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Redwood Trust Reports Fourth Quarter 2011 Results

Monday, February 27, 2012

MILL VALLEY, Calif.,Feb. 27, 2012 /PRNewswire/ --Redwood Trust, Inc. (NYSE: RWT) today reported a net loss for the fourth quarter of 2011 of $3 million, or $0.03 per fully diluted share. This compares to net income of $1 million, or $0.01 per fully diluted share, for the third quarter of 2011, and net income of $15 million, or $0.18 per fully diluted share, for the fourth quarter of 2010.

Redwood also reported an estimated taxable loss of $1 million, or $0.02 per share, during the fourth quarter of 2011.  This compares to an estimated taxable income of $6 million, or $0.07 per share, for the third quarter of 2011, and a taxable loss of $6 million, or $0.07 per share, for the fourth quarter of 2010.  

Additional information on Redwood's business, financial results, and non-GAAP metrics is available in The Redwood Review, which is available on Redwood's website at www.redwoodtrust.com, and in Redwood's most recent Annual Report on Form 10-K, which is filed with the Securities and Exchange Commission, and which is also 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. 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 (SEC), 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



2011


2011


2011


2011



2010


















Interest income


$

56


$

53


$

53


$

54



$

56

Interest expense



(29)



(24)



(24)



(22)




(22)

Net interest income



27



29



29



32




34

Provision for loan losses



(8)



(4)



(2)



(3)




(8)

Market valuation adjustments, net



(10)



(13)



(11)



(6)




-

Net interest income after provision and



10



12



17



24




26

market valuation adjustments

















Operating expenses



(13)



(12)



(12)



(12)




(13)

Realized gains on sales and calls, net



0



1



6



4




2

Provision for income taxes



-



-



-



-




-

Net (loss) income



(3)



1



10



16




15

Less: Net income (loss) attributable to noncontrolling interest



-



-



1



(2)




-

Net (Loss) Income Attributable to Redwood Trust, Inc.


$

(3)


$

1


$

9


$

18



$

15



































Average diluted shares (thousands)


78,370


78,471


79,478



79,372




78,944

Diluted (loss) earnings per share


$

(0.03)


$

0.01


$

0.11


$

0.22



$

0.18

Regular dividends declared per common share


$

0.25


$

0.25


$

0.25


$

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)


Years Ended December 31,



2011


2010








Interest income


$

217


$

230

Interest expense



(99)



(85)

Net interest income



118



145

Provision for loan losses



(16)



(24)

Market valuation adjustments, net



(40)



(20)

Net interest income after provision and



62



102

market valuation adjustments







Operating expenses



(48)



(54)

Realized gains on sales and calls, net



11



63

Provision for income taxes



(0)



(0)

Net income



25



111

Less: Net (loss) income attributable to noncontrolling interest



(1)



1

Net Income Attributable to Redwood Trust, Inc.


$

26


$

110














Average diluted shares (thousands)



78,300


78,811

Diluted earnings per share


$

0.31


$

1.36

Regular dividends declared per common share


$

1.00


$

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)

2011


2011


2011


2011


2010
















Residential real estate loans

$

4,195


$

4,158


$

3,860


$

3,796


$

3,797

Commercial real estate loans


170



111



84



62



50

Real estate securities, at fair value:















Trading securities


253



278



297



322



330

Available-for-sale securities


729



755



741



782



825

Cash and cash equivalents


267



133



80



220



47

Other assets


130



119



103



101



95

Total Assets

$

5,743


$

5,554


$

5,165


$

5,283


$

5,144
















Short-term debt

$

428


$

-


$

41


$

-


$

44

Other liabilities


144



163



119



104



123

Asset-backed securities issued


4,139



4,293



3,839



3,957



3,761

Long-term debt


140



140



140



140



140

Total liabilities  


4,851



4,595



4,138



4,201



4,068
















Stockholders’ equity


893



959



1,025



1,075



1,065

Noncontrolling interest


-



-



2



7



11

Total equity


893



959



1,027



1,082



1,076
















Total Liabilities and Equity

$

5,743


$

5,554


$

5,165


$

5,283


$

5,144































Shares outstanding at period end (thousands)


78,556



78,495



78,555



78,139



78,125

GAAP book value per share

$

11.36


$

12.22


$

13.04


$

13.76


$

13.63
















(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), New Sequoia Entities, and our Other Consolidated Entities had on GAAP income for the three and twelve months ended December 31, 2011.

















