Redwood Trust Inc. Files 10-Q for Period Ending March 31, 2024

TL;DR

<b>Redwood Trust Inc. has submitted its Q1 2024 10-Q filing, detailing financial positions and loan portfolio data.</b>

AI Summary

REDWOOD TRUST INC (RWTO) filed a Quarterly Report (10-Q) with the SEC on May 8, 2024. Redwood Trust Inc. filed its 10-Q report for the quarterly period ended March 31, 2024. The filing covers the period from January 1, 2024, to March 31, 2024. Key financial statement items such as Common Stock, Redeemable Preferred Stock, and Senior Notes Due 2029 are detailed. The report includes data on various loan portfolios, including Residential Consumer Loans Held For Sale and Multifamily Loans. Comparative balance sheet data for March 31, 2024, December 31, 2023, and December 31, 2022, is provided.

Why It Matters

For investors and stakeholders tracking REDWOOD TRUST INC, this filing contains several important signals. This 10-Q provides investors with the latest quarterly financial performance and position of Redwood Trust Inc., crucial for assessing investment value and risk. The detailed breakdown of assets, liabilities, and equity, including specific loan types and debt instruments, allows for a thorough analysis of the company's operational health and strategic direction.

Risk Assessment

Risk Level: medium — REDWOOD TRUST INC shows moderate risk based on this filing. The company operates in the real estate investment trust sector, which is sensitive to interest rate fluctuations and economic downturns, as indicated by the various loan and investment categories detailed in the filing.

Analyst Insight

Investors should review the detailed asset and liability breakdowns, particularly loan portfolio performance and debt instruments, to understand the company's exposure to market risks.

Key Numbers

• 2024-03-31 — Period End Date (Conformed period of report)
• 2024-05-08 — Filing Date (Filed as of date)
• 2023-12-31 — Previous Year End Date (Comparative balance sheet data)
• 2022-12-31 — Prior Year End Date (Comparative balance sheet data)

Key Players & Entities

• REDWOOD TRUST INC (company) — Filer name
• 2024-03-31 (date) — Conformed period of report
• 2024-05-08 (date) — Filed as of date
• 0000930236 (company) — Central Index Key
• 6798 (industry) — Standard Industrial Classification
• MD (state) — State of incorporation
• ONE BELVEDERE PLACE (address) — Business street address
• MILL VALLEY (city) — Business city

FAQ

Risk Factors

• Market Valuation Adjustments [medium — financial]: The company's financial results are subject to market valuation adjustments, impacting reported values.
• Loan Portfolio Performance [high — financial]: The performance of various loan portfolios, including residential and multifamily loans, is critical to the company's financial health.
• Debt Instruments [medium — financial]: The company's financial stability is linked to its various debt instruments, such as Senior Notes.

Key Dates

• 2024-03-31: Quarter End Date — End of the reporting period for the 10-Q filing.
• 2024-05-08: Filing Date — Date the 10-Q was officially filed with the SEC.

Key Financial Figures

• $0.01 — ich registered Common stock, par value $0.01 per share RWT New York Stock Exchange

Filing Documents

• rwt-20240331.htm (10-Q) — 4781KB
• rwtex3111q24.htm (EX-31.1) — 10KB
• rwtex3121q24.htm (EX-31.2) — 10KB
• rwtex3211q24.htm (EX-32.1) — 4KB
• rwtex3221q24.htm (EX-32.2) — 4KB
• 0000930236-24-000023.txt (&nbsp;) — 28456KB
• rwt-20240331.xsd (EX-101.SCH) — 176KB
• rwt-20240331_cal.xml (EX-101.CAL) — 167KB
• rwt-20240331_def.xml (EX-101.DEF) — 1058KB
• rwt-20240331_lab.xml (EX-101.LAB) — 1497KB
• rwt-20240331_pre.xml (EX-101.PRE) — 1343KB
• rwt-20240331_htm.xml (XML) — 6589KB

Financial Statements

Item 1. Financial Statements 2 Consolidated Balance Sheets at March 31, 2024 (Unaudited) and December 31, 2023 2 Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023 (Unaudited) 3 Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and 2023 (Unaudited) 4 Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2024 and 2023 (Unaudited) 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (Unaudited) 6

