Redwood Trust Reports First Quarter 2013 Results

MILL VALLEY, Calif., May 2, 2013 /PRNewswire/ -- Redwood Trust, Inc. (NYSE: RWT) today reported net income for the first quarter of 2013 of $61 million, or $0.69 per fully diluted share. This compares to net income of $42 million, or $0.50 per fully diluted share, for the fourth quarter of 2012, and net income of $30 million, or $0.37 per fully diluted share, for the first quarter of 2012.

Redwood also reported estimated REIT taxable income of $16 million, or $0.20 per share, for the first quarter of 2013. This compares to estimated REIT taxable income of $18 million, or $0.23 per share, for the fourth quarter of 2012, and REIT taxable income of $10 million, or $0.13 per share, for the first quarter of 2012. 

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 Quarterly Report on Form 10-Q with eXtensible Business Reporting Language (XBRL) tags, Redwood plans to file the Quarterly Report with the Securities and Exchange Commission by Tuesday, May 7, 2013, and also make it available on Redwood's website.

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, including statements related to estimates of taxable income and the filing of our Quarterly Report on Form 10-Q. 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)

First


Fourth


Third


Second


First

($ in millions, except share data)

Quarter


Quarter


Quarter


Quarter


Quarter



2013


2012


2012


2012


2012

















Interest income


$

54


$

53


$

60


$

60


$

59

Interest expense



(18)



(33)



(28)



(29)



(31)

Net interest income (2)



35



20



31



31



28

(Provision for) reversal of provision for loan losses



(2)



(3)



(1)



1



-

Other market valuation adjustments, net



2



(1)



(3)



(5)



(1)

Net interest income after provision and other market valuation adjustments



35



16



27



27



27

Mortgage banking activities, net



44



24



17



2



4

Operating expenses 



(20)



(18)



(17)



(15)



(15)

Realized gains, net (2)



12



20



14



7



14

Provision for income taxes



(11)



-



(1)



(1)



-

Net Income Attributable to Redwood Trust, Inc.


$

61


$

42


$

40


$

20


$

30

































Average diluted shares (thousands)



87,345



82,498



80,764



78,815



79,892

Diluted earnings per share


$

0.69


$

0.50


$

0.48


$

0.24


$

0.37

Regular dividends declared per common share


$

0.28


$

0.25


$

0.25


$

0.25


$

0.25

 

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


(2) See the Non-GAAP presentation of fourth quarter 2012 consolidated GAAP income on page 3 for a review of the way management analyzes Redwood's fourth quarter 2012 net income and the manner in which management compares the components of fourth quarter 2012 net income to the components of first quarter 2013 net income.

 



REDWOOD TRUST, INC.














During the fourth quarter of 2012, Redwood sold its remaining investment interests in nine legacy Acacia entities and ten legacy Sequoia entities. The sale of Redwood's interests in these legacy entities triggered a derecognition of their underlying assets and liabilities for financial reporting purposes and resulted in a $4 million net, non-recurring increase to fourth quarter 2012 earnings. The $4 million net, non-recurring increase is not reflected as a simple line item in Redwood's fourth quarter GAAP income statement. Instead, it is expressed as an $11 million decrease to net interest income, reflecting the accelerated recognition of deferred hedging costs relating to Acacia entities, and a $15 million realized gain upon deconsolidation. The $15 million gain primarily reflects the proceeds received on the sale of the interests in these legacy entities, as well as recovery of excess loan loss reserves related to legacy Sequoia entities that Redwood was required to record in past periods under GAAP.


The table below sets forth the components of Redwood's first quarter 2013 and fourth quarter 2012 net income, as reported under GAAP, together with a non-GAAP presentation of the components of Redwood's fourth quarter 2012 net income. The non-GAAP presentation reflects a reclassification adjustment which, overall, does not impact reported net income under GAAP, but which we believe is useful for investors because it reflects the impact of the deconsolidation of the legacy Acacia and Sequoia entities in a manner consistent with the way management analyzes Redwood's fourth quarter 2012 results of operations and the manner in which management compares the components of fourth quarter 2012 net income to the components of first quarter 2013 net income.

 














Components of Consolidated Income (1)













($ in millions)


Three Months Ended



December 31, 2012


March 31, 2013



Redwood


Reclassification


(Non-GAAP)


Redwood



As Reported


Adjustment (2)


As Adjusted


As Reported














Net interest income


$

20


$

11


$

31


$

35














Provision for loan losses



(3)



-



(3)



(2)

Other market valuation adjustments, net



(1)



-



(1)



2

Mortgage banking activities, net



24



-



24



44

Operating expenses



(18)



-



(18)



(20)














Total realized gains, net: (3)













Realized gains on sales, net



5



-



5



12

Realized gain on deconsolidation



15



(11)



4



-

Provision for income taxes



-



-



-



(11)

Net Income


$

42


$

-


$

42


$

61

 

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


(2) The Reclassification Adjustment column shows a reclassification adjustment related to the deconsolidation of certain legacy Acacia and Sequoia entities that impacts items reported under GAAP, but which, overall, does not impact reported net income: Net interest income is increased by $11 million to address the non-recurring decrease to net interest income resulting from accelerated recognition of $11 million of deferred hedging costs relating to Acacia entities upon deconsolidation of these entities; and Realized gain on deconsolidation is decreased by $11 million to reflect that the deconsolidation of these Sequoia and Acacia entities resulted in a non-recurring net increase to earnings of only $4 million.


