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TABLE
OF CONTENTS
|
Introduction
|
2
|
|||
Shareholder
Letter
|
3
|
|||
Quarterly
Overview
|
4
|
|||
Financial
Insights
|
8
|
|||
-
Components
of Book Value
|
8
|
|||
-
Consolidating Balance Sheet
|
10
|
|||
-
Real Estate
Securities at Redwood
|
11
|
|||
-
Cash
Flow
|
13
|
|||
GAAP
Income
|
16
|
|||
Taxable
Income
|
19
|
|||
Dividends
|
21
|
|||
Capital
&
Liquidity
|
22
|
|||
Mark-to-Market
Adjustments
|
24
|
|||
Residential
Real Estate Securities
|
29
|
|||
Commercial
Real Estate Securities
|
40
|
|||
Investments
in Sequoia
|
43
|
|||
Investments
in Acacia
|
47
|
|||
Appendix
|
||||
Accounting
Discussion
|
50
|
|||
Glossary
|
53
|
|||
Financial
Tables
|
60
|
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INTRODUCTION
|
Selected
Financial Highlights
|
||||||||||||
Quarter:Year
|
GAAP
Income per Share
|
Total
Taxable Income per Share
|
Annualized
Return on Equity
|
GAAP
Book Value per Share
|
Core
Book Value per Share
|
Total
Dividends per Share
|
||||||
Q306
|
$1.22
|
$1.96
|
14%
|
$40.02
|
$36.38
|
$0.70
|
||||||
Q406
|
$1.32
|
$1.45
|
15%
|
$37.51
|
$34.02
|
$3.70
|
||||||
Q107
|
$0.66
|
$1.48
|
8%
|
$34.06
|
$34.29
|
$0.75
|
||||||
Q207
|
$0.41
|
$1.66
|
5%
|
$31.50
|
$34.40
|
$0.75
|
||||||
Q307
|
($2.18)
|
$1.74
|
(26%)
|
$5.32
|
$31.58
|
$0.75
|
||||||
Q407*
|
($36.49)
|
$0.92
|
(610%)
|
$23.18
|
$26.24
|
$2.75
|
||||||
Q108
|
($5.28)
|
$0.79
|
(83%)
|
$17.89
|
$20.74
|
$0.75
|
||||||
Q208
|
($1.40)
|
$0.11
|
(28%)
|
$17.00
|
$19.05
|
$0.75
|
||||||
Q308
|
($3.34)
|
$0.07
|
(80%)
|
$12.40
|
$14.92
|
$0.75
|
||||||
*
The book values per share are after giving retroactive
effect to the
adoption of FAS 159 on January 1, 2008.
Without
giving retroactive effect to FAS 159, the GAAP
book value per share and
core book value per share were a negative $22.18
and a negative $4.46,
respectively.
|
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SHAREHOLDER
LETTER
|
![]() |
![]() |
George
E.
Bull, III
|
Douglas
B.
Hansen
|
Chairman
and CEO
|
President
|
![]() |
![]() |
QUARTERLY OVERVIEW
|
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QUARTERLY
OVERVIEW
|
![]() |
![]() |
QUARTERLY OVERVIEW
|
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QUARTERLY
OVERVIEW
|
► |
The
level and
attractiveness of new investment
opportunities;
|
► |
Our
ability
to raise non-dilutive capital at a price
that is accretive to
earnings;
|
► |
The
relative
attractiveness of investing in Redwood’s assets by repurchasing shares;
and,
|
► |
The
amount of
cash we believe we should hold in reserve
for the future.
|
![]() |
![]() |
Martin
S.
Hughes
|
Brett
D.
Nicholas
|
Chief
Financial Officer
|
Chief
Investment Officer
|
Co-Chief
Operating Officer
|
Co-Chief
Operating Officer
|
![]() |
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FINANCIAL INSIGHTS
|
► |
The
following
supplemental non-GAAP balance sheet
presents our assets and liabilities
as
calculated under GAAP and as adjusted
to reflect our estimate of economic
value. We show our investments in
the Opportunity Fund (the Fund) and
the
Sequoia and Acacia securitization
entities in separate line items,
similar
to the equity method of accounting,
reflecting the reality that the
underlying assets and liabilities
owned by these entities are legally
not
ours. We own only the securities
or interests that we have acquired
from
these entities.
|
► |
This
table,
except for our estimates of economic
value, is derived from the
consolidating balance sheet presented
on page 10. Our estimate of economic
value of $13.18 per share is calculated
using the bid-side asset marks as
required to determine fair value under
GAAP. This method of calculating
economic value more closely relates
to liquidation value and does not
represent the higher amount we would
have to pay at the offered-side to
replace our existing assets.
|
Components
of Book Value
|
|||||||||
September
30, 2008
|
|||||||||
($
in millions, except per share data)
|
|||||||||
As
Reported
|
Adj.
|
Management's
Estimate of Economic Value
|
|||||||
Real
estate securities at Redwood
|
|||||||||
Residential
|
$
|
160
|
$
|
160
|
|||||
Commercial
|
64
|
64
|
|||||||
CDO
|
4
|
4
|
|||||||
Total
real estate securities at Redwood
|
228
|
228
|
|||||||
Cash
and cash equivalents
|
177
|
|
|
177
|
|||||
Investments
in the Fund
|
35
|
35
|
|||||||
Investments
in Sequoia
|
111
|
(55)
|
(a)
|
56
|
|||||
Investments
in Acacia
|
19
|
(6)
|
(b)
|
13
|
|||||
Other
assets/liabilities, net (d)
|
(8)
|
|
(8)
|
||||||
Long-term
debt - Redwood
|
(150)
|
87
|
(c)
|
(63)
|
|||||
Stockholders'
equity
|
$
|
412
|
$
|
438
|
|||||
Book
value per share
|
$
|
12.40
|
$
|
13.18
|
(a)
|
Our
actual Sequoia investments consist
of credit enhancement securities
(CES),
investment grade securities (IGS),
and interest-only securities (IOs)
acquired by Redwood from the Sequoia
entities. We calculated the $56
million estimate of economic value
for these securities using the same
valuation process that we followed
to fair value our other real estate
securities. In contrast, the $111
million of GAAP carrying value of
these
investments represents the difference
between residential real estate
loans owned by the Sequoia entities
and the asset-backed securities (ABS)
issued by these entities to third-party
investors. We account for these
loans and ABS issued at cost, not
at fair value.
|
(b) |
Our
Acacia investments consist of ABS issued
that we acquired from Acacia
entities and equity interests. The
$13 million estimate of economic value
of our investment interests in the
Acacia entities represents the value
of
the ABS acquired or retained using
bid-side marks from third parties,
plus
the net present value of projected
cash flows from our Acacia management
fees discounted at 45%. We valued our
equity interests at the amount of
cash we received in October and expect
to receive in November 2008. We are
not valuing future cash flows from
equity distributions beyond the fourth
quarter. The difference between the
GAAP and economic values is discussed
in the Investments in Acacia section
in this
Review.
|
(c) |
We
issued
$150 million of 30-year long-term debt
at Redwood at an interest rate of
LIBOR plus 225 basis points. Under
GAAP, these notes are carried at cost.
Economic value is difficult to estimate
with precision as the market for
the notes is currently inactive. We
estimated the $63 million economic
value using the same valuation process
used to fair value our other
financial assets and liabilities. Estimated
economic value is $87 million
lower than our GAAP carrying value
because given the significant overall
contraction in credit availability
and re-pricing of credit risk, if we
had issued this long-term debt at Redwood
at September 30, 2008, investors
would have required a substantially
higher interest
rate.
|
(d) |
Other
assets/liabilities, net are comprised
of real estate loans of $3 million,
$8 million of deferred taxes, $4 million
of accrued interest, and other
assets of $13 million, less Redwood
debt of $7 million, accruals of $2
million, dividends payable of $25 million,
and other liabilities of $2
million.
|
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FINANCIAL
INSIGHTS
|
► |
The
following table highlights the components of the overall
change in
economic book value per share that occurred during
the quarter. It is
intended to highlight the performance of our different
investment
categories and show other sources and uses of cash
that impacted economic
value. Our investment performance, expressed below
as the change in the
economic value of investments, gives effect to mark-to-market
(MTM)
adjustments, new investments, and principal and interest
collected. As
previously discussed, the decreases in market values
were material this
quarter and overwhelmed the cash receipts for the quarter.
As a result,
all our investments had net negative economic performance
this quarter.
|
► |
As
an
example, the $19 million decline in economic value
of our Sequoia
investments from $75 million at June 30, 2008 to $56
million at September
30, 2008 was partially offset by our receipt of $13
million in cash from
our Sequoia investments. Therefore, the net economic
performance of our
investments in Sequoia during the quarter was negative
$6 million ($0.18
per share).
|
Changes
in the Components of Economic Value Per Share
|
|||||
Three
Months Ended September 30, 2008
|
|||||
(in
$ per share)
|
|||||
Management's
estimate of economic value at 6/30/08
|
$
|
16.72
|
|||
Change
in economic value of investments
|
|||||
Real
estate securities at Redwood
|
(2.44)
|
||||
Investments
in the Fund
|
(0.15)
|
||||
Investments
in Sequoia
|
(0.18)
|
||||
Investments
in Acacia
|
(0.03)
|
||||
Total
change in economic value of investments
|
(2.80)
|
||||
Operating
expenses and working capital
|
(0.36)
|
||||
Interest
expense and long-term debt valuation
|
0.30
|
||||
Dividends
|
(0.75)
|
||||
Equity
issuance, net
|
0.07
|
||||
Total
changes to economic value
|
(3.54)
|
||||
Management's
estimate of economic value at 9/30/08
|
$
|
13.18
|
► |
The
changes
in the components of economic book value per share
are a non-GAAP measure.
Management’s estimate of economic value at June 30, 2008 is reconciled
to
GAAP book value on Table 17 in the Financial Tables
section. Management’s
estimate of economic value at September 30, 2008 is
reconciled to GAAP on
the previous page.
|
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FINANCIAL INSIGHTS
|
► |
GAAP
requires
us to consolidate all of the assets and liabilities
of the Sequoia and
Acacia securitization entities (which had a combined
$7.0 billion of
assets and $6.8 billion of liabilities at September
30, 2008) even though
the assets are owned by the securitization entities
and the liabilities
are obligations of the securitization entities
payable only from the cash
flows generated by the assets owned by the entities.
Additionally, we are
required to consolidate all of the assets and liabilities
of the Fund.
Redwood owns the general partnership interest in
the Fund and just over
half of the limited partnership
interests.
|
► |
The
table
below shows the consolidating components of our
consolidated balance sheet
at September 30, 2008. The purpose of this presentation
is to show the
effect each of the components had on our consolidated
shareholders’ equity
at September 30, 2008. The Fund, Sequoia, and Acacia
components represent
investments and are not separate business segments.
|
Consolidating
Balance
Sheet
|
|||||||||||||||||||
September
30,
2008
|
|||||||||||||||||||
($
in
millions)
|
|||||||||||||||||||
Redwood
|
The
Fund
|
Sequoia
|
Acacia
|
Intercompany
|
Redwood
Consolidated
|
||||||||||||||
Real
estate loans
|
$
|
3
|
$
|
-
|
$
|
6,084
|
$
|
14
|
$
|
-
|
$
|
6,101
|
|||||||
Real
estate securities
|
228
|
67
|
-
|
649
|
(82
|
)
|
862
|
||||||||||||
Other
investments
|
-
|
-
|
-
|
79
|
-
|
79
|
|||||||||||||
Cash
and cash equivalents
|
177
|
-
|
-
|
-
|
-
|
177
|
|||||||||||||
Total
earning assets
|
408
|
67
|
6,084
|
742
|
(82
|
)
|
7,219
|
||||||||||||
Investment
in the Fund
|
35
|
-
|
-
|
-
|
(35
|
)
|
-
|
||||||||||||
Investment
in Sequoia
|
111
|
-
|
-
|
-
|
(111
|
)
|
-
|
||||||||||||
Investment
in Acacia
|
19
|
-
|
-
|
-
|
(19
|
)
|
-
|
||||||||||||
Other
assets
|
25
|
6
|
53
|
71
|
-
|
155
|
|||||||||||||
Total
assets
|
$
|
598
|
$
|
73
|
$
|
6,137
|
$
|
813
|
$
|
(247
|
)
|
$
|
7,374
|
||||||
Short-term
debt - Redwood
|
$
|
7
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
7
|
|||||||
Other
liabilities
|
29
|
3
|
14
|
121
|
-
|
167
|
|||||||||||||
Asset-backed
securities issued - Sequoia
|
-
|
-
|
6,012
|
-
|
(82
|
)
|
5,930
|
||||||||||||
Asset-backed
securities issued - Acacia
|
-
|
-
|
-
|
673
|
-
|
673
|
|||||||||||||
Long-term
debt - Redwood
|
150
|
-
|
-
|
-
|
-
|
150
|
|||||||||||||
Total
liabilities
|
186
|
3
|
6,026
|
794
|
(82
|
)
|
6,927
|
||||||||||||
Minority
interest
|
-
|
35
|
-
|
-
|
-
|
35
|
|||||||||||||
Total
stockholders’ equity
|
412
|
35
|
111
|
19
|
(165
|
)
|
412
|
||||||||||||
Total
liabilities and stockholders’ equity
|
$
|
598
|
$
|
73
|
$
|
6,137
|
$
|
813
|
$
|
(247
|
)
|
$
|
7,374
|
![]() |
![]() |
FINANCIAL
INSIGHTS
|
► |
The
table
below provides a breakout of our real estate
securities portfolio by
residential, commercial, and CDO by vintage.
The residential and
commercial securities are further detailed by
rating in separate modules
later in this Review.
|
Real
Estate Securities at Redwood
|
|||||||||||||||||||
September
30, 2008
|
|||||||||||||||||||
($
in millions)
|
|||||||||||||||||||
<=
2004
|
|
2005
|
2006
|
|
2007
|
2008
|
Total
|
||||||||||||
Residential
|
|||||||||||||||||||
Prime
|
|||||||||||||||||||
IGS
|
$
|
29
|
$
|
18
|
$
|
13
|
$
|
3
|
$
|
3
|
$
|
66
|
|||||||
CES
|
32
|
4
|
2
|
3
|
-
|
41
|
|||||||||||||
Non-prime
|
|||||||||||||||||||
IGS
|
-
|
24
|
10
|
13
|
-
|
47
|
|||||||||||||
CES
|
1
|
1
|
-
|
4
|
-
|
6
|
|||||||||||||
Total
Residential
|
62
|
47
|
25
|
23
|
3
|
160
|
|||||||||||||
Commercial
CES
|
13
|
14
|
27
|
10
|
-
|
64
|
|||||||||||||
CDO
IGS
|
-
|
4
|
-
|
-
|
-
|
4
|
|||||||||||||
Market
value
|
$
|
75
|
$
|
65
|
$
|
52
|
$
|
33
|
$
|
3
|
$
|
228
|
► |
Total
real
estate securities at Redwood decreased during
the third quarter by 35% to
$228 million at September 30, 2008. The table
below presents our activity
during the third quarter.
|
Real
Estate Securities at Redwood
|
||||
Three
Months Ended September 30, 2008
|
||||
($
in millions)
|
||||
Market
value at June 30, 2008
|
$
|
353
|
||
Acquisitions
|
-
|
|||
Sales
|
(8
|
)
|
||
Principal
payments
|
(17
|
)
|
||
Discount
amortization
|
5
|
|||
Changes
in market value, net
|
(105
|
)
|
||
Market
value at September 30, 2008
|
$
|
228
|
![]() |
![]() |
FINANCIAL INSIGHTS
|
► |
During
the third quarter, we did not purchase securities.
We held back investing
in residential mortgage securities at Redwood
in order to analyze and
quantify the financial impact of the new systematic
FHA and FDIC loan
modification programs and the recently enacted
Troubled Asset Relief Plan
(TARP). We were also reluctant to invest as
the global financial crisis
escalated and security prices fell precipitously.
|
► |
Prices
weakened in the quarter due to the well publicized
and nearly
unprecedented distress in the global financial
markets. As a result, we
reduced the fair value of our securities by
$107 million, or 32%. For GAAP
balance sheet purposes, we are required to
determine the carrying value of
our real estate securities using prices that
we can support as an “exit”
or bid-side price. Although the Financial Accounting
Standards Board
issued clarifying guidance on marking assets
to fair value, it did not
change the accounting requirements and we continue
to value our securities
at the prices at which we believe we could
sell them in the current
illiquid market. Bid/offer spreads remain very
wide for all of these
securities.
|
► |
Investment
grade securities (IGS) in our securities portfolio
continue to represent
about half (51%) of the portfolio, which is
unchanged since June. We
emphasize that we do not rely on credit ratings
as part of our investment
decision process. Our acquisition decisions
are based on the strength of
the underlying collateral cash flows and the
level of subordination to
protect against projected credit losses.
|
► |
The
following
table presents the components of GAAP carrying
value (which equals fair
value determined in accordance with GAAP) for
residential and commercial
credit enhancement securities (CES) at Redwood.
In total, the weighted
average carrying value of our CES as a percentage
of face value declined
to 9% at September 30, 2008 from 15% at June
30,
2008.
|
Credit
Enhancement Securities at Redwood
|
||||||||||
September
30, 2008
|
||||||||||
($
in millions)
|
||||||||||
Residential
|
||||||||||
Prime
|
Non-Prime
|
|
Commercial
|
|||||||
Current
face
|
$
|
361
|
$
|
295
|
$
|
515
|
||||
Unamortized
premium (discount), net
|
(29
|
)
|
(43
|
)
|
24
|
|||||
Discount
designated as credit reserve
|
(287
|
)
|
(248
|
)
|
(471
|
)
|
||||
Amortized
cost
|
45
|
4
|
68
|
|||||||
Unrealized
gains
|
3
|
2
|
2
|
|||||||
Unrealized
losses
|
(7
|
)
|
-
|
(6
|
)
|
|||||
Market
value
|
$
|
41
|
$
|
6
|
$
|
64
|
||||
Market
value as a percentage of face
|
11
|
%
|
2
|
%
|
12
|
%
|
![]() |
![]() |
FINANCIAL
INSIGHTS
|
► |
We
acquire CES at a significant discount to
principal value as credit losses
could reduce or eliminate the principal value
of these bonds. Our return
on these investments is based on how much
principal and interest we
receive and how quickly we receive it. Typically
we assume that most or
all of the principal will be written off
due to credit losses, so the
timing of credit losses is more of a factor
than the amount of credit
losses when looking at downside scenarios.
In an ideal environment, we
would experience fast prepayments and low
credit losses allowing us to
recover a substantial part of the discount
as income. Conversely, in the
least beneficial environment, we would experience
slow prepayments and
high credit losses.
|
► |
We
provide
additional discussion and analysis regarding
the adequacy of our credit
reserves and the potential earnings upside
from an increase in prepayments
in the residential and commercial real estate
securities modules that
follow.
|
► |
As
a
supplement to our Consolidated Statement
of Cash Flows included in our
Quarterly Report on Form 10-Q, we have included
the table below that
summarizes the sources and uses of our cash
during the third quarter. This
table excludes the gross cash flows generated
by our Sequoia and Acacia
securitization entities and the Fund (cash
flows that are not available to
Redwood), but does include the cash flows
paid to Redwood as a result of
our investments in these entities.
|
► |
In
the third
quarter, our investments generated cash from
principal and interest of $60
million, compared to $65 million in the second
quarter. We also received
$2 million of asset management fees in the
third quarter. The net
investment cash flow, after deducting long
and short-term Redwood debt
interest expense of $2 million and cash operating
expenses of $14 million,
was $46 million, compared to $52 million
in the second quarter.
|
Redwood
|
||||
Sources
and Uses of Cash
|
||||
Three
Months Ended September 30, 2008
|
||||
($
in millions)
|
||||
Sources:
|
||||
Cash
from investments
|
$
|
60
|
||
Proceeds
from asset sales
|
8
|
|||
Equity
raised
|
8
|
|||
Asset
management fees
|
2
|
|||
Total
Sources
|
78
|
|||
Uses:
|
||||
Stock
buyback
|
(6
|
)
|
||
Reductions
in short term borrowings
|
(2
|
)
|
||
Dividends
paid
|
(25
|
)
|
||
Operating
expenses paid
|
(14
|
)
|
||
Interest
expense on Redwood debt
|
(2
|
)
|
||
Total
Uses
|
(49
|
)
|
||
Net
sources of cash
|
$
|
29
|
||
Beginning
cash balance at 6/30/08
|
$
|
148
|
||
Ending
cash balance at 9/30/08
|
$
|
177
|
![]() |
![]() |
FINANCIAL INSIGHTS
|
► |
The
primary reason for the decline in net investment
cash flow was lower
interest income resulting from credit losses
in prior periods (which
reduce coupon income in future periods),
higher cash balances, and slower
prepayments (which reduce principal received).
|
► |
The
$60
million of cash flow from our investments
included $36 million of coupon
interest and $24 million of principal. We
caution readers that given the
nature of our investments (deep discount
credit-sensitive securities, IGS
at discounts, IOs, equity investments in
Acacia, and other types) it is
difficult to draw conclusions in any one
period about what portion of our
cash flow represents “income” and what is a “return of capital.” It is
only at the end of an asset’s life that we can accurately determine what
portion of the cumulative cash received (whether
principal or interest)
was truly income and what was a return of
capital.
|
► |
The
following
table provides information regarding the
investment source and vintage of
our cash flow. As shown, most of our cash
flows are generated by assets
from earlier vintages, which we believe provides
a level of comfort about
the ongoing generation of our cash as these
assets generally continue to
perform within our expectations.
|
Cash
Flow by Vintage
|
|||||||||||||||||||
Three
Months Ended September 30, 2008
|
|||||||||||||||||||
($
in millions)
|
|||||||||||||||||||
<=2004
|
2005
|
2006
|
|
2007
|
2008
|
Total
|
|||||||||||||
Redwood
|
$
|
16
|
$
|
7
|
$
|
6
|
$
|
5
|
$
|
1
|
$
|
35
|
|||||||
The
Fund
|
5
|
2
|
-
|
-
|
-
|
7
|
|||||||||||||
Sequoia
|
10
|
-
|
-
|
3
|
-
|
13
|
|||||||||||||
Acacia
|
3
|
2
|
-
|
-
|
-
|
5
|
|||||||||||||
Total
|
$
|
34
|
$
|
11
|
$
|
6
|
$
|
8
|
$
|
1
|
$
|
60
|
► |
We
repurchased 341,656 shares at a total cost
of $6 million during
August.
|
► |
Through
our
dividend stock purchase plan, we raised $8
million in July. In August, we
suspended the optional cash purchase feature
of this plan due to the
decline in our share price and the adequacy
of our
liquidity.
|
► |
We
generated
$8 million from the sale of three CDO securities.
|
► |
We
note that
credit losses on securities have little or
no immediate impact on our cash
flow at the time losses are realized, although
they result in a reduction
in the principal balances. Cash flow receipts
will therefore be reduced in
future periods since interest payments will
be based on reduced principal
balances. Also, losses reduce the upside
potential to recover the full
purchase discounts from face value.
|
![]() |
![]() |
FINANCIAL
INSIGHTS
|
►
|
We
caution that the amount of cash flow from
existing investments could be
volatile from quarter to quarter depending
on prepayment patterns, changes
in interest rates, and the level of credit
losses. Overall, we expect cash
flow from existing investments to trend
lower over time. Future increases
in cash flow will be generated by successfully
reinvesting our capital.
|
► |
In
the fourth
quarter, we expect that cash flow from
our investments will decrease
significantly (by about one-third) due
to slower prepayments. An
acceleration of prepayments from the current
low levels would increase our
cash flow.
|
► |
The
third
quarter spike in LIBOR will also contribute
to the expected decrease in
cash flow in the fourth quarter, by reducing
the amount of spread income
earned on our Sequoia IOs as the interest
rates on the liabilities
generally reset faster than on the assets. As LIBOR stabilizes (or
decreases), we expect that a portion of
the IO cash flows will be
recovered in 2009 as the loans reset or
“catch-up” to the higher level of
LIBOR.
|
► |
The
third
quarter included several one-time events
that resulted in $5 million of
non-recurring cash flows from Acacia and
the Fund.
|
► |
At
this time,
we believe our quarterly cash flows in
2009 will be similar to the
expected cash flows in the fourth quarter
of 2008. We caution that these
are projections and the actual results
may vary and will depend upon our
level of investment activity, the amount
and timing of credit losses, the
amount and timing or prepayments, and the
nature and impact of legislative
and regulatory actions, among other factors.
|
![]() |
![]() |
GAAP INCOME
|
► |
The
table below provides a summary of our
GAAP (loss) income for the third
quarter of 2008, the second quarter of
2008, and the third quarter of
2007.
|
GAAP
(Loss) Income
|
||||||||||
Three
Months Ended
|
||||||||||
($
in millions, except per share data)
|
||||||||||
9/30/08
|
6/30/08
|
9/30/07
|
||||||||
Interest
income
|
$
|
131
|
$
|
137
|
$
|
220
|
||||
Management
fees
|
1
|
1
|
2
|
|||||||
Interest
expense
|
(93
|
)
|
(99
|
)
|
(167
|
)
|
||||
Net
interest income
|
39
|
39
|
55
|
|||||||
|
||||||||||
Provision
for loan losses
|
(18
|
)
|
(10
|
)
|
(2
|
)
|
||||
Market
valuation adjustments, net
|
(127
|
)
|
(60
|
)
|
(102
|
)
|
||||
Net
interest income (loss) after provision
and market valuation
adjustments
|
(106
|
)
|
(31
|
)
|
(49
|
)
|
||||
|
||||||||||
Operating
expenses
|
(17
|
)
|
(15
|
)
|
(12
|
)
|
||||
Realized
gains (losses) on sales
|
-
|
3
|
(1
|
)
|
||||||
Realized
gains on calls
|
-
|
-
|
3
|
|||||||
Minority
interest allocation
|
2
|
(2
|
)
|
-
|
||||||
Credit
(provision) for income taxes
|
10
|
(1
|
)
|
(2
|
)
|
|||||
GAAP
(loss) income
|
$
|
(111
|
)
|
$
|
(46
|
)
|
$
|
(61
|
)
|
|
GAAP
(loss) income per share
|
$
|
(3.34
|
)
|
$
|
(1.40
|
)
|
$
|
($2.18
|
)
|
► |
Our
reported GAAP loss for the third quarter
of 2008 was $111 million ($3.34
per share) compared to a GAAP loss of
$46 million ($1.40 per share) for
the second quarter of 2008. The loss
increased in the third quarter due to
higher negative market valuation adjustments
(MVA) and provisions for loan
losses.
|
► |
Net
interest income before provision for
loan losses and MVA in the third
quarter totaled $39 million, unchanged
from the second quarter. More
detailed information on the components
of the changes in our net interest
income is found below.
|
► |
MVA
in the third quarter was negative $127
million, a significant increase
from negative MVA of $60 million in the
second quarter. MVA at Redwood
totaled $88 million, MVA at Sequoia totaled
negative $2 million, MVA at
Acacia were negative $29 million, and
MVA at the Fund were negative $8
million. MVA are discussed in the Mark-to-Market
module later in this
Review.
|
► |
Provision
for loan losses increased by $8 million
to $18 million due to increased
delinquencies and continued credit deterioration
on residential loans at
Sequoia. More information on the provision
for loan losses is provided
below.
|
![]() |
![]() |
GAAP
INCOME
|
► |
Total
operating expenses increased by $2
million to $17 million in the third
quarter of 2008 as compared to the
second quarter of 2008 due to legal
and
consulting expenses. These expenses
were incurred primarily in connection
with the expansion of our asset management
business, our preparation for
the possible registration of our asset
management subsidiary as an
investment adviser with the Securities
and Exchange Commission, and our
continuing analysis of potential claims
against third parties arising out
of the origination of mortgage loans
underlying securities we own. We are
not currently involved in any litigation.
|
► |
We
recorded a $10 million credit for income
taxes in the third quarter as a
result our Board of Directors’ decision in August to distribute the
remaining 10% of our 2007 REIT taxable
income and 100% of our 2008 REIT
taxable income as dividends. Our prior
practice had been to distribute 90%
of our REIT taxable income which resulted
in a tax liability on the
remaining 10% of REIT taxable earnings.
|
► |
The
following tables detail the components
of our consolidated income
statements for the third and second
quarters of
2008.
