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 June 30, 2026 to the immediate preceding quarter ended March 31, 2026. 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 second quarter of 2026, compared to the first quarter of 2026.

Consolidated Results of Operations

The following table presents the components of our net (loss) income for the three and six months ended June 30, 2026, the immediate preceding quarter ended March 31, 2026, and year-to-date period ended June 30, 2025.

Table 1 – Net (Loss) Income

Net loss for the three months ended June 30, 2026 totaled $3 million, compared with a net loss of $7 million for the three months ended March 31, 2026. The improvement was primarily driven by lower operating expenses, including the non-recurrence of severance and organizational restructuring costs recognized in the first quarter of 2026, and stronger results from Aspire Mortgage Banking, CoreVest Mortgage Banking and Redwood Investments in the current quarter. These impacts were partially offset by higher losses within our Legacy Investments segment, as well as lower net interest income, HEI income, net and servicing income, net.

Net interest income decreased by $3 million to $32 million during the second quarter. Sequoia contributed an increase of approximately $2 million, due to capital deployment in the first quarter. These increases were offset by an increase in net interest expense for Legacy Investments of $2 million, driven by lower interest income resulting from paydowns and interest accrual reversals on resolved loans. CoreVest net interest income declined by approximately $1 million, reflecting modestly lower funding volumes.

Mortgage banking activities remained strong and were relatively consistent at $32 million, as increased revenues from Aspire and CoreVest offset lower revenues from Sequoia due to lower volume. Total mortgage banking production declined modestly to $8.0 billion from the record $8.5 billion in the prior quarter, representing the second-highest quarterly production in the Company’s history and the second consecutive quarter of $8 billion or more in volume. Production reflected a more cautious operating posture during April and May amid heightened market volatility, followed by stronger momentum in June, when more than 40% of quarterly volume was locked.

At Sequoia, mortgage banking activities, net decreased by $9 million as lock volumes declined by 15% to $5.6 billion and gain on sale margins modestly declined to 92 basis points from 96 basis points in the prior quarter. These impacts were partially offset by continued strong distribution activity and a reduction in cost per loan from 18 to 17 basis points. Aspire mortgage banking activities, net increased by $7 million, driven by a 31% increase in lock volumes to a record $2.1 billion and an increase in gain on sale margins to 101 basis points from 73 basis points in the prior quarter, together with continued securitization and whole loan sale activity. CoreVest mortgage banking activities, net increased by $3 million, reflecting improved mortgage banking margins and execution economics, including the completion of a term loan securitization through our CoreVest joint venture, despite a 5% decline in funding volumes to $410 million.

Investment fair value changes, net remained relatively consistent, reflecting $23 million of negative fair value changes in both the first and second quarters of 2026. Within Redwood Investments, negative fair value changes improved by approximately $5 million, primarily reflecting valuation improvements on retained investments as market conditions partially recovered late in the quarter. Together with strong performance from RWT Horizons and lower expenses, these changes contributed to Redwood Investments generating net income of approximately $1 million, compared with a net loss of $8 million in the prior quarter.

This improvement was offset by an approximately $5 million increase in negative fair value changes within Legacy Investments, primarily associated with legacy bridge loan resolutions and mark-to-market changes. Legacy Investments net loss increased to $23 million from $13 million in the prior quarter, also reflecting lower HEI income, market to market changes primarily on REO and ongoing carry costs on the remaining portfolio. Notwithstanding these results, capital allocated to Legacy Investments declined by $47 million to $195 million, or 12% of total invested capital, as the Company continued to execute dispositions and resolutions, including the resolution of $16 million of bridge loans that were 90 or more days delinquent.

Operating expenses decreased to $56 million for the second quarter of 2026, compared with $72 million for the first quarter of 2026. The decrease was primarily driven by an $11 million decline in general and administrative expenses, reflecting the non-recurrence of approximately $7 million of severance and organizational restructuring costs recognized in the prior quarter. Portfolio management costs, loan acquisition costs and other expenses decreased by approximately $5 million in aggregate, primarily reflecting lower mortgage banking production and distribution volumes during the second quarter, which resulted in lower due diligence, custody, valuation and other transaction-related costs.

