REDWOOD TRUST INC

Within this Results of Operations section, in accordance with Item 303(c)(2)(ii) of Regulation S-K, we have elected to discuss any material changes in our results of operations by comparing our quarter ended March 31, 2026 to the immediate preceding quarter ended December 31, 2025. We believe that providing a sequential discussion of our results of operations offers highly relevant information for investors and stakeholders to understand and analyze our business activities. Additionally, we generally continue to address material changes in our results of operations for the most recent fiscal year-to-date period, compared to the corresponding year-to-date period of the preceding fiscal year, pursuant to Item 303(c)(2)(i) of Regulation S-K. Unless otherwise specified, references in this section to increases or decreases during the "three month periods" refer to the change in results for the first quarter of 2026, compared to the first or fourth quarter of 2025.

Consolidated Results of Operations

The following table presents the components of our net (loss) income for the three months ended March 31, 2026, the immediate preceding quarter ended December 31, 2025, and year-to-date period ended March 31, 2025.

Table 1 – Net (Loss) Income

Net loss for the three months ended March 31, 2026 totaled $7 million, compared with net income of $18 million for the three months ended December 31, 2025. The decline was primarily driven by lower mortgage banking activities reflecting reduced gain on sale margins across the Sequoia and Aspire mortgage banking platforms, as the fourth quarter of 2025 benefited from more favorable market conditions, including tighter mortgage spreads and stronger execution on loan sales, that did not recur in the first quarter of 2026. Results were further impacted by market-driven negative fair value changes on our investment portfolio during a period of increased interest rate and spread volatility late in the first quarter of 2026. These impacts were partially offset by higher net interest income from our Mortgage Banking platforms, improved servicing income, and lower losses within our Legacy Investments segment.

Net interest income increased by $9 million during the quarter, driven by growth and capital deployment across our Mortgage Banking platforms. Sequoia contributed the majority of the increase, with net interest income increasing by approximately $7 million, primarily reflecting higher income earned on loans held-for-sale, increased average inventory balances, and modest benefits from lower benchmark rates. Aspire also contributed incremental growth, with net interest income increasing by approximately $1 million as the platform continued to scale, while CoreVest remained relatively consistent quarter over quarter. These increases were partially offset by a $2 million decline in net interest income from Redwood Investments due to portfolio repositioning and paydowns, partially offset by income generated from retained operating investments sourced through our mortgage banking platforms. Legacy Investments net interest loss improved by approximately $4 million, driven by continued portfolio runoff and lower secured financing costs on our legacy bridge loans which were optimized into an accretive secured financing structure during the quarter.

Mortgage banking activities remained strong, with total production increasing to $8.5 billion from $7.3 billion in the prior quarter, reflecting continued scale across Sequoia and Aspire and strong demand across securitizations, whole loan sales, and joint ventures. Despite this growth, mortgage banking activities, net declined to $32 million from $53 million in the prior quarter. The decrease was primarily due to lower gain-on-sale margins across platforms, reflecting less favorable market conditions and increased interest rate and spread volatility, particularly late in the first quarter. At Sequoia, margins declined to 96 basis points from 136 basis points in the prior quarter, while Aspire margins declined to 73 basis points from 92 basis points. These declines were partially offset by higher volumes, including a 22% increase in Sequoia lock volumes to $6.5 billion and continued growth in Aspire production, as well as strong distribution activity, including the platform's inaugural securitization. CoreVest mortgage banking activities, net also declined as lower margins and modestly lower funding volumes more than offset continued distribution activity, reflecting a more cautious origination approach late in the quarter in response to market volatility and evolving borrower demand.

Investment fair value changes were a significant driver of the quarter-over-quarter decline, reflecting a $23 million negative fair value changes in the first quarter of 2026. These changes were primarily driven by market-driven valuation changes and portfolio seasoning within Redwood Investments, while underlying asset performance remained generally stable across most of the portfolio. Valuation impacts within Legacy Investments were largely consistent with the prior quarter.

Operating expenses increased to $49 million for the first quarter of 2026, compared to $41 million for the fourth quarter of 2025. The increase was primarily driven by higher general and administrative expenses, including approximately $7 million of severance and organizational restructuring costs, as well as higher portfolio management costs associated with managing and resolving assets within Redwood Investments and Legacy Investments, including REO-related costs and other asset-level expenses tied to ongoing resolution activity.

Overall, first quarter results reflect continued strength in our core Mortgage Banking platforms, including record production volumes, improving operating efficiency, and strong capital velocity, offset by normalization of gain-on-sale margins and market-driven valuation changes. Results also reflect continued execution on our strategic repositioning, including scaling capital-light operating platforms such as Sequoia and Aspire, alongside ongoing reduction in exposure to non-core Legacy Investments.

See further discussion of these results in the Segment Results section in Part I, Item 2 of this Quarterly Report on Form 10-Q

Net loss for the three months ended March 31, 2026 totaled $7 million, compared with net income of $14 million for the three months ended March 31, 2025. The decline was primarily driven by negative investment fair value changes reflecting market-driven valuation declines across our investment portfolio. During the first quarter of 2026, interest rates across the U.S. Treasury yield curve increased by approximately 15 to 35 basis points, which adversely impacted the more interest rate‑sensitive portions of the portfolio.

The decline in net income over the three month periods was also attributable to higher operating expenses, including approximately $7 million of severance and organizational restructuring costs, as well as higher portfolio management and loan acquisition expenses. These impacts were partially offset by higher net interest income from our Mortgage Banking platforms, reflecting growth and continued capital deployment across Sequoia and Aspire mortgage banking. The underlying factors driving these variances are consistent with those discussed above in the comparison of the first quarter of 2026 to the fourth quarter of 2025.

See further discussion of these results in the Segment Results section in Part I, Item 2 of this Quarterly Report on Form 10-Q

Consolidated Net Interest Income

The following tables present the components of net interest income recorded in each line item of our consolidated statements of income for the three months ended March 31, 2026, the immediate preceding quarter ended December 31, 2025 and year-to-date period ended March 31, 2025.

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)Yield is calculated as interest income/expense divided by average balance. Interest income on loans is based on stated loan coupons, net of interest write offs on non-performing loans.

(3)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.

(4)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 income for the three months ended March 31, 2026, the immediate preceding quarter ended December 31, 2025 and year-to-date period ended March 31, 2025.

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 platform.

(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.