Redwood Trust Reports Second Quarter 2010 Results

MILL VALLEY, Calif., Aug. 4 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the second quarter of 2010 of $29 million, or $0.35 per fully diluted share. This compares to net income of $47 million, or $0.58 per fully diluted share, for the first quarter of 2010, and net income of $7 million, or $0.10 per fully diluted share, for the second quarter of 2009.

Redwood also reported an estimated taxable loss of $3 million, or $0.03 per share, during the second quarter of 2010.  This compares to estimated taxable income of $1 million, or $0.01 per share, for the first quarter of 2010, and a taxable loss of $12 million, or $0.16 per share, for the second quarter of 2009.  

At June 30, 2010, GAAP book value was $12.71 per share, a decrease of $0.13 per share from March 31, 2010, and management's estimate of non-GAAP economic value was $13.37 per share, an increase of $0.05 per share from March 31, 2010.

During the second quarter of 2010, Redwood acquired $23 million of residential securities and sold $116 million of securities.   Redwood ended the quarter with a total securities portfolio of $734 million, down from $840 million at the beginning of the quarter, and with $288 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 June 30, 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 second quarter of 2010 and is available on our 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 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                     Second    First     Fourth    Third     Second

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

                               2010      2010      2009      2009      2009



Interest income                $ 56      $ 58      $ 62      $ 70      $ 74

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

Net interest income              35        40        41        45        35

Provision for loan losses        (4)       (9)       (9)       (10)      (15)

Market valuation adjustments,
net                              (7)       (11)      (4)       (11)      (29)

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

market valuation adjustments

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

Realized gains, net              16        44        20        18        25

Benefit from income taxes        -         -         3         -         1

Net income                       29        47        40        27        7

Less: Net income attributable
to
noncontrolling interest          -         -         -         -         -

GAAP net income                $ 29      $ 47      $ 40      $ 27      $ 7





Average diluted shares
(thousands)                      78,852    78,542    78,101    78,223    66,446

Diluted earnings per share     $ $0.35   $ 0.58    $ 0.51    $ 0.34    $ 0.10

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






REDWOOD TRUST, INC.





Consolidated Income Statement                           Six Months Ended

($ in millions, except share data)                      June 30,

                                                        2010      2009



Interest income                                         $ 115     $ 156

Interest expense                                          (39)      (87)

Net interest income                                       76        69

Provision for loan losses                                 (14)      (31)

Market valuation adjustments, net                         (18)      (72)

Net interest loss after provision and                     44        (34)

market valuation adjustments

Operating expenses                                        (29)      (22)

Realized gains, net                                       60        26

Benefit from income taxes                                 -         1

Net income (loss)                                         75        (29)

Less: Net (loss) income attributable to noncontrolling
interest                                                  -         (1)

GAAP net income (loss)                                  $ 75      $ (28)





Average diluted shares (thousands)                        78,662    59,138

Diluted earnings (loss) per share                       $ 0.94    $ (0.48)

Regular dividends declared per common share             $ 0.50    $ 0.50










REDWOOD TRUST, INC.





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

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



Real estate loans              $ 3,810   $ 3,662   $ 3,740   $ 3,831   $ 3,966

Real estate securities, at
fair value:

Trading securities               276       289       278       275       253

Available-for-sale securities    741       847       810       787       551

Other investments                4         11        20        29        47

Cash and cash equivalents        288       242       243       217       337

Other assets                     100       144       162       146       131

Total Assets                   $ 5,219   $ 5,195   $ 5,253   $ 5,285   $ 5,285



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

Other liabilities                142       207       181       203       185

Asset-backed securities issued
- Sequoia entities               3,681     3,557     3,645     3,728     3,843

Asset-backed securities issued
- Acacia entities                253       280       298       288       287

Long-term debt                   140       140       140       140       150

Total liabilities                4,216     4,184     4,264     4,359     4,465



Stockholders’ equity           991       998       972       907       802

Noncontrolling interest          12        13        17        19        18

Total equity                     1,003     1,011     989       926       820



Total Liabilities and Equity   $ 5,219   $ 5,195   $ 5,253   $ 5,285   $ 5,285





Shares outstanding at period
end (thousands)                  77,908    77,751    77,737    77,669    77,503

GAAP book value per share      $ 12.71   $ 12.84   $ 12.50   $ 11.68   $ 10.35






REDWOOD TRUST, INC.