Overall, second quarter results reflect resilient performance across our core Mortgage Banking platforms, with improved results from Aspire and CoreVest offsetting lower Sequoia activity. Results also reflect improved performance within Redwood Investments and lower operating expenses, partially offset by continued negative fair value changes and carry-related losses within Legacy Investments. The continued reduction of capital allocated to Legacy Investments and expansion of our joint venture and distribution channels further support our strategic repositioning toward scalable, capital-efficient operating platforms.

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 six months ended June 30, 2026 totaled $10 million, compared with net loss of $86 million for the six months ended June 30, 2025. The improvement was primarily driven by a $44 million improvement in investment fair value changes, net, a $25 million increase in net interest income, higher HEI, servicing and other income, and a lower provision for income taxes. These impacts were partially offset by $21 million of higher operating expenses and a $10 million decline in mortgage banking activities, net.

Net interest income increased by $25 million to $67 million during the six months ended June 30, 2026, driven by a combined increase of approximately $36 million across our Mortgage Banking platforms. Sequoia contributed $27 million of the increase, primarily reflecting significantly higher loan purchase volumes, increased average inventory balances and continued capital deployment into residential securities used to hedge the pipeline. Aspire net interest income increased by approximately $7 million as the platform continued to scale. These increases were partially offset by an $11 million decline in net interest income from Redwood Investments, reflecting portfolio repositioning and paydowns.

Mortgage banking production nearly doubled to $16.5 billion during the six months ended June 30, 2026 from $8.6 billion in the prior-year period, while total distributions increased to $16.8 billion from $6.8 billion. Despite this growth, mortgage banking activities, net decreased by $10 million to $64 million, as lower gain-on-sale margins at Sequoia and lower margins and funding volumes at CoreVest offset the benefit of higher production and the increased contribution from Aspire.

Investment fair value changes, net improved by $44 million, resulting in a $46 million net loss during the six months ended June 30, 2026, compared with a $90 million net loss in the prior-year period. The improvement primarily reflected a $64 million reduction in negative fair value changes within Legacy Investments, as the first half of 2025 included significant adverse fair value adjustments on legacy unsecuritized bridge and term loans associated with anticipated resolutions and credit deterioration. This improvement was partially offset by higher negative fair value changes within Redwood Investments during 2026, reflecting market-driven valuation changes and portfolio seasoning, while underlying asset performance remained generally stable across most of the portfolio.

HEI income, net improved by $13 million, from a $3 million loss in the prior-year period to $10 million of income during the six months ended June 30, 2026. The prior-year period included fair value losses associated with the sale of a portfolio of third-party-originated HEI (which was completed during the third quarter of 2025), while the current-period results reflected positive income from the remaining HEI portfolios.

Servicing income and other income increased by approximately $12 million in aggregate, reflecting higher servicing-related earnings and positive contributions from RWT Horizons and other portfolio activity.

Operating expenses increased by $21 million to $128 million during the six months ended June 30, 2026. General and administrative expenses increased by $13 million, primarily reflecting approximately $7 million of severance and organizational restructuring costs recognized in the first quarter of 2026, as well as higher fixed and variable compensation tied to volume growth across our Mortgage Banking platforms. Loan acquisition costs and other expenses increased by approximately $8 million in aggregate, reflecting higher mortgage banking production and investment activity.

Overall, results for the first half of 2026 reflect substantially higher production and net interest income across our Mortgage Banking platforms, particularly Sequoia and Aspire, together with a significant reduction in negative fair value changes within Legacy Investments. These improvements were partially offset by lower margins within Sequoia and CoreVest and higher operating expenses associated with increased production and the organizational restructuring completed in the first quarter. Results also reflect continued execution on our strategic repositioning.

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 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 and six months ended June 30, 2026, the immediate preceding quarter ended March 31, 2026 and year-to-date period ended June 30, 2025.

Table 2 – 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 the 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.