Redwood Trust (RWT) saw its net income nearly triple in the third quarter, rising from $16 million in the second quarter to $45 million in the third quarter.

The company also reported earnings of $0.50 per fully diluted share in the third quarter, compared to $0.18 per fully diluted share in the second quarter.

Redwood Trust also more than doubled its net income year-over-year, rising to $45 million in 2014’s third quarter from $22 million in the same period last year.

Redwood also reported estimated REIT taxable income of $18 million, or $0.21 per share, for the third quarter of 2014. This compares to estimated REIT taxable income of $14 million, or $0.17 per share, for the second quarter of 2014 and REIT taxable income of $20 million, or $0.24 per share, for the third quarter of 2013, the company said.

The company said the growth was due to its residential mortgage banking business, which turned in an “impressive” quarter.

The company’s mortgage banking activities created net income of $18 million in the third quarter, compared to only $6 million in the second quarter.

The company also saw an $8 million increase on its net income generated by mortgage servicing rights.

“Our residential mortgage-banking business had an impressive quarter, especially in light of the challenging post-refinance market conditions for loan originations,” the company said.

"Loan acquisitions were $3.4 billion, an 89% increase over the prior quarter, with our new initiative of acquiring conforming loans generating 46% of that total.”

Also of note, the gross margin on conforming loan sales turned positive this quarter following the company’s early focus on building market share and establishing a meaningful competitive presence with its sellers, Redwood said.

“In our traditional business of acquiring jumbo loans, gross margins remained strong and in excess of our long-term target range of 25-to-50 basis points,” the company said. “Overall, the results of this quarter indicate to us that we have moved beyond the start-up phase of platform building and into a more efficient operational phase.”

The company also reported:

  • Residential loan acquisition volume was $3.4 billion in the third quarter of 2014, up 89% from the second quarter of 2014. At September 30, 2014, our pipeline of loans identified for purchase was $1.6 billion and included $1.3 billion of jumbo loans and $0.3 billion of conforming loans, unadjusted for fallout expectations.
  • Originated $340 million of senior commercial loans and $26 million of mezzanine commercial loans in the third quarter of 2014. Our senior commercial loan pipeline, defined as loans under application, totaled $199 million at September 30, 2014.
  • Sold $456 million of securities in the third quarter of 2014 that were not part of our long- term core holdings in order to free up capital for reinvestment. As a result, our residential securities portfolio declined to $1.4 billion at September 30, 2014.

“Our residential mortgage banking business posted strong third quarter 2014 results,” the company said. “Jumbo loan acquisitions doubled to $1.8 billion compared to the second quarter of 2014, while our conforming loan acquisitions increased 78% to $1.5 billion over the same period. Higher loan purchase volumes contributed positively to our mortgage banking results for the third quarter, and also contributed to an increase in our investment in mortgage servicing rights – which has roughly doubled over the past three quarters to a total of $135 million at September 30, 2014.

“For the first nine months of 2014, total residential loan acquisitions (jumbo and conforming) were $6.3 billion, down less than 3% from the same period in 2013. Our business continues to benefit from the persistent expansion of our group of loan sellers, which increased by a net 12 to 152 sellers at September 30, 2014.”

The company also executed its second and third securitizations of 2014 under its Sequoia platform.

Redwood’s Sequoia Mortgage Trust 2014-2 was backed by 438 loans with an average loan balance of $698,736 and hit the market in July.

Redwood’s Sequoia Mortgage Trust 2014-3 was backed by 462 mortgage loans with an average loan balance of $714,170 and hit the market in September.

The company anticipates issuing “at least one more” securitization in the fourth quarter.

“These securitizations created $39 million of subordinate investment securities for our portfolio,” the company said. “Although the difference has narrowed, our whole loan sale execution for most jumbo loans continues to be more attractive than our securitization execution as a result of strong loan demand from banks. We expect whole loan sales to remain our most active distribution channel for the remainder of 2014.”