Consolidating
Income Statement

Three Months Ended
June 30, 2010                          Other

($ in millions)      Redwood  2010     Consolidated  Intercompany  Redwood

                     Parent   Sequoia  Entities      Adjustments   Consolidated



Interest income      $ 16     $ 1      $ 30          $ -           $ 47

Net discount
(premium)
amortization           10       -        (1)           -             9

Total interest
income                 26       1        29            -             56

Management fees        -        -        -             -             -

Interest expense       (2)      (1)      (18)          -             (21)

Net interest income    24       -        11            -             35

Provision for loan
losses                 -        -        (4)           -             (4)

Market valuation
adjustments, net       (4)      -        (3)           -             (7)

Net interest income
after provision        20       -        4             -             24

and market
valuation
adjustments

Operating expenses     (11)     -        -             -             (11)

Realized gains, net    16       -        -             -             16

Income from Other
Consolidated
Entities               4        -        -             (4)           -

Noncontrolling
interest               -        -        -             -             -

Benefit from income
taxes                  -        -        -             -             -

Net income           $ 29     $ -      $ 4           $ (4)         $ 29












Consolidating
Income Statement

Six Months Ended
June 30, 2010                          Other

($ in millions)      Redwood  2010     Consolidated  Intercompany  Redwood

                     Parent   Sequoia  Entities      Adjustments   Consolidated



Interest income      $ 33     $ 1      $ 63          $ 1           $ 98

Net discount
(premium)
amortization           19       -        (2)           -             17

Total interest
income                 52       1        61            1             115

Management fees        1        -        -             (1)           -

Interest expense       (3)      (1)      (35)          -             (39)

Net interest income    50       -        26            -             76

Provision for loan
losses                 -        -        (14)          -             (14)

Market valuation
adjustments, net       (7)      -        (12)          -             (19)

Net interest income
after provision        43       -        -             -             43

and market
valuation
adjustments

Operating expenses     (28)     -        -             -             (28)

Realized gains, net    54       -        6             -             60

Income from Other
Consolidated
Entities               6        -        -             (6)           -

Noncontrolling
interest               -        -        -             -             -

Benefit from income
taxes                  -        -        -             -             -

Net income           $ 75     $ -      $ 6           $ (6)         $ 75








REDWOOD TRUST, INC.



Consolidating
Balance Sheet

June 30, 2010                          Other

($ in millions)      Redwood  2010     Consolidated  Intercompany  Redwood

                     Parent   Sequoia  Entities      Adjustments   Consolidated



Real estate loans    $ 3      $ 226    $ 3,581       $ -           $ 3,810

Real estate
securities, at fair
value:

Trading securities     18       -        258           -             276

Available-for-sale
securities             716      -        52            (27)          741

Other investments      -        -        4             -             4

Cash and cash
equivalents            288      -        -             -             288

Investment in 2010
Sequoia                28       -        -             (28)          -

Investment in Other
Consolidated
Entities               91       -        -             (91)          -

Total earning
assets                 1,144    226      3,895         (146)         5,119

Other assets           41       3        56            -             100

Total Assets         $ 1,185  $ 229    $ 3,951       $ (146)       $ 5,219



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

Other liabilities      54       1        87            -             142

Asset-backed
securities issued      -        200      3,761         (27)          3,934

Long-term debt         140      -        -             -             140

Total liabilities      194      201      3,848         (27)          4,216



Stockholders’
equity                 991      28       91            (119)         991

Noncontrolling
interest               -        -        12            -             12

Total equity           991      28       103           (119)         1,003



Total Liabilities
and Equity           $ 1,185  $ 229    $ 3,951       $ (146)       $ 5,219








REDWOOD TRUST, INC.



