Earnings call transcript Q1 2023

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Operator

Good afternoon, and welcome to the Redwood Trust First Quarter 2023 Financial Results Conference Call. Today's conference is being recorded.

I'll now turn the call over to Kait Mauritz, Redwood's Senior Vice President of Investor Relations. Please go ahead, ma'am.

Kaitlyn Mauritz

Thank you, operator. you earnings us conference thank first for and XXXX quarter call. everyone, for today joining Redwood's Hello, With me Chief on Executive Officer; today's call are Robinson, and Christopher President; Brooke Carillo, Financial Dash Officer. Abate, Chief

during performance I want to you statements with Before we forward-looking management's or statements. to today business begin, presentation financial constitute that remind certain made may future respect

cause Forward-looking risks and involve and assumptions actual to statements results that are based on current differ materially. that expectations, could forecasts uncertainties

Form the could differ read and provides Company's impact to XX-K, you expressed on of that which results from description Report factors on encourage be may have in some of to We that cause actual performance a statements. Annual forward-looking material those the the Company's a

of and should The our financial which financial a On and redwoodtrust.com. accordance this measures call, GAAP be we in our on financial not are GAAP. substitute quarter between reconciliation might or GAAP financial website measures for non-GAAP first non-GAAP with also considered A performance provided in also both available refer prepared isolation provided utilized as Redwood measures measures. in to non-GAAP is Review,

we only today's as note that subsequent reflect the information contain of circumstances. undertake are obligation intend not Also time this that today. sensitive call conference information to and of content And no do update accurate to events or

available website later our will today. on call today's be recorded being Finally, and is

I'll now remarks. turn the opening to call for over Chris

Christopher Abate

handing to front us I'll Brooke and appreciate I performance about before to and joining begin opportunities first remarks our everyone. today introductory earnings market Redwood's some our operating afternoon, Good the financial us discuss you the Kait. Dash you, results. in with first for over Thank quarter and call. call of quarter

for we very productive return pleased In quarter a were the it to sector, mortgage light of was positive Redwood. the economic end continued shareholders. with stress in quarter Overall, for a first

$X.XX non-GAAP share distribution earnings earnings GAAP our the and quarter, were were per available Our for share. first for $X.XX per diluted

Our quarter-over-quarter. XX, share $X.XX was March GAAP per at about down book X% value

estimate Since whole March across The book XX, Residential earnings in we is value continue activities, notable and billion from distributions mortgage was and end. first Business largely healthier to flat book $X almost in loan including quarter improvement our Purpose Lending our current value driven by banking protect quarter platforms.

the freed year. rising run the to market dispositions we've of relatively where rates chosen left capital up inventories, going first the in with meaningful and to over past conservative positioning. These subsequent allowing Residential our of quarters took in is steps be forward. In efficiently and more recent light further reduced reduce This endured capital step allocation, light quarter volatility Banking, platforms capital has rapidly us and very we in our particularly Mortgage operating the the market with to costs, in

liquidity, and low flexible continued robust market be leverage, to With and us financing today opportunities. sheet our and in balance remains allow strong strong will capitalized

As approximately of a and quarter, boosted our by cash actions year-end cash equivalents we XXXX. the first XX% in our from result

greatly to in also capital opportunities forward. partnerships and going significant developing have expect we our enhance We private progress made liquidity that production

the to themselves from the investing warrant within opportunities. these first Away results in attention, conditions particularly Redwood's financial quarter, as lend broader sector conditions

Purpose we underway landscape Lending sector investing. has in the in As headlines as A amongst disruption expect and the the now Business finance create and opportunities you as reset dislocation This know, benefit mortgage in both March. regional competitive our reckoning to the businesses, for extreme well quarters. banking is since third-party coming dominated Residential something portfolio will financial banks,

should fixed asset other on the securitization strategies. operated match liability has or belief that aggregator, prudent As rate mortgages mortgage a through since non-bank our be mid-XXXXs XX-year business funded residential the

to effectively with interest deposits, chose Fed accommodative extremely owning rate loans As funding associated of with risks a result ignore some unhedged. mortgage them in the often banks policy years, by recent

for This been markets. conservative started Residential S&L behind in music constituents had was quarters. recent asset difficult securitization which for admittedly seen Banking since banks to when the the Fed hiking, The crisis, the mismatch our created non-bank private a a rationale below-market proved helped liability replicate depositories. But for headwind stopped resulting not mortgage Mortgage in to key rates fuel the now has in posture many

