Redwood Trust Reports First Quarter 2010 Results

MILL VALLEY, Calif., May 5 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the first quarter of 2010 of $47 million, or $0.58 per share. This compares to net income of $40 million, or $0.51 per share, for the fourth quarter of 2009, and a net loss of $35 million, or $0.65 per share, for the first quarter of 2009.

Redwood also reported that it had estimated taxable income of $1 million, or $0.01 per share, during the first quarter of 2010.  This compares to an estimated taxable loss of $34 million, or $0.44 per share, for the fourth quarter of 2009, and a taxable loss of $14 million, or $0.22 per share, for the first quarter of 2009.  

At March 31, 2010, GAAP book value was $12.84 per share, an increase of $0.34 per share, or 3%, from December 31, 2009, and management's estimate of non-GAAP economic value was $13.32 per share, an increase of $0.29 per share, or 2%, from December 31, 2009.

During the first quarter of 2010, Redwood acquired $189 million of residential securities and sold $124 million of securities.   Redwood ended the quarter with a total securities portfolio of $840 million, up from $781 million at the beginning of the quarter, and with $242 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 March 31, 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 first quarter of 2010 and is available at www.redwoodtrust.com.

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 First     Fourth    Third     Second    First

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

                               2010      2009      2009      2009      2009



Interest income                $ 58      $ 62      $ 70      $ 74      $ 82

Interest expense                 (18)      (21)      (25)      (39)      (47)

Net interest income              40        41        45        35        35

Provision for loan losses        (9)       (9)       (10)      (15)      (15)

Market valuation adjustments,
net                              (11)      (4)       (11)      (29)      (44)

Net interest income (loss)
after provision and              20        28        24        (9)       (24)

market valuation adjustments

Operating expenses               (17)      (11)      (15)      (10)      (11)

Realized gains, net              44        20        18        25        -

Benefit from income taxes        -         3         -         1         -

Net income (loss)                47        40        27        7         (35)

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

GAAP net income (loss)         $ 47      $ 40      $ 27      $ 7       $ (35)





Average diluted shares
(thousands)                      78,542    78,101    78,223    66,446    53,632

Diluted earnings (loss) per
share                          $ 0.58    $ 0.51    $ 0.34    $ 0.10    $ (0.65)

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






REDWOOD TRUST, INC.





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

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



Real estate loans              $ 3,662   $ 3,740   $ 3,831   $ 3,966   $ 4,541

Real estate securities, at
fair value:

Trading securities               289       278       275       253       264

Available-for-sale securities    847       810       787       551       255

Other investments                11        20        29        47        62

Cash and cash equivalents        242       243       217       337       333

Other assets                     144       162       146       131       126

Total Assets                   $ 5,195   $ 5,253   $ 5,285   $ 5,285   $ 5,581



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

Other liabilities                207       181       203       185       198

Asset-backed securities issued
- Sequoia entities               3,557     3,645     3,728     3,843     4,418

Asset-backed securities issued
- Acacia entities                280       298       288       287       291

Long-term debt                   140       140       140       150       150

Total liabilities                4,184     4,264     4,359     4,465     5,057



Stockholders’ equity           998       972       907       802       506

Noncontrolling interest          13        17        19        18        18

Total equity                     1,011     989       926       820       524



Total Liabilities and Equity   $ 5,195   $ 5,253   $ 5,285   $ 5,285   $ 5,581





Shares outstanding at period
end (thousands)                  77,751    77,737    77,669    77,503    60,228

GAAP book value per share      $ 12.84   $ 12.50   $ 11.68   $ 10.35   $ 8.40






REDWOOD TRUST,
INC.





Consolidating
Income Statement

Three Months
Ended March 31,
2010

($ in millions)             The    Securitization  Intercompany    Redwood

                   Redwood  Fund   Entities        Adjustments     Consolidated



Interest income  $ 18       $ 1    $ 31            $ -           $ 50

Net discount
(premium)
amortization       9          1      (2)             -             8

Total interest
income             27         2      29              -             58

Management fees    1          -      -               (1)           -

Interest expense   (1)        -      (17)            -             (18)

Net interest
income             27         2      12              (1)           40

Provision for
loan losses        -          -      (9)             -             (9)

Market valuation
adjustments, net   (3)        -      (8)             -             (11)

Net interest
income after
provision          24         2      (5)             (1)           20

and market
valuation
adjustments

Operating
expenses           (17)       (1)    -               1             (17)

Realized gains,
net                38         (1)    7               -             44

Income from the
Fund and
Securitization
Entities           2          -      -               (2)           -

Noncontrolling
interest           -          -      -               -             -

Benefit from
income taxes       -          -      -               -             -

Net income       $ 47       $ -    $ 2             $ (2)         $ 47






REDWOOD TRUST, INC.



