The California-focused lender saw earnings surge even as elevated borrower delinquencies temporarily cut off access to its bank credit line.

May 21, 2026

Redwood Mortgage Investors IX, LLC, a Delaware-organized lender focused on California real-estate-secured loans, reported a sharp jump in first-quarter earnings, driven by a larger loan portfolio and lower operating costs — even as elevated borrower delinquencies temporarily blocked access to its primary bank credit line.

The San Mateo-based company, externally managed by Redwood Mortgage Corp., posted net income of approximately $655,000 for the three months ended March 31, 2026, more than triple the $217,000 earned in the same period a year earlier. Members received 99 percent of the period’s profit, or roughly $648,000, with the manager allocated the remaining 1 percent.

Stronger Top Line, Lower Costs

The earnings improvement was anchored by stronger top-line performance. Interest income rose to about $1.4 million from $1.08 million a year earlier, while net interest income climbed roughly 29.9 percent, or about $315,000, to $1.37 million. Management attributed the growth largely to a higher average daily balance of secured loans, which expanded by approximately $10.2 million, or 20.9 percent, year over year. That gain was partially offset by a modest increase in interest expense tied to the company’s newly tapped revolving credit facility.

Total operating expenses fell to about $720,000 from $848,000, with the decline driven primarily by lower professional services costs, which dropped to roughly $396,000 from $532,000. Asset management fees paid to Redwood Mortgage Corp. eased slightly, while mortgage servicing fees ticked modestly higher. No provision for credit losses was recorded in either quarter.

Balance Sheet Expansion and a New Bank Borrowing

Total assets stood at approximately $60.8 million at March 31, 2026, up from $59.1 million at year-end 2025. Cash balances rose to roughly $1 million from $562,000, while loan balances secured by deeds of trust, net of allowances, grew modestly to $58.9 million. The allowance for credit losses was reduced to $250,000 from $545,000 following a charge-off connected to a property the company acquired through foreclosure.

A notable shift on the liability side: the company drew approximately $1.9 million on its bank line of credit during the quarter, after carrying no outstanding balance at year-end. Total liabilities accordingly rose to about $2.2 million from $89,000. Combined members’ and manager’s capital, net of a formation loan receivable from Redwood Mortgage Corp., declined to roughly $58.6 million from $59.1 million, reflecting earnings distributions of about $515,000 and member redemptions totaling approximately $799,000 during the quarter. Both distribution and redemption activity were lower than in the prior-year quarter.

Credit Line Modified, Then Tripped by Delinquency Threshold

On March 11, 2026, the company entered into a Third Modification Agreement with Western Alliance Bank, extending the maturity of its $10 million revolving credit and term loan facility to March 13, 2028. The facility, used exclusively to fund secured loans, carries an interest rate equal to the greater of one-month Term SOFR plus 3.5 percent or a 6 percent floor. As of the period end, approximately $6.5 million of pledged loans backed the facility under the borrowing base calculation.

However, the company disclosed it had fallen out of compliance with a key covenant. The credit agreement requires the loan delinquency rate to remain under 20 percent at quarter-end and under 10 percent on a rolling two-quarter basis. At March 31, 2026, the portfolio’s delinquency rate stood at 23.57 percent — well above the ceiling. As a result, the company is barred from drawing additional advances on the facility until it regains compliance. Western Alliance has not accelerated repayment.

Other covenants under the agreement include:

• Minimum tangible net worth of $50 million, net of related-party amounts
• A debt service coverage ratio of at least 2.00 to 1.00
• At least $1 million in unrestricted liquid assets, measured quarterly

An unused-line fee applies in quarters when average outstanding principal falls below half the maximum credit amount; that fee totaled $4,000 for the quarter.

Portfolio Composition and Largest Loan

At quarter end, the secured loan portfolio comprised 25 interest-only loans with aggregate principal of approximately $50.6 million and 9 amortizing loans totaling roughly $7.5 million, the latter representing about 13 percent of total loan principal. Amortizing loans are typically calculated on a 30-year basis with a balloon principal payment due at maturity.

The company’s largest individual loan, with a principal balance of $7.4 million, is secured by a redevelopment site in San Diego County, California. The loan carries an interest rate of 12.5 percent, holds a first lien position with an original loan-to-value ratio of 59 percent, and matured on March 1, 2026. The borrower is delinquent on monthly payments and is pursuing refinancing with other lenders.

Beyond that exposure, management identified two first-lien loans with combined principal of $1.6 million and one second-lien loan with a $625,000 balance as collateral dependent. An allowance of $130,000 was associated with the loan. The second-lien loan paid off in April 2026.

Real Estate Owned and a Subsequent Sale

The company added a real-estate-owned asset to its balance sheet during the quarter — its first in some time. The property, a vacated restaurant in San Mateo County, was acquired through a foreclosure sale on January 7, 2026, and was recorded at a net carrying value of roughly $784,000. Holding costs of approximately $20,000 were incurred during the quarter.

In a notable subsequent event, the company disclosed that the property was sold on May 15, 2026, at a price sufficient to recover its net carrying value, removing the asset from future balance sheets and limiting any further holding-cost drag on earnings.

Funding Sources and Liquidity Outlook

Management indicated that loan payoffs, borrowers’ monthly principal and interest payments, advances on the bank line (when accessible), occasional loan sales to unaffiliated third parties, and ongoing repayments from Redwood Mortgage Corp. on the formation loan continue to serve as the company’s primary funding sources. The receivable from the manager related to the formation loan stood at approximately $2.4 million at quarter end, down from $2.6 million.

The manager expressed confidence that available sources would be sufficient to meet financial obligations over the next twelve months, noting that the company can also rely on loan assignments to related mortgage funds if capital becomes fully deployed. The company reported no construction or rehabilitation loans outstanding, no pending loan commitments, and no off-balance-sheet arrangements at period end.

Management reported no material changes from previously disclosed risk factors and confirmed that internal controls over financial reporting remained effective.