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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: SeptemberJune 30, 20222023

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)
Maryland68-0329422
(State or Other Jurisdiction of
Incorporation or Organization)		(I.R.S. Employer
Identification No.)
One Belvedere Place, Suite 300
Mill Valley,California94941
(Address of Principal Executive Offices)(Zip Code)
(415) 389-7373
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareRWTNew York Stock Exchange
10% Series A Fixed-Rate Reset Cumulative Redeemable Preferred Stock, par value $0.01 per shareRWT PRANew York Stock Exchange
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value per share113,349,651114,234,643 shares outstanding as of November 2, 2022August 1, 2023


REDWOOD TRUST, INC.
20222023 FORM 10-Q REPORT
TABLE OF CONTENTS
 
Page
PART I —
FINANCIAL INFORMATION
Item 1.
Note 1. Organization
Note 2. Basis of Presentation
Note 3. Summary of Significant Accounting Policies
Note 4. Principles of Consolidation
Note 5. Fair Value of Financial Instruments
Note 6. Residential Loans
Note 7. Business Purpose Loans
Note 8. Consolidated Agency Multifamily Loans
Note 9. Real Estate Securities
Note 10. Home Equity Investments (HEI)
Note 11. Other Investments
Note 12. Derivative Financial Instruments
Note 13. Other Assets and Liabilities
Note 14. Short-Term Debt
Note 15. Asset-Backed Securities Issued
Note 16. Long-Term Debt
Note 17. Commitments and Contingencies
Note 18. Equity
Note 19. Equity Compensation Plans
Note 20. Mortgage Banking Activities, Net
Note 21.21. Other Income, Net
Note 22. General and Administrative Expenses, Loan Acquisition Costs, and Other22. Operating Expenses
Note 23. Taxes
Note 24. Segment Information
Item 2.
Item 3.
Item 4.
OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
i

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except Share Data)
(Unaudited)		(In Thousands, except Share Data)
(Unaudited)		September 30, 2022December 31, 2021(In Thousands, except Share Data)
(Unaudited)		June 30, 2023December 31, 2022
ASSETS (1)
ASSETS (1)
ASSETS (1)
Residential loans, held-for-sale, at fair valueResidential loans, held-for-sale, at fair value$834,262 $1,845,282 Residential loans, held-for-sale, at fair value$196,737 $780,781 
Residential loans, held-for-investment, at fair valueResidential loans, held-for-investment, at fair value4,918,294 5,747,150 Residential loans, held-for-investment, at fair value5,259,162 4,832,407 
Business purpose loans, held-for-sale, at fair valueBusiness purpose loans, held-for-sale, at fair value337,238 358,309 Business purpose loans, held-for-sale, at fair value282,836 364,073 
Business purpose loans, held-for-investment, at fair valueBusiness purpose loans, held-for-investment, at fair value4,919,980 4,432,680 Business purpose loans, held-for-investment, at fair value4,943,887 4,968,513 
Consolidated Agency multifamily loans, at fair valueConsolidated Agency multifamily loans, at fair value427,458 473,514 Consolidated Agency multifamily loans, at fair value420,096 424,551 
Real estate securities, at fair valueReal estate securities, at fair value259,212 377,411 Real estate securities, at fair value166,819 240,475 
Home equity investments340,437 192,740 
Home equity investments, at fair valueHome equity investments, at fair value427,307 403,462 
Other investmentsOther investments412,762 449,229 Other investments355,537 390,938 
Cash and cash equivalentsCash and cash equivalents297,092 450,485 Cash and cash equivalents357,308 258,894 
Restricted cashRestricted cash71,996 80,999 Restricted cash89,534 70,470 
GoodwillGoodwill23,373 — Goodwill23,373 23,373 
Intangible assetsIntangible assets44,130 41,561 Intangible assets34,677 40,892 
Derivative assetsDerivative assets65,213 26,467 Derivative assets20,436 20,830 
Other assetsOther assets194,500 231,117 Other assets219,025 211,240 
Total AssetsTotal Assets$13,145,947 $14,706,944 Total Assets$12,796,734 $13,030,899 
LIABILITIES AND EQUITY (1)
LIABILITIES AND EQUITY (1)
LIABILITIES AND EQUITY (1)
LiabilitiesLiabilitiesLiabilities
Short-term debt, netShort-term debt, net$2,110,279 $2,177,362 Short-term debt, net$1,457,122 $2,029,679 
Derivative liabilitiesDerivative liabilities6,782 3,317 Derivative liabilities2,316 16,855 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities201,125 245,788 Accrued expenses and other liabilities228,114 180,203 
Asset-backed securities issued (includes $7,564,312 and $8,843,147 at fair value), net8,139,293 9,253,557 
Asset-backed securities issued (includes $7,702,826 and $7,424,132 at fair value), netAsset-backed securities issued (includes $7,702,826 and $7,424,132 at fair value), net8,183,170 7,986,752 
Long-term debt, netLong-term debt, net1,534,226 1,640,833 Long-term debt, net1,801,874 1,733,425 
Total liabilitiesTotal liabilities11,991,705 13,320,857 Total liabilities11,672,596 11,946,914 
Commitments and Contingencies (see Note 17)
Commitments and Contingencies (see Note 17)
Commitments and Contingencies (see Note 17)
EquityEquityEquity
Common stock, par value $0.01 per share, 395,000,000 shares authorized; 113,343,014 and 114,892,309 issued and outstanding1,133 1,149 
Preferred stock, par value $0.01 per share, 2,800,000 shares authorized; 2,800,000 and zero issued and outstandingPreferred stock, par value $0.01 per share, 2,800,000 shares authorized; 2,800,000 and zero issued and outstanding66,923 — 
Common stock, par value $0.01 per share, 395,000,000 shares authorized; 114,177,992 and 113,484,675 issued and outstandingCommon stock, par value $0.01 per share, 395,000,000 shares authorized; 114,177,992 and 113,484,675 issued and outstanding1,142 1,135 
Additional paid-in capitalAdditional paid-in capital2,345,152 2,316,799 Additional paid-in capital2,358,675 2,349,845 
Accumulated other comprehensive lossAccumulated other comprehensive loss(64,935)(8,927)Accumulated other comprehensive loss(62,091)(68,868)
Cumulative earningsCumulative earnings1,197,428 1,316,890 Cumulative earnings1,157,686 1,153,370 
Cumulative distributions to stockholdersCumulative distributions to stockholders(2,324,536)(2,239,824)Cumulative distributions to stockholders(2,398,197)(2,351,497)
Total equityTotal equity1,154,242 1,386,087 Total equity1,124,138 1,083,985 
Total Liabilities and EquityTotal Liabilities and Equity$13,145,947 $14,706,944 Total Liabilities and Equity$12,796,734 $13,030,899 
——————
(1)Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to Redwood Trust, Inc. or its affiliates. At SeptemberJune 30, 20222023 and December 31, 2021,2022, assets of consolidated VIEs totaled $9,449,163$9,492,706 and $10,661,081,$9,257,291, respectively. At SeptemberJune 30, 20222023 and December 31, 2021,2022, liabilities of consolidated VIEs totaled $8,448,479$8,439,522 and $9,619,347,$8,270,276, respectively. See Note 4 for further discussion.


The accompanying notes are an integral part of these consolidated financial statements.
2

REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In Thousands, except Share Data)(In Thousands, except Share Data)Three Months Ended September 30,Nine Months Ended September 30,(In Thousands, except Share Data)Three Months Ended June 30,Six Months Ended June 30,
(Unaudited)(Unaudited)2022202120222021(Unaudited)2023202220232022
Interest IncomeInterest IncomeInterest Income
Residential loansResidential loans$61,002 $53,993 $191,252 $146,081 Residential loans$56,751 $65,047 $114,625 $130,250 
Business purpose loansBusiness purpose loans95,197 67,129 270,430 201,640 Business purpose loans98,264 80,934 195,560 175,233 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans4,762 4,846 14,247 14,492 Consolidated Agency multifamily loans4,697 4,732 9,315 9,485 
Real estate securitiesReal estate securities6,989 14,242 30,772 33,184 Real estate securities6,223 7,828 12,651 23,783 
Other interest incomeOther interest income9,712 5,512 27,816 17,325 Other interest income13,046 8,914 25,346 18,104 
Total interest incomeTotal interest income177,662 145,722 534,517 412,722 Total interest income178,981 167,455 357,497 356,855 
Interest ExpenseInterest ExpenseInterest Expense
Short-term debtShort-term debt(23,944)(11,826)(49,093)(30,794)Short-term debt(28,711)(13,661)(60,539)(25,149)
Asset-backed securities issuedAsset-backed securities issued(90,910)(73,732)(285,464)(222,712)Asset-backed securities issued(90,093)(88,859)(177,558)(194,554)
Long-term debtLong-term debt(27,873)(18,196)(71,435)(60,865)Long-term debt(34,081)(24,447)(66,867)(43,562)
Total interest expenseTotal interest expense(142,727)(103,754)(405,992)(314,371)Total interest expense(152,885)(126,967)(304,964)(263,265)
Net Interest IncomeNet Interest Income34,935 41,968 128,525 98,351 Net Interest Income26,096 40,488 52,533 93,590 
Non-interest (Loss) Income
Non-Interest Income (Loss)Non-Interest Income (Loss)
Mortgage banking activities, netMortgage banking activities, net16,535 63,163 2,833 200,189 Mortgage banking activities, net16,552 (30,017)33,223 (13,702)
Investment fair value changes, netInvestment fair value changes, net(57,697)26,077 (151,789)120,644 Investment fair value changes, net(4,596)(87,972)(4,723)(94,092)
Other income, netOther income, net4,027 2,388 17,016 8,357 Other income, net4,158 7,006 8,714 12,989 
Realized gains, netRealized gains, net— 6,703 2,581 17,803 Realized gains, net1,056 — 1,054 2,581 
Total non-interest (loss) income, net(37,135)98,331 (129,359)346,993 
Total non-interest income (loss), netTotal non-interest income (loss), net17,170 (110,983)38,268 (92,224)
General and administrative expensesGeneral and administrative expenses(40,107)(47,692)(106,927)(131,837)General and administrative expenses(30,805)(30,199)(66,360)(63,475)
Portfolio management costsPortfolio management costs(3,100)(1,767)(6,610)(3,345)
Loan acquisition costsLoan acquisition costs(2,426)(4,621)(10,371)(11,928)Loan acquisition costs(1,444)(3,480)(2,733)(7,945)
Other expensesOther expenses(4,261)(4,023)(11,814)(12,104)Other expenses(4,975)(3,468)(8,659)(7,553)
Net (Loss) Income before Benefit from (Provision for) Income Taxes(48,994)83,963 (129,946)289,475 
Net Income (Loss) before (Provision for) Benefit from Income TaxesNet Income (Loss) before (Provision for) Benefit from Income Taxes2,942 (109,409)6,439 (80,952)
(Provision for) benefit from income taxes(Provision for) benefit from income taxes(1,417)4,323 10,484 (13,907)(Provision for) benefit from income taxes(69)9,443 1,054 11,901 
Net (Loss) Income$(50,411)$88,286 $(119,462)$275,568 
Net Income (Loss)Net Income (Loss)$2,873 $(99,966)$7,493 $(69,051)
Dividends on preferred stockDividends on preferred stock(1,758)— (3,177)— 
Net Income (Loss) available (related) to common stockholdersNet Income (Loss) available (related) to common stockholders$1,115 $(99,966)$4,316 $(69,051)
Basic (loss) earnings per common share$(0.44)$0.75 $(1.04)$2.36 
Diluted (loss) earnings per common share$(0.44)$0.65 $(1.04)$2.03 
Basic weighted average shares outstanding116,087,890 112,995,847 118,530,172 112,754,691 
Diluted weighted average shares outstanding116,087,890 141,855,471 118,530,172 141,575,385 
Net income (loss) available (related) to common stockholders - BasicNet income (loss) available (related) to common stockholders - Basic$— $(0.85)$0.02 $(0.60)
Net income (loss) available (related) to common stockholders - DilutedNet income (loss) available (related) to common stockholders - Diluted$— $(0.85)$0.02 $(0.60)
Basic weighted average common shares outstandingBasic weighted average common shares outstanding114,051,017 119,660,173 113,830,347 119,771,554 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding114,445,262 119,660,173 114,255,292 119,771,554 

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


3

REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)Three Months Ended September 30,Nine Months Ended September 30,
(Unaudited)2022202120222021
Net (Loss) Income$(50,411)$88,286 $(119,462)$275,568 
Other comprehensive (loss) income:
Net unrealized (loss) gain on available-for-sale securities(8,731)(2,658)(60,013)19,552 
Reclassification of unrealized loss (gain) on available-for-sale securities to net (loss) income544 (6,200)918 (16,495)
Reclassification of unrealized loss on interest rate agreements to net (loss) income1,040 1,041 3,087 3,087 
Total other comprehensive (loss) income(7,147)(7,817)(56,008)6,144 
Total Comprehensive (Loss) Income$(57,558)$80,469 $(175,470)$281,712 

(In Thousands)Three Months Ended June 30,Six Months Ended June 30,
(Unaudited)2023202220232022
Net Income (Loss)$2,873 $(99,966)$7,493 $(69,051)
Other comprehensive income (loss):
Net unrealized (loss) gain on available-for-sale securities(688)(33,409)4,319 (51,282)
Reclassification of unrealized loss on available-for-sale securities to net income (loss)604 1,066 411 374 
Reclassification of unrealized loss on interest rate agreements to net income (loss)1,029 1,029 2,047 2,047 
Total other comprehensive income (loss)945 (31,314)6,777 (48,861)
Comprehensive Income (Loss)$3,818 $(131,280)$14,270 $(117,912)
Dividends on preferred stock$(1,758)$— $(3,177)$— 
Comprehensive income (loss) available (related) to common stockholders$2,060 $(131,280)$11,093 $(117,912)

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



4

REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


For the Three Months Ended SeptemberJune 30, 20222023
(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
(Loss)		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesAmount
June 30, 2022116,753,174 $1,168 $2,363,709 $(57,788)$1,247,839 $(2,296,837)$1,258,091 
Net (loss)— — — — (50,411)— (50,411)
Other comprehensive (loss)— — — (7,147)— — (7,147)
Employee stock purchase and incentive plans38,698 — 34 — — — 34 
Non-cash equity award compensation— — 5,068 — — — 5,068 
Share repurchases(3,448,858)(35)(23,659)— — — (23,694)
Common dividends declared ($0.23 per share)— — — — — (27,699)(27,699)
September 30, 2022113,343,014 $1,133 $2,345,152 $(64,935)$1,197,428 $(2,324,536)$1,154,242 

(In Thousands, except Share Data)Preferred StockCommon StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
(Loss)		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesPar Value
March 31, 2023$66,923 113,864,456 $1,139 $2,355,139 $(63,036)$1,156,571 $(2,379,056)$1,137,680 
Net income— — — — — 2,873 — 2,873 
Other comprehensive income— — — — 945 — — 945 
Employee stock purchase and incentive plans— 313,536 3 (1,664)— — — (1,661)
Non-cash equity award compensation— — — 5,200 — — — 5,200 
Preferred dividends declared ($0.625 per share)— — — — — (1,758)— (1,758)
Common dividends declared ($0.16 per share)(1)
— — — — — — (19,141)(19,141)
June 30, 2023$66,923 114,177,992 $1,142 $2,358,675 $(62,091)$1,157,686 $(2,398,197)$1,124,138 
For the NineSix Months Ended SeptemberJune 30, 20222023
(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
(Loss)		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesAmount
December 31, 2021114,892,309 $1,149 $2,316,799 $(8,927)$1,316,890 $(2,239,824)$1,386,087 
Net (loss)— — — — (119,462)— (119,462)
Other comprehensive (loss)— — — (56,008)— — (56,008)
Issuance of common stock5,232,869 52 67,424 — — — 67,476 
Employee stock purchase and incentive plans346,727 3 (1,151)— — — (1,148)
Non-cash equity award compensation— — 18,505 — — — 18,505 
Share repurchases(7,128,891)(71)(56,425)— — — (56,496)
Common dividends declared ($0.69 per share)— — — — — (84,712)(84,712)
September 30, 2022113,343,014 $1,133 $2,345,152 $(64,935)$1,197,428 $(2,324,536)$1,154,242 
(In Thousands, except Share Data)Preferred StockCommon StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
(Loss)		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesPar Value
December 31, 2022$— 113,484,675 $1,135 $2,349,845 $(68,868)$1,153,370 $(2,351,497)$1,083,985 
Net Income— — — — — 7,493 — 7,493 
Other comprehensive income— — — — 6,777 — — 6,777 
Employee stock purchase and incentive plans— 693,317 7 (2,712)— — — (2,705)
Non-cash equity award compensation— — — 11,542 — — — 11,542 
Issuance of preferred stock66,923 — — — — — — 66,923 
Preferred dividends declared ($1.22917 per share)— — — — — (3,177)— (3,177)
Common dividends declared ($0.39 per share)— — — — — — (46,700)(46,700)
June 30, 2023$66,923 114,177,992 $1,142 $2,358,675 $(62,091)$1,157,686 $(2,398,197)$1,124,138 

The accompanying notes are an integral part of these consolidated financial statements.
5

REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)

For the Three Months Ended SeptemberJune 30, 20212022
(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesAmount
June 30, 2021113,052,780 $1,131 $2,287,412 $9,740 $1,184,559 $(2,187,700)$1,295,142 
Net income— — — — 88,286 — 88,286 
Other comprehensive income— — — (7,817)— — (7,817)
Issuance of common stock1,585,709 16 19,810 — — — 19,826 
Direct stock purchase and dividend reinvestment plan— — 153 — — — 153 
Employee stock purchase and incentive plans23,273 — — — — — — 
Non-cash equity award compensation— — 4,897 — — — 4,897 
Common dividends declared ($0.21 per share)— — — — — (24,664)(24,664)
September 30, 2021114,661,762 $1,147 $2,312,272 $1,923 $1,272,845 $(2,212,364)$1,375,823 
(In Thousands, except Share Data)Preferred StockCommon StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
(Loss)		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesPar Value
March 31, 2022— 120,289,243 $1,203 $2,391,344 $(26,474)$1,347,805 $(2,268,612)$1,445,266 
Net (loss)— — — — — (99,966)— (99,966)
Other comprehensive (loss)— — — — (31,314)— — (31,314)
Employee stock purchase and incentive plans— 143,964 1 (135)— — — (134)
Non-cash equity award compensation— — — 5,266 — — — 5,266 
Share repurchases(3,680,033)(36)(32,766)— — — (32,802)
Common dividends declared ($0.23 per share)(1)
— — — — — — (28,225)(28,225)
June 30, 2022— 116,753,174 $1,168 $2,363,709 $(57,788)$1,247,839 $(2,296,837)$1,258,091 

(1)    Includes dividends and dividend equivalents declared on common stock and stock-based awards
For the NineSix Months Ended SeptemberJune 30, 20212022
(In Thousands, except Share Data)Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesAmount
December 31, 2020112,090,006 $1,121 $2,264,874 $(4,221)$997,277 $(2,148,152)$1,110,899 
Net income— — — — 275,568 — 275,568 
Other comprehensive income— — — 6,144 — — 6,144 
Issuance of common stock2,391,777 24 33,176 — — — 33,200 
Employee stock purchase and incentive plans179,979 2 (536)— — — (534)
Non-cash equity award compensation— — 14,758 — — — 14,758 
Common dividends declared ($0.55 per share)— — — — — (64,212)(64,212)
September 30, 2021114,661,762 $1,147 $2,312,272 $1,923 $1,272,845 $(2,212,364)$1,375,823 

(In Thousands, except Share Data)Preferred StockCommon StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Cumulative
 Earnings		Cumulative
Distributions
to Stockholders		Total
(Unaudited)SharesAmount
December 31, 2022— 114,892,309 $1,149 $2,316,799 $(8,927)$1,316,890 $(2,239,824)$1,386,087 
Net (loss)— — — — — (69,051)— (69,051)
Other comprehensive (loss)— — — — (48,861)— — (48,861)
Issuance of common stock— 5,232,869 52 67,423 — — — 67,475 
Employee stock purchase and incentive plans— 308,029 3 (1,183)— — — (1,180)
Non-cash equity award compensation— — — 13,436 — — — 13,436 
Share repurchases(3,680,033)(36)(32,766)— — — (32,802)
Common dividends declared ($0.46 per share)— — — — — — (57,013)(57,013)
June 30, 2022— 116,753,174 $1,168 $2,363,709 $(57,788)$1,247,839 $(2,296,837)$1,258,091 

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

6

REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)		(In Thousands)
(Unaudited)		Nine Months Ended September 30,(In Thousands)
(Unaudited)		Six Months Ended June 30,
2022202120232022
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net (loss) income$(119,462)$275,568 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Amortization of premiums, discounts, and securities issuance costs, net2,041 300 
Net income (loss)Net income (loss)$7,493 $(69,051)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of premiums, discounts, and debt issuance costs, netAmortization of premiums, discounts, and debt issuance costs, net10,190 (2,538)
Depreciation and amortization of non-financial assetsDepreciation and amortization of non-financial assets12,115 12,674 Depreciation and amortization of non-financial assets7,333 7,710 
Originations of held-for-sale loansOriginations of held-for-sale loans(913,477)(960,419)Originations of held-for-sale loans(360,273)(766,852)
Purchases of held-for-sale loansPurchases of held-for-sale loans(3,734,972)(9,902,028)Purchases of held-for-sale loans(242,235)(3,395,459)
Proceeds from sales of held-for-sale loansProceeds from sales of held-for-sale loans4,110,949 6,948,264 Proceeds from sales of held-for-sale loans582,346 3,376,600 
Principal payments on held-for-sale loansPrincipal payments on held-for-sale loans160,985 49,619 Principal payments on held-for-sale loans38,820 114,731 
Net settlements of derivativesNet settlements of derivatives158,868 27,412 Net settlements of derivatives(17,235)112,649 
Non-cash equity award compensation expenseNon-cash equity award compensation expense18,505 14,758 Non-cash equity award compensation expense11,542 13,436 
Market valuation adjustmentsMarket valuation adjustments183,487 (292,056)Market valuation adjustments(17,594)132,594 
Realized gains, net(2,581)(17,803)
Realized (gains) losses, netRealized (gains) losses, net(1,054)(2,581)
Net change in:Net change in:Net change in:
Accrued interest receivable and other assets56,156 (9,680)
Accrued interest payable and accrued expenses and other liabilities(62,046)73,120 
Net cash used in operating activities(129,432)(3,780,271)
Other assetsOther assets3,358 63,829 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities878 (75,856)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities23,569 (490,788)
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Originations of loan investmentsOriginations of loan investments(1,377,714)(557,327)Originations of loan investments(455,665)(954,179)
Purchases of loan investmentsPurchases of loan investments(22,006)(35,713)Purchases of loan investments— (22,006)
Proceeds from sales of loan investments— 9,484 
Principal payments on loan investmentsPrincipal payments on loan investments1,666,514 1,950,151 Principal payments on loan investments725,687 1,160,403 
Purchases of real estate securitiesPurchases of real estate securities(15,006)(29,342)Purchases of real estate securities(9,855)(15,006)
Sales of securities held in consolidated securitization trusts— 8,197 
Proceeds from sales of real estate securitiesProceeds from sales of real estate securities27,471 37,500 Proceeds from sales of real estate securities98,338 23,329 
Principal payments on real estate securitiesPrincipal payments on real estate securities26,584 46,904 Principal payments on real estate securities637 26,033 
Principal repayments from servicer advance investments, net65,772 58,248 
Acquisition of Riverbend, net of cash acquired(40,636)— 
Repayments from servicer advance investments, netRepayments from servicer advance investments, net37,268 71,401 
Purchases of HEIsPurchases of HEIs(176,439)(109,174)Purchases of HEIs(25,513)(97,389)
Principal payments on HEIs35,187 — 
Repayments on HEIsRepayments on HEIs17,031 25,826 
Other investing activities, netOther investing activities, net(20,768)(15,915)Other investing activities, net(1,677)(14,573)
Net cash provided by investing activitiesNet cash provided by investing activities168,959 1,363,013 Net cash provided by investing activities386,251 203,839 
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Proceeds from borrowings on short-term debtProceeds from borrowings on short-term debt4,149,726 9,847,178 Proceeds from borrowings on short-term debt1,033,741 3,450,606 
Repayments on short-term debtRepayments on short-term debt(5,192,165)(8,443,664)Repayments on short-term debt(1,593,853)(4,125,634)
Proceeds from issuance of asset-backed securitiesProceeds from issuance of asset-backed securities1,420,289 2,822,785 Proceeds from issuance of asset-backed securities635,081 1,167,711 
Repayments on asset-backed securities issuedRepayments on asset-backed securities issued(1,288,294)(1,549,766)Repayments on asset-backed securities issued(446,451)(954,136)
Proceeds from borrowings on long-term debtProceeds from borrowings on long-term debt1,678,805 948,674 Proceeds from borrowings on long-term debt311,278 1,424,088 
Deferred long-term debt issuance costs paidDeferred long-term debt issuance costs paid(17,925)— Deferred long-term debt issuance costs paid(1,329)(17,363)
Repayments on long-term debtRepayments on long-term debt(873,820)(1,055,475)Repayments on long-term debt(244,908)(726,076)
Payments on repurchase of common stockPayments on repurchase of common stock(56,496)— Payments on repurchase of common stock— (26,857)
Taxes paid on equity award distributionsTaxes paid on equity award distributions(1,571)(957)Taxes paid on equity award distributions(3,017)(1,477)
Net proceeds from issuance of common stockNet proceeds from issuance of common stock67,899 20,248 Net proceeds from issuance of common stock312 67,770 
Dividends paid(84,712)(64,212)
Net proceeds from issuance of preferred stockNet proceeds from issuance of preferred stock66,923 — 
Dividends paid on common stockDividends paid on common stock(46,700)(57,013)
Dividends paid on preferred stockDividends paid on preferred stock(1,699)— 
Other financing activities, netOther financing activities, net(3,659)(6,297)Other financing activities, net(1,720)(2,300)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(201,923)2,518,514 Net cash (used in) provided by financing activities(292,342)199,319 
Net (decrease) increase in cash, cash equivalents and restricted cash(162,396)101,256 
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash117,478 (87,630)
Cash, cash equivalents and restricted cash at beginning of period (1)
Cash, cash equivalents and restricted cash at beginning of period (1)
531,484 544,450 
Cash, cash equivalents and restricted cash at beginning of period (1)
329,364 531,484 
Cash, cash equivalents and restricted cash at end of period (1)
Cash, cash equivalents and restricted cash at end of period (1)
$369,088 $645,706 
Cash, cash equivalents and restricted cash at end of period (1)
$446,842 $443,854 
7


REDWOOD TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In Thousands)
(Unaudited)		(In Thousands)
(Unaudited)		Nine Months Ended September 30,(In Thousands)
(Unaudited)		Six Months Ended June 30,
2022202120232022
Supplemental Cash Flow Information:Supplemental Cash Flow Information:Supplemental Cash Flow Information:
Cash paid during the period for:Cash paid during the period for:Cash paid during the period for:
Interest Interest$378,691 $298,507  Interest$287,699 $247,968 
Taxes paid3,894 28,092 
Taxes (refunded) paid Taxes (refunded) paid(1,049)3,894 
Supplemental Noncash Information:Supplemental Noncash Information:Supplemental Noncash Information:
Real estate securities retained from loan securitizations$— $9,375 
Dividends declared but not paid on preferred stockDividends declared but not paid on preferred stock1,478 — 
Retention of mortgage servicing rights from loan securitizations and salesRetention of mortgage servicing rights from loan securitizations and sales4,543 7,065 Retention of mortgage servicing rights from loan securitizations and sales— 4,543 
Transfers from loans held-for-sale to loans held-for-investmentTransfers from loans held-for-sale to loans held-for-investment2,643,027 3,005,041 Transfers from loans held-for-sale to loans held-for-investment1,137,194 1,953,421 
Transfers from loans held-for-investment to loans held-for-sale— 44,922 
Transfers from residential loans to real estate ownedTransfers from residential loans to real estate owned4,033 21,655 Transfers from residential loans to real estate owned11,874 3,132 
Operating lease right-of-use assets obtained in exchange for operating lease liabilitiesOperating lease right-of-use assets obtained in exchange for operating lease liabilities337 — 
Reduction in operating lease liabilities due to lease modificationReduction in operating lease liabilities due to lease modification274 — 
Transfers from long-term debt to short-term debtTransfers from long-term debt to short-term debt908,627 93,150 Transfers from long-term debt to short-term debt— 367,431 
Right-of-use asset obtained in exchange for operating lease liability— 1,135 
Issuance of common stock for 5 Arches acquisition— 13,375 
(1)    Cash, cash equivalents, and restricted cash includes cash and cash equivalents of $297$357 million and restricted cash of $72$90 million at SeptemberJune 30, 2022,2023, and includes cash and cash equivalents of $450$371 million and restricted cash of $81$73 million at December 31, 2021.June 30, 2022.

The accompanying notes are an integral part of these consolidated financial statements.
8

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)



Note 1. Organization
Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit, with a mission to help make quality housing, whether rented or owned, accessible to all American households. Our operating platforms occupy a unique position in the housing finance value chain, providing liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors through our best-in-class securitization platforms, whole-loan distribution activities and our publicly-traded securities. Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential, business purpose and multifamily assets. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. We operate our business in three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio.
Our primary sources of income are net interest income from our investments and non-interest income from our mortgage banking activities. Net interest income primarily consists of the interest income we earn on investments less the interest expense we incur on borrowed funds and other liabilities. Income from mortgage banking activities is generated through the origination and acquisition of loans, and their subsequent sale, securitization, or transfer to our investment portfolios.portfolio.
Redwood Trust, Inc. has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), beginning with its taxable year ended December 31, 1994. We generally refer, collectively, to Redwood Trust, Inc. and those of its subsidiaries that are generally not subject to subsidiary-level corporate income tax as “the REIT” or “our REIT.” We generally refer to subsidiaries of Redwood Trust, Inc. that are subject to subsidiary-level corporate income tax as “our taxable REIT subsidiaries” or “TRS.”
Redwood Trust, Inc. was incorporated in the State of Maryland on April 11, 1994, and commenced operations on August 19, 1994. References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires. For a full description of our business, see Part I, Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2022.

9

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 2. Basis of Presentation
The consolidated financial statements presented herein are at SeptemberJune 30, 20222023 and December 31, 2021,2022, and for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022. These interim unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") — as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) — have been condensed or omitted in these interim financial statements according to these SEC rules and regulations. Management believes that the disclosures included in these interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company's Annual Report on Form 10-K for the year ended December 31, 2021.2022. In the opinion of management, all normal and recurring adjustments have been made to present fairly the financial condition of the Company at SeptemberJune 30, 20222023 and results of operations for all periods presented. The results of operations for the three and ninesix months ended SeptemberJune 30, 20222023 should not be construed as indicative of the results to be expected for the full year.
9

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 2. Basis of Presentation - (continued)
Principles of Consolidation
In accordance with GAAP, we determine whether we must consolidate transferred financial assets and variable interest entities (“VIEs”) for financial reporting purposes. We currently consolidate the assets and liabilities of certain Sequoia securitization entities issued prior to 2012 ("Legacy Sequoia"), certain entities formed during and after 2012 in connection with the securitization of Redwood Select prime loans and Redwood Choice expanded-prime loans ("Sequoia"), entities formed in connection with the securitization of CoreVest single-family rentalBPL term and bridge loans ("CAFL") and an entity formed in connection with the securitization of home equity investment contracts ("HEIs"). We also consolidate the assets and liabilities of certain Freddie Mac K-Series and Freddie Mac Seasoned Loans Structured Transaction ("SLST") securitizations in which we have invested. Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood Trust, Inc. Our exposure to these entities is primarily through the financial interests we have purchased or retained, although for certain entities we are exposed to financial risks associated with our role as a sponsor or co-sponsor, servicing administrator, collateral administrator or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.
For financial reporting purposes, the underlying loans owned at the consolidated Legacy Sequoia, Sequoia and Freddie Mac SLST entities are shown under Residential loans held-for-investment, at fair value, the underlying loans at the consolidated Freddie Mac K-Series entity are shown under Consolidated Agency multifamily loans, at fair value, the underlying single-family rentalBPL term and bridge loans at the consolidated CAFL entities are shown under Business purpose loans held-for-investment, at fair value, and the underlying HEIs at the consolidated HEI securitization entity are shown under Home equity investments, at fair value on our consolidated balance sheets. The asset-backed securities (“ABS”) issued to third parties by these entities are shown under ABS issued. In our consolidated statements of income, we record interest income on the loans owned at these entities and interest expense on the ABS issued by these entities as well as fair value changes, other income and expenses associated with these entities' activities. See Note 15 for further discussion on ABS issued.
We also consolidate two partnerships ("Servicing Investment" entities) through which we have invested in servicing-related assets. We maintain an 80% ownership interest in each entity and have determined that we are the primary beneficiary of these partnerships.
See Note 4 for further discussion on principles of consolidation.
Use of Estimates
The preparation of financial statements requires us to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amounts and timing of credit losses, prepayment rates, valuation allowances, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.
10

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 2. Basis of Presentation - (continued)
Acquisitions
Riverbend Funding, LLC
On July 1, 2022, we acquired Riverbend Funding LLC ("Riverbend"), a private mortgage lender for residential transitional and commercial real estate investors. Aggregate consideration for this acquisition included an initial cash payment of approximately $44 million (with a remaining estimated provisional purchase consideration payable subject to reconciliation and final settlement), and a potential earnout component to be paid contingent on Riverbend generating specified revenues over a threshold amount during the two-year period ending July 1, 2024, up to a maximum potential amount payable of $25.3 million. Based on the terms of the merger agreement, we determined that the earnout component should be accounted for as contingent purchase consideration, which was valued at zero at the acquisition.
We accounted for the acquisition of Riverbend under the acquisition method of accounting pursuant to ASC 805. We performed the purchase price allocation and recorded underlying assets acquired and liabilities assumed based on their estimated fair values using the information available as of each acquisition date, with the excess of the purchase price allocated to intangible assets and goodwill. Through September 30, 2022, there were no significant changes to our purchase price allocations, which are summarized in the following table.
Table 2.1 - Purchase Price Allocation
(In Thousands)Riverbend
Acquisition DateJuly 1, 2022
Purchase price:
Cash$44,126 
Provisional consideration payable477 
Contingent consideration, at fair value— 
Total consideration$44,603 
Allocated to:
Business purpose loans, at fair value$59,748 
Other investments2,443 
Cash and cash equivalents3,490 
Other assets13,306 
Goodwill23,373 
Intangible assets13,300 
Total assets acquired115,660 
Short-term debt, net67,423 
Accrued expenses and other liabilities3,634 
Total liabilities assumed71,057 
Total net assets acquired$44,603 
We recognized $1 million of acquisition costs related to our acquisition of Riverbend during the nine months ended September 30, 2022. These costs primarily related to accounting, consulting, and legal expenses and are included in our General and administrative expenses on our consolidated statements of income (loss).
5 Arches and CoreVest
Refer toNote 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022 for additional information regarding the acquisitions of 5 Arches, LLC ("5 Arches") and CoreVest American Finance Lender, LLC and certain affiliated entities ("CoreVest"),this acquisition, including purchase price allocations.
11

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 2. Basis of Presentation - (continued)
Intangible Assets and Goodwill
In connection with the acquisition of Riverbend on July 1, 2022, and Additionally, in 2019 we acquired 5 Arches and CoreVest, in 2019,an originator and portfolio manager of business purpose residential loans. In connection with these acquisitions, we identified and recorded finite-lived intangible assets totaling $13 million, $25 million and $57 million, respectively.$95 million. The table below presents the amortization period and carrying value of our intangible assets, net of accumulated amortization at SeptemberJune 30, 2022.2023.
Table 2.22.1 – Intangible Assets – Activity
Intangible Assets at AcquisitionAccumulated Amortization at September 30, 2022Carrying Value at September 30, 2022Weighted Average Amortization Period (in years)Intangible Assets at AcquisitionAccumulated Amortization at June 30, 2023Carrying Value at June 30, 2023Weighted Average Amortization Period (in years)
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Borrower networkBorrower network$56,300 $(19,537)$36,763 7Borrower network$56,300 $(25,570)$30,730 7
Broker networkBroker network18,100 (12,972)5,128 5Broker network18,100 (15,687)2,413 5
Non-compete agreementsNon-compete agreements11,400 (9,567)1,833 3Non-compete agreements11,400 (10,133)1,267 3
TradenamesTradenames4,400 (3,994)406 3Tradenames4,400 (4,133)267 3
Developed technologyDeveloped technology1,800 (1,800)— 2Developed technology1,800 (1,800)— 2
Loan administration fees on existing loan assetsLoan administration fees on existing loan assets2,600 (2,600)— 1Loan administration fees on existing loan assets2,600 (2,600)— 1
TotalTotal$94,600 $(50,470)$44,130 6Total$94,600 $(59,923)$34,677 6
All of our intangible assets are amortized on a straight-line basis. For the three and ninesix months ended SeptemberJune 30, 2023, we recorded intangible asset amortization expense of $6 million. For the six months ended June 30, 2022, we recorded intangible asset amortization expense of $4 million and $11 million, respectively. For the three and nine months ended September 30, 2021, we recorded intangible asset amortization expense of $4 million and $12 million, respectively.$7 million. Estimated future amortization expense is summarized in the table below.
Table 2.32.2 – Intangible Asset Amortization Expense by Year
(In Thousands)(In Thousands)September 30, 2022(In Thousands)June 30, 2023
2022 (3 months)$3,238 
202312,430 
2023 (6 months)2023 (6 months)$6,216 
202420249,413 20249,412 
202520258,426 20258,426 
202620266,695 20266,694 
2027 and thereafter3,928 
202720271,571 
2028 and thereafter2028 and thereafter2,358 
Total Future Intangible Asset AmortizationTotal Future Intangible Asset Amortization$44,130 Total Future Intangible Asset Amortization$34,677 

On a quarterly basis, we evaluate our finite-lived intangible assets for impairment indicators and additionally evaluate the useful lives of our intangible assets to determine if revisions to the remaining periods of amortization are warranted. We reviewed our finite-lived intangible assets and determined that the estimated lives were appropriate and that there were no indicators of impairment at SeptemberJune 30, 2022.2023.

We recorded total goodwill of $23 million during the three months ended September 30, 2022 as a result of the total consideration exceeding the fair value of the net assets acquired from Riverbend. The goodwill was attributed to the expected business synergies and expansion into new business purpose loan markets, as well as access to the knowledgeable and experienced workforce continuing to provide complementary sourcing of assets for the business. We expect $23 million of this goodwill to be deductible for tax purposes. For reporting purposes, we included the intangible assets and goodwill from these acquisitionsthe Riverbend acquisition within our Business Purpose Mortgage Banking segment.



 There were no changes to the balance of goodwill during the three months ended June 30, 2023.


1211

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 2. Basis of Presentation - (continued)

Table 2.4 – Goodwill - Activity

(In Thousands)Riverbend
Beginning Balance$— 
Goodwill recognized from acquisition23,373 
Impairment— 
Ending Balance$23,373 

The potential liability resulting from the contingent consideration arrangement with Riverbend was recorded at its acquisition-date fair value of zero as part of the total consideration for the acquisition of Riverbend. At SeptemberJune 30, 2022,2023, the estimated fair value of this contingent liability was zero on our consolidated balance sheets. Our contingent consideration liability is recorded at fair value and periodic changes in the estimated fair value are recorded through Other expenses on our consolidated statements of income (loss).income. During the periodsix months ended SeptemberJune 30, 2022,2023, we did not record any contingent consideration income or expense related to our acquisition of Riverbend. See Note 17 for additional information on our contingent consideration liability.

The following unaudited pro forma financial information presents Net interest income, Non-interest income, and Net income of Redwood, as if the acquisition of Riverbend occurred as of January 1, 2021.2022. These pro forma amounts have been adjusted to include the amortization of intangible assets for all periods. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated financial results of operations that would have been reported if the acquisition had been completed as of January 1, 20212022 and should not be taken as indicative of our future consolidated results of operations.

During the period from July 1, 2022 to September 30, 2022, Riverbend had net interest income of $1 million, non-interest income of $0.5 million, and a net loss of $1 million, which included intangible asset amortization expense of 0.6 million.

Table 2.52.3 – Unaudited Pro Forma Financial Information

Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2022202120222021
Supplementary pro forma information:
Net interest income$34,935 $43,174 $132,475 $100,570 
Non-interest (loss) income(37,135)102,436 (121,614)355,456 
Net (loss) income(50,411)89,923 (117,090)278,134 
13

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
(In Thousands)
Supplementary pro forma information:
Net interest income$42,726 $97,540 
Non-interest (loss) income(106,880)(84,479)
Net (loss) income(99,359)(67,131)



Note 3. Summary of Significant Accounting Policies

Significant Accounting Policies
Included in Note 3 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 20212022 is a summary of our significant accounting policies.
Recent Accounting Pronouncements
Newly Adopted Accounting StandardsStandard Updates ("ASUs")
In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)." This new guidance simplifies the accounting for convertible debt by reducing the number of accounting models to separately present certain conversion features in equity. This new guidance was effective for fiscal years beginning after December 31, 2021. We adopted this guidance in the first quarter of 2022, which did not have a material impact on our consolidated financial statements.
Other Recent Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 was issued to (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the accounting and disclosure requirements of ASU 2022-03 and we plan to adopt this new guidance by the required date. We do not anticipate that this update will have a material impact on our financial statements.
In March 2022, the FASB issued ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures." ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the current expected credit loss ("CECL") model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross writeoffs for financing receivables and net investment in leases by year of origination in the vintage disclosures. This new guidance iswas effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted.31, 2022. We plan to adoptadopted this new guidance byin the required date and dofirst quarter of 2023, which did not anticipate that this update will have a material impact on our consolidated financial statements.
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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method," which will expand companies' abilities to hedge the benchmark interest rate risk of portfolios of financial assets (or beneficial interests) in a fair value hedge. The ASU expands the use of the portfolio layer method (previously referred to as the last-of-layer method) to allow multiple hedges of a single closed portfolio of assets using spot starting, forward starting, and amortizing-notional swaps. The ASU also permits both prepayable and non-prepayable financial assets to be included in the closed portfolio of assets hedged in a portfolio layer hedge. The ASU further requires that basis adjustments not be allocated to individual assets for active portfolio layer method hedges, but rather be maintained on the closed portfolio of assets as a whole. This new guidance iswas effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted.31, 2022. We plan to adoptadopted this new guidance byin the required date and dofirst quarter of 2023, which did not anticipate that this update will have a material impact on our consolidated financial statements.
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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30,In December 2022,
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
In March 2020, the FASB issued ASU 2020-04,2022-06, "Reference Rate Reform (Topic 848): Facilitation - Deferral of the EffectsSunset Date of Reference Rate Reform on Financial Reporting.Topic 848." This new guidance provides optional expedients and exceptions for applying GAAPdefers the sunset date of Topic 848 from December 31, 2022, to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021,December 31, 2024, after which entities will no longer be permitted to apply the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." This newrelief in Topic 848. The objective of the guidance clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting applyis to derivatives that are affected byprovide temporary relief during the discounting transition. This new guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact the adoption of this standard would have on our consolidated financial statements.transition period. Through SeptemberJune 30, 2022,2023, we have not elected to apply the optional expedients and exceptions to any of our existing contracts, hedging relationships, or other transactions.
Other Recent Accounting Pronouncements Pending Adoption
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 was issued (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the accounting and disclosure requirements of ASU 2022-03 and we plan to adopt this new guidance by the required date. We do not anticipate that this update will have an established cross-functional group that has evaluateda material impact on our exposure to LIBOR, reviewed relevant contracts and has monitored regulatory updates to assessfinancial statements.
In anticipation of the potential impact to our business, processes and technology from the ultimate full cessation of LIBOR in 2023, and haswe established a LIBOR transition plan to facilitate an orderly transition to alternative reference rates. We continue to remain on track with our LIBOR transition plan, which requires different solutions depending on the underlying asset or liability with LIBOR exposure. At SeptemberJune 30, 2022,2023, our primary LIBOR exposure included the following: $689 million of repo or warehouse debt, $37 million of interest rate swaps, $757$703 million of bridge loans and $140 million of trust preferred securities and subordinated notes debt. Since December 31, 2021, certain of our contracts, such as interest rate swaps, have experienced an orderly market transition and we have transitioned a substantial portion of our derivative positions off of LIBOR-benchmarks. Other contracts, such as warehouse debt agreements, require bilateral amendments, many of which we have amended or are currently in the process of amending.
We anticipate most of these facilities will be amended in 2022, with sufficient time remaining to resolve the remainder, which also have fallback provisions for benchmark replacement. In early 2022, we began benchmarking all newly originated BPL bridge loans to the Secured Overnight Financing Rate (“SOFR”), and our existing portfolio ofSOFR. The legacy LIBOR-indexed BPL bridge loans are short-dated and we expect the vast majority to mature before the LIBOR cessation date in 2023. have outstanding have fallback provisions for benchmark rate replacement. Additionally, as a result of legislation that was passed in the state of New York, our trust preferred securities and subordinated notes are expected to convert to SOFR upon the cessation of LIBOR.
Balance Sheet Netting
Certain of our derivatives and short-term debt are subject to master netting arrangements or similar agreements. Under GAAP, in certain circumstances we may elect to present certain financial assets, liabilities and related collateral subject to master netting arrangements in a net position on our consolidated balance sheets. However, we do not report any of these financial assets or liabilities on a net basis, and instead present them on a gross basis on our consolidated balance sheets.
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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
The following table presents financial assets and liabilities that are subject to master netting arrangements or similar agreements categorized by financial instrument, together with corresponding financial instruments and corresponding collateral received or pledged at SeptemberJune 30, 20222023 and December 31, 2021.

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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
2022.
Table 3.1 – Offsetting of Financial Assets, Liabilities, and Collateral
Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet
Gross Amounts Not Offset in Consolidated
Balance Sheet (1)
Net AmountGross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet
Gross Amounts Not Offset in Consolidated
Balance Sheet (1)
Net Amount
September 30, 2022 (In Thousands)Financial InstrumentsCash Collateral (Received) Pledged
June 30, 2023 (In Thousands)June 30, 2023 (In Thousands)Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance SheetFinancial InstrumentsCash Collateral (Received) PledgedNet Amount
Assets (2)
Assets (2)
Assets (2)
Interest rate agreementsInterest rate agreements$24,626 $— $24,626 $(23)$(7,638)$16,965 Interest rate agreements$10,126 $— $10,126 $— $(5,140)$4,986 
TBAsTBAs13,568 — 13,568 (529)(12,077)962 TBAs3,536 — 3,536 (920)(2,066)550 
FuturesFutures26,275 — 26,275 (2)(10,675)15,598 Futures3,333 — 3,333 — — 3,333 
Total AssetsTotal Assets$64,469 $— $64,469 $(554)$(30,390)$33,525 Total Assets$16,995 $— $16,995 $(920)$(7,206)$8,869 
Liabilities (2)
Liabilities (2)
Liabilities (2)
Interest rate agreements$(23)$— $(23)$23 $— $— 
TBAsTBAs(6,545)— (6,545)529 1,280 (4,736)TBAs$(920)$— $(920)$920 $— $— 
FuturesFutures(2)— (2)2 — — Futures— — — — — — 
Loan warehouse debtLoan warehouse debt(224,370)— (224,370)224,370 — — Loan warehouse debt(32,602)— (32,602)32,602 — — 
Total LiabilitiesTotal Liabilities$(230,940)$— $(230,940)$224,924 $1,280 $(4,736)Total Liabilities$(33,522)$— $(33,522)$33,522 $— $— 
Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet
Gross Amounts Not Offset in Consolidated
Balance Sheet (1)
Net AmountGross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance Sheet
Gross Amounts Not Offset in Consolidated
Balance Sheet (1)
Net Amount
December 31, 2021 (In Thousands)Financial InstrumentsCash Collateral (Received) Pledged
December 31, 2022 (In Thousands)December 31, 2022 (In Thousands)Gross Amounts of Recognized Assets (Liabilities)Gross Amounts Offset in Consolidated Balance SheetNet Amounts of Assets (Liabilities) Presented in Consolidated Balance SheetFinancial InstrumentsCash Collateral (Received) PledgedNet Amount
Assets (2)
Assets (2)
Assets (2)
Interest rate agreementsInterest rate agreements$18,929 $— $18,929 $(1,251)$(16,046)$1,632 Interest rate agreements$14,625 $— $14,625 $— $(5,944)$8,681 
TBAsTBAs2,880 — 2,880 (633)(704)1,543 TBAs1,893 — 1,893 (1,873)— 20 
FuturesFutures25 — 25 (25)— — Futures3,976 — 3,976 (57)— 3,919 
Total AssetsTotal Assets$21,834 $— $21,834 $(1,909)$(16,750)$3,175 Total Assets$20,494 $— $20,494 $(1,930)$(5,944)$12,620 
Liabilities (2)
Liabilities (2)
Liabilities (2)
Interest rate agreements$(1,251)$— $(1,251)$1,251 $— $— 
TBAsTBAs$(658)$— $(658)$633 $15 $(10)TBAs$(16,784)$— $(16,784)$1,873 $4,518 $(10,393)
FuturesFutures(905)— (905)25 880 — Futures(57)— (57)57 — — 
Loan warehouse debtLoan warehouse debt(572,720)— (572,720)572,720 — — Loan warehouse debt(224,695)— (224,695)224,695 — — 
Total LiabilitiesTotal Liabilities$(575,534)$— $(575,534)$574,629 $895 $(10)Total Liabilities$(241,536)$— $(241,536)$226,625 $4,518 $(10,393)
(1)Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, we have pledged excess cash collateral or financial assets to a counterparty (which, in certain circumstances, may be a clearinghouse) that exceed the financial liabilities subject to a master netting arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, these excess amounts are excluded from the table; they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.
(2)Interest rate agreements, TBAs and TBAsfutures are components of derivative instruments on our consolidated balance sheets. Loan warehouse debt, which is secured by certain residential and business purpose loans, is a component of Short-term debt and Long-term debt on our consolidated balance sheets.
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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 3. Summary of Significant Accounting Policies - (continued)
For each category of financial instrument set forth in the table above, the assets and liabilities resulting from individual transactions within that category between us and a counterparty are subject to a master netting arrangement or similar agreement with that counterparty that provides for individual transactions to be aggregated and treated as a single transaction. For certain categories of these instruments, our transactions generally are cleared and settled through one or more clearinghouses that are substituted as our counterparty. References herein to master netting arrangements or similar agreements include the arrangements and agreements governing the clearing and settlement of these transactions through the clearinghouses. In the event of the termination and close-out of any of those transactions, the corresponding master netting agreement or similar agreement provides for settlement on a net basis. Any such settlement would include the proceeds of the liquidation of any corresponding collateral, subject to certain limitations on termination, settlement, and liquidation of collateral that may apply in the event of the bankruptcy or insolvency of a party. Such limitations should not inhibit the eventual practical realization of the principal benefits of those transactions or the corresponding master netting arrangement or similar agreement and any corresponding collateral.


