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Redwood Trust Reports Fourth Quarter 2013 Results

RWT | February 24, 2014

MILL VALLEY, Calif., Feb. 24, 2014 /PRNewswire/ -- Redwood Trust, Inc. (NYSE:RWT) today reported net income for the fourth quarter of 2013 of $25 million, or $0.29 per fully diluted share. This compares to net income of $22 million, or $0.25 per fully diluted share, for the third quarter of 2013, and net income of $42 million, or $0.50 per fully diluted share, for the fourth quarter of 2012.

Redwood also reported estimated REIT taxable income of $20 million, or $0.24 per share, for the fourth quarter of 2013. This compares to estimated REIT taxable income of $20 million, or $0.24 per share, for the third quarter of 2013 and REIT taxable income of $18 million, or $0.23 per share, for the fourth quarter of 2012.

At December 31, 2013, Redwood reported a book value per share of $15.10, as compared to $14.65 at September 30, 2013.

Additional information on Redwood's business, financial results, and taxable income can be found in The Redwood Review, a quarterly publication available on Redwood's website at www.redwoodtrust.com. In order to complete the formatting of its Annual Report on Form 10-K with eXtensible Business Reporting Language (XBRL) tags, Redwood plans to file this Annual Report with the Securities and Exchange Commission by Thursday, February 27, 2014, and make it available on Redwood's website.

Redwood will host an earnings call today, February 24, 2014, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss its fourth quarter 2013 financial results. The number to dial in order to listen to the conference call is 1-888-437-9364 in the U.S. and Canada. International callers must dial 1-719-457-2710. Callers should reference call ID# 7767910. A replay of the call will be available through midnight on March 10, 2014, and can be accessed by dialing 1-877-870-5176 in the U.S. and Canada or 1-858-384-5517 internationally and entering access code 7767910. Live audio of the conference call will also be accessible over the internet at www.redwoodtrust.com, where a link to the call will be posted on Redwood's home page. To listen to the call over the internet, go to the Redwood website at least 15 minutes before the call to register and to download and install any needed audio software. An audio replay of the call will also be available on Redwood's website following the call.

Cautionary Statement: This press release and the related conference call contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to estimates of taxable income and the filing of our Annual Report on Form 10-K. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, 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 most recent Annual Report on Form 10-K under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the Securities and Exchange Commission, including reports on Forms 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.

REDWOOD TRUST, INC.


Consolidated Income Statements ⁽¹⁾	Fourth		Third		Second		First		Fourth
($ in millions, except share data)	Quarter		Quarter		Quarter		Quarter		Quarter
	2013		2013		2013		2013		2012

Interest income	$	57	$	58	$	58	$	54	$	53
Interest expense		(20)		(22)		(21)		(18)		(33)
Net interest income		38		36		36		35		20
(Provision for) reversal of provision for loan losses		(4)		(2)		3		(2)		(3)
Net interest income after provision		34		34		39		33		17
Noninterest income
Mortgage banking activities, net		17		(9)		48		46		21
MSR income, net		6		3		11		1		-
Other market valuation adjustments, net		1		-		(6)		-		2
Realized gains, net		2		11		-		12		20
Total noninterest income		25		5		53		59		43
Operating expenses		(19)		(22)		(23)		(20)		(18)
Other expense		(12)		-		-		-		-
(Provision for) benefit from income taxes		(2)		5		(3)		(11)		-
Net income	$	25	$	22	$	66	$	61	$	42


Average diluted shares (thousands)	84,395		84,422		96,172		87,345		82,498
Diluted earnings per share	$	0.29	$	0.25	$	0.71	$	0.69	$	0.50
Regular dividends declared per common share	$	0.28	$	0.28	$	0.28	$	0.28	$	0.25

(1) Certain totals may not foot due to rounding.

REDWOOD TRUST, INC.


Consolidated Income Statements ⁽¹⁾
($ in millions, except share data)	Year Ended December 31,
	2013		2012

Interest income	$	226	$	231
Interest expense		(81)		(121)
Net interest income		145		111
Provision for loan losses		(5)		(4)
Net interest income after provision		141		107
Noninterest income
Mortgage banking activities, net		101		36
MSR income (loss), net		20		(1)
Other market valuation adjustments, net		(6)		2
Realized gains, net		25		55
Total noninterest income		140		92
Operating expenses		(85)		(65)
Other expense		(12)		-
Provision for income taxes		(11)		(1)
Net income	$	173	$	132

Average diluted shares (thousands)	93,695		80,674
Diluted earnings per share	$	1.94	$	1.59
Regular dividends declared per common share	$	1.12	$	1.00

(1) Certain totals may not foot due to rounding.

REDWOOD TRUST, INC.