|
Consolidating
Income Statement
|
|||||||||||||||||||
Three
Months Ended September 30, 2008
|
|||||||||||||||||||
($
in millions)
|
|||||||||||||||||||
Redwood
|
The
Fund
|
Sequoia
|
Acacia
|
Intercompany
Adjustments
|
Redwood
Consolidated
|
||||||||||||||
Interest
income
|
$
|
17
|
$
|
2
|
$
|
71
|
$
|
37
|
$
|
(1
|
)
|
$
|
126
|
||||||
Net
discount
(premium) amortization
|
6
|
2
|
(3
|
)
|
-
|
-
|
5
|
||||||||||||
Total
interest
income
|
23
|
4
|
68
|
37
|
(1
|
)
|
131
|
||||||||||||
Management
fees
|
1
|
-
|
-
|
-
|
-
|
1
|
|||||||||||||
Interest
expense
|
(2
|
)
|
-
|
(63
|
)
|
(29
|
)
|
1
|
(93
|
)
|
|||||||||
Net
interest
income
|
22
|
4
|
5
|
8
|
-
|
39
|
|||||||||||||
|
-
|
||||||||||||||||||
Provision
for
loan losses
|
-
|
-
|
(18
|
)
|
-
|
-
|
(18
|
)
|
|||||||||||
Market
valuation adjustments, net
|
(88
|
)
|
(8
|
)
|
(2
|
)
|
(29
|
)
|
-
|
(127
|
)
|
||||||||
Net
interest
income (loss) after provision and market
valuation
adjustments
|
(66
|
)
|
(4
|
)
|
(15
|
)
|
(21
|
)
|
-
|
(106
|
)
|
||||||||
Operating
expenses
|
(17
|
)
|
-
|
-
|
-
|
-
|
(17
|
)
|
|||||||||||
Realized
gains
on sales and calls, net
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
Loss
from the
Fund
|
(2
|
)
|
-
|
-
|
-
|
2
|
-
|
||||||||||||
Loss
from
Sequoia
|
(15
|
)
|
-
|
-
|
-
|
15
|
-
|
||||||||||||
Loss
from
Acacia
|
(21
|
)
|
-
|
-
|
-
|
21
|
-
|
||||||||||||
Minority
interest allocation
|
-
|
2
|
-
|
-
|
-
|
2
|
|||||||||||||
Credit
(provision) for income taxes
|
10
|
-
|
-
|
-
|
-
|
10
|
|||||||||||||
Net
(loss) income
|
$
|
(111
|
)
|
$
|
(2
|
)
|
$
|
(15
|
)
|
$
|
(21
|
)
|
$
|
38
|
$
|
(111
|
)
|
Consolidating
Income Statement
|
|||||||||||||||||||
Three
Months Ended June 30, 2008
|
|||||||||||||||||||
($
in millions)
|
|||||||||||||||||||
Redwood
|
The
Fund
|
Sequoia
|
Acacia
|
Intercompany
Adjustments
|
Redwood
Consolidated
|
||||||||||||||
Interest
income
|
$
|
20
|
$
|
1
|
$
|
82
|
$
|
40
|
$
|
(2
|
)
|
$
|
141
|
||||||
Net
discount
(premium) amortization
|
5
|
1
|
(10
|
)
|
-
|
-
|
(4
|
)
|
|||||||||||
Total
interest
income
|
25
|
2
|
72
|
40
|
(2
|
)
|
137
|
||||||||||||
Management
fees
|
1
|
-
|
-
|
-
|
-
|
1
|
|||||||||||||
Interest
expense
|
(2
|
)
|
-
|
(67
|
)
|
(32
|
)
|
2
|
(99
|
)
|
|||||||||
Net
interest
income
|
24
|
2
|
5
|
8
|
-
|
39
|
|||||||||||||
|
-
|
||||||||||||||||||
Provision
for
loan losses
|
-
|
-
|
(10
|
)
|
-
|
-
|
(10
|
)
|
|||||||||||
Market
valuation adjustments, net
|
(31
|
)
|
-
|
(1
|
)
|
(28
|
)
|
-
|
(60
|
)
|
|||||||||
Net
interest
income (loss) after provision and
market valuation
adjustments
|
(7
|
)
|
2
|
(6
|
)
|
(20
|
)
|
-
|
(31
|
)
|
|||||||||
|
-
|
||||||||||||||||||
Operating
expenses
|
(15
|
)
|
-
|
-
|
-
|
-
|
(15
|
)
|
|||||||||||
Realized
gains
on sales and calls, net
|
1
|
2
|
-
|
-
|
-
|
3
|
|||||||||||||
Income
from
the Fund
|
2
|
-
|
-
|
-
|
(2
|
)
|
-
|
||||||||||||
Loss
from
Sequoia
|
(6
|
)
|
-
|
-
|
-
|
6
|
-
|
||||||||||||
Loss
from
Acacia
|
(20
|
)
|
-
|
-
|
-
|
20
|
-
|
||||||||||||
Minority
interest allocation
|
-
|
(2
|
)
|
-
|
-
|
-
|
(2
|
)
|
|||||||||||
Credit
(provision) for income taxes
|
(1
|
)
|
-
|
-
|
-
|
-
|
(1
|
)
|
|||||||||||
Net
(loss) income
|
$
|
(46
|
)
|
$
|
2
|
$
|
(6
|
)
|
$
|
(20
|
)
|
$
|
24
|
$
|
(46
|
)
|
![]() |
![]() |
GAAP INCOME
|
► |
At
Redwood, net interest income declined
by $2 million to $22 million in
the
third quarter from the prior quarter.
This decline was due to higher
credit losses in this period and
prior quarters (which reduced the
face
value of our bonds and the resulting
interest income), slower prepayments
(which reduced the rate at which
we accrete discount into income),
and
lower coupon rates as approximately
70% of our investments are tied
to
short-term interest rates. Negative
MVA on our securities increased
by $57
million to $88 million as many
of the continued declines in market
values
on our securities resulted in other-than-temporary
impairments.
|
► |
At
Sequoia, net interest income was
unchanged from the second quarter
at $5
million. A decline in loan premium
expense was offset by an increase
in
provisions for loan losses. Negative
MVA was $2 million, reflecting
valuation adjustments related to
other real estate owned, which
are
reported at the lower of cost or
market. The cash flows paid to
Redwood
from our investments in Sequoia
entities were $13 million in the
third
quarter.
|
► |
At
Acacia, net interest income was
$8 million in the third quarter,
similar
to the prior quarter. The value
of Acacia assets decreased more
than the
decrease in value of the Acacia
liabilities during the third quarter
resulting in a MVA of negative
$29 million.
|
During
the third quarter, Redwood received
$1 million in management fees and
$5
million of cash distributions from
Acacia entities (which included
$3
million from outstanding entities, and a one-time payment
of $2
million from an entity that had
been called in the fourth quarter
of
2006.) We continue to expect cash
flows from Acacia to diminish because
seven of our ten Acacia equity
investments have stopped receiving
cash
distributions due to rating agency
downgrades of securities held by
those
entities.
|
![]() |
![]() |
TAXABLE
INCOME
|
► |
Total
taxable income for the third quarter
of 2008 was $2 million, or $0.07
per
share. The majority of the income
this quarter was generated at the
REIT.
|
► |
The
charts below provide a summary
of our total taxable income per
share and
REIT taxable income per share for
each for the nine most recently
completed fiscal quarters.
|
![]() |
![]() |
TAXABLE INCOME
|
► |
Our
undistributed REIT taxable
income was $0.63 per share
at September 30,
2008.
|
► |
Total
REIT taxable income for the
third quarter decreased from
the prior quarter
by $2 million primarily due
to an increase in credit losses.
Our third
quarter taxable earnings included
$33 million of deductions related
to
credit losses, an increase
of $3 million over the previous
quarter.
|
► |
We
caution that the realization
of credit losses can vary significantly
from
quarter to quarter, depending
on a number of variables (the
level of loan
modifications, short-sales,
and the impact of new legislation)
that could
decelerate or accelerate the
timing of recognition of losses.
For example,
federal and state regulatory
actions are giving delinquent
borrowers
additional time to resolve
their mortgage delinquency
issues. However, we
expect credit losses to continue
to increase from the third
to the fourth
quarter of 2008.
|
► |
Our
taxable income continues to
be higher than our GAAP income,
as we are not
permitted to establish credit
reserves for tax purposes and
we do not
generally recognize changes
in the market values of assets
for tax
purposes until the asset is
sold. As a result of these
differences, at
September 30, 2008, the tax
basis of our residential, commercial,
and CDO
CES at Redwood was $472 million
higher than our GAAP basis.
As a result,
future credit losses will have
a more significant impact on
our taxable
income than on our GAAP income.
Over time, cumulative GAAP
and taxable
income should converge; and
given our projected losses,
we expect taxable
income to decrease relative
to GAAP income for the next
several quarters.
|
► |
The
tax basis on Sequoia IOs we
own is $41 million. Many of
the underlying
pools of loans have paid down
or will pay down within the
next year to
levels where they are callable.
When these are called, tax
losses on these
IOs are incurred and our taxable
income and dividend distribution
requirements decrease. We do
not anticipate calling any
Sequoia deals in
the foreseeable future.
|
![]() |
![]() |
DIVIDENDS
|
The
charts below show our historical
regular and special dividends
per share
that were paid to shareholders
for the indicated periods
and our projected
regular dividend for 2008.
|
► |
On
August 21, 2008, we declared
a regular dividend of $0.75
per share for the
third quarter, which was
paid on October 21, 2008
to shareholders of
record on September 30, 2008.
|
► |
Our
undistributed REIT taxable
income was $0.63 per share
at September 30,
2008.
|
► |
The
Board of Directors has affirmed
its intention to maintain
the regular
$0.75 per share cash dividend
for the fourth quarter of
2008.
|
► |
It
is likely that a portion
of the 2008 dividends paid
to shareholders will
be accounted for as a return
of capital.
|
► |
The
Board of Directors will review
dividend policy for 2009
at its regularly
scheduled November meeting.
|
► |
We
will not pay a special dividend
in
2008.
|
![]() |
![]() |
CAPITAL & LIQUIDITY
|
► |
Our
net liquid assets at September
30, 2008, totaled $183 million
and included
$177 million of unrestricted
cash and $13 million of AAA-rated
prime
securities at fair value,
less $7 million of short-term
Redwood
debt.
|
► |
At
September 30, 2008, our reported
capital totaled $562 million,
compared to
$714 million at June 30,
2008. Our reported capital
includes $412 million
of GAAP equity and $150 million
of long-term debt at Redwood.
The decline
in our reported capital during
the quarter generally reflects
the decrease
in the estimated market value
of our assets.
|
![]() |
![]() |
CAPITAL
& LIQUIDITY
|
► |
Our
excess capital position
was $163 million at September
30, 2008, an
increase from $132 million
at June 30, 2008. During
the third quarter, our
sources of capital were
$46 million from portfolio
cash flows and
management fees in excess
of operating costs and
financing costs, $8
million raised from stock
issuances under our direct
stock purchase and
dividend reinvestment
plan, and $8 million
from asset sales. Our
uses of
capital were $6 million
for share buybacks, and
$25 million for dividends.
|
► |
We
believe
the residential investment
outlook has recently
improved. Secondary
trading activity has
picked up and the amount
of securities available
for
purchase at attractive
prices has been increasing.
Trading activity could
increase further as the
financial services industry
continues to
deleverage. In mid-October,
we selectively resumed
our investment
activity, but the potential
opportunities may far
exceed our excess
capital. As a result,
we may explore raising
non-dilutive capital
to
enable Redwood to take
advantage of future investment
opportunities.
|
![]() |
![]() |
MARK-TO-MARKET ADJUSTMENTS
|
► |
Pricing
for residential mortgage-backed
securities (RMBS) and
commercial mortgage-backed securities
(CMBS) and CDO securities
came under renewed
pressure during the
third quarter due to
the high level
of distress in the
global credit markets,
driving down the value
of our
assets.
|
► |
There
was limited liquidity
in the market for non-agency
residential and
commercial mortgages.
In general, only seriously
distressed sellers
sold
assets.
|
► |
Since
the end of the third
quarter, market activity
has increased as securities
prices have continued
to drift lower.
|
► |
Industry-wide,
new residential non-agency
securitizations totaled
only $2 billion in
the
third quarter, down
from $25 billion in
the second quarter
and $124
billion in the third
quarter of 2007. There
were no commercial
securitizations in
the third quarter,
and the year-to-date
issuance of $12
billion is down 94%
from the same period
a year ago.
|
► |
The
table below illustrates
the additional spread
that investors have
required
to compensate for
the perceived credit
risk of various types
of RMBS and
CMBS.
|
► |
For
some assets, declines
in fair values reflect
the near certainty
of serious
credit losses being
realized. For others,
significant future
losses may
not occur, but there
is a perceived increase
in the risk of loss,
resulting in a lower
value. Finally, many
assets are not at serious
risk
of loss, but their
declining value largely
reflects a limited
number of
observed sales in the
market as well as reduced
liquidity and increased
buyer caution.
|
► |
The
accounting rules regarding
MTM accounting are
complex and may not
clearly
reflect the underlying
economics. This topic
is more fully discussed
in
the Accounting Discussion
module in the Appendix.
|
► |
Financial
Table 16 in the back
of this Review details
the fair value of the
residential, commercial,
and CDO securities
at Redwood as a percentage
of
their face value as
of September 30, 2008.
|
![]() |
![]() |
MARK-TO-MARKET
ADJUSTMENTS
|
u |
Consolidated
MTM adjustments
were a negative
$127 million in
the third quarter.
As
discussed below,
negative MTM adjustments
at Redwood totaled
$88 million,
negative MTM adjustments
at the Fund were
$8 million, negative
MTM
adjustments at
Sequoia were $2
million, and negative
MTM adjustments
at
Acacia were $29
million.
|
► |
During
the third quarter,
total negative MTM
adjustments were
$107 million for
securities held at
Redwood (exclusive
of securities at
or investments in
the Fund, Sequoia,
and Acacia). We estimate
that approximately
two-thirds
of the decline in
market value was
caused by a lack
of liquidity in the
market and one-third
was caused by a combination
of slowing prepayments
and deteriorating
credit expectations.
|
► |
The
tables below detail
the MTM adjustments
during the third
quarter on
securities held at
Redwood by underlying
collateral type and
by vintage.
|
Mark-to-Market
Adjustments
|
||||||||||||||||
on
Assets at Redwood
|
||||||||||||||||
Three
Months Ended September
30, 2008
|
||||||||||||||||
($
in millions)
|
||||||||||||||||
Loans
&
|
MTM
|
|||||||||||||||
IGS
|
CES
|
Derivatives
|
Total
|
Percent
(a)
|
||||||||||||
Residential
|
||||||||||||||||
Prime
|
$
|
(34
|
)
|
$
|
(35
|
)
|
$
|
-
|
$
|
(69
|
)
|
(39
|
)%
|
|||
Non-prime
|
(8
|
)
|
(2
|
)
|
-
|
(10
|
)
|
(17
|
)%
|
|||||||
Total
Residential
|
(42
|
)
|
(37
|
)
|
-
|
(79
|
)
|
|||||||||
Commercial
|
-
|
(25
|
)
|
-
|
(25
|
)
|
(28
|
)%
|
||||||||
CDO
|
(3
|
)
|
1
|
-
|
(2
|
)
|
(40
|
)%
|
||||||||
Interest
rate
agreements & other derivatives
|
-
|
-
|
(1
|
)
|
(1
|
)
|
||||||||||
Total
mark-to-market
adjustments
|
$
|
(45
|
)
|
$
|
(61
|
)
|
$
|
(1
|
)
|
$
|
(107
|
)
|
By
Vintage & Equity
|
||||||||||||||||||||||
<=
2004
|
|
2005
|
|
2006
|
|
2007
|
2008
|
Loans
& Derivatives
|
Total
|
|||||||||||||
Total
mark-to-market
adjustments
|
$
|
(39
|
)
|
$
|
(27
|
)
|
$
|
(28
|
)
|
$
|
(7
|
)
|
$
|
(5
|
)
|
$
|
(1
|
)
|
$
|
(107
|
)
|
|
MTM
percent (a)
|
(34
|
)%
|
(29
|
)%
|
(35
|
)%
|
(17
|
)%
|
(57
|
)%
|
(a) |
This
percentage represents
the MTMs taken
as a percentage
of the reported
fair
values at the
beginning of
the period or
purchase price
if acquired during
the period. It
is intended to
highlight the
price declines
by collateral
type for the
three months
ended September
30, 2008. These
price declines
are specific
to our portfolio
and may not be
indicative of
price declines
in the market
in
general.
|
► |
During
the third quarter
of 2008, $88 million
of the total MTM
adjustments were
reported on Redwood’s income statement
and $19 million were
charged
directly to equity.
Of the amount reported
on the income statement,
$85
million represented
assets accounted
for at other-than-temporary
impairments on available-for-sale
securities and $3
million represented
fair value adjustments.
|
![]() |
![]() |
MARK-TO-MARKET ADJUSTMENTS
|
► |
The
table below shows
the impact of MTM
adjustments of the
securities at
Redwood on our balance
sheet and income
statement in the
third quarter.
|
Mark-to-Market
Adjustments on
Assets
|
||||
at
Redwood
|
||||
Balance
Sheet and Income
Statement Effects
|
||||
Three
Months Ended September
30, 2008
|
||||
($
in millions)
|
||||
Balance
sheet effect
|
||||
Net
change in equity
account
|
$
|
(19
|
)
|
|
Income
statement effect
|
||||
Market
valuation adjustments
|
||||
Fair
value assets
|
(3
|
)
|
||
Impairment
on AFS securities
|
(85
|
)
|
||
Total
income statement
effect
|
(88
|
)
|
||
Total
mark-to-market
adjustments
|
$
|
(107
|
)
|
► |
During
the third quarter,
total mark-to-market
adjustments at the
Fund totaled
$10 million, of which
$8 million were deemed
other-than-temporary
impairments. There
were no impairments
on securities owned
by the Fund in
prior quarters. All
of the securities
owned by the Fund
were classified as
available-for-sale.
|
► |
During
the third quarter,
MVA totaled $2 million
stemming from a decrease
in the
fair value of real
estate owned. Both
the loans and ABS
issued at Sequoia
are carried at their
amortized cost basis.
|
![]() |
![]() |
MARK-TO-MARKET
ADJUSTMENTS
|
► |
The
table below shows
detail for the
MTM adjustments
during the third
quarter
for the assets
and liabilities
held by Acacia
entities.
|
Mark-to-Market
Adjustments
|
||||
on
Acacia Assets
and Liabilities
|
||||
Three
Months Ended
September 30,
2008
|
||||
($
in millions)
|
||||
Assets
|
||||
Real
estate securities
and loans
|
$
|
(225
|
)
|
|
Interest
rate agreements
and other derivatives
|
(11
|
)
|
||
Liabilities
|
||||
ABS
issued
|
207
|
|||
Net
mark-to-market
adjustments
|
$
|
(29
|
)
|
► |
During
the third quarter,
market prices for
the assets owned
by the Acacia
entities and the
related debt declined
further due to
continuing credit
deterioration,
rating agency downgrades,
and a market in
which there was
light trading volume.
|
► |
The
entire net negative
$29 million of
MTM adjustments
for Acacia was
reflected in our
income statement
as required by
FAS 159.
|
► |
As
a result of the
measurement techniques
required by FAS
157, we may
continue to encounter
MTM earnings volatility
due to the consolidation
of
Acacia entities,
although we also
expect this volatility
to be less than
we encountered
in prior periods.
This complex topic
is discussed in
the
Investments in
Acacia module later
in this
Review.
|
![]() |
![]() |
MARK-TO-MARKET
ADJUSTMENTS
|
► |
The
market values
we use for
our assets
and liabilities
reflect the
price we
believe we
believe we
would realize
if we chose
to sell our
securities
or
would have
to pay if we
chose to buy
back our liabilities
or asset-backed
securities
(ABS) issued
liabilities.
This is the
required accounting
standard even
if we have
no intention
to sell assets.
Establishing
market
values in thinly
traded or essentially
closed markets
is inherently
subjective
and is dependent
upon many market-based
inputs, including
observable
trades, information
on offered
inventories,
bid lists,
and
indications
of value obtained
from dealers.
Obtaining fair
values for
securities
is especially
difficult for
illiquid securities
(such as the
securities
we own), and
is made more
difficult when
there is limited
trading visibility,
as has been
the case in
recent months.
When there
have
been observable
sales, many
of them are
by distressed
sellers and
tend to
further depress
asset prices.
For these reasons,
we expect market
valuations
to continue
to be highly
volatile.
|
► |
Although
the Financial
Accounting
Standards Board
issued clarifying
guidance
recently on
marking assets
to fair value,
it did not
change the
accounting
requirements
nor did it
affect our
valuation process.
We continue
to value
our securities
at prices where
we believe
we can sell
them in the
current
illiquid market.
|
► |
Fair
values for
our securities
and ABS issued
are dependent
upon a number
of
market-based
assumptions,
including future
interest rates,
prepayment
rates, discount
rates, credit
loss rates,
and the timing
of credit losses.
We use these
assumptions
to generate
cash flow estimates
and internal
values for
each individual
security.
|
► |
Our
valuation process
continues to
rely primarily
on our internal
assumptions
to estimate
the fair values
of our securities
at September
30, 2008. We
do, however,
request indications
of value (marks)
from dealers
on all of
our assets
and liabilities
every quarter
to assist in
the valuation
process.
|
► |
For
September 30,
2008, we received
dealer marks
on 75% of the
assets and
88%
of our liabilities
on our consolidated
balance sheet.
One major dealer
that we have
used in prior
periods provided
no marks this
quarter. In
the
aggregate,
our internal
valuations
of the securities
on which we
received
dealer marks
were 20% lower
than the aggregate
dealer marks
at September
30, 2008. Our
internal valuations
of our ABS
issued on which
we received
dealer marks
were within
1% of the aggregate
dealer marks
at September
30,
2008.
|
► |
One
of the factors
we consider
in our valuation
process is
our assessment
of
the quality
of the dealer
marks we receive.
Dealers remain
inundated with
requests for
quarter-end
marks, and
there continues
to be limited
observable
trading information
for them to
rely upon.
Thus, their
marks
are most likely
generated by
their own pricing
models for
which they
do
not share their
inputs. Thus
we have little
insight into
their modeling
assumptions.
|
► |
Furthermore,
the dealers
continue to
heavily qualify
the information
they send to
us.
The qualifications
include statements
to the effect
that the markets
are
very volatile
and are characterized
by limited
trading volume
and poor
price transparency.
|
![]() |
![]() |
RESIDENTIAL
REAL ESTATE
SECURITIES
|
► |
Our
residential
securities
portfolio
decreased
by $87 million
(or 35%)
to $160
million in
the third
quarter.
We did not
acquire securities
during the
quarter.
MVA totaled
a negative
$79 million,
principal
payments
were $17
million,
and we recognized
$9 million
in discount
accretion.
|
► |
Industry-wide,
securitization
of non-agency
prime residential
loans was
virtually
shut
down in the
third quarter
at only $0.3
billion compared
to $1 billion
in
the second
quarter and
$40 billion
in the third
quarter one
year ago.
The
non-agency
prime securitization
market for
newly originated
loans remains
effectively
closed, largely
because AAA
investors
are demanding
yields
that render
new securitization
activity
uneconomic.
|
► |
Housing
market conditions
remain a
significant
concern.
Home prices,
as measured
by the S&P/Case-Shiller
Home Price
Index (composite-20),
were down
16.6% at
the end of
August from
a year ago,
and 20.3%
from the
peak in
July 2006.
This index
has declined
for 25 consecutive
months. Foreclosure
filings were
up 71% in
the third
quarter from
the third
quarter of
2007,
according
to Realty
Trac.
|
► |
The
principal
value of
credit losses
on our prime
CES was $24
million during
the third
quarter,
an increase
from $18
million in
the second
quarter and
$7 million
in the first
quarter.
The principal
value of
credit losses
on
our non-prime
CES was $57
million during
the third
quarter,
an increase
from $49
million in
the second
quarter and
$24 million
in the first
quarter.
These amounts
were charged
against our
GAAP credit
reserve,
which
totaled $556
million ($16.74
per share)
for residential
CES at September
30, 2008.
|
► |
For
tax purposes,
losses on
our prime
securities
were $12
million ($0.36
per
share) and
losses on
our non-prime
securities
were $20
million ($0.59
per
share). These
deductions
are less
than the
principal
value of
credit
losses incurred
on the underlying
loans as
we own most
of our credit
sensitive
securities
at a tax
basis that
is substantially
less than
par
value.
|
► |
Prepayment
rates slowed
on residential
loans because
of tighter
underwriting
standards,
higher down
payment requirements,
the continuing
decline in
housing prices,
the shutdown
of the non-agency
securitization
market, and
the increase
in mortgage
interest
rates over
the past
quarter.
Notably,
non-agency
prepayment
rates slowed
more than
agency prepayment
rates as
there was
little incentive
for borrowers
to
refinance.
|
► |
A
moderate
increase
in prepayment
speeds from
the very
low current
speeds
could result
in a disproportionately
higher increase
in the yield
on, and
market values
of, our securities.
|
![]() |
![]() |
RESIDENTIAL
REAL ESTATE
SECURITIES
|
► |
The
following
table presents
the activity
in our
prime securities
portfolio
during
the third
quarter
of 2008.
The carrying
value as
a percentage
of
face value
for all
our securities
is detailed
on Table
16 in the
Financial
Tables
section.
|
|
|
|||
|
|
|||
Prime
Securities
at Redwood
|
||||
Three
Months
Ended
September
30, 2008
|
||||
($
in millions)
|
||||
|
|
|||
Market
value
at June
30, 2008
|
$
|
181
|
||
|
|
|||
Acquisitions
|
-
|
|||
Sales
|
-
|
|||
Principal
payments
|
(11
|
)
|
||
Discount
amortization
|
5
|
|||
Changes
in
market
value,
net
|
(68
|
)
|
||
|
|
|||
Market
value
at September
30, 2008
|
$
|
107
|
► |
Total
interest
income
generated
by our
prime securities
was $12
million
in the
third quarter.
The annualized
interest
income
over our
$175 million
average
amortized
cost was
27%.
|
![]() |
![]() |
RESIDENTIAL
REAL ESTATE
SECURITIES
|
►
|
The
table below
presents
rating
and vintage
information
of the
prime
securities
in our
portfolio
at September
30, 2008.
The vintage
shown is
the year
the securitization
was completed
and may
include
residential
real
estate
loans originated
in an earlier
year.
|
Prime
Securities
at Redwood
|
|||||||||||||||||||
By
Rating
and Vintage
|
|||||||||||||||||||
September
30, 2008
|
|||||||||||||||||||
(by
market
value,
$ in
millions)
|
|||||||||||||||||||
<=2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
Total
|
|||||||||
IGS
|
|||||||||||||||||||
AAA
|
$
|
1
|
$
|
3
|
$
|
10
|
$
|
-
|
$
|
-
|
$
|
14
|
|||||||
AA
|
14
|
14
|
-
|
3
|
2
|
33
|
|||||||||||||
A
|
8
|
-
|
3
|
-
|
1
|
12
|
|||||||||||||
BBB
|
6
|
1
|
-
|
-
|
-
|
7
|
|||||||||||||
Total
IGS
|
29
|
18
|
13
|
3
|
3
|
66
|
|||||||||||||
CES
|
|||||||||||||||||||
BB
|
8
|
3
|
-
|
1
|
-
|
12
|
|||||||||||||
B
|
11
|
-
|
1
|
1
|
-
|
13
|
|||||||||||||
NR
|
13
|
1
|
1
|
1
|
-
|
16
|
|||||||||||||
Total
CES
|
32
|
4
|
2
|
3
|
-
|
41
|
|||||||||||||
Market
value
|
$
|
61
|
$
|
22
|
$
|
15
|
$
|
6
|
$
|
3
|
$
|
107
|
By
Loan
Type
and Vintage
|
|||||||||||||||||||
<=2004
|
2005
|
2006
|
2007
|
2008
|
Total
|
||||||||||||||
ARM
|
$
|
3
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
3
|
|||||||
Fixed
|
13
|
-
|
2
|
5
|
2
|
22
|
|||||||||||||
Hybrid
|
45
|
22
|
13
|
1
|
1
|
82
|
|||||||||||||
Market
value
|
$
|
61
|
$
|
22
|
$
|
15
|
$
|
6
|
$
|
3
|
$
|
107
|
► |
IGS
represent
62% of
our prime
securities
portfolio.
As noted
earlier,
we do
not rely
on credit
ratings
as part
of our
investment
decision
process.
Our
acquisition
decisions
are based
on the
strength
of the
underlying
collateral
cash flows
and the
level of
subordination
to protect
against
projected
credit
losses.
|
► |
Our
prime CES
portfolio
is concentrated
in more
seasoned
assets
originated
in
2004 and
earlier
(78% by
current
market
value).
Although
delinquencies
are
currently
rising
across
all vintages,
these seasoned
CES are
still
performing
within
our original
expectations
and are
carried
at 18%
of face
value on
our balance
sheet.
|
► |
For
our prime
CES of
2005 and
later vintages
(22% by
current
market
value),
the performance
is generally
worse than
our original
expectations.
Credit
performance
for these
vintages
has been
more negatively
impacted
by
declining
home prices,
as many
borrowers
now have
negative
equity
in their
houses.
Our estimate
of market
value is
5% of principal
value for
these
securities
and it
represents
2% of our
capital.
|
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
►
|
The
chart
below
shows
the level
of serious
delinquencies
of our
prime
CES by
vintage
at the
end of
each
quarter
since
the beginning
of
2006.
|
► |
The
chart
above
shows
that
delinquencies
for
the
2008
vintage
securities
are
rising
rapidly.
The
market
value
of
our
investment
in
the
2008
vintage
was
$3
million
at
September
30,
2008.
|
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
►
|
As
a
result
of
the
increased
delinquencies
and
continued
weakening
of
the
housing
markets,
we
have
increased
our
level
of
credit
reserves.
As
seen
in
the
table
below,
our
investments
in
prime
CES
totaled
$41
million
at
September
30,
2008.
These
investments
have
a
face
value
of
$361
million,
of
which
we
have
reserved
$287
million
($8.63
per
share).
We
have
now
reserved
98%
of
face
value
for
all
non-rated,
first-loss
investments
of
2005
and
later
vintages.
