Redwood Trust Reports Fourth Quarter 2008 Results

MILL VALLEY, Calif., Feb. 26 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported a GAAP net loss for the fourth quarter of 2008 of $116 million, or a loss of $3.46 per share. This GAAP loss included $111 million, or $3.33 per share, of net negative market valuation adjustments (MVA). This compares to a net loss of $3.34 per share for the third quarter of 2008, which included $3.81 per share of net negative MVA, and a net loss of $36.49 per share for the fourth quarter of 2007, which included $37.89 per share of net negative MVA.

For 2008, our reported GAAP net loss was $444 million, or $13.46 per share, which included $493 million, or $14.93 per share, of net negative MVA. This compares to a GAAP net loss of $1.1 billion, or $39.70 per share, in 2007, which included $1.3 billion, or $45.15 per share, of net negative MVA.

In comparing our 2008 results to corresponding periods in 2007, it is important to realize that during 2007 we recorded fair value declines for assets held by our Acacia CDO securitization entities, but were not permitted to record generally offsetting fair value declines for Acacia's paired liabilities. On January 1, 2008, we adopted FAS 159, a new fair value accounting standard that permits us to mark-to-market both the assets and the liabilities of the consolidated Acacia CDO entities for 2008 and subsequent periods.

For the fourth quarter of 2008 we estimate a taxable loss of $9 million, or $0.25 per share, compared to our estimated taxable income of $2 million, or $0.07 per share, for the third quarter of 2008, and taxable income of $29 million, or $0.91 per share, for the fourth quarter of 2007. Estimated taxable income for 2008 was $23 million, or $0.72 per share, compared to $164 million, or $5.79 per share, in 2007.

"Our earnings continue to be impacted by negative market valuation adjustments, but our cash flows remain strong. We ended 2008 with $126 million in cash and no short-term debt, and we raised an additional $283 million in our January 2009 equity offering," said Marty Hughes, Redwood's President and Chief Financial Officer.

Although we constantly analyze investment opportunities, we did not make new investments during a four month period in the middle of 2008 due to the unprecedented level of uncertainty relating to the economy, the financial markets, and the size, scope, and form of government initiatives. Later in 2008 we became a more active investor in residential mortgage-backed securities, investing $50 million in the fourth quarter, and investing an additional $98 million in 2009 through February 24th.

"We believe it is unlikely that there will be a near-term recovery in housing and the economy. If there were an easy fix, the people addressing these problems would have found it by now," said Brett Nicholas, Redwood's Chief Investment Officer. "Despite the gloomy outlook, we are finding attractive investment opportunities. We believe Redwood can prosper in the current environment and we have the capital to build our franchise in the months and years to come," he added.

The accounting concepts and disclosures relating to our financial statements are complex. Today, we also released our Redwood Review covering the fourth quarter of 2008. The Redwood Review contains a more detailed discussion of our business performance and outlook. The Redwood Review is available on our website at http://www.redwoodtrust.com. We strongly recommend reading the Redwood Review and our Annual Report on Form 10-K in conjunction with this press release.

Our Annual Report on Form 10-K for the year ended December 31, 2008 was filed today with the Securities and Exchange Commission. The Form 10-K is also available on our website at http://www.redwoodtrust.com.



    REDWOOD TRUST, INC.

    Consolidated Income
    Statement
    ($ in millions,        Fourth   Third    Second   First    Fourth
    except share data)     Quarter  Quarter  Quarter  Quarter  Quarter
                            2008     2008     2008     2008      2007

    Interest income         $123     $131     $137     $177      $207
    Interest expense         (99)     (92)     (98)    (127)     (153)
    Net interest income       24       39       39       50        54
    Provision for loan
     losses                  (19)     (18)     (10)      (8)       (5)
    Market valuation
     adjustments, net       (111)    (127)     (60)    (195)   (1,119)
    Net interest income
     after provision and    (106)    (106)     (31)    (153)   (1,070)
    market valuation
     adjustments
    Operating expenses       (14)     (17)     (15)     (16)      (16)
    Realized gains on
     sales and calls,
     net                       6      -          3      -           7
    Minority interest
     allocation                2        2       (2)     -         -
    (Provision for)
     benefit from income
     taxes                    (4)      10       (1)      (2)        2
    GAAP net loss          $(116)   $(111)    $(46)   $(171)  $(1,077)


    Average diluted
     shares (thousands)   33,366   33,334   32,871   32,511    29,531
    GAAP earnings per
     share (diluted)      $(3.46)  $(3.34)  $(1.40)  $(5.28)  $(36.49)

    Regular dividends
     declared per common
     share                 $0.75    $0.75    $0.75    $0.75     $0.75
    Special dividends
     declared per common
     share                   -        -        -        -        2.00
    Total dividends
     declared per common
     share                 $0.75    $0.75    $0.75    $0.75     $2.75



    REDWOOD TRUST, INC.

