Good afternoon, and welcome to the Redwood Trust, Inc. Fourth Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Kaitlyn Mauritz, Redwood's Head of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's Fourth Quarter 2025 and Full Year 2025 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our fourth quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the content of today's conference call contains time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded. It will be available on our website later today. And with that, I'll turn the call over to Chris for opening remarks.

Thank you, Kate, and thanks to everyone for joining our fourth quarter earnings call today. Before I turn the call over to Dash and Brooke, I'll share some thoughts on our recent performance and our outlook for 2026. Fourth quarter 2025 capped a year of meaningful progress for Redwood, marked by record mortgage banking activity, improved capital efficiency and a more durable earnings profile. We closed out the final quarter of the year delivering positive GAAP consolidated earnings and very strong earnings available for distribution across our core segments. For the full year, our 3 operating platforms, Sequoia, CoreVest and Aspire generated $23 billion of volume, the highest in our company's history. In hitting a new gear with production, we've also ensured that earnings have kept pace. Brooke will cover a few operating metrics that demonstrate how more revenue is making it to the bottom line than we have seen in a very long time. Tracking the operations-focused metrics as opposed to more traditional REIT investment portfolio metrics is something we'll be emphasizing in the quarters ahead. This also coincides with our strategic shift towards increasing capital to our mortgage banking platforms with over 80% now invested in core operating and related activities at year-end 2025, up from 57% in 2024. On the back of recent new product rollouts, the runway to continue profitably growing volume supports additional capital deployment to these platforms, capital both sourced internally and in tandem with a growing cohort of external partners. This shift also reflects our decision in the second quarter to accelerate the wind down of our legacy investment portfolio. We saw further progress on this front in the fourth quarter with resolutions and dispositions and more thus far in the first quarter. As we work to fully wind down this portfolio, we'll…

Thank you, Chris. We exited 2025 with record production and strong margins, driven by operational efficiencies, accretive capital reallocation and continued progress in deepening distribution channels. Mortgage banking activity for the quarter was once again headlined by our Sequoia platform, which delivered a second consecutive quarter of record volumes amidst housing activity levels that remain well below historical norms. In all, Sequoia locked $5.3 billion of loans, a 5% increase from the third quarter and up 130% from the fourth quarter of 2024. Bulk activity, much of it with banks and a continued competitive moat for our platform, represented close to 60% of volume and included a $500 million pool sourced from a regional bank, housed under a new Sequoia loan program that we expect to contribute meaningfully to 2026 volumes. Flow volume, which represented just over 40% of fourth quarter production, remained well diversified with a notable pickup in closed-end second and adjustable rate loan volumes. Sequoia's competitive position continues to strengthen. Our network now spans over 210 originators across banks and independent mortgage bankers, or IMBs, and we estimate our full year 2025 jumbo market share at approximately 7%, up materially from prior years. Importantly, these gains are driven by market trends we have now observed for some time. We continue to actively engage with banks that are increasingly choosing distribution over balance sheet retention, a dynamic that continues to expand our addressable opportunity. While IMBs represented roughly 2/3 of fourth quarter production, we expect the mix to evolve further in 2026 as additional large bank relationships come online. Distribution also remains a core differentiator, driving fourth quarter margins up nearly 40% sequentially from Q3. During the quarter, Sequoia distributed approximately $3 billion through securitizations and over $1 billion through whole loan sales, supporting strong capital turnover and…

Thank you, Dash. For the fourth quarter, we reported GAAP net income of $18.3 million or $0.13 per share compared to a GAAP loss of $9.5 million or $0.08 per share in the third quarter. Book value per common share was $7.36 at December 31, up slightly from $7.35 at September 30, and our economic return on book value was 2.6% for the quarter, inclusive of the $0.04 of accretion from our share repurchases and the $0.18 per share common dividend. On a non-GAAP basis, consolidated earnings available for distribution, or EAD, increased from $0.01 in Q3 to $0.20 in Q4 and exceeded our common dividend. This reflects both a reduction in the earnings drag associated with legacy assets, which improved by $0.08 relative to Q3 as well as the initial redeployment of freed-up capital into our higher-return mortgage banking platforms. Core segment's EAD was $0.33 per share for the fourth quarter, up from $0.20 per share in Q3, demonstrating the earnings power of our operating businesses as capital is reallocated away from under-earning legacy investments. Combined mortgage banking returns remained strong, resulting in total return on capital of 26% for the full year 2025. In the fourth quarter, the Sequoia Mortgage Banking segment, which includes Aspire activity, generated segment net income of $43.8 million and a 29% return on capital, supported by record quarterly lock volumes. Gain on sale margins expanded to 127 basis points, exceeding our historical target range, reflecting strong execution and continued operating leverage as volumes scaled. CoreVest Mortgage Banking generated $7.5 million of segment net income, delivering a 30% GAAP return on capital and a 36% non-GAAP EAD return on capital. Earnings improved sequentially despite modestly lower funded volumes, driven by accretive distribution activity, improved net interest income and continued efficiency gains across the platform.…

