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Redwood Trust Reports Third Quarter 2003 Earnings; GAAP Earnings of $1.30 per Share and Core Earnings of $1.29 per Share

Thursday, October 23, 2003

MILL VALLEY, Calif.--(BUSINESS WIRE)--Oct. 23, 2003--Redwood Trust, Inc. (NYSE:RWT), a financial institution that invests in real estate loans, today reported GAAP earnings of $1.30 per share for the third quarter of 2003 and $3.40 per share for the first nine months of 2003.

Core earnings, which exclude realized and unrealized gains and losses on the market value of assets, were $1.29 per share for the third quarter of 2003, a 14% increase from second quarter 2003 core earnings of $1.13 per share and a 63% increase from third quarter 2002 core earnings of $0.79 per share. Core earnings for the first nine months of 2003 totaled $3.31 per share, an increase of 40% from $2.36 per share earned during the first nine months of 2002.

Doug Hansen, Redwood's President, commented, "The strong cash flow and earnings results we have generated so far this year are primarily the result of the excellent credit performance of our loans. Our results have also benefited from a history of favorable prepayment patterns over the last few years and from improved capital utilization."

Third Quarter Review

Redwood acquired $5 billion of high-quality adjustable-rate jumbo residential real estate loans during the third quarter for securitization through its "Sequoia" program. The increased level of Redwood's acquisitions for the quarter reflected continued strong volumes of adjustable-rate residential loan production by Redwood's mortgage origination partners plus the completion of several large bulk purchase transactions.

Loans consolidated onto Redwood's balance sheet from the Sequoia securitization trusts totaled $13.8 billion at the end of the quarter. Excellent credit results for these loans have contributed to Redwood's strong financial results. Serious delinquencies in this portfolio declined from $3.9 million to $1.6 million (from 0.04% to 0.01% of loan balances) during the third quarter and there were no realized credit losses. Credit losses over the last twelve months have totaled $31,000. Redwood buys these loans at a premium to their principal value. As a result, slower prepayment rates for these loans, if experienced over a period of time, should be beneficial to Redwood's long-term results. Redwood has experienced and continues to experience low to moderate prepayment rates on these loans.

The principal value of Redwood's residential credit-enhancement securities portfolio rose slightly during the quarter from $598 million to $604 million. Acquisitions for the quarter offset principal reductions due to principal repayments and calls of these securities. The loans Redwood credit-enhances (through its ownership of these credit-enhancement securities) include fixed-rate, hybrid, and adjustable-rate residential loans.

Residential loans credit-enhanced by Redwood have prepaid rapidly over the last few years. These rapid prepayments benefit Redwood in a number of ways. Redwood acquires credit-enhancement securities at a discount to their principal value; rapid prepayments of the underlying loans generally increase Redwood's discount amortization income over the remaining life of the securities. Rapid prepayments over the last few years have also accelerated the dates on which issuers gain the right to call Redwood's securities. Redwood generally realizes a gain if its credit-enhancement securities are called. It has benefited from call activity in 2003 and expects to realize additional call gains in the fourth quarter of 2003 and in 2004. Rapid prepayments of the loans underlying Redwood's credit-enhancement securities have also reduced Redwood's potential future credit exposure. In the third quarter alone, loans underlying Redwood's credit-enhancement securities declined from $52 billion to $44 billion -- thus reducing Redwood's exposure on the underlying loans by $8 billion.

Serious delinquencies in the loans credit-enhanced by Redwood through its ownership of credit-enhancement securities increased during the third quarter from $160 million to $178 million while remaining at low levels compared to market standards for comparably aged loans. As a percentage of the current balance of underlying loans, delinquencies in this portfolio rose from 0.31% to 0.41%; the increase in this ratio was primarily due to the rapid decline in underlying loan balances. Realized credit losses for Redwood's credit-enhanced loans remained under one basis point of current balances on an annualized basis.

Redwood's other portfolios of residential and commercial real estate loan securities continue to produce strong overall credit results. All of Redwood's commercial real estate loans are current.

Redwood continues to keep its recourse debt at levels that are very low relative to most financial institutions. Recourse debt at Redwood (which excludes mortgage-backed securities -- issued by securitization trusts -- that are non-recourse to Redwood but are consolidated onto Redwood's reported GAAP balance sheet as "long-term debt") was $500 million at September 30, 2003. Redwood uses recourse debt to fund assets prior to securitization and then uses the proceeds of these securitizations to reduce its recourse debt balances. Given its current scope of acquisition and securitization activity, Redwood expects its recourse debt will vary between $0 and $2 billion; quarter-end levels over the last year have varied from $100 million to $834 million.

