Redwood Trust Reports First Quarter 2007 Results
MILL VALLEY, Calif.--(BUSINESS WIRE)--
Redwood Trust, Inc. (NYSE:RWT) today reported GAAP earnings of $18 million ($0.66 per share) for the first quarter of 2007. In the first quarter of 2006, GAAP earnings were $28 million, ($1.09 per share).
Our core earnings for the first quarter were $30 million ($1.08 per share). Core earnings for each of the first and fourth quarters of 2006 were $30 million ($1.16 and $1.12 per share, respectively). Core earnings excludes gains from asset sales, calls, and market value changes that are included in earnings reported for GAAP purposes, and certain one-time income or expense items that are not likely to occur in the future. A reconciliation of core to GAAP earnings appears in the table below. We believe core earnings can be a meaningful measure of Redwood's financial performance in addition to reported GAAP results because core earnings highlights that portion of our reported earnings that is more likely to be ongoing in nature.
"Our results for the quarter were not bad," said Doug Hansen, Redwood's President. "Credit results were good. Net interest income and core income were strong, as were taxable income results. Declining market values of assets reduced our headline GAAP earnings number and our reported book value, but did not affect our prospective cash flows. Most importantly, although volatility in our reported results should be expected for some time, it appears that market turmoil, asset market value declines, and a new respect for risk are enhancing the value of our competitive advantages and thus our long-term opportunities for profitable growth."
The largest factor in the decline of net income from a year ago was a $7 million increase in negative unrealized mark-to-market asset valuation adjustments, reflecting the overall market decline in prices for real estate securities that occurred during the first quarter. Another factor that contributed to the decline in net income was a $5 million increase in operating expenses, of which $2 million related to severance charges as part of a re-alignment of our commercial operations, and $3 million related to increases in personnel and systems costs associated with diversification and growth of our business.
Our net interest income increased to $47 million during the quarter from $45 million in the same period last year. Higher net interest income from our securities portfolios more than offset the decline in net interest income from a reduced balance of adjustable-rate residential loans financed under our Sequoia program. In addition, net income for the period was positively affected by a lower tax provision and other items totaling $2 million.
Additional Information
Additional information on Redwood's GAAP results is available in its Quarterly Report on Form 10-Q for the three months ended March 31, 2007 which was filed today with the Securities and Exchange Commission. Today Redwood also released its "Redwood Review," covering the first quarter of 2007. The Review contains a discussion of first quarter activity, taxable income and other non-GAAP performance measures, and a review of Redwood's business and outlook. The company's 10-Q and the Redwood Review are available on its website: www.redwoodtrust.com.
CAUTIONARY STATEMENT: This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, including the words "anticipated," "estimated," "should," "expect," "believe," "intend," and similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our 2006 Annual Report on Form 10-K under Item 1A "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by us with the Securities and Exchange Commission, including Forms 10-K, 10-Q, and 8-K. Important factors that may impact our actual results include changes in interest rates and market values; changes in prepayment rates; general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the level of liquidity in the capital markets as it affects our ability to finance our real estate asset portfolio; and other factors not presently identified. In light of these risks, uncertainties, and assumptions, the forward-looking events mentioned in, discussed in, or incorporated by reference into this press release might not occur. Accordingly, our actual results may differ from our current expectations, estimates, and projections. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
REDWOOD TRUST, INC.
