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Redwood Trust Reports Earnings for the First Quarter of 2004; GAAP Earnings of $2.49 Per Share and Core Earnings of $1.71 Per Share

Wednesday, May 05, 2004

MILL VALLEY, Calif.--(BUSINESS WIRE)--May 5, 2004--Redwood Trust, Inc. (NYSE:RWT), a financial institution that invests in real estate loans, today reported GAAP earnings of $51 million, or $2.49 per share, for the first quarter of 2004.

Core earnings for the first quarter of 2004 were $1.71 per share, a 94% increase over first quarter 2003 core earnings of $0.88 per share. Core earnings exclude gains and losses from asset sales and changes in market values that are included in reported GAAP earnings.

Redwood's estimated taxable income was $2.48 per share for the first quarter of 2004.

"Earning $1.71 per share on a core basis in a single quarter sets a new record, and is a great accomplishment for Redwood and its staff," said Doug Hansen, Redwood's President. "We have been building and structuring a portfolio of high-quality real estate loan investments for many years. As it seasons, this portfolio has generated attractive levels of earnings and cash flow for our investors."

"We expect our current portfolio will continue to perform well. Furthermore, we believe the new investments that we acquired and structured during this quarter will serve the shareholders in an attractive manner in the years to come. We continue to have great confidence in Redwood's business plan, and in Redwood's ability to grow and thrive in the future."

First Quarter Review

Redwood's acquisitions for the first quarter of 2004 included $2.3 billion high quality adjustable-rate residential real estate loans for its "Sequoia" securitization program, $38 million residential loan credit-enhancement securities, and $86 million other residential and commercial real estate loan securities. The total balance of residential loans that Redwood either owns or credit-enhances grew through its ownership of credit-enhancement securities from $84 billion to $89 billion during the quarter.

For funding purposes in the first quarter, Sequoia securitization trusts sold $2.3 billion of asset-backed securities collateralized by newly acquired residential real estate loans. Asset-backed securities issued by Sequoia appear as "long-term debt" on Redwood's consolidated balance sheet.

"Competition to acquire real estate loans and securities continues to be strong, and prices for most of the assets we acquire continue to be higher than in previous years," Hansen noted. "On the other hand, the strong market demand for income-producing assets means that sales of asset-backed securities by Sequoia to finance new residential loan acquisitions have gone very well, thus securing low cost funding at tighter spreads to LIBOR for these loans. Better funding levels have offset the effect of higher acquisition prices. The net result is that we continue to structure new investments for our portfolio that we believe are likely to produce attractive net interest income and cash flows for our shareholders over time."

"Many investors are focused on the prospects for higher interest rates," said Hansen. "Redwood shareholders should know that we structure our balance sheet in a manner that eliminates many potential interest rate risks. For instance, over 94% of our consolidated assets and liabilities are adjustable-rate -- with interest rate characteristics tied to the one, three, and six month LIBOR rates -- and thus have interest rate characteristics that are closely matched. The interest rate characteristics of our other assets and liabilities are also well matched. We do not 'lend long and borrow short' or participate in the 'carry trade' (funding fixed rate assets with floating rate debt)."

"Rising interest rates are usually a sign of a strong economy, and a strong economy is likely to benefit the credit performance of our loan portfolios," added Hansen.

Redwood continues to use recourse debt solely to fund the acquisition and accumulation of loans and securities on a short-term basis prior to transferring these assets to securitization trusts for long-term funding via issuance of asset-backed securities. Redwood's recourse debt totaled $278 million at March 31, 2004.

Of Redwood's $51 million of GAAP income for the first quarter, $12 million ($0.58 per share) was generated as a result of calls of seasoned residential credit-enhancement securities. "Calls, when they do occur, generate attractive long-term capital gain income for Redwood and for our shareholders," said Hansen. "However, in most cases it is our highest yielding assets that get called. As a result of calls of high-yielding assets during 2003 and 2004, the average asset yield (yield after anticipated credit losses, before overhead and other costs, excluding call income) on our remaining residential credit-enhancement portfolio declined to 21.6% for the first quarter of 2004 from 28.1% in the third quarter of 2003. We expect that more of our higher-yielding securities will be called, increasing capital gain income in the short-term but further reducing our average on-going asset yield from this portfolio. Over the long-term, we expect this portfolio will generate an asset yield of 14% to 20% in most years when residential credit performance is at least acceptable."

