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Redwood Trust Reports Record Earnings for the Fourth Quarter of 2003; GAAP Earnings of $3.53 Per Share and Core Earnings of $1.54 Per Share for Q4

Thursday, February 26, 2004

MILL VALLEY, Calif.--(BUSINESS WIRE)--Feb. 26, 2004--Redwood Trust, Inc. (NYSE:RWT), a financial institution that invests in real estate loans, today reported GAAP earnings of $3.53 per share for the fourth quarter of 2003.

Core earnings for the fourth quarter of 2003 were $1.54 per share, a 93% increase over fourth quarter 2002 core earnings of $0.80 per share. Core earnings excludes gains and losses from asset sales and changes in market values that are included in GAAP.

Redwood's estimated taxable income was $3.88 per share for the fourth quarter of 2003.

Doug Hansen, Redwood's President, noted: "Core earnings of $1.54 per share for the fourth quarter of 2003 was a record quarter for Redwood. The primary driver of our favorable results has been the outstanding credit performance of our real estate loan portfolios over the last few years. Favorable prepayment patterns and improved capital utilization have also contributed to our results."

Fourth Quarter Review

Acquisitions for the fourth quarter of 2003 included $2.9 billion high-quality adjustable-rate residential real estate loans, $78 million residential credit-enhancement securities, and $257 million other residential and commercial real estate loan securities.

Hansen remarked, "Prices of all types of financial assets have continued to increase over the last year, and our real estate loan markets are participating in this trend. As a result, we are paying higher prices for new acquisitions than we have in the last few years. We are, however, maintaining our value discipline when making new acquisitions, and we fully expect that our new acquisitions will generate attractive long-term cash flows for our shareholders. Given our disciplined approach, our pace of acquisitions may slow. In addition, in 2004 we have started selling certain assets that have appreciated significantly."

Redwood's recourse debt exposure of $236 million at December 31, 2003 remained at modest levels relative to our equity base of $553 million. We continue to match the interest rate characteristics of our debt to the interest rate characteristics of our assets.

Credit results were excellent for the fourth quarter. Credit losses on Redwood's $16 billion residential loan portfolio were $50,000 for the quarter. Credit losses on the $68 billion loans underlying its residential credit-enhancement security portfolio were $1.6 million for the quarter. For both of these portfolios, annualized credit loss rate remained under one basis point (less than 0.01%) of the outstanding loan balances on an annualized basis.

Residential loan delinquencies for these two portfolios declined from $180 million to $138 million (from 0.31% to 0.16% of current loan balances) on a combined basis during the quarter. Calls of seasoned credit-enhancement securities that had some delinquencies reduced our total delinquency levels. Net growth in current balances for both of these portfolios contributed to the decline in the delinquency ratio for the quarter.

Residential loan prepayment patterns remained favorable, as Redwood's residential loan portfolio (consisting primarily of adjustable-rate loans) continued to prepay at low to moderate rates, while the loans underlying Redwood's credit-enhancement securities (primarily fixed-rate and hybrid loans) continued to prepay at a rapid rate.

Redwood realized GAAP income of $48 million in the fourth quarter of 2003 due to calls of residential credit-enhancement securities. These securities may be called by their original issuer when the principal balance of the loans underlying the securitization has been paid down to a fraction of the original balance. These securities are more likely to be called if the credit performance of the underlying loans has been strong and if interest rates have declined. When Redwood's securities are called, Redwood receives a payment equal to the full principal value of the security. As Redwood's basis for these securities is less than the principal value, calls generate capital gains income for Redwood and its shareholders.

Hansen said, "We try to structure our loan investments so we can generate very attractive returns for shareholders if credit results are favorable. The call income we earned in the fourth quarter reflects an accelerated realization of upside return potential for some of our seasoned assets that have had good credit performance over time."

"We do expect to earn call income in the future, although it is difficult to anticipate when or in what amounts we will realize call gains," added Hansen. "We do not currently expect that 2004 call income will reach 2003 levels."

Year 2003 Review

GAAP earnings for 2003 were $7.09 per share. Core earnings for 2003 were $4.88 per share, a 54% increase over the $3.16 per share Redwood earned in 2002.

Dividends to shareholders during 2003 totaled $137 million, or $7.35 per share. A portion of 2003 dividends consist of a distribution of capital gains income to shareholders; taxable shareholders may be taxed at a lower rate on this portion of their dividends.

Redwood's estimated 2003 taxable income was $171 million, or $9.36 per share. Redwood is retaining a portion of its 2003 tax income in order to build book value per share, with the goal of increasing future earnings and dividends per share potential. Redwood also deferred the distribution of 2003 taxable income in an amount that should be sufficient to fund its regular quarterly dividend for the first three quarters of 2004.

