Redwood's Revenue Plummets

Interest income slips more than 40%.
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Redwood Trust's

(RWT) - Get Report

third-quarter fiscal 2008 revenue plunged 40.4% to $132.50 million from $222.22 million in the prior year's quarter. Interest income dipped 40.5% to $131.19 million from $220.33 million, due to lower interest from real estate loans and securities.

Total interest expense declined 44.3% to $93.07 million from $167.12 million due to lower expense related to the issuing of asset-backed securities. As a result, net interest income decreased 28.4% to $39.43 million from $55.10 million, primarily due to a $11.00 million decrease in interest income from securities held at Redwood as a result of higher credit losses, slower prepayments and lower interest rates.

Net interest income at Sequoia declined 38.8% to $5.45 million from $8.89 million, due to lower interest rates. Net interest income at Acacia dipped 38.3% to $7.92 million from $12.84 million. Conversely, net interest income at The Fund stood at $3.54 million.

During the quarter, net loss widened to $111.30 million or $3.34 per share from $60.92 million or $2.18 per share, hurt by a $24.00 million increase in negative market valuation adjustments (MVA) and a $16.00 million increase in the provision for loan losses.

Redwood's cash and cash equivalents dwindled 46.3% to $239.69 million from $446.61 million. Return on assets swung to a negative 19.07% from a positive 0.04%. Similarly, return on equity worsened to a negative 341.41% from a positive 3.02%. Total debt for the quarter diminished 38.5% to $6.76 billion from $10.99 billion. Stockholders' equity climbed 176.8% to $411.89 million from $148.79 million. Therefore, the debt-to-equity ratio stood at 16.41 compared to 73.88 in the same quarter last year.

Provisions for credit losses during the quarter increased several times to $18.33 million from $1.51 million, due to higher expected credit losses on residential real estate loans at Sequoia. Net charge-offs increased 48.4% to $4.05 million from $2.73 million a year ago. Redwood repurchased 341,656 shares at an average price of $18.05 per share for a total of approximately $6.17 million.

Recently, the company appointed Marty Hughes president. In addition, it declared a regular dividend of 75 cents per share for fourth-quarter 2008, payable on Jan. 21, 2009.

Looking forward, Redwood expects that its GAAP earnings will remain volatile in the near term owing to mark-to-market (MTM) adjustments. Redwood also expects its cash flow from investments to decrease by about one-third in fourth-quarter 2008 and its taxable income to be negative in 2009, pressured by the realization of credit losses.

In addition, RWT intends to reduce its regular dividend to a rate of 25 cents per share per quarter in 2009. However, the company believes that hedge fund redemptions, forced margin calls and planned asset liquidations from troubled or seized financial institutions will provide investment opportunities in the upcoming quarters.

A detailed report covering this quarterly release is now available. To purchase the report, click here.