Redwood Trust, Inc.

Good afternoon and welcome to the Redwood Trust Incorporated fourth quarter 2020 financial results conference call. During management's presentation, your line will be on a listen-only mode. At the conclusion of the prepared remarks, there will be a question and answer session. I will provide you with instructions to join the question queue after management's comments. Today's conference is being recorded. I will now turn the call over to Lisa Hartman, Redwood's Senior Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Andrea. Hello, everyone, and thank you for joining us. With me on today's call are Chris Abate, Redwood's Chief Executive Officer, Dash Robinson, Redwood's President, and Colin Cochran, Redwood's Chief Financial Officer. Before we begin, I want to remind you that certain statements made during management's presentation with respect to future financial or business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts, and assumptions that involve 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 could 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 is provided in our fourth quarter Redwood review available on our website. Also note that the content of this conference call contains time-sensitive information that is accurate only as of today. The company does not intend and undertakes no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on the company's website later today. I will now turn the call over to Chris Abate, Redwood's Chief Executive Officer, for opening remarks.

Well, thank you, Lisa, and thanks to all of you for joining the call today. As I reflected on the past year, it's hard to contextualize what our country has been through in the opening weeks of 2021, let alone all of 2020. With unprecedented turmoil in Washington, an economy still rocked by the coronavirus pandemic, now a seemingly populist revolt underway on Wall Street, it's hard for any investor to navigate all the tumult and volatility. So we feel all the more fortunate to have emerged from such an unprecedented year in a renewed position of strength. It's motivated us to make 2021 the best year in our company's history. We exited 2020 with momentum building across both of our platforms, including record-lock volumes in residential lending and very strong originations and contributions in business-purpose lending. Gap earnings for the fourth quarter were $0.42 per share, well in excess of our $0.14 per share dividend, and our GAAP book value increased 50 cents per share from the third quarter to $9.91 in the fourth quarter. Based on the trajectory of our operating businesses and our expectations for sustainably higher net interest income throughout the year, we are confident that we can safely support a stable to growing dividend in 2021. We plan to announce our first quarter dividend in March. Looking ahead, our strategic priorities for 2021 include allocating ample capital to our residential consumer and business purpose lending platforms, doubling down on our technology investments to scale our business, and continuing to support and develop our team members. Strategically speaking, the COVID-19 pandemic has only further validated our core investment thesis as demand for single-family detached housing has grown significantly. We expect much of that demand to be durable as families choose to move away from dense urban areas more people are able to work remotely out of their homes, regardless of proximity to the workplace. This has already caused ripple effects across both the residential and commercial property sectors, especially major metropolitan areas. That's why our primary focus for 2021 will remain on our operating platforms. The operating capital we allocate to these businesses is expected to generate returns on equity north of 20% post-tax, levels very difficult to come by when sourcing third-party investments in today's compressed yield environment. Most importantly, these businesses serve large and growing markets not covered by government lending programs, and as such are positioned to generate scalable and repeatable sources of future earnings, even in a less accommodated interest rate environment. Since they are earned within our taxable subsidiaries, The earnings generated can also be retained to provide a steady stream of internally sourced investment capital that can be deployed to further grow earnings and book value. Turning to our investment portfolio, our portfolio remains a strategic element of our business model that supports our operating platforms and third-party investing activities. Overall credit performance of the book remains strong as delinquencies have continued to decrease since their peak in the summer and strong home price appreciation has kept actual credit losses low. This means that even if we retrace back to pre-COVID-19 valuations, we continue to expect significant further upside in these investments. Coupled with positive credit trends, high prepayment speeds have begun to unlock additional value on most of our credit investments held at a discounted par. In the channel of the late Yogi Berra, I'll remind everybody that loans that prepay don't default. On the technology front, speed and disruption are top of mind in 2021 across the Redwood enterprise. The goal is not simply to grow volume or issue more securitizations. We aim to fundamentally change how the non-agency sector operates from end to end. That entails more speed and automation and keeping technology at the forefront of our planning process. In the past several months, we have launched several new technology initiatives through both organic and new venture investing strategies. And just today, we are announcing the recent launch of RWT Horizons, a new venture investing strategy focused on early-stage technology companies with business plans squarely focused on innovations that can disrupt the mortgage finance landscape. The amount of capital deployed through this new platform will likely be smaller at first. However, the investments are designed to have an outsized impact on how our business operates. Our strategy centers on creating new efficiencies across the mortgage value chain, thereby making us a more meaningful partner to the broad network of market constituents to whom we provide equity. We expect to have a steady stream of new technology releases across our platforms that we're excited to share with you, some of which Dash will cover in more detail on today's call. Paramount to our success are our people and the core values by which we conduct our business. Caring for our employees has never been as important as we continue to support our team members and their families through the impacts of COVID-19. Investments in our employee programs and stewardship of our culture remain strategic priorities, and we're proud of the work that we've done to engage, develop, and retain our workforce over such a challenging year. We stand behind our core values, including an earnest focus on diversity, equity, and inclusion, and a commitment to strong corporate citizenship both socially and environmentally. Our commitment to our larger communities through volunteerism and charitable giving have also remained a sharp focus for us, particularly as our shared humanity has been amplified by the COVID-19 pandemic. We believe our strategy will enable us to scale our business and take market share, grow durable and repeatable earnings, and serve our mission to help make quality housing, whether rented or owned, accessible to all Americans. With optimism on the horizon for 2021, we're looking forward to the positive impact that Redwood can make for our collective stakeholders, including our shareholders, our employees, and our communities. That concludes my prepared remarks. I'm now going to turn the call over to Dash Robinson, who will walk through our operating results in more detail. Dash, go ahead.