Financial Data and Key Metrics Changes - Net interest income (NII) was essentially flat this quarter, with a modest improvement in bridge NII offset by lower portfolio NII from securities sold and higher interest expense on new financing activities [10] - Earnings available for distribution (EAD) decreased to $7.1 million or $0.05 per basic common share for the fourth quarter, down from $12.6 million or $0.10 per share in the third quarter, primarily due to lower income from mortgage banking activities [11][12] - GAAP net income for the fourth quarter was $19.3 million or $0.15 per common share, compared to negative $32.6 million or negative $0.29 in the third quarter, resulting in a fourth quarter GAAP return on equity of 7.3% [142] Business Line Data and Key Metrics Changes - Residential Mortgage Banking experienced a modest quarter-over-quarter reduction in volume driven largely by seasonality, but maintained strategic momentum [3] - The investor loan products attracted retention from Capital Partners, with $111 million of loans distributed through whole loan sales and sales to a joint venture [6] - The multifamily bridge portfolio remains a key focus area, with borrowers managing to stabilize projects and inject fresh equity [140] Market Data and Key Metrics Changes - Over 55% of the quarter's total lock volume came from banks, up from 38% in the third quarter, indicating a shift in market dynamics [106] - The company estimates its $2.8 billion of locks in the second half of 2023 represent approximately 5% of total jumbo market share, compared to a historical range of 2% to 3% [89] - The multifamily bridge portfolio is under pressure due to higher rates, but there is optimism for recovery as sponsors work towards stabilization [140][141] Company Strategy and Development Direction - The company aims to continue opportunistic deployment of capital into products with attractive return profiles that complement its mortgage banking businesses [15] - A strategic shift towards joint ventures with leading private credit institutions is underway, enhancing liquidity and pricing power [98][99] - The company is focused on home equity investments, launching a traditional second lien mortgage product to address the largest untapped market in housing finance [103][132] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategic positioning given excess capital and the potential for market recovery as rates stabilize [19][54] - The company is optimistic about the demand for real estate and the potential for fresh capital to support recovery in its loan portfolio [38][39] - Management acknowledged the challenges in the current market but emphasized the importance of being selective and strategic in capital deployment [31][56] Other Important Information - The company achieved a 5% to 10% expense reduction in 2023 and aims for further efficiency improvements in 2024 [80][117] - The company has approximately $318 million of unencumbered assets that can serve as a potential source of capital for growth or debt repurchase [116][66] - The company completed five securitizations in the fourth quarter, enhancing its capital structure and liquidity [32][139] Q&A Session Summary Question: What is the outlook for multifamily delinquency trends? - Management acknowledged the uptick in multifamily delinquencies but expressed optimism about the underlying demand for real estate and the potential for recovery as projects stabilize [23][39] Question: Can you discuss the dynamics of the origination side and the residential consumer mortgage banking business? - Management noted that while the origination market is challenging, they feel good about their trajectory and are taking market share, supported by strong demand for their products [150][121] Question: How does the company view its capital position and deployment strategy? - Management highlighted that they have $285 million of excess capital and are well-positioned to be aggressive in capital deployment as market conditions improve [19][57]

Redwood is a Full Spectrum Residential Housing Finance Platform | --- | --- | --- | --- | --- | --- | |----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|------------------------------------------------------------------------ ...

