rwt-20230331

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______________ to _______________.

Commission File Number 1-13759

REDWOOD TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)


Maryland						68-0329422
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)


One Belvedere Place,	Suite 300
Mill Valley,	California	94941
(Address of Principal Executive Offices)		(Zip Code)

(415) 389-7373

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	RWT	New York Stock Exchange
10% Series A Fixed-Rate Reset Cumulative Redeemable Preferred Stock, par value $0.01 per share	RWT PRA	New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Common Stock, $0.01 par value per share						114,028,712			shares outstanding as of May 2, 2023

REDWOOD TRUST, INC.

2023 FORM 10-Q REPORT

TABLE OF CONTENTS


		Page
PART I —	FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Consolidated Balance Sheets at March 31, 2023 (Unaudited) and December 31, 2022	2
	Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	3
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
	Note 1. Organization	8
	Note 2. Basis of Presentation	8
	Note 3. Summary of Significant Accounting Policies	11
	Note 4. Principles of Consolidation	14
	Note 5. Fair Value of Financial Instruments	20
	Note 6. Residential Loans	28
	Note 7. Business Purpose Loans	31
	Note 8. Multifamily Loans	35
	Note 9. Real Estate Securities	36
	Note 10. Home Equity Investments (HEI)	41
	Note 1 1 . Other Investments	42
	Note 1 2 . Derivative Financial Instruments	43
	Note 1 3 . Other Assets and Liabilities	45
	Note 1 4 . Short-Term Debt	47
	Note 1 5 . Asset-Backed Securities Issued	50
	Note 1 6 . Long-Term Debt	53
	Note 1 7 . Commitments and Contingencies	56
	Note 1 8 . Equity	59
	Note 1 9 . Equity Compensation Plans	61
	Note 20 . Mortgage Banking Activities, Net	63
	Note 21. Other Income, Net	64
	Note 22. Operating Expenses	65
	Note 2 3 . Taxes	67
	Note 2 4 . Segment Information	68

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	72
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	103
Item 4.	Controls and Procedures	103

PART II —	OTHER INFORMATION
Item 1.	Legal Proceedings	104
Item 1A.	Risk Factors	104
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	104
Item 3.	Defaults Upon Senior Securities	104
Item 4.	Mine Safety Disclosures (Not Applicable)	104
Item 5.	Other Information	104
Item 6.	Exhibits	105
Signatures		106

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(In Thousands, except Share Data) (Unaudited)	March 31, 2023		December 31, 2022
ASSETS (1)
Residential loans, held-for-sale, at fair value	$	26,975	$	780,781
Residential loans, held-for-investment, at fair value	5,465,883		4,832,407
Business purpose loans, held-for-sale, at fair value	371,385		364,073
Business purpose loans, held-for-investment, at fair value	4,993,264		4,968,513
Consolidated Agency multifamily loans, at fair value	426,599		424,551
Real estate securities, at fair value	243,346		240,475
Home equity investments, at fair value	416,783		403,462
Other investments	381,690		390,938
Cash and cash equivalents	404,449		258,894
Restricted cash	86,037		70,470
Goodwill	23,373		23,373
Intangible assets	37,784		40,892
Derivative assets	11,497		20,830
Other assets	232,221		211,240
Total Assets	$	13,121,286	$	13,030,899

LIABILITIES AND EQUITY (1)
Liabilities
Short-term debt, net	$	1,616,452	$	2,029,679

Derivative liabilities	10,736		16,855
Accrued expenses and other liabilities	176,271		180,203

Asset-backed securities issued (includes $7,968,135 and $7,424,132 at fair value), net	8,447,119		7,986,752
Long-term debt, net	1,733,028		1,733,425
Total liabilities	11,983,606		11,946,914
Commitments and Contingencies (see Note 17)
Equity
Preferred stock, par value $0.01 per share, 2,800,000 shares authorized; 2,800,000 and zero issued and outstanding	66,923		—
Common stock, par value $0.01 per share, 395,000,000 shares authorized; 113,864,456 and 113,484,675 issued and outstanding	1,139		1,135
Additional paid-in capital	2,355,139		2,349,845
Accumulated other comprehensive loss	(63,036)		(68,868)
Cumulative earnings	1,156,571		1,153,370
Cumulative distributions to stockholders	(2,379,056)		(2,351,497)
Total equity	1,137,680		1,083,985
Total Liabilities and Equity	$	13,121,286	$	13,030,899

——————

(1)Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At March 31, 2023 and December 31, 2022, assets of consolidated VIEs totaled $9,836,956 and $9,257,291, respectively. At March 31, 2023 and December 31, 2022, liabilities of consolidated VIEs totaled $8,729,585 and $8,270,276, respectively. See Note 4 for further discussion.

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


(In Thousands, except Share Data)	Three Months Ended March 31,
(Unaudited)	2023		2022
Interest Income
Residential loans	$	57,874	$	65,203
Business purpose loans	97,296		94,299
Consolidated Agency multifamily loans	4,618		4,753
Real estate securities	6,428		15,955
Other interest income	12,300		9,190
Total interest income	178,516		189,400
Interest Expense
Short-term debt	(31,828)		(11,488)
Asset-backed securities issued	(87,465)		(105,695)
Long-term debt	(32,786)		(19,115)
Total interest expense	(152,079)		(136,298)
Net Interest Income	26,437		53,102
Non-interest Income
Mortgage banking activities, net	16,671		16,315
Investment fair value changes, net	(127)		(6,120)
Other income, net	4,556		5,983
Realized gains (losses), net	(2)		2,581
Total non-interest income, net	21,098		18,759
General and administrative expenses	(35,555)		(33,276)
Portfolio management costs	(3,510)		(1,578)
Loan acquisition costs	(1,289)		(4,465)
Other expenses	(3,684)		(4,085)
Net Income before Benefit from Income Taxes	3,497		28,457
Benefit from income taxes	1,123		2,458
Net Income	$	4,620	$	30,915
Dividends on preferred stock	(1,419)		—
Net income available to common stockholders	$	3,201	$	30,915

Net income available to common stockholders - Basic	$	0.02	$	0.25
Net income available to common stockholders - Diluted	$	0.02	$	0.24
Basic weighted average common shares outstanding	113,678,911		119,884,172
Diluted weighted average common shares outstanding	114,134,556		140,506,157

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In Thousands)	Three Months Ended March 31,
(Unaudited)	2023		2022
Net Income	$	4,620	$	30,915
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities	5,007		(17,873)
Reclassification of unrealized (gain) on available-for-sale securities to net income	(193)		(692)

Reclassification of unrealized loss on interest rate agreements to net income	1,018		1,018
Total other comprehensive income (loss)	5,832		(17,547)
Comprehensive Income	$	10,452	$	13,368
Dividends on preferred stock	$	(1,419)	$	—
Comprehensive income available to common stockholders	$	9,033	$	13,368

The accompanying notes are an integral part of these consolidated financial statements.

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Three Months Ended March 31, 2023


(In Thousands, except Share Data)	Preferred Stock		Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss)		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
(Unaudited)			Shares	Par Value
December 31, 2022	$	—	113,484,675	$	1,135	$	2,349,845	$	(68,868)	$	1,153,370	$	(2,351,497)	$	1,083,985
Net income	—		—	—		—		—		4,620		—		4,620
Other comprehensive income