The
market
value
of
our
investments
in
CES
of
2005
or
later
vintages
totaled
$9
million,
of
which
$3
million
is
invested
in
first-loss
securities.
|
Credit
Reserve
Analysis
-
Prime
CES
at
Redwood
|
|||||||||||||||||||||||||||||||||||||
By
Rating
and
Vintage
|
|||||||||||||||||||||||||||||||||||||
September
30,
2008
|
|||||||||||||||||||||||||||||||||||||
($
in
millions)
|
|||||||||||||||||||||||||||||||||||||
<=2004
|
2005 | 2006 | 2007 | 2008 | Total | ||||||||||||||||||||||||||||||||
Amount
|
%
of
loans
|
|
Amount
|
%
of
loans
|
Amount
|
|
%
of
loans
|
Amount
|
|
%
of
loans
|
Amount
|
|
%
of
loans
|
|
Amount
|
%
of
loans
|
|||||||||||||||||||||
BB
|
|||||||||||||||||||||||||||||||||||||
Face
|
$
|
37
|
0.47
|
%
|
$
|
28
|
0.35
|
%
|
$
|
-
|
$
|
6
|
0.37
|
%
|
$
|
6
|
0.50
|
%
|
$
|
77
|
0.41
|
%
|
|||||||||||||||
Unamortized
discount
|
(16
|
)
|
(3
|
)
|
-
|
-
|
-
|
.
|
(19
|
)
|
|||||||||||||||||||||||||||
Discount
designated
as
credit
reserve
|
(11
|
)
|
0.13
|
%
|
(22
|
)
|
0.27
|
%
|
-
|
(5
|
)
|
0.35
|
%
|
(6
|
)
|
0.50
|
%
|
(44
|
)
|
0.24
|
%
|
||||||||||||||||
Unrealized
gains
(losses)
|
(2
|
)
|
-
|
-
|
-
|
-
|
(2
|
)
|
|||||||||||||||||||||||||||||
Market
value
|
$
|
8
|
$
|
3
|
$
|
-
|
$
|
1
|
$
|
-
|
$
|
12
|
|||||||||||||||||||||||||
Overall
credit
protection
to
BB
CES
|
0.69
|
%
|
0.45
|
%
|
0.47
|
%
|
0.69
|
%
|
0.57
|
%
|
|||||||||||||||||||||||||||
B
|
|||||||||||||||||||||||||||||||||||||
Face
|
$
|
35
|
0.08
|
%
|
$
|
6
|
0.17
|
%
|
$
|
5
|
0.07
|
%
|
$
|
9
|
0.21
|
%
|
$
|
4
|
0.33
|
%
|
$
|
59
|
0.09
|
%
|
|||||||||||||
Unamortized
discount
|
(2
|
)
|
-
|
1
|
1
|
-
|
-
|
||||||||||||||||||||||||||||||
Discount
designated
as
credit
reserve
|
(19
|
)
|
0.04
|
%
|
(6
|
)
|
0.17
|
%
|
(5
|
)
|
0.07
|
%
|
(9
|
)
|
0.21
|
%
|
(4
|
)
|
0.33
|
%
|
(43
|
)
|
0.07
|
%
|
|||||||||||||
Unrealized
gains
(losses)
|
(3
|
)
|
-
|
-
|
-
|
-
|
(3
|
)
|
|||||||||||||||||||||||||||||
Market
value
|
$
|
11
|
$
|
-
|
$
|
1
|
$
|
1
|
$
|
-
|
$
|
13
|
|||||||||||||||||||||||||
Overall
credit
protection
to
B
CES
|
0.28
|
%
|
0.22
|
%
|
1.07
|
%
|
0.21
|
%
|
0.36
|
%
|
0.37
|
%
|
|||||||||||||||||||||||||
Unrated
|
|||||||||||||||||||||||||||||||||||||
Face
|
$
|
112
|
0.42
|
%
|
$
|
37
|
0.21
|
%
|
$
|
28
|
0.17
|
%
|
$
|
43
|
0.17
|
%
|
$
|
5
|
0.36
|
%
|
$
|
225
|
0.26
|
%
|
|||||||||||||
Unamortized
discount
|
(11
|
)
|
-
|
-
|
1
|
-
|
(10
|
)
|
|||||||||||||||||||||||||||||
Discount
designated
as
credit
reserve
|
(89
|
)
|
0.33
|
%
|
(36
|
)
|
0.19
|
%
|
(27
|
)
|
0.15
|
%
|
(43
|
)
|
0.17
|
%
|
(5
|
)
|
0.36
|
%
|
(200
|
)
|
0.23
|
%
|
|||||||||||||
Unrealized
(losses)
gains
|
1
|
-
|
-
|
-
|
-
|
1
|
|||||||||||||||||||||||||||||||
Market
value
|
$
|
13
|
$
|
1
|
$
|
1
|
$
|
1
|
$
|
-
|
$
|
16
|
► |
The
chart
on
the
prior
page
and
the
table
above
can
be
used
to
analyze
our
credit
reserves
relative
to
existing
credit
trends.
For
example,
the
chart
shows
that
serious
delinquencies
on
2004
and
prior
vintage
CES
are
currently
0.85%
of
collateral
loan
balances
at
September
30,
2008.
If
we
assume
a default
rate
of
seriously
delinquent
loans
of
75%
and
a loss
severity
of
40%,
total
expected
credit
losses
from
these
delinquencies
would
equal
0.26%
of
current
collateral
loan
balances.
Our
credit
reserves
on
2004
and
prior
vintage
unrated
CES
currently
total
0.33%
of
collateral
balances
(as
shown
in
the
table
above).
Under
this
scenario,
our
credit
reserves
on
our
unrated
CES
could
absorb
the
losses
from
the
existing
seriously
delinquent
loans
at
September
30,
2008,
plus
another
0.07%
of
future
losses.
|
► |
Note
that
regardless
of
how
high
delinquencies
rise,
once
losses
in
a pool
of
mortgages
exceed
our
investment
in
that
pool,
we
cannot
suffer
additional
losses
as
the
most
we
have
to
lose
is
capped
at
our
investment
in
the
securities
in
that
pool.
|
► |
Up
to
the
point
of
a credit
loss,
and
the
subsequent
reduction
of
principal
on
the
security,
we
will
continue
to
receive
interest
from
these
investments.
For
this
reason,
the
timing
of
credit
losses,
not
the
magnitude,
will
have
a greater
effect
on
future
cash
flows.
|
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
► |
The
following
chart
breaks
out
our
prime
portfolio
loan
types
by
weighted
average
interest
rate,
as
well
as
our
estimate
of
conforming
and
non-conforming
(i.e.,
jumbo)
balances
as
of
September
30,
2008.
This
chart
illustrates
how
our
portfolio
might
be
affected
by
refinancing
activity
from
a
reduction
in
interest
rates
and
increases
in
GSE
conforming
loan
limits.
The
housing
bill
that
was
signed
into
law
in
July
2008
changed
the
conforming
loan
limit
(effective
January
1,
2009)
to
$625,000,
and
we
estimate
that
approximately
68%
of
our
portfolio
is
or
will
be
eligible
for
purchase
by
the
GSEs
based
only
on
this
revised
GSE
conforming
loan
limit.
|
Prime
CES
at
Redwood
|
|||||||||||||||||||||||||||||||||||||
Composition
by
Product
Type,
Vintage,
and
Balance
|
|||||||||||||||||||||||||||||||||||||
September
30,
2008
(a)
|
|||||||||||||||||||||||||||||||||||||
<=
2004
|
2005
|
2006
|
2007
|
2008
|
Total
|
||||||||||||||||||||||||||||||||
Product
|
%
of
Balance
|
|
Wtd
Avg
Loan
Rate
|
|
%
of
Balance
|
Wtd
Avg
Loan
Rate
|
|
%
of
Balance
|
Wtd
Avg
Loan
Rate
|
%
of
Balance
|
Wtd
Avg
Loan
Rate
|
|
%
of
Balance
|
|
Wtd
Avg
Loan
Rate
|
%
of
Balance
|
Wtd
Avg
Loan
Rate
|
||||||||||||||||||||
Hybrid
|
36
|
%
|
4.83
|
%
|
71
|
%
|
5.47
|
%
|
65
|
%
|
6.09
|
%
|
31
|
%
|
6.36
|
%
|
11
|
%
|
6.35
|
%
|
46
|
%
|
5.26
|
%
|
|||||||||||||
ARM(b)
|
2
|
%
|
4.37
|
%
|
<1
|
%
|
4.61
|
%
|
<1
|
%
|
6.18
|
%
|
<1
|
%
|
6.41
|
%
|
-
|
-
|
1
|
%
|
4.43
|
%
|
|||||||||||||||
Fixed
|
24
|
%
|
5.66
|
%
|
7
|
%
|
6.03
|
%
|
18
|
%
|
6.37
|
%
|
64
|
%
|
6.45
|
%
|
88
|
%
|
6.55
|
%
|
23
|
%
|
5.88
|
%
|
|||||||||||||
Jumbo
|
62
|
%
|
78
|
%
|
83
|
%
|
96
|
%
|
99
|
%
|
70
|
%
|
|||||||||||||||||||||||||
Hybrid
|
14
|
%
|
4.99
|
%
|
20
|
%
|
5.58
|
%
|
16
|
%
|
6.13
|
%
|
<1
|
%
|
6.35
|
%
|
-
|
-
|
14
|
%
|
5.28
|
%
|
|||||||||||||||
ARM(b)
|
2
|
%
|
4.69
|
%
|
<1
|
%
|
4.66
|
%
|
-
|
-
|
<1
|
%
|
6.40
|
%
|
-
|
-
|
1
|
%
|
4.70
|
%
|
|||||||||||||||||
Fixed
|
22
|
%
|
5.97
|
%
|
2
|
%
|
6.00
|
%
|
1
|
%
|
6.49
|
%
|
3
|
%
|
6.57
|
%
|
1
|
%
|
6.37
|
%
|
15
|
%
|
5.98
|
%
|
|||||||||||||
Conforming
|
38
|
%
|
22
|
%
|
17
|
%
|
4
|
%
|
1
|
%
|
30
|
%
|
(a)
The
product
percentages
differ
from
other
tables
as
the
table
above
represents
our
exposure
on
a
loan
balance
basis
and
others
are
on
a
market
value
basis.
|
||||||||||||||||||
(b)
ARMs
are
indexed
to
one-or-six
month
LIBOR
and
have
a
weighted
average
margin
of
1.72%.
|
► |
A
significant
factor
in
the
rate
of
prepayments
is
the
level
of
mortgage
rates.
Historically,
jumbo
fixed-rate
mortgages
have
been
priced
to
a spread
of
roughly
1.25%
above
the
10-year
Treasury
note
yield.
While
the
10-year
note
yield
has
hovered
near
4.00%
for
the
past
year,
current
jumbo
fixed-rate
mortgages
are
close
to
8.00%,
implying
a spread
over
the
10-year
note
well
above
the
recent
norm
(as
seen
in
the
chart
below).
Should
jumbo
fixed-rate
mortgage
spreads
fall
back
to
historical
levels,
many
borrowers
will
have
an
incentive
to
refinance
and
prepayments
rate
could
increase
substantially
from
the
current
low
levels.
|
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
► |
The
chart
below
shows
the
trends
in
our
residential
prime
CES
prepayment
speeds,
which
have
been
declining
for
our
adjustable-rate
mortgages
and
remain
at
low
speeds
for
our
fixed
and
hybrid
loans.
|
► |
The
degree
of
refinancing
activity
is
important
to
consider,
since
our
credit
reserves
provide
protection
on
securities
that
we
have
purchased
at
a
substantial
discount
to
principal
face
value
amounts.
All
things
being
equal,
faster
prepayments
would
benefit
these
investments
by
accelerating
the
collection
of
principal
and
the
potential
recovery
of
credit
reserves.
|
► |
CES
backed
by
2004
and
prior
originations
are
especially
sensitive
to
the
rate
of
prepayments
as
many
of
the
securities
are
close
to
or
are
already
receiving
principal
payments.
An
uptick
in
prepayments
could
have
a
significant
beneficial
effect
on
cash
flows
and
valuations.
|
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
► |
We
believe
the
loan
characteristics
of
our
prime
portfolio
set
forth
below
illustrate
the
high
quality
of
these
loans,
including
relatively
low
LTV
ratios
and
high
FICO
scores.
As
the
following
table
also
illustrates,
we
have
geographically
diverse
pools
of
prime
loans
that
are
generally
seasoned
over
three
years.
|
Residential
Prime
CES
at
Redwood
|
|||||
Underlying
Loan
Characteristics
|
|||||
September
30,
2008
|
|||||
Number
of
loans
|
247,449
|
Wtd
Avg
FICO
|
748
|
||
Total
loan
face
($
in
millions)
|
$101,075
|
FICO:
<620
|
1%
|
|
|
Average
loan
size
($
in
1000's)
|
$408
|
FICO:
621
-
660
|
4%
|
||
FICO:
661
-
700
|
14%
|
||||
Southern
CA
|
25%
|
FICO:
701
-
740
|
26%
|
||
Northern
CA
|
23%
|
|
FICO:
>
740
|
53%
|
|
Florida
|
5%
|
Unknown
|
2%
|
||
New
York
|
6%
|
||||
Georgia
|
2%
|
Conforming
at
origination
%
|
24%
|
||
New
Jersey
|
3%
|
>
$1
MM
%
|
8%
|
||
Other
states
|
36%
|
||||
|
2nd
home
%
|
6%
|
|||
2008
origination
|
<1%
|
|
Investment
home
%
|
1%
|
|
2007
origination
|
6%
|
|
|||
2006
origination
|
11%
|
Purchase
|
43%
|
||
2005
origination
|
21%
|
Cash
out
refi
|
21%
|
||
2004
origination
and
earlier
|
62%
|
Rate-term
refi
|
36%
|
||
Full
doc
|
53%
|
||||
Wtd
Avg
Original
LTV
|
69%
|
No
doc
|
7%
|
||
Original
LTV:
0
-
50
|
14%
|
Other
(limited,
etc)
|
37%
|
||
Original
LTV:
50
-
60
|
12%
|
Unknown
|
3%
|
||
Original
LTV:
60.
-
70
|
22%
|
|
|||
Original
LTV:
70
-
80
|
49%
|
2-4
family
|
1%
|
|
|
Original
LTV:
80
-
90
|
2%
|
Condo
|
11%
|
|
|
Original
LTV:
90
-
100
|
1%
|
Single
family
|
88%
|
||
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
► |
The
following
table
presents
the
activity
in
our
non-prime
securities
portfolio
during
the
third
quarter
of
2008.
|
Non-Prime
Securities
at
Redwood
|
||||
Three
Months
Ended
September
30,
2008
|
||||
($
in
millions)
|
||||
Market
value
at
June
30,
2008
|
$
|
66
|
||
Acquisitions
|
-
|
|||
Sales
|
-
|
|||
Principal
payments
|
(6
|
)
|
||
Discount
amortization
|
4
|
|||
Changes
in
market
value,
net
|
(11
|
)
|
||
Market
value
at
September
30,
2008
|
$
|
53
|
► |
Total
interest
income
generated
by
our
non-prime
securities
was
$7
million
in
the
quarter,
an
annualized
yield
of
43%
on
our
average
amortized
cost
of
these
securities
of
$68
million.
|
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
► |
The
table
below
presents
rating
and
vintage
information
of
the
non-prime
securities
in
our
portfolio
at
September
30,
2008.
The
vintage
shown
is
the
year
the
securitization
was
completed
and
may
include
real
estate
loans
originated
in
an
earlier
year.
|
Non-Prime
Securities
at
Redwood
|
||||||||||||||||
By
Rating
and
Vintage
|
||||||||||||||||
September
30,
2008
|
||||||||||||||||
(by
market
value,
$
in
millions)
|
||||||||||||||||
<=2004
|
2005
|
|
2006
|
|
2007
|
|
Total
|
|||||||||
IGS
|
||||||||||||||||
AAA
|
$
|
-
|
$
|
24
|
$
|
10
|
$
|
13
|
$
|
47
|
||||||
Total
IGS
|
-
|
24
|
10
|
13
|
47
|
|||||||||||
CES
|
||||||||||||||||
B
|
-
|
-
|
-
|
2
|
2
|
|||||||||||
NR
|
1
|
1
|
-
|
2
|
4
|
|||||||||||
Total
CES
|
1
|
1
|
-
|
4
|
6
|
|||||||||||
Market
value
|
$
|
1
|
$
|
25
|
$
|
10
|
$
|
17
|
$
|
53
|
By
Loan
Type
and
Vintage
|
||||||||||||||||
<=2004
|
|
2005
|
|
2006
|
|
2007
|
|
Total
|
||||||||
Hybrid
|
$
|
-
|
$
|
-
|
$
|
1
|
$
|
15
|
$
|
16
|
||||||
Option
Arm
|
1
|
25
|
9
|
2
|
37
|
|||||||||||
Market
value
|
$
|
1
|
$
|
25
|
$
|
10
|
$
|
17
|
$
|
53
|
► |
At
September
30,
2008,
89%
of
our
non-prime
portfolio
was
IGS,
which
had
an
average
of
32
percentage
points
of
credit
support
from
lower-rated
subordinate
securities.
|
► |
$6
million,
or
1%
of
our
capital,
was
invested
in
non-prime
CES
at
September
30,
2008.
The
aggregate
fair
value
of
our
non-prime
securities
was
14%
of
principal
value.
|
► |
Our
option
ARM
non-prime
securities
consist
of
$33
million
of
AAA-rated
IGS
and
$4
million
of
CES.
Our
hybrid
non-prime
securities
include
$14
million
of
IGS
and
$2
million
of
CES.
|
![]() |
![]() |
RESIDENTIAL
REAL
ESTATE
SECURITIES
|
►
|
Our
non-prime
CES
portfolio
was
nearly
fully
reserved
for
credit
losses,
with
an
aggregate
face
value
of
$261
million
and
credit
reserves
of
$248
million
($7.46
per
share)
at
September
30,
2008.
|
► |
Seriously
delinquent
loans
underlying
our
non-prime
CES
were
15%
at
September
30,
2008.
|
► |
Prepayment
speeds
on
non-prime
CES
have
continued
to
slow
as
refinancing
options
for
these
borrowers
are
generally
diminishing,
as
illustrated
in
the
chart
below.
|
![]() |
![]() |
COMMERCIAL
REAL
ESTATE
SECURITIES
|
► |
Conditions
in
the
commercial
mortgage
market
deteriorated
during
the
quarter
due
to
the
upheaval
in
both
the
credit
and
equity
markets.
Trading
activity
was
limited,
reflecting
the
market
turmoil
and
the
continuing
negative
investor
sentiment
over
deteriorating
fundamentals
in
the
commercial
real
estate
market.
Spreads
widened
throughout
the
quarter
with
AAAs
increasing
by
about
165
basis
points
to
350
and
BBBs
increasing
about
900
basis
points
to
nearly
2,400
at
the
end
of
the
third
quarter
according
to
data
published
by
Commercial
Mortgage
Alert;
spreads
continued
to
widen
materially
following
the
end
of
the
quarter.
U.S.
commercial
mortgage-backed
securities
issuance
remains
weak,
with
no
issuance
in
the
third
quarter
and
nine
month
volume
($12
billion)
down
94%
from
the
year-ago
period.
|
► |
Financing
costs
for
property
acquisitions
remain
elevated
due
to
the
shutdown
of
the
commercial
mortgage
securitization
market
and
the
reduction
of
credit
available
from
the
commercial
banking
industry.
Tight
underwriting
standards
and
few
refinance
alternatives
will
likely
result
in
more
extensions
and
defaults
on
maturing
loans.
On
the
positive
side,
our
commercial
CES
is
primarily
backed
by
longer
term
fixed-rate
loans,
with
few
loans
scheduled
to
mature
in
the
near
term.
|
► |
According
to
monthly
data
compiled
by
Citigroup,
commercial
mortgage
delinquencies
have
increased
by
approximately
13
basis
points
since
the
beginning
of
the
year
to
0.52%
as
of
September
2008.
As
the
economy
slows
and
financing
becomes
increasingly
scarce
delinquency
rates
are
expected
to
increase.
|
► |
Our
commercial
securities
portfolio
declined
by
$27
million
to
$64
million
in
the
third
quarter
due
to
significantly
wider
spreads
for
CMBS.
|
► |
We
have
not
purchased
commercial
securities
since
the
first
quarter
of
2007.
We
continue
to
monitor
developments
and
trends
in
commercial
real
estate
and
positioning
ourselves
to
expand
our
commercial
business
at
the
appropriate
time.
|
![]() |
![]() |
COMMERCIAL
REAL
ESTATE
SECURITIES
|
►
|
Our
commercial
securities
portfolio
consists
of
CES
investments
that
we
fund
with
equity.
The
types
of
loans
backing
these
securities
are
typically
fixed-rate
with
10-year
average
lives.
The
following
table
presents
our
commercial
securities
portfolio
by
credit
rating
and
vintage.
The
vintage
shown
is
the
year
the
securitization
was
completed
and
may
include
commercial
real
estate
loans
originated
in
an
earlier
year.
|
|
||||||||||||||||
Commercial
Securities
at
Redwood
|
||||||||||||||||
By
Rating
and
Vintage
|
||||||||||||||||
September
30,
2008
|
||||||||||||||||
(by
market
value,
$
in
millions)
|
||||||||||||||||
|
|
|
|
|
|
|||||||||||
|
<=
2004
|
|
2005
|
2006
|
2007
|
|
Total
|
|||||||||
BB
or
B
|
4
|
-
|
5
|
6
|
15
|
|||||||||||
NR
|
9
|
14
|
22
|
4
|
49
|
|||||||||||
Market
value
|
$
|
13
|
$
|
14
|
$
|
27
|
$
|
10
|
$
|
64
|
► |
Total
interest
income
generated
by
our
commercial
securities
was
$3
million
in
the
third
quarter,
which
resulted
in
an
annualized
yield
on
our
average
amortized
cost
of
13%.
|
► |
The
overall
credit
performance
of
our
commercial
securities
portfolio
weakened
during
the
third
quarter.
Total
serious
delinquencies
(60
days+)
were
$473
million,
or
0.96%
of
the
$49
billion
of
commercial
loans
that
we
credit
enhance,
an
increase
from
0.80%
at
June
30,
2008.
Included
in
these
delinquencies
are
three
loans
totaling
$241million
(or
0.49%)
that
are
contained
within
securities
we
own
with
a
cumulative
market
value
of
$0.8
million.
|
► |
Principal
credit
losses
on
our
commercial
CES
of
$3
million
during
the
quarter
were
charged
against
our
designated
credit
reserve.
For
tax
purposes,
realized
losses
on
commercial
securities
were
less
than
$0.3
million
in
the
third
quarter.
This
deduction
is
less
than
the
principal
value
of
credit
losses
incurred
on
the
underlying
loans,
as
we
own
our
commercial
CES
at
a
tax
basis
that
is
substantially
less
than
par
value.
|
► |
Our
GAAP
credit
reserve
for
commercial
CES
was
$471
million
($14.16
per
share)
at
September
30,
2008.
|
► |
When
assessing
commercial
credit
reserves,
it
is
important
to
consider
that
commercial
loans
do
not
usually
prepay
like
residential
loans
due
to
various
early
refinancing
disincentives
for
borrowers.
These
loans
typically
perform
very
well
in
their
early
stages,
while
experiencing
a
greater
risk
of
default
near
maturity
when
borrowers
must
obtain
new
financing.
Because
of
this
dynamic,
we
are
nearly
fully
reserved
for
losses
on
our
non-rated
pieces
and
most
of
our
B-rated
securities.
We
expect
our
commercial
CES
to
absorb
losses;
the
key
determent
of
the
impact
on
returns
will
be
when
the
losses
will
occur.
|
![]() |
![]() |
COMMERCIAL
REAL
ESTATE
SECURITIES
|
►
|
The
summary-level
information
below
presents
weighted-average
credit
reserve
balances
by
principal
value,
designated
by
loan
vintage
and
credit
rating.
|
|
|||||||||||||||||||||||||||||||
Credit
Reserve
Analysis
-
Commercial
Portfolio
|
|||||||||||||||||||||||||||||||
By
Rating
and
Vintage
|
|||||||||||||||||||||||||||||||
September
30,
2008
|
|||||||||||||||||||||||||||||||
($
in
millions)
|
|||||||||||||||||||||||||||||||
<=2004
|
|
2005
|
2006
|
2007
|
|
Total
|
|||||||||||||||||||||||||
Amount
|
%
of
loans
|
|
Amount
|
|
%
of
loans
|
Amount
|
|
%
of
loans
|
Amount
|
|
%
of
loans
|
Amount
|
%
of
loans
|
||||||||||||||||||
BB
|
|||||||||||||||||||||||||||||||
Face
|
$
|
9
|
0.09
|
%
|
$
|
-
|
$
|
3
|
0.08
|
%
|
$
|
14
|
0.10
|
%
|
$
|
26
|
0.10
|
%
|
|||||||||||||
Unamortized
discount
|
(5
|
)
|
-
|
(1
|
)
|
(9
|
)
|
(15
|
)
|
||||||||||||||||||||||
Discount
designated
as
credit
reserve
|
-
|
-
|
(1
|
)
|
0.04
|
%
|
(2
|
)
|
0.01
|
%
|
(3
|
)
|
0.01
|
%
|
|||||||||||||||||
Unrealized
gains
(losses)
|
-
|
-
|
-
|
(1
|
)
|
(1
|
)
|
||||||||||||||||||||||||
Market
value
|
$
|
4
|
$
|
-
|
$
|
1
|
$
|
2
|
$
|
7
|
|||||||||||||||||||||
Overall
credit
protection
to
BB
CES
|
3.40
|
%
|
2.26
|
%
|
1.94
|
%
|
2.49
|
%
|
|||||||||||||||||||||||
B
|
|||||||||||||||||||||||||||||||
Face
|
$
|
-
|
$
|
-
|
$
|
23
|
0.11
|
%
|
$
|
27
|
0.19
|
%
|
$
|
50
|
0.14
|
%
|
|||||||||||||||
Unamortized
discount
|
-
|
-
|
4
|
(5
|
)
|
(1
|
)
|
||||||||||||||||||||||||
Discount
designated
as
credit
reserve
|
-
|
-
|
(23
|
)
|
0.11
|
%
|
(18
|
)
|
0.12
|
%
|
(41
|
)
|
0.11
|
%
|
|||||||||||||||||
Unrealized
gains
(losses)
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
Market
value
|
$
|
-
|
$
|
-
|
$
|
4
|
$
|
4
|
$
|
8
|
|||||||||||||||||||||
Overall
credit
protection
to
B
CES
|
-
|
-
|
1.89
|
%
|
1.22
|
%
|
1.62
|
%
|
|||||||||||||||||||||||
Unrated
|
|||||||||||||||||||||||||||||||
Face
|
$
|
41
|
0.58
|
%
|
$
|
124
|
0.61
|
%
|
$
|
235
|
0.70
|
%
|
$
|
39
|
0.86
|
%
|
$
|
439
|
0.67
|
%
|
|||||||||||
Unamortized
discount
|
(2
|
)
|
15
|
23
|
4
|
40
|
|||||||||||||||||||||||||
Discount
designated
as
credit
reserve
|
(32
|
)
|
0.44
|
%
|
(121
|
)
|
0.50
|
%
|
(235
|
)
|
0.70
|
%
|
(39
|
)
|
0.86
|
%
|
(427
|
)
|
0.65
|
%
|
|||||||||||
Unrealized
(losses)
gains
|
2
|
(4
|
)
|
(1
|
)
|
-
|
(3
|
)
|
|||||||||||||||||||||||
Market
value
|
$
|
9
|
$
|
14
|
$
|
22
|
$
|
4
|
$
|
49
|
► |
The
market
values
for
our
BB,
B,
and
unrated
commercial
CES
at
September
30,
2008
totaled
$64
million,
which
is
equal
to
12%
of
the
$515
million
face
value.
|
![]() |
![]() |
INVESTMENTS
IN
SEQUOIA
|
► |
Cash
generated by our investments in Sequoia during the third
quarter totaled
$13 million, compared to $19 million in the second quarter.
In the fourth
quarter, we expect to receive about one-third the amount
of cash that we
received in the third quarter as the increase in LIBOR
will adversely
affect cash flows to the IOs we own from these securitizations.
Due to
timing differences between coupon resets on the loans
held by the Sequoia
entities and the ABS issued held by the Sequoia entities,
a portion of the
IO cash flows will be recovered in future periods as
the loans reset or
“catch-up” to the higher level of
LIBOR.
|
► |
Due
to the turbulence in the mortgage markets, including
declining home prices
and concerns over credit performance, AAA buyers continue
to require a
much higher yield to compensate for actual and perceived
risk.
