PART I — FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Redwood Trust reported a net loss of $98.5 million for Q2 2025 and $82.3 million for the six months ended June 30, 2025, a significant downturn from prior-year periods, primarily due to negative fair value adjustments on investments and growth in total assets to $21.3 billion Consolidated Financial Performance Summary (Q2 & H1 2025 vs 2024) (In Thousands) | Financial Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | **Net Interest Income** | $13,834 | $25,293 | $41,776 | $49,503 | | **Total Non-interest (Loss) Income** | ($51,937) | $42,154 | ($6,031) | $92,493 | | **Net (Loss) Income** | ($98,492) | $15,534 | ($82,345) | $45,796 | | **Net (Loss) Available to Common Stockholders** | ($100,249) | $13,777 | ($85,852) | $42,289 | | **Diluted (Loss) Earnings per Share** | ($0.76) | $0.10 | ($0.67) | $0.31 | Consolidated Balance Sheet Summary (As of June 30, 2025) (In Thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$21,333,020** | **$18,258,344** | | Residential consumer loans | $14,201,893 | $11,077,823 | | Residential investor loans | $4,339,168 | $4,587,090 | | **Total Liabilities** | **$20,279,557** | **$17,070,481** | | Asset-backed securities issued, net | $15,985,206 | $13,270,204 | | Debt obligations, net | $3,744,868 | $3,462,880 | | **Total Equity** | **$1,053,463** | **$1,187,863** | - For the six months ended June 30, 2025, net cash used in operating activities was **$4.07 billion**, while net cash provided by investing and financing activities were **$1.64 billion** and **$2.56 billion**, respectively[25](index=25&type=chunk) [Note 4. Segment Information](index=13&type=section&id=Note%204.%20Segment%20Information) In Q2 2025, the company established a new reportable segment, "Legacy Investments," to house assets no longer aligned with core strategy, reporting a significant net loss of $104.0 million, while Sequoia and CoreVest Mortgage Banking segments remained profitable - A new reportable segment, Legacy Investments, was established in Q2 2025 to manage assets no longer aligned with core strategic objectives, intended for sale, runoff, or disposition as part of a strategic realignment[32](index=32&type=chunk)[51](index=51&type=chunk) Segment Net Income (Loss) for Q2 2025 (In Thousands) | Segment | Net Income (Loss) | | :--- | :--- | | Sequoia Mortgage Banking | $22,154 | | CoreVest Mortgage Banking | $6,135 | | Redwood Investments | $11,892 | | Legacy Investments | ($103,989) | | Corporate/Other | ($34,684) | | **Total Net Loss** | **($98,492)** | [Note 8. Residential Investor Loans](index=28&type=section&id=Note%208.%20Residential%20Investor%20Loans) The residential investor loan portfolio totaled $4.3 billion as of June 30, 2025, with $886 million of legacy unsecuritized bridge loans and $50 million of legacy term loans moved to the Legacy Investments segment and classified as held-for-sale, reflecting elevated delinquencies and fair value losses - As part of a strategic realignment, **$886 million** of legacy unsecuritized bridge loans and **$50 million** of legacy unsecuritized term loans were reported in the new Legacy Investments segment as of June 30, 2025[118](index=118&type=chunk)[121](index=121&type=chunk) - The fair value of the unsecuritized residential investor bridge loan portfolio decreased, driven by fair value losses from elevated delinquencies, particularly among 2021 and 2022 vintage loans, and strategic sales[125](index=125&type=chunk) - In Q2 2025, the company modified or placed into forbearance loans with a total aggregate unpaid principal balance of **$363 million**, involving adjustments to interest rates, maturity extensions, and covenant terms[150](index=150&type=chunk) - As of June 30, 2025, residential investor loans with an aggregate unpaid principal balance of **$718 million** were on non-accrual status, a significant increase from **$343 million** at year-end 2024[156](index=156&type=chunk)[157](index=157&type=chunk) [Note 18. Debt Obligations, Net](index=53&type=section&id=Note%2018.%20Debt%20Obligations%2C%20Net) Total debt obligations increased to $3.74 billion at June 30, 2025, from $3.46 billion at year-end 2024, utilizing a mix of short-term and long-term facilities, including the issuance of $90 million in Senior Notes in January 2025 Debt Obligations Summary (In Thousands) | Debt Category | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Short-Term Facilities | $1,825,491 | $1,545,899 | | Recourse Subordinate Securities Financing | $356,702 | $267,140 | | Long-Term Facilities | $760,472 | $992,394 | | Corporate Debt | $702,203 | $657,447 | | **Total Debt Obligations, Net** | **$3,744,868** | **$3,462,880** | - In January 2025, the company issued **$90 million** of 9.125% Senior Notes due in 2030[271](index=271&type=chunk) [Note 20. Equity](index=56&type=section&id=Note%2020.%20Equity) Total equity decreased to $1.05 billion from $1.19 billion at year-end 2024, primarily due to the net loss for the period and common stock dividends, with 1.6 million shares repurchased for $9 million in June 2025 - In June 2025, the company repurchased **1.6 million shares** of common stock for a total cost of **$9 million**, with **$92 million** remaining available under the common stock repurchase authorization as of June 30, 2025[297](index=297&type=chunk) [Note 24. Subsequent Events](index=60&type=section&id=Note%2024.