Redwood Trust Reports Fourth Quarter 2010 Results

MILL VALLEY, Calif., Feb. 24, 2011 /PRNewswire/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the fourth quarter of 2010 of $15 million, or $0.18 per fully diluted share. This compares to net income of $20 million, or $0.25 per fully diluted share, for the third quarter of 2010, and net income of $40 million, or $0.51 per fully diluted share, for the fourth quarter of 2009.

Redwood also reported an estimated taxable loss of $6 million, or $0.07 per share, during the fourth quarter of 2010.  This compares to an estimated taxable loss of $9 million, or $0.11 per share, for the third quarter of 2010, and a taxable loss of $35 million, or $0.44 per share, for the fourth quarter of 2009.  

At December 31, 2010, GAAP book value was $13.63 per share, an increase of $0.61 per share from September 30, 2010, and management's estimate of non-GAAP economic value was $14.31 per share, an increase of $0.58 per share from September 30, 2010.

During the fourth quarter of 2010, Redwood acquired $195 million of residential mortgage loans, originated $30 million of commercial loans, and acquired $26 million of residential securities.  At December 31, 2010, cash and cash equivalents totaled $47 million.

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 The Redwood Review, which is available on Redwood's website at www.redwoodtrust.com, and in Redwood's most recent Annual Report on Form 10-K, which is filed with the Securities and Exchange Commission, and which 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 fourth 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 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                    Fourth     Third     Second    First     Fourth

($ in millions, except share
data)                         Quarter    Quarter   Quarter   Quarter   Quarter

                              2010       2010      2010      2010      2009



Interest income               $ 56       $ 59      $ 56      $ 59      $ 62

Interest expense                (22)       (24)      (21)      (18)      (21)

Net interest income             34         35        35        41        41

Provision for loan losses       (8)        (2)       (4)       (10)      (9)

Market valuation adjustments,
net                             -          (2)       (7)       (11)      (4)

Net interest income after
provision and                   26         31        24        20        28

market valuation adjustments

Operating expenses              (13)       (12)      (11)      (18)      (11)

Realized gains on sales and
calls, net                      2          2         16        44        20

Benefit from income taxes       -          -         -         -         3

Net income                      15         21        29        46        40

Less: Net income attributable
to noncontrolling interest      -          1         -         -         -

GAAP Net Income               $ 15       $ 20      $ 29      $ 46      $ 40





Average diluted shares
(thousands)                     78,944     78,961    78,852    78,542    78,101

Diluted earnings per share    $ 0.18     $ 0.25    $ 0.35    $ 0.58    $ 0.51

Regular dividends declared
per common share              $ 0.25     $ 0.25    $ 0.25    $ 0.25    $ 0.25






REDWOOD TRUST, INC.





Consolidated Income Statements                           Twelve Months Ended

($ in millions, except share data)                       December 31,

                                                         2010      2009



Interest income                                          $ 230     $ 288

Interest expense                                           (85)      (132)

Net interest income                                        145       156

Provision for loan losses                                  (24)      (49)

Market valuation adjustments, net                          (20)      (88)

Net interest income after provision and                    101       19

market valuation adjustments

Operating expenses                                         (54)      (47)

Realized gains on sales and calls, net                     64        63

Benefit from income taxes                                  -         4

Net income                                                 111       39

Less: Net income attributable to noncontrolling interest   1         -

GAAP Net Income                                          $ 110     $ 39





Average diluted shares (thousands)                         78,811    68,991

Diluted earnings per share                               $ 1.36    $ 0.55

Regular dividends declared per common share              $ 1.00    $ 1.00






REDWOOD TRUST, INC.





Consolidated Balance Sheets    31-Dec    30-Sep    30-Jun    31-Mar    31-Dec

($ in millions, except share
data)                          2010      2010      2010      2010      2009



Real estate loans              $ 3,847   $ 3,752   $ 3,810   $ 3,662   $ 3,740

Real estate securities, at
fair value:

Trading securities               330       310       276       289       278

Available-for-sale securities    825       798       741       847       810

Other investments                -         -         4         11        20

Cash and cash equivalents        47        189       288       242       243

Other assets                     95        113       100       144       162

Total Assets                   $ 5,144   $ 5,162   $ 5,219   $ 5,195   $ 5,253



Short-term debt                $ 44      $ -       $ -       $ -       $ -

Other liabilities                123       163       142       207       181

Asset-backed securities issued
- Sequoia entities               3,458     3,568     3,681     3,557     3,645