[Fourth Quarter 2023 Financial and Operational Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Financial%20and%20Operational%20Highlights) [Key Q4 2023 Financial Results and Metrics](index=1&type=section&id=Key%20Q4%202023%20Financial%20Results%20and%20Metrics) In Q4 2023, Redwood Trust reported a GAAP net income of $19 million, or $0.15 per diluted share, a significant turnaround from the prior quarter's loss. GAAP book value per share saw a slight decrease of 1.5% to $8.64. The company's non-GAAP Earnings Available for Distribution (EAD) was $7 million, or $0.05 per share, reflecting an updated calculation methodology. The recourse leverage ratio improved to 2.2x, and a regular quarterly dividend of $0.16 per share was maintained Q4 2023 Key Financial Metrics | Metric | Q4 2023 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | GAAP Book Value per Share | $8.64 | $8.77 | -1.5% | | GAAP Net Income (to common) | $19 million | ($33 million) | N/A | | GAAP EPS (diluted) | $0.15 | ($0.29) | N/A | | EAD (non-GAAP) | $7 million | $13 million | -46.2% | | EAD per Share (non-GAAP) | $0.05 | $0.10 | -50.0% | | Recourse Leverage Ratio | 2.2x | 2.3x | Improved | | Quarterly Dividend per Share | $0.16 | $0.16 | Unchanged | - The company updated its calculation of **non-GAAP Earnings Available for Distribution (EAD)** in the fourth quarter of 2023[5](index=5&type=chunk) - The economic return on book value, which includes the change in book value plus dividends, was **0.3%** for the quarter[5](index=5&type=chunk) [Operational Business Highlights](index=1&type=section&id=Operational%20Business%20Highlights) [Residential Consumer Mortgage Banking](index=1&type=section&id=Residential%20Consumer%20Mortgage%20Banking) The Residential Consumer Mortgage Banking segment experienced a seasonal decline in jumbo loan lock volume to $1.2 billion, but increased loan purchases to $1.0 billion. Gross margins were strong at 111 basis points, exceeding the historical target range. The company significantly expanded its partnerships with depository institutions, which accounted for 56% of lock volume Jumbo Loan Activity (Q4 vs Q3 2023) | Activity | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | | Locked Volume | $1.2 billion | $1.6 billion | | Purchased Volume | $1.0 billion | $0.8 billion | | Distributed Volume | $743 million | $392 million | - Gross margins of **111bps** were achieved, surpassing the historical target range of **75bps** to **100bps**[5](index=5&type=chunk) - Partnerships with depository institutions grew, with lock volume from these partners increasing to **56%** in Q4 from **38%** in Q3[5](index=5&type=chunk) [Residential Investor Mortgage Banking](index=1&type=section&id=Residential%20Investor%20Mortgage%20Banking) This segment funded $343 million in business purpose lending (BPL) loans, down from $411 million in the prior quarter. The decrease was driven by bridge loans, while term loan fundings grew 10% quarter-over-quarter to $117 million. The company distributed $111 million of loans through whole loan sales and joint venture participations Business Purpose Lending (BPL) Activity (Q4 vs Q3 2023) | Activity | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | | Total Fundings | $343 million | $411 million | | - Bridge Fundings | $226 million | $305 million | | - Term Fundings | $117 million | $106 million | | Distributed Volume | $111 million | $61 million | [Investment Portfolio](index=2&type=section&id=Investment%20Portfolio) The Investment Portfolio deployed approximately $42 million of capital into internally sourced investments while divesting non-strategic third-party assets. Delinquency rates for reperforming loan (RPL) and jumbo securities remained stable at 8.4% and 0.2% respectively. However, 90-day+ delinquency rates for the combined CAFL securities and bridge loan portfolio increased to 4.7% from 3.9% in the previous quarter - The company focused on deploying capital into internally sourced investments while generating capital from sales of non-strategic third-party assets[9](index=9&type=chunk) 90 Day+ Delinquency Rates | Portfolio | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | | RPL Securities | 8.4% | Stable | | Jumbo Securities | 0.2% | Stable | | CAFL Securities & Bridge Loans | 4.7% | 3.9% | [Financing Highlights](index=2&type=section&id=Financing%20Highlights) Redwood strengthened its financial position by unlocking $125 million of capital through three non-recourse securitizations, which also reduced portfolio recourse leverage. The company maintained a strong liquidity position with $293 million in unrestricted cash and $2.1 billion in excess warehouse financing capacity. Additionally, it repurchased $15 million of its convertible debt at a discount to par - Completed three non-recourse securitizations, including one for **Home Equity Investments (HEI)**, one for **reperforming loans (RPL)**, and one for bridge loans, unlocking $125 million of capital[9](index=9&type=chunk) Liquidity Position at Dec 31, 2023 | Metric | Amount | | :--- | :--- | | Unrestricted Cash & Equivalents | $293 million | | Unencumbered Assets | ~$290 million | | Excess Warehouse Financing Capacity | $2.1 billion | - Repurchased $15 million of convertible debt at a discount during the quarter, contributing to a total of $193 million retired in 2023[9](index=9&type=chunk) [Q1 2024 Highlights to Date](index=2&type=section&id=Q1%202024%20Highlights%20to%20Date) Subsequent to