[Operator Instructions] Our first question comes from the line of Crispin Love with Piper Sandler.

First, just on the recent move in mortgage rates, the rally earlier in the year and support from the administration. Can you just discuss how that's been impacting your businesses into the early part of 2026 from a volume perspective compared to the fourth quarter? Have you seen momentum continue or an acceleration into the new year?

Sure. Crispin, maybe the easiest way to answer that directly is just to provide our January numbers. We were at $3.6 billion of volume for January. So we were $7 billion and change total for Q4. So obviously, the run rate has just continued to accelerate. So from our standpoint, the rally has helped, although our business has largely been about taking market share across non-agencies. So we've got high expectations for volume this year. But the jumbo business has been somewhat insulated from some of the things we're observing in agency. There's indirect impacts, but the rally hasn't been as steep. Jumbo mortgage rates are still maybe 0.25 point behind conforming. And a lot of that rally has since kind of leveled off as well. So obviously, we had today's job sprint. So we'll see where we go from here. But I think overall, we're pretty bullish on our volume potential based on how we started the year.

Great. I appreciate that. And then you've been leaning into the Aspire non-QM platform, and that's definitely showing up in your growth. Can you just discuss some of the opportunities there? And then how that business could be impacted from GSE reform, if anything happens over the next couple of quarters or even years? Would you see that as an additional opportunity for that business?

Crispin, this is Dash. I can take that. In terms of the near-term opportunity, I think a lot of it is continuing to execute on what we've been doing. Obviously, the business has shown fantastic momentum in the second half of the year with close to $3 billion of locks alone in just Q3 and Q4. And I think that's a function of a couple of things. First of all, a huge competitive advantage we have is that the existing Sequoia network, folks we've been buying jumbos from for years and have real operational intimacy with. Over the past couple of years, they've really started to lean into non-QM products. A lot of that was a function of rates having been persistently high, notwithstanding this recent rally and just the desire to expand their product suite. But also,, I think a recognition that the non-QM market continues to grow and has a lot of really high-quality borrowers that are underserved. And we think about -- we have a slide on this in the review this quarter. I think we estimated the non-QM market for 2025 to be $130 billion, which was up significantly from 2024. I think a lot of market observers expect another 10% to 15% increase this year. And so there's a lot for us to lean into in this space. As you know, depositories have a much, much smaller footprint, if any, in non-QM. We did sell a non-QM pool to a bank last quarter, which was a great achievement for the business. But beyond that, it's largely nonbank competitors where we can really lean in and win share, as Chris articulated, with our service level and with our relationships. So that's a really, really big deal. The ability to securitize will be an important element for…

Our next question comes from the line of Don Fandetti with Wells Fargo.

With volumes being so strong on the origination side, how do you -- how are you thinking about third-party capital providers going forward?

I'm happy to take that, Don. Dash, I think, in his prepared remarks included a comment about really across both Aspire and CoreVest, increasingly, all of our loans are being spoken for. We are gearing up for securitization in Aspire. But to date, we sold to multiple handfuls of insurance companies and asset managers. The demand is just really strong for our production. And increasingly so, on the Sequoia side, especially given some of our success with seizing these seasoned pools out of banks. We've seen multiple levels of oversubscription on some of our seasoned securitizations that we've done, just really giving investors a different convexity profile than we have historically through our Sequoia program. So we are catching the eye of several third-party capital providers. We are in evolved discussions for both a capital partner for Aspire and Sequoia, which will really help launch the growth that Chris was mentioning to continue to scale these platforms this year and doing it outside of our corporate balance sheet is helpful given where capital options lie today. So that's really the numbers that you're seeing in terms of our capital efficiency, the amount of production that we've been able to really put through the system this year is a byproduct of those capital partners, and we expect it to continue to fuel growth in '26.

