Redwood Trust Reports Second Quarter 2006 Results.MILL VALLEY, Calif. -- Redwood redwood: see sequoia; brazilwood. redwood or sequoia Coniferous evergreen timber tree (Sequoia sempervirens) of the family Taxodiaceae, found in the fog belt of west-coastal North America. Trust, Inc. (NYSE NYSE See: New York Stock Exchange :RWT RWT Resident Withholding Tax (New Zealand) RWT Required Weekly Test RWT Rail With Trail RWT Real World Trading (gaming) RWT Radiation Worker Training RWT Royalty Withholding Tax ) today reported GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). earnings of $31 million ($1.20 per share) for the second quarter of 2006 and $59 million ($2.29 per share) for the first six months of 2006. In 2005, GAAP earnings were $41 million ($1.62 per share) for the second quarter and $101 million ($4.04 per share) for the first six months. GAAP book value per share was $39.13 at June 30, 2006. This is a 3% increase during the quarter after declaring a regular quarterly dividend of $0.70 per share. Doug Hansen, Redwood's President, said, "This was another good quarter for earnings and return on equity. We are cautious in this market, and growing only at a modest pace. We continue to maintain what we believe to be a strong and liquid balance sheet, with plenty of capital to support future growth." The reduction in net income of $10 million from the extraordinary profits earned in the second quarter of 2005 resulted from a decrease in net interest income of $9 million, an increase in operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. of $2 million, and an increase in due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. expenses of $3 million. These items were offset by higher recognized gains Recognized Gain The amount of gain reported for income tax purposes. Notes: You can defer recognizing some gains until the following year(s). See also: Capital Gain, Capital Loss, Deferred Income Tax, Drought Sale, Exempt Income, Exemption, Gain, Recognized Loss and valuation adjustments of $3 million and lower provision for income taxes of $1 million. The reduction in net interest income was largely driven by a higher level of unutilized capital and also by lower income from assets retained from our Sequoia sequoia (sĭkwoi`ə), name for the redwood (Sequoia sempervirens) and for the big tree, or giant sequoia (Sequoiadendron giganteum), both huge, coniferous evergreen trees of the bald cypress family, and for extinct related species. residential loan securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. program. Yields on these assets were reduced by rapid loan prepayment speeds Prepayment speed Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities. that caused reduced principal balances and higher premium amortization expenses. Yields on Redwood's other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. have been generally rising as a result of these fast prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. and continued excellent credit results. Operating expenses increased as we added personnel and systems to lay the foundation for future growth. Due diligence expenses increased primarily because we reviewed more commercial securities for potential acquisition in the second quarter of 2006. Net gains increased primarily as a result of the sales of securities we controlled after calling Acacia acacia (əkā`shə), any plant of the large leguminous genus Acacia, often thorny shrubs and trees of the family Leguminosae (pulse family). 2. Additional Information Additional information on Redwood's GAAP results for the three and six months ended June 30, 2006 is available in our Quarterly Report on Form 10-Q Form 10-Q See 10-Q. filed today with the Securities and Exchange Commission. Today we also released the "Redwood Review," covering the second quarter of 2006. The Redwood Review contains a discussion of second quarter activity, taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. and other non-GAAP performance measures, and a review of Redwood's business and outlook. Redwood's 10-Q and the Redwood Review are available on our website (www.redwoodtrust.com). CAUTIONARY STATEMENT: This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 2005 Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 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 Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. rates; general economic conditions, particularly as they affect the price of earning assets Earning Assets Any income-earning asset owned by a company. Notes: These assets are generally interest-bearing accounts, bonds, and securities available for sale. See also: Asset, Asset Valuation, Earnings, Net Interest Margin 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 per share data)
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
CONSOLIDATED INCOME STATEMENT 2006 2006 2005 2005 2005
----------------------------- ------- ------- ------- ------- -------
Interest Income $218.2 $225.9 $231.1 $244.6 $248.5
Interest Expense (173.5) (180.7) (189.6) (196.6) (195.1)
----------------------------- ------- ------- ------- ------- -------
Net Interest Income 44.7 45.2 41.5 48.0 53.4
Operating Expenses (13.0) (11.9) (12.2) (11.0) (11.0)
Net Recognized Gains (Losses)
and Valuation Adjustments 6.0 (1.9) 17.9 24.9 3.0
Excise Tax Expense (0.3) (0.3) (0.3) (0.3) (0.3)
Due Diligence Expenses (2.7) (0.4) (0.3) (1.0) (0.1)
Variable Stock Option Income 0.0 0.0 0.0 0.0 0.0
Provision For Income Taxes (3.3) (2.7) (4.1) (4.7) (4.1)
----------------------------- ------- ------- ------- ------- -------
GAAP Earnings $31.4 $28.0 $42.5 $55.9 $40.9
Average Diluted Shares
(thousands) 26,109 25,703 25,311 25,314 25,196
GAAP Earnings per Share
(diluted) $1.20 $1.09 $1.68 $2.21 $1.62
Regular Dividends per Share $0.70 $0.70 $0.70 $0.70 $0.70
Special Dividends per Share 0.00 0.00 3.00 0.00 0.00
----------------------------- ------- ------- ------- ------- -------
Total Dividends per Share $0.70 $0.70 $3.70 $0.70 $0.70
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
CONSOLIDATED INCOME STATEMENT
-----------------------------
Six Months Six Months
2006 2005
----------- ----------
Interest Income $444.1 $486.4
Interest Expense (354.2) (371.0)
----------------------------- ----------- ----------
Net Interest Income $89.9 $115.4
Operating Expenses (24.9) (21.8)
Net Recognized Gains (Losses) and Valuation
Adjustments 4.1 18.1
Excise Tax Expense (0.6) (0.6)
Due Diligence Expenses (3.1) (0.9)
Variable Stock Option Income 0.0 0.0
Provision For Income Taxes (6.0) (8.7)
----------------------------- ----------- ----------
GAAP Earnings $59.4 $101.5
Average Diluted Shares (thousands) 25,910 25,109
GAAP Earnings per Share (diluted) $2.29 $4.04
Regular Dividends per Share $1.40 $1.40
Special Dividends per Share 0.00 0.00
----------------------------- ----------- ----------
Total Dividends per Share $1.40 $1.40
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
30-June 31-Mar 31-Dec 30-Sep 30-June
CONSOLIDATED BALANCE SHEET 2006 2006 2005 2005 2005
-------------------------- ------- -------- -------- -------- --------
Real Estate Loans $10,491 $12,045 $13,935 $16,612 $19,672
Real Estate Securities 2,661 2,529 2,420 2,491 2,384
Cash and Cash Equivalents 106 85 176 163 72
Other Assets 272 320 246 239 218
-------------------------- ------- -------- -------- -------- --------
Total Consolidated Assets $13,530 $14,979 $16,777 $19,505 $22,346
Redwood Trust Debt $529 $0 $170 $162 $453
Consolidated Asset-Back
Securities Issued 11,898 13,930 15,585 18,237 20,815
Other Liabilities 99 82 87 90 86
Equity 1,004 967 935 1,016 992
-------------------------- ------- -------- -------- -------- --------
Total Liabilities and
Equity $13,530 $14,979 $16,777 $19,505 $22,346
Shares Outstanding at
Period End (thousands) 25,668 25,382 25,133 24,764 24,647
GAAP Equity (GAAP Book
Value) per Share $39.13 $38.11 $37.20 $41.03 $40.24
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