quarter-end and through February 16, 2024, Redwood continued its capital markets activity by closing two jumbo securitizations totaling approximately $800 million, issuing $60 million of senior unsecured notes, and repurchasing an additional $18 million of convertible debt. The company's unrestricted cash position increased significantly to $396 million - Key activities in Q1 2024 (through Feb 16) include: - Closed two jumbo securitizations backed by ~$800 million of loans - Issued $60 million of senior unsecured notes due 2029 - Repurchased $18 million of convertible debt at a discount - Increased unrestricted cash and cash equivalents to $396 million[9](index=9&type=chunk) [Financial Statements and Analysis](index=5&type=section&id=Financial%20Statements%20and%20Analysis) [Consolidated Income Statements](index=6&type=section&id=Consolidated%20Income%20Statements) For Q4 2023, Redwood reported net income of $21 million, a significant recovery from a $31 million loss in Q3 2023, primarily driven by positive investment fair value changes. Net interest income remained stable at $20 million. For the full year 2023, the company recorded a net loss of $2 million, a marked improvement from a $164 million net loss in 2022, aided by stronger performance in mortgage banking and HEI income Quarterly Income Statement Highlights ($ in millions) | Account | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | | Net Interest Income | $20 | $20 | | Total Non-interest Income (Loss) | $44 | ($10) | | Net Income (Loss) | $21 | ($31) | | Net Income (Loss) to Common | $19 | ($33) | Annual Income Statement Highlights ($ in millions) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Net Interest Income | $93 | $155 | | Total Non-interest Income (Loss) | $73 | ($163) | | Net Loss | ($2) | ($164) | | Net Loss to Common | ($9) | ($164) | [Analysis of Income Statement Changes (Q4 vs Q3 2023)](index=7&type=section&id=Analysis%20of%20Income%20Statement%20Changes%20(Q4%20vs%20Q3%202023)) The swing to profitability in Q4 from Q3 was primarily caused by positive fair value changes in the Investment Portfolio, driven by declining interest rates impacting RPL securities and spread tightening on CAFL securities. This was partially offset by lower income from both the Residential Consumer and Investor Mortgage Banking segments due to seasonality and spread normalization. The company also began separately reporting 'HEI income, net,' which increased during the quarter due to improving home price trends - Net interest income remained stable quarter-over-quarter[21](index=21&type=chunk) - Positive net fair value changes on the Investment Portfolio were the primary driver of the improved quarterly results, reflecting the impact of declining rates on **RPL securities** and spread tightening on **CAFL securities**[21](index=21&type=chunk) - Income from both mortgage banking segments decreased due to seasonality in the consumer business and spread normalization in the investor business[21](index=21&type=chunk) - A new line item, 'HEI income, net', was introduced. This income increased in Q4 as home price trends continued to improve[21](index=21&type=chunk) [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2023, total assets increased to $14.5 billion from $13.0 billion at the end of Q3, driven by growth in residential loans and a corresponding increase in asset-backed securities issued. Total stockholders' equity rose to $1.20 billion from $1.11 billion, although GAAP book value per common share declined slightly to $8.64 due to an increase in shares outstanding Key Balance Sheet Items ($ in millions, except per share data) | Account | 12/31/2023 | 9/30/2023 | | :--- | :--- | :--- | | Total Assets | $14,504 | $13,021 | | Total Liabilities | $13,302 | $11,915 | | Stockholders' Equity | $1,203 | $1,106 | | GAAP Book Value per Common Share | $8.64 | $8.77 | [Non-GAAP Disclosures](index=10&type=section&id=Non-GAAP%20Disclosures) [Reconciliation of GAAP Net Income to Earnings Available for Distribution (EAD)](index=10&type=section&id=Reconciliation%20of%20GAAP%20Net%20Income%20to%20Earnings%20Available%20for%20Distribution%20(EAD)) The company's non-GAAP Earnings Available for Distribution (EAD) was $7 million ($0.05 per share) for Q4 2023, compared to $13 million ($0.10 per share) in Q3 2023. The decrease was primarily due to lower mortgage banking income. Redwood updated its EAD calculation in Q4, which now excludes all investment fair value changes (except for HEI income, which is no longer part of that line item) and realized gains/losses, among other adjustments EAD Reconciliation (Q4 vs Q3 2023, $ in millions) | Line Item | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | | GAAP Net Income to Common | $19 | ($33) | | Adjustments: | | | | Investment fair value changes, net | ($15) | $42 | | Realized (gains)/losses, net | ($1) | $0 | | Acquisition related expenses | $3 | $3 | | **EAD (non-GAAP)** | **$7** | **$13** | - In Q4 2023, the company changed its **EAD** calculation. The adjustment for 'Investment fair value changes, net' no longer includes fair value changes related to **HEI** investments, as those are now reported in a separate 'HEI income, net' line item and are included in **EAD**[26](index=26&type=chunk)

UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _______________ to _______________. Commission File Number 1-13759 REDWOOD TRUST, INC. (Exact Name of Registrant as Specified in Its Charter) Maryland 68 ...

UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _______________ to _______________. Commission File Number 1-13759 REDWOOD TRUST, INC. (Exact Name of Registrant as Specified in Its Charter) Maryland 68-0329 ...

UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _______________ to _______________. Commission File Number 1-13759 REDWOOD TRUST, INC. (Exact Name of Registrant as Specified in Its Charter) Maryland 68-032 ...

UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _______________ to _______________. Commission File Number 1-13759 (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of Incorpor ...

PART I — FINANCIAL INFORMATION [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2022, providing a detailed overview of the company's financial position and performance through various statements and 24 explanatory notes Consolidated Financial Highlights (Unaudited) | Financial Metric | Q3 2022 (in thousands) | Q3 2021 (in thousands) | Nine Months 2022 (in thousands) | Nine Months 2021 (in thousands) | |---|---|---|---|---| | Net Interest Income | $34,935 | $41,968 | $128,525 | $98,351 | | Total Non-interest (Loss) Income, Net | $(37,135) | $98,331 | $(129,359) | $346,993 | | Net (Loss) Income | $(50,411) | $88,286 | $(119,462) | $275,568 | | Diluted (Loss) Earnings per Share | $(0.44) | $0.65 | $(1.04) | $2.03 | Consolidated Balance Sheet Summary (Unaudited) | (In Thousands) | September 30, 2022 | December 31, 2021 | |---|---|---| | Total Assets | $13,145,947 | $14,706,944 | | Total Liabilities | $11,991,705 | $13,320,857 | | Total Equity | $1,154,242 | $1,386,087 | Consolidated Cash Flow Summary (Unaudited) | (In Thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | |---|---|---| | Net cash used in operating activities | $(129,432) | $(3,780,271) | | Net cash provided by investing activities | $168,959 | $1,363,013 | | Net cash (used in) provided by financing activities | $(201,923) | $2,518,514 | | Net (decrease) increase in cash | $(162,396) | $101,256 | [Note 1. Organization](index=9&type=section&id=Note%201.%20Organization) Redwood Trust, Inc. operates as a specialty finance REIT, focusing on housing credit through Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio segments, deriving income from net interest and mortgage banking activities - The company operates in **three segments**: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio[29](index=29&type=chunk) - Primary income is derived from **net interest income** on investments and **non-interest income** from mortgage banking activities, which involve originating, acquiring, and then selling or securitizing loans[30](index=30&type=chunk) [Note 2. Basis of Presentation](index=10&type=section&id=Note%202.%20Basis%20of%20Presentation) The unaudited interim financial statements adhere to SEC regulations and GAAP, incorporating significant estimates, particularly for fair value, and detail the consolidation principles for VIEs, including the acquisition of Riverbend Funding, LLC - On July 1, 2022, the company acquired Riverbend Funding LLC for an initial cash payment of approximately **$44 million**, plus potential earnout consideration[41](index=41&type=chunk) Riverbend Acquisition Purchase Price Allocation (July 1, 2022) | (In Thousands) | Amount | |---|---| | **Total consideration** | **$44,603** | | **Assets Acquired:** | | | Business purpose loans, at fair value | $59,748 | | Goodwill | $23,373 | | Intangible assets | $13,300 | | Other assets | $19,239 | | **Total assets acquired** | **$115,660** | | **Liabilities Assumed:** | | | Short-term debt, net | $67,423 | | Accrued expenses and other liabilities | $3,634 | | **Total liabilities assumed** | **$71,057** | | **Total net assets acquired** | **$44,603** | - The acquisition of Riverbend resulted in the recognition of **$23.4 million** in goodwill and **$13.3 million** in finite-lived intangible assets[43](index=43&type=chunk)[49](index=49&type=chunk) [Note 4. Principles of Consolidation](index=17&type=section&id=Note%204.%20Principles%20of%20Consolidation) This note details the company's GAAP application for consolidating Variable Interest Entities (VIEs), reporting $9.4 billion in total assets and $8.4 billion in liabilities for 64 consolidated VIEs as of September 30, 2022, while also discussing unconsolidated VIEs Assets and Liabilities of Consolidated VIEs (as of Sep 30, 2022) | (In Thousands) | Total Consolidated VIEs | |---|---| | **Total Assets** | **$9,449,163** | | Residential loans, held-for-investment | $4,918,295 | | Business purpose loans, held-for-investment | $3,531,229 | | Consolidated Agency multifamily loans | $427,458 | | **Total Liabilities** | **$8,448,479** | | Asset-backed securities issued | $8,139,293 | | Short-term debt | $233,104 | - The company's maximum loss exposure from its involvement with unconsolidated VIEs, primarily related to retained securities and MSRs, was estimated at **$118.5 million** as of September 30, 2022[99](index=99&type=chunk) [Note 5. Fair Value of Financial Instruments](index=25&type=section&id=Note%205.