Redwood Trust RWT Q1 2026 Earnings Transcript

DATE

Wednesday, April 29, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Christopher J. Abate
• President — Dashiell I. Robinson
• Chief Financial Officer — Brooke E. Carillo

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TAKEAWAYS

• Mortgage Banking Volume -- $8.5 billion, a quarterly record and more than 10 times book value, underscoring high capital turnover and operational efficiency.
• Non-GAAP Earnings Available for Distribution (EAD) -- $0.21 per share, up from $0.20 per share QOQ, covering the $0.18 dividend paid to common shareholders.
• GAAP Net Loss -- $7 million, or $0.07 per share, compared to GAAP net income of $18 million in the prior quarter.
• Book Value Per Share -- $7.12, down 3% due to non-cash valuation changes and one-time expenses, not underlying operating performance.
• Sequoia Segment Locks -- $6.5 billion, an increase of 22% QOQ, with cost per loan declining to 18 basis points driven by automation and efficiency gains.
• Sequoia Gain-on-Sale Margins -- 96 basis points, at the high end of the historical range, aided by $5.5 billion in dispositions, including $4.6 billion via nine securitizations.
• AgenTeq Automation Workflows -- Over 2,500 executed, supporting platform expansion and freeing nearly 6,000 hours annually for staff productivity.
• Expanded Product Offerings -- 14% of lock volume, including a new program for medical professionals, with $300 million locked and the first securitization of MedPro loans completed.
• Aspire Lock Volume -- $1.6 billion, with roughly 70% sourced from existing Sequoia sellers, and April lock volume ahead of Q1 pace.
• Aspire Market Share -- Approximately 4%, with management expecting to at least double this by the second half of the year.
• Aspire Gross Margins -- 73 basis points, with margin compression due to late-quarter spread widening that has since largely reversed.
• Aspire First Securitization -- Completed in March, enhanced distribution and capital efficiency, with risk retention and subordinate tranches successfully sold to a third party.
• CoreVest Volume -- $432 million, slightly down QOQ, with net loss of $3 million reflecting $5 million of one-time restructuring charges aimed at future profitability.
• CoreVest Joint Venture Distribution -- Over $2 billion distributed to date via CPP Investments JV, with recurring fee streams as the relationship grows.
• Legacy Investments Capital -- 15% of total capital at March 31, down from 19% at year-end, targeting below 10% by year-end and below 5% by year-end, with $240 million remaining at quarter-end.
• Mortgage Banking GAAP Net Income -- $37 million, representing a 38% annualized return on capital.
• Capital Efficiency -- Required capital per dollar of volume improved by 10% QOQ to 1.1%, driving improved expense-to-volume ratio to 66 basis points as volume growth outpaced expense increase by nearly twofold.
• Liquidity Position -- $202 million in unrestricted cash and $3.9 billion in excess warehouse capacity as of March 31.
• Recourse Debt -- Increased modestly to $4.7 billion due to higher warehouse utilization supporting record volumes.
• Joint Venture with Castlelake -- Provides approximately $8 billion of incremental purchasing power to Sequoia and is expected to add $0.12 to $0.15 of annual EPS upon scaling.
• Warehouse Capacity Expansion -- Expanded 30% over the past 12 months to $7.1 billion, with $5.7 billion of facilities renewed.

SUMMARY

The company formalized a major third-party capital partnership with Castlelake that management expects will enable a 30% increase in Sequoia volume and provide structural flexibility without raising additional capital. Management highlighted advancing a new Aspire joint venture targeting support for 25%-30% of Aspire’s annualized production mix, with detailed terms pending finalization. Repurposing and wind-down of legacy investments are actively redirecting capital into high-return mortgage banking, with every $50 million redeployed projected to yield a $0.05 quarterly EAD uplift. Operational leverage improved further as volume expansion consistently outpaced expense growth, driving down capital and expense ratios and enabling greater earnings conversion from incremental origination. Balance sheet flexibility was reinforced with no unsecured debt maturities for five quarters, continued lender support for increased warehouse capacity, and successful refinancing of higher-cost debt.