Notes to Consolidated Financial Statements (Unaudited)

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 21 Note 6. Residential Consumer Loans 31 Note 7. Residential Investor Loans 34 Note 8. Consolidated Agency Multifamily Loans 39 Note 9. Real Estate Securities 40 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 58 Note 1 7 . Commitments and Contingencies 62 Note 1 8 . Equity 65 Note 1 9 . Equity Compensation Plans 67 Note 20 . Mortgage Banking Activities, Net 69 Note 21. Other Income, Net 70 Note 22. Operating Expenses 71 Note 2 3 . Taxes 73 Note 2 4 . Segment Information 74 Note 2 5 . Subsequent Events 77

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 78

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 113

Controls and Procedures

Item 4. Controls and Procedures 113 PART II — OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 114

Risk Factors

Item 1A. Risk Factors 114

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 114

Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities 114

Mine Safety Disclosures (Not Applicable)

Item 4. Mine Safety Disclosures (Not Applicable) 114

Other Information

Item 5. Other Information 114

Exhibits

Item 6. Exhibits 115

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements REDWOOD TRUST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, except Share Data) (Unaudited) March 31, 2024 December 31, 2023 ASSETS (1) Residential consumer loans, held-for-sale, at fair value $ 511,706 $ 911,192 Residential consumer loans, held-for-investment, at fair value 7,104,886 6,139,445 Residential investor loans, held-for-sale, at fair value 280,551 180,250 Residential investor loans, held-for-investment, at fair value 4,901,443 5,040,048 Consolidated Agency multifamily loans, at fair value 422,788 425,285 Real estate securities, at fair value 212,307 127,797 Home equity investments, at fair value 560,745 550,436 Other investments 337,345 343,930 Cash and cash equivalents 275,394 293,104 Restricted cash 64,993 75,684 Goodwill 23,373 23,373 Intangible assets 25,657 28,462 Derivative assets 3,155 14,212 Other assets 333,631 351,109 Total Assets $ 15,057,974 $ 14,504,327 LIABILITIES AND EQUITY (1) Liabilities Short-term debt, net $ 1,251,444 $ 1,558,222 Derivative liabilities 5,849 33,828 Accrued expenses and other liabilities 241,191 216,803 Asset-backed securities issued (includes $ 9,979,891 and $ 9,151,263 at fair value), net 10,628,189 9,811,880 Long-term debt, net 1,707,138 1,680,901 Total liabilities 13,833,811 13,301,634 Commitments and Contingencies (see Note 17) Equity Preferred stock, par value $ 0.01 per share, 2,990,000 shares authorized; 2,800,000 issued and outstanding 66,948 66,948 Common stock, par value $ 0.01 per share, 392,010,000 shares authorized; 131,870,835 and 131,485,661 issued and outstanding 1,319 1,315 Additional paid-in capital 2,493,856 2,487,848 Accumulated other comprehensive loss ( 48,901 ) ( 57,957 ) Cumulative earnings 1,172,924 1,144,412 Cumulative distributions to stockholders ( 2,461,983 ) ( 2,439,873 ) Total equity 1,224,163 1,202,693 Total Liabilities and Equity $ 15,057,974 $ 14,504,327 —————— (1) Our consolidated balance

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (Unaudited) Note 1. Organization Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit, with a mission to help make quality housing, whether rented or owned, accessible to all American households. Our operating platforms occupy a unique position in the housing finance value chain, providing liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors through our best-in-class securitization platforms, whole-loan distribution activities and our publicly-traded securities. Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential consumer and residential investor housing credit assets. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. We operate our business in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. Our primary sources of income are net interest income from our investments and non-interest income from our mortgage banking activities. Net interest income primarily consists of the interest income we earn on investments less the interest expense we incur on borrowed funds and other liabilities. Income from mortgage banking activities is generated through the origination and acquisition of loans, and their subsequent sale, securitization, or transfer to our investment portfolios. Redwood Trust, Inc. has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), beginning with its taxable year ended December 31, 1994. We genera

