ck0001448038-10q_20190630.htm

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 (§232.405 of this chapter) 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, a 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.

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

	June 30,			December 31,
ASSETS	2019			2018
Cash and cash equivalents	$	3,782,785		$	10,674,953
Loans
Principal		70,922,877			62,115,713
Advances		20,924			21,041
Accrued interest		641,861			473,966
Prepaid interest		(52,500	)		—
Loan balances secured by deeds of trust		71,533,162			62,610,720
Total assets	$	75,315,947		$	73,285,673

LIABILITIES, INVESTORS IN APPLICANT STATUS, AND MEMBERS’ CAPITAL

Accounts payable and accrued liabilities	$	279		$	9,321
Payables to affiliate		11,974			—
Total liabilities		12,253			9,321

Commitments and contingencies (Note 5)

Investors in applicant status		—			651,500

Members’ capital, net		79,628,024			76,804,195
Receivable from manager (formation loan)		(4,324,330	)		(4,179,343	)
Members’ capital, net, less formation loan		75,303,694			72,624,852
Total liabilities, investors in applicant status and members’ capital	$	75,315,947		$	73,285,673

	Three Months Ended June 30				Six Months Ended June 30
	2019		2018		2019		2018
Revenues, net
Interest income	$	1,517,873	$	1,315,915	$	2,878,865	$	2,493,647
Late fees		9,642		5,531		26,627		10,242
Gain on sale, loans		—		14,246		—		14,246
Total revenues		1,527,515		1,335,692		2,905,492		2,518,135

Provision for loan losses		—		—		—		—

Operations expense
Mortgage servicing fees		42,914		38,694		81,560		73,878
Asset management fees, net (Note 3)		39,729		—		39,729		—
Costs from Redwood Mortgage Corp., net (Note 3)		—		—		—		—
Professional services, net (Note 3)		78,858		84,213		226,175		88,898
Other		21,382		8,412		24,738		8,497
Total operations expense		182,883		131,319		372,202		171,273
Net income	$	1,344,632	$	1,204,373	$	2,533,290	$	2,346,862
Members (99%)		1,331,186		1,192,329		2,507,957		2,323,393
Manager (1%)		13,446		12,044		25,333		23,469
	$	1,344,632	$	1,204,373	$	2,533,290	$	2,346,862

				Members' Capital, net
	Investors In Applicant Status			Members’ Capital			Manager’s Capital		Unallocated Organization and Offering Expenses			Members’ Capital, net
Balance at March 31, 2019	$	1,499,263		$	79,965,409		$	138,359	$	(2,475,629	)	$	77,628,139
Contributions on application		554,245			—			—		—			—
Contributions admitted to members' capital		(2,046,508	)		2,046,508			2,059		—			2,048,567
Premiums paid on application by RMC		5,355			—			—		—			—
Premiums admitted to members' capital		(12,355	)		12,355			—		—			12,355
Net income		—			1,331,186			13,446		—			1,344,632
Earnings distributed to members		—			(1,116,861	)		—		—			(1,116,861	)
Earnings distributed used in DRIP		—			601,285			—		—			601,285
Members’ redemptions		—			(823,654	)		—		—			(823,654	)
Organization and offering expenses		—			—			—		(92,093	)		(92,093	)
Organization and offering expenses allocated		—			(81,682	)		—		81,682			—
Organization and offering expenses repaid by RMC		—			—			—		25,654			25,654
Balance at June 30, 2019	$	—		$	81,934,546		$	153,864	$	(2,460,386	)	$	79,628,024

				Members' Capital, net
	Investors In Applicant Status			Members’ Capital			Manager’s Capital		Unallocated Organization and Offering Expenses			Members’ Capital, net
Balance at December 31, 2018	$	651,500		$	79,198,453		$	125,200	$	(2,519,458	)	$	76,804,195
Contributions on application		2,666,508			—			—		—			—
Contributions admitted to members' capital		(3,318,008	)		3,318,008			3,331		—			3,321,339
Premiums paid on application by RMC		12,355			—			—		—			—
Premiums admitted to members' capital		(12,355	)		12,355			—		—			12,355
Net income		—			2,507,957			25,333		—			2,533,290
Earnings distributed to members		—			(2,227,868	)		—		—			(2,227,868	)
Earnings distributed used in DRIP		—			1,204,181			—		—			1,204,181
Members’ redemptions		—			(1,916,050	)		—		—			(1,916,050	)
Organization and offering expenses		—			—			—		(185,332	)		(185,332	)
Organization and offering expenses allocated		—			(162,490	)		—		162,490			—
Organization and offering expenses repaid by RMC		—			—			—		62,499			62,499
Early withdrawal penalties		—			—			—		19,415			19,415
Balance at June 30, 2019	$	—		$	81,934,546		$	153,864	$	(2,460,386	)	$	79,628,024

				Members' Capital, net
	Investors In Applicant Status			Members’ Capital			Manager’s Capital			Unallocated Organization and Offering Expenses			Members’ Capital, net
Balance at March 31, 2018	$	4,415,358		$	69,816,123		$	117,527		$	(2,395,922	)	$	67,537,728
Contributions on application		3,094,160			—			—			—			—
Contributions admitted to members' capital		(6,177,788	)		6,177,788			6,210			—			6,183,998
Premiums paid on application by RMC		1,120			—			—			—			—
Premiums admitted to members' capital		(32,690	)		32,690			—			—			32,690
Net income		—			1,192,329			12,044			—			1,204,373
Earnings distributed to members		—			(1,088,573	)		(38,690	)		—			(1,127,263	)
Earnings distributed used in DRIP		—			589,482			—			—			589,482
Members’ redemptions		—			(299,240	)		—			—			(299,240	)
Organization and offering expenses		—			—			—			(278,696	)		(278,696	)
Organization and offering expenses allocated		—			(74,480	)		—			74,480			—
Manager reimbursement		—			—			—			9,137			9,137
Early withdrawal penalties		—			—			—			879			879
Balance at June 30, 2018	$	1,300,160		$	76,346,119		$	97,091		$	(2,590,122	)	$	73,853,088

				Members' Capital, net
	Investors In Applicant Status			Members’ Capital			Manager’s Capital			Unallocated Organization and Offering Expenses			Members’ Capital, net
Balance at December 31, 2017	$	3,270,312		$	66,450,424		$	102,902		$	(2,335,325	)	$	64,218,001
Contributions on application		7,407,598			—			—			—			—
Contributions admitted to members' capital		(9,370,995	)		9,370,995			9,410			—			9,380,405
Premiums paid on application by RMC		33,040			—			—			—			—
Premiums admitted to members' capital		(39,795	)		39,795			—			—			39,795
Net income		—			2,323,393			23,469			—			2,346,862
Earnings distributed to members		—			(2,178,920	)		(38,690	)		—			(2,217,610	)
Earnings distributed used in DRIP		—			1,187,760			—			—			1,187,760
Members’ redemptions		—			(702,640	)		—			—			(702,640	)
Organization and offering expenses		—			—			—			(422,390	)		(422,390	)
Organization and offering expenses allocated		—			(144,688	)		—			144,688			—
Manager reimbursement		—			—			—			21,330			21,330
Early withdrawal penalties		—			—			—			1,575			1,575
Balance at June 30, 2018	$	1,300,160		$	76,346,119		$	97,091		$	(2,590,122	)	$	73,853,088

	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Operations
Interest received	$	1,486,895		$	1,224,758		$	2,761,760		$	2,385,819
Other loan income		9,742			4,483			26,877			9,344
Loan administrative fee reimbursed		—			—			—			3,130
Operations expense		(194,942	)		(163,236	)		(369,481	)		(165,839	)
Total cash provided by operations		1,301,695			1,066,005			2,419,156			2,232,454
Investing – loan principal/advances
Principal collected on loans		10,088,604			6,855,023			21,978,196			19,594,640
Loans originated		(14,595,000	)		(16,594,000	)		(30,922,000	)		(26,540,500	)
Loans sold to non-affiliate, net		—			14,163,158			143,000			14,163,158
Loans transferred from affiliates		—			—			—			(5,889,819	)
Advances made on loans		2,471			565			(4,532	)		(2,083	)
Total cash (used in) provided by investing		(4,503,925	)		4,424,746			(8,805,336	)		1,325,396
Financing – members’ capital
Contributions by members, net
Contributions by members		561,586			3,101,230			2,682,154			7,449,992
Organization and offering expenses paid, net		(66,439	)		(269,560	)		(122,833	)		(401,060	)
Formation loan funding		(45,728	)		(211,727	)		(186,656	)		(569,521	)
Total cash provided by members, net		449,419			2,619,943			2,372,665			6,479,411
Distributions to members
Earnings distributed		(515,576	)		(537,781	)		(1,023,687	)		(1,029,850	)
Redemptions		(808,070	)		(299,240	)		(1,854,966	)		(702,640	)
Cash distributions to members		(1,323,646	)		(837,021	)		(2,878,653	)		(1,732,490	)
Total cash (used in) provided by financing		(874,227	)		1,782,922			(505,988	)		4,746,921
Net (decrease) increase in cash		(4,076,457	)		7,273,673			(6,892,168	)		8,304,771
Cash, beginning of period		7,859,242			9,540,950			10,674,953			8,509,852
Cash, June 30,	$	3,782,785		$	16,814,623		$	3,782,785		$	16,814,623

Non-cash financing activity of $2,221 and $15,584 for the three months ended, and $3,968 and $61,084 for the six months ended June 30, 2018 and 2019, respectively, in early withdrawal penalties which reduced redemptions, included in the table above.