Consolidating
Balance Sheet

March 31, 2010

($ in millions)                The   Securitization  Intercompany  Redwood

                      Redwood  Fund  Entities        Adjustments   Consolidated



Real estate loans     $ 2      $ -   $ 3,660         $ -           $ 3,662

Real estate
securities, at fair
value:

Trading securities      20       -     269             -             289

Available-for-sale
securities              820      27    -               -             847

Other investments       -        -     11              -             11

Cash and cash
equivalents             242      -     -               -             242

Investment in the
Fund                    16       -     -               (16)          -

Investment in
Securitization
Entities                78       -     -               (78)          -

Total earning assets    1,178    27    3,940           (94)          5,051

Other assets            23       3     118             -             144

Total Assets          $ 1,201  $ 30  $ 4,058         $ (94)        $ 5,195



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

Other liabilities       63       1     143             -             207

Asset-backed
securities issued       -        -     3,837           -             3,837

Long-term debt          140      -     -               -             140

Total liabilities       203      1     3,980           -             4,184



Stockholders’
equity                  998      12    78              (94)          994

Noncontrolling
interest                -        17    -               -             17

Total equity            998      29    78              (94)          1,011



Total Liabilities
and Equity            $ 1,201  $ 30  $ 4,058         $ (94)        $ 5,195






REDWOOD TRUST, INC.



Tax / GAAP Differences

Three Months Ended March 31, 2010*

(In Millions, Except per Share Data)

                                               Tax     GAAP    Differences

Interest income                                $ 37    $ 58    $ (21)

Interest expense                                 (1)     (18)    17

Net Interest Income                              36      40      (4)

Provision for loan losses                        -       (9)     9

Realized credit losses                           (24)    -       (24)

Market valuation adjustments, net                -       (11)    11

Operating expenses                               (11)    (17)    6

Realized gains, net                              -       44      (44)

Benefit from income taxes                        -       -       -

Less: Net loss attributable to noncontrolling
interest                                         -       -       -

Net Income                                     $ 1     $ 47    $ (46)



Estimated income (loss) per share              $ 0.01  $ 0.58  $ (0.57)

* 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)



                            March 31, 2010



                                                         Management's

                            GAAP                         Estimate of Non-GAAP

                            As Reported  Adjustments     Economic Value

Cash and cash equivalents   $ 242        $               $ 242

Real estate securities at
Redwood

Residential                   830                          830

Commercial                    9                            9

CDO                           1                            1

Subtotal real estate
securities                    840                          840

Investments in the Fund       16                           16

Investments in Sequoia
entities                      77           (29)      (a)   48

Investments in Acacia
entities (b)                  1                            1

Total cash, securities and
investments                   1,176                        1,147

Long-term debt                (140)        67        (c)   (73)

Other assets/liabilities,
net (d)                       (38)                         (38)

Stockholders' Equity        $ 998                        $ 1,036



Book Value Per Share        $ 12.84                      $ 13.32





(a) Our investments in Sequoia entities consist predominately of interest-only securities, and, to a smaller extent, senior and subordinate securities issued by Sequoia entities. We calculated the $48 million estimate of economic value for these securities using the same valuation process that we follow to fair value our other real estate securities. In contrast, the $77 million of GAAP carrying value of these investments represents the difference between the assets and liabilities owned by the Sequoia entities.

(b) The GAAP carrying value and the fair value of our investments in Acacia entities 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 March 31, 2010, we had $140 million of long-term debt outstanding at an interest rate of LIBOR plus 225 basis points due in 2037. We calculated the $73 million estimate of economic value of this debt using the same valuation process used to fair value our other financial assets and liabilities.

(d) Other assets/liabilities, net are comprised of $2 million of real estate loans, $4 million of accrued interest receivable, and $19 million of other assets, less dividends payable of $19 million and accrued interest and other liabilities of $44 million (which includes $33 million for pending acquisitions).  

* This table presents supplemental non-GAAP components of book value at March 31, 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 March 31, 2010.  


REDWOOD TRUST, INC.



Sources and Uses of Cash*

(In Millions)

                                    Three Months Ended

                                    March 31, 2010  December 31, 2009

Beginning cash balance              $ 243           $ 217

Business cash flow:

Cash flow from investments            193             134

Asset management fees                 1               1

Operating expenses                    (16)            (11)

Interest expense on long-term debt    (1)             (1)

Total business cash flow              177             123

Other sources and uses:

Changes in working capital            (2)             (9)

Acquisitions**                        (156)           (68)

Dividends                             (20)            (20)

Net other uses                        (178)           (97)



Net sources of cash                   (1)             26

Ending cash balance                 $ 242           $ 243





* 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 first quarter 2010 were $189 million, of which $33 million of these acquisitions were settled in early April.  In the fourth quarter of 2009, all acquisitions settled within the period.  

SOURCE Redwood Trust, Inc.