Core Viewpoint - Redwood Trust reported a revenue of $25.3 million for the quarter ended June 2024, reflecting a year-over-year decline of 2.7% and a negative surprise of 10.05% compared to the Zacks Consensus Estimate of $28.13 million [1] Financial Performance Metrics - Earnings per share (EPS) for the quarter was $0.13, compared to $0.14 a year ago, with an EPS surprise of 8.33% against the consensus estimate of $0.12 [1] - Net interest income was reported at $25.30 million, falling short of the average estimate of $28.13 million from five analysts [3] - Total non-interest income was $42.20 million, exceeding the average estimate of $31.17 million from five analysts [4] - Residential Investor Mortgage Banking Activities netted $1.50 million, significantly below the average estimate of $9.39 million from five analysts [4] - Residential Consumer Mortgage Banking Activities generated $11.20 million, slightly below the average estimate of $11.60 million from five analysts [4] - Other income was reported at $6.30 million, surpassing the average estimate of $4.51 million from four analysts [5] - Investment fair value changes netted $1.10 million, compared to the average estimate of $4.58 million from three analysts [6] Stock Performance - Over the past month, shares of Redwood Trust have returned +12.7%, outperforming the Zacks S&P 500 composite's +1.1% change [6] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [6]

Core Viewpoint - Redwood Trust (RWT) reported quarterly earnings of $0.13 per share, exceeding the Zacks Consensus Estimate of $0.12 per share, but down from $0.14 per share a year ago, indicating an earnings surprise of 8.33% [1][2] Financial Performance - The company posted revenues of $25.3 million for the quarter ended June 2024, missing the Zacks Consensus Estimate by 10.05%, compared to $26 million in the same quarter last year [2] - Over the last four quarters, Redwood Trust has surpassed consensus EPS estimates only once and has topped consensus revenue estimates just once [2] Stock Performance - Redwood Trust shares have declined approximately 1.9% since the beginning of the year, while the S&P 500 has gained 15.8% [3] - The current Zacks Rank for Redwood Trust is 3 (Hold), indicating expected performance in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.14 on revenues of $27.96 million, and for the current fiscal year, it is $0.49 on revenues of $110.38 million [7] - The trend of estimate revisions for Redwood Trust is mixed, which could change following the recent earnings report [6] Industry Context - The REIT and Equity Trust industry, to which Redwood Trust belongs, is currently ranked in the top 27% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8]

Financial Performance - GAAP net income available to common stockholders was $13.8 million, or $0.10 per basic and diluted common share[2] - The company reported a net income of $15.5 million in Q2 2024, a decrease from $30.3 million in Q1 2024[1] - GAAP net income available to common stockholders for the three months ended June 30, 2024, was $13.8 million, compared to $28.5 million for the three months ended March 31, 2024[24] - Non-GAAP Earnings Available for Distribution ("EAD") was $18.6 million, or $0.13 per basic common share[2] - Non-GAAP Earnings Available for Distribution (EAD) was $18.6 million for the three months ended June 30, 2024, up from $11.0 million for the three months ended March 31, 2024[24] - EAD per basic common share increased to $0.13 for the three months ended June 30, 2024, compared to $0.08 for the three months ended March 31, 2024[24] - GAAP Return on Common Equity (annualized) was 4.8% for the three months ended June 30, 2024, down from 10.0% for the three months ended March 31, 2024[24] - EAD Return on Common Equity (non-GAAP, annualized) improved to 6.5% for the three months ended June 30, 2024, compared to 3.9% for the three months ended March 31, 2024[24] Loan Activity - Locked $2.7 billion of loans in Q2 2024, a 49% increase from $1.8 billion in Q1 2024[2] - Funded $459 million of loans in Q2 2024, a 41% increase from $326 million in Q1 2024[3] - Distributed $1.4 billion of jumbo loans through three securitizations in Q2 2024[2] - Residential loans increased to $9,210.2 million in Q2 2024, up from $7,616.6 million in Q1 2024, indicating strong demand in the mortgage market[22] Financial Position - GAAP book value per common share was $8.73 at June 30, 2024, down from $8.78 at March 31, 2024[2] - Total assets reached $16,491.1 million as of June 30, 2024, compared to $15,058.0 million at the end of Q1 2024, reflecting a significant growth in residential loans[22] - Unrestricted cash and cash equivalents were $276 million at June 30, 2024[4] - Total excess warehouse financing capacity was $3.8 billion at June 30, 2024[4] - Secured recourse leverage ratio was 0.6x at June 30, 2024, down from 0.9x at March 31, 2024[3] Income Sources - Income from Residential Consumer Mortgage Banking rose by 49% quarter over quarter, contributing to an increase in overall mortgage banking income[18] - Income from Residential Investor Mortgage Banking increased by 41% quarter over quarter, benefiting from improved distribution economics[18] Expenses and Adjustments - General and administrative expenses decreased by 20% compared to Q1 2024, primarily due to lower fixed employee compensation[19] - Acquisition-related expenses amounted to $2.2 million for the three months ended June 30, 2024, slightly down from $2.8 million for the three months ended March 31, 2024[24] - Organizational restructuring charges were not reported for the three months ended June 30, 2024, but were $2.8 million for the three months ended March 31, 2024[24] - The tax effect of adjustments for the three months ended June 30, 2024, was $3.7 million, compared to a tax effect of $(0.8) million for the three months ended March 31, 2024[24] Other Financial Metrics - Investment fair value changes, net, resulted in a loss of $1.1 million for the three months ended June 30, 2024, compared to a loss of $21.8 million for the three months ended March 31, 2024[24] - Declared and paid a regular quarterly dividend of $0.16 per common share[2] - The weighted average diluted common shares outstanding increased to 132,124 thousand in Q2 2024 from 131,570 thousand in Q1 2024[1] - HEI income, net increased in Q2 2024, supported by improved home price appreciation trends[19] Reporting Changes - The company has made changes to its calculation of EAD and consolidated income statements to enhance clarity and comparability with industry peers[24]

Core Viewpoint - Redwood Trust (RWT) is anticipated to report a quarterly earnings per share (EPS) of $0.12, reflecting a year-over-year decline of 14.3% despite an expected revenue increase of 8.2% to $28.13 million [1][2][3]. Earnings Expectations - The consensus outlook indicates a year-over-year decline in earnings for Redwood Trust, which is significant for assessing the company's earnings picture [3]. - The stock price may react positively if actual results exceed expectations, while a miss could lead to a decline [4]. Estimate Revisions - The Zacks Consensus Estimate for the quarter has been revised down by 1.43% over the last 30 days, indicating a collective reassessment by analysts [9]. - The Most Accurate Estimate for Redwood Trust is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -3.23%, suggesting a bearish outlook from analysts [12]. Earnings Surprise Prediction - A positive Earnings ESP is a strong predictor of an earnings beat, especially when combined with a Zacks Rank of 1, 2, or 3 [10]. - The current Zacks Rank for Redwood Trust is 3, making it challenging to predict an earnings beat conclusively [15][16]. Historical Performance - Over the last four quarters, Redwood Trust has only beaten consensus EPS estimates once, which may influence future earnings expectations [19].

Redwood Trust, Inc. (RWT) reached a significant support level, and could be a good pick for investors from a technical perspective. Recently, RWT's 50- day simple moving average broke out above its 200-day moving average; this is known as a "golden cross." A golden cross is a technical chart pattern that can signify a potential bullish breakout. It's formed from a crossover involving a security's short-term moving average breaking above a longer-term moving average, with the most common moving averages bein ...