Asset-backed securities issued
- Acacia entities                303       264       253       280       298

Long-term debt                   140       140       140       140       140

Total liabilities                4,068     4,135     4,216     4,184     4,264



Stockholders’ equity           1,065     1,016     991       998       972

Noncontrolling interest          11        11        12        13        17

Total equity                     1,076     1,027     1,003     1,011     989



Total Liabilities and Equity   $ 5,144   $ 5,162   $ 5,219   $ 5,195   $ 5,253





Shares outstanding at period
end (thousands)                  78,125    77,984    77,908    77,751    77,737

GAAP book value per share      $ 13.63   $ 13.02   $ 12.71   $ 12.84   $ 12.50






REDWOOD TRUST,
INC.





Consolidating
Income
Statement

Three Months
Ended December
31, 2010                               Other

($ in
millions)      Redwood                 Consolidated  Intercompany  Redwood

               (Parent)  New Sequoia   Entities      Adjustments   Consolidated



Interest
income         $ 16      $ 2         - $ 27          $ -           $ 45

Net discount
(premium)
amortization     12        -         -   (1)           -             11

Total interest
income           28        2             26            -             56

Interest
expense          (3)       (1)       -   (18)          -             (22)

Net interest
income           25        1             8             -             34

Provision for
loan losses      -         -             (8)           -             (8)

Market
valuation
adjustments,
net              2         -         - - (2)         - -             -

Net interest
income after
provision        27        1             (2)           -             26

and market
valuation
adjustments

Operating
expenses         (13)      -             -             -             (13)

Realized gains
on sales and
calls, net       1         -             1             -             2

Income from
New Sequoia      1         -             -             (1)           -

Loss from
Other
Consolidated
Entities         (1)       -             -             1             -

Net Income
(Loss)         $ 15      $ 1           $ (1)         $ -           $ 15






Consolidating
Income
Statement

Twelve Months
Ended December
31, 2010                               Other

($ in
millions)      Redwood                 Consolidated  Intercompany  Redwood

               (Parent)  New Sequoia   Entities      Adjustments   Consolidated



Interest
income         $ 66      $ 5         - $ 120         $ -           $ 191

Net discount
(premium)
amortization     41        1         -   (3)           -             39

Total interest
income           107       6             117           -             230

Interest
expense          (8)       (5)       -   (72)          -             (85)

Net interest
income           99        1             45            -             145

Provision for
loan losses      -         -         - - (24)        - -             (24)

Market
valuation
adjustments,
net              (4)       -         - - (16)        - -             (20)

Net interest
income after
provision        95        1             5             -             101

and market
valuation
adjustments

Operating
expenses         (53)      -         - - (1)         - -             (54)

Realized gains
on sales and
calls, net       56        -         - - 8           - -             64

Income from
New Sequoia      1         -         - - -           - (1)           -

Income from
Other
Consolidated
Entities         11        -         - - -           - (11)          -

Noncontrolling
interest         -         -         - - (1)         - -             (1)

Net Income     $ 110     $ 1           $ 11          $ (12)        $ 110






REDWOOD TRUST,
INC.



Consolidating
Balance Sheet

December 31, 2010                      Other

($ in millions)     Redwood            Consolidated  Intercompany  Redwood
                              New
                    (Parent)  Sequoia  Entities      Adjustments   Consolidated



Real estate loans   $ 285     $ 145    $ 3,417       $ -           $ 3,847

Real estate
securities, at
fair value:

Trading securities    21        -        309           -             330

Available-for-sale
securities            802       -        23            -             825

Other investments     -         -        -             -             -

Cash and cash
equivalents           47        -        -             -             47

Investment in New
Sequoia               24        -        -             (24)          -

Investment in
Other Consolidated
Entities              81        -        -             (81)          -

Total earning
assets                1,260     145      3,749         (105)         5,049

Other assets          35        2        58            -             95

Total Assets        $ 1,295   $ 147    $ 3,807       $ (105)       $ 5,144



Short-term debt     $ 44      $ -      $ -           $ -           $ 44

Other liabilities     46        -        77            -             123

Asset-backed
securities issued     -         123      3,638         -             3,761

Long-term debt        140       -        -             -             140

Total liabilities     230       123      3,715         -             4,068



Stockholders’
equity                1,065     24       81            (105)         1,065

Noncontrolling
interest              -         -        11            -             11

Total equity          1,065     24       92            (105)         1,076



Total Liabilities
and Equity          $ 1,295   $ 147    $ 3,807       $ (105)       $ 5,144










REDWOOD TRUST, INC.