• Management stated, “the prospect of a smaller Fed balance sheet should help reduce long-term inflation expectations and hopefully support lower long-term rates,” reinforcing an expectation for monetary policy tailwinds in future periods.
• The company executed 11 securitizations and directly attributed expanded AI-driven automation for both Sequoia and Aspire as key drivers of recent cost efficiencies and workflow improvements.
• April production momentum remains strong, with Aspire lock volume tracking above Q1 pace and additional regional bank partners added, supporting further market share gains.
• Comparative JV economics with Castlelake and CPP Investments are “conceptually very similar,” involving minority capital participation, upfront economics, ongoing management fees, and plans for subsequent securitization activity.
• Management is targeting legacy investments to fall below $100 million in capital by year-end; current sales and resolution activity are already improving earnings drag sequentially.

INDUSTRY GLOSSARY

• Sequoia: Redwood Trust, Inc.'s branded prime jumbo residential mortgage securitization program.
• Aspire: Redwood Trust, Inc.'s non-agency mortgage platform focused on serving non-traditional borrowers and smaller-scale housing investors.
• CoreVest: Redwood Trust, Inc.'s business purpose loan platform specializing in single-family rental and bridge loans.
• HEI: Home Equity Investment; fractional equity stakes in residential properties owned by third parties.
• TBA: “To-Be-Announced” securities, representing forward contracts on mortgage-backed securities, widely used for pipeline hedging and market pricing in the mortgage sector.
• Lock Volume: The aggregate dollar amount of mortgage loans for which a fixed rate has been secured (or "locked") for processing and intended sale or securitization.
• Gain-on-Sale Margin: The margin realized on the sale of originated or purchased loans, typically expressed as a percentage of sold principal balance.
• BPL: Business Purpose Loan, including financing for real estate investors purchasing or rehabilitating properties as non-owner-occupied investments.
• DSCR: Debt Service Coverage Ratio; a loan underwriting metric for property cash flows relative to required debt service payments in investment lending.

Full Conference Call Transcript

Christopher J. Abate, chief executive officer; Dashiell I. Robinson, president; and Brooke E. 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, which 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. Reconciliations between GAAP and non-GAAP financial measures are provided in our first quarter Redwood Review, which is available on our website redwoodtrust.com. Also note that the contents of today's conference call contain 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 will turn the call over to Chris for opening remarks.

Christopher J. Abate: Thank you, and good afternoon, everyone. Before I turn the call over to Dash and Brooke, I want to share a few thoughts on our first quarter performance and what it says about Redwood Trust, Inc.'s position as we move forward in 2026. As you all saw, Redwood Trust, Inc. generated a third consecutive record operating quarter with mortgage banking volume surpassing $8.5 billion for the first time and earnings available for distribution coming in a bit above last quarter at $0.21 per share, once again covering our dividend.

Operating progress should garner some attention, as our results came amid a broader mortgage market that has been stuck in neutral, with mortgage applications running close to 40% below pre-pandemic levels, and jumbo mortgage rates having risen from the recent February lows in large part due to the conflict in the Middle East. To zoom out and offer some context, our $8.5 billion of first quarter volume exceeded residential mortgage production at three of the top money center banks during the quarter. Our volume also clocked in at 10 times our March 31 reported GAAP book value, a very high capital turnover ratio.

This means the loans we hold in short-term warehouse facilities are moving quickly and getting replaced with fresh production. All told, we completed 11 securitizations in the first quarter, another in-house record for Redwood Trust, Inc. High turnover also indicates the tremendous operational efficiencies we have implemented in recent quarters, in part due to our strong adoption of AI across the enterprise. In the first quarter alone, we executed over 2,500 AgenTeq workflows, spanning technology platform expansion to support both Sequoia and Aspire in a single unified platform, as well as automated QC and the elimination of significant work performed by outside vendors.

In the quarters ahead, we aim to continue unlocking addressable market share by leveraging the many network relationships we have spent years cultivating, something that is neither easy nor cheap to replicate. Our longer-term objective of 20% market share or more for our primary products will require both capital efficiency and significant growth capital. We believe there is compelling opportunity for common shareholders to participate in that growth alongside us in advance of the next monetary regime and mortgage rate cycle. In the meantime, we continue to see tremendous demand from alternative asset investors who are eager to partner with us and speak for the high-quality assets we source.

Just this morning, we announced a major Sequoia capital partnership with Castlelake, a blue-chip global investment firm specializing in asset-backed credit. This partnership brings approximately $8 billion of incremental purchasing power to Sequoia as it scales and reflects growing institutional demand to access our platform and the assets we create. We view this as an important step in a broader strategy to pair our origination capabilities with third-party capital at scale. To that end, we have also been hard at work on an Aspire-focused joint venture and hope to announce a similar JV in short order.