of banks. we such efficient liquidity remains of as far is can early bank premium. three, With cost reliable the through a dust offer the leading emerge counterparties easing to Redwood function to the Fed the from a to accommodated at as cycle capital settled, rising. we pandemic. extremely rationally markets. we the few are expect the Two, with mortgage takeaways partners One, spectrum And to time, head finance as Over COVID experienced positioned more the market prior

has has bench and platform our residential as who Our of buy deep a served competed loans. RMBS bonds aggregator an that reliably whole investors

early, seeing bank signs of in believe residential are we a allocations we fundamental shift overnight, go that anchor asset our strategy. will changes definitive nothing but forward While conduit

newly We lead would to strategic dispositions opportunities. more investment certain may us originated by to sell expect otherwise increased portfolios. be with also which an scalable This held loans, banks appetite in that their present

over evolves. this will always, we user-friendly reliable As channel developed be as the and relationships time have valuable

a coming identify credit liquidity provide are an and likely platform as best long tailwind to market our concerns the for our and customers be so to be we where risk appropriately, liquidity our as BPL can for products share priced gain serve diligently customize regional for premium areas at opportunity banks will addition, months. In in us highest

we debt landscape homeowner underlying evolving mortgage how in in remain the also equity. unfold is on focused financed, changes As

home their steadily into we options, tap investment equity without have investment consumers allow grown adding to Over several in which years, store value last monthly HEIs our of burden. the this debt or to

situated largely position currently to is rates in institutionalize as consumer very and equipped for elevated not credits, strong. the minds, still a fully to this remains meet to putting unique the With investors. HEI align to moment, access truly demand product financing first best our Redwood better consumer to and mortgage second-lien constrained marketplace very, In the

vision. of that support compelling us our Looking ahead, in a opportunities we long-term see number front of

that Our strategic advantage, of complex as over XXXX will our markets March. through rotate platforms positioning conditions the experience the investment likely role in an our believe to as navigating as model, progress does in diversification ability well both that remains and to evolve competitive issuer of began portfolio our the cycles. our market an many the We our due as shift nimbly operating a between investor we as across

Dash. With that, I'll to over call turn now the

Dashiell Robinson

my financial detail. results across cover that it investment our from it To is locks two residential Brooke our market in to performance approximately Thank worth given focus to years portfolio you, on our start, before handing the more I'll XX% of remarks ago. focus Chris. represents three in over slowing on an priced noting business portfolio now direct deliberate increased under capital reflects overall our conditions. This the just a up of investments attractively XX% allocated segments and

putting During assets we $XX created judicious and to in work capital in of return mid-teens. deployment, the quarter, million approximately first the profiles third-party with remained organically target in

for for monitoring shorter in duration than in and continued the opportunity primary we our purchase. secondary opportunities have capital As analyze senior including markets we the structure where are securities, typically advantage, deployment compelling is for competitive both that we a believe with more Chris a the teams and actively set emphasized, and

relative events for the credit concerns driven supply spreads banks bank began auctions more reemerge selling. from FDIC instruments of March This with around when liquid in regional by value increased pressured to other MBS wider or

saw credit action. well and portfolio from largely quarter. Underlying We this of trends performed existing delinquency in price unchanged the in and despite quarter broader Our rates cash the stable healthy fourth flows book were the first XXXX. remained valuations

our loans remained our jumbo backed Sequoia X% particularly strong performance securities, modeled in these namely decrease Credit RPL expectations. larger Fundamental portfolios in to holdings. now and re-performing XX-plus our a performance portfolio has outpace in with and within delinquencies continues residential day originally notable below those by delinquencies within

re-performing the our Given of sits the a amount these end adjusted within loan our that that XX, estimated million these XXXX, and appreciation of March which quarter residential LTV date, reminder home at to for $X.XX our loans to portfolio XXs jumbo stood The price equity at of investments. sits is per demonstrating discount, $XXX share totaled it or net in average trends, low XX% underlying securities investments. in portfolio realized mid worthwhile

