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Redwood Trust Reports Third Quarter 2006 Results

Thursday, November 02, 2006

MILL VALLEY, Calif.--(BUSINESS WIRE)--

Redwood Trust, Inc. (NYSE:RWT) today reported GAAP earnings of $32 million ($1.22 per share) for the third quarter of 2006 and $92 million ($3.51 per share) for the first nine months of 2006.

Redwood's GAAP earnings of $1.22 per share for the third quarter increased from $1.20 per share earned in the prior quarter but decreased from earnings of $2.21 per share for the third quarter of 2005.

GAAP book value per share rose from $39.13 to $40.02 during the third quarter of 2006.

Doug Hansen, Redwood's President, said: "This was another good quarter for Redwood Trust, primarily because credit performance for our residential and commercial real estate assets continues to be excellent."

Net interest income for the third quarter of 2006 was $49 million, an increase over net interest income of $45 million for the prior quarter and $48 million for the third quarter of 2005. Residential credit-enhancement securities are generating higher GAAP yields due to strong credit performance and rapid prepayment rates.

Income gains from asset sales, calls, and valuation adjustments were $0.4 million for the third quarter of 2006, a substantial decrease from $6 million in the prior quarter and $25 million in the third quarter of 2005. Many of Redwood's assets continue to appreciate in market value, but for income statement purposes we realized fewer of these gains in this period than in prior periods.

Operating expenses were $13.4 million for the third quarter of 2006, a decrease from $16.0 million for the prior quarter (because due diligence expenses declined) and an increase from $12.3 million for the third quarter of 2005.

Additional Information

Additional information on Redwood's GAAP results for the three and nine months ended September 30, 2006 is available in our Quarterly Report on Form 10-Q filed today with the Securities and Exchange Commission. Today we also released the "Redwood Review," covering the third quarter of 2006. The Redwood Review contains a discussion of third quarter activity, taxable income and other non-GAAP performance measures, and a review of Redwood's business and outlook. Redwood's 10-Q, and the Redwood Review are available on our website (www.redwoodtrust.com).

CAUTIONARY STATEMENT: This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, including the words "anticipated," "estimated," "should," "expect," "believe," "intend," and similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our 2005 Annual Report on Form 10-K under Item 1A "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by us with the Securities and Exchange Commission, including Forms 10-K, 10-Q, and 8-K. Important factors that may impact our actual results include changes in interest rates and market values; changes in prepayment rates; general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the level of liquidity in the capital markets as it affects our ability to finance our real estate asset portfolio; and other factors not presently identified. In light of these risks, uncertainties, and assumptions, the forward-looking events mentioned in, discussed in, or incorporated by reference into this press release might not occur. Accordingly, our actual results may differ from our current expectations, estimates, and projections. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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

                                 Third  Second   First  Fourth   Third
                               Quarter Quarter Quarter Quarter Quarter
CONSOLIDATED INCOME STATEMENT     2006    2006    2006    2005    2005
------------------------------ ------- ------- ------- ------- -------

Interest Income                $223.7  $218.2  $225.9  $231.1  $244.6
Interest Expense               (174.7) (173.5) (180.7) (189.6) (196.6)
------------------------------ ------- ------- ------- ------- -------
Net Interest Income              49.0    44.7    45.2    41.5    48.0

Operating Expenses              (13.4)  (16.0)  (12.6)  (12.8)  (12.3)
Net Recognized Gains (Losses)
 and Valuation Adjustments        0.4     6.0    (1.9)   17.9    24.9
Provision For Income Taxes       (3.6)   (3.3)   (2.7)   (4.1)   (4.7)
------------------------------ ------- ------- ------- ------- -------
GAAP Earnings                   $32.4   $31.4   $28.0   $42.5   $55.9
                               ======= ======= ======= ======= =======

Average Diluted Shares
 (thousands)                   26,625  26,109  25,703  25,311  25,314
GAAP Earnings per Share
 (diluted)                      $1.22   $1.20   $1.09   $1.68   $2.21

Regular Dividends per Share     $0.70   $0.70   $0.70   $0.70   $0.70
Special Dividends per Share      0.00    0.00    0.00    3.00    0.00
------------------------------ ------- ------- ------- ------- -------
Total Dividends per Share       $0.70   $0.70   $0.70   $3.70   $0.70
                               ======= ======= ======= ======= =======
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)

CONSOLIDATED INCOME STATEMENT        Nine Months 2006 Nine Months 2005
------------------------------------ ---------------- ----------------
Interest Income                               $667.8           $731.1
Interest Expense                              (528.9)          (567.6)
------------------------------------ ---------------- ----------------
Net Interest Income                            138.9            163.5

Operating Expenses                             (42.0)           (35.7)
Net Recognized Gains (Losses) and
 Valuation Adjustments                           4.5             43.0
Provision For Income Taxes                      (9.6)           (13.4)
------------------------------------ ---------------- ----------------
GAAP Earnings                                  $91.8           $157.4
                                     ================ ================

Average Diluted Shares (thousands)            26,132           25,160
GAAP Earnings per Share (diluted)              $3.51            $6.26

Regular Dividends per Share                    $2.10            $2.10
Special Dividends per Share                     0.00             0.00
------------------------------------ ---------------- ----------------
Total Dividends per Share                      $2.10            $2.10
                                     ================ ================
REDWOOD TRUST, INC.
(All dollars in millions, except per share data)

CONSOLIDATED BALANCE        30-Sep  30-June   31-Mar   31-Dec   30-Sep
 SHEET                        2006     2006     2006     2005     2005
------------------------- -------- -------- -------- -------- --------

Real Estate Loans          $9,875  $10,491  $12,045  $13,935  $16,612
Real Estate Securities      2,912    2,661    2,529    2,420    2,491
Cash and Cash Equivalents     113      106       85      176      163
Other Assets                  300      272      320      246      239
------------------------- -------- -------- -------- -------- --------
Total Consolidated Assets $13,200$13,530$14,979$16,777$19,505
                          ======== ======== ======== ======== ========

Redwood Trust Debt           $510     $529       $0     $170     $162
Consolidated Asset-Back
 Securities Issued         11,554   11,898   13,930   15,585   18,237
Other Liabilities              93       99       82       87       90
Equity                      1,043    1,004      967      935    1,016
------------------------- -------- -------- -------- -------- --------
Total Consolidated
 Liabilities and Equity   $13,200  $13,530  $14,979  $16,777  $19,505
                          ======== ======== ======== ======== ========

Shares Outstanding at
 Period End (thousands)    26,053   25,668   25,382   25,133   24,764
GAAP Equity (GAAP Book
 Value) per Share          $40.02   $39.13   $38.11   $37.20   $41.03

Source: Redwood Trust, Inc.

Contact: Redwood Trust, Inc. Martin S. Hughes, 415-389-7373

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