As a result of Redwood's balanced asset/liability posture, interest rate changes had little effect on third quarter results.

Redwood's portfolio margin rose to record levels this quarter as investment yields increased due to strong credit results and a history of favorable prepayment rates. Redwood's margin also benefited from greater capital efficiencies achieved through growth and through the recycling of capital via re-securitization of appreciated assets. In the third quarter, Redwood's GAAP portfolio margin -- net interest income as a percent of reported GAAP equity -- was 25.1%. Using core equity (reported GAAP equity less unrealized gains and losses on certain assets), Redwood's portfolio margin was 30.2%.

"Our real estate loan investments are currently performing in an extraordinary fashion," Hansen noted. "In most operating environments, we believe our current investments should continue to generate above-average returns over their remaining lives of three to seven years. As we receive principal repayments from these investments, we seek re-investment opportunities. The new investment process has gone very well for us this year. We believe our new investments have attractive future return potential. Furthermore, we have been able to source enough new investment opportunities this year to support both reinvestment and growth."

Harold Zagunis, Redwood's CFO, added, "We have generated a substantial amount of REIT taxable income during the first nine months of 2003, exceeding our GAAP and core income levels and significantly exceeding our regular quarterly dividend rate of $0.65 per share. We intend to distribute the bulk of this REIT taxable income as dividends to shareholders via the declaration of one or more special dividends, in addition to our regular dividends, within the next four quarters."

For more information about Redwood Trust, Inc., please visit www.redwoodtrust.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this news release may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, among other things, changes in interest rates on our real estate loan assets and borrowings, changes in prepayment rates on our real estate loan assets, general economic conditions, particularly as they affect the price of real estate loan and the credit status of borrowers, and the level of liquidity in the capital markets, as it affects our ability to finance our real estate loan portfolio, and other risk factors outlined in the Company's 2002 Annual Report on Form 10-K (available on the Company's Web site or by request to the Contacts listed above). Other factors not presently identified may also cause actual results to differ. No one should assume that results or trends projected in or contemplated by the forward-looking statements included above will prove to be accurate in the future. We will revise our outlook from time to time and frequently will not disclose such revisions publicly.

REDWOOD TRUST, INC.
(All dollars in millions,
 except per share data)
                              Third  Second   First  Fourth   Third
                             Quarter Quarter Quarter Quarter Quarter
INCOME STATEMENT               2003    2003    2003    2002    2002
---------------------------- ------- ------- ------- ------- -------

Interest Income                $90.2   $71.4   $61.1   $54.1   $42.1
Interest Expense               (55.6)  (41.8)  (36.9)  (33.3)  (24.3)
---------------------------- ------- ------- ------- ------- -------
Net Interest Income             34.6    29.6    24.2    20.8    17.8

Operating Expenses              (8.5)   (7.3)   (6.5)   (6.0)   (4.3)
Mark-to-Market Adjustments       0.1     1.5     0.0     1.4     1.5
Taxes                           (1.5)   (1.6)   (2.1)   (0.9)      0
Preferred Dividends              0.0     0.0    (0.7)   (0.7)   (0.7)
                             ------- ------- ------- ------- -------
GAAP Earnings                  $24.7   $22.2   $14.9   $14.6   $14.3

Less:  Mark-to-Market
 Adjustments                    (0.1)   (1.5)    0.0    (1.4)   (1.5)
---------------------------- ------- ------- ------- ------- -------
Core Earnings (1)              $24.6   $20.7   $14.9   $13.2   $12.8

Average Diluted Shares
 (thousands)                  19,018  18,433  16,984  16,529  16,240
GAAP Earnings per Share
 (Diluted)                     $1.30$1.21$0.88$0.88$0.88
Core Earnings per Share (1)    $1.29$1.13$0.88$0.80$0.79

Dividends per Common Share
 (Regular)                    $0.650  $0.650  $0.650  $0.630  $0.630
Dividends per Common Share
 (Special)                    $0.000  $0.000  $0.000  $0.125  $0.125
---------------------------- ------- ------- ------- ------- -------
Total Dividends per Common
 Share                        $0.650  $0.650  $0.650  $0.755  $0.755