both multifamily has construction trends, closely we the delinquencies portfolio space. low, also borrowers initial Overall, and given financial versus remain in Consistent for performance certain recent overall timelines the asset following activity historical are But management high-profile with our the in workouts for our seeing market, in market picked up. are underwriting. and our BPL stresses increase BPL team

the and financial critical to sponsor their our Trends BPL asset feedback broadly in team underscore and more sponsors our management in from quality the pipeline the wherewithal with the of in through. commercial active focusing our and experience projects portfolio, estate real importance on loop building go-forward see and remains sector

production remained term production constrained a quarter, best We of fourth demand. XX% the first as $XXX in create of inventory with roughly continue Our recent flat to BPL loans the and trends, for with affordability rental XX% consistent housing natural largely and in a funded mix low support quarter, similar quarter to the million first bridge.

provided from a recent capture bank aggressive to we react and regional the including mid-January loan platform, buyer. light momentum in in share as wins intelligently a lending disruptions. overall more our market in ahead, to volume terms as quarter early of first are BPL back competitors large with step Looking sale positioned repeat for to Key lower certain other the market

single We of loan the also repayments. primarily included parties continue majority our securitizations the with bridge to sell to loans replenish to asset in remainder, third bridge

that BPL, in become distribution catalyst investor As part to view have growth. our these within in uptick of as seen more further meaningful a we loan an sales important loans interest strategy an we

market the and selective. turbulence up sentiment more quarter played As out, became sponsor picked

in break continuing term top borrowers fresh are West in relatively put renovation markets to certain a seen into price that already ground begin longer strong. including That markets have on demand said, family rental down for others build strategies on the we remains single where seeing Coast. leg in to rent southeast traditional With largely capital projects,

which a asset relatively yet will muted seen seen has activity hit it activity a hasn't as office multifamily remains view crescendo, sector, than to recent be stabilization, class. other our in multifamily refinance at the commercial fellow in influence stress the While how

over securitizations on of XXXX lowest quarter inventory majority mid-XXXX. the the of XXXX loan we since distributed entered just through over balance million with exposure $XX the loan two just completed business XX, which Our our vast was $XXX with sheet, March net residential the during at million of Sequoia

to are and business acquisition bulk. We renewed the originations we of to in recutting expect mortgage include to our which opportunities an likely landscape, portfolios flow well of into the positioned lean evolution source

would add pricing require I in success covered opportunity the running but there than the with traditional that will models. regional loan Chris detail the fallout, bank more

We are evolution a are of home in optimal and MBS. liquid agency loans whole likely aggregated shift loans, in creativity mortgages witnessing are ownership. or how capital an pools sale non-agency require for funded, whether fundamental more and This will in be that rate XX-year fixed the permanent prepped how securitization, or fund they

will all take market reached it like competitive housing its for through well the to ourselves is this the for equilibrium, the time to market. While various parts advantage operator new efficiently reach connect of whose seasoned ability key finance a

the Brooke to will results. over discuss I to now financial our turn call

Brooke Carillo

quarter our fourth GAAP which The credit stability, to Dash. value were the X%. earnings on $X.XX per basic reflecting the first $X.XX quarter from and $X.XX diluted for quarter first Thank Book $X.XX the net essentially compared quarter, and quarter the portfolio $X.XX in primary investment a during of We to economic and equity flat compared share to negative common per dividend reported book unavailable was changes share. or value $X value quarterly fourth reflected $X.XX a of drivers spread unrealized approximately sale during per securities, gains stockholders for return per fair XXXX. of income share million of share therefore, our in available common for positive you, the

quarterly fourth all our a book and unrealized available our reflected EAD Importantly, in $X.XX assets the common for on in an value. share common basic per gains was by banking return a execution. distribution quarter-over-quarter EAD change of driven $X.XX income, The basis, of and per was are a therefore are X%. on Earnings share XXX% increase per $X.XX negative in as losses distribution in or mortgage to improved share earning resulting substantially quarter, mark-to-market reflecting equity compared

in higher Overall, versus SOFR. corporate the a lower This The was financing GAAP on lighter fourth quarter. income the higher net from cash. by increase mortgage costs corporate primarily banking expense balances offset yield stable and interest reduction net nominal average lower income from was due interest to from and debt was nearly

Importantly, quarter recent debt accounts Unrestricted increasing money levels, the cash our at higher cash XX $X treasuries, were at March interest to primarily momentum, economic of from and income million investments. money million center due short-term banks. and market $XXX held global from exceeded its net bridge continued income fourth in and equivalents funds marginable

the capital, for we our $XXX for grew the inherent contingent raised While our capital risk which robust, this as over categorize of to liquidity we we by of position our remains needs. Optimization million other capital and liquidity continue or capital as in quarter corporate, outlook cash the EAD on unallocated portion given hold is growth.