%20Fair%20Value%20of%20Financial%20Instruments) This note describes the methodology for determining the fair value of financial instruments using a three-level hierarchy, with many assets and liabilities, particularly Level 3, requiring significant unobservable inputs and management judgment, and provides detailed tables of fair value measurements and market valuation changes Level 3 Assets and Liabilities Measured at Fair Value (Recurring Basis, Sep 30, 2022) | (In Thousands) | Carrying Value | |---|---| | **Assets** | | | Residential loans | $5,752,524 | | Business purpose loans | $5,257,218 | | Consolidated Agency multifamily loans | $427,458 | | Real estate securities | $259,212 | | HEIs | $340,437 | | **Liabilities** | | | ABS issued | $7,564,312 | Market Valuation Gains and Losses, Net | (In Thousands) | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | |---|---|---| | Mortgage banking activities, net | $6,420 | $(38,877) | | Investment fair value changes, net | $(57,697) | $(151,789) | | Other income | $384 | $7,179 | | **Total Market Valuation Gains (Losses), Net** | **$(50,893)** | **$(183,487)** | [Note 14. Short-Term Debt](index=51&type=section&id=Note%2014.%20Short-Term%20Debt) The company utilizes **$2.11 billion** in short-term debt, including repurchase agreements and loan warehouse facilities, to finance operations, and was in compliance with all related covenants as of September 30, 2022 Short-Term Debt Summary (as of Sep 30, 2022) | Facility Type | Outstanding Balance (in thousands) | Limit (in thousands) | Weighted Avg. Interest Rate | |---|---|---|---| | Residential loan warehouse | $748,962 | $2,850,000 | 4.83% | | Business purpose loan warehouse | $775,491 | $1,750,000 | 5.67% | | Real estate securities repo | $124,435 | N/A | 3.50% | | Servicer advance financing | $233,104 | $290,000 | 4.94% | | Convertible notes, net | $197,585 | N/A | 4.75% | | **Total Short-Term Debt** | **$2,110,279** | | | [Note 16. Long-Term Debt](index=57&type=section&id=Note%2016.%20Long-Term%20Debt) This note details the company's **$1.53 billion** in long-term debt obligations as of September 30, 2022, comprising various recourse and non-recourse financing facilities, convertible senior notes, and trust preferred securities with maturities extending to 2037, including a **$215 million** issuance in June 2022 - In June 2022, the company issued **$215 million** principal amount of 7.75% convertible senior notes due 2027, receiving net proceeds of **$208 million**[295](index=295&type=chunk) Long-Term Debt Summary (as of Sep 30, 2022) | Debt Type | Net Carrying Value (in thousands) | Final Maturity | |---|---|---| | Long-Term Debt Facilities | $868,851 | 2024-2026 | | 5.625% convertible senior notes | $148,716 | 2024 | | 5.75% exchangeable senior notes | $169,323 | 2025 | | 7.75% convertible senior notes | $208,581 | 2027 | | Trust preferred securities and subordinated notes | $138,755 | 2037 | | **Total Long-Term Debt** | **$1,534,226** | | [Note 17. Commitments and Contingencies](index=60&type=section&id=Note%2017.%20Commitments%20and%20Contingencies) This note outlines the company's future financial commitments, including **$22 million** for operating leases, up to **$990 million** for bridge loans, and **$149 million** for HEI acquisitions, alongside contingencies such as a **$44 million** maximum potential payment under risk-sharing arrangements and reserves for litigation - As of September 30, 2022, the company had commitments to fund up to **$990 million** of additional advances on existing bridge loans[304](index=304&type=chunk) - The company has an aggregate commitment to purchase **$350 million** of HEIs, with **$149 million** remaining outstanding as of September 30, 2022[307](index=307&type=chunk) - A contingent consideration liability related to the Riverbend acquisition, with a maximum potential payout of **$25.3 million**, was valued at zero as of September 30, 2022[310](index=310&type=chunk) [Note 24. Segment Information](index=70&type=section&id=Note%2024.