%20Subsequent%20Events) Subsequent to the quarter's end, in July 2025, the Board of Directors increased the common stock repurchase authorization to $150 million, replacing the previous $125 million authorization - In July 2025, the Board of Directors approved a new authorization for the repurchase of up to **$150 million** of common stock, replacing the prior **$125 million** authorization[315](index=315&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management detailed a strategic acceleration toward a more scalable and simplified operating model, highlighted by the creation of the Legacy Investments segment to wind down non-core assets, leading to significant fair value and repositioning charges of approximately $(0.79) per share in Q2, while core mortgage banking platforms demonstrated strong growth and profitability - The company is accelerating its strategic transition to a simplified operating model by meaningfully reducing exposure to non-core holdings, now housed in a new "Legacy Investments" segment[323](index=323&type=chunk)[329](index=329&type=chunk) - The strategic wind-down of the legacy portfolio resulted in approximately **$(0.79) per share** of fair value and repositioning charges in Q2, reducing GAAP book value per share to **$7.49** from **$8.39** at the end of Q1 2025[331](index=331&type=chunk) - The company expects to free up **$200 to $250 million** in capital from legacy investments by year-end 2025 for redeployment into operating platforms and other uses[331](index=331&type=chunk) - Core mortgage banking platforms, Sequoia and CoreVest, continued to deliver strong performance with combined GAAP returns exceeding **20%** for the fourth consecutive quarter[329](index=329&type=chunk)[333](index=333&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=93&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company stated that there have been no material changes in its quantitative or qualitative exposure to market risk since December 31, 2024, other than developments already described in the MD&A section - There have been no material changes in the company's quantitative or qualitative exposure to market risk since December 31, 2024, apart from developments discussed elsewhere in the report[526](index=526&type=chunk) [Controls and Procedures](index=93&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of the end of the quarter, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of Q2 2025[528](index=528&type=chunk) - No changes in internal control over financial reporting occurred during Q2 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[529](index=529&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=94&type=section&id=Item%201.%20Legal%20Proceedings) There were no significant updates regarding the company's legal proceedings during the quarter - Refers to Note 19 for information on legal proceedings, which indicates no significant updates from the previous Annual Report on Form 10-K[531](index=531&type=chunk) [Risk Factors](index=94&type=section&id=Item%201A.%20Risk%20Factors) The report refers to the risk factors discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The company's risk factors are discussed in its Annual Report on Form 10-K for the year ended December 31, 2024[531](index=531&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=94&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the second quarter of 2025, the company did not sell any unregistered equity securities but repurchased 1.6 million shares of its common stock for a total of $9 million, with $92 million remaining under the repurchase authorization Common Stock Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price per Share | | :--- | :--- | :--- | | April 2025 | — | $— | | May 2025 | — | $— | | June 2025 | 1,560,795 | $5.75 | | **Total** | **1,560,795** | **$5.75** | - As of June 30, 2025, **$92 million** remained available under the common stock repurchase authorization, which was subsequently increased to **$150 million** in July 2025[533](index=533&type=chunk) [Other Information](index=94&type=section&id=Item%205.%20Other%20Information) During the second quarter of 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[537](index=537&type=chunk) [Exhibits](index=95&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and interactive data files

Core Insights - Redwood Trust reported revenue of $13.8 million for the quarter ended June 2025, a decrease of 45.5% year-over-year, and EPS of $0.18, up from $0.13 in the same quarter last year [1] - The reported revenue fell short of the Zacks Consensus Estimate of $32.59 million, resulting in a surprise of -57.65%, while the EPS also missed the consensus estimate of $0.19 by -5.26% [1] Financial Performance Metrics - Net interest income was reported at $13.8 million, significantly below the estimated $32.62 million by analysts [4] - Non-interest income from Sequoia mortgage banking activities was $24.4 million, exceeding the average estimate of $20.89 million [4] - Total non-interest income was $36.7 million, compared to the average estimate of $51.98 million [4] - Non-interest income from mortgage banking activities was $40.9 million, surpassing the estimated $33.19 million [4] - HEI income reported a loss of $12.9 million, contrasting with the estimated income of $9 million [4] - CoreVest mortgage banking activities generated non-interest income of $16.5 million, above the average estimate of $12.3 million [4] Stock Performance - Over the past month, shares of Redwood Trust have returned +0.5%, while the Zacks S&P 500 composite increased by +3.4% [3] - The stock currently holds a Zacks Rank 1 (Strong Buy), suggesting potential outperformance against the broader market in the near term [3]