Yield on Earning Assets         3.03%   3.35%   3.31%   3.59%   4.07%
Cost of Funds                   1.92%   2.05%   2.10%   2.35%   2.57%

Net Interest Income/Average
 GAAP Equity                    25.1%   23.4%   19.8%   18.5%   16.5%
Net Interest Income/Average
 Core Equity (2)                30.2%   27.6%   23.3%   20.9%   18.5%

GAAP ROE:  GAAP Earnings/Avg
 GAAP Common Equity             17.8%   17.6%   12.9%   13.7%   14.1%
Core ROE:  Core Earnings/
 Avg Core Equity                21.4%   19.4%   15.4%   14.2%   14.3%

    (1) Core earnings is not a measure of earnings in accordance with
        generally accepted accounting principles (GAAP). It is
        calculated as GAAP earnings from ongoing operations less
        mark-to-market adjustments (which include realized and
        unrealized gains and losses on certain assets, hedges, and
        variable stock options). Management believes that core
        earnings provides relevant and useful information regarding
        its results from operations in addition to GAAP measures of
        performance. This is, in part, because market valuation
        adjustments on only a portion of the company's assets and
        stock options and none of its liabilities are recognized
        through the income statement under GAAP and thus GAAP
        valuation adjustments may not be fully indicative of changes
        in market values on the balance sheet as a whole or a reliable
        guide to current operating performance. Furthermore, gains or
        losses realized upon sales of assets vary based on portfolio
        management decisions; a sale of an asset for a gain or a loss
        may or may not affect on-going earnings from operations.
        Because all companies and analysts do not calculate non-GAAP
        measures such as core earnings in the same fashion, core
        earnings as calculated by the company may not be comparable to
        similarly titled measures reported by other companies.

    (2) Core equity is calculated as GAAP equity less unrealized gains
        and losses on certain assets and hedges. Management believes
        measurements based on core equity provide relevant useful
        information regarding its results of operations in addition to
        GAAP measures of performance. This is, in part, because market
        valuation adjustments reflected in GAAP equity represent
        unrealized gains and losses on a portion of the balance sheet
        only and may not be reflective of the equity available to
        invest in operations. Because all companies and analysts do
        not calculate non-GAAP measures in the same fashion, core
        equity and ratios using core equity as calculated by the
        company may not be comparable to similarly titled measures
        reported by other companies.


REDWOOD TRUST, INC.
(All dollars in millions, except per share data)
                                                       Nine    Nine
                                                      Months  Months
INCOME STATEMENT                                       2003    2002
---------------------------------------------------- ------- -------

Interest Income                                       $222.7  $109.1
Interest Expense                                      (134.3)  (58.4)
---------------------------------------------------- ------- -------
Net Interest Income                                     88.4    50.7

Operating Expenses                                     (22.3)  (12.4)
Mark-to-Market Adjustments                               1.6     3.0
Taxes                                                   (5.2)    0.0
Preferred Dividends                                     (0.7)   (2.0)
---------------------------------------------------- ------- -------
GAAP Earnings                                          $61.8   $39.3

Less:  Mark-to-Market Adjustments                       (1.6)   (3.0)
---------------------------------------------------- ------- -------
Core Earnings (1)                                      $60.2   $36.3

Average Diluted Shares (thousands)                    18,165  15,365
GAAP Earnings per Share (Diluted)                      $3.40$2.56
Core Earnings per Share (1)                            $3.31$2.36

Dividends per Common Share (Regular)                  $1.950  $1.880
Dividends per Common Share (Special)                  $0.000  $0.250
---------------------------------------------------- ------- -------
Total Dividends per Common Share                      $1.950  $2.130

Yield on Earning Assets                                 3.20%   4.48%
Cost of Funds                                           2.00%   2.66%

Net Interest Income/Average GAAP Equity                 22.9%   17.5%
Net Interest Income/Average Core Equity (2)             27.2%   18.6%

GAAP ROE:  GAAP Earnings/Avg GAAP Common Equity         16.3%   14.5%
Core ROE:  Core Earnings/Avg Core Equity                19.0%   14.4%