Consolidated Balance Sheets ⁽¹⁾	31-Dec		30-Sep		30-Jun		31-Mar		31-Dec
($ in millions, except share data)	2013		2013		2013		2013		2012

Residential loans	$	2,166	$	2,593	$	3,219	$	2,965	$	2,836
Commercial loans		432		380		495		401		313
Real estate securities		1,683		1,325		1,314		1,231		1,109
Mortgage servicing rights		65		60		43		18		5
Cash and cash equivalents		173		205		208		79		81
Other assets		89		98		156		103		101
Total Assets	$	4,609	$	4,660	$	5,435	$	4,797	$	4,444

Short-term debt	$	863	$	838	$	1,446	$	721	$	552
Other liabilities		81		81		122		80		83
Asset-backed securities issued		1,943		2,062		2,214		2,365		2,529
Long-term debt		476		472		444		444		140
Total liabilities		3,363		3,452		4,226		3,609		3,304

Stockholders' equity		1,246		1,207		1,209		1,188		1,140

Total Liabilities and Equity	$	4,609	$	4,660	$	5,435	$	4,797	$	4,444


Shares outstanding at period end (thousands)		82,505		82,389		82,332		81,706		81,716
GAAP book value per share	$	$15.10	$	14.65	$	14.69	$	14.54	$	13.95

(1) Certain totals may not foot due to rounding. See notes to consolidating balance sheet on page 6.

REDWOOD TRUST, INC.

The following tables show the estimated effect that activities at Redwood and our Consolidated Sequoia Entities had on GAAP income for the three and twelve months ended December 31, 2013.

Consolidating Income Statement ⁽¹⁾
Three Months Ended December 31, 2013
($ in millions)	At Redwood ⁽²⁾		Consolidated		Redwood
			Sequoia Entities		Consolidated

Interest income	$	41	$	8	$	48
Net discount (premium) amortization		10		(1)		9
Total interest income		51		7		57
Interest expense		(14)		(6)		(20)
Net interest income		37		1		38
Provision for loan losses		(1)		(3)		(4)
Net interest income (loss) after provision		36		(2)		34
Noninterest income
Mortgage banking activities, net		17		-		17
MSR income, net		6				6
Other market valuation adjustments, net		1		-		1
Realized gains, net		2		-		2
Total noninterest income		25				25
Operating expenses		(19)		-		(19)
Other expense		(12)		-		(12)
Provision for income taxes		(2)		-		(2)
Net Income (Loss)	$	27	$	(2)	$	25


Consolidating Income Statement ⁽¹⁾
Twelve Months Ended December 31, 2013
($ in millions)	At Redwood ⁽²⁾		Consolidated		Redwood
			Sequoia Entities		Consolidated

Interest income	$	155	$	41	$	196
Net discount (premium) amortization		37		(7)		31
Total interest income		192		34		226
Interest expense		(55)		(26)		(81)
Net interest income		137		8		145
Provision for loan losses		(3)		(1)		(5)
Net interest income after provision		134		6		140
Noninterest income
Mortgage banking activities, net		101		-		101
MSR income, net		20		-		20
Other market valuation adjustments, net		(5)		(1)		(6)
Realized gains, net		25		-		25
Total noninterest income		141		-		141
Operating expenses		(85)		-		(85)
Other expense		(12)		-		(12)
Provision for income taxes		(11)		-		(11)
Net Income	$	167	$	6	$	173

(1) Certain totals may not foot due to rounding.

(2) The interest income and interest expense related to the residential resecuritization we engaged in during the third quarter of 2011 and the commercial securitization we engaged in during the fourth quarter of 2012 are included in the At Redwood column.

REDWOOD TRUST, INC.

We present this table to highlight the estimated effect that Redwood (Parent) and our Consolidated Sequoia Entities had on our GAAP balance sheet at December 31, 2013.

Consolidating Balance Sheet ⁽¹⁾
December 31, 2013
($ in millions)	At Redwood ⁽²⁾		Consolidated		Redwood
			Sequoia Entities		Consolidated

Residential loans	$	404	$	1,762	$	2,166
Commercial loans		432		-		432
Real estate securities		1,683		-		1,683
Mortgage servicing rights		65		-		65
Cash and cash equivalents		173		-		173
Total earning assets		2,758		1,762		4,520
Other assets		81		8		89
Total Assets	$	2,838	$	1,770	$	4,609

Short-term debt	$	863	$	-	$	863
Other liabilities		79		1		81
Asset-backed securities issued		249		1,694		1,943
Long-term debt		476		-		476
Total liabilities		1,667		1,696		3,363

Stockholders' equity		1,171		75		1,246

Total Liabilities and Equity	$	2,838	$	1,770	$	4,609

(1) We are required under GAAP to consolidate the assets and liabilities of certain securitization entities we have sponsored for financial reporting purposes. However, the securitized assets of these entities are not legally ours and we own only the securities and interests that we acquired from these securitization entities. Similarly, the liabilities of these entities are obligations payable only from the cash flow generated by their securitized assets and are not obligations of Redwood. Certain totals may not foot due to rounding.

(2) Included in the "At Redwood" column are the assets and liabilities of the Residential Resecuritization and Commercial Securitization transactions we completed in 2011 and 2012, respectively. These transactions are treated as secured borrowings under GAAP. At December 31, 2013, the Residential Resecuritization accounted for $264 million of assets ($263 million of available-for-sale securities at fair value and $1 million of other assets) and $95 million of asset-backed securities issued (at amortized cost). Our $169 million investment in this resecuritization, as estimated for GAAP, equals the difference between these assets and liabilities. At December 31, 2013, the Commercial Securitization accounted for $270 million of assets ($258 million of commercial real estate loans at historical cost and $12 million of other assets) and $154 million of asset-backed securities issued (at amortized cost). Our $116 million investment in this securitization, as estimated for GAAP, equals the difference between these assets and liabilities.