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Redwood Trust Reports Fourth Quarter 2009 Results

Thursday, February 25, 2010

MILL VALLEY, Calif., Feb. 25 /PRNewswire-FirstCall/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the fourth quarter of 2009 of $40 million, or $0.51 per share. This compares to net income of $27 million, or $0.34 per share, for the third quarter of 2009, and a net loss of $116 million, or $3.46 per share, for the fourth quarter of 2008.

For 2009, Redwood reported net income of $39 million, or $0.55 per share.  This compares to a net loss of $444 million, or $13.46 per share, in 2008.  

Redwood also reported that it incurred an estimated taxable loss of $34 million, or $0.44 per share, during the fourth quarter of 2009.  This compares to an estimated taxable loss of $23 million, or $0.30 per share, for the third quarter of 2009, and a taxable loss of $13 million, or $0.39 per share, for the fourth quarter of 2008.  

For 2009, Redwood estimated that it incurred a taxable loss of $83 million, or $1.12 per share.  This compares to taxable income of $19 million, or $0.58 per share, in 2008.  

GAAP book value at year end was $12.50 per share, an increase of $0.82 per share, or 7%, from the end of the third quarter of 2009, and management's estimate of non-GAAP economic value increased to $13.03 per share, up $0.75 per share, or 6%, from the end of the third quarter of 2009.

During the fourth quarter of 2009, Redwood acquired $68 million of residential securities, sold $66 million of securities, and ended the quarter with a securities portfolio of $781 million, up from $751 million at the end of the third quarter of 2009. Redwood ended the fourth quarter with $243 million of cash.

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 the Annual Report on Form 10-K for the year ended December 31, 2009 which was filed today with the Securities and Exchange Commission.  Redwood's Form 10-K is available on its website at www.redwoodtrust.com.

The accounting concepts and disclosures relating to Redwood's financial statements are complex. Today, The Redwood Review was released covering the fourth quarter of 2009. The Redwood Review is an additional publication that provides information about Redwood. The Redwood Review is available 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, 2009, 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.

    
    
    REDWOOD TRUST, INC.                                                      
                                                                             
    Consolidated Income Statements                                           
    ------------------------------                                           
    ($ in millions, except share data)
                                           
                                  Fourth    Third   Second    First   Fourth
                                  Quarter  Quarter  Quarter  Quarter  Quarter
                                    2009     2009     2009     2009     2008 
                                    ----     ----     ----     ----     ---- 
                                                                             
    Interest income                  $62      $70      $74      $82     $123 
    Interest expense                 (21)     (25)     (39)     (47)     (99)
                                     ---      ---      ---      ---      --- 
    Net interest income               41       45       35       35       24 
    Provision for loan losses         (9)     (10)     (15)     (15)     (19)
    Market valuation                                                         
     adjustments, net                 (4)     (11)     (29)     (44)    (111)
                                     ---      ---      ---      ---     ---- 
    Net interest income (loss)                                               
     after provision and              
     market valuation adjustments     28       24       (9)     (24)    (106)
    Operating expenses               (11)     (15)     (10)     (11)     (14)
    Realized gains, net               20       18       25        -        6 
    Benefit from (provision                                                  
     for) income taxes                 3        -        1        -       (4)
                                     ---      ---      ---      ---      --- 
    Net income (loss)                 40       27        7      (35)    (118)
      Less: Net (loss) income                                                
       attributable to                                                       
       noncontrolling interest         -        -        -        -       (2)
                                     ---      ---      ---      ---      --- 
    GAAP net income (loss)           $40      $27       $7     $(35)   $(116)
                                     ===      ===      ===     ====    ===== 
                                                                             
                                                                             
    Average diluted shares                                                   
     (thousands)                  78,101   78,223   66,446   53,632   33,366 
    Diluted earnings (loss)                                                  
     per share                     $0.51    $0.34    $0.10   $(0.65)  $(3.46)
    Regular dividends declared                                               
     per common share              $0.25    $0.25    $0.25    $0.25    $0.75 
    
    
    
    REDWOOD TRUST, INC.                                                 
                                                                        
    Consolidated Income Statements                                      
    ------------------------------                                      
    ($ in millions, except share data)                                  
                                                       Twelve Months Ended
                                                            December 31,
                                                           2009     2008
                                                           ----     ----
                                                                        
