REDWOOD TRUST INC

Current report

We may fail to realize the anticipated benefits of our plan to discontinue our election to be treated as a REIT for U.S. federal income tax purposes in 2027 and become a taxable C-corporation, or those benefits may take longer to realize than expected, if at all, or may not offset the costs of revoking our REIT election and becoming a taxable C-corporation.

Current report

We believe that our plan to discontinue our election to be treated as a REIT for U.S. federal income tax purposes in 2027 and become a taxable C-corporation will, among other things, allow us greater flexibility to retain and reinvest our earnings in our mortgage banking platforms, create a pathway to a more efficient financing structure and a lower cost of capital, and allow for more effective utilization of our existing tax assets and, to the extent our tax assets are available to offset taxable income, reduce our tax liabilities in the near term. However, there can be no assurance that we will realize any of these anticipated benefits, in whole or in part, or on the timeline we expect.

Current report

Retention and reinvestment of earnings. We believe that our plan to terminate our REIT election in 2027 and become a taxable C-corporation will, among other things, provide us with greater flexibility to use our free cash flows, among other things, to invest in our mortgage banking platforms and reduce our outstanding debt and debt leverage, as we will no longer be required to operate in compliance with the requirements for taxation as a REIT, including the requirement to distribute at least 90% of our taxable income to our stockholders. However, we may not generate sufficient earnings to retain at the levels we anticipate, which may reduce, or eliminate, the anticipated benefits of our plan to transition from a REIT to a taxable C-corporation. Even if we are able to retain greater earnings as a C-corporation than as a REIT, we may not be able to deploy them in platforms, investments or initiatives that produce the returns we expect, or at all, and we may not be able to reduce our outstanding debt and debt leverage as quickly or as much as we desire.

Current report

Access to and cost of capital. We believe our planned transition to C-corporation status may improve our access to institutional unsecured debt and equity capital and, over time, all other factors being equal, result in a structurally lower cost of capital. Our cost of capital and access to capital depend on many factors, however, many of which are beyond our control. Investors who held our common stock because of our REIT status or dividend yield may decide to sell their shares. We may also be unable to attract new investors in sufficient numbers, or on the timeline we expect, to broaden our investor base. There can be no assurance that our access to capital will improve or that our cost of capital will decline, or that any such improvement will happen within the timeframe we expect.

Current report

Tax assets. A significant part of the anticipated benefit of our planned transition to C-corporation status depends on our ability to use our existing tax assets, including our net operating loss carryforwards (“NOLs”) and other deferred tax assets, to offset future taxable income. For additional information, see “Our ability to utilize our NOLs and other carryforwards may be limited” and “Our NOL Preservation Plan may discourage investment in our common stock or other securities convertible or exercisable into our common stock, limit our access to capital, and have anti-takeover effects” below.

Current report

Moreover, there can be no assurance that the anticipated benefits of our planned transition to C-corporation status will offset its costs, which could be greater than we expect. Following such transition, we will not be allowed a deduction for dividends paid to our stockholders in computing our taxable income and will be subject to U.S. federal and state income tax on our taxable income at corporate tax rates. This could impair our ability to satisfy our financial obligations and negatively impact the price of our common stock and other securities. This treatment could also reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability to us. Further, federal and state income tax rates could increase in the future, exacerbating these risks. We also will be disqualified from electing REIT status under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) through December 31, 2031. If we fail to achieve the anticipated benefits of our planned transition to C-corporation status at all or in a timely manner, or if any benefits we realize do not offset its costs, our business, financial condition, results of operations and the market price of our common stock and other securities could be negatively affected.

Current report

Our ability to utilize our NOLs and other carryforwards may be limited.

Current report

Under the Internal Revenue Code, a corporation is generally allowed a deduction for NOLs carried over from prior taxable years, subject to certain limitations. As of September 30, 2026, we had approximately $304 million of federal NOLs, of which $29 million expire in 2029 and $275 million can be carried forward indefinitely. Our NOL carryforwards are subject to adjustment on audit by the Internal Revenue Service and the respective state taxing authorities. Additionally, certain of our NOL carryforwards may expire before we can generate sufficient taxable income to use them.

Current report

Our ability to use our NOLs and other carryforwards depends on the amount of taxable income generated in future periods. There can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required should our financial performance be negatively impacted in the future. Such valuation allowance could be material and would reduce our earnings and book value. In addition, the use of NOLs and other carryforwards to offset taxable income is subject to various limitations, which could limit our ability to utilize these tax attributes to reduce our taxes even if we generate sufficient taxable income.

