Press Releases

REDWOOD TRUST, INC.

Consolidated Income Statements ⁽¹⁾

Second

First

Fourth

Third

Second

($ in millions, except share and per share data)

Quarter

Quarter

Quarter

Quarter

Quarter

2017

2017

2016

2016

2016

Interest income

$

59

$

55

$

56

$

61

$

67

Interest expense

(24)

(21)

(21)

(22)

(22)

Net interest income

35

34

36

39

44

Reversal of provision for loan losses

—

—

—

1

7

Net interest income after provision

35

34

36

40

51

Non-interest income

Mortgage banking activities, net

12

18

14

10

8

MSR income, net

3

2

2

4

3

Investment fair value changes, net

8

2

(10)

12

(11)

Other income

1

1

2

2

2

Realized gains, net

1

6

2

7

10

Total non-interest income, net

25

28

10

34

11

Operating expenses

(19)

(18)

(18)

(20)

(20)

Provision for income taxes

(5)

(6)

(2)

(1)

—

Net income

$

36

$

37

$

25

$

53

$

41

Weighted average diluted shares (thousands) ⁽²⁾

97,494

97,946

85,838

97,832

97,762

Diluted earnings per share

$

0.43

$

0.43

$

0.31

$

0.58

$

0.48

Regular dividends declared per common share

$

0.28

$

0.28

$

0.28

$

0.28

$

0.28

(1)

Certain totals may not foot due to rounding.

(2)

In the periods presented above, weighted average diluted shares included shares from the assumed conversion of our convertible and/or exchangeable debt in accordance with GAAP diluted EPS provisions. Actual shares outstanding at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016 were 77,117, 77,039, 76,835, 76,682, and 76,935, respectively.

REDWOOD TRUST, INC.

Consolidated Income Statements ⁽¹⁾

Six Months Ended June 30,

($ in millions, except share and per share data)

2017

2016

Interest income

$

114

$

129

Interest expense

(45)

(46)

Net interest income

69

83

Reversal of provision for loan losses

—

6

Net interest income after provision

69

89

Non-interest income

Mortgage banking activities, net

30

15

MSR income, net

4

9

Investment fair value changes, net

10

(31)

Other income

2

3

Realized gains, net

7

19

Total non-interest income

53

15

Operating expenses

(37)

(51)

Provision for income taxes

(11)

—

Net income

$

73

$

53

Weighted average diluted shares (thousands)

97,719

88,728

Diluted earnings per share

$

0.85

$

0.67

Regular dividends declared per common share

$

0.56

$

0.56

(1)

Certain totals may not foot due to rounding.

REDWOOD TRUST, INC.

Reconciliation of GAAP Net Income to Non-GAAP Core Earnings ^{(1) (2)}

Three Months Ended

($ in millions, except per share data)

June 30, 2017

March 31, 2017

GAAP net income

$

36

$

37

Adjustments:

Eliminate mark-to-market changes on long-term investments ⁽³⁾

(28)

(10)

Eliminate mark-to-market changes on derivatives associated with long-term investments ⁽³⁾

14

1

Include cumulative gain (loss) on long-term investments sold, net ⁽⁴⁾

4

—

Income taxes associated with core earnings adjustments ⁽⁵⁾

2

1

Total adjustments

(8)

(8)

Non-GAAP core earnings

$

29

$

30

GAAP net income per diluted common share

$

0.43

$

0.43

Non-GAAP core earnings per diluted common share ⁽⁶⁾

$

0.35

$

0.36

(1)

Certain totals may not foot due to rounding.

(2)

Core earnings is a non-GAAP measure of Redwood's earnings and results of operations. Specifically, management defines core earnings as: GAAP net income adjusted to (i) eliminate the impact of quarterly mark-to-market changes on the fair value of our long-term investments (and associated derivatives) related to changes in benchmark interest rates and credit spreads and (ii) include the hypothetical income taxes associated with core earnings adjustments. In addition, beginning with the second quarter of 2017, management has also included within core earnings the cumulative net gains or losses on long-term investments accounted for as trading securities under GAAP that were sold during the period presented, net of any gains or losses from derivatives associated with the investments sold.

Management utilizes this core earnings measure internally as one way of analyzing Redwood's performance over multiple periods, as it believes it provides useful comparative results absent the impact of certain quarterly mark-to-market changes and other items that management believes are not reflective of core results. Core earnings should not be utilized in isolation, nor should it be considered as an alternative to GAAP net income or other measurements of results of operations computed in accordance with GAAP. A further discussion of core earnings, including additional discussion of the change to management's definition of core earnings, is included in the second quarter Redwood Review.

(3)

Adjustments eliminate the mark-to-market changes on the fair value of loans held-for-investment, trading securities, other investments, and associated derivatives that are primarily related to changes in benchmark interest rates and credit spreads. Details on the components of investment fair value changes, net, are included in the Financial Insights section of the second quarter Redwood Review.

(4)

Adjustment includes the cumulative net gains or losses on long-term investments accounted for as trading securities under GAAP that were sold during the period presented, net of any gains or losses from derivatives associated with the investments sold. Cumulative gains and losses are calculated by multiplying the difference between the sales price and original purchase price by the face value of the securities sold.

(5)

We apply estimated effective tax rates to core earnings adjustments occurring within Redwood's taxable REIT subsidiaries to estimate the hypothetical income tax expense or benefit associated with those adjustments.

(6)

Consistent with the calculation of net income per diluted common share for GAAP purposes, non-GAAP core earnings per diluted common share is calculated following the "two-class" method. Additional information on the calculation of core earnings using the "two-class" method can be found in Table 2 in the Financial Tables section of the Appendix to the second quarter Redwood Review.

REDWOOD TRUST, INC.

Consolidated Balance Sheets ⁽¹⁾

30-Jun

31-Mar

31-Dec

30-Sep

30-Jun

($ in millions, except share and per share data)

2017

2017

2016

2016

2016

Residential loans

$

3,905

$

3,472

$

3,888

$

4,311

$

4,040

Real estate securities

1,219

1,166

1,018

937

884

Commercial loans

—

3

3

30

325

Mortgage servicing rights

64

111

119

106

110

Cash and cash equivalents

217

222

213

221

217

Other assets

251

241

243

267

322

Total assets

$

5,655

$

5,214

$

5,483

$

5,873

$

5,898

Short-term debt

$

1,295

$

564

$

792

$

1,117

$

1,059

Other liabilities

152

135

148

185

202

Asset-backed securities issued

693

728

773

820

860

Long-term debt, net

2,336

2,621

2,621

2,620

2,684

Total liabilities

4,476

4,049

4,334

4,742

4,805

Stockholders' equity

1,179

1,166

1,149

1,130

1,093

Total liabilities and equity

$

5,655

$

5,214

$

5,483

$

5,873

$

5,898

Shares outstanding at period end (thousands)

77,117

77,039

76,835

76,682

76,935

GAAP book value per share

$

15.29

$

15.13

$

14.96

$

14.74

$

14.20

(1)

Certain totals may not foot due to rounding.