$XX previously repurchased financed proceeds to million as equity corporate inaugural X.Xx recourse preferred we leverage securitized million on in debt $X lines. loans raised billion and almost of warehouse or offering. sold quarter Recourse We of $XX with our gross from the X.Xx declined from

the since convertible gains. fact, we XXXX XXXX of quarter, have aggregate beginning maturities million of repurchased fourth and across $X.X debt million In $XX our the of realized resulting an in our

successfully to fortified consolidating our below underutilized counterparties loan inventory new facility a our Sequoia facilities warehouse extinguishing levels. unencumbered position during related historical our by business counterparties held two further materially to MSR and where established specifically we residential We strongest our maturing financing We investments. the finance with have and renewed facilities, levels previously key quarter exposure with financing

support $X.X actions, of the these retain businesses. capacity, significant our With we to growth approximately continued excess billion

counterparty recent banking the risks indirect We given crisis. thoroughly analyze to continue

and administrative of and fourth reductions expenses. million recent G&A related G&A function personnel $X General and quarter a of non-compensation quarter of the for firm-wide. decreased expenses the included from as approximately severance cost or expenses first XXXX

our we Lastly, provide EAD dividend. perspective wanted our to on for quarterly outlook and

activities. capital activities year, and investing the relative have focus towards reposition we aggregation to our Over past continued strategic to

deployment portfolio loss continue to forward. we carried expected yield see XX% opportunities an in-place Our as of forward increased investment and XX, adjusted March going

the with started late remain to our the impact XXXX lower current and in EAD the we we our near-term below unfolded positive outlook dividend our quarters. our anticipate levels from of dividends Subject next by near-term tremendous established momentum, over year. opportunities moderated in of board, the is crisis the has major the the broader a While second factor expect that mortgage renewed to stresses businesses, to few banking at quarterly quarter in banks. operating thus this March capital made changes to need rate have usage line their acquire as result Several sector regional this behind with residential in recent change loans. A for recently a prospect partner us an of banks signaled determination to

should accordingly. Our businesses be positioned therefore

open we will questions. with operator, And now that, line the for

Operator

you. Thank

from now Suisse. ahead. conducting Doug First Credit session. be We a will with Instructions] Harter question-and-answer question Please comes [Operator go

Douglas Harter

Thanks.

of Is attractiveness On and about relative loans? opportunity higher just how about of the would that do you banks. last Brooke that comment relatively newer kind production the think be those talk you coupon? the Can lower older, you about is made from regional coupon, that

Christopher Abate

I'll very shot sure Hey, to a but take working We're constructive a banks. generated lot now on long a with of Chris. banks. work opportunity Doug, with we history the discussion, that. that's of at I'm right have regional it's

more sticking conduit with seen of of anchored In can change loosening go we've to to portfolio. Obviously that. what's happened years the that and we policy, non-agency banks recent Our Fed expect banks. monetary into we all historically with and was loans

Having good some for to new a for is sort to a that mortgage opposed banks big now independent We but more of but We as opportunity production. re-anchoring started our think us us. is underway, banks to which balance, to banks. big conduit go discussions have opportunity early forward I are the think

we're the over going next So work few quarters, to towards that.

sitting expect a but significant sheets – opportunities as what's collateral, at is bank is right to know, do discount. portfolio emerge, is lower you I of fair its balance coupon value most on now which obviously

and extent out, season it'll the to we take certainly rally So position tenure be the do maybe them. as in so. portfolio would But well to a securitize in collateral mortgages a to that comes

I the So both, think focused now we're most it's I think is go-forward. what on but

Douglas Harter

your And see bank versus you what to you where a exit. capital you in remarks guess, is current this kind that? as of loan or yet prepared of that we do sale cost bank convergence jumbo bank still rates Are mentioned I securitization on below increasing, see at of kind or point yield the