Tax / GAAP Differences

Three Months Ended June 30, 2010*

(In Millions, Except per Share Data)

                                                Tax       GAAP    Differences

Interest income                                 $ 34      $ 56    $ (22)

Interest expense                                  (3)       (21)    18

Net Interest Income                               31        35      (4)

Provision for loan losses                         -         (4)     4

Realized credit losses                            (24)      -       (24)

Market valuation adjustments, net                 -         (7)     7

Operating expenses                                (10)      (11)    1

Realized gains, net                               -         16      (16)

Benefit from income taxes                         -         -       -

Less: Net loss attributable to noncontrolling
interest                                          -         -       -

Net (Loss) Income                               $ (3)     $ 29    $ (32)



Estimated (loss) income per share               $ (0.03)  $ 0.35  $ (0.38)

* Reconciliation of GAAP income for prior quarters is provided in filings for
those quarters.






REDWOOD TRUST, INC.



Tax / GAAP Differences

Six Months Ended June 30,
2010*

(In Millions, Except per Share
Data)

                                                  Tax       GAAP    Differences

Interest income                                   $ 72      $ 115   $ (43)

Interest expense                                    (3)       (39)    36

Net Interest Income                                 69        76      (7)

Provision for loan losses                           -         (14)    14

Realized credit losses                              (49)      -       (49)

Market valuation adjustments,
net                                                 -         (18)    18

Operating expenses                                  (21)      (29)    8

Realized gains, net                                 -         60      (60)

Benefit from income taxes                           -         -       -

Less: Net loss attributable to noncontrolling
interest                                            -         -       -

Net (Loss) Income                                 $ (1)     $ 75    $ (76)



Estimated (loss) income per
share                                             $ (0.02)  $ 0.94  $ (0.96)

* 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)



                                    June 30, 2010



                                                                 Management's

                                                                 Estimate of
                                    GAAP                         Non-GAAP

                                                                 Economic
                                    As Reported  Adjustments     Value

Cash and cash equivalents           $ 288        $               $ 288

Real estate securities at Redwood

Residential                           725                          725

Commercial                            8                            8

CDO                                   1                            1

Subtotal real estate securities       734                          734

Investments in the Fund               15                           15

Investments in Sequoia entities       101          (25)      (a)   76

Investments in Acacia entities (b)    3            (2)             1

Total cash, securities and
investments                           1,141                        1,114

Long-term debt                        (140)        78        (c)   (62)

Other assets/liabilities, net (d)     (10)                         (10)

Stockholders' Equity                $ 991                        $ 1,042



Book Value Per Share                $ 12.71                      $ 13.37





(a) Our investments in Sequoia entities consist of interest-only securities
and senior and
subordinate securities issued by Sequoia entities. We calculated the $76
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 $101 million GAAP
carrying value of these
investments represents the difference between the assets and liabilities owned
by the Sequoia
entities.

(b) The GAAP carrying value of our investments in Acacia entities was $3
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.

(c) At June 30, 2010, 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 six months
of 2010, through
interest rate hedging arrangements, we effectively fixed the interest rate on
this long-term debt at
6.75%. We calculated the $62 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. As a result of declining interest
rates during the second
quarter of 2010, the fair value of the interest rate hedges related to this
long-term debt declined
by $20 million, as reflected in shareholders' equity on our balance sheet.

(d) Other assets/liabilities, net are comprised of $3 million of real estate
loans, $4 million of
accrued interest receivable, and $37 million of other assets, less dividends
payable of $19 million
and accrued interest and other liabilities of $35 million (which includes $1
million for pending
acquisitions).

* This table presents supplemental components of book value at June 30, 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
June 30, 2010.






REDWOOD TRUST, INC.



Sources and Uses of Cash*

(In Millions)

                                             Three Months Ended

                                             June 30, 2010  March 31, 2010

Beginning cash balance                       $ 242          $ 243

Business cash flow:

Cash flow from investments (including sales
proceeds)                                      177            193

Asset management fees                          -              -

Operating expenses                             (10)           (15)

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

Total business cash flow                       166            177

Other sources and uses:

Investment in 2010 Sequoia                     (28)           0

Changes in working capital                     3              (2)

Acquisitions**                                 (55)           (156)

Derivative margins posted, net                 (20)           0

Dividends                                      (20)           (20)

Net other uses                                 (120)          (178)



Net sources (uses) of cash                     46             (1)

Ending cash balance                          $ 288          $ 242





* 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 second quarter of 2010 were $23 million, $1
million which are not reflected in this table because they did not settle
until early July. Also, $33 million of acquisitions made in the first
quarter that did not settle until early April are reflected in this table.





SOURCE Redwood Trust, Inc.