Redwood Trust Inc. (RWT, Financial) filed Annual Report for the period ended 2011-12-31.
Redwood Trust has a market cap of $955.3 million; its shares were traded at around $12 with a P/E ratio of 23.4 and P/S ratio of 4.2. The dividend yield of Redwood Trust stocks is 8.2%.
Book value declined by $0.86 per share in the fourth quarter to $11.36 at December 31, 2011, as compared to $12.22 at September 30, 2011. The $67 million decline in book value during the quarter was attributable to unrealized losses on securities ($44 million or roughly two-thirds of the decline) and the impact of paying out dividends in excess of earnings ($23 million or roughly one-third of the decline). From January 1, 2012 through mid-February 2012, we estimate that approximately $22 million of the unrealized losses on securities in the fourth quarter was recovered due to the recent rally in RMBS prices.
Net interest income after provision and MVA was $10 million for the fourth quarter of 2011, as compared to $27 million for the fourth quarter of 2010, a decrease of $17 million. This decrease was due to a $10 million increase in market valuation adjustments expense and a $7 million decline in net interest income, as increased balances of earnings assets were more than offset by declines in asset yields and interest expense from increased short-term borrowings.
Interest income from available-for-sale securities at Redwood was $84 million in 2011, as compared to $94 million in 2010, a decline of $10 million. The decrease was primarily due to declining yields on our portfolio as higher yielding, more credit sensitive investments paid down and were replaced with lower yielding, less credit sensitive investments. Interest income on available-for-sale securities at Redwood was $94 million in 2010, as compared with $91 million in 2009, an increase of $3 million. This increase was primarily due to increased average balances, as acquisitions outpaced sales and principal paydowns.
As we have no credit reserves or allowances for tax, any future credit losses on securities or loans will have a more significant impact on tax earnings than on GAAP earnings and may create significant taxable income volatility to the extent the level of credit losses fluctuates during reporting periods. During the years ended December 31, 2011 and 2010, we realized $58 million and $100 million, respectively, of credit losses on securities for tax that we had previously provisioned for under GAAP. We anticipate that credit losses will continue to be a significant factor for determining 2012 taxable income. Credit losses are based on our tax basis, which differs materially from our basis for GAAP purposes. We anticipate an additional $138 million of credit losses for tax on securities, based on our projection of principal balance losses and assuming a similar tax basis as we have recently experienced, although the timing of actual losses is difficult to accurately project. At December 31, 2011, for GAAP we had a designated credit reserve of $296 million on our securities, and an allowance for loan losses of $67 million for our consolidated residential and commercial loans.
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Redwood Trust has a market cap of $955.3 million; its shares were traded at around $12 with a P/E ratio of 23.4 and P/S ratio of 4.2. The dividend yield of Redwood Trust stocks is 8.2%.
Highlight of Business Operations:
Statements regarding the following subjects, among others, are forward-looking by their nature: (i) our statements relating to improving our capital efficiency in 2012, the use of warehouse funding for residential loans, the use leverage against our residential securities (which leverage we believe will be a prudent amount), obtaining debt financing for our commercial loans, and investing our capital at attractive yields; (ii) our statements relating to our goal of delivering a growing stream of dividends through our residential and commercial credit businesses and our statements that our platforms are scalable (and, therefore, should help us improve our returns as our business volume increases); (iii) our statements relating to our competitive position and our ability to compete in the future, including our ability to effectively compete to acquire residential mortgage-backed securities and residential mortgage loans and our ability to compete to originate and acquire commercial real estate loans and other commercial real estate investments; (iv) our statements relating to our future investment strategy, and our ability to find investments with attractive risk return profiles, including, without limitation, statements relating to our efforts to acquire residential mortgage loans, make commercial real estate investments (including our statement that our commercial platform will likely provide us with the best opportunity to invest capital in 2012), and make residential investments in residential securities (including that our expectation for 2012 is that we will invest $100 million of capital in third-party residential mortgage-backed securities and $75 to $100 million of capital in new Sequoia securitizations with GAAP yields on new equity capital invested in residential securities during 2012 expected to range from 11% to 14%); (v) our statements that we expect, overall, to invest $375 to $500 million of capital in 2012 and that we can generate the capital needed for the vast majority of this overall 2012 investment activity and our intended 2012 dividends on existing shares of common stock through cash from operations, principal payments from our investments, asset sales, and obtaining debt financing on our commercial loan portfolio; (vi) our statement that we expect our expanding residential and commercial businesses to represent a larger portion of our net interest income in future periods and our statement that we expect