Redwood Trust Reports First Quarter 2009 Results

MILL VALLEY, Calif., May 5 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported a net loss for the first quarter of 2009 of $35 million, or $0.65 per share. This compares to a net loss of $116 million, or $3.46 per share, for the fourth quarter of 2008, and a net loss of $172 million, or $5.28 per share, for the first quarter of 2008. Net interest income for the first quarter of 2009 was $34 million, as compared to $24 million in the fourth quarter of 2008, and $49 million for the first quarter of 2008. The net loss for the first quarter of 2009 reflected $43 million of net negative market valuation adjustments (MVA) and $16 million of loan loss provisions, as compared to $111 million of net negative MVA and $19 million of loan loss provisions for the fourth quarter of 2008, and $194 million of net negative MVA and $8 million of loan loss provisions for the first quarter of 2008.

During the first quarter, Redwood's investments generated $45 million of cash in excess of operating and interest costs. At March 31, 2009, Redwood had $333 million of cash and no short-term debt.

Redwood estimated that it incurred a taxable loss of $14 million, or $0.22 per share, during the first quarter of 2009. This compares to an estimated taxable loss of $8 million, or $0.25 per share, for the fourth quarter of 2008, and estimated taxable income of $26 million, or $0.79 per share, for the first quarter of 2008.

"While our earnings continue to be impacted by negative market valuation adjustments on our securities and investments, we are pleased with our economic progress in 2009," said Martin S. Hughes, Redwood's President and Chief Financial Officer. "Our investment cash flows remain strong, our investments are funded entirely by long-term capital, and we raised $283 million of capital in January through a public offering of common stock. Housing and credit fundamentals remain in line with our expectations and we are taking advantage of attractive investment opportunities. During the first four months of 2009, Redwood acquired $240 million of primarily senior residential mortgage-backed securities, including $98 million of securities during the first quarter."

The accounting concepts and disclosures relating to our financial statements are complex. Today, we also released our Redwood Review covering the first quarter of 2009. The Redwood Review contains a more detailed discussion of our business performance and outlook. The Redwood Review is available on our website at www.redwoodtrust.com.

Additional information on our GAAP results is available in our Quarterly Report on Form 10-Q for the three months ended March 31, 2009 which we filed today with the Securities and Exchange Commission. The Form 10-Q is available on our website 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, 2008 under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are described below and 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.

Important factors, among others, that may affect our actual results include: changes in interest rates; changes in mortgage prepayment rates; the timing of credit losses within our portfolio; our exposure to adjustable-rate and negative amortization mortgage loans; the state of the credit markets and other general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the concentration of the credit risks we are exposed to; the ability of counterparties to satisfy their obligations to us; legislative and regulatory actions affecting the mortgage industry or our business; the availability of high quality assets for purchase at attractive prices; declines in home prices and commercial real estate prices; increases in mortgage payment delinquencies; changes in the level of liquidity in the capital markets which may adversely affect our ability to finance our real estate asset portfolio; changes in liquidity in the market for real estate securities, the re-pricing of credit risk in the capital markets, inaccurate ratings of securities by rating agencies, rating agency downgrades of securities, and increases in the supply of real estate securities available-for-sale, each of which may adversely affect the values of securities we own; the extent of changes in the values of securities we own and the impact of adjustments reflecting those changes on our income statement and balance sheet, including our stockholders' equity; our ability to maintain the positive stockholders' equity necessary to enable us to pay the dividends required to maintain our status as a real estate investment trust for tax purposes; our ability to generate the amount of cash flow we expect from our investment portfolio; changes in our investment, financing, and hedging strategies and the new risks that those changes may expose us to; changes in the competitive landscape within our industry, including changes that may affect our ability to retain or attract personnel; our failure to manage various operational risks associated with our business; our failure to maintain appropriate internal controls over financial reporting; our failure to properly administer and manage our securitization entities; risks we may be exposed to if we expand our business activities, such as risks relating to significantly increasing our direct holdings of loans; limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940; our ability to successfully deploy the proceeds from our recent common equity offering and raise additional capital to fund our investing activity; and other factors not presently identified.

    REDWOOD TRUST, INC.


