Redwood Trust Sees Profits Drop Because of Hedging Costs

Jumbo loan securitizer Redwood Trust Inc. posted a sharp decline in profits in the third quarter driven by negative noninterest income.

The Mill Valley, Calif., company posted net income of $19.1 million, a 29.3% drop from the same period last year.

The most damaging drop came from noninterest income, as the company posted a $3 million loss between July and September, compared to a $30.1 million gain in the same period last year.

In its quarterly "Redwood Review" earnings report, the company attributed the hit to a $13 million hedging expense to back its residential securities. Noninterest income from residential mortgage banking also posted a sharp, 97% drop to $331,000.

Net interest income after provision for loan losses also dropped 4.6%, to $39.6 million.

On a more optimistic note, Redwood's total assets grew by 5.2%, to nearly $6 billion, a trend driven in part by a new focus on residential loans held for investment. But liabilities also increased by 8.1%, to $4.7 billion while equity declined slightly, to $1.3 billion.

Redwood also stated that it had repurchased approximately $36 million in shares in the third quarter, and planned to pursue more stock buybacks in the fourth quarter and in 2016.