Exhibit 99.2

This Redwood Review contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan,” and similar expressions or their negative forms, or by references to strategy, plans, goals, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our most recent Annual Report on Form 10-K under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the Securities and Exchange Commission, including reports on Forms 10-K, 10-Q, and 8-K. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

Statements regarding the following subjects, among others, are forward-looking by their nature: (i) statements we make regarding Redwood’s future business strategy and strategic focus, including statements relating to our confidence in our overall market position, strategy and long-term prospects, and our belief in the long-term efficiency of private label securitization as a form of mortgage financing; (ii) statements we make regarding the outlook for our residential business, investing in prime mortgage credit risk and our positioning to pursue investments in conforming credit through potential risk-sharing arrangements (recourse and other types) with the GSEs; (iii) our belief that triple-A investors will return to the private label securitization market for prime quality loans when improved securitization structures and issuer best practices become more widely adopted by participants, and our expectation that subordination levels will decline over time, reflecting the performance of the underlying collateral, and that this will improve the economics for the issuers such as Redwood; (iv) statements we make regarding GSE reform legislation, including that the private sector will become the provider of first-loss credit risk, ahead of a government guarantee, and the opportunity this presents for private credit risk investors with loan acquisition platforms, such as us; (v) our expectations regarding our loan sale distribution via whole loan sales and securitizations, our expectation to complete a securitization late in the first quarter or early in the second quarter of 2014 and our outlook for residential loan sale profit margins, including our statement that we believe we can generate attractive loan sale profit margins within our long-term target range of 25 to 50 basis points; (vi) statements relating to acquiring residential mortgage loans in the future that we have identified for purchase, including the amount of such loans that we identified for purchase at December 31, 2013; (vii) statements relating to our expectation to increase the number of sellers we acquire loans from; (viii) statements relating to the volume of jumbo and conforming residential mortgage loans expected to be available for purchase during 2014, including that we expect the decline in our jumbo loan acquisition volume from 2013 to be less than the decline projected for the industry as a whole, and our goal to ramp up to a run rate of $1 billion per month of conforming loan acquisitions by the end of 2014; (ix) our outlook and expectations relating to our commercial real estate platform, including statements regarding our expectations regarding improvement in underlying commercial real estate fundamentals and potential refinancing opportunities for lenders with established commercial loan origination platforms such as Redwood, our plans to expand our commercial platform in 2014 by adding originators, (x) our expectations regarding the volume of senior and mezzanine commercial loans that we will originate in 2014, and our expectation that the amount of capital we had previously allocated to fund commercial mortgage banking and investment activities should remain adequate for us to continue growing this platform, and statements relating to the possibility of raising

dedicated capital for our commercial platform; (xi) statements relating to our estimate of our investment capacity (including that we estimate our investment capacity at December 31, 2013 to be approximately $130 million) and our statement that we believe this level of investment capacity and liquidity should be sufficient to fund our business and investment objectives for most or all of 2014; and (xii) statements regarding our expectations and estimates relating to the characterization for income tax purposes of our dividend distributions, our expectations and estimates relating to tax accounting, tax liabilities and tax savings, and GAAP tax provisions, our estimates of REIT taxable income and TRS taxable income, and our anticipation of additional credit losses for tax purposes in future periods (and, in particular, our statement that, for tax purposes, we expect an additional $59 million of tax credit losses on residential securities we currently own to be realized over an estimated three- to five-year period).