"Our outstanding results for 2003 were the result of disciplined investment decisions we have made over the last five years, an increasingly efficient balance sheet, and a favorable operating environment," said Hansen.

Outlook

"In our opinion, the long-term outlook for Redwood's business remains excellent," said Hansen. "Residential real estate loans outstanding in the U. S. are expected to double by 2011. We expect that housing prices will continue to increase over the long-term, and that rising prices should help our credit results. We believe our competitive position is strong, and we continue to find ways to conduct our business more effectively."

"Our net income for tax purposes significantly exceeded our regular divided rate in 2003," said Hansen. "The degree to which this income exceeds our dividend rate will likely diminish over time, especially if we enter an on-going environment that is less favorable due to higher credit losses, increased asset acquisition prices, and/or less favorable prepayment patterns."

"Our Board has indicated that they intend to increase our regular dividend rate from $0.65 to $0.67 per share per quarter for 2004. Our regular dividend rate represents our best estimate of the dividend rate we can sustain in a less favorable environment. The fact that we are raising our regular dividend rate reflects our belief that we have succeeded over the last year in raising Redwood's core sustainable rate of profitability and that we continue to be optimistic for Redwood's future."

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)


                                Fourth   Third  Second   First  Fourth
                               Quarter Quarter Quarter Quarter Quarter
INCOME STATEMENT                 2003    2003    2003    2003    2002
                               ------- ------- ------- ------- -------

Interest Income                $108.3   $90.2   $71.4   $61.1   $54.1
Interest Expense                (68.6)  (55.6)  (41.8)  (36.9)  (33.3)
                               ------- ------- ------- ------- -------
Net Interest Income             $39.7    34.6    29.6    24.2    20.8

Operating Expenses               (8.0)   (8.5)   (7.3)   (7.4)   (6.9)
Mark-to-Market Adjustments       39.4     0.1     1.5     0.0     1.4
Provision For Income Taxes       (1.2)   (1.5)   (1.6)   (1.2)    0.0
Preferred Dividends               0.0     0.0     0.0    (0.7)   (0.7)
                               ------- ------- ------- ------- -------
GAAP Earnings                   $69.9   $24.7   $22.2   $14.9   $14.6

Less:  Mark-to-Market
 Adjustments                    (39.4)   (0.1)   (1.5)    0.0    (1.4)
                               ------- ------- ------- ------- -------
Core Earnings (1)               $30.5   $24.6   $20.7   $14.9   $13.2

Average Diluted Shares
 (thousands)                   19,801  19,018  18,433  16,984  16,529
GAAP Earnings per Share
 (Diluted)                      $3.53   $1.30   $1.21   $0.88   $0.88
Core Earnings per Share (1)     $1.54   $1.29   $1.13   $0.88   $0.80

Dividends per Common Share
 (Regular)                     $0.650  $0.650  $0.650  $0.650  $0.630
Dividends per Common Share
 (Special)                     $4.750  $0.000  $0.000  $0.000  $0.125
                               ------- ------- ------- ------- -------
Total Dividends per Common
 Share                         $5.400  $0.650  $0.650  $0.650  $0.755

Yield on Earning Assets          2.79%   3.03%   3.35%   3.31%   3.59%
Cost of Funds                    1.81%   1.92%   2.05%   2.10%   2.35%

Net Interest Income / Average
 GAAP Equity                     28.4%   25.1%   23.4%   19.8%   18.5%
Net Interest Income / Average
 Core Equity (2)                 33.8%   30.2%   27.6%   23.3%   20.9%

GAAP ROE:  GAAP Earnings/ Avg
 GAAP Common Equity              50.0%   17.8%   17.6%   12.9%   13.7%
Core ROE:  Core Earnings / Avg
 Common Core Equity              26.0%   21.4%   19.4%   15.4%   14.2%


(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)

                                                       Year      Year
                                                        End       End
INCOME STATEMENT                                       2003      2002
                                                   --------- ---------

Interest Income                                      $331.0    $163.2
Interest Expense                                     (202.9)    (91.7)
                                                   --------- ---------
Net Interest Income                                  $128.1      71.5

Operating Expenses                                    (31.2)    (19.3)
Mark-to-Market Adjustments                             41.0       4.4
Provision For Income Taxes                             (5.5)      0.0
Preferred Dividends                                    (0.7)     (2.7)
                                                   --------- ---------
GAAP Earnings                                        $131.7     $53.9