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's total assets increased to **$15.1 billion** in Q1 2024 from **$14.5 billion** at year-end 2023, driven by growth in residential consumer loans, with net income for the quarter reaching **$30.3 million** (**$0.21** per share), a significant increase from **$4.6 million** (**$0.02** per share) in Q1 2023, primarily due to positive investment fair value changes Consolidated Balance Sheet Summary (Unaudited) | (In Thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$15,057,974** | **$14,504,327** | | Residential consumer loans, held-for-investment | $7,104,886 | $6,139,445 | | Residential investor loans, held-for-investment | $4,901,443 | $5,040,048 | | **Total Liabilities** | **$13,833,811** | **$13,301,634** | | Asset-backed securities issued, net | $10,628,189 | $9,811,880 | | Long-term debt, net | $1,707,138 | $1,680,901 | | **Total Equity** | **$1,224,163** | **$1,202,693** | Consolidated Statement of Income Summary (Unaudited) | (In Thousands, except Share Data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | **Net Interest Income** | **$24,210** | **$26,437** | | Total non-interest income, net | $50,339 | $21,098 | | Investment fair value changes, net | $21,837 | $(4,392) | | **Net Income** | **$30,262** | **$4,620** | | Net income available to common stockholders | $28,512 | $3,201 | | **Diluted earnings per common share** | **$0.21** | **$0.02** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The company operates across three segments and clarified its loan classifications in Q1 2024 for enhanced reporting clarity - The company operates in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio, with primary income sources from net interest income and non-interest income from mortgage banking activities[28](index=28&type=chunk)[29](index=29&type=chunk) - In Q1 2024, the company renamed 'Residential loans' to 'Residential consumer loans' and 'Business purpose loans' to 'Residential investor loans' for clarity, without changing account classifications[32](index=32&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=79&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management highlighted increased GAAP earnings and book value in Q1 2024, driven by accretive investments and strong Residential Consumer lock volumes, with a key strategic development being the partnership with CPP Investments, expected to enhance capital certainty and fee-based income, focusing on market share growth, credit risk management in its Residential Investor segment, and improved operating efficiency - The company's strategic focus is on evolving its investment approach by deploying capital alongside institutional partners to drive scale in its operating platforms and diversify revenue streams with more predictable, fee-based income[421](index=421&type=chunk) - A significant milestone in Q1 2024 was the closing of a multi-pronged transaction with CPP Investments, which includes a **$500 million** joint venture with potential purchasing power of **$4 billion** for Residential Investor loans and a new **$250 million** secured revolving financing facility[420](index=420&type=chunk)[421](index=421&type=chunk) Q1 2024 Key Financial Metrics | (In Thousands, except per Share Data) | Three Months Ended March 31, 2024 | Three Months Ended December 31, 2023 | | :--- | :--- | :--- | | Net income per diluted common share | $0.21 | $0.15 | | Return on common stockholders' equity | 10.0% | 7.3% | | Book Value per share | $8.78 | $8.64 | | Economic return on book value | 3.5% | 0.3% | [Consolidated Results of Operations](index=85&type=section&id=Consolidated%20Results%20of%20Operations) Net income significantly increased in Q1 2024 due to positive investment fair value changes, despite a slight decrease in net interest income and lower general and administrative expenses - Net income increased to **$30.3 million** in Q1 2024 from **$4.6 million** in Q1 2023, primarily driven by a **$26.2 million** positive swing in investment fair value changes, benefiting from tightening credit spreads across the securities portfolio[439](index=439&type=chunk)[448](index=448&type=chunk) - Net interest income decreased slightly by **$2.2 million** year-over-year, mainly due to higher borrowing costs on long-term debt and ABS issued in the Investment Portfolio, partially offset by higher net interest income from Mortgage Banking operations[440](index=440&type=chunk) - General and administrative expenses decreased by **$1.0 million** year-over-year, primarily due to lower variable and equity compensation expense resulting from a reduction in headcount, despite incurring **$3 million** in restructuring charges in Q1 2024[457](index=457&type=chunk) [Results of Operations by Segment](index=90&type=section&id=Results%20of%20Operations%20by%20Segment) The Residential Consumer Mortgage Banking segment turned profitable, while the Investment Portfolio's contribution significantly increased, offsetting a wider loss in the Residential Investor Mortgage Banking segment Segment Contribution Summary | (In Thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Residential Consumer Mortgage Banking | $7,019 | $(1,263) | | Residential Investor Mortgage Banking | $(5,509) | $(1,027) | | Investment Portfolio | $57,606 | $35,537 | | Corporate/Other | $(28,854) | $(28,627) | | **Net Income** | **$30,262** | **$4,620** | - The Residential Consumer Mortgage Banking segment's contribution turned positive to **$7.0 million**, driven by a significant increase in loan lock and distribution volumes, with **$1.8 billion** in locks and **$1.4 billion** distributed through securitizations and whole loan sales[472](index=472&type=chunk)[476](index=476&type=chunk)[481](index=481&type=chunk) - The Investment Portfolio's contribution increased by **$22.1 million** year-over-year, primarily due to positive investment fair value changes from tightening credit spreads, higher HEI income, and improved MSR valuations[472](index=472&type=chunk)[501](index=501&type=chunk) - The Residential Investor Mortgage Banking segment's loss widened to **$5.5 million** due to lower funding volumes and margins amid elevated interest rates, although operating expenses decreased due to headcount reductions[472](index=472&type=chunk)[494](index=494&type=chunk) [Liquidity and Capital Resources](index=106&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong capital and liquidity positions as of Q1 2024, bolstered by new debt issuance and a revolving financing facility, with plans to repay maturing convertible notes - As of March 31, 2024, the company had total capital of **$1.92 billion** and unrestricted cash and cash equivalents of **$275 million**[561](index=561&type=chunk)[562](index=562&type=chunk) - In Q1 2024, the company issued **$60 million** of 9.125% senior unsecured notes due 2029 and entered into a new corporate secured revolving financing facility with CPP Investments with an initial borrowing limit of **$200 million** (subsequently increased to **$250 million**)[561](index=561&type=chunk)[580](index=580&type=chunk)[407](index=407&type=chunk) - The company had **$2.24 billion** of secured recourse debt outstanding, of which **$1.88 billion** was non-marginable, meaning it is not subject to margin calls based solely on a lender's discretionary determination of market value declines[565](index=565&type=chunk) - The company has a convertible note series with a **$116 million** outstanding balance maturing in July 2024, which it expects to repay with cash on hand[582](index=582&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=114&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states there have been no material changes in its quantitative or qualitative exposure to market risk since December 31, 2023, other than developments described in the MD&A section, and refers to its 2023 Annual Report on Form 10-K for detailed information - Information concerning market risk is incorporated by reference from the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023[608](index=608&type=chunk) - There have been no material changes in the company's quantitative or qualitative exposure to market risk since December 31, 2023, apart from developments discussed in the MD&A, such as changes in the fair values of assets[608](index=608&type=chunk) [Item 4. Controls and Procedures](index=114&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of March 31, 2024, with no material changes to internal control over financial reporting during the first quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarter[610](index=610&type=chunk) - No changes in internal control over financial reporting occurred during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[611](index=611&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=115&type=section&id=Item%201.%20Legal%20Proceedings) The report refers to Note 17 of the financial statements for information on legal proceedings, which indicates no significant updates from the disclosures in the 2023 Annual Report on Form 10-K - There are no significant updates regarding litigation matters since the company's Annual Report on Form 10-K for the year ended December 31, 2023[336](index=336&type=chunk)[614](index=614&type=chunk) [Item 1A. Risk Factors](index=115&type=section&id=Item%201A.%20Risk%20Factors) The report states that risk factors are discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2023, indicating no material changes or new risk factors in the current quarter - The company's risk factors are discussed in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2023[614](index=614&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=115&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In March 2024, the company issued unregistered warrants to CPP Investments for a total of **6,583,017 shares** of common stock in conjunction with their joint venture, and during the quarter, no shares of common or preferred stock were repurchased under the existing authorization programs - In March 2024, the company issued warrants to CPP Investments exercisable for a total of **6,583,017 shares** of common stock, which were not registered under the Securities Act of 1933[616](index=616&type=chunk) - During Q1 2024, the company did not repurchase any shares of its common or preferred stock, with authorization remaining for up to **$101 million** in common stock repurchases and **$70 million** in preferred stock repurchases as of March 31, 2024[616](index=616&type=chunk) [Item 3. Defaults Upon Senior Securities](index=115&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[619](index=619&type=chunk) [Item 5. Other Information](index=115&type=section&id=Item%205.%20Other%20Information) The company reported that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[620](index=620&type=chunk) [Item 6. Exhibits](index=116&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, certifications from the CEO and CFO, and interactive data files (XBRL)

Redwood Trust, Inc. (NYSE:RWT) Q1 2024 Earnings Conference Call April 30, 2024 5:00 PM ET Company Participants Kaitlyn Mauritz - Senior Vice President, Investor Relations Chris Abate - Chief Executive Officer Dash Robinson - President Brooke Carillo - Chief Financial Officer Conference Call Participants Rick Shane - JPMorgan Bose George - KBW Doug Harter - UBS Crispin Love - Piper Sandler Don Fandetti - Wells Fargo Stephen Laws - Raymond James Eric Hagen - BTIG Steve Delaney - Citizens JMP Kyle Joseph - Jef ...

R E D W O O D T R U S T . C O M This presentation contains forward-looking statements, including statements regarding our 2024 forward outlook, current illustrative returns related to capital deployment opportunities, estimates of upside and potential earnings in our investment portfolio from embedded discounts to par value on securities, statements regarding our joint ventures with Oaktree and CPP Investments, including the estimated levered purchase capacity of our joint venture with CPP Investments of up ...

