FOR IMMEDIATE RELEASE
CONTACTS: Mike McMahon
Redwood Trust, Inc.
(415) 384-3805
Tuesday, May 5, 2009
  
 
Martin S. Hughes
 
(415) 389-7373

REDWOOD TRUST REPORTS FIRST QUARTER 2009 RESULTS
 
MILL VALLEY, CA – May 5, 2009 – Redwood Trust, Inc. (NYSE:RWT) today reported a net loss for the first quarter of 2009 of $35 million, or $0.65 per share. This compares to a net loss of $116 million, or $3.46 per share, for the fourth quarter of 2008, and a net loss of $172 million, or $5.28 per share, for the first quarter of 2008.  Net interest income for the first quarter of 2009 was $34 million, as compared to $24 million in the fourth quarter of 2008, and $49 million for the first quarter of 2008.  The net loss for the first quarter of 2009 reflected $43 million of net negative market valuation adjustments (MVA) and $16 million of loan loss provisions, as compared to $111 million of net negative MVA and $19 million of loan loss provisions for the fourth quarter of 2008, and $194 million of net negative MVA and $8 million of loan loss provisions for the first quarter of 2008.
  
During the first quarter, Redwood’s investments generated $45 million of cash in excess of operating and interest costs.   At March 31, 2009, Redwood had $333 million of cash and no short-term debt.
  
Redwood estimated that it incurred a taxable loss of $14 million, or $0.22 per share, during the first quarter of 2009.  This compares to an estimated taxable loss of $8 million, or $0.25 per share, for the fourth quarter of 2008, and estimated taxable income of $26 million, or $0.79 per share, for the first quarter of 2008.
  
 “While our earnings continue to be impacted by negative market valuation adjustments on our securities and investments, we are pleased with our economic progress in 2009,” said Martin S. Hughes, Redwood’s President and Chief Financial Officer. “Our investment cash flows remain strong, our investments are funded entirely by long-term capital, and we raised $283 million of capital in January through a public offering of common stock.  Housing and credit fundamentals remain in line with our expectations and we are taking advantage of attractive investment opportunities. During the first four months of 2009, Redwood acquired $240 million of primarily senior residential mortgage-backed securities, including $98 million of securities during the first quarter.”
  
The accounting concepts and disclosures relating to our financial statements are complex. Today, we also released our Redwood Review covering the first quarter of 2009. 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.
 
Additional information on our GAAP results is available in our Quarterly Report on Form 10-Q for the three months ended March 31, 2009 which we filed today with the Securities and Exchange Commission.  The Form 10-Q is available on our website 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, 2008 under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are described below and 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.
 
 
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Important factors, among others, that may affect our actual results include: changes in interest rates; changes in mortgage prepayment rates; the timing of credit losses within our portfolio; our exposure to adjustable-rate and negative amortization mortgage loans; the state of the credit markets and other general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the concentration of the credit risks we are exposed to; the ability of counterparties to satisfy their obligations to us; legislative and regulatory actions affecting the mortgage industry or our business; the availability of high quality assets for purchase at attractive prices; declines in home prices and commercial real estate prices; increases in mortgage payment delinquencies; changes in the level of liquidity in the capital markets which may adversely affect our ability to finance our real estate asset portfolio; changes in liquidity in the market for real estate securities, the re-pricing of credit risk in the capital markets, inaccurate ratings of securities by rating agencies, rating agency downgrades of securities, and increases in the supply of real estate securities available-for-sale, each of which may adversely affect the values of securities we own; the extent of changes in the values of securities we own and the impact of adjustments reflecting those changes on our income statement and balance sheet, including our stockholders’ equity; our ability to maintain the positive stockholders’ equity necessary to enable us to pay the dividends required to maintain our status as a real estate investment trust for tax purposes; our ability to generate the amount of cash flow we expect from our investment portfolio; changes in our investment, financing, and hedging strategies and the new risks that those changes may expose us to; changes in the competitive landscape within our industry, including changes that may affect our ability to retain or attract personnel; our failure to manage various operational risks associated with our business; our failure to maintain appropriate internal controls over financial reporting; our failure to properly administer and manage our securitization entities; risks we may be exposed to if we expand our business activities, such as risks relating to significantly increasing our direct holdings of loans; limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940; our ability to successfully deploy the proceeds from our recent common equity offering and raise additional capital to fund our investing activity; and other factors not presently identified.
 
