| CONTACTS: | Mike McMahon |
| Redwood Trust, Inc. | | (415) 384-3805 |
| Thursday, February 26, 2009 | | |
| | | Martin S. Hughes |
| | | (415) 389-7373 |
REDWOOD TRUST REPORTS FOURTH QUARTER 2008 RESULTS
MILL VALLEY, CA – February 26, 2009 – 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 $98 million in 2009 through February 24th.
“We believe it is unlikely that there will be a near-term recovery in housing and the economy. If there were an easy fix, the people addressing these problems would have found it by now,” said Brett Nicholas, Redwood’s Chief Investment Officer. “Despite the gloomy outlook, we are finding attractive investment opportunities. We believe Redwood can prosper in the current environment and we have the capital to build our franchise in the months and years to come,” he added.
The accounting concepts and disclosures relating to our financial statements are complex. Today, we also released our Redwood Review covering the fourth quarter of 2008. The Redwood Review contains a more detailed discussion of our business performance and outlook. The Redwood Review is available on our website at www.redwoodtrust.com. We strongly recommend reading the Redwood Review and our Annual Report on Form 10-K in conjunction with this press release.
Our Annual Report on Form 10-K for the year ended December 31, 2008 was filed today with the Securities and Exchange Commission. The Form 10-K is also available on our website at www.redwoodtrust.com.
REDWOOD TRUST, INC.
| Consolidated Income Statement | | Fourth | | | Third | | | Second | | | First | | | Fourth | |
| ($ in millions, 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 market valuation adjustments | | | (106 | ) | | | (106 | ) | | | (31 | ) | | | (153 | ) | | | (1,070 | ) |
| 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 | | 31-Dec | | | 30-Sep | | | 30-Jun | | | 31-Mar | | | 1-Jan (1) | | | 31-Dec | |
| ($ in millions, 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 | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | | | | The | | | | | | | | | Intercompany | | | Redwood | |
| | | Redwood | | | Fund | | | Sequoia | | | Acacia | | | Adjustments | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | |
| 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 and market valuation adjustments | | | (89 | ) | | | (4 | ) | | | (16 | ) | | | (3 | ) | | | 6 | | | | (106 | ) |
| 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 | ) |
Consolidating Income Statement Year Ended December 31, 2008 ($ in millions) | | | | | The | | | | | | | | | Intercompany | | | Redwood | |
| | | Redwood | | | Fund | | | Sequoia | | | Acacia | | | Adjustments | | | Consolidated | |
| 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 | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | | | | The | | | | | | | | | Intercompany | | | Redwood | |
| | | Redwood | | | Fund | | | Sequoia | | | Acacia | | | Adjustments | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | |
| 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 | | Fourth | | | Third | | | Second | | | First | | | Fourth | |
| ($ in millions, except 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 | |
