FOR IMMEDIATE RELEASE 
Redwood Trust, Inc.        
February 20, 2007
CONTACT:
 
Martin S. Hughes
(415) 380-3455
 
REDWOOD TRUST REPORTS FOURTH QUARTER 2006 RESULTS
 
MILL VALLEY, Calif. - February 20, 2007 - Redwood Trust, Inc. (NYSE:RWT) today reported GAAP earnings of $36 million ($1.32 per share) for the fourth quarter of 2006 and $128 million ($4.85 per share) for 2006.
 
“This was a pretty good quarter and a pretty good year, with return on equity in the middle of our 11% to 18% target range,” said Doug Hansen, Redwood’s President. “We believe we are well positioned as we move forward into the new year.”
 
Redwood's GAAP earnings of $1.32 per share for the fourth quarter increased from $1.22 per share earned in the prior quarter but decreased from earnings of $1.68 per share for the fourth quarter of 2005. Earnings for 2006 of $4.85 per share were lower than the $7.96 per share we earned in 2005.
 
GAAP book value per share decreased from $40.02 to $37.51 during the fourth quarter of 2006 as a result of fourth quarter regular and special dividend payments of $3.70 per share. During 2006, book value increased by 1% from $37.20 per share to $37.51 per share.
 
Net interest income for the fourth quarter of 2006 was $45 million, a decrease from net interest income of $49 million for the prior quarter and an increase from net interest income of $41 million for the fourth quarter of 2005. Net interest income decreased from $205 million in 2005 to $184 million in 2006.
 
Income gains from asset sales, calls, and valuation adjustments were $5 million for the fourth quarter of 2006, an increase from $1 million in the prior quarter and a decrease from $18 million in the fourth quarter of 2005. Income gains from asset sales, calls, and valuation adjustments decreased from $61 million in 2005 to $10 million in 2006.
 
Operating expenses were $13 million for the fourth quarter of 2006, a decrease from $14 million for the prior quarter and equal to the $13 million for the fourth quarter of 2005. Operating expenses increased from $48 million in 2005 to $56 million in 2006.
 
Additional Information
 
Additional information on our GAAP results is available in our Annual Report on Form 10-K for the year ended December 31, 2006 which was filed today with the Securities and Exchange Commission. Today we also released our Redwood Review covering the fourth quarter of 2006. The Redwood Review contains a discussion of 2006 and fourth quarter activity, taxable income and other non-GAAP performance measures, and a review of Redwood’s business and outlook. Our Form 10-K and the Redwood Review are available on our web site (www.redwoodtrust.com).

CAUTIONARY STATEMENT: This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, including the words "anticipated," "estimated," "should," "expect," "believe," "intend," and similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our 2006 Annual Report on Form 10-K under Item 1A "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by us with the Securities and Exchange Commission, including Forms 10-K, 10-Q, and 8-K. Important factors that may impact our actual results include changes in interest rates and market values; changes in prepayment rates; general economic conditions, particularly as they affect the price of earning assets and the credit status of borrowers; the level of liquidity in the capital markets as it affects our ability to finance our real estate asset portfolio; and other factors not presently identified. In light of these risks, uncertainties, and assumptions, the forward-looking events mentioned in, discussed in, or incorporated by reference into this press release might not occur. Accordingly, our actual results may differ from our current expectations, estimates, and projections. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
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REDWOOD TRUST, INC.
(All dollars in millions, except share data)
   
Fourth
  
Third
  
Second
  
First
 
Fourth
  
   
Quarter
  
Quarter
  
Quarter
 
Quarter
 
Quarter
  
CONSOLIDATED INCOME STATEMENT
  
2006
  
2006
  
2006
  
2006
  
2005
  
                       
Interest income
  
$
218
  
$
224
  
$
218
  
$
226
  
$
231
  
Interest expense
    
(173
)
 
(175
)
  
(173
)
  
(181
)
  
(190
)
Net interest income
    
45
    
49
    
45
    
45
    
41
  
                                 
Operating expenses
   
(13
)
  
