Redwood Trust Reports Fourth Quarter 2012 Results

              Redwood Trust Reports Fourth Quarter 2012 Results

PR Newswire

MILL VALLEY, Calif., Feb. 21, 2013

MILL VALLEY, Calif., Feb. 21, 2013 /PRNewswire/ -- Redwood Trust, Inc.
(NYSE:RWT) today reported net income for the fourth quarter of 2012 of $42
million, or $0.50 per diluted share. This compares to net income of $40
million, or $0.48 per diluted share, for the third quarter of 2012, and a net
loss of $3 million, or $0.03 per diluted share, for the fourth quarter of
2011.

Redwood also reported estimated REIT taxable income of $18 million, or $0.23
per share, for the fourth quarter of 2012. This compares to estimated REIT
taxable income of $15 million, or $0.19 per share, for the third quarter of
2012, and REIT taxable income of $3 million, or $0.04 per share, for the
fourth quarter of 2011.

During the fourth quarter of 2012, Redwood sold its remaining investment
interests in nine legacy Acacia entities and ten legacy Sequoia entities.
After completion of an accounting analysis, it was determined that these
entities should be deconsolidated for financial reporting purposes. The
deconsolidation resulted in a $4 million net, non-recurring increase to fourth
quarter 2012 earnings. Included in this earnings release is a non-GAAP
presentation of Redwood's consolidated income for the three months ended
December 31, 2012 that reclassifies the impact of the deconsolidation into a
single line item for ease of comparison to our GAAP income for the three
months ending September 30, 2012.

Additional information on Redwood's business, financial results, and non-GAAP
metrics 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 the Annual Report with
the Securities and Exchange Commission on or about Tuesday, February 26, 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 timing of filing 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 (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.
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 third 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 third quarter 2012 net income.



Components of Consolidated
Income ^(1)
($ in millions)     Three Months Ended
                    December 31, 2012                              September
                                                                   30, 2012
                    Redwood    Reclassification  (Non-GAAP)  Redwood
                    As Reported   Adjustment ^(2)  As Adjusted   As Reported
Net interest        $    20      $       11          $    31       $    31
income
Provision for loan       (3)             -                (3)           (1)
losses
Other market
valuation                (1)             -                (1)           (3)
adjustments, net
Mortgage banking         24              -                24            17
activities, net
Operating expenses       (18)            -                (18)          (17)
Total realized
gains, net: ^(3)
Realized gains on        5               -                5             14
sales, net
Realized gain on         15              (11)             4             -
deconsolidation
Provision for            -               -                -             (1)
income taxes
Net Income          $    42      $       -           $    42       $    40



(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 Income Statements ^(1)


($ in millions, except share      Fourth   Third    Second   First    Fourth
data)
                                  Quarter  Quarter  Quarter  Quarter  Quarter
                                  2012     2012     2012     2012     2011
Interest income                   $  53    $  60    $  60    $  59    $ 56
Interest expense                     (33)     (28)     (29)     (31)    (29)
Net interest income ^(2)             20       31       31       28      27
(Provision for) reversal of          (3)      (1)      1        -       (8)
provision for loan losses
Other market valuation               (1)      (3)      (5)      (1)     (10)
adjustments, net
Net interest income after
provision and other market           16       27       27       27      10
valuation adjustments
Mortgage banking activities, net     24       17       2        4       -
Operating expenses                  (18)     (17)     (15)     (15)    (13)
Realized gains, net ^(2)             20       14       7        14      -
Provision for income taxes           -        (1)      (1)      -       -
Net Income (Loss) Attributable    $  42    $  40    $  20    $  30    $ (3)
to Redwood Trust, Inc.
Average diluted shares            82,498   80,764   78,815   79,892   78,370
(thousands)
Diluted earnings (loss) per       $  0.50  $  0.48  $  0.24  $  0.37  $ (0.03)
share
Regular dividends declared per    $  0.25  $  0.25  $  0.25  $  0.25  $ 0.25
common share



(1) Certain totals may not foot due to rounding.
(2) See the Non-GAAP presentation of fourth quarter 2012 consolidated GAAP
incomeherein 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 third
quarter 2012 net income.