%20Segment%20Information) This note provides a financial breakdown of the company's three operating segments—Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio—all of which reported negative contributions for the nine months ended September 30, 2022, primarily due to significant unrealized mark-to-market losses, with the Investment Portfolio holding the vast majority of assets at **$11.3 billion** Segment Contribution (Nine Months Ended Sep 30, 2022) | (In Thousands) | Segment Contribution | |---|---| | Residential Mortgage Banking | $(7,371) | | Business Purpose Mortgage Banking | $(27,054) | | Investment Portfolio | $(24,049) | | Corporate/Other | $(60,988) | | **Net (Loss)** | **$(119,462)** | Total Assets by Segment (as of Sep 30, 2022) | (In Thousands) | Total Assets | |---|---| | Residential Mortgage Banking | $738,301 | | Business Purpose Mortgage Banking | $473,748 | | Investment Portfolio | $11,301,836 | | Corporate/Other | $632,062 | | **Total Assets** | **$13,145,947** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=75&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's Q3 2022 GAAP loss driven by mark-to-market adjustments in a volatile interest rate environment, detailing strategic actions, segment performance challenges, liquidity, capital resources, and debt management [Overview](index=79&type=section&id=OVERVIEW) In Q3 2022, Redwood Trust reported a GAAP loss of **$(0.44)** per share, with book value declining **5.6%** to **$10.18** per share, primarily due to unrealized fair value changes, while maintaining strong liquidity and deploying capital through acquisitions and stock repurchases amidst market challenges - GAAP book value per share declined **5.6%** quarter-over-quarter to **$10.18** at September 30, 2022, driving a GAAP loss of **$(0.44)** per share for Q3 2022[387](index=387&type=chunk) - The company maintained a strong liquidity position with **$297 million** of unrestricted cash, **$491 million** of unencumbered assets, and added **$900 million** of new financing capacity in Q3[388](index=388&type=chunk)[402](index=402&type=chunk) - Key capital deployment in Q3 included the acquisition of Riverbend Funding, LLC and the repurchase of **3.4 million** common shares for **$24 million**[388](index=388&type=chunk)[402](index=402&type=chunk) - Management expects continued challenges in the consumer residential sector due to rapidly increasing mortgage rates and low housing affordability[392](index=392&type=chunk) [Consolidated Results of Operations](index=83&type=section&id=Consolidated%20Results%20of%20Operations) For Q3 2022, Redwood reported a net loss of **$50.4 million**, a sharp reversal from Q3 2021's net income, primarily driven by a **$83.8 million** negative swing in investment fair value changes and decreased mortgage banking activities, partially offset by reduced general and administrative expenses Consolidated Net (Loss) Income Summary | (In Thousands) | Q3 2022 | Q3 2021 | Change | |---|---|---|---| | Net Interest Income | $34,935 | $41,968 | $(7,033) | | Non-interest (loss) income, net | $(37,135) | $98,331 | $(135,466) | | General and administrative expenses | $(40,107) | $(47,692) | $7,585 | | **Net (Loss) Income** | **$(50,411)** | **$88,286** | **$(138,697)** | - The decrease in income from mortgage banking activities was driven by lower volumes and margins in Residential Mortgage Banking and market volatility impacting the Business Purpose Mortgage Banking operations[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk) - Negative investment fair value changes in Q3 2022 reflected extreme credit spread widening on longer-duration, fixed-rate investments, partially offset by gains in IO securities and interest rate hedges[415](index=415&type=chunk) [Results of Operations by Segment](index=88&type=section&id=Results%20of%20Operations%20by%20Segment) All three operating segments experienced significant year-over-year declines in contribution for Q3 2022, with Residential Mortgage Banking, Business Purpose Mortgage Banking, and the Investment Portfolio reporting losses primarily due to lower volumes, market volatility, and large unrealized mark-to-market losses Segment Contribution Summary (Q3 2022 vs Q3 2021) | (In Thousands) | Q3 2022 | Q3 2021 | Change | |---|---|---|---| | Residential Mortgage Banking | $(640) | $19,406 | $(20,046) | | Business Purpose Mortgage Banking | $(3,856) | $10,837 | $(14,693) | | Investment Portfolio | $(22,404) | $71,085 | $(93,489) | | Corporate/Other | $(23,511) | $(13,042) | $(10,469) | - Residential Mortgage Banking intentionally reduced volume, with jumbo loan locks at **$461 million** in Q3 2022, down from **$3.3 billion** in Q3 2021, focusing on risk management in a challenging market[441](index=441&type=chunk)[445](index=445&type=chunk) - Business Purpose Mortgage Banking funded **$570 million** in loans in Q3 2022, with a notable shift towards bridge loans (**83%** of volume) over SFR loans (**17%**) as borrowers preferred shorter-duration products[402](index=402&type=chunk)[451](index=451&type=chunk) - The Investment Portfolio's economic