[First Quarter 2024 Financial Results](index=1&type=section&id=First%20Quarter%202024%20Financial%20Results) [Key Q1 2024 Financial Results and Metrics](index=1&type=section&id=Key%20Q1%202024%20Financial%20Results%20and%20Metrics) Redwood Trust reported strong Q1 2024 financial results, with GAAP book value per share increasing to **$8.78**, GAAP net income reaching **$29 million**, and a **3.5%** economic return on book value Q1 2024 Key Financial Metrics vs. Q4 2023 | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | GAAP book value per common share | $8.78 | $8.64 | | GAAP net income available to common stockholders | $29 million | $19 million | | GAAP EPS (diluted) | $0.21 | $0.15 | | Non-GAAP EAD | $11 million | $7 million | | Non-GAAP EAD per basic common share | $0.08 | $0.05 | | Economic return on book value | 3.5% | 0.3% | | Recourse leverage ratio | 1.9x | 2.2x | | Dividend per common share | $0.16 | $0.16 | [Operational Business Highlights](index=1&type=section&id=Operational%20Business%20Highlights) Operational segments showed significant momentum, with Residential Consumer Mortgage Banking's jumbo loan lock volume increasing **53%** and Residential Investor Mortgage Banking maintaining stable funding [Residential Consumer Mortgage Banking](index=1&type=section&id=Residential%20Consumer%20Mortgage%20Banking) This segment experienced substantial growth, with jumbo loan lock volumes increasing **53%** to **$1.8 billion** and gross margins reaching **107 basis points** - Locked **$1.8 billion** of jumbo loans, a **53%** increase from **$1.2 billion** in Q4 2023[5](index=5&type=chunk) - Achieved gross margins of **107bps**, which is above the historical target range of **75bps** to **100bps**[5](index=5&type=chunk) - Launched a closed-end second (CES) lien product and expanded its network of depository institutions to 74 from 68 in the prior quarter[5](index=5&type=chunk) [Residential Investor Mortgage Banking](index=1&type=section&id=Residential%20Investor%20Mortgage%20Banking) This segment funded **$326 million** in loans, with February and March volumes increasing **20%** compared to January, signaling a strengthening pipeline - Funded **$326 million** of residential investor loans, comprised of **64%** bridge loans and **36%** term loans[5](index=5&type=chunk) - Average funding volumes for February and March 2024 were **20%** higher than January 2024 levels[5](index=5&type=chunk) [Investment Portfolio](index=2&type=section&id=Investment%20Portfolio) The company deployed **$115 million** into new investments, the largest since Q3 2022, while delinquency rates remained stable for RPL and jumbo securities - Deployed approximately **$115 million** of capital into internally sourced and third-party investments, the largest single quarter deployment since Q3 2022[7](index=7&type=chunk) 90 Day+ Delinquency Rates | Portfolio | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | RPL Securities | 8.1% | Stable | | Jumbo Securities | 0.2% | Stable | | CAFL Securities & Bridge Loans | 5.0% | 4.7% | [Financing Highlights](index=2&type=section&id=Financing%20Highlights) Redwood enhanced liquidity by increasing excess warehouse financing capacity to **$2.7 billion**, repurchasing convertible debt, and issuing new senior unsecured notes - Unrestricted cash and cash equivalents stood at **$275 million**, with unencumbered assets of approximately **$370 million**[7](index=7&type=chunk) - Grew excess warehouse financing capacity to **$2.7 billion** and successfully renewed or established three loan financing facilities totaling **$750 million**[7](index=7&type=chunk) - Repurchased **$31 million** of convertible debt at a discount and issued **$60 million** of senior unsecured notes due 2029[7](index=7&type=chunk) [Corporate Highlights](index=2&type=section&id=Corporate%20Highlights) The company finalized a strategic capital partnership with CPP Investments for up to **$4 billion** in loan capacity and completed cost reduction efforts for **$8 million** in annual savings - Completed a strategic capital partnership with CPP Investments, including a joint venture with up to **$4 billion** of loan capacity and a financing line of up to **$250 million**[7](index=7&type=chunk) - Completed cost reduction efforts expected to result in run-rate annual savings of approximately **$8 million**[7](index=7&type=chunk) [Q2 2024 Highlights to Date](index=2&type=section&id=Q2%202024%20Highlights%20to%20Date) Subsequent to Q1, Redwood closed a **$402 million** jumbo securitization and made an initial **$100 million** draw on its new CPP Investments financing facility - Closed a SEMT jumbo securitization in mid-April 2024, backed by approximately **$402 million** of jumbo loans[7](index=7&type=chunk) - Completed an initial draw of **$100 million** under the recently established **$250 million** CPP Investments financing facility[7](index=7&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) [Consolidated Income Statements](index=6&type=section&id=Consolidated%20Income%20Statements) For Q1 2024, Redwood reported net income of **$30 million**, driven by higher net interest income and positive net investment fair value changes, resulting in **$29 million** available to common stockholders Selected Income Statement Data (Q1 2024 vs. Q4 2023) | ($ in millions) | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Net interest income | $24 | $20 | | Total non-interest income, net | $50 | $44 | | General and administrative expenses | ($35) | ($32) | | Net income | $30 | $21 | | Net income available to common stockholders | $29 | $19 | - The increase in net interest income was attributed to accretive capital deployment and recovery of delinquent interest on bridge loans[21](index=21&type=chunk) - General and administrative expenses rose primarily due to organizational restructuring costs from a reduction in force during the quarter[21](index=21&type=chunk) [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2024, total assets grew to **$15,058 million**, with stockholders' equity increasing to **$1,224 million** and GAAP book value per common share rising to **$8.78** Balance Sheet Summary (as of March 31, 2024 vs. Dec 31, 2023) | ($ in millions, except per share data) | 3/31/2024 | 12/31/2023 | | :--- | :--- | :--- | | Total assets | $15,058 | $14,504 | | Total liabilities | $13,834 | $13,302 | | Stockholders' equity | $1,224 | $1,203 | | GAAP book value per common share | $8.78 | $8.64 | [Non-GAAP Disclosures](index=9&type=section&id=Non-GAAP%20Disclosures) [Reconciliation to Earnings Available for Distribution (EAD)](index=9&type=section&id=Reconciliation%20to%20Earnings%20Available%20for%20Distribution%20%28EAD%29) The company's non-GAAP Earnings Available for Distribution (EAD) for Q1 2024 increased to **$11 million**, or **$0.08** per basic share, reflecting adjustments to GAAP net income for non-cash items Reconciliation of GAAP Net Income to EAD (Q1 2024 vs. Q4 2023) | ($ in millions, except per share data) | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | GAAP Net income available to common stockholders | $29 | $19 | | Adjustments (Investment fair value changes, etc.) | ($18) | ($12) | | **Earnings Available for Distribution (non-GAAP)** | **$11** | **$7** | | EAD per basic common share (non-GAAP) | $0.08 | $0.05 | - EAD is a non-GAAP measure that management believes helps analyze results and the ability to pay dividends by excluding items like unrealized fair value changes, realized gains/losses, and restructuring charges[26](index=26&type=chunk) - In Q4 2023, the company modified its EAD calculation, notably by no longer including fair value changes from Home Equity Investments (HEI) in the primary adjustment, as HEI income is now reported separately[25](index=25&type=chunk)

[PART I](index=5&type=section&id=PART%20I) [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Redwood Trust, Inc. is a specialty finance company focused on housing credit, providing liquidity to underserved segments of the U.S. housing market. - Redwood Trust, Inc. is a specialty finance company focused on housing credit, providing liquidity to growing segments of the U.S. housing market not well served by government programs[20](index=20&type=chunk) - The company operates in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. Segment names were updated in Q4 2023 without changes to their composition[20](index=20&type=chunk)[26](index=26&type=chunk) - Primary sources of income are net interest income from investments and non-interest income from mortgage banking activities (loan origination, acquisition, sale, or securitization)[21](index=21&type=chunk) - Redwood Trust, Inc. has elected to be taxed as a REIT since 1994, with mortgage banking activities and MSRs generally conducted through taxable REIT subsidiaries (TRS)[22](index=22&type=chunk) - As of December 31, 2023, Redwood employed **289 full-time employees**, with **57% directly engaged in CoreVest operations**. Voluntary employee turnover was **13% for 2023**[34](index=34&type=chunk)[36](index=36&type=chunk) - The company faces intense competition from various financial institutions and government-sponsored entities like Fannie Mae and Freddie Mac, which may have greater resources or lower funding costs[41](index=41&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) [Item 1A. Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces multiple risks in general economic conditions, regulatory changes, intense competition, and operational vulnerabilities. - General economic conditions, including inflation, interest rate changes, and housing market performance, significantly impact the company's business and asset values[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - Federal, state, and local legislative and regulatory developments, such as the proposed Basel III Endgame capital rules and changes in Fannie Mae/Freddie Mac loan limits, could adversely affect the business and increase borrowing costs[62](index=62&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - The company faces intense competition from commercial banks, other mortgage REITs, and government-sponsored entities, some of which have greater resources or different risk tolerances[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - Use of financial leverage exposes the company to liquidity risks, including margin calls and potential breaches of financial covenants, which could necessitate immediate debt repayment or asset sales under adverse conditions[81](index=81&type=chunk)[85](index=85&type=chunk)[88](index=88&type=chunk) - Cybersecurity and data breaches, or non-compliance with data privacy laws, pose significant risks to reputation, business operations, and financial results due to the handling of sensitive personal information[92](index=92&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - The nature of assets held (residential, business purpose, multifamily loans, HEI) exposes the company to credit risk, prepayment risk, and interest rate fluctuations, which can lead to reduced earnings or increased volatility[103](index=103&type=chunk)[104](index=104&type=chunk)[133](index=133&type=chunk)[136](index=136&type=chunk) - Maintaining REIT status requires adherence to complex rules and distribution requirements, which can limit operational flexibility and capital retention, potentially forcing asset sales or debt incurrence under unfavorable market conditions[273](index=273&type=chunk)[275](index=275&type=chunk)[278](index=278&type=chunk) [Item 1B. Unresolved Staff Comments](index=65&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC. - No unresolved staff comments were reported[314](index=314&type=chunk) [Item 1C. Cyber Risk Management, Strategy, and Governance Disclosures](index=65&type=section&id=Item%201C.