Group 1: Earnings Performance - Redwood Trust reported quarterly earnings of $0.18 per share, missing the Zacks Consensus Estimate of $0.19 per share, but showing an increase from $0.13 per share a year ago, representing an earnings surprise of -5.26% [1] - The company posted revenues of $13.8 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 57.65%, and down from $25.3 million year-over-year [2] - Over the last four quarters, Redwood Trust has surpassed consensus EPS estimates only once [2] Group 2: Stock Performance and Outlook - Redwood Trust shares have declined approximately 7% since the beginning of the year, while the S&P 500 has gained 8.3% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.20 on revenues of $34.85 million, and $0.75 on revenues of $131.65 million for the current fiscal year [7] Group 3: Industry Context - The REIT and Equity Trust industry, to which Redwood Trust belongs, is currently ranked in the top 22% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - The Zacks Rank for Redwood Trust is currently 1 (Strong Buy), suggesting that the shares are expected to outperform the market in the near future [6]

Financial Data and Key Metrics Changes - The company reported a GAAP net loss of $100.2 million or $0.76 per share for the second quarter, primarily driven by the decision to accelerate the wind down of the legacy portfolio and associated fair value changes [20][21] - GAAP book value per common share decreased to $7.49 at June 30 from $8.39 at March 31 [20][21] - Core segments earnings available for distribution (EAD) for the quarter was $25 million or $0.18 per share, equating to a 14.5% annualized return on equity (ROE) [21][22] Business Line Data and Key Metrics Changes - Sequoia locked $3.3 billion of jumbo loans in the second quarter, representing a 15% increase in current coupon flow volume versus Q1, marking the highest quarterly flow volume since 2021 [11][22] - Aspire's lock volume tripled sequentially to $330 million, driven by engagement from a growing network of originators [14][22] - CoreVest funded over $500 million in loans during the second quarter, its highest volume since mid-2022 [17][22] Market Data and Key Metrics Changes - The company has sourced and is reviewing over $55 billion of seasoned bulk jumbo pool opportunities from regional banks, indicating increased demand for capital-efficient solutions [8][9] - The overall housing activity remains subdued, but the company has expanded loan acquisition volumes and market share due to the retrenchment by banks and mortgage lending [8][9] Company Strategy and Development Direction - The company is transitioning towards a more scalable and simplified operating model, reducing exposure to non-core legacy assets [5][6] - The decision to wind down the legacy portfolio is expected to free up $200 million to $250 million of capital by year-end 2025, which will be redeployed into higher quality, more predictable earnings [7][24] - The company anticipates a long-term target to reduce capital allocated to legacy investments to between 0% to 5% by 2026 [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for transformative housing market reform and GSE privatization, which could create significant opportunities for the company [9] - The company remains engaged with regulatory and market stakeholders to shape housing policy and expects to be positioned advantageously irrespective of policy outcomes [9] - Management highlighted the importance of capital allocation towards core platforms to enhance profitability and shareholder value [26] Other Important Information - The company has introduced a new reporting segment for legacy investments to enhance investor transparency [20] - The company has begun repurchasing common shares, buying back 2.4 million shares since June 2025, with plans to be more aggressive in share buybacks [7][25] Q&A Session Summary Question: Should the 9% to 12% EAD for 2026 be calculated based on the $7.49 book value? - The response indicated that the EAD figure is a blended number inclusive of the legacy portfolio, so it should be calculated on the full book value [29] Question: What changed regarding the home equity investments moved into the legacy piece? - Management explained that the decision was part of speeding up the evolution of the operating model, focusing on capital light strategies [30][32] Question: What types of prices are expected for the disposition of bridge loans and legacy portfolio? - Management clarified that the expected capital generation includes various legacy investments, and they are trying to maximize value during transactions [38][40] Question: Can you discuss the drivers behind the Sequoia gain on sale margin? - Management noted that while they are hesitant to forecast above the long-term average, they are optimistic about maintaining strong returns in Sequoia [42][44] Question: Can you help compartmentalize the $0.79 loss? - The response indicated that the loss was largely driven by older vintage multifamily and bridge loans, with a focus on near-term resolutions [47][49] Question: What is the sensitivity of net interest income (NII) if the Fed cuts rates? - Management confirmed that there is sensitivity to Fed cuts, which could provide a modest benefit to NII [69] Question: How does the company plan to maximize opportunities in the prime jumbo segment? - Management emphasized the focus on market share and the potential for refinancing as rates decrease, which could accelerate business growth [75][78]

Q2 2025 Redwood Review July 30, 2025 R E D W O O D T R U S T . C O M Cautionary Statement; Forward-Looking Statements This presentation contains forward-looking statements, including statements regarding our 2025 forward outlook and strategic priorities, key drivers to increase earnings, book value, and mortgage banking volumes, current target annualized non-GAAP EAD returns on equity, current target returns related to capital deployment opportunities, estimates of upside and potential earnings in our Redwo ...

