Redwood Trust — Third Quarter 2026 Earnings Summary

Financial Performance:

• Consolidated GAAP net loss was $(47.3) million, or $(0.39) per basic and diluted common share, compared to a net loss of $(2.9) million, or $(0.03) per share, in the second quarter of 2026.
• Non-GAAP Earnings Available for Distribution (EAD) was $(1.4) million, or $(0.02) per share, compared to $20.3 million, or $0.15 per share, in the prior quarter.
• Non-GAAP Core Segments EAD was $23.4 million, or $0.18 per share, compared to $34.0 million, or $0.25 per share, in the prior quarter.
• GAAP book value per common share declined 4.9% to $6.56 at September 30, 2026, from $6.90 at June 30, 2026.
• Economic return on book value was (2.3)% for the quarter, compared to (0.6)% in the prior quarter.
• Total assets were $30.4 billion at September 30, 2026, compared to $28.8 billion at June 30, 2026.
• Stockholders' equity was $831 million at September 30, 2026, compared to $934 million at June 30, 2026.
• Recourse debt was $4.2 billion at September 30, 2026, compared to $4.5 billion at June 30, 2026.
• Non-GAAP recourse leverage ratio was 5.2x at September 30, 2026, compared to 5.0x at June 30, 2026.
• Net interest income was $40.6 million for the quarter, compared to $32.1 million in the prior quarter.
• Total non-interest income was $(27.7) million, driven by $(38.1) million in investment fair value changes, compared to $23.9 million in the prior quarter.
• General and administrative expenses were $38.5 million, compared to $38.2 million in the prior quarter.

Guidance and Future Outlook:

• The Company plans to transition to a C-corporation in 2027, expected to result in an initial $0.73–$0.77 per share increase in GAAP book value in the fourth quarter of 2026.
• Capital allocated to Legacy Investments has declined approximately 75% over the past year to $116 million at September 30, 2026.
• Additional Legacy Investment resolutions are expected during the fourth quarter, with the objective of materially reducing associated earnings and financing burdens beginning Q1 2027.
• The Company intends to prioritize corporate deleveraging and opportunistic repurchases of unsecured debt at attractive discounts.
• Greater earnings retention, reduced cash income taxes, continued Legacy Investment resolutions, and disciplined expense management are expected to support stable organic book value growth beginning in Q1 2027.

Business Segments and Product Lines:

• Mortgage Banking Platforms: Generated a 26% annualized non-GAAP return on capital (ROC), marking the ninth consecutive quarter above 20%.
  • Total GAAP net income for Mortgage Banking platforms was $27.0 million, down from $40.1 million in the prior quarter.
  • Production was $6.6 billion, down from $8.0 billion in the prior quarter.
  • Distributed $8.8 billion of loans through securitizations, whole loan sales, and joint ventures.
• Sequoia Mortgage Banking: Locked $5.1 billion of loans with a gain on sale margin of 113 basis points (up from 92 basis points in the prior quarter). Distributed $5.8 billion via securitizations and $1.2 billion to the Castlelake joint venture.
• Aspire Mortgage Banking: Locked $1.1 billion of loans, a 45% decrease from $2.1 billion in the prior quarter. Distributed $1.3 billion of loans.
• CoreVest Mortgage Banking: Funded $406 million of loans (74% bridge, 26% term). Distributed $427 million of newly originated loans.
• Redwood Investments: Reported a segment GAAP net loss of $(4.4) million, compared to net income of $0.7 million in the prior quarter. The RWT Horizons portfolio contributed $4.9 million in positive fair value changes.
• Legacy Investments: Reported a segment GAAP net loss of $(45.0) million, compared to a loss of $(23.3) million in the prior quarter. Includes over $200 million of completed or expected near-term loan resolutions.

Market and Competitive Landscape:

• Housing inventory for sale has hit multi-year highs, potentially increasing the need for purchase-money mortgages.
• Sequoia executed transactions with two new bank partners for whole loan sales.
• Aspire completed its fourth and fifth transactions under the SPIRE shelf.
• Sequoia issued its first securitization out of the Castlelake joint venture.

Risks and Challenges:

• The third quarter was described as among the most challenging for the industry since the onset of the COVID-19 pandemic.
• Aspire margins were pressured by lower hedge effectiveness, extended loan distribution timelines, and wider non-QM securitization spreads amid a sharp rise in rates.
• Redwood Investments faced fair value declines in the retained investment portfolio driven by the sharp increase in benchmark interest rates and spread-widening.
• Forward-looking statements regarding the C-corporation transition and book value increase involve risks related to final tax and accounting determinations, changes in tax laws, and limitations on using net operating loss carryforwards.

Management Commentary and Tone:

• Christopher Abate, CEO, stated the company prioritized liquidity while maintaining strong returns in mortgage banking.
• Management highlighted the strategic alignment of corporate structure with the business model to leverage competitive advantages and grow market share.
• The tone reflects a focus on resolving legacy assets and positioning for a lower long-term cost of capital.

Other Key Points:

• The Company announced a plan to transition to a C-corporation in 2027 to align corporate strategy with business structure and enhance shareholder value.
• The secured financing facility with CPP Investments and Stone Point Credit was upsized, extending the maturity date to March 2030.
• The Company completed a $205 million convertible notes offering at a 7% coupon, using proceeds to repay approximately 40% of convertible debt maturing in June 2027.
• The Company repurchased 9.2 million shares of common stock for $34 million, including $20 million concurrent with the convertible notes offering, resulting in approximately $0.18 per share of book value accretion.
• AI-enabled automation is generating approximately 28,300 hours of annualized time savings, a 20% increase from the second quarter.
• The Company ended the quarter with $201 million in cash and cash equivalents and warehouse line utilization of 37% of total capacity.
• Dividends per common share were $0.18 for the quarter, consistent with the prior quarter.