|
CONTACTS:
|
Mike
McMahon
|
|
|
Redwood
Trust, Inc.
|
(415)
384-3805
|
|
|
Thursday,
February 26, 2009
|
||
|
Martin
S. Hughes
|
||
|
(415)
389-7373
|
REDWOOD
TRUST REPORTS FOURTH QUARTER 2008 RESULTS
MILL VALLEY,
CA – February
26, 2009 – 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 $98 million in 2009
through February 24th.
“We
believe it is unlikely that there will be a near-term recovery in housing and
the economy. If there were an easy fix, the people addressing these problems
would have found it by now,” said Brett Nicholas, Redwood’s Chief Investment
Officer. “Despite the gloomy outlook, we are finding attractive
investment opportunities. We believe Redwood can prosper in the current
environment and we have the capital to build our franchise in the months and
years to come,” he added.
The
accounting concepts and disclosures relating to our financial statements are
complex. Today, we also released our Redwood Review covering the
fourth quarter of 2008. The Redwood Review contains a
more detailed discussion of our business performance and outlook. The Redwood Review is available
on our website at www.redwoodtrust.com.
We strongly recommend reading the Redwood Review and our Annual
Report on Form 10-K in conjunction with this press release.
Our
Annual Report on Form 10-K for the year ended December 31, 2008 was filed today
with the Securities and Exchange Commission. The Form 10-K is also
available on our website at www.redwoodtrust.com.
1
REDWOOD
TRUST, INC.
|
Consolidated Income Statement
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
|||||||||||||||
|
($
in millions, 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
market
valuation adjustments
|
(106 | ) | (106 | ) | (31 | ) | (153 | ) | (1,070 | ) | ||||||||||
|
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 | ||||||||||
2
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 | ||||
3
REDWOOD
TRUST, INC.
|
Consolidated Balance
Sheet
|
31-Dec
|
30-Sep
|
30-Jun
|
31-Mar
|
1-Jan (1)
|
31-Dec
|
||||||||||||||||||
|
($
in millions, 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.
4
REDWOOD
TRUST, INC.
|
Consolidating
Income
Statement
|
||||||||||||||||||||||||
|
Three
Months Ended December 31,
2008
|
||||||||||||||||||||||||
| ($ in millions) |
The
|
Intercompany
|
Redwood
|
|||||||||||||||||||||
|
Redwood
|
Fund
|
Sequoia
|
Acacia
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
|
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 and market valuation
adjustments
|
(89 | ) | (4 | ) | (16 | ) | (3 | ) | 6 | (106 | ) | |||||||||||||
|
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 | ) | |||||||
|
Consolidating Income
Statement
Year
Ended December 31, 2008
($
in
millions)
|
|
The
|
Intercompany
|
Redwood
|
||||||||||||||||||||
|
Redwood
|
Fund
|
Sequoia
|
Acacia
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
|
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 | ) | |||||||
5
REDWOOD
TRUST, INC.
|
Consolidating Balance Sheet
|
||||||||||||||||||||||||
|
December
31, 2008
|
||||||||||||||||||||||||
|
($
in millions)
|
The
|
Intercompany
|
Redwood
|
|||||||||||||||||||||
|
Redwood
|
Fund
|
Sequoia
|
Acacia
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
|
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 | |||||||||||
6
REDWOOD
TRUST, INC.
|
GAAP and Taxable (Loss) Income
Differences
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
|||||||||||||||
|
($
in millions, except 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 | |||||||||
7
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 | ||||
8