that increased investment activity, net of funding costs, will positively affect net interest income beginning in the second half of 2012 and improve profitability in 2012; (vii) our statement that one of our objectives for 2012 is to acquire approximately $2.0 billion of residential mortgage loans, our statements relating to acquiring the residential mortgage loans included in our pipeline of residential mortgage loans that we plan to purchase through our residential conduit program, including that, as of December 31, 2011 and February 15, 2012, there were $460 million and $461 million, respectively, of residential mortgage loans at various stages of origination that we planned to purchase; (viii) our statements relating to future residential loan securitization and sale transactions, the timing of the completion of those future transactions, and the number and size of those transactions we expect to complete in 2012 and future periods, which future transactions may not be completed when planned or at all, and, more generally, statements regarding the likelihood and timing of, and our participation in, future transactions of these types and our ability to finance residential loan acquisitions through the execution of these types of transactions, and the profitability of these transactions; (ix) our statement that we expect to reverse an estimated $9 million, in aggregate, of negative net assets that relate to fourteen Sequoia securitization entities in future periods upon the retirement or deconsolidation of those entities; (x) our statement that we do not currently believe we will need to raise equity capital during the first half of 2012 and our statement that we may not need to raise equity capital in a material way in the second half of 2012; (xi) our statements relating to our estimates of our investment capacity (including that we estimate our investment capacity was $214 million at December 31, 2011), our short-term borrowing capacity (including the statement that we plan to finance residential mortgage loans held for future securitization or sale through short-term warehouse debt facilities), our excess capital, and the amount of cash we need to cover short-term operations, working capital, and a liquidity cushion; (xii) our statements relating to future market and economic conditions and the future volume of transactions in those markets, including, without limitation, future conditions in the residential and commercial real estate markets and related financing markets (e.g., the CMBS market), and the related potential opportunities for our residential and commercial businesses; (xiii) our beliefs about, and our outlook for, the future direction of housing market fundamentals, including, without limitation, home prices, demand for housing, delinquency rates, foreclosure rates, prepayment rates, inventory of homes for sale, and mortgage interest rates and their potential impact on our business and resultsBook value declined by $0.86 per share in the fourth quarter to $11.36 at December 31, 2011, as compared to $12.22 at September 30, 2011. The $67 million decline in book value during the quarter was attributable to unrealized losses on securities ($44 million or roughly two-thirds of the decline) and the impact of paying out dividends in excess of earnings ($23 million or roughly one-third of the decline). From January 1, 2012 through mid-February 2012, we estimate that approximately $22 million of the unrealized losses on securities in the fourth quarter was recovered due to the recent rally in RMBS prices.
Net interest income after provision and MVA was $10 million for the fourth quarter of 2011, as compared to $27 million for the fourth quarter of 2010, a decrease of $17 million. This decrease was due to a $10 million increase in market valuation adjustments expense and a $7 million decline in net interest income, as increased balances of earnings assets were more than offset by declines in asset yields and interest expense from increased short-term borrowings.
Interest income from available-for-sale securities at Redwood was $84 million in 2011, as compared to $94 million in 2010, a decline of $10 million. The decrease was primarily due to declining yields on our portfolio as higher yielding, more credit sensitive investments paid down and were replaced with lower yielding, less credit sensitive investments. Interest income on available-for-sale securities at Redwood was $94 million in 2010, as compared with $91 million in 2009, an increase of $3 million. This increase was primarily due to increased average balances, as acquisitions outpaced sales and principal paydowns.
As we have no credit reserves or allowances for tax, any future credit losses on securities or loans will have a more significant impact on tax earnings than on GAAP earnings and may create significant taxable income volatility to the extent the level of credit losses fluctuates during reporting periods. During the years ended December 31, 2011 and 2010, we realized $58 million and $100 million, respectively, of credit losses on securities for tax that we had previously provisioned for under GAAP. We anticipate that credit losses will continue to be a significant factor for determining 2012 taxable income. Credit losses are based on our tax basis, which differs materially from our basis for GAAP purposes. We anticipate an additional $138 million of credit losses for tax on securities, based on our projection of principal balance losses and assuming a similar tax basis as we have recently experienced, although the timing of actual losses is difficult to accurately project. At December 31, 2011, for GAAP we had a designated credit reserve of $296 million on our securities, and an allowance for loan losses of $67 million for our consolidated residential and commercial loans.
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