Consolidating Income Statement(1)
















Three Months Ended December 31, 2011





New


Other







($ in millions)


Redwood


Sequoia


Consolidated


Intercompany


Redwood



    (Parent) (2)


Entities


Entities


Adjustments


Consolidated

















Interest income


$

20


$

8


$

21


$

-


$

49

Net discount (premium) amortization



9



(0)



(1)



-



8

Total interest income



29



8



20



-



56

Interest expense



(5)



(7)



(18)



-



(29)

Net interest income



24



1



2



-



27

Provision for loan losses



(1)



-



(7)



-



(8)

Market valuation adjustments, net



(11)



-



1



-



(10)

Net interest income (loss) after provision



12



1



(4)



-



10

and market valuation adjustments
















Operating expenses



(13)



-



(0)



-



(13)

Realized gains on sales and calls, net



-



-



0



-



0

Income from New Sequoia Entities



1



-



-



(1)



-

Loss from Other Consolidated Entities



(3)



-



-



3



-

Noncontrolling interest



-



-



-



-



-

Provision for income taxes



-



-



-



-



-

Net (Loss) Income


$

(3)


$

1


$

(3)


$

2


$

(3)

















































Consolidating Income Statement(1)
















Year Ended December 31, 2011





New


Other







($ in millions)


Redwood


Sequoia


Consolidated


Intercompany


Redwood



    (Parent) (2)


Entities


Entities


Adjustments


Consolidated

















Interest income


$

70


$

20


$

92


$

-


$

182

Net discount (premium) amortization



41



0



(6)



-



35

Total interest income



111



20



86



-



217

Interest expense



(13)



(17)



(69)



-



(99)

Net interest income



98



3



18



-



118

Provision for loan losses



(1)



(0)



(15)



-



(16)

Market valuation adjustments, net



(29)



-



(11)



-



(40)

Net interest income (loss) after provision



67



3



(8)



-



62

and market valuation adjustments
















Operating expenses



(47)



(0)



(0)



-



(48)

Realized gains (losses) on sales and calls, net



12



-



(1)



-



11

Income from New Sequoia Entities



3



-



-



(3)



-

Loss from Other Consolidated Entities



(8)



-



-



8



-

Noncontrolling interest



-



-



1



-



1

Provision for income taxes



(0)



-



-



-



(0)

Net Income (Loss)


$

26


$

3


$

(8)


$

5


$

26

















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

















(2) The interest income and interest expense related to the resecuritization we engaged in during the third quarter of 2011 are included in Redwood (Parent).



REDWOOD TRUST, INC.

















We present this table to highlight the impact that Redwood (Parent), New Sequoia Entities, and our Other Consolidated Entities had on our GAAP balance sheet at December 31, 2011.

















Consolidating Balance Sheet(1)
















December 31, 2011





New


Other







($ in millions)


Redwood


Sequoia


Consolidated


Intercompany


Redwood



   (Parent) (2)


Entities (3)


Entities


Adjustments


Consolidated

















Residential loans


$

395


$

676


$

3,124


$

-


$

4,195

Commercial loans



158



-



12



-



170

Real estate securities, at fair value:
















Trading securities



22



-



231



-



253

Available-for-sale securities



729



-



-



-



729

Cash and cash equivalents



267



-



-



-



267

Investment in New Sequoia Entities



49



-



-



(49)



-

Investment in Other Consolidated Entities



42



-



-



(42)



-

Total earning assets



1,661



676



3,367



(90)



5,614

Other assets



91



6



33



-



130

Total Assets


$

1,752


$

682


$

3,400


$

(90)


