Exhibit 99.2

The Redwood Review

4^th Quarter 2005

		CONTENTS

INTRODUCTION				3
SHAREHOLDER LETTER				4
ABOUT REDWOOD TRUST				7
BUSINESS GROUP DISCUSSIONS
4		Residential Group		11
4		Commercial Group		14
4		CDO Group		16
FINANCIAL REVIEW
4		Finance Group Overview		18
4		GAAP Earnings		20
4		Core Earnings		21
4		Total Taxable Income		22
4		Core Taxable Income		23
4		REIT Taxable Income		24
4		Book Value per Share		25
4		Return on Equity		27
4		Discounts and Reserves		29
4		Dividends		31
APPENDIX
4		Glossary		32
4		Financial Tables		36

The Redwood Review — 4^th Quarter 2005

		INTRODUCTION

The Redwood Review

This is our first Redwood Review. By publishing this Review on a quarterly basis, we hope to provide useful information that is accessible to shareholders seeking to learn more about our company and business.

We file quarterly reports on Form 10-Q and annual reports on Form 10-K with the Securities and Exchange Commission. Those filings and our quarterly earnings press releases provide information about our financial results from the perspective of Generally Accepted Accounting Principles (“GAAP”). These documents are available on our web site. We urge you to study them, as there is much to learn about Redwood Trust there.

In the Redwood Review, you have the opportunity to learn more about Redwood Trust through a discussion of GAAP results and also a discussion of tax results and non-GAAP measures. You will first find a quarterly shareholder letter and then a background section on Redwood Trust that highlights the key aspects of our business. Following that is a discussion of current trends within each of the business groups that comprise Redwood Trust, a review of various financial indicators for our business, a glossary explaining some of the specialized terms we use, and then the tables that we formerly published as the “Quarterly Financial Supplement.”

We expect that the form and content of the Redwood Review will evolve over time. We welcome your input during this process.

On a basic level, our primary business — assuming the credit risk of securitized residential and commercial real estate loans — is not that difficult to understand. The details and business metrics, however, can get complicated. We hope that this Review provides some insight and serves as a useful tool for better understanding your investment in Redwood Trust.

CAUTIONARY STATEMENT: This Redwood Review 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 the 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-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, discussed in, or incorporated by reference into this Review 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.

The Redwood Review — 4th Quarter 2005		3

		SHAREHOLDER LETTER

Fourth Quarter 2005

Dear Shareholders:

During the fourth quarter of 2005, we largely completed the asset sales program that we started mid-year. In total, we sold 40% of the residential credit-enhancement securities (“CES”) that we owned at Redwood as permanent assets. We sold primarily single B-rated (second-loss) securities while retaining most of our unrated first-loss credit-enhancement securities. This allowed us to substantially reduce our overall level of residential credit risk while also retaining the assets that could produce the highest economic gains should credit conditions for residential real estate continue to be favorable.

Our remaining residential credit-enhancement securities permanent asset portfolio of $330 million at December 31, 2005 is concentrated in first-loss securities that credit-enhance loans originated in 2003 and 2004. The $184 billion of underlying residential loans continue to produce superb credit results. Delinquencies have risen this quarter, although they remain at low levels. Normal seasoning patterns and hurricane damage account for most of the increase. We believe the slowing housing market has had little effect yet on our delinquency ratios. Credit losses continue to be very low — under one basis point (0.01%) per year.

Rising housing prices over the last few years have made it less likely that we will suffer credit losses from the residential loans underlying these securities. Even if housing markets deteriorate somewhat going forward, these securities could potentially generate high returns for us. If so, they could provide strong support for our earnings results in 2007, 2008, and 2009.

If real estate loan credit losses were to increase dramatically, as some predict, much of our investment in these securities could be lost. However, there would be no call on our capital from our credit-enhancement business. The credit guarantees we have made are limited and our maximum loss is equal to the investment we have already made. Furthermore, we do not leverage our investment in credit-enhancement securities. That is, we do not use debt to fund those investments. If the worst case happens, our strong balance sheet will be an asset.

Our asset sale program left us at year-end with $189 million of excess cash available to invest in new business. How to employ this capital, and when, are the primary short-term tactical decisions we are facing today.

We are not going to be in a hurry to invest our excess capital. While we remain optimistic about the long-term performance of the housing markets, we are starting to see numerous signs of weakness in the housing markets today. We believe that a weakening of the housing market would, if it continues, likely bring us excellent asset acquisition opportunities over the next few years. Our goal is to maintain cash balances to take advantage of these future opportunities. When liquidity dries up in the capital markets, that is when cash is the most valuable. Furthermore, from a risk perspective, we believe it is prudent to wait until some of the present uncertainties about the housing markets are cleared up before we commit all of our shareholders’ cash to new investments.

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The Redwood Review — 4th Quarter 2005		4

		SHAREHOLDER LETTER

Fourth Quarter 2005 (continued)

Our current plan, which is subject to change, is to invest our excess capital steadily over the next two to three years. Carrying excess capital will not help earnings in 2006, although we still expect to generate an acceptable return on equity (and declare regular dividends plus a special dividend) in 2006.

We are continuing to build our business of credit-enhancing securitized commercial real estate loans. Commercial real estate properties as a whole continue to improve their cash flows and valuations. Due to the level of competition in commercial credit-enhancement, and due to weakening commercial loan origination standards, the prospective returns from commercial
credit-enhancement securities at the moment are acceptable, but not overwhelming. We will continue to develop this business as part of our long-term growth and diversification strategy, and are pleased with our accomplishments to date in this area.

The market for sponsoring collateralized debt obligation (“CDO”) securitizations continues to be attractive, although it is has become more volatile. We expect to continue sponsoring Acacia CDO transactions during 2006. After Acacia completes each securitization, we expect to acquire and invest in all or a portion of the CDO equity securities created in these transactions. We expect that these will be attractive long-term permanent assets.

We believe that the CDO business is a fertile area for innovation. In 2005, we sponsored our first predominately commercial real estate CDO. We also incorporated synthetic assets in Acacia’s asset pools for the first time. Over the next few years, we expect our CDO sponsorship business to grow and evolve in interesting new ways, and continue to generate attractive new permanent asset investments and asset management fees.

Our residential mortgage conduit’s loan securitization business is in transition. In 2004 and prior years, we generated attractive levels of economic gains (gain on sale through securitization) by acquiring high-quality one- and six-month LIBOR adjustable-rate residential loans from originators, selling the loans to Sequoia securitization entities, and then sponsoring Sequoia securitizations of these loans. In today’s flat to inverted yield curve environment, however, LIBOR-indexed adjustable-rate loans (“ARMs”) are not an attractive option for homeowners. Origination volumes of this product have decreased dramatically. In addition, several Wall Street firms and others have entered the residential conduit business, thereby increasing competition and reducing economic gain-on-sale opportunities from securitization.

We are responding to these changes by broadening our residential conduit’s product line (both in terms of product type and loan quality characteristics) and by expanding our mortgage originator customer base. We are focusing on market areas and relationships where we believe we have, or can develop, a competitive advantage. We expect our residential conduit business to break-even economically this year (while also not absorbing much capital). Even at breakeven levels, our residential conduit brings multiple benefits to our business as a whole and is an excellent source of assets for us to invest in. In the longer term, we expect the residential conduit to develop in a manner that will once again generate attractive returns for our shareholders.

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The Redwood Review — 4th Quarter 2005		5

		SHAREHOLDER LETTER

Fourth Quarter 2005 (continued)

We continue to be large and active investors in the market for residential credit-enhancement securities created by others, and we continue to allocate the greater part of our capital to these assets. In the fourth quarter, we took advantage of some excellent acquisition opportunities. Acquisition pricing for some new assets improved, in part due to seasonal trends (as a result of supply/demand trends, the fourth quarter is usually a good time to buy assets) and also due to concerns about the housing markets.

In the fourth quarter, we continued to acquire credit-enhancement securities backed by negative amortization ARMs made to high-quality residential borrowers. Even though most of these loans are made to high-quality borrowers who make substantial down payments and do not need a negative amortization feature in order to afford their home, we still expect significantly higher delinquencies and losses from these loans compared to regular amortizing loans. Nevertheless, we believe we have a good chance of generating attractive risk-adjusted returns on these investments as a result of the way the securitizations of these riskier loan types are structured and because of attractive acquisition pricing for these credit-enhancement securities. Although seemingly attractive, there is substantial uncertainty about the future performance of these assets. As a result, we will limit our overall investment in these credit-enhancement securities.

As is usually the case following year-end, new asset acquisition pricing has firmed in the first quarter of 2006. If there is an underlying trend towards wider spreads and more attractive asset acquisition pricing, we are not likely to see evidence of it until the second half of 2006.

In sum, we are very comfortable with our current asset base. We are looking forward to seeing what kind of returns we can generate from managing these assets over the next few years. We expect to have excellent asset acquisition opportunities in the years ahead, and we have the cash available to take advantage of these opportunities. We believe our core business has good long-term growth potential. Furthermore, our business continues to evolve and develop in interesting ways that could add to our returns over time.

As always, we appreciate your support of Redwood Trust and look forward to our continued relationship.

Yours truly,

	George E. Bull, III				Douglas B. Hansen
	Chairman and CEO				President

The Redwood Review — 4th Quarter 2005		6

		ABOUT REDWOOD TRUST

Interesting Things About RWT

1.

We are an entrepreneurial specialty finance company.

Our vision when we started Redwood Trust in 1994 was to create a company that is more efficient than banks, thrifts, and other financial institutions at owning, credit-enhancing, securitizing, and financing residential and commercial real estate loans.