Current report

A corporation’s ability to deduct its federal NOL carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code (“Section 382”) if it undergoes an “ownership change” as defined in Section 382 (generally where cumulative stock ownership changes among material stockholders exceed 50% during a rolling three-year period). An “ownership change” may severely limit or effectively eliminate our ability to utilize our NOL carryforwards and other tax attributes. Because the determination of whether an “ownership change” has occurred for purposes of Section 382 depends in part on changes in the ownership of our stock that are outside of our control, including purchases and sales of our common stock by existing and new stockholders, there can be no assurance that we will not experience an “ownership change” in the future. In addition, there is no assurance that the Internal Revenue Service will agree with our determination, now or in the future, of whether an “ownership change” has occurred.

Current report

Our efforts to preserve our NOLs and other tax attributes may also constrain our ability to access the capital markets and otherwise manage our capital structure. Issuances of our capital stock, including in connection with capital-raising transactions, acquisitions, or the conversion or exchange of our convertible or exchangeable securities, and repurchases of our capital stock can each contribute to an “ownership change” under Section 382. Accordingly, in order to reduce the likelihood of an “ownership change”, we may be limited in our ability to issue capital stock to raise capital, or to repurchase our capital stock, at times when we believe that doing so would otherwise be in our best interests and those of our stockholders. Any such limitation could reduce our financial flexibility, increase our cost of capital, or cause us to forgo attractive investment or capital management opportunities, any of which could adversely affect our business, financial condition, liquidity, and results of operations.

Current report

On November 3, 2026, our Board of Directors adopted a Tax Benefits Preservation Plan (the “NOL Preservation Plan”) in order to preserve our ability to use our NOLs and certain other tax attributes to reduce potential future U.S. federal income tax obligations. The NOL Preservation Plan is designed to reduce the likelihood that we experience an “ownership change” by deterring certain acquisitions of our common stock. There is no assurance, however, that the deterrent mechanism will be effective, and acquisitions of our common stock, alone or in combination with other changes in the ownership of our stock, may still result in an “ownership change” under Section 382. For example, the NOL Preservation Plan may not deter a person who is willing to accept the dilution that would result from becoming an “acquiring person” thereunder, and the NOL Preservation Plan does not prevent all changes in ownership that are taken into account for purposes of Section 382. In addition, our Board of Directors may exempt persons from the NOL Preservation Plan’s restrictions in certain circumstances, even if doing so could negatively affect our tax attributes. The NOL Preservation Plan may also adversely affect the marketability of our common stock and have anti-takeover effects. For a discussion of these and other risks associated with the NOL Preservation Plan, see “Our NOL Preservation Plan may discourage investment in our common stock, or other securities convertible or exercisable into our common stock, limit our access to capital, and have anti-takeover effects” below and “The future realization of our deferred tax assets is uncertain, and the amount of valuation allowance we may apply against our deferred tax assets may change materially in future periods” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.

Current report

Our NOL Preservation Plan may discourage investment in our common stock or other securities convertible or exercisable into our common stock, limit our access to capital, and have anti-takeover effects.

Current report

Under our NOL Preservation Plan, any person or group, other than certain exempt persons and certain grandfathered persons, that together with its affiliates and associates acquires beneficial ownership of 4.9% or more of the then-outstanding shares of our common stock without the approval of our Board of Directors would suffer substantial dilution of its ownership interest in us. The NOL Preservation Plan may discourage or limit existing or potential investors from acquiring our common stock or additional shares of our common stock, or other of our securities convertible or exercisable into our common stock, including institutional investors who might otherwise seek to acquire positions at or above the 4.9% threshold. The resulting reduction in demand could adversely affect the marketability and liquidity of our common stock or other securities and, in turn, their respective market prices. In addition, by reducing the pool of investors willing to acquire significant positions in our common stock, the NOL Preservation Plan may limit our ability to raise capital through the issuance of equity or other equity-linked securities on favorable terms, or at all.

Current report

Although the NOL Preservation Plan was adopted to preserve our tax attributes, it may have an anti-takeover effect because an “acquiring person” thereunder may be diluted upon the occurrence of a triggering event. Accordingly, the NOL Preservation Plan may complicate or discourage a merger, tender offer, proxy contest, accumulation of a substantial block of our common stock, or assumption of control by a substantial holder of our securities, even if such a transaction might involve a premium price for our common stock or otherwise be in the best interests of our stockholders. The NOL Preservation Plan may therefore deter transactions that some or all of our stockholders might consider beneficial. These effects may be in addition to those of the ownership limits contained in our charter. See“Provisions in our charter and bylaws and provisions of Maryland law may limit a change in control or deter a takeover that might otherwise result in a premium price being paid to our shareholders for their shares in Redwood” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025.