$

5,743

















Short-term debt


$

428


$

-


$

-


$

-


$

428

Other liabilities



72



2



69



-



144

Asset-backed securities issued



220



631



3,289



-



4,139

Long-term debt



140



-



-



-



140

Total liabilities



859



633



3,358



-



4,851

















Stockholders’ equity



893



49



42



(90)



893

Noncontrolling interest



-



-



-



-



-

Total equity



893



49



42



(90)



893

















Total Liabilities and Equity


$

1,752


$

682


$

3,400


$

(90)


$

5,743



















(1) Certain totals may not foot due to rounding. Certain Sequoia and Acacia securitization entities and the resecuritization we engaged in during the third quarter of 2011 are treated as secured borrowing transactions for GAAP and we are required under GAAP to consolidate the assets and liabilities of these securitization entities. However, the securitized assets of these entities are not available to Redwood. Similarly, the liabilities of these entities are obligations payable only from the cash flow generated by their securitized assets and are not legal obligations of Redwood.

















(2) The consolidating balance sheet presents the assets and liabilities of the resecuritization we engaged in during the third quarter of 2011 under Redwood (Parent), although these assets and liabilities are owned by the resecuritization entity and are legally not ours and we own only the securities and interests that we acquired from the resecuritization entity. At December 31, 2011, the resecuritization accounted for $325 million of available-for-sale securities and $220 million of asset-backed securities issued and our investment in this resecuritization is reflected in the difference between these assets and liabilities.

















(3) The consolidating balance sheet presents the New Sequoia securitization entities separately from Other Consolidated Entities (Sequoia entities issued prior to 2010 and Acacia entities) to highlight our renewed focus on growing our core business of creating residential credit investments. As we complete additional securitizations, we expect New Sequoia Entities to represent a larger portion of our consolidated balance sheet as prior Sequoia securitization entities continue to pay down.



REDWOOD TRUST, INC.











Tax / GAAP Differences(1)










Three Months Ended December 31, 2011










($ in millions, except per share data)





Tax (Est.)


GAAP


Differences

Interest income


$

31


$

56


$

(25)

Interest expense



(7)



(29)



23

Net Interest Income



25



27



(3)

Provision for loan losses



-



(8)



8

Realized credit losses



(15)



-



(15)

Market valuation adjustments, net



-



(10)



10

Operating expenses



(11)



(13)



1

Realized gains on sales and calls, net



-



0



(0)

Provision for income taxes



(0)



-



(0)

Less: Net loss attributable to noncontrolling interest



-



-



-

Net Loss


$

(1)


$

(3)


$

1











Income per share


$

(0.02)


$

(0.03)


$

0.01































Tax / GAAP Differences(1)










Year Ended December 31, 2011










($ in millions, except per share data)





Tax (Est.)


GAAP


Differences

Interest income


$

128


$

217


$

(89)

Interest expense



(17)



(99)



82

Net Interest Income



112



118



(7)

Provision for loan losses



-



(16)



16

Realized credit losses



(58)



-



(58)

Market valuation adjustments, net



-



(40)



40

Operating expenses



(45)



(48)



2

Realized gains on sales and calls, net



-



11



(11)

Provision for income taxes



(0)



(0)



0

Less: Net loss attributable to noncontrolling interest



-



(1)



1

Net Income


$

9


$

26


$

(17)











Income per share


$

0.11


$

0.31


$

(0.20)























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











Taxable income for 2011 is an estimate until we file our 2011 tax return.











Taxable income per share is based on the number of shares outstanding at the end of each quarter.  The taxable income per share for the year ended December 31, 2011 is the sum of the four quarterly per share estimates.











Dividends in 2011 are expected to be characterized as 25% ordinary income, or $19 million, and 75% return of capital, or $59 million. The 2010 dividends were characterized as 62% ordinary income, or $48 million, and 38% return of capital, or $30 million. The portion of Redwood's dividends characterized as a return of capital are not taxable to a shareholder and reduces a shareholder's basis for shares held at each quarterly distribution date.    



SOURCE Redwood Trust, Inc.

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