	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Net income	$	1,344,632		$	1,204,373		$	2,533,290		$	2,346,862
Adjustments to reconcile net income to net cash provided by operating activities
(Gain) on sale, loans		—			(14,246	)		—			(14,246	)
Amortization of loan administrative fees		—			3,254			—			3,254
Change in operating assets and liabilities
Prepaid interest		52,500			—			52,500			—
Accrued interest		(83,478	)		(94,411	)		(169,605	)		(111,083	)
Receivable from affiliate		—			(135	)		—			(135	)
Loan administrative fees reimbursed		—			—			—			3,130
Accounts payable and accrued liabilities		(11,959	)		(33,803	)		2,971			1,951
Other		—			973			—			2,721
Total adjustments		(42,937	)		(138,368	)		(114,134	)		(114,408	)
Total cash provided by operations	$	1,301,695		$	1,066,005		$	2,419,156		$	2,232,454

In the opinion of the management of Redwood Mortgage Corp. (RMC or the manager), the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the company’s Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (SEC). The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the operations results to be expected for the full year.

Redwood Mortgage Investors IX, LLC (RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment mortgage loans secured by California real estate, primarily through first and second deeds of trust.

The company is externally managed by RMC. The manager is solely responsible for managing the business and affairs of RMI IX, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for RMI IX to conduct its business as the company has no employees of its own. The manager was required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC.

The rights, duties and powers of the members and manager of the company are governed by the Ninth Amended and Restated Limited Liability Company Operating Agreement of RMI IX (the “Operating Agreement”), the Delaware Limited Liability Company Act and the California Revised Uniform Limited Liability Company Act.

The following is a summary of certain provisions of the Operating Agreement and is qualified in its entirety by the terms of the Operating Agreement itself. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions.

The ongoing sources of funds for loans are the proceeds (net of redemption of members’ capital and operating expenses) from:

The company intends to hold until maturity the loans in which it invests and does not presently intend to invest in mortgage loans primarily for the purpose of reselling such loans in the ordinary course of business; however, the company may sell mortgage loans (or fractional interests therein) when the manager determines that it appears to be advantageous for the company to do so, based upon then current interest rates, the length of time that the loan has been held by the company, the company’s credit risk and concentration risk and the overall investment objectives of the company. Loans sold to third parties may be sold for par, at a premium or, in the case of non-performing or under performing loans, at a discount. Company loans may be sold to third parties or to the manager or its affiliates; however, any loan sold to the manager or an affiliate thereof will not be sold for a purchase price less than the par value of the loan or the fair market value of the loan, whichever is greater. The manager will not receive commissions or broker fees with respect loan sales conducted for the company; however, selling loans will increase members’ capital available for investing in new loans for which the manager will earn brokerage fees and other forms of compensation.

Net income and losses are allocated monthly among the members according to their respective capital accounts after one percent (1%) of the profits and losses are allocated to the manager. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Investors should not expect the company to provide tax benefits of the type commonly associated with limited liability company tax shelter investments. Federal and state income taxes are the obligation of the members, if and when taxes apply, other than the annual California franchise tax and the California LLC cash receipts taxes paid by the company.

Members representing a majority of the outstanding units may, without the concurrence of the managers, vote to: (i) dissolve the company, (ii) amend the Operating Agreement, subject to certain limitations, (iii) approve or disapprove the sale of all or substantially all of the assets of the company or (iv) remove or replace one or all of the managers. Where there is only one manager, a majority in interest of the members is required to elect a new manager to continue the company business after a manager ceases to be a manager due to its withdrawal.

Cash available for distribution at the end of each calendar month is allocated ninety-nine percent (99%) to the members and one percent (1%) to the manager. Cash available for distribution means cash flow from operations (excluding repayments for loan principal and other capital transaction proceeds) less amounts set aside for creation or restoration of reserves. The manager may withhold from cash available for distribution otherwise distributable to the members with respect to any period the respective amounts of organization and offering (O&O expenses) allocated to the members’ accounts for the applicable period pursuant to the company’s reimbursement to RMC and allocation to members’ accounts of O&O expenses. The amount otherwise distributable, less the respective amounts of O&O expenses allocated to members, is the net distribution. Per the terms of the company’s Operating Agreement, cash available for distribution allocated to the members is allocated among the members in proportion to their percentage interests (except with respect to differences in the amounts of O&O expenses allocated to the respective members during the applicable period) and in proportion to the number of days during the applicable month that they owned such percentage interests.

See Note 3 (Manager and Other Related Parties) to the financial statements for a detailed discussion on the allocation of O&O expenses to members’ accounts.

Cash available for distributions allocable to members, other than those participating in the distribution reinvestment plan (DRIP) and the manager, is distributed at the end of each calendar month. Cash available for distribution allocable to members who participate in the DRIP is used to purchase additional units at the end of each calendar month. The manager’s allocable share of cash available for distribution is also distributed not more frequently than with cash distributions to members.

To determine the amount of cash to be distributed in any specific month, the company relies in part on its forecast of full year profits, which takes into account the difference between the forecasted and actual results in the year and the requirement to maintain a cash reserve.

The company’s net income, cash available for distribution, and net-distribution rate fluctuates depending on:

Since commencement of operations in 2009, RMC, at its sole discretion, has provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:

Such fee and cost-reimbursement waivers and the absorption of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the Operating Agreement has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased the company’s financial performance and resulted in an annual 6.5% net distribution rate since inception (6.95% before O&O expenses allocation of 0.45% when applicable) for periods prior to February 28, 2018.

Following a communication to members of its intention to phase in collection of its fees and cost reimbursements in April 2018, RMI IX began paying all of its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.). In June 2019, RMC began collection of the asset management fee of three quarters of one percent annually (0.75%), and plans to commence collection of reimbursements of costs from RMC in 2020.

Members of record as of April 30, 2019, that previously elected to participate in the DRIP or that provide written notice to the manager may elect to participate in the DRIP, in those states in which approval has been obtained.

There are substantial restrictions on transferability of units, and there is no established public trading and/or secondary market for the units and none is expected to develop. In order to provide liquidity to members, the company’s Operating Agreement includes a unit redemption program, whereby beginning one year from the date of purchase of the units, a member may redeem all or part of their units, subject to certain limitations.

The price paid for redeemed units is based on the lesser of the purchase price paid by the redeeming member or the member’s capital account balance as of the date of each redemption payment. Redemption value is calculated based on the period from date of purchase as follows:

The company redeems units quarterly, subject to certain limitations as provided for in the Operating Agreement. The maximum number of units which may be redeemed per quarter per individual member shall not exceed the greater of (i) 100,000 units, or (ii) 25% of the member’s total outstanding units. For redemption requests requiring more than one quarter to fully redeem, the percentage discount amount that, if any, applies when the redemption payments begin continues to apply throughout the redemption period and applies to all units covered by such redemption request regardless of when the final redemption payment is made.

The company has not established a cash reserve from which to fund redemptions. The company’s capacity to redeem units upon request is limited by the availability of cash and the company’s cash flow. As provided in the Operating Agreement, the company will not, in any calendar year, redeem more than five percent (5%) of the weighted average number of units outstanding during the twelve-month period immediately prior to the date of the redemption. In the event unit withdrawal requests exceed 5% in any calendar year, units will be redeemed in the priority provided in the Operating Agreement.

Prior to April 30, 2019, the manager was required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members.

If a manager is removed, withdrawn or terminated, the company will pay to the manager all amounts then accrued and owing to the manager. Additionally, the company will terminate the manager’s interest in the company’s profits, losses, distributions and capital by payment of an amount in cash equal to the then-present fair value of such interest. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered.

The company’s Registration Statement on Form S-11 filed with the SEC in June 2016 (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP, was not renewed in 2019 and the offer expired April 30, 2019. On June 11, 2019, the company filed a Post-Effective Amendment No. 5 with the SEC (SEC File No. 333-208315) to deregister all of the units which were registered under its Form S-11 Registration Statement that remained unsold as of April 30, 2019.

On May 9, 2019, the company filed a Registration Statement on Form S-3 with the SEC (SEC File No. 333-231333) to offer up to 15,000,000 units ($15,000,000) to members of record as of April 30, 2019 that had previously elected to participate in the DRIP or that elect to participate in the DRIP. The Registration Statement on Form S-3 became effective on May 9, 2019.

As of June 30, 2019, the gross proceeds from sales of units from inception (October, 2009) was approximately $90,476,000, of which approximately $9,857,000 were from sales to members under our DRIP.

Commissions for unit sales were previously paid to broker-dealers (B/D sales commissions) by RMC and were not paid directly by the company out of offering proceeds. Instead, the company advanced to RMC, from offering proceeds, amounts sufficient to pay the B/D sales commissions and premiums paid to investors up to seven percent (7%) of offering proceeds. The receivable arising from the advances is unsecured, and non-interest bearing and is referred to as the “formation loan.” RMC is required to make annual payments on the formation loan in the amount of one tenth of the principal balance outstanding at December 31 of the prior year.

The term of the company will continue until 2028, unless sooner terminated as provided in the Operating Agreement.