Consequently, since July 2007, we have not acquired loans
and have not
completed new Sequoia securitizations. We continue to
believe the prime
non-agency securitization market will be one of the first
structured
markets to return; however, we do not anticipate completing
any new
Sequoia transactions until housing prices stabilize and
securitization
economics improve.
|
► |
The
GAAP carrying value of Redwood’s investments in Sequoia was $111 million
at September 30, 2008. This is reflected on our balance
sheet as the
difference between residential loans of $6.1 billion
and ABS issued of
$6.0 billion. Both the loans and ABS issued are carried
at their amortized
cost basis.
|
![]() |
![]() |
INVESTMENTS IN SEQUOIA
|
► |
Our
estimated fair value of Sequoia securities that Redwood
owns at September
30, 2008, was $56 million. This consists of $44 million
of IOs, $9 million
of CES, and $3 million of IGS. We used the same valuation
process to value
the Sequoia securities as we did for third-party
securities (as described
on page 27). Most of our IOs are rated AAA, the IGS
we own are mostly
AA-rated, and the CES are rated BB, B, and
unrated.
|
► |
The
primary difference between our GAAP carrying value
and the fair value of
our investments in Sequoia is that for several years
the loan premium
amortization expenses as calculated under GAAP have
not kept pace with
prepayments. For a portion of these loans, our GAAP
amortization method is
linked more closely to short-term interest rates.
As short-term interest
rates increase, which they did during the third quarter,
we expect premium
amortization for this portion of the loan portfolio
to decrease. Loan
premium amortization expenses, a component of interest
income, was $3
million in the third quarter, down from $10 million
in the second quarter.
We ended the quarter with a net premium of $65 million
on a $6.1 billion
principal loan balance for an average basis of
101.07.
|
► |
Seriously
delinquent loans increased from $118 million to $143
million in the third
quarter, an increase from 1.87% to 2.36% of current
balances. Serious
delinquencies increased across all vintages. Most
of the loans (65% of the
Sequoia loans) were originated in 2005 and earlier
and many of the loans
in the original pools have been paid in full. As
a percent of the original
balances, seriously delinquent loans are 0.51% at
September 30, 2008, as
compared to 0.42% at June 30, 2008. Nonetheless,
the recent rise in
delinquencies is concerning, especially for loans
originated in 2006 or
later (35% of our residential
loans).
|
![]() |
![]() |
INVESTMENTS
IN SEQUOIA
|
► |
At
September 30, 2008, our loan loss reserve was $47
million, or 0.77% of the
current loan balance, an increase of $14 million
in the quarter. Our
credit provision for loans was $18 million in the
third quarter, compared
to $10 million in the second quarter. The increase
in credit provision was
attributable to higher delinquencies. We had net
charge-offs of $4 million
in the third quarter compared to $2 million in
both the second and first
quarters of 2008.
|
► |
Loans
from the 2006 and 2007 vintages are performing
worse than our
expectations. In several of these loan pools we
have negative equity as
our loan loss reserve is larger than our investment.
These losses, when
they occur, will eliminate our investment and parts
of the ABS issued. For
GAAP purposes, we take the loan loss provision
expense today and will take
a gain when the ABS issued absorb the
losses.
|
► |
Unlike
our investments in Acacia, our investments in Sequoia are not subject to
cash flow disruptions due to ratings downgrades.
However, many of our
investments represent the first, second, and third
loss securities and as
such will absorb the initial losses in these pools
of residential
loans.
|
► |
The
table below shows the declining prepayment speeds
for the residential
loans at Sequoia.
|
► |
Nearly
all of the hybrid loans held by Sequoia entities,
representing 34% of the
aggregate loan portfolio, are still in their initial
fixed-rate period.
Prepayment rates on these loans decreased slightly
to 14% CPR in the third
quarter from an average of 15% CPR in the second
quarter.
|
![]() |
![]() |
INVESTMENTS IN SEQUOIA
|
► |
ARM
loans held by Sequoia entities, representing
67% of the aggregate loan
portfolio, are indexed to LIBOR. In the third
quarter, prepayment rates on
these loans declined to 15% constant prepayment
rate (CPR) from the second
quarter rate of 22% CPR.
|
► |
As
of September 30, 2008, the tax basis of our
IOs was $41 million.
Consistent with tax accounting principles,
cash flows received will be
used primarily to reduce our basis. As a result,
we expect to recognize
little taxable income from these IOs until
2009.
|
► |
We
hold call option rights on all our Sequoia
transactions. The call option
gives us the right, but not the obligation,
to retire the ABS issued at
par and take possession of the underlying loans.
Currently, we have 16
Sequoias that are callable and one more that
will likely become callable
by the end of the year. Given the current mortgage
and securitization
markets, we do not anticipate calling any Sequoias
in the foreseeable
future.
|
► |
The
following table summarizes the characteristics
of the loans owned by the
Sequoia entities.
|
Residential
Loans at Sequoia*
|
|||||
Underlying
Loan Characteristics
|
|||||
September
30, 2008
|
|||||
Number
of loans
|
18,019
|
Wtd
Avg FICO
|
732
|
||
Total
loan face ($ in millions)
|
$6,067
|
FICO:
<= 620
|
2%
|
||
Average
loan size ($ in 1000's)
|
$337
|
FICO:
621 - 660
|
4%
|
||
FICO:
661 - 700
|
19%
|
||||
Southern
CA
|
15%
|
FICO:
701 - 740
|
26%
|
||
Northern
CA
|
11%
|
FICO:
> 741
|
49%
|
||
Florida
|
13%
|
|
|||
New
York
|
6%
|
Conforming
at origination %
|
34%
|
||
Georgia
|
4%
|
>
$1 MM %
|
15%
|
||
New
Jersey
|
4%
|
|
|||
Other
states
|
47%
|
2nd
home %
|
11%
|
||
Investment
home %
|
3%
|
||||
2007
origination
|
13%
|
|
|||
2006
origination
|
21%
|
Purchase
|
36%
|
||
2005
origination
|
5%
|
Cash
out refi
|
32%
|
||
2004
origination and earlier
|
61%
|
Rate-term
refi
|
30%
|
||
Other
|
2%
|
||||
Wtd
Avg Original LTV
|
69%
|
|
|||
Original
LTV: 0 - 50
|
15%
|
Hybrid
|
33%
|
||
Original
LTV: 50 - 60
|
11%
|
Adjustable
|
67%
|
||
Original
LTV: 60. - 70
|
19%
|
|
|||
Original
LTV: 70 - 80
|
49%
|
Interest
only
|
95%
|
||
Original
LTV: 80 - 90
|
2%
|
Fully-amortizing
|
5%
|
||
Original
LTV: 90 - 100
|
4%
|
||||
*
Total residential real estate loans at Sequoia
excludes REO, which is
included in our consolidated
other assets at lower of cost or fair value
and totaled $21 million at
September 30,2008.
|
![]() |
![]() |
INVESTMENTS
IN ACACIA
|
► |
The
consolidated Acacia net loss was $21 million
in the third quarter of 2008,
compared to a net loss of $20 million in
the second quarter as negative
MVA of $29 million in the third quarter was
similar to the level
recognized in the second quarter. Net interest
income of $8 million in the
third quarter remained unchanged from the
second quarter. Earnings from
Acacia should decline in future periods.
|
► |
During
the third quarter, we received cash distributions
from Acacia entities of
$6 million, including $4 million from our
equity interests and $1 million
from our ABS investments. These distributions
included $2 million from our
equity investments that is nonrecurring,
and was a result of resolving a
claim with the trustee from the call of Acacia
3. We also received $1
million of management fees.
|
► |
Our
reported GAAP equity value for Acacia was
$19 million while our estimate
of economic value is $13 million. Over time,
these values will converge to
zero.
|
► |
We
cautioned in prior Redwood Reviews that severe
collateral rating
downgrades by Moody’s, S&P, and Fitch had placed considerable negative
pressure on the collateralization tests for
all of the Acacia entities. As
a result of these downgrades, the cash flows
on our equity investments in
Acacia 7, 8, 9, 10, 11, OA1, and 12 have
been shut off.
|
![]() |
![]() |
INVESTMENTS IN ACACIA
|
► |
We
are still receiving cash distributions from
our equity investments in
Acacia 5, 6, and CRE1. Due to the volatility
surrounding rating
downgrades, we are no longer comfortable projecting
the likelihood of
future cash distributions for our investments
in these Acacia entities. We
only included the $0.4 million received in
October and the $0.8 million we
expect to receive in November in our calculation
of economic value.
|
► |
The
table below shows the components of management’s estimate of economic
value for our investment in the Acacia
entities as of the end of the third
and second quarters.
|
Investment
in Acacia Entities
|
|||||||
Management's
Estimate of Economic Value
|
|||||||
($
in millions)
|
|||||||
9/30/2008
|
6/30/2008
|
||||||
Management
fees
|
$
|
5
|
$
|
7
|
|||
ABS
acquired
|
7
|
10
|
|||||
Preference
shares
|
1
|
2
|
|||||
Total
|
$
|
13
|
$
|
19
|
► |
Even
if equity cash flows are shut off, we still
collect management fees, which
are senior in cash flow payment priority
to the AAA holders in each Acacia
securitization. Our estimate of the net
present value of these management
fees (discounted at 45%) was $5 million
at September 30, 2008.
|
► |
At
September 30, 2008, we valued the Acacia
ABS we previously acquired at a
price equal to 7% of face value using bid-side
marks from third parties.
|
► |
Our
investment in Acacia represents 2% of our
capital.
|
![]() |
![]() |
ACCOUNTING DISCUSSION
|
► |
At
Redwood, where we hold most of our
securities as AFS for accounting
purposes, other-than-temporary MTM
changes flow through our income
statement while MTM changes that are
temporary are charged to equity.
|
► |
For
accounting purposes, we consolidate
the balance sheets and income
statements of the Acacia securitization
entities. On January 1, 2008, we
adopted a new accounting standard,
FAS 159, and elected to fair value
both
the assets and liabilities of the
Acacia entities. In accordance with
FAS
159, we recorded a one-time, cumulative-effect
adjustment to our January
1, 2008 opening balance sheet that
decreased the carrying value of Acacia
liabilities by $1.5 billion and increased
equity. This new standard
significantly reduces the disparity
that existed between GAAP carrying
value and our previous estimates
of economic value.
|
► |
For
the Sequoia entities, we are required
to consolidate the assets and
liabilities, which we report at amortized
cost, except for REO, which are
reported at the lower of cost or
fair
value.
|
► |
The
rules regarding MTM accounting are
complex and may not be consistent
across portfolios or clearly reflect
the underlying economics. This
accounting discussion is intended
to provide investors with a better
understanding of the impact of MTM
adjustments on our reported results.
|
► |
MTM
adjustments can result from changes
in fair values caused either by a
change in expected cash flows (i.e.
increased credit loss estimates reduce
expected cash flows), a change in
market discount rates (i.e. the market
requires a greater risk premium and/or
interest rates rise), or a
combination of both.
|
► |
All
changes in fair value for securities,
derivatives, or liabilities
accounted for as trading instruments
or under the fair value option of
FAS
159 flow through the income statement.
These adjustments can have a
positive or negative impact on income
in any period.
|
► |
Our
CES and most IGS held at Redwood
and the real estate securities held
by
the Fund are accounted for as AFS
securities. We carry AFS securities
on
our GAAP balance sheet at their fair
value. Positive changes in the fair
value of AFS securities from period
to period are always accounted for
as
increases to stockholders’ equity and do not flow through our
income
statement. Accounting for negative
changes in the fair value of AFS
securities from period to period
requires a three-step process involving
a
combination of quantitative and judgmental
evaluations. The ultimate
purpose of this process is to determine
whether negative MTM adjustments
represent “other-than-temporary” (permanent) impairments, which flow
through our GAAP income statement,
or represent “temporary” impairments,
which are recorded as a reduction
of stockholders’ equity and do not flow
through our income statement.
|
![]() |
![]() |
ACCOUNTING
DISCUSSION
|
► |
The
diagram below and the narrative discussion
that follows address the
three-step process for evaluating
impairments on AFS
securities.
|
► |
The
first step is to determine whether
there has been an adverse change
in the
underlying cash flows generated by
the security. A security is considered
permanently impaired even if the
change in projected cash flows is
small
relative to the resulting MTM adjustment.
It is difficult to separate with
precision how much of the change
in fair value is driven by changes
in
expected cash flows versus changes
in market discount rates, but during
periods of market illiquidity and
uncertainty (as we have encountered
since mid-2007), the market discount
rate impact can be significant.
|
► |
The
second step is to determine whether
we have the ability and intention
to
hold the security.
|
► |
The
third step requires us to evaluate
whether an impaired security will
recover in value within a reasonable
period of time. This step is very
subjective, particularly when there
is turmoil and uncertainty in the
capital markets.
|
► |
AFS
securities deemed permanently impaired
for accounting purposes cannot be
written back up through MTM adjustments
in our income statement. This does
not mean the underlying security
could not recover in value. If the
value
of an impaired security does recover,
we would recognize this benefit
through higher interest yields over
time. Therefore, some of the
securities classified as permanently
impaired during recent quarters may
eventually prove to have significant
value to
us.
|
![]() |
![]() |
ACCOUNTING DISCUSSION
|
► |
The
consolidated Sequoia assets are accounted
for on our GAAP balance sheet as
held-for-investment and are carried
at their unpaid principal balances
adjusted for net amortized premiums
or discounts and net of allowances
for
credit losses. The consolidated Sequoia
liabilities are accounted for at
their unpaid principal balances net
of any amortized premiums or
discounts.
|
► |
Prior
to January 1, 2008, we accounted
for the consolidated securities
held at
Acacia entities (the assets) as
AFS and the consolidated ABS issued
by
Acacia entities (the liabilities)
at cost. In our opinion, this difference
in accounting treatment led to
a significant discrepancy in the
GAAP
carrying value for our investment
in Acacia entities and our estimate
of
economic value.
|
► |
On
January 1, 2008, we adopted a new
accounting standard, FAS 159, and
elected to fair value both the
assets and liabilities of the Acacia
entities. In accordance with FAS
159, we recorded a one-time,
cumulative-effect adjustment to
our January 1, 2008 opening balance
sheet
that decreased the carrying value
of Acacia liabilities by $1.5 billion
and increased equity. This new
standard significantly reduces
the
disparity that existed between
GAAP carrying value and our previous
estimates of economic value.
|
► |
Under
FAS 159, we are required to flow
through our quarterly income statement
any net change in the fair value
of Acacia assets and liabilities.
As a
result of the measurement techniques
required by FAS 159, we still expect
to encounter some MTM earnings
volatility in the future as a result
of the
consolidation of Acacia entities.
During the third quarter of 2008,
the
fair value of Acacia’s assets and derivatives declined
by $236 million and
the fair value of Acacia’s paired liabilities declined by
$207 million,
for a net change of a negative
$29 million.
|
► |
The
net GAAP carrying value of our
investments in Acacia in our financial
statements is derived by subtracting
the fair value of Acacia’s
liabilities from the fair value
of Acacia’s assets. In theory, fair values
of Acacia’s assets and liabilities should
be reasonably correlated as they
are paired within the same legal
structure. ABS issued by each Acacia
entity will be repaid directly
and solely from the cash flows
generated by
the assets owned by that entity.
However, at any given moment, the
capital
markets may use different discount
rates and valuation parameters
for
Acacia’s collateral assets relative to
its ABS issued.
|
► |
On
September 30, 2008, the derived
net GAAP carrying value of our
retained
Acacia investments was $19 million.
This valuation was greater than
our
$13 million estimate of the fair
value based on the value of the
ABS
acquired using bid-side marks,
plus the net present value of projected
cash flows from our Acacia management
fees discounted at 45%, and the
cash
received in October and we expect
to receive in November from equity
interests.
|
![]() |
![]() |
GLOSSARY
|
![]() |
![]() |
GLOSSARY
|
![]() |
![]() |
GLOSSARY
|
![]() |
![]() |
GLOSSARY
|
![]() |
![]() |
GLOSSARY
|
![]() |
![]() |
GLOSSARY
|
![]() |
Table
1: GAAP Earnings ($ in thousands, except per share
data)
|
60
|
Nine
|
Nine
|
|||||||||||||||||||||||||||||||||
2008
|
2008
|
2008
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
Months
|
Months
|
||||||||||||||||||||||||
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
2008
|
2007
|
||||||||||||||||||||||||
Interest
income
|
$
|
126,227
|
$
|
140,445
|
$
|
171,977
|
$
|
193,728
|
$
|
207,023
|
$
|
208,708
|
$
|
210,372
|
$
|
213,504
|
$
|
217,504
|
$
|
438,649
|
$
|
626,103
|
||||||||||||
Net
securities
discount amortization income
|
7,850
|
6,258
|
10,864
|
18,869
|
20,514
|
23,849
|
20,268
|
18,665
|
17,842
|
24,972
|
64,631
|
|||||||||||||||||||||||
Other
investment interest income
|
487
|
514
|
732
|
984
|
1,143
|
464
|
-
|
-
|
-
|
1,733
|
1,607
|
|||||||||||||||||||||||
Net
loan
premium amortization expense
|
(3,372
|
)
|
(10,215
|
)
|
(7,509
|
)
|
(6,656
|
)
|
(8,349
|
)
|
(10,863
|
)
|
(11,705
|
)
|
(13,272
|
)
|
(11,232
|
)
|
(21,096
|
)
|
(30,917
|
)
|
||||||||||||
Total
GAAP
interest income
|
131,192
|
137,002
|
176,064
|
206,925
|
220,331
|
222,158
|
218,935
|
218,897
|
224,114
|
444,258
|
661,424
|
|||||||||||||||||||||||
Management
fee
income
|
1,307
|
1,319
|
1,613
|
1,866
|
1,893
|
1,481
|
1,168
|
993
|
928
|
4,239
|
4,542
|
|||||||||||||||||||||||
Interest
on
short-term debt - Redwood
|
(65
|
)
|
(68
|
)
|
(182
|
)
|
(377
|
)
|
(5,858
|
)
|
(22,700
|
)
|
(31,094
|
)
|
(16,520
|
)
|
(9,422
|
)
|
(315
|
)
|
(59,652
|
)
|
||||||||||||
ABS
interest
expense consolidated from trusts
|
(89,205
|
)
|
(95,313
|
)
|
(125,042
|
)
|
(149,665
|
)
|
(157,554
|
)
|
(141,993
|
)
|
(132,561
|
)
|
(153,036
|
)
|
(166,105
|
)
|
(309,560
|
)
|
(432,108
|
)
|
||||||||||||
ABS
issuance
expense amortization
|
(930
|
)
|
(1,921
|
)
|
(2,093
|
)
|
(4,644
|
)
|
(4,616
|
)
|
(5,681
|
)
|
(7,068
|
)
|
(7,897
|
)
|
(5,786
|
)
|
(4,944
|
)
|
(17,365
|
)
|
||||||||||||
ABS
interest
rate agreement (expense) income
|
(1,259
|
)
|
(1,246
|
)
|
(1,245
|
)
|
1,265
|
1,959
|
3,358
|
1,646
|
2,497
|
3,317
|
(3,750
|
)
|
6,963
|
|||||||||||||||||||
ABS
issuance
premium amortization income
|
557
|
1,955
|
2,183
|
1,930
|
2,096
|
2,294
|
1,869
|
1,529
|
2,395
|
4,695
|
6,259
|
|||||||||||||||||||||||
Total
consolidated ABS expense
|
(90,837
|
)
|
(96,525
|
)
|
(126,197
|
)
|
(151,114
|
)
|
(158,115
|
)
|
(142,022
|
)
|
(136,114
|
)
|
(156,907
|
)
|
(166,179
|
)
|
(313,559
|
)
|
(436,251
|
)
|
||||||||||||
Interest
expense on long-term debt - Redwood
|
(2,164
|
)
|
(2,233
|
)
|
(2,533
|
)
|
(3,055
|
)
|
(3,150
|
)
|
(2,516
|
)
|
(2,056
|
)
|
(423
|
)
|
-
|
(6,930
|
)
|
(7,722
|
)
|
|||||||||||||
Net
interest
income
|
39,433
|
39,495
|
48,765
|
54,245
|
55,101
|
56,401
|
50,840
|
46,040
|
49,441
|
127,693
|
162,342
|
|||||||||||||||||||||||
Provision
for
credit reserve
|
(18,333
|
)
|
(10,061
|
)
|
(8,058
|
)
|
(4,972
|
)
|
(1,507
|
)
|
(2,500
|
)
|
(3,829
|
)
|
(1,506
|
)
|
(465
|
)
|
(36,452
|
)
|
(7,836
|
)
|
||||||||||||
Market
valuation adjustments, net
|
(127,157
|
)
|
(60,619
|
)
|
(193,932
|
)
|
(1,118,989
|
)
|
(102,766
|
)
|
(29,430
|
)
|
(10,264
|
)
|
(1,404
|
)
|
(5,257
|
)
|
(381,708
|
)
|
(142,460
|
)
|
||||||||||||
Net
interest (loss) income after provision and market valuation
adjustments
|
(106,057
|
)
|
(31,185
|
)
|
(153,225
|
)
|
(1,069,716
|
)
|
(49,172
|
)
|
24,471
|
36,747
|
43,130
|
43,719
|
(290,467
|
)
|
|
12,046
|
||||||||||||||||
Fixed
compensation expense
|
(4,331
|
)
|
(4,648
|
)
|
(5,674
|
)
|
(4,316
|
)
|
(4,560
|
)
|
(4,286
|
)
|
(4,616
|
)
|
(3,688
|
)
|
(3,437
|
)
|
(14,653
|
)
|
(13,462
|
)
|
||||||||||||
Variable
compensation expense
|
(616
|
)
|
(330
|
)
|
(1,857
|
)
|
(434
|
)
|
1,096
|
(198
|
)
|
(2,251
|
)
|
(1,666
|
)
|
(2,630
|
)
|
(2,803
|
)
|
(1,353
|
)
|
|||||||||||||
Equity
compensation expense
|
(3,080
|
)
|
(3,502
|
)
|
(3,306
|
)
|
(2,767
|
)
|
(2,593
|
)
|
(3,540
|
)
|
(3,349
|
)
|
(3,233
|
)
|
(2,579
|
)
|
(9,888
|
)
|
(9,482
|
)
|
||||||||||||
Severance
expense
|
-
|
-
|
-
|
(1,340
|
)
|
-
|
-
|
(2,380
|
)
|
-
|
-
|
-
|
(2,380
|
)
|
||||||||||||||||||||
Other
operating expense
|
(9,191
|
)
|
(5,767
|
)
|
(5,502
|
)
|
(7,337
|
)
|
(5,455
|
)
|
(4,670
|
)
|
(4,479
|
)
|
(4,732
|
)
|
(4,425
|
)
|
(20,460
|
)
|
(14,604
|
)
|
||||||||||||
Due
diligence
expenses
|
(29
|
)
|
(8
|
)
|
(10
|
)
|
(75
|
)
|
(220
|
)
|
(78
|
)
|
(707
|
)
|
(532
|
)
|
(384
|
)
|
(47
|
)
|
(1,005
|
)
|
||||||||||||
Total
GAAP
operating expenses
|
(17,247
|
)
|
(14,255
|
)
|
(16,349
|
)
|
(16,269
|
)
|
(11,732
|
)
|
(12,772
|
)
|
(17,782
|
)
|
(13,851
|
)
|
(13,455
|
)
|
(47,851
|
)
|
(42,286
|
)
|
||||||||||||
Realized
(losses) gains on sales
|
(15
|
)
|
2,909
|
(3
|
)
|
7,199
|
(1,460
|
)
|
1,428
|
303
|
5,308
|
4,968
|
2,891
|
271
|
||||||||||||||||||||
Realized
(losses) gains on calls
|
(39
|
)
|
(72
|
)
|
45
|
(126
|
)
|
3,284
|
1,310
|
843
|
1,511
|
722
|
(66
|
)
|
5,437
|
|||||||||||||||||||
Total
realized
gains, net
|
(54
|
)
|
2,837
|
42
|
7,073
|
1,824
|
2,738
|
1,146
|
6,819
|
5,690
|
2,825
|
5,708
|
||||||||||||||||||||||
Minority
interest allocation
|
2,194
|
(2,369
|
)
|
(255
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
(430
|
)
|
-
|
||||||||||||||||||||
Credit
(provision) for income taxes
|
9,860
|
(937
|
)
|
(1,800
|
)
|
1,467
|
(1,837
|
)
|
(3,021
|
)
|
(1,801
|
)
|
(407
|
)
|
(3,538
|
)
|
7,123
|
(6,659
|
)
|
|||||||||||||||
GAAP
net (loss) income
|
($111,304
|
)
|
($45,909
|
)
|
($171,587
|
)
|
($1,077,445
|
)
|
($60,917
|
)
|
$
|
11,416
|
$
|
18,310
|
$
|
35,691
|
$
|
32,416
|
($328,800
|
)
|
($31,191
|
)
|
||||||||||||
Diluted
average shares
|
33,334
|
32,871
|
32,511
|
29,531
|
27,892
|
28,165
|
27,684
|
27,122
|
26,625
|
32,907
|
27,388
|
|||||||||||||||||||||||
GAAP
net (loss) income per share
|
($3.34
|
)
|
($1.40
|
)
|
($5.28
|
)
|
($36.49
|
)
|
($2.18
|
)
|
$
|
0.41
|
$
|
0.66
|
$
|
1.32
|
$
|
1.22
|
($9.99
|
)
|
($1.14
|
)
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table
1: GAAP
Earnings
|
|
![]() |
Table
2: Taxable Income and GAAP (Loss) Income
Differences
($
in thousands, except per share data)
|
|
Estimated
|
Actual
|
Actual
|
Estimated
|
Estimated
|
||||||||||||||||||||||||||||||
Nine
|
Nine
|
|||||||||||||||||||||||||||||||||
2008
|
2008
|
2008
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
Months
|
Months
|
||||||||||||||||||||||||
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
2008
|
2007
|
||||||||||||||||||||||||
GAAP
net (loss) income
|
$
|
(111,304
|
)
|
$
|
(45,909
|
)
|
$
|
(171,587
|
)
|
$
|
(1,077,445
|
)
|
$
|
(60,917
|
)
|
$
|
11,416
|
$
|
18,309
|
$
|
35,691
|
$
|
32,416
|
$
|
(328,800
|
)
|
$
|
(31,192
|
)
|
|||||
Difference
in taxable income calculations
|
||||||||||||||||||||||||||||||||||
Amortization
and credit losses
|
4,313
|
(7,377
|
)
|
6,094
|
(15,080
|
)
|
10,426
|
10,298
|
10,417
|
13,740
|
12,558
|
3,030
|
31,141
|
|||||||||||||||||||||
Operating
expenses
|
2,713
|
706
|
1,491
|
10,048
|
(2,080
|
)
|
(2,921
|
)
|
(1,713
|
)
|
(12,079
|
)
|
2,545
|
4,910
|
(6,714
|
)
|
||||||||||||||||||
Gross
realized (gains) losses, net on calls and sales
|
(10,755
|
)
|
(5,834
|
)
|
(5,266
|
)
|
(4,819
|
)
|
(3,073
|
)
|
(3,589
|
)
|
954
|
(5,499
|
)
|
(1,141
|
)
|
(21,855
|
)
|
(5,708
|
)
|
|||||||||||||
Market
valuation adjustments, net
|
127,157
|
60,619
|
193,932
|
1,118,989
|
102,766
|
29,430
|
10,264
|
6,571
|
484
|
381,708
|
142,460
|
|||||||||||||||||||||||
Provision
(credit) for income taxes
|
(9,825
|
)
|
1,447
|
1,158
|
(2,214
|
)
|
1,523
|
1,662
|
1,800
|
405
|
4,123
|
(7,220
|
)
|
4,985
|
||||||||||||||||||||
Total
differences in GAAP and taxable income
|
113,603
|
49,561
|
197,409
|
1,106,924
|
109,562
|
34,880
|
21,722
|
3,138
|
18,569
|
360,573
|
166,164
|
|||||||||||||||||||||||
Taxable
income
|
$
|
2,299
|
$
|
3,652
|
$
|
25,822
|
$
|
29,479
|
$
|
48,645
|
$
|
46,296
|
$
|
40,031
|
$
|
38,829
|
$
|
50,985
|
$
|
31,773
|
$
|
134,972
|
||||||||||||
REIT
taxable income
|
$
|
2,400
|
$
|
4,414
|
$
|
24,734
|
$
|
32,125
|
$
|
48,591
|
$
|
45,233
|
$
|
35,112
|
$
|
41,555
|
$
|
45,751
|
$
|
31,548
|
$
|
128,936
|
||||||||||||
Taxable
(loss) income in taxable subsidiaries
|
(101
|
)
|
(762
|
)
|
1,088
|
(2,292
|
)
|
54
|
1,063
|
4,919
|
(2,727
|
)
|
5,234
|
225
|
6,036
|
|||||||||||||||||||
Total
taxable income
|
$
|
2,299
|
$
|
3,652
|
$
|
25,822
|
$
|
29,833
|
$
|
48,645
|
$
|
46,296
|
$
|
40,031
|
$
|
38,828
|
$
|
50,985
|
$
|
31,773
|
$
|
134,972
|
||||||||||||
After-tax
|
||||||||||||||||||||||||||||||||||
Retained
REIT taxable income (1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
2,010
|
$
|
2,500
|
$
|
-
|
$
|
-
|
||||||||||||
Retained
taxable (loss) income in taxable subsidiaries
|
(43
|
)
|
(444
|
)
|
633
|
(1,325
|
)
|
34
|
663
|
3,068
|
(1,175
|
)
|
3,156
|
147
|
3,765
|
|||||||||||||||||||
Total
retained taxable income
|
$
|
(43
|
)
|
$
|
(444
|
)
|
$
|
633
|
$
|
(1,325
|
)
|
$
|
34
|
$
|
663
|
$
|
3,068
|
$
|
835
|
$
|
5,656
|
$
|
147
|
$
|
3,765
|
|||||||||
Shares
used for taxable EPS calculation
|
33,238
|
33,184
|
32,710
|
32,385
|
27,986
|
27,816
|
27,129
|
26,733
|
26,053
|
32,756
|
27,643
|
|||||||||||||||||||||||
REIT
taxable income per share (2)
|
$
|
0.07
|
$
|
0.13
|
$
|
0.76
|
$
|
0.99
|
$
|
1.74
|
$
|
1.63
|
$
|
1.29
|
$
|
1.55
|
$
|
1.76
|
$
|
0.96
|
$
|
4.65
|
||||||||||||
Taxable
(loss) income in taxable subsidiaries per share
|
$
|
(0.00
|
)
|
$
|
(0.02
|
)
|
$
|
0.03
|
$
|
(0.07
|
)
|
$
|
0.00
|
$
|
0.03
|
$
|
0.19
|
$
|
(0.10
|
)
|
$
|
0.20
|
$
|
0.01
|
$
|
0.22
|
||||||||
Total
taxable income per share (2)
|
$
|
0.07
|
$
|
0.11
|
$
|
0.79
|
$
|
0.92
|
$
|
1.74
|
$
|
1.66
|
$
|
1.48
|
$
|
1.45
|
$
|
1.96
|
$
|
0.97
|
$
|
4.88
|
||||||||||||
Total
retained taxable (loss) income (after-tax)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
0.02
|
$
|
(0.04
|
)
|
$
|
0.00
|
$
|
0.02
|
$
|
0.11
|
$
|
0.03
|
$
|
0.22
|
$
|
-
|
$
|
0.13
|
(1)
Reflects board of directors' decision during the
third quarter of
2008 to distribute 100% of our REIT taxable income from 2007
and
2008.
