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North Bay Business Journal

Monday, May 5, 2014, 4:48 pm

Interest rates fuel 52 percent slide in Redwood Trust earnings

Executives remain bullish on long-term outlook.

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    Redwood TrustMILL VALLEY — Redwood Trust (NYSE: RWT) on Monday announced $12 million in net income for the first three months of 2014, a 52 percent decline from the same period last year attributed in part to volatility in interest rates and the subsequent narrowing in margin for the sale of loans.

    Those earnings were equivalent to 14 cents per share. Redwood Trust paid a 28-cent dividend to shareholders for the first quarter, level with dividend size since the company increased its dividend from 25 cents in the first quarter of 2013.

    “We have noted repeatedly in the past that our business strategies are focused on the opportunities we see over the next several years, not just over the next several quarters. However, we understand that the near-term matters too, especially as we steer through industry-wide headwinds that will likely put pressure on our earnings for much of 2014,” said CEO Martin Hughes and President Brett Nicholas, in a letter to shareholders.

    The Mill Valley-based mortgage investment and securitization firm has worked to gain market share, and noted that its uptick in purchasing of mortgages came amid declines in loan and refinance origination activity nationally.

    The company purchased $794 million in “jumbo” residential mortgage loans — those exceeding the size that qualifies for purchase by Fannie Mae and Freddie Mac — in the first quarter of 2014, compared to $642 million in the prior quarter. Redwood Trust purchased $299 million in “conforming” loans in the first quarter, compared to $17 million in the last three months of 2013.

    The combined $1.1 billion in purchases was up 66 percent from the fourth quarter of 2013, while loan originations nationally declined by 23 percent, according to projections by the Mortgage Bankers Association cited in the quarterly “Redwood Review.” An additional $823 million in residential loans has been identified for purchase, according to the company.

    Redwood Trust completed a $347 million residential loan securitization during the period — its first for the year — and cautioned that the profit margin would likely be lower than its prior security completed in November 2013. The company sold $722 million in loans during the period.

    On the commercial lending side, Redwood Trust originated $119 million in senior commercial mortgage loans and $2 million in mezzanine loans in the first quarter, and sold $65 million in senior loans.

    The company had over $5 billion in assets at the end of the first quarter, including $2.46 billion in residential loans and earnings assets of $4.9 billion.

    Shares in Redwood Trust were trading at $21.32 when the New York Stock Exchange closed on Monday, down 1.62 percent from opening.

     

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