Note 4. Principles of Consolidation
GAAP requires us to consider whether securitizations we sponsor and other transfers of financial assets should be treated as sales or financings, as well as whether any VIEs that we hold variable interests in – for example, certain legal entities often used in securitization and other structured finance transactions – should be included in our consolidated financial statements. The GAAP principles we apply require us to reassess our requirement to consolidate VIEs each quarter and therefore our determination may change based upon new facts and circumstances pertaining to each VIE. This could result in a material impact to our consolidated financial statements during subsequent reporting periods.
Analysis of Consolidated VIEs
At SeptemberJune 30, 2022,2023, we consolidated Legacy Sequoia, Sequoia, CAFL, Freddie Mac SLST, Freddie Mac K-Series, and HEI securitization entities that we determined were VIEs and for which we determined we were the primary beneficiary. Each of these entities is independent of Redwood and of each other and the assets and liabilities of these entities are not owned by and are not legal obligations of ours. Our exposure to these entities is primarily through the financial interests we have retained, although for certain securitizations, we are exposed to financial risks associated with our role as a sponsor, servicing administrator, collateral administrator, or depositor of these entities or as a result of our having sold assets directly or indirectly to these entities.
We also consolidate two Servicing Investment entities formed to invest in servicing-related assets that we determined were VIEs and for which we determined we were the primary beneficiary. At SeptemberJune 30, 2022,2023, we held an 80% ownership interest in, and were responsible for the management of, each such entity. See Note 11 for a further description of these entities and the investments they hold and Note 13 for additional information on the minority partner’s non-controlling interest. Additionally, we consolidated an entity that was formed to finance servicer advances that we determined was a VIE and for which we, through our control of one of the aforementioned partnerships, were the primary beneficiary. The servicer advance financing consists of non-recourse short-term securitization debt, secured by servicer advances. We consolidate the securitization entity, but the securitization entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. See Note 14 for additional information on the servicer advance financing.
During 2021, we consolidated aan HEI securitization entity formed to invest in HEIs that we determined was a VIE and for which we determined we were the primary beneficiary. At SeptemberJune 30, 20222023 and December 31, 2021,2022, we owned a portion of the subordinate certificates issued by the entity and had certain decision making rights for the entity. See Note 10 for a further description of this entity and the investments it holds and Note 13 for additional information on non-controlling interests in the entity. We consolidate the HEI securitization entity, but the securitization entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood.
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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 4. Principles of Consolidation - (continued)
For certain of our consolidated VIEs, we have elected to account for the assets and liabilities of these entities as collateralized financing entities ("CFE"). A CFE is a variable interest entity that holds financial assets and issues beneficial interests in those assets, and these beneficial interests have contractual recourse only to the related assets of the CFE. Accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities of a CFE using the more observable of the fair value of the financial assets or fair value of the financial liabilities. The net equity in an entity accounted for under the CFE election effectively represents the fair value of the beneficial interests we own in the entity.
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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
In addition to our consolidated VIEs for which we made the CFE election, we consolidate certain VIEs for which we did not make the CFE election, and elected to account for the ABS issued by these entities at amortized cost. These include our CAFL Bridge securitizations, Freddie Mac SLST re-securitization, and Servicing Investment entities. In January 2023, we called the Freddie Mac SLST re-securitization and paid off the associated outstanding ABS issued.
The following table presents a summary of the assets and liabilities of our consolidated VIEs.     
Table 4.1 – Assets and Liabilities of Consolidated VIEs
September 30, 2022Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
June 30, 2023June 30, 2023Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs		(Dollars in Thousands)
Residential loans, held-for-investmentResidential loans, held-for-investmentResidential loans, held-for-investment$163,222 $3,703,754 $— $1,392,186 $— $— $— $5,259,162 
Business purpose loans, held-for-investmentBusiness purpose loans, held-for-investment— — 3,531,229 — — — — 3,531,229 Business purpose loans, held-for-investment— — 3,280,085 — — — — 3,280,085 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans— — — — 427,458 — — 427,458 Consolidated Agency multifamily loans— — — — 420,096 — — 420,096 
Home equity investmentsHome equity investments139,728 139,728 Home equity investments— — — — — — 129,264 129,264 
Other investmentsOther investments— — — — — 307,723 — 307,723 Other investments— — — — — 268,151 — 268,151 
Cash and cash equivalentsCash and cash equivalents— — — — — 15,923 — 15,923 Cash and cash equivalents— — 69 — — 19,910 — 19,979 
Restricted cashRestricted cash92 78 15,889 — — 18,569 3,540 38,168 Restricted cash64 73 55,351 — — — 4,124 59,612 
Accrued interest receivableAccrued interest receivable226 11,295 17,497 5,247 1,299 720 — 36,284 Accrued interest receivable343 14,472 17,992 4,985 1,281 (239)— 38,834 
Other assetsOther assets407 — 24,084 2,544 — 7,270 50 34,355 Other assets— — 7,265 2,372 — 7,836 50 17,523 
Total AssetsTotal Assets$198,886 $3,248,543 $3,588,699 $1,490,755 $428,757 $350,205 $143,318 $9,449,163 Total Assets$163,629 $3,718,299 $3,360,762 $1,399,543 $421,377 $295,658 $133,438 $9,492,706 
Short-term debtShort-term debt$— $— $— $— $— $233,104 $— $233,104 Short-term debt$— $— $— $— $— $162,981 $— $162,981 
Accrued interest payableAccrued interest payable224 9,003 11,202 3,630 1,173 348 — 25,580 Accrued interest payable317 11,222 10,286 3,455 1,155 401 — 26,836 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities(58)80 1,903 — — 24,223 24,354 50,502 Accrued expenses and other liabilities(106)80 3,395 — — 39,271 23,895 66,535 
Asset-backed securities issuedAsset-backed securities issued197,354 3,013,249 3,179,487 1,249,041 395,411 — 104,751 8,139,293 Asset-backed securities issued162,049 3,485,390 2,955,520 1,096,972 387,581 — 95,658 8,183,170 
Total LiabilitiesTotal Liabilities$197,520 $3,022,332 $3,192,592 $1,252,671 $396,584 $257,675 $129,105 $8,448,479 Total Liabilities$162,260 $3,496,692 $2,969,201 $1,100,427 $388,736 $202,653 $119,553 $8,439,522 
Value of our investments in VIEs(1)
Value of our investments in VIEs(1)
$1,214 $223,920 $393,015 $236,467 $32,047 $92,530 $14,213 $993,406 
Value of our investments in VIEs(1)
$1,173 $218,357 $388,730 $297,587 $32,515 $93,005 $13,885 $1,045,252 
Number of VIEsNumber of VIEs20 17 19 3 1 3 1 64 Number of VIEs20 19 19 2 1 3 1 65 

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REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 4. Principles of Consolidation - (continued)
December 31, 2021Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
December 31, 2022December 31, 2022Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST(1)
Freddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs		(Dollars in Thousands)
Residential loans, held-for-investmentResidential loans, held-for-investmentResidential loans, held-for-investment$184,932 $3,190,417 $— $1,457,058 $— $— $— $4,832,407 
Business purpose loans, held-for-investmentBusiness purpose loans, held-for-investment— — 3,766,316 — — — — 3,766,316 Business purpose loans, held-for-investment— — 3,461,367 — — — — 3,461,367 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans— — — — 473,514 — — 473,514 Consolidated Agency multifamily loans— — — — 424,551 — — 424,551 
Home equity investmentsHome equity investments— — — — — — 132,627 132,627 
Other investmentsOther investments— — — — — 384,754 159,553 544,307 Other investments— — — — — 301,213 — 301,213 
Cash and cash equivalentsCash and cash equivalents— — — — — 6,481 — 6,481 Cash and cash equivalents— — 710 — — 12,765 — 13,475 
Restricted cashRestricted cash148 5 15,221 — — 25,420 5,292 46,086 Restricted cash69 73 26,296 — — — 3,424 29,862 
Accrued interest receivableAccrued interest receivable210 10,885 15,737 5,792 1,315 1,462 — 35,401 Accrued interest receivable284 11,227 18,102 5,144 1,293 342 — 36,392 
Other assetsOther assets61 — 32,510 2,028 — 7,177 50 41,826 Other assets637 — 14,265 2,898 — 7,547 50 25,397 
Total AssetsTotal Assets$230,874 $3,639,355 $3,829,784 $1,896,050 $474,829 $425,294 $164,895 $10,661,081 Total Assets$185,922 $3,201,717 $3,520,740 $1,465,100 $425,844 $321,867 $136,101 $9,257,291 
Short-term debtShort-term debt$— $— $— $— $— $294,447 $— $294,447 Short-term debt$— $— $— $— $— $206,510 $— $206,510 
Accrued interest payableAccrued interest payable99 8,452 11,030 4,055 1,190 192 — 25,018 Accrued interest payable282 8,880 10,918 3,561 1,167 492 — 25,300 
Accrued expenses and other liabilitiesAccrued expenses and other liabilities— 5 1,171 — — 28,115 17,034 46,325 Accrued expenses and other liabilities— 81 4,559 — — 24,745 22,329 51,714 
Asset-backed securities issuedAsset-backed securities issued227,881 3,383,048 3,474,898 1,588,463 441,857 — 137,410 9,253,557 Asset-backed securities issued184,191 2,971,109 3,115,807 1,222,150 392,785 — 100,710 7,986,752 
Total LiabilitiesTotal Liabilities$227,980 $3,391,505 $3,487,099 $1,592,518 $443,047 $322,754 $154,444 $9,619,347 Total Liabilities$184,473 $2,980,070 $3,131,284 $1,225,711 $393,952 $231,747 $123,039 $8,270,276 
Value of our investments in VIEs(1)
Value of our investments in VIEs(1)
$2,634 $245,417 $339,419 $301,795 $31,657 $102,540 $10,451 $1,033,913 
Value of our investments in VIEs(1)
$1,285 $219,299 $385,927 $237,807 $31,767 $90,120 $13,062 $979,267 
Number of VIEsNumber of VIEs20 16 16 3 1 3 1 60 Number of VIEs20 17 19 3 1 3 1 64 
(1)Value of our investments in VIEs, as presented in this table, representrepresents the fair value of our economic interests in the VIEs only for consolidated VIEs that we account for under the CFE election. CAFL includes SFRBPL term loan securitizations we account for under the CFE election and two BPL bridge loan securitizations for which we did not make the CFE election. As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the fair value of our interests in the CAFL SFRTerm securitizations were $314$306 million and $302$304 million, respectively, and the remaining values were associated with our interests in the CAFL Bridge securitizations, for which the ABS issued is carried at amortized historical cost. At December 31, 2022, Freddie Mac SLST includes securitizations we account for under the CFE election and also includes ABS issued in relation to a resecuritizationre-securitization of the securities we own in the consolidated Freddie Mac SLST VIEs, that we account for at amortized historical cost. In January 2023, we called the Freddie Mac SLST re-securitization and paid off the associated outstanding ABS issued. As of SeptemberJune 30, 20222023 and December 31, 2021,2022, the fair value of our interests in the Freddie Mac SLST securitizations accounted for under the CFE election were $335was $298 million and $445$323 million, respectively, with the difference fromreflected in the tablesDecember 31, 2022 table above representingdue to ABS issued and carried at amortized historical cost.




















1917

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 4. Principles of Consolidation - (continued)

The following table presentstables present income (loss) from these VIEs for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 4.2 – Income (Loss) from Consolidated VIEs
Three Months Ended September 30, 2022Three Months Ended June 30, 2023
Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs		Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Interest incomeInterest income$1,475 $31,587 $61,439 $16,098 $4,762 $7,800 $— $123,161 Interest income$2,740 $37,478 $54,583 $15,273 $4,698 $7,911 $— $122,683 
Interest expenseInterest expense(1,486)(27,541)(44,804)(12,829)(4,377)(2,606)— (93,643)Interest expense(2,659)(33,994)(38,545)(10,650)(4,311)(3,796)— (93,955)
Net interest incomeNet interest income(11)4,046 16,635 3,269 385 5,194 — 29,518 Net interest income81 3,484 16,038 4,623 387 4,115 — 28,728 
Non-interest incomeNon-interest incomeNon-interest income
Investment fair value changes, netInvestment fair value changes, net(328)(10,936)(4,527)(41,892)316 (3,286)(584)(61,237)Investment fair value changes, net(10)928 11,601 (16,563)385 5,253 453 2,047 
Other incomeOther income— — 286 — — — — 286 Other income— — 212 — — — — 212 
Total non-interest income, netTotal non-interest income, net(328)(10,936)(4,241)(41,892)316 (3,286)(584)(60,951)Total non-interest income, net(10)928 11,813 (16,563)385 5,253 453 2,259 
General and administrative expensesGeneral and administrative expenses— — — — — (55)— (55)General and administrative expenses— — — — — (3)— (3)
Other expensesOther expenses— — — — — (372)— (372)Other expenses— — — — — (1,904)— (1,904)
Income (loss) from Consolidated VIEsIncome (loss) from Consolidated VIEs$(339)$(6,890)$12,394 $(38,623)$701 $1,481 $(584)$(31,860)Income (loss) from Consolidated VIEs$71 $4,412 $27,851 $(11,940)$772 $7,461 $453 $29,080 
Nine Months Ended September 30, 2022Six Months Ended June 30, 2023
Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs		Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Interest incomeInterest income$3,595 $95,608 $195,381 $49,851 $14,247 $23,287 $— $381,969 Interest income$5,283 $72,122 $109,020 $30,766 $9,316 $15,725 $— $242,232 
Interest expenseInterest expense(3,154)(84,041)(145,207)(40,286)(13,099)(6,110)— (291,897)Interest expense(5,163)(64,049)(78,087)(21,868)(8,552)(7,644)— (185,363)
Net interest incomeNet interest income441 11,567 50,174 9,565 1,148 17,177 — 90,072 Net interest income120 8,073 30,933 8,898 764 8,081 — 56,869 
Non-interest incomeNon-interest incomeNon-interest income
Investment fair value changes, netInvestment fair value changes, net(1,378)(20,644)(23,972)(74,796)390 (11,259)4,028 (127,631)Investment fair value changes, net(104)3,370 1,919 (7,629)748 4,206 878 3,388 
Other incomeOther income— — 631 — — — — 631 Other income— — 384 — — — — 384 
Total non-interest income, netTotal non-interest income, net(1,378)(20,644)(23,341)(74,796)390 (11,259)4,028 (127,000)Total non-interest income, net(104)3,370 2,303 (7,629)748 4,206 878 3,772 
General and administrative expensesGeneral and administrative expenses— — — — — (130)— (130)General and administrative expenses— — — — — 7 — 7 
Other expensesOther expenses— — — — — (1,158)— (1,158)Other expenses— — — — — (2,481)— (2,481)
Income (loss) from Consolidated VIEs$(937)$(9,077)$26,833 $(65,231)$1,538 $4,630 $4,028 $(38,216)
Income from Consolidated VIEsIncome from Consolidated VIEs$16 $11,443 $33,236 $1,269 $1,512 $9,813 $878 $58,167 

2018

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 4. Principles of Consolidation - (continued)
Three Months Ended September 30, 2021Three Months Ended June 30, 2022
Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs		Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Interest incomeInterest income$1,042 $18,867 $48,937 $18,707 $4,846 $3,905 $— $96,304 Interest income$1,108 $31,923 $56,608 $16,553 $4,732 $7,568 $— $118,492 
Interest expenseInterest expense(641)(15,368)(37,489)(15,774)(4,460)(1,018)— (74,750)Interest expense(967)(28,329)(41,923)(13,372)(4,351)(1,842)— (90,784)
Net interest incomeNet interest income401 3,499 11,448 2,933 386 2,887 — 21,554 Net interest income141 3,594 14,685 3,181 381 5,726 — 27,708 
Non-interest incomeNon-interest incomeNon-interest income
Investment fair value changes, netInvestment fair value changes, net(247)3,314 2,943 13,849 554 (2,080)47 18,380 Investment fair value changes, net(336)(5,886)(22,109)(35,940)(190)(4,505)1,201 (67,765)
Other incomeOther income— — 10 — — — — 10 Other income— — 255 — — — — 255 
Total non-interest income, netTotal non-interest income, net(247)3,314 2,953 13,849 554 (2,080)47 18,390 Total non-interest income, net(336)(5,886)(21,854)(35,940)(190)(4,505)1,201 (67,510)
General and administrative expensesGeneral and administrative expenses— — — — — (60)— (60)General and administrative expenses— — — — — (44)— (44)
Other expensesOther expenses— — — — — (149)— (149)Other expenses— — — — — (235)— (235)
Income (loss) from Consolidated VIEsIncome (loss) from Consolidated VIEs$154 $6,813 $14,401 $16,782 $940 $598 $47 $39,735 Income (loss) from Consolidated VIEs$(195)$(2,292)$(7,169)$(32,759)$191 $942 $1,201 $(40,081)
Nine Months Ended September 30, 2021Six Months Ended June 30, 2022
Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs		Legacy
Sequoia		SequoiaCAFLFreddie Mac SLSTFreddie Mac
K-Series		Servicing InvestmentHEITotal
Consolidated
VIEs
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Interest incomeInterest income$3,559 $48,842 $152,659 $58,372 $14,492 $12,168 $— $290,092 Interest income$2,120 $64,021 $133,942 $33,753 $9,485 $15,487 $— $258,808 
Interest expenseInterest expense(2,271)(38,848)(118,543)(49,756)(13,294)(3,414)— (226,126)Interest expense(1,668)(56,500)(100,403)(27,457)(8,722)(3,504)— (198,254)
Net interest incomeNet interest income1,288 9,994 34,116 8,616 1,198 8,754 — 63,966 Net interest income452 7,521 33,539 6,296 763 11,983 — 60,554 
Non-interest incomeNon-interest incomeNon-interest income
Investment fair value changes, netInvestment fair value changes, net(1,162)13,118 6,354 54,282 11,330 (5,646)47 78,323 Investment fair value changes, net(1,050)(9,708)(19,445)(32,904)74 (7,973)4,612 (66,394)
Other incomeOther income— — 10 — — — — 10 Other income— — 345 — — — — 345 
Total non-interest income, netTotal non-interest income, net(1,162)13,118 6,364 54,282 11,330 (5,646)47 78,333 Total non-interest income, net(1,050)(9,708)(19,100)(32,904)74 (7,973)4,612 (66,049)
General and administrative expensesGeneral and administrative expenses— — — — — (150)— (150)General and administrative expenses— — — — — (75)— (75)
Other expensesOther expenses— — — — — (591)— (591)Other expenses— — — — — (786)— (786)
Income (loss) from Consolidated VIEsIncome (loss) from Consolidated VIEs$126 $23,112 $40,480 $62,898 $12,528 $2,367 $47 $141,558 Income (loss) from Consolidated VIEs$(598)$(2,187)$14,439 $(26,608)$837 $3,149 $4,612 $(6,356)
We consolidate the assets and liabilities of certain Sequoia, CAFL and HEI securitization entities, as we did not meet the GAAP sale criteria at the time we transferred financial assets to these entities. Our involvement in consolidated Sequoia, CAFL and HEI securitization entities continues in the following ways: (i) we continue to hold subordinate investments in each entity, and for certain entities, more senior investments; (ii) we maintain certain discretionary rights associated with our sponsorship of, or our subordinate investments in, each entity, including rights to direct loss mitigation activities; and (iii) we continue to hold a right to call the assets of certain entities (once they have been paid down below a specified threshold) at a price equal to, or in excess of, the current outstanding principal amount of the entity’s asset-backed securities issued. These factors have resulted in our continuing to consolidate the assets and liabilities of these Sequoia, CAFL and HEI securitization entities in accordance with GAAP.

19

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 4. Principles of Consolidation - (continued)
We consolidate the assets and liabilities of certain Freddie Mac K-Series and SLST securitization trusts resulting from our investment in subordinate securities issued by these trusts, and in the case of certain CAFL securitizations, resulting from securities acquired through our acquisition of CoreVest. Additionally, we consolidate the assets and liabilities of Servicing Investment entities from our investment in servicer advance investments and excess MSRs. In each case, we maintain certain discretionary rights associated with the ownership of these investments that we determined reflected a controlling financial interest, as we have both the power to direct the activities that most significantly impact the economic performance of the VIEs and the right to receive benefits of and the obligation to absorb losses from the VIEs that could potentially be significant to the VIEs.
21

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
Analysis of Unconsolidated VIEs with Continuing Involvement
Since 2012, we have transferred residential loans to 46 Sequoia securitization entities sponsored by us that are still outstanding as of SeptemberJune 30, 2022,2023, and accounted for these transfers as sales for financial reporting purposes, in accordance with ASC 860. We also determined we were not the primary beneficiary of these VIEs as we lacked the power to direct the activities that will have the most significant economic impact on the entities. For certain of these transfers to securitization entities, for the transferred loans where we held the servicing rights prior to the transfer and continued to hold the servicing rights following the transfer, we recorded mortgage servicing rights ("MSRs") on our consolidated balance sheets, and classified those MSRs as Level 3 assets. We also retained senior and subordinate securities in these securitizations that we classified as Level 3 assets. Our continuing involvement in these securitizations is limited to customary servicing obligations associated with retaining servicing rights (which we retain a third-party sub-servicer to perform) and the receipt of interest income associated with the securities we retained.
During the three months ended September 30, 2022, we did not call any of our unconsolidated Sequoia entities. During the nine months ended September 30, 2022, we called three of our unconsolidated Sequoia entities, and purchased $102 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $0.3 million gain on the securities we owned from these called securitizations, which was recognized through Realized gains, net on our consolidated statements of income (loss). At September 30, 2022, we held $158 million of loans for sale at fair value that were acquired following the calls.
The following table presents information related to securitization transactions that occurred during the three and nine months ended September 30, 2022 and 2021.
Table 4.3 – Securitization Activity Related to Unconsolidated VIEs Sponsored by Redwood
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2022202120222021
Principal balance of loans transferred$— $— $— $1,231,803 
Trading securities retained, at fair value— — — 7,774 
AFS securities retained, at fair value— — — 1,600 
The following table summarizes the cash flows during the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 between us and the unconsolidated VIEs sponsored by us and accounted for as sales since 2012.
Table 4.44.3 – Cash Flows Related to Unconsolidated VIEs Sponsored by Redwood
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2022202120222021
Proceeds from new transfers$— $— $— $1,266,063 
MSR fees received737 1,095 2,365 4,038 
Funding of compensating interest, net(11)54 (41)(116)
Cash flows received on retained securities3,096 16,724 20,380 42,117 

22

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 4. Principles of Consolidation - (continued)
The following table presents the key weighted-average assumptions used to value securities retained at the date of securitization for securitizations completed during the three and nine months ended September 30, 2022 and 2021.
Table 4.5 – Assumptions Related to Assets Retained from Unconsolidated VIEs Sponsored by Redwood
Three Months Ended September 30, 2022Three Months Ended September 30, 2021
At Date of SecuritizationSenior IO SecuritiesSubordinate SecuritiesSenior IO SecuritiesSubordinate Securities
Prepayment ratesN/AN/AN/AN/A
Discount ratesN/AN/AN/AN/A
Credit loss assumptionsN/AN/AN/AN/A
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
At Date of SecuritizationSenior IO SecuritiesSubordinate SecuritiesSenior IO SecuritiesSubordinate Securities
Prepayment ratesN/AN/A11 11 %
Discount ratesN/AN/A15 %6 %
Credit loss assumptionsN/AN/A0.23 %0.23 %

Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
MSR fees received$672 $764 $1,356 $1,628 
Funding of compensating interest, net(1)(14)(2)(30)
Cash flows received on retained securities2,721 3,158 5,684 17,284 
The following table presents additional information at SeptemberJune 30, 20222023 and December 31, 2021,2022, related to unconsolidated VIEs sponsored by Redwood and accounted for as sales since 2012.
Table 4.64.4 – Unconsolidated VIEs Sponsored by Redwood
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
On-balance sheet assets, at fair value:On-balance sheet assets, at fair value:On-balance sheet assets, at fair value:
Interest-only, senior and subordinate securities, classified as tradingInterest-only, senior and subordinate securities, classified as trading$28,511 $18,214 Interest-only, senior and subordinate securities, classified as trading$29,868 $28,722 
Subordinate securities, classified as AFSSubordinate securities, classified as AFS78,065 127,542 Subordinate securities, classified as AFS77,047 74,367 
Mortgage servicing rightsMortgage servicing rights11,915 6,450 Mortgage servicing rights11,621 11,589 
Maximum loss exposure (1)
Maximum loss exposure (1)
$118,491 $152,206 
Maximum loss exposure (1)
$118,536 $114,678 
Assets transferred:Assets transferred:Assets transferred:
Principal balance of loans outstandingPrincipal balance of loans outstanding$4,146,817 $4,959,234 Principal balance of loans outstanding$3,912,490 $4,052,922 
Principal balance of loans 30+ days delinquentPrincipal balance of loans 30+ days delinquent21,803 30,594 Principal balance of loans 30+ days delinquent26,036 27,739 
(1)Maximum loss exposure from our involvement with unconsolidated VIEs pertains to the carrying value of our securities and MSRs retained from these VIEs and represents estimated losses that would be incurred under severe, hypothetical circumstances, such as if the value of our interests and any associated collateral declines to zero. This does not include, for example, any potential exposure to representation and warranty claims associated with our initial transfer of loans into a securitization.

2320

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 4. Principles of Consolidation - (continued)
The following table presents key economic assumptions for assets retained from unconsolidated VIEs and the sensitivity of their fair values to immediate adverse changes in those assumptions at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 4.74.5 – Key Assumptions and Sensitivity Analysis for Assets Retained from Unconsolidated VIEs Sponsored by Redwood
September 30, 2022MSRs
Senior
Securities (1)
Subordinate Securities
June 30, 2023June 30, 2023MSRs
Senior
Securities (1)
Subordinate Securities
(Dollars in Thousands)(Dollars in Thousands)MSRs
Senior
Securities (1)
Subordinate Securities(Dollars in Thousands)
Fair value at September 30, 2022
Fair value at June 30, 2023Fair value at June 30, 2023$11,621 $29,868 $77,047 
Expected life (in years) (2)
Expected life (in years) (2)
7716
Expected life (in years) (2)
7715
Prepayment speed assumption (annual CPR) (2)
Prepayment speed assumption (annual CPR) (2)
8 %11 %8 %
Prepayment speed assumption (annual CPR) (2)
7 %10 %8 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% adverse change10% adverse change$334 $942 $570 10% adverse change$289 $1,025 $439 
25% adverse change25% adverse change810 2,291 1,132 25% adverse change703 2,427 1,034 
Discount rate assumption (2)
Discount rate assumption (2)
11 %12 %8 %
Discount rate assumption (2)
11 %12 %8 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
100 basis point increase100 basis point increase$441 $1,001 $7,714 100 basis point increase$428 $1,006 $7,421 
200 basis point increase200 basis point increase852 1,889 14,345 200 basis point increase830 1,945 13,829 
Credit loss assumption (2)
Credit loss assumption (2)
N/A0.04 %0.04 %
Credit loss assumption (2)
N/A0.04 %0.04 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% higher losses10% higher lossesN/AN/A$190 10% higher lossesN/AN/A$45 
25% higher losses25% higher lossesN/AN/A254 25% higher lossesN/AN/A115 
December 31, 2021MSRs
Senior
Securities (1)
Subordinate Securities
December 31, 2022December 31, 2022MSRs
Senior
Securities (1)
Subordinate Securities
(Dollars in Thousands)(Dollars in Thousands)MSRs
Senior
Securities (1)
Subordinate Securities(Dollars in Thousands)
Fair value at December 31, 2021
Fair value at December 31, 2022Fair value at December 31, 2022$11,589 $28,722 $74,367 
Expected life (in years) (2)
Expected life (in years) (2)
345
Expected life (in years) (2)
7716
Prepayment speed assumption (annual CPR) (2)
Prepayment speed assumption (annual CPR) (2)
29 %23 %32 %
Prepayment speed assumption (annual CPR) (2)
8 %10 %8 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% adverse change10% adverse change$447 $1,130 $531 10% adverse change$311 $970 $386 
25% adverse change25% adverse change1,020 2,596 1,440 25% adverse change779 2,344 907 
Discount rate assumption (2)
Discount rate assumption (2)
12 %16 %5 %
Discount rate assumption (2)
11 %12 %9 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
100 basis point increase100 basis point increase$152 $426 $4,801 100 basis point increase$430 $980 $7,198 
200 basis point increase200 basis point increase297 829 9,139 200 basis point increase832 1,894 13,394 
Credit loss assumption (2)
Credit loss assumption (2)
N/A0.35 %0.35 %
Credit loss assumption (2)
N/A0.03 %0.03 %
Decrease in fair value from:Decrease in fair value from:Decrease in fair value from:
10% higher losses10% higher lossesN/AN/A$1,528 10% higher lossesN/AN/A$31 
25% higher losses25% higher lossesN/AN/A3,819 25% higher lossesN/AN/A76 

(1)Senior securities included $29$30 million and $18$29 million of interest-only securities at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
(2)Expected life, prepayment speed assumption, discount rate assumption, and credit loss assumption presented in the tables above represent weighted averages.

2421

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 4. Principles of Consolidation - (continued)
Analysis of Unconsolidated Third-Party VIEs
Third-party VIEs are securitization entities in which we maintain an economic interest, but do not sponsor. Our economic interest may include several securities and other investments from the same third-party VIE, and in those cases, the analysis is performed in consideration of all of our interests. The following table presents a summary of our interests in third-party VIEs at SeptemberJune 30, 20222023 and December 31, 2021,2022, grouped by asset type.
Table 4.84.6 – Third-Party Sponsored VIE Summary
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Mortgage-Backed SecuritiesMortgage-Backed SecuritiesMortgage-Backed Securities
SeniorSenior$348 $3,572 Senior$8,196 $145 
SubordinateSubordinate152,288 228,083 Subordinate51,708 137,241 
Total Mortgage-Backed SecuritiesTotal Mortgage-Backed Securities152,636 231,655 Total Mortgage-Backed Securities59,904 137,386 
Excess MSRExcess MSR7,662 10,400 Excess MSR6,030 7,082 
Total Investments in Third-Party Sponsored VIEsTotal Investments in Third-Party Sponsored VIEs$160,298 $242,055 Total Investments in Third-Party Sponsored VIEs$65,934 $144,468 
We determined that we are not the primary beneficiary of these third-party VIEs, as we do not have the required power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not service or manage these entities or otherwise solely hold decision making powers that are significant. As a result of this assessment, we do not consolidate any of the underlying assets and liabilities of these third-party VIEs – we only account for our specific interests in them.
Our assessments of whether we are required to consolidate a VIE may change in subsequent reporting periods based upon changing facts and circumstances pertaining to each VIE. Any related accounting changes could result in a material impact to our financial statements.


Note 5. Fair Value of Financial Instruments
For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value.
In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.


2522

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at SeptemberJune 30, 20222023 and December 31, 2021.2022.

Table 5.1 – Carrying Values and Fair Values of Assets and Liabilities
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
Carrying
Value		Fair
Value		Carrying
Value		Fair
Value		Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
(In Thousands)(In Thousands)(In Thousands)
AssetsAssetsAssets
Residential loans, held-for-sale, at fair valueResidential loans, held-for-sale, at fair value$834,262 $834,262 $1,845,248 $1,845,248 Residential loans, held-for-sale, at fair value$196,737 $196,737 $780,781 $780,781 
Residential loans, held-for-investment, at fair valueResidential loans, held-for-investment, at fair value4,918,294 4,918,294 5,747,150 5,747,150 Residential loans, held-for-investment, at fair value5,259,162 5,259,162 4,832,407 4,832,407 
Business purpose loans, held-for-sale, at fair valueBusiness purpose loans, held-for-sale, at fair value337,238 337,238 358,309 358,309 Business purpose loans, held-for-sale, at fair value282,836 282,836 364,073 364,073 
Business purpose loans, held-for-investment, at fair valueBusiness purpose loans, held-for-investment, at fair value4,919,980 4,919,980 4,432,680 4,432,680 Business purpose loans, held-for-investment, at fair value4,943,887 4,943,887 4,968,513 4,968,513 
Consolidated Agency multifamily loans, at fair valueConsolidated Agency multifamily loans, at fair value427,458 427,458 473,514 473,514 Consolidated Agency multifamily loans, at fair value420,096 420,096 424,551 424,551 
Real estate securities, at fair valueReal estate securities, at fair value259,212 259,212 377,411 377,411 Real estate securities, at fair value166,819 166,819 240,475 240,475 
HEIsHEIs427,307 427,307 403,462 403,462 
Servicer advance investments (1)
Servicer advance investments (1)
274,934 274,934 350,923 350,923 
Servicer advance investments (1)
234,304 234,304 269,259 269,259 
MSRs (1)
MSRs (1)
24,796 24,796 12,438 12,438 
MSRs (1)
26,242 26,242 25,421 25,421 
Excess MSRs (1)
Excess MSRs (1)
40,452 40,452 44,231 44,231 
Excess MSRs (1)
39,877 39,877 39,035 39,035 
HEIs (1)
340,437 340,437 192,740 192,740 
Other investments (1)
Other investments (1)
11,174 11,174 12,663 12,663 
Other investments (1)
5,847 5,847 6,155 6,155 
Cash and cash equivalentsCash and cash equivalents297,092 297,092 450,485 450,485 Cash and cash equivalents357,308 357,308 258,894 258,894 
Restricted cashRestricted cash71,996 71,996 80,999 80,999 Restricted cash89,534 89,534 70,470 70,470 
Derivative assetsDerivative assets65,213 65,213 26,467 26,467 Derivative assets20,436 20,436 20,830 20,830 
REO (2)
3,683 4,105 36,126 39,272 
Margin receivable (2)
Margin receivable (2)
6,683 6,683 7,269 7,269 
Margin receivable (2)
2,043 2,043 13,802 13,802 
LiabilitiesLiabilitiesLiabilities
Short-term debt (3)
Short-term debt (3)
$1,912,694 $1,912,694 $2,177,362 $2,177,362 
Short-term debt (3)
$1,344,624 $1,344,624 $1,853,664 $1,853,664 
Margin payable (4)
Margin payable (4)
30,389 30,389 24,368 24,368 
Margin payable (4)
7,512 7,512 5,944 5,944 
Guarantee obligations (4)
Guarantee obligations (4)
6,532 5,237 7,459 7,133 
Guarantee obligations (4)
6,079 4,378 6,344 4,738 
HEI securitization non-controlling interestHEI securitization non-controlling interest24,355 24,355 17,035 17,035 HEI securitization non-controlling interest23,895 23,895 22,329 22,329 
Derivative liabilitiesDerivative liabilities6,782 6,782 3,317 3,317 Derivative liabilities2,316 2,316 16,855 16,855 
ABS issued, netABS issued, netABS issued, net
At fair value7,564,312 7,564,312 8,843,147 8,843,147 
At amortized cost574,981 541,773 410,410 410,471 
at fair valueat fair value7,702,826 7,702,826 7,424,132 7,424,132 
at amortized costat amortized cost480,344 447,171 562,620 524,768 
Other long-term debt, net (5)
Other long-term debt, net (5)
868,851 858,810 988,483 989,570 
Other long-term debt, net (5)
1,144,232 1,087,998 1,077,200 1,069,946 
Convertible notes, net (5)
Convertible notes, net (5)
724,205 651,888 513,629 537,300 
Convertible notes, net (5)
631,349 580,543 693,473 638,049 
Trust preferred securities and subordinated notes, net (5)
Trust preferred securities and subordinated notes, net (5)
138,755 76,725 138,721 97,650 
Trust preferred securities and subordinated notes, net (5)
138,790 90,675 138,767 83,700 
(1)These investments are included in Other investments on our consolidated balance sheets.
(2)These assets are included in Other assets on our consolidated balance sheets.
(3)Short-term debt excludes short-term convertible notes, which are included below under "Convertible notes, net."
(4)These liabilities are included in Accrued expenses and other liabilities on our consolidated balance sheets.
(5)These liabilities are primarily included in Long-term debt, net on our consolidated balance sheets. Convertible notes, net also includes convertible notes classified as Short-term debt. See Note 14 for more information on Short-term debt.
During the three and ninesix months ended SeptemberJune 30, 2022,2023, we elected the fair value option for zero$6 million and $5$8 million of securities, respectively, $0.34 billion$182 million and $3.60 billion$235 million (principal balance) of residential loans, (principal balance), respectively, and $630$406 million and $2.47 billion$845 million (principal balance) of business purpose loans, (principal balance), respectively. Additionally, during the three and ninesix months ended SeptemberJune 30, 2022,2023, we elected the fair value option for $80$9 million and $176$26 million of HEIs, respectively,respectively. For both the three and zero and $8six months ended June 30, 2023, we elected the fair value option for $1 million of Other Investments, respectively.investments. We anticipate electing the fair value option for all future purchases of residential and business purpose loans that we intend to sell to third parties or transfer to securitizations, as well as for certain securities we purchase, including IO securities, fixed-rate securities rated investment grade or higher, and HEIs.
2623

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the assets and liabilities that are reported at fair value on our consolidated balance sheets on a recurring basis at SeptemberJune 30, 20222023 and December 31, 2021,2022, as well as the fair value hierarchy of the valuation inputs used to measure fair value.
Table 5.2 – Assets and Liabilities Measured at Fair Value on a Recurring Basis
September 30, 2022Carrying
Value		Fair Value Measurements Using
June 30, 2023June 30, 2023Carrying
Value		Fair Value Measurements Using
(In Thousands)(In Thousands)Carrying
Value		Level 1Level 2Level 3(In Thousands)Level 1Level 2Level 3
AssetsAssetsAssets
Residential loansResidential loans$5,752,524 $— $— $5,752,524 Residential loans$5,455,869 $— $— $5,455,869 
Business purpose loansBusiness purpose loans5,257,218 — — 5,257,218 Business purpose loans5,226,723 — — 5,226,723 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans427,458 — — 427,458 Consolidated Agency multifamily loans420,096 — — 420,096 
Real estate securitiesReal estate securities259,212 — — 259,212 Real estate securities166,819 — — 166,819 
HEIsHEIs427,307 — — 427,307 
Servicer advance investmentsServicer advance investments274,934 — — 274,934 Servicer advance investments234,304 — — 234,304 
MSRsMSRs24,796 — — 24,796 MSRs26,242 — — 26,242 
Excess MSRsExcess MSRs40,452 — — 40,452 Excess MSRs39,877 — — 39,877 
HEIs340,437 — — 340,437 
Other investmentsOther investments11,174 — — 11,174 Other investments5,847 — — 5,847 
Derivative assetsDerivative assets65,213 39,843 24,626 744 Derivative assets20,436 6,869 10,125 3,442 
LiabilitiesLiabilitiesLiabilities
HEI securitization non-controlling interestHEI securitization non-controlling interest$24,355 $— $— $24,355 HEI securitization non-controlling interest$23,895 $— $— $23,895 
Derivative liabilitiesDerivative liabilities6,782 6,547 23 212 Derivative liabilities2,316 920 — 1,396 
ABS issuedABS issued7,564,312 — — 7,564,312 ABS issued7,702,826 — — 7,702,826 
December 31, 2021Carrying
Value		Fair Value Measurements Using
December 31, 2022December 31, 2022Carrying
Value		Fair Value Measurements Using
(In Thousands)(In Thousands)Carrying
Value		Level 1Level 2Level 3(In Thousands)Level 1Level 2Level 3
AssetsAssetsAssets
Residential loansResidential loans$7,592,398 $— $— $7,592,398 Residential loans$5,613,157 $— $— $5,613,157 
Business purpose loansBusiness purpose loans4,790,989 — — 4,790,989 Business purpose loans5,332,586 — — 5,332,586 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans473,514 — — 473,514 Consolidated Agency multifamily loans424,551 — — 424,551 
Real estate securitiesReal estate securities377,411 — — 377,411 Real estate securities240,475 — — 240,475 
HEIsHEIs403,462 — — 403,462 
Servicer advance investmentsServicer advance investments350,923 — — 350,923 Servicer advance investments269,259 — — 269,259 
MSRsMSRs12,438 — — 12,438 MSRs25,421 — — 25,421 
Excess MSRsExcess MSRs44,231 — — 44,231 Excess MSRs39,035 — — 39,035 
HEIs192,740 — — 192,740 
Other investmentsOther investments17,574 — — 17,574 Other investments6,155 — — 6,155 
Derivative assetsDerivative assets26,467 2,906 18,928 4,633 Derivative assets20,830 5,869 14,625 336 
FHLBC stock10 — 10 — 
LiabilitiesLiabilitiesLiabilities
HEI securitization non-controlling interestHEI securitization non-controlling interest$17,035 $— $— $17,035 HEI securitization non-controlling interest$22,329 $— $— $22,329 
Derivative liabilitiesDerivative liabilities3,317 1,563 1,251 503 Derivative liabilities16,855 16,841 — 14 
ABS issuedABS issued8,843,147 — — 8,843,147 ABS issued7,424,132 — — 7,424,132 
2724

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the ninesix months ended SeptemberJune 30, 2022.2023.
Table 5.3 – Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
AssetsAssets
Residential LoansBusiness Purpose
Loans		Consolidated Agency Multifamily LoansTrading SecuritiesAFS
Securities		Servicer Advance InvestmentsExcess MSRsHEIsMSRs and Other InvestmentsResidential LoansBusiness Purpose
Loans		Consolidated Agency Multifamily LoansTrading SecuritiesAFS
Securities		HEIsServicer Advance InvestmentsExcess MSRsMSRs and Other Investments
(In Thousands)(In Thousands)(In Thousands)
Beginning balance -
December 31, 2021		$7,592,398 $4,790,989 $473,514 $170,619 $206,792 $350,923 $44,231 $192,740 $25,101 
Beginning balance -
December 31, 2022		Beginning balance -
December 31, 2022		$5,613,157 $5,332,586 $424,552 $108,329 $132,146 $403,462 $269,259 $39,035 $31,576 
AcquisitionsAcquisitions3,585,882 181,814 — 5,006 10,000 — — 176,439 8,293 Acquisitions235,479 — — 7,883 1,979 25,513 — — 500 
OriginationsOriginations— 2,291,192 — — — — — — — Originations— 844,799 — — — — — — — 
SalesSales(3,702,359)(414,998)— (27,471)— — — — (3,044)Sales(172,801)(409,790)— (55,087)(41,775)— — — (272)
Principal paydownsPrincipal paydowns(734,577)(1,086,983)(5,936)(1,202)(25,381)(65,772)— (35,187)(137)Principal paydowns(230,957)(529,404)(4,145)(258)(385)(17,031)(37,268)— (100)
Gains (losses) in net income (loss), net(985,958)(503,832)(40,120)(30,019)12,560 (10,217)(3,779)6,445 9,336 
Gains (losses) in net income, netGains (losses) in net income, net12,129 (4,870)(311)8,456 650 15,363 2,313 842 635 
Unrealized losses in OCI, netUnrealized losses in OCI, net— — — — (61,692)— — — — Unrealized losses in OCI, net— — — — 4,881 — — — — 
Other settlements, net (1)
Other settlements, net (1)
(2,862)(964)— — — — — — (3,579)
Other settlements, net (1)
(1,138)(6,598)— — — — — — (250)
Ending balance -
September 30, 2022		$5,752,524 $5,257,218 $427,458 $116,933 $142,279 $274,934 $40,452 $340,437 $35,970 
Ending balance -
June 30, 2023		Ending balance -
June 30, 2023		$5,455,869 $5,226,723 $420,096 $69,323 $97,496 $427,307 $234,304 $39,877 $32,089 
LiabilitiesLiabilities
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
(In Thousands)(In Thousands)
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued		(In Thousands)
Derivatives (2)
HEI Securitization Non-Controlling InterestABS
Issued
Beginning balance - December 31, 2021$4,130 $17,035 $8,843,147 
Beginning balance - December 31, 2022Beginning balance - December 31, 2022$322 $22,329 $7,424,132 
AcquisitionsAcquisitions— — 1,205,289 Acquisitions— — 635,080 
Principal paydownsPrincipal paydowns— — (1,242,859)Principal paydowns— — (360,697)
Gains (losses) in net income (loss), net(53,962)7,320 (1,241,265)
Gains (losses) in net income, netGains (losses) in net income, net2,505 1,566 4,311 
Other settlements, net (1)
Other settlements, net (1)
50,364 — — 
Other settlements, net (1)
(781)— — 
Ending balance - September 30, 2022$532 $24,355 $7,564,312 
Ending balance - June 30, 2023Ending balance - June 30, 2023$2,046 $23,895 $7,702,826 
(1)     Other settlements, net,net: for residential and business purpose loans, represents the transfer of loans to REO,REO; for derivatives, represents the transfer of the fair value of loan purchase and interest rate lock commitments at the time loans are acquired to the basis of residential and single-family rental business purpose loans,loans; and for MSRs and other investments, primarily represents an investment that was exchanged into a new instrument that is no longer measured at fair value on a recurring basis.
(2)     For the purpose of this presentation, derivative assets and liabilities, which consist of loan purchase commitments and interest rate lock commitments, are presented on a net basis.

2825

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the portion of fair value gains or losses included in our consolidated statements of income that were attributable to Level 3 assets and liabilities recorded at fair value on a recurring basis and held at SeptemberJune 30, 20222023 and 2021.2022. Gains or losses incurred on assets or liabilities sold, matured, called, or fully written down during the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 are not included in this presentation.
Table 5.4 – Portion of Net Fair Value Gains (Losses) Attributable to Level 3 Assets and Liabilities Still Held at SeptemberJune 30, 20222023 and 20212022 Included in Net Income (Loss)
Included in Net Income (Loss)Included in Net Income (loss)
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
AssetsAssetsAssets
Residential loans at RedwoodResidential loans at Redwood$(28,762)$6,553 $(42,952)$9,371 Residential loans at Redwood$(680)$(15,995)$(466)$(31,858)
Business purpose loans(10,967)18,810 (39,019)19,829 
Business purpose loans at Redwood and CAFL BridgeBusiness purpose loans at Redwood and CAFL Bridge(23,033)(28,385)(17,877)(36,566)
Net investments in consolidated Sequoia entities (1)
Net investments in consolidated Sequoia entities (1)
(11,264)2,885 (22,467)11,779 
Net investments in consolidated Sequoia entities (1)
170 (6,222)2,519 (11,203)
Net investments in consolidated Freddie Mac SLST entities (1)
Net investments in consolidated Freddie Mac SLST entities (1)
(41,969)13,781 (75,043)54,006 
Net investments in consolidated Freddie Mac SLST entities (1)
(16,760)(36,014)(8,001)(33,074)
Net investments in consolidated Freddie Mac K-Series entities (1)
Net investments in consolidated Freddie Mac K-Series entities (1)
316 555 390 11,330 
Net investments in consolidated Freddie Mac K-Series entities (1)
385 (190)748 74 
Net investments in consolidated CAFL SFR entities (1)
(6,585)2,943 (24,365)5,500 
Net investments in consolidated CAFL Term entities (1)
Net investments in consolidated CAFL Term entities (1)
10,707 (21,828)1,897 (17,780)
Net investment in consolidated HEI securitization entity (1)
Net investment in consolidated HEI securitization entity (1)
(1,652)47 11,348 129 
Net investment in consolidated HEI securitization entity (1)
1,251 3,371 2,445 13,000 
Trading securitiesTrading securities(12,668)1,547 (34,104)3,824 Trading securities1,829 (17,501)3,073 (19,884)
Available-for-sale securitiesAvailable-for-sale securities(71)— (99)— 
HEIs at RedwoodHEIs at Redwood7,676 1,549 11,053 2,701 
Servicer advance investmentsServicer advance investments(3,905)(2,079)(10,218)(3,179)Servicer advance investments3,665 (3,231)2,313 (6,313)
MSRsMSRs1,653 (235)9,118 (49)MSRs1,692 4,248 1,278 7,644 
Excess MSRsExcess MSRs(351)(803)(3,779)(5,233)Excess MSRs1,070 (2,220)842 (3,428)
HEIs at Redwood(4,903)(41)(2,272)21 
Loan purchase and interest rate lock commitmentsLoan purchase and interest rate lock commitments723 9,021 744 9,261 Loan purchase and interest rate lock commitments3,442 2,056 3,442 2,007 
LiabilitiesLiabilitiesLiabilities
HEI securitization non-controlling interest$1,068 $(83)$(7,320)$(83)
Non-controlling interest in consolidated HEI entityNon-controlling interest in consolidated HEI entity$— $(2,170)$— $(8,388)
Loan purchase commitmentsLoan purchase commitments(212)(2,570)(212)(2,550)Loan purchase commitments(1,396)(488)(1,396)(527)
(1)    Represents the portion of net fair value gains or losses included in our consolidated statements of income (loss) related to securitized loans, securitized HEIs, and the associated ABS issued at our consolidated securitization entities held at SeptemberJune 30, 20222023 and 2021,2022, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election, excluding REO.
The following table presents information on assets recorded at fair value on a non-recurring basis at SeptemberJune 30, 2022.2023. This table does not include the carrying value and gains or losses associated with the asset types below that were not recorded at fair value on our consolidated balance sheets at SeptemberJune 30, 2022.2023.
Table 5.5 – Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis at SeptemberJune 30, 20222023
Gain (Loss) forGain (Loss) for
September 30, 2022Carrying
Value		Fair Value Measurements UsingThree Months EndedNine Months Ended
June 30, 2023June 30, 2023Carrying
Value		Fair Value Measurements UsingThree Months EndedSix Months Ended
(In Thousands)(In Thousands)Carrying
Value		Level 1Level 2Level 3September 30, 2022September 30, 2022(In Thousands)Level 1Level 2Level 3June 30, 2023June 30, 2023
AssetsAssetsAssets
Strategic investmentsStrategic investments17,350 — — 17,350 (25)10,000 Strategic investments$15,550 $— $— $15,550 $(2,650)$(2,650)
REOREO2,350 — — 2,350 (470)(653)
2926

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 5.6 – Market Valuation Gains and Losses, Net
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
Mortgage Banking Activities, Net
Residential loans held-for-sale$(1,085)$(24,517)$5,909 $(51,716)
Residential loan purchase commitments2,420 (8,897)2,181 (50,520)
BPL term loans held-for-sale(1,132)(40,034)11,534 (64,502)
BPL term loan interest rate lock commitments— 40 — (685)
BPL bridge loans2,297 116 3,450 2,251 
Trading securities (1)
1,923 1,315 1,923 4,101 
Risk management derivatives, net5,426 25,387 (3,041)115,774 
Total mortgage banking activities, net (2)
$9,849 $(46,590)$21,956 $(45,297)
Investment Fair Value Changes, Net
Residential loans held-for-investment, at Redwood (called Sequoia loans)$— $(8,010)$183 $(12,262)
BPL term loans held-for-sale(13,625)— (13,625)— 
BPL bridge loans held-for-investment(8,149)(9,559)(6,773)(11,702)
Trading securities4,572 (17,358)6,533 (21,600)
Servicer advance investments3,665 (3,231)2,313 (6,312)
Excess MSRs1,070 (2,220)842 (3,428)
Net investments in Legacy Sequoia entities (3)
(10)(336)(104)(1,050)
Net investments in Sequoia entities (3)
928 (5,886)3,370 (9,708)
Net investments in Freddie Mac SLST entities (3)
(16,563)(35,940)(7,629)(32,904)
Net investment in Freddie Mac K-Series entity (3)
385 (190)748 74 
Net investments in CAFL Term entities (3)
10,707 (21,828)1,897 (17,780)
Net investments in HEI securitization entities (3)
453 1,201 878 4,612 
HEIs at Redwood8,468 1,596 12,308 2,788 
Other investments(3,359)10,460 (3,794)10,583 
Risk management derivatives, net7,679 4,395 (1,025)6,368 
Credit losses on AFS securities, net(71)(1,066)(99)(1,771)
Other(746)— (746)— 
Total investment fair value changes, net$(4,596)$(87,972)$(4,723)$(94,092)
Other Income
MSRs$1,411 $3,827 $821 $6,795 
Other(340)— (460)— 
Total other income (4)
$1,071 $3,827 $361 $6,795 
Total Market Valuation Gains (Losses), Net$6,324 $(130,735)$17,594 $(132,594)
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2022202120222021
Mortgage Banking Activities, Net
Residential loans held-for-sale, at fair value$(20,060)$9,045 $(71,776)$57,145 
Residential loan purchase commitments(2,716)18,817 (53,236)18,351 
Single-family rental loans held-for-sale, at fair value(19,325)19,205 (83,827)54,675 
Single-family rental loan interest rate lock commitments19 (744)(666)— 
Bridge loans(9)3,433 2,242 6,702 
Trading securities (1)
148 32 4,249 (342)
Risk management derivatives, net48,363 3,539 164,137 38,117 
Total mortgage banking activities, net (2)
$6,420 $53,327 $(38,877)$174,648 
Investment Fair Value Changes, Net
Residential loans held-for-sale, at fair value (called Sequoia loans)$(6,614)$816 $(18,876)$2,423 
Bridge loans held-for-investment2,482 900 (9,220)4,142 
Trading securities(12,668)1,546 (34,268)25,067 
Servicer advance investments(3,905)(2,079)(10,217)(3,179)
Excess MSRs(351)(803)(3,779)(5,233)
Net investments in Legacy Sequoia entities (3)
(328)(247)(1,378)(1,162)
Net investments in Sequoia entities (3)
(10,936)3,314 (20,644)13,118 
Net investments in Freddie Mac SLST entities (3)
(41,892)13,849 (74,796)54,282 
Net investment in Freddie Mac K-Series entity (3)
316 554 390 11,330 
Net investments in CAFL SFR entities (3)
(6,585)2,943 (24,365)6,354 
Net investment in HEI securitization entity (3)
(584)47 4,028 47 
HEIs at Redwood(4,774)5,622 (1,986)13,017 
Other investments1,445 (385)12,028 50 
Risk management derivatives, net27,241 — 33,609 — 
Credit (losses) recoveries on AFS securities(544)— (2,315)388 
Total investment fair value changes, net$(57,697)$26,077 $(151,789)$120,644 
Other Income
MSRs$1,236 $(989)$8,031 $(3,236)
Other(852)— (852)— 
Total other income (4)
$384 $(989)$7,179 $(3,236)
Total Market Valuation Gains (Losses), Net$(50,893)$78,415 $(183,487)$292,056 

27

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
Footnotes to Table 5.6
(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the market risks associated with our residential mortgage banking operations.
(2)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases, and other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income,income, as these amounts do not represent market valuation changes.
(3)Includes changes in fair value of the residential loans held-for-investment, securitized HEIs, REO, and the ABS issued at the entities, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election.
(4)Other income presented above does not include net MSR fee income or provisions for repurchases of MSRs, as these amounts do not represent market valuation adjustments.
30

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberAt June 30, 2022
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
At September 30, 2022,2023, our valuation policy and processes had not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.