Such capital partnerships are timely as we are growing more optimistic about trends that could positively impact the housing sector, with the obvious caveat that the conflict in the Middle East seems far from resolved. As we like to say, mortgage was among the first sectors to be impacted by the Fed's historic tightening cycle to combat inflation in 2022, and we think mortgage should be among the first to benefit now with the prospect of a more accommodative and housing-focused Fed. Based on recent publications and testimony, the presumptive new Fed chair, Kevin Warsh, seems to prefer the policy combination of lower rates and a smaller Fed balance sheet.

While the reduction of QE has certainly removed the demand stimulus from the mortgage market, the prospect of a smaller Fed balance sheet should help reduce long-term inflation expectations and hopefully support lower long-term rates. The wildcard for mortgages continues to be spreads, which are still meaningfully above pre-COVID levels and still trying to find equilibrium. We expect any monetary policy tailwinds to be further supported by evolving regulatory dynamics, most notably the recently re-proposed bank regulatory capital rules, also known as the Basel III endgame. The proposed rules would ease the cost for banks to hold higher-quality mortgages and mortgage servicing assets, a necessary step for banks to consider allocating more capital to their go-forward consumer mortgage operations.

But lowering the capital rules is just one precursor for banks to reenter the mortgage space. The ultimate decision, we believe, remains risk-based and not profit-based. We consistently hear from bank C-suites that having a partner like Redwood Trust, Inc. to assist in the management of their interest rate and asset-liability risks is a huge differentiator, especially because our support does not undermine their customer retention goals. Having the option to transact with Redwood Trust, Inc. when rates change quickly or priorities shift is the value differentiator we have now established throughout the banking system, and another example of the moat we have built around our franchise.

Finally, before handing the call over to Dash, I want to remark on recent headlines stemming from the private credit sector. As we all have seen, pockets of weakness in underlying fundamentals are emerging for certain aspects of private credit; constraints on liquidity and asset price visibility are, in some cases, impacting broader market sentiment. It is a timely moment for us to humbly champion Redwood Trust, Inc.'s public credit model. You can gain exposure to innovative mortgage banking and credit strategies coupled with the liquidity that a publicly traded stock offers.

We also strive to provide great transparency through the utilization of annual external audits, quarterly 10-Q filings, proxy statements, and perhaps most importantly, mark-to-market accounting through our income statement. It is times like these we take pride in our shareholders knowing not only what they own, but also knowing what they do not. I will now turn the call over to Dash to discuss our operating results.

Dashiell I. Robinson: Thank you, Chris. Our first quarter operating performance reflects continued momentum across our mortgage banking platforms supported by record Sequoia volume, ongoing growth at Aspire, and strategic progress at CoreVest, including evolution of our production mix. Even against a more volatile backdrop beginning in March, our full-quarter results demonstrated the scalability of our model and the additional operating leverage still to be unlocked. Sequoia once again headlined our results, logging another record quarter with $6.5 billion of locks, up 22% from the fourth quarter.

That volume was generated in a housing environment that remains well below historical norms, underscoring the market share gains we continue to make across our originator network, now enhanced by several new products to complement our core jumbo offering. Cost per loan improved 30% from the fourth quarter to below 20 basis points, aided by automation initiatives that we estimate will free up close to 6,000 hours per year that our team members can utilize more productively. Capital turnover also improved quarter over quarter, with continued efficiencies expected from the new joint venture dedicated to Sequoia's jumbo production that Chris described.

Gain-on-sale margins in the first quarter were 96 basis points, at the high end of our historical target range, despite substantial TBA underperformance into quarter end, much of which has retraced thus far in April. Margin resilience was driven in part by strong execution on $5.5 billion of dispositions, including $4.6 billion across nine securitizations. As Chris articulated, the recently re-proposed Basel endgame rules represent a potentially meaningful tailwind for the business.

While flow volume represented the majority of first quarter production, we are currently evaluating on an exclusive basis close to $5 billion of seasoned bulk pools from banks, underscoring our view that more benign capital charges against high-quality mortgages will promote more two-way flow of bulk pools, a positive for Redwood Trust, Inc. given our market positioning as banks continue to prioritize prudent asset-liability management. Away from bulk opportunities, our sourcing channels remain well diversified overall, with average flow lock concentration by seller of less than 1%. Product expansion also continues to support growth.

