Redwood Trust Reports Third Quarter 2013 Results

REDWOOD TRUST, INC.

Consolidated Income Statements ⁽¹⁾

Third

Second

First

Fourth

Third

($ in millions, except share data)

Quarter

Quarter

Quarter

Quarter

Quarter

2013

2013

2013

2012

2012

Interest income

$

58

$

58

$

54

$

53

$

60

Interest expense

(22)

(21)

(18)

(33)

(28)

Net interest income

36

36

35

20

31

(Provision for) reversal of provision for loan losses

(2)

3

(2)

(3)

(1)

Other market valuation adjustments, net

-

(6)

-

2

1

Net interest income after provision and

34

33

33

19

31

other market valuation adjustments

Mortgage banking activities, net

(6)

59

46

21

12

Operating expenses 

(22)

(24)

(20)

(18)

(17)

Realized gains, net

10

1

12

20

14

Benefit from (provision for) income taxes

5

(3)

(11)

-

(1)

Net Income

$

22

$

66

$

61

$

42

$

40

Average diluted shares (thousands)

84,422

96,172

87,345

82,498

80,764

Diluted earnings per share

$

0.25

$

0.71

$

0.69

$

0.50

$

0.48

Regular dividends declared per common share

$

0.28

$

0.28

$

0.28

$

0.25

$

0.25

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

REDWOOD TRUST, INC.

Consolidated Income Statements ⁽¹⁾

($ in millions, except share data)

Nine Months Ended September 30,

2013

2012

Interest income

$

169

$

178

Interest expense

(62)

(88)

Net interest income

107

90

Provision for loan losses

-

-

Other market valuation adjustments, net

(6)

-

Net interest income after provision and

100

90

other market valuation adjustments

Mortgage banking activities, net

99

14

Operating expenses 

(65)

(47)

Realized gains, net

23

35

Provision for income taxes

(9)

(1)

Net income

$

148

$

90

Average diluted shares (thousands)

93,234

80,176

Diluted earnings per share

$

1.65

$

1.09

Regular dividends declared per common share

$

0.84

$

0.75

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

REDWOOD TRUST, INC.

Consolidated Balance Sheets ⁽¹⁾

30-Sep

30-Jun

31-Mar

31-Dec

30-Sep

($ in millions, except share data)

2013

2013

2013

2012

2012

Residential loans

$

2,593

$

3,219

$

2,965

$

2,836

$

3,495

Commercial loans

380

495

401

313

298

Real estate securities

1,325

1,314

1,231

1,109

1,313

Mortgage servicing rights

60

43

18

5

3

Cash and cash equivalents

205

208

79

81

39

Other assets

98

156

103

101

149

Total Assets

$

4,660

$

5,435

$

4,797

$

4,444

$

5,297

Short-term debt 

$

838

$

1,446

$

721

$

552

$

522

Other liabilities

81

122

80

83

156

Asset-backed securities issued

2,062

2,214

2,365

2,529

3,429

Long-term debt 

472

444

444

140

140

Total liabilities  

3,452

4,226

3,609

3,304

4,247

Stockholders' equity 

1,207

1,209

1,188

1,140

1,050

Total Liabilities and Equity

$

4,660

$

5,435

$

4,797

$

4,444

$

5,297

Shares outstanding at period end (thousands)

82,389

82,332

81,706

81,716

81,526

GAAP book value per share

$

14.65

$

14.69

$

14.54

$

13.95

$

12.88

(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 and nine months ended September 30, 2013.

Consolidating Income Statement ⁽¹⁾

Three Months Ended September 30, 2013

($ in millions)

 Redwood 

 Consolidated 

 Redwood 

     (Parent) ⁽²⁾

 Sequoia Entities 

Consolidated

Interest income

$

41

$

10

$

51

Net discount (premium) amortization

9

(2)

7

Total interest income

50

8

58

Interest expense

(16)

(6)

(22)

Net interest income

34

2

36

Provision for loan losses

(1)

(1)

(2)

Other market valuation adjustments, net

1

-

-

Net interest income after provision and other market valuation adjustments

34

1

34

Mortgage banking activities, net

(6)

-

(6)

Operating expenses

(22)

-

(22)

Realized gains, net

10

-

10

Benefit from income taxes

5

-

5

Net Income

$

21

$

1

$

22

Consolidating Income Statement ⁽¹⁾

Nine Months Ended September 30, 2013

($ in millions)

 Redwood 

 Consolidated 

 Redwood 

     (Parent) ⁽²⁾

 Sequoia Entities 

Consolidated

Interest income

$

115

$

33

$

148

Net discount (premium) amortization

27

(6)

21

Total interest income

142

27

169

Interest expense

(41)

(20)

(62)

Net interest income

101

6

107

(Provision for) reversal of provision for loan losses

(2)

2

-

Other market valuation adjustments, net

(6)

-

(6)

Net interest income after provision and other market valuation adjustments

92

8

100

Mortgage banking activities, net

99

-

99

Operating expenses

(65)

-

(65)

Realized gains, net

23

-

23

Provision for income taxes

(9)

-

(9)

Net Income

$

140

$

8

$

148

(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 estimated effect that Redwood (Parent) and our Consolidated Sequoia Entities had on our GAAP balance sheet at September 30, 2013. 

Consolidating Balance Sheet ⁽¹⁾

September 30, 2013

($ in millions)

 Redwood 

 Consolidated 

 Redwood 

    (Parent) ⁽²⁾

 Sequoia Entities 

 Consolidated 

Residential loans

$

728

$

1,865

$

2,593

Commercial loans

380

-

380

Real estate securities

1,325

-

1,325

Mortgage servicing rights

60

-

60

Cash and cash equivalents

205

-

205

Total earning assets

2,697

1,865

4,562

Other assets

89

9

98

Total Assets

$

2,786

$

1,874

$

4,660

Short-term debt

$

838

$

-

$

838

Other liabilities

79

1

81

Asset-backed securities issued

271

1,791

2,062

Long-term debt 

472

-

472

Total liabilities

1,660

1,792

3,452

Stockholders' equity

1,126

82

1,207

Total Liabilities and Equity

$

2,786

$

1,874

$

4,660

(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 September 30, 2013, the residential resecuritization accounted for $276 million of real estate securities and other assets and $112 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 September 30, 2013, the commercial securitization accounted for $271 million of commercial loans and other assets and $159 million of asset-backed securities issued and other liabilities.