28

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
The following table provides quantitative information about the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value.
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments
September 30, 2022Fair
Value		Input Values
June 30, 2023June 30, 2023Fair
Value		Input Values
(Dollars in Thousands, except Input Values)(Dollars in Thousands, except Input Values)Fair
Value		Unobservable InputRange
Weighted
Average(1)
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average(1)
AssetsAssetsAssets
Residential loans, at fair value:Residential loans, at fair value:Residential loans, at fair value:
Jumbo fixed-rate loans$718,347 Whole loan spread to swap rate201 -400 bps202 bps
Called loan dollar price$92 -$92 $92 
Jumbo loansJumbo loans$182,383 Whole loan spread to TBA price$3.91 -$3.91 $3.91 
Jumbo loans committed to sellJumbo loans committed to sell115,883 Whole loan committed sales price$96 -$102 $98 Jumbo loans committed to sell14,318 Whole loan committed sales price$100 -$102 $101 
Loans held by Legacy Sequoia (2)
Loans held by Legacy Sequoia (2)
198,160 Liability priceN/AN/A
Loans held by Legacy Sequoia (2)
163,222 Liability priceN/AN/A
Loans held by Sequoia (2)
Loans held by Sequoia (2)
3,237,170 Liability priceN/AN/A
Loans held by Sequoia (2)
3,703,754 Liability priceN/AN/A
Loans held by Freddie Mac SLST (2)
Loans held by Freddie Mac SLST (2)
1,482,964 Liability priceN/AN/A
Loans held by Freddie Mac SLST (2)
1,392,186 Liability priceN/AN/A
Business purpose loans:Business purpose loans:Business purpose loans:
Single-family rental loans281,105 Senior credit spread210 -210 bps210 bps
BPL term loansBPL term loans269,886 
Senior credit spread(3)
185 -185 bps185 bps
Subordinate credit spread275 -1,025 bps458 bps
Subordinate credit spread(3)
275 -915 bps491 bps
Senior credit support36 -36 %36 %
Senior credit support(3)
36 -36 %36 %
IO discount rate8 -9 %8 %
IO discount rate(3)
8 -8 %8 %
Prepayment rate (annual CPR)3 -3 %3 %
Prepayment rate (annual CPR)(3)
— -3 %3 %
Whole loan dollar price$84 -$99 $86 Dollar price of NPLs$58 -$100 $59 
Single-family rental loans held by CAFL (2)
3,018,994 Liability priceN/AN/A
BPL term loans held by CAFL (2)
BPL term loans held by CAFL (2)
2,783,731 Liability priceN/AN/A
Bridge loans1,957,119 Whole loan discount rate5 -15 %9 %
Senior credit spread285 -285 bps285 bps
Subordinate credit spread345 -1,200 %680 %
Senior credit support43 -43 %43 %
BPL bridge loansBPL bridge loans2,173,106 Whole loan discount rate4 -15 %9 %
Prepayment rate (annual CPR)— -— %— %Whole loan spread545 -545 bps545 bps
Multifamily loans held by Freddie Mac K-Series (2)
Multifamily loans held by Freddie Mac K-Series (2)
427,458 Liability priceN/AN/A
Multifamily loans held by Freddie Mac K-Series (2)
420,096 Liability priceN/AN/A
Trading and AFS securitiesTrading and AFS securities259,212 Discount rate5 -18 %10 %Trading and AFS securities166,819 Discount rate6 -18 %9 %
Prepayment rate (annual CPR)6 -65 %12 %Prepayment rate (annual CPR)4 -65 %9 %
Default rate— -12 %0.4 %Default rate— -14 %0.4 %
Loss severity— -50 %25 %Loss severity— -50 %23 %
CRT dollar price$73 -$93 $85 CRT dollar price$97 -$99 $98 
Servicer advance investments274,934 Discount rate2 -5 %4 %
HEIsHEIs298,043 Discount rate10 -10 %10 %
Prepayment rate (annual CPR)14 -30 %14 %Prepayment rate (annual CPR)1 -23 %16 %
Expected remaining life (3)
5-5yrs5yrsHome price appreciation (depreciation)(3)-4 %3 %
Mortgage servicing income— -18 bps7 bps
HEIs held by HEI securitization entityHEIs held by HEI securitization entity129,264 Discount RateN/AN/A
MSRs24,796 Discount rate11 -69 %11 %
Servicer advance investmentsServicer advance investments234,304 Discount rate2 -5 %4 %
Prepayment rate (annual CPR)4 -28 %8 %Prepayment rate (annual CPR)11 -30 %14 %
Per loan annual cost to service$93 -$93 $93 
Expected remaining life (4)
6-6yrs6yrs
Mortgage servicing income— -18 bps3 bps
3129

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
Table 5.7 – Fair Value Methodology for Level 3 Financial Instruments (continued)
September 30, 2022Fair
Value		Input Values
June 30, 2023June 30, 2023Fair
Value		Input Values
(Dollars in Thousands, except Input Values)(Dollars in Thousands, except Input Values)Fair
Value		Unobservable InputRange
Weighted
Average (1)
(Dollars in Thousands, except Input Values)Unobservable InputRange
Weighted
Average (1)
Assets (continued)Assets (continued)Assets (continued)
MSRsMSRs$26,242 Discount rate11 -46 %11 %
Prepayment rate (annual CPR)4 -25 %7 %
Per loan annual cost to service$93 -$93 $93 
Excess MSRsExcess MSRs40,452 Discount rate13 -19 %18 %Excess MSRs39,877 Discount rate13 -19 %18 %
Prepayment rate (annual CPR)10 -100 %18 %Prepayment rate (annual CPR)10 -100 %17 %
Excess mortgage servicing income8 -19 bps11 bpsExcess mortgage servicing amount8 -20 bps11 bps
HEIs200,709 Discount rate10 -10 %10 %
Prepayment rate (annual CPR)1 -23 %16 %
Home price appreciation(7)-4 %3 %
HEIs held by HEI securitization entity139,728 Liability priceN/AN/AN/A
Residential loan purchase commitments, netResidential loan purchase commitments, net531 Whole loan spread to swap rate201 -201 bps201 bpsResidential loan purchase commitments, net2,046 Whole loan spread to TBA price$3.91 -$3.91 $3.91 
Pull-through rate26 -100 %78 %Pull-through rate17 -100 %68 %
Committed sales price$99 -$102 $100 Committed sales price$100 -$103 $101 
LiabilitiesLiabilitiesLiabilities
ABS issued (2):
ABS issued (2):
ABS issued (2):
At consolidated Sequoia entitiesAt consolidated Sequoia entities3,210,603 Discount rate4 -18 %6 %At consolidated Sequoia entities3,647,439 Discount rate4 -18 %7 %
Prepayment rate (annual CPR)5 -24 %13 %Prepayment rate (annual CPR)4 -35 %10 %
Default rate— -33 %1 %Default rate— -14 %1 %
Loss severity25 -50 %32 %Loss severity25 -50 %31 %
At consolidated CAFL SFR entities (4)
2,703,223 Discount rate0.3 -16 %6 %
At consolidated CAFL Term entitiesAt consolidated CAFL Term entities2,475,176 Discount rate— -12 %7 %
Prepayment rate (annual CPR)— -3 %0.2 %Prepayment rate (annual CPR)— -3 %0.1 %
Default rate4 -21 %6 %Default rate5 -14 %7 %
Loss severity30 -40 %30 %Loss severity30 -40 %30 %
At consolidated Freddie Mac SLST entitiesAt consolidated Freddie Mac SLST entities1,150,323 Discount rate5 -8 %6 %At consolidated Freddie Mac SLST entities1,096,972 Discount rate5 -16 %6 %
Prepayment rate (annual CPR)6 -8 %6 %
At consolidated Freddie Mac SLST entitiesAt consolidated Freddie Mac SLST entitiesPrepayment rate (annual CPR)6 -6 %6 %
Default rate13 -14 %14 %Default rate8 -9 %9 %
Loss severity35 -35 %35 %Loss severity35 -35 %35 %
At consolidated Freddie Mac K-Series entities (4)
At consolidated Freddie Mac K-Series entities (4)
395,411 Discount rate3 -9 %5 %
At consolidated Freddie Mac K-Series entities (4)
387,581 Discount rate3 -10 %6 %
At consolidated HEI securitization entity (4)
104,751 Discount rate9 -15 %10 %
At consolidated HEI entitiesAt consolidated HEI entities95,658 Discount rate10 -14 %10 %
Prepayment rate (annual CPR)20 -20 %20 %Prepayment rate (annual CPR)20 -20 %20 %
Home price appreciation(7)-4 %3 %Home price appreciation (depreciation)(3)-4 %3 %
(1)The weighted average input values for all loan types are based on unpaid principal balance. The weighted average input values for all other assets and liabilities are based on relative fair value.
(2)The fair value of the loans and HEIs held by consolidated entities is based on the fair value of the ABS issued by these entities and the securities and other investments we own in those entities, which we determined were more readily observable in accordance with accounting guidance for collateralized financing entities. At SeptemberJune 30, 2022,2023, the fair value of securities we owned at the consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, and HEI securitization entities was $224$218 million, $314$306 million, $335$298 million, $32$33 million, and $14 million, respectively.
(3)Values represent pricing inputs used in securitization pricing model. Credit spreads generally represent spreads to applicable swap rates.
(4)Represents the estimated average duration of outstanding servicer advances at a given point in time (not taking into account new advances made with respect to the pool).
(4)As a market convention, certain securities are priced to a no-loss yield and therefore do not include default and loss severity assumptions.
3230

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 5. Fair Value of Financial Instruments - (continued)
Determination of Fair Value
We generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, a significant increase or decrease in any of these inputs in isolation — such as anticipated credit losses, prepayment rates, interest rates, or other valuation assumptions — would likely result in a significantly lower or higher fair value measurement.
Included in Note 5 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 20212022 is a more detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy.
Certain of our Other investments (inclusive of strategic investments in early-stage start-up companies) are Level 3 financial instruments that we account for under the fair value option. These investments generally take the form of equity or debt with conversion features and do not have readily determinable fair values. We initially record these investments at cost and adjust their fair value based on observable price changes, such as follow-on capital raises or secondary sales, and will also evaluate impacts to valuation from changing market conditions and underlying business performance. As of SeptemberJune 30, 2022,2023, the carrying value of these investments was $10$6 million.


Note 6. Residential Loans
We acquire residential loans from third-party originators and may sell or securitize these loans or hold them for investment. The following table summarizes the classifications and carrying values of the residential loans owned at Redwood and at consolidated Sequoia and Freddie Mac SLST entities at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 6.1 – Classifications and Carrying Values of Residential Loans
September 30, 2022LegacyFreddie Mac
June 30, 2023June 30, 2023LegacyFreddie Mac
(In Thousands)(In Thousands)RedwoodSequoiaSequoiaSLSTTotal(In Thousands)RedwoodSequoiaSequoiaSLSTTotal
Held-for-sale at fair valueHeld-for-sale at fair value$834,262 $— $— $— $834,262 Held-for-sale at fair value$196,737 $— $— $— $196,737 
Held-for-investment at fair valueHeld-for-investment at fair value— 198,160 3,237,170 1,482,964 4,918,294 Held-for-investment at fair value— 163,222 3,703,754 1,392,186 5,259,162 
Total Residential LoansTotal Residential Loans$834,262 $198,160 $3,237,170 $1,482,964 $5,752,556 Total Residential Loans$196,737 $163,222 $3,703,754 $1,392,186 $5,455,899 
December 31, 2021LegacyFreddie Mac
December 31, 2022December 31, 2022LegacyFreddie Mac
(In Thousands)(In Thousands)RedwoodSequoiaSequoiaSLSTTotal(In Thousands)RedwoodSequoiaSequoiaSLSTTotal
Held-for-sale at fair valueHeld-for-sale at fair value$1,845,282 $— $— $— $1,845,282 Held-for-sale at fair value$780,781 $— $— $— $780,781 
Held-for-investment at fair valueHeld-for-investment at fair value— 230,455 3,628,465 1,888,230 5,747,150 Held-for-investment at fair value— 184,932 3,190,417 1,457,058 4,832,407 
Total Residential LoansTotal Residential Loans$1,845,282 $230,455 $3,628,465 $1,888,230 $7,592,432 Total Residential Loans$780,781 $184,932 $3,190,417 $1,457,058 $5,613,188 

At SeptemberJune 30, 2022,2023, we owned mortgage servicing rights associated with $853$191 million (principal balance) of residential loans owned at Redwood that were purchased from third-party originators. The value of these MSRs is included in the carrying value of the associated loans on our consolidated balance sheets. We contract with licensed sub-servicers that perform servicing functions for these loans.

3331

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 6. Residential Loans - (continued)
Residential Loans Held-for-Sale
The following table summarizes the characteristics of residential loans held-for-sale at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 6.2 – Characteristics of Residential Loans Held-for-Sale
(Dollars in Thousands)(Dollars in Thousands)September 30, 2022December 31, 2021(Dollars in Thousands)June 30, 2023December 31, 2022
Number of loansNumber of loans1,054 2,196 Number of loans185 994 
Unpaid principal balanceUnpaid principal balance$874,412 $1,813,865 Unpaid principal balance$197,272 $822,063 
Fair value of loansFair value of loans$834,262 $1,845,282 Fair value of loans$196,737 $780,781 
Market value of loans pledged as collateral under short-term borrowing agreementsMarket value of loans pledged as collateral under short-term borrowing agreements$828,192 $1,838,797 Market value of loans pledged as collateral under short-term borrowing agreements$192,910 $775,545 
Weighted average couponWeighted average coupon4.99 %3.27 %Weighted average coupon6.68 %5.12 %
Delinquency informationDelinquency informationDelinquency information
Number of loans with 90+ day delinquenciesNumber of loans with 90+ day delinquencies1 3 Number of loans with 90+ day delinquencies1 1 
Unpaid principal balance of loans with 90+ day delinquenciesUnpaid principal balance of loans with 90+ day delinquencies$209 $2,923 Unpaid principal balance of loans with 90+ day delinquencies$205 $208 
Fair value of loans with 90+ day delinquenciesFair value of loans with 90+ day delinquencies$170 $2,304 Fair value of loans with 90+ day delinquencies$167 $170 
Number of loans in foreclosureNumber of loans in foreclosure— — Number of loans in foreclosure— — 
The following table provides the activity of residential loans held-for-sale during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 6.3 – Activity of Residential Loans Held-for-Sale
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
Principal balance of loans acquired (1)
Principal balance of loans acquired (1)
$336,698 $3,167,186 $3,597,339 $9,747,867 
Principal balance of loans acquired (1)
$181,972 $1,145,450 $235,018 $3,260,641 
Principal balance of loans soldPrincipal balance of loans sold662,302 2,360,862 3,727,993 6,787,490 Principal balance of loans sold8,925 1,238,327 182,078 3,065,691 
Principal balance of loans transferred to HFIPrincipal balance of loans transferred to HFI— 448,878 687,192 1,623,000 Principal balance of loans transferred to HFI— — 657,295 687,192 
Net market valuation gains (losses) recorded (2)
Net market valuation gains (losses) recorded (2)
(26,674)9,861 (90,652)59,568 
Net market valuation gains (losses) recorded (2)
(1,085)(32,527)6,093 (63,978)
(1)For the three and ninesix months ended SeptemberJune 30, 2022, includes zero and $102 million, of loans acquired through calls of zero and three seasoned Sequoia securitizations, respectively.securitizations.
(2)Net market valuation gains (losses) on residential loans held-for-sale are recorded primarily through Mortgage banking activities, net on our consolidated statements of income (loss).income.

3432

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 6. Residential Loans - (continued)
Residential Loans Held-for-Investment at Fair Value
We invest in residential subordinate securities issued by Legacy Sequoia, Sequoia and Freddie Mac SLST securitization trusts and consolidate the underlying residential loans owned by these entities for financial reporting purposes in accordance with GAAP. The following tables summarize the characteristics of the residential loans owned at consolidated Sequoia and Freddie Mac SLST entities at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 6.4 – Characteristics of Residential Loans Held-for-Investment
September 30, 2022LegacyFreddie Mac
June 30, 2023June 30, 2023LegacyFreddie Mac
(Dollars in Thousands)(Dollars in Thousands)SequoiaSequoiaSLST(Dollars in Thousands)SequoiaSequoiaSLST
Number of loansNumber of loans1,372 4,666 11,054 Number of loans1,157 5,232 10,604 
Unpaid principal balanceUnpaid principal balance$218,298 $3,902,938 $1,753,301 Unpaid principal balance$175,961 $4,374,517 $1,671,451 
Fair value of loans(2)Fair value of loans(2)$198,160 $3,237,170 $1,482,964 Fair value of loans(2)$163,222 $3,703,754 $1,392,186 
Weighted average couponWeighted average coupon3.23 %3.25 %4.50 %Weighted average coupon6.11 %3.54 %4.50 %
Delinquency informationDelinquency informationDelinquency information
Number of loans with 90+ day delinquencies (1)
Number of loans with 90+ day delinquencies (1)
33 13 1,295 
Number of loans with 90+ day delinquencies (1)
20 7 877 
Unpaid principal balance of loans with 90+ day delinquenciesUnpaid principal balance of loans with 90+ day delinquencies$5,532 $11,404 $223,260 Unpaid principal balance of loans with 90+ day delinquencies$4,354 $5,214 $150,437 
Fair value of loans with 90+ day delinquencies (2)
Fair value of loans with 90+ day delinquencies (2)
N/AN/AN/A
Fair value of loans with 90+ day delinquencies (2)
N/AN/AN/A
Number of loans in foreclosureNumber of loans in foreclosure16 6 332 Number of loans in foreclosure7 3 326 
Unpaid principal balance of loans in foreclosureUnpaid principal balance of loans in foreclosure$1,852 $5,928 $56,755 Unpaid principal balance of loans in foreclosure$1,072 $2,308 $57,362 
December 31, 2021LegacyFreddie Mac
December 31, 2022December 31, 2022LegacyFreddie Mac
(Dollars in Thousands)(Dollars in Thousands)SequoiaSequoiaSLST(Dollars in Thousands)SequoiaSequoiaSLST
Number of loansNumber of loans1,583 4,300 11,986 Number of loans1,304 4,624 10,882 
Unpaid principal balanceUnpaid principal balance$264,057 $3,605,469 $1,932,241 Unpaid principal balance$204,404 $3,847,091 $1,719,236 
Fair value of loans(2)Fair value of loans(2)$230,455 $3,628,465 $1,888,230 Fair value of loans(2)$184,932 $3,190,417 $1,457,058 
Weighted average couponWeighted average coupon1.87 %3.39 %4.51 %Weighted average coupon4.51 %3.25 %4.50 %
Delinquency informationDelinquency informationDelinquency information
Number of loans with 90+ day delinquencies (1)
Number of loans with 90+ day delinquencies (1)
32 18 1,208 
Number of loans with 90+ day delinquencies (1)
30 10 1,211 
Unpaid principal balance of loans with 90+ day delinquenciesUnpaid principal balance of loans with 90+ day delinquencies$7,482 $15,124 $212,961 Unpaid principal balance of loans with 90+ day delinquencies$6,824 $7,799 $209,397 
Fair value of loans with 90+ day delinquencies (2)
Fair value of loans with 90+ day delinquencies (2)
N/AN/AN/A
Fair value of loans with 90+ day delinquencies (2)
N/AN/AN/A
Number of loans in foreclosureNumber of loans in foreclosure10 2 241 Number of loans in foreclosure11 5 427 
Unpaid principal balance of loans in foreclosureUnpaid principal balance of loans in foreclosure$2,188 $1,624 $43,637 Unpaid principal balance of loans in foreclosure$1,166 $4,654 $72,440 
(1)For loans held at consolidated entities, the number of loans greater than 9090-or-more days delinquent includes loans in foreclosure.
(2)The fair value of the loans held by consolidated entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Table 4.2

.

3533

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 6. Residential Loans - (continued)
For loans held at our consolidated Legacy Sequoia, Sequoia, and Freddie Mac SLST entities, market value changes are based on the estimated fair value of the associated ABS issued, including securities we own, pursuant to collateralized financing entity guidelines, and are recorded in Investment fair value changes, net on our consolidated statements of income (loss).income. The net impact to our income statement associated with our economic investments in these securitizationfollowing table provides the activity of residential loans held-for-investment at consolidated entities is presented in Table 4.2.during the three and six months ended June 30, 2023 and 2022.
Table 6.5 – Activity of Residential Loans Held-for-Investment at Consolidated Entities
Three Months Ended September 30, 2022Three Months Ended September 30, 2021Three Months Ended June 30, 2023Three Months Ended June 30, 2022
LegacyFreddie MacLegacyFreddie MacLegacyFreddie MacLegacyFreddie Mac
(In Thousands)(In Thousands)SequoiaSequoiaSLSTSequoiaSequoiaSLST(In Thousands)SequoiaSequoiaSLSTSequoiaSequoiaSLST
Fair value of loans transferred from HFS to HFI (1)
Fair value of loans transferred from HFS to HFI (1)
N/A$— N/AN/A$464,189 N/A
Fair value of loans transferred from HFS to HFI (1)
N/A$— N/AN/A$— N/A
Net market valuation gains (losses) recordedNet market valuation gains (losses) recorded5,182 (202,825)(104,040)(2,580)(11,663)(13,836)Net market valuation gains (losses) recorded6,718 (53,765)(44,147)779 (211,486)(76,735)
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021Six Months Ended June 30, 2023Six Months Ended June 30, 2022
LegacyFreddie MacLegacyFreddie MacLegacyFreddie MacLegacyFreddie Mac
(In Thousands)(In Thousands)SequoiaSequoiaSLSTSequoiaSequoiaSLST(In Thousands)SequoiaSequoiaSLSTSequoiaSequoiaSLST
Fair value of loans transferred from HFS to HFI (1)
Fair value of loans transferred from HFS to HFI (1)
N/A$684,491 N/AN/A$1,669,683 N/A
Fair value of loans transferred from HFS to HFI (1)
N/A$657,295 N/AN/A$684,491 N/A
Net market valuation gains (losses) recordedNet market valuation gains (losses) recorded12,286 (685,042)(224,543)9,896 (27,076)5,177 Net market valuation gains (losses) recorded6,256 8,102 (11,710)7,104 (482,217)(120,503)
(1)Represents the transfer of loans from held-for-sale to held-for-investment associated with Sequoia securitizations.
REO
See Note 13 for detail on residential loans transferred toloan REO activity during 2022.2023.


Note 7. Business Purpose Loans
We originate and invest in business purpose loans, including single-family rental ("SFR")term loans and bridge loans. The following table summarizes the classifications and carrying values of the business purpose loans owned at Redwood and at consolidated CAFL entities at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 7.1 – Classifications and Carrying Values of Business Purpose Loans
September 30, 2022Single-Family RentalBridge
June 30, 2023June 30, 2023BPL TermBPL Bridge
(In Thousands)(In Thousands)RedwoodCAFLRedwoodCAFLTotal(In Thousands)RedwoodCAFLRedwoodCAFLTotal
Held-for-sale at fair valueHeld-for-sale at fair value$281,105 — $56,133 $— $337,238 Held-for-sale at fair value$269,886 — $12,950 $— $282,836 
Held-for-investment at fair valueHeld-for-investment at fair value— 3,018,994 1,388,750 512,236 4,919,980 Held-for-investment at fair value— 2,783,731 1,663,802 496,354 4,943,887 
Total Business Purpose LoansTotal Business Purpose Loans$281,105 $3,018,994 $1,444,883 $512,236 $5,257,218 Total Business Purpose Loans$269,886 $2,783,731 $1,676,752 $496,354 $5,226,723 
December 31, 2021Single-Family RentalBridge
(In Thousands)RedwoodCAFLRedwoodCAFLTotal
Held-for-sale at fair value$358,309 $— $— $— $358,309 
Held-for-investment at fair value— 3,488,074 666,364 278,242 4,432,680 
Total Business Purpose Loans$358,309 $3,488,074 $666,364 $278,242 $4,790,989 

December 31, 2022BPL TermBPL Bridge
(In Thousands)RedwoodCAFLRedwoodCAFLTotal
Held-for-sale at fair value$358,791 $— $5,282 $— $364,073 
Held-for-investment at fair value— 2,944,984 1,507,146 516,383 4,968,513 
Total Business Purpose Loans$358,791 $2,944,984 $1,512,428 $516,383 $5,332,586 
3634

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 7. Business Purpose Loans - (continued)
Nearly allAll of the outstanding SFRBPL term loans at SeptemberJune 30, 20222023 were first-lien, fixed-rate loans with original maturities of five, seven, or ten years, with 2% having original maturities of 30 years.
The outstanding BPL bridge loans held-for-investment at SeptemberJune 30, 20222023 were first-lien, interest-only loans with original maturities of six to 36 months and were comprised of 39%33% one-month LIBOR-indexed adjustable-rate loans, 48%60% one-month SOFR-indexed adjustable-rate loans, and 13%7% fixed-rate loans.loans (in each case based on unpaid principal balance). As described above within Note 3, LIBOR-indexed BPL bridge loans we hold have fallback provisions for benchmark rate replacement in connection with the cessation of LIBOR in 2023.
At SeptemberJune 30, 2022,2023, we had $755 million in commitments to fund BPL bridge loans of $990 million.loans. See Note 17 for additional information on these commitments.
The following table provides the activity of business purpose loans at Redwood during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 7.2 – Activity of Business Purpose Loans at Redwood
Three Months Ended 
 September 30, 2022		Three Months Ended 
 September 30, 2021		Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022
(In Thousands)(In Thousands)SFR at RedwoodBridge at RedwoodSFR at RedwoodBridge at Redwood(In Thousands)BPL Term at RedwoodBPL Bridge at RedwoodBPL Term at RedwoodBPL Bridge at Redwood
Principal balance of loans originatedPrincipal balance of loans originated$99,281 $470,425 $392,620 $208,938 Principal balance of loans originated$128,622 $269,713 $323,245 $542,241 
Principal balance of loans acquired (1)
Principal balance of loans acquired (1)
— 59,977 2,463 35,713 
Principal balance of loans acquired (1)
— 8,149 38,457 19,023 
Principal balance of loans sold to third partiesPrincipal balance of loans sold to third parties37,202 48,279 — 253 Principal balance of loans sold to third parties180,404 19,260 — — 
Fair value of loans transferred (2)
266,181 77,362 332,670 276,354 
Fair value of loans transferred (1)(2)
Fair value of loans transferred (1)(2)
— (140,186)(295,037)(306,313)
Mortgage banking activities income (loss) recorded (4)(3)
Mortgage banking activities income (loss) recorded (4)(3)
(19,325)(110)19,205 3,691 
Mortgage banking activities income (loss) recorded (4)(3)
(1,132)2,291 (40,034)(1,136)
Investment fair value changes recorded (5)(4)
Investment fair value changes recorded (5)(4)
— (679)— 900 
Investment fair value changes recorded (5)(4)
(13,625)(8,778)— (5,309)
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021Six Months Ended June 30, 2023Six Months Ended June 30, 2022
(In Thousands)(In Thousands)SFR at RedwoodBridge at RedwoodSFR at RedwoodBridge at Redwood(In Thousands)BPL Term at RedwoodBPL Bridge at RedwoodBPL Term at RedwoodBPL Bridge at Redwood
Principal balance of loans originatedPrincipal balance of loans originated$865,253 $1,424,604 $957,935 $557,327 Principal balance of loans originated$302,700 $524,865 $765,972 $954,179 
Principal balance of loans acquired (1)
Principal balance of loans acquired (1)
100,349 81,983 2,463 35,713 
Principal balance of loans acquired (1)
— 17,234 100,349 22,006 
Principal balance of loans sold to third partiesPrincipal balance of loans sold to third parties368,704 48,279 — 9,484 Principal balance of loans sold to third parties398,106 31,807 331,502 — 
Fair value of loans transferred (2)
561,218 465,966 799,375 276,354 
Fair value of loans transferred from HFI to HFS (3)
— — 44,922 N/A
Fair value of loans transferred (1)(2)
Fair value of loans transferred (1)(2)
— (220,978)(295,037)(388,604)
Mortgage banking activities income (loss) recorded (4)(3)
Mortgage banking activities income (loss) recorded (4)(3)
(83,827)1,129 54,675 5,212 
Mortgage banking activities income (loss) recorded (4)(3)
11,534 3,453 (64,502)1,240 
Investment fair value changes recorded (5)(4)
Investment fair value changes recorded (5)(4)
— (6,747)— 4,142 
Investment fair value changes recorded (5)(4)
(13,625)(7,266)— (6,068)
(1)Bridge at Redwood for the three and nine months ended September 30, 2022, includes $60 million of loans acquired as part of the Riverbend acquisition.
(2)For SFRBPL term at Redwood, represents the transfer of loans from held-for-sale to held-for-investment associated with CAFL SFRterm securitizations. For BridgeBPL bridge at Redwood, represents the transfer of BPL bridge loans from "Bridge at Redwood" to "Bridge at CAFL" resulting from their securitization.
(3)(2)RepresentsDuring the transferthree months ended June 30, 2023, we substituted a pool of single-family rentalheld-for-sale term loans fromat Redwood for a non-performing held-for-investment to held-for-sale associated with the call ofterm loan at a consolidated CAFL securitization, each with unpaid principal balances of approximately $28 million. The negative investment fair value changes recorded for BPL Term at Redwood during the second quarter of 2021.three and six months ended June 30, 2023 were attributable to this substitution, with an equal and offsetting positive fair value change recorded for BPL Term at CAFL (related to the retained bond we own in the associated consolidated CAFL securitization).
(4)(3)Represents loan origination fee income and net market valuation changes from the time a loan is originated to when it is sold or transferred to our investment portfolio. Additionally,portfolio and, for the three and nine months ended September 30, 2022, we recorded loan origination fee income of $10 million and $36 million, respectively, throughbridge loans, when transferred into a securitization. See Table 20.1 for additional detail on Mortgage banking activities net on our consolidated statements of income (loss).
(5)(4)RepresentsFor BPL Bridge at Redwood, represents net market valuation changes for loans classified as held-for-investment and associated interest-only strip liabilities.


3735

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 7. Business Purpose Loans - (continued)

Business Purpose Loans Held-for-Investment at CAFL
    We invest in securities issued by CAFL securitizations sponsored by CoreVest and consolidate the underlying single-family rentalBPL term loans and bridge loans owned by these entities. For loans held at our consolidated CAFL Term entities, market value changes are based on the estimated fair value of the associated ABS issued, including securities we own, pursuant to collateralized financing entity guidelines, and are recorded through Investment fair value changes, net on our consolidated statements of income (loss).income. The net impact to our income statement associated with our economic investments in these securitization entities is presented in Table 4.2. We did not elect to account for the CAFL Bridge securitizations under the CFE guidelines.
REO
See Note 13 for detail on business purpose loan REO activity during 2023.

The following table provides the activity of business purpose loans held-for-investment at CAFL during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 7.3 – Activity of Business Purpose Loans Held-for-Investment at CAFL
Three Months Ended 
 September 30, 2022		Three Months Ended 
 September 30, 2021		Three Months Ended 
 June 30, 2023		Three Months Ended 
 June 30, 2022
(In Thousands)(In Thousands)SFR at
CAFL		Bridge at CAFLSFR at
CAFL		Bridge at CAFL(In Thousands)BPL Term at
CAFL		BPL Bridge at CAFLBPL Term at
CAFL		BPL Bridge at CAFL
Net market valuation gains (losses) recordedNet market valuation gains (losses) recorded$(108,980)$1,906 $(34,803)$— Net market valuation gains (losses) recorded$(37,780)$1,192 $(118,299)$(281)
TransfersTransfers— 140,186 295,037 306,313 
Nine Months Ended 
 September 30, 2022		Nine Months Ended 
 September 30, 2021
(In Thousands)SFR at
CAFL		Bridge at CAFLSFR at
CAFL		Bridge at CAFL
Net market valuation gains (losses) recorded$(419,182)$50 $(96,934)$— 
REO
Six Months Ended 
 June 30, 2023		Six Months Ended 
 June 30, 2022
(In Thousands)BPL Term at
CAFL		BPL Bridge at CAFLBPL Term at
CAFL		BPL Bridge at CAFL
Net market valuation gains (losses) recorded$(601)$600 $(310,202)$(1,856)
Transfers— 220,978 295,037 388,604 
See
Note 13 for detail on business purpose loans transferred to REO during 2022.
3836

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 7. Business Purpose Loans - (continued)
Business Purpose Loan Characteristics
The following tables summarize the characteristics of the business purpose loans owned at Redwood and at consolidated CAFL entities at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 7.4 – Characteristics of Business Purpose Loans
September 30, 2022SFR at Redwood
SFR at
CAFL(1)
 Bridge at RedwoodBridge at CAFL
(Dollars in Thousands)
Number of loans202 1,142 1,585 1,994 
Unpaid principal balance$317,556 $3,316,706 $1,452,180 $510,839 
Fair value of loans$281,105 $3,018,994 $1,444,883 $512,236 
Weighted average coupon5.14 %5.22 %8.06 %8.04 %
Weighted average remaining loan term (years)15621
Market value of loans pledged as collateral under short-term debt facilities$279,846 N/A$702,899 N/A
Market value of loans pledged as collateral under long-term debt facilities$— N/A$699,704 N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)
1 15 51 47 
Unpaid principal balance of loans with 90+ day delinquencies$536 $31,296 $33,822 $7,063 
Fair value of loans with 90+ day delinquencies (2)
$528 N/A$31,140 $7,144 
Number of loans in foreclosure (3)
1 7 49 — 
Unpaid principal balance of loans in foreclosure$536 $10,335 $33,471 $— 
Fair value of loans in foreclosure (3)
$528 N/A$30,789 $— 
December 31, 2021SFR at Redwood
SFR at
CAFL(1)
Bridge at RedwoodBridge at CAFL
(Dollars in Thousands)
Number of loans245 1,173 1,134 1,640 
Unpaid principal balance$348,232 $3,340,949 $670,392 $274,617 
Fair value of loans$358,309 $3,488,074 $666,364 $278,242 
Weighted average coupon4.73 %5.17 %6.91 %7.05 %
Weighted average remaining loan term (years)12611
Market value of loans pledged as collateral under short-term debt facilities$75,873 N/A$91,814 N/A
Market value of loans pledged as collateral under long-term debt facilities$244,703 N/A$554,597 N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)
6 18 31 — 
Unpaid principal balance of loans with 90+ day delinquencies$5,384 $41,998 $18,032 $— 
Fair value of loans with 90+ day delinquencies (2)
$4,238 N/A$14,218 $— 
Number of loans in foreclosure (3)
7 9 28 — 
Unpaid principal balance of loans in foreclosure$5,473 $12,648 $18,043 $— 
Fair value of loans in foreclosure (3)
$4,305 N/A$14,257 $— 
June 30, 2023BPL Term at Redwood
BPL Term at
CAFL(1)
BPL Bridge at RedwoodBPL Bridge at CAFL
(Dollars in Thousands)
Number of loans60 1,072 1,341 1,683 
Unpaid principal balance$283,650 $3,101,083 $1,687,258 $491,909 
Fair value of loans$269,886 $2,783,731 $1,676,752 $496,354 
Weighted average coupon6.96 %5.20 %10.74 %10.93 %
Weighted average remaining loan term (years)7511
Market value of loans pledged as collateral under short-term debt facilities$196,538 N/A$587,094 N/A
Market value of loans pledged as collateral under long-term debt facilities$20,564 N/A$971,338 N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)
2 45 53 53 
Unpaid principal balance of loans with 90+ day delinquencies$28,494 $99,198 $93,045 $12,196 
Fair value of loans with 90+ day delinquencies (3)
$16,822 N/A$81,378 $10,489 
Number of loans in foreclosure
2 7 52 50 
Unpaid principal balance of loans in foreclosure$28,494 $8,183 $55,238 $10,016 
Fair value of loans in foreclosure (3)
$16,822 N/A$48,306 $9,431 
December 31, 2022BPL Term at Redwood
BPL Term at
CAFL(1)
BPL Bridge at RedwoodBPL Bridge at CAFL
(Dollars in Thousands)
Number of loans91 1,131 1,601 1,875 
Unpaid principal balance$389,846 $3,263,421 $1,518,427 $514,666 
Fair value of loans$358,791 $2,944,984 $1,512,428 $516,383 
Weighted average coupon5.98 %5.22 %9.61 %9.67 %
Weighted average remaining loan term (years)10621
Market value of loans pledged as collateral under short-term debt facilities$291,406 N/A$579,666 N/A
Market value of loans pledged as collateral under long-term debt facilities$66,567 N/A$897,782 N/A
Delinquency information
Number of loans with 90+ day delinquencies (2)
1 16 49 48 
Unpaid principal balance of loans with 90+ day delinquencies$536 $37,072 $34,264 $7,328 
Fair value of loans with 90+ day delinquencies (3)
$536 N/A$29,663 $7,438 
Number of loans in foreclosure1 9 48 48 
Unpaid principal balance of loans in foreclosure$536 $13,686 $34,039 $7,328 
Fair value of loans in foreclosure (3)
$536 N/A$29,438 $7,438 




3937

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 7. Business Purpose Loans - (continued)
Footnotes to Table 7.4
(1)The fair value of the loans held by consolidated CAFL entities was based on the fair value of the ABS issued by these entities, including securities we own, which we determined were more readily observable, in accordance with accounting guidance for collateralized financing entities.CFEs. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Table 4.2. Based on this methodology, we value the loans in each consolidated securitization on a pool basis and do not calculate separate fair values for loans that are 90+ days delinquent or in foreclosure.
(2)The number of loans 90-or-more days delinquent includes all loans in foreclosure.
(3)May include loans that are less than 90 days delinquent.


Note 8. Consolidated Agency Multifamily Loans
We invest in multifamily subordinate securities issued by a Freddie Mac K-Series securitization trust and consolidate the underlying multifamily loans owned by this entity for financial reporting purposes in accordance with GAAP. The following table summarizes the characteristics of our consolidated Agencythe multifamily loans consolidated at SeptemberRedwood at June 30, 20222023 and December 31, 2021.2022.
Table 8.1 – Characteristics of Consolidated Agency Multifamily Loans
(Dollars in Thousands)(Dollars in Thousands)September 30, 2022December 31, 2021(Dollars in Thousands)June 30, 2023December 31, 2022
Number of loansNumber of loans28 28 Number of loans28 28 
Unpaid principal balanceUnpaid principal balance$449,232 $455,168 Unpaid principal balance$443,049 $447,193 
Fair value of loansFair value of loans$427,458 $473,514 Fair value of loans$420,096 $424,551 
Weighted average couponWeighted average coupon4.25 %4.25 %Weighted average coupon4.25 %4.25 %
Weighted average remaining loan term (years)Weighted average remaining loan term (years)34Weighted average remaining loan term (years)23
Delinquency informationDelinquency informationDelinquency information
Number of loans with 90+ day delinquenciesNumber of loans with 90+ day delinquencies— — Number of loans with 90+ day delinquencies— — 
Number of loans in foreclosureNumber of loans in foreclosure— — Number of loans in foreclosure— — 
The outstanding consolidatedConsolidated Agency multifamily loans held-for-investment at the consolidated Freddie Mac K-Series entity at SeptemberJune 30, 20222023 were first-lien, fixed-rate loans that were originated in 2015. The following table provides the activity of multifamily loans held-for-investment during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 8.2 – Activity of Consolidated Agency Multifamily Loans Held-for-Investment
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
Net market valuation gains (losses) recorded (1)
Net market valuation gains (losses) recorded (1)
$(13,691)$(487)$(40,120)$(3,745)
Net market valuation gains (losses) recorded (1)
$(4,471)$(6,748)$(311)$(26,429)
(1)Net market valuation gains (losses) on multifamily loans held-for-investment are recorded through Investment fair value changes, net on our consolidated statements of income (loss).income. For loans held at our consolidated Freddie Mac K-Series entity, market value changes are based on the estimated fair value of the associated ABS issued, including securities we own, pursuant to collateralized financing entity guidelines. The net impact to our income statement associated with our economic investment in these securitization entities is presented in Table 4.2.
4038

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 9. Real Estate Securities
We invest in real estate securities that we create and retain from our Sequoia securitizations or acquire from third parties. The following table presents the fair values of our real estate securities by type at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 9.1 – Fair Values of Real Estate Securities by Type
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
TradingTrading$116,933 $170,619 Trading$69,323 $108,329 
Available-for-saleAvailable-for-sale142,279 206,792 Available-for-sale97,496 132,146 
Total Real Estate SecuritiesTotal Real Estate Securities$259,212 $377,411 Total Real Estate Securities$166,819 $240,475 
Our real estate securities include mortgage-backed securities, which are presented in accordance with their general position within a securitization structure based on their rights to cash flows. Senior securities are those interests in a securitization that generally have the first right to cash flows and are last in line to absorb losses. Mezzanine securities are interests that are generally subordinate to senior securities in their rights to receive cash flows, and have subordinate securities below them that are first to absorb losses. Subordinate securities are all interests below mezzanine. Exclusive of our re-performing loan securities, nearly all of our residential securities are supported by collateral that was designated as prime at the time of issuance.
Trading Securities
We elected the fair value option for certain securities and classify them as trading securities. Our trading securities include both residential and multifamily mortgage-backed securities, and our residential securities also include securities backed by re-performing loans ("RPL"). The following table presents the fair value of trading securities by position and collateral type at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 9.2 – Fair Value of Trading Securities by Position
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
SeniorSeniorSenior
Interest-only securities (1)
Interest-only securities (1)
$28,860 $21,787 
Interest-only securities (1)
$38,064 $28,867 
Total SeniorTotal Senior28,860 21,787 Total Senior38,064 28,867 
SubordinateSubordinateSubordinate
RPL securitiesRPL securities31,963 65,140 RPL securities11,884 29,002 
Multifamily securitiesMultifamily securities8,021 10,549 Multifamily securities4,993 5,027 
Other third-party residential securitiesOther third-party residential securities48,089 73,143 Other third-party residential securities14,382 45,433 
Total SubordinateTotal Subordinate88,073 148,832 Total Subordinate31,259 79,462 
Total Trading SecuritiesTotal Trading Securities$116,933 $170,619 Total Trading Securities$69,323 $108,329 
(1)Includes $25 million and $15$26 million of Sequoia certificated mortgage servicing rights at Septemberboth June 30, 20222023 and December 31, 2021, respectively.2022.
The following table presents the unpaid principal balance of trading securities by position and collateral type at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 9.3 – Unpaid Principal Balance of Trading Securities by Position
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Senior (1)
Senior (1)
$— $— 
Senior (1)
$— $— 
SubordinateSubordinate220,888 235,306 Subordinate76,512 215,592 
Total Trading SecuritiesTotal Trading Securities$220,888 $235,306 Total Trading Securities$76,512 $215,592 
(1)Our senior trading securities includeare comprised of interest-only securities, for which there is no principal balance.
4139

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table provides the activity of trading securities during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 9.4 – Trading Securities Activity
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
Principal balance of securities acquired (1)
$— $10,750 $— $28,380 
Principal balance of securities sold (1)
— 750 12,716 53,561 
Fair value of securities acquiredFair value of securities acquired$6,183 $— $7,883 $5,006 
Fair value of securities soldFair value of securities sold51,578 23,329 55,087 23,329 
Net market valuation gains (losses) recorded (2)(1)
Net market valuation gains (losses) recorded (2)(1)
(12,521)1,578 (30,019)24,725 
Net market valuation gains (losses) recorded (2)(1)
6,495 (16,042)8,456 (17,498)
(1)For the three and nine months ended September 30, 2021, excludes $1 million and $3 million of securities bought and sold during the same quarter, respectively.
(2)Net market valuation gains (losses) on trading securities are recorded through Investment fair value changes, net and Mortgage banking activities, net on our consolidated statements of income (loss).income.
AFS Securities
The following table presents the fair value of our available-for-sale ("AFS") securities by position and collateral type at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 9.5 – Fair Value of Available-for-Sale Securities by Position
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
SubordinateSubordinateSubordinate
Sequoia securitiesSequoia securities$78,065 $127,542 Sequoia securities$77,047 $74,367 
Multifamily securitiesMultifamily securities13,211 22,166 Multifamily securities7,749 7,647 
Other third-party residential securitiesOther third-party residential securities51,003 57,084 Other third-party residential securities12,700 50,132 
Total SubordinateTotal Subordinate142,279 206,792 Total Subordinate97,496 132,146 
Total AFS SecuritiesTotal AFS Securities$142,279 $206,792 Total AFS Securities$97,496 $132,146 
The following table provides the activity of available-for-sale securities during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 9.6 – Available-for-Sale Securities Activity
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
Fair value of securities acquiredFair value of securities acquired$— $— $10,000 $1,600 Fair value of securities acquired$1,979 $— $1,979 $10,000 
Fair value of securities soldFair value of securities sold— — — 4,785 Fair value of securities sold40,574 — 43,252 — 
Principal balance of securities calledPrincipal balance of securities called— 11,565 14,486 25,970 Principal balance of securities called— — — 14,486 
Net unrealized (losses) gains on AFS securities (1)
(8,731)(2,658)(60,013)19,552 
Net unrealized gains (losses) on AFS securities (1)
Net unrealized gains (losses) on AFS securities (1)
(688)(33,409)4,319 (51,282)
(1)Net unrealized gains (losses) gains on AFS securities are recorded on our consolidated balance sheets through Accumulated other comprehensive loss.
We often purchase AFS securities at a discount to their outstanding principal balances. To the extent we purchase an AFS security that has a likelihood of incurring a loss, we do not amortize into income the portion of the purchase discount that we do not expect to collect due to the inherent credit risk of the security. We may also expense a portion of our investment in the security to the extent we believe that principal losses will exceed the purchase discount. We designate any amount of unpaid principal balance that we do not expect to receive and thus do not expect to earn or recover as a credit reserve on the security. Any remaining net unamortized discounts or premiums on the security are amortized into income over time using the effective yield method.
42

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberAt June 30, 2022
(Unaudited)

Note 9. Real Estate Securities - (continued)

At September 30, 2022,2023, we had $10$4 million of AFS securities with contractual maturities less than five years, $1$4 million with contractual maturities greater than five years but less than ten years, and the remainder of our AFS securities had contractual maturities greater than ten years.
40

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table presents the components of carrying value (which equals fair value) of AFS securities at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 9.7 – Carrying Value of AFS Securities
September 30, 2022
(In Thousands)Total
Principal balance$227,715 
Credit reserve(30,247)
Unamortized discount, net(61,015)
Amortized cost136,453 
Gross unrealized gains19,017 
Gross unrealized losses(10,876)
CECL allowance(2,315)
Carrying Value$142,279 
(In Thousands)June 30, 2023December 31, 2022
Principal balance$164,576 $221,933 
Credit reserve(25,615)(28,739)
Unamortized discount, net(46,948)(61,650)
Amortized cost92,013 131,544 
Gross unrealized gains15,397 16,269 
Gross unrealized losses(7,275)(13,127)
CECL allowance(2,639)(2,540)
Carrying Value$97,496 $132,146 
December 31, 2021
(In Thousands)Total
Principal balance$242,852 
Credit reserve(27,555)
Unamortized discount, net(76,023)
Amortized cost139,274 
Gross unrealized gains67,815 
Gross unrealized losses(297)
CECL allowance— 
Carrying Value$206,792 
The following table presents the changes for the three and ninesix months ended SeptemberJune 30, 2022,2023, in unamortized discount and designated credit reserves on residential AFS securities.
Table 9.8 – Changes in Unamortized Discount and Designated Credit Reserves on AFS Securities
Three Months Ended 
 September 30, 2022		Nine Months Ended 
 September 30, 2022		Three Months Ended 
 June 30, 2023		Six Months Ended 
 June 30, 2023
Credit
Reserve		Unamortized
Discount, Net		Credit
Reserve		Unamortized
Discount, Net		Credit
Reserve		Unamortized
Discount, Net		Credit
Reserve		Unamortized
Discount, Net
(In Thousands)(In Thousands)(In Thousands)
Beginning balanceBeginning balance$30,619 $61,303 $27,555 $76,023 Beginning balance$28,208 $59,334 $28,739 $61,650 
Amortization of net discountAmortization of net discount— (830)— (10,647)Amortization of net discount— (387)— (650)
Realized credit recoveries (losses), netRealized credit recoveries (losses), net170 — 244 — Realized credit recoveries (losses), net53 — 5 — 
AcquisitionsAcquisitions— — — — Acquisitions1,106 754 1,106 754 
Sales, calls, otherSales, calls, other— — (343)(1,570)Sales, calls, other(3,918)(12,587)(4,124)(14,917)
Transfers to (release of) credit reserves, netTransfers to (release of) credit reserves, net(542)542 2,791 (2,791)Transfers to (release of) credit reserves, net166 (166)(111)111 
Ending BalanceEnding Balance$30,247 $61,015 $30,247 $61,015 Ending Balance$25,615 $46,948 $25,615 $46,948 

43

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 9. Real Estate Securities - (continued)

AFS Securities with Unrealized Losses
The following table presents the total carrying value (fair value) and unrealized losses of residential AFS securities that were in a gross unrealized loss position at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 9.9 – AFS Securities in Gross Unrealized Loss Position by Holding Periods
Less Than 12 Consecutive Months12 Consecutive Months or Longer
Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
(In Thousands)
September 30, 2022$65,585 $(10,685)$1,409 $(191)
December 31, 20216,827 (251)1,554 (46)
Less Than 12 Consecutive Months12 Consecutive Months or Longer
Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
(In Thousands)
June 30, 2023$15,150 $(699)$22,002 $(6,576)
December 31, 202272,679 (12,940)1,414 (186)
At SeptemberJune 30, 2022,2023, after giving effect to purchases, sales, and extinguishment due to credit losses, our consolidated balance sheet included 8172 AFS securities, of which 3528 were in an unrealized loss position and one was16 were in a continuous unrealized loss position for 12 consecutive months or longer. At December 31, 2021,2022, our consolidated balance sheet included 8579 AFS securities, of which four38 were in an unrealized loss position and one was in a continuous unrealized loss position for 12 consecutive months or longer.
41

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 9. Real Estate Securities - (continued)


Evaluating AFS Securities for Credit Losses
Gross unrealized losses on our AFS securities were $11$7 million at SeptemberJune 30, 2022.2023. We evaluate all securities in an unrealized loss position to determine if the impairment is credit-related (resulting in an allowance for credit losses recorded in earnings) or non-credit-related (resulting in an unrealized loss through other comprehensive income). At SeptemberJune 30, 2022, 2023, we did not intend to sell any of our AFS securities that were in an unrealized loss position, and it is more likely than not that we will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity. We review our AFS securities that are in an unrealized loss position to identify those securities with losses based on an assessment of changes in expected cashcash flows for such securities, which considers recent security performance and expected future performance of the underlying collateral.
At SeptemberJune 30, 2022,2023, our current expected credit loss ("CECL") allowance related to our AFS securities was $2.3$2.6 million. AFS securities for which an allowance is recognized have experienced, or are expected to experience, adverse cash flow changes. In determining our estimate of cash flows for AFS securities we may consider factors such as structural credit enhancement, past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, which are informed by prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, loan-to-value ratios, and geographic concentrations, as well as general market assessments. Changes in our evaluation of these factors impacted the cash flows expected to be collected at the assessment date and were used to determine if there were credit-related adverse cash flows and if so, the amount of credit-related losses. Significant judgment is used in both our analysis of the expected cash flows for our AFS securities and any determination of security credit losses.
The table below summarizes the weighted average of the significant credit quality indicators we used for the credit loss allowance on our AFS securities at SeptemberJune 30, 2022.2023.
Table 9.10 – Significant Credit Quality Indicators
SeptemberJune 30, 20222023Subordinate Securities
Default rate0.8%0.9%
Loss severity20%

4442

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 9. Real Estate Securities - (continued)

The following table details the activity related to the allowance for credit losses for AFS securities for the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 9.11 – Rollforward of Allowance for Credit Losses
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022Three Months Ended June 30, 2023Six Months Ended June 30, 2023
(In Thousands)(In Thousands)(In Thousands)
Beginning balance allowance for credit lossesBeginning balance allowance for credit losses$1,771 $— Beginning balance allowance for credit losses$2,568 $2,540 
Additions to allowance for credit losses on securities for which credit losses were not previously recordedAdditions to allowance for credit losses on securities for which credit losses were not previously recorded30 1,520 Additions to allowance for credit losses on securities for which credit losses were not previously recorded131 230 
Additional increases (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period514 795 
Allowance on purchased financial assets with credit deterioration— — 
Additional increases (or decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous periodAdditional increases (or decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period117 46 
Reduction to allowance for securities sold during the periodReduction to allowance for securities sold during the period— — Reduction to allowance for securities sold during the period(177)(177)
Reduction to allowance for securities we intend to sell or more likely than not will be required to sell— — 
Write-offs charged against allowance— — 
Recoveries of amounts previously written off— — 
Ending balance of allowance for credit lossesEnding balance of allowance for credit losses$2,315 $2,315 Ending balance of allowance for credit losses$2,639 $2,639 
Gains and losses from the sale of AFS securities are recorded as Realized gains, net, in our consolidated statements of income. The following table presents the gross realized gains and losses on sales and calls of AFS securities for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 9.12 – Gross Realized Gains and Losses on AFS Securities
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2022202120222021
Gross realized gains - sales$— $— $— $1,507 
Gross realized gains - calls— 6,389 1,914 15,484 
Gross realized losses - sales— — — — 
Total Realized Gains on Sales and Calls of AFS Securities, net$— $6,389 $1,914 $16,991 
During the nine months ended September 30, 2022, we called three of our unconsolidated Sequoia entities and purchased $102 million (unpaid principal balance) of loans from the securitization trusts. In association with these calls, we realized a $0.3 million gain on the securities we owned from these securitizations. The remaining realized gains were from third-party securities we owned that were called during the nine months ended September 30, 2022.

Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
Gross realized gains - sales$3,287 $— $3,814 $— 
Gross realized gains - calls— — — 1,914 
Gross realized losses - sales(2,338)— (2,338)— 
Gross realized losses - calls— — — — 
Total Realized Gains on Sales and Calls of AFS Securities, net$949 $— $1,476 $1,914 
4543

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)


Note 10. Home Equity Investments (HEI)
Home equity investments at September 30, 2022 and December 31, 2021 are summarized in the following table.
Table 10.1 – Home Equity Investments
(In Thousands)September 30, 2022December 31, 2021
HEIs at Redwood$200,709 $33,187 
HEIs held at consolidated HEI securitization entity139,728 159,553 
Total Home Equity Investments$340,437 $192,740 
WeFrom time to time, we may purchase home equity investment contracts from third party originators under flow purchase agreements. Each HEI provides the owner of such HEI the right to purchase a percentage ownership interest in an associated residential property, and the homeowner's obligations under the HEI are secured by a lien (primarily second liens) on the property created by recording a security instrument (e.g., deed of trust trust) with respect to the propertyor a mortgage.. Our investments in HEIs allowHEI expose us to share in both home price appreciation and depreciation of the associated property.
At SeptemberThe following table presents our home equity investments at June 30, 2022, we had flow purchase agreements with HEI originators with $149 million of cumulative purchase commitments outstanding. See Note 17 for additional information on these commitments.2023 and December 31, 2022.
As of September 30, 2022, we owned $201 million of HEIs at Redwood and consolidated $140 million of HEIs through the HEI securitization entity. We account for these investments under the fair value option and during the three and nine months ended September 30, 2022, we recorded net market valuation losses of $5 million and losses of $2 million, respectively, related to HEIs owned at Redwood through Investment fair value changes, net on our consolidated statements of income (loss).Table 10.1 – Home Equity Investments
(In Thousands)June 30, 2023December 31, 2022
HEI at Redwood$298,043 $270,835 
HEI held at consolidated HEI securitization entity129,264 132,627 
Total Home Equity Investments$427,307 $403,462 
We consolidate the HEI securitization entity in accordance with GAAP and have elected to account for it under the CFE election. DuringAs such, market valuation changes for the securitized HEI are based on the estimated fair value of the associated ABS issued by the entity, including the securities we own in the entity.
The following table details our HEI activity during the three and ninesix months ended SeptemberJune 30, 2022, we recorded2023 and 2022.
Table 10.2 – Activity of HEI
Three Months Ended June 30, 2023Three Months Ended June 30, 2022
(In Thousands)HEI at RedwoodSecuritized HEIHEI at RedwoodSecuritized HEI
Fair value of HEI purchased$8,954 $— $57,248 $— 
Net market valuation gains recorded (1)
8,468 3,138 1,596 3,580 
Six Months Ended 
 June 30, 2023		Six Months Ended 
 June 30, 2022
(In Thousands)HEI at RedwoodSecuritized HEIHEI at RedwoodSecuritized HEI
Fair value of HEI purchased$25,513 $— $97,389 $— 
Net market valuation gains recorded (1)
12,308 4,206 2,788 9,311 
(1)We account for HEI at Redwood under the fair value option and record net market valuation losses of $1 million and gains of $4 million (including $1 million and $3 million of interest expense), respectively, related to our net investment in the HEI securitization entitychanges through Investment fair value changes, net on our consolidatedConsolidated statements of income. We account for Securitized HEI under the CFE election and net market valuation gains (losses) for these investments are recorded through Investment fair value changes, net on our Consolidated statements of income. The net impact to our income (loss)statement associated with our economic investment in these securitization entities is presented in Table 4.2.
44

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 10. Home Equity Investments (HEI) - (continued)
The following tables summarizes the characteristics of our HEI at June 30, 2023 and December 31, 2022.
Table 10.3 – HEI Characteristics
June 30, 2023December 31, 2022
(Dollars in Thousands)HEI at RedwoodSecuritized HEIHEI at RedwoodSecuritized HEI
Number of HEI contracts2,701 955 2,599 1,007 
Average initial amount of contract$103 $95 $101 $94 

Note 11. Other Investments
Other investments at SeptemberJune 30, 20222023 and December 31, 20212022 are summarized in the following table.
Table 11.1 – Components of Other Investments
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Servicer advance investmentsServicer advance investments$274,934 $350,923 Servicer advance investments$234,304 $269,259 
Strategic investmentsStrategic investments71,607 35,702 Strategic investments54,867 56,518 
Excess MSRsExcess MSRs40,452 44,231 Excess MSRs39,877 39,035 
Mortgage servicing rightsMortgage servicing rights24,796 12,438 Mortgage servicing rights26,242 25,421 
OtherOther973 5,935 Other247 705 
Total Other InvestmentsTotal Other Investments$412,762 $449,229 Total Other Investments$355,537 $390,938 
Servicer advance investments
We and a third-party co-investor, through two partnerships (“SA Buyers”) consolidated by us, purchased the outstanding servicer advances and excess MSRs related to a portfolioportfolios of legacy residential mortgage-backed securitizations serviced by the co-investor. Refer to Note 1011 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 20212022 for additional information regarding the transactions. At both September 30, 2022 and December 31, 2021, we had cumulatively funded $148 million of total capital to the SA Buyers. See Note 17 for additional detail on these commitments.
46

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)

Note 11. Other Investments - (continued)
At SeptemberJune 30, 2022,2023, our servicer advance investments had a carrying value of $275$234 million and were associated with a portfoliospecified pools of residential mortgage loans with an unpaid principal balance of $11.68$10.74 billion. The outstanding servicer advance receivables associated with this investment were $245$203 million at SeptemberJune 30, 2022,2023, which were financed with short-term non-recourse securitization debt. See Note 14 for additional detail on this debt. The servicer advance receivables were comprised of the following types of advances at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 11.2 – Components of Servicer Advance Receivables
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Principal and interest advancesPrincipal and interest advances$89,816 $94,148 Principal and interest advances$65,737 $81,447 
Escrow advances (taxes and insurance advances)Escrow advances (taxes and insurance advances)117,971 172,847 Escrow advances (taxes and insurance advances)101,114 123,541 
Corporate advancesCorporate advances37,394 43,958 Corporate advances36,246 35,377 
Total Servicer Advance ReceivablesTotal Servicer Advance Receivables$245,181 $310,953 Total Servicer Advance Receivables$203,097 $240,365 
45

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 11. Other Investments - (continued)
We account for our servicer advance investments at fair value and during the three and ninesix months ended SeptemberJune 30, 2022,2023, we recorded $5 million and $15$10 million, respectively, of interest income, respectively, through Other interest income, and recorded a net market valuation lossgain of $4 million and lossa gain of $10$2 million, respectively, through Investment fair value changes, net in our consolidated statements of income (loss).income.
Strategic Investments
Strategic investments represent investments we made in companies either through our RWT Horizons venture investment platform or separately at a corporate level. At SeptemberJune 30, 2022,2023, we had made a total of 2733 investments in companies through RWT Horizons with a total carrying value of $24$23 million, as well as six corporate-level investments. DuringFor both the three and ninesix months ended SeptemberJune 30, 2023, we recognized a net mark-to-market valuation loss of $3 million on our strategic investments. For both the three and six months ended June 30, 2022, we recognized a net mark-to-market valuation gain of $1$10 million and $11 million, respectively,on our strategic investments. Market valuation changes on our strategic investments which wasare recorded in Investment fair value changes, net on our consolidated statements of income. During both the three and six months ended June 30, 2023, we recorded losses from our strategic investments of $1 million, in Other income, (loss).net on our consolidated statements of income. During the three and ninesix months ended SeptemberJune 30, 2022, we recorded losses from our strategic investments of $0.3 million and $0.4$0.2 million, respectively, in Other income, net fromon our strategic investments.consolidated statements of income.
Excess MSRs
In association with our servicer advance investments described above, we (through our consolidated SA Buyers) invested in excess MSRs associated with the same portfolio of legacy residential mortgage-backed securitizations. Additionally, we own excess MSRs associated with specified pools of multifamily loans. We account for our excess MSRs at fair value and during the three and ninesix months ended SeptemberJune 30, 2022,2023, we recognized $4 million and $12$7 million, respectively, of interest income respectively, through Other interest income, and recorded net market valuation lossesgains of $0.4$1 million and $4gains of $1 million, respectively, through Investment fair value changes, net on our consolidated statements of income (loss).income.
Mortgage Servicing Rights
We invest in mortgage servicing rights associated with residential mortgage loans and contract with licensed sub-servicers to perform all servicing functions for these loans. The majority of our investments in MSRs were made through the retention of servicing rights associated with the residential jumbo mortgage loans that we acquired and subsequently sold to third parties. DuringFor both the three and ninesix months ended SeptemberJune 30, 2022,2023, we retained zero and $5 million, respectively, of MSRs from sales of residential loans to third parties. We hold our MSR investments at our taxable REIT subsidiaries.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, our MSRs had a fair value of $25$26 million and $12$25 million, respectively, and were associated with loans with an aggregate principal balance of $2.22$2.11 billion and $2.12$2.19 billion, respectively. During the three and ninesix months ended SeptemberJune 30, 2022,2023, including net market valuation gains and losses on our MSRs, we recorded net income related to our MSRs of $3 million and $13$4 million, respectively, through Other income on our consolidated statements of income (loss) relatedincome.
BPL Bridge Loan Joint Venture
During the three months ended June 30, 2023, we established a joint venture with a global investment manager to invest in BPL bridge loans originated by our MSRs.CoreVest subsidiary. We did not contribute any capital or sell any loans into the joint venture during the three months ended June 30, 2023. In accordance with the terms of the joint venture, we have committed to sell certain BPL bridge loans we originate into the joint venture that meet specified criteria at contractually pre-established prices and for pre-established ongoing fees. We expect to account for our investment in the joint venture under the equity method of accounting and will present this investment in the “Other investments” line item of our consolidated balance sheets.
4746

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 12. Derivative Financial Instruments
The following table presents the fair value and notional amount of our derivative financial instruments at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 12.1 – Fair Value and Notional Amount of Derivative Financial Instruments
September 30, 2022December 31, 2021June 30, 2023December 31, 2022
Fair
Value		Notional
Amount		Fair
Value		Notional
Amount		Fair
Value		Notional
Amount		Fair
Value		Notional
Amount
(In Thousands)(In Thousands)(In Thousands)
Assets - Risk Management DerivativesAssets - Risk Management DerivativesAssets - Risk Management Derivatives
Interest rate swapsInterest rate swaps$24,626 $459,000 $611 $161,500 Interest rate swaps$10,125 $190,000 $14,625 $285,000 
TBAsTBAs13,568 565,000 2,880 2,440,000 TBAs3,536 665,000 1,893 220,000 
Interest rate futuresInterest rate futures26,275 681,500 25 9,000 Interest rate futures3,333 193,000 3,976 350,600 
Swaptions— — 18,318 1,660,000 
Assets - Other DerivativesAssets - Other DerivativesAssets - Other Derivatives
Loan purchase and interest rate lock commitmentsLoan purchase and interest rate lock commitments744 87,157 4,633 971,631 Loan purchase and interest rate lock commitments3,442 127,560 336 8,166 
Total AssetsTotal Assets$65,213 $1,792,657 $26,467 $5,242,131 Total Assets$20,436 $1,175,560 $20,830 $863,766 
Liabilities - Risk Management DerivativesLiabilities - Risk Management DerivativesLiabilities - Risk Management Derivatives
Interest rate swaps$(23)$10,000 $(1,251)$283,100 
TBAsTBAs(6,545)255,000 (658)870,000 TBAs$(920)$275,000 $(16,784)$845,000 
Interest rate futuresInterest rate futures(2)300 (905)62,500 Interest rate futures— — (57)60,000 
Liabilities - Other DerivativesLiabilities - Other DerivativesLiabilities - Other Derivatives
Loan purchase and interest rate lock commitmentsLoan purchase and interest rate lock commitments(212)58,544 (503)404,190 Loan purchase and interest rate lock commitments(1,396)223,809 (14)3,532 
Total LiabilitiesTotal Liabilities$(6,782)$323,844 $(3,317)$1,619,790 Total Liabilities$(2,316)$498,809 $(16,855)$908,532 
Total Derivative Financial Instruments, NetTotal Derivative Financial Instruments, Net$58,431 $2,116,501 $23,150 $6,861,921 Total Derivative Financial Instruments, Net$18,120 $1,674,369 $3,975 $1,772,298 
Risk Management Derivatives
To manage, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheets, we may enter into derivative contracts. At SeptemberJune 30, 2023, we were party to swaps and swaptions with an aggregate notional amount of $190 million, TBA agreements with an aggregate notional amount of $940 million, and interest rate futures contracts with an aggregate notional amount of $193 million. At December 31, 2022, we were party to swaps and swaptions with an aggregate notional amount of $469$285 million, TBA agreements with an aggregate notional amount of $820 million, and interest rate futures contracts with an aggregate notional amount of $682 million. At December 31, 2021, we were party to swaps and swaptions with an aggregate notional amount of $2.10 billion, futures with an aggregate notional amount of $72$411 million and TBA agreements with an aggregate notional amount of $3.31$1.07 billion.
For the three and ninesix months ended SeptemberJune 30, 2023, risk management derivatives had net market valuation gains of $13 million and losses of $4 million, respectively. For the three and six months ended June 30, 2022, risk management derivatives had net market valuation gains of $76$30 million and gains of $198$122 million, respectively. For the three and nine months ended September 30, 2021, risk management derivatives had netThese market valuation gains of $4 million and gains of $38 million, respectively. Market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net and Other income on our consolidated statements of income (loss).
48

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 12. Derivative Financial Instruments - (continued)
income.
Loan Purchase and Interest Rate Lock Commitments
Loan purchase commitments ("LPCs") and interest rate lock commitments ("IRLCs") that qualify as derivatives are recorded at their estimated fair values. For the three and ninesix months ended SeptemberJune 30, 2022,2023, LPCs and IRLCs had net market valuation lossesgains of $3$2 million and lossesgains of $54$2 million, respectively, thatwhich were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).income. For both the three and ninesix months ended SeptemberJune 30, 2021,2022, LPCs and IRLCs had net market valuation gainslosses of $18$9 million thatand losses of $51 million, respectively, which were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).income.
47

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 12. Derivative Financial Instruments - (continued)
Derivatives Designated as Cash Flow Hedges
For interest rate agreements previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive incomeloss was $73$70 million and $76$72 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. We are amortizing this loss into interest expense over the remaining term of our trust preferred securities and subordinated notes. For each of the debt they were originally hedging.three and six months ended June 30, 2023 and 2022, we reclassified $1 million and $2 million, respectively, of realized net losses from Accumulated other comprehensive loss into Interest expense. As of SeptemberJune 30, 2022,2023, we expect to amortize $4 million of realized losses related to terminated cash flow hedges into interest expense over the next twelve months.
The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and nine months ended September 30, 2022 and 2021.
Table 12.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2022202120222021
Net interest expense on cash flows hedges$— $— $— $— 
Realized net losses reclassified from other comprehensive income(1,040)(1,041)(3,086)(3,086)
Total Interest Expense$(1,040)$(1,041)$(3,086)$(3,086)
Derivative Counterparty Credit Risk
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At SeptemberJune 30, 2022,2023, we assessed this risk as remote and did not record an associated specific valuation adjustment. At SeptemberJune 30, 2022,2023, we were in compliance with our derivative counterparty ISDA agreements.
49

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 13. Other Assets and Liabilities
Other assets at SeptemberJune 30, 20222023 and December 31, 20212022 are summarized in the following table.
Table 13.1 – Components of Other Assets
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Accrued interest receivableAccrued interest receivable$54,944 $47,515 Accrued interest receivable$63,659 $60,893 
Investment receivableInvestment receivable50,149 82,781 Investment receivable47,176 36,623 
Deferred tax assetDeferred tax asset20,867 20,867 Deferred tax asset41,931 41,931 
REOREO15,458 6,455 
Operating lease right-of-use assetsOperating lease right-of-use assets17,126 18,772 Operating lease right-of-use assets14,337 16,177 
Fixed assets and leasehold improvements (1)
Fixed assets and leasehold improvements (1)
8,994 12,616 
Income tax receivablesIncome tax receivables13,959 22 Income tax receivables3,147 3,399 
Fixed assets and leasehold improvements (1)
12,411 9,019 
Margin receivableMargin receivable6,683 7,269 Margin receivable2,043 13,802 
REO3,683 36,126 
OtherOther14,678 8,746 Other22,280 19,344 
Total Other AssetsTotal Other Assets$194,500 $231,117 Total Other Assets$219,025 $211,240 
(1)Fixed assets and leasehold improvements had a basis of $22$18 million and accumulated depreciation of $9 million at SeptemberJune 30, 2022.2023.
48

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 13. Other Assets and Liabilities - (continued)
Accrued expenses and other liabilities at SeptemberJune 30, 20222023 and December 31, 20212022 are summarized in the following table.
Table 13.2 – Components of Accrued Expenses and Other Liabilities
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Payable to non-controlling interests$47,487 $42,670 
Accrued interest payableAccrued interest payable46,938 39,297 Accrued interest payable$48,320 $46,612 
Margin payable30,389 24,368 
Payable to noncontrolling interestsPayable to noncontrolling interests47,149 44,859 
Unsettled tradesUnsettled trades43,063 — 
Accrued compensationAccrued compensation23,488 74,636 Accrued compensation21,717 30,929 
Operating lease liabilitiesOperating lease liabilities19,533 20,960 Operating lease liabilities16,670 18,563 
Margin payableMargin payable7,512 5,944 
Guarantee obligationsGuarantee obligations6,532 7,459 Guarantee obligations6,079 6,344 
Accrued operating expensesAccrued operating expenses6,072 5,740 
Residential loan and MSR repurchase reserveResidential loan and MSR repurchase reserve5,754 9,306 Residential loan and MSR repurchase reserve4,564 7,051 
Accrued operating expenses4,956 4,377 
Current accounts payableCurrent accounts payable4,722 8,273 Current accounts payable2,892 4,234 
Bridge loan holdbacksBridge loan holdbacks3,930 3,109 Bridge loan holdbacks2,791 3,301 
Preferred stock dividends payablePreferred stock dividends payable1,478 — 
OtherOther7,396 11,333 Other19,807 6,626 
Total Accrued Expenses and Other LiabilitiesTotal Accrued Expenses and Other Liabilities$201,125 $245,788 Total Accrued Expenses and Other Liabilities$228,114 $180,203 
ReferInvestment Receivable
Investment receivable primarily consists of amounts receivable from third-party servicers related to Note 12 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional descriptions of our other assetsprincipal and liabilities.interest receivable from business purpose loans and fees receivable from servicer advance investments.
Margin Receivable and Payable
Margin receivable and payable resulted from margin calls between us and our counterparties under derivatives, master repurchase agreements, and warehouse facilities, whereby we or the counterparty posted collateral. Through September 30, 2022, we hadWe met all margin calls due.due through June 30, 2023.
50

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 13. OtherOperating Lease Right-of-Use Assets and Operating Lease Liabilities - (continued)
See Note 17 for additional information on leases.
REO
The following table summarizes the activity and carrying values of REO assets held at Redwood and at consolidated Legacy Sequoia, Freddie Mac SLST, and CAFL SFR entities during the ninesix months ended SeptemberJune 30, 2022.2023.
Table 13.3 – REO Activity
Nine Months Ended September 30, 2022Six Months Ended June 30, 2023
(In Thousands)(In Thousands) BridgeLegacy SequoiaFreddie Mac SLSTSFR at CAFLTotal(In Thousands)BPL BridgeLegacy SequoiaFreddie Mac SLSTBPL Term at CAFLTotal
Balance at beginning of period Balance at beginning of period $13,067 $61 $2,028 $20,970 $36,126 Balance at beginning of period $3,012 $544 $2,899 $— $6,455 
Transfers to REOTransfers to REO963 407 2,664 — 4,034 Transfers to REO10,736 18 1,120 — 11,874 
Liquidations (1)
Liquidations (1)
(14,271)(505)(2,395)(20,970)(38,141)
Liquidations (1)
— (562)(2,017)— (2,579)
Changes in fair value, netChanges in fair value, net974 443 247 — 1,664 Changes in fair value, net(662)— 370 — (292)
Balance at End of PeriodBalance at End of Period$733 $406 $2,544 $— $3,683 Balance at End of Period$13,086 $— $2,372 $— $15,458 
(1)For the ninesix months ended SeptemberJune 30, 2022,2023, REO liquidations resulted in $2$0.3 million of realized gains,losses, which were recorded in Investment fair value changes, net on our consolidated statements of income.
49

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 13. Other Assets and Liabilities - (continued)
The following table provides detail on the numbers of REO assets at Redwood and at consolidated Legacy Sequoia, Freddie Mac SLST, and CAFL entities at June 30, 2023 and December 31, 2022.
Table 13.4 – REO Assets
Number of REO assetsRedwood BridgeLegacy SequoiaFreddie Mac SLSTBPL Term at CAFLTotal
At June 30, 20237 — 23 — 30 
At December 31, 20222 2 24 — 28 
Legal and Repurchase Reserves
See Note 17 for additional information on legal and repurchase reserves.
Payable to Non-Controlling Interests
In 2018, Redwood and a third-party co-investor, through two partnership entities consolidated by Redwood, purchased servicer advances and excess MSRs related to a portfolio of residential mortgage loans serviced by the co-investor (see Note 4 and Note 11 for additional information on the partnership entities and associated investments). We account for the co-investor’s interests in the entities as liabilities, and at June 30, 2023, the carrying value of their interests was $23 million, representing their current economic interest in the entities. Earnings from the partnership entities are allocated to the co-investors on a proportional basis and during both the three and six months ended June 30, 2023, we allocated $2 million of income (loss).to the co-investors, recorded in Other expenses on our consolidated statements of income.
In 2021, Redwood and a third-party investor co-sponsored the transfer and securitization of HEI through the HEI securitization entity and other third-party investors retained subordinate securities issued by the securitization entity alongside Redwood. See Note 10 for a further discussion of the HEI securitization. We account for the co-investors' interests in the HEI securitization entity as a liability, and at June 30, 2023, the carrying value of their interests was $24 million, representing the fair value of their economic interests in the HEI entity. During the three and six months ended June 30, 2023, the investors' share of earnings from their retained interests was $1 million and $2 million, respectively, recorded through Investment fair value changes, net on our consolidated statements of income.
50

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 14. Short-Term Debt
We enter into repurchase agreements ("repo"), loan warehouse agreements, and other forms of collateralized (and partiallygenerally uncommitted) short-term borrowings with several banks and major investment banking firms. At SeptemberJune 30, 2022,2023, we had outstanding agreements with several counterparties and we were in compliance with all of the related covenants.
The table below summarizes our short-term debt, including the facilities that are available to us, the outstanding balances, the weighted average interest rate, and the maturity information at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 14.1 – Short-Term Debt
September 30, 2022June 30, 2023
(Dollars in Thousands)(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
Maturity (2)
Weighted Average Days Until Maturity(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
Maturity (2)
Weighted Average Days Until Maturity
FacilitiesFacilitiesFacilities
Residential loan warehouseResidential loan warehouse9 $748,962 $2,850,000 4.83 %12/2022 - 9/2023150Residential loan warehouse5 $176,592 $1,250,000 7.26 %8/2023-5/2024175
Business purpose loan warehouseBusiness purpose loan warehouse4 775,491 1,750,000 5.67 %3/2023 - 9/2023289Business purpose loan warehouse4 603,196 1,355,000 7.68 %7/2023-6/202493
Real estate securities repo
Real estate securities repo
7 124,435 — 3.50 %10/2022 - 12/202232
Real estate securities repo
5 253,365 — 6.59 %7/2023-9/202333
HEI warehouseHEI warehouse1 130,008 150,000 9.76 %11/2023125
Total Short-Term Debt FacilitiesTotal Short-Term Debt Facilities20 1,648,888 Total Short-Term Debt Facilities15 1,163,161 
Servicer advance financingServicer advance financing1 233,104 290,000 4.94 %11/2023397Servicer advance financing1 162,981 270,000 7.44 %11/2023124
Promissory notesPromissory notesN/A30,702 N/A6.58 %N/AN/APromissory notesN/A18,483 — 6.89 %N/AN/A
Convertible notes, netConvertible notes, netN/A197,585 N/A4.75 %8/2023319Convertible notes, netN/A112,497 — 4.75 %8/202346
Total Short-Term DebtTotal Short-Term Debt$2,110,279 Total Short-Term Debt$1,457,122 
December 31, 2022
(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
MaturityWeighted Average Days Until Maturity
Facilities
Residential loan warehouse7 $703,406 $2,550,000 6.16 %3/2023 - 12/2023267
Business purpose loan warehouse4 680,100 1,650,000 6.93 %3/2023 - 9/2023179
Real estate securities repo
7 124,909 — 5.22 %1/2023 - 3/202327
HEI warehouse1 111,681 150,000 8.54 %11/2023306
Total Short-Term Debt Facilities19 1,620,096 
Servicer advance financing1 206,510 290,000 6.67 %11/2023305
Promissory notesN/A27,058 — 6.64 %N/AN/A
Convertible notes, netN/A176,015 — 4.75 %8/2023227
Total Short-Term Debt$2,029,679 
(1)Borrowings under our facilities generally are uncommitted and charged interest based on a specified margin over SOFR.
(2)Promissory notes payable on demand to lender with 90-day notice.
51

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 14. Short-Term Debt - (continued)
December 31, 2021
(Dollars in Thousands)Number of FacilitiesOutstanding BalanceLimit
Weighted Average Interest Rate (1)
MaturityWeighted Average Days Until Maturity
Facilities
Residential loan warehouse7 $1,669,344 $2,900,000 1.87 %1/2022-12/2022153
Business purpose loan warehouse2 138,746 350,000 3.34 %3/2022-7/2022105
Real estate securities repo
4 74,825 — 1.13 %1/2022-3/202233
Total Short-Term Debt Facilities13 1,882,915 
Servicer advance financing1 294,447 350,000 1.90 %11/2022306
Convertible notes, netN/A— 
Total Short-Term Debt$2,177,362 
(1)Borrowings under our facilities generally are uncommitted and charged interest based on a specified margin over 1-month SOFR or 1- or 3-month LIBOR.
(2)Promissory notes payable on demand to lender with 90-day notice. Assumed maturity date at September 30, 2022 is December 30, 2022 for this presentation.
The following table below presents the value of loans, securities, and other assets pledged as collateral under our short-term debt at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 14.2 – Collateral for Short-Term Debt
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Collateral TypeCollateral TypeCollateral Type
Held-for-sale residential loansHeld-for-sale residential loans$828,192 $1,838,797 Held-for-sale residential loans$192,910 $775,545 
Business purpose loansBusiness purpose loans982,745 167,687 Business purpose loans783,632 871,072 
HEIHEI229,625 191,278 
Real estate securitiesReal estate securitiesReal estate securities
On balance sheetOn balance sheet60,457 5,823 On balance sheet17,205 72,133 
Sequoia securitizations (1)
Sequoia securitizations (1)
77,470 61,525 
Sequoia securitizations (1)
67,455 74,170 
Freddie Mac SLST securitizations (1)
Freddie Mac SLST securitizations (1)
231,313 — 
Freddie Mac K-Series securitization (1)
Freddie Mac K-Series securitization (1)
32,047 31,657 
Freddie Mac K-Series securitization (1)
32,514 31,767 
CAFL securitizations (1)
CAFL securitizations (1)
8,750 — 
Total real estate securities owned
Total real estate securities owned
169,974 99,005 
Total real estate securities owned
357,237 178,070 
Restricted cash and other assetsRestricted cash and other assets4,116 1,962 Restricted cash and other assets1,541 1,097 
Total Collateral for Short-Term Debt FacilitiesTotal Collateral for Short-Term Debt Facilities1,985,027 2,107,451 Total Collateral for Short-Term Debt Facilities1,564,945 2,017,062 
CashCash15,891 6,480 Cash18,073 12,713 
Restricted cash18,569 25,420 
Servicer advancesServicer advances274,934 310,953 Servicer advances234,304 269,259 
Total Collateral for Servicer Advance FinancingTotal Collateral for Servicer Advance Financing309,394 342,853 Total Collateral for Servicer Advance Financing252,377 281,972 
Total Collateral for Short-Term DebtTotal Collateral for Short-Term Debt$2,294,421 $2,450,304 Total Collateral for Short-Term Debt$1,817,322 $2,299,034 
(1)Represents securities we have retained from consolidated securitization entities. For GAAP purposes, we consolidate the loans and non-recourse ABS debt issued from these securitizations.
For the three and ninesix months ended SeptemberJune 30, 2022,2023, the average balance of our short-term debt facilities was $1.64$1.12 billion and $1.65$1.21 billion, respectively. At SeptemberJune 30, 20222023 and December 31, 2021,2022, accrued interest payable on our short-term debt facilities was $5 million and $2 million, respectively.
52

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 14. Short-Term Debt - (continued)
$7 million.
Servicer advance financing consists of non-recourse short-term securitization debt used to finance servicer advance investments. We consolidate the securitization entity that issued the debt, but the entity is independent of Redwood and the assets and liabilities are not owned by and are not legal obligations of Redwood. At SeptemberJune 30, 2022,2023, the accrued interest payable balance on this financing was $0.3$0.4 million and the unamortized capitalized commitment costs were $0.1$0.3 million.
In connection with our acquisition of Riverbend, we assumed $43 million of promissory notes whichthat are payable on demand with a 90-day notice from the lender or which may be repaid by us with a 90-day notice. These unsecured, non-marginable, recourse notes were issued in three separate series with fixed interest rates between 6% and 8%. During the three months ended September 30, 2022, we repaid $12 million of principal of these notes.
We also maintain a $10 million committed line of credit with a financial institution that is secured by certain mortgage-backed securities with a fair market value of $1 million at September 30, 2022. At both September 30, 2022 and December 31, 2021, we had no outstanding borrowings on this facility.
During the three and ninesix months ended SeptemberJune 30, 2022, business purpose loan warehouse facilities with a borrowing limits of $4502023, we repurchased $31 million and $900$64 million, respectively, were reclassified to short-term debt from long-term debt as the maturity of these facilities became less than one year.
During the three months ended September 30, 2022, $199 million principal amount of 4.75% convertible debt due in 2023, and $1recorded a $0.1 million gain and a $0.2 million gain on extinguishment, respectively. At June 30, 2023 the outstanding principal balance of unamortized deferred issuance costs were reclassified from long-termour convertible debt to short-term debt as the maturity of the notesdue in August 2023 was less than one year as of August 2022.$113 million.
52

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 14. Short-Term Debt - (continued)
Remaining Maturities of Short-Term Debt
The following table presents the remaining maturities of our secured short-term debt by the type of collateral securing the debt at SeptemberJune 30, 2022.2023.
Table 14.3 – Short-Term Debt by Collateral Type and Remaining Maturities
September 30, 2022June 30, 2023
(In Thousands)(In Thousands)Within 30 days31 to 90 daysOver 90 daysTotal(In Thousands)Within 30 days31 to 90 daysOver 90 daysTotal
Collateral TypeCollateral TypeCollateral Type
Held-for-sale residential loansHeld-for-sale residential loans$— $262,804 $486,158 $748,962 Held-for-sale residential loans$— $4,267 $172,325 $176,592 
Business purpose loansBusiness purpose loans— — 775,491 775,491 Business purpose loans316,881 187,588 98,727 603,196 
Real estate securitiesReal estate securities72,233 52,202 — 124,435 Real estate securities200,529 52,836 — 253,365 
HEI warehouseHEI warehouse— — 130,008 130,008 
Total Secured Short-Term DebtTotal Secured Short-Term Debt72,233 315,006 1,261,649 1,648,888 Total Secured Short-Term Debt517,410 244,691 401,060 1,163,161 
Servicer advance financingServicer advance financing— — 233,104 233,104 Servicer advance financing— — 162,981 162,981 
Promissory notesPromissory notes— 30,702 — 30,702 Promissory notes— 18,483 — 18,483 
Convertible notes, netConvertible notes, net— — 197,585 197,585 Convertible notes, net— 112,497 — 112,497 
Total Short-Term DebtTotal Short-Term Debt$72,233 $345,708 $1,692,338 $2,110,279 Total Short-Term Debt$517,410 $375,671 $564,041 $1,457,122 
53

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)


Note 15. Asset-Backed Securities Issued
ABS issued represents securities issued by non-recourse securitization entities we consolidate under GAAP. The majority of our ABS issued is carried at fair value under the CFE election (see Note 4 for additional detail) with the remainder carried at amortized cost. The carrying values of ABS issued by our consolidated securitization entities at SeptemberJune 30, 20222023 and December 31, 2021,2022, along with other selected information, are summarized in the following table.
Table 15.1 – Asset-Backed Securities Issued
September 30, 2022Legacy
Sequoia		Sequoia
CAFL (1)
Freddie Mac SLST (2)
Freddie Mac
K-Series		HEITotal
June 30, 2023
Legacy
Sequoia		Sequoia
CAFL (1)
Freddie Mac SLSTFreddie Mac
K-Series		HEITotal
(Dollars in Thousands)(Dollars in Thousands)Legacy
Sequoia		Sequoia
CAFL (1)
Freddie Mac SLST (2)
Freddie Mac
K-Series		HEITotal(Dollars in Thousands)
Certificates with principal balanceCertificates with principal balanceCertificates with principal balance$171,068 $4,125,715 $3,161,740 $1,184,425 $406,581 $104,171 $9,153,700 
Interest-only certificatesInterest-only certificates170 62,311 134,348 13,930 8,075 — 218,834 Interest-only certificates162 49,192 103,935 14,413 6,019 — 173,721 
Market valuation adjustmentsMarket valuation adjustments(16,602)(699,473)(330,549)(109,410)(25,428)(7,629)(1,189,091)Market valuation adjustments(9,181)(689,517)(310,155)(101,866)(25,019)(8,513)(1,144,251)
ABS Issued, NetABS Issued, Net$197,354 $3,013,249 $3,179,487 $1,249,041 $395,411 $104,751 $8,139,293 ABS Issued, Net$162,049 $3,485,390 $2,955,520 $1,096,972 $387,581 $95,658 $8,183,170 
Range of weighted average interest rates, by series(3)
Range of weighted average interest rates, by series(3)
2.52% to 3.90%2.56% to 4.99%2.34% to 5.93%3.50% to 4.75%3.41 %3.76 %
Range of weighted average interest rates, by series(3)
0% to 7.02%2.63% to 5.01%2.34% to 6.19%3.50%3.41 %3.82 %
Stated maturities(3)
Stated maturities(3)
2024 - 20362047-20522027-20322028-205920252052
Stated maturities(3)
2024-20362047-20532027-20322028-202920252052
Number of seriesNumber of series20 17 19 3 1 1 Number of series20 19 19 2 1 1 

December 31, 2021Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST (2)
Freddie Mac K-SeriesHEITotal
December 31, 2022
Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST (2)
Freddie Mac K-SeriesHEITotal
(Dollars in Thousands)(Dollars in Thousands)Legacy
Sequoia		Sequoia
CAFL(1)
Freddie Mac SLST (2)
Freddie Mac K-SeriesHEITotal(Dollars in Thousands)
Certificates with principal balanceCertificates with principal balanceCertificates with principal balance$200,047 $3,595,715 $3,322,250 $1,306,652 $410,725 $108,962 $8,944,351 
Interest-only certificatesInterest-only certificates619 32,749 193,725 11,714 10,184 — 248,991 Interest-only certificates180 57,871 124,928 15,328 7,379 — 205,686 
Market valuation adjustmentsMarket valuation adjustments(32,243)(2,774)16,407 41,111 12,973 (1,382)34,092 Market valuation adjustments(16,036)(682,477)(331,371)(99,830)(25,319)(8,252)(1,163,285)
ABS Issued, NetABS Issued, Net$227,881 $3,383,048 $3,474,898 $1,588,463 $441,857 $137,410 $9,253,557 ABS Issued, Net$184,191 $2,971,109 $3,115,807 $1,222,150 $392,785 $100,710 $7,986,752 
Range of weighted average interest rates, by series(3)
Range of weighted average interest rates, by series(3)
0.23% to 1.44%2.40% to 5.03%2.64% to 5.24%3.50% to 4.75%3.41 %3.31 %
Range of weighted average interest rates, by series(3)
2.69% to 5.19%2.57% to 6.13%2.34% to 5.92%3.50% to 4.75%3.41 %3.78 %
Stated maturities(3)
Stated maturities(3)
2024 - 20362047-20522027-20312028-205920252052 
Stated maturities(3)
2024 - 20362047-20522027-20322028-205920252052 
Number of seriesNumber of series20 16 16 3 1 1 Number of series20 17 19 3 1 1 
(1)Includes $485 million and $270 million (principal balance) of ABS issued by two CAFL bridge securitization trusts sponsored by Redwood and accounted for at amortized cost at Septemberboth June 30, 20222023 and December 31, 2021, respectively.2022.
(2)Includes $100 million and $145$86 million (principal balance) of ABS issued by a re-securitization trust sponsored by Redwood and accounted for at amortized cost at September 30, 2022 and December 31, 2021, respectively.2022.
(3)Certain ABS issued by CAFL Freddie Mac SLST, and HEI securitization entities are subject to early redemption and interest rate step-ups as described below.

54

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 15. Asset-Backed Securities Issued - (continued)
During the second quarter of 2022, we consolidated the assets and liabilities of a securitization entity formed in connection with the securitization of CoreVest BPL bridge loans (presented within CAFL in Table 15.1 above), which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $215 million (principal balance) of ABS issued to third parties and retained the remaining beneficial ownership interest in the trust. The ABS were issued at a discount and we have elected to account for the ABS issued at amortized cost. At SeptemberJune 30, 2022,2023, the principal balance of the ABS issued was $215 million, and the unamortized debt discount and deferred issuance costs were $7$4 million in total, for a net carrying value of $208$211 million. The weighted average stated coupon of the ABS issued was 4.32% at issuance. The ABS issued by the CAFL bridge entity are subject to an optional redemption in May 2024, and beginning in June 2025, the interest rate on the ABS issued increases by 2% through final maturity in May 2029. The ABS issued by this securitization were collateralized by $229$207 million of BPL bridge loans and $19$45 million of restricted cash and other assets at SeptemberJune 30, 2022.2023. The securitization is structured with $250 million of total funding capacity and a feature to allow reinvestment of loan payoffs for the first 24 months of the transaction (through May 2024), unless an amortization event occurs prior to the expiration of the 24-month reinvestment period. Amortization trigger events include, among other events, delinquency rates or default rates exceeding specified thresholds for three consecutive periods, or the effective advance rate exceeding a specified threshold.
During the third quarter of 2021, we consolidated the assets and liabilities of a securitization entity formed in connection with the securitization of CoreVest BPL bridge loans (presented within CAFL in table 15.1 above), which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $270 million (principal balance) of ABS issued to third parties and retained the remaining beneficial ownership interest in the trust. The ABS were issued at a discount and we have elected to account for the ABS issued at amortized cost. At SeptemberJune 30, 2022,2023, the principal balance of the ABS issued was $270 million, and the unamortized debt discount and deferred issuance costs were $2$1 million, for a net carrying value of $268$269 million. The weighted average stated coupon of the ABS issued was 2.34% at issuance. The ABS issued by the CAFL bridge entity are subject to an optional redemption in March 2024, and beginning in March 2025 the interest rate on the ABS issued increases by 2% through final maturity in March 2029. The ABS issued by this securitization were collateralizedbacked by $283assets including $290 million of BPL bridge loans, $7 million of other assets, and $24$16 million of restricted cash and other assets at SeptemberJune 30, 2022.2023. The securitization is structured with $300 million of total funding capacity and a feature to allow reinvestment of loan payoffs for the first 30 months of the transaction (through March 2024), unless an amortization event occurs prior to the expiration of the 30-month reinvestment period. Amortization trigger events include, among other events, delinquency rates or default rates exceeding specified thresholds for three consecutive periods, or the effective advance rate exceeding a specified threshold.
During the third quarter of 2021, we consolidated the assets and liabilities of thean HEI securitization entity formed in connection with the securitization of HEIs, which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance, we sold $146 million (principal balance) of ABS issued to third parties and retained a portion of the remaining beneficial ownership interest in the trust. We elected to account for the entity under the CFE election and account for the ABS issued at fair value, with the entire change in fair value of the ABS issued (including accrued interest) recorded through Investment fair value changes, net on our consolidated statements of income. The ABS issued by the HEI securitization entity are subject to an optional redemption in September 2023, and beginning in September 2024 the interest rate on the ABS issued increases by 2% through final maturity in 2052.
During the third quarter of 2020, we transferred all of the subordinate securities we owned from two consolidated re-performing loan securitization VIEs sponsored by Freddie Mac SLST to a re-securitization trust, which we determined was a VIE and for which we determined we are the primary beneficiary. At issuance,During the first quarter of 2023, we sold $210 million (principal balance) of ABS issued to third partiescalled the Freddie Mac SLST re-securitization and retained 100% ofpaid off the remaining beneficial ownership interest in the trust through ownership of a subordinate security issued by the trust. The ABS was issued at a discount and we have elected to account for the ABS issued at amortized cost. At September 30, 2022, the principal balance of the ABS issued was $100 million, and the debt discount and deferred issuance costs totaled $1 million, for a net carrying value of $99 million. The stated coupon of the ABS issued was 4.75% at issuance and the final stated maturity occurs in July 2059. The ABS issued are subject to an optional redemption in July 2022 and in July 2023 the ABS interest rate steps up to 7.75%.associated outstanding ABS.

55

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 15. Asset-Backed Securities Issued - (continued)
The actual maturity of each class of ABS issued is primarily determined by the rate of principal prepayments on the assets of the issuing entity. Each series is also subject to redemption prior to the stated maturity according to the terms of the respective governing documents of each ABS issuing entity. As a result, the actual maturity of ABS issued may occur earlier than the stated maturity. At SeptemberJune 30, 2022,2023, the majority of the ABS issued and outstanding had contractual maturities beyond five years. See Note 4 for detail on the carrying value components of the collateral for ABS issued and outstanding. The following table summarizes the accrued interest payable on ABS issued at SeptemberJune 30, 20222023 and December 31, 2021.2022. Interest due on consolidated ABS issued is payable monthly.
Table 15.2 – Accrued Interest Payable on Asset-Backed Securities Issued
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Legacy SequoiaLegacy Sequoia$223 $99 Legacy Sequoia$317 $282 
SequoiaSequoia9,003 8,452 Sequoia11,222 8,880 
CAFLCAFL11,202 11,030 CAFL10,286 10,918 
Freddie Mac SLST (1)
Freddie Mac SLST (1)
4,026 4,630 
Freddie Mac SLST (1)
3,455 3,561 
Freddie Mac K-SeriesFreddie Mac K-Series1,173 1,190 Freddie Mac K-Series1,155 1,167 
Total Accrued Interest Payable on ABS IssuedTotal Accrued Interest Payable on ABS Issued$25,627 $25,401 Total Accrued Interest Payable on ABS Issued$26,435 $24,808 
(1)Includes accrued interest payable on ABS issued by a re-securitization trust sponsored by Redwood.

56

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 16. Long-Term Debt
The tables below summarize our long-term debt, including the facilities that are available to us, the outstanding balances, the weighted average interest rate, and the maturity information at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 16.1 – Long-Term Debt
September 30, 2022June 30, 2023
(Dollars in Thousands)(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity
FacilitiesFacilitiesFacilities
Recourse Subordinate Securities FinancingRecourse Subordinate Securities FinancingRecourse Subordinate Securities Financing
Facility AFacility A$131,316 $— $131,316 N/A4.21 %9/2024Facility A$128,287 $— $128,287 N/A5.71 %9/2024
CAFL
Facility BFacility B102,006 (126)101,880 N/A4.21 %2/2025Facility B101,465 — 101,465 N/A5.71 %2/2025
Facility CFacility C71,792 (189)71,603 N/A4.75 %6/2026Facility C63,309 — 63,309 N/A4.75 %6/2026
Non-Recourse BPL FinancingNon-Recourse BPL FinancingNon-Recourse BPL Financing
Facility DFacility D565,028 (976)564,052 $750,000 L + 2.51%N/AFacility D504,735 (543)504,192 $750,000 SOFR + 2.87%N/A
Facility EFacility E283,144 (938)282,206 335,000 SOFR + 3.25%12/2025
Recourse BPL FinancingRecourse BPL FinancingRecourse BPL Financing
Facility FFacility F17,615 (11)17,604 500,000 SOFR + 2.35%-2.60%9/2024
Recourse MSR FinancingRecourse MSR Financing
Facility GFacility G— — — 500,000 SOFR + 2.25% - 2.50%9/2024Facility G47,169 — 47,169 50,000  SOFR + 3.25%9/2024
Total Long-Term Debt FacilitiesTotal Long-Term Debt Facilities870,142 (1,291)868,851 Total Long-Term Debt Facilities1,145,724 (1,492)1,144,232 
Convertible notesConvertible notesConvertible notes
5.625% convertible senior notes5.625% convertible senior notes150,200 (1,484)148,716 N/A5.625 %7/20245.625% convertible senior notes150,200 (868)149,332 N/A5.625 %7/2024
5.75% exchangeable senior notes5.75% exchangeable senior notes172,092 (2,769)169,323 N/A5.75 %10/20255.75% exchangeable senior notes162,092 (2,002)160,090 N/A5.75 %10/2025
7.75% convertible senior notes7.75% convertible senior notes215,000 (6,419)208,581 N/A7.75 %6/20277.75% convertible senior notes215,000 (5,570)209,430 N/A7.75 %6/2027
Trust preferred securities and subordinated notesTrust preferred securities and subordinated notes139,500 (745)138,755 N/AL + 2.25%7/2037Trust preferred securities and subordinated notes139,500 (710)138,790 N/AL + 2.25%7/2037
Total Long-Term DebtTotal Long-Term Debt$1,546,934 $(12,708)$1,534,226 Total Long-Term Debt$1,812,516 $(10,642)$1,801,874 
57

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 16. Long-Term Debt - (continued)

December 31, 2021December 31, 2022
(Dollars in Thousands)(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity(Dollars in Thousands)BorrowingsUnamortized Deferred Issuance Costs / DiscountNet Carrying ValueLimit
Weighted Average Interest Rate (1)
Final Maturity
FacilitiesFacilitiesFacilities
Recourse Subordinate Securities FinancingRecourse Subordinate Securities FinancingRecourse Subordinate Securities Financing
Facility AFacility A$144,385 $(313)$144,072 N/A4.21 %9/2024Facility A$130,408 $— $130,408 N/A5.71 %9/2024
CAFL
Facility BFacility B102,351 (353)101,998 N/A4.21 %2/2025Facility B101,706 (50)101,656 N/A4.21 %2/2025
Facility CFacility C91,707 (376)91,331 N/A4.75 %6/2026Facility C68,995 (125)68,870 N/A4.75 %6/2026
Non-Recourse BPL FinancingNon-Recourse BPL FinancingNon-Recourse BPL Financing
Facility DFacility D307,215 (507)306,708 $400,000 L + 2.75%N/AFacility D404,622 (667)403,955 $750,000 SOFR + 2.87%N/A
Facility EFacility E308,933 (838)308,095 335,000 SOFR + 3.25%12/2025
Recourse BPL FinancingRecourse BPL FinancingRecourse BPL Financing
Facility E234,349 (123)234,226 450,000 L + 2.21%9/2023
Facility FFacility F110,148 — 110,148 450,000 L + 3.35%6/2023Facility F64,689 (473)64,216 500,000 SOFR + 2.25%-2.50%9/2024
Total Long-Term Debt FacilitiesTotal Long-Term Debt Facilities990,155 (1,672)988,483 Total Long-Term Debt Facilities1,079,353 (2,153)1,077,200 
Convertible notesConvertible notesConvertible notes
4.75% convertible senior notes198,629 (1,836)196,793 N/A4.75 %8/2023
5.625% convertible senior notes5.625% convertible senior notes150,200 (2,072)148,128 N/A5.625 %7/20245.625% convertible senior notes150,200 (1,282)148,918 N/A5.625 %7/2024
5.75% exchangeable senior notes5.75% exchangeable senior notes172,092 (3,384)168,708 N/A5.75 %10/20255.75% exchangeable senior notes162,092 (2,410)159,682 N/A5.75 %10/2025
7.75% convertible senior notes7.75% convertible senior notes215,000 (6,142)208,858 N/A7.75 %6/2027
Trust preferred securities and subordinated notesTrust preferred securities and subordinated notes139,500 (779)138,721 N/AL + 2.25%7/2037Trust preferred securities and subordinated notes139,500 (733)138,767 N/AL + 2.25%7/2037
Total Long-Term DebtTotal Long-Term Debt$1,650,576 $(9,743)$1,640,833 Total Long-Term Debt$1,746,145 $(12,720)$1,733,425 
(1)Variable rate borrowings are based on 1- or 3-month LIBOR ("L" in the table above) or 1-month SOFR, plus an applicable spread.

 As described above within Note 3, as a result of legislation that was passed in the state of New York, our trust preferred securities and subordinated notes are expected to convert to SOFR upon the cessation of LIBOR in 2023.
Refer to Note 1516 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, for a full description of our long-term debt.
Non-Recourse BPL Financing Facility
During the three months ended March 31, 2022, we amended facility D (see Table 16.1 above) to increase the borrowing limit from $400 million to $600 million. During the three months ended September 30, 2022, we amended facility D to increase the borrowing limit from $600 million to $750 million.
Recourse BPL Financing Facilities
During the three months ended September 30, 2022, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable financing for business purpose bridge loan and single-family rental loans (Facility G in Table 16.1 above). At September 30, 2022, there were no borrowings under this facility. During the three months ended September 30, 2022, Facility E was reclassified to short-term debt as the maturity of this facility was less than one year.
During the three months ended June 30, 2022, Facility F was reclassified to short-term debt as the maturity of this facility was less than one year. During the three months ended March 31, 2022, we amended the interest rate for Facilities E and F (see Table 16.1 above) to be indexed to a spread over one-month SOFR compared to a LIBOR-indexed spread.

58

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 16. Long-Term Debt - (continued)

Convertible Notes
In June 2022, we issued $215 million principal amount of 7.75% convertible senior notes due 2027. These notes require semi-annual interest payments at a fixed annual coupon rate of 7.75% until maturity or conversion, which will be no later than June 15, 2027. After deducting the underwriting discount and offering costs, we received $208 million of net proceeds. Including amortization of deferred debt issuance costs, the effective interest expense yield on these notes was approximately 8.50% per annum. We may elect to settle conversions either entirely in cash or in a combination of cash and shares of common stock. Upon conversion, the conversion value will be paid in cash up to at least the principal amount of the notes being converted. The initial conversion rate of the notes is 95.6823 common shares per $1,000 principal amount of notes (equivalent to a conversion price of $10.45 per common share).
During the three months ended September 30, 2022, $199 million principal amount of 4.75% convertible debt and $1 million of unamortized deferred issuance costs were reclassified from long-term debt to short-term debt as the maturity of the notes was less than one year as of August 2022.
The following table below presents the value of loans, securities, and other assets pledged as collateral under our long-term debt at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 16.2 – Collateral for Long-Term Debt
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Collateral TypeCollateral TypeCollateral Type
Bridge loans$699,704 $554,597 
Single-family rental loans— 244,703 
BPL bridge loansBPL bridge loans$971,338 $897,782 
BPL term loansBPL term loans20,564 66,567 
Mortgage servicing rights (including certificated MSRs)Mortgage servicing rights (including certificated MSRs)75,284 — 
Real estate securitiesReal estate securitiesReal estate securities
Sequoia securitizations (1)
Sequoia securitizations (1)
184,363 247,227 
Sequoia securitizations (1)
178,680 178,439 
CAFL securitizations (1)
CAFL securitizations (1)
240,683 260,405 
CAFL securitizations (1)
234,196 237,068 
Total Collateral for Long-Term DebtTotal Collateral for Long-Term Debt$1,124,750 $1,306,932 Total Collateral for Long-Term Debt$1,480,062 $1,379,856 
(1)Represents securities we have retained from consolidated securitization entities. For GAAP purposes, we consolidate the loans and non-recourse ABS debt issued from these securitizations.
58

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 16. Long-Term Debt - (continued)

The following table summarizes the accrued interest payable on long-term debt at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 16.3 – Accrued Interest Payable on Long-Term Debt
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Long-term debt facilitiesLong-term debt facilities$2,685 $815 Long-term debt facilities$4,569 $3,364 
Convertible notesConvertible notesConvertible notes
4.75% convertible senior notes— 3,564 
5.625% convertible senior notes5.625% convertible senior notes1,784 3,896 5.625% convertible senior notes3,896 3,896 
5.75% exchangeable senior notes5.75% exchangeable senior notes4,947 2,474 5.75% exchangeable senior notes2,328 2,332 
7.75% convertible senior notes7.75% convertible senior notes5,184 — 7.75% convertible senior notes741 741 
Trust preferred securities and subordinated notesTrust preferred securities and subordinated notes1,228 581 Trust preferred securities and subordinated notes1,814 1,633 
Total Accrued Interest Payable on Long-Term DebtTotal Accrued Interest Payable on Long-Term Debt$15,828 $11,330 Total Accrued Interest Payable on Long-Term Debt$13,348 $11,966 
Recourse Subordinate Securities Financing Facilities
In 2019, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable (i.e., not subject to margin calls based on the market value of the underlying collateral) recourse debt financing of certain Sequoia securities as well as securities retained from our consolidated Sequoia securitizations (Facility A in Table 16.1 above). The financing is fully and unconditionally guaranteed by Redwood, and had an interest rate of approximately 4.21% through September 2022, which increased to 5.71% from October 2022 through September 2023, and will increase to 7.21% from October 2023 through September 2024. The financing facility has a final maturity in September 2024.
In 2020, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable recourse debt financing of certain securities retained from our consolidated CAFL securitizations (Facility B in Table 16.1 above). The financing is fully and unconditionally guaranteed by Redwood, and had an interest rate of approximately 4.21% through February 2023, which increased to 5.71% from March 2023 through February 2024, and will increase to 7.21% from March 2024 through February 2025. The financing facility may be terminated at our option and has a final maturity in February 2025.
In the third quarter of 2021, a subsidiary of Redwood entered into a repurchase agreement providing non-marginable recourse debt financing of certain securities retained from our consolidated CAFL securitizations (Facility C in Table 16.1 above). The financing is guaranteed by Redwood, with an interest rate of approximately 4.75% through June 2024, increasing to 6.25% from July 2024 through June 2025, and to 7.75% from July 2025 to June 2026. The financing facility may be terminated at our option and has a final maturity in June 2026.
Recourse MSR Financing Facility
In the first quarter of 2023, a subsidiary of Redwood entered into a secured revolving debt facility agreement collateralized by MSRs and certificated mortgage servicing rights (Facility G in Table 16.1 above). Borrowings under this facility accrue interest at a per annum rate equal to one-month SOFR plus 3.25% through the maturity of the facility in September 2024. This facility has an aggregate maximum borrowing capacity of $50 million.