    (1) Core earnings is not a measure of earnings in accordance with
        generally accepted accounting principles (GAAP). It is
        calculated as GAAP earnings from ongoing operations less
        mark-to-market adjustments (which include realized and
        unrealized gains and losses on certain assets, hedges, and
        variable stock options). Management believes that core
        earnings provides relevant and useful information regarding
        its results from operations in addition to GAAP measures of
        performance. This is, in part, because market valuation
        adjustments on only a portion of the company's assets and
        stock options and none of its liabilities are recognized
        through the income statement under GAAP and thus GAAP
        valuation adjustments may not be fully indicative of changes
        in market values on the balance sheet as a whole or a reliable
        guide to current operating performance. Furthermore, gains or
        losses realized upon sales of assets vary based on portfolio
        management decisions; a sale of an asset for a gain or a loss
        may or may not affect on-going earnings from operations.
        Because all companies and analysts do not calculate non-GAAP
        measures such as core earnings in the same fashion, core
        earnings as calculated by the company may not be comparable to
        similarly titled measures reported by other companies.

    (2) Core equity is calculated as GAAP equity less unrealized gains
        and losses on certain assets and hedges. Management believes
        measurements based on core equity provide relevant useful
        information regarding its results of operations in addition to
        GAAP measures of performance. This is, in part, because market
        valuation adjustments reflected in GAAP equity represent
        unrealized gains and losses on a portion of the balance sheet
        only and may not be reflective of the equity available to
        invest in operations. Because all companies and analysts do
        not calculate non-GAAP measures in the same fashion, core
        equity and ratios using core equity as calculated by the
        company may not be comparable to similarly titled measures
        reported by other companies.


REDWOOD TRUST, INC.
(All dollars in millions,
 except per share data)

                            30-Sep   30-Jun  31-Mar  31-Dec  30-Sep
BALANCE SHEET                2003     2003    2003    2002    2002
-------------------------- -------- -------- ------- ------- -------

Residential Real Estate
 Loans                      $13,813$9,247$7,321$6,215$4,762
Residential Loan Credit-
 Enhancement Securities         373      393     373     352     324
Commercial Real Estate
 Loans                           24       35      31      29      51
Securities Portfolio            605      596     366     336     492
Cash and Cash Equivalents        32       36      43      39      20
Working Capital and Other
 Assets                          54       49      38      37      25
-------------------------- -------- -------- ------- ------- -------
Total Assets                $14,901$10,356$8,172$7,008$5,674

Short-Term Debt                $500$218$476$100$834
Long-Term Debt               13,782    9,543   7,170   6,397   4,365
Working Capital and Other
 Liabilities                     53       48      40      38      29
Preferred Equity                  0        0      27      27      27
Common Equity                   566      547     459     446     419
-------------------------- -------- -------- ------- ------- -------
Total Liabilities and
 Equity                     $14,901$10,356$8,172$7,008$5,674

Total GAAP Equity              $566$547$486$473$446
Less: Mark-to-Market
 Adjustments                    (91)    (108)    (69)    (69)    (54)
-------------------------- -------- -------- ------- ------- -------
Core Equity                    $475$439$417$404$392

Common Shares Outstanding
 at Period End (thousands)   18,468   17,821  16,605  16,277  15,886
GAAP Equity (GAAP Book
 Value) per Common Share     $30.65$30.70$27.64$27.43$26.39
Core Equity (Core Book
 Value) per Common Share     $25.75$24.62$23.54$23.18$22.98

Net Premium/(Discount)
 Balance                       $(62)    $(44)   $(33)   $(10)    $(1)

Average Total Assets        $12,132$8,687$7,554$6,159$4,234
Average Earning Assets      $11,911$8,524$7,394$6,042$4,132
Average Interest Bearing
 Liabilities                $11,542$8,160$7,036$5,680$3,782
Average Total GAAP Equity
 (Common and Preferred)        $553$505$489$450$432REDWOOD TRUST, INC.
(All dollars in millions)

                            30-Sep   30-Jun  31-Mar  31-Dec  30-Sep
LEVERAGE RATIOS (1)          2003     2003    2003    2002    2002
-------------------------- -------- -------- ------- ------- -------

Total Reported Assets       $14,901$10,356$8,172$7,008$5,674
Less: Non-Recourse Assets   (13,835)  (9,591) (7,210) (6,435) (4,394)
-------------------------- -------- -------- ------- ------- -------
Recourse Assets              $1,066$765$962$573$1,280