    Interest income                                       $288     $568 
    Interest expense                                      (132)    (417)
                                                          ----     ---- 
    Net interest income                                    156      151 
    Provision for loan losses                              (49)     (55)
    Market valuation adjustments, net                      (88)    (493)
                                                           ---     ---- 
    Net interest income (loss) after provision and          19     (397)
      market valuation adjustments                                      
    Operating expenses                                     (47)     (61)
    Realized gains, net                                     63        9 
    Benefit from income taxes                                4        3 
                                                           ---      --- 
    Net income (loss)                                       39     (446)
      Less: Net (loss) income attributable to                           
       noncontrolling interest                               -       (2)
                                                           ---      --- 
    GAAP net income (loss)                                 $39    $(444)
                                                           ===    ===== 
                                                                        
                                                                        
    Average diluted shares (thousands)                  68,991   33,023 
    Diluted earnings (loss) per share                    $0.55  $(13.46)
    Regular dividends declared per common share          $1.00    $3.00 
    
    
    
    REDWOOD TRUST, INC.                                                  
    
    Consolidated Balance Sheets                                          
    ---------------------------                                          
    ($ in millions, except share data) 
                                      
                                        31-Dec  30-Sep  30-Jun  31-Mar  31-Dec
                                         2009    2009    2009    2009    2008 
                                         ----    ----    ----    ----    ---- 
                                                                         
    Real estate loans                  $3,740  $3,831  $3,966  $4,541  $4,659
    Real estate securities, at                                           
     fair value:                                                          
      Trading securities                  278     275     253     264     340
      Available-for-sale securities       810     787     551     255     233
    Other investments                      20      29      47      62      78
    Cash and cash equivalents             243     217     337     333     126
    Other assets                          162     146     131     126     146
                                          ---     ---     ---     ---     ---
    Total Assets                       $5,253  $5,285  $5,285  $5,581  $5,582
                                       ======  ======  ======  ======  ======
                                                                         
    Short-term debt                        $-      $-      $-      $-      $-
    Other liabilities                     181     203     185     198     252
    Asset-backed securities issued -                                     
     Sequoia entities                   3,645   3,728   3,843   4,418   4,508
    Asset-backed securities issued -                                     
     Acacia entities                      298     288     287     291     347
    Long-term debt                        140     140     150     150     150
                                          ---     ---     ---     ---     ---
    Total liabilities                   4,264   4,359   4,465   5,057   5,257
                                                                         
    Stockholders’ equity                  972     907     802     506     302
    Noncontrolling interest                17      19      18      18      23
                                          ---     ---     ---     ---     ---
    Total equity                          989     926     820     524     325
                                                                         
                                       ------  ------  ------  ------  ------
    Total Liabilities and Equity       $5,253  $5,285  $5,285  $5,581  $5,582
                                       ======  ======  ======  ======  ======
                                                                         
                                                                         
    Shares outstanding at period end                                     
     (thousands)                       77,737  77,669  77,503  60,228  33,471
    GAAP book value per share          $12.50  $11.68  $10.35   $8.40   $9.02
    
    
    
    REDWOOD TRUST, INC.                  
    
    Consolidating Income Statement      
    ------------------------------       
    Three Months Ended December 31, 2009 
    ($ in millions)                                                           
                                                                              
                                                                              
                               The  Securitization Intercompany   Redwood     
                      Redwood  Fund    Entities    Adjustments  Consolidated  
                      -------  ----    --------    ----------- -------------- 
                                                                           
    Interest
     income             $19     $1        $38           $-           $58    
    Net
     discount
     (premium)                                                       
     amortization         6      1         (3)           -             4    
                        ---    ---        ---          ---           ---    
    Total
     interest
     income              25      2         35            -            62    
    Management
     fees                 1      -          -           (1)            - 
    Interest
     expense             (1)     -        (20)           -           (21)
                        ---    ---        ---          ---           ---   
    Net
     interest
     income              25      2         15           (1)           41 
    Provision
     for loan
     losses               -      -         (9)           -            (9)
    Market
     valuation                                                   
     adjustments,
     net                 (2)    (1)        (1)           -            (4)
                        ---    ---        ---          ---           ---   
    Net interest
     income                                          
     after provision     
     and market
     valuation                                                 
     adjustments         23      1          5           (1)           28
    Operating
     expenses           (11)    (1)         -            1           (11)
    Realized
     gains, net          20      -          -            -            20 
    Income from
     the Fund and                                     
     Securitization
     Entities             5      -          -           (5)            - 
    Noncontrolling
     interest             -      -          -            -             - 
    Benefit from
     income taxes         3      -          -            -             3 
                        ---    ---        ---          ---           --- 
    Net income          $40     $-         $5          $(5)          $40 
                        ===    ===        ===          ===           === 
    