Over time, we intend to build a variety of related and integrated specialty finance businesses in areas where we believe we can develop a competitive advantage.

For tax purposes, we are structured as a real estate investment trust (“REIT”). We also conduct business in our taxable non-REIT subsidiaries.

2.

Our primary business activity is credit-enhancing securitized residential and commercial real estate loans.

Historically, money lent to homeowners and property owners came from bank deposits. Today, a growing percentage of money sourced to fund loans comes from capital markets investors who buy mortgage-backed securities — fixed income securities backed by a pool of real estate loans.

Most of these investors want to buy AAA-rated or other investment-grade mortgage-backed securities that do not have a significant risk of loss if an underlying real estate loan defaults. Someone else has to assume the risk. Redwood Trust is a specialist in evaluating and managing real estate loan credit, and our core business is assuming the risk of loan default for securitized loans. Because Redwood Trust partially credit-enhances (or “guarantees”) these securitized loans, the risk of credit loss is reduced for capital markets investors in mortgage-backed securities. As a credit-enhancer, we are exposed to real estate credit risk on many loans, but we also have the ability to produce strong financial results if the real estate loans we credit-enhance perform well.

3.

We credit-enhance loans primarily by acquiring and owning first- and second-loss credit-enhancement securities.

In most securitizations of real estate loans, a variety of types of mortgage-backed securities are created, each with different characteristics with respect to average life, credit risk, prepayment risk, interest rate risk, and other variables.

One security is designated as the “first-loss” bond. If there are credit losses within the pool of securitized real estate loans, the principal value of the first-loss bond is reduced. If the entire principal value of the first-loss bond is eliminated due to credit losses within the securitized loan pool, then further credit losses reduce the principal value of the “second-loss” bond. Only when the entire principal value of the second-loss bond is eliminated do the other bonds issued from that securitization risk incurring credit losses. The first- and second-loss bonds are credit-enhancement securities, improving the creditworthiness of the other securities and protecting them from initial credit losses.

We typically acquire first-loss bonds at 25% to 35% of their principal value and second-loss bonds at 50% to 70% of their principal value. These bonds are acquired at a substantial discount to their principal value, as future credit losses could reduce or totally eliminate the principal value of these bonds. Our return on these investments is based on how much principal and interest we receive, and how quickly it comes in.

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The Redwood Review — 4th Quarter 2005		7

		ABOUT REDWOOD TRUST

Interesting Things About RWT (continued)

3.

We credit-enhance loans primarily by acquiring and owning first and second-loss credit-enhancement securities (continued).

In an ideal environment, we would experience fast prepayments and low credit losses. We encountered this environment in 2003, 2004, and the first half of 2005. Conversely, our least favorable environment would be slow prepayments and high credit losses. We receive interest on the full principal value of bonds, so the interest earned on our cost basis is higher than the underlying coupon rate. For instance, on a bond with a principal value of $1 million — for which we may have paid only $300,000 — we receive interest based on the full principal value.

We typically do not receive principal payments until a few years into the deal, since the principal payments from the underlying loans are first used to pay down the most senior bonds. The amount of principal we ultimately receive is dependent on the amount of credit losses incurred before the deal is called, or when it matures. The timing of principal payments received and the timing of the realization of losses is also important to our investment returns. The faster we collect principal and the longer it takes to realize credit losses, the better it is for our investment returns.

4.

Our primary focus is on credit-enhancing high-quality loans.

Most of the real estate loans we credit-enhance are above average in terms of loan quality as compared to other securitized real estate loans. As a result, our delinquency and loss rates have been significantly lower than the national average. When market conditions are favorable, we plan to expand our credit-enhancement activities to include more loans that have average or below-average quality characteristics. Nevertheless, it is likely that the bulk of the real estate loans we credit-enhance will continue to be of above-average quality.

Typically, 40% — 50% of the residential loans we credit-enhance are on homes located in California. This roughly equals the percentage of all jumbo loans that are located in California, which we consider to be one of the more attractive states for the residential credit-enhancement business.

5.

As an integral part of our business, we also sponsor securitizations.

Our residential loan securitization business (our conduit) acquires residential whole loans from originators, accumulates loans over a period of weeks or months, and then sells the loans to newly-created securitization entities (typically called “Sequoia”) that create and sell securities backed by these loans (occasionally we also sell loans via bulk whole loan sales). We create economic gains on sale when the proceeds from the sale of securities exceed the purchase cost of the loans plus expenses. At December 31, 2005, 23% of our residential loan CES permanent asset portfolio were CES we acquired from the securitizations we have sponsored. We also have acquired some of the interest-only (“IO”) securities (prepayment rate sensitive securities) from these securitizations.

Our CDO group also sponsors securitizations. Over a period of several months, we acquire and aggregate a pool of diverse investment-grade and non-investment grade residential and commercial real estate securities and similar assets. We then sell this pool of assets to a newly-created securitization entity (typically called “Acacia”) that creates and sells asset-backed securities to the capital markets. We create economic gains on sale from these activities and earn ongoing management fees from outstanding Acacia transactions. As a permanent investment, Redwood typically acquires all or a portion of the CDO equity securities (which function as CES) from these CDO transactions.

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The Redwood Review — 4th Quarter 2005		8

		ABOUT REDWOOD TRUST

Interesting Things About RWT (continued)

6.

We are one of the leaders in our market segments.

The securitized residential real estate loan market can be divided into three segments. The first segment consists of “conforming” lower-balance loans, usually of average or better quality. Most of these loans are credit-enhanced by Fannie Mae and Freddie Mac. The second segment consists of lower-quality loans that are credit-enhanced primarily by sub-prime mortgage origination companies. Redwood Trust is one of the largest credit-enhancers within the third segment, which consists of private label securitizations containing primarily larger-balance (“jumbo”) loans of above-average or average quality (prime and Alt-A). Redwood credit-enhances $184 billion of loans that have been securitized in private-label transactions, representing approximately 20% of the outstanding securitized loans in this segment.

Credit-enhancing commercial real estate loans is a newer business for Redwood. We have been developing our commercial business since 1998. We currently partially credit-enhance $26 billion commercial loans, representing approximately 3% of the outstanding commercial real estate loan balances that have been securitized. We participated in credit-enhancing 15% of all commercial real estate loans securitized in the U.S. during 2005.

7.

We have some interesting competitive advantages.

As a non-regulated specialty finance company, we have greater freedom to operate in the capital markets and securitization markets than do financial institutions such as banks and insurance companies. We also enjoy lower operating costs.

As a public company with permanent capital, we have an advantage in investing in illiquid assets relative to investment companies and partnerships that might suffer investor withdrawals and liquidity issues.

As a real estate investment trust (“REIT”), we have tax advantages relative to corporations that have to pay corporate income taxes, typically one of the largest costs of doing business.

With nearly $1 billion of equity capital focused on this one business, we have size advantages that bring economies of scale as well as marketing and operating advantages.

As a company with a small number of employees (79 as of 12/31/05) and one integrated business, we have a strong culture that is entrepreneurial, innovative, focused, and disciplined.

8.

We maintain a strong balance sheet.

Our business is currently funded primarily with equity capital. Compared to most financial institutions, we use very little debt financing. We currently utilize only equity capital to fund the credit-enhancement securities and other assets we hold as permanent assets for investment purposes.

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The Redwood Review — 4th Quarter 2005		9

		ABOUT REDWOOD TRUST

Interesting Things About RWT (continued)

8.

We maintain a strong balance sheet (continued).

We use a combination of debt and equity to fund assets that are acquired by our conduit and our CDO group on a temporary basis for re-sale to a securitization entity (inventory assets). At December 31, 2005, we had $935 million of equity and $170 million of debt.

Our balance sheet is also strong because our maximum exposure to losses caused by credit risk is limited to our investment in credit-enhancement securities. In other words, our maximum loss within our credit-enhancement business is less than our equity capital base.

We may utilize more debt in the future, depending on which businesses we develop over time. Nevertheless, we expect to maintain a strong balance sheet.

9.

We pay a regular dividend and may pay a special dividend.

As a REIT, we are required to distribute to shareholders as dividends at least 90% of our REIT taxable income, which is our income as calculated for tax purposes (exclusive of income earned in taxable non-REIT subsidiaries). In order to meet our dividend distribution requirements, we have been paying both a regular quarterly dividend and a year-end special dividend.

We set our regular quarterly dividend at a rate that we believe is reasonably likely to be sustainable over time under most market conditions. Our regular dividend rate is currently $0.70 per share per quarter, and our Board of Directors has indicated that their current intention is to maintain this quarterly regular dividend rate in 2006. Based on a share price of $41.27 as of February 23, 2006, the indicated yield to shareholders at the regular dividend rate is 6.8%.

If we earn more REIT taxable income than is required to fund the regular dividend, we will likely pay a special dividend in December. We expect our special dividend amount to be highly variable, and we may typically not pay a special dividend every year. We currently are forecasting that we will pay a special dividend at the end of 2006, although we believe the size of this special dividend is likely to be significantly less than the $3.00 per share special dividend we paid in December 2005. Our dividend policies and distribution practices may change over time.

Our dividend distributions for 2005 consisted of 76.709% ordinary income and 23.291% long-term capital gains income. There was no return of capital. Taxable shareholders may benefit from a lower tax rate on the portion of our dividend distributions that consists of capital gains.

10.

We are a growth company.