Less:  Mark-to-Market Adjustments                     (41.0)     (4.4)
                                                   --------- ---------
Core Earnings (1)                                     $90.7     $49.5

Average Diluted Shares (thousands)                   18,587    15,659
GAAP Earnings per Share (Diluted)                     $7.09     $3.44
Core Earnings per Share (1)                           $4.88     $3.16

Dividends per Common Share (Regular)                 $2.600    $2.510
Dividends per Common Share (Special)                 $4.750    $0.375
                                                   --------- ---------
Total Dividends per Common Share                     $7.350    $2.885

Yield on Earning Assets                                3.05%     4.13%
Cost of Funds                                          1.93%     2.54%

Net Interest Income / Average GAAP Equity              24.3%     17.7%
Net Interest Income / Average Core Equity (2)          28.9%     19.2%

GAAP ROE:  GAAP Earnings/ Avg GAAP Common Equity       25.3%     14.3%
Core ROE:  Core Earnings / Avg Common Core Equity      20.8%     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)

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

Residential Real Estate
 Loans                      $16,239  $13,813   $9,247  $7,321  $6,215
Residential Loan Credit-
 Enhancement Securities         379      373      393     373     352
Commercial Real Estate
 Loans                           22       24       35      31      29
Securities Portfolio            845      605      596     366     336
Cash and Cash Equivalents        59       32       36      43      39
Working Capital and Other
 Assets                          83       54       49      38      37
                            -------- -------- -------- ------- -------
Total Assets                $17,627  $14,901  $10,356  $8,172  $7,008

Short-Term Debt                $236     $500     $218    $476    $100
Long-Term Debt               16,783   13,782    9,543   7,170   6,397
Working Capital and Other
 Liabilities                     55       53       48      40      38
Preferred Equity                  0        0        0      27      27
Common Equity                   553      566      547     459     446
                            -------- -------- -------- ------- -------
Total Liabilities and
 Equity                     $17,627  $14,901  $10,356  $8,172  $7,008

Total GAAP Equity              $553     $566     $547    $486    $473
Less: Mark-to-Market
 Adjustments                    (82)     (91)    (108)    (69)    (69)
                            -------- -------- -------- ------- -------
Core Equity                    $471     $475     $439    $417    $404


Common Shares Outstanding
 at Period End (thousands)   19,063   18,468   17,821  16,605  16,277
GAAP Equity (GAAP Book
 Value) per Common Share     $29.03   $30.65   $30.70  $27.64  $27.43
Core Equity (Core Book
 Value) per Common Share     $24.72   $25.75   $24.62  $23.54  $23.18

Net Premium / (Discount)
 Balance                      $(101)    $(62)    $(44)   $(33)   $(10)

Average Total Assets        $15,758  $12,132   $8,687  $7,554  $6,159
Average Earning Assets      $15,504  $11,911   $8,524  $7,394  $6,042
Average Interest Bearing
 Liabilities                $15,120  $11,542   $8,160  $7,036  $5,680
Average Total GAAP Equity
 (Common and Preferred)        $559     $553     $505    $489    $450


REDWOOD TRUST, INC.
(All dollars in millions)

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

Total Reported Assets       $17,627  $14,901  $10,356  $8,172  $7,008
Less: Non-Recourse Assets   (16,838) (13,835)  (9,591) (7,210) (6,435)
                            -------- -------- -------- ------- -------
Recourse Assets                $789   $1,066     $765    $962    $573

Total Reported Debt         $17,019  $14,282   $9,761  $7,646  $6,497
Less:  Non-Recourse Debt    (16,783) (13,782)  (9,543) (7,170) (6,397)
                            -------- -------- -------- ------- -------
Recourse Debt                  $236     $500     $218    $476    $100

Reported Debt to GAAP Equity     31x      25x      18x     16x     14x
GAAP Equity / Total Reported
 Assets                           3%       4%       5%      6%      7%

Recourse Debt to GAAP Equity    0.4x     0.9x     0.4x    1.0x    0.2x
GAAP Equity / Recourse
 Assets                          70%      53%      72%     51%     83%


(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)


                               Fourth    Third  Second   First  Fourth
                              Quarter  Quarter Quarter Quarter Quarter
                                2003     2003    2003    2003    2002
                             -------- -------- ------- ------- -------
Residential Real Estate
 Loans
Start of Period Balances     $13,813   $9,247  $7,321  $6,215  $4,762
Acquisitions                   2,897    4,997   2,168   1,339   1,616
Sales Proceeds                    (1)       0       0     (73)      0
Principal Paydowns              (458)    (420)   (235)   (153)   (156)
Net Amortization Expense         (10)      (9)     (5)     (6)     (6)
Net Charge Offs (Recoveries)       0        0       0       0       0
Credit Provisions                 (2)      (2)     (2)     (2)     (1)
Mark-to-Market - Income
 Statement                         0        0       0       1       0
                             -------- -------- ------- ------- -------
End of Period Balances       $16,239  $13,813  $9,247  $7,321  $6,215