    Consolidated Income Statement   First   Fourth    Third   Second    First
    -----------------------------  Quarter  Quarter  Quarter  Quarter  Quarter
    ($ in millions, except share    2009     2008     2008     2008     2008
    data)                           ----     ----     ----     ----     ----

    Interest income                  $82     $123     $131     $137     $176
    Interest expense                 (48)     (99)     (92)     (98)    (127)
                                     ---      ---      ---      ---     ----
    Net interest income               34       24       39       39       49
    Provision for loan losses        (16)     (19)     (18)     (10)      (8)
    Market valuation
     adjustments, net                (43)    (111)    (127)     (60)    (194)
                                     ---     ----     ----      ---     ----
    Net interest income after
     provision and market
     valuation adjustments           (25)    (106)    (106)     (31)    (153)
    Operating expenses               (11)     (14)     (17)     (15)     (17)
    Realized gains on sales and
     calls, net                        -        6        -        3        -
    (Provision for) benefit from
     income taxes                      -       (4)      10       (1)      (2)
                                     ---      ---      ---      ---      ---
    Net Loss                         (36)    (118)    (113)     (44)    (172)
    Less: Net loss (income)
     attributable to
     noncontrolling interest           1        2        2       (2)       -
                                     ---      ---      ---      ---      ---
    GAAP net loss                   $(35)   $(116)   $(111)    $(46)   $(172)
                                    ====    =====    =====     ====    =====


    Average diluted shares
     (thousands)                  53,632   33,366   33,334   32,871   32,511
    GAAP earnings per share
     (diluted)                    $(0.65)  $(3.46)  $(3.34)  $(1.40)  $(5.28)
    Regular dividends declared
     per common share              $0.25    $0.75    $0.75    $0.75    $0.75



    REDWOOD TRUST, INC.


    Consolidated Balance Sheet        31-Mar  31-Dec  30-Sep  30-Jun  31-Mar
    --------------------------         2009    2008    2008    2008    2008
    ($ in millions, except share data) ----    ----    ----    ----    ----

    Real estate loans                $4,541  $4,659  $6,101  $6,377  $6,775
    Real estate securities, at
     fair value:
      Trading securities                264     340     574     841     952
      Available-for-sale securities     255     233     288     400     242
    Other investments                    62      78      79      79      79
    Cash and cash equivalents           333     126     177     148     257
    Other assets                        126     146     155     201     241
                                        ---     ---     ---     ---     ---
    Total Assets                     $5,581  $5,582  $7,374  $8,046  $8,546

    Short-term debt                      $-      $-      $7      $9      $2
    Other liabilities                   198     252     167     166     211
    Asset-backed securities issued -
     Sequoia                          4,418   4,508   5,930   6,175   6,544
    Asset-backed securities issued -
     Acacia                             291     347     673     935   1,046
    Long-term debt                      150     150     150     150     150
                                        ---     ---     ---     ---     ---
    Total liabilities                 5,057   5,257   6,927   7,435   7,953

    Stockholders' equity                506     302     412     564     585
    Noncontrolling interest              18      23      35      47       8
                                        ---     ---     ---     ---     ---
    Total equity                        524     325     447     611     593
                                        ---     ---     ---     ---     ---
    Total Liabilities and
     Stockholders' Equity            $5,581  $5,582  $7,374  $8,046  $8,546
                                     ======  ======  ======  ======  ======

    Shares outstanding at period end
     (thousands)                     60,228  33,471  33,238  33,184  32,710
    GAAP book value per share         $8.40   $9.02  $12.40  $17.00  $17.89



    REDWOOD TRUST, INC.


    Consolidating Income
    Statement                                                Inter-
    --------------------                                    company   Redwood
    Three Months Ended           The                        Adjust-   Consoli-
    March 31, 2009     Redwood   Fund   Sequoia   Acacia     ments     dated
    ($ in millions)    -------   ----   -------   ------    -------  --------