(3) Total realized gains, net were $20 million as reported under GAAP for the three months ended December 31, 2012.

 


REDWOOD TRUST, INC.

















Consolidated Balance Sheets (1)


31-Mar


31-Dec


30-Sep


30-Jun


31-Mar

($ in millions, except share data)


2013


2012


2012


2012


2012

















Residential loans


$

2,965


$

2,836


$

3,495


$

3,472


$

3,651

Commercial loans



401



313



298



259



190

Real estate securities



1,231



1,109



1,313



1,311



1,262

Cash and cash equivalents



79



81



39



70



150

Other assets



121



106



152



134



119

Total Assets


$

4,797


$

4,444


$

5,297


$

5,246


$

5,372

















Short-term debt 


$

721


$

552


$

522


$

455


$

441

Other liabilities



80



83



156



136



126

Asset-backed securities issued



2,365



2,529



3,429



3,564



3,704

Long-term debt 



444



140



140



140



140

Total liabilities  



3,609



3,304



4,247



4,295



4,410

















Stockholders' equity 



1,188



1,140



1,050



951



962

















Total Liabilities and Equity


$

4,797


$

4,444


$

5,297


$

5,246


$

5,372

































Shares outstanding at period end (thousands)


81,706



81,716



81,526



79,263



78,756

GAAP book value per share


$

14.54


$

13.95


$

12.88


$

12.00


$

12.22

 

(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 Redwood (Parent) and our Consolidated Sequoia Entities had on GAAP income for the three months ended March 31, 2013.

 


Consolidating Income Statement (1)










Three Months Ended March 31, 2013









($ in millions)


 Redwood 


 Consolidated 


 Redwood 



     (Parent) (2)


 Sequoia Entities 


Consolidated











Interest income


$

34


$

12


$

45

Net discount (premium) amortization



9



(2)



8

Total interest income



43



10



54

Interest expense



(11)



(7)



(18)

Net interest income



32



3



35

Provision for loan losses



(1)



(1)



(2)

Other market valuation adjustments, net



1



-



2

Net interest income after provision and other market valuation adjustments



33



2



35

Mortgage banking activities, net



44



-



44

Operating expenses



(20)



-



(20)

Realized gains, net



12



-



12

Provision for income taxes



(11)



-



(11)

Net Income


$

59


$

2


$

61

 

(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 Redwood (Parent).

 



REDWOOD TRUST, INC.











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











Consolidating Balance Sheet (1)










March 31, 2013









($ in millions)


 Redwood 


 Consolidated 


 Redwood 



    (Parent) (2)


 Sequoia Entities 


 Consolidated 











Residential loans


$

832


$

2,133


$

2,965

Commercial loans



401



-



401

Real estate securities



1,231



-



1,231

Cash and cash equivalents



79



-



79

Total earning assets



2,544



2,133



4,677

Other assets



110



10



121

Total Assets


$

2,653


$

2,144


$

4,797











Short-term debt


$

721


$

-


$

721

Other liabilities



78



2



80

Asset-backed securities issued



309



2,056



2,365

Long-term debt 



444



-



444

Total liabilities



1,552



2,057



3,609











Stockholders' equity



1,101



86



1,188











Total Liabilities and Equity


$

2,653


$

2,144


$

4,797

 

(1) Certain totals may not foot due to rounding. Certain Sequoia securitization entities, 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 treated as secured borrowing transactions for GAAP and we are required under GAAP to consolidate the assets and liabilities of these securitization entities. The securitized assets and liabilities are legally not ours, and we own only the securities and interests that we acquired from these entities. The liabilities of these entities are obligations payable only from the cash flow generated by their securitized assets.



(2) The consolidating balance sheet presents the assets and liabilities of the residential resecuritization we engaged in during the third quarter of 2011 under Redwood (Parent), although these assets and liabilities are owned by the residential resecuritization entity and are legally not ours and we own only the securities and interests that we acquired from the residential resecuritization entity. At March 31, 2013, the residential resecuritization accounted for $317 million of real estate securities and other assets and $149 million of asset-backed securities issued and other liabilities.


The consolidating balance sheet presents the assets and liabilities of the commercial securitization we engaged in during the fourth quarter of 2012 under Redwood (Parent), although these assets and liabilities are owned by the commercial securitization entity and are legally not ours and we own only the securities and interests that we acquired from the commercial securitization entity. At March 31, 2013, the commercial securitization accounted for $277 million of commercial loans and other assets and $160 million of asset-backed securities issued and other liabilities.

 

SOURCE Redwood Trust, Inc.



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