|
|||||||||||
(2)
REIT taxable income per share and taxable income per share
per quarter is
based on the number of shares outstanding at the end of each
quarter. REIT
taxable income and taxable income per share for the year
is the sum of the
four quarterly per share
amounts.
|
THE
REDWOOD
REVIEW
3RD QUARTER
2008
|
Table 2: Taxable
Income and GAAP (Loss) Income Differences
|
61
|
![]() |
Table
3: Retention and Distribuiton of Taxable Income
($
in thousands, except per share data)
|
62
|
Estimated
|
Actual
|
Actual
|
Estimated
|
Actual
|
||||||||||||||||||||||||||||||
|
Nine
|
Nine
|
||||||||||||||||||||||||||||||||
2008
|
2008
|
2008
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
Months
|
Months
|
||||||||||||||||||||||||
Q3
|
Q2
|
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
2008
|
2007
|
|||||||||||||||||||||||
Dividends
declared
|
$
|
25,184
|
$
|
24,887
|
$
|
24,532
|
$
|
80,496
|
$
|
20,989
|
$
|
20,862
|
$
|
20,347
|
$
|
97,665
|
$
|
18,237
|
$
|
74,603
|
$
|
62,198
|
||||||||||||
Dividend
deductions on stock issued through DSPP
|
165
|
288
|
192
|
2,605
|
81
|
933
|
660
|
812
|
177
|
645
|
1,674
|
|||||||||||||||||||||||
Total
dividend deductions
|
$
|
25,349
|
$
|
25,175
|
$
|
24,724
|
$
|
83,101
|
$
|
21,070
|
$
|
21,795
|
$
|
21,007
|
$
|
98,477
|
$
|
18,414
|
$
|
75,248
|
$
|
63,872
|
||||||||||||
Regular
dividend per share
|
$
|
0.75
|
$
|
0.75
|
$
|
0.75
|
$
|
0.75
|
$
|
0.75
|
$
|
0.75
|
$
|
0.75
|
$
|
0.70
|
$
|
0.70
|
$
|
2.25
|
$
|
2.25
|
||||||||||||
Special
dividend per share
|
-
|
-
|
-
|
2.00
|
-
|
-
|
-
|
3.00
|
-
|
-
|
-
|
|||||||||||||||||||||||
Total
dividends per share
|
$
|
0.75
|
$
|
0.75
|
$
|
0.75
|
$
|
2.75
|
$
|
0.75
|
$
|
0.75
|
$
|
0.75
|
$
|
3.70
|
$
|
0.70
|
$
|
2.25
|
$
|
2.25
|
||||||||||||
Undistributed
REIT taxable income at beginning of period (pre-tax):
|
$
|
43,821
|
$
|
64,582
|
$
|
64,572
|
$
|
115,548
|
$
|
88,027
|
$
|
64,589
|
$
|
50,484
|
$
|
111,411
|
$
|
88,420
|
$
|
64,572
|
$
|
50,484
|
||||||||||||
REIT
taxable income (pre-tax)
|
2,400
|
4,414
|
24,734
|
32,125
|
48,591
|
45,233
|
35,112
|
41,555
|
45,751
|
31,548
|
128,936
|
|||||||||||||||||||||||
Retained
(pre-tax) (1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,005
|
)
|
(4,346
|
)
|
-
|
-
|
|||||||||||||||||||||
Dividend
of 2005 income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(15,581
|
)
|
-
|
-
|
||||||||||||||||||||||
Dividend
of 2006 income
|
-
|
-
|
-
|
-
|
(7,682
|
)
|
(21,795
|
)
|
(21,007
|
)
|
(98,477
|
)
|
(2,833
|
)
|
-
|
(50,484
|
)
|
|||||||||||||||||
Dividend
of 2007 income
|
(14,673
|
)
|
(25,175
|
)
|
(24,724
|
)
|
(83,101
|
)
|
(13,388
|
)
|
-
|
-
|
-
|
-
|
(64,572
|
)
|
(13,388
|
)
|
||||||||||||||||
Dividend
of 2008 income
|
(10,676
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(10,676
|
)
|
-
|
|||||||||||||||||||||
Undistributed
REIT taxable income at period end (pre-tax):
|
$
|
20,872
|
$
|
43,821
|
$
|
64,582
|
$
|
64,572
|
$
|
115,548
|
$
|
88,027
|
$
|
64,589
|
$
|
50,484
|
$
|
111,411
|
$
|
20,872
|
$
|
115,548
|
||||||||||||
Undistributed
REIT taxable income (pre-tax) at period end
|
||||||||||||||||||||||||||||||||||
From
2006
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
7,682
|
$
|
29,477
|
$
|
50,484
|
$
|
111,411
|
$
|
-
|
$
|
-
|
||||||||||||
From
2007
|
-
|
14,673
|
39,848
|
64,572
|
115,548
|
80,345
|
35,112
|
-
|
-
|
-
|
115,548
|
|||||||||||||||||||||||
From
2008
|
20,872
|
29,148
|
24,734
|
-
|
-
|
-
|
-
|
-
|
-
|
20,872
|
-
|
|||||||||||||||||||||||
Total
|
$
|
20,872
|
$
|
43,821
|
$
|
64,582
|
$
|
64,572
|
$
|
115,548
|
$
|
88,027
|
$
|
64,589
|
$
|
50,484
|
$
|
111,411
|
$
|
20,872
|
$
|
115,548
|
||||||||||||
Shares
outstanding at period end
|
33,238
|
33,184
|
32,710
|
32,385
|
27,986
|
27,816
|
27,129
|
26,733
|
26,053
|
33,238
|
27,986
|
|||||||||||||||||||||||
Undistributed
REIT taxable income (pre-tax) per share outstanding at
period
end
|
$
|
0.63
|
$
|
1.32
|
$
|
1.97
|
$
|
1.99
|
$
|
4.13
|
$
|
3.16
|
$
|
2.38
|
$
|
1.89
|
$
|
4.28
|
$
|
0.63
|
$
|
4.13
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table
3: Retention and Distribution of Taxable Income
|
|
![]() |
Table
4: Components of Book Value
($
in millions, except per share data)
|
|
2008
|
2008
|
2008
|
January
1,
|
2007
|
2007
|
2007
|
2007
|
||||||||||||||||||
Q3
|
Q2
|
Q1
|
2008
|
Q4
|
Q3
|
Q2
|
Q1
|
||||||||||||||||||
Assets
at Redwood
|
|||||||||||||||||||||||||
Residential
CES
|
|||||||||||||||||||||||||
Prime
|
$
|
41
|
$
|
79
|
$
|
78
|
$
|
128
|
$
|
128
|
$
|
132
|
$
|
189
|
$
|
181
|
|||||||||
Non-prime
|
6
|
9
|
10
|
23
|
23
|
45
|
70
|
75
|
|||||||||||||||||
Total
Residential CES at Redwood
|
47
|
88
|
88
|
151
|
151
|
177
|
259
|
256
|
|||||||||||||||||
|
|||||||||||||||||||||||||
Residential
IGS
|
113
|
160
|
26
|
12
|
12
|
61
|
204
|
106
|
|||||||||||||||||
Commercial
CES
|
64
|
91
|
100
|
148
|
148
|
159
|
186
|
198
|
|||||||||||||||||
Real
estate loans
|
3
|
4
|
5
|
4
|
4
|
6
|
878
|
1,256
|
|||||||||||||||||
CDO
|
4
|
14
|
15
|
21
|
21
|
9
|
24
|
24
|
|||||||||||||||||
Other
real estate investments
|
-
|
-
|
3
|
12
|
12
|
24
|
32
|
47
|
|||||||||||||||||
Total
securities & loans at Redwood
|
231
|
357
|
237
|
348
|
348
|
436
|
1,583
|
1,887
|
|||||||||||||||||
Cash
and cash equivalents
|
177
|
148
|
257
|
290
|
290
|
310
|
83
|
92
|
|||||||||||||||||
Other
assets (1)
|
25
|
27
|
35
|
67
|
67
|
118
|
109
|
120
|
|||||||||||||||||
Other
liabilities (2)
|
(29
|
)
|
(37
|
)
|
(34
|
)
|
(41
|
)
|
(41
|
)
|
(89
|
)
|
(88
|
)
|
(65
|
)
|
|||||||||
Short-term
debt - Redwood
|
(7
|
)
|
(9
|
)
|
(2
|
)
|
(8
|
)
|
(8
|
)
|
(39
|
)
|
(849
|
)
|
(1,880
|
)
|
|||||||||
Madrona
commercial paper
|
-
|
-
|
-
|
-
|
-
|
(5
|
)
|
(5
|
)
|
(5
|
)
|
||||||||||||||
Total
short-term debt - Redwood
|
(7
|
)
|
(9
|
)
|
(2
|
)
|
(8
|
)
|
(8
|
)
|
(44
|
)
|
(854
|
)
|
(1,885
|
)
|
|||||||||
Investments
in Sequoia
|
|||||||||||||||||||||||||
Total
assets
|
6,137
|
6,414
|
6,800
|
7,205
|
7,205
|
7,624
|
7,473
|
7,424
|
|||||||||||||||||
Total
liabilities
|
(6,026
|
)
|
(6,274
|
)
|
(6,654
|
)
|
(7,059
|
)
|
(7,059
|
)
|
(7,376
|
)
|
(7,238
|
)
|
(7,203
|
)
|
|||||||||
Net
investments in Sequoia
|
111
|
140
|
146
|
146
|
146
|
248
|
235
|
221
|
|||||||||||||||||
Investments
in Acacia
|
|||||||||||||||||||||||||
Total
assets
|
813
|
1,091
|
1,269
|
2,107
|
2,107
|
2,795
|
3,433
|
3,424
|
|||||||||||||||||
Total
liabilities
|
(794
|
)
|
(1,050
|
)
|
(1,201
|
)
|
(2,023
|
)
|
(3,492
|
)
|
(3,475
|
)
|
(3,475
|
)
|
(2,770
|
)
|
|||||||||
Net
investments in Acacia
|
19
|
41
|
68
|
84
|
(1,385
|
)
|
(680
|
)
|
(42
|
)
|
654
|
||||||||||||||
Investments
in the Fund
|
|||||||||||||||||||||||||
Total
assets
|
73
|
94
|
36
|
15
|
15
|
-
|
-
|
-
|
|||||||||||||||||
Total
liabilities and minority interest
|
(38
|
)
|
(47
|
)
|
(8
|
)
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||
Net
investments in the Fund
|
35
|
47
|
28
|
15
|
15
|
-
|
-
|
-
|
|||||||||||||||||
Long-term
debt - Redwood
|
(150
|
)
|
(150
|
)
|
(150
|
)
|
(150
|
)
|
(150
|
)
|
(150
|
)
|
(150
|
)
|
(100
|
)
|
|||||||||
Total
GAAP equity
|
$
|
412
|
$
|
564
|
$
|
585
|
$
|
751
|
$
|
(718
|
)
|
$
|
149
|
$
|
876
|
$
|
924
|
||||||||
GAAP
Book value per share
|
$
|
12.40
|
$
|
17.00
|
$
|
17.89
|
$
|
23.18
|
$
|
(22.18
|
)
|
$
|
5.32
|
$
|
31.50
|
$
|
34.06
|
(1)
Other assets includes deferred ABS issuance costs,
derivative assets,
accrued interest recievable, deferred tax assets, restricted
cash, and
other assets.
|
(2)
Other liabilities include derivative liabilities, accrued
interest
payable, dividends payable, accrued expenses, and other
liabilities.
|
THE
REDWOOD
REVIEW
3RD QUARTER
2008
|
Table 4: Components
of
Book Value
|
63
|
![]() |
Table
5: Investment Activity in Sequoia, Acacia and the
Fund ($
in millions)
|
64
|
2008
|
2008
|
2008
|
||||||||
Q3
|
Q2
|
Q1
|
||||||||
Investments
in Sequoia
|
||||||||||
Beginning
asset balance
|
$
|
6,414
|
$
|
6,800
|
$
|
7,205
|
||||
Beginning
liability balance
|
(6,274
|
)
|
(6,654
|
)
|
$
|
(7,059
|
)
|
|||
Beginning
book
value
|
$
|
140
|
$
|
146
|
$
|
146
|
||||
Principal
payments on assets
|
$
|
(243
|
)
|
$
|
(365
|
)
|
$
|
(400
|
)
|
|
Asset
transfers to REO
|
(6
|
)
|
(13
|
)
|
(7
|
)
|
||||
Loan
premium
amortization
|
(3
|
)
|
(10
|
)
|
(8
|
)
|
||||
Provision
for
credit losses
|
(18
|
)
|
(10
|
)
|
(8
|
)
|
||||
Change
in
other assets
|
(8
|
)
|
12
|
18
|
||||||
Net
change in
Sequoia assets
|
$
|
(278
|
)
|
$
|
(386
|
)
|
$
|
(405
|
)
|
|
Principal
payments on liabilities
|
$
|
243
|
$
|
364
|
$
|
394
|
||||
Discount
amortization
|
2
|
5
|
8
|
|||||||
Change
in other liabilities
|
4
|
10
|
3
|
|||||||
Net
change in Sequoia liabilities
|
$
|
249
|
$
|
380
|
$
|
405
|
||||
Ending
asset balance
|
6,136
|
6,414
|
6,800
|
|||||||
Ending
liability balance
|
(6,025
|
)
|
(6,274
|
)
|
(6,654
|
)
|
||||
Ending
book value
|
$
|
111
|
$
|
140
|
$
|
146
|
||||
Investments
in Acacia
|
||||||||||
Beginning
asset balance
|
$
|
1,091
|
$
|
1,269
|
$
|
2,107
|
||||
Beginning
liability balance
|
(1,050
|
)
|
(1,201
|
)
|
(3,492
|
)
|
||||
Beginning
book value
|
$
|
41
|
$
|
68
|
$
|
(1,385
|
)
|
|||
Principal
payments on assets
|
$
|
(35
|
)
|
$
|
(40
|
)
|
$
|
(55
|
)
|
|
Market
valuation changes
|
(221
|
)
|
(67
|
)
|
(782
|
)
|
||||
Change
in other assets
|
(22
|
)
|
(71
|
)
|
(1
|
)
|
||||
Net
change in Acacia assets
|
$
|
(278
|
)
|
$
|
(178
|
)
|
$
|
(838
|
)
|
|
Principal
payments on liabilities
|
58
|
110
|
37
|
|||||||
Market
valuation changes
|
204
|
1
|
810
|
|||||||
FAS
159 adjustments
|
-
|
-
|
1,490
|
|||||||
Change
in other liabilities
|
(6
|
)
|
40
|
(46
|
)
|
|||||
Net
change in Acacia liabilities
|
$
|
256
|
$
|
151
|
$
|
2,291
|
||||
Ending
asset balance
|
$
|
813
|
$
|
1,091
|
$
|
1,269
|
||||
Ending
liability balance
|
(794
|
)
|
(1,050
|
)
|
(1,201
|
)
|
||||
Ending
book value
|
$
|
19
|
$
|
41
|
$
|
68
|
||||
Investments
in the Fund
|
||||||||||
Beginning
asset balance
|
$
|
94
|
$
|
36
|
$
|
15
|
||||
Beginning
liability balance
|
(47
|
)
|
(8
|
)
|
$
|
-
|
||||
Beginning
book value
|
$
|
47
|
$
|
28
|
$
|
15
|
||||
Principal
payments on assets
|
$
|
(4
|
)
|
$
|
(6
|
)
|
$
|
(1
|
)
|
|
Acquisitions
|
13
|
40
|
20
|
|||||||
Discount
amortization
|
2
|
1
|
1
|
|||||||
Sales
|
-
|
(5
|
)
|
-
|
||||||
Market
valuation changes
|
(10
|
)
|
-
|
1
|
||||||
Change
in other assets
|
(22
|
)
|
28
|
-
|
||||||
Net
change in the Fund assets
|
$
|
(21
|
)
|
$
|
58
|
$
|
21
|
|||
Change
in other liabilities and minority interest
|
9
|
(39
|
)
|
(8
|
)
|
|||||
Ending
asset balance
|
$
|
73
|
$
|
94
|
$
|
36
|
||||
Ending
liability and minority interest balance
|
(38
|
)
|
(47
|
)
|
(8
|
)
|
||||
Ending
book value
|
$
|
35
|
$
|
47
|
$
|
28
|
THE
REDWOOD
REVIEW
3RD QUARTER
2008
|
Table 5:
Investment
Activity in Sequoia, Acacia and the Fund
|
|
![]() |
Table
6 : Book Value and Other Ratios ($
in millions, except per share data)
|
|
2008
|
2008
|
2008
|
January
1,
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
||||||||||||||||||||||
Q3
|
Q2
|
Q1
|
2008
(1)
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
||||||||||||||||||||||
Short-term
debt - Redwood
|
$
|
7
|
$
|
9
|
$
|
2
|
$
|
8
|
$
|
8
|
$
|
39
|
$
|
849
|
$
|
1,880
|
$
|
1,856
|
$
|
510
|
|||||||||||
Long-term
debt - Redwood
|
150
|
150
|
150
|
150
|
150
|
150
|
150
|
100
|
100
|
-
|
|||||||||||||||||||||
Redwood
debt
|
$
|
157
|
$
|
159
|
$
|
152
|
$
|
158
|
$
|
158
|
$
|
189
|
$
|
999
|
$
|
1,980
|
$
|
1,956
|
$
|
510
|
|||||||||||
GAAP
stockholders' equity
|
$
|
412
|
$
|
564
|
$
|
585
|
$
|
751
|
$
|
(718
|
)
|
$
|
149
|
$
|
876
|
$
|
924
|
$
|
1,003
|
$
|
1,043
|
||||||||||
Redwood
debt to equity
|
0.4x
|
0.3x
|
0.3x
|
0.2x
|
(0.2)x
|
1.3x
|
1.1x
|
2.1x
|
2.0x
|
0.5x
|
|||||||||||||||||||||
Redwood
debt to (equity + Redwood obligations)
|
28
|
%
|
22
|
%
|
21
|
%
|
17
|
%
|
-28
|
%
|
56
|
%
|
53
|
%
|
68
|
%
|
66
|
%
|
33
|
%
|
|||||||||||
Redwood
debt
|
$
|
157
|
$
|
159
|
$
|
152
|
$
|
158
|
$
|
158
|
$
|
189
|
$
|
999
|
$
|
1,980
|
$
|
1,956
|
$
|
510
|
|||||||||||
ABS
obligations of consolidated entities
|
6,603
|
7,110
|
7,591
|
8,839
|
10,329
|
10,803
|
10,675
|
9,947
|
9,979
|
11,554
|
|||||||||||||||||||||
GAAP
debt
|
$
|
6,760
|
$
|
7,269
|
$
|
7,743
|
$
|
8,997
|
$
|
10,487
|
$
|
10,992
|
$
|
11,674
|
$
|
11,927
|
$
|
11,935
|
$
|
12,064
|
|||||||||||
GAAP
debt to equity
|
16.4x
|
12.9x
|
13.2x
|
12.0x
|
(14.6)x
|
73.8x
|
13.3x
|
12.9x
|
11.9x
|
11.6x
|
|||||||||||||||||||||
GAAP
debt to (equity + GAAP debt)
|
94
|
%
|
93
|
%
|
93
|
%
|
92
|
%
|
107
|
%
|
99
|
%
|
93
|
%
|
93
|
%
|
92
|
%
|
92
|
%
|
|||||||||||
GAAP
stockholders' equity
|
$
|
412
|
$
|
564
|
$
|
585
|
$
|
751
|
$
|
(718
|
)
|
$
|
149
|
$
|
876
|
$
|
924
|
$
|
1,003
|
$
|
1,043
|
||||||||||
Balance
sheet mark-to-market adjustments
|
(84
|
)
|
(68
|
)
|
(93
|
)
|
(99
|
)
|
(574
|
)
|
(735
|
)
|
(81
|
)
|
(6
|
)
|
93
|
95
|
|||||||||||||
Core
equity
|
$
|
496
|
$
|
632
|
$
|
678
|
$
|
850
|
$
|
(145
|
)
|
$
|
884
|
$
|
957
|
$
|
930
|
$
|
910
|
$
|
948
|
||||||||||
Shares
outstanding at period end
|
33,238
|
33,184
|
32,710
|
32,385
|
32,385
|
27,986
|
27,816
|
27,129
|
26,733
|
26,053
|
|||||||||||||||||||||
GAAP
equity per share (2)
|
$
|
12.40
|
$
|
17.00
|
$
|
17.89
|
$
|
23.18
|
$
|
(22.18
|
)
|
$
|
5.32
|
$
|
31.50
|
$
|
34.06
|
$
|
37.51
|
$
|
40.02
|
||||||||||
Core
equity per share
|
$
|
14.92
|
$
|
19.05
|
$
|
20.74
|
$
|
26.24
|
$
|
(4.46
|
)
|
$
|
31.58
|
$
|
34.40
|
$
|
34.29
|
$
|
34.02
|
$
|
36.38
|
||||||||||
(1)
On January 1, 2008 we elected the fair value option
for the assets and
liabilities of Acacia and certain other assets.
|
(2)
At September 30, 2008, we estimate that the economic
book value was $438
million, or $13.18 per share. This is the GAAP book
value of $412 million
($12.40 per share) adjusted for our estimates of fair
value of our
investments in the Acacia and Sequoia entities of negative
$61 million
(negative $1.84 per share), and an adjustment to the
fair value of the
subordinated notes issued of positive $87 million (positive
$2.62 per
share). This is reconciled to GAAP in the table on
page 8 of this
Review.