%20Cyber%20Risk%20Management%2C%20Strategy%2C%20and%20Governance%20Disclosures) Redwood Trust has a cybersecurity risk management program based on the NIST CSF, overseen by the Board, and has identified no material cyber threats. - Redwood's cybersecurity risk management program is based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF)[316](index=316&type=chunk) - The program includes risk assessments, a dedicated IT team, third-party security testing (penetration testing, vulnerability scanning), employee training, and an incident response plan[317](index=317&type=chunk) - The Board of Directors, via its Audit Committee, oversees cybersecurity risk management, receiving periodic reports from IT management[318](index=318&type=chunk) - As of the report date, no known cybersecurity threats have materially affected or are reasonably likely to materially affect the company's operations, business strategy, results, or financial condition[317](index=317&type=chunk) [Item 2. Properties](index=66&type=section&id=Item%202.%20Properties) Redwood Trust does not own any properties, leasing all its executive and administrative offices across four primary locations. - Redwood Trust does not own any properties; all office spaces are leased[321](index=321&type=chunk) Primary Office Locations and Lease Expirations | Location | Lease Expiration | | :----------------------------- | :--------------- | | One Belvedere Place, Suite 300, Mill Valley, CA 94941 | 2028 | | 8310 South Valley Highway, Suite 425, Englewood, CO 80112 | 2031 | | 4 Park Plaza, Suite 900, Irvine, CA 92614 | 2027 | | 650 Fifth Avenue, Suite 2120, New York, NY 10019 | 2025 | [Item 3. Legal Proceedings](index=67&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 17 to the Financial Statements. - Legal proceedings information is detailed in Note 17 to the Financial Statements[323](index=323&type=chunk) [Item 4. Mine Safety Disclosures (Not Applicable)](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures%20(Not%20Applicable)) Mine safety disclosures are not applicable to Redwood Trust, Inc. - Mine Safety Disclosures are not applicable[323](index=323&type=chunk) [PART II](index=68&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=68&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Redwood Trust's common stock trades on the NYSE under RWT, with 131.6 million shares outstanding and quarterly dividends declared. - Common stock is listed and traded on the NYSE under the symbol RWT[326](index=326&type=chunk) - As of February 26, 2024, there were **131,577,032 shares of common stock outstanding**[7](index=7&type=chunk) Common Dividends Declared (2023 vs. 2022) | Year Ended December 31, | Per Share | | :---------------------- | :-------- | | **2023** | $0.71 | | **2022** | $0.92 | - 2023 common stock dividends are expected to be characterized for federal income tax purposes as **39% ordinary income (Section 199A)**, **23% qualified dividends**, and **38% return of capital**[327](index=327&type=chunk) - As of December 31, 2023, the company had authorization to repurchase up to **$101 million of common stock** and **$70 million of preferred stock**, in addition to outstanding debt securities[78](index=78&type=chunk)[328](index=328&type=chunk) - No common stock or preferred stock was repurchased in 2023; **$81 million of convertible and exchangeable debt was repurchased and early retired**[78](index=78&type=chunk)[328](index=328&type=chunk) [Item 6. [Reserved]](index=70&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information. [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=71&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's Discussion and Analysis (MD&A) reviews Redwood Trust's financial condition, operations, and liquidity for 2023, highlighting strategic shifts and performance drivers. - Redwood Trust is a specialty finance company focused on housing credit, operating in Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio segments[336](index=336&type=chunk) - The company created substantial capital flexibility in 2023 by reducing recourse leverage and extending corporate debt maturities, in response to housing activity lows and banking sector crisis[338](index=338&type=chunk) - Strategic reallocation of capital prioritizes co-investments in joint venture partnerships with private credit institutions, aiming for reliable distribution channels, enhanced liquidity, and predictable revenues[341](index=341&type=chunk) - The company is optimistic about growing residential investor and consumer loan volumes due to anticipated major bank regulatory rule changes (Basel III) and financial pressures on depositories[342](index=342&type=chunk) Key Financial Results (2023 vs. 2022) | Metric | 2023 | 2022 | | :--------------------------- | :-------- | :-------- | | Net income (loss) per diluted common share | $(0.11) | $(1.43) | | Return on common stockholders' equity | (1)% | (13)% | | Book value per share | $8.64 | $9.55 | | Dividends per share | $0.71 | $0.92 | | Economic return on book value | (2)% | (13)% | - Net interest income decreased by **$62.5 million** in 2023, primarily due to lower yield maintenance income, reduced accretion income on AFS securities, increased interest expense on HEI, and higher overall financing costs[372](index=372&type=chunk)[373](index=373&type=chunk) - Income from mortgage banking activities increased by **$81.0 million** in 2023, driven by improved margins in both Residential Consumer and Residential Investor segments, despite lower volumes in some areas[372](index=372&type=chunk)[380](index=380&type=chunk) [INTRODUCTION](index=71&type=section&id=INTRODUCTION) This section introduces the MD&A, providing management's perspective on Redwood Trust's financial condition, operations, and liquidity. - MD&A provides management's narrative on financial condition, results of operations, liquidity, and future factors[334](index=334&type=chunk) - It should be read with Consolidated Financial Statements and Notes (Part II, Item 8) and includes forward-looking statements subject to risks outlined in 'Risk Factors' (Part I, Item 1A)[335](index=335&type=chunk) [OVERVIEW](index=71&type=section&id=OVERVIEW) Redwood Trust is a specialty finance company focused on housing credit, strategically repositioning its balance sheet and expanding its platforms in 2023. - Redwood Trust operates in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio, with segment names updated in Q4 2023[336](index=336&type=chunk) - In 2023, the company achieved substantial capital flexibility by reducing recourse leverage and extending corporate debt maturities, repositioning for increased private market loan volume[338](index=338&type=chunk) - Current capital deployment opportunities offer illustrative returns of **15-20% for mortgage banking** and third-party investments, **12-18% for organically retained securities** and joint-venture co-investments, and **8-10% for opportunistic debt retirement**[339](index=339&type=chunk) - Strategic shift towards co-investments in joint venture partnerships aims to create reliable distribution channels, enhance liquidity, and support predictable revenues, allowing for faster organic scaling[341](index=341&type=chunk) - The company secured new or renewed jumbo flow relationships with almost **70 banks**, now connecting with loan sellers controlling **60% of residential jumbo origination volume**[343](index=343&type=chunk) - Launched in-house home equity investment (HEI) origination platform, Aspire, expanding to five states with plans for up to 15, and introduced a program to acquire traditional second lien mortgage products[345](index=345&type=chunk) - Residential Investor loan platform (CoreVest) is benefiting from banks' pullback, with ongoing negotiations for partnership opportunities to access existing pipelines[346](index=346&type=chunk) - Multifamily bridge portfolio experienced financial stress due to rising rates, leading to active management through loan recasting, maturity extensions, and fresh capital infusions. Multifamily bridge originations were curtailed since Q3 2022, now representing **13% of total capital**[347](index=347&type=chunk)[348](index=348&type=chunk) Key Financial Results (2023 vs. 2022) | Metric | 2023 | 2022 | | :--------------------------- | :-------- | :-------- | | Net income (loss) per diluted common share | $(0.11) | $(1.43) | | Return on common stockholders' equity | (1)% | (13)% | | Book value per share | $8.64 | $9.55 | | Dividends per share | $0.71 | $0.92 | | Economic return on book value | (2)% | (13)% | - Residential Consumer Mortgage Banking: Jumbo loan lock volume was **$3.5 billion in 2023** (down from **$4.1 billion in 2022**), with a significant increase in the second half of 2023 due to new bank relationships. Distributed **$1.8 billion of loans in 2023**, primarily through securitizations[355](index=355&type=chunk)[356](index=356&type=chunk) - Residential Investor Mortgage Banking (CoreVest): Funded **$1.6 billion of loans in 2023** (down from **$2.8 billion in 2022**), with **67% bridge loans** and **33% term loans**. Increased selectivity and tighter underwriting for multifamily bridge production[357](index=357&type=chunk)[358](index=358&type=chunk) - Investment Portfolio: Totaled **$3.4 billion at year-end 2023** (down from **$3.7 billion in 2022**), with **80% organically created**. Reduced exposure to non-strategic