Christopher Abate

I I from pack. two convergence say towards a call out or one market there's But for Well, rest stick the the what execution. banks there's that a would been would significant

far probably market. low-X the today securitization as rate what is mortgage non-agency high-Xs, think I clears as and

I and going cost of today, are the know all which story we is towards think that of banks banks the are converging deposits the up.

have price you we low, and If mortgages had seen. what that's pretty can you cost zero capital,

One pulled on a reasons residential the gotten have with conduit. side lot we of our the why back or more conservative

seeing that but We companies really big and reasons, Now about the can mortgages well. belong rate realizing XX-year I change I fixed as Redwood. are that banks is talk that picture like with the think we're think the

are light It's we I And that it. something going for change. to that realizing it's overnight think to be the as our work that expect it's not towards not an should regulators but very over volumes, transitions to be a switch, be going coming good quarters.

Douglas Harter

Chris. you, Thank Great.

Operator

from comes Eric Hagen go with question next ahead. Please Your BTIG.

Eric Hagen

Hey. dividend there? commentary level you a towards dividend on Can say on value of all payout Thanks. Hope the as well. see is what end sustainable or gave Thanks. yield you book going kind you based the

Christopher Abate

banks. the a the of somewhat based changes particularly play the all we're significant in of is Yes. that business transition with We on think out, state seeing

the sort our the current step as far seen a which Brooke with you've across sector, in as commentary going from where to realigning XX% levels. decline of dividend was in is with range probably what XX% was think I her

as As hopefully in we a business know, thinking, is XX% of have declare that be significant that is with sort start to as no likely I to balanced. far today. our It's the to got higher. to think we June cash. the neighborhood Board think than just paying We've it lower it XX% the the starts you will probably issues But will as the dividend. level of getting obviously, going where in dividend, is And transition,

Eric Hagen

and how to see you the Yes. here Got it. unsecured My debt, market that access is helpful. ability your Thanks. leverage question your second That's valuation think you relationship you leverage protect a your to between there's threshold and in about generally. the from do the standpoint Like your about more valuation like that whether and targeting like portfolio? unsecured you're feel the

Brooke Carillo

can quarter Yes, think I recourse the were significant in amount to that was first in that saw to start clear. leverage I I with successfully of dispositions in Eric. Hi, mean, attributable the the reduction that. general we able our we

market we structure unsecured the that I additional welcome capital when think of preferred the in And saw a side, last arbitrage on capital we last the of context a those we equity raising I there. saw. bit tapped certainly yields think perpetual we

I a we another market, time top the say course that, financing But that has last were alternatives bit. kind would on reversed accessed one the of and the secured that convertible we seeing unsecured and really of

cash to We was X our million of to mid-X financing. effective an seeing book. We cost up mark, of January at at of area so capital or above that secured the just about kind in in are healthier $XXX freed accretive

appealing – unencumbered million a maturing hand we have other opportunities. do address more an buying the cash of that assets another XXXXs think of XXXXs that terms our been as addressing conservatively just So XXXX, relative dated the well. on be debt the million plus and we our of hand cash $XXX we to to a risk $XXX already around on dated longer yielding only we with other But significant I back we that's amount treasuries through view And could means of raise have kind a maturities to short XX%. when what that of adjusted of invested to $XXX investment about are portfolio think on in We've basis $XXX unsecured cash so. been million XXXX, have XXXXs million in that

now, right focused. So we're fairly

a I think capital commentary, to dividend continuing to of do, focused I optimization we and sure our shareholders. said on we my have to make we're focus have them – that on lot in for just

Eric Hagen

guys. helpful. That's Yes. Thank Got it. you,

Operator

Next question, Please Raymond Laws ahead. with go Steven James.

Stephen Laws

afternoon. financial here? expect from talk Brooke on maybe the we year? can move flat grind of Hi. middle as follow-up questions, Good lower you income, about how the any the the about basically you we think If of we through net should NII sequentially? do Kind to interest trough, to

Brooke Carillo

run Yes. Steven, a said I is quarter that think we last QX rate. saw good fairly we

economic interest obviously, than quarter from So very had a net higher reduction modest $X which million too, remained about very, GAAP. focused we We the was income fourth XXX,XXX. really on

And in mostly, a is the around capital upside here interest it quarter. GAAP end to grow kind our we're portfolio, the that sitting forward I up was the from in income. That's net captured which million that's at fourth over and $X of Sorry, seeing $X deployment the interest the at income. investment to from net in continue of and of discount effective not than yield million is, quarter accretion NIM interest XX% the almost GAAP opportunities was higher function and think a other both assets