59

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 17. Commitments and Contingencies
Lease Commitments
At SeptemberJune 30, 2022,2023, we were obligated under ten non-cancelable operating leases with expiration dates through 2031 for $22$19 million of cumulative lease payments. For the nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 20212022 our operating lease expense was $4$3 million and $3$2 million, respectively.
The following table presents our future lease commitments at SeptemberJune 30, 2022.2023.
Table 17.1 – Future Lease Commitments by Year
(In Thousands)(In Thousands)September 30, 2022(In Thousands)June 30, 2023
2022 (3 months)$1,216 
20234,956 
2023 (6 months)2023 (6 months)$2,506 
202420244,601 20244,554 
202520253,580 20253,629 
202620263,420 20263,520 
2027 and thereafter4,553 
202720272,588 
2028 and thereafter2028 and thereafter1,991 
Total Lease CommitmentsTotal Lease Commitments22,326 Total Lease Commitments18,788 
Less: Imputed interestLess: Imputed interest(2,793)Less: Imputed interest(2,118)
Operating Lease LiabilitiesOperating Lease Liabilities$19,533 Operating Lease Liabilities$16,670 
During the ninesix months ended SeptemberJune 30, 2022,2023, we did not enterentered into anyone new office leases. During the three months ended Septemberlease. At June 30, 2022, we assumed three operating office leases as a result of our acquisition of Riverbend on July 1, 2022. At September 30, 2022,2023, our operating lease liabilities were $20$17 million, which were a component of Accrued expenses and other liabilities, and our operating lease right-of-use assets were $17$14 million, which were a component of Other assets.
We determined that none of our leases contained an implicit interest rate and used a discount rate equal to our incremental borrowing rate on a collateralized basis to determine the present value of our total lease payments. As such, we determined the applicable discount rate for each of our leases using a swap rate plus an applicable spread for borrowing arrangements secured by our real estate loans and securities for a length of time equal to the remaining lease term on the date of adoption.lease commencement date. At SeptemberJune 30, 2022,2023, the weighted-average remaining lease term and weighted-average discount rate for our leases was 5 years and 5.2%, respectively.
Commitment to Fund BPL Bridge Loans
As of SeptemberJune 30, 2022,2023, we had commitments to fund up to $990$755 million of additional advances on existing BPL bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the borrower and other terms regarding advances that must be met before we fund the commitment. At SeptemberJune 30, 2022,2023, we carried a $3$1 million contingent liability related to these commitments to fund construction advances. During the three and ninesix months ended SeptemberJune 30, 2022,2023, we recorded a net market valuation gain of $1 million$6 thousand and a net market valuation loss of $2 million, respectively, related to this liability through Mortgage banking activities, net and Investment fair value changes, net on our consolidated statements of income (loss). During the three and nine months ended September 30, 2021, we recorded a net market valuation loss of $0.3 million and a net market valuation gain of $1 million,$3 thousand, respectively, related to this liability through Mortgage banking activities, net on our consolidated statements of income (loss).income.
Commitment to Fund Partnerships
In 2018, we invested in two partnerships created to acquire and manage certain mortgage servicing related assets. See Note 11 for additional detail on these investments. In connection with this investment,these investments, we are required to fund future net servicer advances related to the underlying mortgage loans. The actual amount of net servicer advances we may fund in the future is subject to significant uncertainty and will be based on the credit and prepayment performance of the underlying loans.

60

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 17. Commitments and Contingencies - (continued)
Commitment to Acquire HEIs
At September 30, 2022, we had outstanding flow purchase agreements with multiple third parties, with an aggregate commitment to purchase $350 million of HEIs, $149 million of which commitments remained outstanding. These purchase agreements specify monthly minimum and maximum amounts of HEIs subject to such purchase commitments. We may terminate the purchase agreement and associated purchase commitment relating to $85 million of remaining commitments upon 90 days prior notice. We account for these investments under the fair value option. See Note 10 for additional detail on these investments.
Commitments to Fund Strategic Investments
In the first quarter of 2022, we entered into a $25 million commitment to an investment fund with the mission of providing quality workforce housing opportunities in several California urban communities, including the San Francisco Bay Area. At SeptemberJune 30, 2022,2023, we had funded $15 million of this commitment. This investment is included in Other investments on our consolidated balance sheets.
In 2021, we entered into a commitment to fund a $5 million RWT Horizons investment. At SeptemberJune 30, 2022,2023, we had funded $12 million of this commitment. This investment is included in Other investments on our consolidated balance sheets.
Riverbend Contingent Consideration
As part of the consideration for our acquisition of Riverbend, we may make earnout payments payable in cash, based on generating specified revenues over a threshold amount during the two-year period ending July 1, 2024, up to a maximum potential amount payable of $25.3 million. These contingent earnout payments are classified as a contingent consideration liability on our consolidated balance sheets and carried at fair value. At SeptemberJune 30, 2022,2023, our estimated fair value of this contingent liability was zero.
Loss Contingencies — Risk-Sharing
During 2015 and 2016, we sold conforming loans to the Agencies with an original unpaid principal balance of $3.19 billion, subject to our risk-sharing arrangements with the Agencies. At SeptemberJune 30, 2022,2023, the maximum potential amount of future payments we could be required to make under these arrangements was $44 million and this amount was partially collateralized by assets we transferred to pledged accounts and is presented as pledged collateral in Other assets on our consolidated balance sheets. We have no recourse to any third parties that would allow us to recover any amounts related to our obligations under the arrangements. At SeptemberJune 30, 2022,2023, we had incurred less than $100 thousand of cumulative losses under these arrangements. For the three and ninesix months ended SeptemberJune 30, 2022,2023, other income related to these arrangements was $0.3$0.2 million and $1$0.3 million, respectively.
All of the loans in the reference pools subject to these risk-sharing arrangements were originated in 2014 and 2015, and at SeptemberJune 30, 2022,2023, the loans had an unpaid principal balance of $454$418 million, a weighted average FICO score of 756761 (at origination), and LTV ratio of 74% (at origination). At SeptemberJune 30, 2022, $102023, $5 million of the loans were 90 or more days delinquent, of which four of these loans with an unpaid principal balance of $1 million were in foreclosure. At SeptemberJune 30, 2022,2023, the carrying value of our guarantee obligation was $7$6 million and included $5 million designated as a non-amortizing credit reserve, which we believe is sufficient to cover current expected losses under these obligations.
Our consolidated balance sheets include assets of special purpose entities ("SPEs") associated with these risk-sharing arrangements (i.e., the "pledged collateral" referred to above) that can only be used to settle obligations of these SPEs for which the creditors of these SPEs (the Agencies) do not have recourse to us. At both SeptemberJune 30, 20222023 and December 31, 2021,2022, assets of such SPEs totaled $30 million, and liabilities of such SPEs totaled $7$6 million.

61

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 17. Commitments and Contingencies - (continued)
Loss Contingencies — Residential Repurchase ReserveReserves
We maintain a repurchase reserve for potential obligations arising from representation and warranty violations related to residential loans we have sold to securitization trusts or third parties and for conforming residential loans associated with MSRs that we have purchased from third parties.sold. We do not originate residential loans and we believe the initial risk of loss due to loan repurchases (i.e., due to a breach of representations and warranties) would generally be a contingency to the companies from whom we acquired the loans. However, in some cases, for example, where loans were acquired from companies that have since become insolvent, repurchase claims may result in our being liable for a repurchase obligation.
At SeptemberJune 30, 20222023 and December 31, 2021,2022, our repurchase reserve associated with our residential loans and MSRs was $6$5 million and $9$6 million, respectively, and was recorded in Accrued expenses and other liabilities on our consolidated balance sheets. During the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, we received sevenone and eightthree repurchase requests,request(s), respectively, and repurchased onefive and onezero loan(s), respectively. During the three and ninesix months ended SeptemberJune 30, 2023 and 2022, we recorded a repurchase provision expense of $0.1 million and a reversalreversals of repurchase provision expenseexpenses of $1 million and $4 million, respectively, which were recorded in Mortgage banking activities, net, on our consolidated statements of income (loss). During the threeincome.
At June 30, 2023 and nine months ended September 30, 2021, we recordedDecember 31, 2022, our repurchase provision expense of $0.3 millionreserve associated with business purpose loans sold to third-parties was zero and $0.6$1 million, respectively, which wereand was recorded in Mortgage banking activities, net,Accrued expenses and Other incomeother liabilities on our consolidated statementsbalance sheets. During the six months ended June 30, 2023 and 2022, we received three and zero repurchase requests, respectively, for business purpose loans sold to third parties, and repurchased twelve and zero business purpose loans, respectively, that had been sold to third parties. The business purpose loans repurchased in the first quarter of income (loss).2023 resolved the open repurchase requests related to loans sold to third-parties that were outstanding as of December 31, 2022, for which the $1 million reserve was previously established. No incremental repurchase provision was recorded in the first half of 2023 and, at June 30, 2023, no open repurchase requests were outstanding for business purpose loans sold to third parties.
Loss Contingencies — Litigation, Claims and Demands
There is no significant update regarding the litigation matters described in Note 1617 within the financial statements included in Redwood’s Annual Report on Form 10-K for the year ended December 31, 20212022 under the heading “Loss“Loss Contingencies - Litigation, Claims and Demands.Demands.” At SeptemberJune 30, 2022,2023, the aggregate amount of loss contingency reserves established in respect of the FHLB-Seattle and Schwab litigation matters described in our Annual Report on Form 10-K for the year ended December 31, 2021 was2022 were $2 million.

62

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 18. Equity
The following table provides a summary of changes to accumulatedAccumulated other comprehensive income (loss) by component for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 18.1 – Changes in Accumulated Other Comprehensive Income (Loss) by Component
Three Months Ended September 30, 2022Three Months Ended September 30, 2021Three Months Ended June 30, 2023Three Months Ended June 30, 2022
(In Thousands)(In Thousands)Available-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow HedgesAvailable-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow Hedges(In Thousands)Available-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow HedgesAvailable-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of periodBalance at beginning of period$16,595 $(74,383)$88,251 $(78,511)Balance at beginning of period$8,249 $(71,285)$48,938 $(75,412)
Other comprehensive (loss) income
before reclassifications		(8,731)— (2,658)— 
Amounts reclassified from other
accumulated comprehensive (income) loss		544 1,040 (6,200)1,041 
Net current-period other comprehensive (loss) income(8,187)1,040 (8,858)1,041 
Other comprehensive loss
before reclassifications		Other comprehensive loss
before reclassifications		(688)— (33,409)— 
Amounts reclassified from other
accumulated comprehensive income (loss)		Amounts reclassified from other
accumulated comprehensive income (loss)		604 1,029 1,066 1,029 
Net current-period other comprehensive income (loss)Net current-period other comprehensive income (loss)(84)1,029 (32,343)1,029 
Balance at End of PeriodBalance at End of Period$8,408 $(73,343)$79,393 $(77,470)Balance at End of Period$8,165 $(70,256)$16,595 $(74,383)
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
(In Thousands)Available-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow HedgesAvailable-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period$67,503 $(76,430)$76,336 $(80,557)
Other comprehensive (loss) income
before reclassifications		(60,013)— 19,552 — 
Amounts reclassified from other
accumulated comprehensive (income) loss		918 3,087 (16,495)3,087 
Net current-period other comprehensive (loss) income(59,095)3,087 3,057 3,087 
Balance at End of Period$8,408 $(73,343)$79,393 $(77,470)

Six Months Ended June 30, 2023Six Months Ended June 30, 2022
(In Thousands)Available-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow HedgesAvailable-for-Sale SecuritiesInterest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period$3,435 $(72,303)$67,503 $(76,430)
Other comprehensive income (loss)
before reclassifications		4,319 — (51,282)— 
Amounts reclassified from other
accumulated comprehensive income (loss)		411 2,047 374 2,047 
Net current-period other comprehensive income (loss)4,730 2,047 (50,908)2,047 
Balance at End of Period$8,165 $(70,256)$16,595 $(74,383)
63

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 18. Equity - (continued)
The following table provides a summary of reclassifications out of accumulatedAccumulated other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 18.2 – Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Amount Reclassified From
Accumulated Other Comprehensive (Loss)		Amount Reclassified From
Accumulated Other Comprehensive (Loss)
Affected Line Item in theThree Months Ended September 30,Affected Line Item in theThree Months Ended June 30,
(In Thousands)(In Thousands)Income Statement20222021(In Thousands)Income Statement20232022
Net Realized (Gain) Loss on AFS Securities
Increase (decrease) in allowance for credit losses on AFS securitiesInvestment fair value changes, net$544 $— 
Gain on sale of AFS securitiesRealized gains, net— (6,200)
Net Realized Loss on AFS SecuritiesNet Realized Loss on AFS Securities
Increase in allowance for credit losses on AFS securitiesIncrease in allowance for credit losses on AFS securitiesInvestment fair value changes, net$71 $1,066 
Loss on sale of AFS securitiesLoss on sale of AFS securitiesRealized gains, net533 — 
$544 $(6,200)$604 $1,066 
Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges		Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges		Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges
Amortization of deferred lossAmortization of deferred lossInterest expense$1,040 $1,041 Amortization of deferred lossInterest expense$1,029 $1,029 
$1,040 $1,041 $1,029 $1,029 
Amount Reclassified From
Accumulated Other Comprehensive (Loss)		Amount Reclassified From
Accumulated Other Comprehensive (Loss)
Affected Line Item in theNine Months Ended September 30,Affected Line Item in theSix Months Ended June 30,
(In Thousands)(In Thousands)Income Statement20222021(In Thousands)Income Statement20232022
Net Realized (Gain) Loss on AFS SecuritiesNet Realized (Gain) Loss on AFS SecuritiesNet Realized (Gain) Loss on AFS Securities
Increase (decrease) in allowance for credit losses on AFS securitiesInvestment fair value changes, net$2,315 $(388)
Gain on sale of AFS securitiesRealized gains, net(1,397)(16,107)
Increase in allowance for credit losses on AFS securitiesIncrease in allowance for credit losses on AFS securitiesInvestment fair value changes, net$99 $1,771 
Loss (gain) on sale of AFS securitiesLoss (gain) on sale of AFS securitiesRealized gains, net312 (1,397)
$918 $(16,495)$411 $374 
Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges		Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges		Net Realized Loss on Interest Rate
Agreements Designated as Cash Flow Hedges
Amortization of deferred lossAmortization of deferred lossInterest expense$3,087 $3,087 Amortization of deferred lossInterest expense$2,047 $2,047 
$3,087 $3,087 $2,047 $2,047 
Issuance of Common Stock
We have an established program to sell common stock from time to time in at-the-market ("ATM") offerings. During the ninesix months ended SeptemberJune 30, 2022,2023, we issued 5.2 milliondid not issue any common shares under this program. At June 30, 2023, the share issuance capacity under this program was $175 million.
Issuance of Preferred Stock
In January 2023, Redwood issued 2,800,000 shares of 10.00% Series A Fixed-Rate Reset Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") for gross proceeds of $70 million and net proceeds of approximately $67 million under this program.after deducting the underwriting discount and other estimated expenses. The Series A Preferred Stock will pay quarterly cumulative cash dividends beginning April 15, 2023 to January 15, 2028 at a fixed annual rate of 10%, based on the stated liquidation preference of $25.00 per share, in arrears, when authorized by Redwood's Board of Directors and declared by the Company. Starting April 15, 2028, the annual dividend rate will reset to the five-year U.S. Treasury Rate plus a spread of 6.278%. The Series A Preferred Stock ranks senior to Redwood's common stock with respect to rights to the payment of dividends and the distribution of assets upon any liquidation,
64

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 18. Equity - (continued)
dissolution or winding up of the Company. During the three and six months ended March 31, 2022, we increasedJune 30, 2023, the capacityCompany declared preferred stock dividends of this program$0.625 and $1.22917 per share, respectively. At June 30, 2023, preferred dividends payable totaling $1 million for the second quarter 2023 dividend were included in Accrued expenses and other liabilities and were payable on July 17, 2023 to $175 million, allstockholders of which remained outstanding for future offerings under this program as of Septemberrecord on June 30, 2022.2023.
Direct Stock Purchase and Dividend Reinvestment Plan
During the ninesix months ended SeptemberJune 30, 2022,2023, we did not issue any shares of common stock through our Direct Stock Purchase and Dividend Reinvestment Plan. At SeptemberJune 30, 2022,2023, approximately 6 million shares remained outstanding for future offerings under this plan.

64

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 18. Equity - (continued)
Earnings per Common Share
The following table provides the basic and diluted (loss) earnings per common share computations for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 18.3 – Basic and Diluted Earnings per Common Share
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands, except Share Data)(In Thousands, except Share Data)2022202120222021(In Thousands, except Share Data)2023202220232022
Basic Earnings per Common Share:Basic Earnings per Common Share:Basic Earnings per Common Share:
Net (loss) income attributable to Redwood$(50,411)$88,286 $(119,462)$275,568 
Net income available to common stockholdersNet income available to common stockholders$1,115 $(99,966)$4,316 $(69,051)
Less: Dividends and undistributed earnings allocated to participating securitiesLess: Dividends and undistributed earnings allocated to participating securities(1,158)(2,984)(3,445)(8,979)Less: Dividends and undistributed earnings allocated to participating securities(876)(1,159)(2,280)(2,286)
Net (loss) income allocated to common shareholders$(51,569)$85,302 $(122,907)$266,589 
Net income allocated to common stockholdersNet income allocated to common stockholders$239 $(101,125)$2,036 $(71,337)
Basic weighted average common shares outstandingBasic weighted average common shares outstanding116,087,890 112,995,847 118,530,172 112,754,691 Basic weighted average common shares outstanding114,051,017 119,660,173 113,830,347 119,771,554 
Basic (Loss) Earnings per Common Share$(0.44)$0.75 $(1.04)$2.36 
Basic Earnings per Common ShareBasic Earnings per Common Share$— $(0.85)$0.02 $(0.60)
Diluted Earnings per Common Share:Diluted Earnings per Common Share:Diluted Earnings per Common Share:
Net (loss) income attributable to Redwood$(50,411)$88,286 $(119,462)$275,568 
Net income available to common stockholdersNet income available to common stockholders$1,115 $(99,966)$4,316 $(69,051)
Less: Dividends and undistributed earnings allocated to participating securitiesLess: Dividends and undistributed earnings allocated to participating securities(1,158)(2,747)(3,445)(8,151)Less: Dividends and undistributed earnings allocated to participating securities(876)(1,159)(2,280)(2,286)
Add back: Interest expense on convertible notes for the period, net of taxAdd back: Interest expense on convertible notes for the period, net of tax— 6,870 — 20,585 Add back: Interest expense on convertible notes for the period, net of tax— — — — 
Net (loss) income allocated to common shareholders$(51,569)$92,409 $(122,907)$288,002 
Net income allocated to common stockholdersNet income allocated to common stockholders$239 $(101,125)$2,036 $(71,337)
Weighted average common shares outstandingWeighted average common shares outstanding116,087,890 112,995,847 118,530,172 112,754,691 Weighted average common shares outstanding114,051,017 119,660,173 113,830,347 119,771,554 
Net effect of dilutive equity awardsNet effect of dilutive equity awards— 292,749 — 253,819 Net effect of dilutive equity awards394,245 — 424,945 — 
Net effect of assumed convertible notes conversion to common sharesNet effect of assumed convertible notes conversion to common shares— 28,566,875 — 28,566,875 Net effect of assumed convertible notes conversion to common shares— — — — 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding116,087,890 141,855,471 118,530,172 141,575,385 Diluted weighted average common shares outstanding114,445,262 119,660,173 114,255,292 119,771,554 
Diluted (Loss) Earnings per Common Share$(0.44)$0.65 $(1.04)$2.03 
Diluted Earnings per Common ShareDiluted Earnings per Common Share$— $(0.85)$0.02 $(0.60)
We included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights, in the calculations of basic and diluted earnings per common share as we determined that the two-class method was more dilutive than the alternative treasury stock method for these shares. Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances.
During the three and ninesix months ended SeptemberJune 30, 2021, certain2023 and 2022, none of our convertible notes were determined to be dilutive and were not included in the calculation of diluted EPS under the "if-converted" method. Under this method, the periodic interest expense (net of applicable taxes) for dilutive notes is added back to the numerator and the weighted average number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator.
65

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Note 18. Equity - (continued)
For the three and ninesix months ended SeptemberJune 30, 2022, 49,137,8082023, 44,712,499 and 37,307,70545,509,857 of common shares, respectively, related to the assumed conversion of our convertible notes were antidilutive and were excluded in the calculation of diluted earnings per share. For the three and ninesix months ended SeptemberJune 30, 2022, 33,992,377 and 31,294,614 of common shares, respectively, related to the assumed conversion of our convertible notes were antidilutive and were excluded in the calculation of diluted earnings per share. For the three and six months ended June 30, 2023, the number of outstanding equity awards that were antidilutive totaled 27,408 and 55,882, respectively. For the three and six months ended June 30, 2022, the number of outstanding equity awards that were antidilutive totaled 249,178249,224 and 268,737,278,604, respectively. For the three and nine months ended September 30, 2021, the number of outstanding equity awards that were antidilutive totaled 22,102 and 18,736, respectively.

65

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(Unaudited)
Note 18. Equity - (continued)
Stock Repurchases
In July 2022, our Board of Directors approved an authorization for the repurchase of up to $125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization replaced our previous $100 million stock repurchase authorization. This authorization has no expiration date and does not obligate us to acquire any specific number of shares or securities. During the three months ended SeptemberJune 30, 2022,2023, we repurchased 3.4 milliondid not repurchase any shares of our common stock for a total cost of $24 million.under this program. At SeptemberJune 30, 2022,2023, $101 million of the current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. During the nine months ended September 30, 2022, we repurchased 7.1 million shares of our common stock for a total cost of $56 million under our current and previously-approved Board of Director authorizations.


Note 19. Equity Compensation Plans
During the three months ended June 30, 2023, Redwood shareholders approved an additional 9,650,000 shares of common stock for grant under our Incentive Plan. At SeptemberJune 30, 20222023 and December 31, 2021, 5,258,8172022, 12,202,334 and 5,958,3902,896,604 shares of common stock, respectively, were available for grant under our Incentive Plan. The unamortized compensation cost of awards issued under the Incentive Plan, which are settled by delivery of shares of common stock, and purchases under the Employee Stock Purchase Plan, totaled $35$36 million at SeptemberJune 30, 2022,2023, as shown in the following table.
Table 19.1 – Activities of Equity Compensation Costs by Award Type
Nine Months Ended September 30, 2022Six Months Ended June 30, 2023
(In Thousands)(In Thousands)Restricted Stock AwardsRestricted Stock UnitsDeferred Stock UnitsPerformance Stock UnitsEmployee Stock Purchase PlanTotal(In Thousands)Restricted Stock UnitsDeferred Stock UnitsPerformance Stock UnitsEmployee Stock Purchase PlanTotal
Unrecognized compensation cost at beginning of periodUnrecognized compensation cost at beginning of period$84 $3,589 $26,473 $12,237 $— $42,383 Unrecognized compensation cost at beginning of period$5,068 $19,849 $15,271 $— $40,188 
Equity grantsEquity grants— 2,513 7,960 — 323 10,796 Equity grants1,992 6,825 — 422 9,239 
Performance-based valuation adjustmentPerformance-based valuation adjustment— — — (3,205)— (3,205)Performance-based valuation adjustment— — (1,719)— (1,719)
Equity grant forfeituresEquity grant forfeitures(5)(448)(101)— — (554)Equity grant forfeitures(288)(519)— — (807)
Equity compensation expenseEquity compensation expense(79)(1,567)(10,412)(2,524)(242)(14,824)Equity compensation expense(2,100)(6,554)(2,394)(212)(11,260)
Unrecognized Compensation Cost at End of PeriodUnrecognized Compensation Cost at End of Period$— $4,087 $23,920 $6,508 $81 $34,596 Unrecognized Compensation Cost at End of Period$4,672 $19,601 $11,158 $210 $35,641 
At SeptemberJune 30, 2022,2023, the weighted average amortization period remaining for all of our equity awards was less than two years.
Restricted Stock Awards ("RSAs")
At September 30, 2022 and December 31, 2021, there were 1,551 and 28,141 shares of RSAs outstanding, respectively. Restrictions on these shares lapse during 2022. During the nine months ended September 30, 2022, there were no RSAs granted, restrictions on 26 RSAs lapsed and those shares were distributed, and 341 RSAs were forfeited.
Restricted Stock Units ("RSUs")
At SeptemberJune 30, 20222023 and December 31, 2021,2022, there were 476,893677,297 and 431,072806,119 RSUs outstanding, respectively. During the ninesix months ended SeptemberJune 30, 2022,2023, there were 208,717250,852 RSUs granted, 123,869351,099 RSUs distributed, and 39,02728,575 RSUs forfeited. Unvested RSUs at SeptemberJune 30, 20222023 vest through 2026.
Deferred Stock Units (“DSUs”)
At September 30, 2022 and December 31, 2021, there were 4,911,777 and 4,022,088 DSUs outstanding, respectively, of which 2,217,327 and 1,469,903, respectively, had vested. During the nine months ended September 30, 2022, there were 1,214,533 DSUs granted, 316,546 DSUs distributed, and 8,298 DSUs forfeited. Unvested DSUs at September 30, 2022 vest through 2026.2027.
66

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 19. Equity Compensation Plans - (continued)
Deferred Stock Units (“DSUs”)
At June 30, 2023 and December 31, 2022, there were 4,999,106 and 4,831,338 DSUs outstanding, respectively, of which 2,640,535 and 2,495,787, respectively, had vested. During the six months ended June 30, 2023, there were 912,128 DSUs granted, 726,392 DSUs distributed, and 17,968 DSUs forfeited. Unvested DSUs at June 30, 2023 vest through 2027.
Performance Stock Units (“PSUs”)
At SeptemberJune 30, 20222023 and December 31, 2021,2022, the target number of PSUs that were unvested was 1,267,8492,078,171 and 1,473,883,2,354,002, respectively. Vesting for PSUs generally occurs three years from their respective grant dates based on various total shareholder return performance calculations, as discussed in Note 1819 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. During the nine months ended September 30, 2022, for PSUs granted in 2020 and 2021, we decreased the book value total shareholder return estimate for the 2022 performance period, reducing the future equity compensation expense related to these awards by $3 million.2022.
For 206,034275,831 target PSU awards that were granted in December 2018,2019, the performance vesting period ended on January 1, 2022.2023. These 20182019 PSU awards failed to reach a threshold level under their performance-based vesting criteria and resulted in the vesting of no shares of our common stock underlying these PSUs. During the three months ended June 30, 2023, for PSUs granted in 2021 and 2020, we adjusted the cumulative expected amortization expense down by $2 million to reflect our revised vesting estimate regarding the vesting of these awards in relation to the book value TSR performance condition for the second-year vesting tranche of the 2021 PSU grant and the third-year vesting tranche of the 2020 PSU grant.
Employee Stock Purchase Plan ("ESPP")
The ESPP allows a maximum of 850,000 shares of common stock to be purchased in aggregate for all employees. As of SeptemberJune 30, 20222023 and December 31, 2021, 505,4962022, 713,659 and 569,728657,777 shares had been purchased, respectively, and there remained a negligible amount of uninvested employee contributions in the ESPP at SeptemberJune 30, 2022.2023.
67

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 20. Mortgage Banking Activities, Net
The following table presents the components of Mortgage banking activities, net, recorded in our consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 20.1 – Mortgage Banking Activities
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
Residential Mortgage Banking Activities, NetResidential Mortgage Banking Activities, NetResidential Mortgage Banking Activities, Net
Changes in fair value of:Changes in fair value of:Changes in fair value of:
Residential loans, at fair value (1)
Residential loans, at fair value (1)
$(22,776)$27,862 $(125,012)$75,496 
Residential loans, at fair value (1)
$1,335 $(33,414)$8,090 $(102,236)
Trading securities (2)
Trading securities (2)
148 32 4,249 (342)
Trading securities (2)
1,923 1,315 1,923 4,101 
Risk management derivatives (3)
Risk management derivatives (3)
24,319 3,963 107,573 37,187 
Risk management derivatives (3)
2,469 9,900 (902)83,254 
Other income (expense), net (4)
467 1,089 5,496 3,305 
Other income, net (4)
Other income, net (4)
1,334 4,412 1,315 5,029 
Total residential mortgage banking activities, netTotal residential mortgage banking activities, net2,158 32,946 (7,694)115,646 Total residential mortgage banking activities, net7,061 (17,787)10,426 (9,852)
Business Purpose Mortgage Banking Activities, Net:Business Purpose Mortgage Banking Activities, Net:Business Purpose Mortgage Banking Activities, Net:
Changes in fair value of:Changes in fair value of:Changes in fair value of:
Single-family rental loans, at fair value (1)
(19,306)18,461 (84,493)54,675 
BPL term loans, at fair value (1)
BPL term loans, at fair value (1)
(1,132)(39,994)11,534 (65,187)
BPL bridge loans, at fair valueBPL bridge loans, at fair value2,297 116 3,450 2,251 
Risk management derivatives (3)
Risk management derivatives (3)
24,044 (424)56,564 930 
Risk management derivatives (3)
2,957 15,487 (2,139)32,520 
Bridge loans, at fair value(9)3,433 2,242 6,702 
Other income, net (5)
Other income, net (5)
9,648 8,747 36,214 22,236 
Other income, net (5)
5,369 12,161 9,952 26,566 
Total business purpose mortgage banking activities, netTotal business purpose mortgage banking activities, net14,377 30,217 10,527 84,543 Total business purpose mortgage banking activities, net9,491 (12,230)22,797 (3,850)
Mortgage Banking Activities, NetMortgage Banking Activities, Net$16,535 $63,163 $2,833 $200,189 Mortgage Banking Activities, Net$16,552 $(30,017)$33,223 $(13,702)
(1)For residential loans, includes changes in fair value for associated loan purchase commitments. For single-family rentalBPL term loans, includes changes in fair value for associated interest rate lock commitments.
(2)Represents fair value changes on trading securities that are being used along as hedges to manage the mark-to-market risks associated with our residential mortgage banking operations.
(3)Represents market valuation changes of derivatives that were used to manage risks associated with our mortgage banking operations.
(4)Amounts in this line item include other fee income from loan acquisitions and provisions for repurchases, presented net.
(5)Amounts in this line item include other fee income from loan originations.
6768

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 21. Other Income, Net
The following table presents the components of Other income recorded in our consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 21.1 – Other Income, Net
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
MSR income, net (1)
MSR income, net (1)
$2,890 $295 $12,569 $949 
MSR income, net (1)
$3,349 $5,376 $4,426 $9,679 
Bridge loan feesBridge loan fees1,489 1,131 3,952 2,735 Bridge loan fees1,160 1,473 2,752 2,463 
Risk share income279 575 1,062 2,318 
OtherOther(631)387 (567)2,355 Other(351)157 1,536 847 
Other Income, NetOther Income, Net$4,027 $2,388 $17,016 $8,357 Other Income, Net$4,158 $7,006 $8,714 $12,989 
(1)Includes servicing fees and fair value changes for MSRs and related hedges, net.
6869

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 22. General and Administrative Expenses, Loan Acquisition Costs, and OtherComponents of Operating Expenses
Components of our general and administrative expenses, loan acquisition costs, and other expenses for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 are presented in the following table.
Table 22.1 – Components of General and Administrative Expenses, Loan Acquisition Costs, and OtherOperating Expenses
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)2022202120222021(In Thousands)2023202220232022
General and Administrative ExpensesGeneral and Administrative ExpensesGeneral and Administrative Expenses
Fixed compensation expense (1)
Fixed compensation expense (1)
$18,626 $11,285 $45,364 $34,359 
Fixed compensation expense (1)
$12,786 $12,110 $28,145 $26,738 
Annual variable compensation expenseAnnual variable compensation expense3,521 19,844 8,689 51,021 Annual variable compensation expense3,187 1,811 7,192 5,168 
Long-term incentive award expense (2)
4,998 4,915 16,190 14,766 
Acquisition-related equity compensation expense (3)
— 1,189 — 3,613 
Long-term incentive award expense (1) (2)
Long-term incentive award expense (1) (2)
6,237 5,532 14,179 11,192 
Systems and consultingSystems and consulting3,909 2,975 10,796 9,224 Systems and consulting2,854 3,703 5,966 6,887 
Office costsOffice costs2,381 2,197 6,489 6,029 Office costs2,289 2,083 4,329 4,108 
Accounting and legalAccounting and legal1,775 1,197 5,026 3,132 Accounting and legal1,176 1,576 2,095 3,251 
Corporate costsCorporate costs928 964 2,792 2,528 Corporate costs957 1,000 1,886 1,864 
OtherOther3,969 3,126 11,581 7,165 Other1,319 2,384 2,568 4,267 
Total General and Administrative ExpensesTotal General and Administrative Expenses40,107 47,692 106,927 131,837 Total General and Administrative Expenses30,805 30,199 66,360 63,475 
Portfolio Management CostsPortfolio Management Costs3,100 1,767 6,610 3,345 
Loan Acquisition CostsLoan Acquisition CostsLoan Acquisition Costs1,444 3,480 2,733 7,945 
Commissions1,549 1,906 6,279 4,830 
Underwriting costs545 2,351 3,013 5,872 
Transfer and holding costs332 364 1,079 1,226 
Total Loan Acquisition Costs2,426 4,621 10,371 11,928 
Other ExpensesOther ExpensesOther Expenses
Amortization of purchase-related intangible assetsAmortization of purchase-related intangible assets3,891 3,873 10,731 11,619 Amortization of purchase-related intangible assets3,107 3,306 6,214 6,840 
OtherOther370 150 1,083 485 Other1,868 162 2,445 713 
Total Other ExpensesTotal Other Expenses4,261 4,023 11,814 12,104 Total Other Expenses4,975 3,468 8,659 7,553 
Total General and Administrative Expenses, Loan Acquisition Costs, and Other Expenses$46,794 $56,336 $129,112 $155,869 
Total Operating ExpensesTotal Operating Expenses$40,324 $38,914 $84,362 $82,318 
(1)Includes $3$1 million and $2 million of severance and transition-related expenses for the three and ninesix months ended SeptemberJune 30, 2022.2023, respectively.
(2)For the three months ended SeptemberJune 30, 20222023 and 2021,2022, long-term incentive award expense included $5$4 million and $3$5 million of expense, respectively, for awards settleable in shares of our common stock, and $0.1$1 million and $1$0.4 million of expense, respectively, for awards settleable in cash, respectively.cash. For both the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, long-term incentive award expense included $15 million and $10 million of expense for awards settleable in shares of our common stock, and $1$3 million and $4$1 million of expense, respectively, for awards settleable in cash, respectively.cash.
(3)Acquisition-related equity compensation expense relatesLong-Term Cash-Based Awards
During the six months ended June 30, 2023, there were no long-term cash-based retention awards granted to 588,260 shares of restricted stockemployees. Cash-based retention awards were granted to certain executive and non-executive employees in 2020, 2021 and 2022 that were issuedeach vest over three-year periods, and are subject to members of CoreVest management as a component ofcontinued employment through the consideration paid to them for our purchase of their interests in CoreVest in 2019. The grant date fair value ofvesting periods through 2025. At June 30, 2023, the liability associated with these restricted stock awards was $10$3 million whichand the unamortized compensation cost of long-term cash-based awards was recognized as compensation expense over the two-year vesting period on a straight-line basis in accordance with GAAP.

$1 million.
6970

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)
Note 22. General and Administrative Expenses, Loan Acquisition Costs, and OtherComponents of Operating Expenses - (continued)
Long-Term Cash-Based Awards and Cash Settled Deferred Stock Units
During the ninesix months ended SeptemberJune 30, 2022, $2 million of long-term cash-based retention awards were granted to employees that will vest and be paid over a three-year period, subject to continued employment through the vesting periods from 2022 through 2025. At both September 30, 2022 and December 31, 2021, the unamortized compensation cost of long-term cash-based awards was $4 million.
During the nine months ended September 30, 2022,2023, there were no cash-settled deferred stock units granted to employees. Cash-settled deferred stock units that were granted in 2020, 2021 and 20212022 and each vest over four yearsfour-year periods and are subject to continued employment through 2025.the vesting periods through 2026. At SeptemberJune 30, 20222023, the liability associated with these awards was $2 million, and December 31, 2021, the unamortized compensation cost of cash-settled deferred stock units was $2 million and $7 million, respectively.$4 million. The unamortized compensation cost is adjusted for changes in the value of our common stock at the end of each reporting period. These awards are classified as liabilities in Accrued expenses and other liabilities on our consolidated balance sheets, and are being amortized over their respective vesting periods on a straight-line basis, adjusted for changes in the value of our common stock at the end of each reporting period.
Refer to Note 2122 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, for additional information regarding long-term cash-based awards and cash-settled deferred stock units.
Cash Settled Performance Stock Units
During the six months ended June 30, 2023, $6 million of cash-settled performance stock units ("csPSUs") were granted to certain executive and non-executive employees which vest over approximately three years through January 1, 2026. The target number of csPSUs that were granted totaled 663,499 units based on a per unit grant-date fair value of $9.75. The equivalent number of underlying shares of common stock that vest and that the recipient becomes entitled to receive at the time of vesting will generally range from 0% to 250% of the target number of csPSUs granted, with the target number of csPSUs granted being adjusted to reflect the value of any dividends declared on our common stock during the vesting period. Upon vesting, the recipient will receive the settlement of the vested shares in cash based on the closing market price of our common stock on the final vesting date. These awards are classified as liabilities in Accrued expenses and other liabilities on our consolidated balance sheets, and are being amortized over their respective vesting periods on a straight-line basis, adjusted for changes in the value of the csPSUs at the end of each reporting period. At June 30, 2023, the liability associated with these awards was $1 million, and unamortized compensation cost of the csPSUs was $5 million.
The grant date fair value of these csPSUs of $9.75 per unit was determined through Monte-Carlo simulations using the following assumptions: the common stock closing price at the grant date for Redwood and each member of the comparator group, the average closing price of the common stock price for the 60 trading days beginning January 1, 2023 for Redwood and each member of the comparator group, and the range of performance-based vesting based on absolute TSR over three years from the grant date. For this csPSU grant, an implied volatility assumption of 71% (based on historical volatility), a risk-free rate of 4.23% (the three-year Treasury rate on the grant date), and a 0% dividend yield (the mathematical equivalent to reinvesting the dividends over the three-year performance period as is consistent with the terms of the PSUs) were used.
With respect to the csPSU awards granted during the six months ended June 30, 2023:
•First, vesting would range from 0% - 250% of two-thirds of the Target csPSUs granted based on the level of book value total shareholder return ("bvTSR") attained over the three-year vesting period, with 100% of this two-thirds of the Target csPSUs vesting if three-year bvTSR is 25%. bvTSR is defined as the percentage by which our book value "per share price" has increased or decreased as of the last day of the three-year vesting period relative to the first day of such vesting period, adjusted to reflect the reinvestment of all dividends declared and/or paid on our common stock.
•Second, vesting would range from 0% - 250% of one-third of the Target csPSUs granted based on Redwood’s relative total shareholder return (“rTSR”) against a comparator group of companies measured over the three-year vesting period, with 100% of this one-third of the Target csPSUs vesting if three-year rTSR corresponds to 55th percentile rTSR.
•Third, if the aggregate vesting level after steps one and two is greater than 100% of the Target csPSUs, but the Company's absolute total shareholder return ("TSR") is negative over the three-year performance period, vesting would be capped at 100% of Target csPSUs. TSR is defined as the percentage by which our common stock “per share price” has increased or decreased as of the last day of the three-year vesting period relative to the first day of such vesting period, adjusted to reflect the reinvestment of all dividends declared and/or paid on our common stock.
Refer to Note 22 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, for additional information regarding long-term cash-based awards and cash-settled deferred stock units.

71

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 23. Taxes
We believe that we have met all requirements for qualification as a REIT for federal income tax purposes. To qualify as a REIT, the Company must distribute at least 90% of its annual REIT taxable income and meet certain other requirements that relate to, among other things, the assets it holds, the income it generates, and the composition of its stockholders. Many requirements for qualification as a REIT are complex and require analysis of particular facts and circumstances. Often there is only limited judicial or administrative interpretive guidance and as such there can be no assurance that the Internal Revenue Service or courts would agree with our various tax positions. If we were to fail to meet all the requirements for qualification as a REIT and the requirements for statutory relief, we would be subject to federal corporate income tax on our taxable income and we would not be able to elect to be taxed as a REIT for four years thereafter. Such an outcome could have a material adverse impact on our consolidated financial statements.
For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, we recognized a benefit from income taxes of $10$1 million and a provision for income taxes of $14$12 million, respectively. The following is a reconciliation of the statutory federal and state tax rates to our effective tax rate at SeptemberJune 30, 20222023 and 2021.2022.
Table 23.1 – Reconciliation of Statutory Tax Rate to Effective Tax Rate
September 30, 2022September 30, 2021June 30, 2023June 30, 2022
Federal statutory rateFederal statutory rate21.0 %21.0 %Federal statutory rate21.0 %21.0 %
State statutory rate, net of Federal tax effect8.6 %8.6 %
State taxes, net of Federal tax effect, as applicableState taxes, net of Federal tax effect, as applicable(0.2)%0.6 %
Differences in taxable (loss) income from GAAP incomeDifferences in taxable (loss) income from GAAP income(29.6)%(13.1)%Differences in taxable (loss) income from GAAP income(4.9)%1.5 %
Change in valuation allowanceChange in valuation allowance(2.4)%(6.8)%Change in valuation allowance— %— %
Dividends paid deduction10.5 %(4.9)%
REIT GAAP income or loss not subject to federal income taxREIT GAAP income or loss not subject to federal income tax(32.3)%(8.4)%
Effective Tax RateEffective Tax Rate8.1 %4.8 %Effective Tax Rate(16.4)%14.7 %
We assessed our tax positions for all open tax years (i.e., Federal, 20182019 to 2022, and State, 20172018 to 2022) at SeptemberJune 30, 20222023 and December 31, 2021,2022, and concluded that we had no uncertain tax positions that resulted in material unrecognized tax benefits.

72

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)

Note 24. Segment Information
Redwood operates in three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking and Investment Portfolio. The accounting policies of the reportable segments are the same as those described in Note 3 — Summary of Significant Accounting Policies. For a full description of our segments, see Part I, Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Segment contribution represents the measure of profit that management uses to assess the performance of our business segments and make resource allocation and operating decisions. Certain corporate expenses not directly assigned or allocated to one of our three segments, as well as activity from certain consolidated Sequoia entities, are included in the Corporate/Other column as reconciling items to our consolidated financial statements. These unallocated corporate expenses primarily include interest expense from our convertible notes and trust preferred securities, indirect general and administrative expenses and other expense.
The following tables present financial information by segment for the three and six months ended June 30, 2023 and 2022.
Table 24.1 – Business Segment Financial Information
Three Months Ended June 30, 2023
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total
Interest income$2,434 $4,397 $166,603 $5,547 $178,981 
Interest expense(1,700)(3,673)(129,855)(17,657)(152,885)
Net interest income (expense)734 724 36,748 (12,110)26,096 
Non-interest income (loss)
Mortgage banking activities, net7,061 9,491 — — 16,552 
Investment fair value changes, net— — (1,837)(2,759)(4,596)
Other income, net— 1,076 4,013 (931)4,158 
Realized gains, net— — 949 107 1,056 
Total non-interest income (loss), net7,061 10,567 3,125 (3,583)17,170 
General and administrative expenses(3,738)(11,638)(1,241)(14,188)(30,805)
Portfolio management costs— — (3,087)(13)(3,100)
Loan acquisition costs(149)(1,295)— — (1,444)
Other expenses— (3,107)(1,868)— (4,975)
(Provision for) Benefit from income taxes(707)1,406 (1,465)697 (69)
Segment Contribution$3,201 $(3,343)$32,212 $(29,197)
Net income$2,873 
Non-cash amortization (expense), net$(292)$(3,333)$(1,857)$(2,086)$(7,568)
70
73

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 24. Segment Information - (continued)
The following tables present financial information by segment for the three and nine months ended September 30, 2022 and 2021.
Six Months Ended June 30, 2023
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total
Interest income$7,944 $8,891 $330,263 $10,399 $357,497 
Interest expense(8,566)(7,711)(253,307)(35,380)(304,964)
Net interest income (expense)(622)1,180 76,956 (24,981)52,533 
Non-interest income (loss)
Mortgage banking activities, net10,426 22,797 — — 33,223 
Investment fair value changes, net1,076 — (2,851)(2,948)(4,723)
Other income, net— 3,484 6,181 (951)8,714 
Realized gains, net— — 832 222 1,054 
Total non-interest income (loss), net11,502 26,281 4,162 (3,677)38,268 
General and administrative expenses(8,544)(25,316)(2,650)(29,850)(66,360)
Portfolio management costs— — (6,597)(13)(6,610)
Loan acquisition costs(324)(2,409)— — (2,733)
Other expenses— (6,215)(2,444)— (8,659)
(Provision for) Benefit from income taxes(74)2,109 (1,678)697 1,054 
Segment Contribution$1,938 $(4,370)$67,749 $(57,824)
Net Income$7,493 
Non-cash amortization (expense), net$(547)$(7,035)$(4,690)$(4,193)$(16,465)
Three Months Ended June 30, 2022
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total
Interest income$13,199 $8,586 $144,478 $1,192 $167,455 
Interest expense(8,297)(4,258)(102,589)(11,823)(126,967)
Net interest income (expense)4,902 4,328 41,889 (10,631)40,488 
Non-interest income (loss)
Mortgage banking activities, net(17,787)(12,230)— — (30,017)
Investment fair value changes, net— — (98,111)10,139 (87,972)
Other income, net— 1,054 6,235 (283)7,006 
Realized gains, net— — — — — 
Total non-interest income (loss), net(17,787)(11,176)(91,876)9,856 (110,983)
General and administrative expenses(6,082)(11,069)(1,274)(11,774)(30,199)
Portfolio management costs— — (1,767)— (1,767)
Loan acquisition costs(881)(2,599)— — (3,480)
Other expenses74 (3,306)(236)— (3,468)
Benefit from income taxes5,588 3,169 686 — 9,443 
Segment Contribution$(14,186)$(20,653)$(52,578)$(12,549)
Net (Loss)$(99,966)
Non-cash amortization (expense), net$(760)$(3,480)$(1,450)$(2,137)$(7,827)
Table 24.1 – Business Segment Financial Information
Three Months Ended September 30, 2022
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total
Interest income$9,882 $9,082 $156,882 $1,816 $177,662 
Interest expense(8,083)(5,971)(111,876)(16,797)(142,727)
Net interest income1,799 3,111 45,006 (14,981)34,935 
Non-interest (loss) income
Mortgage banking activities, net2,158 14,377 — — 16,535 
Investment fair value changes, net— — (61,780)4,083 (57,697)
Other income, net— 399 3,906 (278)4,027 
Realized gains, net— — — — — 
Total non-interest income (loss), net2,158 14,776 (57,874)3,805 (37,135)
General and administrative expenses(5,735)(18,535)(3,502)(12,335)(40,107)
Loan acquisition costs(550)(1,876)— — (2,426)
Other expenses— (3,891)(370)— (4,261)
Benefit from (provision for) income taxes1,688 2,559 (5,664)— (1,417)
Segment Contribution$(640)$(3,856)$(22,404)$(23,511)
Net (Loss)$(50,411)
Non-cash amortization (expense) income, net$(185)$(3,609)$(3,658)$(2,843)$(10,295)
Nine Months Ended September 30, 2022
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total
Interest income$36,048 $22,509 $471,932 $4,028 $534,517 
Interest expense(23,316)(12,797)(331,047)(38,832)(405,992)
Net interest income12,732 9,712 140,885 (34,804)128,525 
Non-interest (loss) income
Mortgage banking activities, net(7,694)10,527 — — 2,833 
Investment fair value changes, net— — (165,297)13,508 (151,789)
Other income, net— 2,028 15,423 (435)17,016 
Realized gains, net— — 2,581 — 2,581 
Total non-interest (loss) income, net(7,694)12,555 (147,293)13,073 (129,359)
General and administrative expenses(17,918)(40,076)(9,676)(39,257)(106,927)
Loan acquisition costs(2,848)(7,523)— — (10,371)
Other expenses74 (10,731)(1,157)— (11,814)
Benefit from (provision for) income taxes8,283 9,009 (6,808)— 10,484 
Segment Contribution$(7,371)$(27,054)$(24,049)$(60,988)
Net (Loss)$(119,462)
Non-cash amortization (expense) income, net$(699)$(11,563)$4,385 $(6,428)$(14,305)
7174

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 24. Segment Information - (continued)
Three Months Ended September 30, 2021
(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total
Interest income$14,712 $3,967 $125,994 $1,049 $145,722 
Interest expense(7,537)(2,013)(84,049)(10,155)(103,754)
Net interest income7,175 1,954 41,945 (9,106)41,968 
Non-interest income
Mortgage banking activities, net32,946 30,217 — — 63,163 
Investment fair value changes, net— — 26,324 (247)26,077 
Other income, net— 216 1,842 330 2,388 
Realized gains, net— — 6,703 — 6,703 
Total non-interest income, net32,946 30,433 34,869 83 98,331 
General and administrative expenses(7,891)(12,017)(4,483)(23,301)(47,692)
Loan acquisition costs(2,395)(2,175)(51)— (4,621)
Other expenses— (3,873)(150)— (4,023)
(Provision for) benefit from income taxes(10,429)(3,485)(1,045)19,282 4,323 
Segment Contribution$19,406 $10,837 $71,085 $(13,042)
Net Income$88,286 
Non-cash amortization (expense) income, net$(33)$(4,224)$5,682 $(1,995)$(570)

Nine Months Ended September 30, 2021Six Months Ended June 30, 2022
(In Thousands)(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment PortfolioCorporate/
Other		Total
Interest incomeInterest income$35,536 $9,849 $363,751 $3,586 $412,722 Interest income$26,166 $13,427 $315,050 $2,212 $356,855 
Interest expenseInterest expense(19,903)(5,134)(258,685)(30,649)(314,371)Interest expense(15,233)(6,826)(219,171)(22,035)(263,265)
Net interest income15,633 4,715 105,066 (27,063)98,351 
Non-interest income
Net interest income (expense)Net interest income (expense)10,933 6,601 95,879 (19,823)93,590 
Non-interest income (loss)Non-interest income (loss)
Mortgage banking activities, netMortgage banking activities, net115,646 84,543 — — 200,189 Mortgage banking activities, net(9,852)(3,850)— — (13,702)
Investment fair value changes, netInvestment fair value changes, net— — 121,812 (1,168)120,644 Investment fair value changes, net— — (103,517)9,425 (94,092)
Other income, netOther income, net— 494 7,121��742 8,357 Other income, net— 1,629 11,517 (157)12,989 
Realized gains, netRealized gains, net— — 17,803 — 17,803 Realized gains, net— — 2,581 — 2,581 
Total non-interest income (loss), netTotal non-interest income (loss), net115,646 85,037 146,736 (426)346,993 Total non-interest income (loss), net(9,852)(2,221)(89,419)9,268 (92,224)
General and administrative expensesGeneral and administrative expenses(27,478)(34,567)(10,804)(58,988)(131,837)General and administrative expenses(12,183)(21,541)(2,829)(26,922)(63,475)
Portfolio management costsPortfolio management costs— — (3,345)— (3,345)
Loan acquisition costsLoan acquisition costs(5,686)(5,528)(710)(4)(11,928)Loan acquisition costs(2,298)(5,647)— — (7,945)
Other expensesOther expenses(6)(11,523)(592)17 (12,104)Other expenses74 (6,840)(787)— (7,553)
Provision for income taxes(23,640)(6,988)(2,561)19,282 (13,907)
Benefit from (provision for) income taxesBenefit from (provision for) income taxes6,595 6,450 (1,144)— 11,901 
Segment ContributionSegment Contribution$74,469 $31,146 $237,135 $(67,182)Segment Contribution$(6,731)$(23,198)$(1,645)$(37,477)
Net Income$275,568 
Non-cash amortization income (expense), net$8,867 $(16,154)$317 $(5,845)$(12,815)
Net (Loss)Net (Loss)$(69,051)
Non-cash amortization (expense), netNon-cash amortization (expense), net$(298)$(7,370)$(9,644)$(4,170)$(21,482)
7275

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 24. Segment Information - (continued)
The following table presents the components of Corporate/Other for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.

Table 24.2 – Components of Corporate/Other
Three Months Ended September 30,
20222021
(In Thousands)
Legacy Consolidated VIEs (1)
OtherTotal
Legacy Consolidated VIEs (1)
Other Total
Interest income$1,473 $343 $1,816 $1,042 $7 $1,049 
Interest expense(1,486)(15,311)(16,797)(641)(9,514)(10,155)
Net interest income(13)(14,968)(14,981)401 (9,507)(9,106)
Non-interest income
Investment fair value changes, net(329)4,412 4,083 (247)— (247)
Other income— (278)(278)— 330 330 
Total non-interest income, net(329)4,134 3,805 (247)330 83 
General and administrative expenses— (12,335)(12,335)— (23,301)(23,301)
Loan acquisition costs— — — — — — 
Other expenses— — — — — — 
Provision for income taxes— — — — 19,282 19,282 
Total$(342)$(23,169)$(23,511)$154 $(13,196)$(13,042)
Three Months Ended June 30,
20232022
(In Thousands)
Legacy Consolidated VIEs (1)
OtherTotal
Legacy Consolidated VIEs (1)
Other Total
Interest income$2,740 $2,807 $5,547 $1,108 $84 $1,192 
Interest expense(2,659)(14,998)(17,657)(967)(10,856)(11,823)
Net interest income (expense)81 (12,191)(12,110)141 (10,772)(10,631)
Non-interest income (loss)
Investment fair value changes, net(10)(2,749)(2,759)(336)10,475 10,139 
Other income, net— (931)(931)— (283)(283)
Realized gains, net— 107 107 — — — 
Total non-interest income (loss), net(10)(3,573)(3,583)(336)10,192 9,856 
General and administrative expenses— (14,188)(14,188)— (11,774)(11,774)
Portfolio management costs— (13)(13)— — — 
Benefit from income taxes— 697 697 — — — 
Total$71 $(29,268)$(29,197)$(195)$(12,354)$(12,549)
Nine Months Ended September 30,Six Months Ended June 30,
2022202120232022
(In Thousands)(In Thousands)
Legacy Consolidated VIEs(1)
OtherTotal
Legacy Consolidated VIEs(1)
Other Total(In Thousands)
Legacy Consolidated VIEs(1)
OtherTotal
Legacy Consolidated VIEs(1)
Other Total
Interest incomeInterest income$3,593 $435 $4,028 $3,559 $27 $3,586 Interest income$5,283 $5,116 $10,399 $2,120 $92 $2,212 
Interest expenseInterest expense(3,154)(35,678)(38,832)(2,271)(28,378)(30,649)Interest expense(5,163)(30,217)(35,380)(1,668)(20,367)(22,035)
Net interest income439 (35,243)(34,804)1,288 (28,351)(27,063)
Non-interest income
Net interest income (expense)Net interest income (expense)120 (25,101)(24,981)452 (20,275)(19,823)
Non-interest income (loss)Non-interest income (loss)
Investment fair value changes, netInvestment fair value changes, net(1,379)14,887 13,508 (1,162)(6)(1,168)Investment fair value changes, net(104)(2,844)(2,948)(1,050)10,475 9,425 
Other income— (435)(435)— 742 742 
Other income, netOther income, net— (951)(951)— (157)(157)
Realized gains, netRealized gains, net— 222 222 — — — 
Total non-interest income, netTotal non-interest income, net(1,379)14,452 13,073 (1,162)736 (426)Total non-interest income, net(104)(3,573)(3,677)(1,050)10,318 9,268 
General and administrative expensesGeneral and administrative expenses— (39,257)(39,257)— (58,988)(58,988)General and administrative expenses— (29,850)(29,850)— (26,922)(26,922)
Loan acquisition costs— — — — (4)(4)
Other expenses— — — — 17 17 
Provision for income taxes— — — — 19,282 19,282 
Portfolio management costsPortfolio management costs— (13)(13)— — — 
Benefit from income taxesBenefit from income taxes— 697 697 — — — 
TotalTotal$(940)$(60,048)$(60,988)$126 $(67,308)$(67,182)Total$16 $(57,840)$(57,824)$(598)$(36,879)$(37,477)

(1)     Legacy consolidated VIEs represent Legacy Sequoia entities that are consolidated for GAAP financial reporting purposes. See Note 4 for further discussion on VIEs.    