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (Unaudited) Note 2. Basis of Presentation - (continued) Principles of Consolidation In accordance with GAAP, we determine whether we must consolidate transferred financial assets and variable interest entities ("VIEs") for financial reporting purposes. We currently consolidate the assets and liabilities of certain Sequoia securitization entities issued prior to 2012 ("Legacy Sequoia"), certain entities formed during and after 2012 in connection with the securitization of Redwood Select prime loans and Redwood Choice expanded-prime loans ("Sequoia"), entities formed in connection with the securitization of CoreVest residential investor term and bridge loans ("CAFL") and entities formed in connection with the securitization of home equity investment contracts ("HEI"). We also consolidate the assets and liabilities of certain Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitizations (and re-securitization of such SLST securities) in which we have invested. Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood Trust, Inc. Our exposure to these entities is primarily through the financial interests we have purchased or retained, although for certain entities we are exposed to financial risks associated with our role as a sponsor or co-sponsor, servicing administrator, collateral administrator or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities. For financial reporting purposes, the underlying loans owned at the consolidated Legacy Sequoia, Sequoia and Freddie Mac SLST entities are shown under Residential consumer loans held-for-investment, at fair value, the underlying loans at the consolidated Freddie Mac K-Series entity are shown under Consolidated Agency multifamily loans, at fair value, the underlyi

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (Unaudited) Note 2. Basis of Presentation - (continued) Acquisitions On July 1, 2022, we acquired Riverbend Funding LLC ("Riverbend"), a private mortgage lender to residential transitional and commercial real estate investors. Refer to our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information regarding this acquisition, including purchase price allocations. Additionally, in 2019 we acquired 5 Arches and CoreVest, originators of residential investor loans. In connection with these acquisitions, we identified and recorded finite-lived intangible assets totaling $ 95 million. The table below presents the amortization period and carrying value of our intangible assets, net of accumulated amortization at March 31, 2024. Table 2.1 – Intangible Assets – Activity Intangible Assets at Acquisition Accumulated Amortization at March 31, 2024 Carrying Value at March 31, 2024 Weighted Average Amortization Period (in years) (Dollars in Thousands) Borrower network $ 56,300 $ ( 31,601 ) $ 24,699 7 Broker network 18,100 ( 18,100 ) — 5 Non-compete agreements 11,400 ( 10,608 ) 792 3 Tradenames 4,400 ( 4,234 ) 166 3 Developed technology 1,800 ( 1,800 ) — 2 Loan administration fees on existing loan assets 2,600 ( 2,600 ) — 1 Total $ 94,600 $ ( 68,943 ) $ 25,657 6 All of our intangible assets are amortized on a straight-line basis. For the three months ended March 31, 2024, we recorded intangible asset amortization expense of $ 3 million. For the three months ended March 31, 2023, we recorded intangible asset amortization expense of $ 3 million. Estimated future amortization expense is summarized in the table below. Table 2.2 – Intangible Asset Amortization Expense by Year (In Thousands) March 31, 2024 2024 (9 months) $ 6,609 2025 8,426 2026 6,694 2027 1,571 2028 and thereafter 2,357 Total Future Intangible Asset Amortization $ 25,657 On a quarterly basis, we evalua

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (Unaudited) Note 2. Basis of Presentation - (continued) The potential liability resulting from the contingent consideration arrangement with Riverbend was recorded at its acquisition-date fair value of zero as part of the total consideration for the acquisition of Riverbend. At March 31, 2024, the estimated fair value of this contingent liability was zero on our consolidated balance sheets. Our contingent consideration liability is recorded at fair value and periodic changes in the estimated fair value are recorded through Other expenses on our consolidated statements of income. During the three months ended March 31, 2024, we did not record any contingent consideration income or expense related to our acquisition of Riverbend. See Note 17 for additional information on our contingent consideration liability. Note 3. Summary of Significant Accounting Policies Significant Accounting Policies Included in Note 3 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2023 is a summary of our significant accounting policies. Recent Accounting Pronouncements Newly Adopted Accounting Standard Updates ("ASUs") In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring its fair value and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We adopted this guidance in the first quarter of 2024, which did not have a material impact on our consolidated financial statements. In December 2022, the

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