(All dollars in millions, except share data)
First Fourth Third Second First
CONSOLIDATED INCOME Quarter Quarter Quarter Quarter Quarter
STATEMENT 2007 2006 2006 2006 2006
------------------------- -------- -------- -------- -------- --------
Interest income $ 215 $ 218 $ 224 $ 218 $ 226
Interest expense (168) (173) (175) (173) (181)
------------------------- -------- -------- -------- -------- --------
Net interest income 47 45 49 45 45
Operating expenses (16) (14) (13) (16) (13)
Severance expense (2) - - 0 -
Gains on sales and calls,
net 1 7 5 8 1
Valuation adjustments (10) (1) (5) (3) (3)
Provision for income
taxes (2) (1) (4) (3) (2)
------------------------- -------- -------- -------- -------- --------
GAAP earnings $ 18 $ 36 $ 32 $ 31 $ 28
======== ======== ======== ======== ========
Less: severance
expense(1) 2 - - - -
Less: gains on sales and
calls, net (1) (7) (5) (8) (1)
Less: valuation
adjustments 10 1 5 3 3
------------------------- -------- -------- -------- -------- --------
Core earnings (2) $ 30 $ 30 $ 32 $ 26 $ 30
======== ======== ======== ======== ========
Average diluted shares
(thousands) 27,684 27,122 26,625 26,109 25,703
GAAP earnings per share
(diluted) $ 0.66 $ 1.32 $ 1.22 $ 1.20 $ 1.09
Core earnings per share
(diluted) (2) $ 1.08 $ 1.12 $ 1.20 $ 0.97 $ 1.16
Regular dividends per
share $ 0.75 $ 0.70 $ 0.70 $ 0.70 $ 0.70
Special dividends per
share - 3.00 - - -
------------------------- -------- -------- -------- -------- --------
Total dividends per share $ 0.75 $ 3.70 $ 0.70 $ 0.70 $ 0.70
(1) Cost associated with re-alignment of senior management in our
commercial operations.
(2) Core earnings are not a measure of earnings in accordance with
GAAP. We attempt to strip some of the elements out of GAAP earnings
that are temporary, one-time, or non-economic in nature or that
relate to the past rather than the future, so that the underlying on-
going "core" trend of earnings is clearer, at least in certain
respects. We exclude gains (and losses) on sales and calls. We sell
assets from time to time as part of our on-going portfolio management
activities. These occasional sales can produce material gains and
losses that could obscure the underlying trend of our long-term
portfolio earnings, so we exclude them from core earnings. Similarly,
we exclude gains from calls of securities, as these are essentially
sales of assets that produce a highly variable stream of income that
may obscure some underlying income generation trends. GAAP earnings
also include valuation adjustments for certain of our assets and
interest rate agreements. These are unrealized market value
fluctuations - we exclude them from core earnings. Management
believes that core earnings provide relevant and useful information
regarding results from operations in addition to GAAP measures of
performance. This is, in part, because market valuation adjustments
on only a portion of the company's assets and none of its liabilities
are recognized through the income statement under GAAP and thus GAAP
valuation adjustments may not be fully indicative of changes in
market values on the balance sheet as a whole or a reliable guide to
current operating performance. Furthermore, gains or losses realized
upon sales of assets vary based on portfolio management decisions; a
sale of an asset for a gain or a loss may or may not affect on going
earnings from operations. Because all companies and analysts do not
calculate non-GAAP measures such as core earnings in the same
fashion, core earnings as calculated by the company 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.
REDWOOD TRUST, INC.
(All dollars in millions, except share data)
CONSOLIDATED BALANCE 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar
SHEET 2007 2006 2006 2006 2006
------------------------- -------- -------- -------- -------- --------
Real estate loans $ 8,706 $ 9,352 $ 9,875 $10,491 $12,045
Real estate securities 3,601 3,233 2,912 2,661 2,529
Other real estate
investments 50 - - - -
Cash and cash equivalents 92 168 113 106 85
Other assets 498 277 300 272 320
------------------------- -------- -------- -------- -------- --------
Total consolidated assets $12,947 $13,030 $13,200 $13,530 $14,979
Redwood debt $ 1,880 $ 1,856 $ 510 $ 529 $ -
Consolidated asset-back
securities issued 9,947 9,979 11,554 11,898 13,930
Other liabilities 96 92 93 99 82
Junior subordinated notes 100 100 - - -
Equity 924 1,003 1,043 1,004 967
------------------------- -------- -------- -------- -------- --------
Total consolidated
liabilities and equity $12,947 $13,030 $13,200 $13,530 $14,979
======== ======== ======== ======== ========
Shares outstanding at
period end (thousands) 27,129 26,733 26,053 25,668 25,382
GAAP equity (GAAP book
value) per share $ 34.06 $ 37.51 $ 40.02 $ 39.13 $ 38.11
Source: Redwood Trust, Inc.
Released May 9, 2007