Redwood Trust, Inc.

Good afternoon and welcome to the Redwood Trust, Inc. Second Quarter 2022 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, ma'am.

Thank you, Operator. Hello, everyone, and thank you for joining us today for Redwood's Second Quarter 2022 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer, Dash Robinson, President, and Brooke Carrillo, 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. A reconciliation between GAAP and non-GAAP financial measures are provided in our second quarter Redwood review, which is 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 for opening remarks.

Thank you, Kate, and thank you, everyone, for joining us here today for Redwood's second quarter earnings conference call. I'll begin by making some brief comments about our second quarter results, the operating and investing environment, and conclude with some commentary around our outlook and continued priorities. I'll then turn the call over to Dash, who will go through the performance of our investments and businesses in more detail, and then Brooke, who will conclude with an overview of our financial results. We'll then open the line for questions. As many of you might suspect, the second quarter of 2022 failed to produce many bright spots for us or an industry beleaguered by the impact of inflation, including record spikes in mortgage rates. The ongoing repricing of rate-sensitive assets accelerated during the quarter, impacting the market values of even the safest mortgage-related investments. Our positioning became decisively more conservative as the quarter progressed, and we willingly seeded flashy volume headlines in favor of our time-tested approach to managing through-market downturns. Through that lens, we prioritized pipeline turnover and strong liquidity, knowing there were market forces at play beyond our control. Before I get more into our positioning, to recap earnings, our book value declined approximately 10% during the quarter to $10.78 per share at June 30th. primarily reflecting market dynamics in June that had a pronounced effect on the fair value of our investment portfolio. It's worth highlighting that our overall decline in GAAP book value included $1.02 per share of investment portfolio fair value changes that almost exclusively reflect mark-to-market losses in our portfolio due to credit spread widening. These assets remain on our balance sheet, and we generally expect to hold them for the long term with the opportunity to recover these losses as markets stabilize. Importantly, we observed very little deterioration in expected future cash flows during the quarter. As such, substantially all of the gap losses in our investment portfolio segment were non-cash and are recoverable if market conditions improve. Our portfolio's net discount to par now stands at approximately $3.35 per share. As we stressed last quarter in our commentary, our investment portfolio, unique in its composition, takes a long-term view on housing credit and is characterized by its demonstrated performance over many quarters, including notably low delinquencies and continued declining LTVs. The investments in our portfolio have continued to demonstrate solid performance into the third quarter and are delivering consistent cash flows. I'd also remind listeners that a number of our assets have experienced significant home price appreciation in recent years that are well in excess of our original underwriting and purchase assumptions. Without shying away from our second quarter results, we believe our team's intense focus and total commitment to Redwood stakeholders were exemplary during the quarter. A few examples of this are noteworthy. For instance, we actively managed our jumbo and single-family rental pipelines as interest rate volatility spiked, guiding residential production volumes lower for more rate-sensitive products and adjusting our go-forward SFR pipeline as appropriate for higher rates. Along with a proactive hedging discipline, This allowed us to significantly mitigate the impact of negative price action in the underlying securities. This meant our adjusted margins for the quarter, while certainly impacted by volatility, outperformed most market yardsticks. In our residential business, for instance, margin declines during the second quarter were less than half the underperformance of jumbo loans versus their benchmarks during the same period. As we get deeper into the third quarter, most market participants remain uncertain around the economy and we suspect they will stay tethered to Fed actions and the resulting path of interest rates. In keeping, we'll continue to prioritize the path to consistent profitability, which will likely entail lower volume levels in the near term relative to our long-term strategic growth ambitions. Looking ahead, while we continue to proceed cautiously in light of the market environment, the recent wave of market volatility has created significant opportunities for us to deploy capital at extraordinary returns. The additional capital we raised in early June will be a significant factor in our ability to capitalize on these market dislocations. In the second quarter, we also demonstrated our continued alignment with shareholders with our decision to repurchase 3.7 million of our outstanding shares at accretive levels. We have tremendous confidence in our team, our portfolio, and our liquidity, and we see an opportunity to express that constructively through additional share buybacks in the third quarter. Just today, we announced a new $125 million share repurchase program, which allows us to buy shares of our common stock in the open market or through negotiated transactions. As we always have, we will balance the attractiveness of near-term investment opportunities with our long-term strategy and what we believe to be in the best interest of our shareholders. So in such a difficult period for our industry, what will our blueprint look like for the remainder of the year? After 28 years as an industry leader and public company filer, a very long time, the answer should sound familiar. Across our enterprise, we'll continue to maintain a patient, long-term investor mindset that stretches well beyond fiscal quarters. We'll aggressively manage risk, and we'll work diligently to enhance our franchise while pursuing efficiencies. Despite a difficult stretch for our industry, the housing market remains woefully undersupplied, creating a durable technical driver that supports investments in residential credit across a broad array of economic scenarios. In this regard, Redwood's opportunities have never been greater as we work across multiple facets of housing finance, including residential, business purpose lending, fintech, and prop tech. I'll now turn the call over to Dash Robinson, Redwood's president, to speak in more detail about our investment portfolio and operating businesses.