Our next question comes from the line of Bose George with KBW.

So what are the margins like in the non-QM channel, the gain on sale margins currently? And how does that compare to margins currently in the jumbo channel?

Bose, it's Dash. I can take that. We're targeting pretty much in line with the Sequoia 75 to 100 basis points that we've traditionally targeted. Obviously, it's a similar business model. I think the fact that we will be rolling out a securitization platform will be very accretive to that in terms of optimizing execution versus whole loan sale. But we're targeting something contextual to what we've historically targeted for Sequoia.

Okay. Great. And then can you just talk about the competitive landscape in non-QM. So the market is growing quite a bit, but there's different companies entering the space as well. Can you just talk broadly about that?

Sure. Yes. I think the space is definitely competitive. I mean I think that's largely driven by what continues to be an increasing demand from large capital allocators for the asset class. There's -- the securitization market is extremely strong right now. There's a very, very deep bid from whole loan buyers. We see loan spreads in that space right now sort of at or very close to the tightest we've seen in years, frankly. I think what that speaks to is that overall, the asset class has performed well. I think the convexity story that a lot of investors have signed up for has played out. Frankly, a lot of the sort of challenges in private credit away from mortgage, I think what we've sort of anecdotally heard from our partners is that there's increasing capital allocation to this space, maybe away from some of the other sectors in private credit that have been a bit more challenging. So I think those are all real tailwinds for the space. It does lead to increased competition. As you know, for years in Sequoia, we've seen entrants, folks come and go. I think there's similar operational hurdles to running a non-QM business well as there is in jumbo. So the market is definitely competitive, but we feel we have a lot to lean into, frankly, in terms of continuing to grow our share and things of that nature. So we're still very, very excited about the runway in front of us, like I said.

Our next question comes from the line of Rick Shane with JPMorgan.

I'm looking at Slide 15, and it's really interesting. And 2 questions here. One is if we compare the Sequoia volume in '21 versus '25. Historically, you guys were a little bit more of a purchase shop versus the market, and now your mix is much, much more aligned with the market mix. I'm curious if as your distribution -- as your bank -- as you have increased the number of partners, if that's really what's happening that you're going to mirror the market a little bit more closely? Or is it some function of the refi market being so small right now? And then the other part of the question is, when we think about margins for you, both in terms of gain on sale, but also expenses, is there anything that we should think about as the market eventually shifts to more of a refi market or more balance between purchase and refi?

I'll take that one, Rick. The '21 comparison that we did was really to highlight that as much progress as we made with volumes and actually exceeding 2021 levels, in 2025, was substantially without significant refi business. And in '21, thanks to the Fed, mortgage rates were into the 3s or even the 2s and refi was huge. And so the real goal of the slide is to basically say, for jumbo, for Redwood, it's been largely purchased business up until very recently. And if we add refi business, it won't be at the expense of purchase, it will be in addition to purchase. And from a margin standpoint, that should continue to leverage the platform. So as we push more business through the same amount of capital or thereabouts and a similar work structure, we should continue to see more of that revenue make it to the bottom line. And that's why we really rolled out some new operating metrics this quarter. I think we sometimes get mixed in with more traditional REIT business models, which look at expenses to capital and other metrics. And for us, it's really capital turnover and then how much can we grow revenue without growing expenses. And so some of the metrics there comparing those, I think, will be really valuable. So jumbo has not experienced the same amount of refi business as conforming. Rates didn't snap in as quickly. I don't think the fourth quarter experience was the same. And so that's still a business that's potentially ahead of us. I think we mentioned there's a couple of hundred billion dollars of jumbo that could become "in the money" if rates dip meaningfully below 6%. So there's a lot of that ahead of us, and we think that just scales the platform further.

Understood. And Chris, I think the takeaway from this is that as you sort of achieve that normalized volume as markets normalize in terms of purchase and refi, you are indifferent from -- on the margin between an incremental $1 million origination on the purchase side and on the refi? Or is there anything we should think about in terms of profitability that's a little bit different between the 2?

