FOR IMMEDIATE RELEASE
 CONTACTS:
Diane Merdian
Redwood Trust, Inc.
  
(415) 380-2331
Thursday, May 5, 2011
    
   
Mike McMahon
   
(415) 384-3805
 
 
REDWOOD TRUST REPORTS FIRST QUARTER 2011 RESULTS
 
MILL VALLEY, CA – May 5, 2011 – Redwood Trust, Inc. (NYSE:RWT) today reported net income for the first quarter of 2011 of $18 million, or $0.22 per fully diluted share. This compares to net income of $15 million, or $0.18 per fully diluted share, for the fourth quarter of 2010, and net income of $47 million, or $0.58 per fully diluted share, for the first quarter of 2010.
 
Redwood also reported estimated taxable income of $5 million, or $0.06 per share, during the first quarter of 2011.  This compares to an estimated taxable loss of $6 million, or $0.07 per share, for the fourth quarter of 2010, and taxable income of $1 million, or $0.01 per share, for the first quarter of 2010.
 
At March 31, 2011, GAAP book value was $13.76 per share, an increase of $0.13 per share from December 31, 2010, and management’s estimate of non-GAAP economic value was $14.45 per share, an increase of $0.14 per share from December 31, 2010.
 
During the first quarter of 2011, Redwood acquired $101 million of residential mortgage loans, originated $12 million of commercial loans, and acquired $13 million of residential securities.  On March 1, 2011, Redwood’s Sequoia securitization entity closed a $295 million residential mortgage-backed securitization. At March 31, 2011, cash and cash equivalents totaled $220 million.
 
Please see the tables that follow for reconciliations between GAAP and non-GAAP metrics.   Additional information on Redwood’s business, financial results, and 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 Quarterly Report on Form 10-Q, which is filed with the Securities and Exchange Commission, and which is also available on Redwood’s 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.
 
 
1
 
 
REDWOOD TRUST, INC.
 
 
Consolidated Income Statements(1)
  
First
    
Fourth
    
Third
    
Second
    
First
  
($ in millions, except share data)
  
Quarter
    
Quarter
    
Quarter
    
Quarter
    
Quarter
  
 
  
2011
    
2010
    
2010
    
2010
    
2010
  
                               
Interest income
   $ 54     $ 56     $ 59     $ 56     $ 59  
Interest expense
     (22 )     (22 )     (24 )     (21 )     (18 )
Net interest income
     32       34       35       35       41  
Provision for loan losses
     (3 )     (8 )     (2 )     (4 )     (9 )
Market valuation adjustments, net
     (6 )     -       (2 )     (7 )     (11 )
Net interest income after provision and
     24       26       31       24       21  
market valuation adjustments
                                        
Operating expenses
     (12 )     (13 )     (12 )     (11 )     (18 )
Realized gains on sales and calls, net
     4       2       2       16       44  
Provision for income taxes
     -       -       -       -       -  
Net income
     16       15       21       29       47  
Less: Net (loss) income attributable to noncontrolling interest
     (2 )     -       1       -       -  
Net Income Attributable to Redwood Trust, Inc.
   $ 18     $ 15     $ 20     $ 29     $ 47  
                                         
                                         
Average diluted shares (thousands)
     79,372       78,944       78,961       78,852       78,542  
Diluted earnings per share
   $ 0.22     $ 0.18     $ 0.25     $ 0.35     $ 0.58  
Regular dividends declared per common share
   $ 0.25     $ 0.25     $ 0.25     $ 0.25     $ 0.25  
                                         
(1) Certain totals may not foot due to rounding.
 
 
2
 
 
REDWOOD TRUST, INC.
 
 
Consolidated Balance Sheets(1)
  
31-Mar
    
31-Dec
    
30-Sep
    
30-Jun
    
31-Mar
  
($ in millions, except share data)
  
2011
    
2010
    
2010
    
2010
    
2010
  
                               
Residential real estate loans
   $ 3,796     $ 3,797     $ 3,733     $ 3,790     $ 3,645  
Commercial real estate loans
     62       50       19       20       17  
Real estate securities, at fair value:
                                        
Trading securities
     322       330       310       276       289  
Available-for-sale securities
     782       825       798       741       847  
Other investments
     -       -       -       4       11  
Cash and cash equivalents
     220       47       189       288       242  
Other assets
     101       95       113       100       144  
Total Assets
   $ 5,283     $ 5,144     $ 5,162     $ 5,219     $ 5,195  
                                         
Short-term debt
   $ -     $ 44     $ -     $ -     $ -  
Other liabilities
     104       123       163       142       207  
Asset-backed securities issued - Sequoia entities
     3,646       3,458       3,568       3,681       3,557  
Asset-backed securities issued - Acacia entities
     311       303       264       253       280  
Long-term debt
     140       140       140       140       140  
Total liabilities
     4,201       4,068       4,135       4,216       4,184  
                                         
Stockholders’ equity
     1,075       1,065       1,016       991       998  
Noncontrolling interest
     7       11       11       12       13  
Total equity
     1,082       1,076       1,027       1,003       1,011  
                                         
Total Liabilities and Equity
   $ 5,283     $ 5,144     $ 5,162     $ 5,219     $ 5,195  
                                         
                                         
Shares outstanding at period end (thousands)
     78,139       78,125       77,984       77,908       77,751  
GAAP book value per share
   $ 13.76     $ 13.63     $ 13.02     $ 12.71     $ 12.84  
                                         
(1) Certain totals may not foot due to rounding.
 
