During 2020, Redwood shareholders approved for grant an additional 5 million shares of common stock under our Incentive Plan. At December 31, 2020 and December 31, 2019, 7,957,891 and 3,637,480 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 $28 million at December 31, 2020, as shown in the following table.


	Year Ended December 31, 2020
(In Thousands)	Restricted Stock Awards		Restricted Stock Units		Deferred Stock Units		Performance Stock Units		Employee Stock Purchase Plan		Total
Unrecognized compensation cost at beginning of period	$	1,990	$	3,534	$	17,858	$	8,946	$	—	$	32,328
Equity grants	—		3,465		12,261		4,937		137		20,800
Performance-based valuation adjustment	—		—		—		(7,352)		—		(7,352)
Equity grant forfeitures	(531)		(2,163)		(4,733)		(648)		—		(8,075)
Equity compensation expense	(895)		(1,296)		(7,620)		(89)		(137)		(10,037)
Unrecognized Compensation Cost at End of Period	$	564	$	3,540	$	17,766	$	5,794	$	—	$	27,664


	Years Ended December 31,
	2020			2019			2018
	Shares	Weighted Average Grant Date Fair Market Value		Shares	Weighted Average Grant Date Fair Market Value		Shares	Weighted Average Grant Date Fair Market Value
Outstanding at beginning of period	216,470	$	14.85	334,606	$	14.92	257,507	$	15.23
Granted	—	—		—	—		168,537	14.71
Vested	(102,615)	14.44		(118,136)	15.05		(83,968)	15.46
Forfeited	(34,857)	15.16		—	—		(7,470)	15.05
Outstanding at End of Period	78,998	$	15.23	216,470	$	14.85	334,606	$	14.92

The expenses recorded for RSAs were $1 million, $2 million, and $2 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $1 million of unrecognized compensation cost related to unvested RSAs. This cost will be recognized over a weighted average period of less than one year. Restrictions on shares of RSAs outstanding lapse through 2022.


	Years Ended December 31,
	2020			2019			2018
	Shares	Weighted Average Grant Date Fair Market Value		Shares	Weighted Average Grant Date Fair Market Value		Shares	Weighted Average Grant Date Fair Market Value
Outstanding at beginning of period	275,173	$	15.65	4,876	$	15.38	—	$	—
Granted	205,482	16.86		270,297	15.66		4,876	15.38
Vested	(68,076)	15.65		—	—		—	—
Forfeited	(130,155)	16.60		—	—		—	—
Outstanding at End of Period	282,424	$	16.09	275,173	$	15.65	4,876	$	15.38

The expenses recorded for RSUs were $1 million, $1 million, and less than $0.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $4 million of unrecognized compensation cost related to unvested RSUs. This cost will be recognized over a weighted average period of less than two years. Restrictions on shares of RSUs outstanding lapse through 2024.


	Years Ended December 31,
	2020			2019			2018
	Units	Weighted Average Grant Date Fair Market Value		Units	Weighted Average Grant Date Fair Market Value		Units	Weighted Average Grant Date Fair Market Value
Outstanding at beginning of period	2,630,805	$	15.66	2,336,720	$	15.58	1,878,491	$	15.92
Granted	1,186,154	10.69		733,096	16.06		670,254	15.53
Distributions	(720,562)	14.31		(419,113)	15.96		(212,025)	18.37
Forfeitures	(291,253)	16.25		(19,898)	15.96		—	—
Balance at End of Period	2,805,144	$	13.84	2,630,805	$	15.66	2,336,720	$	15.58

We generally grant DSUs annually, as part of our compensation process. In addition, DSUs are granted from time to time in connection with hiring and promotions and in lieu of the payment in cash of a portion of annual bonus earned. DSUs vest over the course of a four-year vesting period, and are distributed after the end of the final vesting period or after an employee is terminated. At December 31, 2020 and 2019, the number of outstanding DSUs that were unvested was 1,599,019 and 1,344,743, respectively. The weighted average grant-date fair value of these unvested DSUs was $13.30 and $15.76 at December 31, 2020 and 2019, respectively. Unvested DSUs at December 31, 2020 will vest through 2024.

Expenses related to DSUs were $8 million for each of the years ended December 31, 2020, 2019, and 2018. At December 31, 2020, there was $18 million of unrecognized compensation cost related to unvested DSUs. This cost will be recognized over a weighted average period of less than two years. At December 31, 2020 and 2019, the number of outstanding DSUs that had vested was 1,206,125 and 1,286,063, respectively.

At December 31, 2020 and December 31, 2019, the target number of PSUs that were unvested was 978,735 and 839,070, respectively. During 2020, 2019, and 2018, 473,845, 307,938, and 258,078 target number of PSUs were granted, respectively, with per unit grant date fair values of $10.42, $17.13, and $17.05, respectively. During the year ended December 31, 2020, 99,175 PSUs were forfeited due to employee departures. During the years ended December 31, 2019 and 2018, there were no PSUs forfeited.

With respect to 473,845, 275,831, and 206,034 target number of PSUs granted in December 2020, December 2019, and December 2018, respectively, and still outstanding at December 31, 2020, the 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 PSUs granted, with the target number of PSUs granted being adjusted to reflect the value of any dividends declared on our common stock during the vesting period. Vesting of these PSUs will generally occur as of January 1, 2024 for the December 2020 awards, January 1, 2023 for the December 2019 awards, and as of January 1, 2022 for the December 2018 awards. Vesting is based on a three-step process as described below.