Important factors, among others, that may affect our actual results include: general economic trends, the performance of the housing, commercial real estate, mortgage, credit, and broader financial markets, and their effects on the prices of earning assets and the credit status of borrowers; federal and state legislative and regulatory developments, and the actions of governmental authorities, including those affecting the mortgage industry or our business; developments related to the fixed income and mortgage finance markets and the Federal Reserve’s statements regarding its future open market activity and monetary policy; our exposure to credit risk and the timing of credit losses within our portfolio; the concentration of the credit risks we are exposed to, including due to the structure of assets we hold and the geographical concentration of real estate underlying assets we own; our exposure to adjustable-rate mortgage loans; the efficacy and expense of our efforts to manage or hedge credit risk, interest rate risk, and other financial and operational risks; changes in credit ratings on assets we own and changes in the rating agencies’ credit rating methodologies; changes in interest rates; changes in mortgage prepayment rates; the availability of assets for purchase at attractive prices and our ability to reinvest cash we hold; changes in the values of assets we own; changes in liquidity in the market for real estate securities and loans; our ability to finance the acquisition of real estate-related assets with short-term debt; the ability of counterparties to satisfy their obligations to us; our involvement in securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in securitization transactions; exposure to claims and litigation, including litigation arising from our involvement in securitization transactions; whether we have sufficient liquid assets to meet short-term needs; our ability to successfully compete and retain or attract key personnel; our ability to adapt our business model and strategies to changing circumstances; changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand our business activities; exposure to environmental liabilities; our failure to comply with applicable laws and regulations; our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures; the impact on our reputation that could result from our actions or omissions or from those of others; changes in accounting principles and tax rules; our ability to maintain our status as a REIT for tax purposes; limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940; decisions about raising, managing, and distributing capital; and other factors not presently identified.

This Redwood Review may contain statistics and other data that in some cases have been obtained from or compiled from information made available by servicers and other third-party service providers.

Note to Readers:

We file annual reports (on Form 10-K) and quarterly reports (on Form 10-Q) with the Securities and Exchange Commission. These filings and our earnings press releases provide information about Redwood and our financial results in accordance with generally accepted accounting principles (GAAP). We urge you to review these documents, which are available through our website, www.redwoodtrust.com.

This document, called The Redwood Review, is an additional format for providing information about Redwood through a discussion of our GAAP financial results, as well as other metrics, such as taxable income. Supplemental information is also provided in the Financial Tables in this Review to facilitate more detailed understanding and analysis of Redwood. We may also provide non-GAAP financial measures in this Review. When we use non-GAAP financial measures it is because we believe that these figures provide additional insight into Redwood’s business. In each case in which we discuss a non-GAAP financial measure you will find an explanation of how it has been calculated, why we think the figure is important, and a reconciliation between the GAAP and non-GAAP figures.

References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc. and its consolidated subsidiaries. References to “at Redwood” exclude all consolidated securitization entities (with the exception of the residential resecuritization we completed in the third quarter of 2011 and the commercial securitization we completed in the fourth quarter of 2012) in order to present our operations in the way management analyzes them. Note that because we round numbers in the tables to millions, except per share amounts, some numbers may not foot due to rounding. References to the “fourth quarter” refer to the quarter ending December 31, 2013, and references to the “third quarter” refer to the quarter ending September 30, 2013, unless otherwise specified.

We hope you find this Review helpful to your understanding of our business. We thank you for your input and suggestions, which have resulted in our changing the form and content of The Redwood Review over time.

Dear Fellow Shareholders:

We had a very productive year at Redwood in 2013 and finished in a strong position. On the financial side, our book value per share, earnings per share, and dividends were all up considerably on a year-over-year basis, contributing to a 21.4% total return for shareholders for 2013. The Quarterly Overview section that follows this letter provides a good summary of our financial results. On the operational side, we continued to build our residential and commercial businesses. We entered the conforming mortgage sector in the fourth quarter of 2013, executed on our strategy to invest in mortgage servicing rights, and established a new residential mortgage processing center in Denver. All in all, it was a good year for Redwood and its shareholders.

Our vision and business strategy for Redwood are driven by the market opportunities we see over the next several years, not over the next several quarters. That long-term perspective gives us confidence that both our residential and commercial businesses, while still in the early stages of expansion, are well- positioned for opportunistic growth as the residential and commercial mortgage markets evolve.

Over the past four years, we have built residential and commercial loan acquisition platforms for one simple reason – to create a proprietary source of attractive investments and fee-generating opportunities. Trying to source investments solely through a bid-in-competition process is an increasingly unproductive exercise for us in this liquidity-flooded world, as available risk-adjusted investment yields keep grinding lower and lower. Our loan acquisition platforms provide us with strong competitive advantages, including the ability to leverage our seller relationships, infrastructure, and distribution capabilities.

