Redwood Trust Reports Fourth Quarter 2013 Results

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.

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

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.