|
THE
REDWOOD
REVIEW
3RD QUARTER
2008
|
Table 6:
Book
Value
and Other Ratios
|
65
|
![]() |
Table
7: Profitability Ratios ($
in thousands)
|
66
|
Nine
|
Nine
|
|||||||||||||||||||||||||||||||||
2008
|
2008
|
2008
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
Months
|
Months
|
||||||||||||||||||||||||
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
2008
|
2007
|
||||||||||||||||||||||||
Interest
income
|
$
|
131,192
|
$
|
137,002
|
$
|
176,064
|
$
|
206,925
|
$
|
220,331
|
$
|
222,158
|
$
|
218,935
|
$
|
218,897
|
$
|
224,114
|
$
|
444,258
|
$
|
661,424
|
||||||||||||
Average
consolidated earning assets
|
$
|
7,610,338
|
$
|
8,112,607
|
$
|
9,111,337
|
$
|
11,521,330
|
$
|
12,193,242
|
$
|
12,301,562
|
$
|
12,279,814
|
$
|
12,498,889
|
$
|
12,860,488
|
$
|
8,361,046
|
$
|
12,258,453
|
||||||||||||
Asset
yield
|
6.90
|
%
|
6.76
|
%
|
7.73
|
%
|
7.18
|
%
|
7.23
|
%
|
7.22
|
%
|
7.13
|
%
|
7.01
|
%
|
6.97
|
%
|
7.08
|
%
|
7.19
|
%
|
||||||||||||
Interest
expense
|
$
|
(93,066
|
)
|
$
|
(98,826
|
)
|
$
|
(128,490
|
)
|
$
|
(152,679
|
)
|
$
|
(167,123
|
)
|
$
|
(167,238
|
)
|
$
|
(169,264
|
)
|
$
|
(172,857
|
)
|
$
|
(174,673
|
)
|
$
|
(320,382
|
)
|
$
|
(503,625
|
)
|
|
Average
consolidated interest-bearing liabilities
|
$
|
7,106,052
|
$
|
7,499,474
|
$
|
8,383,296
|
$
|
10,716,433
|
$
|
11,376,762
|
$
|
11,580,196
|
$
|
11,623,627
|
$
|
11,836,717
|
$
|
12,332,390
|
$
|
7,660,908
|
$
|
11,527,275
|
||||||||||||
Cost
of funds
|
5.24
|
%
|
5.27
|
%
|
6.13
|
%
|
5.70
|
%
|
5.88
|
%
|
5.78
|
%
|
5.82
|
%
|
5.84
|
%
|
5.67
|
%
|
5.58
|
%
|
5.83
|
%
|
||||||||||||
Asset
yield
|
6.90
|
%
|
6.76
|
%
|
7.73
|
%
|
7.18
|
%
|
7.18
|
%
|
7.14
|
%
|
7.01
|
%
|
6.96
|
%
|
6.96
|
%
|
7.08
|
%
|
7.19
|
%
|
||||||||||||
Cost
of funds
|
(5.24
|
%)
|
(5.27
|
%)
|
(6.13
|
%)
|
(5.70
|
%)
|
(5.81
|
)%
|
(5.73
|
)%
|
(5.78
|
)%
|
(5.84
|
)%
|
(5.67
|
)%
|
(5.58
|
%)
|
(5.83
|
%)
|
||||||||||||
Interest
rate spread
|
1.66
|
%
|
1.48
|
%
|
1.60
|
%
|
1.49
|
%
|
1.37
|
%
|
1.41
|
%
|
1.22
|
%
|
1.12
|
%
|
1.29
|
%
|
1.51
|
%
|
1.37
|
%
|
||||||||||||
Net
interest income
|
$
|
39,433
|
$
|
39,495
|
$
|
48,765
|
$
|
54,245
|
$
|
55,101
|
$
|
56,401
|
$
|
50,840
|
$
|
46,040
|
$
|
49,441
|
$
|
127,693
|
$
|
162,342
|
||||||||||||
Average
consolidated earning assets
|
$
|
7,610,338
|
$
|
8,112,607
|
$
|
9,111,337
|
$
|
11,521,330
|
$
|
12,193,242
|
$
|
12,301,562
|
$
|
12,279,814
|
$
|
12,498,889
|
$
|
12,860,488
|
$
|
8,361,046
|
$
|
12,258,453
|
||||||||||||
Net
interest margin
|
2.07
|
%
|
1.95
|
%
|
2.14
|
%
|
1.88
|
%
|
1.81
|
%
|
1.83
|
%
|
1.66
|
%
|
1.47
|
%
|
1.54
|
%
|
2.04
|
%
|
1.77
|
%
|
||||||||||||
Net
interest income
|
$
|
39,433
|
$
|
39,495
|
$
|
48,765
|
$
|
54,245
|
$
|
55,101
|
$
|
56,401
|
$
|
50,840
|
$
|
46,040
|
$
|
49,441
|
$
|
127,693
|
$
|
162,342
|
||||||||||||
Net
interest income / average core equity
|
28.21
|
%
|
24.45
|
%
|
23.68
|
%
|
30.73
|
%
|
23.11
|
%
|
23.71
|
%
|
21.98
|
%
|
19.93
|
%
|
21.22
|
%
|
25.25
|
%
|
22.95
|
%
|
||||||||||||
Operating
expenses (excluding severance expense)
|
$
|
17,247
|
$
|
14,255
|
$
|
16,348
|
$
|
14,929
|
$
|
11,732
|
$
|
12,772
|
$
|
17,782
|
$
|
13,851
|
$
|
13,455
|
$
|
47,850
|
$
|
42,286
|
||||||||||||
Average
total assets
|
$
|
7,671,214
|
$
|
8,173,483
|
$
|
9,232,308
|
$
|
10,866,153
|
$
|
12,232,304
|
$
|
12,688,468
|
$
|
12,865,979
|
$
|
13,041,794
|
$
|
13,480,361
|
$
|
8,355,227
|
$
|
12,594,827
|
||||||||||||
Average
total equity
|
$
|
492,659
|
$
|
562,173
|
$
|
720,035
|
$
|
97,534
|
$
|
851,869
|
$
|
946,454
|
$
|
1,008,688
|
$
|
1,008,863
|
$
|
1,011,609
|
$
|
589,675
|
$
|
934,845
|
||||||||||||
Operating
expenses / net interest income
|
43.74
|
%
|
36.09
|
%
|
33.52
|
%
|
27.52
|
%
|
21.89
|
%
|
23.70
|
%
|
32.76
|
%
|
31.10
|
%
|
27.47
|
%
|
37.47
|
%
|
26.05
|
%
|
||||||||||||
Operating
expenses / average total assets
|
0.90
|
%
|
0.70
|
%
|
0.71
|
%
|
0.55
|
%
|
0.38
|
%
|
0.40
|
%
|
0.48
|
%
|
0.42
|
%
|
0.40
|
%
|
0.76
|
%
|
0.45
|
%
|
||||||||||||
Operating
expenses / average total equity
|
14.00
|
%
|
10.14
|
%
|
9.08
|
%
|
61.23
|
%
|
5.51
|
%
|
5.40
|
%
|
6.11
|
%
|
5.49
|
%
|
5.32
|
%
|
10.82
|
%
|
6.03
|
%
|
||||||||||||
GAAP
net (loss) income
|
$
|
(111,304
|
)
|
$
|
(45,909
|
)
|
$
|
(171,587
|
)
|
$
|
(1,077,445
|
)
|
$
|
(60,917
|
)
|
$
|
11,416
|
$
|
18,310
|
$
|
35,691
|
$
|
32,416
|
$
|
(328,800
|
)
|
$
|
(31,191
|
)
|
|||||
GAAP
net (loss) income / average total assets
|
(5.80
|
%)
|
(2.25
|
%)
|
(7.43
|
%)
|
(39.66
|
%)
|
(1.99
|
)%
|
0.36
|
%
|
0.57
|
%
|
1.09
|
%
|
0.96
|
%
|
(5.25
|
%)
|
(0.33
|
%)
|
||||||||||||
GAAP
net (loss) income / average equity (GAAP ROE)
|
(90.37
|
%)
|
(32.67
|
%)
|
(95.32
|
%)
|
(4418.75
|
%)
|
(28.60
|
)%
|
4.82
|
%
|
7.26
|
%
|
14.15
|
%
|
12.82
|
%
|
(74.35
|
%)
|
(4.45
|
%)
|
||||||||||||
GAAP
net (loss) income / average core equity (adjusted ROE)
|
(79.62
|
%)
|
(28.42
|
%)
|
(83.31
|
%)
|
(610.31
|
%)
|
(25.55
|
)%
|
4.80
|
%
|
7.92
|
%
|
15.45
|
%
|
13.91
|
%
|
(65.01
|
%)
|
(4.41
|
%)
|
||||||||||||
THE
REDWOOD
REVIEW
3RD QUARTER
2008
|
Table 7:
Profitability
Ratios
|
|
![]() |
Table
8: Average Balance Sheet ($
in thousands)
|
|
Nine
|
Nine
|
|||||||||||||||||||||||||||
2008
|
2008
|
2008
|
2007
|
2007
|
2007
|
2007
|
Months
|
Months
|
||||||||||||||||||||
Q3
|
Q2
|
Q1
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
2008
|
2007
|
||||||||||||||||
Residential
CES at Redwood
|
||||||||||||||||||||||||||||
Prime
|
$
|
85,314
|
$
|
111,860
|
$
|
164,621
|
$
|
159,699
|
$
|
133,552
|
$
|
141,226
|
$
|
124,513
|
$
|
120,469
|
$
|
133,097
|
||||||||||
Non-prime
|
3,710
|
10,502
|
26,349
|
38,788
|
80,689
|
74,449
|
72,918
|
13,944
|
76,019
|
|||||||||||||||||||
Residential
CES at Redwood
|
89,024
|
122,362
|
190,970
|
198,487
|
214,241
|
215,675
|
197,431
|
134,413
|
209,116
|
|||||||||||||||||||
Residential
IGS
|
170,292
|
113,258
|
37,632
|
35,998
|
136,148
|
156,171
|
138,398
|
107,291
|
143,572
|
|||||||||||||||||||
Commercial
CES
|
98,534
|
106,314
|
183,446
|
184,491
|
185,358
|
188,672
|
199,302
|
129,318
|
191,111
|
|||||||||||||||||||
Commercial
loans
|
250
|
251
|
250
|
91
|
2,602
|
2,603
|
2,603
|
251
|
2,603
|
|||||||||||||||||||
Residential
loans
|
3,671
|
3,759
|
4,507
|
74,722
|
127,983
|
901,168
|
1,708,160
|
3,978
|
909,421
|
|||||||||||||||||||
CDO
|
8,628
|
15,492
|
21,297
|
30,501
|
20,424
|
25,854
|
33,576
|
15,335
|
26,618
|
|||||||||||||||||||
Other
real estate investments
|
75
|
2,328
|
5,836
|
17,679
|
28,152
|
47,567
|
23,736
|
2,737
|
33,151
|
|||||||||||||||||||
Real
estate assets at Redwood
|
370,474
|
363,764
|
443,938
|
541,968
|
714,908
|
1,537,710
|
2,303,207
|
393,323
|
1,515,592
|
|||||||||||||||||||
Earning
assets at Acacia
|
830,311
|
982,169
|
1,439,913
|
3,339,339
|
3,326,899
|
3,141,675
|
2,735,805
|
1,083,205
|
3,070,262
|
|||||||||||||||||||
Earning
assets at Sequoia
|
6,170,944
|
6,483,475
|
6,895,529
|
7,254,340
|
7,745,341
|
7,331,308
|
6,995,987
|
6,515,387
|
7,357,545
|
|||||||||||||||||||
Earning
assets at the Fund
|
75,321
|
56,183
|
33,180
|
-
|
-
|
-
|
-
|
54,969
|
-
|
|||||||||||||||||||
Cash
and cash equivalents
|
229,778
|
311,052
|
402,584
|
385,683
|
406,094
|
290,869
|
244,816
|
314,162
|
315,054
|
|||||||||||||||||||
Earning
assets
|
7,676,828
|
8,196,643
|
9,215,144
|
11,521,330
|
12,193,242
|
12,301,562
|
12,279,814
|
8,361,046
|
12,258,453
|
|||||||||||||||||||
Balance
sheet mark-to-market adjustments
|
(66,491
|
)
|
(84,038
|
)
|
(103,808
|
)
|
(608,634
|
)
|
(101,733
|
)
|
(4,924
|
)
|
83,560
|
(84,711
|
)
|
(8,522
|
)
|
|||||||||||
Earning
assets - reported value
|
7,610,337
|
8,112,605
|
9,111,336
|
10,912,696
|
12,091,509
|
12,296,638
|
12,363,374
|
8,276,335
|
12,249,931
|
|||||||||||||||||||
Other
assets
|
60,876
|
60,876
|
120,971
|
(46,543
|
)
|
140,795
|
391,830
|
502,605
|
78,892
|
344,896
|
||||||||||||||||||
Total
assets
|
$
|
7,671,213
|
$
|
8,173,481
|
$
|
9,232,307
|
$
|
10,866,153
|
$
|
12,232,304
|
$
|
12,688,468
|
$
|
12,865,979
|
$
|
8,355,227
|
$
|
12,594,827
|
||||||||||
Short-term
debt - Redwood
|
$
|
7,825
|
$
|
4,904
|
$
|
21,477
|
$
|
26,871
|
$
|
399,068
|
$
|
1,515,988
|
$
|
2,188,561
|
$
|
11,389
|
$
|
1,361,136
|
||||||||||
Sequoia
ABS issued
|
6,040,634
|
6,349,661
|
6,745,556
|
7,161,634
|
7,430,521
|
7,125,947
|
6,845,355
|
6,377,385
|
7,302,512
|
|||||||||||||||||||
Acacia
ABS issued
|
900,611
|
986,915
|
1,456,506
|
3,381,924
|
3,401,359
|
2,820,328
|
2,492,698
|
1,113,896
|
2,743,195
|
|||||||||||||||||||
Other
liabilities
|
41,683
|
83,119
|
140,409
|
52,187
|
3,673
|
161,819
|
233,664
|
86,969
|
132,707
|
|||||||||||||||||||
Long-term
debt - Redwood
|
146,705
|
146,480
|
146,242
|
146,004
|
145,813
|
117,934
|
97,013
|
146,476
|
120,432
|
|||||||||||||||||||
Total
liabilities
|
7,137,458
|
7,571,079
|
8,510,190
|
10,768,620
|
11,380,435
|
11,742,015
|
11,857,291
|
7,736,115
|
11,659,982
|
|||||||||||||||||||
Minority
interest
|
41,096
|
40,229
|
6,858
|
-
|
-
|
-
|
-
|
29,437
|
-
|
|||||||||||||||||||
Core
equity
|
559,150
|
646,211
|
819,067
|
706,167
|
953,602
|
951,378
|
925,128
|
674,387
|
943,367
|
|||||||||||||||||||
Balance
sheet mark-to-market adjustments
|
(66,491
|
)
|
(84,038
|
)
|
(103,808
|
)
|
(608,634
|
)
|
(101,733
|
)
|
(4,924
|
)
|
83,560
|
(84,712
|
)
|
(8,522
|
)
|
|||||||||||
Total
equity
|
492,659
|
562,173
|
715,259
|
97,533
|
851,869
|
946,454
|
1,008,688
|
589,675
|
934,845
|
|||||||||||||||||||
Total
liabilities and equity
|
$
|
7,671,213
|
$
|
8,173,481
|
$
|
9,232,307
|
$
|
10,866,153
|
$
|
12,232,304
|
$
|
12,688,469
|
$
|
12,865,979
|
$
|
8,355,227
|
$
|
12,594,827
|
THE
REDWOOD
REVIEW
3RD QUARTER
2008
|
Table 8:
Average
Balance Sheet
|
67
|
![]() |
Table
9: Balances & Yields by Securities Portfolio at
Redwood
($
in thousands)
|
68
|
2008
|
2008
|
2008
|
2007
|
2008
|
2008
|
2008
|
2007
|
|||||||||||||||||||||
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
|||||||||||||||||||||
Residential
Prime CES
|
Commercial
CES
|
|||||||||||||||||||||||||||
Current
face
|
$
|
360,863
|
$
|
390,128
|
$
|
537,214
|
$
|
528,745
|
Current
face
|
$
|
514,883
|
$
|
517,615
|
$
|
523,118
|
$
|
523,156
|
|||||||||||
Unamortized
discount
|
(29,550
|
)
|
(48,898
|
)
|
(60,335
|
)
|
(76,633
|
)
|
Unamortized
premium (discount)
|
|
23,846
|
(31,871
|
)
|
(36,955
|
)
|
(17,867
|
)
|
|||||||||||
Discount
designated as credit reserve
|
(286,616
|
)
|
(251,942
|
)
|
(358,334
|
)
|
(287,716
|
)
|
Discount
designated as credit reserve
|
(470,660
|
)
|
(384,487
|
)
|
(378,388
|
)
|
(318,456
|
)
|
|||||||||||
Unrealized
losses
|
(3,283
|
)
|
(9,984
|
)
|
(40,739
|
)
|
(36,784
|
)
|
Unrealized
losses
|
(4,383
|
)
|
(10,288
|
)
|
(8,252
|
)
|
(38,325
|
)
|
|||||||||||
Reported
value
|
$
|
41,414
|
$
|
79,304
|
$
|
77,806
|
$
|
127,612
|
Reported
value
|
$
|
63,686
|
$
|
90,969
|
$
|
99,523
|
$
|
148,508
|
|||||||||||
|
||||||||||||||||||||||||||||
Average
amortized cost
|
$
|
85,314
|
$
|
111,860
|
$
|
164,621
|
$
|
159,699
|
Average
amortized cost
|
$
|
98,534
|
$
|
106,314
|
$
|
183,446
|
$
|
184,491
|
|||||||||||
Average
market value
|
$
|
77,993
|
$
|
79,243
|
$
|
127,644
|
$
|
156,031
|
Average
market value
|
$
|
90,068
|
$
|
98,417
|
$
|
151,051
|
$
|
164,281
|
|||||||||||
Interest
income
|
$
|
7,764
|
$
|
11,939
|
$
|
16,600
|
$
|
19,534
|
Interest
income
|
$
|
3,160
|
$
|
4,155
|
$
|
5,000
|
$
|
4,955
|
|||||||||||
Annualized
interest income / average amortized cost
|
36.40
|
%
|
42.69
|
%
|
40.34
|
%
|
48.93
|
%
|
Annualized
interest income / average amortized cost
|
12.83
|
%
|
15.63
|
%
|
10.90
|
%
|
10.74
|
%
|
|||||||||||
Annualized
interest income / average market value
|
39.82
|
%
|
60.27
|
%
|
52.02
|
%
|
50.08
|
%
|
Annualized
interest income / average market value
|
14.03
|
%
|
16.89
|
%
|
13.24
|
%
|
12.06
|
%
|
|||||||||||
|
||||||||||||||||||||||||||||
Residential
non-prime CES
|
CDO
CES
|
|||||||||||||||||||||||||||
Current
face
|
$
|
260,142
|
$
|
319,067
|
$
|
240,997
|
$
|
262,684
|
Current
face
|
$
|
17,513
|
$
|
22,470
|
$
|
26,562
|
$
|
26,501
|
|||||||||||
Unamortized
discount
|
(10,067
|
)
|
(14,411
|
)
|
(1,364
|
)
|
(13,809
|
)
|
Unamortized
discount
|
(927
|
)
|
(3,412
|
)
|
(3,513
|
)
|
(3,096
|
)
|
|||||||||||
Discount
designated as credit reserve
|
(247,798
|
)
|
(296,986
|
)
|
(227,820
|
)
|
(222,416
|
)
|
Discount
designated as credit reserve
|
(16,431
|
)
|
(18,743
|
)
|
(22,374
|
)
|
(21,855
|
)
|
|||||||||||
Unrealized
gains (losses)
|
2,040
|
(142
|
)
|
(1,762
|
)
|
(3,062
|
)
|
Unrealized
gains
|
-
|
10
|
10
|
822
|
||||||||||||||||
Reported
value
|
$
|
4,317
|
$
|
7,528
|
$
|
10,051
|
$
|
23,397
|
Reported
value
|
$
|
155
|
$
|
325
|
$
|
685
|
$
|
2,372
|
|||||||||||
|
||||||||||||||||||||||||||||
Average
amortized cost
|
$
|
3,570
|
$
|
10,236
|
$
|
24,637
|
$
|
37,882
|
Average
amortized cost
|
$
|
248
|
$
|
693
|
$
|
1,576
|
$
|
1,678
|
|||||||||||
Average
market value
|
$
|
6,269
|
$
|
9,170
|
$
|
22,874
|
$
|
36,425
|
Average
market value
|
$
|
283
|
$
|
670
|
$
|
2,211
|
$
|
4,215
|
|||||||||||
Interest
income
|
$
|
4,997
|
$
|
2,367
|
$
|
5,210
|
$
|
4,769
|
Interest
income
|
$
|
105
|
$
|
223
|
$
|
140
|
$
|
129
|
|||||||||||
Annualized
interest income / average amortized cost
|
559.80
|
%
|
92.48
|
%
|
84.59
|
%
|
50.36
|
%
|
Annualized
interest income / average amortized cost
|
169.00
|
%
|
128.97
|
%
|
35.53
|
%
|
30.75
|
%
|
|||||||||||
Annualized
interest income / average market value
|
318.81
|
%
|
103.23
|
%
|
91.11
|
%
|
52.37
|
%
|
Annualized
interest income / average market value
|
148.01
|
%
|
133.34
|
%
|
25.32
|
%
|
12.24
|
%
|
|||||||||||
|
||||||||||||||||||||||||||||
Residential
non-prime CES reported at fair value
|
CDO
CES reported at fair value
|
|||||||||||||||||||||||||||
Reported
value
|
$
|
1,901
|
$
|
357
|
$
|
3,777
|
$
|
11,199
|
Reported
value
|
$
|
75
|
$
|
75
|
$
|
-
|
$
|
-
|
|||||||||||
|
||||||||||||||||||||||||||||
Average
fair value
|
$
|
1,468
|
$
|
2,595
|
$
|
6,413
|
$
|
22,006
|
Average
fair value
|
$
|
532
|
$
|
124
|
$
|
-
|
$
|
-
|
|||||||||||
Interest
income
|
$
|
223
|
$
|
71
|
$
|
2,220
|
$
|
1,307
|
Interest
income
|
$
|
242
|
$
|
33
|
$
|
-
|
$
|
-
|
|||||||||||
Annualized
interest income / average fair value
|
60.84
|
%
|
10.88
|
%
|
138.48
|
%
|
23.76
|
%
|
Annualized
interest income / average fair value
|
181.79
|
%
|
107.10
|
%
|
-
|
-
|
|||||||||||||
Residential
IGS
|
CDO
IGS
|
|||||||||||||||||||||||||||
Current
face
|
$
|
236,643
|
$
|
243,006
|
$
|
43,695
|
$
|
27,106
|
Current
face
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
73,050
|
|||||||||||
Unamortized
discount
|
(60,334
|
)
|
(67,140
|
)
|
(18,937
|
)
|
(2,707
|
)
|
Unamortized
discount
|
-
|
-
|
-
|
(24,951
|
)
|
||||||||||||||
Discount
designated as credit reserve
|
(22,075
|
)
|
(6,614
|
)
|
(20
|
)
|
(12,013
|
)
|
Discount
designated as credit reserve
|
-
|
-
|
-
|
-
|
|||||||||||||||
Unrealized
(losses)
|
(42,477
|
)
|
(13,358
|
)
|
(6,414
|
)
|
(160
|
)
|
Unrealized
losses
|
-
|
-
|
-
|
(29,649
|
)
|
||||||||||||||
Reported
value
|
$
|
111,757
|
$
|
155,894
|
$
|
18,324
|
$
|
12,226
|
Reported
value
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
18,450
|
|||||||||||
|
||||||||||||||||||||||||||||
Average
amortized cost
|
$
|
167,523
|
$
|
107,193
|
$
|
10,357
|
$
|
35,999
|
Average
amortized cost
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
28,823
|
|||||||||||
Average
market value
|
$
|
148,672
|
$
|
99,593
|
$
|
9,158
|
$
|
33,891
|
Average
market value
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
19,447
|
|||||||||||
Interest
income
|
$
|
5,686
|
$
|
3,162
|
$
|
229
|
$
|
1,065
|
Interest
income
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
807
|
|||||||||||
Annualized
interest income / average amortized cost
|
13.58
|
%
|
11.80
|
%
|
8.84
|
%
|
11.83
|
%
|
Annualized
interest income / average amortized cost
|
-
|
-
|
-
|
11.20
|
%
|
||||||||||||||
Annualized
interest income / average market value
|
15.30
|
%
|
12.70
|
%
|
10.00
|
%
|
12.57
|
%
|
Annualized
interest income / average market value
|
-
|
-
|
-
|
16.60
|
%
|
||||||||||||||
|
||||||||||||||||||||||||||||
Residential
IGS reported at fair value
|
CDO
IGS reported at fair value
|
|||||||||||||||||||||||||||
Reported
value
|
$
|
1,597
|
$
|
4,570
|
$
|
7,526
|
$
|
-
|
Reported
value
|
$
|
3,835
|
$
|
14,364
|
$
|
15,504
|
$
|
-
|
|||||||||||
|
||||||||||||||||||||||||||||
Average
fair value
|
$
|
2,769
|
$
|
6,065
|
$
|
27,274
|
$
|
-
|
Average
fair value
|
$
|
8,380
|
$
|
14,799
|
$
|
19,721
|
$
|
-
|
|||||||||||
Interest
income
|
$
|
422
|
$
|
680
|
$
|
1,264
|
$
|
-
|
Interest
income
|
$
|
193
|
$
|
512
|
$
|
707
|
$
|
-
|
|||||||||||
Annualized
interest income / average fair value
|
60.97
|
%
|
44.87
|
%
|
18.54
|
%
|
-
|
Annualized
interest income / average fair value
|
9.19
|
%
|
13.84
|
%
|
14.33
|
%
|
-
|
|||||||||||||
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table 9: Balances
& Yields by Securities Portfolio at Redwood
|
|
![]() |
Table
10: Securities Portfolio Activity at Redwood ($
in thousands)
|
|
2008
|
2008
|
2008
|
2007
|
2008
|
2008
|
2008
|
2007
|
|||||||||||||||||||||
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
||||||||||||||||||||
Residential
Prime CES
|
Commercial
CES
|
|||||||||||||||||||||||||||
Beginning
fair market value
|
$
|
79,304
|
$
|
77,806
|
$
|
127,612
|
$
|
132,055
|
Beginning
fair market value
|
$
|
90,969
|
$
|
99,523
|
$
|
148,508
|
$
|
156,991
|
|||||||||||
Acquisitions
|
-
|
2,435
|
10,159
|
63,663
|
Acquisitions
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
(Upgrades)
/ downgrades
|
672
|
-
|
-
|
-
|
(Upgrades)
/ downgrades
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Transfer
between portfolios
|
-
|
(3,395
|
)
|
-
|
-
|
Transfer
between portfolios
|
-
|
-
|
-
|
20,995
|
||||||||||||||||||
Sales
|
-
|
-
|
-
|
-
|
Sales
|
-
|
-
|
-
|
(3,546
|
)
|
||||||||||||||||||
Principal
payments
|
(6,831
|
)
|
(13,421
|
)
|
(14,590
|
)
|
(14,633
|
)
|
Principal
payments
|
-
|
-
|
-
|
-
|
|||||||||||||||
Discount
amortization
|
2,789
|
5,511
|
9,490
|
12,521
|
Premium
amortization
|
(2,582
|
)
|
(2,123
|
)
|
(1,523
|
)
|
(1,582
|
)
|
|||||||||||||||
Changes
in fair value, net
|
(34,520
|
)
|
10,368
|
(54,865
|
)
|
(65,994
|
)
|
Changes
in fair value, net
|
(24,701
|
)
|
(6,431
|
)
|
(47,462
|
)
|
(24,350
|
)
|
||||||||||||
Ending
fair market value
|
$
|
41,414
|
$
|
79,304
|
$
|
77,806
|
$
|
127,612
|
Ending
fair market value
|
$
|
63,686
|
$
|
90,969
|
$
|
99,523
|
$
|
148,508
|
|||||||||||
|
||||||||||||||||||||||||||||
Residential
non-Prime CES
|
Commercial
Real Estate Loans
|
|||||||||||||||||||||||||||
Beginning
fair market value
|
$
|
7,885
|
$
|
13,828
|
$
|
34,596
|
$
|
69,994
|
Beginning
carrying value
|
$
|
251
|
$
|
252
|
$
|
253
|
$
|
249
|
|||||||||||
Acquisitions
|
-
|
-
|
-
|
-
|
Acquisitions
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
(Upgrades)
/ downgrades
|
1,877
|
207
|
953
|
8,273
|
Sales
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Transfer
between portfolios
|
-
|
3,395
|
(4,056
|
)
|
(322
|
)
|
Principal
payments
|
(2
|
)
|
(2
|
)
|
(2
|
)
|
(2
|
)
|
|||||||||||||
Sales
|
-
|
-
|
-
|
-
|
Discount
amortization
|
1
|
1
|
1
|
6
|
|||||||||||||||||||
Principal
payments
|
(3,359
|
)
|
(1,392
|
)
|
(3,164
|
)
|
(6,288
|
)
|
Credit
provision
|
-
|
-
|
-
|
-
|
|||||||||||||||
Discount
(premium) amortization
|
2,289
|
177
|
2,080
|
(64
|
)
|
Changes
in fair value, net
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Changes
in fair value, net
|
(2,474
|
)
|
(8,330
|
)
|
(16,581
|
)
|
(36,997
|
)
|
Ending
carrying value
|
$
|
250
|
$
|
251
|
$
|
252
|
$
|
253
|
|||||||||||
Ending
fair market value
|
$
|
6,218
|
|
$
|
7,885
|
|
$
|
13,828
|
$
|
13,828
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
CDO
CES
|
|||||||||||||||||||||||||||
Residential
IGS
|
Beginning
fair market value
|
$
|
400
|
$
|
685
|
$
|
2,372
|
$
|
4,136
|
|||||||||||||||||||
Beginning
fair market value
|
$
|
160,464
|
$
|
25,850
|
$
|
12,226
|
$
|
60,632
|
Acquisitions
|
-
|
-
|
-
|
-
|
|||||||||||||||
Acquisitions
|
-
|
147,320
|
28,048
|
2,575
|
(Upgrades)
/ downgrades
|
750
|
150
|
-
|
1,000
|
|||||||||||||||||||
Upgrades
/ (downgrades)
|
(2,549
|
)
|
(207
|
)
|
(953
|
)
|
(8,273
|
)
|
Transfer
between portfolios
|
-
|
-
|
-
|
-
|
|||||||||||||||
Transfer
between portfolios
|
-
|
-
|
4,058
|
(14,576
|
)
|
Sales
|
(1,679
|
)
|
-
|
-
|
-
|
|||||||||||||||||
Sales
|
-
|
-
|
-
|
(20,171
|
)
|
Principal
payments
|
42
|
16
|
30
|
(317
|
)
|
|||||||||||||||||
Principal
payments
|
(5,887
|
)
|
(4,193
|
)
|
(1,702
|
)
|
(1,094
|
)
|
Premium
amortization
|
(43
|
)
|
-
|
-
|
-
|
||||||||||||||
Discount
amortization
|
3,114
|
1,499
|
63
|
209
|
Changes
in fair value, net
|
760
|
(451
|
)
|
(1,716
|
)
|
(2,447
|
)
|
||||||||||||||||
Changes
in fair value, net
|
(41,788
|
)
|
(9,805
|
)
|
(15,890
|
)
|
(7,077
|
)
|
Ending
fair market value
|
$
|
230
|
$
|
400
|
$
|
685
|
$
|
2,372
|
|||||||||||
Ending
fair market value
|
$
|
113,354
|
$
|
160,464
|
$
|
25,850
|
$
|
12,226
|
||||||||||||||||||||
|
||||||||||||||||||||||||||||
Residential
Real Estate Loans
|
CDO
IGS
|
|||||||||||||||||||||||||||
Beginning
carrying value
|
$
|
3,695
|
$
|
4,443
|
$
|
4,533
|
$
|
6,049
|
Beginning
fair market value
|
$
|
14,364
|
$
|
15,504
|
$
|
18,450
|
$
|
5,223
|
|||||||||||
Acquisitions
|
-
|
-
|
-
|
-
|
Acquisitions
|
-
|
-
|
-
|
24,188
|
|||||||||||||||||||
Sales
|
-
|
-
|
-
|
-
|
Upgrades
/ (downgrades)
|
|
(750
|
)
|
(150
|
)
|
-
|
(1,000
|
)
|
|||||||||||||||
Principal
payments
|
(19
|
)
|
(626
|
)
|
(16
|
)
|
(343
|
)
|
Transfer
between portfolios
|
-
|
-
|
-
|
(1,525
|
)
|
||||||||||||||
Premium
amortization
|
-
|
-
|
-
|
(779
|
)
|
Sales
|
(5,688
|
)
|
-
|
-
|
-
|
|||||||||||||||||
Credit
provision
|
-
|
-
|
-
|
-
|
Principal
payments
|
(599
|
)
|
(1,703
|
)
|
-
|
-
|
|||||||||||||||||
Transfers
to REO
|
-
|
(40
|
)
|
-
|
-
|
Discount
(premium) amortization
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Changes
in fair value, net
|
(526
|
)
|
(82
|
)
|
(74
|
)
|
-
|
Changes
in fair value, net
|
(3,492
|
)
|
712
|
(2,945
|
)
|
(8,436
|
)
|
|||||||||||||
Ending
carrying value
|
$
|
3,150
|
$
|
3,695
|
$
|
4,443
|
$
|
4,533
|
Ending
fair market value
|
$
|
3,835
|
$
|
14,364
|
$
|
15,504
|
$
|
18,450
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table 10: Securities
Portfolio Activity at Redwood
|
69
|
![]() |
Table
11: Managed Residential Loans Credit Performance
($
in thousands)
|
70
|
Managed
Loans
|
Internally-Designated
Credit Reserve
|
External
Credit Enhancement
|
Total
Credit Protection
|
Total
Credit Protection as % of Loans (1)
|
Seriously
Delinquent Loans (2)
|
Seriously
Delinquent Loan % of Current Balance
|
Total
Credit Losses
|
Losses
To Securities Junior to Redwood's Interest
|
Redwood's
Share of Net Charge-offs/ (Recoveries)
|
Redwood
Credit Losses As % of Loans (Annualized)
|
||||||||||||||||||||||||||||||
Total
Managed
|
Q3:
2006
|
$
|
235,127,925
|
$
|
403,723
|
$
|
215,285
|
$
|
619,008
|
0.26%
|
|
$
|
658,262
|
0.28%
|
|
$
|
2,748
|
$
|
155
|
$
|
2,593
|
<0.01
|
%
|
|||||||||||||||||
Residential
|
Q4:
2006
|
219,178,838
|
392,365
|
302,072
|
694,437
|
0.32%
|
|
842,746
|
0.39%
|
|
5,058
|
196
|
4,862
|
0.01
|
%
|
|||||||||||||||||||||||||
Portfolio
|
2006
|
219,178,838
|
392,365
|
302,072
|
694,437
|
0.32%
|
|
842,746
|
0.39%
|
|
12,272
|
351
|
11,921
|
0.01
|
%
|
|||||||||||||||||||||||||
Q1:
2007
|
245,080,031
|
412,717
|
355,855
|
768,572
|
0.31%
|
|
1,075,683
|
0.44%
|
|
5,776
|
325
|
5,451
|
0.01
|
%
|
||||||||||||||||||||||||||
Q2:
2007
|
227,973,546
|
469,492
|
356,374
|
825,866
|
0.36%
|
|
1,431,963
|
0.63%
|
|
12,157
|
471
|
11,686
|
0.02
|
%
|
||||||||||||||||||||||||||
Q3:
2007
|
219,465,992
|
466,034
|
335,699
|
801,733
|
0.37%
|
|
2,234,644
|
1.02%
|
|
17,553
|
8,682
|
8,871
|
0.03
|
%
|
||||||||||||||||||||||||||
Q4:
2007
|
256,923,033
|
695,130
|
342,009
|
1,037,139
|
0.40%
|
|
7,536,293
|
2.93%
|
|
44,529
|
32,533
|
11,996
|
0.07
|
%
|
||||||||||||||||||||||||||
2007
|
256,923,033
|
695,130
|
342,009
|
1,037,139
|
0.40%
|
|
7,536,293
|
2.93%
|
|
80,015
|
42,011
|
38,004
|
0.03
|
%
|
||||||||||||||||||||||||||
Q1:
2008
|
(3)
|
|
157,481,973
|
610,598
|
89,472
|
700,070
|
0.44%
|
|
4,698,037
|
2.98%
|
|
57,354
|
24,746
|
32,608
|
0.15
|
%
|
||||||||||||||||||||||||
Q2:
2008
|
151,774,072
|
581,525
|
63,141
|
644,666
|
0.42%
|
|
6,271,650
|
4.13%
|
|
82,967
|
13,890
|
69,077
|
0.22
|
%
|
||||||||||||||||||||||||||
Q3:
2008
|
$
|
138,100,158
|
$
|
581,295
|
$
|
50,021
|
$
|
631,316
|
0.46%
|
|
$
|
6,214,451
|
4.50%
|
|
$
|
94,165
|
$
|
699
|
$
|
93,466
|
0.27
|
%
|
||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Residential
Real
|
Q3:
2006
|
$
|
9,718,985
|
$
|
19,326
|
$
|
0
|
$
|
19,326
|
0.20%
|
|
$
|
61,447
|
0.63%
|
|
$
|
589
|
$
|
0
|
$
|
589
|
0.02
|
%
|
|||||||||||||||||
Estate
Loans
|
Q4:
2006
|
9,212,002
|
20,119
|
-
|
20,119
|
0.22%
|
|
65,071
|
0.79%
|
|
711
|
-
|
711
|
0.02
|
%
|
|||||||||||||||||||||||||
2006
|
9,212,002
|
20,119
|
-
|
20,119
|
0.22%
|
|
65,071
|
0.79%
|
|
2,148
|
-
|
2,148
|
0.02
|
%
|
||||||||||||||||||||||||||
Q1:
2007
|
8,582,964
|
19,954
|
-
|
19,954
|
0.23%
|
|
68,632
|
0.92%
|
|
1,646
|
-
|
1,646
|
0.08
|
%
|
||||||||||||||||||||||||||
Q2:
2007
|
8,256,759
|
16,416
|
-
|
16,416
|
0.20%
|
|
55,674
|
0.67%
|
|
6,038
|
-
|
6,038
|
0.29
|
%
|
||||||||||||||||||||||||||
Q3:
2007
|
7,546,529
|
15,195
|
-
|
15,195
|
0.20%
|
|
56,068
|
0.74%
|
|
2,728
|
-
|
2,728
|
0.14
|
%
|
||||||||||||||||||||||||||
Q4:
2007
|
7,106,018
|
18,282
|
-
|
18,282
|
0.26%
|
|
67,984
|
0.96%
|
|
1,886
|
-
|
1,886
|
0.11
|
%
|
||||||||||||||||||||||||||
2007
|
7,106,018
|
18,282
|
-
|
18,282
|
0.26%
|
|
67,984
|
0.96%
|
|
12,298
|
-
|
12,298
|
0.17
|
%
|
||||||||||||||||||||||||||
Q1:
2008
|
(3)
|
|
6,697,241
|
24,444
|
-
|
24,444
|
0.36%
|
|
83,966
|
1.25%
|
|
1,896
|
-
|
1,896
|
0.11
|
%
|
||||||||||||||||||||||||
Q2:
2008
|
6,322,568
|
32,597
|
-
|
32,597
|
0.52%
|
|
118,139
|
1.87%
|
|
1,908
|
-
|
1,908
|
0.12
|
%
|
||||||||||||||||||||||||||
Q3:
2008
|
$
|
6,070,083
|
$
|
46,881
|
$
|
0
|
$
|
46,881
|
0.77%
|
|
$
|
143,429
|
2.36%
|
|
$
|
4,049
|
$
|
0
|
$
|
4,049
|
0.27
|
%
|
||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Residential
CES
|
Q3:
2006
|
$
|
225,408,940
|
$
|
384,397
|
$
|
215,285
|
$
|
599,682
|
0.27%
|
|
$
|
596,815
|
0.26%
|
|
$
|
2,159
|
$
|
155
|
$
|
2,004
|
<0.01
|
%
|
|||||||||||||||||
Q4:
2006
|
209,966,836
|
372,246
|
302,072
|
674,318
|
0.32%
|
|
777,675
|
0.37%
|
|
4,347
|
196
|
4,151
|
<0.01
|
%
|
||||||||||||||||||||||||||
2006
|
209,966,836
|
372,246
|
302,072
|
674,318
|
0.32%
|
|
777,675
|
0.37%
|
|
10,124
|
351
|
9,773
|
<0.01
|
%
|
||||||||||||||||||||||||||
Q1:
2007
|
236,497,067
|
392,763
|
355,855
|
748,618
|
0.32
|
|
1,007,051
|
0.43%
|
|
4,130
|
325
|
3,805
|
<0.01
|
%
|
||||||||||||||||||||||||||
Q2:
2007
|
219,716,787
|
453,076
|
356,374
|
809,450
|
0.37%
|
|
1,376,289
|
0.63%
|
|
6,119
|
471
|
5,648
|
0.01
|
%
|
||||||||||||||||||||||||||
Q3:
2007
|
211,919,463
|
450,839
|
335,699
|
786,538
|
0.37%
|
|
2,178,576
|
1.03%
|
|
14,825
|
8,682
|
6,143
|
0.01
|
%
|
||||||||||||||||||||||||||
Q4:
2007
|
249,817,015
|
676,848
|
342,009
|
1,018,857
|
0.41%
|
|
7,468,309
|
2.99%
|
|
42,643
|
32,533
|
10,110
|
0.02
|
%
|
||||||||||||||||||||||||||
2007
|
249,817,015
|
676,848
|
342,009
|
1,018,857
|
0.41%
|
|
7,468,309
|
2.99%
|
|
67,717
|
42,011
|
25,706
|
0.01
|
%
|
||||||||||||||||||||||||||
Q1:
2008
|
(3)
|
|
150,784,732
|
586,154
|
89,472
|
675,626
|
0.45%
|
|
4,614,071
|
3.06%
|
|
55,458
|
24,746
|
30,712
|
0.08
|
%
|
||||||||||||||||||||||||
Q2:
2008
|
145,451,504
|
548,928
|
63,141
|
612,069
|
0.42%
|
|
6,153,511
|
4.23%
|
|
81,059
|
13,890
|
67,169
|
0.18
|
%
|
||||||||||||||||||||||||||
Q3:
2008
|
$
|
132,030,075
|
$
|
534,414
|
$
|
50,021
|
$
|
584,435
|
0.44%
|
|
$
|
6,071,023
|
4.60%
|
|
$
|
90,116
|
$
|
699
|
$
|
89,417
|
0.27
|
%
|
||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
(1)
The credit reserve on residential real estate
loans is only available to
absorb losses on our residential real estate
loans. Internally-designated
credit reserves and external credit enhancement
are only available to
absorb losses on our residential CES. The
credit enhancement balances
shown above do not include pari passu CES
owned by others.