The amount of real estate loans outstanding and the amount of these loans securitized have grown rapidly over many years. This is a long-term trend that we expect will continue, although there could be a cyclical slowing in the short-run. With competitive advantages in a growing market, we expect over time to have the opportunity to increase the size of our credit-enhancement and related businesses while also improving our book value per share and our average return on equity.

The Redwood Review — 4th Quarter 2005		10

		BUSINESS GROUP DISCUSSION

Residential Group Overview

Description

Redwood’s residential group credit-enhances securitized residential real estate loans by acquiring and owning first-loss, second-loss, and other credit-enhancement securities. The residential group also invests in other residential assets, including interest-only securities.

The residential group assists Redwood’s CDO group in the selection and management of the residential real estate assets owned by the Acacia CDO securitization entities that Redwood has sponsored.

In addition, the residential group operates as a conduit, acquiring residential real estate loans from mortgage origination companies and selling them for a profit via whole loan sales or via securitization under the Sequoia brand name.

Discussion

The residential real estate loans we credit-enhance are performing well. Credit losses continue to be minimal. Serious delinquencies remain at low levels, although they rose in the fourth quarter from $283 million to $367 million. As a percentage of current balances, delinquencies rose from 0.14% to 0.20%, in part due to a decrease in the balance of loans we credit-enhance from $195 billion to $184 billion. A portion of the increase in delinquencies is related to damage from the Katrina and Rita hurricanes. The remainder of the increase is largely explained by the normal seasoning pattern of residential loans.

Loans originated in 2005 made up 23% of our total managed portfolio of credit-enhanced residential loans of $184 billion. The 2005-originated loans we credit-enhance are performing well, in a manner consistent with earlier vintages at a similar point in their seasoning cycle.

Our pace of new acquisitions of residential credit enhancement securities that we hold at Redwood as permanent assets has slowed — we acquired $29 million in the third quarter of 2005, $46 million in the fourth quarter, and $9 million in the first quarter of 2006 through February 23. This is a result of weaker underwriting standards, lower volumes of high-quality origination and securitization, and acquisition prices that are not particularly attractive for some products. In addition, our current capital utilization plan limits our current pace of asset acquisition so that we can maintain excess cash balances in order to be able to take advantage of future opportunities.

Historically, we have credit-enhanced and securitized high-quality residential real estate loans. We have always felt the better balance of risk and reward was in the prime quality sector of the market, given the structure of securitizations, the historical track record (or lack of historical track record) for different types of loans, and the pricing of credit-enhancement business.

If we enter a period of sustained housing weakness over the next few years, we believe we may have opportunities to acquire distressed assets at attractive prices. In addition, underwriting standards, relative risk pricing, and securitization structuring for new credit-enhancement activities could eventually shift in favor of medium or lower-quality loans. We are initiating activities now in anticipation of expanding our credit criteria in the future should attractive opportunities arise. For example, in January 2006 we sponsored the securitization of a pool of Alt-A loans (although we did not retain any of the assets).

The Redwood Review — 4th Quarter 2005		11

		BUSINESS GROUP DISCUSSION

Residential Group Metrics

Chart 1: Residential Total Managed Portfolio

Ø	We estimate that we credit-enhance 1 in 10 jumbo loans.

Ø	We estimate that we credit-enhance almost 1 in 5 higher quality private-label securitized loans (most of which are jumbo loans).

Chart 2: Residential CES Portfolio by Loan Type (as of 4Q 2005, % By Market Value)

Ø	Total permanent asset market value = $330 million.
Ø	CES backed by negative amortization ARMs have become a larger part of our portfolio over the past 18 months.
Ø	$75 million, or 23%, of our total residential CES permanent assets were purchased from Sequoia securitizations we sponsored.

Chart 3: Residential CES Portfolio by Credit Quality (as of 4Q 2005, % of market value)

Ø	Total market value = $330 million.
Ø	The majority of the loans we credit-enhance are prime-quality loans.
Ø	8% of the market value of our CES portfolio are interests in transactions backed primarily by Alt-A quality loans (although transactions designated as prime quality do contain some Alt-A loans).

The Redwood Review — 4th Quarter 2005

		BUSINESS GROUP DISCUSSION

Residential Group Metrics

Chart 4: Residential Permanent Assets By Market Value

Ø	We sold $201 million of residential CES in 2005.
Ø	The paying down of the loans underlying interest-only (“IO”) securities, combined with a decline in value as a result of accelerated prepayments, contributed to an overall reduction in our IO portfolio. We acquired these IOs from Sequoia securitizations we sponsored.
Ø	Residential assets made up 65% of Redwood’s permanent assets at December 31, 2005.

 

Chart 5: Seriously Delinquent Loan %

Ø	Strong credit performance — delinquencies continue to be benign and significantly better than the industry.
Ø	Delinquencies in our portfolio rose in the fourth quarter of 2005, but are still far below national averages.

Chart 6: Prepayment History for Credit-Enhancement Portfolio

Ø	The flattening of the yield curve has contributed to acceleration of prepayments on ARMs.
Ø	Higher overall interest rates have slowed prepayments for fixed rate products.
Ø	Faster prepayments benefit our credit-enhancement assets, but harm returns from IOs.

The Redwood Review — 4th Quarter 2005		13

		BUSINESS GROUP DISCUSSION

Commercial Group Overview

Description

The commercial group credit-enhances securitized commercial real estate loans by acquiring and owning first-loss and other commercial credit-enhancement securities. The commercial group also invests in other commercial mortgage-backed securities (“CMBS”), commercial real estate loans, and related commercial assets. The commercial group assists Redwood’s CDO group in the selection and management of the commercial real estate assets owned by the Acacia CDO securitization entities Redwood sponsors.

Discussion

Commercial real estate fundamentals continue to show year-over-year improvement for most property types in many parts of the country. Contributing to this performance are lower interest rates, strong GDP growth, rising employment, and increasing new building construction costs. We believe commercial real estate should continue to perform reasonably well in the next few years, barring any unexpected external events.

The increase in commercial property values and cash flows does not mean the credit-enhancement business is risk-free. Property values are high, and they could be vulnerable in a less favorable environment. Due to competition from loan originators, property owners can now obtain higher leverage on their properties compared to what used to be acceptable. In addition, an increasing number of loans are being written as interest-only loans, with no principal payments required of the borrower until maturity. On the whole, even though commercial properties are largely healthy, we believe the risks of credit-enhancing commercial loans are increasing.

As a result of these increased risk factors, we have turned down an increasing number of new credit-enhancement opportunities. We are taking a cautious approach to this market, and we are patient in waiting for opportunities that fit our conservative credit philosophy. New transactions that pass our credit review standards do exist, however, and we expect to increase our book of commercial credit-enhancement business over time.

The $26 billion of securitized commercial real estate loans we credit-enhanced on December 31, 2005 are performing well. Serious delinquencies were $17 million, or 0.07% of current loan balances. We incurred no credit losses on the underlying loans in 2005. Our other commercial assets are also performing well, including an interest in specialized CMBS re-REMIC securitization that credit-enhances $17 billion of loans, commercial loans, other permanent assets, and assets owned by Acacia.

In anticipation of growth over time, we have added senior staff members who have significant industry experience in CMBS, and we continue to make investments in systems and processes in order to support our future growth.

The Redwood Review — 4^th Quarter 2005

14

		BUSINESS GROUP DISCUSSION

Commercial Group Metrics

Chart 7: Commercial CES Geographic Distribution

Ø The commercial loans we credit-enhance are diversified geographically.

Chart 8: Commercial Property Type Distribution

Ø Our retail and office exposures are high relative to other common property types (although they are consistent with the CMBS market as a whole). These property types include some large low leverage investment-grade loans on institutional quality real estate, so the actual risk is more balanced across property types.

Chart 9: Commercial CES Collateral Balance

Ø We participated in credit-enhancing 15% of the CMBS issued in 2005.

Ø This chart excludes $17 billion of loans underlying our first-loss interests in a re-REMIC of non-investment grade CMBS.

Chart 10: CMBS Permanent Asset Portfolio

Ø Commercial permanent assets made up 13% of Redwood’s total permanent assets at December 31, 2005.

The Redwood Review — 4th Quarter 2005			15

		BUSINESS GROUP DISCUSSION

CDO Group Overview

Description

The Redwood CDO group sponsors re-securitizations of diverse pools of residential and commercial real estate securities and other related assets. These collateralized debt obligations (“CDOs”) are issued under the Acacia brand name. The group manages the underlying pools of assets, earning asset management fees.

As a long-term investment, Redwood typically acquires all or a portion of the Acacia CDO equity securities that absorb the initial credit losses from the pool of securitized assets, and thus act as the credit-enhancement for the other (more senior) CDO securities issued by Acacia.

Discussion

Since we began sponsoring real estate CDO transactions in 2002, low interest rates, fast prepayments, and an excellent credit environment have given us opportunities to earn attractive returns from owning Acacia CDO equity securities.

The primary determinant of the returns we earn from our Acacia CDO equity investments is the credit performance of the securities Acacia has purchased and the performance of the loans underlying those securities. Credit results have been excellent. Two out of the nine Acacia CDO transactions we have sponsored have been upgraded (by rating agencies Standard & Poor’s and Moody’s), and we may see further upgrades if current credit performance trends continue. Strong credit performance has also produced strong investment results for capital markets investors who purchased the other securities Acacia has issued.

We expect there will continue to be good opportunities to create attractive new investments and build asset management fees for Redwood via the Acacia CDO program. However, credit quality has deteriorated in the residential and commercial new securities issuance markets while the acquisition prices we are being asked to pay for these new assets are often higher than we would like. At the same time, the market for selling CDO securities such as Acacia issues has become more volatile. Nevertheless, we think that Redwood is poised to meet these challenges.