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates.

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Fair values of assets and liabilities are determined based on the fair-value hierarchy established in GAAP. The hierarchy is comprised of three levels of inputs to be used:

The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace; and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g., as-is, when-completed or for land when-entitled); and determining the unit of value (e.g., as a series of individual unit sales or as a bulk disposition).

Management has the requisite familiarity with the real estate markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types.

The company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At June 30, 2019, certain of the company’s cash balances in banks exceed federally insured limits of $250,000. The bank or banks in which funds are deposited are reviewed periodically for their general credit-worthiness/investment grade credit rating.

Performing loans are carried at amortized costs which is generally equal to the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the company’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower.

For performing loans, interest is accrued daily on the principal plus advances, if any. Impaired loans less than 180 days delinquent continue to recognize interest income as long as the loan is in the process of collection and is considered to be well-secured. Impaired loans are placed on non-accrual status if 180 days delinquent or at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement. Late fees are recognized in the period received.

The company may fund a specific loan origination net of an interest reserve (one to two years) to insure timely interest payments at the inception of the loan. In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the principal.

If events and or changes in circumstances cause management to have serious doubts about the collectability of the payments of interest and principal in accordance with the loan agreement, a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees, then to the accrued interest, then to advances, and lastly to principal.

In the normal course of the company’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired.

From time to time, the company negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant delay or reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized.

The company originates loans with the intent to hold the loans until maturity. From time to time the company may sell certain loans. Loans are classified as held-for-sale once a decision has been made to sell loans and the loans held-for-sale have been identified. In 2019 and 2018 certain performing loans were sold at an immaterial gain (net of expenses). Therefore, the recorded amount of the preforming loans (i.e., the loan balance) is deemed to approximate fair value, as is the loan balance of loans designated impaired for which a specific reserve has not been recorded (i.e., the loan is well collateralized such that collection of the amount owed is assured, including foregone interest, if any).

Loans and the related accrued interest and advances (i.e. the loan balance) are analyzed on a periodic basis for ultimate recoverability. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.

For loans designated impaired, a provision is made for loan losses to adjust the allowance for loan losses to an amount such that the net carrying amount (unpaid principal less the specific allowance) is reduced to the lower of the loan balance or the estimated fair value of the related collateral, net of any senior loans and net of any costs to sell in arriving at net realizable value.

Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss (i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed.

The company charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.

At foreclosure, any excess of the recorded investment in the loan (accounting basis) over the net realizable value is charged against the allowance for loan losses.

Real estate owned, or REO, is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expenses. Any recovery in the fair value subsequent to such a write down is recorded and is not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing.

The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that significantly changes how entities will account for credit losses for most financial assets that are not measured at fair value through net income. The new standard will supersede currently in effect guidance and applies to all entities. Entities will be required to use a current expected credit loss (CECL) model to estimate credit impairment. This estimate will be forward-looking, meaning management will be required to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. This will be a significant change from the current incurred credit loss model, and generally may result in allowances being recognized in earlier periods than under the current credit loss model. The manager expects to adopt the ASU for interim and annual reporting in 2020.

RMI IX invests in real estate secured loans made with the expectation that the possibility of credit losses is remote as a result of substantial protective equity provided by the underlying collateral. The real estate secured programs and low loan-to-value ratios have caused RMC to conclude that the adoption of the CECL model from the incurred loss models presently in use as to credit loss recognition will likely not materially impact the reported results of operations or financial position.

The Operating Agreement provides for compensation of the manager, as detailed below. RMC is entitled to 1% of the profits and losses of the company.

Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three months ended June 30, 2019 are presented in the following table.

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee			Costs from RMC			Professional Services		Other		Total
For the three months ended
Chargeable/reimbursable	$	145,950		$	42,914	$	119,187		$	186,446		$	78,858	$	21,382	$	594,737
RMC support
Waived		(145,950	)		—		(79,458	)		(186,446	)		—		—		(411,854	)
Expenses absorbed by RMC		—			—		—			—			—		—		—
Total RMC support		(145,950	)		—		(79,458	)		(186,446	)		—		—		(411,854	)

Net charged	$	—		$	42,914	$	39,729		$	—		$	78,858	$	21,382	$	182,883

Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the six months ended June 30, 2019 are presented in the following table.

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee			Costs from RMC			Professional Services		Other		Total
For the six months ended
Chargeable/reimbursable	$	309,220		$	81,560	$	238,374		$	366,102		$	226,175	$	24,738	$	1,246,169
RMC support
Waived		(309,220	)		—		(198,645	)		(366,102	)		—		—		(873,967	)
Expenses absorbed by RMC		—			—		—			—			—		—		—
Total RMC support		(309,220	)		—		(198,645	)		(366,102	)		—		—		(873,967	)

Net charged	$	—		$	81,560	$	39,729		$	—		$	226,175	$	24,738	$	372,202

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee (as Revised)			Costs from RMC			Professional Services		Other		Total
For the three months ended
Chargeable/reimbursable	$	165,940		$	38,694	$	104,955		$	177,858		$	84,213	$	8,412	$	580,072
RMC support
Waived		(165,940	)		—		(104,955	)		(177,858	)		—		—		(448,753	)
Expenses absorbed by RMC		—			—		—			—			—		—		—
Total RMC support		(165,940	)		—		(104,955	)		(177,858	)		—		—		(448,753	)

Net charged	$	—		$	38,694	$	—		$	—		$	84,213	$	8,412	$	131,319

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee			Costs from RMC			Professional Services			Other			Total
For the six months ended
Chargeable/reimbursable	$	324,303		$	73,878	$	209,910		$	362,007		$	232,050		$	22,743		$	1,224,891
RMC support
Waived		(324,303	)		—		(209,910	)		(362,007	)		—			—			(896,220	)
Expenses absorbed by RMC		—			—		—			—			(143,152	)		(14,246	)		(157,398	)
Total RMC support		(324,303	)		—		(209,910	)		(362,007	)		(143,152	)		(14,246	)		(1,053,618	)

Net charged	$	—		$	73,878	$	—		$	—		$	88,898		$	8,497		$	171,273

RMC is entitled to receive a loan administrative fee in an amount up to one percent (1%) of the principal amount of each new loan originated or acquired on the company’s behalf by RMC for services rendered in connection with the selection and underwriting of potential loans. Such fees would be payable by the company upon the closing or acquisition of each loan. Since August 2015, RMC, at its sole discretion, waived and continues to waive, the loan administrative fees.

RMC earns mortgage servicing fees from the company of up to one-quarter of one percent (0.25%) annually of the unpaid principal balance of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. RMC is entitled to receive these fees regardless of whether specific mortgage payments are collected. The mortgage servicing fees are accrued monthly on all loans. Remittance to RMC is made monthly unless the loan has been assigned a specific loss reserve, at which point remittance is deferred until the specific loss reserve is no longer required, or the property has been acquired by the company.

RMC is entitled to receive a monthly asset management fee for managing the company’s portfolio and operations in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves.

RMC, in its sole discretion, elected to begin collecting asset management fees in June 2019. In April 2018, the calculation of the asset management fees was adjusted to conform to the specifically applicable provisions of the Operating Agreement, accordingly the 2018 dollar amounts in the table above have been updated. The previously disclosed asset management fees were $82,066 for the three months ended June 30, 2018. This update had no effect on net income or total operating expenses, as all asset management fees were waived in 2018.

RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g., postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g., RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g., by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all affiliated mortgage funds managed by RMC. RMC, at its sole discretion, has elected to waive reimbursement for operating expenses during the three and six months ended June 30, 2019 and 2018.

Professional services consist primarily of legal, regulatory (including SEC/FINRA compliance) and audit and tax compliance expenses. Prior to April 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services (and other operating expenses directly incurred by the company).

- Brokerage commissions, loan originations – For fees in connection with the review, selection, evaluation, negotiation and extension of loans, RMC may collect a loan brokerage commission that is expected to range from approximately 1.5% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed 4% of the total company assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the company.

- Other fees – RMC receives fees for processing, notary, document preparation, credit investigation, reconveyance and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the company.

In the ordinary course of business, performing loans may be transferred by executed assignment, in-part or in-full, between the affiliated mortgage funds at par. During the six months ended June 30, 2018, Redwood Mortgage Investors VIII, LP, an affiliated mortgage fund, transferred to the company two performing loans in-full at par value, which approximates fair value, of approximately $5,890,000. The company paid cash for the loans and the affiliated mortgage fund has no continuing obligation or involvement on the loans. No loans were transferred during the six months ended June 30, 2019.

The future minimum payments on the formation loan, net of early withdrawal penalties, as of June 30, 2019 are presented in the following table.

RMC is required to make annual payments on the formation loan, net of early withdrawal penalties, of one tenth of the principal balance outstanding at December 31 of the prior year. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered. The primary source of repayment of the formation loan are loan brokerage commissions earned by RMC.

The table below presents the company’s unit redemptions for the three and six months ended June 30, 2019 and 2018.

At June 30, 2019, scheduled future redemptions of members' capital was $883,523, all of which is scheduled for payment in 2019.