During the quarter, we launched a new loan program focused on medical professionals, locking nearly $300 million of such loans on a flow basis during the quarter and later in the quarter successfully securitizing a bulk pool of MedPro loans we acquired from a bank, a first-of-its-kind transaction. In all, our expanded offerings represented 14% of total lock volume in the quarter, with over 100 of our sellers now actively selling us at least one new product. Aspire continued its growth trajectory in the first quarter, adding several new origination partners while further deepening our value with existing sellers. Aspire lock volume increased to $1.6 billion, with April lock volume ahead of that pace.

Approximately 70% of Aspire's first quarter volume came from sellers already active with Sequoia, a significant competitive advantage for the platform that also is indicative of its growth potential. More originators are now recognizing the strategic benefit of non-agency products that serve a growing cohort of borrowers outside the traditional W-2 profile, including self-employed consumers and smaller-scale housing investors. We estimate Aspire's first quarter market share to be approximately 4%, which we expect to at least double by the second half of this year. As Aspire remains a relatively early-stage platform, an ongoing priority remains scaling operations ratably with volume growth and maintaining the cost discipline that supports long-term profitability.

Aspire's gross margins were 73 basis points in the first quarter, impacted by spread widening in the pipeline at quarter end that has since largely reversed. The platform's inaugural securitization in March was an important milestone for the business—broadening distribution, improving capital efficiency, including through accretive sale of the risk retention and subordinate tranches to a third party, and establishing Aspire as a programmatic issuer alongside Redwood Trust, Inc.'s other leading securitization shelves. At CoreVest, first quarter volume totaled $432 million, down modestly from the fourth quarter, but with continued progress in our smaller-balance residential transition loan (RTL) and DSCR products.

In partnership with our borrowers, we managed the pipeline carefully in March as volatility increased, which reduced monthly volume but positioned customers to lock loans in April at more favorable all-in rates. CoreVest's origination and distribution strategies are improving capital efficiency, reducing market risk, and aligning the platform with areas of demand well supported by our capital partners. Most notably, this includes our joint venture with CPP Investments, through which we have now distributed over $2 billion of CoreVest production life-to-date, generating upfront fee income and building a recurring stream as the joint venture grows.

The broader housing investor market remains focused on a pending piece of legislation that may impact institutional ownership of rented single-family homes over the medium to long term. While the final outcome remains uncertain, we believe parts of the eventual framework could create longer-term opportunities for the platform, both within our smaller-balance loan programs and if the new rulemaking ultimately impacts GSE footprint for single-family housing investors. Alongside record mortgage banking activity, we continue to pace with our reallocation of capital away from legacy investments, which stood at 15% of total capital at March 31, down from 19% at year-end.

While segment returns were once again impacted primarily by net interest expense, resolution activity during the first quarter combined with an accretive securitization reduced legacy bridge loans to approximately half of the legacy segment and 8% of our total capital overall. Ninety-day-plus delinquencies were roughly flat versus year-end in the legacy portfolio as we prioritize efficiently winding down the segment through outright dispositions or other structured sales we believe will lead to the best outcomes through time. I will now turn the call over to Brooke to discuss our financial results.

Brooke E. Carillo: Thank you, Dash. Turning to our first quarter results, we reported a GAAP net loss of $7 million, or $0.07 per share, compared to GAAP net income of $18 million, or $0.13 per share, in the fourth quarter. Book value per share was $7.12 at March 31. The 3% decline from Q4 was driven by non-cash market-related valuation changes and certain nonrecurring expense items rather than underlying operating performance. Book value also reflected the $0.18 dividend paid to common shareholders. On a non-GAAP basis, consolidated earnings available for distribution, or EAD, was $27 million, or $0.21 per share, up from $0.20 per share in the fourth quarter.

Core segment EAD was $37 million, or $0.28 per share, representing a 19% return on equity. This performance was driven by strong mortgage banking volumes, efficient loan distribution and capital turnover—particularly during the more volatile period in March—and disciplined capital deployment into attractive income-generating investments which supported net interest income and margin. The difference between core segment EAD of $0.28 and consolidated EAD of $0.21 primarily reflects the legacy portfolio, which reduced consolidated EAD by approximately $0.08 per share in the first quarter. As capital allocated to legacy continues to decline, we expect that drag to further moderate. Our mortgage banking platforms generated $37 million of GAAP net income in the quarter, representing a 38% annualized return on capital.