Current report

The NOL Preservation Plan gives our Board of Directors significant discretion to consent to transactions (e.g., a merger or other business combination, or an acquisition of a large interest in our stock) and to exempt persons from the NOL Preservation Plan’s restrictions. The Board may grant an exemption even if doing so would affect our tax attributes, if it determines that the exemption is in our best interests. As a result, the NOL Preservation Plan should not interfere with any such transaction that our Board of Directors approves. However, because an acquirer would generally need to negotiate with, and obtain the approval of, our Board of Directors, this may deter or delay transactions that stockholders might otherwise favor. Also, our Board of Directors' exercise of this discretion may not reflect the views of all of our stockholders. Any exemption it grants could affect our tax attributes or increase the likelihood of an ownership change under Section 382.

Current report

The Reverse Stock Split we announced on November 3, 2026 may not achieve its intended results and could adversely affect the market price, liquidity and marketability of our common stock.

Current report

On November 3, 2026, our Board of Directors unanimously approved a one-for-five reverse stock split of our outstanding common stock (the "Reverse Stock Split"), which is scheduled to take effect at market open on January 4, 2027. The Reverse Stock Split is intended to have several results, including to enhance the marketability of the Company’s common stock and broaden the Company’s appeal to investors who do not trade in lower-priced securities. We cannot assure you, however, that the Reverse Stock Split will achieve these or any other intended results. In particular, we cannot assure you that, following the effective date of the Reverse Stock Split, the market price of our common stock will increase in proportion to the Reverse Stock Split ratio, or that any increase will be sustained. The market price of our common stock may also decline for reasons unrelated to the Reverse Stock Split, including our future performance. Any such decline may be greater, in absolute terms and as a percentage of our market capitalization, than it would have been without the Reverse Stock Split.

Current report

With fewer shares outstanding after the effective date of the Reverse Stock Split, our common stock may become less liquid and more volatile. More stockholders may also hold "odd lots" of fewer than 100 shares, which may be harder to sell and generally carry higher brokerage commissions and other transaction costs. For these and other reasons, the Reverse Stock Split may not improve the liquidity or marketability of our common stock. We cannot assure you that it will attract investors who do not trade in lower-priced securities, make our common stock more attractive to investors generally, or facilitate future capital raising. Reverse stock splits by other companies have had mixed results, in part because some investors view them negatively. Any negative market perception of the Reverse Stock Split could depress the market price of our common stock.

Current report

Actions of activist stockholders could divert management's attention and resources, cause us to incur substantial costs and adversely affect our business.

Current report

While we value constructive feedback from our investors and regularly engage in dialogue with them on various matters, we may nonetheless be subject to actions or proposals from activist stockholders. Activist stockholders may from time to time engage in proxy solicitations, advance stockholder proposals, or otherwise seek to effect changes relating to our business strategies, including, without limitation, by seeking to acquire control of the Company (or by encouraging others to do so), by seeking a sale of control of the Company (or by seeking a sale of a division of the Company), or by seeking changes to the manner in which we structure or operate our business. For example, an open letter was published in September 2026, by an individual stating that he is a significant stockholder in the Company and, among other things, urging our Board of Directors to explore a sale of the Company. Responding to actions by activist stockholders could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. Activist stockholder actions may also interfere with our ability to execute our strategic plans. Perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholders’ communications or initiatives may result in the loss of potential business opportunities, harm our ability to raise equity or debt capital, inhibit our ability to attract new investors, business partners, or employees (or negatively impact our relationship with current investors, business partners, or employees), or negatively impact the value of our capital stock (or result in increased volatility in the trading price of our capital stock). In addition, we have retained and may in the future retain the services of various professionals to advise us on activist stockholder matters, including legal, financial, strategic and communication advisors, the costs of which may negatively impact our financial results. The actions of activist stockholders may also cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals of our business. We cannot predict the outcome or timing of any matters relating to actions by activist stockholders or the ultimate impact that such matters may have on the Company.

Current report

In connection with the approval of our C-Corporation Conversion plan, the Company's Board of Directors also approved on November 3, 2026 a special authorization for the repurchase of up to $40 million of our common stock, which authorization is separate from, and in addition to, the already existing stock repurchase authorization described above and in Note 20 in Part 1, Item 1 — Financial Statements. This special authorization expires on December 31, 2027 and does not obligate us to acquire any specific number of shares.

Current report

The following table contains information on the shares of our common stock that we purchased or otherwise acquired during the three months ended September 30, 2026.