Per the Operating Agreement, the manager is reimbursed for, or the company may pay directly, O&O expenses incurred in connection with the organization of the company or offering of the units including, without limitation, attorneys’ fees, accounting fees, printing costs and other selling expenses (other than sales commissions) in a total amount not exceeding 4.5% of the original purchase price of all units (other than DRIP units) sold in all offerings (hereafter, the “maximum O&O expenses”), and the manager pays any O&O expenses in excess of the maximum O&O expenses.

For each calendar quarter or portion thereof after December 31, 2015, that a member holds units (other than DRIP units) and for a maximum of forty (40) such quarters, a portion of the O&O expenses borne by the company is allocated to and debited from that member’s capital account in an annual amount equal to 0.45% of the member’s original purchase price for those units, in equal quarterly installments of 0.1125% each commencing with the later of the first calendar quarter of 2016 or the first full calendar quarter after a member’s purchase of units, and continuing through the quarter in which such units are redeemed. If at any time the aggregate O&O expenses actually paid or reimbursed by the company since inception are less than the maximum O&O expenses, the company shall first reimburse the manager for any O&O expenses previously borne by it so long as it does not result in the company bearing more than the maximum O&O expenses, and any savings thereafter remaining shall be equitably allocated among (and serve to reduce any such subsequent cost allocations to) those members who have not yet received forty (40) quarterly allocations of O&O expenses, as determined in the good faith judgment of the manager.

Loans generally are funded at a fixed interest rate with a loan term of up to five years. Loans acquired are generally done so within the first six months of origination, and purchased at the current par value, which approximates fair value.

As of June 30, 2019, 80 of the company’s 82 loans (representing 99% of the aggregate principal of the company’s loan portfolio) have a loan term of five years or less from loan inception. The remaining loans have terms longer than five years. Substantially all loans are written without a prepayment penalty provision.

As of June 30, 2019, 56 loans outstanding (representing 56% of the aggregate principal balance of the company’s loan portfolio) provide for monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity. The remaining loans provide for monthly payments of interest only, with the principal balance due at maturity.

Secured loan transactions are summarized in the following table for the three and six months ended June 30, 2019.

In March 2019, one loan with principal of $136,640, that had been designated as impaired and in non-accrual status, was sold to an unaffiliated third party which specializes in the resolution of such loans. The loan was sold for $143,000, of which $1,711 was recognized as interest income, and $4,649 was repayment of outstanding advances, with $10,791 in foregone interest.

On July 29, 2019 the company sold to an unaffiliated third party (the Buyer) 8 loans with aggregate principal of $4,278,490 at a price that netted an immaterial gain (the July 2019 sale). The buyer has 30 days from the sale to request a refund of the gain, for any loans that pay in full.

During the three and six months ended June 30, 2019, the company renewed one loan with principal of $400,000. See Note 3 (Manager and Other Related Parties) for a description of loans transferred by executed assignments between affiliates. The company originates loans with the intent to hold the loans until maturity.

Borrower payments are deposited into a bank trust account established by RMC, pursuant to California regulation, and are subsequently disbursed to the company after an appropriate holding period, to ensure the funds are collected. At June 30, 2019, the trust account held a balance of $44,308, consisting of borrower payments, all of which was disbursed to RMI IX’s bank account on or before July 17, 2019.

	June 30,			December 31,
	2019			2018
Number of secured loans		82			83
Secured loans – principal	$	70,922,877		$	62,115,713
Secured loans – lowest interest rate (fixed)		7.3	%		7.0	%
Secured loans – highest interest rate (fixed)		10.5	%		10.5	%

Average secured loan – principal	$	864,913		$	748,382
Average principal as percent of total principal		1.2	%		1.2	%
Average principal as percent of members’ capital, net		1.1	%		1.0	%
Average principal as percent of total assets		1.1	%		1.0	%

Largest secured loan – principal	$	5,500,000		$	4,000,000
Largest principal as percent of total principal		7.8	%		6.4	%
Largest principal as percent of members’ capital, net		6.9	%		5.2	%
Largest principal as percent of total assets		7.3	%		5.5	%

Smallest secured loan – principal	$	58,321		$	74,390
Smallest principal as percent of total principal		0.1	%		0.1	%
Smallest principal as percent of members’ capital, net		0.1	%		0.1	%
Smallest principal as percent of total assets		0.1	%		0.1	%

Number of California counties where security is located		18			15
Largest percentage of principal in one California county		20.5	%		25.0	%

Number of secured loans with filed notice of default		2			2
Secured loans in foreclosure – principal	$	2,308,789		$	565,685

Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

Number of secured loans with prepaid interest		1			—
Prepaid interest	$	52,500		$	—

As of June 30, 2019, the company’s largest loan with principal of $5,500,000 is secured by an office building located in Santa Clara County, bears an interest rate of 8.25% and matures on June 1, 2021.

As of June 30, 2019, the company had 2 loans with filed notices of default. As of June 30, 2019, the company had no construction loans outstanding, no rehabilitation loans outstanding, and no commitments to fund construction or rehabilitation loans.

	June 30, 2019								December 31, 2018
	Loans		Principal			Percent			Loans		Principal			Percent
First trust deeds		40	$	35,830,376			51	%		41	$	29,699,888			48	%
Second trust deeds		42		35,092,501			49			42		32,415,825			52
Total principal, secured loans		82		70,922,877			100	%		83		62,115,713			100	%
Liens due other lenders at loan closing				72,997,929								65,941,118
Total debt			$	143,920,806							$	128,056,831

Appraised property value at loan closing			$	277,234,000							$	240,307,000

Percent of total debt to appraised values (LTV) at loan closing⁽¹⁾				54.5	%							54.5	%

The July 2019 loan sale (see Note 6 – Subsequent Events) included 8 loans with principal of $4,278,490 secured by first trust deeds.

	June 30, 2019							December 31, 2018
	Loans		Principal		Percent			Loans		Principal		Percent
Single family⁽²⁾		55	$	38,792,615		55	%		60	$	42,967,253		69	%
Multi-family		9		8,905,869		12			8		8,210,970		13
Commercial		17		21,374,393		30			15		10,937,490		18
Land		1		1,850,000		3			—		—		—
Total principal, secured loans		82	$	70,922,877		100	%		83		62,115,713		100	%

The distribution of secured loans by counties is presented in the following table.

	June 30, 2019					December 31, 2018
	Principal		Percent			Principal		Percent
San Francisco Bay Area⁽³⁾
Santa Clara	$	14,547,090		20.5	%	$	11,756,695		18.9	%
San Mateo		13,561,032		19.1			9,619,609		15.5
San Francisco		5,067,454		7.1			5,238,008		8.4
Alameda		3,181,644		4.5			7,306,779		11.8
Sonoma		1,295,903		1.8			1,300,000		2.1
Marin		1,071,825		1.5			575,000		0.9
Solano		600,000		0.9			—		—
Contra Costa		210,281		0.3			725,771		1.2
		39,535,229		55.7			36,521,862		58.8

Other Northern California
Sutter		3,815,000		5.4			—		—
Sacramento		2,054,410		2.9			822,500		1.3
Monterey		1,431,281		2.0			322,716		0.5
Placer		634,370		0.9			637,354		1.0
		7,935,061		11.2			1,782,570		2.8

Northern California Total		47,470,290		66.9			38,304,432		61.6

Los Angeles & Coastal
Los Angeles		14,437,415		20.4			15,514,789		25.0
San Diego		5,330,911		7.5			5,563,635		9.0
Orange		1,154,755		1.6			1,177,446		1.9
Santa Barbara		499,506		0.7			—		—
		21,422,587		30.2			22,255,870		35.9

Other Southern California
San Bernardino		1,200,000		1.7			1,200,000		1.9
Riverside		830,000		1.2			355,411		0.6
		2,030,000		2.9			1,555,411		2.5

Southern California Total		23,452,587		33.1			23,811,281		38.4
Total principal, secured loans	$	70,922,877		100.0	%	$	62,115,713		100.0	%

Secured loans are scheduled to mature as presented in the following table as of June 30, 2019.

	Loans		Principal		Percent
2019⁽⁴⁾		13	$	11,769,934		17	%
2020		31		23,913,665		34
2021		22		25,156,102		35
2022		6		1,966,163		3
2023		3		829,902		1
Thereafter		2		908,660		1
Total future maturities		77		64,544,426		91
Matured as of June 30, 2019		5		6,378,451		9
Total principal, secured loans		82	$	70,922,877		100	%

Loans may be repaid or refinanced before, at or after the contractual maturity date. On matured loans, the company may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.

The July 2019 loan sale (See Note 6 – Subsequent Events) included 8 loans scheduled to mature as follows: $912,628 (3 loans) in 2020, $1,980,000 (2 loans) in 2021, $477,202 (1 loan) in 2023, and $908,660 (2 loans) in 2024.

Secured loans past maturity are summarized in the following table as of June 30, 2019.

Of the 5 loans past maturity at June 30, 2019, 2 loans with an aggregate principal balance of approximately $987,610 were designated as impaired. One loan with a principal balance of approximately $220,540 was designated as impaired and in non-accrual status. This loan paid in full in July 2019.

Two loans, with aggregate principal of $4,915,279, which were 60 days delinquent and past maturity, paid in full in July 2019. One loan with principal of $475,562, negotiated an extension agreement with the manager in July 2019, and was current with their payments.

Secured loans summarized by payment delinquency are presented in the following table.

