Company: RWT-PA
Filing Date: 2025-04-01
Form Type: DEF 14A
Source: 0000930236-25-000012
Chunk: 128

Company: REDWOOD TRUST INC
Filing Date: 2025-04-01
Form: DEF 14A
Chunk 128
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, the adjustment to exclude certain unrealized mark-to-market gains and losses from equity is made to enable the calculation of an “apples-to-apples” non-GAAP ratio of earnings to common equity capital for purposes of evaluating financial performance. For example, under GAAP, an unrealized loss recognized in equity capital but not recognized in earnings has the impact, all other factors being equal, of increasing the ratio of earnings to equity capital. Adjusted EAD ROE addresses this by increasing equity capital by the amount of the unrealized loss, allowing for a non-GAAP calculation of a ratio using internally consistent earnings and equity capital amounts. Conversely, under GAAP, an unrealized gain recognized in equity capital but not recognized in earnings has the impact, all other factors being equal, of decreasing the ratio of earnings to equity capital. Adjusted EAD ROE addresses this by decreasing equity capital by the amount of the unrealized gain, allowing for a non-GAAP calculation of a ratio using internally consistent earnings and equity capital amounts.

Adjusted EAD is defined as: GAAP net income (loss) available (related) to common stockholders adjusted to: (i) exclude investment fair value changes, net; (ii) exclude realized gains and losses; (iii) exclude certain acquisition-related expenses (e.g., excludes amortization expense related to intangible assets acquired in acquisitions); (iv) exclude certain organizational restructuring charges; (v) exclude any valuation allowance, if any, on long-lived deferred tax assets in excess of specified levels; (vi) exclude the impact, if any, of any variance in the consolidation treatment of specified entities under GAAP from a designated consolidation treatment of such specified entities; and (vii) adjust for the hypothetical income taxes associated with these adjustments. In addition, to the extent any adjustment in determining Adjusted EAD is applicable under either of the preceding clauses (v) or (vi), a corresponding adjustment, if applicable, would also be made to average common equity capital for purposes of calculating Adjusted EAD ROE.

It should be noted that Adjusted EAD and Adjusted EAD ROE, which are utilized within the Compensation Committee’s methodology for determining realization of each NEO’s performance-based annual bonus for 2024, differ from the non-GAAP Earnings Available for Distribution (“EAD”) and non-GAAP EAD ROE financial reporting metrics that the Company published in connection with reporting its fourth quarter 2024 earnings. Redwood’s 2024 non-GAAP EAD ROE is