|
||||||||||||||||||||||||||||||||||||||||
(2)
The seriously delinquent loans amount for
residential real estate loans
excludes loans in REO which is included in
our consolidated other assets.
At September 30, 2008, REO totaled $21 million.
|
||||||||||||||||||||||||||||||||||||||||
(3)
As of January 1, 2008, balances only include
CES and loans held at Redwood
and loans held by Sequoia.
|
||||||||||||||||||||||||||||||||||||||||
(4)
Credit reserve is 86% of the principal balance
of our CES. If the
principal balance on our securities is completely
absorbed by losses, we
will cease to have any credit exposure to
that pool of loans. See pages 33
and 42 for a detailed breakout of credit
reserve by
vintage
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table
11: Managed Residential Loans Credit Performance
|
|
![]() |
Table
12A: Residential Prime CES at Redwood and Underlying Loan
Characteristics
($
in thousands)
|
|
|
||||||||||||||||||||||||||||
2008
|
2008
|
2008
|
2007
|
2008
|
2008
|
2008
|
2007
|
|||||||||||||||||||||
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
||||||||||||||||||||
AFS:
Residential Prime CES
|
Southern
CA
|
25
|
%
|
25
|
%
|
26
|
%
|
26
|
%
|
|||||||||||||||||||
Principal
value
|
$
|
360,863
|
$
|
390,128
|
$
|
537,214
|
$
|
528,745
|
Northern
CA
|
23
|
%
|
23
|
%
|
23
|
%
|
23
|
%
|
|||||||||||
Unamortized
discount
|
(29,550
|
)
|
(48,898
|
)
|
(60,335
|
)
|
(76,633
|
)
|
Florida
|
5
|
%
|
5
|
%
|
6
|
%
|
6
|
%
|
|||||||||||
Discount
designated as credit reserve
|
(286,616
|
)
|
(251,942
|
)
|
(358,334
|
)
|
(287,716
|
)
|
New
York
|
6
|
%
|
6
|
%
|
6
|
%
|
6
|
%
|
|||||||||||
Unrealized
(loss) gain
|
(3,283
|
)
|
(9,984
|
)
|
(40,739
|
)
|
(36,784
|
)
|
Georgia
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
|||||||||||
Market
value (reported value)
|
$
|
41,414
|
$
|
79,304
|
$
|
77,806
|
$
|
127,612
|
New
Jersey
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
|||||||||||
Market
value / principal value
|
11
|
%
|
20
|
%
|
14
|
%
|
24
|
%
|
Texas
|
3
|
%
|
3
|
%
|
2
|
%
|
2
|
%
|
|||||||||||
|
Arizona
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
|||||||||||||||||||
FVO:
Residential Prime CES
|
Illinois
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
|||||||||||||||||||
Market
value
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Colorado
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
|||||||||||
|
Virginia
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
|||||||||||||||||||
Total
Market Value (reported value)
|
$
|
41,414
|
$
|
79,304
|
$
|
77,806
|
$
|
127,612
|
Other
states
|
22
|
%
|
23
|
%
|
22
|
%
|
21
|
%
|
|||||||||||
|
||||||||||||||||||||||||||||
Current
Rating
|
Wtd
Avg Original LTV
|
69
|
%
|
69
|
%
|
69
|
%
|
69
|
%
|
|||||||||||||||||||
BB
|
$
|
12,169
|
$
|
29,714
|
$
|
24,647
|
$
|
49,935
|
Original
LTV: 0 - 50
|
14
|
%
|
14
|
%
|
13
|
%
|
13
|
%
|
|||||||||||
B
|
12,362
|
20,928
|
21,538
|
41,150
|
Original
LTV: 50.01 - 60
|
12
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
|||||||||||||||
Unrated
|
16,883
|
28,662
|
31,621
|
36,527
|
Original
LTV: 60.01 - 70
|
22
|
%
|
22
|
%
|
22
|
%
|
22
|
%
|
|||||||||||||||
Total
market value
|
$
|
41,414
|
$
|
79,304
|
$
|
77,806
|
$
|
127,612
|
Original
LTV: 70.01 - 80
|
49
|
%
|
49
|
%
|
50
|
%
|
50
|
%
|
|||||||||||
|
Original
LTV: 80.01 - 90
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
|||||||||||||||||||
Security
Type
|
Original
LTV: 90.01 - 100
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
|||||||||||||||||||
Option
ARM
|
$
|
-
|
$
|
-
|
$
|
6,841
|
$
|
16,827
|
Unknown
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||||||||
ARM
|
3,293
|
4,950
|
4,370
|
16,180
|
|
|
||||||||||||||||||||||
Hybrid
|
14,505
|
49,829
|
47,858
|
72,704
|
Wtd
Avg FICO
|
748
|
748
|
736
|
736
|
|||||||||||||||||||
Fixed
|
23,616
|
24,525
|
18,737
|
21,901
|
FICO:
<= 600
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||||||||||||
Total
market value
|
$
|
41,414
|
$
|
79,304
|
$
|
77,806
|
$
|
127,612
|
FICO:
601 - 620
|
1
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||||||||
|
|
|
|
|
FICO:
621 - 640
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
|||||||||||||||
AFS:
Residential Prime CES
|
FICO:
641 - 660
|
2
|
%
|
2
|
%
|
3
|
%
|
3
|
%
|
|||||||||||||||||||
Coupon
income
|
$
|
4,975
|
$
|
6,428
|
$
|
7,110
|
$
|
7,013
|
FICO:
661 - 680
|
5
|
%
|
5
|
%
|
5
|
%
|
7
|
%
|
|||||||||||
Discount
amortization
|
2,789
|
5,511
|
9,490
|
12,521
|
FICO:
681 - 700
|
9
|
%
|
9
|
%
|
10
|
%
|
10
|
%
|
|||||||||||||||
Total
interest income
|
$
|
7,764
|
$
|
11,939
|
$
|
16,600
|
$
|
19,534
|
FICO:
701 - 720
|
12
|
%
|
12
|
%
|
13
|
%
|
13
|
%
|
|||||||||||
|
FICO:
721 - 740
|
14
|
%
|
14
|
%
|
14
|
%
|
14
|
%
|
|||||||||||||||||||
Average
amortized cost
|
$
|
85,314
|
$
|
111,860
|
$
|
164,621
|
$
|
159,699
|
FICO:
741 - 760
|
16
|
%
|
16
|
%
|
16
|
%
|
16
|
%
|
|||||||||||
|
FICO:
761 - 780
|
19
|
%
|
19
|
%
|
18
|
%
|
18
|
%
|
|||||||||||||||||||
Coupon
income %
|
23.32
|
%
|
22.98
|
%
|
17.27
|
%
|
17.57
|
%
|
FICO:
781 - 800
|
14
|
%
|
14
|
%
|
13
|
%
|
14
|
%
|
|||||||||||
Discount
amortization %
|
13.08
|
%
|
19.71
|
%
|
23.06
|
%
|
31.36
|
%
|
FICO:
>= 801
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
|||||||||||
Annualized
interest income / avg. amt. cost
|
36.40
|
%
|
42.69
|
%
|
40.34
|
%
|
48.93
|
%
|
Unknown
|
3
|
%
|
3
|
%
|
3
|
%
|
0
|
%
|
|||||||||||
|
|
|||||||||||||||||||||||||||
FVO:
Residential Prime CES
|
Conforming
at Origination %
|
|
24
|
%
|
25
|
%
|
25
|
%
|
26
|
%
|
||||||||||||||||||
Coupon
income
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
>
$1 MM %
|
|
8
|
%
|
8
|
%
|
10
|
%
|
10
|
%
|
|||||||||
Average
fair-value
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
||||||||||||||||||
Annualized
interest income / avg. fair-value
|
-
|
-
|
-
|
-
|
2nd
Home %
|
|
6
|
%
|
6
|
%
|
6
|
%
|
7
|
%
|
||||||||||||||
|
Investment
Home %
|
1
|
%
|
1
|
%
|
2
|
%
|
2
|
%
|
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Underlying
Loan Characteristics
|
Purchase
|
43
|
%
|
42
|
%
|
42
|
%
|
42
|
%
|
|||||||||||||||||||
|
Cash
Out Refi
|
21
|
%
|
21
|
%
|
24
|
%
|
25
|
%
|
|||||||||||||||||||
Number
of loans
|
247,449
|
262,263
|
303,657
|
305,272
|
Rate-Term
Refi
|
36
|
%
|
35
|
%
|
33
|
%
|
32
|
%
|
|||||||||||||||
Total
loan face
|
$
|
101,075,147
|
$
|
107,284,052
|
$
|
127,183,501
|
$
|
126,820,985
|
Construction
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||||||||
Average
loan size
|
$
|
408
|
$
|
409
|
$
|
419
|
$
|
415
|
Other
|
0
|
%
|
0
|
%
|
0
|
%
|
1
|
%
|
|||||||||||
|
|
|||||||||||||||||||||||||||
Year
2008 origination
|
<1
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
Full
Doc
|
53
|
%
|
53
|
%
|
49
|
%
|
52
|
%
|
|||||||||||
Year
2007 origination
|
6
|
%
|
6
|
%
|
8
|
%
|
7
|
%
|
No
Doc
|
7
|
%
|
7
|
%
|
7
|
%
|
7
|
%
|
|||||||||||
Year
2006 origination
|
11
|
%
|
11
|
%
|
13
|
%
|
13
|
%
|
Other
Doc (Lim, Red, Stated, etc)
|
|
37
|
%
|
37
|
%
|
41
|
%
|
41
|
%
|
||||||||||
Year
2005 origination
|
20
|
%
|
20
|
%
|
22
|
%
|
23
|
%
|
Unkown
|
3
|
%
|
3
|
%
|
3
|
%
|
0
|
%
|
|||||||||||
Year
2004 origination and earlier
|
62
|
%
|
63
|
%
|
56
|
%
|
57
|
%
|
|
|
||||||||||||||||||
|
2-4
Family
|
1
|
%
|
1
|
%
|
1
|
%
|
0
|
%
|
|||||||||||||||||||
|
Condo
|
11
|
%
|
11
|
%
|
11
|
%
|
2
|
%
|
|||||||||||||||||||
|
Single
Family
|
88
|
%
|
88
|
%
|
87
|
%
|
11
|
%
|
|||||||||||||||||||
|
Other
|
0
|
%
|
0
|
%
|
0
|
%
|
87
|
%
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table
12A: Residential Prime CES at Redwood and Underlying
Loan
Characteristics
|
71
|
![]() |
Table
12B: Residential Non-prime CES at Redwood and
Underlying Loan
Characteristics
($
in thousands)
|
72
|
2008
|
2008
|
2008
|
2007
|
2008
|
2008
|
2008
|
2007
|
|||||||||||||||||||||
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
|||||||||||||||||||||
AFS:
Residential CES Non-prime
|
Southern
CA
|
30
|
%
|
30
|
%
|
27
|
%
|
28
|
%
|
|||||||||||||||||||
Principal
value
|
$
|
260,142
|
$
|
319,067
|
$
|
240,997
|
$
|
262,684
|
Northern
CA
|
22
|
%
|
22
|
%
|
19
|
%
|
19
|
%
|
|||||||||||
Unamortized
discount
|
(10,067
|
)
|
(14,411
|
)
|
(1,364
|
)
|
(13,809
|
)
|
Florida
|
10
|
%
|
10
|
%
|
11
|
%
|
11
|
%
|
|||||||||||
Discount
designated as credit reserve
|
(247,798
|
)
|
(296,986
|
)
|
(227,820
|
)
|
(222,416
|
)
|
New
York
|
4
|
%
|
4
|
%
|
3
|
%
|
3
|
%
|
|||||||||||
Unrealized
(loss) gain
|
2,040
|
(142
|
)
|
(1,762
|
)
|
(3,062
|
)
|
Georgia
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
||||||||||||
Market
value (reported value)
|
$
|
4,317
|
$
|
7,528
|
$
|
10,051
|
$
|
23,397
|
New
Jersey
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
|||||||||||
Market
value / principal value
|
2
|
%
|
2
|
%
|
4
|
%
|
9
|
%
|
Texas
|
1
|
%
|
1
|
%
|
2
|
%
|
2
|
%
|
|||||||||||
|
Arizona
|
3
|
%
|
3
|
%
|
4
|
%
|
4
|
%
|
|||||||||||||||||||
FVO:
Residential CES Non-prime
|
Illinois
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
|||||||||||||||||||
Market
value
|
$
|
1,901
|
$
|
357
|
$
|
341
|
$
|
-
|
Colorado
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
|||||||||||
|
Virginia
|
3
|
%
|
2
|
%
|
3
|
%
|
3
|
%
|
|||||||||||||||||||
Total
market value (reported value)
|
$
|
6,218
|
$
|
7,885
|
$
|
10,392
|
$
|
23,397
|
Other
states
|
19
|
%
|
19
|
%
|
23
|
%
|
22
|
%
|
|||||||||||
|
||||||||||||||||||||||||||||
Current
Rating
|
Wtd
Avg Original LTV
|
77
|
%
|
77
|
%
|
80
|
%
|
78
|
%
|
|||||||||||||||||||
BB
|
$
|
175
|
$
|
459
|
$
|
427
|
$
|
2,901
|
Original
LTV: 0 - 50
|
5
|
%
|
4
|
%
|
3
|
%
|
3
|
%
|
|||||||||||
B
|
1,928
|
1,356
|
2,220
|
7,642
|
Original
LTV: 50.01 - 60
|
7
|
%
|
6
|
%
|
5
|
%
|
5
|
%
|
|||||||||||||||
Unrated
|
4,115
|
6,070
|
7,745
|
12,854
|
Original
LTV: 60.01 - 70
|
19
|
%
|
18
|
%
|
13
|
%
|
14
|
%
|
|||||||||||||||
Total
market value
|
$
|
6,218
|
$
|
7,885
|
$
|
10,392
|
$
|
23,397
|
Original
LTV: 70.01 - 80
|
58
|
%
|
60
|
%
|
61
|
%
|
60
|
%
|
|||||||||||
|
Original
LTV: 80.01 - 90
|
8
|
%
|
8
|
%
|
13
|
%
|
12
|
%
|
|||||||||||||||||||
Security
Type
|
Original
LTV: 90.01 - 100
|
3
|
%
|
3
|
%
|
5
|
%
|
5
|
%
|
|||||||||||||||||||
Option
ARM
|
$
|
3,943
|
$
|
6,744
|
$
|
7,798
|
$
|
19,644
|
Unknown
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||||||||
ARM
|
-
|
-
|
116
|
151
|
|
|
||||||||||||||||||||||
Hybrid
|
2,220
|
1,085
|
1,962
|
2,903
|
Wtd
Avg FICO
|
705
|
703
|
688
|
692
|
|||||||||||||||||||
Fixed
|
55
|
56
|
516
|
699
|
FICO:
<= 600
|
4
|
%
|
4
|
%
|
6
|
%
|
5
|
%
|
|||||||||||||||
Total
market value
|
$
|
6,218
|
$
|
7,885
|
$
|
10,392
|
$
|
23,397
|
FICO:
601 - 620
|
3
|
%
|
3
|
%
|
4
|
%
|
4
|
%
|
|||||||||||
|
|
|
|
|
FICO:
621 - 640
|
5
|
%
|
6
|
%
|
8
|
%
|
7
|
%
|
|||||||||||||||
AFS:
Residential CES Non-prime
|
FICO:
641 - 660
|
8
|
%
|
8
|
%
|
11
|
%
|
10
|
%
|
|||||||||||||||||||
Coupon
income
|
$
|
2,602
|
$
|
2,189
|
$
|
3,216
|
$
|
4,094
|
FICO:
661 - 680
|
11
|
%
|
12
|
%
|
15
|
%
|
15
|
%
|
|||||||||||
Discount
amortization
|
2,394
|
177
|
2,079
|
1,153
|
FICO:
681 - 700
|
16
|
%
|
16
|
%
|
15
|
%
|
14
|
%
|
|||||||||||||||
Total
interest income
|
$
|
4,996
|
$
|
2,367
|
$
|
5,295
|
$
|
5,247
|
FICO:
701 - 720
|
14
|
%
|
14
|
%
|
12
|
%
|
12
|
%
|
|||||||||||
|
FICO:
721 - 740
|
13
|
%
|
12
|
%
|
10
|
%
|
9
|
%
|
|||||||||||||||||||
Average
amortized cost
|
$
|
3,570
|
$
|
10,236
|
$
|
25,772
|
$
|
38,788
|
FICO:
741 - 760
|
11
|
%
|
11
|
%
|
8
|
%
|
8
|
%
|
|||||||||||
|
FICO:
761 - 780
|
9
|
%
|
9
|
%
|
6
|
%
|
6
|
%
|
|||||||||||||||||||
Coupon
income %
|
291.56
|
%
|
85.56
|
%
|
49.91
|
%
|
42.22
|
%
|
FICO:
781 - 800
|
5
|
%
|
5
|
%
|
4
|
%
|
4
|
%
|
|||||||||||
Discount
amortization %
|
268.20
|
%
|
6.92
|
%
|
32.27
|
%
|
11.89
|
%
|
FICO:
>= 801
|
1
|
%
|
1
|
%
|
1
|
%
|
5
|
%
|
|||||||||||
Annualized
interest income / avg. amt. cost
|
559.76
|
%
|
92.48
|
%
|
82.18
|
%
|
54.11
|
%
|
Unknown
|
0
|
%
|
0
|
%
|
1
|
%
|
1
|
%
|
|||||||||||
|
|
|||||||||||||||||||||||||||
FVO:
Residential CES Non-prime
|
Conforming
at Origination %
|
|
37
|
%
|
41
|
%
|
50
|
%
|
49
|
%
|
||||||||||||||||||
Coupon
income
|
$
|
223
|
$
|
71
|
$
|
128
|
$
|
-
|
|
>
$1 MM %
|
|
19
|
%
|
17
|
%
|
12
|
%
|
13
|
%
|
|||||||||
Average
fair-value
|
$
|
1,468
|
$
|
2,595
|
$
|
576
|
$
|
-
|
|
|
||||||||||||||||||
Annualized
interest income / avg. fair-value
|
60.84
|
%
|
10.88
|
%
|
88.89
|
%
|
-
|
2nd
Home %
|
|
7
|
%
|
6
|
%
|
5
|
%
|
6
|
%
|
|||||||||||
|
Investment
Home %
|
7
|
%
|
9
|
%
|
10
|
%
|
11
|
%
|
|||||||||||||||||||
Underlying
Loan Characteristics
|
|
|||||||||||||||||||||||||||
|
Purchase
|
36
|
%
|
37
|
%
|
38
|
%
|
37
|
%
|
|||||||||||||||||||
Number
of loans
|
78,456
|
103,292
|
74,301
|
73,658
|
Cash
Out Refi
|
45
|
%
|
44
|
%
|
43
|
%
|
44
|
%
|
|||||||||||||||
Total
loan face
|
$
|
30,954,928
|
$
|
38,167,452
|
$
|
23,601,231
|
$
|
22,895,942
|
Rate-Term
Refi
|
19
|
%
|
18
|
%
|
18
|
%
|
19
|
%
|
|||||||||||
Average
loan size
|
$
|
395
|
$
|
370
|
$
|
318
|
$
|
311
|
Construction
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||||||||
|
|
Other
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||||||||||||||
Year
2008 origination
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|
|
||||||||||||||||||
Year
2007 origination
|
34
|
%
|
26
|
%
|
32
|
%
|
26
|
%
|
Full
Doc
|
24
|
%
|
24
|
%
|
27
|
%
|
25
|
%
|
|||||||||||
Year
2006 origination
|
31
|
%
|
30
|
%
|
29
|
%
|
32
|
%
|
No
Doc
|
4
|
%
|
4
|
%
|
1
|
%
|
1
|
%
|
|||||||||||
Year
2005 origination
|
22
|
%
|
28
|
%
|
22
|
%
|
23
|
%
|
Other
Doc (Lim, Red, Stated, etc)
|
|
71
|
%
|
69
|
%
|
66
|
%
|
69
|
%
|
||||||||||
Year
2004 origination and earlier
|
13
|
%
|
16
|
%
|
17
|
%
|
19
|
%
|
Unknown/Not
Categorized
|
1
|
%
|
4
|
%
|
7
|
%
|
5
|
%
|
|||||||||||
|
|
|||||||||||||||||||||||||||
|
2-4
Family
|
4
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
|||||||||||||||||||
|
Condo
|
10
|
%
|
11
|
%
|
10
|
%
|
10
|
%
|
|||||||||||||||||||
|
Single
Family
|
86
|
%
|
85
|
%
|
85
|
%
|
84
|
%
|
|||||||||||||||||||
|
Other
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table
12B: Residential Non-prime CES at Redwood and
Underlying Loan
Characteristics
|
|
![]() |
Table 13:
Residential Real Estate Loan Characteristics
($
in thousands)
|
|
|
2008
|
2008
|
2008
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
|||||||||||||||||||
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
|||||||||||||||||||
Residential
Loans
|
$
|
6,070,083
|
$
|
6,322,868
|
$
|
6,702,726
|
$
|
7,106,018
|
$
|
7,546,529
|
$
|
8,256,759
|
$
|
8,582,964
|
$
|
9,212,002
|
$
|
9,718,985
|
||||||||||
Number
of loans
|
18,035
|
18,706
|
19,801
|
21,000
|
21,981
|
24,452
|
25,579
|
27,695
|
31,744
|
|||||||||||||||||||
Average
loan size
|
$
|
337
|
$
|
338
|
$
|
339
|
$
|
338
|
$
|
343
|
$
|
338
|
$
|
336
|
$
|
333
|
$
|
306
|
||||||||||
Adjustable
%
|
67
|
%
|
67
|
%
|
67
|
%
|
68
|
%
|
69
|
%
|
71
|
%
|
79
|
%
|
85
|
%
|
89
|
%
|
||||||||||
Hybrid
%
|
33
|
%
|
33
|
%
|
33
|
%
|
32
|
%
|
31
|
%
|
29
|
%
|
20
|
%
|
15
|
%
|
11
|
%
|
||||||||||
Fixed
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
1
|
%
|
0
|
%
|
0
|
%
|
||||||||||
Amortizing
%
|
0
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
4
|
%
|
3
|
%
|
3
|
%
|
||||||||||
Interest-only
%
|
95
|
%
|
95
|
%
|
95
|
%
|
95
|
%
|
95
|
%
|
95
|
%
|
96
|
%
|
97
|
%
|
97
|
%
|
||||||||||
Negatively
amortizing %
|
5
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||||||
Southern
California
|
15
|
%
|
15
|
%
|
15
|
%
|
14
|
%
|
15
|
%
|
14
|
%
|
14
|
%
|
13
|
%
|
12
|
%
|
||||||||||
Northern
California
|
11
|
%
|
11
|
%
|
11
|
%
|
10
|
%
|
10
|
%
|
11
|
%
|
10
|
%
|
10
|
%
|
10
|
%
|
||||||||||
Florida
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
12
|
%
|
12
|
%
|
13
|
%
|
12
|
%
|
12
|
%
|
||||||||||
New
York
|
6
|
%
|
6
|
%
|
6
|
%
|
6
|
%
|
6
|
%
|
6
|
%
|
6
|
%
|
6
|
%
|
6
|
%
|
||||||||||
Georgia
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
||||||||||
New
Jersey
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
||||||||||
Texas
|
4
|
%
|
4
|
%
|
4
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
||||||||||
Arizona
|
3
|
%
|
3
|
%
|
3
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
4
|
%
|
||||||||||
Illinois
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
||||||||||
Colorado
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
4
|
%
|
4
|
%
|
||||||||||
Virginia
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
||||||||||
Other
states (none greater than 3%)
|
31
|
%
|
30
|
%
|
30
|
%
|
31
|
%
|
31
|
%
|
31
|
%
|
30
|
%
|
31
|
%
|
32
|
%
|
||||||||||
Year
2008 origination
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||||||
Year
2007 origination
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
12
|
%
|
11
|
%
|
3
|
%
|
0
|
%
|
0
|
%
|
||||||||||
Year
2006 origination
|
21
|
%
|
21
|
%
|
20
|
%
|
20
|
%
|
19
|
%
|
18
|
%
|
19
|
%
|
17
|
%
|
10
|
%
|
||||||||||
Year
2005 origination
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
||||||||||
Year
2004 origination or earlier
|
61
|
%
|
61
|
%
|
62
|
%
|
62
|
%
|
64
|
%
|
66
|
%
|
73
|
%
|
78
|
%
|
85
|
%
|
||||||||||
Wtd
Avg Original LTV
|
69
|
%
|
69
|
%
|
69
|
%
|
69
|
%
|
68
|
%
|
68
|
%
|
68
|
%
|
68
|
%
|
68
|
%
|
||||||||||
Original
LTV: 0 - 50
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
16
|
%
|
15
|
%
|
||||||||||
Original
LTV: 50 - 60
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
||||||||||
Original
LTV: 60 - 70
|
19
|
%
|
19
|
%
|
19
|
%
|
19
|
%
|
19
|
%
|
20
|
%
|
20
|
%
|
20
|
%
|
20
|
%
|
||||||||||
Original
LTV: 70 - 80
|
49
|
%
|
49
|
%
|
49
|
%
|
48
|
%
|
48
|
%
|
47
|
%
|
46
|
%
|
45
|
%
|
46
|
%
|
||||||||||
Original
LTV: 80 - 90
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
||||||||||
Original
LTV: 90 - 100
|
4
|
%
|
4
|
%
|
4
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
5
|
%
|
||||||||||
Wtg
Avg FICO
|
732
|
732
|