 
3
 
 
REDWOOD TRUST, INC.
 
 
Consolidating Income Statement(1)
                              
Three Months Ended March 31, 2011
              
Other
              
($ in millions)
  
Redwood
    
New
   
Consolidated
    
Intercompany
    
Redwood
  
 
  
(Parent)
     Sequoia    
Entities
    
Adjustments
    
Consolidated
  
                               
Interest income
   $ 16     $ 3     $ 25     $ -     $ 43  
Net discount (premium) amortization
     12       -       (1 )     -       11  
Total interest income
     28       3       24       -       54  
Interest expense
     (3 )     (2 )     (17 )     -       (22 )
Net interest income
     26       0       6       -       32  
Provision for loan losses
     -       -       (3 )     -       (3 )
Market valuation adjustments, net
     1       -       (7 )     -       (6 )
Net interest income (loss) after provision
     26       0       (3 )     -       24  
and market valuation adjustments
                                        
Operating expenses
     (11 )     -       (0 )     -       (12 )
Realized gains (losses) on sales and calls, net
     7       -       (3 )     -       4  
Income from New Sequoia
     0       -       -       (0 )     -  
Loss from Other Consolidated Entities
     (4 )     -       -       4       -  
Noncontrolling interest
     -       -       2       -       2  
Provision for income taxes
     -       -       -       -       -  
Net Income (Loss)
   $ 18     $ 0     $ (4 )   $ 4     $ 18  
                                         
                                         
(1) This table presents the estimated effect of Redwood, New Sequoia, and our Other Consolidated Entities on our consolidated GAAP Statement of Income for the three months ended March 31, 2011. The allocation of income and expense between these entities is consistent with the manner in which management analyzes them. Certain totals may not foot due to rounding.
 
 
4
 
 
REDWOOD TRUST, INC.
 
 
Consolidating Balance Sheet(1)
                              
March 31, 2011
              
Other
              
($ in millions)
  
Redwood
    
New
   
Consolidated
    
Intercompany
    
Redwood
  
 
  
(Parent)
     Sequoia    
Entities
    
Adjustments
    
Consolidated
  
                               
Residential real estate loans
   $ 55     $ 408     $ 3,333     $ -     $ 3,796  
Commercial real estate loans
     42       -       20       -       62  
Real estate securities, at fair value:
                                        
Trading securities
     21       -       301       -       322  
Available-for-sale securities
     767       -       15       -       782  
Cash and cash equivalents
     220       -       -       -       220  
Investment in New Sequoia
     39       -       -       (39 )     -  
Investment in Other Consolidated Entities
     71       -       -       (71 )     -  
Total earning assets
     1,215       408       3,669       (110 )     5,182  
Other assets
     34       4       63       -       101  
Total Assets
   $ 1,249     $ 412     $ 3,732     $ (110 )   $ 5,283  
                                         
Short-term debt
   $ -     $ -     $ -     $ -     $ -  
Other liabilities
     34       -       70       -       104  
Asset-backed securities issued
     -       373       3,584       -       3,957  
Long-term debt
     140       -       -       -       140  
Total liabilities
     174       373       3,654       -       4,201  
                                         
Stockholders’ equity
     1,075       39       71       (110 )     1,075  
Noncontrolling interest
     -       -       7       -       7  
Total equity
     1,075       39       78       (110 )     1,082  
                                         
Total Liabilities and Equity
   $ 1,249     $ 412     $ 3,732     $ (110 )   $ 5,283  
                                         
                                         
(1) This table presents the estimated effect of Redwood, New Sequoia, and our Other Consolidated Entities on our GAAP Consolidated Balance Sheet at March 31, 2011. The allocation of assets and liabilities between these entities is consistent with the manner in which management analyzes them. Certain totals may not foot due to rounding.
 
 
5
 
 
REDWOOD TRUST, INC.
                   
                   
Tax / GAAP Differences(1)
                  
Three Months Ended March 31, 2011
                  
($ in millions, except per share data)
                  
   
Tax
    
GAAP
    
Differences
  
Interest income
   $ 34     $ 54     $ (20 )
Interest expense
     (3 )     (22 )     19  
Net Interest Income
     31       32       (1 )
Provision for loan losses
     -       (3 )     3  
Realized credit losses
     (15 )     -       (15 )
Market valuation adjustments, net
     -       (6 )     6  
Operating expenses
     (11 )     (12 )     1  
Realized gains on sales and calls, net
     -       4       (4 )
Provision for income taxes
     -       -       -  
Less: Net loss attributable to noncontrolling interest
     -       (2 )     2  
Net Income
   $ 5     $ 18     $ (13 )
                         
Estimated income per share
   $ 0.06     $ 0.22     $ (0.16 )
 
(1) Certain totals may not foot due to rounding.
 
