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North Bay Business Journal

Monday, February 24, 2014, 8:24 pm

Redwood Trust earnings rise 31% in 2013 despite tougher year-end

Slower mortgage market dampens fourth-quarter earnings

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    MILL VALLEY — Redwood Trust (NYSE: RWT) on Monday reported net income increased 31 percent last year but decreased 40 percent in the fourth quarter as pricing for home and commercial mortgages in the secondary market slumped in the closing months of 2013.

    Redwood TrustNet income was $173 million for the year ended Dec. 31, equivalent to $1.94 per share. That’s compared with $1.59 per share in 2012.

    Despite that boost for the year, the Mill Valley-based real estate investment trust, lender and securitization firm also reported income for the final three months of the year was $25 million, or 29 cents per diluted share, versus $42 million, or 50 cents a share, a year before.

    In guidance early in the year on upcoming financial performance, the company attributed factors in the decline to lower sale prices for some mortgage-backed securities and unsecuritized loans, representing lower interest rate yields, and heightened competition from financial institutions seeking to purchase and hold higher-yielding prime mortgages for their own books.

    Purchasing those loans for resale and securitization is a significant part of Redwood’s business, particularly in larger “jumbo” mortgages beyond the sizes accepted by Fannie Mae and Freddie Mac. Sales earlier in the year boosted overall earnings, despite relative declines in the third and fourth quarters, the company said.

    In the fourth quarter, Redwood Trust completed one $325 million residential mortgage securitization in the quarter, created $24 million in investments for its own portfolio, sold 16 whole-loan packages for $648 million and acquired $659 million in residential loans.

    On the commercial side, Redwood Trust originated $242 million in senior commercial loans and $3 million in mezzanine loans in the fourth quarter. The firm sold $186 million in senior commercial loans during those three months.

    The company had $2.16 billion in residential loans for itself and its subsidiaries at year-end, down 23.6 percent from year-end 2012. Commercial loans increased 38 percent to $432 million. Real estate securities increased 51.7 percent to $1.68 billion, and the firm added $60 million in mortgage-servicing rights to total $65 million.

    The firm also reported REIT taxable income of $20 million — 24 cents per share — for the fourth quarter. That income was flat with the prior quarter and up from $18 million during the same quarter in 2012.

    Approval from government-sponsored mortgage backers Fannie and Freddie to sell and service smaller “conforming” mortgages is expected to create new revenue in 2014, according to the company’s guidance for shareholders.

    Redwood Trust had $4.6 billion in assets at year-end, compared with $4.4 billion a year before.

    Shares in the company were trading at $19.51 at the close of trading Monday, up 3.28 percent from Friday.

    The company paid a 28 cent dividend per share on Dec. 27. Redwood Trust began paying that dividend after the first quarter of 2013, up from 25 cents. The dividend represents a 5.7 percent yield for shareholders, based on Monday’s price.

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