[Redwood Trust Q2 2025 Earnings Release](index=1&type=section&id=Redwood%20Trust%20Q2%202025%20Earnings%20Release) [Executive Summary & Strategic Update](index=1&type=section&id=Executive%20Summary%20%26%20Strategic%20Update) The company is accelerating its transition to a scalable, fee-driven operating model by reallocating capital from legacy investments to core platforms - The company is accelerating its shift to a scalable business model focused on growing and durable fee streams by reallocating capital from legacy investments to high-performing platforms[3](index=3&type=chunk) - Dispositions will focus on unsecuritized bridge loans and other non-core assets, now categorized under a new 'Legacy Investments' reporting segment[4](index=4&type=chunk) - The strategic shift is expected to generate up to **$200-$250 million of incremental capital** by the end of 2025 for redeployment into core operations[4](index=4&type=chunk) - The common stock repurchase authorization has been increased to **$150 million**, with plans to expand repurchase activity in Q3 2025[3](index=3&type=chunk)[4](index=4&type=chunk) [Q2 2025 Financial Highlights](index=2&type=section&id=Q2%202025%20Financial%20Highlights) The company reported a GAAP net loss of $(0.76) per share and a book value decrease to $7.49, though core segment earnings remained positive Q2 2025 Key Financial Metrics | ($ in millions, except per share data) | 6/30/2025 | 3/31/2025 | | :--- | :--- | :--- | | **Book Value per Common Share** | $7.49 | $8.39 | | **Economic Return on Book Value** | (8.6)% | 1.3% | | **Net (Loss) Income per Basic Common Share** | $(0.76) | $0.10 | | **Non-GAAP Core Segments EAD per Basic Common Share** | $0.18 | $0.20 | | **Dividends per Common Share** | $0.18 | $0.18 | - The GAAP net loss of **$(100.2) million** was primarily driven by fair value adjustments and resolutions within the newly formed Legacy Investments segment[8](index=8&type=chunk)[17](index=17&type=chunk) - The company reported Non-GAAP Core Segments Earnings Available for Distribution ("Core Segments EAD") of **$25.0 million**, or **$0.18 per share**, showcasing the performance of its ongoing business operations[8](index=8&type=chunk) - Unrestricted cash and cash equivalents stood at **$302 million** at the end of the quarter[8](index=8&type=chunk) [Segment Performance](index=3&type=section&id=Segment%20Performance) Core Segments generated strong net income, which was offset by a significant loss in the new Legacy Investments segment due to asset dispositions GAAP Segment Net (Loss) Income Summary ($ in millions) | Segment | Q2 2025 (6/30/2025) | Q1 2025 (3/31/2025) | | :--- | :--- | :--- | | **Total Core Segments** | **$40.2** | **$53.8** | | Sequoia Mortgage Banking | $22.2 | $25.8 | | CoreVest Mortgage Banking | $6.1 | $3.0 | | Redwood Investments | $11.9 | $25.0 | | **Total Legacy Investments Segment** | **$(104.0)** | **$(2.1)** | | **Total Corporate/Other** | **$(36.4)** | **$(37.4)** | | **GAAP Net (Loss) Income** | **$(100.2)** | **$14.3** | [Core Segments Performance](index=3&type=section&id=Core%20Segments%20Performance) Core mortgage banking and investment segments delivered strong results with high returns on equity and increased business volume - **Sequoia Mortgage Banking:** Reported **$22.2 million in net income**, with a **19% annualized GAAP ROE**. On-the-run jumbo lock volume increased 15% from Q1 2025 to its highest level since 2021[13](index=13&type=chunk) - **CoreVest Mortgage Banking:** Reported **$6.1 million in net income**, with a **27% annualized GAAP ROE**. Funded $509 million in loans and distributed a record $583 million[13](index=13&type=chunk) - **Redwood Investments:** Reported **$11.9 million in net income** and deployed ~$100 million of capital into retained operating investments with mid-teens target returns. Recourse leverage remained low at 1.1x[13](index=13&type=chunk) [Legacy Investments Performance](index=4&type=section&id=Legacy%20Investments%20Performance) The new Legacy Investments segment reported a substantial net loss driven by fair value adjustments on assets slated for disposition - This new segment was created in Q2 2025 to house assets in the process of active sale, run-off, or other disposition[17](index=17&type=chunk) - The segment's GAAP net loss of **$(104.0) million** was mainly due to fair value adjustments on legacy bridge loans and other non-core assets[17](index=17&type=chunk) - Capital allocated to Legacy Investments declined by **$107 million (17%)** from Q1 2025, reflecting progress in the wind-down[17](index=17&type=chunk) [Capital and Financing](index=4&type=section&id=Capital%20and%20Financing) Recourse leverage increased to 3.2x due to higher warehouse utilization for mortgage banking