Total Reported Debt         $14,282$9,761$7,646$6,497$5,199
Less:  Non-Recourse Debt    (13,782)  (9,543) (7,170) (6,397) (4,365)
-------------------------- -------- -------- ------- ------- -------
Recourse Debt                  $500$218$476$100$834

Reported Debt to GAAP
 Equity                         25x      18x     16x     14x     12x
GAAP Equity / Total
 Reported Assets                  4%       5%      6%      7%      8%

Reported Debt to GAAP
 Equity                        0.9x     0.4x    1.0x    0.2x    1.9x
GAAP Equity / Recourse
 Assets                          53%      72%     51%     83%     35%

    (1) The "long-term debt" reported on our GAAP balance sheet
        consists of mortgage-backed securities issued by
        bankruptcy-remote securitization trusts. The owners of these
        securities have no recourse to Redwood and must look only to
        the assets of the securitization trust for repayment. Both the
        assets and liabilities of these trusts, however, are
        consolidated on Redwood's balance sheet for GAAP reporting
        purposes. Management believes that, in addition to using GAAP
        measures, an analyst could achieve insight into Redwood's
        business and balance sheet by distinguishing between recourse
        debt that must be repaid by Redwood and non-recourse debt that
        is consolidated onto Redwood's balance sheet from other
        entities. This table shows leverage ratios calculated for
        Redwood using both GAAP measures and also measures that
        incorporate recourse debt only.


REDWOOD TRUST, INC.
(All dollars in millions,
 except per share data)
                              Third  Second   First  Fourth   Third
                             Quarter Quarter Quarter Quarter Quarter
                              2003    2003    2003    2002    2002
                            -------- ------- ------- ------- -------
Residential Real Estate
 Loans
----------------------------
Start of Period Balances      $9,247$7,321$6,215$4,762$2,804
Acquisitions                   4,997   2,168   1,339   1,616   2,075
Sales Proceeds                     0       0     (73)      0      (3)
Principal Paydowns              (420)   (235)   (153)   (156)   (110)
Net Amortization Expense          (9)     (5)     (6)     (6)     (3)
Net Charge Offs (Recoveries)       0       0       0       0       0
Credit Provisions                 (2)     (2)     (2)     (1)     (1)
Mark-to-Market  -- Income
 Statement                         0       0       1       0       0
--------------------------- -------- ------- ------- ------- -------
End of Period Balances       $13,813$9,247$7,321$6,215$4,762

Average Amortized Cost
 During Period               $10,958$7,670$6,626$5,319$3,262
Interest Income                  $64$47$42$37$24
Yield                           2.32%   2.47%   2.55%   2.80%   3.00%

Principal Value of Loans     $13,704$9,206$7,297$6,190$4,737
Credit Reserve                   (14)    (12)    (10)     (8)     (7)
Net Premium to be Amortized      123      53      34      33      32
--------------------------- -------- ------- ------- ------- -------
Residential Real Estate
 Loans                       $13,813$9,247$7,321$6,215$4,762

Credit Reserve, Start of
 Period                          $12$10$8$7$6
Net Charge-Offs (NCO)              0       0       0       0       0
Credit Provisions                  2       2       2       1       1
--------------------------- -------- ------- ------- ------- -------
Credit Reserve, End of
 Period                          $14$12$10$8$7

Delinquencies (90 days + FC
 + BK + REO)                      $2$4$1$4$1

Delinquencies as % of
 Residential Loans              0.01%   0.04%   0.02%   0.07%   0.03%
NCO as % of Residential
 Loans (Annualized)             0.00%   0.00%   0.01%   0.00%   0.01%
Reserve as % of Residential
 Loans                          0.10%   0.13%   0.14%   0.13%   0.14%
Reserve as % of
 Delinquencies                   852%    312%    862%    200%    477%


REDWOOD TRUST, INC.
(All dollars in
 millions, except per
 share data)
                          Third   Second    First   Fourth    Third
                         Quarter  Quarter  Quarter  Quarter  Quarter
                          2003     2003     2003     2002     2002
                        -------- -------- -------- -------- --------
Residential Loan Credit-
 Enhancement Securities
------------------------
Start of Period Balances    $393$373$352$324$285
Acquisitions                  23       11       37       13       29
Sales Proceeds                 0       (1)       0        0        0
Principal Paydowns           (37)     (39)     (23)     (13)      (9)
Net Amortization Income       11       10        6        3        2
Mark-to-Market --
 Balance Sheet               (21)      36        1       25       17
Mark-to-Market --
 Income Statement              4        3        0        0        0
----------------------- -------- -------- -------- -------- --------
End of Period Balances      $373$393$373$352$324