 
6
 
 
REDWOOD TRUST, INC.
 
 
Book Value Per Share and Management's Estimate of Non-GAAP Economic Value Per Share(1)
          
($ in millions, except per share data)
                    
                     
   
March 31, 2011
  
                     
   
Components of
            
Estimate of Non-GAAP
  
   
GAAP Book Value
    
Adjustments
      
Economic Value
  
Cash and cash equivalents
   $ 220     $         $ 220  
                           
Real estate loans at Redwood
                          
Residential
     55                 55  
Commercial
     42                 42  
Subtotal real estate loans
     97                 97  
Real estate securities at Redwood
                          
Residential
     780                 780  
Commercial
     7                 7  
CDO
     1                 1  
Subtotal real estate securities
     788                 788  
Investments in Sequoia entities
     97       (4 )
(2)
     93  
Investments in Acacia entities
     2       (1 )
(3)
     1  
Investments in the Fund
     11                 11  
Other assets (5)
     34                 34  
Total assets
     1,249                 1,244  
                           
Short-term debt
     -                 -  
Long-term debt
     (140 )     59  
(4)
     (81 )
Other liabilities (5)
     (34 )               (34 )
Stockholders' Equity
   $ 1,075               $ 1,129  
                           
Book Value Per Share
   $ 13.76               $ 14.31  
 
(1) This table presents supplemental components of book value at March 31, 2011. The components of GAAP book value are derived from our GAAP consolidated balance sheet and based upon the carrying values of the assets and liabilities at Redwood as well as the estimated net carrying values of our investments in consolidated entities, whose assets and liabilities are reported on our GAAP consolidated balance sheet. We show our investments in the Sequoia and Acacia entities and the Fund as separate line items to highlight our specific ownership interests, as the underlying assets and liabilities of these entities are legally not ours even though we are required to consolidate them for financial reporting purposes. Allocations between these entities for purposes of this presentation are consistent with the manner in which management analyzes them. Additional aggregated amounts are noted in footnote (5) below.
 
The components of management’s estimate of non-GAAP economic value are based on the estimated fair values of the assets and liabilities at Redwood as well as the estimated fair values of our investments in consolidated entities and our long-term debt. Our estimated non-GAAP 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 Quarterly Report on Form 10-Q.
Certain totals may not foot due to rounding.
 
(2) Our investments in Sequoia entities consist of interest-only securities and senior and subordinate securities issued by Sequoia entities. We calculated the $93 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 $97 million estimate of carrying value of these investments represents the difference between the assets and liabilities owned by the Sequoia entities.
 
(3)  The estimated carrying value of our investments in Acacia entities was $2 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.
 
(4) At March 31, 2011, 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 $81 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.
 
(5) Other assets are comprised of $4 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 $14 million.
 
 
7
 
 
 
REDWOOD TRUST, INC.
            
             
Sources and Uses of Cash (1)
            
($ in millions)
            
   
Three Months Ended
  
   
March 31, 2011
    
December 31, 2010
  
Beginning cash balance
   $ 47     $ 189  
Sources of cash(2)
                
Loans at Redwood
     6       6  
Proceeds from securitization
     296       -  
Securities at Redwood - principal and interest
                
Residential senior
     33       42  
Residential Re-REMIC
     2       2  
Residential subordinate
     9       8  
Commercial and CDO
     -       1  
Sales of securities(3)
     30       -  
Investments in Consolidated Entities(1)
     15       11  
Short-term debt financing
     -       44  
Derivative margin returned, net
     3       26  
Changes in working capital
     3       3  
Total sources of cash
     397       143  
                 
Uses of cash
                
Acquisitions of residential loans
     (101 )     (195 )
Origination of commercial loans
     (12 )     (30 )
Acquisitions of securities(4)
     (13 )     (29 )
Investment in New Sequoia
     (15 )     -  
Short-term debt repayment
     (44 )     -  
Cash operating expenses
     (17 )     (9 )
Interest expense on long-term debt
     (2 )     (2 )
Dividends
     (20 )     (20 )
Total uses of cash
     (224 )     (285 )
                 
Net sources (uses) of cash
     173       (142 )
Ending Cash Balance
   $ 220     $ 47  
 
(1) 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. Certain totals may not foot due to rounding.
 
(2) Cash flow from securities and investments can be volatile from quarter to quarter depending on the level of invested capital, the timing of credit losses, acquisitions, sales, and changes in prepayments and interest rates. Therefore, (i) cash flow generated by these investments is not necessarily reflective of the long-term economic yield we will earn on the investments in a given period; and, (ii) it is difficult to determine what portion of the cash received from an investment is a return “of” principal and what portion is a return “on” principal in a given period.
 
(3) Total sales of securities in the first quarter of 2011 were $35 million. Securities sales of $5 million made in the first quarter that did not settle until early April are not reflected in this table.
 
(4) Total acquisitions of securities in the fourth quarter of 2010 were $26 million. Securities acquisitions of $3 million made in the third quarter that settled in October are also reflected in this table.
 
 
8