Operating Expenses

12 Months Ended

Dec. 31, 2023

Other Income and Expenses [Abstract]

Components of our general and administrative expenses, portfolio management costs, loan acquisition costs, and other expenses for the years ended December 31, 2023, 2022 and 2021 are presented in the following table.

Table 22.1 – Components of Operating Expenses


	Years Ended December 31,
(In Thousands)	2023		2022		2021
General and Administrative Expenses
Fixed compensation expense(1)	$	53,525	$	63,642	$	46,328
Annual variable compensation expense	14,752		12,873		58,569
Long-term incentive award expense (2)	24,854		23,101		19,938
Acquisition-related equity compensation expense (3)	—		—		3,813
Systems and consulting	12,454		14,193		14,445
Office costs	8,590		8,574		7,837
Accounting and legal	5,191		6,644		4,975
Corporate costs	3,628		3,675		3,388
Other	5,301		8,206		5,925
Total General and Administrative Expenses	128,295		140,908		165,218

Portfolio Management Costs	14,571		7,951		5,758

Loan Acquisition Costs
Commissions	3,746		7,154		7,116
Underwriting costs	1,633		3,368		7,645
Transfer and holding costs	1,787		1,244		1,458
Total Loan Acquisition Costs	7,166		11,766		16,219

Other Expenses
Amortization of purchase-related intangible assets	12,430		13,969		15,304
Other(4)	3,808		1,621		1,391
Total Other Expenses	16,238		15,590		16,695
Total Operating Expenses	$	166,270	$	176,215	$	203,890

(1)Includes $2 million and $7 million of severance and transition-related expenses for the years ended December 31, 2023 and 2022, respectively.

(2)For the years ended December 31, 2023, 2022 and 2021, long-term incentive award expense includes $18 million, $20 million and $14 million, respectively, of expense for awards settleable in shares of our common stock and $6 million, $3 million and $6 million, respectively, of expense for awards settleable in cash.

(3)Acquisition-related equity compensation expense relates to 588,260 shares of restricted stock that were issued to members of CoreVest management as a component of the consideration paid to them for our purchase of their interests in CoreVest in 2019.

(4)For the year ended December 31, 2023, Other includes a $6 million allocation of income to our servicing investment co-investors, net of a contra-expense for the reversal of a $2 million litigation reserve.

Cash-Settled Deferred Stock Units ("csDSUs")

During the years ended December 31, 2022 and 2021, $3 million and $4 million of csDSUs, respectively, were granted to certain executive officers and non-executive employees that vest over four-year periods through 2026. These awards will be fully vested and payable in cash with a vested award value based on the closing market price of our common stock on their respective final vesting dates. 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. For the years ended December 31, 2023, 2022 and 2021, we recognized an expense of $3 million, $1 million and $2 million, respectively, for csDSUs in "Long-term incentive award expense," as presented in Table 22.1 above. At December 31, 2023 and December 31, 2022, the unamortized compensation cost of csDSUs was $4 million and $5 million, respectively. The compensation costs associated with these awards are adjusted for changes in the value of our common stock at the end of each reporting period.

Cash-Settled Restricted Stock Units ("csRSUs")

During the year ended December 31, 2023, $4 million of csRSUs were granted to certain executive officers that will vest over the next four years through 2027. On each vesting date over the four-year vesting period, cash in an amount equal to the value of the common stock underlying the csRSUs that vest on such vesting date will be distributed to the recipients. 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. At December 31, 2023, the liability associated with these awards was $0.2 million, and unamortized compensation cost of the csRSUs was $4 million. For the year ended December 31, 2023, we recognized an expense of $0.2 million for csRSUs in "Long-term incentive award expense," as presented in Table 22.1 above. The compensation costs associated with these awards are adjusted for changes in the value of our common stock at the end of each reporting period.

Cash Settled Performance Stock Units

During the year ended December 31, 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 December 31, 2023, the liability associated with these awards was $2 million, and unamortized compensation expense of the csPSUs was $4 million. For the year ended December 31, 2023, we recognized an expense of $2 million for csPSUs in "Long-term incentive award expense," as presented in Table 22.1 above.

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 applicable interpolated U.S. Treasury bench-mark rate), 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 year ended December 31, 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.

Long-Term Cash-Based Awards

During the years ended December 31, 2023, 2022 and 2021, $1 million, $3 million and $1 million of long-term cash-based retention awards were granted to certain executive and non-executive employees, respectively, that vest and be paid over one to three-year periods, subject to continued employment through the vesting periods through 2025. During the year ended December 31, 2022, $2 million of cash-based retention awards that were granted during 2020 and 2022 were forfeited due to employee terminations. Additionally, during 2020, Cash Performance Awards with an aggregate granted award value of $2 million, were granted to certain executive and non-executive employees. During 2023, these awards failed to reach a threshold level under their performance-based vesting criteria and resulted in the vesting of zero Cash Performance Awards. At December 31, 2023, the liability associated with long-term cash-based awards was $1 million, and the unamortized compensation expense of these awards was $1 million.

The value of long-term cash-based awards are generally amortized into expense on a straight-line basis over each award's respective vesting period. For the years ended December 31, 2023, 2022 and 2021, General and administrative expenses included $2 million, $1 million and $3 million of aggregate expense, respectively, related to long-term cash-based awards and the Cash Performance awards.