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.
Released February 26, 2009