Redwood recently sold some seasoned residential credit-enhancement securities that had appreciated significantly but had little remaining appreciation potential. These sales generated an additional $6 million ($0.31 per share) of GAAP income in the first quarter of 2004.

Hansen noted, "We sold appreciated assets as part of our on-going capital recycling and capital efficiency program. Over time, we have significantly improved our utilization of equity capital while also strengthening our balance sheet and reducing recourse debt. This has been a major contributing factor to our increases in core return on equity, core earnings per share, and dividends per share. The capital efficiencies we have gained should continue to benefit our shareholders in the future. Most of our improvements in capital utilization have stemmed from innovations in the use of securitizations (issuance of asset-backed securities). These innovations have allowed us to fund a greater portion of our balance sheet through securitization, and also to complete re-securitizations that recycle capital from appreciated assets to support our continued growth. As an alternative to re-securitization, occasional sales of appreciated assets may also help to improve the efficiency and competitiveness of our balance sheet."

Market value gains and losses, such as the $12 million of gains from calls and $6 million of gains from sales discussed above, were not included in Redwood's $1.71 per share core earnings results for the first quarter.

Prepayment trends for Redwood's loans continue to be favorable. Redwood's results have benefited both from slow prepayment rates on our adjustable-rate residential loan portfolio and also from rapid prepayment rates on the fixed-rate and hybrid loans underlying our residential credit-enhancement securities.

Credit results for the first quarter of 2004 were excellent. There were no credit losses on Redwood's $18 billion residential loan portfolio during the first quarter. Credit losses on the $71 billion loans underlying Redwood's residential credit-enhancement securities portfolio were $103,000 for the quarter. The annualized credit loss rate remained under one basis point (less than 0.01%) of the combined balances of the residential loans we either own or credit-enhance.

Serious delinquencies for the $89 billion of residential loans Redwood either owns or credit-enhances increased from $138 million to $146 million, but did not change as a percentage (0.16%) of combined current loan balances during the quarter.

"We continue to maintain disciplined underwriting standards designed to make sure that the loans we acquire or credit-enhance have been made to high-quality borrowers," explained Hansen. "In addition, we have benefited from recent increases in housing prices: higher housing values reduce credit risk for our existing portfolios."

Outlook

Hansen concluded, "The primary long-term factor driving our earnings and dividends is our credit performance. Recent economic reports show a stronger economy. A stronger economy, if it persists, is likely to be beneficial for the credit results of the loans we own or credit-enhance."

"The gradual run-off of our highest yielding assets through calls and prepayments, plus a potential return to more normal market conditions, will likely put some downward pressure on our core earnings per share results over time, relative to the extraordinary results we have earned in the last few quarters. We have benefited from very favorable economic, market, prepayment, and competitive conditions over the last few years. With the help of these favorable conditions, we are currently earning a 34.8% GAAP return on equity and a 27.5% core return on equity (annualized core earnings divided by core equity; for core ROE, mark-to-market adjustments are eliminated from both earnings and equity). We do not believe that these levels of return on equity are likely to be sustainable in our business over time."

"We do, however, believe we will continue to generate an attractive return on equity -- and attractive earnings and dividends per share -- for our shareholders as a result of our focus, scale, efficiencies, strong balance sheet, relationships, expertise, market presence, and innovative culture. In general, based on our experience and our belief in the competitiveness of Redwood's balance sheet and business plan, we expect our core ROE is likely to be in the 11% to 18% range in most years when our residential credit performance is at least acceptable. If we make good management and investment decisions, and our high-quality borrowers continue to perform well, we may be able exceed these ROE levels in some years."

"Our primary goal continues to be to maintain core and taxable earnings at a level sufficient to fund our regular dividend rate of $0.67 per share per quarter on a sustainable basis. We are confident that we will continue to meet this goal."