    
    
    Consolidating Income Statement                                          
    ------------------------------                                          
    Year Ended December 31, 2009                                            
    ($ in millions)               
                              The  Securitization Intercompany   Redwood   
                      Redwood Fund    Entities     Adjustments Consolidated 
                      ------- ----    --------     ----------- ------------ 
                                                                            
    Interest
     income             $85     $-      $194          $(1)         $278 
    Net 
     discount
     (premium)                                                              
     amortization        13      8       (11)           -            10 
                        ---    ---       ---          ---           --- 
    Total
     interest
     income              98      8       183           (1)          288 
    Management
     fees                 3      -         -           (3)            - 
    Interest
     expense             (5)     -      (130)           3          (132)
                        ---    ---      ----          ---          ---- 
    Net
     interest
     income              96      8        53           (1)          156 
    Provision
     for loan
     losses               -      -       (49)           -           (49)
    Market
     valuation                                                              
     adjustments,
     net                (69)    (7)      (12)           -           (88)
                        ---    ---       ---          ---           --- 
    Net interest
     (loss) income                                                  
     after
     provision         
     and market
     valuation                                                      
     adjustments         27      1        (8)          (1)           19
    Operating
     expenses           (46)    (1)       (1)           1           (47)
    Realized
     gains, net          44      -        19            -            63 
    Income from
     the Fund and                                                   
     Securitization
     Entities            10      -         -          (10)            - 
    Noncontrolling
     interest             -      -         -            -             - 
    Benefit from
     income taxes         4      -         -            -             4 
                        ---    ---       ---          ---           --- 
    Net income          $39     $-       $10         $(10)          $39 
                        ===    ===       ===         ====           === 
    
    
    
    REDWOOD TRUST, INC.     
    
    Consolidating Balance Sheet   
    --------------------------- 
    December 31, 2009          
    ($ in millions)            
                               
                               
                              The  Securitization Intercompany   Redwood   
                      Redwood Fund    Entities    Adjustments  Consolidated
                      ------- ----    --------    -----------  ------------
                                                                         
    Real   
     estate loans         $3    $-    $3,737         $-         $3,740
    Real estate                                                       
     securities, at                                                   
     fair value:                                                      
      Trading
       securities          8     -       270          -            278
      Available-
       for-sale                                              
       securities        773    37         -          -            810
    Other
     investments           -     -        20          -             20
    Cash and cash                                                     
     equivalents         243     -         -          -            243
    Investment
     in the Fund          22     -         -        (22)             -
    Investment in                                                     
     Securitization                                                   
     Entities             75     -         -        (75)             -
                         ---   ---       ---        ---            ---
        Total
         earning                                                 
         assets        1,124    37     4,027        (97)         5,091
    Other assets          21     5       136          -            162
                         ---   ---       ---        ---            ---
    Total Assets      $1,145   $42    $4,163       $(97)        $5,253
                      ======   ===    ======       ====         ======
                                                                      
    Short-term debt       $-    $-        $-         $-             $-
    Other
     liabilities          33     3       145          -            181
    Asset-backed                                                      
     securities
     issued                -     -     3,943          -          3,943
    Long-term debt       140     -         -          -            140
                         ---   ---       ---        ---            ---
    Total
     liabilities         173     3     4,088          -          4,264
                                                                      
    Stockholders’                                                     
     equity              972    22        75        (97)           972
    Noncontrolling                                                    
     interest              -    17         -          -             17
                         ---   ---       ---        ---            ---
    Total equity         972    39        75        (97)           989
                                                                      
                      ------   ---    ------       ----         ------
    Total
     Liabilities                                                 
     and Equity       $1,145   $42    $4,163       $(97)        $5,253
                      ======   ===    ======       ====         ======
    
    
    
    REDWOOD TRUST, INC.                                                       
                                                                              