7376

REDWOOD TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
(Unaudited)

Note 24. Segment Information - (continued)
The following table presents supplemental information by segment at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 24.3 – Supplemental Segment Information
(In Thousands)(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment Portfolio Corporate/
Other		Total(In Thousands)Residential Mortgage BankingBusiness Purpose Mortgage BankingInvestment Portfolio Corporate/
Other		Total
September 30, 2022
June 30, 2023June 30, 2023
Residential loansResidential loans$676,458 $— $4,877,938 $198,160 $5,752,556 Residential loans$196,737 $— $5,095,940 $163,222 $5,455,899 
Business purpose loansBusiness purpose loans— 337,238 4,919,980 — 5,257,218 Business purpose loans— 282,836 4,943,887 — 5,226,723 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans— — 427,458 — 427,458 Consolidated Agency multifamily loans— — 420,096 — 420,096 
Real estate securitiesReal estate securities— — 259,212 — 259,212 Real estate securities9,752 — 157,067 — 166,819 
Home equity investmentsHome equity investments— — 340,437 — 340,437 Home equity investments— — 427,307 — 427,307 
Other investmentsOther investments— — 341,155 71,607 412,762 Other investments— — 300,670 54,867 355,537 
GoodwillGoodwill— 23,373 — — 23,373 Goodwill— 23,373 — — 23,373 
Intangible assetsIntangible assets— 44,130 — — 44,130 Intangible assets— 34,677 — — 34,677 
Total assetsTotal assets738,301 473,748 11,301,836 632,062 13,145,947 Total assets221,282 380,404 11,559,826 635,222 12,796,734 
December 31, 2021
December 31, 2022December 31, 2022
Residential loansResidential loans$1,673,235 $— $5,688,742 $230,455 $7,592,432 Residential loans$628,160 $— $4,800,096 $184,932 $5,613,188 
Business purpose loansBusiness purpose loans— 347,860 4,443,129 — 4,790,989 Business purpose loans— 364,073 4,968,513 — 5,332,586 
Consolidated Agency multifamily loansConsolidated Agency multifamily loans— — 473,514 — 473,514 Consolidated Agency multifamily loans— — 424,551 — 424,551 
Real estate securitiesReal estate securities4,927 — 372,484 — 377,411 Real estate securities— — 240,475 — 240,475 
Home equity investmentsHome equity investments— — 192,740 — 192,740 Home equity investments— — 403,462 — 403,462 
Other investmentsOther investments— — 413,527 35,702 449,229 Other investments— — 334,420 56,518 390,938 
GoodwillGoodwill— 23,373 — — 23,373 
Intangible assetsIntangible assets— 41,561 — — 41,561 Intangible assets— 40,892 — — 40,892 
Total assetsTotal assets1,716,285 464,967 11,770,486 755,206 14,706,944 Total assets660,916 487,159 11,303,991 578,833 13,030,899 
7477

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five main sections:
•    Overview
•    Results of Operations
–Consolidated Results of Operations
–Results of Operations by Segment
–Income Taxes
•    Liquidity and Capital Resources
•    Critical Accounting Estimates
•    Market and Other Risks
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part II, Item 8, Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K, as well as the sections entitled “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K. The discussion in this MD&A contains forward-looking statements that involve substantial risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, such as those discussed in the Cautionary Statement below.
References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries, unless the context otherwise requires. Financial information concerning our business is set forth in this MD&A and our consolidated financial statements and notes thereto, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our website can be found at www.redwoodtrust.com. We make available, free of charge through the investor relations section of our website, access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). We also make available, free of charge, access to our charters for our Audit Committee, Compensation Committee, and Governance and Nominating Committee, our Corporate Governance Standards, and our Code of Ethics governing our directors, officers, and employees. Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to the Code of Ethics and any waiver applicable to any executive officer or director of Redwood. In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, and may include disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast, or by similar means from time to time. The information on our website is not part of this Quarterly Report on Form 10-Q.
Our Investor Relations Department can be contacted at One Belvedere Place, Suite 300, Mill Valley, CA 94941, Attn: Investor Relations, telephone (866) 269-4976.

7578

Our Business
Redwood Trust, Inc., together with its subsidiaries, is a specialty finance company focused on several distinct areas of housing credit, with a mission to help make quality housing, whether rented or owned, accessible to all American households.credit. Our operating platforms occupy a unique position in the housing finance value chain, providing liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors through our best-in-class securitization platforms, whole-loan distribution activities and our publicly-traded securities. Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential, business purpose and multifamily assets. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. We operate our business in three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio. For a full description of our segments, see Part 1, Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Cautionary Statement
This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan” and similar expressions or their negative forms, or by references to strategy, plans, opportunities, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the SEC, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Statements regarding the following subjects, among others, are forward-looking by their nature: (i) statements we make regarding Redwood's business strategy and strategic focus, including statements relating to our overall market position, strategy and long-term prospects (including trends driving the flow of capital in the housing finance market, our strategic initiatives designed to capitalize on those trends, our ability to attract capital to finance those initiatives, our approach to raising capital, and our ability to pay dividends in the future); (ii) statements related to our financial outlook and expectations for 20222023 and future years, including statements regarding the economic impactimpacts of inflation, supply chain disruptions,monetary policy, volatility and warpotential regulatory changes in Europe;the banking sector, and shifting sources of liquidity in the residential mortgage market; (iii) statements regarding our expectations with respectprogress in developing private capital partnerships that we expect to Riverbend’s integration into,enhance our liquidity, operating and effect upon, the Redwood and CoreVest businesses;distribution capabilities going forward; (iv) statements related to our opportunities for growth, including opportunities to grow and increase our market share for our residential and business purpose mortgage banking platforms; (v) statements related to our investment portfolio, including that there remains potential upside in our portfolio through market discount, and that at SeptemberJune 30, 2022,2023, our securities portfolio had approximately $458$390 million of net discount to par (approximately $4.05$3.43 per share), which we have the potential to recover over time; (vi)and that our portfolio has a projected forward loss-adjusted yield of 16% at June 30, 2023; (v) statements related to RWT Horizonsopportunities we see for our residential and BPL platforms and our strategic investment initiatives; (vii) statements relatingpositioning to our estimate of our available capital (including that we estimate our available capital at September 30, 2022 was approximately $160 million); (viii)capture market share; (vi) statements relating to acquiring residential mortgage loans in the future that we have identified for purchase or plan to purchase, including the amount of such loans that we identified for purchase during the thirdsecond quarter of 20222023 and at SeptemberJune 30, 2022,2023, expected fallout and the corresponding volume of residential mortgage loans expected to be available for purchase, total net jumbo loan exposure at June 30, 2023, and residential mortgage loans subject to forward sale commitments; (ix)(vii) statements we make regarding future dividends, including with respect to our regular quarterly dividends in 2022;2023; and (x)(viii) statements regarding our expectations and estimates relating to the characterization for income tax purposes of our dividend distributions, our expectations and estimates relating to tax accounting, tax liabilities and tax savings, and GAAP tax provisions, and our estimates of REIT taxable income and TRS taxable income.
Many of the factors that could affect our actual results are summarized below. One of the most significant factors, however, is the ongoing impact of the pandemic on the United States economy, homeowners, renters of housing, the housing market, the mortgage finance markets and the broader financial markets. It is difficult to fully assess the impact of the pandemic at this time, including because of the uncertainty around the severity and duration of the pandemic domestically and internationally, as well as the uncertainty around the efficacy of Federal, State and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impacts on many aspects of Americans’ lives and economic activity. Moreover, each of the factors summarized below is likely to also be impacted directly or indirectly by the ongoing impact of the pandemic and investors are cautioned to interpret substantially all of the risks identified in the Company’s previously published “Risk Factors” as being heightened as a result of the ongoing impact of the pandemic.

7679

Important factors, among others, that may affect our actual results include:
•the impact of the COVID-19 pandemic;
•general economic trends and the performance of the housing, real estate, mortgage finance, and broader financial markets;
•changing benchmark interest rates, and the Federal Reserve’s actions and statements regarding monetary policy;
•the impact of the COVID-19 pandemic;
•federal and state legislative and regulatory developments and the actions of governmental authorities and entities;
•changing benchmark interest rates, and the Federal Reserve’s actions and statements regarding monetary policy;
•our ability to compete successfully;
•our ability to adapt our business model and strategies to changing circumstances;
•strategic business and capital deployment decisions we make;
•our use of financial leverage;
•our exposure to a breach of our cybersecurity or data security;
•our exposure to credit risk and the timing of credit losses within our portfolio;
•the concentration of the credit risks we are exposed to, including due to the structure of assets we hold, the geographical concentration of real estate underlying assets we own, and our exposure to environmental and climate-related risks;
•the efficacy and expense of our efforts to manage or hedge credit risk, interest rate risk, and other financial and operational risks;
•changes in credit ratings on assets we own and changes in the rating agencies’ credit rating methodologies;
•changes in mortgage prepayment rates;
•changes in interest rates;
•our ability to redeploy our available capital into new investments;
•interest rate volatility, changes in credit spreads, and changes in liquidity in the market for real estate securities and loans;
•our ability to finance the acquisition of real estate-related assets with short-term debt;
•changes in the values of assets we own;
•the ability of counterparties to satisfy their obligations to us;
•our exposure to the discontinuation of LIBOR;
•our exposure to liquidity risk, risks associated with the use of leverage, and market risks;
•changes in the demand from investors for residential and business purpose mortgages and investments, and our ability to distribute residential and business purpose mortgages through our whole-loan distribution channel;
•our involvement in securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in securitization transactions;
•exposure to claims and litigation, including litigation arising from our involvement in loan origination and securitization transactions;
•whether we have sufficient liquid assets to meet short-term needs;
•our ability to successfully retain or attract key personnel;
•changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand our business activities;
•our exposure to a disruption of our technology infrastructure and systems;
•the impact on our reputation that could result from our actions or omissions or from those of others;
•our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures;
•the termination of our captive insurance subsidiary’s membership in the Federal Home Loan Bank and the implications for our income generating abilities;
•the impact of changes to U.S. federal income tax laws on the U.S. housing market, mortgage finance markets, and our business;
•our failure to comply with applicable laws and regulation, including our ability to obtain or maintain the governmental licenses;
•our ability to maintain our status as a REIT for tax purposes;
•limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940;
•our common stock may experience price declines, volatility, and poor liquidity, and we may reduce our dividends in a variety of circumstances;
•decisions about raising, managing, and distributing capital;
•our exposure to broad market fluctuations; and
•other factors not presently identified.
This Quarterly Report on Form 10-Q may contain statistics and other data that in some cases have been obtained from or compiled from information made available by servicers and other third-party service providers.
7780

OVERVIEW
Business Update
As investors continue to grapple with the impact of regional bank vulnerability and a mortgage market still impaired by rising benchmark interest rates, the foundational shifts that we believe will drive the next cycle of growth for Redwood have already begun. We are observing changes in how many financial assets are owned, particularly mortgages. The latest era of accommodative monetary policy that allowed banks to hold vast amounts of 30-year, fixed-rate mortgages by funding them with low-cost deposits is now over. The impact of this change on capital, liquidity and overall business models is likely to influence investment across various asset classes. For many banks, continuing to offer competitive mortgage products to retain clients (both consumer and, to an extent, commercial) will be imperative, and will likely require liquidity from outside capital providers. In this regard, the mortgage purchase programs Redwood offers to depositories are especially relevant.
Recent re-engagement with many banks has affirmed our strategic positioning. In recent weeks, we have established new jumbo loan seller relationships with lenders holding approximately $2 trillion of assets in the aggregate and we currently have relationships with lenders representing a significant percentage of jumbo mortgage origination market share.(1)Our GAAP book value declinedrecent lock volumes exceeded our total jumbo loan purchases over the past two quarters combined, driving second quarter returns for Residential Mortgage Banking to $10.18 per share at September 30, 2022,their highest level in over a 5.6% declineyear. With proposed bank capital rules suggesting a sweeping overhaul of capital requirements, including higher charges for large lenders’ residential mortgages that go beyond international standards, we plan for Redwood to emerge as an essential liquidity provider to these institutions.
Through match-funding of non-Agency mortgages through securitizations and other related structures, similar to how lenders distribute conforming loans to Fannie Mae and Freddie Mac, Redwood has created a customized outlet for jumbo loan sellers that allows them to focus on their customers and other fee-generating consumer businesses. Time has proven that positioning ourselves as this outlet is a significant competitive advantage for Redwood.
Since our founding, we have completed over 140 securitizations across our platforms, sourcing assets from $10.78 per share at June 30, 2022, drivingexperienced operators who specialize in jumbo, non-QM, and other mortgage products. This institutional knowledge is a GAAP lossrequisite for guiding banks through the process of $(0.44) per share fororiginating and selling loans efficiently into the third quarter. private capital markets.
As wassuch, becoming a capital and liquidity provider requires foundational work. For banks especially, investing in such relationships entails workflow changes, underwriting guide implementations, loan officer training, systems integration and onboarding, regulatory compliance protocols, cash and collateral management, and other infrastructure enhancements necessary to distribute whole loans without noticeable impact to the caseconsumer experience. Partnering with Redwood allows this work to be applied across a variety of mortgage purchase programs that we offer lenders to meet their diverse needs, with speed to close and reliable execution acting as meaningful differentiators. But perhaps our biggest differentiator is that while we enable our loan sellers to serve their customers, we do not seek to serve those customers directly in other ways, eliminating an inherent conflict of interest that often exists with our competition.
In light of these factors, we are excited about the growth potential of our Residential business. The leading indicators we use to assess our progress, including the strategic onboarding of new loan sellers and the depth of their origination channels, are encouraging and suggest a significant opportunity in the coming quarters. Our prudent and decisive actions in recent quarters, entering the second quarter mark-to-market adjustments werewith a streamlined pipeline, have enabled us to be competitively positioned today to capitalize on the primary driver of our GAAP loss foropportunity. We remained focused throughout the quarterlast 12 months on efficiently completing purchase and contributed $(0.50) per share of unrealized fair value changes in the third quarter.
During the third quarter, we focusedsales transactions to mitigate risk on maintaining liquidity and maximizing our balance sheet, flexibility. We endeda discipline reinforced by the fact that we mark substantially all of our assets to market quarterly.
Our conservative posture and emphasis on capital preservation remain top priorities. Our second quarter with $297 millionearnings reflected the reality that the markets overall remain volatile. Though widening market yields in certain parts of unrestricted cashour investment portfolio had a non-cash, mark-to-market impact on hand, unencumbered assetsGAAP earnings, the overall credit performance across most of $491 million,our portfolio has remained strong. With a weighted average quarter-end carrying value of 64 cents to face value, and approximately $3.8 billiona projected forward loss-adjusted yield of excess capacity on our warehouse lines. We were successful during the quarter in adding $900 million of new financing capacity across multiple borrowing facilities (with both new and existing domestic depository institutions) to further support our operating platforms. Our overall recourse leverage ratio(1) was 2.6x, which included only 0.8x secured recourse leverage within16%, we estimate our Investment Portfolio(2). This allowed us to remain opportunistic across our operating segments, a posture we expect to carry through year-end.
For the third quarter, we deployed $235 million of capital, which included repurchases of our common stock, the acquisition of Riverbend Funding, LLC (“Riverbend”), and further investments in organically created business-purpose loans (“BPL”) and third-party investments. We closed the Riverbend acquisition on July 1, 2022, and have progressed with key integration workstreams that we expect to be largely completed by year-end. At current levels, we believe there is an attractive opportunity to invest in our own common shares and, as such, we expect opportunistic share repurchases to be an on-going option for capital deployment in the near term.
Within our Investment Portfolio, at September 30, 2022, we had $3.6 billion of economic investments; 77% of which were organically created and 23% of which were purchased from third-parties. We estimate there was $458approximately $390 million (or $4.05$3.43 per share) of net discount to par at quarter end, offering a compelling value at September 30, 2022proposition to shareholders.
We continue to closely monitor the path of interest rates, with recent economic data points and forecasts supporting the thesis that we believe represents potential upside in Redwood’s book value.
Our investment portfolio sits in a strong fundamental credit position given consistent cash flows, underlying seasoning and robust home price appreciation. Delinquencies in our portfolio remain low, at approximately 2% across our organically-created Residential and BPL investments combined at September 30, 2022. We believe the seasoning of our portfolio assets is a positive factor in light of near-term downward pressure on home prices expected as a result of the Federal Reserve's monetary policy actions. Our portfolio overall has benefited from significant appreciation in home prices and rents the last several years, providing a tailwind to fundamental performance even in a more stressed housing market. This inherent downside protection may support the potential recoverability of the unrealized losses we have taken over the last few quarters.
While markets need to stabilize for our operating businesses to return to their optimal levels of operations, both of our mortgage banking platforms delivered substantially better quarter-on-quarter results as compared to the second quarter of 2022, notwithstanding continued market dislocation. Across our Residential and Business Purpose Mortgage Banking businesses, we distributed almost $1 billion of loans during the quarter. Despite capital markets in the consumer residential sector remaining largely distressed, we sold $612 million of residential loans to various whole loans buyers at accretive levels and within our historical target range for gain on sale margins. Our BPL team also completed an innovative $274 million private SFR securitization atare nearing the end of this rate hike cycle. Though short-term rates will likely remain higher for longer, the third quarter, in additioninverted yield curve continues to selling $85 million of loans. Our ability to distribute loans through both securitization and whole loan sales in challenging markets is a testament to the strength of our platforms, the quality of our products and the depth of our whole loan networks.
We expect conditions in the consumer residential sector to remain challenging for a number of quarters as industry volumes continue to be affected by rapidly increasing mortgage rates, which, along with record home price appreciation in recent years, has pushed housing affordability to new lows. The spread between mortgageimply lower future rates and the 10-year Treasury recently reached an all-time high, even as the 10-year Treasury yield itselfshould result in a better overall lending environment for housing, where credit has risen over 250 basis points since the beginning of the year. The institution that has been the largest buyer of mortgage-backed securities, the Federal Reserve, has exited the market,remained resilient due to stable prices, low turnover and money center banks and overseas investors have also pulled back significantly. This dynamic, in the near term, has resulted in significant market risk for those aggregating loans for future securitizations, including us.
As a result of these market conditions, we have remained conservatively positioned in Residential Mortgage Banking, reducing our quarterly jumbo loan locks(3) in the third quarter to $461 million and focusing on moving risk expediently, operating efficiently and preserving flexibility. This includes ongoing rationalization of our cost structure and disciplined pipeline management, including through maintaining lower overall loan inventory balances and nimble distribution strategies with whole loan buyers. In light of these conditions, we intentionally reduced our capital allocation to our Residential Mortgage Banking business by almost 60% since the beginning of 2022. We see attractive uses for this freed-up capital, including investment opportunities in residential credit made possible by the market downturn.tight inventories.
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TurningAs we plan for volatility for the remainder of 2023, we place a continued premium on reliable funding sources for our operations. Premier capital partners in the private credit markets are eager to Business Purpose Mortgage Banking, whilework with us in this regard. During the second quarter, we announced a strategic joint venture with Oaktree Capital Management, L.P. (“Oaktree”) to support CoreVest’s bridge lending platform. As previously announced in June, the joint venture is expected to have loan purchase capacity of approximately $1 billion inclusive of secured financing. In joining with Oaktree, we gain a highly respected investor who is both familiar with our platform and eager to support the expansion of our bridge lending business. Through this partnership, Redwood will earn upfront and recurring fee-based income streams for originating the assets and administering the joint venture. The overall structure focuses exclusively on investing alongside each other (80% Oaktree, 20% Redwood), with Redwood maintaining the relationship with our customers.
While trends in the housing market have continued to support demand for investor loan products, transaction activity for the industry has slowed given the significant rise in mortgage rates and associated effects on debt service coverage and the total proceeds lenders can underwrite. Our business purpose lending (“BPL”) volumes were down modestly compared to the prior quarter (driven by a decline in origination of fixed-rate term loans) and with benchmark rates once again higher, including the 10-year Treasury rate back above 4%, we expect some project sponsors to remain on the sidelines. Others may seek products that lock in a fixed rate but offer more prepayment flexibility. We have seen some resiliency in demand for shorter duration bridge loanthese trends before and have products that we believe will fit sponsor needs and allow us to originate profitably, especially with more sponsors pivoting away from their local bank lender either by choice or necessity. Additionally, our single-asset bridge channel, strengthened by our acquisition of Riverbend Lending just over a year ago, had a strong second quarter with a building pipeline and a growing set of distribution opportunities.
As we expect volumeswork to moderate from record levels earlier this year asgrow our BPL business we remain mindful of the macroeconomic credit environment, particularly the impacts of significantly higher interest rates and macroeconomic uncertainty cause housing investorsborrowing costs that will continue to be more cautious. In the third quarter,impact project sponsors, notwithstanding continued strength in overall leasing trends. As such, we saw this trend play out as 83% of our origination volume wasdelinquencies in our bridge productBPL portfolio increase during the second quarter. Delinquency levels are still within our modeled expectations, with the underlying equity positions facilitating constructive loss mitigation discussions and 17% wasproviding an important buffer to ultimate loss severity. Our asset management team remains focused on proactive surveillance, working closely with borrowers in advance of loan maturities to assess project plans or take other action where appropriate.
The second quarter also brought meaningful strategic progress in our SFR product. As affordability remains challenged, we believenewly-formed home equity business, which expands upon our holistic approach to the non-Agency housing finance market. Our home equity investment (“HEI”) platform, branded as Aspire, launched in June and will be originating HEI in coordination with our related third-party investment initiatives. We have begun discussing this business with potential capital partners, which could allow us to significantly expand our product offerings for what may be the largest addressable market in the world with approximately $28 trillion of accessible home equity in the United States. HEI, combined with traditional second mortgage products, will allow our loan seller network to offer a compelling suite of options to their existing clients currently enjoying low rate first-lien mortgages. The critical element for consumers is one of choice, and our customer acquisition funnel will center around our mortgage originator network that strong occupancy rates,allows us to customize our pipeline with low vacancies, and high consumermarketing spend. Unlike traditional second-lien mortgages, our HEI products represent equity-sharing relationships, where investor return is generated by participation in the appreciation upside of the property, as compared to a traditional monthly loan payment. With second mortgage rates should continuefor even prime consumers still elevated, the use cases for HEI are vast for a cohort of homeowners for whom an additional monthly payment is either impractical or undesirable.
With significant changes afoot throughout the non-Agency sector, we see a centralized role for Redwood in an evolving housing finance ecosystem. Success in this new chapter will require operational skill, structural savvy and flexible access to support strongcapital. We are implementing a clear strategy to further advance our market presence as regulators move towards eliminating the recent arbitrages that enabled banks to write below market-rate mortgages and consistent cash flowsfund them with deposits. We believe this will result in a compelling fresh take on what has for many years been a reliable roadmap for our rental loan products. We have long promoted our BPL franchise as a life-cycle lender and our ability to provide both short- and long-term financing options makes us an attractive lender for borrowers.enterprise.









Footnotes to Business Update



1.Estimated jumbo loan seller network market share is based on aggregate jumbo loan origination volume from January 2021 through March 2023 by current and potential Redwood loan sellers, divided by industry-wide jumbo loan origination volume for the same period. Source: Company data; Inside Mortgage Finance.
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Second Quarter Overview
The following table presents key financial metrics for the three and six months ended June 30, 2023.
Table 1 – Key Financial Results and Metrics
Three Months EndedSix Months Ended
(In Thousands, except per Share Data)June 30, 2023June 30, 2023
Net income per diluted common share$— $0.02 
Annualized GAAP return on common stockholders' equity0.4 %0.8 %
Dividends per share$0.16 $0.39 
Book value per share$9.26$9.26
Economic return on book value (1)
0.2%1.0%
(1)Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period. It does not represent an annualized figure.
Business Highlights
Investment Portfolio
•Deployed approximately $50 million of capital into internally sourced investments, while generating incremental capital from sales of non-strategic third-party assets
•Underlying credit remained stable in the aggregate, and within our modeled expectations
◦RPL and jumbo securities saw continued declines in 90 day+ delinquencies
◦90 day+ delinquency rates across our combined CAFL securities and bridge loan portfolios of 4.2%, compared to 2.0% in the prior quarter (1)
•Secured recourse leverage ratio of 1.0x at June 30, 2023(2)
Business Purpose Mortgage Banking
•Established joint venture ("JV") with Oaktree to invest in CoreVest-originated bridge loans, creating recurring fee-based revenue
◦JV expected to have total purchasing power of up to $1 billion inclusive of secured financing
•Funded $406 million of business purpose loans; 68% Bridge and 32% Term
•Sold $200 million of business purpose loans to third parties
Residential Mortgage Banking
•Established new forward flow relationships with depository institutions; Redwood's loan seller network represents a significant percentage of jumbo mortgage origination market share(3)
•Locked $567 million(4) and purchased $184 million of jumbo loans
◦Purchase activity included three bulk pools from depositories; most of the underlying loans were seasoned and acquired at attractive discounts
•Increased capital allocated to Residential Mortgage Banking from $15 million at March 31, 2023, to $80 million at June 30, 2023
Financing Highlights
•Unrestricted cash and cash equivalents of $357 million (representing 114% of outstanding marginable debt)(5) and unencumbered assets of $206 million at June 30, 2023
•Successfully renewed maturing loan warehouse financing facilities with key counterparties and extinguished under-utilized facilities
•$2.6 billion of excess financing capacity across warehouse facilities at June 30, 2023
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Capital Markets Highlights

•Repurchased $31 million of Redwood's convertible debt due August 2023, reducing the outstanding balance to approximately $113 million, which will be fully repaid at maturity in August utilizing existing cash on hand
RWT Horizons Highlights
•Completed two investments in the second quarter, including one follow-on investment in an existing RWT Horizons portfolio company

•Since inception, RWT Horizons has completed 33 technology venture investments in 27 companies, with over $27 million of investment commitments
Q3 2023 Corporate Highlights To Date
•DBRS Morningstar confirmed CoreVest's special servicer ranking, acknowledging CoreVest's successful performance in loan management
•Continued to add new forward flow jumbo loan relationships which we expect to positively contribute to volumes in the third quarter of 2023 and beyond(6)


















Footnotes to Business UpdateHighlights


1.
(1)    Recourse leverage ratio is definedCalculated as recourse debt at Redwoodbusiness purpose lending ("BPL") loans in our consolidated CAFL securitizations, bridge loans held for investment, and bridge and term loans held-for-sale with a delinquent payment greater than 90 days divided by tangible stockholders' equity. Recourse debt excludes $8.9 billionthe total notional balance of consolidated securitization debt (ABS issuedCAFL securitizations, bridge loans held for investment, and servicer advance financing)bridge and other debt that is non-recourse to Redwood, and tangible stockholders' equity excludes $68 million of goodwill and intangible assets.term loans held for sale.
(2)    2.Secured recourse leverage ratio for our investment portfolioInvestment Portfolio is defined as secured recourse debt financing our investment portfolio assets divided by capital allocated to our investment portfolio.
(3)    3.Estimated jumbo loan seller network market share is based on aggregate jumbo loan origination volume from January 2021 through March 2023 by current and potential Redwood loan sellers, divided by industry-wide jumbo loan origination volume for the same period. Source: Company data; Inside Mortgage Finance.
4.Lock volume does not account for potential fallout from pipeline that typically occurs through the lending process.
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Third Quarter Overview
The following table presents key financial metrics for the three and nine months ended September 30, 2022.
Table 1 – Key Financial Results5.Non-marginable debt and Metrics
Three Months EndedNine Months Ended
(In Thousands, except per Share Data)September 30, 2022September 30, 2022
Net (loss) income per diluted common share$(0.44)$(1.04)
Annualized GAAP return on equity(16.4)%(11.8)%
Dividends per share$0.23 $0.69 
Book value per share$10.18$10.18
Economic return on book value (1)
(3.4)%(9.9)%
(1)Economic return on book valuemarginable debt refers to whether such debt is subject to margin calls based solely on the periodiclender’s determination, in its discretion, of the market value of underlying collateral that is non-delinquent. Non-marginable debt may be subject to a margin call due to delinquency or another credit event related to the mortgage or security being financed, a decline in the value of the underlying asset securing the collateral, an extended dwell time (i.e., period of time financed using a particular financing facility) for certain types of loans, or a change in GAAP book value per common share plus dividends declared per common share during the period.
Business Highlights
Investment Portfolio
•Deployed $167 millioninterest rate of capital into new organic and third-party investmentsa specified reference security relative to a base interest rate amount, among other reasons.
•6.Credit performance remained strong with stable delinquenciesBased on management's estimates and continued declining LTVs
•Investment Portfolio secured recourse leverage of 0.8x as of September 30, 2022
Business Purpose Mortgage Banking
•Funded $570 million in business purpose loans, 83% Bridge and 17% Single-Family Rental ("SFR")
•Securitized $274 million of loans in a private securitization backed by SFR loans
•Closed the previously announced acquisition of Riverbend Funding, LLC and its subsidiaries ("Riverbend"), a best-in-class private mortgage lender to investors in transitional residential and multifamily real estate, for an initial cash purchase price of approximately $44 million paid at closing (and subject to certain adjustments including potential earnout consideration)
Residential Mortgage Banking
•Distributed $612 million of jumbo loans through whole loan sales; at September 30, 2022, total net jumbo loan exposure was $712 million
•Intentionally maintained light volume, locking $461 million of jumbo loans, down from $1.0 billion in second quarter 2022; loan purchase commitments were $256 million, down from $538 million in second quarter 2022
Financing Highlights
•Maintained robust balance sheet with unrestricted cash of $297 million and unencumbered assets of $491 million at September 30, 2022
•Added $900 million of new financing capacity across multiple borrowing facilities (with both new and existing domestic depository institutions) in the third quarter to further support operating platforms
◦Successfully renewed warehouse lines with maturities in the third quarter at unchanged advance rates
◦Ended third quarter with $3.8 billion of unused financing capacity across Residential and Business Purpose Mortgage Banking segments
•Total margin call activity in the third quarter resulted in a net return of cash to Redwood from financing and hedging counterparties
•Repurchased 3.4 million shares of Redwood’s common stock at a cost of $24 million, resulting in $0.12 per share of book value accretion in the third quarter
RWT Horizons Highlights
•Completed three new investments in the third quarter
•Since inception, RWT Horizons has completed 27 technology venture investments in 24 companies with an aggregate of over $26 million of investment commitmentsactual results may vary materially.
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RESULTS OF OPERATIONS
Within this Results of Operations section, we provide commentary that compares results year-over-year for 20222023 and 2021.2022. Most tables include a "change" column that shows the amount by which the results from 20222023 are greater or less than the results from the respective period in 2021.2022. Unless otherwise specified, references in this section to increases or decreases during the "three-month periods" refer to the change in results for the thirdsecond quarter of 2022,2023, compared to the thirdsecond quarter of 2021,2022, and increases or decreases during the "nine-month"six-month periods" refer to the change in results for the ninefirst six months ended September 30, 2022of 2023, compared to the ninefirst six months ended September 30, 2021.of 2022.
Consolidated Results of Operations
The following table presents the components of our net (loss) income for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 2 – Net (Loss) Income
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands, except per Share Data)(In Thousands, except per Share Data)20222021Change20222021Change(In Thousands, except per Share Data)20232022Change20232022Change
Net Interest IncomeNet Interest Income$34,935 $41,968 $(7,033)$128,525 $98,351 $30,174 Net Interest Income$26,096 $40,488 $(14,392)$52,533 $93,590 $(41,057)
Non-interest Income
Non-interest Income (Loss)Non-interest Income (Loss)
Mortgage banking activities, netMortgage banking activities, net16,535 63,163 (46,628)2,833 200,189 (197,356)Mortgage banking activities, net16,552 (30,017)46,569 33,223 (13,702)46,925 
Investment fair value changes, netInvestment fair value changes, net(57,697)26,077 (83,774)(151,789)120,644 (272,433)Investment fair value changes, net(4,596)(87,972)83,376 (4,723)(94,092)89,369 
Other income, netOther income, net4,027 2,388 1,639 17,016 8,357 8,659 Other income, net4,158 7,006 (2,848)8,714 12,989 (4,275)
Realized gains, netRealized gains, net— 6,703 (6,703)2,581 17,803 (15,222)Realized gains, net1,056 — 1,056 1,054 2,581 (1,527)
Total non-interest (loss) income, net(37,135)98,331 (135,466)(129,359)346,993 (476,352)
Total non-interest income (loss), netTotal non-interest income (loss), net17,170 (110,983)128,153 38,268 (92,224)130,492 
General and administrative expensesGeneral and administrative expenses(40,107)(47,692)7,585 (106,927)(131,837)24,910 General and administrative expenses(30,805)(30,199)(606)(66,360)(63,475)(2,885)
Portfolio management costsPortfolio management costs(3,100)(1,767)(1,333)(6,610)(3,345)(3,265)
Loan acquisition costsLoan acquisition costs(2,426)(4,621)2,195 (10,371)(11,928)1,557 Loan acquisition costs(1,444)(3,480)2,036 (2,733)(7,945)5,212 
Other expensesOther expenses(4,261)(4,023)(238)(11,814)(12,104)290 Other expenses(4,975)(3,468)(1,507)(8,659)(7,553)(1,106)
Net (loss) income before income taxes(48,994)83,963 (132,957)(129,946)289,475 (419,421)
Net income (loss) before income taxesNet income (loss) before income taxes2,942 (109,409)112,351 6,439 (80,952)87,391 
(Provision for) benefit from income taxes(Provision for) benefit from income taxes(1,417)4,323 (5,740)10,484 (13,907)24,391 (Provision for) benefit from income taxes(69)9,443 (9,512)1,054 11,901 (10,847)
Net (Loss) Income$(50,411)$88,286 $(138,697)$(119,462)$275,568 $(395,030)
Diluted (loss) earnings per common share$(0.44)$0.65 $(1.09)$(1.04)$2.03 $(3.07)
Net Income (loss)Net Income (loss)2,873 (99,966)102,839 7,493 (69,051)76,544 
Other comprehensive income (loss), netOther comprehensive income (loss), net945 (31,314)32,259 6,777 (48,861)55,638 
Preferred dividendsPreferred dividends(1,758)— (1,758)$(3,177)$— (3,177)
Total Comprehensive Income Available to Common StockholdersTotal Comprehensive Income Available to Common Stockholders$2,060 $(131,280)$133,340 $11,093 $(117,912)$129,005 
Net Interest Income
Net interest income from our investment portfolio increaseddecreased by $3$5 million and $36$19 million during the three and nine-monthsix-month periods, respectively, and generally resulted fromas the benefit of higher average asset balances in 2022, as we increased our investments in2023 from continued deployment into bridge loans and in securities we retained from CoreVest securitizations during the prior twelve months. We recognized elevated levels of discount accretion on our available-for-sale securities andmonths was more than offset by lower yield maintenance income on our SFRBPL term securities, lower accretion income on our AFS securities, and higher financing costs. Yield maintenance income decreased $3 million and $10 million during the first quarter of 2022. In association with a continuedthree- and six-month periods, respectively, as the sharp rise in interest rates throughout 2022 diminished incentives for borrowers to refinance. Accretion income on AFS securities decreased $1 million and $9 million during the three- and six-month periods, respectively, as rising interest rates slowed prepayment speeds on manyand changed our expected timing of calls of our assets slowed, andavailable-for-sale securities, which had elevated accretion income in the first quarter of 2022. Additionally, steady deployment of capital into HEI throughout the last twelve months, which does not generate net interest income but is partially financed with debt, resulted in a reduction$4 million and $7 million increase in discount accretioninterest expense during the three- and yield maintenance income on our SFR securities in the second and third quarters. Additionally, netsix-month periods, respectively.

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Net interest income from Residential and Business Purpose Mortgage Banking operations each decreased by $4 million during the three-month periods, and decreased by $12 million and $5 million, respectively, during the six-month periods. These declines were the result of lower average balances of loan inventory and higher financing costs given the rise in benchmark rates during the past 12 months. Volume in the residential business was intentionally reduced during 2022 and into the first quarter of 2023, driving the inventory of loans from over $1 billion at March 31, 2022 to $27 million at March 31, 2023. Given improving market conditions and new opportunities, we began increasing our acquisitions and residential loan inventory in the second quarter of 2023 and see opportunities to further grow acquisitions during the remainder of the year in our residential mortgage banking business.
Corporate net interest expense increased by $1 million and $5 million during the three and nine-monthsix-month periods, respectively, as a result of higher average balances of SFR loan inventory during the respective periods.
These increases were offset by $6 million and $8 million decreases in net interest income during the three and nine-month periods, respectively,primarily from higher corporate interest expense resulting from the issuance of new convertible debt in June 2022 and from our trust preferred securities, which are variable rate and were impacted by higher benchmark interest rates in 2022. Additionally, Residential Mortgage Banking operations experienced $5 millionover the past twelve months.
We use a balanced combination of fixed and $3 million decreases in net interest income duringfloating rate debt to finance our fixed and floating rate investments. However, over the three and nine-month periods, respectively, as a result of a lower average balance of loan inventory in the respective periods.
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Continuedpast year, continued increases in benchmark interest rates and borrowing spreads could negatively impactimpacted our future net interest incomeincome. Further increases in relationthe federal funds rate or widening of borrowing spreads could result in lower net interest income. Additionally, to the portion of ourextent interest rates remain elevated or increase further, certain fixed-rate assetsterm borrowings that are financed with floating-rate debt, as well as in relation to fixed-rate debt that maturesmature in the near-term that iscoming quarters could have to be refinanced with new debt at current market rates. Additionally,higher interest rates, which could cause a reduction in net interest income. As we demonstrated during the first half of 2023, to the extent we add incremental leverage to our investment portfolio, net interest income could temporarily decrease whileuntil proceeds from those financings are redeployed into other assets or if additional capital is deployed into HEIs which do not earn interest income.investments.
Additional detail on net interest income is provided in the “Net Interest Income” section that follows.
Mortgage Banking Activities, Net
The decrease in incomeIncome from mortgageMortgage banking activities improved significantly during the three and nine-monthsix-month periods, was attributable to $31including $25 million and $123$20 million decreases,increases, respectively, from our Residential Mortgage Banking operations, and $16$22 million and $74$27 million decreases,increases, respectively, from our Business Purpose Mortgage Banking operations.
The decreases from Residential Mortgage Banking operations For both mortgage banking businesses, while volumes were attributable to lower acquisition volumes as well as decreased margins during 2022, as a sharp increase in mortgage rates during 2022 contributed to an industry-wide decrease in residential mortgage origination activity. Additionally, given market volatility, we focused on risk management and were deliberate in moderating volume and transferring financial risk quickly during 2022. Margins and profitability for Residential Mortgage Bankingmuch higher during the first nine monthshalf of 2022 as compared to the first half of 2023, margins were negative during the 2022 periods, as rapidly rising interest rates and widening spreads impacted by wider credit spreads for securitizationsvaluations of our loan inventory.
For the residential business, as the market began to stabilize and whole loans, as well as increased rate volatility, whichvolumes picked up in the second quarter of 2023, margins improved and resulted in higher hedging costs. Inprofitable production for the thirdfirst half of 2023. While margins in the second quarter of 2022,2023 increased well above 150 basis points, looking forward we expect them to normalize back within their historical range of 75 to 100 basis points for the remainder of the year.
At the BPL business, margins recovered on improved distribution execution.
Despite increased volumesin the first half of 2023, as spreads tightened more significantly in the first quarter, then stabilized in the second quarter. The benefit to margins from tighter spreads during the first nine monthshalf of 2022, Business Purpose Mortgage Banking income declined year-over-year, as continued market volatility and extreme credit spread widening2023 was partially offset by lower origination fees, resulting from a decrease in 2022 negatively impacted profitability. Spreads stabilized in the third quarter andfunding volume remained fairly healthy, which contributed to $14 million of BPL mortgage banking activity income in the third quarter of 2022.year-over-year.
A more detailed analysis of the changes in this line item is included in the “Results of Operations by Segment” section that follows.
Investment Fair Value Changes, Net
Investment fair value changes, net, is primarily comprised of the change in fair values of our portfolio investments accounted for under the fair value option and their associated interest rate hedges. During the three and ninesix months ended SeptemberJune 30, 2023, negative investment fair value changes primarily reflected credit spread widening on a portion of our assets, including reperforming loan ("RPL") securities, as well as increased impairments on our BPL bridge loan portfolio and certain term loans underlying our CAFL bonds. The negative fair value changes were partially offset by fair value increases for HEI assets, as well as servicing investments and IO securities, which benefited from rising interest rates. Fundamental performance of our Investment Portfolio continues to be driven by strong employment data, embedded equity protection associated with loan seasoning and borrowers motivated to stay current on their low-coupon mortgages.
During the three and six months ended June 30, 2022, negative investment fair value changes reflected extreme levels of credit spread widening across many of our longer-duration, fixed-rate investments (re-performing loan securities, residential securities and called loans), partially offset by fair value increases in our HEIs, IO securities, MSRs, and interest rate hedges, which benefited from rising interest rates. While our home equity investments ("HEIs") experienced price increases in the first half of 2022 due torates and steady home price appreciation, in the third quarter of 2022, they saw declines in prices as the outlook for home price appreciation deteriorated. Negative fair value changes primarily reflected unrealized mark-to-market losses, while fundamental credit performance, including delinquencies and LTVs, remained stable across our portfolio.
During the three and nine months ended September 30, 2021, positive investment fair value changes reflected improvements in credit performance and spread tightening across our investment portfolio, particularly in our third-party re-performing loan ("RPL") and retained CAFL SFR securities.appreciation.
Additional detail on our investment fair value changes during 20222023 is included in the “Results of Operations by Segment” section that follows as well as Table 5.6 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
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Other Income
The increasedecrease in other income for the three and nine monthsix-month periods primarily resulted from higher$2 million and 5 million, respectively, of lower income on our MSR investments, which increasedinvestments. MSR income was nominally impacted by $3 million and $12 million, respectively. The increasefair value changes in income from MSRs was primarily due to positive valuation changes resulting fromthe first half of 2023 given the relative stability of interest rates during that period, while it benefited significantly in the first half of 2022 as the sharp rise in interest rates caused a slowdown in prepayment speeds during 2022 as interest rates rose.speeds.
Additional detail on our other income is presented in Table 21.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
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Realized Gains, Net
During the six months ended June 30, 2023, we realized $1 million of gains from the sale of $42 million of AFS securities, which was partially offset by $0.4 million of net losses on early extinguishment of debt, primarily associated with the early extinguishment of securitization debt financing our reperforming loan securities, as well as from the repurchase of $64 million of our convertible debt. During the three and ninesix months ended SeptemberJune 30, 2022, we realized gains of zero$0 and $3 million, respectively, primarily resulting from the calls associated with third-party available-for-sale ("AFS") securities during the first quarter of 2022. During the three and nine months ended September 30, 2021, we realized gains of $7 million and $18 million, respectively, primarily resulting from the call of two and six seasoned Sequoia securitizations, respectively.securities.
General and Administrative Expenses
GeneralDuring the past three quarters we implemented firm-wide initiatives to rationalize headcount and administrationreduce non-compensation costs, resulting in a headcount reduction of 26% during that period, and reducing non-compensation expenses decreasedby $2 million and $4 million, respectively, for the threethree- and nine monthsix-month periods primarily due to $16 millionended June 30, 2023. Fixed compensation costs for the three- and $42 million decreases in variable compensation expense, respectively, associated with the decreases in earnings during the respective periods. Additionally, fixed compensation expense in the second quarter ofsix-month periods ended June 30, 2022 included a $2 million benefit from a payroll tax refund relatedcredit, benefiting those periods and contributing to a prior year that was realizedan increase in overall compensation expenses during the quarter. These decreases were offset by athree and six-month periods ended June 30, 2023. Additionally, general and administrative expenses for the three and six months ended June 30, 2023 included $1 million increase in costs associated with the acquisition of Riverbend, including $1 million of direct transaction costs incurred over the second and third quarters of 2022, and $2 million, of fixed compensation costs in the third quarter of 2022 from the addition of Riverbend employees. Additionally, in the third quarter of 2022, we incurred $4 millionrespectively, of employee severance and transition-relatedrelated transition expenses.
Additional detail on our General and administrative expenses is presented in Table 22.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Portfolio Management Costs
The increase in portfolio management costs for the three and six-month periods resulted from growth in our investment portfolio over the past twelve months. These costs are primarily associated with the management of our BPL bridge loans and also include loan sub-servicing costs.
Loan Acquisition Costs
Loan acquisition costs for our mortgage banking operations decreased $2 million and $5 million for both the three and nine monthsix-month periods, respectively, as a result of lower loan origination and acquisition volumes in both of our mortgage banking businesses in the first half of 2023, compared to the first half of 2022.
Provision for Income Taxes
Our provision for income taxes is almost entirely related to activity at our taxable REIT subsidiaries, which primarily includes our mortgage banking activities and MSR investments, as well as certain other investment and hedging activities. Losses fromThe decrease in the tax benefit for the six-month periods was primarily the result of smaller GAAP losses at our mortgage banking operationsTRS during the first nine monthshalf of 2022 contributed to a tax benefit during that period. For2023 versus the third quarter of 2022, a small loss from our mortgage banking operations was more than offset by gains on hedges associated with certain of our investments, resultingsame period in a tax provision for the quarter.
During the third quarter of 2021, we realized a $19 million benefit from the release of valuation allowance on a portion of our deferred tax assets contributing to a net tax benefit during that quarter.2022. The tax provision forin the nine months ended September 30, 2021 reflects positivesecond quarter of 2023 resulted from GAAP income earned fromat our mortgage banking operationsTRS during that period, partially offset by the benefitresulting from the release of valuation allowance.improved mortgage banking results.
For additional detail on income taxes, see the “Taxable Income and Tax Provision” section that follows.
Other Comprehensive Income (Loss), Net
Other comprehensive income for three and six-months ended June 30, 2023, was primarily related to positive fair value changes on our available-for-sale securities, which benefited from spread tightening during the second quarter of 2023. Other comprehensive income for three and six-months ended June 30, 2022, was primarily related to negative fair value changes on our available-for-sale securities, due to spread widening during the first half of 2023.
Preferred Dividends
We issued preferred stock in January 2023. The amount of the total preferred dividends increased from the first to second quarters of 2023, as the first quarter reflected a partial quarter accrual.
83
87

Net Interest Income
The following table presents the components of net interest income for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 3 – Net Interest Income
Three Months Ended September 30,
20222021
(Dollars in Thousands)Interest Income/ (Expense)
 Average
   Balance (1)
YieldInterest Income/ (Expense)
 Average
   Balance (1)
Yield
Interest Income
Residential loans, held-for-sale$11,844 $984,365 4.8 %$15,377 $1,936,882 3.2 %
Residential loans - HFI at Legacy Sequoia (2)
1,473 199,264 3.0 %1,042 248,791 1.7 %
Residential loans - HFI at Sequoia (2)
31,587 3,468,730 3.6 %18,867 2,104,357 3.6 %
Residential loans - HFI at Freddie Mac SLST (2)
16,098 1,600,215 4.0 %18,707 2,043,813 3.7 %
Business purpose loans - HFS9,070 535,017 6.8 %4,090 314,641 5.2 %
Business purpose loans - HFI24,688 1,257,222 7.9 %14,102 704,752 8.0 %
Single-family rental loans - HFI at CAFL (2)
50,959 2,960,614 6.9 %48,723 3,455,645 5.6 %
Bridge loans - HFI at CAFL (2)
10,480 529,993 7.9 %214 12,015 7.1 %
Multifamily loans at Freddie Mac K-Series (2)
4,762 439,966 4.3 %4,846 483,930 4.0 %
Trading securities3,924 131,626 11.9 %5,710 147,925 15.4 %
Available-for-sale securities3,065 136,203 9.0 %8,532 120,183 28.4 %
Other interest income9,712 898,111 4.3 %5,512 769,308 2.9 %
Total interest income177,662 13,141,326 5.4 %145,722 12,342,242 4.7 %
Interest Expense
Short-term debt facilities(19,436)1,561,146 (5.0)%(10,808)1,982,726 (2.2)%
Short-term debt - servicer advance financing(2,606)225,002 (4.6)%(1,018)149,450 (2.7)%
Promissory notes(572)33,302 (6.9)%— — — %
Short-term debt - convertible notes, net(1,330)100,895 (5.3)%— — — %
ABS issued - Legacy Sequoia (2)
(1,486)198,166 (3.0)%(641)245,910 (1.0)%
ABS issued - Sequoia (2)
(27,541)3,233,716 (3.4)%(15,368)1,872,636 (3.3)%
ABS issued - Freddie Mac SLST (2)
(12,829)1,325,930 (3.9)%(15,774)1,765,465 (3.6)%
ABS issued - Freddie Mac K-Series (2)
(4,377)408,164 (4.3)%(4,460)453,031 (3.9)%
ABS issued - CAFL (2)
(44,677)3,075,551 (5.8)%(37,489)3,118,792 (4.8)%
Long-term debt facilities(14,464)1,148,700 (5.0)%(8,715)881,669 (4.0)%
Long-term debt - corporate(13,409)761,712 (7.0)%(9,481)651,468 (5.8)%
Total interest expense(142,727)12,072,284 (4.7)%(103,754)11,121,147 (3.7)%
Net Interest Income$34,935 $41,968 

Three Months Ended June 30,
20232022
(Dollars in Thousands)Interest Income/ (Expense)
 Average
   Balance (1)
YieldInterest Income/ (Expense)
 Average
   Balance (1)
Yield
Interest Income
Residential loans, held-for-sale$1,263 $75,054 6.7 %$15,463 $1,507,928 4.1 %
Residential loans - HFI at Legacy Sequoia (2)
2,737 160,850 6.8 %1,108 213,793 2.1 %
Residential loans - HFI at Sequoia (2)
37,478 3,741,810 4.0 %31,923 3,778,552 3.4 %
Residential loans - HFI at Freddie Mac SLST (2)
15,273 1,441,776 4.2 %16,553 1,725,030 3.8 %
BPL loans - HFS3,440 252,916 5.4 %8,715 602,597 5.8 %
BPL loans - HFI40,241 1,634,615 9.8 %15,611 978,086 6.4 %
BPL term loans - HFI at CAFL (2)
42,080 2,856,689 5.9 %49,878 2,976,988 6.7 %
BPL bridge loans - HFI at CAFL (2)
12,503 493,907 10.1 %6,730 416,288 6.5 %
Multifamily loans - HFI at Freddie Mac K-Series4,697 424,733 4.4 %4,732 448,002 4.2 %
Trading securities3,548 89,607 15.8 %4,327 155,168 11.2 %
Available-for-sale securities2,675 117,845 9.1 %3,501 137,179 10.2 %
Other interest income13,046 1,105,138 4.7 %8,914 870,538 4.1 %
Total interest income178,981 12,394,940 5.8 %167,455 13,810,149 4.9 %
Interest Expense
Short-term debt facilities(22,881)1,120,645 (8.2)%(11,819)1,598,593 (3.0)%
Short-term debt - servicer advance financing(3,796)189,128 (8.0)%(1,842)232,942 (3.2)%
Promissory notes(336)19,660 (6.8)%— — — %
Short-term debt - convertible notes, net(1,698)128,215 (5.3)%— — — %
ABS issued - Legacy Sequoia (2)
(2,659)159,685 (6.7)%(967)212,033 (1.8)%
ABS issued - Sequoia (2)
(33,994)3,509,939 (3.9)%(28,329)3,536,911 (3.2)%
ABS issued - Freddie Mac SLST (2)
(10,650)1,130,963 (3.8)%(13,372)1,419,538 (3.8)%
ABS issued - Freddie Mac K-Series(4,311)392,474 (4.4)%(4,351)416,148 (4.2)%
ABS issued - CAFL(38,479)3,025,530 (5.1)%(41,840)2,984,375 (5.6)%
Long-term debt facilities(21,118)1,114,947 (7.6)%(13,592)1,405,431 (3.9)%
Long-term debt - corporate(12,963)657,403 (7.9)%(10,855)703,810 (6.2)%
Total interest expense(152,885)11,448,589 (5.3)%(126,967)12,509,781 (4.1)%
Net Interest Income$26,096 $40,488 
8488

Nine Months Ended September 30,Six Months Ended June 30,
2022202120232022
(Dollars in Thousands)(Dollars in Thousands)Interest Income/ (Expense)
 Average
   Balance (1)
YieldInterest Income/ (Expense)
 Average
   Balance (1)
Yield(Dollars in Thousands)Interest Income/ (Expense)
 Average
   Balance (1)
YieldInterest Income/ (Expense)
 Average
   Balance (1)
Yield
Interest IncomeInterest IncomeInterest Income
Residential loans, held-for-saleResidential loans, held-for-sale$42,201 $1,406,219 4.0 %$35,308 $1,568,966 3.0 %Residential loans, held-for-sale$6,460 $222,123 5.8 %$30,356 $1,620,642 3.7 %
Residential loans - HFI at Legacy Sequoia (2)
Residential loans - HFI at Legacy Sequoia (2)
3,592 211,707 2.3 %3,559 262,007 1.8 %
Residential loans - HFI at Legacy Sequoia (2)
5,277 167,727 6.3 %2,120 218,032 1.9 %
Residential loans - HFI at Sequoia (2)
Residential loans - HFI at Sequoia (2)
95,608 3,732,108 3.4 %48,842 1,644,256 4.0 %
Residential loans - HFI at Sequoia (2)
72,122 3,594,324 4.0 %64,021 3,865,980 3.3 %
Residential loans - HFI at Freddie Mac SLST (2)
Residential loans - HFI at Freddie Mac SLST (2)
49,851 1,717,544 3.9 %58,372 2,110,555 3.7 %
Residential loans - HFI at Freddie Mac SLST (2)
30,766 1,442,751 4.3 %33,753 1,777,180 3.8 %
Business purpose loans - HFS22,823 536,366 5.7 %10,105 277,486 4.9 %
Business purpose loans - HFI52,226 1,003,673 6.9 %38,877 668,413 7.8 %
Single-family rental loans - HFI at CAFL (2)
173,630 3,070,972 7.5 %152,444 3,349,828 6.1 %
Bridge loans - HFI at CAFL(2)
21,751 412,766 7.0 %214 4,049 7.0 %
BPL loans - HFSBPL loans - HFS7,845 262,035 6.0 %13,753 537,053 5.1 %
BPL loans - HFIBPL loans - HFI78,695 1,592,536 9.9 %27,538 844,682 6.5 %
BPL term loans - HFI at CAFL (2)
BPL term loans - HFI at CAFL (2)
83,889 2,879,585 5.8 %122,671 3,127,065 7.8 %
BPL bridge loans - HFI at CAFL (2)
BPL bridge loans - HFI at CAFL (2)
25,131 500,691 10.0 %11,271 353,181 6.4 %
Multifamily loans at Freddie Mac K-Series (2)
Multifamily loans at Freddie Mac K-Series (2)
14,247 451,757 4.2 %14,492 488,804 4.0 %
Multifamily loans at Freddie Mac K-Series (2)
9,315 423,933 4.4 %9,485 457,750 4.1 %
Trading securitiesTrading securities13,520 151,898 11.9 %17,133 140,241 16.3 %Trading securities7,094 98,579 14.4 %9,596 162,202 11.8 %
Available-for-sale securitiesAvailable-for-sale securities17,252 137,134 16.8 %16,051 128,564 16.6 %Available-for-sale securities5,557 123,910 9.0 %14,187 137,608 20.6 %
Other interest incomeOther interest income27,816 917,975 4.0 %17,325 790,499 2.9 %Other interest income25,346 1,094,723 4.6 %18,104 928,072 3.9 %
Total interest incomeTotal interest income534,517 13,750,119 5.2 %412,722 11,433,668 4.8 %Total interest income357,497 12,402,917 5.8 %356,855 14,029,447 5.1 %
Interest ExpenseInterest ExpenseInterest Expense
Short-term debt facilitiesShort-term debt facilities(41,081)1,628,316 (3.4)%(27,380)1,609,295 (2.3)%Short-term debt facilities(48,387)1,206,386 (8.0)%(21,645)1,662,458 (2.6)%
Short-term debt - servicer advance financingShort-term debt - servicer advance financing(6,110)241,582 (3.4)%(3,414)166,605 (2.7)%Short-term debt - servicer advance financing(7,644)197,783 (7.7)%(3,504)250,009 (2.8)%
Promissory notesPromissory notes(572)11,223 (6.8)%— — — %Promissory notes(734)21,815 (6.7)%— — — %
Short-term debt - convertible notes, netShort-term debt - convertible notes, net(1,330)34,001 (5.2)%— — — %Short-term debt - convertible notes, net(3,774)142,379 (5.3)%— — — %
ABS issued - Legacy Sequoia (2)
ABS issued - Legacy Sequoia (2)
(3,154)209,931 (2.0)%(2,271)258,915 (1.2)%
ABS issued - Legacy Sequoia (2)
(5,163)166,801 (6.2)%(1,668)215,911 (1.5)%
ABS issued - Sequoia (2)
ABS issued - Sequoia (2)
(84,041)3,491,194 (3.2)%(38,848)1,419,153 (3.6)%
ABS issued - Sequoia (2)
(64,049)3,364,498 (3.8)%(56,500)3,622,067 (3.1)%
ABS issued - Freddie Mac SLST (2)
ABS issued - Freddie Mac SLST (2)
(40,287)1,424,032 (3.8)%(49,756)1,859,559 (3.6)%
ABS issued - Freddie Mac SLST (2)
(21,868)1,140,899 (3.8)%(27,457)1,473,896 (3.7)%
ABS issued - Freddie Mac K-Series (2)
ABS issued - Freddie Mac K-Series (2)
(13,099)419,954 (4.2)%(13,294)459,648 (3.9)%
ABS issued - Freddie Mac K-Series (2)
(8,552)391,854 (4.4)%(8,722)425,946 (4.1)%
ABS issued - CAFL (2)
ABS issued - CAFL (2)
(144,883)3,105,387 (6.2)%(118,543)3,041,714 (5.2)%
ABS issued - CAFL (2)
(77,926)3,039,879 (5.1)%(100,207)3,120,553 (6.4)%
Long-term debt facilitiesLong-term debt facilities(37,664)1,231,057 (4.1)%(32,518)776,846 (5.6)%Long-term debt facilities(41,174)1,095,904 (7.5)%(23,200)1,272,918 (3.6)%
Long-term debt - FHLBC— — — %(2)374 (0.7)%
Long-term debt - corporateLong-term debt - corporate(33,771)706,504 (6.4)%(28,345)650,828 (5.8)%Long-term debt - corporate(25,693)657,050 (7.8)%(20,362)678,442 (6.0)%
Total interest expenseTotal interest expense(405,992)12,503,181 (4.3)%(314,371)10,242,937 (4.1)%Total interest expense(304,964)11,425,248 (5.3)%(263,265)12,722,200 (4.1)%
Net Interest IncomeNet Interest Income$128,525 $98,351 Net Interest Income$52,533 $93,590 
(1)Average balances for residential loans held-for-sale residential loansand held-for-investment, business purpose loans held-for-sale and held-for-investment, multifamily loans held-for-investment, and trading securities are calculated based upon carrying values, which represent estimated fair values. Average balances for available-for-sale securities, short-term debt, long-term debt and debtcertain ABS issued are calculated based upon amortized historical cost, exceptcost. Average balances for certain ABS issued, which iscarried at fair value are calculated based upon fair value.
(2)Interest income from residential loans held-for-investment ("HFI")- HFI at Legacy Sequoia and the interest expense from ABS issued - Legacy Sequoia represent activity from our consolidated Legacy Sequoia entities. Interest income from residential loans - HFI at Sequoia and the interest expense from ABS issued - Sequoia represent activity from our consolidated Sequoia entities. Interest income from residential loans - HFI at Freddie Mac SLST and the interest expense from ABS issued - Freddie Mac SLST represent activity from our consolidated Freddie Mac SLST entities. Interest income from multifamily loans at Freddie Mac K-Series and the interest expense from ABS issued - Freddie Mac K-Series represent activity from our consolidated Freddie Mac K-Series entities. Interest income from single-family rental loans - HFI at CAFL, bridge loans - HFI at CAFL and the interest expense from ABS issued - CAFL represent activity from our consolidated CAFL entities.