third-party investments and completed three securitizations to unlock capital. Net discount to par was **$2.68 per share at year-end 2023**[360](index=360&type=chunk)[361](index=361&type=chunk) - RWT Horizons: Focused on portfolio management in 2023, with **$25 million committed across 34 investments** in 27 early-stage technology companies. Made **7 new investments totaling $1.9 million**[366](index=366&type=chunk)[367](index=367&type=chunk) [RECENT DEVELOPMENTS](index=76&type=section&id=RECENT%20DEVELOPMENTS) In January 2024, Redwood Trust issued $60 million of 9.125% senior unsecured notes due 2029. - In January 2024, Redwood issued **$60 million of 9.125% senior unsecured notes** due March 1, 2029[368](index=368&type=chunk) - Interest is payable quarterly, starting June 1, 2024. The notes are redeemable on or after March 1, 2026, at **100% of principal plus accrued interest**[368](index=368&type=chunk) [RESULTS OF OPERATIONS](index=77&type=section&id=RESULTS%20OF%20OPERATIONS) Redwood Trust experienced a net loss of $(2.3) million in 2023, a significant improvement from 2022, driven by increased mortgage banking and HEI income. Consolidated Net Income (Loss) (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | Change '23/'22 | Change '22/'21 | | :------------------------------ | :-------- | :--------- | :--------- | :------------- | :------------- | | Net Interest Income | $92,943 | $155,454 | $148,177 | $(62,511) | $7,277 | | Non-interest Income (Loss), net | $72,688 | $(162,679) | $393,804 | $235,367 | $(556,483) | | General and administrative expenses | $(128,295) | $(140,908) | $(165,218) | $12,613 | $24,310 | | Net (Loss) Income | $(2,274) | $(163,520) | $319,613 | $161,246 | $(483,133) | - Net interest income decreased by **$62.5 million** in 2023, primarily due to lower yield maintenance income, reduced accretion income on AFS securities, increased interest expense related to HEI, and higher overall financing costs[373](index=373&type=chunk) - Mortgage banking activities, net, increased by **$81.0 million** in 2023, driven by improved margins in both Residential Consumer and Residential Investor segments, despite higher volumes in 2022[380](index=380&type=chunk) - Investment fair value changes, net, improved by **$133.9 million** in 2023, primarily due to smaller negative impacts from reperforming loan securities and BPL bridge loans, partially offset by fair value increases in IO securities and interest rate hedges[372](index=372&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) - HEI income, net, increased by **$32.4 million** in 2023, mainly from baseline accretion of option value and positive actual home price appreciation trends[372](index=372&type=chunk)[389](index=389&type=chunk) - General and administrative expenses decreased by **$12.6 million** in 2023 due to firm-wide headcount reductions (**26% since Q3 2022**) and lower non-compensation costs, partially offset by higher variable and long-term incentive compensation[395](index=395&type=chunk) Net Interest Income by Segment (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | Change '23/'22 | Change '22/'21 | | :------------------------------ | :-------- | :-------- | :-------- | :------------- | :------------- | | Residential Consumer Mortgage Banking | $1,290 | $12,467 | $21,990 | $(11,177) | $(9,523) | | Residential Investor Mortgage Banking | $2,818 | $10,633 | $6,824 | $(7,815) | $3,809 | | Investment Portfolio | $138,605 | $181,980 | $155,538 | $(43,375) | $26,442 | | Corporate/Other | $(49,770) | $(49,626) | $(36,175) | $(144) | $(13,451) | | **Net Interest Income** | **$92,943** | **$155,454** | **$148,177** | **$(62,511)** | **$7,277** | [Results of Operations by Segment](index=85&type=section&id=Results%20of%20Operations%20by%20Segment) Redwood Trust's segment contributions in 2023 showed improved performance in mortgage banking and investment portfolio segments, while corporate expenses increased. Segment Contribution Summary (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | Change '23/'22 | Change '22/'21 | | :------------------------------ | :-------- | :--------- | :--------- | :------------- | :------------- | | Residential Consumer Mortgage Banking | $10,052 | $(21,578) | $82,414 | $31,630 | $(103,992) | | Residential Investor Mortgage Banking | $(12,575) | $(44,285) | $38,528 | $31,710 | $(82,813) | | Investment Portfolio | $113,723 | $(9,131) | $293,230 | $122,854 | $(302,361) | | Corporate/Other | $(113,474) | $(88,526) | $(94,559) | $(24,948) | $6,033 | | **Net (Loss) Income** | **$(2,274)** | **$(163,520)** | **$319,613** | **$161,246** | **$(483,133)** | - Residential Consumer Mortgage Banking segment contribution improved significantly in 2023, benefiting from lower interest rate volatility, strong distribution execution, and reduced operating expenses due to headcount reductions[426](index=426&type=chunk)[427](index=427&type=chunk) - Residential Investor Mortgage Banking segment contribution improved in 2023 due to higher mortgage banking income from better execution on term securitizations and sales, and lower operating expenses from headcount reductions[439](index=439&type=chunk) - Investment Portfolio segment contribution increased in 2023, driven by smaller negative investment fair value changes and higher HEI income, despite lower net interest and other income[448](index=448&type=chunk) - Corporate/Other net expense increased by **$25 million** in 2023, primarily due to negative investment fair value changes in strategic investments and higher G&A, partially offset by a litigation reserve reversal[415](index=415&type=chunk) Residential Consumer Mortgage Banking Earnings Summary and Operating Metrics (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | | :------------------------------ | :-------- | :--------- | :--------- | | Mortgage banking income (loss), net | $30,148 | $(8,815) | $149,141 | | Operating expenses | $(18,437) | $(25,577) | $(40,950) | | (Provision for) benefit from income taxes | $(1,659) | $12,814 | $(25,777) | | **Segment Contribution** | **$10,052** | **$(21,578)** | **$82,414** | Residential Investor Mortgage Banking Earnings Summary (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | | :------------------------------ | :-------- | :--------- | :--------- | | Mortgage banking income | $48,035 | $21,765 | $116,463 | | Operating expenses | $(62,889) | $(79,207) | $(69,813) | | Benefit from (provision for) income taxes | $2,279 | $13,157 | $(8,122) | | **Segment Contribution** | **$(12,575)** | **$(44,285)** | **$38,528** | Investment Portfolio Earnings Summary (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | | :------------------------------ | :-------- | :--------- | :--------- | | Net interest income | $138,605 | $181,980 | $155,538 | | Investment fair value changes, net | $(42,322) | $(193,862) | $116,189 | | HEI Income, net | $35,117 | $2,714 | $13,425 | | Other income, net | $10,361 | $18,596 | $10,021 | | Realized gains, net | $858 | $3,174 | $17,993 | | Operating expenses | $(25,950) | $(15,682) | $(16,074) | | Provision for income taxes | $(2,946) | $(6,051) | $(3,862) | | **Segment Contribution** | **$113,723** | **$(9,131)** | **$293,230** | [Investments Detail and Activity](index=93&type=section&id=Investments%20Detail%20and%20Activity) Redwood's Investment Portfolio decreased in 2023, with a focus on efficiency and optimization, while managing increased delinquencies in certain loan segments. Investment Portfolio - Detail of Economic Interests (2023 vs. 2022) | (In Thousands) | December 31, 2023 | December 31, 2022 | | :--------------------------------- | :---------------- | :---------------- | | Organic Residential Investments | | | | Residential loans at Redwood | $— | $152,621 | | Residential securities at Redwood | $110,056 | $103,089 | | Residential securities at consolidated Sequoia entities | $204,830 | $219,299 | | Organic Business Purpose Investments | | | | BPL Bridge loans | $2,068,323 | $2,023,529 | | BPL securities at consolidated CAFL Term entities | $323,340 | $303,897 | | Third-Party Investments | | | | Residential securities at Redwood | $5,645 | $124,567 | | Residential securities at consolidated Freddie Mac SLST entities | $274,175 | $322,803 | | Multifamily securities at Redwood | $7,101 | $12,674 | | Multifamily securities at consolidated Freddie Mac K-Series entities | $33,308 | $31,767 | | Servicing investments | $85,704 | $90,120 | | HEI | $278,967 | $283,897 | | **Total Segment Investments** | **$3,444,144** | **$3,725,021** | - Investment Portfolio decreased in 2023 due to sales of non-strategic third-party securities and residential loans, with capital redeployed into Residential Consumer Mortgage Banking[446](index=446&type=chunk) - At December 31, 2023, the Investment Portfolio had a net discount to par of **$2.68 per share**, down from **$4.33 per share** at December 31, 2022[361](index=361&type=chunk) - Residential consumer loan investments showed strong fundamental performance in 2023, with declining delinquencies and LTVs. **90 day+ delinquencies for SLST investments were 8.4%** (down from **12.4% in 2022**) and for SEMT investments were **0.2%** (flat)[363](index=363&type=chunk) - Residential Investor related securities and investments experienced stress in 2023, with **90 day+ delinquencies for CAFL term loan securities rising to 3.7%** (from **1.5% in 2022**) and for bridge loans to **5.1%** (from **2.0% in 2022**). REO balances for bridge loans also increased[364](index=364&type=chunk) - BPL bridge loans held-for-investment totaled **$2.07 billion** at December 31, 2023. **105 loans ($97 million fair value, $107 million UPB)** were 90+ days delinquent, with **82 in foreclosure**. REO associated with bridge loans increased to **$88 million**[477](index=477&type=chunk) - In 2023, **$295 million of BPL bridge loans** underwent modifications (interest rate reductions, deferrals, maturity extensions), with **86% current at year-end**. Maturity extensions were granted for **$232 million of loans**[478](index=478&type=chunk) - HEI income, net, increased by **$32 million** in 2023, driven by baseline accretion and improved actual/projected home price appreciation[389](index=389&type=chunk) HEI Income, net (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | | :------------------------------------------------- | :-------- | :------ | :------ | | Net market valuation gains (losses) recorded on HEI at Redwood | $30,750 | $(201) | $13,207 | | Net market valuation gains (losses) recorded on Securitized HEI | $23,177 | $5,875 | $567 | | Net market