MILL VALLEY, Calif.--(BUSINESS WIRE)--
Redwood Trust, Inc. (NYSE:RWT) today reported a GAAP net loss for
the fourth quarter of 2007 of $1.1 billion ($36.49 per share). This
loss included $1.1 billion ($37.90 per share) of net negative
mark-to-market (MTM) adjustments. This compares to a net loss of $2.18
per share for the third quarter of 2007 and net income of $1.32 per
share for the fourth quarter of 2006. For 2007, our reported GAAP net
loss was $1.1 billion ($39.70 per share). This loss included $1.3
billion ($45.17 per share) of net negative MTM adjustments. This
compares to GAAP net income of $128 million ($4.85 per share) in 2006.
Taxable income for the fourth quarter was $29 million ($0.91 per
share) compared to taxable income of $39 million ($1.45 per share) for
the fourth quarter of 2006. Taxable income for 2007 was $164 million
($5.79 per share), compared to $175 million ($6.75 per share) in 2006.
Our excess capital position remained strong at $282 million at
December 31, 2007, a slight decrease from the $298 million at the end
of the third quarter. During the quarter, we raised $131 million of
capital from stock issuance, $49 million of capital from portfolio
cash flows in excess of our operating costs, and $7 million of capital
from asset sales. We used $123 million of capital for new investments
and $80 million of capital for dividend payments. We continue to have
no liquidity issues or need to sell assets.
"After a painful year for our industry, we have emerged from 2007
as one of the companies best positioned to capitalize on the
opportunities that lie ahead," said George Bull, Redwood's Chairman
and CEO. "The strength of our balance sheet allowed us to weather the
current liquidity crisis and build for the future. As a survivor and a
leader, we will have an opportunity to define the new operating models
in our space in the future."
Negative MTM adjustments were, by far, the most significant factor
impacting earnings and book value for the fourth quarter and the year
ended December 31, 2007. We believe the real economic impact of
diminished market values is significantly less severe than the
financial reporting impact reflected in our GAAP financial statements
because the reported $1.0 billion loss attributed to the bankruptcy
remote Acacia entities in 2007 substantially exceeds our $118 million
net investment in these entities, and our economic loss cannot exceed
our investment. The primary reason for the divergence between
economics and GAAP is the accounting treatment required for our
investments in the consolidated Acacia CDO entities. During 2007, we
recorded cumulative fair value declines for Acacia's assets of $1.6
billion, but were not permitted to record $1.5 billion of fair value
declines for Acacia's paired liabilities - the result was a reported
net GAAP book value of negative $22.18 per share at December 31, 2007.
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 going forward. FAS
159 also provided for a one-time cumulative effect balance sheet
adjustment reflecting the initial application of the standard. After
giving effect to this adjustment, our GAAP book value was a positive
$23.18 per share on January 1, 2008. We believe this new accounting
standard significantly improves the substantial disparity that has
existed between GAAP and economic values.
Our key operating results for the fourth quarter and year remained
relatively strong despite the turmoil in the mortgage market. Net
interest income for the fourth quarter of 2007 was $4 million higher
than the fourth quarter of 2006. Operating expenses in the fourth
quarter of 2007 were $2 million higher than the fourth quarter of last
year. For 2007, net interest income increased to $204 million from
$184 million in 2006. Operating expenses increased from $56 million in
2006 to $59 million in 2007 and provisions for income taxes decreased
from $10 million in 2006 to $5 million in 2007.
The accounting concepts and disclosures relating to our financial
statements are complex. Today, we also released our "Redwood Review"
covering the fourth quarter of 2007. The Redwood Review contains a
more detailed discussion of our business performance and outlook. We
strongly recommend reading the Redwood Review in conjunction with this
press release. The Redwood Review is available on our website at
www.redwoodtrust.com.
Additional Information
Additional information on our GAAP results is available in our
Annual Report on Form 10-K for the year ended December 31, 2007 which
we filed today with the Securities and Exchange Commission. The Form
10-K 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 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.
REDWOOD TRUST, INC.