	June 30, 2019				December 31, 2018
	Loans		Principal		Loans		Principal
Past Due
30-89 days		4	$	5,638,466		5	$	3,828,975
90-179 days		3		1,457,839		—		—
180 or more days		2		2,029,329		2		565,685
Total past due		9		9,125,634		7		4,394,660
Current		73		61,797,243		76		57,721,053
Total principal, secured loans		82	$	70,922,877		83	$	62,115,713

Three loans, with an aggregate principal balance of approximately $5,391,000, were 60 days delinquent and past maturity at June 30, 2019. One loan with a principal balance of approximately $767,000 was 90 days delinquent and past maturity at June 30, 2019. One loan, with a principal balance of approximately $221,000, was 180 days delinquent and at June 30, 2019 was past maturity, paid in full in July 2019.

Secured loans in non-accrual status are summarized in the following table as of June 30, 2019 and December 31, 2018.

At June 30, 2019, 3 loans with an aggregate principal balance of approximately $1,458,000 were 90 or more days delinquent and not in non-accrual status, as their LTV’s were deemed adequately collateralized. No loans were 90 or more days delinquent and not in non-accrual status at December 31, 2018. In July 2019, one loan with principal of approximately $220,540 which had been designated as impaired and in non-accrual status, was paid in full.

(6) Recorded investment is the sum of the principal, advances, and interest accrued for financial reporting purposes.

Impaired loans had average balances and interest income recognized and received in cash as presented in the following tables as of and for the six months ended June 30, 2019 and the year ended December 31, 2018.

No loan payment modifications were made during the three and six months ended June 30, 2019, and no modifications were in effect at June 30, 2019 and December 31, 2018.

No allowance for loan losses has been recorded as all loans were deemed to have protective equity (i.e., low loan-to-value ratio) such that collection is reasonably assured for all amounts owing.

In 2019 and 2018 certain performing loans were sold at an immaterial gain (net of expenses). Therefore, the recorded amount of the preforming loans (i.e., the loan balance) is deemed to approximate fair value, as is the loan balance of loans designated impaired for which a specific reserve has not been recorded (i.e., the loan is well collateralized such that collection of the amount owed is assured, including foregone interest, if any).

Loans designated impaired (i.e., that are collateral dependent) are measured at fair value on a non-recurring basis when the net realizable value of the real property collateral is determined to be less than the loan balance. No impaired loans were measured at fair value on a non-recurring basis at and for the periods ended June 30, 2019 or December 31, 2018.

Secured loans, performing (i.e. not designated as impaired) (Level 2) - Each loan is reviewed quarterly for its delinquency, LTV adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors. The fair value of loan balances secured by deeds of trust is deemed to approximate the recorded amount (per the financial statements) as our loans:

Secured loans, designated impaired (Level 2) - Secured loans designated impaired are deemed collateral dependent, and the fair value of the loan is the lesser of the fair value of the collateral or the enforceable amount owing under the note. The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions (Level 2 inputs).

The following methods and assumptions are used to determine the fair value of the collateral securing a loan.

Single family – Management’s preferred method for determining the fair market value of its single-family residential assets is the sale comparison method. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com and other available resources to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition and year built.

If applicable sale comps are not available or deemed unreliable, management will seek additional information in the form of brokers’ opinions of value or appraisals.

Multi-family residential – Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, rental income, number of units, composition of units by the number of bedrooms and bathrooms, square footage, condition, amenities and year built.

Management’s secondary method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to published data from reliable third-party sources such as the CBRE Cap Rate Survey. Management applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals.

Commercial buildings – Where commercial rental income information is available, management’s preferred method for determining the fair value of its commercial real estate assets is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to reputable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing commercial rental project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals.

Management supplements the direct capitalization method with additional information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal.

Commercial land – Commercial land has many variations/uses, thus requiring management to employ a variety of methods depending upon the unique characteristics of the subject land. Management may rely on information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal.

At June 30, 2019, scheduled future redemptions of members' capital was $883,523, all of which is scheduled for payment in 2019.

In the normal course of its business, the company may become involved in legal proceedings (such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc.) to collect the debt owed under the promissory notes, to enforce the provisions of the deeds of trust, to protect its interest in the real property subject to the deeds of trust and to resolve disputes with borrowers, lenders, lien holders and mechanics. None of these actions, in and of themselves, typically would be of any material financial impact to the net income or balance sheet of the company. As of the date hereof, the company is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

On July 29, 2019 the company sold to an unaffiliated third party 8 loans with aggregate principal of $4,278,490 at a price that netted an immaterial gain. The buyer has 30 days from the sale to request a refund of the gain, for any loans that pay in full.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto, which are included in Item 1 of this report on Form 10-Q, as well as the audited financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (or SEC). The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the operations results to be expected for the full year.

Certain statements in this Report on Form 10-Q which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding the company’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements, which are based on various assumptions (some of which are beyond our control), may be identified by reference to a future period or periods or by use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” “possible” or similar terms or variations on those terms or the negative of those terms. Forward-looking statements include statements regarding trends in the California real estate market; future interest rates and economic conditions and their effect on the company and its assets; estimates as to the allowance for loan losses; forecasts of future sales and redemptions of units, forecasts of future funding of loans; loan payoffs and the possibility of future loan sales (and the gain thereon, net of expenses) to third parties, if any; forecasts of future financial support by the manager including the eventual elimination of financial support; future fluctuations in the net distribution rate; and beliefs relating to how the company will be affected by current economic conditions and trends in the financial and credit markets. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the following:

All forward-looking statements and reasons why results may differ included in this Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Redwood Mortgage Investors IX, LLC (we, RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment loans secured by California real estate, primarily through first and second deeds of trust. The company is externally managed. Redwood Mortgage Corp. (RMC, the manager or management) is the manager of the company.

Cash generated from loan payoffs and borrower payments of principal and interest is used for operating expenses, reimbursements to RMC of O&O expenses, and unit redemptions. The cash flow, if any, in excess of these uses is reinvested in new loans.

Redemptions are made once a quarter, on the last business day of the quarter. The unit redemption program is ongoing and available to members beginning one year after the purchase of the units. The maximum number of units that may be redeemed in any year and the maximum amount of redemption available in any period to members are subject to certain limitations including, but limited to, the company will not:

In addition, the manager may, in its sole discretion, further limit the percentage of the total members’ units that may be redeemed or may adjust the timing of scheduled redemptions (including deferring withdrawals indefinitely), to the extent that such redemption would cause the company to be treated as a “publicly traded partnership” within the meaning of Section 7704 of the Code or any Treasury Regulations promulgated thereunder (determined without reference to Code Section 469(i)).

In the event that redemption requests in excess of the foregoing limitations are received by the manager, such redemption requests will be honored in the following order of priority:

All redemption requests shall be honored on a pro rata basis, based on the amount of redemption requests received in the preceding quarter plus unfulfilled redemption requests that the company was unable to honor in prior quarter(s).

See Note 1 (Organization and General) to the financial statements included in Part I, Item 1 of this report on Form 10-Q for additional detail on the organization and operations of RMI IX which detail is incorporated by this reference into this Item 2. For a detailed presentation of the company activities for which related parties are compensated and related transactions, including the formation loan to RMC, See Note 1 (Organization and General) and Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report, which presentation is incorporated by this reference into this Item 2.

Since commencement of operations in 2009, RMC, at its sole discretion, provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:

Such fee and cost-reimbursement waivers and the absorption of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the Operating Agreement has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased the company’s financial performance and resulted in an annual 6.5% net distribution rate since inception (6.95% before O&O expense allocation of 0.45%, annually when applicable) for periods prior to February 28, 2018.

In March 2018, RMC communicated to the members its planned and ongoing reductions in financial support and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly. In April 2018, the company commenced paying all of its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.). RMC began collection of the asset management fee of 75 basis points (0.75%) in the second quarter of 2019, and similarly plans to commence collection of the cost reimbursements from RMC in 2020.

See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part I, Item 1 of this report on Form 10-Q for a detailed presentation of critical accounting policies which presentation is incorporated by this reference into this Item 2.

Our mortgage loans are secured by California real estate, primarily through first and second deeds of trust. Our loan investment activity and the value of the real estate securing our loans is impacted significantly by economic activity and employment conditions in the state. Wells Fargo’s Economics Group periodically provides timely, relevant information and analysis in its commentary and reports regarding California’s employment and economic conditions. Highlights from recently issued reports from Wells Fargo Securities Economic Group are presented below.

In the publication “California Job Growth Appears to Be Back on Track” dated July 19, 2019:

“After a slow start earlier this year, California’s economy appears to have shifted back into high gear. Nonfarm employment surged during the second quarter, with employers adding 46,200 jobs in June, following gains of 21,600 jobs in May and 48,600 jobs in April. The 116,400 jobs added during the second quarter is two and half times what was added during the first quarter of the year.”

“Construction employment jumped 1.3% in June, as builders and contractors added 11,900 new jobs. Employment is up 4.4% over the past year, with gains evident in residential, commercial and infrastructure projects.”

“Worries that a handful of disappointing initial public offerings might be a precursor of a broader slowdown in California’s tech sector now look incredibly premature. Hiring in the tech sector remains exceptionally strong, particularly anything related to cloud computing, data storage, digital content and internet search. Production of tech hardware also appears to be ramping up, with strong job growth reported at producers of computers and electronic equipment and semiconductor manufacturers.”

