Redwood Trust Reports First Quarter 2008 Results
MILL VALLEY, Calif.--(BUSINESS WIRE)--
Redwood Trust, Inc. (NYSE:RWT) today reported a GAAP net loss for the first quarter of 2008 of $172 million, or a loss of $5.28 per share. This GAAP loss included $194 million, or $5.96 per share, of net negative mark-to-market (MTM) adjustments. This compares to net income of $0.66 per share for the first quarter of 2007, which reflected negative MTM adjustments of $0.37 per share.
Taxable income for the first quarter was $26 million, or $0.79 per share. This taxable income included $14 million, or $0.41 per share, of charges related to credit losses. This compares to taxable income of $29 million, or $0.91 per share, for the fourth quarter of 2007 and taxable income of $40 million, or $1.48 per share, in the first quarter of 2007.
At March 31, 2008, Redwood had $257 million of cash and only $2 million of short-term debt. During the quarter, Redwood's investments generated $52 million of cash flow in excess of operating and interest costs.
"We are committed to being disciplined and patient investors," said Brett Nicholas, Redwood's Chief Investment Officer. "Despite a difficult operating environment, we are encouraged by the pace of investment activity. From the beginning of the fourth quarter of 2007 through May 5, 2008, we have deployed $272 million of capital. We believe these new investments will provide strong cash flows and future earnings."
The accounting concepts and disclosures relating to our financial statements are complex. Today, we also released our "Redwood Review" covering the first 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.
Additional information on our GAAP results is available in our Quarterly Report on Form 10-Q for the three months ended March 31, 2008 which we filed today with the Securities and Exchange Commission. The Form 10-Q is available on our website at www.redwoodtrust.com. We strongly recommend reading the Redwood Review and 10-Q in conjunction with this press release.
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 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, 2007 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-K, 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.
Important factors, among others, that may affect our actual results include: changes in interest rates; changes in prepayment rates; general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the availability of high quality assets for purchase at attractive prices; declines in home 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, 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; and other factors not presently identified. This press release may contain statistics and other data that in some cases have been obtained from or compiled from information made available by servicers and other third-party service providers.
Consolidated Income
Statement
-------------------------
($ in millions, except First Fourth Third Second First
share data) Quarter Quarter Quarter Quarter Quarter
2008 2007 2007 2007 2007
-------- -------- -------- -------- --------
Interest income $ 170 $ 202 $ 219 $ 220 $ 215
Interest expense (129) (153) (165) (166) (168)
-------- ------- -------- -------- --------
Net interest income
before market valuation
adjustments 41 49 54 54 47
Market valuation
adjustments, net (194) (1,119) (103) (30) (10)
-------- ------- -------- -------- --------
Net interest income (153) (1,070) (49) 24 37
Operating expenses (17) (15) (12) (13) (16)
Severance expense - (1) - - (2)
Realized gains on sales
and calls, net - 7 2 3 1
Credit (provision) for
income taxes (2) 2 (2) (3) (2)
-------- ------- -------- -------- --------
GAAP net (loss) income $ (172) $(1,077) $ (61) $ 11 $ 18
======== ======= ======== ======== ========
Less: severance expense
(1) $ - $ 1 $ - $ - $ 2
Less: realized gains on
sales and calls, net - (7) (2) (3) (1)
Less: market valuation
adjustments, net 194 1,119 103 30 10
-------- ------- -------- -------- --------
Core earnings (2) (3) $ 22 $ 36 $ 40 $ 38 $ 30
Average diluted shares
(thousands) 32,511 29,531 27,892 28,165 27,684
GAAP earnings per share
(diluted) $ (5.28) $(36.49) $ (2.18) $ 0.41 $ 0.66
Core earnings per share
(diluted) (2) (3) $ 0.68 $ 1.21 $ 1.43 $ 1.35 $ 1.08
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 $ 2.75 $ 0.75 $ 0.75 $ 0.75
(1) Cost associated with re-alignment of senior management in our
commercial and residential operations.
(2) Core earnings is a profitability measure that highlights earnings
we believe are more likely to be ongoing in nature. It is not a
measure of earnings in accordance with GAAP. In computing core
earnings, we start with GAAP income and then exclude realized gains
and losses on calls and sales, unrealized market value adjustments,
and one-time items that are not likely to be repeated. Because all
companies and analysts do not calculate non-GAAP measures, such as
core earnings, in the same fashion, our calculation of core earnings
may not be comparable to similarly titled measures reported by other
companies. Core earnings may not foot from GAAP earnings due to
rounding to millions of dollars.
(3) Core earnings for the first quarter of 2008 are not directly
comparable to core earnings for prior quarters due to our adoption,
on January 1, 2008, of SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (FAS 159), issued by the
Financial Accounting Standards Board, for certain assets and
liabilities. Prior to the first quarter of 2008, core income included
purchase discount amortization on those assets ($0.28 per share in
the fourth quarter of 2007). We no longer calculate purchase discount
amortization for those assets since it has become, in effect, one of
the components of the FAS 159 adjustments. Consequently, that
component of income is now excluded from core income for all periods
ending after January 1, 2008.