Stephen Laws

you just the next how of mortgage and or contribution maybe contribution banking think we there that segment in the then jumbo. in low your pipeline Can or from very one think Dash, and think you should for quarters? prepared volume remarks, BPL net about on the about, that And about strong mentioned of I pretty of I which was inventory held-for-sale Chris in but talked I Great. talk forget couple for here QX mortgages, current margins

Dashiell Robinson

flat consistent viewed real still potential build And Dash. our sort the in about Sure. a Yes, volumes of the solid year. obviously upside we later upon We we quarter. to in it with volume in fourth the take pretty quarter-over-quarter, XXXX. some for talked BPL see was I notwithstanding can that. what it’s volumes the Steven, as quarter QX opportunity

is of pleased and between We over continue up pipeline. you particular few to quarters, we volumes increasing for our reasons. a quarter-on-quarter. production just term appreciate attention would mix pay that term the past bridge the is They're we few can see percentage an One and the XX% the to the things to about relationship expect were of really

their rates working benchmark Those well being one, quarters low-Xs over the than off were highs a with better coupons of high-Xs, from Number couple ago. the X%. a lot are maybe they in tenure

momentum portfolio We out are were how meant as businesses business, see terms starting together to to in of our you – more is which bridge those business of feeding the always term know. work that

with pleased we're So that.

overall the than bridge, With funnel ago. was smaller quarters few is it a

all And directly of folks it years. over that been to. of our smaller obviously the past well multi business As builders in financing bridge, opportunities some – the multi particularly and to in overall big us of what's for terms on has our smaller But of down. with are an seeing XX%, it the down the But just depth repeat for away with they overall pie – in are spots and balance, those obviously for to that's those general activity, customer or strategies, rent couple or high interesting comes bridge, just you over that's pivoting we in really sell sale that's helpful. going picking than opportunity the a folks relationships, been space new certainly is with know, from

Stephen Laws

this you. Thank Great. comments Appreciate the evening.

Operator

George Bose go Please with question, Next KBW. ahead.

Bose George

driving just of size just right? Actually Review follow-up it. the of was that And mean, sort BPL market. the the like guys afternoon. Redwood Is what overall of Good Actually the the on that you to the in size market, wanted curious quarter-over-quarter increased everyone. slides, I looked in it that? Hey,

Dashiell Robinson

with multifamily pretty obviously two larger the We way stabilize products, of consistent. properties. that homes customers to and are single-family folks serve our all We own the sort suite owning of that across or one it's folks thought we spectrum, operating

quarters a think added couple I see the overall facets few same. multifamily. as pie a of So additional of the market in ago, We about specifically we the probably

that Bose some built. seeing So we've multifamily some we've may what you're of as expanded with be products the partnerships

So banks, going be particularly said, that we the that's and with regional BPL that definitely view maybe overall, in what's as the call you're seeing. with tailwind that with quarters. going there the But Chris big as too next a few the increase on on

Bose George

discount Great. going dividend And the EAD? can actually that EAD, does the remind and flow then accretion through Thanks. Okay. you me just to back

Brooke Carillo

correct. That's

Bose George

right. That's

Thanks. Great. Okay.

Operator

Next question, JMP Please ahead. Securities. go with Delaney Steve

Steven Delaney

Hello, you me? hear there. Can

Dashiell Robinson

Yes.

Steven Delaney

Hello.

to in Having really was cellphone come Look, great. the Okay, apologize. through today, insightful. letter shareholder

way a you quarter lot bit. there financing. or to global had ongoing your mentioned you've that, any have had read whether the talk moved you borrowing and you have had primarily I borrowing tightened whether on Maybe FRC? – on one York can of little that Dash, on. sort away what's should focus comment up change to with Thanks. – New a certainly banks. that with going from – maybe make This bank you think a you about you your little trying another And relationships in we regional And into the or relationships also just color about relationships you did

Brooke Carillo

one. put underutilized I few quarters. said volumes Yes, banks. money resi facilities with remarks focused. I center We Redwood a we in strongest our prepared out too, But just this chart are trended take financing pie the our exposure exposure in around Review have our of counterparties. A the we that lot certainly of financing largest given consolidated just largest our a what we where capacity having Brooke. last extinguished it’s Steve, bunch can in was with frankly terms Hi of

headline we're it's about to we think all focused feel our are risk learning where financing news and very crisis. today important We I the management as those of lessons every structure continuing for do from the evolving agreements. evolving us But banking good yes, financing But counterparty really is unfolds.