Capital efficiency improved, with capital required per dollar of volume declining by approximately 10% quarter over quarter to 1.1%. Just to note, this quarter our segment returns reflect a full allocation of interest expense based on average capital deployed, with capital reduced by the corresponding allocation of core corporate debt. The Redwood Review presents segment results on both this basis and our prior methodology, which reflected these items within corporate. Sequoia generated $38 million of GAAP net income in the first quarter. Heightened flow activity represented 61% of production, with a growing contribution from newer products such as ARMs, closed-end seconds, and medical professional loans.

As volumes scale, we continue to see strong earnings conversion and benefits of scale, with cost per loan declining to 18 basis points, a highly efficient milestone. We also see a deep and growing pipeline of attractive opportunities with demand exceeding available capital. The joint venture announced today is designed to capture more of that opportunity in a capital-efficient manner by incorporating third-party capital alongside our own. Based on current expectations, the structure has the potential to contribute approximately $0.12 to $0.15 per share of incremental annual earnings as it scales, with additional upside through structured economics. Aspire generated $2 million of GAAP net income in the first quarter.

As the platform scales and expands distribution, we are beginning to see improvements in capital efficiency. Margins were impacted by late-quarter volatility but have largely recovered post quarter end. CoreVest generated a GAAP net loss of $3 million in the first quarter, including approximately $5 million of one-time restructuring charges related to organizational changes that position the business for profitability in 2026. Excluding these items, net cost to originate declined from 95 basis points last quarter to 79 basis points in Q1, reflecting improved operating efficiency. Redwood Investments generated a GAAP net loss of $8 million.

Portfolio-related marks were primarily driven by widening in the TBA basis and credit spreads combined with the impact of higher interest rates late in the quarter. The cost of funds for our investment portfolio improved, as we refinanced higher-cost debt and optimized our financing mix, supporting net interest margin. Legacy Investments recorded a GAAP net loss of $13 million, improving from a $23 million loss in the fourth quarter. The improvement was driven by lower net interest expense on legacy bridge loans reflecting improved financing terms and lower balances, as well as higher HEI income as capital markets conditions for the asset class improve.

Total G&A was $49 million in the first quarter, up from $41 million in Q4, reflecting one-time costs associated with the previously discussed organizational streamlining initiative as well as typical seasonal expense patterns. Excluding these items, run-rate G&A was approximately $40 million, essentially flat to slightly below the fourth quarter. We continue to scale with discipline, as first quarter volume growth exceeded expense growth by nearly 2x, driving our expense-to-volume ratio down to 66 basis points. With a largely fixed cost structure tied to production, we see meaningful upside in incremental volume converting into earnings, reinforcing our confidence in ROE expansion as the business scales.

Liquidity remains strong with $202 million of unrestricted cash and approximately $3.9 billion of excess warehouse capacity as of March 31. Recourse debt increased modestly to $4.7 billion at quarter end, driven by higher warehouse utilization supporting record mortgage banking activity. Our ability to efficiently turn loans in inventory was evident in the first quarter, with 11 securitizations completed across $5.2 billion of collateral, alongside improved financing efficiency through tighter spreads and better advance rates, driving an approximate 50 basis point reduction in our cost of funds over the past 12 months. Over that same period, we increased warehouse capacity by 30% to $7.1 billion and renewed $5.7 billion of facilities, reflecting continued support from our lending partners.

Finally, there are no corporate unsecured debt maturities over the next five quarters, and we maintain meaningful flexibility within our unsecured debt structure. I will now turn the call back to the operator for Q&A.

Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. Our first question is from Mikhail Goberman with Citizens JPM.

Mikhail Goberman: Hey, good afternoon, everyone, and congrats on another record quarter of banking volume. If I could start with the new joint venture announced this morning, I see in your slide deck you mentioned you are expecting meaningful annual EPS accretion for yourselves. Is there a target range that you are thinking about in terms of a number?

