-3805, both of Redwood Trust, Inc.
Web Site: http://www.redwoodtrust.com/