    GAAP / Tax Differences                                                    
    ----------------------                                                    
    Three Months Ended December 31, 2009                                      
    (In Millions, Except per Share Data)                                      
                                                    Tax     GAAP   Differences
                                                    ---     ----   -----------
    Interest income                                  $39     $62         $(23)
    Interest expense                                  (1)    (21)          20 
                                                      --     ---           -- 
      Net Interest Income                             38      41           (3)
    Provision for loan losses                          -      (9)           9 
    Realized credit losses                           (54)      -          (54)
    Market valuation adjustments, net                  -      (4)           4 
    Operating expenses                               (18)    (11)          (7)
    Realized gains, net                                -      20          (20)
    Benefit from income taxes                          -       3           (3)
    Less: Net loss attributable to                                            
     noncontrolling interest                           -       -            - 
                                                     ---     ---          --- 
    Net (Loss) Income                               $(34)    $40         $(74)
                                                    ====     ===         ==== 
                                                                              
    Estimated income (loss) per share             $(0.44)  $0.51       $(0.95)
                                                                              
    GAAP / Tax Differences                                                    
    ----------------------                                                    
    Three Months Ended September 30, 2009                                     
    (In Millions, Except per Share Data)                                      
                                                    Tax     GAAP   Differences
                                                    ---     ----   -----------
    Interest income                                  $54     $70         $(16)
    Interest expense                                  (1)    (25)          24 
                                                      --     ---           -- 
      Net Interest Income                             53      45            8 
    Provision for loan losses                          -     (10)          10 
    Realized credit losses                           (67)      -          (67)
    Market valuation adjustments, net                  -     (11)          11 
    Operating expenses                               (16)    (15)          (1)
    Realized gains, net                                7      18          (11)
    Benefit from income taxes                          -       -            - 
    Less: Net loss attributable to                                            
     noncontrolling interest                           -       -            - 
                                                     ---     ---          --- 
    Net (Loss) Income                               $(23)    $27         $(50)
                                                    ====     ===         ==== 
                                                                              
    Estimated income (loss) per share             $(0.30)  $0.34       $(0.64)
                                                                              
    GAAP / Tax Differences                                                    
    ----------------------                                                    
    Three Months Ended December 31, 2008                                      
    (In Millions, Except per Share Data)                                      
                                                    Tax     GAAP   Differences
                                                    ---     ----   -----------
    Interest income                                  $44    $123         $(79)
    Interest expense                                  (4)    (99)          95 
                                                      --     ---           -- 
      Net Interest Income                             40      24           16 
    Provision for loan losses                          -     (19)          19 
    Realized credit losses                           (40)      -          (40)
    Market valuation adjustments, net                  -    (111)         111 
    Operating expenses                               (13)    (14)           1 
    Realized gains, net                                -       6           (6)
    Provision for income taxes                         -      (4)           4 
    Less: Net loss attributable to                                            
     noncontrolling interest                           -      (2)           2 
                                                     ---     ---          --- 
    Net Loss                                        $(13)  $(116)        $103 
                                                    ====   =====         ==== 
                                                                              
    Estimated loss per share                      $(0.39) $(3.46)       $3.07 
    
    
    
    REDWOOD TRUST, INC.                                                      
                                                                             
                                                                             
    GAAP / Tax Differences                                                   
    ----------------------                                                   
    Year Ended December 31, 2009                                             
    (In Millions, Except per Share Data)                                     
                                                  Tax     GAAP    Differences
                                                  ---     ----    -----------
    Interest income                               $193     $288         $(95)
    Interest expense                                (5)    (132)         127 
                                                    --     ----          --- 
      Net Interest Income                          188      156           32 
    Provision for loan losses                        -      (49)          49 
    Realized credit losses                        (224)       -         (224)
    Market valuation adjustments, net                -      (88)          88 
    Operating expenses                             (54)     (47)          (7)
    Realized gains, net                              7       63          (56)
    Benefit from income taxes                        -        4           (4)
    Less: Net loss attributable to                                           
     noncontrolling interest                         -        -            - 
                                                   ---      ---          --- 
    Net (Loss) Income                             $(83)     $39        $(122)
                                                  ====      ===        ===== 
                                                                             
    Estimated income (loss) per share           $(1.12)   $0.55       $(1.67)
                                                                             
                                                                             
    GAAP / Tax Differences                                                   
    ----------------------                                                   
    Year Ended December 31, 2008                                             
    (In Millions, Except per Share Data)                                     
                                                  Tax     GAAP    Differences
                                                  ---     ----    -----------
    Interest income                               $202     $568        $(366)
    Interest expense                                (8)    (417)         409 
                                                   ---     ----          --- 
      Net Interest Income                          194      151           43 
    Provision for loan losses                        -      (55)          55 
    Realized credit losses                        (117)       -         (117)
    Market valuation adjustments, net                -     (493)         493 
    Operating expenses                             (58)     (61)           3 
    Realized gains, net                              -        9           (9)
    Benefit from income taxes                        -        3           (3)
    Less: Net loss attributable to                                           
     noncontrolling interest                         -       (2)           2 
                                                   ---      ---          --- 
    Net Income (Loss)                              $19    $(444)        $463 
                                                   ===    =====         ==== 
                                                                             
