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

2016

2016

2015

2015

2015

Interest income

$

67

$

62

$

69

$

63

$

63

Interest expense

(22)

(24)

(25)

(24)

(23)

Net interest income

44

38

44

40

40

Reversal of provision for loan losses

7

—

—

—

—

Net interest income after provision

51

38

44

40

41

Non-interest income (loss)

Mortgage banking activities, net

8

7

—

1

7

MSR income, net

3

6

3

4

1

Investment fair value changes, net

(11)

(20)

(4)

(14)

(2)

Other income

2

1

1

—

1

Realized gains, net

10

10

20

6

6

Total non-interest income (loss)

11

4

20

(3)

14

Operating expenses

(20)

(30)

(23)

(24)

(25)

Benefit from (provision for) income taxes

—

—

—

7

(2)

Net income

$

41

$

12

$

41

$

19

$

27

Weighted average diluted shares (thousands) ⁽²⁾

97,762

77,138

103,377

85,075

94,950

Diluted earnings per share

$

0.48

$

0.15

$

0.46

$

0.22

$

0.31

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 second quarter of 2016 and the fourth and second quarters of 2015, 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, 2016, December 31, 2015, and June 30, 2015 were 76,935, 78,163, and 84,552, respectively.

REDWOOD TRUST, INC.

Consolidated Income Statements ⁽¹⁾

Six Months Ended June 30,

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

2016

Interest income

$

129

$

127

Interest expense

(46)

(47)

Net interest income

83

80

Reversal of provision for loan losses

6

—

Net interest income after provision

89

80

Non-interest income

Mortgage banking activities, net

15

9

MSR income (loss), net

9

(10)

Investment fair value changes, net

(31)

(3)

Other income

3

2

Realized gains, net

19

11

Total non-interest income

15

9

Operating expenses

(51)

(50)

Benefit from income taxes

—

3

Net income

$

53

$

42

Weighted average diluted shares (thousands)

88,728

85,474

Diluted earnings per share

$

0.67

$

0.47

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 Core Earnings ^{(1) (2)}

Three Months Ended

($ in millions, except per share data)

June 30, 2016

GAAP net income

$

41

$

12

Adjustments:

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

4

14

Eliminate restructuring and related charges⁽⁴⁾

—

11

Eliminate reversal of commercial loan loss reserve⁽⁵⁾

(5)

—

Eliminate provision for income taxes

—

—

(1)

25

Core earnings

$

40

$

37

GAAP net income per diluted common share

$

0.48

$

0.15

Core earnings per diluted common share⁽⁶⁾

$

0.47

$

0.44

(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) eliminate the impact of the provision for (or benefit from) taxes. In addition, Redwood's core earnings also exclude the impact of the restructuring and related charges associated with the recent restructuring of Redwood's conforming residential and commercial mortgage banking operations in the first quarter of 2016, as well as the reversal of loan loss provisions in the second quarter of 2016 associated with our commercial mezzanine portfolio loan sale, which is anticipated to close in the third quarter of 2016. 

Management utilizes this core earnings measure internally as one way of analyzing Redwood's performance over multiple periods and also believes it can provide a useful basis to compare Redwood's results with those of other REITs and competitors who use similar non-GAAP measures of operating 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 is included in the Management's Discussion and Analysis section of Redwood's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.

(3)

Adjustment eliminates 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. More 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 eliminates operating expense charges from the restructuring of Redwood's conforming residential and commercial mortgage banking operations, which were announced during the first quarter of 2016, and related charges associated with the subsequent announcement of the departure of Redwood's President.

(5)

Adjustment eliminates the benefit to GAAP earnings from the release of $5 million of commercial loan loss reserves, which was due to the anticipated third quarter sale of all but two of our commercial mezzanine loans.

(6)

Consistent with the calculation of net income per diluted common share for GAAP purposes, 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 and Redwood's Quarterly Report on Form 10-Q, which is being filed with the SEC.

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)

2016

2016

2015

2015

2015

Residential loans

$

4,040

$

3,715

$

3,929

$

4,037

$

3,286

Real estate securities

884

920

1,233

1,085

1,158

Commercial loans

325

364

403

468

551

Mortgage servicing rights

110

127

192

163

168

Cash and cash equivalents

217

305

220

235

226

Other assets

322

296

243

269

193

Total assets

$

5,898

$

5,727

$

6,220

$

6,257

$

5,583

Short-term debt

$

1,059

$

804

$

1,855

$

1,873

$

1,367

Other liabilities

202

195

142

189

123

Asset-backed securities issued, net

860

958

1,049

1,178

1,261

Long-term debt, net

2,684

2,683

2,028

1,811

1,567

Total liabilities

4,805

4,641

5,074

5,050

4,318

Stockholders' equity

1,093

1,086

1,146

1,207

1,265

Total liabilities and equity

$

5,898

$

5,727

$

6,220

$

6,257

$

5,583

Shares outstanding at period end (thousands)

76,935

76,627

78,163

82,125

84,552

GAAP book value per share

$

14.20

$

14.17

$

14.67

$

14.69

$

14.96

(1)

 Certain totals may not foot due to rounding.