The CDO market is a dynamic one, and we will need to be innovative in order to continue to grow. For instance, we sponsored Acacia’s first CDO backed primarily by commercial real estate securities in the fourth quarter of 2005. We may increase our use of interest rate agreements and other derivatives such as credit default swaps and synthetic asset agreements both as assets and also as hedges for Acacia. We are also considering other product types, partnerships, and strategies that could potentially help us expand our opportunities.

The Redwood Review – 4th Quarter 2005			16

		BUSINESS GROUP DISCUSSION

CDO Group Metrics

Chart 11: CDO Equity Investment

Ø 22% of Redwood’s permanent asset portfolio is now invested in CDO equity securities.

Ø We called Acacia 1 in December 2005.

Ø We sponsored our first predominantly commercial real estate CDO – Acacia CRE1 – in December 2005.

Chart 12: Collateral Composition for Acacia CDO Securitization Entities

Ø Acacia has recently begun to increase its commercial real estate investment activities.

Ø Sub-prime securities purchased in 2004 and 2005 were primarily A-rated and higher.

Chart 13: Acacia Collateral Rating History

																														Acacia
		Acacia 2				Acacia 3				Acacia 4				Acacia 5				Acacia 6				Acacia 7				Acacia 8				CRE1
		May-03				Oct-03				Apr-04				Jul-04				Nov-04				Mar-05				Jul-05				Dec-05
Upgrades			45				26				9				6				1				0				1				1
Downgrades			0				0				0				0				0				0				0				0
Positive Watch			0				0				0				0				0				0				0				0
Negative Watch			0				0				0				0				0				0				0				0
Up/Down Ratio		45 to 0				26 to 0				9 to 0				6 to 0				1 to 0					N/A			1 to 0				1 to 0

Ø Upgrades of securities owned by Acacia are a sign that Acacia CDO equity may continue to perform well.

The Redwood Review — 4th Quarter 2005			17

		FINANCIAL REVIEW

Finance Group Overview

Description

Redwood’s finance group is responsible for financial reporting, tax, treasury, balance sheet management, and information technology.

Discussion

Overall, the fourth quarter was a good quarter from both a GAAP and tax perspective. Our adjusted return on equity was 19.3%. GAAP earnings were $1.68 per share, core earnings were $0.97 per share, and taxable income was $1.66 per share. Please see the following pages for definitions of taxable income, adjusted ROE, and other non-GAAP measures and for reconciliations of these measures to the most comparable GAAP measures.

We expect GAAP, core, and taxable income per share during 2006 will likely continue to decline from fourth quarter levels as a result of a reduced balance of IO securities acquired from our Sequoia program, a higher level of uninvested cash, and lower gains from sales and calls of CES. The CES and IO assets we accumulated several years ago produced extraordinary investment returns. The assets we are acquiring now are more likely, in our opinion, to produce returns that are attractive but not extraordinary.

Our GAAP earnings in 2004 benefited from $59 million of gains from calls, while 2005 earnings benefited from $43 million of gains from asset sales. We do not expect to generate the same level of gain income in 2006 as we are not planning significant asset sales and we have fewer callable assets.

The flatter yield curve (higher short-term interest rates relative to long-term interest rates) and the increase in popularity of negative amortization loans has led to an increase in prepayment rates for adjustable-rate residential loans such as those owned by Sequoia. The annualized constant prepayment rate (CPR) for Sequoia loans was 17% in 2004, 43% in 2005, 51% for the fourth quarter of 2005, and 50% for January 2006.

Through May of 2004, we acquired the interest-only securities (“IOs”) issued by Sequoia entities. These securities earn the spread between the interest income generated by the securitized loans and the interest expense cost of the asset-backed securities issued. The net interest income we earn from our Sequoia-related assets has been declining rapidly. There are three causes for this decline, each of which is exacerbated by faster principal prepayment rates. Within the Sequoia entities, principal payments received are first used to reduce the amount of AAA-rated Sequoia asset-backed securities outstanding. These are the lowest cost ABS issued by Sequoia, so the spread earned by Sequoia IOs narrows as the underlying pool of loans pays down. Principal payments reduce the balance of loans on which Sequoia IOs earn a spread, also reducing our net interest income. Finally, we have unamortized premium balances associated with these loans (as they are consolidated on our GAAP books) and we write these balances off at a faster rate as principal prepayments accelerate. The reduction in net interest income from Sequoia IOs has been one of the major factors in the reduction of our core earnings per share from peak levels.

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The Redwood Review — 4th Quarter 2005			18

		FINANCIAL REVIEW

Finance Group Overview

Discussion (continued)

These prepayments have had less of an impact on taxable income than on GAAP earnings due to timing differences. We expect these accumulated timing differences of $30 million at December 31, 2005 to begin to reverse in 2006 and 2007, lowering taxable income in those years.

The yield on our residential credit-enhancement portfolio (as defined for GAAP purposes, including CES owned by Acacia) declined from 18.5% in 2004 to 16.0% in 2005. Yields decreased as many of our more seasoned, higher-yielding assets (higher yielding as a result of several years of strong credit performance and favorable prepayments) were called or sold. Additionally, recently acquired residential CES generally are being carried for GAAP purposes at lower initial effective yields as increased competition has led to higher average acquisition prices and because we are not projecting the same strong credit results or favorable rapid prepayment patterns for these assets.

The yield for this portfolio increased to 17.3% in the fourth quarter of 2005 from 16.6% in the previous quarter because of rising effective yields for some more seasoned individual assets as a result of strong cumulative credit performance and rapid prepayment rates over time. The average yield for this portfolio also rose due to a change in asset mix as we sold lower-yielding second-loss CES while retaining higher-yield first-loss CES.

In general, we expect that our annual GAAP, core, and taxable income will continue to exceed our regular dividend of $2.80 per share, and that we will pay a special dividend in 2006. The amount of the special dividend will likely be significantly less than the $3.00 per share special dividend we distributed in 2005.

Despite our cautious short-term outlook, we remain long-term bulls on residential and commercial real estate due to the fundamentals of growing demand, limited supply, and increasing construction costs. Barring a major real estate collapse, we continue to believe that the most reasonable expectation for our earnings potential is an 11% to 18% average adjusted return on equity measured over a long period of time.

If we reduce our excess cash balances over the next few years by making wise investments, and we start to realize some of the upside potential inherent in our existing assets, then earnings and dividends per share in 2007 and 2008 could increase from 2006 levels.

The Redwood Review — 4th Quarter 2005			19

		FINANCIAL REVIEW

GAAP Earnings

a) What is This?

Income as calculated under Generally Accepted Accounting Principles in the United States.

b) Graph

GAAP Earnings per Share

c) Quarterly Update

		Ø Our GAAP earnings were $42 million or $1.68 per share, for the fourth quarter of 2005. In the fourth quarter of 2004, GAAP earnings were $54 million, or $2.22 per share.
		Ø Realized gains on sales and calls increased by $5 million from the fourth quarter of 2004 to the fourth quarter of 2005. In the fourth quarter of 2005, we sold $81 million in market value of residential CES for a GAAP gain on sale of $9 million, and also realized $4 million of gains from calls of $8 million in principal value of residential CES.
		Ø Net interest income decreased by $17 million, primarily due to lower balances of earning assets (IO balance reduction as a result of prepayments, sales of CES) and higher balances of excess cash.
		Ø Yields on the residential CES portfolio (as it is defined for GAAP) have started to increase in the last two quarters, and were slightly higher in fourth quarter of 2005 than the fourth quarter of 2004.
		Ø Operating expenses increased by $4 million due to increases in information technology expenditures, headcount, and other expenses. We currently do not expect operating expenses to increase significantly in 2006 compared to 2005. Tax provisions for GAAP purposes were roughly equal in the fourth quarter periods of 2004 and 2005.

The Redwood Review — 4th Quarter 2005			20

		FINANCIAL REVIEW

Core Earnings

a) What is This?

Core earnings is a profitability measure that highlights earnings that are more likely to be on-going in nature. In calculating core earnings, we start with GAAP earnings and then exclude gains on sale, mark-to-market adjustments, and one time items that are unlikely to be repeated. Table 2 in the Appendix shows a reconciliation of core to GAAP earnings.

b) Graph

Core Earnings per Share

c) Quarterly Update

		Ø Core earnings were $25 million, or $0.97 per share, for the fourth quarter of 2005. In the fourth quarter of 2004, core earnings were $46 million, or $1.86 per share.
		Ø GAAP earnings of $42 million ($1.68 per share) exceeded core earnings by $18 million. Core earnings does not include $12 million gains from sales of CES and other securities, $4 million gains from calls of CES, $3 million GAAP mark-to-market income on interest rate agreements, and $1 million of GAAP mark-to-market write downs of securities (EITF 99-20).
		Ø Core earnings per share comparisons versus prior quarters continue to show a downward trend. We achieved extraordinary earning levels in the last few years but we have not been able to sustain them.

The Redwood Review — 4th Quarter 2005			21

		FINANCIAL REVIEW

Total Taxable Income

a) What is This?