“Measuring tech employment from the monthly employment data is somewhat difficult. We often use the sum of professional & technical services and information services as a real-time proxy for California tech employment because these broad industry categories are the closest that we can get to isolating the tech sector in the seasonally adjusted data. Unfortunately, these broad categories include many of the industries being disrupted by new rapidly growing technologies. Employment in the information sector has risen 2.7% over the past year, resulting in a gain of 14,400 jobs.”

“All of the gain in the information sector has come from the tech-driven industries, mostly in the catch-all category labeled other information services. Employment in this sector, which includes many of the jobs in cloud computing, data storage and digital streaming, has surged 13.1% over the past year, resulting in 15,000 net new jobs (600 more than the broader information category). Moreover, hiring continues to rise solidly in other key industry subcategories, including software publishing (+4.3%) and data processing, data hosting and related services (+8.0%), which includes much of social media and internet search.”

“The rapid growth in the tech sector helps explain why so much of California’s job growth continues to be concentrated in the San Francisco Bay area and Los Angeles, particularly West L.A., which is home to a substantial portion of the digital media industry. Southern California led the state in job growth this past month, with the greater Los Angeles area adding 17,900 jobs. Most of that was in Los Angeles, which added 7,300 jobs. The Inland Empire added 6,200 jobs, and employers added 3,000 jobs in Orange County. The San Francisco Bay area saw a net gain of 12,900 jobs in June and has added 67,500 jobs so far this year, accounting for 40% of the jobs added in California so far this year”.

In the publication “FOMC Cuts Rates 25 bps, but Two Members Dissent” dated July 31, 2019:

“As widely expected, the Federal Open Market Committee (FOMC) decided at its meeting today to reduce the range for the federal funds rate 25 bps. That range now spans 2.00% to 2.25%. The committee also decided to end the reduction in its balance sheet in August, which has been underway since October 2017. Previously, the FOMC said that it would end its balance sheet run-off in October.”

“But those two actions were essentially the only nods toward a dovish policy action. For starters, the statement that accompanied today’s announcement was very similar to that which was released after the last FOMC meeting on June 19. The committee characterized the labor market as “strong” and said that “economic activity has been rising at a moderate rate.” The FOMC went on to say that “growth of household spending has picked up from earlier in the year”—an acknowledgement of the 4.3% annualized growth rate in real personal consumption expenditures in Q2—but that “business fixed investment has been soft.” The committee views a sustained expansion in economic activity as the most likely outcome, but acknowledged that there are uncertainties associated with this view.”

“Regarding inflation, the FOMC said that it is “running below 2 percent,” which is the Fed’s target, and it stated that “market-based measures of inflation compensation remain low.” This undershoot of inflation relative to target and the low level of inflation expectations give the committee room to cut rates further in coming months.”

“But lower rates in the future are not necessarily preordained. Kansas City Fed President George and Boston Fed President Rosengren dissented from today’s rate-cut decision. Both voting members of the FOMC would have preferred to have kept rates on hold, and there may have been additional non-voting members who would have preferred no action as well. (We will get more color on what members thought when the minutes of the meeting are released in a few weeks.) The FOMC is a consensus-driven body, and it will become harder to convince a “critical mass” of committee members to continue easing policy the lower rates go. That said, the FOMC stated that it will be observing a whole range of incoming information as it “contemplates the future path of the fed funds rate.”

“We continue to look for one additional 25 bps rate cut, probably at the October 30 policy meeting. Today’s policy action should be viewed as an “insurance” rate cut. In the context of uncertainties about the economic outlook and below-target inflation, easier policy seems to be warranted. In our view, another 25 bps rate cut would constitute additional “insurance” against a more pronounced slowdown.”

The table below shows key performance indicators at and for the six months ended June 30.

	2019			2018
Secured loans – end of period balance	$	70,922,877		$	53,538,730
Secured loans – average daily balance	$	65,495,000		$	59,332,000

Interest on loans, gross	$	2,878,865		$	2,496,900
Portfolio interest rate⁽¹⁾		8.8	%		8.4	%
Effective yield rate⁽²⁾		8.8	%		8.4	%

Amortization of loan administrative fees, net⁽⁷⁾	$	—		$	3,254

Interest on loans, net	$	2,878,865		$	2,493,647
Percent of average daily balance⁽²⁾		8.8	%		8.4	%

Provision for loan losses	$	—		$	—
Percent of average daily balance⁽²⁾		0.0	%		0.0	%

Total operations expense⁽⁷⁾	$	372,202		$	171,273

Net Income⁽⁷⁾	$	2,533,290		$	2,346,862
Percent of average members’ capital⁽³⁾⁽⁴⁾		6.2	%		6.6	%

Member Distributions, net	$	2,227,868		$	2,178,920
Percent of average members’ capital⁽³⁾⁽⁵⁾		5.5	%		6.1	%

Members’ capital, gross – end of period balance	$	81,934,546		$	76,346,119
Members’ capital, gross – average daily balance	$	80,666,000		$	70,621,000

Member Redemptions⁽⁶⁾	$	1,916,050		$	702,640

(7) See Note 1 (Organization and General) and Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2.

The table below shows key performance indicators at and for the three months ended June 30.

	2019			2018
Secured loans – end of period balance	$	70,922,877		$	53,538,730
Secured loans – average daily balance	$	68,745,000		$	62,866,000

Interest on loans, gross	$	1,517,873		$	1,319,168
Portfolio interest rate⁽¹⁾		8.8	%		8.4	%
Effective yield rate⁽²⁾		8.8	%		8.4	%

Amortization of loan administrative fees, net⁽⁷⁾		—			3,254

Interest on loans, net	$	1,517,873		$	1,315,915
Percent of average daily balance⁽²⁾		8.8	%		8.4	%

Provision for loan losses	$	—		$	—
Percent of average daily balance⁽²⁾		0.0	%		0.0	%

Total operations expense⁽⁷⁾	$	182,883		$	131,319

Net Income⁽⁷⁾	$	1,344,632		$	1,204,373
Percent of average members’ capital⁽³⁾⁽⁴⁾		6.5	%		6.6	%

Member Distributions, net	$	1,116,861		$	1,088,573
Percent of average members’ capital⁽³⁾⁽⁵⁾		5.5	%		5.9	%

Members’ capital, gross – end of period balance	$	81,934,546		$	76,346,119
Members’ capital, gross – average daily balance	$	81,458,000		$	72,774,000

Member Redemptions⁽⁶⁾	$	823,654		$	299,240

The secured loan balance at June 30, 2019 of $70,922,877 was an increase of approximately 32.5% ($17.4 million) over the June 30, 2018 secured loan balance of $53,538,730. The increase in the secured loan balance is consistent with the increased members’ capital of approximately 7.3% ($5.6 million). New loans originated were approximately $14.6 million for the three months ended June 30, 2019. Members’ capital increased approximately $1,969,000 for the three months ended June 30, 2019. Secured loans as a percent of members’ capital (based on average balances) was 84.4% and 86.4% for three months ended June 30, 2019 and 2018, respectively.

We have sought to exercise strong discipline in underwriting loan applications and lending against collateral at amounts that create a mortgage portfolio that has substantial protective equity (i.e., safety margins to outstanding debt) as indicated by the overall conservative weighted average loan-to-value ratio (LTV) which at June 30, 2019 was approximately 54.5%. Thus, per the appraisal-based valuations at the time of loan inception, borrowers have, in the aggregate, equity of 45.5% in the property, and we as lenders have lent in the aggregate 54.5% (including other senior liens on the property) against the properties we hold as collateral for the repayment of our loans.

See Note 4 (Loans) to the financial statements included in Part I, Item 1 of this report for detailed presentations on the secured loan portfolio and on the allowance for loan losses, which presentations are incorporated by this reference into this Item 2.

Revenue from the interest on loans, net for the six months ended June 30, 2019 increased by approximately $385,000, over the same period in 2018, due to the increased average secured loan balance, approximately $29,000 in default interest collected on three loans that had been designated impaired, and an increase in the average portfolio interest rate (8.8% in 2019 and 8.4% in 2018). Operations expense for the six months ended June 30, 2019 increased by approximately $201,000, over the same period in 2018 due primarily to the termination of financial support from RMC of our direct operating expenses (e.g. professional services and other direct operating expenses) beginning April 1, 2018, an increase in mortgage servicing fees due to an increased loan portfolio, and RMC, at its sole discretion, electing to begin collecting asset management fees in June 2019. The annualized net distribution rate for the six months ended June 30, 2019, was 5.5%. In all periods presented, the manager, at its sole discretion, provided financial support that increased net income and the return to investors.

RMC support provided, as detailed below, totaled approximately $412,000 and $449,000 for the three months ended, and $874,000 and $1,054,000 for the six months ended June 30, 2019 and 2018, respectively. Mortgage servicing fees and asset management fees which could have been collected increased during the three and six months ended June 30, 2019 compared to the same period in 2018 due to increased loan and capital balances. Beginning April 1, 2018, RMI IX paid all direct operating expenses (i.e., professional services and other direct operating expenses) resulting in an increase in professional services and other expense during the six months ended June 30, 2019 compared to the same period in 2018. Prior to April 1, 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s professional services and other direct expenses. The secured loan, and members’ capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC. The decision to waive all or a portion of these fees is made by RMC, in its sole discretion. In March 2018, RMC communicated to the members its planned and ongoing reductions in financial support and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly. RMC began the collection of the asset management fees in June 2019, and plans to commence collection of reimbursement of cost from RMC in 2020. See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item I of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2.

