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Redwood Trust Reports First Quarter 2006 Results

Thursday, May 04, 2006

MILL VALLEY, Calif.--(BUSINESS WIRE)--May 4, 2006--Redwood Trust, Inc. (NYSE:RWT) today reported GAAP earnings of $28 million, or $1.09 per share, for the first quarter of 2006. In the first quarter of 2005, GAAP earnings were $61 million, or $2.42 per share.

Doug Hansen, Redwood's President, said, "Our business continues to develop and grow as planned, with no major surprises. Results for this quarter, while not at last year's extraordinary levels, were still at levels we consider to be attractive."

The reduction in our net income of $33 million from the first quarter of 2005 to the first quarter of 2006 resulted from a decrease in net interest income of $17 million, a decrease in net gains on sales, calls, and market value adjustments of $17 million, an increase in operating expenses of $1 million, and a decrease in GAAP provisions for income taxes of $2 million. The reduction in net interest income reflects higher levels of uninvested cash as well as the impact of increased loan prepayment rates on earnings from our assets that we have retained from the Sequoia residential loan securitizations we have sponsored. We had little sales activity and significantly fewer calls of securities during the first quarter of 2006 than in the first quarter of 2005. Operating expenses increased due to continuing investments we are making in systems, infrastructure, and new employees to position our business for additional growth. Provisions for income taxes decreased because we had less income in the 2006 period.

At the beginning of the year, our GAAP book value per share was $37.20. After declaring a regular quarterly dividend of $0.70 per share, GAAP book value increased during this quarter by 2% to $38.11 per share.

Additional Information

Additional information on our GAAP results is available in our Quarterly Report on Form 10-Q for the three months ended March 31, 2006 which was filed today with the Securities and Exchange Commission. Today we also released our second "Redwood Review", covering the first quarter of 2006. The Review (formerly the supplemental information package) contains a discussion of first quarter activity, taxable income and other non-GAAP performance measures, and a review of Redwood's business and outlook. Our 10-Q and the Redwood Review are available on our web site (www.redwoodtrust.com).

REDWOOD TRUST, INC.
(All dollars in millions,
 except per share data)
                                 First  Fourth   Third  Second   First
                               Quarter Quarter Quarter Quarter Quarter
CONSOLIDATED INCOME STATEMENT    2006    2005    2005    2005    2005
----------------------------- -------- ------- ------- ------- -------

Interest Income                $225.4  $230.9  $243.5  $248.4  $237.2
Interest Expense               (180.7) (189.7) (196.6) (195.2) (176.0)
----------------------------- -------- ------- ------- ------- -------
Net Interest Income              44.7    41.2    46.9    53.2    61.2

Operating Expenses              (11.8)  (12.1)  (10.9)  (11.1)  (10.7)
Net Recognized (Losses) Gains
 and Valuation Adjustments       (1.9)   17.8    24.9     3.1    15.0
Variable Stock Option Income      0.0     0.0     0.0     0.0     0.1
Excise Tax Expense               (0.3)   (0.3)   (0.3)   (0.3)   (0.3)
Provision For Income Taxes       (2.7)   (4.1)   (4.7)   (4.0)   (4.7)
                               ------- ------- ------- ------- -------
GAAP Earnings                   $28.0   $42.5   $55.9   $40.9   $60.6

Average Diluted Shares
 (thousands)                   25,703  25,311  25,314  25,196  25,021
GAAP Earnings per Share
 (diluted)                      $1.09   $1.68   $2.21   $1.62   $2.42

Regular Dividends per Share     $0.70   $0.70   $0.70   $0.70   $0.70
Special Dividends per Share      0.00    3.00    0.00    0.00    0.00
----------------------------- -------- ------- ------- ------- -------
Total Dividends per Share       $0.70   $3.70   $0.70   $0.70   $0.70



REDWOOD TRUST, INC.
(All dollars in millions,
 except per share data)
                            31-Mar   31-Dec   30-Sep   30-Jun   31-Mar
CONSOLIDATED BALANCE SHEET   2006     2005     2005     2005     2005
-------------------------- ------- -------- -------- -------- --------

Residential Real Estate
 Loans                    $11,990  $13,875  $16,556  $19,630  $21,772
Residential Loan Credit-
 Enhancement Securities       644      613      664      706      611
Commercial Real Estate
 Loans                         55       60       56       42       57
Commercial Loan Credit-
 Enhancement Securities        67       58       44       29       29
Securities Portfolio        1,818    1,749    1,783    1,649    1,505
Cash and Cash Equivalents      85      176      163       72       65
Other Assets                  320      246      239      218      246
-------------------------- ------- -------- -------- -------- --------
Total Consolidated Assets $14,979$16,777$19,505$22,346$24,285

Redwood Trust Debt             $0     $170     $162     $453     $199
Consolidated Asset-Back
 Securities Issued         13,930   15,585   18,237   20,815   23,057
Other Liabilities              82       87       90       86       81
Equity                        967      935    1,016      992      948
-------------------------- ------- -------- -------- -------- --------
Total Liabilities and
 Equity                   $14,979  $16,777  $19,505  $22,346  $24,285

Shares Outstanding at
 Period End (thousands)    25,382   25,133   24,764   24,647   24,514
GAAP Equity (GAAP Book
 Value) per Share          $38.11   $37.20   $41.03   $40.24   $38.67

    CONTACT: Redwood Trust, Inc.
             Harold Zagunis, 415-389-7373

    SOURCE: Redwood Trust, Inc.

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