Well, generally, refis are a little bit quicker. So from that standpoint, refi business, you're dealing with an existing borrower with a home that's been appraised. From that standpoint, you could see some efficiencies. But with our, model largely, it's not big enough where we're substantially rooting for one or the other. I think what we're really trying to do is continue to be a great partner to our network of originators. And Dash made the point earlier, one of the reasons why we're entering non-QM and growing quickly is not because we really had a different take on the products. It's because the very, very large originators, particularly the IMBs, top 5, top 10 originators in the country have entered the space. And it's much easier for them to do business with somebody like us that has been a capital partner for, in some cases, decades than to kind of introduce themselves to a new counterparty. So really, we're just going to continue to leverage our network. And I hope that the refi business picks up, it would be great for us and for the industry. But as we saw today, rates are kind of still pretty volatile and a 4.17% or 4.20% 10-year isn't giving us a lot of indication on which way things are going to go.

Fair enough. I mean, look, it's a timing issue. It's when, not if, in my mind, but I agree with you. Who knows how soon that will happen. But I appreciate the answer, guys.

Our next question comes from the line of Eric Hagen with BTIG.

All right. So how do you think the focus on affordability and this like overwhelming support for home ownership and lower mortgage rates has an impact on the resi transition lending business. And would you say like there's a catalyst which would get you to allocate more capital over the near term to the CoreVest side of the business?

I'll pick that up high level, and then I'm sure Dash will have some comments specifically focused on RTL and some of the affordability initiatives. But CoreVest is where our deepest JV partnerships are. And the way we're thinking about that business is primarily in terms of profitability for shareholders. So it's going to be less about how much can we raise volumes in x amount of time and more about continuing to scale it and generate high margins for shareholders. And the reason why I say that is much of CoreVest volume is spoken for by CPP and others. And so what that does is it generates asset management fees for us. And obviously, we're co-investing. So -- but ultimately, the goal is to -- with CoreVest is to really dial in the products. We certainly expect to grow volume this year, but we're very focused on margins back to shareholders. Dash, do you want to take the other?

Yes. Thanks, Eric. I think it's a great question, and I think it's nuanced, right, because there's so many shades of gray as to what an affordability initiative or initiatives may look like. As you know, one of the big challenges with the overall housing picture in this country is just the disconnect between, I think, what's desired at the federal level and some of the reality of getting through like the local or municipal hurdles to actually create accessible housing for people. And by that, I mean price point, but also turnkey housing. Like, as you all know, consumers, whether they're buying their third or fourth house or their first, there's just very, very little interest in putting a bunch of CapEx into the home themselves. The desire really is to buy a home that they can move right into, right, which is a big reason why the RTL business has expanded so much. There's obsolescence in housing. And there's just been an evolution in the consumer over the last couple of decades where there's just a desire to have someone else get the home ready to move into. And so to the extent that these funds that are already allocated can be more efficiently dispersed and can open up opportunities for builders or developers, whether it's with subsidies or whether it's just easier to get through the red tape of developing or redeveloping a lot, lot meaning a piece of property. I think that could be a huge tailwind because there is a lot of pent-up demand for refurbished homes. There's existing homes that need to be refurbished. There's lots that could be used in more effective ways. And to the extent that some of these affordability initiatives at the federal level, obviously, Congress is one of the very few issues that there's significant bipartisan support on. The issues that we see in large part are really at the local and municipal level in terms of actually allowing some of these developers to get to work. And so to the extent that actually loosens up a bit. It could be a huge opportunity for our client base to serve more ultimate homebuyers by cheapening the cost and the time it currently takes to get through some of these project approvals. So I mean there's some other potential knock-on effects, but I think greasing the skids on that would be a very big deal.

Really good color there. I appreciate that. Really quickly, I think we heard you say there was $10 million to $15 million of expense savings that you mentioned in the opening remarks. Can you say what that was again? Are you offering any broader guidance for expenses this year for the full year?

Yes. No, I think we -- that's really concentrated, I would say, I mentioned back office, but really across corporate and CoreVest segments. Of our $200 million or so of OpEx for the year, about 45% of that was fixed. And so just in terms of broader guidance on OpEx, a lot of what Chris made in terms of remarks around our efficiency we've done both through our process technology, but also our scaling our volumes and grabbing market share. We are pointing to some of the marginal cost on loans that we've seen this year just because outside of our fixed cost, it will really be variable OpEx tied to increased volumes this year. So we did about -- just for some context, our OpEx was up about $30 million on the year. All of that nearly was tied to the growth in Sequoia and Aspire, where we had very profitable volume on the year. So we generated an incremental $12 billion of volume with that $30 million of expense. So call it like a marginal cost per loan of about 25 basis points. We think we can continue to drive that down through added efficiencies with initiatives that we're focused on today that have been mentioned, but that can help you model the incremental G&A that we would have tied to additional volume.