In addition to this press release, Redwood released today its first quarter 10-Q and also a supplemental financial information package. For these documents and 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 2003 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)

                                 First  Fourth   Third  Second   First
                               Quarter Quarter Quarter Quarter Quarter
INCOME STATEMENT                 2004    2003    2003    2003    2003
------------------------------ ------- ------- ------- ------- -------

Interest Income                $124.8  $108.3   $90.2   $71.4   $61.1
Interest Expense                (79.5)  (68.6)  (55.6)  (41.8)  (36.9)
------------------------------ ------- ------- ------- ------- -------
Net Interest Income             $45.3   $39.7    34.6    29.6    24.2

Operating Expenses               (8.6)   (8.0)   (8.5)   (7.3)   (7.4)
Net Recognized Gains (Losses)
 and Valuation Adjustments       17.4    42.1     0.6     3.0     0.9
Variable Stock Option Expense    (1.4)   (2.7)   (0.5)   (1.5)   (0.9)
Provision For Income Taxes       (1.9)   (1.2)   (1.5)   (1.6)   (1.2)
Preferred Dividends               0.0     0.0     0.0     0.0    (0.7)
------------------------------ ------- ------- ------- ------- -------
GAAP Earnings                   $50.8   $69.9   $24.7   $22.2   $14.9

Less:  Net Recognized Gains
 (Losses) and Valuation
 Adjustments                    (17.4)  (42.1)   (0.6)   (3.0)   (0.9)
Less:  Variable Stock Option
 Expense                          1.4     2.7     0.5     1.5     0.9
                               ------- ------- ------- ------- -------
Core Earnings (1)               $34.8   $30.5   $24.6   $20.7   $14.9

Average Diluted Shares
 (thousands)                   20,399  19,801  19,018  18,433  16,984
GAAP Earnings per Share
 (Diluted)                      $2.49   $3.53   $1.30   $1.21   $0.88
Core Earnings per Share (1)     $1.71   $1.54   $1.29   $1.13   $0.88
Estimated Taxable Income Per
 Share                          $2.48   $3.88   $1.97   $1.93   $1.58

Dividends per Common Share
 (Regular)                     $0.670  $0.650  $0.650  $0.650  $0.650
Dividends per Common Share
 (Special)                     $0.500  $4.750  $0.000  $0.000  $0.000
------------------------------ ------- ------- ------- ------- -------
Total Dividends per Common
 Share                         $1.170  $5.400  $0.650  $0.650  $0.650

Yield on Earning Assets          2.75%   2.79%   3.03%   3.35%   3.31%
Cost of Funds                    1.79%   1.81%   1.92%   2.05%   2.10%

Net Interest Income / Average
 GAAP Equity                     31.0%   28.4%   25.1%   23.4%   19.8%
Net Interest Income / Average
 Core Equity (2)                 35.7%   33.8%   30.2%   27.6%   23.3%

GAAP ROE:  GAAP Earnings/ Avg
 GAAP Common Equity              34.8%   50.0%   17.8%   17.6%   12.9%
Core ROE:  Core Earnings / Avg
 Common Core Equity              27.5%   26.0%   21.4%   19.4%   15.4%

(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 net recognized gains
    (losses) and valuation adjustments (which include gains from sales
    and valuation adjustments 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)

                             31-Mar   31-Dec   30-Sep   30-Jun  31-Mar
BALANCE SHEET                 2004     2003     2003     2003    2003
-------------------------- -------- -------- -------- -------- -------

Residential Real Estate
 Loans                     $18,086  $16,239  $13,813   $9,247  $7,321
Residential Loan Credit-
 Enhancement Securities        375      379      373      393     373
Commercial Real Estate
 Loans                          22       22       24       35      31
Securities Portfolio           937      845      605      596     366
Cash and Cash Equivalents       58       59       32       36      43
Working Capital and Other
 Assets                         66       83       54       49      38
-------------------------- -------- -------- -------- -------- -------
Total Assets               $19,544  $17,627  $14,901  $10,356  $8,172

Short-Term Debt               $278     $236     $500     $218    $476
Long-Term Debt              18,583   16,783   13,782    9,543   7,170
Working Capital and Other
 Liabilities                    75       55       53       48      40
Preferred Equity                 0        0        0        0      27
Common Equity                  608      553      566      547     459
-------------------------- -------- -------- -------- -------- -------
Total Liabilities and
 Equity                    $19,544  $17,627  $14,901  $10,356  $8,172

Total GAAP Equity             $608     $553     $566     $547    $486
Less: Mark-to-Market
 Adjustments                   (79)     (82)     (91)    (108)    (69)
-------------------------- -------- -------- -------- -------- -------
Core Equity                   $529     $471     $475     $439    $417