8589

Results of Operations by Segment
We report on our business using three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio. For additional information on our segments, refer to Note 24 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The following table presents the segment contribution from our three segments reconciled to our consolidated net (loss) income for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 4 – Segment Results Summary
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)20222021Change20222021Change(In Thousands)20232022Change20232022Change
Segment Contribution from:Segment Contribution from:Segment Contribution from:
Residential Mortgage BankingResidential Mortgage Banking$(640)$19,406 $(20,046)$(7,371)$74,469 $(81,840)Residential Mortgage Banking$3,201 $(14,186)$17,387 $1,938 $(6,731)$8,669 
Business Purpose Mortgage BankingBusiness Purpose Mortgage Banking(3,856)10,837 (14,693)(27,054)31,146 (58,200)Business Purpose Mortgage Banking(3,343)(20,653)17,310 (4,370)(23,198)18,828 
Investment PortfolioInvestment Portfolio(22,404)71,085 (93,489)(24,049)237,135 (261,184)Investment Portfolio32,212 (52,578)84,790 67,749 (1,645)69,394 
Corporate/OtherCorporate/Other(23,511)(13,042)(10,469)(60,988)(67,182)6,194 Corporate/Other(29,197)(12,549)(16,648)(57,824)(37,477)(20,347)
Net (Loss) Income$(50,411)$88,286 $(138,697)$(119,462)$275,568 $(395,030)
Net Income (Loss)Net Income (Loss)$2,873 $(99,966)$102,839 $7,493 $(69,051)$76,544 
The sections that follow provide further detail on our three business segments and their results of operations for the three and ninesix months ended SeptemberJune 30, 2022.2023.
Corporate/Other
The increase in net expense from Corporate/OtherOther for both the three-monththree and six-month periods was primarily due to a $19 million benefit from taxes in the third quarter of 2021 resulting from the reversal of a deferred tax asset valuation allowance, as well as $6 million of higher interest expense in the third quarter of 2022 resulting from the issuance of new convertible debt in June 2022 and from our trust preferred securities, which are variable rate and were impacted by higher benchmark interest rates.rates over the past twelve months. These increases in expenses were partially offset by $11 million and $20 million decreases in the three- and nine-month periods, respectively, in compensation expense for corporate employees, primarily related to variable compensation, which decreased in association with lower earnings year-over-year.
The decrease in net expense from Corporate/Other for the nine-month periods was primarily due to a $20 million decrease in compensation expense for corporate employees, primarily related to variable compensation, which decreased in association with lower earnings year-over-year, offset both by $8 million of higher interest expense in 2022income earned on cash and the $19 million benefit from income taxes in 2021 described previously.cash equivalents during 2023.
8690

Residential Mortgage Banking Segment
Our Residential Mortgage BankingThis segment consists of a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale to whole loan buyers, securitization through our SequoiaSEMT® (Sequoia) private-label securitization program, or transfer into our investment portfolio. Subordinate securities that we retain from our Sequoia securitizations (many of which we consolidate for GAAP purposes) are transferred to and held in our Investment Portfolio segment. We typically acquire prime jumbo mortgages and the related mortgage servicing rights on a flow basis from our extensive network of loan sellers. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of residential loans held-for-sale within this segment. This segment’s main source of mortgage banking income is net interest income from its inventory of loans held-for-sale, as well as income from mortgage banking activities, which includes valuation increases (or gains) on loans we acquire and subsequently sell, securitize, or transfer into our investment portfolio, and the hedges used to manage risks associated with these activities. Direct operating expenses and tax expenses associated with these activities are also included in this segment.
Net income from this segment is primarily comprised of net interest income earned on loans while they are held in inventory, mortgage banking activities income (including mark-to-market adjustments on loans from the time they are purchased to when they are sold or securitized, mark-to-market adjustments on new and outstanding loan purchase commitments and gains/losses from associated hedges), and all direct expenses associated with these activities. Subordinate securities that we retain from our Sequoia securitizations (many of which we consolidate for GAAP purposes) are transferred to and held in our Investment Portfolio segment.
The following table provides the activity of residential loans held in inventory for sale at our residential mortgage banking business during the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 5 – Loan Inventory for Residential Mortgage Banking Operations — Activity
Three Months EndedNine Months EndedThree Months EndedSix Months Ended
(In Thousands)(In Thousands)September 30, 2022September 30, 2022(In Thousands)June 30, 2023
Balance at beginning of period Balance at beginning of period $990,924 $1,673,236 Balance at beginning of period $26,975 $628,160 
AcquisitionsAcquisitions337,922 3,483,833 Acquisitions183,664 235,402 
SalesSales(602,842)(3,653,601)Sales(9,106)(37,876)
Transfers between segments (1)
Transfers between segments (1)
— (684,491)
Transfers between segments (1)
— (617,689)
Principal repaymentsPrincipal repayments(29,486)(72,771)Principal repayments(3,710)(19,443)
Changes in fair value, netChanges in fair value, net(20,060)(69,748)Changes in fair value, net(1,086)8,183 
Balance at End of PeriodBalance at End of Period$676,458 $676,458 Balance at End of Period$196,737 $196,737 
(1)Represents the fair value of the net transfers of loans from held-for-sale to held-for-investment within our Residential Lending investment portfolio, associated with securitizations we sponsored that we consolidate under GAAP.
During the three and ninesix months ended SeptemberJune 30, 2022,2023, our residential mortgage loan conduit locked $461$567 million and $4.10 billion$684 million of loans respectively ($256437 million and $2.75 billion$506 million adjusted for expected pipeline fallout – i.e., loan purchase commitments), including $379$556 million and $3.59 billion$661 million of Select loans and $82$11 million and $512$23 million of Choice loans, respectively, and purchased $338$184 million and $3.48 billion$235 million of loans, respectively. During the three and six months ended SeptemberJune 30, 2022,2023, approximately 80%78% and 76% of locked loans were purchase-money loans and 20%22% and 24% were refinancings.refinancings, respectively. During the three and ninesix months ended SeptemberJune 30, 2022,2023, we distributed $612$9 million and $3.68 billion of loans$38 million (unpaid principal balance) through whole loan sales, respectively. During the ninesix months ended SeptemberJune 30, 2022,2023, we completed one securitizationtwo securitizations backed by $687$657 million of loans (unpaid principal balance).
At SeptemberJune 30, 2022,2023, we had total net jumbo loan exposure of $712$528 million, (down 5% from June 30, 2022), with an average gross mortgage rate of 5%6.68%. This balance included $703$197 million (principal value) of loans in inventory on our balance sheet, $146and $351 million of loans identified for purchase (locked loans, unadjusted for fallout), and $137less $21 million of forward sale agreements for loans. Given current market conditions,During the second quarter of 2023, we reducedgrew our loan seller network through a number of new or re-established relationships. We increased our capital allocation to Residential Mortgage Bankingthis segment to $150$80 million at June 30, 2023 from $15 million at March 31, 2023, to accommodate the endsignificant growth in volume during the second quarter, which was driven by the growing loan seller base and more favorable securitization market. As discussed in the business update section of this MD&A, we are continuing to pursue new relationships for purchasing jumbo loans on a flow basis, which could positively contribute to volumes in the third quarter of 2022, down from $200 million at the end of the second quarter of 2022. As we look ahead, we expect conditions in the consumer residential sector to remain challenging for a number of quarters as industry volumes continue to be affected by rapidly increasing mortgage rates, which, along with record home price appreciation in recent years, has pushed housing affordability to new lows.
87

2023 and beyond.
We utilize a combination of capital and our residential loan warehouse facilities to manage our inventory of residential loans held-for-sale. At SeptemberJune 30, 2022,2023, we had residential warehouse facilities outstanding with ninefive different counterparties, with $2.85$1.25 billion of total capacity and $2.10$1.07 billion of available capacity. These included non-marginable facilities (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent) with $1.38 billion$700 million of total capacity and marginable facilities with $1.48 billion$550 million of total capacity.
91

The following table presents key earnings and operating metrics for our Residential Mortgage Banking segment during the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 6 – Residential Mortgage Banking Earnings Summary and Operating Metrics
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)20222021Change20222021Change(In Thousands)20232022Change20232022Change
Mortgage banking (loss) income$3,957 $40,121 $(36,164)$5,038 $131,279 $(126,241)
Mortgage banking income (loss)Mortgage banking income (loss)$7,795 $(12,885)$20,680 $10,880 $1,081 $9,799 
Operating expensesOperating expenses(6,285)(10,286)4,001 (20,692)(33,170)12,478 Operating expenses(3,887)(6,889)3,002 (8,868)(14,407)5,539 
Benefit from (provision for) income taxes1,688 (10,429)12,117 8,283 (23,640)31,923 
(Provision for) benefit from income taxes(Provision for) benefit from income taxes(707)5,588 (6,295)(74)6,595 (6,669)
Segment ContributionSegment Contribution$(640)$19,406 $(20,046)$(7,371)$74,469 $(81,840)Segment Contribution$3,201 $(14,186)$17,387 $1,938 $(6,731)$8,669 
Loan purchase commitments (loan locks, adjusted for expected fallout)Loan purchase commitments (loan locks, adjusted for expected fallout)$256,044 $3,288,102 $(3,032,058)$2,749,910 $9,541,499 $(6,791,589)Loan purchase commitments (loan locks, adjusted for expected fallout)$436,891 $537,925 $(101,034)$505,729 $2,493,866 $(1,988,137)
Residential mortgage banking income presented in the table above is comprised of net interest income from residential loans held-for-sale in inventory and mortgage banking activities,non-interest income, net from this segment (see Note 20 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of mortgage banking activities, net). Operating expenses presented in the table above includes general and administrative expenses, loan acquisition costs and other expenses for this segment.
The decreaseincrease in contribution from our residential mortgage banking operations during the three-three and nine-monthsix-month periods was primarily attributable to lowerhigher mortgage banking activities income resulting from positive margins in 2023, compared to negative margins in 2022, which was partially offset by lower (negative) net interest margin in the first half 2023, given the inverted yield curve, each as discussed in the preceding Consolidated Results of Operations section of this MD&A. While margins improvedAdditionally, the net contribution in the third quarterfirst half of 2022, a re-widening of credit spreads or further rate volatility could continue2023, benefited from lower operating expenses, as we decreased headcount in this segment over the past three quarters to negatively impact our margins and profitability. The decreasesalign with current market conditions, as well as lower loan acquisition costs, given the decrease in mortgage banking income were partially offset by lower general and administrative expenses, which declined during the three- and nine-month periods, primarily due to lower variable compensation expenses.volume year-over-year.
Activity at this segment is performed within our taxable REIT subsidiary and subject to federal and state income taxes. The provision for income taxes for the first half of 2023 resulted from GAAP income from these operations at our TRS during that period. The benefit from income taxes for the third quarterfirst half of 2022 was due to an overallresulted from GAAP loss incurredlosses from these operations at our TRS during that period.


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Business Purpose Mortgage Banking Segment
Our Business Purpose Mortgage BankingThis segment consists of a platform that originates and acquires business purpose lending ("BPL") loans (consisting of SFR loans and bridge loans) for subsequent securitization, sale, to whole loan buyers, or transfer into our investment portfolio. SFRBusiness purpose loans are business purpose mortgage loans to investors in single-family rental and multifamily properties, which we classify as either "term" loans (which include loans with maturities that generally range from 3 to 30 years) or "bridge" loans (which include loans with maturities that generally range between 12 and 36 months). Term loans are mortgage loans secured by residential real estate (primarily 1-4 unit) rental properties. Bridgeunit detached or multifamily) that the borrower owns as an investment property and rents to residential tenants. BPL bridge loans are business purpose mortgage loans to investors rehabilitatingwhich are generally secured by unoccupied (or in the case of certain multifamily properties, partially occupied) residential or multifamily real estate that the borrower owns as an investment and subsequently resellingthat is being renovated, rehabilitated or renting residential and multifamily properties.constructed. We typically originate SFR loans and distribute most of our SFRterm loans through our CAFL® private-label securitization program, or through whole loan sales, and on occasion,typically transfer our BPL bridge loans to our Investment Portfolio, where they will either be retained for investment or securitized, or will sell them as whole loans. We originate and acquire bridge loans and typically transfer these loans into our Investment Portfolio where they will be retained for investment; on occasion, we may sell them as whole loans. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with our inventory of SFR loans held-for-sale.
Net This segment’s main sources of mortgage banking income from this segment is primarily comprised ofare net interest income earned on loans while they are held in inventory, mortgage banking activities income (includingorigination and other fees on loans, mark-to-market adjustments on loans from the time theyloans are originated or purchased to when they are sold, securitized or transferred into our investment portfolio, fee income earned on originations, and gains/losses from associated hedges),hedges. Direct operating expenses and all directtax expenses associated with these activities. Subordinate securities thatactivities are also included in this segment.
During the three months ended June 30, 2023, we retain fromestablished a joint venture with a global investment manager to invest in BPL bridge loans originated by our CAFL securitizations (whichCoreVest subsidiary. We did not contribute any capital or sell any loans into the joint venture during the three months ended June 30, 2023. In accordance with the terms of the joint venture, we consolidate for GAAP purposes) andhave committed to sell certain BPL bridge loans we originate in this segment are transferredinto the joint venture that meet specified criteria at contractually pre-established prices and will administer the joint venture for ongoing fees. The joint venture is expected to have purchasing power of up to $1 billion, inclusive of secured financing, and heldwe expect we will sell a portion of our BPL bridge loans to the joint venture while continuing to retain a portion in our Investment Portfolio segment.
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On July 1, 2022, we closed the previously announced acquisition of Riverbend, a private mortgage lenderinvestment portfolio or for sale to investors in transitional residential and multifamily real estate. This acquisition adds capacity, product breadth and geographic footprint to our existing bridge loan origination platform.other third-party investors.
The following table provides business purpose loan origination activity at Redwood during the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 7 – Business Purpose Loans — Funding Activity
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022Three Months Ended June 30, 2023Six Months Ended June 30, 2023
(In Thousands)(In Thousands)Single-Family Rental
Bridge (1)
TotalSingle-Family Rental
Bridge (1)
Total(In Thousands)BPL Term
BPL Bridge (1)
TotalBPL Term
BPL Bridge (1)
Total
Fair value at beginning of periodFair value at beginning of period$505,171 $— $505,171 $358,309 $— $358,309 Fair value at beginning of period$354,166 $17,219 $371,385 $358,791 $5,282 $364,073 
FundingsFundings99,736 470,425 570,161 966,648 1,446,610 2,413,258 Fundings128,622 277,862 406,484 302,700 542,099 844,799 
SalesSales(34,970)(48,279)(83,249)(366,720)(48,279)(414,999)Sales(185,395)(19,260)(204,655)(377,982)(31,807)(409,789)
Transfers between segments (2)
(266,181)(423,425)(689,606)(561,218)(1,400,849)(1,962,067)
Transfers between segments/other (2)
Transfers between segments/other (2)
1,777 (262,581)(260,804)4,571 (503,091)(498,520)
Principal repaymentsPrincipal repayments(5,582)(2,220)(7,802)(37,166)(2,220)(39,386)Principal repayments(14,573)(1,832)(16,405)(16,183)(2,203)(18,386)
Riverbend loans acquired at acquisition— 59,748 59,748 — 59,748 59,748 
Changes in fair value, netChanges in fair value, net(17,069)(116)(17,185)(78,748)1,123 (77,625)Changes in fair value, net(14,711)1,542 (13,169)(2,011)2,670 659 
Fair Value at End of PeriodFair Value at End of Period$281,105 $56,133 $337,238 $281,105 $56,133 $337,238 Fair Value at End of Period$269,886 $12,950 $282,836 $269,886 $12,950 $282,836 
(1)We originate BPL bridge loans at our TRS and theneither transfer them to our REIT.REIT or sell them to third parties. Origination fees and any fair value changes on these loans prior to transfer or sale are recognized within Mortgage banking activities, net on our consolidated statements of income (loss).income. Once the loans are transferred to our REIT, they are classified as held-for-investment, with subsequent fair value changes generally recorded through Investment fair value changes, net on our consolidated statements of income (loss).income. For BPL bridge loans held at our REIT that are transferred into our CAFL bridge securitizations, we record any changes in fair value from the date of origination or purchase to the time of securitization as Mortgage banking activities, net on our consolidated statements of income. Once loans are transferred into a securitization, any changes in fair value are recorded through Investment fair value changes, net on our consolidated statements of income (loss).income. For the carrying value and activity of our BPL bridge loans held-for-investment, see the Investment Portfolio section that follows.
(2)For single-family rentalBPL term loans, amounts represent transfers of loans from held-for-sale at our Business Purpose Mortgage Banking segment to held-for-investment at our Investment Portfolio segment, associated with securitizations we sponsored that we consolidate under GAAP. Bridgerepurchased loans. BPL bridge loan amounts represent the transfer of loans originated or acquired by our Business Purpose Mortgage Banking segment at our TRS and transferred to our Investment Portfolio segment at our REIT, as described in the preceding footnote.
SFR loan fundings forOverall volumes declined slightly from the three and nine months ended September 30, 2022 included zero and $100 million of loans acquired from third parties, respectively. Bridge loan fundings for the three and nine months ended September 30, 2022 included zero and $22 million of loans acquired from third parties, respectively. During the three and nine months ended September 30, 2022, we acquired $60 million of bridge loans with our acquisition of Riverbend on July 1, 2022. During the nine months ended September 30, 2022, we completed two business purpose loan securitizations backed by $588 million of SFR loans, including a private securitization of $274 million of loans in the third quarter with a large global institutional investor. During the nine months ended September 30, 2022, we completed one business purpose loan securitization backed by approximately $250 million of bridge loans that includes a 24-month revolving feature. At September 30, 2022, we had $281 million of SFR loans and $56 million of bridge loans in inventory on our balance sheet.
During the third quarter of 2022, the decline in overall volume was predominantly in our SFR product, as borrowers continue in this higher rate environmentfirst to prefer short-term fully prepayable bridge loans, for which demand remains elevated (driven by multifamily product). Given current market conditions, we reduced our capital allocation to Business Purpose Mortgage Banking to $100 million at the end of the third quarter of 2022, down from $150 million at the end of the second quarter of 2022 (excluding capital associated2023, as bridge fundings remained steady while term fundings were lower due to reduced overall transaction activity in the term market. Looking ahead, we expect sustained demand from sponsors seeking fixed-rate bridge loans, or term loans with goodwill and intangibles). While the fourth quarter has historically been a very busy one for BPL originations – with sponsors often seeking to complete transactions by year-end – we would expect the recent slowdown in lending activity to continue in some capacity, as transaction flow ebbs and borrowers not facing near-term maturities wait for more favorable conditions.prepayment flexibility.
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We utilize a combination of capital and loan warehouse facilities to manage our inventory of business purpose loans that we hold for sale. At SeptemberJune 30, 2022,2023, we had business purpose warehouse facilities outstanding with sixfive different counterparties, with $3.00$2.94 billion of total capacity (used for both SFR and bridge loans) and $1.66$1.53 billion of available capacity (inclusive of capacity on non-recourse facilities). All of these facilities are non-marginable (i.e., not subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent).
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The following table presents an earnings summary for our Business Purpose Mortgage Banking segment for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 8 – Business Purpose Mortgage Banking Earnings Summary

Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)20222021Change20222021Change(In Thousands)20232022Change20232022Change
Mortgage banking income$17,887 $32,387 $(14,500)$22,267 $89,752 $(67,485)
Mortgage banking income (loss)Mortgage banking income (loss)$11,291 $(6,848)$18,139 $27,461 $4,380 $23,081 
Operating expensesOperating expenses(24,302)(18,065)(6,237)(58,330)(51,618)(6,712)Operating expenses(16,040)(16,974)934 (33,940)(34,028)88 
Benefit from income taxesBenefit from income taxes2,559 (3,485)6,044 9,009 (6,988)15,997 Benefit from income taxes1,406 3,169 (1,763)2,109 6,450 (4,341)
Segment ContributionSegment Contribution$(3,856)$10,837 $(14,693)$(27,054)$31,146 $(58,200)Segment Contribution$(3,343)$(20,653)$17,310 $(4,370)$(23,198)$18,828 
Business Purpose Mortgage Bankingpurpose mortgage banking income presented in the table above is comprised of net interest income from SFRour loans held-for-sale in inventory, mortgage banking activities, net (see Note 20 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of mortgage banking activities), and other income, net for this segment. Operating expenses presented in the table above includes general and administrative expenses, loan acquisition costs and other expenses for this segment.
The decreaseimprovement in segment contribution from our business purpose mortgage banking operations during the three and nine monthsix-month periods was primarily attributable to lowerhigher mortgage banking income during the first half of 2023, as discussed in the preceding Consolidated Results of Operations section of this MD&A, as well as lower loan acquisition costs, given the decrease in volume year-over-year. While General and higher operating expenses. While margins stabilizedadministrative expenses increased slightly during the three- and six-month periods, the run rate quarterly expense decreased 37% from the third quarter of 2022, mortgage banking income year-to-date was negatively impacted by severe credit spread wideningas a result of reductions in the first half 2022 and remains challenged given current market conditions. Continued rate volatility or a further widening of spreads would continue to impact our margins and profitability at this business.
General and administrative expenses increased during the three- and nine-month periods, as lower variable compensation expenses were offset by higher fixed compensationheadcount and other costs associated with an increased headcount during 2022, in particular fromcost saving initiatives implemented over the addition of employees from the Riverbend acquisition. Additionally, in the third quarter, we incurred $4 million of employee severance and transition-related expenses at this segment.last three quarters.
Activity at this segment is performed within our taxable REIT subsidiary and subject to federal and state income taxes. The benefit from income taxes during each of the three- and nine-monthsix- month periods in 2022 was due to an overall GAAP losslosses incurred at our TRS during those periods.


Investment Portfolio Segment
Our Investment PortfolioThis segment consists of organic investments sourced through our residential and business purpose mortgage banking operations, including primarily securities retained from our residential and business purpose loan securitization activities (some of which we consolidate for GAAP purposes), business purpose residential and multifamilyBPL bridge loans, as well as third-party investments including RMBS issued by third parties (including Agency CRT securities), investments in Freddie Mac K-Series multifamily loan securitizations and re-performingreperforming loan securitizations (both of which we consolidate for GAAP purposes), servicer advance investments, HEIs,home equity investments ("HEIs"), and other housing-related investments.investments and associated hedges. This segment’s main sources of income are net interest income and other income from investments, changes in fair value of investments and associated hedges, and realized gains and losses upon the sale of securities. Direct operating expenses and tax provisions associated with these activities are also included in this segment.
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The following table presents details of our Investment Portfolio at SeptemberJune 30, 20222023 and December 31, 20212022 organized by investments organically created through our mortgage banking segments and those acquired from third-parties. Amounts presented in the table represent our retained economic investments in consolidated Sequoia, CAFL SFR, Freddie Mac SLST, Freddie Mac K-Series, Servicing Investment and HEI securitizations as noted.
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Table 9 – Investment Portfolio - Detail of Economic Interests
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
Organic Residential InvestmentsOrganic Residential InvestmentsOrganic Residential Investments
Residential loans at Redwood (1)
Residential loans at Redwood (1)
$157,804 $172,047 
Residential loans at Redwood (1)
$— $152,621 
Residential securities at RedwoodResidential securities at Redwood106,576 143,838 Residential securities at Redwood105,294 103,089 
Residential securities at consolidated Sequoia entities (2)
Residential securities at consolidated Sequoia entities (2)
223,920 245,417 
Residential securities at consolidated Sequoia entities (2)
215,065 219,299 
Other investments (3)
Other investments (3)
48,100 12,438 
Other investments (3)
50,084 48,972 
Organic Business Purpose InvestmentsOrganic Business Purpose InvestmentsOrganic Business Purpose Investments
Bridge loans1,900,986 944,606 
Single-family rental securities at consolidated CAFL SFR entities (4)
314,431 301,506 
BPL bridge loansBPL bridge loans2,160,156 2,023,529 
BPL term loan securities at consolidated CAFL Term entities (4)
BPL term loan securities at consolidated CAFL Term entities (4)
305,794 303,897 
Other investmentsOther investments972 5,935 Other investments— 705 
Third-Party InvestmentsThird-Party InvestmentsThird-Party Investments
Residential securities at RedwoodResidential securities at Redwood131,055 195,930 Residential securities at Redwood38,966 124,567 
Residential securities at consolidated Freddie Mac SLST entities (5)
Residential securities at consolidated Freddie Mac SLST entities (5)
335,185 444,751 
Residential securities at consolidated Freddie Mac SLST entities (5)
297,587 322,803 
Multifamily securities at RedwoodMultifamily securities at Redwood21,232 32,715 Multifamily securities at Redwood12,742 12,674 
Multifamily securities at consolidated Freddie Mac K-Series entities (6)
Multifamily securities at consolidated Freddie Mac K-Series entities (6)
32,047 31,657 
Multifamily securities at consolidated Freddie Mac K-Series entities (6)
32,515 31,767 
Servicing investments (7)
Servicing investments (7)
92,530 102,540 
Servicing investments (7)
93,005 90,120 
HEIs (8)
HEIs (8)
214,922 43,638 
HEIs (8)
311,928 283,897 
Other investmentsOther investments7,664 10,400 Other investments6,277 7,081 
Total Segment InvestmentsTotal Segment Investments$3,587,424 $2,687,418 Total Segment Investments$3,629,413 $3,725,021 
(1)Balance comprised of loans called from Sequoia securitizations.
(2)Represents our retained economic investment in securities issued by consolidated Sequoia securitization VIEs. For GAAP purposes, we consolidated $3.24$3.70 billion of loans and $3.01$3.49 billion of ABS issued associated with these investments at SeptemberJune 30, 2022.2023. We consolidated $3.63$3.19 billion of loans and $3.38$2.97 billion of ABS issued associated with these investments at December 31, 2021.2022.
(3)Organic residential other investments at SeptemberJune 30, 20222023 includes net risk share investments of $23$24 million, representing $30 million of restricted cash and other assets, net of other liabilities of $7$6 million.
(4)Represents our retained economic investment in securities issued by consolidated CAFL SFRTerm securitization VIEs. For GAAP purposes, we consolidated $3.02$2.78 billion of loans and $2.70$2.48 billion of ABS issued associated with these investments at SeptemberJune 30, 2022.2023. We consolidated $3.49 billion of loans and $3.21 billion of ABS issued associated with these investments at December 31, 2021.2022.
(5)Represents our economic investment in securities issued by consolidated Freddie Mac SLST securitization entities. For GAAP purposes, we consolidated $1.48$1.39 billion of loans and $1.15$1.10 billion of ABS issued associated with these investments at SeptemberJune 30, 2022.2023. We consolidated $1.89$1.46 billion of loans and $1.45$1.14 billion of ABS issued associated with these investments at December 31, 2021.2022.
(6)Represents our economic investment in securities issued by consolidated Freddie Mac K-Series securitization entities. For GAAP purposes, we consolidated $427$420 million of loans and $395$388 million of ABS issued associated with these investments at SeptemberJune 30, 2022.2023. We consolidated $474$425 million of loans and $442$393 million of ABS issued associated with these investments at December 31, 2021.2022.
(7)Represents our economic investment in consolidated Servicing Investment variable interest entities. At SeptemberJune 30, 2022,2023, for GAAP purposes, we consolidated $308$268 million of servicing investments and $233$163 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities. At December 31, 2021,2022, for GAAP purposes, we consolidated $385$301 million of servicing investments and $294$207 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities.
(8)At SeptemberJune 30, 20222023 and December 31, 2021,2022, represents HEIs owned at Redwood of $201$298 million and $33$271 million, respectively, as well as our retained economic investment in securities issued by the consolidated HEI securitization entity of $14 million and $10 million, respectively.million. At SeptemberJune 30, 2022,2023, for GAAP purposes, we consolidated $140$129 million of HEIs and $105$96 million of ABS issued, as well as other assets and liabilities for the consolidated HEI securitization entity. At December 31, 2021,2022, for GAAP purposes, we consolidated $160$133 million of HEIs and $137$101 million of ABS issued, as well as other assets and liabilities for the consolidated HEI securitization entity.
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The growth in our
Our Investment PortfolioPortfolio shrank slightly during the first nine monthshalf of 20222023, as a reduction from sales of third-party securities and residential loans was primarily attributable to a netmostly offset by an increase in business purposeSequoia securities we retained from the two securitization transactions we executed, as well as from incremental investments in BPL bridge loans and incremental investments in HEIs through third-party flow purchase agreements.HEIs. See the Investments Detail and Activity section that follows for additional detail on our portfolio investments and their associated borrowings.
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The following table presents an earnings summary for our Investment Portfolio segment for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
Table 10 – Investment Portfolio Earnings Summary
Three Months Ended September 30,  Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)(In Thousands)20222021Change20222021Change(In Thousands)20232022Change20232022Change
Net interest incomeNet interest income$45,006$41,945$3,061 $140,885 $105,066 $35,819 Net interest income$36,748$41,889$(5,141)$76,956 $95,879 $(18,923)
Investment fair value changes, netInvestment fair value changes, net(61,780)26,324 (88,104)(165,297)121,812 (287,109)Investment fair value changes, net(1,837)(98,111)96,274 (2,851)(103,517)100,666 
Other income, netOther income, net3,906 1,842 2,064 15,423 7,121 8,302 Other income, net4,013 6,235 (2,222)6,181 11,517 (5,336)
Realized gains, netRealized gains, net— 6,703 (6,703)2,581 17,803 (15,222)Realized gains, net949 — 949 832 2,581 (1,749)
Operating expensesOperating expenses(3,872)(4,684)812 (10,833)(12,106)1,273 Operating expenses(6,196)(3,277)(2,919)(11,691)(6,961)(4,730)
Benefit from (provision for) income taxes(5,664)(1,045)(4,619)(6,808)(2,561)(4,247)
(Provision for) Benefit from income taxes(Provision for) Benefit from income taxes(1,465)686 (2,151)(1,678)(1,144)(534)
Segment ContributionSegment Contribution$(22,404)$71,085 $(93,489)$(24,049)$237,135 $(261,184)Segment Contribution$32,212 $(52,578)$84,790 $67,749 $(1,645)$69,394 
The decreaseincrease in contribution from the Investment Portfolio during the three-three and nine-monthsix-month periods was primarily attributable to smaller negative investment fair value changes in the 2023 periods, as discussed in the Consolidated Results of Operations section of this MD&A. These improvements were partially offset by lower net interest income and lower other income, as discussed in the preceding Consolidated Results of Operations section of this MD&A. These decreases were partially offset by higher net interest income and other income during the three- and nine-month periods, each as discussed in the Consolidated Results of Operations section of this MD&A.
The increase in net interest income from our Investment Portfolio during the nine-month periods primarily resulted from an increase in the average balance of investments in that period in 2022 as we deployed capital into new investments, including primarily into business purpose bridge loans. Net interest income for the nine months ended September 30, 2022, included yield maintenance income (triggered by prepayments) received on retained SFR securities of $8 million in the first quarter of 2022, $4 million in the second quarter of 2022, and $3 million in the third quarter of 2022. Additionally, during the first quarter of 2022, we recorded $8 million of discount accretion for AFS securities, much of which was associated with securities we expected to be called given high prepayment speeds experienced during 2021. As a result of interest rate increases, early in 2022 we changed our assumptions for expected call dates for certain available-for-sale securities and discount accretion income from these securities declined, resulting in $1 million of discount accretion in both the second and third quarters of 2022. Net interest income from the investment portfolio was also impacted by higher borrowing costs in 2022, driven primarily by rising benchmark interest rates. While the majority of the floating-rate debt utilized within our investment portfolio finances floating-rate assets, we do have some exposure to rising interest rates and further increases in benchmark interest rates or borrowing spreads could negatively impact our net interest income. Additionally, to the extent market interest rates remain elevated and we refinance fixed-rate debt that matures in the near-term, our interest costs could increase and negatively impact our net interest income.
Investment fair value changes, net is primarily comprised of the change in fair value (both realized and unrealized) of our portfolio investments accounted for under the fair value option and hedges associated with these investments. See Table 5.6 in Note 5 in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on the composition of investment fair value changes (the difference in amounts in the table above and in Table 5.6 in the notes to our consolidated financial statements relates to fair value changes for investments held at corporate/other). The negative investment fair value changes inFrom the first nine monthsto second quarter of 2022 were predominantly unrealized and resulted primarily from2023, underlying credit spread widening across many of our investments. Rising interest rates and slower actual and expected prepayment speeds resulted in positive fair value changes for our interest-only securities and hedges allocated to our investment portfolio which partially offsetremained stable in the negative fair value changes. Additionally, credit improvementsaggregate and within our modeled expectations, as reperforming loan and jumbo loan securities saw continued declines in several of90 day+ delinquencies, while our investments including, in particular,90 day+ delinquencies across our retainedcombined CAFL SFR securities and bridge loans positively impacted fair values for those assets. While our investments generally continueloan portfolios increased to experience stable credit performance, further spread widening, a deterioration in credit, or declines in home price appreciation could result in additional negative investment fair value changes for our investments.4.2% at June 30, 2023, from 2.0% at March 31, 2023.

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Other income, net within this segment is primarily comprised of income (loss) from our MSR investments, bridge loan extension fees,fees, and risk share investment income. Details on the composition of Other income, net are included in Note 21 in Part I, Item 1 of this Quarterly Report on Form 10-Q. Realized gains, net generally result from sales or calls of available-for-sale securities we own. Refer to the analysis of this line item in the Consolidated Results of Operations section of this MD&A for an explanation of activity during 2022. 2023.
Operating expenses at this segment are primarily attributable to compensation expensesportfolio management costs, which increased $1 million and decreased overall$3 million during the three and nine monthsix-month periods, as decreasesin-line with an increase in variable compensation were partially offset by higher fixed compensation costs resulting from higher headcount in 2022. portfolio investments under management year-over-year. We hold certain of our investments, primarily our MSRs, at our taxable REIT subsidiary. Our Provision for income taxes at this segment is primarily driven by the amount of income earned from portfolio assets as well as from gains or losses from hedges held at the TRS and, for 2022,2023, reflects positive net income earned from investment portfolio activities at our taxable REIT subsidiary.
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Investments Detail and Activity
This section presents additional details on our investments (both within our Investment Portfolio segment and held at a corporate level) and their activity during the three and ninesix months ended SeptemberJune 30, 2022.2023.
Real Estate Securities Portfolio
The following table sets forth our real estate securities activity by collateral type for the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 11 – Real Estate Securities Activity by Collateral Type (1)
Three Months Ended September 30, 2022ResidentialMultifamilyTotal
Three Months Ended June 30, 2023Three Months Ended June 30, 2023ResidentialMultifamilyTotal
(In Thousands)(In Thousands)SeniorSubordinateTotalMezzanine(In Thousands)SeniorSubordinateSubordinate
Beginning fair valueBeginning fair value$31,496 $231,652 $284,278 Beginning fair value$31,297 $199,400 $12,649 $243,346 
AcquisitionsAcquisitions— — — — Acquisitions6,183 1,979 — 8,162 
SalesSales(4,142)— — (4,142)Sales— (92,152)— (92,152)
Gains on sales and calls, netGains on sales and calls, net— — — — Gains on sales and calls, net— 949 — 949 
Effect of principal payments (2)
Effect of principal payments (2)
— (359)— (359)
Effect of principal payments (2)
(6)(261)— (267)
Change in fair value, netChange in fair value, net1,506 (22,173)102 (20,565)Change in fair value, net590 6,098 93 6,781 
Ending Fair Value(3)Ending Fair Value(3)$28,860 $209,120 $21,232 $259,212 Ending Fair Value(3)$38,064 $116,013 $12,742 $166,819 
Nine Months Ended September 30, 2022ResidentialMultifamilyTotal
Six Months Ended June 30, 2023Six Months Ended June 30, 2023ResidentialMultifamilyTotal
(In Thousands)(In Thousands)SeniorSubordinateTotalMezzanine(In Thousands)SeniorSubordinateSubordinate
Beginning fair valueBeginning fair value$21,787 $322,909 $377,411 Beginning fair value$28,867 $198,934 $12,674 $240,475 
AcquisitionsAcquisitions5,006 10,000 — 15,006 Acquisitions7,883 1,979 — 9,862 
SalesSales(14,334)(13,137)— (27,471)Sales— (98,338)— (98,338)
Gains on sales and calls, netGains on sales and calls, net— 1,914 — 1,914 Gains on sales and calls, net— 1,476 — 1,476 
Effect of principal payments (2)
Effect of principal payments (2)
— (16,036)(8,688)(24,724)
Effect of principal payments (2)
(6)(440)— (446)
Change in fair value, netChange in fair value, net16,401 (96,530)(2,795)(82,924)Change in fair value, net1,320 12,402 68 13,790 
Ending Fair Value(3)Ending Fair Value(3)$28,860 $209,120 $21,232 $259,212 Ending Fair Value(3)$38,064 $116,013 $12,742 $166,819 
(1)Amounts presented in this table include securities reported on our balance sheet and do not include securities we own in consolidated entities. See the following table for a presentation of all securities we own, including those in consolidated entities.
(2)Effect of principal payments reflects the change in fair value due to principal payments, which is calculated as the cash principal received on a given security during the period multiplied by the prior quarter ending price or acquisition price for that security.
(3)At SeptemberJune 30, 2022,2023, $10 million of Senior Securities were used as hedges for our Residential Mortgage Banking operations. These Real estate securities are included in our Residential Mortgage Banking segment.
At June 30, 2023, our securities at Redwood (exclusive of securities owned in consolidated entities) consisted of fixed-rate assets (90%(85%), adjustable-rate assets (7%(14%), and hybrid assets that reset within the next year (3%(1%).

9397

The following table sets forth activity in our real estate securities portfolio for the three and ninesix months ended SeptemberJune 30, 2022,2023, organized by investments organically created through our mortgage banking segments and acquired from third-parties. This table includes both our securities held on balance sheet and our economic interestinterests in securities we own in securitizations we consolidate in accordance with GAAP. Additionally, this table includes securities held both in our Investment Portfolio segment and our Residential Mortgage Banking segment.
Table 12 – Activity of Real Estate Securities Owned at Redwood and in Consolidated Entities
Three Months Ended September 30, 2022Residential OrganicBusiness Purpose OrganicThird-Party InvestmentsTotal
Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
Three Months Ended June 30, 2023Three Months Ended June 30, 2023Residential OrganicBusiness Purpose OrganicThird-Party InvestmentsTotal
Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
(In Thousands)(In Thousands)Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities		Total(In Thousands)
Beginning fair valueBeginning fair valueBeginning fair value$108,922 $260,933 $295,087 $323,465 $32,130 $134,424 $1,154,961 
Acquisitions (1)
Acquisitions (1)
— — 13,603 — — — 
Acquisitions (1)
— — — — — 8,162 8,162 
SalesSales— — — — — (4,142)(4,142)Sales— (40,753)— — — (92,152)(132,905)
Gains on sales and calls, netGains on sales and calls, net— — — — — — — Gains on sales and calls, net— — — — — 949 949 
Effect of principal payments (2)(1)
Effect of principal payments (2)(1)
(123)(1,856)— (13,144)— (236)(15,359)
Effect of principal payments (2)(1)
(124)(2,568)— (8,999)— (143)(11,834)
Change in fair value, netChange in fair value, net(5,863)(11,001)(6,585)(42,088)315 (14,702)(79,924)Change in fair value, net(1,883)745 10,707 (16,879)385 8,664 1,739 
Ending Fair Value(2)Ending Fair Value(2)$106,576 $223,920 $314,431 $335,184 $32,047 $152,636 $1,164,794 Ending Fair Value(2)$106,915 $218,357 $305,794 $297,587 $32,515 $59,904 $1,021,072 
Nine Months Ended September 30, 2022Residential OrganicBusiness Purpose OrganicThird-Party InvestmentsTotal
Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
Six Months Ended June 30, 2023Six Months Ended June 30, 2023Residential OrganicBusiness Purpose OrganicThird-Party InvestmentsTotal
Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities
(In Thousands)(In Thousands)Sequoia Securities on Balance SheetConsolidated Sequoia SecuritiesConsolidated CAFL SecuritiesConsolidated SLST SecuritiesConsolidated Multifamily SecuritiesOther
Third-Party Securities		Total(In Thousands)
Beginning fair valueBeginning fair valueBeginning fair value$103,089 $219,299 $303,897 $322,803 $31,767 $137,386 $1,118,241 
Acquisitions (1)
Acquisitions (1)
— 3,742 37,290 — — 15,006 
Acquisitions (1)
1,700 40,694 — — — 8,162 50,556 
SalesSales(3,854)(612)— — — (23,617)(28,083)Sales— (40,753)— — — (98,338)(139,091)
Gains on sales and calls, netGains on sales and calls, net284 — — — — 1,630 1,914 Gains on sales and calls, net— — — — — 1,476 1,476 
Effect of principal payments (2)(1)
Effect of principal payments (2)(1)
(10,755)(3,889)— (34,716)— (13,969)(63,329)
Effect of principal payments (2)(1)
(197)(3,897)— (16,954)— (249)(21,297)
Change in fair value, netChange in fair value, net(24,856)(20,738)(24,365)(74,851)390 (58,068)(202,488)Change in fair value, net2,323 3,014 1,897 (8,262)748 11,467 11,187 
Ending Fair Value(2)Ending Fair Value(2)$106,576 $223,920 $314,431 $335,184 $32,047 $152,636 $1,164,794 Ending Fair Value(2)$106,915 $218,357 $305,794 $297,587 $32,515 $59,904 $1,021,072 
(1)During the nine months ended September 30, 2022, we retained $4 million of securities from one Sequoia securitization.
(2)Effect of principal payments reflects the change in fair value due to principal payments, which is calculated as the cash principal received on a given security during the period multiplied by the prior quarter ending price or acquisition price for that security.
(2)At SeptemberJune 30, 2022,2023, $2 million of Sequoia Securities and $8 million of Other Third-Party Securities, each on balance sheet, were used as hedges for our Residential Mortgage Banking operations, and were included in our Residential Mortgage Banking segment.
At June 30, 2023, our securities (both those held on our balance sheet and our economic interests in consolidated VIEs) consisted of fixed-rate assets (98%), adjustable-rate assets (1%(2%) and hybrid assets that reset within the next year (1%(<1%).
We directly finance our holdings of real estate securities with a combination of non-recourse debt, non-marginable term debt and marginable debt in the form of repurchase (or “repo”) financing. At SeptemberJune 30, 2022,2023, real estate securities with a fair value of $425$413 million (including securities owned in consolidated Sequoia and CAFL securitization entities) were financed with $305$293 million of long-term, non-marginable recourse debt through our subordinate securities financing facilities, re-performing loan securities with a fair value of $335 million were financed with $99 million of non-recourse securitization debt, and real estate securities with a fair value of $170$357 million (including securities owned in consolidated securitization entities) were financed with $124$253 million of short-term debt incurred through repurchase facilities with sevenfive different counterparties.counterparties, and $49 million of securities were financed with a long-term financing facility. The remaining $235$202 million of our securities, including certain securities we own that were issued by consolidated securitization entities, were financed with capital.

