rwt-20230630

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: June 30, 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						114,234,643			shares outstanding as of August 1, 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 June 30 , 2023 (Unaudited) and December 31, 2022	2
	Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30 , 2023 and 2022 (Unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30 , 2023 and 2022 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended June 30 , 2023 and 2022 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2023 and 2022 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	9
	Note 1. Organization	9
	Note 2. Basis of Presentation	9
	Note 3. Summary of Significant Accounting Policies	12
	Note 4. Principles of Consolidation	15
	Note 5. Fair Value of Financial Instruments	22
	Note 6. Residential Loans	31
	Note 7. Business Purpose Loans	34
	Note 8. Consolidated Agency Multifamily Loans	38
	Note 9. Real Estate Securities	39
	Note 10. Home Equity Investments (HEI)	44
	Note 1 1 . Other Investments	45
	Note 1 2 . Derivative Financial Instruments	47
	Note 1 3 . Other Assets and Liabilities	48
	Note 1 4 . Short-Term Debt	51
	Note 1 5 . Asset-Backed Securities Issued	54
	Note 1 6 . Long-Term Debt	57
	Note 1 7 . Commitments and Contingencies	60
	Note 1 8 . Equity	63
	Note 1 9 . Equity Compensation Plans	66
	Note 20 . Mortgage Banking Activities, Net	68
	Note 21. Other Income, Net	69
	Note 22. Operating Expenses	70
	Note 2 3 . Taxes	72
	Note 2 4 . Segment Information	73

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	78
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	111
Item 4.	Controls and Procedures	111

PART II —	OTHER INFORMATION
Item 1.	Legal Proceedings	112
Item 1A.	Risk Factors	112
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	112
Item 3.	Defaults Upon Senior Securities	112
Item 4.	Mine Safety Disclosures (Not Applicable)	112
Item 5.	Other Information	112
Item 6.	Exhibits	113
Signatures		114

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(In Thousands, except Share Data) (Unaudited)	June 30, 2023		December 31, 2022
ASSETS (1)
Residential loans, held-for-sale, at fair value	$	196,737	$	780,781
Residential loans, held-for-investment, at fair value	5,259,162		4,832,407
Business purpose loans, held-for-sale, at fair value	282,836		364,073
Business purpose loans, held-for-investment, at fair value	4,943,887		4,968,513
Consolidated Agency multifamily loans, at fair value	420,096		424,551
Real estate securities, at fair value	166,819		240,475
Home equity investments, at fair value	427,307		403,462
Other investments	355,537		390,938
Cash and cash equivalents	357,308		258,894
Restricted cash	89,534		70,470
Goodwill	23,373		23,373
Intangible assets	34,677		40,892
Derivative assets	20,436		20,830
Other assets	219,025		211,240
Total Assets	$	12,796,734	$	13,030,899

LIABILITIES AND EQUITY (1)
Liabilities
Short-term debt, net	$	1,457,122	$	2,029,679

Derivative liabilities	2,316		16,855
Accrued expenses and other liabilities	228,114		180,203

Asset-backed securities issued (includes $7,702,826 and $7,424,132 at fair value), net	8,183,170		7,986,752
Long-term debt, net	1,801,874		1,733,425
Total liabilities	11,672,596		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; 114,177,992 and 113,484,675 issued and outstanding	1,142		1,135
Additional paid-in capital	2,358,675		2,349,845
Accumulated other comprehensive loss	(62,091)		(68,868)
Cumulative earnings	1,157,686		1,153,370
Cumulative distributions to stockholders	(2,398,197)		(2,351,497)
Total equity	1,124,138		1,083,985
Total Liabilities and Equity	$	12,796,734	$	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 June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $9,492,706 and $9,257,291, respectively. At June 30, 2023 and December 31, 2022, liabilities of consolidated VIEs totaled $8,439,522 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 (LOSS)


(In Thousands, except Share Data)	Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited)	2023		2022		2023		2022
Interest Income
Residential loans	$	56,751	$	65,047	$	114,625	$	130,250
Business purpose loans	98,264		80,934		195,560		175,233
Consolidated Agency multifamily loans	4,697		4,732		9,315		9,485
Real estate securities	6,223		7,828		12,651		23,783
Other interest income	13,046		8,914		25,346		18,104
Total interest income	178,981		167,455		357,497		356,855
Interest Expense
Short-term debt	(28,711)		(13,661)		(60,539)		(25,149)
Asset-backed securities issued	(90,093)		(88,859)		(177,558)		(194,554)
Long-term debt	(34,081)		(24,447)		(66,867)		(43,562)
Total interest expense	(152,885)		(126,967)		(304,964)		(263,265)
Net Interest Income	26,096		40,488		52,533		93,590
Non-Interest Income (Loss)
Mortgage banking activities, net	16,552		(30,017)		33,223		(13,702)
Investment fair value changes, net	(4,596)		(87,972)		(4,723)		(94,092)
Other income, net	4,158		7,006		8,714		12,989
Realized gains, net	1,056		—		1,054		2,581
Total non-interest income (loss), net	17,170		(110,983)		38,268		(92,224)
General and administrative expenses	(30,805)		(30,199)		(66,360)		(63,475)
Portfolio management costs	(3,100)		(1,767)		(6,610)		(3,345)
Loan acquisition costs	(1,444)		(3,480)		(2,733)		(7,945)
Other expenses	(4,975)		(3,468)		(8,659)		(7,553)
Net Income (Loss) before (Provision for) Benefit from Income Taxes	2,942		(109,409)		6,439		(80,952)
(Provision for) benefit from income taxes	(69)		9,443		1,054		11,901
Net Income (Loss)	$	2,873	$	(99,966)	$	7,493	$	(69,051)
Dividends on preferred stock	(1,758)		—		(3,177)		—
Net Income (Loss) available (related) to common stockholders	$	1,115	$	(99,966)	$	4,316	$	(69,051)

Net income (loss) available (related) to common stockholders - Basic	$	—	$	(0.85)	$	0.02	$	(0.60)
Net income (loss) available (related) to common stockholders - Diluted	$	—	$	(0.85)	$	0.02	$	(0.60)
Basic weighted average common shares outstanding	114,051,017		119,660,173		113,830,347		119,771,554
Diluted weighted average common shares outstanding	114,445,262		119,660,173		114,255,292		119,771,554

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

REDWOOD TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


(In Thousands)	Three Months Ended June 30,				Six Months Ended June 30,
(Unaudited)	2023		2022		2023		2022
Net Income (Loss)	$	2,873	$	(99,966)	$	7,493	$	(69,051)
Other comprehensive income (loss):
Net unrealized (loss) gain on available-for-sale securities	(688)		(33,409)		4,319		(51,282)
Reclassification of unrealized loss on available-for-sale securities to net income (loss)	604		1,066		411		374

Reclassification of unrealized loss on interest rate agreements to net income (loss)	1,029		1,029		2,047		2,047
Total other comprehensive income (loss)	945		(31,314)		6,777		(48,861)
Comprehensive Income (Loss)	$	3,818	$	(131,280)	$	14,270	$	(117,912)
Dividends on preferred stock	$	(1,758)	$	—	$	(3,177)	$	—
Comprehensive income (loss) available (related) to common stockholders	$	2,060	$	(131,280)	$	11,093	$	(