growth, while marginable securities repo financing was reduced Recourse Debt and Leverage | Metric | 6/30/2025 | 3/31/2025 | | :--- | :--- | :--- | | Recourse Debt | $3.3 billion | $2.9 billion | | Recourse Leverage Ratio | 3.2x | 2.5x | - The quarter-over-quarter increase in recourse debt and leverage was partially driven by higher warehouse utilization, reflecting continued growth in mortgage banking pipelines[17](index=17&type=chunk) - Marginable securities repo was reduced to **$93 million** from $236 million in the prior quarter, following the sale of third-party assets[17](index=17&type=chunk) [Q3 2025 Highlights to Date](index=4&type=section&id=Q3%202025%20Highlights%20to%20Date) Quarter-to-date, the company has locked or funded $1.6 billion in loans and repurchased 0.8 million shares of common stock - Locked or funded a combined **$1.6 billion** of loans across mortgage banking platforms[17](index=17&type=chunk) - Distributed approximately **$0.7 billion** of loans through various channels[17](index=17&type=chunk) - Repurchased **0.8 million shares** of common stock and increased the total repurchase authorization to **$150 million**[17](index=17&type=chunk) [Financial Statements](index=7&type=section&id=Financial%20Statements) Consolidated statements show a quarterly net loss of $100.2 million, an increase in total assets to $21.3 billion, and a decrease in stockholders' equity [Consolidated Income Statement](index=7&type=section&id=Consolidated%20Income%20Statement) The income statement reflects a net loss of $98.5 million for Q2, driven by lower net interest income and significant investment fair value losses Consolidated Income Statement Highlights ($ in millions) | Line Item | Q2 2025 (6/30/25) | Q1 2025 (3/31/25) | | :--- | :--- | :--- | | Net Interest Income | $13.8 | $27.9 | | Total non-interest income, net | $(51.9) | $45.9 | | *Investment fair value changes, net* | *$(84.7)* | *$(5.2)* | | Net (loss) income | $(98.5) | $16.1 | | Net (loss) income available to common stockholders | $(100.2) | $14.4 | | (Loss) earnings per basic common share | $(0.76) | $0.10 | [Consolidated Balance Sheet](index=8&type=section&id=Consolidated%20Balance%20Sheet) The balance sheet shows asset growth to $21.3 billion, but a larger increase in liabilities led to a reduced book value per share of $7.49 Consolidated Balance Sheet Highlights ($ in millions) | Line Item | 6/30/25 | 3/31/25 | | :--- | :--- | :--- | | Total assets | $21,333 | $19,872 | | Total liabilities | $20,280 | $18,688 | | Stockholders' equity | $1,053 | $1,183 | | GAAP book value per common share | $7.49 | $8.39 | [Non-GAAP Disclosures](index=11&type=section&id=Non-GAAP%20Disclosures) The company introduced a new 'Core Segments EAD' non-GAAP measure to isolate the profitability of its ongoing operations from legacy asset dispositions - The company introduced a new non-GAAP measure, Core Segments EAD, to analyze the combined performance of its mortgage banking platforms and related investments (Sequoia, CoreVest, and Redwood Investments), excluding the Legacy Investments segment[30](index=30&type=chunk)[32](index=32&type=chunk) - Management believes Core Segments EAD helps investors analyze the company's transition to a capital-efficient business model by isolating the performance of core operations from the wind-down of legacy holdings[30](index=30&type=chunk) [Reconciliation of GAAP to non-GAAP Core Segments EAD](index=13&type=section&id=Reconciliation%20of%20GAAP%20to%20non-GAAP%20Core%20Segments%20EAD) Reconciliation adjusts the GAAP net loss of $(100.2) million to a positive Core Segments EAD of $25.0 million by excluding the Legacy segment's results Core Segments EAD Reconciliation ($ in millions) | Description | Q2 2025 (6/30/2025) | | :--- | :--- | | GAAP Net (loss) income available to common stockholders | $(100.2) | | Adjustment to exclude Legacy Investments Segment | $117.4 | | EAD adjustments relating to Core Segments | $7.8 | | **Non-GAAP Core Segments EAD** | **$25.0** | | **Non-GAAP Core Segments EAD per Basic Common Share** | **$0.18** | [Reconciliation of GAAP to non-GAAP EAD](index=14&type=section&id=Reconciliation%20of%20GAAP%20to%20non-GAAP%20EAD) The traditional EAD reconciliation shows a combined positive EAD of $48.0 million from Core Segments, offset by losses from Legacy and Corporate segments Non-GAAP EAD by Segment - Q2 2025 ($ in millions) | Segment | GAAP Net Income (Loss) | Non-GAAP EAD | | :--- | :--- | :--- | | Sequoia Mortgage Banking | $22.2 | $22.2 | | CoreVest Mortgage Banking | $6.1 | $7.7 | | Redwood Investments | $11.9 | $18.1 | | Legacy Investments | $(104.0) | $(31.1) | | Corporate/Other | $(36.4) | $(36.3) | | **Total** | **$(100.2)** | **$(19.4)** |