9498

The following table summarizes the credit characteristics of our entire real estate securities portfolio by collateral type at SeptemberJune 30, 2022.2023. This table includes both our securities held on balance sheet and our economic interests in securities we own in securitizations we consolidate in accordance with GAAP.
Table 13 – Credit Statistics of Real Estate Securities Owned at Redwood and in Consolidated Entities
September 30, 2022Weighted Average Values
Market Value -
IO
Securities		Market Value - Non-IO
 Securities		Principal Balance - Non-IO
Securities		Gross Weighted Average Coupon90+ Delinquency3-Month Prepayment Rate
Investment Thickness(1)
June 30, 2023June 30, 2023Weighted Average Values
Market Value -
IO
Securities		Market Value - Non-IO
 Securities		Principal Balance - Non-IO
Securities		Gross Weighted Average Coupon90 Day+ Delinquency3-Month Prepayment Rate
Investment Thickness(1)
(Dollars in Thousands)(Dollars in Thousands)Market Value -
IO
Securities		Market Value - Non-IO
 Securities		Principal Balance - Non-IO
Securities		Gross Weighted Average Coupon90+ Delinquency3-Month Prepayment Rate
Investment Thickness(1)
(Dollars in Thousands)
Sequoia securities on balance sheetSequoia securities on balance sheetSequoia securities on balance sheet$29,868 $77,047 $139,821 3.8 %0.5 %5 %7 %
Consolidated Sequoia securitiesConsolidated Sequoia securities23,955 199,965 246,570 4.7 %2.0 %16 %42 %Consolidated Sequoia securities30,106 188,251 241,892 4.7 %1.1 %5 %41 %
Total Sequoia SecuritiesTotal Sequoia Securities52,466 278,030 386,719 4.4 %1.5 %14 %30 %Total Sequoia Securities59,974 265,298 381,713 4.4 %0.9 %5 %30 %
Consolidated Freddie Mac SLST securitiesConsolidated Freddie Mac SLST securities18,089 317,095 498,023 4.5 %12.9 %8 %29 %Consolidated Freddie Mac SLST securities17,133 280,454 470,772 4.5 %9.1 %5 %28 %
RPL securities on balance sheetRPL securities on balance sheet347 31,963 142,734 4.3 %3.7 %8 %2 %RPL securities on balance sheet64 11,884 44,112 4.4 %3.2 %6 %2 %
Total RPL SecuritiesTotal RPL Securities18,436 349,058 640,757 4.5 %12.0 %8 %26 %Total RPL Securities17,197 292,338 514,884 4.5 %8.9 %5 %27 %
Consolidated Freddie Mac K-Series securitiesConsolidated Freddie Mac K-Series securities— 32,047 36,468 4.3 %— %— %10 %Consolidated Freddie Mac K-Series securities— 32,515 36,468 4.3 %— %— %10 %
Multifamily securities on balance sheetMultifamily securities on balance sheet166 21,066 22,809 4.1 %— %24 %11 %Multifamily securities on balance sheet20 12,722 13,778 4.9 %0.1 %— %8 %
Total Multifamily SecuritiesTotal Multifamily Securities166 53,113 59,277 4.2 %— %10 %11 %Total Multifamily Securities20 45,237 50,246 4.4 %— %— %10 %
Consolidated CAFL securitiesConsolidated CAFL securities34,268 280,163 424,677 5.3 %2.2 %16 %17 %Consolidated CAFL securities26,624 279,170 421,582 5.3 %3.7 %8 %19 %
Other third-party securitiesOther third-party securities12 99,082 142,912 3.4 %0.6 %10 %2 %Other third-party securities8,144 27,070 43,377 4.2 %0.2 %10 %2 %
Total Securities(2)Total Securities(2)$105,348 $1,059,446 $1,654,342 Total Securities(2)$111,959 $909,113 $1,411,802 
(1)Investment thickness represents the average size of the subordinate securities we own as investments in securitizations, relative to the average overall size of the securitizations. For example, if our investment thickness (of first-loss securities) with respect to a particular securitization is 10%, we have exposure to the first 10% of credit losses resulting from loans underlying that securitization. We generally own first loss positions in Sequoia, RPL and CAFL securities. We own both first loss and mezzanine positions (positions credit enhanced by subordinate securities) in multifamily and other third-party securities.
(2)At June 30, 2023, $2 million of Sequoia Securities and $8 million of Other Third-Party Securities, each on balance sheet, were used as hedges for our Residential Mortgage Banking operations, and were included in our Residential Mortgage Banking segment.
We primarily target investments that have a sensitivity to housing credit risk, typically sourced through our operating businesses where we control the underwriting and review of underlying collateral. During the first nine monthssecond quarter of 2022,2023, our investment portfolio continued to demonstrate strong performance across a range of credit metrics, includingstable fundamentals, driven by underlying loan seasoning, low 90+ day delinquencies which generally remained stable, and loan-to-value ratios (LTVs), which continued to decline or remain stable.embedded growth in home prices and rents. Given the seasoned nature of our investments (particularly within our RPL securities and Sequoia securities), many of these investments are supported by substantial home price appreciation and borrower equity in the underlying homes.
The level of 90 day+ delinquencies for the BPL term loans underlying our consolidated CAFL securities increased from the first to second quarter of 2023. Over the last three quarters we have experienced elevated levels of 30+ and 60+ day delinquencies. While we continue to work with borrowers to resolve issues and modify loans as appropriate, these trends could lead to an increase in serious delinquencies that could ultimately result in increased credit losses and a decrease in the fair value of our CAFL securities.
95
99

BPL Bridge Loans Held-for-Investment
The following table provides the activity of BPL bridge loans held-for-investment during the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 14 – BPL Bridge Loans Held-for-Investment - Activity
Three Months EndedNine Months EndedThree Months EndedSix Months Ended
(In Thousands)(In Thousands)September 30, 2022September 30, 2022(In Thousands)June 30, 2023June 30, 2023
Fair value at beginning of periodFair value at beginning of period$1,651,489 $944,606 Fair value at beginning of period$2,102,221 $2,023,529 
Transfers between portfolios (1)
Transfers between portfolios (1)
423,425 1,400,849 
Transfers between portfolios (1)
263,296 503,581 
Transfers to REOTransfers to REO— (963)Transfers to REO(3,121)(10,511)
Principal repaymentsPrincipal repayments(175,007)(436,545)Principal repayments(195,155)(350,365)
Changes in fair value, netChanges in fair value, net1,079 (6,961)Changes in fair value, net(7,085)(6,078)
Fair Value at End of PeriodFair Value at End of Period$1,900,986 $1,900,986 Fair Value at End of Period$2,160,156 $2,160,156 
(1)We originate BPL bridge loans at our TRS and then transfer a portion of them to our REIT.REIT that we intend to hold for investment. Origination fees and any fair value changes on these loans prior to transfer are recognized within Mortgage banking activities, net on our consolidated statements of income (loss).income. Once the loans are transferred to our REIT, they are classified as held-for-investment, with subsequent fair value changes generally recorded through Investment fair value changes, net on our consolidated statements of income (loss).income. For BPL bridge loans held at our REIT that are transferred into our CAFL bridge securitizations, we record any changes in fair value from the date of origination or purchase to the time of securitization as Mortgage banking activities, net on our consolidated statements of income (loss).income. Once loans are transferred into this securitization, any changes in fair value are recorded through Investment fair value changes, net on our consolidated statements of income (loss).income.
Our $1.90$2.16 billion of BPL bridge loans held-for-investment and $56 million of bridge loans held-for-sale at SeptemberJune 30, 20222023 were comprised of first-lien, interest-only loans with a weighted average coupon of 8.05%10.78% and original maturities of six to 36 months. At origination, the weighted average FICO score of borrowers backing these loans was 743 and the weighted average LTV ratio of these loans was 66%65%. At SeptemberJune 30, 2022,2023, of the 3,5793,024 loans in this portfolio, 49102 of these loans with an aggregate fair value of $31$58 million and an aggregate unpaid principal balance of $33$65 million were in foreclosure and 98106 loans with an aggregate fair value of $38$92 million and an unpaid principal balance of $41$105 million were 90-or-more days delinquent (certain loans in foreclosure were also at least 90 days delinquent). Changes in fair value of bridge loans held-for-investment during the six months ended June 30, 2023, primarily reflect increased impairments on non-performing bridge loans. While we continue to work with borrowers to resolve issues and amend loans as appropriate, further increases in serious delinquencies could ultimately result in increased credit losses and a decrease in the fair value of our bridge loans held for investment.
We finance our BPL bridge loans with a combination of recourse, non-marginable warehouse facilities, non-recourse, non-marginable warehouse facilities, and non-recourse securitization debt. During the second quarter of 2022, we completed our second bridge loan securitization. This bridge loan securitization included a 24-month revolving feature that allows us to add additional loans as loans within the structure pay down. The two bridge securitization structures have $550 million of total capacity. At SeptemberJune 30, 2022,2023, we had: $524$494 million of debt incurred through short-term warehouse facilities with fourthree counterparties, which was secured by $703$587 million of business purpose bridge loans; $565$810 million of debt incurred through long-term facilities with two different counterparties, which was secured by $700$971 million of business purpose bridge loans; and $485 million of securitization debt secured by $512$496 million of business purpose bridge loans and $16$55 million of restricted cash.
The following table provides the composition of BPL bridge loans held-for-investment by product type as of SeptemberJune 30, 20222023 and December 31, 2021.2022.
Table 15 – BPL Bridge Loans Held-for-Investment - By Product Type
(In Thousands)(In Thousands)September 30, 2022December 31, 2021(In Thousands)June 30, 2023December 31, 2022
MultifamilyMultifamily$1,049,538 $326,004 Multifamily$1,061,272 $1,055,533 
Renovate / Build to rentRenovate / Build to rent660,870 375,729 Renovate / Build to rent875,405 736,368 
Fix and FlipFix and Flip107,333 150,928 Fix and Flip86,998 105,157 
OtherOther83,245 91,945 Other136,481 126,471 
Fair Value at End of PeriodFair Value at End of Period$1,900,986 $944,606 Fair Value at End of Period$2,160,156 $2,023,529 
96100

Residential Loans
The following table provides the activity of residential loans held at our investment portfolio during the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 16 – Investment Portfolio Residential Loans - Activity
Three Months EndedNine Months Ended
(In Thousands)September 30, 2022September 30, 2022
Fair value at beginning of period$222,144 $172,048 
Acquisitions— 102,258 
Sales(48,759)(48,759)
Principal repayments(8,967)(48,831)
Changes in fair value, net(6,614)(18,912)
Fair Value at End of Period$157,804 $157,804 

Three Months EndedSix Months Ended
(In Thousands)June 30, 2023June 30, 2023
Fair value at beginning of period$— $152,621 
Acquisitions— — 
Sales— (134,848)
Transfers between portfolios— (17,330)
Principal repayments— (992)
Changes in fair value, net— 549 
Fair Value at End of Period$— $— 
During the nine months ended September 30, 2022,first quarter of 2023, we called threesold the majority of our unconsolidatedremaining residential loans in our Investment Portfolio (which were from called Sequoia securitizationssecuritizations), and purchased $102the remaining $17 million (unpaid principal balance) of loans from the securitization trusts.were transferred to our Residential Mortgage Banking segment.


Home Equity Investments
The following table provides the activity of HEI held at our investment portfolio during the three and six months ended June 30, 2023.
Table 17 – HEI at Investment Portfolio Segment - Activity
Home Equity Investments(1)
Home Equity Investments(1)
Three Months EndedNine Months Ended
Home Equity Investments(1)
Three Months EndedSix Months Ended
(In Thousands)(In Thousands)September 30, 2022September 30, 2022(In Thousands)June 30, 2023June 30, 2023
Balance at beginning of periodBalance at beginning of period$276,366 $192,740 Balance at beginning of period$416,783 $403,462 
New/additional investmentsNew/additional investments79,050 176,439 New/additional investments8,954 8,954 25,513 
Sales/distributionSales/distribution— — Sales/distribution— — 
RepaymentsRepayments(9,361)(35,187)Repayments(9,277)(17,031)
Changes in fair value, netChanges in fair value, net(5,618)6,445 Changes in fair value, net10,847 15,363 
Other— — 
Balance at End of PeriodBalance at End of Period$340,437 $340,437 Balance at End of Period$427,307 $427,307 
(1)Our home equity investments presented in this table as of SeptemberJune 30, 20222023, include $140$129 million of HEIs owned in our consolidated HEI securitization entity and $201$298 million of HEIs owned directly at Redwood. At September 30, 2022, our economic investment in the consolidated HEI securitization entity was $14 million (for GAAP purposes, we consolidated $140 million of HEIs and $105 million of ABS issued, as well as other assets and liabilities for this entity).
Changes in fair value, net for HEIs primarily reflects changes in actual and expected home price appreciation (HPA). While home prices generally increased during the first half of 2022, in the third quarter of 2022, some regions began experiencing home price declines leading to a downward adjustment of our HPA assumptions, which negatively affected HEI valuations. Additional details on our HEIs isare included in Note 10 of our Notes to Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q. During the three and six months ended June 30, 2023, positive investment fair value changes primarily reflected improvements in actual and forecasted home price appreciation, relative to previously modeled amounts.
97101

Other Investments
The following table sets forth our other investments activity at our Investment Portfolio segment by significant asset type for the three and ninesix months ended SeptemberJune 30, 2022.2023.
Table 18 – Other Investments at Investment Portfolio Segment -– Activity(1)
Three Months Ended September 30, 2022
Servicing
Investments(2)
MSRs and
Excess
Servicing		OtherTotal
Three Months Ended June 30, 2023Three Months Ended June 30, 2023
Servicing
Investments(2)
Strategic InvestmentsMSRs and
Excess
Servicing		OtherTotal
(In Thousands)(In Thousands)
Servicing
Investments(2)
MSRs and
Excess
Servicing		OtherTotal(In Thousands)
Servicing
Investments(2)
Strategic InvestmentsMSRs and
Excess
Servicing
Balance at beginning of periodBalance at beginning of period$339,441 $260,378 $57,397 $63,638 $277 $381,690 
New/additional investmentsNew/additional investments— — — — New/additional investments— 1,150 — — 1,150 
Sales/distribution— — (813)(813)
Sales/distribution/repaymentsSales/distribution/repayments— — — (30)(30)
Servicer advances (repayments), netServicer advances (repayments), net5,629 — — 5,629 Servicer advances (repayments), net(29,739)— — — (29,739)
Changes in fair value, netChanges in fair value, net(3,905)885 25 (2,995)Changes in fair value, net3,665 (3,680)2,481 — 2,466 
OtherOther— — (107)(107)Other— — — — — 
Balance at End of PeriodBalance at End of Period$274,934 $65,248 $973 $341,155 Balance at End of Period$234,304 $54,867 $66,119 $247 $355,537 
Nine Months Ended September 30, 2022
Servicing
Investments(2)
MSRs and
Excess
Servicing		OtherTotal
(In Thousands)
Balance at beginning of period$350,923 $56,669 $5,935 $413,527 
New/additional investments— 4,543 — 4,543 
Sales/distribution— — (5,582)(5,582)
Servicer (repayments) advances, net(65,772)— — (65,772)
Changes in fair value, net(10,217)4,245 757 (5,215)
Other— (209)(137)(346)
Balance at End of Period$274,934 $65,248 $973 $341,155 

Six Months Ended June 30, 2023
Servicing
Investments(2)
Strategic InvestmentsMSRs and
Excess
Servicing		OtherTotal
(In Thousands)
Balance at beginning of period$269,259 $56,518 $64,456 $705 $390,938 
New/additional investments— 2,050 — — 2,050 
Sales/distribution/repayments— — — (372)(372)
Servicer advances (repayments), net(37,268)— — — (37,268)
Changes in fair value, net2,313 (3,701)1,663 (86)189 
Other— — — — — 
Balance at End of Period$234,304 $54,867 $66,119 $247 $355,537 
(1)Excludes $72 million ofTables include all "Other investments" as presented on our consolidated balance sheets. Strategic Investments presented above are held at Corporate/Other, and the remaining other investments which are includedheld in Corporate/Other.our Investment Portfolio segment.
(2)Our servicing investments are owned through our consolidated Servicing Investment entities. At SeptemberJune 30, 2022,2023, our economic investment in these entities was $93 million (for GAAP purposes, we consolidated $308$268 million of servicing investments, $233 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities). At December 31, 2021, our economic investment in these entities was $103 million (for GAAP purposes, we consolidated $385 million of servicing investments, $294$163 million of non-recourse short-term securitization debt, as well as other assets and liabilities for these entities).
Reductions in investments for our servicing investments primarily represents recoveries of servicing advances within our consolidated servicing VIEs. Changes in fair value, net for MSRs and Excess Servicing for the three and nine months ended SeptemberJune 30, 2022 includes2023 primarily represent increases in fair value to lower actual and forecasted prepayment speeds relative to those modeled at the beginning of the year. These increases were partially offset by a reduction in basis from the regular receipt of scheduled cash flows, which was more than offset by a positive impact to fair value from a decrease in forecasted prepayment speeds.flows. Additional details on our Other Investments is included in Note 11 of our Notes to Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Income Taxes
Taxable Income, REIT Status and Dividend Characterization
As a REIT, under the Internal Revenue Code, Redwood is required to distribute to shareholders at least 90% of its annual REIT taxable income, excluding net capital gains, and meet certain other requirements that relate to, among other matters, the assets it holds, the income it generates, and the composition of its stockholders. To the extent Redwood retains REIT taxable income, including net capital gains, it is taxed at corporate tax rates. Redwood also earns taxable income at its taxable REIT subsidiaries (TRS), which it is not required to distribute under the Internal Revenue Code.
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In September 2022,June 2023, our Board of Directors declared a regular dividenddividends of $0.23$0.16 per common share and $0.625 per Series A preferred share for the thirdsecond quarter of 20222023, which waswere paid on SeptemberJune 30, 2022 to shareholders of record on September 23, 2022.2023 and July 17, 2023, respectively. As of SeptemberJune 30, 2022,2023, our year-to-date dividend distributions of $0.69 per share exceeded our minimum distribution requirements and we believe that we have met all requirements for qualification as a REIT for federal income tax purposes. Many requirements for qualification as a REIT are complex and require analysis of particular facts and circumstances. Often there is only limited judicial or administrative interpretive guidance and as such there can be no assurance that the Internal Revenue Service or courts would agree with our various tax positions. If we were to fail to meet all the requirements for qualification as a REIT and the requirements for statutory relief, we would be subject to federal corporate income tax on our taxable income and we would not be able to elect to be taxed as a REIT for four years thereafter. Such an outcome could have a material adverse impact on our consolidated financial statements.
While our minimum REIT dividend requirement is generally 90% of our annual REIT taxable income, we carried a $37 million federal net operating loss carry forward (NOL) into 20222023 at our REIT that affords us the ability to retain REIT taxable income up to the NOL amount, tax free, rather than distributing it as dividends. Federal income tax rules require the dividends paid deduction to be applied to reduce REIT taxable income before the applicability of NOLs is considered; therefore, REIT taxable income must exceed our dividend distribution for us to utilize a portion of our NOL and any remaining NOL amount will carry forward into future years.
While the exact amount is uncertain at this time, we currently expect a significant portion of our 20222023 common stock dividend distributions to be taxable as ordinary income for federal income tax purposes. Any remaining amount is currently expected to be characterized as a return of capital, which in general is nontaxable (provided it does not exceed a shareholder's tax basis in Redwood shares) and reduces a shareholder's basis in Redwood shares (but not below zero). To the extent such distributions exceed a shareholder's basis in Redwood shares, such excess amount would be taxable as capital gain. We currently expect all of our 2023 preferred stock dividend distributions to be taxable as ordinary income for federal income tax purposes. Under the federal income tax rules applicable to REITs, none of Redwood’s 20222023 dividend distributions are currently expected to be characterized as long-term capital gain dividends. The income or loss generated at our TRS will not directly affect the tax characterization of our 2022 dividends; however, any dividends paid from our TRS to our REIT would allow a portion of our REIT’s dividends to be classified as qualified dividends.
Tax Provision under GAAP
For the three and ninesix months ended SeptemberJune 30, 2022,2023, we recorded a tax provision of $1$0.1 million and a tax benefit of $10$1 million, respectively. For the three and ninesix months ended SeptemberJune 30, 2021,2022, we recorded tax benefitbenefits of $4$9 million and a tax provision of $14$12 million, respectively. Our tax provision is primarily derived from the activities at our TRS, as we do not book a material tax provision associated with income generated at our REIT. ForThe decrease in the nine-month periods, the switch to a tax benefit from a tax provision year-over-year was primarily the result of a smaller GAAP income being recorded at our TRS during this periodloss in 2021 versus GAAP losses being recorded at our TRS during this period in2023 compared to 2022. For the three-month periods, while GAAP income was earned at the TRS during both periods, the switch to a tax provision from a tax benefit year-over-year was due to the release of valuation allowance on a portion of our deferred tax assets in 2021.
Realization of our deferred tax assets ("DTAs") is dependent on many factors, including generating sufficient taxable income prior to the expiration of NOL carryforwards (where applicable) and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards. ToWe determine the extent we determine itto which realization of our DTAs is more likely than not that we will not be able to realize a deferred tax asset, weassured and establish a valuation allowance accordingly. At December 31, 2021,2022, we reported net federal ordinary and capital DTAs with no material valuation allowance recorded against them. As we experienced GAAP losses in 2022 and during the six months ended June 30, 2023 at our TRS, we closely analyzed the realizability of our net deferred tax assets in whole and in part. We evaluate our deferred tax assets each period to determine if a valuation allowance is required based on whether it is "more likely than not" that some portion of the deferred tax assets would not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of sufficient taxable income during future periods. We conduct our evaluation by considering, among other things, all available positive and negative evidence, historical operating results and cumulative earnings analysis, forecasts of future profitability, and the duration of statutory carryforward periods. Based on this analysis, we continue to believe it is more likely than not that we will realize all of our federal deferred tax assets;assets in future periods as income is earned at our TRS; therefore, there continues to be no material valuation allowance recorded against our net federal DTAs. As we have experienced year-to-date GAAP losses at our TRS, we are continuing to monitor our estimate ofThis evaluation requires significant judgment in assessing the realizability of our net deferred tax assets and will reassess thepossible need for a valuation allowance and changes to our assumptions could result in wholea material change in the valuation allowance with a corresponding impact on the provision for income taxes in the period including such change.
If in a future period, based on available evidence, we conclude that it is not more likely than not that our DTAs will be realized, then a valuation allowance would be established with a corresponding charge to GAAP earnings, which would reduce our book value. Such charges could cause a material reduction, up to the full value of our net DTAs for which a valuation allowance has not previously been established, to our GAAP earnings and book value per share for the quarterly and annual periods in which they are established and could have a material and adverse effect on our business, financial results, or in part, in future periods.liquidity.
Consistent with prior periods, we continued to maintain a valuation allowance against the majority of our net state DTAs as realization of our state DTAs is dependent on generating sufficient taxable income in the same jurisdictions in which the DTAs exist and we project most of our state DTAs will expire prior to their utilization.
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LIQUIDITY AND CAPITAL RESOURCES
Summary
In addition to the proceeds from equity and debt capital-raising transactions, our principal sources of cash and liquidity consist of borrowings under mortgage loan warehouse facilities, secured term financing facilities, securities repurchase agreements, payments of principal and interest we receive from our investment portfolio assets, proceeds from the sale of investment portfolio assets, and cash generated from our mortgage banking operating activities. Our most significant uses of cash are to purchase and originate mortgage loans for our mortgage banking operations and manage hedges associated with those activities, to purchase investment securities and make other investments, to repay principal and interest on our debt, to meet margin calls associated with our debt and other obligations, to make dividend payments on our capital stock, and to fund our operations.
At SeptemberJune 30, 2022,2023, our total capital was $2.02$1.92 billion, and included $1.15consisting of (i) $1.12 billion of equity capital, and $863(ii) $779 million of convertible notes and long-term debt on our consolidated balance sheet including $199($113 million of convertible debt due in August 2023, $150 million of convertible debt due in 2024, $172$162 million of exchangeable debt due in 2025, $215 million of convertible debt due in 2027 and $140 million of trust-preferred securities due in 2037.2037), and (iii) $18 million of promissory notes included in short-term debt.
As of SeptemberJune 30, 2022,2023, our unrestricted cash was $297 million, and we estimate we had approximately $160 million of available capital.cash equivalents were $357 million. While we believe our available cash is sufficient to fund our operations, we may raise equity or debt capital from time to time to increase our unrestricted cash and liquidity, to repay existing debt, to make long-term portfolio investments, to fund strategic acquisitions and investments, or for other purposes. To the extent we seek to raise additional capital, our approach will continue to be based on what we believe to be in the best interests of the company.
In the discussion that follows and throughout this document, we distinguish between marginable and non-marginable debt. When we refer to non-marginable debt and marginable debt, we are referring to whether or not such debt is subject to margin calls based solely on the lender's determination, in its discretion, of the market value of the underlying collateral that is non-delinquent. If a mortgage loan is financed under a marginable warehouse facility, to the extent the market value of the loan declines (which market value is determined by the counterparty under the facility), we will be subject to a margin call, meaning we will be required to either immediately reacquire the loan or meet a margin requirement to pledge additional collateral, such as cash or additional mortgage loans, in an amount at least equal to the decline in value. Non-marginable debt may be subject to a margin call due to delinquency or another credit event related to the mortgage or security being financed, a decline in the value of the underlying asset securing the collateral, an extended dwell time (i.e., period of time financed using a particular financing facility) for certain types of loans, or a change in the interest rate of a specified reference security relative to a base interest rate amount. For example, we could be subject to a margin call on non-marginable debt if an appraisal or broker price opinion indicates a decline in the estimated value of the property securing the mortgage loan that is financed by us under a loan warehouse facility, or based onfollowing the occurrence of a triggering credit event impacting the financed collateral which is followed bymortgage loan based on a decline in the market value of the financed collateralmortgage loan (as determined by the lender).
We also distinguish between recourse and non-recourse debt. When we refer to non-recourse debt, we mean debt that is payable solely from the assets pledged to secure such debt, and under which debt no creditor or lender has direct or indirect recourse to us or any other entity or person (except for customary exceptions for fraud, acts of insolvency, or other "bad acts"), if such assets are inadequate or unavailable to pay off such debt.
At SeptemberJune 30, 2022,2023, in aggregate, we had $2.86$2.32 billion of secured recourse debt outstanding, financing our mortgage banking and investment portfolio, of which $480$313 million was marginable and $2.38$1.21 billion was non-marginable.
We are subject to risks relating to our liquidity and capital resources, including risks relating to incurring debt under loan warehouse facilities, securities repurchase facilities, and other short- and long-term debt facilities and other risks relating to our use of derivatives. A further discussion of these risks is set forth below under the heading “Risks Relating to Debt Incurred under Short-and Long-Term Borrowing Facilities."

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Repurchase Authorization
During the third quarter ofIn July 2022, our Board of Directors approved an authorization for the repurchase of up to $125 million of our common stock, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. Under thisThis authorization shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. This common stock repurchase authorization replaced the $100 million common stock repurchase authorization approved by the Board of Directors in 2018, has no time limit, may be modified, suspended or discontinued at any time,expiration date and does not obligate us to acquire any specific number of shares or securities. The Board of Directors also continued its previous authorization for the repurchase of outstanding debt securities. Like other investments we may make, any repurchases of our common stock or debt securities under this authorization would reduce our available capital and unrestricted cash described above.
During the three and ninesix months ended SeptemberJune 30, 2022,2023, we repurchased 3.4 million and 7.1 milliondid not repurchase any shares of our common stock for $24under this program, and repurchased $31 million and $56$64 million, respectively.respectively, of Redwood's convertible debt due in August 2023. At SeptemberJune 30, 2022,2023, $101 million of the current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. Subsequent to September 30, 2022, and through November 4, 2022, we repurchased $3 million of our convertible notes due in August 2023.
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Cash Flows and Liquidity for the NineSix Months Ended SeptemberJune 30, 20222023
Cash flows from our mortgage banking activities and our investments can be volatile from quarter to quarter depending on many factors, including the profitability of mortgage banking activities, the timing and amount of securities acquisitions, sales and repayments, as well as changes in interest rates, prepayments, and credit losses. Therefore, cash flows generated in the current period are not necessarily reflective of the long-term cash flows we will receive from these investments or activities.
Cash Flows from Operating Activities
Cash flows fromDuring the six months ended June 30, 2023, our net cash provided by operating activities were negative $129 million during the nine months ended September 30, 2022.was $24 million. This amount includes the net cash utilized during the period from the purchase and sale of residential mortgage loans and the origination, purchase and sale of our business purpose loans associated with our mortgage banking activities. Purchases of loans are financed to a large extent with short-term and long-term debt, for which changes in cash are included as a component of financing activities. During the first ninesix months of 2022,2023, excluding cash flows from the purchase, origination, sale and principal payments of loans classified as held-for-sale, and the settlement of associated derivatives (which cumulatively totaled $218 million)$1 million of net cash inflows), cash flows from operating activities were positive $88$22 million.
Cash Flows from Investing Activities
During the ninesix months ended SeptemberJune 30, 2022,2023, our net cash provided by investing activities was $169$386 million and primarily resulted from proceeds from principal payments on loans held-for-investment securities and other investmentproceeds from sales of securities, in excess of cash deployed tointo these investments. Because many of our investment securities, loans and loansHEI are financed through various borrowing agreements, a significant portion of the proceeds from any sales or principal payments of these assets are generally used to repay balances under these financing sources. Similarly, all or a significant portion of cash flows from principal payments of loans and HEI at consolidated securitization entities would generally be used to repay ABS issued by those entities.
Although we generally intend to hold our loans and investment securities as long-term investments, we may sell certain of these assets in order to manage our liquidity needsneeds and interest rate risk,, to meet other operating objectives, and to adapt to market conditions.
As presented in the "Supplemental Noncash Information" subsection of our consolidated statements of cash flows, during the ninesix months ended SeptemberJune 30, 2022,2023, we transferred loans between held-for-sale and held-for-investment classification, and long-term debt to short-term debt, which represent significant non-cash transactions that were not included in cash flows from investing activities.

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Cash Flows from Financing Activities
During the ninesix months ended SeptemberJune 30, 2022,2023, our net cash provided byused in financing activities was $202$292 million. This primarily resulted from $560 million of net long-termrepayments of short-term debt borrowings, of $787 million, which included the issuance of $215 million of convertible debt in June 2022, as well as $132partially offset by $189 million of net borrowings under ABS issued including(resulting from the issuance of CAFL SFR, CAFL bridgetwo Sequoia securitizations, which included a combined $657 million of residential loans), and Sequoia ABS securitizations$65 million of net borrowings under long-term debt facilities. Additionally, during the ninesix months ended SeptemberJune 30, 2022. These amounts were partially offset by $1.04 billion of net paydowns on short-term borrowings, resulting primarily from a reduction in financed loan inventory at our mortgage banking operations through September 30, 2022, as well as the payment of our three2023, we paid regular quarterly dividends totaling $85 million. Cash raised throughon our common stock issuances under our ATM program of $68$47 million, duringand in the first quarter of 2022 were partially offset by stock repurchases2023, we raised $67 million of $56 million duringnet proceeds from the second and third quartersissuance of 2022.preferred stock.
During the ninesix months ended SeptemberJune 30, 2022,2023, we declared and paid dividends on our common stock of $0.39 per common share and declared dividends of $0.69$1.22917 per common share.share and paid dividends of $0.60417 per share on our preferred stock. On SeptemberJune 13, 2022,2023, the Board of Directors declared a regular dividend of $0.23$0.16 per share for the thirdsecond quarter of 2022,2023, which was paid on SeptemberJune 30, 20222023 to shareholders of record on SeptemberJune 23, 2022.2023. Additionally, on June 13, 2023, the Board of Directors declared a regular quarterly dividend of $0.625 per share of preferred stock, payable on July 17, 2023 to stockholders of record on June 30, 2023.
In accordance with the terms of our outstanding deferred stock units, cash-settled deferred stock units, and restricted stock units, which are generally long-term compensation awards, each time we declare and pay a dividend on our common stock, we are required to make a dividend equivalent cash payment in that same per share amount on each outstanding deferred stock unit, cash-settled deferred stock unit, and restricted stock unit.

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Material Cash Requirements
In the normal course of business, we enter into transactions that may require future cash payments. As required by GAAP, some of these obligations are recorded on the balance sheet, while others are off-balance sheet or recorded on the balance sheet in amounts different from the full contract or notional amount of the transaction.
Our material cash requirements from known contractual and other obligations during the twelve months following SeptemberJune 30, 20222023, include maturing short-term debt, interest payments on short-term and long-term debt, payments on operating leases, and funding commitments for BPL bridge loans and under HEI flow purchase agreements.other current payables. Our material cash requirements from known contractual and other obligations beyond the twelve months following SeptemberJune 30, 20222023, include maturing long-term debt, interest payments on long-term debt, payments on operating leases and funding commitments for BPL bridge loans, and payments under HEI flow purchase agreements.ABS issued (as described further below under Liquidity Needs for our Investment Portfolio).
At SeptemberJune 30, 2022,2023, we had commitments to fund up to $990$755 million of additional advances on existing bridge loans. These commitments are generally subject to loan agreements with covenants regarding the financial performance of the borrower and other terms regarding advances that must be met before we fund the commitment (e.g.(for example, funding is dependent on actual progress on a project and we retain the optionright to conduct due diligence with respect to each draw request to confirm conditions have been met). Approximately $650 million70% of the commitments are for longer-term renovate/build-for-rent loans (which generally have funding caps below their full commitment amount) and are expected to fund over the next eightnine quarters. Additionally, at SeptemberJune 30, 2022,2023, we had $1.66$1.53 billion of available warehouse capacity for business purpose loans and the majoritywe have an average of our $1.96 billion balanceapproximately $200 million of quarterly bridge loans outstanding maturesloan maturities over the next 12 to 24 months,nine quarters, which will provide an additional source of cash that can be used to fund our commitments.
At September 30, 2022, we had outstanding flow purchase agreements with multiple third parties, with an aggregate commitment to purchase $350 million of HEIs, $149 million of which commitments remained outstanding. These purchase agreements specify monthly minimum and maximum amounts of HEIs subject to such purchase commitments. We may terminate the purchase agreement and associated purchase commitment relating to $85 million of remaining commitments upon 90 days prior notice. Subsequent to September 30, 2022, we entered into a repurchase agreement providing financing for HEIs. The committed amount and maximum borrowing limit under the facility is $150 million and the facility has a one-year term. As of the date of this report, there were no borrowings outstanding under this facility.
For additional information regarding our material cash requirements, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20212022 under the caption Contractual Obligations. For additional information on commitments and contingencies as of SeptemberJune 30, 20222023 that could impact our liquidity and capital resources, see Note 17 of our Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which supplements the disclosures included in Note 1617 to the Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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Several of our loan warehouse facilities were established with initial one-year terms and are regularly amended on an annual basis to extend the terms for an additional year ahead of their maturity. We renewed severalsome of these facilities induring the first ninesix months of 20222023, extinguished others we deemed under-utilized, and have other such facilities with scheduled maturities during the next twelve months. While there is no assurance of our ability to renew these facilities, given current market conditions we would expect to extend these in the normal course of business.
Two series of our convertible notes are maturing during the 13-month period following June 30, 2023. Historically, we have issued new convertible debt in part to refinance convertible debt that was maturing. However, given current market rates for unsecured corporate capital, which we find to be economically unattractive, we currently expect to repay our convertible notes maturing in August 2023 with cash on hand. To the extent we do not choose to or cannot issue new unsecured corporate capital due to adverse market conditions going forward, we will need to utilize cash on hand to repay our convertible debt that is maturing, which will reduce the amount cash that can be deployed into our business and could reduce the earnings potential of our business. Further, if market rates for unsecured corporate capital remain elevated and we choose to issue new unsecured corporate capital, it could negatively impact our profitability.
We expect to meet our obligations coming due in less than one year from SeptemberJune 30, 2022,2023, through a combination of cash on hand, payments of principal and interest we receive from our investment portfolio assets, proceeds from the sale of investment portfolio assets, cash generated from our operating activities, or incremental borrowings under existing, new or amended financing arrangements. As of SeptemberJune 30, 2022,2023, we had approximately $500$206 million of pledgeable and unencumbered assets.
During the first ninesix months of 2022,2023, the highest balance of our short-term debt outstanding was $2.39$2.03 billion. See Note 14 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our short-term debt. See Note 1516 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our long-term debt.
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Liquidity Needs for our Mortgage Banking Activities
We generally use loan warehouse facilities to finance the residential loans we acquire and the business purpose loans we originate or acquire in our mortgage banking operations while we aggregate the loans for sale or securitization. These facilities may be designated as short-term or long-term for financial reporting purposes, depending on the remaining maturity of the facility or the amount of time individual borrowings may remain outstanding on a facility.
At SeptemberJune 30, 2022,2023, we had residential warehouse facilities outstanding with ninefive different counterparties, with $2.85$1.25 billion of total capacity and $2.10$1.07 billion of available capacity. These included non-marginable facilities with $1.38 billion$700 million of total capacity and marginable facilities with $1.48 billion$550 million of total capacity.
At SeptemberJune 30, 2022,2023, we had business purpose warehouse facilities outstanding with sixseven different counterparties, with $3$2.94 billion of total capacity and $1.66$1.53 billion of available capacity. All of these BPL financing facilities are non-marginable. We note that several of these facilities used to finance our business purpose mortgage banking loan inventory are also used to finance bridge loans held in our investment portfolio.
SeveralAll of these facilities have variable interest rates based on LIBOR or SOFR benchmarks and recent policy statements from the Federal Reserve indicate the likelihood ofpotential for further increases in the federal funds rate, which would result in higher benchmark rates and interest costs for us under certain of our debt facilities.
As discussed above, several of the facilities we use to finance our mortgage banking loan inventory are short-term in nature and will require renewals. Additionally, because several of our warehouse facilities are uncommitted, at any given time we may not be able to obtain additional financing under them when we need it, exposing us to, among other things, liquidity risks. Additional information regarding risks related to the debt we use to finance our mortgage banking operations can be found under the heading "Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities" that follows within this section.
Liquidity Needs for our Investment Portfolio
We use various forms of secured recourse and non-recourse debt to finance assets in our investment portfolio. We distinguish our debt between recourse and non-recourse, as our non-recourse debt is mostly comprised of ABS issued, which has unique characteristics that differentiate it in important ways from our recourse debt. When we refer to non-recourse debt, we mean debt that is payable solely from the assets pledged to secure such debt, and under which debt no creditor or lender has direct or indirect recourse to us, or any other entity or person (except for customary exceptions for fraud, acts of insolvency, or other "bad acts"), if such assets are inadequate or unavailable to pay off such debt.
Our ABS issued is non-recourse and represents debt of securitization entities that we consolidate for GAAP reporting purposes. Our exposure to these entities is primarily through the financial interests we have purchased or retained from these entities (typically subordinate securities and interest only securities). Each securitization entity is independent of Redwood and of each other and the assets and liabilities are not owned by and are not legal obligations of Redwood. As the debt issued by these entities is not a direct obligation of Redwood, and since the debt generally can remain outstanding for the full term of the loans it is financing within each securitization, this debt effectively provides permanent financing for these assets. See Notes 4 and 15, respectively, in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional information on our principles of consolidation and our asset-backed securities issued.
Separately,Additionally, we usehave non-recourse debt in the form of non-marginable termwarehouse facilities to finance a portion of our business purpose bridge loan portfolio. While this debt is non-recourse to Redwood, it does have fixed terms with prepayment options that allows us to refinance this debt or ultimately repay it upon maturity.
The remainder of the debt we use to finance our investments is recourse debt.debt, including our long-term subordinate securities financing facilities, BPL financing facility and MSR financing facility, as well as our short-term securities repo borrowings and HEI warehouse facility. For securities we have financed, our long-term financing facilities are non-marginable and our repo debt MSR facility (which also finances certificated MSRs) is marginable. Our BPL financing facilities and HEI warehouse facility are non-marginable.
Delinquencies on BPL bridge loans that are financed through a warehouse facility increased in the majoritysecond quarter of 2023, and have and are expected to continue to be a required use of our liquidity to the extent the terms of the applicable warehouse facility apply reduced financing is inadvance rates to these loans (“advance rate step-downs”) or these loans become ineligible for financing under the formterms of recourse non-marginable secured term debt, with the smaller remaining amount being marginable securitieswarehouse facility. At June 30, 2023, we had approximately $45 million of borrowings on warehouse facilities collateralized by BPL bridge loans that were greater than 60 days delinquent, certain of which have already, or may, during or subsequent to the third quarter of 2023, become subject to advance rate step downs or repurchase debt. Additionally, a portion of our business purpose bridge loan portfolio is financed with recourse non-marginable secured term debt.requirements.
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We use a balanced combination of fixed and floating rate debt to finance our fixed and floating rate investments. Recent policy statements from the Federal Reserve indicate the likelihoodpotential of further increases in the federal funds rate, which if enacted could result in lower net interest income to the extent our variable rate assets and liabilities are not aligned. Additionally, to the extent interest rates remain elevated or increase further, certain fixed-rate term borrowings that mature in the coming quarters could have to be refinanced at higher interest rates, which could cause a reduction in net interest income. Further, each of our three recourse subordinate securities financing facilities have interest rate step-up provisions, under which if we do not repay the facilities by certain specified dates, the interest rates on those facilities will increase (see Note 16 in in Part I, Item 1 of this Quarterly Report on Form 10-Q for further detail on these provisions).
Corporate CapitalDebt
In addition to secured recourse and non-recourse debt we use specifically in association with our mortgage banking operations and within our investment portfolio, we also use unsecured recourse debt to finance our overall operations. This is generally in the form of convertible debt securities we issue in the public markets and also includes trust preferred securities.securities and promissory notes. See SeeNote 15Notes 14 and 16 in Part I, Item 1 of this Quarterly Report on Form 10-Q and Part II, Item 8 of our Annual Report on Form 10-K, for additional information on our short-term and long-term debt.

Risks Relating to Debt Incurred Under Short- and Long-Term Borrowing Facilities
As described above under the heading “Results of Operations,” in the ordinary course of our business, we use debt financing obtained through several different types of borrowing facilities to, among other things, finance the acquisition and/or origination of residential and business purpose mortgage loans (including those we acquire or originate in anticipation of sale or securitization), and finance investments in securities and other investments. We may also use short- and long-term borrowings to fund other aspects of our business and operations, including the repurchase of shares of our commoncapital stock. Recourse debt incurred under these facilities is generally either the direct obligation of Redwood Trust, Inc., or the direct obligation of subsidiaries of Redwood Trust, Inc. and guaranteed by Redwood Trust, Inc. Risks relating to debt incurred under these facilities are described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, under the caption(s) “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities,” and “Our use of financial leverage exposes us to increased risks, including liquidity risks from margin calls and potential breaches of the financial covenants under our borrowing facilities, which could result in our being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other debt agreements.”
Our sources of debt financing include secured borrowings under residential and business purpose mortgage loan warehouse facilities (including recourse and non-recourse warehouse facilities), short-term securities repurchase facilities, a $10 million committed line of short-term secured credit from a bank, short-term servicer advance financing, a secured, revolving debt facility collateralized by mortgage servicing rights, and subordinate securities financing facilities.

Aggregate borrowing limits are stated under certain of these facilities, and certain other facilities have no stated borrowing limit, but many of the facilities are uncommitted, which means that any request we make to borrow funds under these uncommitted facilities may be declined by the lender for any reason, even if at the time of the borrowing request we have then-outstanding borrowings that are less than the borrowing limits under these facilities. In general, financing under these facilities is obtained by transferring or pledging mortgage loans or securities to the counterparty in exchange for cash proceeds (in an amount less than 100% of the principal amount of the transferred or pledged assets).
Under many of our mortgage loan warehouse facilities and our short-term securities repurchase facilities, while transferred or pledged assets are financed under the facility, to the extent the value of the assets, or the collateral underlying those assets, declines, we are generally required to either immediately reacquire the assets or meet a margin requirement to transfer or pledge additional assets or cash in an amount at least equal to the decline in value. We refer to borrowing facilities with margin call provisions based solely on the lender's determination, in its discretion, of changes in the market value of transferred or pledged assets, as marginable debt. Borrowing facilities that we refer to as non-marginable debt may be subject to a margin call due to delinquency or another credit event related to the mortgage or security being financed, a decline in the value of the underlying asset securing the collateral, or a change in the interest rate of a specified reference security relative to a base interest rate amount. For example, we could be subject to a margin call on non-marginable debt if an appraisal or broker price opinion indicates a decline in the estimated value of the property securing the mortgage loan that is financed by us under a loan warehouse facility, or based on the occurrence of a triggering credit event impacting the financed collateral which is followed by a decline in the market value of the financed collateral (as determined by the lender), in which case the creditor may demand that we transfer additional collateral to the creditor (in the form of cash, U.S.
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Treasury obligations (in certain cases), or additional mortgage loans) with a value equal to the amount of the decline. Of our active financing arrangements with outstanding balances at SeptemberJune 30, 2022,2023, only our short-term securities repurchase facilities (with $124$253 million of borrowings outstanding at SeptemberJune 30, 2022)2023), and sixtwo of our residential mortgage loan warehouse facilities (with $356$12 million of borrowings outstanding at SeptemberJune 30, 2022)2023) retain market-value based margin call provisions based solely on the lender's determination of market value and, as such, are considered marginable.

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Margin call provisions under these facilities are further described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20212022 under the caption “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities - Margin Call Provisions Associated with Short-Term Debt and Other Debt Financing.” Financial covenants included in these facilities are further described Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20212022 under the caption “Risks Relating to Debt Incurred under Short- and Long-Term Borrowing Facilities - Financial Covenants Associated with Short-Term Debt and Other Debt Financing.”

Because many of these borrowing facilities are uncommitted, at any given time we may not be able to obtain additional financing under them when we need it, exposing us to, among other things, liquidity risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20212022 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 20212022 under the heading “Market Risks.” In addition, with respect to mortgage loans that at any given time are already being financed through these warehouse facilities, we are exposed to market, credit, liquidity, and other risks of the types described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20212022 under the heading “Risk Factors,” and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 20212022 under the heading “Market Risks,” if and when those loans or securities become ineligible to be financed, decline in value, or have been financed for the maximum term permitted under the applicable facility.

At SeptemberJune 30, 2022,2023, and through the date of this Quarterly Report on Form 10-Q, we were in compliance with the financial covenants associated with our short-term debt and other debt financing facilities. In particular, with respect to: (i) financial covenants that require us to maintain a minimum dollar amount of stockholders’ equity or tangible net worth at Redwood, at SeptemberJune 30, 20222023 our level of stockholders’ equity and tangible net worth resulted in our being in compliance with these covenants by more than $200 million; and (ii) financial covenants that require us to maintain recourse indebtedness below a specified ratio at Redwood, at SeptemberJune 30, 20222023 our level of recourse indebtedness resulted in our being in compliance with these covenants at a level such that we could incur more than $5$4 billion in additional recourse indebtedness.

105109

CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. A discussion of critical accounting policies and the possible effects of changes in estimates on our consolidated financial statements is included in Note 2 — Basis of Presentation and Note 3 — Summary of Significant Accounting Policies included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We have elected the fair value option of accounting for a significant portion of the assets and some of the liabilities on our balance sheet, and the majority of these assets and liabilities utilize Level 3 valuation inputs, which require a significant level of estimation uncertainty. See Note 5 in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional information on our assets and liabilities accounted for at fair value at SeptemberJune 30, 2022,2023, including the significant inputs used to estimate their fair values and the impact the changes in their fair values had to our financial condition and results of operations. See Note 5 in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, incorporated herein by reference, for the same information on these assets and liabilities as of December 31, 2021.2022. Periodic fluctuations in the values of these assets and liabilities are inherently volatile and thus can lead to significant period-to-period GAAP earnings volatility.
Additional detail on our critical accounting estimates is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, under the heading "Critical Accounting Estimates."


MARKET AND OTHER RISKS
We seek to manage risks inherent in our business — including but not limited to credit risk, interest rate risk, prepayment risk, liquidity risk, and fair value risk — in a prudent manner designed to enhance our earnings and dividends and preserve our capital. In general, we seek to assume risks that can be quantified from historical experience, to actively manage such risks, and to maintain capital levels consistent with these risks. Information concerning the risks we are managing, how these risks are changing over time, and potential GAAP earnings and taxable income volatility we may experience as a result of these risks is discussed in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
In addition to the market risks described above, our business and results of operations are subject to a variety of types of risks and uncertainties, including, among other things, those described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
106110

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information concerning market risk is incorporated herein by reference to Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, as supplemented by the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Market Risks” within Item 2 above. Other than the developments described thereunder, including changes in the fair values of our assets, there have been no other material changes in our quantitative or qualitative exposure to market risk since December 31, 2021.2022.
Item 4. Controls and Procedures
We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed on our reports under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that the information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.
There have been no changes in our internal control over financial reporting during the thirdsecond quarter of 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
107111

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information on our legal proceedings, see Note 17 to the Financial Statements within this Quarterly Report on Form 10-Q under the heading "Loss"Loss Contingencies - Litigation, Claims and Demands," which supplements the disclosures included in Note 1617 to the Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 20212022 under the heading “Loss“Loss Contingencies - Litigation, Claims and Demands.Demands.”
Item 1A. Risk Factors
Our risk factors are discussed under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended SeptemberJune 30, 2022,2023, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.
In July 2022, our Board of Directors authorizedapproved an authorization for the repurchase of up to $125 million of common stock. Thisour common stock, repurchase authorization replaces the $100 million common stock repurchase authorization approved by the Board of Directors in 2018, has no time limit and may be modified, suspended or discontinued at any time. The Board of Directors also continued its previous authorization forauthorized the repurchase of outstanding debt securities.securities, including convertible and exchangeable debt. This repurchase authorization has no expiration date and does not obligate us to acquire any specific number of shares or securities. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended SeptemberJune 30, 2022,2023, we repurchased 3.4 milliondid not repurchase any shares of our common stock for a total cost of $24 million.under this program. At SeptemberJune 30, 2022,2023, $101 million of thisthe current authorization remained available for the repurchase of shares of our common stock and we also continued to be authorized to repurchase outstanding debt securities. During the nine months ended September 30, 2022, we repurchased 7.1 million shares of our common stock for a total cost of $56 million under our current and previously-approved Board of Director authorizations.
The following table contains information on the shares of our common stock that we purchased or otherwise acquired during the three months ended SeptemberJune 30, 2022.2023.
Total Number of Shares Purchased or AcquiredAverage
Price per
Share Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans or Programs
(In Thousands, except per Share Data)
July 1, 2022 - July 31, 2022— $— — $— 
August 1, 2022 - August 31, 20221,126 $8.07 1,126 $115,907 
September 1, 2022 - September 30, 20222,322 $6.30 2,322 $101,265 
Total3,448 $6.88 3,448 $101,265 
Total Number of Shares Purchased or AcquiredAverage
Price per
Share Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans or Programs
(In Thousands, except per Share Data)
April 1, 2023 - April 30, 2023— $— — $— 
May 1, 2023 - May 31, 2023— $— — $— 
June 1, 2023 - June 30, 2023— $— — $— 
Total— $— — $101,265 
Item 3. Defaults Upon Senior Securities
None.
Item 4. Not ApplicableMine Safety Disclosures (Not Applicable)
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Item 5. Other Information
Effective November 2, 2022, our Board of Directors adopted Amended and Restated BylawsDuring the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in order to incorporate changes to the provisions in Article IIItem 408(a) of the Bylaws relating to annual meetings of stockholders. These changes include, among other things, updated provisions related to stockholder meetings held by phone, video, and remote communications, updated requirements related to the form of proxy cards and proxy solicitation by stockholders, updated information required to be included in a stockholder's notice of nomination of individuals for election as a director, and accompanying certifications to be made by the stockholder submitting such nomination, and clarify provisions relating to compliance with federal proxy rules, including Exchange Act Rule 14a-9, by stockholders submitting nominations.
The preceding summary of the amendment and restatement of the Bylaws of the Company is qualified in its entirety by reference to, and should be read in connection with, the complete copy of the Amended and Restated Bylaws attached as Exhibit 3.2.1 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
On November 3, 2022, Redwood amended and restated its employment agreements with each of Christopher J. Abate (Redwood’s CEO), Dashiell I. Robinson (Redwood’s President), Brooke E. Carillo (Redwood’s CFO), Andrew P. Stone (Redwood’s Executive Vice President, Chief Legal Officer, and Secretary), and Sasha G. Macomber (Redwood’s Chief Human Resource Officer). These agreements were amended and restated to, among other things, update or clarify certain defined terms, update and clarify certain notice and cure terms, and update provisions related to arbitration and costs related to dispute resolution, as well as to reflect previously disclosed compensation terms applicable to these officers.
The preceding summary of the five amended and restated employment agreements is qualified in its entirety by reference to, and should be read in connection with, the complete copies of the amended and restated employment agreements attached as Exhibits 10.2, 10.3, 10.4, 10.5 and 10.6 to this Quarterly Report on Form 10-Q and incorporated by reference herein.Regulation S-K.
109112

Item 6. Exhibits

Exhibit
Number		Exhibit
3.1
Articles of Amendment and Restatement of the Registrant, effective July 6, 1994 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1, filed on August 6, 2008)
3.1.1
Articles Supplementary of the Registrant, effective August 10, 1994 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.1, filed on August 6, 2008)
3.1.2
Articles Supplementary of the Registrant, effective August 11, 1995 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.2, filed on August 6, 2008)
3.1.3
Articles Supplementary of the Registrant, effective August 9, 1996 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.3, filed on August 6, 2008)
3.1.4
Certificate of Amendment of the Registrant, effective June 30, 1998 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.4, filed on August 6, 2008)
3.1.5
Articles Supplementary of the Registrant, effective April 7, 2003 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.5, filed on August 6, 2008)
3.1.6
Articles of Amendment of the Registrant, effective June 12, 2008 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, Exhibit 3.1.6, filed on August 6, 2008)
3.1.7
Articles of Amendment of the Registrant, effective May 19, 2009 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 21, 2009)
3.1.8
Articles of Amendment of the Registrant, effective May 24, 2011 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 20, 2011)
3.1.9
Articles of Amendment of the Registrant, effective May 18, 2012 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 21, 2012)
3.1.10
Articles of Amendment of the Registrant, effective May 16, 2013 (incorporated by reference to the Registrant’s Current Report on Form 8-K, Exhibit 3.1, filed on May 21, 2013)
3.1.11
Articles of Amendment of the Registrant, effective May 16, 2019 (incorporated by reference to the Registrant's Current Report on Form 8-K, Exhibit 3.1, filed on May 17, 2019)
3.1.12
3.2.13.1.13
3.2
Amended and Restated Bylaws of the Registrant, as adopted on November 2,, 2022 ( 2022 (incorporated by reference to the Registrant's Annual Report on Form 10-K, Exhibit 3.2, filed herewith)on March 1, 2023)
10.1*
Third Amendment to Amended and Restated Executive Deferred Compensation Plan, effected as of August 25, 2022 (filed herewith)
10.2*
Seventh Amended and Restated Employment Agreement, dated as of November 3, 2022, by and between Christopher J. Abate and the Registrant (filed herewith)
10.3*
Fifth Amended and Restated Employment Agreement, dated as of November 3, 2022, by and between Dashiell I. Robinson and the Registrant (filed herewith)
10.4*
Redwood Trust, Inc. Second Amended and Restated Employment Agreement, dated as of November 3, 2022,2014 Incentive Award Plan (incorporated by and between Brooke E. Carillo andreference to the Registrant (filed herewith)Registrant's Current Report on Form 8-K, Ex
10.5*
Seventh Amended and Restated Employment Agreement, dated as of November 3, 2022, by and between Andrew P. Stone and the Registrant (filed herewith)
10.6*
Second Amended and Restated Employment Agreement, dated as of November 3, 2022, by and between Sasha G. Macomber and the Registrant (filed herewith)hibit 10.1, filed on May 26, 2023)
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
110

Exhibit
Number		Exhibit
101Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended SeptemberJune 30, 2022,2023, is filed in inline XBRL-formatted interactive data files:
 
(i) Consolidated Balance Sheets at SeptemberJune 30, 20222023 and December 31, 2021;2022;
(ii) Consolidated Statements of Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021;2022;
(iii) Statements of Consolidated Comprehensive Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021;2022;
(iv) Consolidated Statements of Changes in Stockholders' Equity for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021;2022;
(v) Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20222023 and 2021;2022; and
(vi) Notes to Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
______________________
* Indicates exhibits that include management contracts or compensatory plan or arrangements.
111113

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
REDWOOD TRUST, INC.
Date:November 4, 2022August 7, 2023By:/s/ Christopher J. Abate
Christopher J. Abate
Chief Executive Officer
(Principal Executive Officer)
Date:November 4, 2022August 7, 2023By:/s/ Brooke E. Carillo
Brooke E. Carillo
Chief Financial Officer
(Principal Financial Officer)
Date:November 4, 2022August 7, 2023By:/s/ Collin L. Cochrane
Collin L. Cochrane
Chief Accounting Officer
(Principal Accounting Officer)
112114