REDWOOD TRUST INC

Within this Results of Operations section, we provide commentary that compares results year-over-year for 2025 and 2024. Most tables include "changes" columns that show the amounts by which the results from 2025 are greater or less than the results from the respective period in 2024. Unless otherwise specified, references in this section to increases or decreases in 2025 refer to the change in results from 2024 to 2025.

Consolidated Results of Operations

The following table presents the components of our net (loss) income by segments for the years ended December 31, 2025 and 2024.

Table 1 – Net (Loss) Income

Comparison of Consolidated Results of Operations for Years Ended December 31, 2025 and 2024

Net loss for the year ended December 31, 2025 totaled $77 million, compared with net income of $47 million for the year ended December 31, 2024. The decline primarily reflects adverse fair value adjustments and reduced net interest income primarily associated with our Legacy bridge loan portfolio, lower HEI income, net and higher operating expenses tied to volume growth across the Mortgage Banking platforms. This decline was partially offset by stronger performance in our Mortgage Banking operations.

Net interest income decreased to $83 million from $103 million year over year. The decline was largely driven by an increase in the balance of Legacy unsecuritized bridge and term loan portfolios placed on non-accrual in 2025, which in certain cases resulted in reversals of previously accrued interest income. Lower net interest income in our Redwood Investments portfolio was primarily due to lower average balances of term loan securitizations and the higher average cost of debt on securitized bridge loans incurred in 2025. These decreases were partially offset by higher net interest income from our Mortgage Banking operations. Sequoia net interest income in particular increased by $39 million, driven by higher loan purchase volumes and lower base floating rates on financing facilities as SOFR declined in 2025, relative to the prior year. CoreVest net interest income also increased by $3 million, primarily driven by increased funding volumes and lower SOFR.

Mortgage banking activities, net increased to $167 million from $99 million in the prior-year period, reflecting stronger performance across volume, profitability and efficiency for our Mortgage Banking operations. Sequoia Mortgage banking activities, net increased by $58 million, as lock volumes rose to $20.7 billion from $9.0 billion in the prior year. This growth was supported by continued strength in both flow and bulk executions across our network of loan sellers, including the purchase of various seasoned loan pools during 2025, along with outperformance of interest rate hedges. Sequoia also benefited from substantial growth in our new Aspire platform in 2025, where lock volumes totaled $3.2 billion. CoreVest reported $51 million of Mortgage banking income during 2025, compared with $42 million in the prior year, driven by higher funding levels, improved execution economics across products, as well as elevated distribution across securitization, whole loan sales and sales to joint ventures.

Investment fair value changes increased to a $97 million net loss in 2025 from a $15 million net loss in the prior year. The decline was primarily driven by negative fair value adjustments on our legacy unsecuritized bridge loans, and to a lesser extent, legacy unsecuritized term loans, reflecting increased delinquencies and credit stress in certain 2021 and 2022 vintage loans. These loans were underwritten during a period of significantly lower interest rates, more favorable financing conditions and different market fundamentals. These negative fair value adjustments reflected both realized and anticipated near-term resolutions on these loans, REO assets and other non-core legacy assets associated with completing the resolution or transfer of these assets. This decline was partially offset by fair value gains, net of associated interest rate hedges, on our net investment in our consolidated SLST (re-performing loans) securitization entities which benefitted from lower rates and improved credit performance in 2025 compared to 2024. In the fourth quarter of 2025, we sold all of the securities that we had retained from our SLST securitization entities and deconsolidated our securitized re-performing loans and related ABS issued.

HEI income (loss), net recorded a $0.7 million net gain in 2025, compared with a $42 million net gain in the prior-year period. The change reflects fair value losses recognized on the sale of $262 million of third-party originated HEI in the second quarter of 2025, as well as lower housing price appreciation observed in 2025 compared to 2024.

Operating expenses increased to $222 million from $184 million year over year, primarily reflecting higher fixed and variable compensation tied to volume growth across the Mortgage Banking platforms, as well as higher portfolio-management costs linked to Legacy loan resolutions.

For additional detail on these results, see the “Segment Results” section that follows.

Comparison of Consolidated Results of Operations for Years Ended December 31, 2024 and 2023

For a discussion of our consolidated results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report in Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 3, 2025.

Consolidated Net Interest Income

The following tables present the components of net interest income recorded in each line item of our consolidated statements of (loss) income for the years ended December 31, 2025 and 2024.

Table 2 – Consolidated Net Interest Income

(1)Average balances for residential consumer loans, residential investor loans, and trading securities are calculated based upon carrying values, which represent fair values. Average balances for AFS securities, debt facilities, corporate debt and certain ABS issued are calculated based upon amortized historical cost. Average balances for ABS carried at fair value are calculated based upon fair value.

(2)Interest income and interest expense securitized loans reflect activity from consolidated VIEs. While we consolidate these entities for GAAP reporting purposes, economically, we earn interest income from the securities we own in these entities, which is represented by the net interest income (interest income less interest expense) from these consolidated entities presented in the table above.

(3)Real estate securities include trading securities consisting primarily of interest-only securities, which generate a higher cash interest yield. This interest income may be offset by a decline in fair value (recognized through investment fair value changes, net on our consolidated statements of (loss) income) related to the receipt of cash flows each period, resulting in a lower overall economic yield for these investments.

Consolidated Market Valuation Gains and Losses, Net

The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of (loss) income for the years ended December 31, 2025 and 2024.

Table 3 – Consolidated Market Valuation Gains and Losses, Net

(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the market risks associated with our Sequoia Mortgage Banking operations.

(2)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases, or other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of (loss) income, as these amounts do not represent market valuation changes.

(3)Includes changes in fair value of the securitized loans held-for-investment, securitized HEI, REO and the ABS issued at the entities, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election.

(4)Other investments includes changes in fair value of REO assets.

(5)Servicing income, net excludes net MSR fee income or provision for repurchases, as these amounts do not represent market valuation adjustments.