CONSOLIDATED INCOME Fourth Third Second First Fourth
STATEMENT Quarter Quarter Quarter Quarter Quarter
2007 2007 2007 2007 2006
------------------------- -------- -------- -------- -------- --------
(In Millions, Except
Share Data)
Interest income $ 202 $ 219 $ 220 $ 215 $ 217
Interest expense (153) (165) (166) (168) (172)
-------- -------- -------- -------- --------
Net interest income 49 54 54 47 45
Operating expenses (15) (12) (13) (16) (14)
Severance expense (1) - - (2) -
Realized gains on sales
and calls, net 7 2 3 1 7
Market valuation
adjustments, net (1,119) (103) (30) (10) (1)
Credit (provision) for
income taxes 2 (2) (3) (2) (1)
-------- -------- -------- -------- --------
GAAP net (loss) income $(1,077) $ (61) $ 11 $ 18 $ 36
======== ======== ======== ======== ========
Less: severance expense
(1) $ 1 $ - $ - $ 2 $ -
Less: realized gains on
sales and calls, net (7) (2) (3) (1) (7)
Less: market valuation
adjustments, net 1,119 103 30 10 1
-------- -------- -------- -------- --------
Core earnings (2) $ 36 $ 40 $ 38 $ 30 $ 30
Average diluted shares
(thousands) 29,531 27,892 28,165 27,684 27,122
GAAP earnings per share
(diluted) $(36.49) $ (2.18) $ 0.41 $ 0.66 $ 1.32
Core earnings per share
(diluted) (2) $ 1.21 $ 1.43 $ 1.35 $ 1.08 $ 1.12
Regular dividends
declared per common
share $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.70
Special dividends
declared per common
share 2.00 - - - 3.00
-------- -------- -------- -------- --------
Total dividends declared
per common share $ 2.75 $ 0.75 $ 0.75 $ 0.75 $ 3.70
(1) Cost associated with re-alignment of senior management in our
commercial and residential 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. 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 not
affect on-going earnings from operations. We also exclude gains from
calls of securities, as these are essentially sales of assets that
produce a highly variable stream of income that may obscure underlying
income generation trends. GAAP earnings also include valuation
adjustments for certain of our assets and interest rate agreements -
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 fair values on the balance
sheet as a whole or a reliable guide to current operating performance.
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.
REDWOOD TRUST, INC.
CONSOLIDATED INCOME STATEMENT Year Ended December 31,
-------------------------------------- ------------------------------
(In Millions, Except Share Data) 2007 2006 2005
-------- -------- --------
Interest income $ 856 $ 886 $ 962
Interest expense (652) (702) (757)
-------- -------- --------
Net interest income 204 184 205
Operating expenses (56) (56) (48)
Severance expense (3) - -
Realized gains on sales and calls, net 13 23 66
Market valuation adjustments, net (1,261) (13) (5)
Provision for income taxes (5) (10) (18)
-------- -------- --------
GAAP net (loss) income $(1,108) $ 128 $ 200
Less: severance expense (1) $ 3 $ - $ -
Less: realized gains on sales and
calls, net (13) (23) (66)
Less: market valuation adjustments,
net 1,261 13 5
-------- -------- --------
Core earnings (2) $ 143 $ 118 $ 139
Average diluted shares (thousands) 27,928 26,314 25,121
GAAP earnings per share (diluted) $(39.70) $ 4.85 $ 7.96
Core earnings per share (diluted) (2) $ 5.15 $ 4.47 $ 5.53
Regular dividends declared per common
share $ 3.00 $ 2.80 $ 2.80
Special dividends declared per common
share 2.00 3.00 3.00
-------- -------- --------
Total dividends declared per common
share $ 5.00 $ 5.80 $ 5.80
(1) Cost associated with re-alignment of senior management in our
commercial and residential 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. 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 not
affect on-going earnings from operations. We also exclude gains from
calls of securities, as these are essentially sales of assets that
produce a highly variable stream of income that may obscure underlying
income generation trends. GAAP earnings also include valuation
adjustments for certain of our assets and interest rate agreements -
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 fair values on the balance
sheet as a whole or a reliable guide to current operating performance.
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.
REDWOOD TRUST, INC.