investments grew to **$3.6 billion**, but its contribution was negative due to unrealized losses from credit spread widening, despite stable underlying credit performance[389](index=389&type=chunk)[468](index=468&type=chunk)[470](index=470&type=chunk) [Liquidity and Capital Resources](index=100&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of September 30, 2022, Redwood maintained a solid liquidity position with **$297 million** in unrestricted cash and **$160 million** of available capital, actively managing its **$2.86 billion** secured recourse debt, and repurchasing **$24 million** of common stock, with sufficient cash to meet operational and funding commitments - At September 30, 2022, the company had **$297 million** in unrestricted cash and an estimated **$160 million** of available capital[512](index=512&type=chunk) - The company had **$2.86 billion** of secured recourse debt, with only **$480 million** being marginable, reducing exposure to margin calls based on market value fluctuations[515](index=515&type=chunk) - In Q3 2022, the Board approved a new **$125 million** repurchase authorization for common stock and debt, and the company repurchased **3.4 million** shares for **$24 million** during the quarter[517](index=517&type=chunk)[518](index=518&type=chunk) - Material cash requirements include funding commitments of up to **$990 million** for bridge loans and **$149 million** for HEI purchases[529](index=529&type=chunk)[530](index=530&type=chunk)[531](index=531&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=107&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates by reference the market risk disclosures from the company's 2021 Annual Report on Form 10-K, indicating no material changes in market risk exposure since December 31, 2021, beyond what is discussed in the MD&A - There have been no material changes in the company's market risk exposure since December 31, 2021, beyond what is discussed in the MD&A section of this report[557](index=557&type=chunk) [Controls and Procedures](index=107&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of Q3 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[559](index=559&type=chunk) - No material changes to internal control over financial reporting occurred during the third quarter of 2022[560](index=560&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=108&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 17 of the financial statements for information on legal proceedings, indicating no significant updates to litigation matters and an aggregate loss contingency reserve of **$2 million** as of September 30, 2022 - The aggregate loss contingency reserve for outstanding litigation matters was **$2 million** as of September 30, 2022[317](index=317&type=chunk) [Risk Factors](index=108&type=section&id=Item%201A.%20Risk%20Factors) This section states that 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, 2021, indicating no new or materially changed risk factors are being reported in this 10-Q [Unregistered Sales of Equity Securities and Use of Proceeds](index=108&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell any unregistered equity securities during Q3 2022, but repurchased **3.4 million** common shares for **$24 million** under a new **$125 million** authorization approved in July 2022, with **$101 million** remaining available Common Stock Repurchases (Q3 2022) | Period | Total Shares Purchased (in thousands) | Average Price Paid per Share | Total Cost (in thousands) | |---|---|---|---| | July 2022 | — | $— | $— | | August 2022 | 1,126 | $8.07 | $9,087 | | September 2022 | 2,322 | $6.30 | $14,629 | | **Total Q3** | **3,448** | **$6.88** | **$23,716** | - A new **$125 million** repurchase authorization for common stock and debt was approved in July 2022, replacing a previous program[565](index=565&type=chunk) [Other Information](index=109&type=section&id=Item%205.%20Other%20Information) Effective November 2, 2022, the Board of Directors adopted Amended and Restated Bylaws to update provisions related to annual stockholder meetings and director nominations, and on November 3, 2022, the company amended and restated employment agreements with five executive officers - The company adopted Amended and Restated Bylaws on November 2, 2022, updating rules for stockholder meetings and director nominations[570](index=570&type=chunk) - Amended and restated employment agreements were executed with five key executive officers on November 3, 2022[572](index=572&type=chunk)

UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _______________ to _______________. Commission File Number 1-13759 REDWOOD TRUST, INC. (Exact Name of Registrant as Specified in Its Charter) (State or Other ...