Core Viewpoint - The market anticipates Redwood Trust (RWT) to report flat earnings of $0.13 per share for the quarter ended June 2025, with revenues expected to rise by 28.8% to $32.59 million compared to the previous year [1][3]. Earnings Expectations - The upcoming earnings report is scheduled for July 30, and the stock price may increase if actual results exceed expectations, while a miss could lead to a decline [2]. - The consensus EPS estimate has been revised down by 26.23% over the last 30 days, indicating a bearish sentiment among analysts [4]. Earnings Surprise Prediction - The Most Accurate Estimate for Redwood Trust is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -55.00%, which suggests a challenging outlook for beating the consensus EPS estimate [12]. - The stock currently holds a Zacks Rank of 4, further complicating the prediction of an earnings beat [12]. Historical Performance - In the last reported quarter, Redwood Trust was expected to earn $0.17 per share but only achieved $0.14, resulting in a surprise of -17.65% [13]. - Over the past four quarters, the company has beaten consensus EPS estimates twice [14]. Conclusion - Redwood Trust does not appear to be a strong candidate for an earnings beat, and investors should consider additional factors before making investment decisions [17].

Company Overview - Redwood Trust, Inc. (NYSE: RWT) is a real estate investment trust (REIT) that specializes in owning mortgages, categorized as a mortgage REIT (mREIT) [1] - The company offers common shares, a high-yielding preferred share (RWT.PR.A), and three baby bonds, two of which have a 9.125% coupon [1] Investment Focus - The company is currently focused on income investing through common shares, preferred shares, or bonds [1] - The investment strategy includes occasional analysis of the broader economy or specific situations involving researched companies [1] Background Information - The company has a background in history/political science and holds a Masters in Business Administration with a specialization in Finance and Economics [1] - The CEO has been investing since 2000 and currently manages an independent living retirement community in Illinois [1]

Group 1 - Redwood Trust Inc (NYSE: RWT) has a business model that allows it to achieve high returns while minimizing balance sheet risks [1] - The stock is currently trading at 0.7 times price-to-book (P/B) ratio, indicating potential undervaluation [1]

PART I — FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Redwood Trust reported Q1 2025 net income of $16.1 million ($0.10 diluted EPS), down from $30.3 million in Q1 2024, with total assets growing to $19.9 billion - The company declared a common dividend of **$0.18 per share** for the first quarter of 2025[18](index=18&type=chunk) Q1 2025 Key Financial Highlights | Financial Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $27.9M | $24.2M | | Net Income | $16.1M | $30.3M | | Diluted EPS | $0.10 | $0.21 | | Total Assets (End of Period) | $19.9B | $15.1B | | Total Liabilities (End of Period) | $18.7B | $13.8B | | Total Equity (End of Period) | $1.18B | $1.22B | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased by $1.6 billion to $19.9 billion, driven by residential consumer loans, while total liabilities rose by $1.6 billion to $18.7 billion Balance Sheet Comparison (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$19,871,775** | **$18,258,344** | | Residential consumer loans, at fair value | $12,752,258 | $11,077,823 | | Residential investor loans, at fair value | $4,439,834 | $4,587,090 | | Cash and cash equivalents | $259,918 | $245,165 | | **Total Liabilities** | **$18,688,281** | **$17,070,481** | | Asset-backed securities issued, net | $14,458,243 | $13,270,204 | | Debt obligations, net | $3,760,685 | $3,462,880 | | **Total Equity** | **$1,183,494** | **$1,187,863** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Q1 2025 net income was $16.1 million, down from $30.3 million in Q1 2024, primarily due to a negative swing in investment fair value changes Income Statement Summary (in thousands) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Interest Income | $27,942 | $24,210 | | Mortgage banking activities, net | $33,053 | $14,556 | | Investment fair value changes, net | $(5,188) | $21,837 | | Total non-interest income, net | $45,906 | $50,339 | | General and administrative expenses | $(37,471) | $(34,569) | | **Net Income** | **$16,147** | **$30,262** | | **Diluted EPS** | **$0.10** | **$0.21** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities significantly increased to $1.95 billion in Q1 2025, primarily due to higher held-for-sale loan purchases Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,952,505) | $(954,171) | | Net cash provided by investing activities | $658,757 | $350,287 | | Net cash provided by financing activities | $1,327,296 | $575,483 | | **Net increase (decrease) in cash** | **$33,548** | **$(28,401)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's three operating segments, fair value measurements, and management of residential loan portfolios and debt facilities [Note 4. Segment Information](index=12&type=section&id=Note%204.