•Target PSUs are divided into three equal tranches. Baseline vesting for each tranche would range from 0% - 200% of the Target PSUs in such tranche based on the level of the Company's book value total shareholder return ("bvTSR") attained over a corresponding calendar year measurement period within the three-year vesting period, with 100% of the Target PSUs in each tranche vesting if one-year bvTSR for such tranche is 7.7%.

•Second, at the end of the three-year vesting period, the aggregate vesting level of the three tranches, or total baseline vesting, would then be adjusted to increase or decrease by up to 50 percentage points based on the Company's three-year relative total stockholder return ("rTSR") against a comparator group of companies measured over the three-year vesting period, with median rTSR performance correlating to no adjustment from the total baseline level of vesting.

•Third, if the aggregate vesting level after steps one and two is greater than 100% of the Target PSUs, 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 PSUs.

•First, baseline vesting would range from 0% - 200% of the target number of PSUs granted based on the level of bvTSR attained over the three-year vesting period, with 100% of the target number of PSUs vesting if three-year bvTSR is 25%. Book Value TSR 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, compared to the bvTSR goal for the performance period.

•Second, the vesting level would then be adjusted to increase or decrease by up to an additional 50 percentage points based on Redwood’s rTSR against a comparator group of companies measured over the three-year vesting period, with median rTSR performance correlating to no adjustment from the baseline level of vesting.

•Third, if the vesting level after steps one and two is greater than 100% of the target number of PSUs, but absolute TSR is negative over the three-year performance period, vesting would be capped at 100% of target number of PSUs. 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 (“Three-Year TSR”).

The grant date fair value of the December 2020 PSUs of $10.42 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, 2021 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 the 2020 PSU grant, an implied volatility assumption of 54% (based on historical volatility), a risk-free rate of 0.18% (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.

The grant date fair value of the December 2019 PSUs of $17.13 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 prior to the grant date 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 the 2019 PSU grant, an implied volatility assumption of 15% (based on historical volatility), a risk-free rate of 1.68% (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.

The grant date fair value of the December 2018 PSUs of $17.23 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 prior to the grant date 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 the 2018 PSU grant, an implied volatility assumption of 22% (based on historical volatility), a risk-free rate of 2.78% (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.

In May 2018, 23,025 target number of PSUs with a per unit grant date fair value of $15.20 were granted to two executives in connection with their promotions. The grant date fair values of these PSUs were determined through Monte-Carlo simulations using the following assumptions: our common stock closing price at the grant date, the average closing price of our common stock price for the 60 trading days prior to the grant date and the range of performance-based vesting based on Three-Year TSR and the performance-based vesting formula described below with respect to PSUs granted in December 2017. For this PSU grant, an implied volatility assumption of 27% (based on historical volatility), a risk-free rate of 2.71% (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 PSUs granted in May 2018, vesting will generally occur at the end of three years from their grant date, with the level of vesting at that time contingent on the Three-Year TSR. The number of underlying shares of our common stock that will vest in future years will vary between 0% (if Three-Year TSR is zero or negative) and 200% (if Three-Year TSR is greater than or equal to 125%) of the target number of PSUs originally granted, adjusted upward (if vesting is greater than 0%) to reflect the value of dividends paid during the three-year vesting period.

With respect to PSUs granted in 2017, the three-year performance period ended during the fourth quarter of 2020, resulting in the vesting of no shares of our common stock. With respect to the PSUs granted in 2016, the three-year performance period ended during the fourth quarter of 2019, resulting in the vesting of 222,769 shares of our common stock. With respect to the PSUs granted in 2015, the three-year performance period ended during the fourth quarter of 2018, resulting in the vesting of 387,937 shares of our common stock.

Expenses related to PSUs were $0.1 million for the year ended December 31, 2020, and $3 million for each of the years ended December 31, 2019, and 2018. As of December 31, 2020, there was $6 million of unrecognized compensation cost related to unvested PSUs. During 2020, for PSUs granted in 2018 and 2019, we adjusted our vesting estimate to assume that none of these awards will meet the minimum performance thresholds for vesting. This adjustment resulted in a reversal of $1 million of stock-based compensation expense that had been recorded prior to 2020.

The ESPP allows a maximum of 600,000 shares of common stock to be purchased in aggregate for all employees. As of December 31, 2020, 489,886 shares had been purchased, respectively, and there remained a negligible amount of uninvested employee contributions in the ESPP at December 31, 2020.


	Years Ended December 31,
(In Thousands)	2020		2019		2018
Balance at beginning of period	$	4	$	6	$	4
Employee purchases	347		524		375
Cost of common stock issued	(334)		(526)		(373)
Balance at End of Period	$	17	$	4	$	6


	Years Ended December 31,
(In Thousands)	2020		2019		2018
Balance at beginning of period	$	2,454	$	2,484	$	2,171
New deferrals	726		789		759
Accrued interest	42		68		82
Withdrawals	(933)		(887)		(528)
Balance at End of Period	$	2,289	$	2,454	$	2,484

In 2018, our Board of Directors approved an amendment to the EDCP to increase by 200,000 shares the shares available to allow non-employee directors to defer certain cash payments and dividends into DSUs. At December 31, 2020, there were 99,281 shares available for grant under this plan.