Redwood Financial, Inc. First Quarter Earnings

REDWOOD FALLS, Minn., Dec. 12  /PRNewswire-FirstCall/ -- Redwood Financial, Inc. (the "Company") (OTC:REDW), the parent holding company of HomeTown Bank has announced net earnings for the first fiscal quarter ended September 30, 2006.  For the three months ended September 30, 2006, the Company recorded net earnings of $52,978.  Basic and diluted earnings per share were $0.12 per share, and $0.11 per share, respectively. Comparatively, for the three months ended September 30, 2005, the Company recorded net earnings of $67,727.  Basic and diluted earnings per share were $0.14 per share, and $0.13 per share, respectively.

At September 30, 2006, the Company reported total consolidated assets and consolidated stockholders' equity of $86.1 million and $8.1 million, respectively.  HomeTown Bank is headquartered in Redwood Falls, Minnesota and operates through its main office in Redwood Falls and its branch offices located in Redwood Falls and Olivia, Minnesota.  The Bank's deposits are insured up to maximum legal limits by the Federal Deposit Insurance Corporation (FDIC).

                  REDWOOD FINANCIAL, INC. AND SUBSIDIARY
                       Consolidated Balance Sheets
                               (Unaudited)

                  Assets                       September 30,      June 30,
                                                    2006            2006

  Cash                                       $     488,685        552,688
  Interest-bearing deposits with banks           1,733,011      1,835,394
      Cash and cash equivalents                  2,221,696      2,388,082

  Securities available for sale:
    Mortgage-backed and related securities       9,798,517      5,612,705
    Investment securities                       13,597,843      8,910,724
      Total securities available for sale       23,396,360     14,523,429

  Loans receivable, net                         54,644,483     53,485,138
  Federal Home Loan Bank stock, at cost          1,500,900      1,347,900
  Accrued interest receivable                      774,047        584,676
  Premises and equipment, net                    2,799,871      2,791,774
  Deferred tax asset                               268,427        380,537
  Other assets                                     572,660        154,581


      Total Assets                           $  86,178,444     75,656,117


        Liabilities and Stockholders' Equity

  Deposits                                      61,172,382     55,088,611
  Federal Home Loan Bank advances               15,600,000     11,500,000
  Accrued interest payable                         691,027        685,935
  Advance payments by borrowers for taxes
   and insurance                                   201,538        111,285
  Notes Payable - Subordinated Debt              6,186,000
  Accrued expenses and other liabilities           187,438        317,961
      Total Liabilities                         78,030,685     67,703,792

  Common stock ($.10 par value): Authorized
   and issued 1,125,000 shares; outstanding
   446,988 shares at September 30, 2006 and
   446,988 shares at June 30, 2006                 112,500        112,500
  Additional paid-in capital                     8,819,213      8,819,213
  Retained earnings, subject to certain
   restrictions                                  9,020,551      8,967,573
  Accumulated other comprehensive gain
   (loss), net                                    (227,409)      (369,865)
  Treasury stock, at cost, 678,012 shares at
   September 30, 2006 and 678,012 June 30,
   2006                                         (9,577,096)    (9,577,096)
      Total Stockholders' Equity                 8,147,759      7,952,325

    Total Liabilities and Stockholders'
     Equity                                  $  86,178,444     75,656,117



                  REDWOOD FINANCIAL, INC. AND SUBSIDIARY
                   Consolidated Statements of Earnings
                               (Unaudited)

                                                         Three months
                                                      ended September 30,
                                                      2006           2005

  Interest Income:
    Loans receivable                             $   994,494        838,548
    Securities available for sale:
      Mortgage-backed and related securities          65,676         53,913
      Investment securities                          114,790         98,037
    Cash equivalents and other                        13,893          9,855
        Total interest income                      1,188,853      1,000,353

  Interest Expense:
    Deposits                                         442,615        136,290
    Federal Home Loan Bank advances                  155,994        290,183
        Total interest expense                       598,609        426,473

        Net interest income                          590,244        573,880

  Provision for losses on loans                            0         27,500
        Net interest income after provision
         for losses on loans                         590,244        546,380

  Noninterest income:
    Fees and service charges                          75,681          4,650
    Gain on sale of securities available for sale          0        119,227
    Other                                             12,463          3,733
        Total noninterest income                      88,144        127,610

  Noninterest expense:
    Compensation and employee benefits               380,492        357,498
    Occupancy                                         90,246         11,331
    Professional fees                                  7,135         80,329
    Advertising                                       17,948          1,768
    Data processing expense                           22,845         24,022
    Federal deposit insurance premiums                 1,676         10,073
    Other                                             80,582         87,375
        Total noninterest expense                    600,924        572,396

        Earnings before income taxes                  77,464        101,594

  Income tax expense                                  24,486         33,867
        Net earnings                             $    52,978         67,727

  Net earnings per common share - Basic          $      0.12           0.14
  Net earnings per common share - Diluted               0.11           0.13



                 REDWOOD FINANCIAL, INC. AND SUBSIDIARIES
               Selected Consolidated Financial Information
                               (Unaudited)


                                                       Three months
                                                    ended September 30,
                                                    2006          2005
  Profitability Measures:

  Net income                                       52,978        67,727
  Basic earnings per share                           0.12          0.14
  Diluted earnings per share                         0.11          0.13

  Return on average assets                          0.27%         0.37%
  Return on average equity                          2.54%         3.07%

  Net interest spread                               3.02%         3.09%
  Net yield on interest earning assets              3.21%         3.31%

  Ratio of operating expense to average
   total assets (annualized)                        3.11%         3.13%


                             Period Ended      Year Ended    Year Ended
                             September 30,       June 30,      June 30,
  Financial Position:             2006            2006           2005

  Total assets                 86,178,444      75,656,117    74,071,500
  Total stockholders' equity    8,147,759       7,952,325     8,682,827

  Average total assets         77,347,637      74,475,642    74,063,448
  Average total equity          8,338,217       8,279,286     9,229,542

  Loans receivable, net        54,644,483      53,485,138    48,961,758
  Securities available for
   sale net of mark to market  23,396,360      14,523,429    16,999,823
  Unrealized gain on securities
   available for sale            (377,054)       (613,253)     (141,353)

  Non-performing assets            15,524               0             0
  Non-performing assets to
   total assets                     0.02%           0.00%         0.01%

  Allowance for loan losses       546,064         546,064       467,961
  Allowance for loan losses to
   total assets                     0.59%           0.72%         0.63%
  Allowance for loan losses to
   total loans receivable           0.99%           1.01%         0.95%
  Net charge-offs (recoveries)     73,895          (6,603)       (1,408)

  Stockholders' equity to total
   assets, at end of period         8.84%          10.51%        11.72%

  Total shares outstanding        446,988         446,988       477,028
  Book value per share
   (excluding mark to market)       19.07           19.16         18.50
  Book value per share
   (including mark to market)       18.23           17.79         18.20

  Ratio of average interest-
   earning assets to average
   Interest-bearing liabilities   105.50%         107.24%       109.22%


DATASOURCE: Redwood Financial, Inc.



CONTACT:  Dean K Toft of Redwood Financial, [phone], or Fax:

[phone]



Web site:  http://www.redwoodfinancial.com/ 

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