    Consolidated Income Statement                   Year Ended
    ($ in millions, except share data)              December 31,
                                                 2008         2007

    Interest income                              $568         $868
    Interest expense                             (416)        (652)
    Net interest income                           152          216
    Provision for loan losses                     (55)         (13)
    Market valuation adjustments, net            (493)      (1,261)
    Net interest income after provision
     and market valuation adjustments            (396)      (1,058)

    Operating expenses                            (62)         (59)
    Realized gains on sales and calls, net          9           13
    Minority interest allocation                    2          -
    Benefit from (provision for) income taxes       3           (5)
    GAAP net loss                               $(444)     $(1,109)


    Average diluted shares (thousands)         33,023       27,928
    GAAP earnings per share (diluted)         $(13.46)     $(39.70)

    Regular dividends declared per common
     share                                      $3.00        $3.00
    Special dividends declared per common
     share                                        -           2.00
    Total dividends declared per common
     share                                      $3.00        $5.00



    REDWOOD TRUST, INC.

    Consolidated
     Balance Sheet
    ($ in millions,    31-Dec    30-Sep  30-Jun   31-Mar    1-Jan(1) 31-Dec
     except share data) 2008      2008    2008     2008      2008     2007


    Real estate loans $4,659    $6,101   $6,377   $6,775    $7,204  $7,204
    Real estate
     securities, at
     fair value:
      Trading securities 340       574      841      952     1,805      12
      Available-for-
     sale securities     233       288      400      242       317   2,110
    Other investments     78        79       79       79        79      79
    Cash and cash
     equivalents         126       177      148      257       290     290
    Other assets         146       155      201      241       223     244
    Total assets      $5,582    $7,374   $8,046   $8,546    $9,918  $9,939

    Short-term debt       $-        $7       $9       $2        $8      $8
    Other liabilities    252       167      166      211       170     170
    Asset-backed
     securities
     issued - Sequoia  4,508     5,930    6,175    6,544     6,946   6,946
    Asset-backed
     securities
     issued - Acacia(2)  347       673      935    1,046     1,893   3,383
    Long-term debt       150       150      150      150       150     150
    Minority interest     23        35       47        8         -       -

    Stockholders'
     equity (deficit)    302       412      564      585       751    (718)
    Total liabilities
     and stockholders'
     equity           $5,582    $7,374   $8,046   $8,546    $9,918  $9,939

    Shares outstanding
     at period end
     (thousands)      33,471    33,238   33,184   32,710    32,385  32,385
    GAAP book value
     per share         $9.02    $12.40   $17.00   $17.89    $23.18$ (22.18)


    (1) We adopted the fair value option under FAS 159 (FVO) for assets and
        liabilities of Acacia and certain other assets
        effective January 1, 2008.
    (2) Prior to 2008, ABS issued by Acacia were accounted for at cost.



    REDWOOD TRUST, INC.

    Consolidating Income Statement
    Three Months Ended December 31, 2008
                                                              Inter-
    ($ in millions)                                           company Redwood
                                        The                   Adjust- Consoli-
                              Redwood   Fund  Sequoia  Acacia ments   dated
    Interest income             $18      $2     $71     $36    $(1)    $126
    Net discount (premium)
     amortization                (3)      1      (1)    -      -         (3)
    Total interest income        15       3      70      36     (1)     123
    Management fees               1    $-      $-      $-     $-          1
    Interest expense             (2)    -       (64)    (35)     1     (100)
    Net interest income         $14      $3      $6      $1   $-        $24
    Provision for loan losses   -       -       (19)    -      -        (19)
    Market valuation
     adjustments, net          (103)     (7)     (3)     (4)     6     (111)
    Net interest (loss) income
     after provision            (89)     (4)    (16)     (3)     6     (106)
    and market valuation
     adjustments
    Operating expenses          (13)     (1)    -       -      -        (14)
    Realized gains (losses) on
     sales and calls, net       -       -        12     -       (6)       6
    Loss from the Fund           (3)    -       -       -        3      -
    Loss from Sequoia            (4)    -       -       -        4      -
    Loss from Acacia             (3)    -       -       -        3      -
    Minority interest
     allocation                 -         2     -       -      -          2
    Provision for income taxes   (4)    -       -       -      -         (4)
    Net (loss) Income         $(116)    $(3)    $(4)    $(3)   $10    $(116)



    REDWOOD TRUST, INC.