Analysis and Discussion of income from operations 2019 v. 2018 (six months ended)

Significant changes to revenue and expenses during the six months ended June 30, 2019 and 2018 are summarized in the following table.

	Interest on loans, net		Provision For Loan Losses		Operations Expense			Net Income
For the six months ended
June 30, 2019	$	2,878,865		—		372,202			2,533,290
June 30, 2018		2,493,647		—		171,273			2,346,862
Change	$	385,218		—		200,929			186,428

Change
Loan balance increase		143,922		—		7,682			136,240
Loan portfolio effective yield rate		241,296		—		—			241,296
Gain on sale, loans		—		—		—			(14,246	)
Late fees		—		—		—			16,385
Capital balance increase		—		—		41,545			(41,545	)
RMC fees/costs waived		—		—		2,677			(2,677	)
Reduced support from RMC		—		—		157,399			(157,399	)
Cost allocated from RMC		—		—		(4,493	)		4,493
California tax payment		—		—		11,790			(11,790	)
Other		—		—		(15,671	)		15,671
Change	$	385,218		—		200,929			186,428

The table above displays only significant changes to net income for the period, and is not intended to cross-foot.

See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.

Interest on loans increased due to growth of the secured loan portfolio, approximately $29,000 in default interest collected on loans that had been designated impaired during the six months ended June 30, 2019, and an increase in the average portfolio interest rate (8.8% in 2019 and 8.4% in 2018). The secured loan portfolio has strong payment history with two loans (representing 2.9% of the aggregate principal balance of the company’s loan portfolio) currently designated as non-accrual at June 30, 2019. The secured loans – average daily balance at June 30, 2019 was $65.5 million, an increase of approximately $6.2 million, or 10.4% over the average daily balance at June 30, 2018 of approximately $59.3 million.

At June 30, 2019 and 2018, the company had not recorded an allowance for loan losses as all loans had protective equity such that at June 30, 2019 and 2018, collection was deemed probable for amounts owed by the borrowers.

Total principal amounts past due more than 90 days at June 30, 2019 and 2018 were $3,487,168 and $567,210 (representing 4.9% and 1.1% of the aggregate principal balance of the company’s loan portfolio), respectively.

Operations expense as a percent of interest on loans, net was approximately 12.9% and 6.9% for the six months ended June 30, 2019 and 2018, respectively. The increase in operations expense was due primarily to RMC ceasing to absorb our direct operating expenses (e.g. professional service expense and other direct operating expenses), beginning April 1, 2018, an increase in mortgage servicing fees due to an increase average daily balance in the secured loan portfolio, and RMC, in its sole discretion, electing to collect asset management fees in beginning in June 2019.

Significant changes to operations expense during the six months ended June 30, 2019 and 2018, are summarized in the following table.

	Mortgage Servicing Fees		Asset Management Fees, net		Costs From RMC, net			Professional Services, net			Other			Total
For the six months ended
June 30, 2019	$	81,560		39,729		—			226,175			24,738			372,202
June 30, 2018		73,878		—		—			88,898			8,497			171,273
Change	$	7,682		39,729		—			137,277			16,241			200,929

Change
Loan balance increase	$	7,682		—		—			—			—			7,682
Capital balance increase		—		28,464		13,081			—			—			41,545
RMC fees/costs waived		—		11,265		(13,081	)		—			—			(1,816	)
Reduced support from RMC		—		—		—			143,152			14,247			157,399
California tax payment		—		—		—			—			11,790			11,790
Other		—		—		—			(5,875	)		(9,796	)		(15,671	)
Change	$	7,682		39,729		—			137,277			16,241			200,929

The increase in mortgage servicing fees of $7,682 was attributed to the increase in the average daily secured loan portfolio to $65,495,000, noted above in Key Performance Indicators, at the annual rate of 0.25%.

The total amount of asset management fees chargeable were $238,374 and $209,910 for the six months ended June 30, 2019 and 2018, respectively. The increase in asset management fees chargeable was due to the increase in total capital under management. Total members capital at June 30, 2019 and 2018 was approximately $81,935,000 and $76,346,000, respectively. RMC, at its sole discretion, elected to begin collecting asset management fees in June 2019 totaling $39,729. Of the total asset management fees chargeable, RMC, at its sole discretion, waived $198,645 and $209,910 during the six months ended June 30, 2019 and 2018, respectively. The asset management fee is chargeable in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves. This amount will be recomputed annually after the second full year of operations by subtracting from the then fair value of the company’s loans plus working capital reserves, an amount equal to the outstanding debt.

Cost incurred by RMC, for which reimbursement could have been requested were $366,102 and $362,007 for the six months ended June 30, 2019 and 2018, respectively. RMC, at its sole discretion, waived all reimbursements for the six months ended June 30, 2019 and 2018. The decrease in costs from RMC, net chargeable was due primarily to a decrease in allocable expenses incurred by RMC, specifically relating to payroll and consultant expenses. RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g. postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g. RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g. by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all affiliated mortgage funds managed by RMC. Increases or decreases in members’ capital or secured loan balances will have a similar effect on the total amount chargeable by RMC. The decision to waive all or a portion of these fees is made by RMC, in its sole discretion.

Professional services consist primarily of legal, audit and tax-compliance expenses. Professional service expense incurred during the six months ended June 30, 2019 and 2018 was $226,175 and $232,050, respectively. Beginning April 1, 2018, RMI IX paid for all professional service expenses directly. Prior to April 1, 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services. During the six months ended June 30, 2018, RMC, in its sole discretion, reimbursed $143,152 of professional services expense.

Analysis and Discussion of income from operations 2019 v. 2018 (three months ended)

Significant changes to revenue and expenses during the three months ended June 30, 2019 and 2018 are summarized in the following table.

	Interest on loans, net		Provision For Loan Losses		Operations Expense			Net Income
For the three months ended
June 30, 2019	$	1,517,873		—		182,883			1,344,632
June 30, 2018		1,315,915		—		131,319			1,204,373
Change	$	201,958		—		51,564			140,259

Change
Loan balance increase	$	129,184		—		4,220			124,964
Loan portfolio effective yield rate		72,774		—		—			72,774
Gain on sale, loans		—		—		—			(14,246	)
Late fees		—		—		—			4,111
Capital balance increase		—		—		22,820			(22,820	)
RMC fees/costs waived		—		—		16,909			(16,909	)
California tax payment		—		—		11,790			(11,790	)
Other		—		—		(4,175	)		4,175
Change	$	201,958		—		51,564			140,259

The table above displays only significant changes to net income for the period, and is not intended to cross-foot.

Interest on loans increased approximately $202,000 due to growth of the secured loan portfolio, and an increase in the average portfolio interest rate (8.8% in 2019 and 8.4% in 2018). The portfolio has strong payment history with two loans (representing 2.9% of the aggregate principal balance of the company’s loan portfolio) currently designated as non-accrual at June 30, 2019. The Secured loans – average daily balance at June 30, 2019 was $68.7 million, an increase of approximately $5.9 million, or 9.4% over the average daily balance at June 30, 2018 of approximately $62.8 million.

Operations expense as a percent of interest on loans, net was approximately 12.0% and 10.0% for the three months ended June 30, 2019 and 2018, respectively. The increase in operations expense was due primarily to RMC ceasing to absorb our direct operating expenses (e.g. professional service expense and other direct operating expenses), beginning April 1, 2018, an increase in mortgage servicing fees due to an increase average daily balance in the secured loan portfolio, and RMC, in its sole discretion, electing to collect asset management fees beginning in June 2019.

Significant changes to operations expense during the three months ended June 30, 2019 and 2018, are summarized in the following table.

	Mortgage Servicing Fees		Asset Management Fees, net		Costs From RMC, net			Professional Services, net			Other		Total
For the three months ended
June 30, 2019	$	42,914		39,729		—			78,858			21,382		182,883
June 30, 2018		38,694		—		—			84,213			8,412		131,319
Change	$	4,220		39,729		—			(5,355	)		12,970		51,564

Change
Loan balance increase	$	4,220		—		—			—			—		4,220
Capital balance increase		—		14,232		8,588			—			—		22,820
RMC fees/costs waived		—		25,497		(8,588	)		—			—		16,909
California tax payment		—		—		—			—			11,790		11,790
Other		—		—		—			(5,355	)		1,180		(4,175	)
Change	$	4,220		39,729		—			(5,355	)		12,970		51,564

The increase in mortgage servicing fees of $4,220 was attributed to the increase in the average daily secured loan portfolio to $68,745,000, noted above in Key Performance Indicators, at the annual rate of 0.25%.

The total amount of asset management fees chargeable were $119,187 and $104,955 for the three months ended June 30, 2019 and 2018, respectively. The increase in asset management fees chargeable was due to the increase in total capital under management. Total members capital at June 30, 2019 and 2018 was approximately $81,935,000 and $76,346,000, respectively. RMC, at its sole discretion, elected to begin collecting asset management fees in June 2019 totaling $39,729. Of the total asset management fees chargeable, RMC, at its sole discretion, waived $79,458 and $104,955 during the three months ended June 30, 2019 and 2018, respectively. The asset management fee is chargeable in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves. This amount will be recomputed annually after the second full year of operations by subtracting from the then fair value of the company’s loans plus working capital reserves, an amount equal to the outstanding debt.