Tax / GAAP Differences

Three Months Ended December 31, 2010

($ in millions, except per share data)

                                                Tax       GAAP    Differences

Interest income                                 $ 28      $ 56    $ (28)

Interest expense                                  (2)       (22)    20

Net Interest Income                               26        34      (8)

Provision for loan losses                         -         (8)     8

Realized credit losses                            (20)      -       (20)

Market valuation adjustments, net                 -         -       -

Operating expenses                                (12)      (13)    1

Realized gains on sales and calls, net            -         2       (2)

Provision for income taxes                        -         -       -

Less: Net income attributable to noncontrolling
interest                                          -         -       -

Net (Loss) Income                               $ (6)     $ 15    $ (21)



Estimated (loss) income per share               $ (0.07)  $ 0.19  $ (0.26)






REDWOOD TRUST, INC.



Tax / GAAP Differences

Twelve Months Ended December 31, 2010

($ in millions, except per share data)

                                                Tax       GAAP    Differences

Interest income                                 $ 137     $ 230   $ (93)

Interest expense                                  (9)       (85)    76

Net Interest Income                               128       145     (17)

Provision for loan losses                         -         (24)    24

Realized credit losses                            (100)     -       (100)

Market valuation adjustments, net                 -         (20)    20

Operating expenses                                (44)      (54)    10

Realized gains on sales and calls, net            -         64      (64)

Provision for income taxes                        -         -       -

Less: Net income attributable to noncontrolling
interest                                          -         1       (1)

Net (Loss) Income                               $ (16)    $ 110   $ (126)



Estimated (loss) income per share               $ (0.20)  $ 1.36  $ (1.56)






REDWOOD TRUST, INC.



Book Value Per Share and Management's Estimate of Non-GAAP Economic Value Per
Share*

($ in millions, except per share data)



                             December 31, 2010



                                                          Management's

                             GAAP                         Estimate of Non-GAAP

                             As Reported  Adjustments     Economic Value

Cash and cash equivalents    $ 47         $               $ 47



Real estate loans at Redwood

Residential                    255                          255

Commercial                     30                           30

Subtotal real estate loans     285                          285

Real estate securities at
Redwood

Residential                    814                          814

Commercial                     8                            8

CDO                            1                            1

Subtotal real estate
securities                     823                          823

Investments in the Fund        14                           14

Investments in Sequoia
entities                       87           (9)       (a)   78

Investments in Acacia
entities                       4            (3)       (b)   1

Other assets (d)               35                           35

Total assets                   1,295                        1,283



Short-term debt                (44)                         (44)

Long-term debt                 (140)        65        (c)   (75)

Other liabilities (d)          (46)                         (46)

Stockholders' Equity         $ 1,065                      $ 1,118



Book Value Per Share         $ 13.63                      $ 14.31





(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 $87 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 December 31, 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 $75 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.

(d) Other assets are comprised of $5 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 $26
million.

* This table presents supplemental components of book value at December 31,
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 most recent
Annual Report on Form 10-K.






REDWOOD TRUST, INC.



Sources and Uses of Cash (a)

($ in millions)

                                       Three Months Ended

                                       December 31, 2010  September 30, 2010

Beginning cash balance                 $ 189              $ 288

Sources of cash

Loans at Redwood                         6                  -

Securities at Redwood - principal and
interest

Residential senior                       42                 36

Residential Re-REMIC                     2                  2

Residential subordinate                  8                  9

Commercial and CDO                       1                  2

Securities at Redwood - sales            -                  -

Investments in Consolidated Entities     11                 11

Short-term debt financing                44                 -

Derivative margin returned, net          26                 -

Changes in working capital               3                  -

Total sources of cash                    143                60



Uses of cash

Acquisitions of residential loans        (195)              (62)

Origination of commercial loans          (30)               -

Acquisitions of securities(b)            (29)               (48)

Cash operating expenses                  (9)                (9)

Interest expense on long-term debt       (2)                (2)

Derivative margin posted, net            -                  (17)

Dividends                                (20)               (20)

Changes in working capital               -                  (1)

Total uses of cash                       (285)              (159)



Net uses of cash                         (142)              (99)

Ending Cash Balance                    $ 47               $ 189





(a) The sources and uses of cash in the table above are derived from our
GAAP Consolidated Statements of Cash Flows 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 of securities in the fourth quarter of 2010 were $26
million. Securities acquisitions of $3 million made in the third quarter
that did not settle until early October are also reflected in this table.





SOURCE Redwood Trust, Inc.