732
|
732
|
732
|
732
|
727
|
733
|
730
|
|||||||||||||||||||
FICO:
<= 600
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
||||||||||
FICO:
601 -620
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
1
|
%
|
||||||||||
FICO:
621 - 640
|
1
|
%
|
1
|
%
|
2
|
%
|
1
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
1
|
%
|
1
|
%
|
||||||||||
FICO:
641 -660
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
||||||||||
FICO:
661 - 680
|
7
|
%
|
8
|
%
|
7
|
%
|
7
|
%
|
7
|
%
|
7
|
%
|
7
|
%
|
8
|
%
|
8
|
%
|
||||||||||
FICO:
681 - 700
|
12
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
||||||||||
FICO:
701 - 720
|
13
|
%
|
14
|
%
|
13
|
%
|
14
|
%
|
13
|
%
|
14
|
%
|
14
|
%
|
14
|
%
|
14
|
%
|
||||||||||
FICO:
721 - 740
|
13
|
%
|
14
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
14
|
%
|
||||||||||
FICO:
741 - 760
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
||||||||||
FICO:
761 - 780
|
17
|
%
|
17
|
%
|
17
|
%
|
17
|
%
|
17
|
%
|
17
|
%
|
17
|
%
|
17
|
%
|
17
|
%
|
||||||||||
FICO:
781 - 800
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
13
|
%
|
12
|
%
|
12
|
%
|
12
|
%
|
||||||||||
FICO:
>= 801
|
4
|
%
|
4
|
%
|
4
|
%
|
3
|
%
|
4
|
%
|
4
|
%
|
3
|
%
|
3
|
%
|
2
|
%
|
||||||||||
Conforming
balance at origination %
|
34
|
%
|
33
|
%
|
34
|
%
|
34
|
%
|
35
|
%
|
35
|
%
|
37
|
%
|
38
|
%
|
41
|
%
|
||||||||||
%
balance in loans > $1mm per loan
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
15
|
%
|
16
|
%
|
18
|
%
|
14
|
%
|
||||||||||
2nd
home %
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
11
|
%
|
||||||||||
Investment
home %
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
||||||||||
Purchase
|
36
|
%
|
36
|
%
|
36
|
%
|
36
|
%
|
36
|
%
|
35
|
%
|
35
|
%
|
34
|
%
|
34
|
%
|
||||||||||
Cash
out refinance
|
32
|
%
|
32
|
%
|
32
|
%
|
32
|
%
|
32
|
%
|
32
|
%
|
31
|
%
|
32
|
%
|
32
|
%
|
||||||||||
Rate-term
refinance
|
30
|
%
|
30
|
%
|
30
|
%
|
30
|
%
|
31
|
%
|
31
|
%
|
32
|
%
|
32
|
%
|
32
|
%
|
||||||||||
Construction
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||||||
Other
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
2
|
%
|
||||||||||
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table 13:
Residential Real Estate Loan Characteristics
|
73
|
![]() |
Table 14:
Commercial Real Estate Loans Credit Performance
($
in thousands)
|
74
|
Managed
Loans
|
Internally-Designated
Credit Reserve
|
External
Credit Enhancement
|
Total
Credit Protection (2)
|
Total
Credit Protection as % of Loans
|
Seriously
Delinquent Loans
|
Seriously
Delinquent Loan % of Current Balance
|
Total
Credit Losses
|
Third
Parties' Share of Net Charge-offs/
(Recoveries)
|
Redwood's
Share of Net Charge-offs/ (Recoveries)
|
Total
Credit Losses As % of Loans (Annualized)
|
||||||||||||||||||||||||||||||
Total
Managed
|
Q3:
2006
|
$
|
58,106,355
|
$
|
266,523
|
$
|
678,489
|
$
|
945,012
|
1.63
|
%
|
$
|
70,586
|
0.12
|
%
|
$
|
2,167
|
$
|
1,705
|
$
|
462
|
0.01
|
%
|
|||||||||||||||||
Commercial
|
Q4:
2006
|
57,789,159
|
303,481
|
472,669
|
776,150
|
1.34
|
%
|
64,367
|
0.11
|
%
|
1,156
|
1,132
|
24
|
0.01
|
%
|
|||||||||||||||||||||||||
Portfolio
|
2006
|
57,789,159
|
303,481
|
472,669
|
776,150
|
1.34
|
%
|
64,367
|
0.11
|
%
|
4,876
|
4,355
|
521
|
0.03
|
%
|
|||||||||||||||||||||||||
|
Q1:
2007
|
57,450,042
|
304,955
|
551,917
|
856,872
|
1.49
|
%
|
77,726
|
0.14
|
%
|
2,688
|
1,417
|
1,271
|
0.02
|
%
|
|||||||||||||||||||||||||
|
Q2:
2007
|
63,626,147
|
321,234
|
584,706
|
905,940
|
1.42
|
%
|
73,104
|
0.10
|
%
|
72
|
30
|
42
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q3:
2007
|
65,030,244
|
320,987
|
577,447
|
898,434
|
1.38
|
%
|
181,473
|
0.28
|
%
|
680
|
408
|
272
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q4:
2007
|
61,776,102
|
328,945
|
427,868
|
756,813
|
1.23
|
%
|
183,093
|
0.30
|
%
|
1,952
|
1,171
|
781
|
0.01
|
%
|
|||||||||||||||||||||||||
|
2007
|
61,776,102
|
328,945
|
427,868
|
756,813
|
1.23
|
%
|
183,093
|
0.30
|
%
|
5,392
|
3,026
|
2,366
|
0.01
|
%
|
|||||||||||||||||||||||||
|
Q1:
2008
|
(1)
|
|
54,746,581
|
389,014
|
63,299
|
452,313
|
0.83
|
%
|
227,494
|
0.42
|
%
|
42
|
4
|
38
|
0.00
|
%
|
|||||||||||||||||||||||
|
Q2:
2008
|
49,370,254
|
395,113
|
63,297
|
458,410
|
0.93
|
%
|
390,117
|
0.79
|
%
|
13,756
|
8,254
|
5,502
|
0.03
|
%
|
|||||||||||||||||||||||||
|
Q3:
2008
|
$
|
49,028,984
|
$
|
481,286
|
$
|
63,297
|
$
|
544,583
|
1.11
|
%
|
$
|
472,840
|
0.96
|
%
|
$
|
6,508
|
$
|
3,775
|
$
|
2,733
|
0.01
|
%
|
|||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Commercial
|
Q3:
2006
|
$
|
42,384
|
$
|
8,141
|
$
|
0
|
$
|
8,141
|
19.21
|
%
|
$
|
0
|
0.00
|
%
|
$
|
0
|
$
|
0
|
$
|
0
|
0.00
|
%
|
|||||||||||||||||
Real
Estate
|
Q4:
2006
|
38,360
|
8,141
|
-
|
8,141
|
21.22
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||||
Loans
|
2006
|
38,360
|
8,141
|
-
|
8,141
|
21.22
|
%
|
-
|
0.00
|
%
|
35
|
-
|
35
|
0.36
|
%
|
|||||||||||||||||||||||||
|
Q1:
2007
|
38,394
|
10,489
|
-
|
10,489
|
27.32
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q2:
2007
|
38,311
|
10,489
|
-
|
10,489
|
27.38
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q3:
2007
|
38,224
|
10,489
|
-
|
10,489
|
34.07
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q4:
2007
|
38,111
|
10,489
|
-
|
10,489
|
27.52
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||||
|
2007
|
38,111
|
10,489
|
-
|
10,489
|
27.52
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q1:
2008
|
(1)
|
|
10,645
|
10,626
|
-
|
10,626
|
99.82
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||
|
Q2:
2008
|
10,643
|
10,626
|
-
|
10,626
|
99.84
|
%
|
-
|
0.00
|
%
|
-
|
-
|
-
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q3:
2008
|
$
|
10,642
|
$
|
10,626
|
$
|
0
|
$
|
10,626
|
99.85
|
%
|
$
|
0
|
0.00
|
%
|
$
|
0
|
$
|
0
|
$
|
0
|
0.00
|
%
|
|||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Commercial
|
Q3:
2006
|
$
|
58,063,971
|
$
|
258,382
|
$
|
678,489
|
$
|
936,871
|
1.61
|
%
|
$
|
70,586
|
0.12
|
%
|
$
|
2,167
|
$
|
1,705
|
$
|
462
|
0.01
|
%
|
|||||||||||||||||
CES
|
Q4:
2006
|
57,750,799
|
295,340
|
472,669
|
768,009
|
1.33
|
%
|
64,367
|
0.11
|
%
|
1,156
|
1,132
|
24
|
0.01
|
%
|
|||||||||||||||||||||||||
|
2006
|
57,750,799
|
295,340
|
472,669
|
768,009
|
1.33
|
%
|
64,367
|
0.11
|
%
|
4,841
|
4,355
|
486
|
0.01
|
%
|
|||||||||||||||||||||||||
|
Q1:
2007
|
57,411,648
|
294,466
|
551,917
|
846,383
|
1.47
|
%
|
77,726
|
0.14
|
%
|
2,688
|
1,417
|
1,271
|
0.02
|
%
|
|||||||||||||||||||||||||
|
Q2:
2007
|
63,587,836
|
310,745
|
584,706
|
895,451
|
1.41
|
%
|
73,104
|
0.10
|
%
|
72
|
30
|
42
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q3:
2007
|
64,999,460
|
310,498
|
577,447
|
887,945
|
1.37
|
%
|
181,473
|
0.28
|
%
|
680
|
408
|
272
|
0.00
|
%
|
|||||||||||||||||||||||||
|
Q4:
2007
|
61,737,991
|
318,456
|
427,868
|
746,324
|
1.21
|
%
|
183,093
|
0.30
|
%
|
1,952
|
1,171
|
781
|
0.01
|
%
|
|||||||||||||||||||||||||
|
2007
|
61,737,991
|
318,456
|
427,868
|
746,324
|
1.21
|
%
|
183,093
|
0.30
|
%
|
5,392
|
3,026
|
2,366
|
0.01
|
%
|
|||||||||||||||||||||||||
|
Q1:
2008
|
(1)
|
|
54,735,936
|
378,388
|
63,299
|
441,687
|
0.81
|
%
|
227,494
|
0.42
|
%
|
42
|
4
|
38
|
0.00
|
%
|
|||||||||||||||||||||||
|
Q2:
2008
|
49,359,611
|
384,487
|
63,297
|
447,784
|
0.91
|
%
|
390,117
|
0.79
|
%
|
13,756
|
8,254
|
5,502
|
0.03
|
%
|
|||||||||||||||||||||||||
|
Q3:
2008
|
$
|
49,018,342
|
$
|
470,660
|
$
|
63,297
|
$
|
533,957
|
1.09
|
%
|
$
|
472,840
|
0.96
|
%
|
$
|
6,508
|
$
|
3,775
|
$
|
2,733
|
0.01
|
%
|
|||||||||||||||||
(1)
As of
January 1, 2008 balances includes loans
and CES held by Redwood
only.
|
||||||||||||||||||||||||||||||||||||||||
(2)
The credit
reserve on commercial real estate loans
is only available to absorb losses
on our commercial real estate loan
portfolio. Internally-designated credit
reserves and external credit enhancement
are only available to absorb
losses on the commercial CES. The credit
enhancement balances shown above
do not include pari passu CES owned
by others. If we had included these
amounts, the total credit protection
would increase to 1.49% for
commercial CES compared to the 1.09%
shown in the table
above.
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table 14:
Commercial Real Estate Loans Credit Performance
|
|
![]() |
Table 15: Commercial
CES at Redwood Underlying Loan
Characteristics
($
in thousands)
|
|
2008
|
2008
|
2008
|
||||||||
Q3
|
Q2
|
Q1
|
||||||||
Commercial
CES Loans
|
|
$49,018,342
|
|
$49,359,611
|
|
$54,735,936
|
||||
Number
of loans
|
3,310
|
3,351
|
3,407
|
|||||||
Average
face value
|
|
$14,809
|
|
$14,758
|
|
$14,629
|
||||
State
Distribution
|
||||||||||
CA
|
15
|
%
|
15
|
%
|
15
|
%
|
||||
NY
|
13
|
%
|
13
|
%
|
13
|
%
|
||||
TX
|
9
|
%
|
9
|
%
|
9
|
%
|
||||
VA
|
5
|
%
|
5
|
%
|
5
|
%
|
||||
FL
|
6
|
%
|
6
|
%
|
6
|
%
|
||||
Other
|
52
|
%
|
52
|
%
|
52
|
%
|
||||
Property
Type Distribution
|
||||||||||
Office
|
38
|
%
|
39
|
%
|
39
|
%
|
||||
Retail
|
28
|
%
|
28
|
%
|
28
|
%
|
||||
Multi-family
|
16
|
%
|
16
|
%
|
16
|
%
|
||||
Hospitality
|
7
|
%
|
7
|
%
|
7
|
%
|
||||
Self-storage
|
3
|
%
|
3
|
%
|
3
|
%
|
||||
Industrial
|
4
|
%
|
4
|
%
|
4
|
%
|
||||
Other
|
4
|
%
|
4
|
%
|
4
|
%
|
||||
Weighted
average LTV
|
68
|
%
|
70
|
%
|
70
|
%
|
||||
Weighted
average debt service coverage ratio
|
1.60
|
1.62
|
1.60
|
|||||||
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table 15: Commercial
CES at Redwood Underlying Loan
Characteristics
|
75
|
![]() |
Table
16: Securities at Redwood Market
Value as a % of
Principal
($
in millions)
|
76
|
|
|
||||||||||||||||||||||||||||||||||||
<=2004
|
|
2005
|
2006
|
2007
|
2008
|
Total
|
|||||||||||||||||||||||||||||||
Value
|
%
|
Value
|
%
|
Value
|
%
|
Value
|
%
|
Value
|
% |
Value
|
% | ||||||||||||||||||||||||||
Prime
|
|||||||||||||||||||||||||||||||||||||
Resi
- IGS
|
|||||||||||||||||||||||||||||||||||||
AAA
|
$
|
1
|
86
|
%
|
$
|
3
|
63
|
%
|
$
|
10
|
65
|
%
|
$
|
-
|
0
|
%
|
$
|
-
|
0
|
%
|
$
|
14
|
67
|
%
|
|||||||||||||
AA
|
14
|
57
|
%
|
14
|
45
|
%
|
-
|
0
|
%
|
3
|
53
|
%
|
2
|
36
|
%
|
33
|
49
|
%
|
|||||||||||||||||||
A
|
8
|
37
|
%
|
-
|
0
|
%
|
3
|
16
|
%
|
-
|
0
|
%
|
1
|
23
|
%
|
12
|
28
|
%
|
|||||||||||||||||||
BBB
|
6
|
39
|
%
|
1
|
14
|
%
|
-
|
0
|
%
|
-
|
0
|
%
|
-
|
0
|
%
|
7
|
29
|
%
|
|||||||||||||||||||
Resi
- IGS Total
|
29
|
46
|
%
|
18
|
42
|
%
|
13
|
40
|
%
|
3
|
53
|
%
|
3
|
24
|
%
|
66
|
42
|
%
|
|||||||||||||||||||
Resi
- CES
|
|||||||||||||||||||||||||||||||||||||
BB
|
$
|
8
|
23
|
%
|
$
|
3
|
10
|
%
|
$
|
-
|
0
|
%
|
$
|
1
|
8
|
%
|
$
|
-
|
0
|
%
|
$
|
12
|
16
|
%
|
|||||||||||||
B
|
11
|
30
|
%
|
-
|
0
|
%
|
1
|
11
|
%
|
1
|
7
|
%
|
-
|
0
|
%
|
13
|
21
|
%
|
|||||||||||||||||||
NR
|
13
|
12
|
%
|
1
|
3
|
%
|
1
|
2
|
%
|
1
|
3
|
%
|
-
|
0
|
%
|
16
|
8
|
%
|
|||||||||||||||||||
Resi
- CES Total
|
32
|
18
|
%
|
4
|
6
|
%
|
2
|
4
|
%
|
3
|
4
|
%
|
-
|
0
|
%
|
41
|
11
|
%
|
|||||||||||||||||||
Total
Prime
|
$
|
61
|
25
|
%
|
$
|
22
|
19
|
%
|
$
|
15
|
22
|
%
|
$
|
6
|
9
|
%
|
$
|
3
|
14
|
%
|
$
|
107
|
21
|
%
|
|||||||||||||
Nonprime
|
|||||||||||||||||||||||||||||||||||||
Resi
- IGS
|
|||||||||||||||||||||||||||||||||||||
AAA
|
$
|
-
|
0
|
%
|
$
|
24
|
52
|
%
|
$
|
10
|
55
|
%
|
$
|
13
|
75
|
%
|
$
|
-
|
0
|
%
|
$
|
47
|
57
|
%
|
|||||||||||||
Resi
- IGS Total
|
-
|
0
|
%
|
24
|
52
|
%
|
10
|
55
|
%
|
13
|
75
|
%
|
-
|
0
|
%
|
47
|
57
|
%
|
|||||||||||||||||||
Resi
- CES
|
|||||||||||||||||||||||||||||||||||||
B
|
-
|
0
|
%
|
-
|
0
|
%
|
-
|
0
|
%
|
2
|
18
|
%
|
-
|
0
|
%
|
2
|
10
|
%
|
|||||||||||||||||||
NR
|
1
|
2
|
%
|
1
|
2
|
%
|
-
|
0
|
%
|
2
|
1
|
%
|
-
|
0
|
%
|
4
|
2
|
%
|
|||||||||||||||||||
Resi
- CES Total
|
1
|
2
|
%
|
1
|
2
|
%
|
-
|
0
|
%
|
4
|
2
|
%
|
-
|
0
|
%
|
6
|
2
|
%
|
|||||||||||||||||||
Total
Nonprime
|
$
|
1
|
2
|
%
|
$
|
25
|
26
|
%
|
$
|
10
|
14
|
%
|
$
|
17
|
10
|
%
|
$
|
-
|
0
|
%
|
$
|
53
|
14
|
%
|
|||||||||||||
CMBS
|
|||||||||||||||||||||||||||||||||||||
Comm
- CES
|
|||||||||||||||||||||||||||||||||||||
BB
|
$
|
4
|
44
|
%
|
$
|
-
|
0
|
%
|
$
|
1
|
21
|
%
|
$
|
2
|
16
|
%
|
$
|
-
|
0
|
%
|
$
|
7
|
26
|
%
|
|||||||||||||
B
|
-
|
0
|
%
|
-
|
0
|
%
|
4
|
17
|
%
|
4
|
14
|
%
|
-
|
0
|
%
|
8
|
16
|
%
|
|||||||||||||||||||
NR
|
9
|
23
|
%
|
14
|
11
|
%
|
22
|
9
|
%
|
4
|
10
|
%
|
-
|
0
|
%
|
49
|
11
|
%
|
|||||||||||||||||||
Comm
- CES Total
|
13
|
27
|
%
|
14
|
11
|
%
|
27
|
10
|
%
|
10
|
12
|
%
|
-
|
0
|
%
|
64
|
12
|
%
|
|||||||||||||||||||
Total
CMBS
|
$
|
13
|
27
|
%
|
$
|
14
|
11
|
%
|
$
|
27
|
10
|
%
|
$
|
10
|
12
|
%
|
$
|
-
|
0
|
%
|
$
|
64
|
12
|
%
|
|||||||||||||
CDO
|
|||||||||||||||||||||||||||||||||||||
CDO
- IGS
|
|||||||||||||||||||||||||||||||||||||
AA
|
-
|
0
|
%
|
4
|
21
|
%
|
-
|
0
|
%
|
-
|
0
|
%
|
-
|
0
|
%
|
4
|
21
|
%
|
|||||||||||||||||||
CDO
- IGS Total
|
-
|
0
|
%
|
4
|
21
|
%
|
-
|
0
|
%
|
-
|
0
|
%
|
-
|
0
|
%
|
4
|
21
|
%
|
|||||||||||||||||||
Total
CDO
|
$
|
-
|
0
|
%
|
$
|
4
|
21
|
%
|
$
|
-
|
0
|
%
|
$
|
-
|
0
|
%
|
$
|
-
|
0
|
%
|
$
|
4
|
21
|
%
|
|||||||||||||
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table 16
September 30, 2008 Securities
at Redwood Market Value
as a % of
Principal
|
|
![]() |
Table 17: Components
of Book Value at
June 30, 2008
($
in millions, except
per share data)
|
|
Management's
|
|||||||||
Estimate
of
|
|||||||||
Economic
|
|||||||||
As
Reported
|
Value
|
||||||||
Real
estate securities (excluding
Sequoia and Acacia)
|
|||||||||
Residential
|
$
|
247
|
$
|
247
|
|||||
Commercial
|
91
|
91
|
|||||||
CDO
|
15
|
15
|
|||||||
Subtotal
real estate securities
|
353
|
353
|
|||||||
Cash
and cash equivalents
|
148
|
148
|
|||||||
Investments
in The Fund
|
47
|
47
|
|||||||
Investments
in Sequoia
|
140
|
(65)
|
(a)
|
75
|
|||||
Investments
in Acacia
|
41
|
(22)
|
(b)
|
19
|
|||||
Other
assets/liabilities,
net (d)
|
(15
|
)
|
(15
|
)
|
|||||
Subordinated
notes
|
(150
|
)
|
78
|
(c)
|
(72
|
)
|
|||
Stockholders'
Equity
|
$
|
564
|
$
|
555
|
|||||
Book
Value Per Share
|
$
|
17.00
|
$
|
16.72
|
|||||
(a)
Our actual Sequoia
investments consist
of CES, IGS, and IOs
acquired by
Redwood from the Sequoia
entities. We calculated
the $75 million estimate
of economic value for
these securities using
the same valuation
process
that we followed to
fair value all other
real estate securities.
In
contrast, the $140
million of GAAP carrying
value of these investments
represents the difference
between residential
real estate loans owned
by
the Sequoia entities
and the asset-backed
securities (ABS) issued
by those
entities to third party
investors. We account
for these loans and
ABS
issued at cost, not
at fair value. This
is the primary reason
for the $65
million disparity between
the GAAP carrying value
and our estimate of
economic value.
|
(b)
Our actual Acacia investments
consist of equity interests,
and to a lesser
extent ABS issued,
that we acquired from
the Acacia entities.
The $19
million estimate of
economic value of our
investment interests
in the
Acacia entities represents
the net present value
of projected cash flows
from our Acacia investments
and management fees
discounted at 45%,
except
for the Acacia ABS
issued that we recently
repurchased at substantial
discounts from face
value, which are valued
at cost. The reason
for the
difference between
economic and GAAP carrying
values is complex and
relates to a significant
difference in valuation
methodology. This
difference is discussed
in detail in the Investments
in Acacia section in
this Review.
|
(c)
We have issued $150
million of 30-year
subordinated notes
at an interest
rate of LIBOR plus
225 basis points. Under
GAAP, these notes are
carried
at cost. Economic value
is difficult to estimate
with precision as the
market of the notes
is currently inactive.
We estimated the $72
million
economic value using
the same valuation
process used to fair
value our
other financial assets
and liabilities. Estimated
economic value is $78
million lower than
our GAAP carrying value
because given the significant
overall contraction
in credit availability
and re-pricing of credit
risk,
if we had issued these
subordinated notes
at March 31, 2008,
investors
would have required
a substantially higher
interest rate.
|
(d)
Other assets/liabilities,
net are comprised of
real estate loans of
$4
million, restricted
cash of $2 million,
$8 million of deferred
taxes, $5
million of accrued
interest, and other
assets of $11 million,
less Redwood
debt of $9 million,
accruals of $8 million,
dividends payable of
$25
million, and other
liabilities of $3
million.
|
THE
REDWOOD
REVIEW
3RD
QUARTER
2008
|
Table 17: Components
of Book Value at June
30, 2008
|
77
|
Executive
Officers:
George
E. Bull, III
Chairman
of
the Board and
Chief
Executive Officer
Douglas
B. Hansen
President
Martin
S. Hughes
Chief
Financial Officer and
Co-Chief
Operating Officer
Brett
D. Nicholas
Chief
Investment Officer and
Co-Chief
Operating Officer
Harold
F. Zagunis
Managing
Director and
Controller
Stock
Listing:
The
Company’s
common stock is traded
on
the New
York Stock Exchange under
the
symbol
RWT
Corporate
Office:
One
Belvedere
Place, Suite 300
Mill
Valley,
California 94941
Telephone:
415-389-7373
Investor
Relations:
Paula
Kwok
Assistant
Vice
President
Mike
McMahon
Managing
Director
IR
Hotline:
866-269-4976
Telephone:
415-389-7373
Email:
[email protected]
|
Directors:
George
E. Bull, III
Chairman
of
the Board and
Chief
Executive Officer
Douglas
B. Hansen
President
Richard
D. Baum
Executive
Director,
California
Commission for
Economic
Development
Thomas
C. Brown
CEO,
Urban
Bay Properties, Inc.
Mariann
Byerwalter
Chairman,
JDN
Corporate
Advisory,
LLC
Greg
H. Kubicek
President,
The Holt Group, Inc.
Georganne
C. Proctor
Executive
Vice President and
Chief
Financial Officer, TIAA-CREF
Charles
J. Toeniskoetter
Chairman,
Toeniskoetter & Breeding, Inc.
Development
David
L. Tyler
Private
Investor
Transfer
Agent:
Computershare
2
North
LaSalle Street
Chicago,
IL
60602
Telephone:
888-472-1955
|