Average Amortized Cost
 During Period               $14,381  $10,958  $7,670  $6,626  $5,319
Interest Income                  $83      $64     $47     $42     $37
Yield                           2.30%    2.32%   2.47%   2.55%   2.80%

Principal Value of Loans     $16,111  $13,704  $9,206  $7,297  $6,190
Credit Reserve                   (16)     (14)    (12)    (10)     (8)
Net Premium to be Amortized      144      123      53      34      33
                             -------- -------- ------- ------- -------
Residential Real Estate
 Loans                       $16,239  $13,813  $9,247  $7,321  $6,215

Credit Reserve, Start of
 Period                          $14      $12     $10      $8      $7
Net Charge-Offs (NCO)              0        0       0       0       0
Credit Provisions                  2        2       2       2       1
                             -------- -------- ------- ------- -------
Credit Reserve, End of
 Period                          $16      $14     $12     $10      $8

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

Delinquencies as % of
 Residential Loans              0.03%    0.01%   0.04%   0.02%   0.07%
NCO as % of Residential
 Loans (Annualized)             0.01%    0.00%   0.00%   0.01%   0.00%
Reserve as % of Residential
 Loans                          0.10%    0.10%   0.13%   0.14%   0.13%
Reserve as % of
 Delinquencies                   301%     852%    312%    862%    200%


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


                            Fourth    Third   Second    First   Fourth
                           Quarter  Quarter  Quarter  Quarter  Quarter
                              2003     2003     2003     2003     2002
                          -------- -------- -------- -------- --------
Residential Loan Credit-
 Enhancement Securities
Start of Period Balances     $373     $393     $373     $352     $324
Acquisitions                   78       23       11       37       13
Sales Proceeds                  0        0       (1)       0        0
Principal Paydowns           (117)     (37)     (39)     (23)     (13)
Net Amortization Income        10       11       10        6        3
Mark-to-Market - Balance
 Sheet                        (12)     (21)      36        1       25
Mark-to-Market - Income
 Statement                     47        4        3        0        0
                          -------- -------- -------- -------- --------
End of Period Balances       $379     $373     $393     $373     $352

Average Amortized Cost
 During Period               $273     $271     $279     $278     $271
Interest Income               $17      $19      $18      $14      $11
Yield                       25.49%   28.08%   25.77%   19.68%   16.65%

Principal Value of
 Redwood's Credit-
 Enhancement Securities      $624     $604     $598     $614     $559
Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced             (201)    (178)    (205)    (234)    (225)
Net Discount to be
 Amortized                   (123)    (145)    (113)     (85)     (58)
                          -------- -------- -------- -------- --------
Net Investment in Credit-
 Enhancement Securities      $300     $281     $280     $295     $276
Market Valuation
 Adjustments                   79       92      113       78       76
                          -------- -------- -------- -------- --------
Residential Loan Credit-
 Enhancement Securities      $379     $373     $393     $373     $352

Securities Senior to
 Redwood's Interests      $67,463  $43,024  $51,168  $60,072  $58,037
Principal Value of
 Redwood's Credit-
 Enhancement Securities       624      604      598      614      559
Securities Junior to
 Redwood's Interests           46       52       58       62       63
                          -------- -------- -------- -------- --------
Underlying Residential
 Real Estate Loan
 Balances                 $68,133  $43,680  $51,824  $60,748  $58,659

Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced             $201     $178     $205     $234     $225
External Credit
 Enhancement on Loans
 Credit-Enhanced               46       52       58       62       63
                          -------- -------- -------- -------- --------
Total Credit Protection
 (1)                         $247     $230     $263     $296     $288

Delinquencies (90 days +
 FC + BK + REO)              $133     $178     $160     $162     $146

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

Delinquencies as % of
 Underlying Loans            0.19%    0.41%    0.31%    0.27%    0.25%
Total Pool Credit
 Losses/Underlying Loans
 (Annualized)                0.01%    0.01%    0.01%    0.01%    0.01%
Total Credit Protection
 as % of Underlying Loans    0.36%    0.53%    0.51%    0.49%    0.49%
Total Credit Protection
 as % of Delinquencies        187%     129%     164%     183%     197%