Brooke E. Carillo: Thanks, Mikhail. Yes, we are anticipating that it has the potential for roughly $0.12 to $0.15 of incremental annual earnings per share. This joint venture will, as Chris noted in his prepared remarks, allow us to grow volume by another incremental third, or roughly 30%, and add double-digit ROEs without raising other capital to source that. Given our incremental margin significantly outweighs our incremental cost to source, we are really excited about the partnership and its dedicated distribution channel that aligns with the high capital turnover model we have evolved into.

Mikhail Goberman: Thanks, Brooke. And as far as your comments on the call about a potential Aspire JV being announced in the near future, is there a size that you are thinking about there? I see the Castlelake deal is about $8 billion. What are you thinking about in terms of size of a JV for Aspire?

Dashiell I. Robinson: Yes, thanks, Mikhail. We will have more to say when the details get finalized, but we are expecting a joint venture of this type to probably support 25% to 30% of Aspire's annualized production. That is probably the best way to quote it for now, in the context of all the other initiatives we have with distribution, including securitizations and whole loan sales. Obviously, we need to finalize what we are working on, but that is the context I would give you as a percentage of Aspire's overall production mix.

Christopher J. Abate: I would also add we have had joint ventures with CoreVest up to this point, and the in-house knowledge is pretty high, so our ability to continue to add these to the platform is getting progressively more streamlined. We want to continue to find partners to the extent we need capital and it is available. Hopefully, we will have more to say on Aspire, as Dash mentioned.

Mikhail Goberman: Great. Looking forward to that. Thank you all.

Dashiell I. Robinson: Thanks, Mikhail.

Operator: Next, we will hear from Crispin Elliot Love with Piper Sandler.

Crispin Elliot Love: Thank you. Good afternoon. You had another record quarter for the mortgage banking production. Can you discuss some of the momentum there and what you are seeing in April? Mortgage rates peaked around quarter end and are a little bit better now, so curious what you are seeing in April and what you might expect throughout the year?

Christopher J. Abate: On the one hand, volatility came down earlier in the month as we settled into where we are at with the conflict in the Middle East and energy prices, and mortgage rates came in a bit. Obviously, the 30-year ticked higher today and the 10-year is back up to 4.40%, so that is not a positive for mortgage rates. We are going to continue to expect some volatility in rates. But I think the initial shock that occurred in March with the conflict in Iran has been somewhat processed by the market, and we have been much more business as usual as a sector these past few weeks.

From that standpoint, we have great inroads to taking market share and have demonstrated that the last few quarters. Late in the first quarter and early in the second quarter, we added a few more regional banks from a flow perspective. We continue to unlock market share for the platform. We are quite excited about the prospects of the Basel III endgame and being more or less an exclusive partner to a number of banks who work with us today. It is ironic that with the Basel III endgame some of the capital changes pertain to credit, but many banks would tell you that the largest risk they are focused on with respect to mortgages is convexity.

That is what we help manage—asset-liability risk and interest rate risk—that is the big need right now. That does not go away, and in fact if the capital charges go down, having a partner like Redwood Trust, Inc. to manage that makes our business case stronger and stronger. We feel good about the momentum; the only thing we do not feel good about is the volatility in the macro economy, and we are doing our best to manage through that.

Crispin Elliot Love: Great, thank you. For Sequoia, you called out the cost per loan improving to 18 basis points a couple of times during the call. Can you discuss some of the drivers there? Is it volume-related, tech, AI—you mentioned the automation initiative. Any additional efficiencies you think you can drive even lower in coming quarters?

Christopher J. Abate: We feel really good about our combination of hustle and hard work with adoption of tech and AI. Our volume growth is outpacing our expense growth by about 2x, which really demonstrates the scale of the platform at this point. We are operating very efficiently. During the quarter, we mentioned 2,500 AgenTeq workflows. We are eliminating vendors who have done a lot of QC for us or document intelligence. We are smarter on due diligence reviews. We are able to create a lot of efficiencies between Sequoia and Aspire using AI for our consumer platforms.

Across the board, it has been full-on finding efficiencies and making sure that each dollar is used wisely as we leverage our team and the tech we are building.

Operator: Thank you. Next, we will move to a question from UBS.

Analyst: Thank you. Good afternoon. Looking at the slide, it noted that bank-sourced volume at Sequoia dropped—it was about 30%. I believe this is lower than 4Q. Could you comment on your outlook for that contribution going forward, and does the Castlelake JV reactivate any recurring Sequoia program dynamics?

