Good afternoon, and welcome to the Redwood Trust Inc.’s First Quarter 2017 Earnings Conference call. During management’s presentation, your line will be in a listen-only mode. At the conclusion of management’s remarks, there will be a question-and-answer session. I will provide you with instructions to enter the Q&A queue after management’s comments. I would now like to turn the conference over to Kristin Brown, Vice President of Investor Relations. Please go ahead.

Thank you, Cynthia. Good afternoon, and thank you for joining us to review Redwood Trust’s first quarter 2017 earnings report. Before we begin, I wanted 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 will 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. They are also included to aid investors in further understanding the company’s performance and to provide insight into one of the ways that management analysis Redwood’s performance. A reconciliation between GAAP and non-GAAP financial measures is provided in both our first quarter earnings press release and the Redwood review, which is 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, Thursday, May 4, 2017. The company does not intend and undertakes no duty 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 today. For opening remarks and introductions, I will now turn the call over to Marty Hughes, Redwood’s Chief Executive Officer.

Good afternoon, everyone. Thank you for participating in Redwood’s first quarter 2017 earnings call. Joining me on the call is Chris Abate, Redwood’s President and CFO. Following my remarks on our key financial metrics and accomplishments for the first quarter, Chris will discuss the quarter’s investment and residential mortgage banking activities and our financial results. The first quarter was a very productive one for Redwood, and thankfully relatively free of market surprises. We completed three securitizations, invested $158 million in capital, which is more than we expected, and made solid progress on our key initiatives for the conduit. In terms of our quarterly financial results, our GAAP book value increased to $15.13 at March 31 from $14.96 at year-end. Our GAAP earnings per share were $0.43 versus $0.31 for the fourth quarter, and our non-GAAP core earnings per share were $0.36 versus $0.33 for the fourth quarter. So far in the second quarter, investor confidence remains bullish, volatility is subdued, credit spreads are tight and asset prices remain at or near their recent highs. All this optimism is despite numerous geopolitical risks and a tepid pace to the economy. No one knows just how quickly or successfully the new administration’s policies will be in stimulating growth. Is it going to be great in the 3% range? Are we just going to continue to muddle through? So against this backdrop, how do we think about investing and risk management? First at our core, we are a pure play credit investor in high quality residential mortgage related assets. We prioritize long-term cash flow potential over assets over any short-term price fluctuations in pursuit of our generating stable and attractive dividends for our shareholders. Despite the current uncertainty, this is not 2007. The fundamental underpinning for housing is strong. Further our investment portfolio…

Thank you Marty, and good afternoon everyone. I like to begin with some comments on our recent investment activity. We deployed $158 million of capital into new investments in the first quarter, the pace of which exceeded our expectations. Despite competitive asset pricing, we are able to find pockets of attractive opportunities, particularly early in the quarter including investments in Sequoia and third party RMBS, as well as residential CRT and agency multifamily securities. We remain confident we will be able to deploy our remaining excess capital on a disciplined basis and across a broad spectrum of opportunities this year. Our capital available for investments is roughly $160 million at March 31 versus $270 million at year-end. This amount does not reflect additional capital we believe we could free up internally with further optimization of our investment portfolio. During the first quarter we also sold $27 million of residential securities and $12 million of MSRs, generating $5 million of realized gains and freeing up about $31 million of capital for reinvestment. As we have discussed previously, we no longer view conforming MSRs as the core part of our current investment strategy and have been selling down our conforming MSR holdings since late 2015. We believe redeployment proceeds into higher yielding REIT-eligible investments will be a better use of capital going forward. To that end we agreed in April to sell substantially all of our remaining conforming MSRs. We expect this transaction to close later this month. Overall, we were pleased with the performance of our investment portfolio during the first quarter. Residential net interest income increased driven by capital deployment during the quarter, and the underlying credit performance of the residential investments remained excellent. Our investment portfolio represented $1.6 billion or about 90% of our $1.8 billion of total capital…

[Operator Instructions] Our first question will come from Bose George with KBW.

Hi, good afternoon. This is Eric on for Bose. Chris, I'm hoping you can maybe, expand a little bit on the comments around the secondary market REITs activity to the Redwood Choice loans. And if you can share your expected returns in Redwood Choice versus Redwood Select?