valuation gains (losses) recorded on ABS Issued from HEI securitizations | $(11,020) | $2,334 | $47 | | Net market valuation gains (losses) recorded on non-controlling interests in HEI securitizations | $(7,790) | $(5,294) | $(396) | | **Total HEI income, net** | **$35,117** | **$2,714** | **$13,425** | [Income Taxes](index=100&type=section&id=Income%20Taxes) Redwood Trust, as a REIT, manages its tax obligations through dividend distributions and utilizes significant deferred tax assets from NOL and capital loss carryforwards. - As a REIT, Redwood must distribute at least **90% of its annual REIT taxable income** (excluding net capital gains) and meet other asset, income, and stock ownership requirements[497](index=497&type=chunk) - At December 31, 2023, full-year dividend distributions exceeded minimum requirements, and the company believes it met all REIT qualification criteria[498](index=498&type=chunk) - The company carried a **$37 million federal net operating loss (NOL) carryforward** into 2023 at its REIT, allowing retention of REIT taxable income up to this amount tax-free[499](index=499&type=chunk) - Taxable REIT subsidiaries (TRS) had **$102 million of federal NOLs** carrying forward indefinitely at December 31, 2023[507](index=507&type=chunk) - A tax provision of **$2 million** was recorded in 2023, primarily from positive GAAP income at TRS, compared to a **$20 million tax benefit in 2022** from TRS GAAP losses[502](index=502&type=chunk) Net Operating and Capital Loss Carryforwards (as of December 31, 2023) | Loss Carryforward Type | 1 to 3 Years | 3 to 5 Years | 5 to 15 Years | After 15 Years | No Expiration | Total | | :--------------------- | :----------- | :----------- | :------------ | :------------- | :------------ | :---- | | REIT Net operating loss | $— | $— | $(28,684) | $— | $(8,757) | $(37,441) | | REIT Capital loss | $(288,791) | $(15,788) | $— | $— | $— | $(304,579) | | TRS Net operating loss | $— | $— | $— | $— | $(101,506) | $(101,506) | | TRS Capital loss | $— | $(279) | $— | $— | $— | $(279) | [LIQUIDITY AND CAPITAL RESOURCES](index=102&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Redwood Trust's liquidity and capital resources are derived from equity, debt, warehouse facilities, and asset flows, with $1.87 billion in total capital at year-end 2023. - Principal sources of cash and liquidity include equity/debt capital, mortgage loan warehouse facilities, secured term financing, securities repurchase agreements, and cash from investment portfolio assets and mortgage banking operations[509](index=509&type=chunk) - At December 31, 2023, total capital was **$1.87 billion**, comprising **$1.20 billion equity**, **$650 million convertible notes/long-term debt**, and **$16 million promissory notes**[510](index=510&type=chunk) - Unrestricted cash was **$293 million** at December 31, 2023, increasing to **$396 million** by February 16, 2024, after issuing **$60 million in senior notes** and closing **$800 million in securitizations**[340](index=340&type=chunk)[511](index=511&type=chunk) - The company had **$1.88 billion of secured recourse debt** outstanding at December 31, 2023, with **$578 million marginable** and **$1.30 billion non-marginable**[515](index=515&type=chunk) - In 2023, net cash used in operating activities was **$2.02 billion**, primarily from mortgage banking loan purchases/sales. Net cash provided by investing activities was **$909 million**, mainly from investment sales/payments. Net cash provided by financing activities was **$1.15 billion**, driven by ABS issuances and stock sales[520](index=520&type=chunk)[521](index=521&type=chunk)[523](index=523&type=chunk) - At December 31, 2023, the company had commitments to fund **$542 million in BPL bridge loan advances** and **$17 million to a joint venture**. It also had **$290 million of unencumbered assets** and **$2.1 billion of excess warehouse capacity**[530](index=530&type=chunk)[534](index=534&type=chunk) - The company was in compliance with all financial covenants associated with its short-term debt and other debt financing facilities at December 31, 2023, with significant headroom in equity/net worth and recourse indebtedness ratios[566](index=566&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=113&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) Redwood Trust's financial statements rely on significant estimates and assumptions, particularly for fair value measurements of illiquid assets and liabilities. - Financial statements require significant estimates and assumptions, especially for fair value measurements of assets and liabilities[569](index=569&type=chunk) - A significant portion of assets and liabilities are accounted for at fair value, predominantly using Level 3 valuation inputs, which involve a high degree of estimation uncertainty[571](index=571&type=chunk) - Fair value estimates for consolidated securitization VIEs (CFEs) are based on the more observable fair value of issued financial liabilities, requiring significant judgment in developing unobservable inputs[572](index=572&type=chunk) - Changes in fair values of loans (residential, business purpose, multifamily), securities (trading, AFS), servicer advance investments, MSRs, HEI, strategic investments, and derivatives can cause significant earnings volatility due to reliance on subjective assumptions like interest rates, prepayment rates, credit losses, and home price appreciation[573](index=573&type=chunk)[574](index=574&type=chunk)[576](index=576&type=chunk)[577](index=577&type=chunk)[578](index=578&type=chunk)[579](index=579&type=chunk)[580](index=580&type=chunk) - Impairments of goodwill and intangible assets, changes in yields for securities, loss contingency reserves, and tax provisions (especially deferred tax assets and valuation allowances) also involve significant judgment and can materially affect financial results[583](index=583&type=chunk)[584](index=584&type=chunk)[587](index=587&type=chunk)[588](index=588&type=chunk) [MARKET AND OTHER RISKS](index=116&type=section&id=MARKET%20AND%20OTHER%20RISKS) Redwood Trust actively manages various market risks, including credit, interest rate, prepayment, liquidity, and fair value risks, to enhance earnings and preserve capital. - The company manages market risks (credit, interest rate, prepayment, liquidity, fair value) to enhance earnings and preserve capital, focusing on quantifiable risks[589](index=589&type=chunk) - Other risks include business, operational, and regulatory risks, as detailed in the 'Risk Factors' section[590](index=590&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=117&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Redwood Trust manages various market risks, including credit, interest rate, prepayment, inflation, fair value, and liquidity risks, through underwriting, monitoring, and hedging strategies. - Redwood Trust manages credit risk through ownership of real estate loans, securities, and other investments, and relies on counterparty creditworthiness. Risk is managed by analyzing underwriting criteria and monitoring performance[593](index=593&type=chunk) - Residential consumer and investor loans and securities are exposed to credit losses from various factors including economic conditions, property value declines, and origination/servicing practices[594](index=594&type=chunk)[595](index=595&type=chunk) - Multifamily loans and securities carry similar credit risks, with larger principal balances and sensitivity to rental market conditions and operating costs[599](index=599&type=chunk) - Interest rate risk affects cash flows and fair values of assets, liabilities, and derivatives. The company uses derivative financial instruments for hedging but does not completely hedge all risks, accepting short-term volatility for long-term returns[605](index=605&type=chunk)[606](index=606&type=chunk) - Prepayment risk impacts economic returns, with discount securities benefiting from faster prepayments and premium securities/MSRs benefiting from slower prepayments. Prepayment rates are difficult to predict[607](index=607&type=chunk) - Fair value and liquidity risks are managed by maintaining adequate cash and capital levels, especially given the use of short-term debt facilities and potential for margin calls[610](index=610&type=chunk)[611](index=611&type=chunk)[612](index=612&type=chunk) Interest Rate Sensitive Assets (December 31, 2023) | Asset Type | Principal Balance (Thousands) | Fair Value (Thousands) | | :----------------------------- | :---------------------------- | :--------------------- | | Residential Loans - HFS | $916,977 | $911,192 | | Residential Loans - HFI at Sequoia | $5,398,913 | $4,780,203 | | Residential Loans - HFI at Freddie Mac SLST | $1,614,974 | $1,359,242 | | Business Purpose Loans - HFS | $187,886 | $180,250 | | BPL Term Loans - HFI at CAFL | $3,194,131 | $2,971,725 | | BPL Bridge Loans - HFI at Redwood | $1,325,284 | $1,305,727 | | BPL Bridge Loans - HFI at CAFL | $756,574 | $762,596 | | Multifamily Loans - HFI at Freddie Mac K-Series | $438,868 | $425,285 | | Residential Senior Securities | $— | $36,109 | | Residential Subordinate Securities | $147,602 | $84,587 | | Multifamily Securities | $7,498 | $7,101 | Interest Rate Sensitive Liabilities (December 31, 2023) | Liability Type | Principal Balance (Thousands) | Fair Value (Thousands) | | :----------------------------- | :---------------------------- | :--------------------- | | Asset-Backed Securities Issued - Sequoia Entities | $5,151,646 | $4,568,660 | | Asset-Backed Securities Issued - Freddie Mac SLST Entities | $1,328,657 | $1,265,777 | | Asset-Backed Securities Issued - Freddie Mac K-Series Entities | $402,400 | $391,977 | | Asset-Backed Securities Issued - CAFL Entities | $3,472,825 | $3,362,978 | | Asset-Backed Securities Issued - HEI Entities | $233,131 | $222,488 | | Short-Term Debt | $1,416,510 | $1,414,644 | | Convertible Notes | $510,553 | $488,341 | | Trust Preferred Securities and Subordinated Notes | $139,500 | $92,070 | | Other Long Term Debt | $1,182,594 | $1,177,287 | | Interest Rate Swaps (Notional) | $50,000 | $1,742 | [Item 8. Financial Statements and Supplementary Data](index=124&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item incorporates by reference the Consolidated Financial Statements and related reports from pages F-1 through F-125 of this Annual Report on Form 10-K. - Consolidated Financial Statements and Notes, along with Independent Registered Public Accounting Firm reports, are incorporated by reference[622](index=622&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=124&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure. - No changes in or disagreements with accountants on accounting and financial disclosure were reported[623](index=623&type=chunk) [Item 9A. Controls and Procedures](index=124&type=section&id=Item%209A.