Christopher J. Abate: The bank percentage may have ticked down on a percentage basis but continues to rise in absolute terms. We had another record quarter of volume, and a lot of that can be influenced by bulk one way or the other. In the first quarter, we had some large bulk transactions with certain independents. We have added additional regional bank partners on flow, as I mentioned, and we continue to expect that volume mix to evolve. We have durable partnerships on the bank side—it represents about half our network today, more or less. While we cannot necessarily cuff it because bulk has such a big impact on that quarterly percentage, we expect it to continue to grow.

Dashiell I. Robinson: I would add that institutional investors know the platform is going to be in the market regularly, which helps primary and secondary liquidity. We have sold whole loans out of the Aspire platform to close to 10 discrete counterparties, including a couple of banks, which is a very big deal. From a supply-demand perspective, the amount of institutional capital coming into the space is a net advantage for us. Aspire is really leveraging the new sellers we are bringing in and the foundation of sellers we have worked with for years in Sequoia. As noted in the prepared remarks, about 70% of Aspire's production is from sellers we already do business with in Sequoia.

That is good news because we are leveraging our existing seller base and becoming an even more relevant partner to them.

Analyst: I wanted to ask about the legacy wind-down. Is end-of-year still the target, and what residual assets are stickier on that resolution timeline?

Brooke E. Carillo: We have stated we want that percentage to be well below 10% by the end of the year. The legacy portfolio is at this point about fifty-fifty legacy bridge loans and HEI. Legacy HEI we purchased a number of years ago, some of which we have disposed of over the past year or so. We are optimistic that we can recycle a fair amount of that HEI capital later this year. As I articulated, capital markets execution for that asset class has continued to improve.

Just this morning, there was an announcement that a new institutional investor was putting a few hundred million dollars of capital toward new production with a different originator, but the point is that capital is continuing to flow into that space and that has translated to more optimal securitization execution. On the bridge side, we are down to a few real focus line items which will move the needle, and we are very focused on resolving those in Q2, if not early to mid Q3. That combination will get us below 10%, and then we will continue to wind the position down from there, in keeping with our goal of getting it below 5% by the end of the year.

If I could add one thing on the financial impact of the wind-down as well: the legacy book was around $240 million of capital at the end of March. That 5% or so translates to below $100 million of capital by the end of the year. Every $50 million or so of capital that we free up—given the drag from the legacy book—would be expected to be about a $0.05 quarterly improvement in EAD as it is redeployed into mortgage banking. We saw that the legacy contribution was about $10 million better than in the fourth quarter, so that is starting to translate into continued EAD trajectory.

Analyst: Thanks for that. That is great color. Then could you talk about the comparative economics between the Castlelake JV and the CPP Investments JV—fee structure, risk retention, retained margin per loan?

Dashiell I. Robinson: They are very different asset classes—jumbo versus BPL—but conceptually very similar. Much like CPP, we are the minority of the capital in the Castlelake JV. The economics to Redwood Trust, Inc. include certainty of upfront economics at time of transfer into the JV, as well as a running, essentially, asset management or loan administration strip. The economics differ numerically because of the underlying assets, but the structures are very similar in that they are both living, breathing ecosystems. We would intend to securitize out of the Castlelake JV much like we have done out of the CPP JV; we could sell loans out of it, etc. So they are structurally very similar, with nuances due to the asset class.

Analyst: Understood. Thank you for that.

Operator: We will now take a question from Bose Thomas George with KBW.

Bose Thomas George: I just wanted to ask about trends at CoreVest in April. And can you talk about the pipeline discipline in March—what drove that given the volatility—and is the backdrop a lot better now in April?

Dashiell I. Robinson: Yes. Bose, as you know, CoreVest, of our different strategies, has the most credit sensitivity. As things got volatile in March, it was prudent not to spread-lock too far in advance of macro outcomes we were waiting on. The vast majority of that distribution is spoken for with CPP and others, and we have somewhat baked economics in some respects, so we decided to be a bit more cautious there. I think that was the right call. Coming out of quarter end, similar to the consumer business, things have picked back up, and it is very much business as usual.

CoreVest is a little bit different than how we think about Sequoia, which is a much more rate-sensitive, less credit-sensitive business, and Aspire is a little bit of both.

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