REDWOOD TRUST, INC.
Consolidated Income Statements ^(1)
($ in millions, except share data)                     Year Ended December 31,
                                                       2012           2011
Interest income                                        $   231        $  217
Interest expense                                           (121)         (99)
Net interest income                                        111           118
Provision for loan losses                                  (4)           (16)
Other market valuation adjustments, net                    (10)          (40)
Net interest income after provision and
                                                           97            62
other market valuation adjustments
Mortgage banking activities, net                           47            -
Operating expenses                                        (65)          (48)
Realized gains, net                                        55            11
Provision for income taxes                                 (1)           -
Net income                                                 132           25
Less: Net loss attributable to noncontrolling              -             (1)
interest
Net Income Attributable to Redwood Trust, Inc.         $   132        $  26
Average diluted shares (thousands)                     80,674         78,300
Diluted earnings per share                             $   1.59       $  0.31
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)
($ in millions, except        31-Dec    30-Sep    30-Jun    31-Mar    31-Dec
share data)
                              2012      2012      2012      2012      2011
Residential loans             $ 2,836   $ 3,495   $ 3,472   $ 3,651   $ 4,195
Commercial loans                313       298       259       190       170
Real estate securities          1,109     1,313     1,311     1,262     982
Cash and cash equivalents       81        39        70        150       267
Other assets                    106       152       134       119       130
Total Assets                  $ 4,444   $ 5,297   $ 5,246   $ 5,372   $ 5,743
Short-term debt              $ 552     $ 522     $ 455     $ 441     $ 428
Other liabilities               83        156       136       126       144
Asset-backed securities         2,529     3,429     3,564     3,704     4,139
issued
Long-term debt                 140       140       140       140       140
Total liabilities             3,304     4,247     4,295     4,410     4,851
Stockholders' equity           1,140     1,050     951       962       893
Total Liabilities and         $ 4,444   $ 5,297   $ 5,246   $ 5,372   $ 5,743
Equity
Shares outstanding at period    81,716    81,526    79,263    78,756    78,556
end (thousands)
GAAP book value per share     $ 13.95   $ 12.88   $ 12.00   $ 12.22   $ 11.36



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



REDWOOD TRUST, INC.
The following tables show the estimated effect that Redwood (Parent) and our
Consolidated Entities had on GAAP income for the three and twelve months ended
December 31, 2012.



Consolidating Income
Statement ^(1)
Three Months Ended December
31, 2012
($ in millions)               Redwood      Consolidated  Redwood
                               (Parent)  Entities      Consolidated ^(3)
                              ^(2)
Interest income               $     27       $     19        $      46
Net discount (premium)              9              (2)              7
amortization
Total interest income               36             17               53
Interest expense                    (7)            (26)             (33)
Net interest income                 29             (8)              20
(expense) ^(3)
Provision for loan losses           (2)            (1)              (3)
Other market valuation              (4)            3                (1)
adjustments, net
Net interest income (loss)
after provision
                                    23             (6)              16
and other market valuation
adjustments
Mortgage banking activities,        24             -                24
net
Operating expenses                  (18)           -                (18)
Realized gains, net ^(3)            5              15               20
Provision for income taxes          -              -                -
Net Income                    $     34       $     9         $      42
Consolidating Income
Statement ^(1)
Year Ended December 31, 2012
($ in millions)               Redwood      Consolidated  Redwood
                               (Parent)  Entities      Consolidated
                              ^(2)
Interest income               $     106      $     99        $      205
Net discount (premium)              33             (6)              27
amortization
Total interest income               139            92               231
Interest expense                    (25)           (96)             (121)
Net interest income                 114            (4)              111
(expense)
Provision for loan losses           (3)            -                (4)
Other market valuation              (16)           6                (10)
adjustments, net
Net interest income after
provision
                                    94             2                97
and other market valuation
adjustments
Mortgage banking activities,        47             -                47
net
Operating expenses                  (65)           -                (65)
Realized gains, net                 32             22               55
Provision for income taxes          (1)            -                (1)
Net Income                    $     107      $     24        $      132



(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).
(3) See the Non-GAAP presentation of fourth quarter 2012 consolidated GAAP
incomeherein 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 third
quarter 2012 net income.



REDWOOD TRUST, INC.
We present this table to highlight the effect that Redwood (Parent) and our
Consolidated Entities had on our GAAP balance sheet at December 31, 2012.



Consolidating Balance Sheet
^(1)
December 31, 2012
($ in millions)              Redwood          Consolidated  Redwood
                              (Parent) ^(2)  Entities      Consolidated
Residential loans            $      563         $     2,273     $     2,836
Commercial loans                    313               -               313
Real estate securities              1,109             -               1,109
Cash and cash equivalents           81                -               81
Total earning assets                2,066             2,273           4,338
Other assets                        94                12              106
Total Assets                 $      2,159       $     2,285     $     4,444
Short-term debt              $      552         $     -         $     552
Other liabilities                   80                2               83
Asset-backed securities             336               2,193           2,529
issued
Long-term debt                     140               -               140
Total liabilities                   1,108             2,196           3,304
Stockholders' equity                1,051             89              1,140
Total Liabilities and        $      2,159       $     2,285     $     4,444
Equity



(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 December 31, 2012, the residential
resecuritization accounted for $326 million of real estate securities and
other assets and $165 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 December 31, 2012, the commercial securitization accounted for $290
million of commercial loans and other assets and $173 million of asset-backed
securities issued and other liabilities.



SOURCE Redwood Trust, Inc.

Website: http://www.redwoodtrust.com
Contact: Christopher Abate, Redwood Trust, Inc., Chief Financial Officer,
+1-415-384-3584, or Mike McMahon, Investor Relations, +1-415-384-3805