%20Controls%20and%20Procedures) Redwood Trust maintains effective disclosure controls and internal control over financial reporting, with no material changes in Q4 2023. - Disclosure controls and procedures are designed to ensure timely and accurate reporting under the Securities Exchange Act of 1934[624](index=624&type=chunk) - As of December 31, 2023, the CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level[625](index=625&type=chunk) - Management assessed the effectiveness of internal control over financial reporting based on the COSO 2013 framework and determined it was effective as of December 31, 2023[627](index=627&type=chunk) - Grant Thornton LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[630](index=630&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter of 2023[628](index=628&type=chunk) [Item 9B. Other Information](index=125&type=section&id=Item%209B.%20Other%20Information) No Rule 10b5-1 trading arrangements were adopted or terminated in Q4 2023, and the 2024 annual stockholders' meeting is scheduled for May 21, 2024. - No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023[631](index=631&type=chunk) - The 2024 annual meeting of stockholders is scheduled for May 21, 2024, in Irvine, California[632](index=632&type=chunk) - Brooke E. Carillo, the Chief Financial Officer, was designated as the Principal Accounting Officer effective March 1, 2024[633](index=633&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=125&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20That%20Prevent%20Inspections) This item is not applicable to Redwood Trust, Inc. - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[634](index=634&type=chunk) [PART III](index=126&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=126&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement. - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement[637](index=637&type=chunk) [Item 11. Executive Compensation](index=126&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the definitive Proxy Statement. - Information on executive compensation is incorporated by reference from the definitive Proxy Statement[638](index=638&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=126&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the definitive Proxy Statement. - Information on security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the definitive Proxy Statement[639](index=639&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=126&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the definitive Proxy Statement. - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the definitive Proxy Statement[640](index=640&type=chunk) [Item 14. Principal Accounting Fees and Services](index=126&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the definitive Proxy Statement. - Information on principal accounting fees and services is incorporated by reference from the definitive Proxy Statement[641](index=641&type=chunk) [PART IV](index=127&type=section&id=PART%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=127&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including corporate governance, securities, and employment agreements. - This section lists all exhibits and financial statement schedules filed as part of the 10-K report[644](index=644&type=chunk) - Exhibits include corporate governance documents (Articles of Amendment, Bylaws), securities descriptions (Common Stock, Preferred Stock, Senior Notes), various indentures, waiver agreements, and compensation plans[645](index=645&type=chunk)[647](index=647&type=chunk)[648](index=648&type=chunk)[649](index=649&type=chunk)[650](index=650&type=chunk) - Other exhibits cover employment agreements for executive officers, lease agreements for office properties, and certifications required by the Sarbanes-Oxley Act[649](index=649&type=chunk)[650](index=650&type=chunk) - All other Consolidated Financial Statements schedules not included have been omitted because they are either inapplicable or the information required is provided in the Company's Consolidated Financial Statements and Notes[644](index=644&type=chunk) [Item 16. Form 10-K Summary](index=132&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to Redwood Trust, Inc. - Form 10-K Summary is not applicable[652](index=652&type=chunk) [Consolidated Financial Statements](index=134&type=section&id=Consolidated%20Financial%20Statements) [Reports of Independent Registered Public Accounting Firm](index=136&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Grant Thornton LLP provided an unqualified opinion on Redwood Trust's financial statements and internal controls, highlighting fair value measurements as a critical audit matter. - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements for December 31, 2023 and 2022, stating they are presented fairly in all material respects in conformity with GAAP[666](index=666&type=chunk) - An unqualified opinion was also expressed on the effectiveness of the company's internal control over financial reporting as of December 31, 2023, based on the COSO 2013 framework[667](index=667&type=chunk)[680](index=680&type=chunk) - A critical audit matter was identified as the fair value measurements of certain real estate securities and beneficial interests in consolidated securitization entities (Sequoia, SLST, CAFL, HEI, K-Series)[671](index=671&type=chunk)[674](index=674&type=chunk) - The fair value measurement was critical due to limited observable market data, complex judgments in selecting significant assumptions (discount rate, prepayment rate, default rate, home price appreciation, loss severity), and high sensitivity to changes in these assumptions[675](index=675&type=chunk) [Consolidated Balance Sheets](index=139&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets present Redwood Trust's financial position, showing total assets increased to $14.50 billion and total equity to $1.20 billion in 2023. Consolidated Balance Sheet Highlights (2023 vs. 2022) | (In Thousands) | December 31, 2023 | December 31, 2022 | | :------------------------------------------------- | :---------------- | :---------------- | | **ASSETS** | | | | Residential loans, held-for-sale, at fair value | $911,192 | $780,781 | | Residential loans, held-for-investment, at fair value | $6,139,445 | $4,832,407 | | Business purpose loans, held-for-sale, at fair value | $180,250 | $364,073 | | Business purpose loans, held-for-investment, at fair value | $5,040,048 | $4,968,513 | | Consolidated Agency multifamily loans, at fair value | $425,285 | $424,551 | | Real estate securities, at fair value | $127,797 | $240,475 | | Home equity investments, at fair value | $550,436 | $403,462 | | Other investments | $343,930 | $390,938 | | Cash and cash equivalents | $293,104 | $258,894 | | Restricted cash | $75,684 | $70,470 | | Goodwill | $23,373 | $23,373 | | Intangible assets | $28,462 | $40,892 | | Derivative assets | $14,212 | $20,830 | | Other assets | $351,109 | $211,240 | | **Total Assets** | **$14,504,327** | **$13,030,899** | | **LIABILITIES AND EQUITY** | | | | Short-term debt, net | $1,558,222 | $2,029,679 | | Derivative liabilities | $33,828 | $16,855 | | Accrued expenses and other liabilities | $216,803 | $180,203 | | Asset-backed securities issued, net | $9,811,880 | $7,986,752 | | Long-term debt, net | $1,680,901 | $1,733,425 | | **Total Liabilities** | **$13,301,634** | **$11,946,914** | | Preferred stock | $66,948 | $— | | Common stock | $1,315 | $1,135 | | Additional paid-in capital | $2,487,848 | $2,349,845 | | Accumulated other comprehensive loss | $(57,957) | $(68,868) | | Cumulative earnings | $1,144,412 | $1,153,370 | | Cumulative distributions to stockholders | $(2,439,873) | $(2,351,497) | | **Total Equity** | **$1,202,693** | **$1,083,985** | | **Total Liabilities and Equity** | **$14,504,327** | **$13,030,899** | - Assets of consolidated variable interest entities (VIEs) totaled **$10.99 billion in 2023** and **$9.26 billion in 2022**, which can only be used to settle obligations of these VIEs[688](index=688&type=chunk) - Liabilities of consolidated VIEs, for which creditors do not have recourse to Redwood Trust, Inc., totaled **$10.10 billion in 2023** and **$8.27 billion in 2022**[688](index=688&type=chunk) [Consolidated Statements of Income (Loss)](index=140&type=section&id=Consolidated%20Statements%20of%20Income%20(Loss)) Redwood Trust reported a net loss of $(2.3) million in 2023, a significant improvement from 2022, driven by increased non-interest income and reduced expenses. Consolidated Statements of Income (Loss) Highlights (2023 vs. 2022 vs. 2021) | (In Thousands, except Share Data) | 2023 | 2022 | 2021 | | :-------------------------------- | :-------- | :--------- | :--------- | | Total interest income | $724,462 | $707,854 | $574,926 | | Total interest expense | $(631,519) | $(552,400) | $(426,749) | | **Net Interest Income** | **$92,943** | **$155,454** | **$148,177** | | Mortgage banking activities, net | $67,386 | $(13,659) | $235,744 | | Investment fair value changes, net | $(44,400) | $(178,272) | $114,624 | | HEI income, net | $35,117 | $2,714 | $13,425 | | Other income, net | $12,886 | $21,204 | $12,018 | | Realized gains, net | $1,699 | $5,334 | $17,993 | | **Total non-interest income (loss), net** | **$72,688** | **$(162,679)** | **$393,804** | | General and administrative expenses | $(128,295) | $(140,908) | $(165,218) | | Portfolio management costs | $(14,571) | $(7,951) | $(5,758) | | Loan acquisition costs | $(7,166) | $(11,766) | $(16,219) | | Other expenses | $(16,238) | $(15,590) | $(16,695) | | Net (Loss) Income before income taxes | $(639) | $(183,440) | $338,091 | | (Provision for) benefit from income taxes | $(1,635) | $19,920 | $(18,478) | | **Net (Loss) Income** | **$(2,274)** | **$(163,520)** | **$319,613** | | Net (Loss) Income (Related) Available to Common Stockholders | $(8,958) | $(163,520) | $319,613 | | Basic (loss) earnings per common share | $(0.11) | $(1.43) | $2.73 | | Diluted (loss) earnings per common share | $(0.11) | $(1.43) | $2.37 | - Net Interest Income decreased by **$62.5 million** in 2023 compared to 2022, primarily due to higher interest expense on borrowed funds[691](index=691&type=chunk) - Total non-interest income (loss), net, significantly improved from a loss of **$(162.7) million in 2022** to