    Interest income       $26     $3       $34      $22        $1       $86
    Net discount
     (premium)
     amortization          (4)    $-         -        -         -       $(4)
                          ---    ---       ---      ---       ---       ---
    Total interest
     income                22      3        34       22         1        82
    Management fees         1     $-         -        -        (1)        -
    Interest expense       (2)    $-       (25)     (21)        -       (48)
                          ---    ---       ---      ---        --       ---
    Net interest income   $21     $3        $9       $1        $-       $34
    Provision for
     loan losses            -      -       (16)       -         -       (16)
    Market valuation
     adjustments, net     (26)    (4)       (1)     (12)        -       (43)
                          ---    ---       ---      ---       ---       ---
    Net interest (loss)
     income after
     provision and
     market valuation
     adjustments           (5)    (1)       (8)     (11)        -       (25)
    Operating expenses    (11)     -         -        -         -       (11)
    Realized gains
     (losses) on sales
      and calls, net        -      -         -        -         -         -
    Loss from the Fund,
     Sequoia, and Acacia  (19)     -         -        -        19         -
    Noncontrolling
     interest               -      1         -        -         -         1
    Provision for
     income taxes           -      -         -        -         -         -
                          ---    ---       ---      ---       ---       ---
    Net (loss) Income    $(35)    $-       $(8)    $(11)      $19      $(35)
                         ====    ===       ===     ====       ===      ====



    REDWOOD TRUST, INC.


    Consolidating
    Balance Sheet                                            Inter-
    -------------                                           company   Redwood
                                 The                        Adjust-   Consoli-
    March 31, 2009     Redwood   Fund   Sequoia   Acacia     ments     dated
    ($ in millions)    -------   ----   -------   ------    -------  --------

    Real estate loans      $3     $-    $4,528      $10        $-    $4,541
    Real estate securities,
     at fair value:
      Trading securities    4      -         -      260         -       264
      Available-for-
       sale securities    217     38         -       72       (72)      255
    Other investments       -      -         -       62         -        62
    Cash and cash
     equivalents          333      -         -        -         -       333
    Investment in the
     Fund                  22      -         -        -       (22)        -
    Investment in Sequoia  70      -         -        -       (70)        -
    Investment in Acacia    7      -         -        -        (7)        -
                          ---    ---       ---      ---       ---       ---
       Total earning
        assets            656     38     4,528      404      (171)    5,455
    Other assets           25      4        38       59         -       126
                          ---    ---       ---      ---       ---       ---
    Total Assets         $681    $42    $4,566     $463     $(171)   $5,581
                         ====    ===    ======     ====     =====    ======

    Short-term debt        $-     $-        $-       $-        $-        $-
    Other liabilities      25      2         6      165         -       198
    Asset-backed securities
     issued - Sequoia       -      -     4,490        -       (72)    4,418
    Asset-backed securities
     issued - Acacia        -      -         -      291         -       291
    Long-term debt        150      -         -        -         -       150
                          ---    ---        ---     ---       ---       ---
    Total liabilities     175      2      4,496     456       (72)    5,057

    Stockholders' equity  506     22        70        7       (99)      506
    Noncontrolling
     interest               -     18         -        -         -        18
                          ---    ---       ---      ---       ---        --
    Total equity          506     40        70        7       (99)      524
                          ---    ---       ---      ---       ---       ---
    Total Liabilities
     and Stockholders'
     Equity              $681    $42    $4,566     $463     $(171)   $5,581
                         ====    ===    ======     ====     =====    ======



    REDWOOD TRUST, INC.


    GAAP and Taxable (Loss)
     Income Differences             First   Fourth    Third   Second    First
    -----------------------        Quarter  Quarter  Quarter  Quarter  Quarter
    ($ in millions,                  2009     2008     2008     2008     2008
     except share data)              ----     ----     ----     ----     ----

    GAAP net loss                    $(35)   $(116)   $(111)    $(46)   $(172)
    Difference in taxable (loss)
     income calculations
    ----------------------------
      Amortization and
       credit losses                  (22)      (1)      (7)     (10)       1
      Operating expenses                -       (1)       3        1        2
      Gross realized gains on
       calls and sales                  -       (5)       -       (3)       -
      Market valuation
       adjustments, net                43      111      127       61      194
      Provision for income taxes        -        4      (10)       1        1
                                      ---      ---      ---      ---      ---
    Total differences in GAAP and
     taxable (loss) income             21      108      113       50      198
                                     ----      ---      ---      ---      ---
    Taxable (loss) income            $(14)     $(8)      $2       $4      $26
                                     ====      ===      ===      ===      ===

    Taxable (loss) income
     per share                     $(0.22)  $(0.25)   $0.07    $0.11    $0.79


SOURCE Redwood Trust, Inc.