    Estimated income (loss) per share            $0.58  $(13.46)      $14.04 
    
    REDWOOD TRUST, INC.
    Book Value Per Share and Management's Estimate of Non-GAAP Economic Value 
     Per Share                                                                
    ------------------------------------------------------------------------- 
    (In Millions, Except per Share Data)                                      
                                                                              
                                               December 31, 2009              
                                               -----------------              
                                                                              
                                                               Management's   
                                                                 Estimate     
                                       GAAP                    of Non-GAAP    
                                        As                       Economic     
                                     Reported    Adjustments      Value       
                                   -----------  -------------   ----------    
    Cash and cash                                                             
     equivalents                       $243     $                   $243   
    Real estate                                                             
     securities at                                                          
     Redwood                                                                
         Residential                    771                          771   
         Commercial                       9                            9   
         CDO                              1                            1   
                                        ---                          ---   
    Subtotal real                                                           
     estate securities                  781                          781   
    Investments                                                             
     in the Fund                         22                           22   
    Investments in                                                          
     Sequoia entities                    72          (29) (a)         43   
    Investments in                                                          
     Acacia entities (b)                  3                            3   
                                        ---                          ---   
    Total cash,                                                             
     securities and                                                         
     investments                      1,121                        1,092   
    Long-term debt                     (140)          71 (c)         (69)  
    Other assets/                                                           
     liabilities,
     net (d)                             (9)                          (9)
                                        ---                          ---   
    Stockholders' Equity               $972                       $1,014   
                                       ====                       ======   
                                                                            
    Book Value Per Share             $12.50                       $13.03   
                                      ======                      ======   
    
    
    (a) Our investments in Sequoia entities consist predominately of 
        AAA-rated interest-only securities, and to a smaller extent, senior 
        and subordinate securities issued by Sequoia entities. We calculated 
        the $43 million estimate of economic value for these securities using 
        the same valuation process that we follow to fair value our other 
        real estate securities. In contrast, the $72 million of GAAP carrying 
        value of these investments represents the difference between the 
        assets and liabilities owned by the Sequoia entities. 
    
    (b) The fair value of our investments in Acacia entities was $3 million 
        and the GAAP carrying value was $3 million. These investments consist 
        of equity and securities in the Acacia entities we sponsor, which 
        have minimal value, as well as management fees we receive from Acacia 
        entities. We valued the management fees at $3 million.
    
    (c) At December 31, 2009, we had $140 million of long-term debt 
        outstanding at an interest rate of LIBOR plus 225 basis points due in 
        2037. We calculated the $69 million estimate of economic value of this 
        debt using the same valuation process used to fair value our other 
        financial assets and liabilities. 
    
    (d) Other assets/liabilities, net are comprised of $3 million of real 
        estate loans, $6 million of accrued interest receivable, and $15 
        million of other assets, less dividends payable of $19 million and 
        accrued interest and other liabilities of $14 million.
    
    
    
    REDWOOD TRUST, INC.
                                                   
                                                   
    Sources and Uses of Cash*                      
    -------------------------                      
    (In Millions)                                  
                                              
                                          Three Months Ended
                                          December 31, 2009 
                                          ------------------
    Beginning cash balance                       $217 
    Business cash flow:                               
      Cash flow from investments                   68 
      Asset management fees                         1 
      Operating expenses                          (11)
      Interest expense on long-term debt           (1)
                                                  --- 
    Total business cash flow                       57 
    Other sources and uses:                           
      Proceeds from asset sales                    66 
      Changes in working capital                   (9)
      Acquisitions                                (68)
      Dividends                                   (20)
                                                  --- 
    Net other uses                                (31)
                                                      
                                                  --- 
    Net sources of cash                            26 
                                                  --- 
    Ending cash balance                          $243 
                                                 ====
    
    
    *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.
    
    
    

SOURCE Redwood Trust, Inc.

Contact: Mike McMahon, +1-415-384-3805, or Martin S. Hughes, +1-415-389-7373, both of Redwood Trust, Inc.

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