Redwood Trust(RWT) - 2022 Q1 - Quarterly Report

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].