Common Shares Outstanding
 at Period End (thousands)  19,796   19,063   18,468   17,821  16,605
GAAP Equity (GAAP Book
 Value) per Common Share    $30.72   $29.03   $30.65   $30.70  $27.64
Core Equity (Core Book
 Value) per Common Share    $26.75   $24.72   $25.75   $24.62  $23.54

Average Total Assets       $18,386  $15,758  $12,132   $8,687  $7,554
Average Earning Assets     $18,158  $15,504  $11,911   $8,524  $7,394
Average Interest Bearing
 Liabilities               $17,747  $15,120  $11,542   $8,160  $7,036
Average Total GAAP Equity
 (Common and Preferred)       $584     $559     $553     $505    $489


REDWOOD TRUST, INC.
(All dollars in millions)

                             31-Mar   31-Dec   30-Sep   30-Jun  31-Mar
LEVERAGE RATIOS (1)           2004     2003     2003     2003    2003
-------------------------- -------- -------- -------- -------- -------

Total Reported Assets      $19,544  $17,627  $14,901  $10,356  $8,172
Less: Non-Recourse Assets  (18,658) (16,838) (13,835)  (9,591) (7,210)
-------------------------- -------- -------- -------- -------- -------
Recourse Assets               $886     $789   $1,066     $765    $962

Total Reported Debt        $18,861  $17,019  $14,282   $9,761  $7,646
Less:  Non-Recourse Debt   (18,583) (16,783) (13,782)  (9,543) (7,170)
-------------------------- -------- -------- -------- -------- -------
Recourse Debt                 $278     $236     $500     $218    $476

Reported Debt to GAAP
 Equity                         31x      31x      25x      18x     16x
GAAP Equity / Total
 Reported Assets                 3%       3%       4%       5%      6%

Recourse Debt to GAAP
 Equity                        0.5x     0.4x     0.9x     0.4x    1.0x
GAAP Equity / Recourse
 Assets                         69%      70%      53%      72%     51%

(1) The "long-term debt" reported on our GAAP balance sheet consists
    of asset-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)

                             First    Fourth     Third  Second   First
                           Quarter   Quarter   Quarter Quarter Quarter
                             2004      2003      2003    2003    2003
                         --------- --------- --------- ------- -------
Residential Real Estate
 Loans
------------------------
Start of Period Balances  $16,239   $13,813    $9,247  $7,321  $6,215
Acquisitions                2,322     2,897     4,997   2,168   1,339
Sales Proceeds                  0        (1)        0       0     (73)
Principal Paydowns           (460)     (458)     (420)   (235)   (153)
Net Amortization Expense      (12)      (10)       (9)     (5)     (6)
Net Charge Offs
 (Recoveries)                   0         0         0       0       0
Credit Provisions              (3)       (2)       (2)     (2)     (2)
Net Recognized Gains
 (Losses) and Valuation
 Adjustments                    0         0         0       0       1
------------------------ --------- --------- --------- ------- -------
End of Period Balances    $18,086   $16,239   $13,813  $9,247  $7,321

Average Amortized Cost
 During Period, Net of
 Credit Reserves          $16,916   $14,381   $10,958  $7,670  $6,626
Interest Income               $99       $83       $64     $47     $42
Yield                        2.34%     2.30%     2.32%   2.47%   2.55%

Principal Value of Loans  $17,951   $16,111   $13,704  $9,206  $7,297
Credit Reserve                (19)      (16)      (14)    (12)    (10)
Net Premium to be
 Amortized                    154       144       123      53      34
------------------------ --------- --------- --------- ------- -------
Residential Real Estate
 Loans                    $18,086   $16,239   $13,813  $9,247  $7,321

Credit Reserve, Start of
 Period                       $16       $14       $12     $10      $8
Net Charge-Offs                 0         0         0       0       0
Credit Provisions               3         2         2       2       2
------------------------ --------- --------- --------- ------- -------
Credit Reserve, End of
 Period                       $19       $16       $14     $12     $10

Delinquencies (90 days +
 FC + BK + REO)                $3        $5        $2      $4      $1

Delinquencies as % of
 Residential Loans           0.02%     0.03%     0.01%   0.04%   0.02%
Net charge-offs as % of
 Residential Loans
 (Annualized)                0.00%     0.01%     0.00%   0.00%   0.01%
Reserve as % of
 Residential Loans           0.10%     0.10%     0.10%   0.13%   0.14%
Reserve as % of
 Delinquencies                548%      301%      852%    312%    862%