Total taxable income is a measure of our profitability. It is our pre-tax income as calculated for tax purposes. It includes pre-tax income earned at our parent company and REIT subsidiaries (REIT taxable income) as well as pre-tax income earned in our taxable non-REIT subsidiaries. Total taxable income can differ materially from GAAP earnings. Table 3 in the Appendix reconciles these two profitability measures.

b) Graph

Total Taxable Earnings per Share (Estimated for 2005)

c) Quarterly Update

Ø		Total taxable income was $1.66 per share in the fourth quarter of 2005 and $2.44 per share in the fourth quarter of 2004.
Ø		One of the differences between these two quarters was gain on sale for tax purposes from securitizations we sponsor. These gains were $11 million in the fourth quarter of 2004 but were zero for the fourth quarter of 2005. We expect the residential loan securitization business we conduct through our conduit operations will operate at a breakeven profitability in 2006.
Ø		For the fourth quarter, total taxable income was similar to GAAP earnings of $42 million. GAAP earnings included provisions for income and excise taxes of $4 million that were not included in the pre-tax taxable income calculation. Gains from sales and calls were $6 million lower for tax as our tax basis for assets is generally higher than our GAAP basis.
Ø		The yield we recognize on our Sequoia IO securities would currently be negative due to rapid Sequoia loan prepayments; however, we are not allowed to recognize a negative effective yield on assets for tax purposes. As a result, our cumulative taxable income has been higher by $30 million than it would have been otherwise, and our taxable income over the next few years will be lower by the same amount.

The Redwood Review — 4th Quarter 2005			22

		FINANCIAL REVIEW

Core Taxable Income

a) What is This?

Core taxable income is a profitability measure that highlights that portion of taxable income that is more likely to be on-going in nature. In calculating core taxable income, we start with total taxable income and then exclude gains on sale, tax deductions created by the exercise of stock options, and one time items that are unlikely to be repeated. Table 4 in the Appendix reconciles core taxable income and total taxable income to GAAP income.

b) Graph

Core Taxable Earnings per Share

c) Quarterly Update

Ø		In the fourth quarter of 2005, core taxable income was $36 million, or $1.44 per share. In the fourth quarter of 2004, it was $40 million, or $1.67 per share.
Ø		Fast prepayment speeds have substantially increased the income we recognized on our CES. If prepayment speeds slow down in the future, we will recognize less income on our CES and income on the IOs will remain approximately the same due to expense deferrals (see discussion under total taxable income).
Ø		Actual realized credit losses reduce taxable income as incurred, in an amount generally equal to the principal loss times our tax basis in the affected CES.

The Redwood Review — 4th Quarter 2005			23

		FINANCIAL REVIEW

REIT Taxable Income

a) What is This?

REIT taxable income is the primary determinant of the minimum amount of dividends we need to distribute in order to maintain our tax status as a real estate investment trust (REIT). REIT taxable income is pre-tax profit, as calculated for tax purposes, at Redwood Trust and our subsidiaries that have elected REIT tax status. (It does not include taxable income earned at our taxable non-REIT subsidiaries.) Over time, we must distribute at least 90% of our REIT taxable income as dividends. A reconciliation of GAAP income to REIT taxable income appears in Table 3 of the Appendix.

b) Graph

REIT Taxable Earnings per Share

c) Quarterly Update

Ø		For the fourth quarter of 2005, REIT taxable income was $40 million, or $1.59 per share. For the fourth quarter of 2004, it was $50 million, or $2.07 per share.
Ø		REIT taxable income has benefited from substantial gains due to call and sales activity. We expect reduced call and sales activity in 2006.
Ø		Due to increased levels of uninvested capital, REIT taxable income has generally shown a downward trend in recent quarters. We expect this trend to continue until we reinvest our cash proceeds.
Ø		REIT taxable income can be affected by one-time operating events such as stock option exercises (which reduce taxable income by the in-the-money amount of the exercised options).

The Redwood Review — 4th Quarter 2005			24

		FINANCIAL REVIEW

a) What is This?

Book value per share is the amount of equity capital we have per share of common stock outstanding. There are many different ways that equity capital can be measured. We usually focus on three measures, each of which we believe is useful for a different purpose.

GAAP book value is our common equity as calculated for GAAP purposes. It includes a mark-to-market valuation adjustment for many of our assets. Over time, our GAAP book value per share has been increasing as a result of retention of a portion of our income, increases in the market value of our assets, and sales of stock at prices that exceed book value.

Core book value is reported GAAP book value excluding those mark-to-market adjustments that were not included in our income statements. Core book value more closely reflects historical amortized costs rather than current market values.

Adjusted core book value is core book value less REIT taxable income that we have earned but not yet distributed as dividends. Since as a REIT we will be required to distribute this income, adjusted core book value is a measure that provides one estimate of the amount of equity capital we will have over the long-run in order to generate future earnings.

A reconciliation of GAAP book value to core book value and adjusted core book value appears in Table 8 of the Appendix.

b) Graph

GAAP Book Value per Share

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		FINANCIAL REVIEW

Book Value per Share

c) Quarterly Update

Ø		For the year 2005, after declaring $5.80 per share of dividends, GAAP book value per share increased by 4% from $35.78 per share to $37.20 per share.
Ø		For the fourth quarter of 2005, GAAP book value declined by $3.83 per share. The primary cause of the decrease was the declaration of $3.70 per share of dividends during the quarter. Market values of assets also declined.
Ø		At December 31, 2005, core book value was $34.27 per share and adjusted core book value was $32.23 per share. During 2005, core book value and adjusted core book value increased by $2.85 per share and $2.37 per share, respectively.
Ø		At the end of our first quarter of operations in September 1994, GAAP book value was $11.67 per share. Since that time, we have been able to pay $34.63 per share of dividends and have increased GAAP book value by $25.53 per share.

The Redwood Review — 4th Quarter 2005			26

		FINANCIAL REVIEW

Return on Equity

a) What is This?

We believe return on equity (ROE) is one of the more useful measures of the profitability of our business. ROE is the amount of profit we generate each year per dollar of equity capital. There are numerous ways this could be calculated for Redwood since we monitor a number of different profit measures as well as a number of different measures of equity capital.

GAAP ROE is GAAP earnings divided by GAAP equity.

One interesting aspect to consider about GAAP ROE is that it will decline (all other things being equal) if our assets increase in market value. Many of our assets are marked-to-market through our balance sheet but not our income statement. An increase in asset market value will therefore increase GAAP equity but not our GAAP earnings, thus lowering GAAP ROE. Similarly, a decrease in asset market values will increase our GAAP ROE.

An alternative measure of ROE that may also be useful is Adjusted ROE, by which we mean GAAP income divided by core equity. Core equity excludes those balance sheet mark-to-market adjustments that are not included in our income statement. Only those asset market value changes that are included in our income statement will affect Adjusted ROE.

A reconciliation of GAAP ROE to Adjusted ROE, and of GAAP equity to core equity, appears in Table 8 of the Appendix.

b) Graph

Adjusted ROE

(continued on next page)

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		FINANCIAL REVIEW

Return on Equity

c) Quarterly Update

Ø		GAAP ROE was 17% for the fourth quarter of 2005 and 21% for the year ended December 31, 2005.
Ø		Adjusted ROE was 19% for the fourth quarter and 24% for the year ended December 31, 2005. Adjusted ROE is greater than GAAP ROE due to the appreciation of the market values of assets that are marked-to-market through our GAAP balance sheet. This increases our GAAP equity and thus lowers GAAP ROE.

The Redwood Review — 4th Quarter 2005			28

		FINANCIAL REVIEW

Discounts and Reserves

a) What is This?

For tax accounting (which drives our dividend distributions), we cannot take any credit reserves and must amortize the entire purchase discount into taxable income. As a result, effective yields for the recently acquired assets are generally higher today for tax purposes than for GAAP purposes (losses are expensed as incurred). Future differences in the timing of amortizing the discount will depend on the credit performance and prepayment behavior of the assets.

b) Graph

Discounts and Credit Reserves per Share

(continued on next page)

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		FINANCIAL REVIEW

Discounts and Reserves

c) Quarterly Update

	Ø		On December 31, 2005, the net balance of all GAAP premiums and discounts associated with all consolidated residential and commercial real estate loans, securities, asset-backed securities issued, and other assets and liabilities was a net discount balance of $623 million, or $24.79 per share.
	Ø		All premium balances are being amortized into income over time as an expense. A portion of the discount balance is currently being amortized, increasing our reported income. The remainder of the discount balance is not currently being amortized as we expect the principal balance of the related assets will be reduced by future credit losses. If these credit losses do not occur, we will amortize the entire discount balance into income over time.
	Ø		As defined for GAAP, residential credit-enhancement securities had a net GAAP discount balance of $19.16 per share. We are currently estimating that cumulative credit losses will equal $14.11 per share. The remaining balance of $5.05 per share is currently being amortized into GAAP income.
	Ø		Commercial credit-enhancement securities had a net discount balance of $4.87 per share. We are currently estimating that cumulative credit losses will equal $5.64 per share. As a result, we are currently writing down our GAAP basis in these assets over time by a cumulative total of $0.77 per share, creating a net amortization expense for GAAP purposes.
	Ø		GAAP credit reserves on residential loans owned by Sequoia securitizations (and loans held by Redwood for sale to Sequoia) create a discount balance of $0.90 per share. The net premium on these loans, excluding the reserve, is $1.98 per share. For GAAP purposes, these loans are carried on our balance sheet at an effective price of 100.20% of principal value.
	Ø		The net discount balance on all other assets and liabilities was $1.84 per share.
	Ø		Recent sales of residential CES have not reduced our overall net discount and reserve balance per share since we sold primarily second-loss CES that have less of a discount while continuing to acquire first-loss CES.

The Redwood Review — 4th Quarter 2005			30

		FINANCIAL REVIEW

Dividends

a) What is This?

