Redwood Trust, Inc.

Good afternoon, and welcome to the Redwood Trust, Inc. Fourth Quarter 2023 Financial Results Conference Call. Today's conference is being recorded. I would now like to turn the call over to Caitlin Moritz with Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Hello, everyone, and thank you for joining us today for our Fourth Quarter 2023 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer, Dash Robinson, President, and Brooke Corillo, 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 and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts, and assumptions and involve risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report and 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 to not be utilized in isolation are considered as a substitute for measures of financial performance prepared in accordance with GAAP. The reconciliation between GAAP and non-GAAP financial measures are provided in our fourth quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the content of today's conference call contain time-sensitive information that are only accurate as of today and would not intend and undertake 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'll now turn the call over to Chris for opening remarks.

Thank you, Kate, and thank you all for joining us today for our fourth quarter earnings conference call. As I often do, I'll begin with some commentary around Redwood's broader strategy and market positioning before Dash and Brook cover off on our operating and financial results. In 2023, Redwood entered its 30th year as a public company. We took this milestone as an opportunity to complete a corporate renewal of sorts and to position the firm for the next big housing finance cycle. But the last mile of the outgoing cycle has been stubborn, especially given the early year sell-off in rates our goal has never been to perfectly time a trade. Rather, we're working to ensure that the winds of change in housing finance are squarely at our backs as market activity begins to pick up and regulatory changes begin to take shape. Putting it all together, we are on the precipice of several operational and strategic milestones that will help drive our story and our earnings in the decades to come. A big part of last year's renewal was to strengthen our capital position. This included re-optimizing capital allocated across our business lines and building a significant pool of unallocated excess liquidity to be squarely for offense as market trends begin to shift. We accomplished this through the completion of a number of financings in the fourth quarter, as well as an inaugural unsecured debt offering in the first quarter of 2024. A second facet of our renewal was to boost our operating efficiency. As Brooke will highlight, we achieved our goal of a 5% to 10% expense reduction in 2023, landing on the high end of that range. In 2024, we have a similarly ambitious goal of further boosting efficiency through scaling our businesses and continued cost reductions. As we mentioned previously, over the course of the last year, we began de-emphasizing direct portfolio investing in favor of co-investments and joint venture partnerships with leading private credit institutions. This strategic shift carries with it a number of benefits to our shareholders. First, these ventures are formed with large capital providers who have long-term strategic allocations to our core product offerings. Second, these joint ventures create a pre-established and reliable takeout for our products that enhances our liquidity and pricing power, ultimately resulting in more predictable revenues and profitability. This includes not only investment returns, but also recurring fee streams earned in overseeing these joint ventures. Finally, these partnerships help us organically scale our operating platforms at a much faster pace than we could achieve on our own, ultimately strengthening our franchise and supporting further earnings power from our platforms. The establishment of new and accretive joint ventures is not merely an aspiration of ours. After announcing one such arrangement in 2023, we expect to continue forging partnerships with additional light vehicles in the near term for 2024. When it comes to sourcing the raw material to feed our joint venture partnerships, we remain optimistic that the prospect of major bank regulatory rule changes, coupled with the balance sheet pressures that many depositories already face, will compel more of these institutions to partner with Redwood. This should in turn open a vast spigot of loans for our operating platforms that for years went straight to bank portfolios often without the underwriting rigor demanded by the capital markets. Though the proposed Basel Endgame regulatory changes continue to receive an onslaught of opposition from paid lobbyists, it does not change the fact that many banks still require additional risk capital or an outside capital partner to prudently manage their asset liability exposures associated with long-duration mortgages. Furthermore, the long-predicted stresses now emerging from banks' CRE portfolios make the solutions we offer all the more accretive. With this in mind, we see banks looking for solutions and not waiting around for regulations to be finalized. This is evidenced by the number of banks we are now onboarding and the volume growth we are beginning to see and expect to increase over the course of 2024. This growth is notwithstanding any additional benefit that would come with a sustained decline in mortgage rates. We ended 2023 having secured new or renewed jumbo flow relationships with almost 70 banks. Onboarding new banks can be challenging due to the work stream changes that working with an outside capital partner often requires. But as these valued partners make the transition to working with us, they've been won over by the expertise of our talented team, our speed to close, and our seamless execution. As our engagement with banks ramps up, It's important to note that our commitment to our deep base of non-bank originators has never been stronger. The message we emphasize to all our origination partners, whether banks or non-banks, is the same. You will operate more safely, reliably, and efficiently with a trusted partner in Redwood. To complement our focus on first-name residential loans, we've continued to invest in our new home equity investment platform, Aspire. Today, home equity remains the largest untapped market in housing finance. With housing affordability at its lowest level in decades, homeowners continue to look for innovative ways to access the equity in their homes as opposed to moving. Since launching Aspire last year, we have grown our operating footprint with plans to extend to as many as 15 states in the coming months. To further address the opportunity we see in home equity, we also launched a traditional second lien mortgage product to our network in January. Combination of second lien loans and HEI has resulted in a unique, coordinated solution set for our origination partners. Our residential investor loan platform, Corvest, is also beginning to benefit from the pullback by banks in anticipation of higher capital requirements for investor loans. As we noted last quarter, we have been advancing negotiations with several banks on partnership opportunities that would allow us to access their existing pipelines with an eye towards offering our broad product set and deep capital markets experience. As we think about the year ahead and observe a period of heightened stress for many commercial real estate borrowers, it's worth reminding our shareholders that our business remains squarely focused on residential housing finance, whether single family or multifamily focused. All of our assets are marked to market through our GAAP income statement, offering confidence that our GAAP book value reflects prevailing market conditions. This is important to convey as industry concerns continue to mount over the adequacy and trajectory of C-slip based accounting alternatives. As we take stock of these past 30 years, we're extremely proud of the role Redwood has played in providing liquidity to parts of the residential housing market not well served by government entities. The long term support of our shareholders has allowed us to continue pursuing our corporate mission of making quality housing, whether rented or owned, accessible to all American households. Our business is built upon the belief that the best opportunities are usually found through initiatives that others won't pursue or trends they perhaps don't foresee. In fact, we believe that there is no one better position to support the changing housing finance landscape than Redwood. We're excited to share our thoughts on what we see as this unique opportunity for our business, as well as our current market outlook and corporate strategy at Redwood's upcoming Investor Day, scheduled for March 19th. I'll now turn the call over to Dash. Thank you, Chris.