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

                             First   Fourth    Third   Second    First
                           Quarter  Quarter  Quarter  Quarter  Quarter
                             2004     2003     2003     2003     2003
                          -------- -------- -------- -------- --------
Residential Loan Credit-
 Enhancement Securities
-------------------------
Start of Period Balances     $379     $373     $393     $373     $352
Acquisitions                   38       78       23       11       37
Sales Proceeds                (22)       0        0       (1)       0
Principal Paydowns            (35)    (117)     (37)     (39)     (23)
Net Amortization Income         9       10       11       10        6
Net Unrealized Gains
 (Losses)                     (12)     (12)     (21)      36        1
Net Recognized Gains
 (Losses) and Valuation
 Adjustments                   18       47        4        3        0
------------------------- -------- -------- -------- -------- --------
End of Period Balances       $375     $379     $373     $393     $373

Average Amortized Cost
 During Period, Net of
 Credit Reserves             $287     $273     $271     $279     $278
Interest Income               $16      $17      $19      $18      $14
Yield                       21.64%   25.49%   28.08%   25.77%   19.68%

Principal Value of
 Redwood's Credit-
 Enhancement Securities      $634     $624     $604     $598     $614
Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced             (217)    (201)    (178)    (205)    (234)
Net Discount to be
 Amortized                   (111)    (123)    (145)    (113)     (85)
------------------------- -------- -------- -------- -------- --------
Net Investment in Credit-
 Enhancement Securities      $306     $300     $281     $280     $295
Net Unrealized Gains
 (Losses)                      69       79       92      113       78
------------------------- -------- -------- -------- -------- --------
Residential Loan Credit-
 Enhancement Securities      $375     $379     $373     $393     $373

Securities Senior to
 Redwood's Interests      $70,684  $67,463  $43,024  $51,168  $60,072
Principal Value of
 Redwood's Credit-
 Enhancement Securities       634      624      604      598      614
Securities Junior to
 Redwood's Interests           44       46       52       58       62
------------------------- -------- -------- -------- -------- --------
Underlying Residential
 Real Estate Loan
 Balances                 $71,362  $68,133  $43,680  $51,824  $60,748

Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced             $217     $201     $178     $205     $234
External Credit
 Enhancement on Loans
 Credit-Enhanced               44       46       52       58       62
------------------------- -------- -------- -------- -------- --------
Total Credit Protection(1)   $261     $247     $230     $263     $296

Delinquencies (90 days +
 FC + BK + REO)              $143     $133     $178     $160     $162

Redwood's Net Charge-Offs      $0      $(1)     $(1)      $0      $(1)
Losses to Securities
 Junior to Redwood's
 Interests                      0       (1)       0        0        0
------------------------- -------- -------- -------- -------- --------
Total Underlying Loan
 Credit Losses                 $0      $(2)     $(1)      $0      $(1)

Delinquencies as % of
 Underlying Loans            0.20%    0.19%    0.41%    0.31%    0.27%
Total Pool Credit
 Losses/Underlying Loans
 (Annualized)                0.01%    0.01%    0.01%    0.01%    0.01%
Total Credit Protection
 as % of Underlying Loans    0.37%    0.36%    0.53%    0.51%    0.49%
Total Credit Protection
 as % of Delinquencies        183%     187%     129%     164%     183%

(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)

                             First   Fourth    Third   Second    First
                           Quarter  Quarter  Quarter  Quarter  Quarter
COMBINED RESIDENTIAL LOAN
 PORTFOLIOS                  2004     2003     2003     2003     2003
------------------------- -------- -------- -------- -------- --------
(Owned and Credit-Enhanced)

Residential Real Estate
 Loans Owned              $18,086  $16,239  $13,813   $9,247   $7,321
Residential Loans Credit-
 Enhanced                  71,362   68,133   43,680   51,824   60,748
------------------------- -------- -------- -------- -------- --------
Total Residential Loans
 Owned and Credit
 Enhanced                 $89,448  $84,372  $57,493  $61,071  $68,069