Financial Performance - Q1 2022 GAAP earnings were $0.24 per diluted share, with a GAAP book value of $12.01 per share, down 0.4% from year-end 2021[375]. - Net income for the first quarter of 2022 was $30.9 million, a decrease of 68% compared to $97.3 million in the same period of 2021[394]. - Net interest income increased by $27.3 million to $53.1 million, primarily due to higher average asset balances and increased investments in bridge loans and bonds[394][395]. - Total non-interest income decreased by $115.5 million to $18.8 million, driven by a significant drop in mortgage banking activities, which fell by $66.3 million[394]. - The economic return on book value for the first quarter was 1.5%[389]. - Total interest income for the three months ended March 31, 2022, was $189,400,000, an increase of 47.8% compared to $128,305,000 in the same period of 2021[410]. - The total interest expense for the three months ended March 31, 2022, was $136,298,000, an increase of 32.9% from $102,552,000 in the same period of 2021[410]. Business Operations - Business purpose lending fundings grew 25% in Q1 2022 compared to Q4 2021, driven by record bridge originations[377]. - The company announced an agreement to acquire Riverbend Funding, expected to enhance its business purpose lending platform and operational integration within CoreVest[378]. - The company launched a new short-term rental product and closed its inaugural short-term rental portfolio loan[391]. - The company funded $920 million in business purpose loans, representing a 25% increase from the fourth quarter of 2021, with SFR loans up 38%[391]. - The company locked $2.63 billion of loans during the first quarter, with 65% being purchase-money loans and 35% refinancings[423]. - The Business Purpose Mortgage Banking segment funded $505 million in single-family rental loans and $414 million in bridge loans during the three months ended March 31, 2022, totaling $920 million in fundings[435]. Market Conditions - Mortgage rates rose approximately 1.50% in Q1 2022 due to the Fed's tightening monetary policy, impacting origination capacity across the industry[379]. - The ongoing impact of the pandemic continues to create uncertainty in the housing market and broader financial markets[372]. - The company experienced increased rate volatility and spread widening, negatively impacting margins and profitability in the Business Purpose Mortgage Banking segment[439]. Investments and Assets - The Investment Portfolio segment's total investments increased to $3.04 billion as of March 31, 2022, up from $2.69 billion at December 31, 2021[443]. - The fair value of bridge loans held-for-investment increased to $1,209,950,000 from $944,606,000, representing a growth of approximately 28.2%[471]. - The fair value of residential loans at the end of the period was $246,064,000, up from $172,048,000, indicating an increase of approximately 43%[476]. - The total fair value of other investments at the end of the period was $595,056,000, down from $606,267,000, reflecting a decrease of about 1.9%[479]. - The company had $1.10 billion of loans in inventory at the end of the period, with an additional $1.09 billion identified for purchase[424]. Cash Flow and Capital Management - The company ended Q1 2022 with over $400 million of unrestricted cash and $140 million of available capital[375]. - Cash flows from operating activities were negative $292 million for the three months ended March 31, 2022, but excluding certain cash flows, it was positive $126 million[496]. - The company declared a regular dividend of $0.23 per share for the first quarter of 2022, which was paid on March 31, 2022[501]. - The company had $37 million in federal net operating loss carryforward (NOL) into 2022, allowing it to retain REIT taxable income up to the NOL amount tax-free[484]. - The Board of Directors authorized the repurchase of up to $100 million of common stock, with $78 million remaining available for repurchase as of March 31, 2022[494]. Debt and Financial Risk - The company had $1.85 billion in total capacity for business purpose warehouse facilities, with $760 million available as of March 31, 2022[436]. - Total secured recourse debt outstanding was $2.94 billion, with $619 million being marginable and $2.32 billion non-marginable[515]. - Risks related to debt include liquidity risks from uncommitted facilities, which may not provide additional financing when needed[511]. - Several debt facilities are subject to variable interest rates based on LIBOR or SOFR, indicating potential increases in interest costs[510]. - The company actively manages various market risks, including credit risk, interest rate risk, and liquidity risk[525].