As a REIT, we are required to distribute at least 90% of our REIT taxable income each year as dividends. We have a regular dividend rate that is established at a level we believe is reasonably likely to be sustainable. To the extent the REIT taxable income we are required or choose to distribute is greater than our regular dividends distributions, we will make a special dividend distribution towards year-end.

b) Graph

Regular dividends

c) Quarterly Update

	Ø		We declared four regular quarterly dividends of $0.70 per share in 2005 and, in the fourth quarter, declared and paid a special dividend of $3.00 per share. We permanently retained approximately 10% of the ordinary REIT taxable income we earned during 2005, and we intend to declare and distribute the remainder of our 2005 REIT taxable income as dividends by September 2006.
	Ø		Based on our estimates of REIT taxable income during 2005, and the dividends distributed to date, we entered 2006 with $51 million ($2.04 per share) of undistributed REIT taxable income. We also retained 100% of the taxable income that we earned at our taxable REIT subsidiaries in 2005 (after taxes). By retaining a portion of our income, we seek to build equity per share, and thus potential earnings and dividends per share, over time. We anticipate following a similar pattern of retention and distribution in 2006.
	Ø		During 2005, a portion of taxable income was in the form of net capital gains resulting from the sales and calls of some of our residential loan CES. Our income from this activity was long-term capital gain income for tax purposes. Thus, during 2005, 23.291% of our dividends distributed was characterized as a distribution of long-term capital gain income and the remaining 76.709% was characterized as a distribution of ordinary income. Our tax-paying shareholders may benefit to the degree they can take advantage of the lower tax rate on capital gains versus ordinary income.

The Redwood Review — 4th Quarter 2005			31

		APPENDIX

Glossary

All companies and analysts do not calculate non-GAAP measures in the same fashion. As a result, certain measures as calculated by the Redwood Trust may not be comparable to similarly titled measures reported by other companies.

ACACIA

Acacia is the brand name for the collateralized debt obligation (CDO) securitizations we sponsor. The underlying pool of assets for these CDO securitizations consists primarily of investment-grade and non-investment-grade rated securities backed by residential prime, residential sub-prime, and commercial real estate loans. Acacia also owns related assets such as CDO securities issued by other real estate oriented CDOs, corporate debt issued by equity REITs, commercial real estate loans, and synthetic assets derived from commercial real estate assets.

ADJUSTED CORE EQUITY (ADJUSTED BOOK VALUE)

Adjusted core equity (adjusted book value) is not a measure calculated in accordance with GAAP. We have minimum dividend distribution requirements as a REIT. We thus have future payment obligations, but these are not recognized in GAAP accounting until dividends are declared. Cash that we have earned but that we must pay out as dividends is not cash that will be available to us to acquire long-term assets and build our business. So when we try to answer questions such as “how much equity per share do we have available to build our business and to generate dividends in the long-term?” we use adjusted core equity per share. Adjusted core equity is core equity less undistributed REIT taxable income that is still undeclared but that will need to be paid out. A reconciliation of adjusted core equity to GAAP equity appears in the Appendix in Table 8.

BOOK VALUE

Book value is our common equity amount. It can be calculated in a number of ways, one of which is appropriate for GAAP.

CDO EQUITY SECURITIES

CDO equity securities are collateralized debt obligation securities that bear the initial credit losses of the assets owned by the securitization entities. They come in a variety of forms. They serve the same function as first-loss credit-enhancement securities issued from securitizations of residential and commercial real estate loans. Collateralized debt obligations, a type of asset-backed securitization, are usually backed by a pool of heterogeneous assets.

CONDUIT

A group that acquires closed loans from originators, accumulates loans over a period of time, and sells these loans, seeking to generate a gain on sale. Sales are usually made via securitization, but also can be done through bulk whole loan sales.

CORE EARNINGS

Core earnings is not a measure of earnings in accordance with GAAP. We attempt to strip some of the elements out of GAAP earnings that are temporary, one-time, or non-economic in nature or that relate to the past rather than the future, so that the underlying on-going “core” trend of earnings is more clear, at least in certain respects. We exclude realized gains (and losses) resulting from asset sales and calls from GAAP income. We sell assets from time to time as part of our on-going portfolio management activities. These sales can produce material gains and losses that could obscure the underlying trend of our long-term portfolio earnings, so we exclude them from core earnings. Similarly, we exclude gains from calls of residential credit-enhancement securities, as these are essentially sales of assets that produce a highly variable stream of income that may obscure some underlying income generation trends. GAAP earnings include mark-to-market income and expenses for certain of our assets and interest rate agreements.

(continued on next page)

The Redwood Review — 4th Quarter 2005			32

		APPENDIX

Glossary

CORE EARNINGS (continued)

These are unrealized market value fluctuations — we exclude them from core earnings. Similarly, we have issued certain stock options that are “variable” and thus are marked-to-market for GAAP purposes. When our stock price goes up, it is a GAAP expense. When our stock price goes down, GAAP income is created. We exclude this from core earnings. Stock option expenses that stem from FAS 123 and FAS 123R are included in core earnings. Management believes that core earnings provide relevant and useful information regarding 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. A reconciliation of core earnings to GAAP income appears in Table 2 of the Appendix.

CORE EQUITY (CORE BOOK VALUE)

Core equity is not a measure calculated in accordance with GAAP. GAAP equity includes mark-to-market adjustments for certain of our assets and interest rate agreements. Core equity is GAAP equity with mark-to-market gains and losses (“accumulated other comprehensive income”) excluded. It approximates what our equity value would be if we used historical amortized cost accounting exclusively. A reconciliation of core equity to GAAP equity appears in Table 8 of the Appendix.

CORE REIT TAXABLE INCOME

Core REIT taxable income is REIT taxable income before gains and losses on asset sales and calls, and certain other expenses such as tax deductions for stock option exercises. It represents that portion of our REIT taxable income that may be more on-going in nature. A reconciliation of Core taxable income to GAAP Income appears in to GAAP Income is covered in Table 3 and 4 of the Appendix.

CORE TAXABLE INCOME

Core taxable income is total taxable income before gains and losses on asset sales and calls and certain other expenses such as tax deductions for stock option exercises. It represents that portion of our total taxable income that may be more on-going in nature. A reconciliation of Core taxable income to GAAP Income is covered in Table 3 and 4 of the Appendix.

CREDIT-ENHANCEMENT SECURITIES

Credit-enhancement securities (CES) absorb the initial credit losses generated by a pool of securitized assets. As a result, the more senior securities issued from that securitization are credit-enhanced (have less credit risk). These securities are also referred to as subordinated securities and B-pieces. Our permanent asset portfolio contains first-loss (usually non-rated) and second-loss (usually with a credit rating of single-B) CES securities or their equivalents. The first-loss security takes the initial risk. If losses exceed the principal value of the first-loss security, the second-loss security is at risk. The CDO equity securities we acquire from the Acacia CDO securitization transactions we sponsor function as CES for those transactions. On our GAAP balance sheet, residential credit-enhancement securities includes both permanent assets and also second- and third-loss (usually rated BB) securities that are owned by Acacia and are consolidated on our balance sheet.

GAAP

Generally Accepted Accounting Principals in the United States.

The Redwood Review — 4th Quarter 2005		33

		APPENDIX

Glossary

INTEREST-ONLY SECURITIES

Interest-only securities (“IOs”) are specialized securities that are backed by real estate loans. They receive interest payments calculated as a function of interest payments generated by the underlying loans. Typically, however, IO securities do not have a principal balance and they will not receive principal payments generated by those loans. Interest payments to IO securities usually equal the IO interest rate formula multiplied by a “notional” principal balance. The notional principal balance for an IO is typically reduced over time as the actual principal balance of the underlying pool of real estate loans pays down. Thus, IO cash flows are reduced as time passes and the loans pay down, and IO cash flows are typically reduced more quickly if loan prepayments accelerate. The IO securities that Redwood has acquired in the past from some Sequoia residential securitizations typically earn an interest amount that varies as a function of the remaining principal balance of Sequoia loans and the spread between the yield on the residential loans owned by Sequoia and the cost of the asset-backed securities issued by Sequoia.

INVENTORY ASSETS

Inventory assets are assets that we acquire to hold for several weeks or months that we then sell to a securitization entity. We use a combination of debt and equity to fund inventory assets.

LEVERAGE RATIOS

Because of the consolidation of independent securitization entities, it appears from our GAAP consolidated financial statements that Redwood is highly leveraged, with liabilities greater than seventeen times equity. In fact, Redwood has $170 million of debt and $935 million of equity supporting over $1 billion of earning assets at December 31, 2005. We currently only use debt to finance on a temporary basis the accumulation of inventory assets prior to sale to a securitization entity.

NEGATIVE AMORTIZATION (NEG AM ARMS, OPTION ARMS, OR MTA ARMS)

Negative Amortization ARMs (Neg Am ARMs, Option ARMs, or MTA ARMs) are monthly adjustable rate mortgages where the borrower can choose between different payment options. One of these options allows the borrower to make a minimum payment. This minimum payment is less than the interest accrued on the mortgage and in this instance the borrower’s loan balance will increase (negative amortization).

PERMANENT ASSETS

We seek to invest in assets that have the potential to provide high cash flow returns over a long period of time to help support our goal of maintaining steady dividends. We typically fund long-term investment assets entirely with equity (i.e., no debt). We refer to the assets we own that meet this criteria as permanent assets. Our permanent asset portfolio includes residential and commercial credit-enhancement securities and similar assets, residential interest-only securities, commercial real estate loans, and CDO equity securities.