Cost incurred by RMC, for which reimbursement could have been requested were $186,446 and $177,858 for the three months ended June 30, 2019 and 2018, respectively. RMC, at its sole discretion, waived all reimbursements for the three months ended June 30, 2019 and 2018. RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g. postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g. RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g. by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all affiliated mortgage funds managed by RMC. Increases or decreases in members’ capital or secured loan balances will have a similar effect on the total amount chargeable by RMC. The decision to waive all or a portion of these fees is made by RMC, in its sole discretion.

Professional services consist primarily of legal, audit and tax-compliance expenses. Professional service expense incurred during the three months ended June 30, 2019 and 2018 was $78,858 and $84,213, respectively. No professional services were reimbursed by RMC during the three months ended June 30, 2019 and 2018, respectively.

The table below shows Cash flows by business activity for the three and six months ended June 30.

	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Members’ capital
Contributions by members	$	561,586		$	3,101,230		$	2,682,154		$	7,449,992
Organization and offering costs, net		(66,439	)		(269,560	)		(122,833	)		(401,060	)
Formation loan, net		(45,728	)		(211,727	)		(186,656	)		(569,521	)
Redemptions, net		(808,070	)		(299,240	)		(1,854,966	)		(702,640	)
Earnings distributed to members		(515,576	)		(537,781	)		(1,023,687	)		(1,029,850	)
Cash – members’ capital, net		(874,227	)		1,782,922			(505,988	)		4,746,921
Loan principal/advances/interest
Principal collected	$	10,088,604		$	6,855,023		$	21,978,196		$	19,594,640
Loans sold to non-affiliate, net		—			14,163,158			143,000			14,163,158
Interest received, net		1,486,895			1,224,758			2,761,760			2,388,949
Other loan income		9,742			4,483			26,877			9,344
Loan funding & advances, net		(14,592,529	)		(16,593,435	)		(30,926,532	)		(26,542,583	)
Loans transferred from affiliates		—			—			—			(5,889,819	)
Cash – loans, net		(3,007,288	)		5,653,987			(6,016,699	)		3,723,689

Operations expense		(194,942	)		(163,236	)		(369,481	)		(165,839	)

Net change in cash	$	(4,076,457	)	$	7,273,673		$	(6,892,168	)	$	8,304,771

The table below shows the company’s unit redemptions for the three and six months ended June 30, 2019 and 2018.

As of June 30, 2019, the gross proceeds from sales of units from inception (October, 2009) was approximately $90,476,000, of which approximately $9,857,000 were from sales to members under our DRIP.

Commencing May 1, 2019, the sources of funds for loans are the proceeds (net of redemption of members’ capital and operating expenses) from:

The company’s loans generally have shorter maturity terms than typical mortgages. As a result, constraints on the ability of our borrowers to refinance their loans at maturity possibly would have a negative impact on their ability to repay their loans. In the event a borrower is unable to repay at maturity, the company may consider extending the term through a loan modification or foreclosing on the property. A reduction in loan repayments would reduce the company’s cash flows and restrict the company’s ability to invest in new loans and/or, if ongoing for an extended period, provide earnings distributions and redemptions of members’ capital.

Generally, within a broad range, the company’s rates on mortgage loans is not affected by market movements in interest rates. If, as expected, we continue to make and invest in fixed rate loans primarily, and interest rates were to rise, a possible result would be lower prepayments of the company’s loans. This increase in the duration of time loans are on the books may reduce overall liquidity, which itself may reduce the company’s investment into new loans at higher interest rates. Conversely, if interest rates were to decline, we could see a significant increase in borrower prepayments. If we then invest in new loans at lower rates of interest, a lower yield to members may possibly result.

At June 30, 2019, scheduled redemptions of members' capital equaled $883,523, all of which is scheduled to be paid in 2019.

At June 30, 2019, the company had no construction or rehabilitation loans outstanding.

The Company has no off-balance sheet arrangements as such arrangements are not permitted by the Operating Agreement.

The company is externally managed by RMC. The manager is solely responsible for managing the business and affairs of the company, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for us to conduct our business, as we have no employees of our own.

As a limited liability company, we do not have a board of directors, nor, therefore, do we have an audit committee of the board of directors. The manager, however, provides the equivalent functions of a board of directors and of an audit committee for, among other things, the following purposes:

RMC, as the manager, carried out an evaluation, with the participation of RMC's President (acting as principal executive officer/principal financial officer) of the effectiveness of the design and operation of the manager's controls and procedures over financial reporting and disclosure (as defined in Rule 13a-15 of the Exchange Act) as of and for the period covered by this report. Based upon that evaluation, RMC's principal executive officer/principal financial officer concluded, as of the end of such period, that the manager's disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.

There have not been any changes in internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the manager’s or company’s internal control over financial reporting.

In the normal course of business, the company may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc. to enforce the provisions of the deeds of trust, collect the debt owed under the promissory notes or protect or recoup its investment from the real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of June 30, 2019, the company was not involved in any legal proceedings other than those that would be considered part of the normal course of business.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

There were no sales of securities by the company which were not registered under the Securities Act of 1933.

As of June 30, 2019, the gross proceeds from sales of units from inception (October, 2009) was approximately $90,476,000, of which approximately $9,857,000 were from sales to members under our DRIP.

The company used the gross proceeds from the sale of the units from inception (October 2009) through June 30, 2019 to:

The units have been registered pursuant to Section 12(g) of the Exchange Act. Such registration of the units, along with the satisfaction of certain other requirements under ERISA, enables the units to qualify as “publicly-offered securities” for purposes of ERISA and regulations issued thereunder. By satisfying those requirements, the underlying assets of the company should not be considered assets of a “benefit plan investor” (as defined under ERISA) by virtue of the investment by such benefit plan investor in the units.

For a description of the formation loan advances made by RMI IX to RMC from offering proceeds to pay broker dealer sales commissions, see Note 3 (Manager and other Related Parties) to the financial statements included in Part I, Item 1 of this report, which information is incorporated by reference in this Item 2.

Redemptions are made once a quarter, on the last business day of the quarter. Redemptions for the three months ended June 30, 2019 were $823,654. The unit redemption program is ongoing and available to members beginning one year after the purchase of the units. The maximum number of units that may be redeemed in any year and the maximum amount of redemption available in any period to members are subject to certain limitations.

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.

177 Bovet Road, Suite 520, San Mateo, CA		94402
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading symbol(s)	Name of each exchange on which registered
None

	For the six months ended			Since Inception
Balance, beginning of period	$	4,179,343		$	—
Formation loan advances to RMC		186,656			5,626,566
Payments received from RMC		—			(1,199,716	)
Early withdrawal penalties applied		(41,669	)		(102,520	)
Balance, June 30, 2019	$	4,324,330		$	4,324,330
Subscription proceeds since inception				$	80,256,995
Formation loan advance rate					7	%

	2019			Since Inception
Balance, beginning of period	$	2,519,458		$	—
O&O expenses reimbursed to RMC		185,332			3,671,853
Early withdrawal penalties applied ⁽¹⁾		(19,415	)		(60,290	)
O&O expenses allocated⁽²⁾		(162,490	)		(848,846	)
O&O expenses repaid to Members' Capital by RMC⁽³⁾		(62,499	)		(302,331	)
Balance, June 30	$	2,460,386		$	2,460,386

	June 30, 2019		December 31, 2018
Number of loans	$	2	$	2
Principal		2,029,329		565,685
Advances		10,100		10,688
Accrued interest		85,695		19,831
Total recorded investment	$	2,125,124	$	596,204
Foregone interest	$	39,907	$	33,410


☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

2019	$	376,265
2020		417,934
2021		417,934
2022		417,934
2023		417,934
Thereafter		2,276,329
Total	$	4,324,330

	Three months ended				Six months ended
	2019		2018		2019		2018
Capital redemptions-without penalty	$	375,080	$	259,817	$	742,476	$	575,867
Capital redemptions-subject to penalty		448,574		39,423		1,173,574		126,773
Total	$	823,654	$	299,240	$	1,916,050	$	702,640

Early withdrawal penalties	$	15,584	$	2,221	$	61,084	$	3,968

	For the three months ended			For the six months ended
Principal, beginning of period	$	66,416,481		$	62,115,713
Loans originated		14,595,000			30,922,000
Loans sold to non-affiliate		—			(136,640	)
Principal payments received		(10,088,604	)		(21,978,196	)
Principal June 30, 2019	$	70,922,877		$	70,922,877

	June 30, 2019		December 31, 2018
Average recorded investment	$	3,809,384	$	2,050,897
Interest income recognized		138,612		23,848
Interest income received in cash		37,919		21,670

Exhibit No.		Description of Exhibits

31.1		Certification of Manager pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Manager pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	REDWOOD MORTGAGE INVESTORS IX, LLC
	(Registrant)

Date: August 9, 2019	By:	Redwood Mortgage Corp., Manager

		By:	/s/ Michael R. Burwell
		Name:	Michael R. Burwell
		Title:	President, Secretary and Treasurer
			(On behalf of the registrant, and in the capacity of principal financial officer)