Average Amortized Cost
 During Period              $271$279$278$271$258
Interest Income              $19$18$14$11$10
Yield                      28.08%   25.77%   19.68%   16.65%   16.20%

Principal Value of
 Redwood's Credit-
 Enhancement Securities     $604$598$614$559$543
Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced            (178)    (205)    (234)    (225)    (221)
Net Discount to be
 Amortized                  (145)    (113)     (85)     (58)     (49)
----------------------- -------- -------- -------- -------- --------
Net Investment in
 Credit-Enhancement
 Securities                 $281$280$295$276$273
Market Valuation
 Adjustments                  92      113       78       76       51
----------------------- -------- -------- -------- -------- --------
Residential Loan Credit-
 Enhancement Securities     $373$393$373$352$324

Securities Senior to
 Redwood's Interests     $43,024$51,168$60,072$58,037$67,876
Principal Value of
 Redwood's  Credit-
 Enhancement Securities      604      598      614      559      543
Securities Junior to
 Redwood's Interests          52       58       62       63       64
----------------------- -------- -------- -------- -------- --------
Underlying Residential
 Real Estate Loan
 Balances                $43,680$51,824$60,748$58,659$68,483

Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced            $178$205$234$225$221
External Credit
 Enhancement on Loans
 Credit-Enhanced              52       58       62       63       64
----------------------- -------- -------- -------- -------- --------
Total Credit Protection
 (1)                        $230$263$296$288$285

Delinquencies (90 days +
 FC + BK + REO)             $178$160$162$146$152

Redwood's Net Charge-
 Offs                        $(1)      $0      $(1)      $0$0
Losses to Securities
 Junior to Redwood's
 Interests                     0        0        0        0        0
----------------------- -------- -------- -------- -------- --------
Total Underlying Loan
 Credit Losses               $(1)      $0      $(1)      $0$0

Delinquencies as % of
 Underlying Loans           0.41%    0.31%    0.27%    0.25%    0.22%
Total Pool Credit
 Losses/Underlying Loans
 (Annualized)               0.01%    0.01%    0.01%    0.01%    0.01%
Total Credit Protection
 as % of Underlying
 Loans                      0.53%    0.51%    0.49%    0.49%    0.42%
Total Credit Protection
 as % of Delinquencies       129%     164%     183%     197%     188%

    (1) Total credit protection represents the aggregate of the
        internally designated credit reserve and the amount of any
        junior securities with respect to each credit-enhanced
        security. The credit protection amount for any credit-enhanced
        security is only available to absorb losses on the pool of
        loans related to that security. To the extent such losses
        exceed the credit protection amount for that security, a
        charge-off of the net investment in that security would
        result.


REDWOOD TRUST, INC.
(All dollars in
 millions, except per
 share data)
                          Third   Second    First   Fourth    Third
COMBINED RESIDENTIAL     Quarter  Quarter  Quarter  Quarter  Quarter
 LOAN PORTFOLIOS          2003     2003     2003     2002     2002
----------------------- -------- -------- -------- -------- --------

Residential Real Estate
 Loans Owned             $13,813$9,247$7,321$6,215$4,762
Residential Loans
 Credit-Enhanced          43,680   51,824   60,748   58,659   68,483
----------------------- -------- -------- -------- -------- --------
Total Residential Loans  $57,493$61,071$68,069$64,874$73,245

Credit Reserve on
 Residential Real Estate
 Loans Owned                 $14$12$10$8$7
Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced             178      205      234      225      221
----------------------- -------- -------- -------- -------- --------
Redwood's Total
 Residential Credit
 Protection                 $192$217$244$233$228
External Credit
 Enhancement on Loans
 Credit-Enhanced              52       58       62       63       64
----------------------- -------- -------- -------- -------- --------
Total Credit Protection
 (1)                        $244$275$306$296$292
Total Credit Protection
 as % of Total
 Residential Loans          0.42%    0.45%    0.45%    0.46%    0.40%

Residential Real Estate
 Loans Owned
 Delinquencies                $2$4$1$4$1
Residential Loans
 Credit-Enhanced
 Delinquencies               178      160      162      146      152
----------------------- -------- -------- -------- -------- --------
Total Residential Loan
 Delinquencies              $180$164$163$150$153