PROFITABILITY RATIOS

Many financial institution analysts use asset-based profitability ratios such as interest rate spread and interest rate margin in their work analyzing financial institutions. Because of our consolidation of securitization entities for GAAP purposes, we believe equity-based profitability ratios are more appropriate for Redwood. Net interest income as a percentage of equity is a useful measure we believe. For operating expenses, we believe a useful measure is the efficiency ratio, or operating expenses as a percentage of net interest income.

The Redwood Review — 4th Quarter 2005			34

		APPENDIX

Glossary

REDWOOD DEBT

Redwood’s debt — the money we have to pay back to a lender — was $170 million at the end of the fourth quarter of 2005. Our GAAP balance sheet shows liabilities of $16 billion because all of the assets and liabilities of the independent securitization entities we have sponsored are consolidated. The liabilities of these entities are shown on our balance sheet as “asset-backed securities issued” — they are not obligations of Redwood Trust.

REDWOOD EARNING ASSETS

Redwood earning assets is not a measure calculated in accordance with GAAP. Redwood earning assets totaled approximately $1 billion at the end of 2005. Included in this amount are securities we have acquired from securitizations we have sponsored with a cost basis of approximately $182 million. All of the $16 billion of assets and asset-backed securities liabilities of the securitization entities we have sponsored are shown on our GAAP consolidated balance sheet, even though we do not own these assets and we are not responsible for the payment of these liabilities. For some analytical tasks (such as determining how much financial leverage Redwood carries on its balance sheet) we believe it makes more sense to consider the assets Redwood actually owns and the debt Redwood actually owes rather than including all GAAP assets and liabilities consolidated from securitization entities that are independent of Redwood. A reconciliation of earning assets to GAAP assets appears in Table 6 of the Appendix.

RETURN ON EQUITY AND ADJUSTED RETURN ON EQUITY

Return on Equity (“ROE”) is the amount of profit we generate each year per dollar of equity capital. Adjusted ROE is GAAP income divided by core equity. Core equity excludes those balance sheet mark-to-market adjustments that are not included in our income statement. Thus, only those asset market value changes that are included in our income statement will affect adjusted ROE. A reconciliation of GAAP ROE to adjusted ROE appears in Table 8 of the Appendix.

SEQUOIA

Sequoia is the brand name for most of the securitizations of residential real estate loans we have sponsored.

TOTAL RETAINED AND REIT RETAINED TAXABLE INCOME

Total Retained and REIT Retained Taxable Income are not measures calculated in accordance with GAAP. Total retained taxable income is the taxable income earned at the REIT after dividend distributions to our shareholders, plus all of the taxable income earned at our taxable REIT subsidiary, less corporate income taxes and excise taxes paid. REIT retained taxable income is the taxable income earned at the REIT after dividend distributions to our shareholders, less corporate income taxes and excise taxes paid. A reconciliation of total retained and REIT Retained Taxable Income to GAAP income is covered in Tables 3 and 4 of the Appendix.

TOTAL TAXABLE INCOME AND REIT TAXABLE INCOME

Total taxable income is not a measure calculated in accordance with GAAP. It is the pre-tax income calculated for tax purposes. Estimated total taxable income is an important measure as it is the basis of our dividend distributions to shareholders. Taxable income calculations differ significantly from GAAP income calculations. REIT taxable income is that portion of our taxable income that we earn in our parent company and REIT subsidiaries. It does not include taxable income earned in taxable non-REIT subsidiaries. We must distribute at least 90% of REIT taxable income as dividends to shareholders over time. As a REIT we are not subject to corporate income taxes on the REIT taxable income we distribute. The remainder of our taxable income is income we earn in taxable subsidiaries. We pay income tax on this income and we generally retain the after-tax income at the subsidiary level. We also pay income tax on the REIT taxable income we retain (we can retain up to 10% of the total). A reconciliation of total taxable income and REIT taxable to GAAP income appears in Table 3 of the Appendix.

The Redwood Review — 4th Quarter 2005			35

		APPENDIX		DRAFT

FINANCIAL TABLES

The Redwood Review — 4th Quarter 2005 Version 2.5		36

Table 1: GAAP Earnings (all $ in thousands, except per share data)

		Q4:2005				Q3:2005				Q2:2005				Q1:2005					Q4:2004				Q3:2004				Q2:2004				Q1:2004					Q4:2003					2005				2004				2003
Redwood and consolidated entities interest income		$	234,233			$	245,735			$	248,669			$	236,957				$	204,834			$	171,804			$	144,865			$	130,158				$	111,071				$	965,594			$	651,661			$	332,033
Discount amortization income			11,936				12,714				8,395				9,316					9,146				9,012				9,077				8,836					10,407					42,361				36,071				37,752
Premium amortization expense			(14,451	)			(15,698	)			(10,203	)			(8,082	)				(7,105	)			802				(14,463	)			(11,646	)				(9,948	)				(48,434	)			(32,412	)			(30,163	)
Provision for credit losses			(877	)			805				1,527				(1,025	)				(1,697	)			(1,528	)			(1,500	)			(2,511	)				(3,268	)				430				(7,236	)			(8,646	)
Total GAAP Interest Income			230,841				243,556				248,388				237,166					205,178				180,090				137,979				124,837					108,262					959,951				648,084				330,976
Interest expense on Redwood Trust’s debt			(3,531	)			(3,845	)			(1,825	)			(2,728	)				(2,560	)			(2,312	)			(2,490	)			(2,571	)				(1,788	)				(11,929	)			(9,933	)			(7,038	)
ABS expenses consolidated from trusts			(186,457	)			(191,035	)			(191,985	)			(173,182	)				(143,078	)			(108,237	)			(78,809	)			(69,069	)				(67,552	)				(742,659	)			(399,193	)			(183,214	)
ABS issuance expense amortization			(6,069	)			(5,162	)			(5,386	)			(5,273	)				(4,783	)			(4,197	)			(4,305	)			(3,543	)				(4,333	)				(21,890	)			(16,828	)			(12,805	)
ABS interest agreement expense			3,573				623				876				1,469					606				(2,888	)			(5,988	)			(4,965	)				(2,358	)				6,541				(13,235	)			(8,175	)
ABS issuance premium amortization income			2,793				2,733				3,140				3,747					2,644				2,823				1,233				571					7,437					12,413				7,271				8,371
Total consolidated ABS expense			(186,160	)			(192,841	)			(193,355	)			(173,239	)				(144,611	)			(112,499	)			(87,869	)			(77,006	)				(66,806	)				(745,595	)			(421,985	)			(195,823	)
GAAP net interest income			41,150				46,870				53,208				61,199					58,007				65,279				47,620				45,260					39,668					202,427				216,166				128,115
Fixed compensation expense			(2,879	)			(2,802	)			(2,623	)			(2,778	)				(2,009	)			(1,959	)			(1,842	)			(2,230	)				(1,641	)				(11,082	)			(8,040	)			(5,948	)
Variable compensation expense			(4,624	)			(4,304	)			(4,824	)			(4,279	)				(2,908	)			(3,443	)			(4,722	)			(4,022	)				(3,575	)				(18,031	)			(15,095	)			(16,686	)
Fair value of stock options granted			(406	)			47				(348	)			(370	)				(299	)			(133	)			(547	)			(310	)				(388	)				(1,077	)			(1,289	)			(388	)
Other operating expense			(4,268	)			(3,866	)			(3,179	)			(3,322	)				(2,565	)			(2,512	)			(1,781	)			(1,735	)				(2,076	)				(14,635	)			(8,593	)			(7,018	)
Operating expenses			(12,177	)			(10,925	)			(10,974	)			(10,749	)				(7,781	)			(8,047	)			(8,892	)			(8,297	)				(7,680	)				(44,825	)			(33,017	)			(30,040	)
Excise taxes			(280	)			(285	)			(308	)			(307	)				165				(301	)			(190	)			(300	)				(341	)				(1,180	)			(626	)			(1,203	)
Variable stock option market value change			25				16				(2	)			84					3				(213	)			621				(1,429	)				(2,701	)				123				(1,018	)			(5,652	)
Total GAAP operating expenses			(12,432	)			(11,194	)			(11,284	)			(10,972	)				(7,613	)			(8,561	)			(8,461	)			(10,026	)				(10,722	)				(45,882	)			(34,661	)			(36,895	)
Realized gains on calls			4,266				2,914				4,421				7,548					11,205				20,472				15,246				11,816					47,562					19,149				58,739				56,560
Realized gains on sales			11,654				23,053				516				8,347					—				488				971				6,180					46					43,570				7,639				870
Loss on repurchase of ABS issued			—				—				—				—					—				—				—				—					(2,160	)				—				—				(2,160	)
Valuation write-downs for EITF 99-20			(1,111	)			(1,158	)			(1,710	)			(391	)				(1,573	)			(421	)			(3,846	)			(558	)				(2,818	)				(4,370	)			(6,398	)			(7,646	)
Interest rate agreements valuation adjustments			3,066				107				(182	)			(492	)				(411	)			47				(113	)			(1	)				19					2,499				(478	)			(448	)
Valuation adjustments on real estate loans			—				—				—				—					(375	)			—				—				—					(500	)				—				(375	)			(500	)
Net gains and valuation adjustments			17,875				24,916				3,045				15,012					8,846				20,586				12,258				17,437					42,149					60,848				59,127				46,676
Dividends on and earnings allocated to preferred stock			—				—				—				—					—				—				—				—					—					—				—				(696	)
Deferred tax benefit			—				—				—				—					—				—				5,180				—					—					—				5,180				—
Provision for income taxes			(4,097	)			(4,693	)			(4,054	)			(4,677	)				(4,826	)			(4,962	)			(1,509	)			(1,880	)				(1,162	)				(17,521	)			(13,177	)			(5,502	)
GAAP Net Income		$	42,496			$	55,899			$	40,915			$	60,562				$	54,414			$	72,342			$	55,088			$	50,791				$	69,933				$	199,872			$	232,635			$	131,698
Diluted average shares (000)			25,311				25,314				25,196				25,021					24,491				22,728				21,325				20,399					19,801					25,121				22,229				18,812
GAAP earnings per share		$	1.68			$	2.21			$	1.62			$	2.42				$	2.22			$	3.18			$	2.58			$	2.49				$	3.53				$	7.96			$	10.47			$	7.04