%20Segment%20Information) Sequoia Mortgage Banking and Redwood Investments were key contributors to Q1 2025 net income, offset by a corporate-level net loss Segment Contribution (Net Income/Loss, in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Sequoia Mortgage Banking | $25,817 | $7,019 | | CoreVest Mortgage Banking | $1,338 | $(5,509) | | Redwood Investments | $22,868 | $57,492 | | Corporate/Other | $(33,876) | $(28,740) | | **Total Net Income** | **$16,147** | **$30,262** | [Note 7. Residential Consumer Loans](index=21&type=section&id=Note%207.%20Residential%20Consumer%20Loans) Residential consumer loans increased to $12.8 billion in Q1 2025, driven by $2.3 billion in loan acquisitions Activity of Residential Consumer Loans Held-for-Sale (in thousands) | Activity | Three Months Ended March 31, 2025 | | :--- | :--- | | Principal balance of loans acquired | $2,337,185 | | Principal balance of loans sold | $420,513 | | Principal balance of loans transferred from HFS to HFI | $1,623,900 | - The company had **$2.3 billion** in commitments to fund residential consumer loans as of March 31, 2025, including a **$1 billion** commitment to acquire a pool of seasoned jumbo loans[91](index=91&type=chunk) [Note 8. Residential Investor Loans](index=24&type=section&id=Note%208.%20Residential%20Investor%20Loans) The $4.4 billion residential investor loan portfolio is actively managed for credit risk, with $206 million in modifications and $342 million on non-accrual status - In Q1 2025, the company modified or placed into forbearance residential investor loans with a total unpaid principal balance of **$206 million**[128](index=128&type=chunk) - As of March 31, 2025, residential investor loans with an aggregate unpaid principal balance of **$342 million** were on non-accrual status[134](index=134&type=chunk) - The fair value of residential investor bridge loans declined from **$1.94 billion to $1.88 billion**, reflecting payoffs and negative fair value changes from higher delinquencies on 2021 and 2022 vintage loans[128](index=128&type=chunk) [Note 18. Debt Obligations, Net](index=44&type=section&id=Note%2018.%20Debt%20Obligations%2C%20Net) Total debt obligations increased to $3.76 billion, supported by $5.2 billion in warehouse facilities, with $90 million in new senior notes issued Debt Obligations Summary (in thousands) | Debt Type | Carrying Value (Mar 31, 2025) | Facility Capacity (Mar 31, 2025) | | :--- | :--- | :--- | | Residential consumer loan warehouse facilities | $1,210,265 | $2,875,000 | | Residential investor loan warehouse facilities | $786,891 | $2,330,000 | | Corporate Debt (Convertible, Senior, etc.) | $733,003 | N/A | | **Total Debt Obligations** | **$3,760,685** | | - In January 2025, Redwood issued **$90 million** of 9.125% Senior Notes due in 2030[230](index=230&type=chunk) [Note 19. Commitments and Contingencies](index=46&type=section&id=Note%2019.%20Commitments%20and%20Contingencies) Significant funding commitments include $350 million for bridge loan advances and equity capital commitments to joint ventures - Commitment to fund up to **$350 million** of additional advances on existing residential investor bridge loans[234](index=234&type=chunk) - Committed approximately **$100 million** of equity capital to a joint venture established in Q1 2024, with **$25 million** contributed to date[235](index=235&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported strong Sequoia segment performance, a capital-light strategy for CoreVest, and efforts to reduce legacy bridge loans, targeting 9-12% ROE in H2 2025 - Sequoia jumbo lock volumes rose **73%** from the prior quarter to **$4 billion**, the highest quarterly volume since Q3 2021[278](index=278&type=chunk) - CoreVest funded **$482 million** in loans in Q1 2025, a **48% increase year-over-year**, with a strategy to reduce on-balance sheet holdings and distribute through private credit partnerships[280](index=280&type=chunk) - The company is taking steps to accelerate the reduction of its legacy bridge loan portfolio to focus capital on strategic go-forward activities[282](index=282&type=chunk) - Management expects to achieve annualized returns on equity in the **9% to 12% range** in the second half of 2025[275](index=275&type=chunk) [Results of Operations by Segment](index=61&type=section&id=Results%20of%20Operations%20by%20Segment) Q1 2025 segment performance