 
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REDWOOD TRUST, INC.
 
Consolidated Income Statement
  
First
    
Fourth
    
Third
    
Second
    
First
  
($ in millions, except share data)
  
Quarter
    
Quarter
    
Quarter
    
Quarter
    
Quarter
  
   
2009
    
2008
    
2008
    
2008
    
2008
  
                               
Interest income
   $ 82     $ 123     $ 131     $ 137     $ 176  
Interest expense
     (48 )     (99 )     (92 )     (98 )     (127 )
Net interest income
     34       24       39       39       49  
Provision for loan losses
     (16 )     (19 )     (18 )     (10 )     (8 )
Market valuation adjustments, net
     (43 )     (111 )     (127 )     (60 )     (194 )
Net interest income after provision and
     (25 )     (106 )     (106 )     (31 )     (153 )
market valuation adjustments
                                        
Operating expenses
     (11 )     (14 )     (17 )     (15 )     (17 )
Realized gains on sales and calls, net
     -       6       -       3       -  
(Provision for) benefit from income taxes
     -       (4 )     10       (1 )     (2 )
Net Loss
     (36 )     (118 )     (113 )     (44 )     (172 )
Less: Net loss (income) attributable to noncontrolling interest
     1       2       2       (2 )     -  
GAAP net loss
   $ (35 )   $ (116 )   $ (111 )   $ (46 )   $ (172 )
                                         
                                         
Average diluted shares (thousands)
     53,632       33,366       33,334       32,871       32,511  
GAAP earnings per share (diluted)
   $ (0.65 )   $ (3.46 )   $ (3.34 )   $ (1.40 )   $ (5.28 )
Regular dividends declared per common share
   $ 0.25     $ 0.75     $ 0.75     $ 0.75     $ 0.75  
 
 
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REDWOOD TRUST, INC.
 
Consolidated Balance Sheet
  
31-Mar
    
31-Dec
    
30-Sep
    
30-Jun
    
31-Mar
  
($ in millions, except share data)
  
2009
    
2008
    
2008
    
2008
    
2008
  
                               
Real estate loans
   $ 4,541     $ 4,659     $ 6,101     $ 6,377     $ 6,775  
Real estate securities, at fair value:
                                        
Trading securities
     264       340       574       841       952  
Available-for-sale securities
     255       233       288       400       242  
Other investments
     62       78       79       79       79  
Cash and cash equivalents
     333       126       177       148       257  
Other assets
     126       146       155       201       241  
Total Assets
   $ 5,581     $ 5,582     $ 7,374     $ 8,046     $ 8,546  
                                         
Short-term debt
   $ -     $ -     $ 7     $ 9     $ 2  
Other liabilities
     198       252       167       166       211  
Asset-backed securities issued - Sequoia
     4,418       4,508       5,930       6,175       6,544  
Asset-backed securities issued - Acacia
     291       347       673       935       1,046  
Long-term debt
     150       150       150       150       150  
Total liabilities
     5,057       5,257       6,927       7,435       7,953  
                                         
Stockholders’ equity
     506       302       412       564       585  
Noncontrolling interest
     18       23       35       47       8  
Total equity
     524       325       447       611       593  
                                         
Total Liabilities and Stockholders' Equity
   $ 5,581     $ 5,582     $ 7,374     $ 8,046     $ 8,546  
                                         
                                         
Shares outstanding at period end (thousands)
     60,228       33,471       33,238       33,184       32,710  
GAAP book value per share
   $ 8.40     $ 9.02     $ 12.40     $ 17.00     $ 17.89  
 
 
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REDWOOD TRUST, INC.
 