Consolidating
Income Statement
-------------------
Three Months Ended
March 31, 2008
($ in millions) Intercompany Redwood
Redwood Sequoia Acacia Adjustments Consolidated
-------- ------- ------ ------------- ------------
Interest income $ 24 $ 94 $ 48 $ (2) $ 164
Net discount
(premium)
amortization 12 (7) - - 5
-------- ------- ------ ------------- ------------
Total interest
income 36 87 48 (2) 169
Management fees - - 1 - 1
Interest expense (3) (83) (45) 2 (129)
-------- ------- ------ ------------- ------------
Net interest income
before market
valuation
adjustments $ 33 $ 4 $ 4 $ - $ 41
Market valuation
adjustments, net (167) - (27) - (194)
-------- ------- ------ ------------- ------------
Net interest (loss)
income (134) 4 (23) - (153)
Operating expenses (17) - - - (17)
Realized gains on
sales and calls,
net - - - - -
Income from Sequoia 4 - - (4) -
Loss from Acacia (23) - - 23 -
Provision for
income taxes (2) - - - (2)
-------- ------- ------ ------------- ------------
Net (Loss) Income $ (172) $ 4 $ (23) $ 19 $ (172)
======== ======= ====== ============= ============
Consolidated Balance 1-Jan
Sheet 31-Mar (1) 31-Dec 30-Sep 30-Jun 31-Mar
---------------------
($ in millions,
except share data) 2008 2008 2007 2007 2007 2007
------- ------- -------- ------- ------- -------
Real estate loans $ 6,775 $ 7,204 $ 7,204 $ 7,656 $ 8,377 $ 8,706
Real estate
securities - AFS 242 317 2,110 2,926 3,726 3,601
Real estate
securities - FVO 949 1,793 - - - -
Other real estate
investments 3 12 12 25 34 50
Non-real estate
investments 79 79 79 80 80 -
Cash and cash
equivalents 257 290 290 310 83 92
Other assets 241 223 244 286 381 498
------- ------- -------- ------- ------- -------
Total consolidated
assets $ 8,546 $ 9,918 $ 9,939 $11,283 $12,681 $12,947
Redwood debt $ 2 $ 8 $ 8 $ 39 $ 849 $ 1,880
Asset-backed
securities issued -
Sequoia 6,544 6,946 6,946 7,382 7,243 7,209
Asset-backed
securities issued -
Acacia FVO (2) 1,046 1,893 3,383 3,421 3,432 2,738
Other liabilities 219 170 170 142 131 96
Subordinated notes 150 150 150 150 150 100
Stockholders' equity
(deficit) 585 751 (718) 149 876 924
------- ------- -------- ------- ------- -------
Total liabilities and
stockholders' equity $ 8,546 $ 9,918 $ 9,939 $11,283 $12,681 $12,947
Shares outstanding at
period end
(thousands) 32,710 32,385 32,385 27,986 27,816 27,129
GAAP book value per
share $ 17.89 $ 23.18 $(22.18) $ 5.32 $ 31.50 $ 34.06
(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.
Consolidating
Balance Sheet
--------------
March 31, 2008
($ in
millions) Intercompany Redwood
Redwood Sequoia Acacia Adjustments Consolidated
--------- -------- ------- ------------- -------------
Real estate
loans $ 5 $ 6,751 $ 19 $ - $ 6,775
Real estate
and other
securities -
FVO 23 - 926 - 949
Real estate
and other
securities -
AFS 242 - 88 (88) 242
Other real
estate
investments 3 - - - 3
Non-real
estate
investments - - 79 - 79
Cash and cash
equivalents 257 - - - 257
--------- -------- ------- -------------- -------------
Total
earning
assets 530 6,751 1,112 (88) 8,305
Investment in
Sequoia 146 - - (146) -
Investment in
Acacia 68 - - (68) -
Restricted
cash 11 - 138 - 149
Other assets 24 49 19 - 92
--------- -------- ------- -------------- -------------
Total Assets $ 779 $ 6,800 $ 1,269 $ (302) $ 8,546
========= ======== ======= ============== =============
Redwood debt $ 2 $ - $ - $ - $ 2
Asset-backed
securities
issued -
Sequoia - 6,632 - (88) 6,544
Asset-backed
securities
issued -
Acacia FVO - - 1,046 - 1,046
Other
liabilities 42 22 155 - 219
Subordinated
notes 150 - - - 150
--------- -------- ------- -------------- -------------
Total
liabilities 194 6,654 1,201 (88) 7,961
Total
stockholders'
equity 585 146 68 (214) 585
--------- -------- ------- -------------- -------------
Total
Liabilities
and
Stockholders'
Equity $ 779 $ 6,800 $ 1,269 $ (302) $ 8,546
========= ======== ======= ============== =============
Source: Redwood Trust, Inc.
Released May 7, 2008