Credit Reserve on
 Residential Real Estate
 Loans Owned                  $19      $16      $14      $12      $10
Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced              217      201      178      205      234
------------------------- -------- -------- -------- -------- --------
Redwood's Total
 Residential Credit
 Protection                  $236     $217     $192     $217     $244
External Credit
 Enhancement on Loans
 Credit-Enhanced               44       46       52       58       62
------------------------- -------- -------- -------- -------- --------
Total Credit Protection(1)   $280     $263     $244     $275     $306
Total Credit Protection
 as % of Total
 Residential Loans           0.31%    0.31%    0.42%    0.45%    0.45%


Residential Real Estate
 Loans Owned
 Delinquencies                 $3       $5       $2       $4       $1
Residential Loans Credit-
 Enhanced Delinquencies       143      133      178      160      162
------------------------- -------- -------- -------- -------- --------
Total Residential Loan
 Delinquencies               $146     $138     $180     $164     $163

Delinquencies as % of
 Total Residential Loans     0.16%    0.16%    0.31%    0.27%    0.24%
Total Credit Protection
 as % of Delinquencies        191%     191%     136%     168%     188%


Net Charge-Offs on
 Residential Real Estate
 Loans Owned                   $0       $0       $0       $0       $0
Net Charge-Offs on
 Residential Loan Credit-
 Enhanced                       0       (1)      (1)       0       (1)
------------------------- -------- -------- -------- -------- --------
Redwood's Shares of Net
 Credit (Losses)
 Recoveries                    $0      $(1)     $(1)      $0      $(1)
Credit Losses to External
 Credit Enhancement             0       (1)      (0)       0        0
------------------------- -------- -------- -------- -------- --------
Total Credit Losses            $0      $(2)     $(1)      $0      $(1)
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)

                                 First  Fourth   Third  Second   First
                               Quarter Quarter Quarter Quarter Quarter
Commercial Real Estate Loans     2004    2003    2003    2003    2003
------------------------------ ------- ------- ------- ------- -------
Start of Period Balances          $22     $24     $35     $31     $29
Acquisitions                        0       0       1       4       2
Sales Proceeds                      0       0      (1)      0       0
Principal Paydowns                  0       0     (11)      0       0
Net Amortization Income             0       0       0       0       0
Credit Provisions                   0      (1)      0       0       0
Net Recognized Gains (Losses)
 and Valuation Adjustments          0      (1)      0       0       0
------------------------------ ------- ------- ------- ------- -------
End of Period Balances            $22     $22     $24     $35     $31

Average Amortized Cost During
 Period, Net of Credit
 Reserves                         $22     $23     $30     $33     $31
Interest Income                  $0.7    $0.2    $0.9    $1.0    $0.8
Yield                           12.56%   4.16%  12.33%  11.59%  10.57%

Principal Value of Loans          $31     $31     $31     $42     $32
Credit Reserve                     (1)     (1)      0       0       0
Net Discount to be Amortized       (8)     (8)     (7)     (7)     (1)
------------------------------ ------- ------- ------- ------- -------
Commercial Mortgage Loans         $22     $22     $24     $35     $31

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

                                 First  Fourth   Third  Second   First
                               Quarter Quarter Quarter Quarter Quarter
Securities Portfolio             2004    2003    2003    2003    2003
------------------------------ ------- ------- ------- ------- -------
Start of Period Balances         $845    $605    $596    $366    $336
Acquisitions                       86     257      28     238      43
Sales Proceeds                      0       0       0      (4)      0
Principal Paydowns                (10)    (17)    (13)    (12)    (12)
Net Amortization Income
 (Expense)                          0      (1)      0       0       0
Net Unrealized Gains (Losses)      16       4      (3)      8      (1)
Net Recognized Gains (Losses)
 and Valuation Adjustments          0      (3)     (3)      0       0
------------------------------ ------- ------- ------- ------- -------
End of Period Balances           $937    $845    $605    $596    $366

Average Amortized Cost During
 Period                          $862    $710    $603    $454    $360
Interest Income                   $10      $8      $6      $5      $4
Yield                            4.46%   4.40%   4.30%   4.46%   4.66%

Principal Value of Securities    $921    $833    $599    $587    $370
Net (Discount) Premium to be
 Amortized                         (4)      8       7       6       2
Net Unrealized Gains (Losses)      20       4      (1)      3      (6)
------------------------------ ------- ------- ------- ------- -------
Securities Portfolio             $937    $845    $605    $596    $366
    CONTACT: Redwood Trust, Inc.
             Harold Zagunis, 415-389-7373

    SOURCE: Redwood Trust, Inc.

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