Consolidating Income Statement
                                    
Three Months Ended March 31, 2009
                                    
($ in millions)
        
The
                
Intercompany
    
Redwood
  
   
Redwood
    
Fund
    
Sequoia
    
Acacia
    
Adjustments
    
Consolidated
  
                                     
Interest income
   $ 26     $ 3     $ 34     $ 22     $ 1     $ 86  
Net discount (premium) amortization
     (4 )   $ -       -       -       -     $ (4 )
Total interest income
     22       3       34       22       1       82  
Management fees
     1     $ -       -       -       (1 )     -  
Interest expense
     (2 )   $ -       (25 )     (21 )     -       (48 )
Net interest income
   $ 21     $ 3     $ 9     $ 1     $ -     $ 34  
Provision for loan losses
     -       -       (16 )     -       -       (16 )
Market valuation adjustments, net
     (26 )     (4 )     (1 )     (12 )     -       (43 )
Net interest (loss) income after provision
     (5 )     (1 )     (8 )     (11 )     -       (25 )
and market valuation adjustments
                                                
Operating expenses
     (11 )     -       -       -       -       (11 )
Realized gains (losses) on sales and calls, net
     -       -       -       -       -       -  
Loss from the Fund, Sequoia, and Acacia
     (19 )     -       -       -       19       -  
Noncontrolling interest
     -       1       -       -       -       1  
Provision for income taxes
     -       -       -       -       -       -  
Net (loss) Income
   $ (35 )   $ -     $ (8 )   $ (11 )   $ 19     $ (35 )
 
 
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REDWOOD TRUST, INC.
 
Consolidating Balance Sheet
                                    
March 31, 2009
                                    
($ in millions)
        
The
                
Intercompany
    
Redwood
  
 
Redwood
    
Fund
    
Sequoia
    
Acacia
    
Adjustments
    
Consolidated
  
                                     
Real estate loans
   $ 3     $ -     $ 4,528     $ 10     $ -     $ 4,541  
Real estate securities, at fair value:
                                                
Trading securities
     4       -       -       260       -       264  
Available-for-sale securities
     217       38       -       72       (72 )     255  
Other investments
     -       -       -       62       -       62  
Cash and cash equivalents
     333       -       -       -       -       333  
Investment in the Fund
     22       -       -       -       (22 )     -  
Investment in Sequoia
     70       -       -       -       (70 )     -  
Investment in Acacia
     7       -       -       -       (7 )     -  
Total earning assets
     656       38       4,528       404       (171 )     5,455  
Other assets
     25       4       38       59       -       126  
Total Assets
   $ 681     $ 42     $ 4,566     $ 463     $ (171 )   $ 5,581  
                                                 
Short-term debt
   $ -     $ -     $ -     $ -     $ -     $ -  
Other liabilities
     25       2       6       165       -       198  
Asset-backed securities issued - Sequoia
     -       -       4,490       -       (72 )     4,418  
Asset-backed securities issued - Acacia
     -       -       -       291       -       291  
Long-term debt
     150       -       -       -       -       150  
Total liabilities
     175       2       4,496       456       (72 )     5,057  
                                                 
Stockholders’ equity
     506       22       70       7       (99 )     506  
Noncontrolling interest
     -       18       -       -       -       18  
Total equity
     506       40       70       7       (99 )     524  
                                                 
Total Liabilities and Stockholders’ Equity
   $ 681     $ 42     $ 4,566     $ 463     $ (171 )   $ 5,581  
 
 
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REDWOOD TRUST, INC.
 
GAAP and Taxable (Loss) Income Differences
First
    
Fourth
    
Third
    
Second
    
First
  
($ in millions, except share data)
Quarter
    
Quarter
    
Quarter
    
Quarter
    
Quarter
  
   
2009
    
2008
    
2008
    
2008
    
2008
  
                               
GAAP net loss
   $ (35 )   $ (116 )   $ (111 )   $ (46 )   $ (172 )
Difference in taxable (loss) income calculations
                                  
Amortization and credit losses
     (22 )     (1 )     (7 )     (10 )     1  
Operating expenses
     -       (1 )     3       1       2  
Gross realized gains on calls and sales
     -       (5 )     -       (3 )     -  
Market valuation adjustments, net
     43       111       127       61       194  
Provision for income taxes
     -       4       (10 )     1       1  
Total differences in GAAP and taxable (loss) income
     21       108       113       50       198  
                                         
Taxable (loss) income
   $ (14 )   $ (8 )   $ 2     $ 4     $ 26  
                                         
Taxable (loss) income per share
   $ (0.22 )   $ (0.25 )   $ 0.07     $ 0.11     $ 0.79  
 
 
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