CONSOLIDATED BALANCE SHEET 1-Jan 31-Dec 30-Sep
(1) 2007 2007
2008
-------------------------------------------- ------- -------- -------
(In Millions, Except Share Data)
Real estate loans $ 7,204 $ 7,204 $ 7,656
Real estate securities 2,110 2,110 2,926
Other real estate investments 12 12 25
Non-real estate investments 79 79 80
Cash and cash equivalents 290 290 310
Other assets 223 244 286
------- -------- -------
Total consolidated assets $ 9,918 $ 9,939 $11,283
Redwood debt $ 8 $ 8 $ 39
Asset-backed securities issued 8,839 10,329 10,803
Other liabilities 170 170 142
Subordinated notes 150 150 150
Stockholders' equity (deficit) 751 (718) 149
------- -------- -------
Total liabilities and stockholders' equity $ 9,918 $ 9,939 $11,283
Shares outstanding at period end (thousands) 32,385 32,385 27,986
GAAP book value per share $ 23.18 $(22.18) $ 5.32
CONSOLIDATED BALANCE SHEET 30-Jun 31-Mar 31-Dec
2007 2007 2006
------------------------------------------------------ ------- -------
(In Millions, Except Share Data)
Real estate loans $ 8,377 $ 8,706 $ 9,352
Real estate securities 3,726 3,601 3,233
Other real estate investments 34 50 -
Non-real estate investments 80 - -
Cash and cash equivalents 83 92 168
Other assets 381 498 277
------- ------- -------
Total consolidated assets $12,681 $12,947 $13,030
Redwood debt $ 849 $ 1,880 $ 1,856
Asset-backed securities issued 10,675 9,947 9,979
Other liabilities 131 96 92
Subordinated notes 150 100 100
Stockholders' equity (deficit) 876 924 1,003
------- ------- -------
Total liabilities and stockholders' equity $12,681 $12,947 $13,030
Shares outstanding at period end (thousands) 27,816 27,129 26,733
GAAP book value per share $ 31.49 $ 34.06 $ 37.51
(1) After giving effect to the adoption of FAS 159.
Consolidating Balance Sheets
December 31, 2007
(In Millions) Redwood
Parent Intercompany Redwood
Only Sequoia Acacia Adjustments Consolidated
-------- -------- -------- ------------- ------------
Real estate
loans $ 4 $7,174 $ 26 $ - $ 7,204
Real estate and
other
securities 359 - 1,935 (93) 2,201
Cash and cash
equivalents 290 - - - 290
-------- -------- -------- ------------ ------------
Total earning
assets 653 7,174 1,961 (93) 9,695
Investment in
Sequoia 146 - - (146) -
Investment in
Acacia (1,385) - - 1,385 -
Restricted cash 5 - 113 - 118
Other assets 62 31 38 (5) 126
-------- -------- -------- ------------ ------------
Total Assets $ (519) $7,205 $ 2,112 $1,141 $ 9,939
======== ======== ======== ============ ============
Redwood debt $ 8 $ - $ - $ - $ 8
Asset-backed
securities
issued - 7,039 3,383 (93) 10,329
Other
liabilities 41 20 114 (5) 170
Subordinated
notes 150 - - - 150
-------- -------- -------- ------ ------------
Total
liabilities 199 7,059 3,497 (98) 10,657
Total
stockholders'
equity (718) 146 (1,385) 1,239 (718)
-------- -------- -------- ------------ ------------
Total
Liabilities
and
Stockholders'
Equity $ (519) $7,205 $ 2,112 $1,141 $ 9,939
======== ======== ======== ============ ============
Consolidating Balance Sheets
January 1, 2008 after giving effect
to the adoption of FAS 159
(In Millions) Redwood
Parent Intercompany Redwood
Only Sequoia Acacia Adjustments Consolidated
-------- -------- ------- ------------- ------------
Real estate loans $ 4 $7,174 $ 26 $ - $7,204
Real estate and
other securities 359 - 1,935 (93) 2,201
Cash and cash
equivalents 290 - - - 290
------- -------- ------- ------------ ------------
Total earning
assets 653 7,174 1,961 (93) 9,695
Investment in
Sequoia 146 - - (146) -
Investment in
Acacia 84 - - (84) -
Restricted cash 5 - 113 - 118
Other assets 62 31 17 (5) 105
------- -------- ------- ------------ ------------
Total Assets $950 $7,205 $2,091 $(328) $9,918
======= ======== ======= ============ ============
Redwood debt $ 8 $ - $ - $ - $ 8
Asset-backed
securities issued - 7,039 1,893 (93) 8,839
Other liabilities 41 20 114 (5) 170
Subordinated notes 150 - - - 150
------- -------- ------- ----- ------------
Total liabilities 199 7,059 2,007 (98) 9,167
Total
stockholders'
equity 751 146 84 (230) 751
------- -------- ------- ------------ ------------
Total Liabilities
and Stockholders'
Equity $950 $7,205 $2,091 $(328) $9,918
======= ======== ======= ============ ============
Source: Redwood Trust, Inc.
Contact: Redwood Trust, Inc.
Lauren K. Morgensen, 415-384-3558
Martin S. Hughes, 415-389-7373