Redwood Trust, Inc.

Good afternoon and welcome to the Redwood Trust Incorporated first quarter 2021 financial results conference call. During management's presentation, your line will be on a listen-only mode. At the conclusion of 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 Senior Vice President of Investor Relations. Please go ahead, Nan.

Thank you. 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 first quarter Redwood review available on our website, redwoodtrust.com. 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 this afternoon. I'll now turn the call over to Chris Abate, Redwood's Chief Executive Officer, for opening remarks.

Well, thank you, Lisa, and good afternoon, everyone. As you probably assumed, we are pleased with Redwood's trajectory thus far in 2021. Morale within our ranks is strong, especially as we start to see conditions for a return to normality, with many employees eager to rub elbows again in the office and resume business travel. We're not quite there yet across the board, but it's nice to see the sun shining on our people and our businesses, especially when I think about where things stood a year ago. Driven by strong operating income and continued improvement in portfolio valuations, our gap earnings were 72 cents per diluted share for the first quarter as compared to 42 cents per diluted share in the fourth quarter. Our gap book value per share increased almost 9% to $10.76 at March 31st, as compared to $9.91 at December 31st. Gap earnings finished well in excess of our 16 cents per share first quarter dividend. While the first quarter introduced the latest chapter of our strategic evolution through the launch of RWT Horizons, the focus of our business hasn't changed. Our mission is to make quality housing accessible to all American households, whether rented or owned. We target borrowers whose needs are not well served by government loan programs, including borrowers who are simply not eligible for them. To us, our role in housing finance has never been more important, as the second half of 2020 ushered in a dramatic new uptick in home price appreciation and even greater affordability challenges. Simply put, improving access to quality housing entails a combination of consumer loan and rental solutions. Through our leadership role in the private housing sector, we've turned much of our focus towards innovation to expedite the migration of more GSE-eligible mortgages to our market. This doesn't just require low-cost capital, which our industry seems to be awash in these days. It requires the speed, automation, and the ease of execution necessary to to facilitate sustainably high volumes. These traits have not been commonplace in the less commoditized non-agency mortgage sector, in part because it continues to be unsupported in Washington and even viewed as a threat to many established market participants who are unincented to change the status quo. Recent regulatory changes in Washington, however, highlight the need for a new way of thinking and present a big opportunity for the private sector. For example, the CFPB QM rules, which are still somewhat fluid, are likely to simplify many underwriting processes and meaningfully reduce the number of loans that require additional risk retention to securitize. Additionally, changes to the PSPA between the U.S. Department of Treasury and the GSEs now limits the acquisition of certain types of mortgages by Fannie and Freddie, including loans for non-occupied homes as well as loans with certain combinations of credit features including higher LTVs and debt-to-income ratios and lower credit scores. For the GSEs to effectively manage compliance with these new limitations, the practical amount of these loans that the GSEs can acquire will be well below their prescribed caps. This presents an opportunity for those who can acclimate to the more automated underwriting regimes that are eventually needed to facilitate more of these loans moving to the private sector. Our focus is squarely on addressing this need, and we're working towards this goal in a number of innovative ways, including investments in homegrown technology and strategic partnerships. For example, we achieved several milestones and demonstrated significant progress in our technology roadmap in the first quarter, including through our newly launched venture investment strategy, RWT Horizons. We've now completed three Horizons investments, which Dash will talk about in more detail. During the first phase of investing, we are focused on seeding early to mid-stage companies that leverage automation, digitization, and blockchain to reimagine how a loan is evaluated by an originator, financed by a lender, or securitized by an issuer. In the business purpose lending market, we see opportunities to fund product development in the software space that can streamline property management workflows. This will reduce costs and increase visibility in the revenue streams. While these initial investments have not been material to our balance sheet, we believe we're embarking upon a path that can disrupt the mortgage finance landscape and significantly transform our business with innovative solutions that help all stakeholders, most importantly, borrowers. With significant momentum on technology and engaged and talented workforce, regulatory changes, and strong competitive positioning, it's exciting to envision the role Redwood can play in the evolution of housing finance. We believe in the long-term durability of earnings and our ability to deliver unique value to our shareholders. We also believe in the impact we have on our people and communities, such as our new housing access benefits program that we just launched earlier today. I encourage all of you to check out the press release from this morning on our website and give us your feedback. As always, we balance the optimism against economic forces that affect our quarterly production volumes including a recent dose of interest rate volatility in the past few months. We can't control many of the market forces that affect our business day to day, but we can equip our people with the tools necessary to lead Redwood towards its full potential. And with that, I'll now turn the call over to Dash Robinson, Redwood's president. Dash?