The Redwood Review — 4th Quarter 2005		APPENDIX — Table 1 — GAAP Earnings		A-1

Table 2: Core Earnings (all $ in thousands, except per share data)

		Q4:2005				Q3:2005				Q2:2005				Q1:2005					Q4:2004				Q3:2004				Q2:2004				Q1:2004					Q4:2003					2005				2004				2003
GAAP income items not included in CORE
Variable stock option market value change		$	25			$	16		(	$	2	)		$	84				$	3		(	$	213	)		$	621		(	$	1,429	)		(	$	2,701	)			$	123		(	$	1,018	)	(	$	5,652	)
Realized gains on calls of residential CES			4,266				2,914				4,421				7,548					11,205				20,472				15,246				11,816					47,562					19,149				58,739				56,560
Realized gains on asset sales			11,654				23,053				516				8,347					(76	)			489				971				6,255					46					43,570				7,639				870
Loss on repurchase of ABS issued			—				—				—				—					—				—				—				—					(2,160	)				—				—				(2,160	)
Valuation write-downs for EITF 99-20			(1,111	)			(1,158	)			(1,710	)			(391	)				(1,572	)			(422	)			(3,846	)			(558	)				(2,818	)				(4,370	)			(6,398	)			(7,646	)
Interest rate agreements valuation adjustments			3,066				107				(182	)			(492	)				(411	)			47				(113	)			(1	)				19					2,499				(478	)			(448	)
Commercial real estate valuation adjustments			—				—				—				—					(300	)			—				—				(75	)				(500	)				—				(375	)			(500	)
Net gains and valuation adjustments			17,875				24,916				3,045				15,012					8,846				20,586				12,258				17,437					42,149					60,848				59,127				46,676
Deferred tax benefit			—				—								—					—				—				5,180				—										—				5,180				—
Total GAAP / CORE differences			17,900				24,932				3,043				15,096					8,849				20,373				18,059				16,008					39,448					60,971				63,289				41,024
Core earnings			24,596				30,967				37,872				45,466					45,565				51,969				37,029				34,783					30,485					138,901				169,346				90,557
GAAP / CORE differences			17,900				24,932				3043				15,096					8,849				20,373				18,059				16,008					39,448					60,971				63,289				41,024
GAAP Net Income		$	42,496			$	55,899			$	40,915			$	60,562				$	54,414			$	72,342			$	55,088			$	50,791				$	69,933				$	199,872			$	232,635			$	131,581
Per Share Analysis
Variable stock option market value change		$	0.00			$	0.00			$	0.00			$	0.00				$	0.00				($0.01	)		$	0.03		(	$	0.07	)		(	$	0.14	)			$	0.00		(	$	0.05	)	(	$	0.30	)
Realized gains on calls of residential CES			0.17				0.12				0.18				0.30					0.46				0.90				0.71				0.58					2.40					0.77				2.64				3.01
Realized gains on asset sales			0.46				0.91				0.02				0.33					—				0.02				0.05				0.30					0.00					1.73				0.34				0.05
Loss on repurchase of ABS issued			—				—				—				—					—				—				—				—					(0.11	)				—				—				(0.11	)
Valuation write-downs for EITF 99-20			(0.04	)			(0.05	)			(0.07	)			(0.02	)				(0.06	)			(0.02	)			(0.18	)			(0.03	)				(0.14	)				(0.17	)			(0.29	)			(0.41	)
Interest rate agreements valuation adjustments			0.12				—				(0.01	)			(0.01	)				(0.02	)			0.00				—				(0.00	)				0.00					0.10				(0.02	)			(0.02	)
Commercial real estate valuation adjustments			—				—				—				—					(0.02	)			—				(0.01	)			—					(0.02	)				—				(0.02	)			(0.03	)
Deferred tax benefit			—				—				—				—					—				—				0.24				—					—					—				0.24				—
GAAP / CORE differences per share		$	0.71			$	0.98			$	0.12			$	0.60				$	0.36			$	0.89			$	0.84			$	0.78				$	1.99				$	2.43			$	2.85			$	2.19
CORE earnings per share			0.97				1.23				1.50				1.82					1.86				2.29				1.74				1.71					1.54					5.53				7.62				4.85
GAAP / CORE differences per share			0.71				0.98				0.12				0.60					0.36				0.89				0.84				0.78					1.99					2.43				2.85			$	2.19
GAAP earnings per share		$	1.68			$	2.21			$	1.62			$	2.42				$	2.22			$	3.18			$	2.58			$	2.49				$	3.53				$	7.96			$	10.47				7.04
Diluted average shares (000)			25,311				25,314				25,196				25,021					24,491				22,728				21,325				20,399					19,801					25,121				22,229				18,812

      

The Redwood Review — 4th Quarter 2005		APPENDIX — Table 2 — Core Earnings		A-2

Table 3: GAAP / TAX Differences (all $ in thousands, except per share data)

		Estimated																																		Estimated
		Q4:2005				Q3:2005				Q2:2005				Q1:2005					Q4:2004				Q3:2004				Q2:2004				Q1:2004					2005				2004				2003
GAAP net income		$	42,496			$	55,899			$	40,915			$	60,562				$	54,414			$	72,342			$	55,088			$	50,791				$	199,872			$	232,635			$	131,698
Interest income and expense differences			(1,573	)			1,353				(4,868	)			(20,091	)				(7,519	)			(23,527	)			5,208				(1,150	)				(25,179	)			(26,988	)			22,324
Provision for credit losses — GAAP			876				(805	)			(1,527	)			1,025					1,697				1,528				1,500				2,511					(431	)			7,236				8,646
Tax deductions for realized credit losses			34				(562	)			(737	)			(438	)				(247	)			(127	)			(506	)			(4	)				(1,703	)			(884	)			(825	)
Long-term compensation differences			1,051				2,892				2,138				1,969					(1,775	)			402				2,428				2,904					8,050				3,959				7,522
Stock option exercise deduction differences			(202	)			(2,944	)			(143	)			(477	)				(3,094	)			(745	)			(109	)			(12,073	)				(3,766	)			(16,021	)			(2,483	)
Depreciation of fixed asset differences			168				60				166				151					(176	)			(589	)			46				(6	)				545				(725	)			(686	)
Other operating expense differences			(781	)			283				(31	)			69					(2,495	)			(34	)			5				(16	)				(460	)			(2,540	)			885
Sale of assets to third parties differences			(4,612	)			(8,041	)			(2,476	)			(967	)				1,428				(576	)			(536	)			(566	)				(16,096	)			(250	)			(69	)
Call income of residential CES differences			(1,505	)			(319	)			120				(2,324	)				(2,872	)			(3,961	)			(2,157	)			(1,899	)				(4,028	)			(10,889	)			(8,402	)
Tax gain on securitizations			—				(392	)			808				2,558					10,749				11,153				10,303				—					2,974				32,205				—
Tax gain on intercompany sales and transfers			(473	)			170				2,371				3,260					3,256				28				(71	)			7,546					5,328				10,759				2,823
GAAP market valuation write downs (EITF 99-20)			1,110				2,048				820				391					1,572				422				3,846				558					4,369				6,398				7,646
Interest rate agreements differences			707				216				53				202					(688	)			(278	)			502				50					1,178				(414	)			(229	)
Provision for excise tax — GAAP			280				285				308				307					(165	)			301				190				300					1,180				626				1,203
Provision for income tax differences			4,096				5,013				3,035				134					4,827				2,834				(3,672	)			1,881					12,278				5,870				5,502
Preferred dividend — GAAP			—				—				—				—					—				—				—				—					—				—				696
Total taxable income (pre-tax)			41,672				55,156				40,952				46,331					58,912				59,173				72,065				50,827					184,111				240,977				176,251
Earnings from taxable subsidiaries			(1,703	)			(8,038	)			(1,715	)			(1,170	)				(8,903	)			(10,143	)			(11,721	)			(8,337	)				(12,626	)			(39,104	)			(7,861	)
REIT taxable income (pre-tax)		$	39,969			$	47,118			$	39,237			$	45,161				$	50,009			$	49,030			$	60,344			$	42,490				$	171,485			$	201,873			$	168,390
Shares outstanding at period end (000)			25,133				24,764				24,647				24,514					24,154				23,346				21,511				19,796					25,133				24,154				19,063
Total taxable income per share		$	1.66			$	2.23			$	1.66			$	1.89				$	2.44			$	2.53			$	3.35			$	2.57				$	7.44			$	10.89			$	9.64
REIT taxable income per share		$	1.59			$	1.90			$	1.59			$	1.84				$	2.07			$	2.10			$	2.81			$	2.15				$	6.93			$	9.12			$	9.21