(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)


                            Fourth    Third   Second    First   Fourth
COMBINED RESIDENTIAL LOAN  Quarter  Quarter  Quarter  Quarter  Quarter
 PORTFOLIOS                   2003     2003     2003     2003     2002
                          -------- -------- -------- -------- --------

Residential Real Estate
 Loans Owned              $16,239  $13,813   $9,247   $7,321   $6,215
Residential Loans Credit-
 Enhanced                  68,133   43,680   51,824   60,748   58,659
                          -------- -------- -------- -------- --------
Total Residential Loans   $84,372  $57,493  $61,071  $68,069  $64,874


Credit Reserve on
 Residential Real Estate
 Loans Owned                  $16      $14      $12      $10       $8
Internally Designated
 Credit Reserve on Loans
 Credit-Enhanced              201      178      205      234      225
                          -------- -------- -------- -------- --------
Redwood's Total
 Residential Credit
 Protection                  $217     $192     $217     $244     $233
External Credit
 Enhancement on Loans
 Credit-Enhanced               46       52       58       62       63
                          -------- -------- -------- -------- --------
Total Credit Protection
 (1)                         $263     $244     $275     $306     $296
Total Credit Protection as
 % of Total Residential
 Loans                       0.31%    0.42%    0.45%    0.45%    0.46%


Residential Real Estate
 Loans Owned Delinquencies     $5       $2       $4       $1       $4
Residential Loans Credit-
 Enhanced Delinquencies       133      178      160      162      146
                          -------- -------- -------- -------- --------
Total Residential Loan
 Delinquencies               $138     $180     $164     $163     $150

Delinquencies as % of
 Total Residential Loans     0.16%    0.31%    0.27%    0.24%    0.23%
Total Credit Protection as
 % of Delinquencies           191%     136%     168%     188%     197%


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


                                Fourth   Third  Second   First  Fourth
                               Quarter Quarter Quarter Quarter Quarter
Commercial Real Estate Loans     2003    2003    2003    2003    2002
                               ------- ------- ------- ------- -------
Start of Period Balances          $24     $35     $31     $29     $51
Acquisitions                        0       1       4       2       0
Sales Proceeds                      0      (1)      0       0       0
Principal Paydowns                  0     (11)      0       0     (22)
Net Amortization Income             0       0       0       0       0
Credit Provisions                  (1)      0       0       0       0
Mark-to-Market - Balance Sheet      0       0       0       0       0
Mark-to-Market - Income
 Statement                         (1)      0       0       0       0
                               ------- ------- ------- ------- -------
End of Period Balances            $22     $24     $35     $31     $29

Average Amortized Cost During
 Period                           $23     $30     $33     $31     $48
Interest Income                  $0.2    $0.9    $1.0    $0.8    $1.2
Yield                            4.16%  12.33%  11.59%  10.57%  10.12%

Principal Value of Loans          $31     $31     $42     $32     $30
Credit Reserve                     (1)      0       0       0       0
Net Discount to be Amortized       (8)     (7)     (7)     (1)     (1)
                               ------- ------- ------- ------- -------
Commercial Mortgage Loans         $22     $24     $35     $31     $29

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

                                Fourth   Third  Second   First  Fourth
                               Quarter Quarter Quarter Quarter Quarter
Securities Portfolio             2003    2003    2003    2003    2002
                               ------- ------- ------- ------- -------
Start of Period Balances         $605    $596    $366    $336    $492
Acquisitions                      257      28     238      43     196
Sales Proceeds                      0       0      (4)      0    (315)
Principal Paydowns                (17)    (13)    (12)    (12)    (31)
Net Amortization Income
 (Expense)                         (1)      0       0       0       0
Mark-to-Market - Balance Sheet      4      (3)      8      (1)     (7)
Mark-to-Market - Income
 Statement                         (3)     (3)      0       0       1
                               ------- ------- ------- ------- -------
End of Period Balances           $845    $605    $596    $366    $336

Average Amortized Cost During
 Period                          $710    $603    $454    $360    $320
Interest Income                    $8      $6      $5      $4      $4
Yield                            4.40%   4.30%   4.46%   4.66%   4.93%

Principal Value of Securities    $833    $599    $587    $370    $336
Net Premium to be Amortized         8       7       6       2       5
Market Valuation Adjustments        4      (1)      3      (6)     (5)
                               ------- ------- ------- ------- -------
Securities Portfolio             $845    $605    $596    $366    $336
    CONTACT: Redwood Trust, Inc.
             Harold Zagunis, 415-389-7373

    SOURCE: Redwood Trust, Inc.

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