Delinquencies as % of
 Total Residential Loans    0.31%    0.27%    0.24%    0.23%    0.21%
Total Credit Protection
 as % of Delinquencies       136%     168%     188%     197%     191%

Net Charge-Offs on
 Residential Real Estate
 Loans Owned                  $0$0$0$0$0
Net Charge-Offs on
 Residential Loan
 Credit-Enhanced              (1)       0       (1)       0        0
----------------------- -------- -------- -------- -------- --------
Redwood's Shares of Net
 Credit (Losses)
 Recoveries                  $(1)      $0      $(1)      $0$0
Credit Losses to
 External Credit
 Enhancement                  (0)       0        0        0        0
----------------------- -------- -------- -------- -------- --------
Total Credit Losses          $(1)      $0      $(1)      $0$0
Total Credit Losses as %
 of Total Residential
 Loans (Annualized)         0.01%    0.01%    0.01%    0.01%    0.01%

    (1) The credit reserve on residential real estate loans owned is
        only available to absorb losses on the residential real estate
        loan portfolio. The internally designated credit reserve on
        loans credit-enhanced and the external credit enhancement on
        loans credit-enhanced are only available to absorb losses on
        the pool of loans related to each individual
        credit-enhancement security.


REDWOOD TRUST, INC.
(All dollars in millions,
 except per share data)
                              Third   Second  First  Fourth   Third
                             Quarter Quarter Quarter Quarter Quarter
Commercial Real Estate Loans   2003    2003    2003    2002    2002
---------------------------- ------- ------- ------- ------- -------
Start of Period Balances         $35$31$29$51$50
Acquisitions                       1       4       2       0       1
Sales Proceeds                    (1)      0       0       0       0
Principal Paydowns               (11)      0       0     (22)      0
Net Amortization Income            0       0       0       0       0
Mark-to-Market  - Balance
 Sheet                             0       0       0       0       0
Mark-to-Market  - Income
 Statement                         0       0       0       0       0
---------------------------- ------- ------- ------- ------- -------
End of Period Balances           $24$35$31$29$51

Average Amortized Cost
 During Period                   $30$33$31$48$50
Interest Income                   $1$1$1$1$1
Yield                          12.33%  11.59%  10.57%  10.12%  10.22%

Principal Value of Loans         $31$42$32$30$52
Net Discount to be Amortized      (7)     (7)     (1)     (1)     (1)
---------------------------- ------- ------- ------- ------- -------
Commercial Mortgage Loans        $24$35$31$29$51

Commercial Real Estate Loan
 Delinquencies                    $0$1$1$1$0
Commercial Real Estate Loan
 Net Charge-Offs                  $0$0$0$0$0
Commercial Real Estate Loan
 Credit Provisions                $0$0$0$0$0
Commercial Real Estate Loan
 Credit Reserves                  $0$0$0$0$0

                              Third  Second   First  Fourth   Third
                             Quarter Quarter Quarter Quarter Quarter
Securities Portfolio           2003    2003    2003    2002    2002
---------------------------- ------- ------- ------- ------- -------
Start of Period Balances        $596$366$336$492$513
Acquisitions                      28     238      43     196       7
Sales Proceeds                     0      (4)      0    (315)      0
Principal Paydowns               (13)    (12)    (12)    (31)    (32)
Net Amortization Income
 (Expense)                         0       0       0       0      (1)
Mark-to-Market  - Balance
 Sheet                            (3)      8      (1)     (7)      1
Mark-to-Market  -- Income
 Statement                        (3)      0       0       1       4
---------------------------- ------- ------- ------- ------- -------
End of Period Balances          $605$596$366$336$492

Average Amortized Cost
 During Period                  $603$454$360$320$494
Interest Income                   $6$5$4$4$6
Yield                           4.30%   4.46%   4.66%   4.93%   4.63%

Principal Value of Securities   $599$587$370$336$478
Net Premium to be Amortized        7       6       2       5      11
Market Valuation Adjustments      (1)      3      (6)     (5)      3
---------------------------- ------- ------- ------- ------- -------
Securities Portfolio            $605$596$366$336$492
    CONTACT: Redwood Trust, Inc.
             Harold Zagunis, 415-389-7373

    SOURCE: Redwood Trust, Inc.

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