Steven Delaney

Thanks, Brooke.

Dashiell Robinson

borrowings FRC, any do to we answer with that. on question not And have your

Steven Delaney

you We portfolios? in Well, has the the Dash, more Dash. pipeline know you the to coming on sort Street sales the a just SIVB faster. anyway. run on loans capital the just any those next and And you, strategic loan sales The if and building there from – putting one about potential BlackRock about Thank Do was FDIC from residential work run conversation that rather with on whole are of than portfolios? mandate has the those SBNY. MBS whole know communicating been dispositions

Christopher Abate

Well, Steve. be banks this held There is to these are There – the yes. loss. Hey, lot commercial loans. answer continues bid of whole loans. at These a challenge a the The collateral – offer. is significant is

I mad think don't I so know But there's inventory. it's obviously BlackRock, dash – no to to the liquidate And instructions like seems the them. it

think And so of to they're kind pipeline, speak. working the I so

So some come been have there out. certainly now, lists right that is

think things RMBS, something traded it's of I that's some well, have loan think, but seen traded, haven't waiting we're for. Things much The traded whole that way easier pretty liquid the the loans, I in of I collateral. pretty more AAA still distributions, have well. have whole mostly so

Steven Delaney

Waiting of to to XX-year Going But their there result years shareholder it I that and not a they're going you asset think allowed asset banks XX through the of loans be those mix? Do percentage doesn't going forward, be think just that regulatory over it the appear a this, liability see. you that really that significant ago, broadly? lived on where pressure did. would've letter. in on to S&L could the that rate you of type on hold fixed what's and management crisis that – with And this would've do problem duration touched you evolved. thought as

Christopher Abate

more back a for just Yes. out million sheet. is rewind to to allowed the – $XX got of they're and is, the or if clock, them turned few And have mortgage repositioned. go was market. mortgage hold to A was to unrealized the our I billion $XX not, we And sheet, they think banks a whether or crisis mark over got home have us balance to with balance how great we've years effectively big the of losses financial mean I They on and big difference them less seated Ginnie in started credit, to was subprime. out the there what two, was And they reasons independent Basel really the which One that. you accumulating then did loans. they treatment. banks. cost able effectively at be were The not a to no one, more business has

So through you is do what It kind get. mark-to-market. what goes less, we more P&L you or everything see the of is and

just better holder at that And world is given risk. sense. rate here, losses, We fund of financial prospect were I the a the crisis, you the to deposits doesn't one our the When just with the of crisis, XX-year the Redwood's we're why balance of that fixed severity a created securitization. was of after how a lot make of think exposure, banks more adding look not just unrealized similarly I these credit through repositioned match So think obviously. is, the of we're reasons great which sheet, funded

– partner it's me to for very we're so And logical a the banks.

position been this at to have a don't upside I many do banks to much there add risk And just I We for point. this change. be years. see expect to for wanting

Steven Delaney

of three all from comments the appreciate And you. you. Thank you. good. Thank Very

Christopher Abate

Thanks, Steve.

Operator

with Securities. Wedbush Next Coffey Please ahead. Henry go question,

Henry Coffey

to phrase I and very really the use. two need this. really impolite to the foot have any GFC in back said, at create a out we go put assets. sell have going say, to no, But a a Steve any tremendous There's to have to and there same that on But and the a gone that these the always it's I not have institutions? you about last Are anything years like that it's of after several to factors Steve. the XXs of drag them market, earnings with sort hold Yes. to there recognize more you also would because urgency there's these questions. back on have to. for banks going – Because life underperforming concerned thing you some move you banks? I'm Greetings, on and But capacity there Are seeing there would with it's is get a to enjoyed to position losses

Christopher Abate

not best interest as be can, in I towards Yes. could changes this collateral. the of that answer you the probably system there liquidating regulatory banks I that's push mean, My that sense at point. is to know