a gain of **$72.7 million in 2023**, driven by a rebound in mortgage banking activities and HEI income[691](index=691&type=chunk) - General and administrative expenses decreased by **$12.6 million** in 2023, contributing to the improved net loss[691](index=691&type=chunk) - Diluted loss per common share was **$(0.11) in 2023**, a substantial improvement from **$(1.43) in 2022**[691](index=691&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=141&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Redwood Trust reported comprehensive income of $8.6 million in 2023, a significant recovery from a comprehensive loss in 2022, driven by unrealized gains on AFS securities. Consolidated Statements of Comprehensive Income (Loss) Highlights (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | | :------------------------------------------------- | :-------- | :--------- | :--------- | | Net (Loss) Income | $(2,274) | $(163,520) | $319,613 | | Net unrealized gain (loss) on available-for-sale securities | $6,230 | $(64,704) | $8,016 | | Reclassification of unrealized loss (gain) on available-for-sale securities to net (loss) income | $554 | $636 | $(16,849) | | Reclassification of unrealized loss on interest rate agreements to net (loss) income | $4,127 | $4,127 | $4,127 | | **Total other comprehensive income (loss)** | **$10,911** | **$(59,941)** | **$(4,706)** | | **Comprehensive Income (Loss)** | **$8,637** | **$(223,461)** | **$314,907** | | Dividends on preferred stock | $(6,684) | $— | $— | | Comprehensive Income (Loss) Available (Related) to Common Stockholders | $1,953 | $(223,461) | $314,907 | - Total other comprehensive income (loss) significantly improved from a loss of **$(59.9) million in 2022** to a gain of **$10.9 million in 2023**[694](index=694&type=chunk) - This improvement was primarily driven by net unrealized gains on available-for-sale securities of **$6.2 million in 2023**, compared to net unrealized losses of **$(64.7) million in 2022**[694](index=694&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=142&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Redwood Trust's total equity increased to $1.20 billion in 2023, driven by stock issuances and positive other comprehensive income, offsetting a net loss and dividends. Consolidated Statements of Changes in Stockholders' Equity (2023 vs. 2022) | (In Thousands, except Share Data) | December 31, 2022 | Net (loss) | Other comprehensive income | Issuance of common stock | Employee stock purchase and incentive plans | Non-cash equity award compensation | Issuance of preferred stock | Preferred dividends declared | Common dividends declared | December 31, 2023 | | :-------------------------------- | :---------------- | :--------- | :------------------------- | :----------------------- | :------------------------------------------ | :--------------------------------- | :-------------------------- | :--------------------------- | :-------------------------- | :---------------- | | **Total Equity** | **$1,083,985** | **$(2,274)** | **$10,911** | **$123,877** | **$(4,756)** | **$19,062** | **$66,948** | **$(6,684)** | **$(88,376)** | **$1,202,693** | - Total Equity increased by **$118.7 million** from **$1.08 billion at December 31, 2022**, to **$1.20 billion at December 31, 2023**[696](index=696&type=chunk) - Key positive contributions to equity in 2023 included issuance of common stock (**$123.9 million**) and preferred stock (**$66.9 million**), and other comprehensive income (**$10.9 million**)[696](index=696&type=chunk) - Negative impacts on equity in 2023 included net loss (**$(2.3) million**), preferred dividends (**$(6.7) million**), and common dividends (**$(88.4) million**)[696](index=696&type=chunk) - In 2022, total equity decreased by **$302.1 million**, primarily due to a net loss of **$(163.5) million**, other comprehensive loss of **$(59.9) million**, and common stock repurchases of **$(56.5) million**[698](index=698&type=chunk) [Consolidated Statements of Cash Flows](index=144&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Redwood Trust's cash and cash equivalents increased by $39.4 million in 2023, driven by financing and investing activities, offsetting operating cash outflows. Consolidated Statements of Cash Flows Highlights (2023 vs. 2022 vs. 2021) | (In Thousands) | 2023 | 2022 | 2021 | | :------------------------------------------------- | :---------- | :---------- | :---------- | | Net cash used in operating activities | $(2,015,825) | $(139,140) | $(5,694,565) | | Net cash provided by investing activities | $908,720 | $213,886 | $1,404,096 | | Net cash provided by (used in) financing activities | $1,146,529 | $(276,866) | $4,277,503 | | Net increase (decrease) in cash and cash equivalents | $39,424 | $(202,120) | $(12,966) | | Cash, cash equivalents and restricted cash at end of period | $368,788 | $329,364 | $531,484 | - Net cash used in operating activities was **$(2.02) billion** in 2023, primarily due to the purchase and sale of residential mortgage loans and origination/sale of business purpose loans[520](index=520&type=chunk)[702](index=702&type=chunk) - Net cash provided by investing activities was **$908.7 million** in 2023, mainly from proceeds from principal payments and sales of investments, partially offset by new investments in BPL bridge loans and HEI[521](index=521&type=chunk)[702](index=702&type=chunk) - Net cash provided by financing activities was **$1.15 billion** in 2023, driven by **$1.59 billion in net borrowings under ABS issued** and **$124 million from common stock sales**, partially offset by debt paydowns and dividends[523](index=523&type=chunk)[705](index=705&type=chunk) - In 2022, net cash used in operating activities was **$(139.1) million**, net cash provided by investing activities was **$213.9 million**, and net cash used in financing activities was **$(276.9) million**[525](index=525&type=chunk)[526](index=526&type=chunk)[527](index=527&type=chunk)[702](index=702&type=chunk)[705](index=705&type=chunk) [Notes to Consolidated Financial Statements](index=146&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The Notes provide detailed disclosures on Redwood Trust's accounting policies, financial instruments, and segment information, offering crucial context for the financial statements. [Note 1. Organization](index=146&type=section&id=Note%201.%20Organization) Redwood Trust, Inc. is a specialty finance REIT focused on housing credit, operating in three segments and generating income from investments and mortgage banking. - Redwood Trust, Inc. is a specialty finance company focused on housing credit, providing liquidity to growing segments of the U.S. housing market[709](index=709&type=chunk) - Operates in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio[709](index=709&type=chunk) - Primary income sources are net interest income from investments and non-interest income from mortgage banking activities (loan origination, acquisition, sale, securitization)[710](index=710&type=chunk) - Elected to be taxed as a REIT since 1994; mortgage banking and MSR investments are generally conducted through taxable REIT subsidiaries (TRS)[711](index=711&type=chunk) - Acquired CoreVest in 2019 and Riverbend Funding in 2022, integrating Riverbend's operations with CoreVest[711](index=711&type=chunk) [Note 2. Basis of Presentation](index=146&type=section&id=Note%202.%20Basis%20of%20Presentation) This note outlines the basis for preparing Redwood Trust's consolidated financial statements, including consolidation principles for VIEs and significant estimates. - Consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules[712](index=712&type=chunk) - In 2023, a new line item 'HEI income, net' was added to Consolidated Statements of Income (Loss), and in 2022, 'Home equity investments, at fair value' was added to Consolidated Balance Sheets. Prior periods were conformed[713](index=713&type=chunk) - The company consolidates various securitization entities (Legacy Sequoia, Sequoia, CAFL, Freddie Mac SLST, K-Series, HEI) and Servicing Investment entities, which are independent of Redwood, and their assets/liabilities are not direct obligations of Redwood Trust, Inc.[716](index=716&type=chunk)[718](index=718&type=chunk) - The preparation of financial statements requires significant estimates, particularly for fair value measurements, credit losses, and prepayment rates, which are inherently subjective and can materially differ from actual results[719](index=719&type=chunk) - Acquired Riverbend Funding, LLC on July 1, 2022, for approximately **$44 million cash**, with a potential earnout of up to **$25.3 million** (valued at zero at Dec 31, 2023)[721](index=721&type=chunk) Riverbend Acquisition Purchase Price Allocation (as of December 31, 2023) | (In Thousands) | Amount | | :------------------------- | :-------- | | **Total consideration** | **$44,279** | | Allocated to: | | | Business purpose loans, at fair value | $59,748 | | Other investments | $2,443 | | Cash and cash equivalents | $3,490 | | Other assets | $12,982 | | Goodwill | $23,373 | | Intangible assets | $13,300 | | Total assets acquired | $115,336 | | Short-term debt, net | $67,423 | | Accrued expenses and other liabilities | $3,634 | | Total liabilities assumed | $71,057 | | **Total net assets acquired** | **$44,279** | Intangible Assets Carrying Value (as of December 31, 2023) | (In Thousands) | Carrying Value | | :------------------------- | :------------- | | Borrower network | $26,709 | | Broker network | $603 | | Non-compete agreements | $950 | | Tradenames | $200 | | Developed technology | $— | | Loan administration fees on existing loan assets | $— | | **Total** | **$28,462** | - Goodwill of **$23 million** from the Riverbend acquisition is expected to be tax-deductible and is included in the Residential Investor Mortgage Banking segment[731](index=731&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=151&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) This note details Redwood Trust's significant accounting policies, including fair value measurements, loan classifications, real estate securities, HEI, and derivative instruments. - Uses acquisition method for business combinations, allocating purchase price to fair values of acquired assets and assumed liabilities, with excess recorded as goodwill[735](index=735&type=chunk) - Fair value measurements are based on a hierarchy (Level 1, 2, 3 inputs), with significant judgment required for illiquid assets and liabilities using unobservable Level 3 inputs[736](index=736&type=chunk)[739](index=739&type=chunk) -