Sure. Well, as I stated the loans are definitely higher in rates and I think they are averaging 100 to 150 basis points higher than our Select loans. And Choice is a big part of our focus today. As I said the percentage of our production has significantly ramped up. We like to target 15% to 20% and we are 18% in the first quarter. We will be pleased if that continued to rise. That was on about $1.1 billion of loans purchased. The ultimate returns for choice from an investment perspective will depend on the manner in which we invest. We are certainly exploring the opportunity to complete a Choice only securitization. The upside there would be a much larger credit investment for Redwood likely at more attractive returns, although at this point we would have to complete a transaction to know exactly where the market would be. But we can also hold those loans. We can hold them at our FHLB subsidiary. We can hold them on balance sheet. So as things progress and as Choice continues to ramp. Although we will have a little bit more detail on what the ultimate long-term return expectation is.

That's a very helpful answer. Are there any updates on new structures that you are working on to invest in the credit risk transfer market?

No, nothing proprietary that we are focused on at this point. We have been very active in the capital market programs from both Fannie Mae and Freddie Mac. So we invested quite a bit in CRT in the first quarter. I think we are going to continue to be active there but at this point we are not focused on proprietary transactions.

Sorry if I missed it in the opening comments, what was the investment in CRT, first quarter?

$44 million.

$44 million. Thanks for the comments guys.

And our next question will come from George Bahamondes with Deutsche Bank Securities Inc.

Hi guys. Two quick questions. I was wondering if you could provide any color on [opportunity] quarter to date, and I have another question on I understand the conforming MSRs can be long down, I noticed that net servicing fee declined slightly quarter-over-quarter, I was just wondering if you could provide any color on that business as well?

George, this is Marty. We didn't catch your first question. I'm sorry. Could you repeat it?

Any color on quarter to date investment activity or what you are seeing in the market, What looks attractive?

Sure. Quarter to date, we have invested about $62 million and an additional $16 million in CRT, $28 million in multifamily and $18 million in RMBS. I think each one of those areas remains attractive to us. We are conscious that asset prices are high, so we are looking very closely at long-term cash flows. But we continue to see opportunities to invest and volume in the private label securitization market in the first quarter exceeded most people's expectations and we are hoping for additional activity in the second quarter. So we feel good about our ability to deploy our remaining excess capital. On the MSR side, we are going to free up just over $40 to $44 million of capital with that sale. There is not much to comment on the spreads, it was a pretty uneventful quarter. So I don't think there is anything specific unless you have a specific question about servicing revenue. There wasn't anything that jumped out to us at least with our portfolio.

[Indiscernible] I get some general commentary there, great. That was helpful. Thank you.

[Operator Instructions] Our next question will come from [Indiscernible].

Hi guys. Thanks for taking my question and my call. First, around the Choice program, given the solid reception, higher rates [Indiscernible] consider maybe in the future opening up credit at all and then also, second, could you give us some color around potential securitization of Choice loans?

Sure. With Choice we will stress it is an expanded prime product. We don't have any plans at this time to enter into sub-prime products. So I think as we have said in the past the loans generally have higher LTVs. I think they have averaged about 7 points higher credit scores, maybe 30 points lower, potentially fewer liquid reserves. None of those in combination per se, but it really just represents the full prime universe to us, where our select program is more than traditional super-prime loans that have been extremely liquid in the last few years.

And in terms of securitization what we really need to do is to get sufficient flows that we could do a number of transactions because it is difficult to set up shelf and to get it done. We probably need somewhere around $100 million a month is what we will be shooting for and towards the end of the first quarter we were getting close to that rate.

Thank you. That is helpful. And then one other question, I have been on a number of mortgage REIT calls today, there seems to be a warmer outlook or reception for agency investment, or agency MBS, I'm curious if spreads were to widen further, at what point would you consider maybe to enter that incrementally?

The agency MBS opportunity isn't part of our core strategy. We are much more of a credit oriented investor, and we largely try to avoid a lot of interest rate exposure. So I would expect us – we will certainly explore it, but I wouldn't expect us in the near future to enter that space. I think we are going to remain more focused on the private label securitization market and credit risk transfer opportunities with the GSCs.

As we said before, we are really a pure play credit investor as opposed to an investor with an ABS strategy, where they are just trying to earn a NIM spread.

Okay, so, absent some significant flow out in spreads, it sounds like you are kind of rooted to the credit strategy?

Yes, we are.

All right. Well, thank you. Thanks for answering my questions.

And there are no further questions at this time. This concludes our conference. On behalf of management, we very much appreciate you taking the time to participate in our earnings call.