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Redwood Trust Reports First Quarter 2010 Results

Wednesday, May 05, 2010

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.

Contact: Mike McMahon, +1-415-384-3805, or Martin S. Hughes, +1-415-389-7373, both of Redwood Trust, Inc.

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