Redwood Trust, Inc.

Good afternoon and welcome to the Redwood Trust fourth quarter 2021 financial results conference call. Today's conference is being recorded. I will now turn the call over to Caitlin Moritz, Redwood's Senior Vice President of Investor Relations. Please go ahead, Caitlin.

Thank you, Operator. Hello, everyone, and thank you for joining us for Redwood's fourth quarter 2021 earnings conference call. With me on today's call are Chris Abate, Redwood's CEO, Dash Robinson, Redwood's President, and Brooke Carrillo, Redwood's Chief Financial Officer. Before we begin, I want to remind you that certain statements made during management's presentation today 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. Our reconciliation between GAAP and non-GAAP financial measures are provided in our fourth quarter Redwood review and investor presentation. both of which are available on our website at redwoodtrust.com. Also note that the content of this conference call contains time-sensitive information that is only accurate as of today. Redwood 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 our website later today. I will now turn the call over to Chris Abate, Redwood's Chief Executive Officer, for opening remarks.

Thank you, Kate, and good afternoon, everyone. Thank you for joining us here today. 2021 was a truly transformative year for Redwood. In reflection, we are extremely proud of our team and the continued progress we made throughout the year. We generated record performance within our operating companies as they continue to profitably scale. In addition, we executed on our capital deployment strategies while also advancing key strategic objectives in technology and product development. Our performance reflected dedication, discipline, and great collaboration across our enterprise. And this is only possible because of our people. I'm proud to say we've maintained a retention rate for employees that have significantly outpaced published averages for the financial services sector in 2021. And all of this helped us establish ourselves as the leading operator and strategic capital provider in housing finance, the heart of our corporate vision. Quickly recap our quarterly performance for the fourth quarter, which Brooke will cover in much greater detail We generated gap earnings of $0.34 per diluted share and book value increased to $12.06 at December 31st, a marginal increase over the third quarter. We increased our dividend to $0.23 per share in Q4 of 9.5% from the third quarter. This was our fifth dividend raise over the last six quarters. On the year, we delivered a 25% return on equity, a 30% economic return, and a 60% total shareholder return. These numbers do not exist in isolation and are a clear reflection of our potential to generate durable earnings through complementary operating businesses and our investment portfolio. We have long positioned our platform to be flexible as the interest rate environment evolves, and this readiness positions us well to navigate the current market. With the country still struggling to turn the page on the COVID-19 pandemic, the broad-based economic recovery many had expected by now has been elusive. Meanwhile, inflation has reached a 40-year high, and an aggressive response by the Fed signals the end of a decade-plus of accommodation. Higher benchmark interest rates are no longer a prospect or probability, but a reality as yields recently reached their highest levels since 2019. Markets have been volatile to start the year, and we expect that to continue as the Fed embarks upon a series of anticipated rate hikes. As a housing finance company, we incur many of the same challenges as other market participants, The Redwoods business model has never been beholden to low benchmark interest rates, government subsidies, quantitative easing, or a steep yield curve. In fact, the last time the Fed began a rate hiking cycle in late 2015, Redwoods book value grew and we delivered a total economic return of 35% as long-term rates rose and the yield curve compressed. Today, our model has evolved even further to include revenue streams less correlated with the path of benchmark rates. Great example of this was our expansion into business purpose lending in 2019, where we gained access to a growing cohort of housing investors seeking to refurbish and stabilize antiquated housing stock. Our BPL business provided immediate balance and depth to us across a variety of interest rate and credit scenarios, depth that has only expanded since we first entered this business. As our shareholders have grown to know, business purpose loans are primarily either floating rate for the life of the loan or rate locked just ahead of their funding, effectively eliminating the interest rate exposure many mortgage businesses incur in managing a pipeline of consumer residential loans. Given the outlook for housing, including rising home prices, falling inventory, and increased demand for SFR products, we are very optimistic about the outlook for this business, including volumes and ROEs for this segment, even as rates rise. Complimenting our BPL team's performance in the fourth quarter was that of our investment portfolio team, which also took advantage of rising rates and wider credit spreads to deploy capital strategically at attractive entry points. We deployed $222 million of capital into new investments in the fourth quarter, by far the most we have deployed since the pandemic began. This included approximately $130 million in third-party investments, an important validation of our team's ability to flip the script on challenging market conditions, by acquiring bonds at sale prices. Importantly and fundamentally, our portfolio remains strong and credit performance in our assets continue to improve, as indicated by flattening or declining delinquencies across the portfolio. Our residential business faced the brunt of broader market headwinds in the fourth quarter, but in a testament to the team, still managed to outperform most, if not all, in the sector. We took a conservative posture to risk management late in the year, prioritizing healthy margins at the high end of our historical range over higher volumes as we observe a glut of loan inventory, pressure and credit spreads and margins heading into year end. Certainly 2021 witnessed some of the highest origination volumes that the market has experienced in decades, and our platform kept up with this demand while also avoiding the over hiring that is typical of the mortgage industry. During the year, we locked a record number of loans as well as distributed them quickly and efficiently into the market for a best-in-class securitization and whole loan sale platforms, something DASH will elaborate on further. But the headwinds we faced in Q4 weren't only market-related. News out of Washington created some noise as well. The recent LLPA increases in high-balance loans and loans in second homes put forth by FHFA Acting Director Sandra Thompson were a bold move following the conforming loan limit changes at the end of November. These fee increases are the clearest acknowledgment yet that government subsidies for certain parts of the mortgage market are unnecessary when the private market continues to serve them efficiently. By focusing GSE capital and resources where they are needed most, the FHFA is achieving some very important objectives. One, greater support for the GSE's mission-driven activities. Two, increased safety and soundness. And three, the continued crowding in private capital, particularly in areas where our specialized underwriting and loan administration expertise to more effectively serve home buyers. As a leading partner to the GSEs and a leading voice for quality and innovation in housing finance, we applaud this move by the FHFA. Finally, I would be remiss not to highlight the continued progress from our RWT Horizons initiative. We are quickly nearing the one-year anniversary of launching Horizons, which most of you know by now as our homegrown venture investment strategy, which is geared at investing in early-stage financial and real estate technology companies. We believe this business is poised to offer meaningful alpha in 2022 as our portfolio of companies advance their strategic goals with our support and grow enterprise value. From day one, Horizons has demonstrated Redwood's firm commitment to supporting technology that enhances the housing finance industry's ability to serve consumers and investors. Before I hand the call over to Dash, I want to reiterate the unique positioning that Redwood is in, not just in today's markets, but going forward. Certainly, volatility will persist, but we see a number of supportive tailwinds for our business. When I consider our strategies, our operating companies, and our investment portfolio, we are excited about our ability to navigate and perform through these markets to deliver for our shareholders. And with that, I'll turn the call over to Dash Robinson, Redwood's president, to discuss our operating results.