(14
)
  
(16
)
  
(13
)
  
(13
)
Gains on sales and calls, net
   
7
    
6
    
9
    
1
    
19
  
Valuation adjustments
    
(2
)
  
(5
)
  
(3
)
  
(3
)
  
(1
)
Provision for income taxes
    
(1
)
  
(4
)
  
(3
)
  
(2
)
  
(4
)
GAAP earnings
  
$
36
  
$
32
  
$
32
  
$
28
  
$
42
  
   
 
                            
Average diluted shares (thousands)
    
27,122
    
26,625
    
26,109
    
25,703
    
25,311
  
GAAP earnings per share (diluted)
  
$
1.32
  
$
1.22
  
$
1.20
  
$
1.09
  
$
1.68
  
                                 
Regular dividends per share
  
$
0.70
  
$
0.70
  
$
0.70
  
$
0.70
  
$
0.70
  
Special dividends per share
    
3.00
    
0.00
    
0.00
    
0.00
    
3.00
  
Total dividends per share
  
$
3.70
  
$
0.70
  
$
0.70
  
$
0.70
  
$
3.70
  

2

REDWOOD TRUST, INC.
(All dollars in millions, except share data)
              
               
CONSOLIDATED INCOME STATEMENT
  
2006
  
2005
  
2004
  
               
Interest income
  
$
886
 
$
962
 
$
652
 
Interest expense
    
(702
)
  
(757
)
  
(432
)
Net interest income
   
184
    
205
    
220
  
                     
Operating expenses
   
(56
)
  
(48
)
  
(38
)
Gains on sales and calls, net
   
23
   
66
   
66
 
Valuation adjustments
    
(13
)
  
(5
)
  
(7
)
Provision for income taxes
    
(10
)
  
(18
)
  
(8
)
GAAP earnings
  
$
128
  
$
200
  
$
233
  
                     
Average diluted shares (thousands)
    
26,314
    
25,121
    
22,229
  
GAAP earnings per share (diluted)
  
$
4.85
  
$
7.96
  
$
10.47
  
                     
Regular dividends per share
  
$
2.80
  
$
2.80
  
$
2.68
  
Special dividends per share
    
3.00
    
3.00
    
6.00
  
Total dividends per share
  
$
5.80
  
$
5.80
  
$
8.68
  

3
 
REDWOOD TRUST, INC.
(All dollars in millions, except share data)
   
31-Dec
  
30-Sep
  
30-Jun
  
31-Mar
  
 
31-Dec
  
CONSOLIDATED BALANCE SHEET
  
2006
 
2006
  
2006
  
2006
  
2005
  
                       
Real estate loans
  
$
9,352
  
$
9,875
  
$
10,491
  
$
12,045
  
$
13,934
  
Real estate securities
   
3,233
    
2,912
    
2,661
    
2,529
    
2,419
  
Cash and cash equivalents
    
168
    
113
    
106
    
85
    
176
  
Other assets
    
277
    
300
    
272
    
320
    
248
  
Total consolidated assets
  
$
13,030
  
$
13,200
  
$
13,530
  
$
14,979
  
$
16,777
  
                                 
Redwood debt
  
$
1,856
  
$
510
  
$
529
  
$
0
  
$
170
  
Consolidated asset-back securities issued
    
9,979
    
11,554
    
11,898
    
13,930
    
15,585
  
Other liabilities
    
92
    
93
    
99
    
82
    
87
  
Junior subordinated notes
    
100
    
─
    
─
    
─
    
─
  
Equity
    
1,003
    
1,043
    
1,004
    
967
    
935
  
Total consolidated liabilities and equity
  
$
13,030
  
$
13,200
  
$
13,530
  
$
14,979
  
$
16,777
  
                                 
Shares outstanding at period end (thousands)
    
26,733
    
26,053
    
25,668
    
25,382
    
25,133
  
GAAP equity (GAAP book value) per share
  
$
37.51
  
$
40.02
  
$
39.13
  
$
38.11
  
$
37.20
  


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