was led by Sequoia's rebound and CoreVest's profitability, while Redwood Investments' contribution declined due to legacy bridge loan losses Segment Contribution Summary (in thousands) | Segment | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Sequoia Mortgage Banking | $25,817 | $21,799 | $7,019 | | CoreVest Mortgage Banking | $1,338 | $1,526 | $(5,509) | | Redwood Investments | $22,868 | $2,761 | $57,492 | [Sequoia Mortgage Banking Segment](index=61&type=section&id=Sequoia%20Mortgage%20Banking%20Segment) Sequoia's contribution surged to $25.8 million in Q1 2025, driven by a 73% sequential increase in loan lock volumes to $4.0 billion - Loan purchase commitments (locks) increased to **$3.3 billion** in Q1 2025, up from **$1.9 billion** in Q4 2024 and **$1.3 billion** in Q1 2024[326](index=326&type=chunk) - Locked a **$1 billion** bulk transaction of seasoned loans from a large bank in Q1 2025[329](index=329&type=chunk) - Gain on sale margin was **123 basis points** in Q1 2025, remaining above the historical target range of 75-100 basis points[332](index=332&type=chunk) [CoreVest Mortgage Banking Segment](index=64&type=section&id=CoreVest%20Mortgage%20Banking%20Segment) CoreVest returned to profitability with a $1.3 million contribution, driven by $481 million in funding volume and a capital-light distribution strategy CoreVest Funding Activity (in thousands) | Activity | Three Months Ended March 31, 2025 | | :--- | :--- | | Fundings (Term & Bridge) | $481,449 | | Sales | $(370,316) | | Transfers between segments | $(105,799) | - Distribution activity was strong in Q1 2025, with **$421 million** distributed through whole loan sales and sales to joint ventures[353](index=353&type=chunk) [Redwood Investments Segment](index=66&type=section&id=Redwood%20Investments%20Segment) Redwood Investments' contribution declined to $22.9 million due to a $34.0 million loss from legacy bridge loans, despite gains from other investment strategies Redwood Investments Earnings by Strategy (in thousands) | Strategy | Q1 2025 Contribution | | :--- | :--- | | Retained Operating Investments | $23,031 | | Third-Party Portfolio Investments | $33,788 | | Legacy Bridge Investments | $(33,951) | | **Total Segment Contribution** | **$22,868** | - 90 day+ delinquencies on residential investor bridge loans were higher in Q1 2025, primarily driven by two sponsor relationships and concentrated in 2021 and 2022 vintages[371](index=371&type=chunk) - The company is actively working to reduce exposure in the legacy bridge loan portfolio, with a **10% payoff rate** (by UPB) during Q1 2025[371](index=371&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $1.94 billion in total capital and $5.2 billion in warehouse facilities, expecting to repay $124 million in maturing notes Capital and Liquidity Summary (as of March 31, 2025) | Metric | Amount | | :--- | :--- | | Total Capital | $1.94 billion | | Total Equity Capital | $1.18 billion | | Unrestricted Cash & Equivalents | $260 million | | Unencumbered Assets | $291 million | - The company's **5.75% exchangeable senior notes** with an outstanding principal of **$124 million** mature in October 2025 and are expected to be repaid with cash on hand[431](index=431&type=chunk) - At March 31, 2025, **$101 million** remained available under the common stock repurchase authorization[422](index=422&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk exposure were reported since December 31, 2024, beyond those discussed in MD&A - No material changes in market risk exposure were reported since the fiscal year ended December 31, 2024[450](index=450&type=chunk) [Controls and Procedures](index=78&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q1 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[452](index=452&type=chunk) - No changes in internal control over financial reporting occurred during Q1 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[453](index=453&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=79&type=section&id=Item%201.%20Legal%20Proceedings) No significant updates to legal proceedings were reported since the Annual Report on Form 10-K - There are no significant updates regarding litigation matters since the last Annual Report[241](index=241&type=chunk)[455](index=455&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=79&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity securities were sold or shares repurchased in Q1 2025, with $101 million remaining for common stock repurchases - No shares of common or preferred stock were repurchased during Q1 2025[457](index=457&type=chunk) - As of March 31, 2025, the remaining repurchase authorization was **$101 million** for common stock and **$70 million** for preferred stock[457](index=457&type=chunk)