    Consolidating Income Statement
    Year Ended December 31, 2008
                                                              Inter-
    ($ in millions)                                           company Redwood
                                        The                   Adjust- Consoli-
                              Redwood   Fund  Sequoia Acacia  ments   dated
    Interest income             $79      $5    $327    $161    $(7)    $565
    Net discount (premium)
     amortization                19       5     (22)    -      -          2
    Total interest income        98      10     305     161     (7)     567
    Management fees               5     -       -       -      -          5
    Interest expense             (9)    -      (276)   (141)     7     (419)
    Net interest income         $94     $10     $29     $20   $-       $153
    Provision for loan losses   -       -       (55)    -      -        (55)
    Market valuation
     adjustments, net          (390)    (15)     (7)    (88)     7     (493)
    Net interest (loss)
     income after provision
     and market valuation
     adjustments               (296)     (5)    (33)    (68)     7     (395)
    Operating expenses          (61)     (1)    -       -      -        (62)
    Realized gains on sales
     and calls, net               1       2      12     -       (7)       8
    Loss from the Fund           (2)    -       -       -        2      -
    Loss from Sequoia           (21)    -       -       -       21      -
    Loss from Acacia            (68)    -       -       -       68      -
    Minority interest
     allocation                 -         2     -       -      -          2
    Benefit from income taxes     3     -       -       -      -          3
    Net (loss) Income         $(444)    $(2)   $(21)   $(68)   $91    $(444)



    REDWOOD TRUST, INC.

    Consolidating Balance Sheet
    December 31, 2008
                                                              Inter-
    ($ in millions)                                           company Redwood
                                        The                   Adjust- Consoli-
                              Redwood   Fund  Sequoia  Acacia ments   dated

    Real estate loans            $3    $-     $4,644    $12     $-    $4,659
    Real estate
     securities, at fair
     value:
      Trading securities          6     -        -      334      -       340
      Available-for-sale
       securities               185      48      -       74     (74)     233
    Other investments           -       -        -       78      -        78
    Cash and cash
     equivalents                126     -        -       -       -       126
    Investment in the Fund       28     -        -       -      (28)      -
    Investment in Sequoia        97     -        -       -      (97)      -
    Investment in Acacia         16     -        -       -      (16)      -
        Total earning assets    461      48    4,644    498    (215)   5,436
    Other assets                 37       5       44     60      -       146
    Total Assets               $498     $53   $4,688   $558   $(215)  $5,582

    Short-term debt            $-      $-       $-      $-      $-       $-
    Other liabilities            46       2        9    195      -       252
    Asset-backed
     securities issued -
     Sequoia                    -       -      4,582     -      (74)   4,508
    Asset-backed
     securities issued -
     Acacia                     -       -        -      347      -       347
    Long-term debt              150     -        -       -       -       150
    Total liabilities           196       2    4,591    542     (74)   5,257
    Minority interest           -        23      -       -       -        23
    Total stockholders'
     equity                     302      28       97     16    (141)     302
    Total Liabilities and
     Stockholders' Equity      $498     $53   $4,688   $558   $(215)  $5,582



    REDWOOD TRUST, INC.

    GAAP and Taxable (Loss)
     Income Differences
    ($ in millions, except      Fourth   Third  Second   First   Fourth
    share data)                 Quarter Quarter Quarter Quarter  Quarter
                                  2008    2008    2008    2008     2007

    GAAP net loss                $(116)  $(111)   $(46)  $(171)  $(1,077)
    Difference in taxable
     (loss) income calculations
      Amortization and credit
       losses                        7       4      (7)      6       (15)
      Operating expenses            (1)      3       1       2         9
      Gross realized gains on
       calls and sales             (14)    (11)     (6)     (5)       (5)
      Market valuation
       adjustments, net            111     127      61     194     1,119
      Provision for income
       taxes                         4     (10)      1       1        (2)
    Total differences in GAAP
     and taxable (loss) income     107     113      50     198     1,106

    Taxable (loss) income          $(9)     $2      $4     $27       $29

    Taxable (loss) income per
     share                      $(0.25)  $0.07   $0.11   $0.79     $0.91



    REDWOOD TRUST, INC.

    GAAP and Taxable (Loss) Income
     Differences                                   Year Ended
    ($ in millions, except share data)          December 31, 2008
                                                2008         2007

    GAAP net (loss) income                     $(444)      $(1,109)
    Difference in taxable (loss) income
     calculations
      Amortization and credit losses              10            16
      Operating expenses                           3             3
      Gross realized gains on calls and sales    (36)          (10)
      Market valuation adjustments, net          493         1,261
      Provision for income taxes                  (3)            3
    Total differences in GAAP and taxable
     (loss) income                               467         1,273

    Taxable income                               $23          $164

    Taxable income per share                   $0.72         $5.79

SOURCE Redwood Trust, Inc.