But fixed I them at sticking loans small banks, degrees some portfolio far varying think – liquidate. we dealing the think with and as and are. the banks, sheets were the in incentivize long what mortgage product the greater of issue others, of that rate balance as big same banks, that is I any who to those them than might the the duration regional know when you to look

sector I foresee shift risk of rally major candidly where mark-to-market losses speaking, don't becomes a the these are is the you purges underwater. the palatable I in where the lot sheet mentioned, liquidating think banks, I thing. As because to more probably of the if tenure, of shrinking some balance kind unrealized one those a point

those might answer period is the to shrink, to So time as go move to of differing me on circumstances over the up. of losses perhaps real kind incentive a

Henry Coffey

what though, early will that next of six this Is of dragged mortgage say, we months, you comments over purpose sort to a the side, of it's do based mortgage in the business just the That's on equation? think around more and mortgage Or the XXs. some side out it jumbo predominate to your a become of a piece XX saw the side, business lending? say They Yes. of more larger balanced sort than the forever. subject the it residential fair

Christopher Abate

it think we Redwood. good of capital I as but grow for cyclically changes we to as independently very, very we balance, think be the to a definitely sort expect like these be significantly have I each to could can.

NIM is well. is NIM earlier mortgage the and of point, products for the we've think we jumbo and drag years hallmark for a as banks going mentioned, do. among credit buying As story this to I been and at risk I to big XX distributing other be your what also

very Redwood about cleared on we thing two risk. And nice is securitizations completed distributing one – inventory quarter. so our significantly it. we're or this cleared We residential And very, of securitizations focused basically all have

basically that what today sitting is more rates. X%, it does some – run to and mortgage Really is that clearing the it's the with loans about we're worry be current that what of not X.X%. risk. having that are We're X%, not accumulating that means aggressive out So on to allows us

do actually won't think expect I they be to positive healthy we're this for overnight. these a spot spot, very happen And changes, great in grow. I our to a business. But So

Henry Coffey

don't and multiple us on it cash in to book any convinced sentiment certainly you ample I the Is dividend fronts, the and and have liquidity deeper go value could earning capital but you'll next there resources again? book build, you have – process continue few into the you buybacks grow? think the we dividend is I seen much and be the probably the thought et you said know a we mean, you to that a cash, cut, there cut say take the know you growing we've in a there more, think have so Board cetera. over know a thought process to cetera, But value quarters. I capital, et deeper is get the

Christopher Abate

for something It's uses. as triangulate going of think it. is really we're the we EAD great you capital, answer. right uses to accretive around have alluded, to we're trying piece the one But have

the of a to just we've growing and underway to we're given transition factors XX% the now, me, is, of what we've been the that knowing And that the of some all volatility right so in that and goal. those seen cut of there's is trying sector our envisioning triangulate market But I in book that's in precise some not around into think level Again, and sort to businesses. factored the in certainly something range. that's XX%

that will be… So

Henry Coffey

tough it's have very good think you could pulling thank I No. make to want much. be. I I But a wouldn't I of job to off. it don't do it mean, call. a

Christopher Abate

Thank you.

Operator

with Please Piper ahead. Barker go Kevin question, Sandler. Next

Bradley Capuzzi

Hi. for This is on Barker. Brad Capuzzi Kevin

question a me. for Just quick

down to levels. expectations Thanks. year? G&A of just coming through. from remainder cost reductions the prior on XX% Can expenses to you call we the on for mentioned XXXX an the seeing how progress You X% We're will update expect run be your get for rate the

Brooke Carillo

question. Thanks and $XXX we would transition The of the for would still $XXX We for severance track. I G&A this be some really items here – side well. really have which last our comp guidance where was number, expenses. on to our we'll biggest as were related in we on the million variable versus million have down in still base end we be that XXXX, guidance around that Yes, level think had The on tied quarter first we kind quarter's gave equity and modest but are XX% is year for in to of that we're quarter. volume up really Those last cash should most that of another both comp. quarter beta the performance-related around those

fluctuate but – with those So results. financial would

guidance we last best the that out quarter think is still. I So put thinking case

Bradley Capuzzi

it. me. for Appreciate That's you. Thank all

Operator

the to session. Q&A come our end teleconference. This We've concludes you. today's Thank of

time your thank disconnect may and your You at you lines this for participation.

Redwood Trust (RWT) 27 Apr 232023 Q1 Earnings call transcript