Our next question comes from the line of Mikhail Goberman with Citizens JMP.

Just to follow up a little bit on Eric's question in CoreVest. What kind of -- what do the originations there look like? And if there's any sort of color you can give us on first quarter volumes and how margins are holding up there?

Again, I'll start and kick it over to Dash. Across our businesses, including CoreVest, we're projecting higher volumes in the first quarter sequentially and pretty consistent margins. Again, with CoreVest, it's a little bit different because much of our production goes to our JV partners or the capital partners that are focused on that segment. So the volume to profitability dynamics are a little bit different. The math is a little bit different. But overall, we have metrics in the review. CoreVest had a very profitable year. And one of the reasons is because of capital efficiency. And we did take some further expense out of the business, as Brooke mentioned. So that's going to improve. That should improve margins, all things equal, in 2026. So high level, I think we're expecting higher volume in the first quarter. But as far as the makeup of the products, which has evolved over the past year, I'll let Dash answer that.

Yes, Chris, thank you. I would say, Mikhail, we're still really tracking and making great progress with focusing production on the smaller balance RTL and DSCR products. So as I mentioned in the prepared remarks, RTL is our largest product type in the fourth quarter for the first time. And so I think it reflects some significant strategic progress in that business, which we expect to continue. CoreVest has always been unique with its relatively broad set of products, but the smaller balance products are particularly well bid right now, both in securitization and whole loan buyers. And so we're going to continue to push in that direction. Chris articulated it correctly, obviously, with our joint venture with CPP, that's a great way to not only turn capital quickly, but there's very reliable economics there where we are earning a very certain amount of economics on loans going into the JV, and then we obviously participate in the upside and the outcomes as a 20% stakeholder in that JV. So I would say those are tracking very consistently for a few reasons, including that one. The other point I would make, and Eric touched on this a little bit, but with the affordability piece is a big potential tailwind for production for CoreVest and we talked about this in the prepared remarks, was just with rental products. We're doing more on the DSCR side on a portfolio basis, cross-collateralized loans, which are starting to look a little bit similar to our traditional term loan product, which we've securitized and sold for years. And a tailwind there, depending on how some of these housing initiatives at a DC play out, is that smaller investors and more sort of mid-cap investors, which are really the target audience for CoreVest, could be winners to the extent that larger players are moved a bit to the sidelines. Obviously, a lot remains to be seen there. But leaning in on these rental products and continuing to fill what the market wants is something we're going to continue to do. And as Chris articulated, the ability to turn capital quickly and reliably into these joint ventures is very important.

Just one last -- on mix, we continue to see our term and portfolio DSCR product as an increasing mix of originations for CoreVest. Those are our 2 higher-margin products as well. You saw in the fourth quarter that despite volume being down, our gain on sale activity for CoreVest was up. So those are contributions to that dynamic.

Just one more, I think, for me. Just kind of looking out over the space. Are there any other sort of real estate loan products that might interest you going forward? Or are you guys kind of in a grow what you have kind of situation and execute throughout this year? And with that in mind, I know you guys have your history with the FHLB. Is there any -- could there possibly be any value to owning a bank in order to get back in that system for funding?

Well, I never say never, but it's not in our current plan. Although banks -- we're obviously doing a lot of partnering with banks. And I think with the capital partnerships comes ancillary opportunities, warehouse partnerships and otherwise. So I think we're still sort of extracting value from a lot of the bank partnerships, particularly the regional banks more recently that we've kind of brought online and they brought us online. From a product perspective, I think we're largely going to stick to our knitting. There's obviously been a lot of conjecture in Washington about some alternative products, whether it's 50-year term or otherwise. And for a lot of reasons. I think those are going to be hard, not technically eligible for delivery and many other reasons. So I think for Redwood, we're going to largely lean in on non-QM, which we've talked a lot about today. We've already got a fantastic business in the BPL space with CoreVest. And with Sequoia, I think we're underpenetrated in second lien mortgages. Certainly, HEI, other sort of interesting ways to really leverage our seller base. So all of those will be in the mix this year, but I think the core products are going to really carry the flag.

We have reached the end of the question-and-answer session. I would like to turn the floor back to Kaitlyn Mauritz for closing remarks.

Great. Thank you, operator, and thank you, everyone, for joining today. We appreciate the sponsorship and your time, and we look forward to continued engagement across 2026. Thank you.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.