Exhibit 99.1

SUPPLEMENTAL FINANCIAL INFORMATION
QUARTER ENDED JUNE 30, 2004

Financial Results

Table 1
Earnings
($ in Thousands, except per share data)

     See Tables 5 & 6 for a description of core earnings and core equity and a related reconciliation of GAAP earnings to core earnings and GAAP equity to core equity.

Table 2
Net Interest Income
($ in Thousands)

Table 3
Interest Expense
($ in Thousands)

Financial Results (continued)

Table 4

See Table 7 for a reconciliation of GAAP interest income to net interest income on an “at risk” basis and GAAP interest expense to recourse cost of funds. See Table 8 for a description of recourse assets and recourse debt and a related reconciliation to reported GAAP assets and reported GAAP debt.

Table 5
Core Earnings (1)
($ in Thousands)

(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 and losses from sales and calls and valuation adjustments on certain assets hedges) and deferred tax benefits. 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 ongoing 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.

 

Financial Results (continued)

Table 6
Core Equity (2)
($ in Thousands)

(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 and 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.

Table 7
Reconciliation of GAAP Interest Income and Interest Expense to Interest Income on “At Risk” Assets and
Interest Expense on Recourse Debt
($ in Thousands)

7

Table 8
Leverage Ratios

(3) Assets that have been sold to non-recourse securitization trusts and asset-backed securities issued that are non-recourse to Redwood are reported on our balance sheet. Only our net investments in the equity of these trusts constitute “at-risk” assets to us. If we had used different terms or forms of securitization these transactions may have been accounted for as sales. With sales accounting, our reported balance sheet (both assets and liabilities) would be substantially smaller (although the economics of the transaction and our exposure to risks would be unchanged). If we structured the securitizations differently and therefore accounted for them as sales rather than financings, our asset-based margins would have been different and, in some respects, reported on a basis that is more comparable to some other financial institutions. Our interest rate spread and our interest rate margin would have been higher and would show a positive trend in recent quarters. Our reported debt-to-equity ratio would have been substantially lower. Table 4 above presents our interest income and interest expense as if we had structured our securitizations to obtain sales accounting treatment rather than financing accounting treatment; effectively, on an “at-risk” basis for assets and on a recourse basis for liabilities.

Table 9
Reconciliation of Average Reported Assets to Average “At Risk” Assets and
Average Reported Debt to Average Recourse Debt
($ in Thousands)

8

Portfolios

Table 10
Balances & Yields
($ in Thousands)

Portfolios (continued)

* Average excludes unrealized gains(losses) from mark-to-market adjustments.