Unassociated Document

FOR IMMEDIATE RELEASE	CONTACTS: Mike McMahon
Redwood Trust, Inc.	(415) 384-3805
Wednesday, May 5, 2010
	Martin S. Hughes
	(415) 389-7373

REDWOOD TRUST REPORTS FIRST QUARTER 2010 RESULTS

MILL VALLEY, CA – May 5, 2010 – 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 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.