The barriers to building an effective assembly line for creating investments are high. There is simply no fast or easy way to replicate the platforms we have been building over the past four years. Our efforts have required significant elbow grease, capital, and expense. Looking back on the progress we have made, the investments have been well worth it.

We will weave some 2014 insights into this letter, but we also want to share our views about the longer-term direction of the residential and commercial mortgage markets, the market opportunity for Redwood, and how we believe we are positioned to grow and succeed.

Residential

On the residential side, our foremost objectives are to invest in well-underwritten, prime mortgage credit risk and servicing, and to generate fees from loan sales. Until recently, we have been focused primarily on the jumbo segment of the market. Having recently obtained approval as a Fannie Mae and Freddie Mac seller/servicer, however, we now have the ability to acquire and distribute conforming loans to these government-sponsored enterprises (GSEs), thus significantly expanding our market opportunities. According to Inside Mortgage Finance, for the first nine months of 2013, the non-conforming or jumbo market represented 14% of total mortgage originations, while the conforming market represented 64% (FHA/VA loans make up the balance).

The outlook for investing in newly originated prime mortgage credit risk looks promising. While we continue to create and retain credit securities through our Sequoia securitization program, our entry into the much larger conforming market positions us to pursue investments in conforming credit through potential risk-sharing arrangements (recourse and other types) with the GSEs.

The private label market for residential securitization clearly experienced turmoil during 2013, as triple-A spreads widened from early in the second quarter through the end of the year.1 However, we believe that over the long term, private-label residential mortgage securitization will return to being an efficient form of mortgage financing. It will play a substantial role in the mortgage market, sitting alongside government-supported financing and bank portfolio lending. Why? Because we believe that triple-A investors will return to the private label securitization market for prime quality loans when improved securitization structures and issuer best practices become more widely adopted by participants, helping to restore confidence among investors. Ultimately, investing in securitized products is one of the most efficient ways for institutional investors to make a residential mortgage investment. We also expect that subordination levels will decline over time, reflecting the performance of the underlying collateral, and that this will improve the economics for the issuers such as Redwood.

Presently, we are seeing market fundamentals settle down, while triple-A pricing is beginning to show signs of improvement. However, based on the significant volatility of triple-A pricing over the past two years, it is difficult to project the near-term direction of the market with confidence. Redwood completed one private-label residential securitization during the fourth quarter of 2013, and we expect to complete another late in the first quarter or early in the second quarter of 2014. While we continue to prefer a securitization execution because of our ability to create attractive investments for our portfolio, given the current state of the securitization market, we expect whole-loan sales to make up the largest portion of Redwood’s distribution of the loans we accumulate. Between these two primary distribution outlets, we still believe that we can generate attractive loan sale profit margins within our long-term target range of 25 to 50 basis points. (Our loan sale margins substantially exceeded this target range in 2013.)

In 2013, we acquired $6.9 billion of jumbo mortgage loans, a large increase from 2012 when we acquired $2.3 billion, but short of our upwardly revised goal of $8 billion. For 2014, we expect to increase the number of sellers we acquire loans from. While we expect that our 2014 jumbo acquisition volume will be lower than in 2013, we expect our decline to be less than the 32% decline projected for the industry as a whole.2 For our residential conforming loan acquisitions, our goal is to ramp up to a run rate of $1 billion per month by the end of 2014. We do not expect that ramp to be linear, however, given our internal processes for expanding product offerings to our sellers as well as the declining projections we have observed in industry-wide origination as a result of interest-rate volatility.

Meanwhile, in Washington, we believe the long process of GSE reform will eventually conclude with the creation of an entity or multiple entities that function much as the GSEs do today. We believe the new entities will provide some type of conforming mortgage financing to mainstream U.S. borrowers, but with one big exception: the private sector will be center stage as the provider of first-loss credit risk, ahead of a government guarantee. This would represent a very large market opportunity for private credit risk investors, especially those with loan acquisition platforms such as Redwood. The foundation for this new structure is already being laid while the GSEs are in conservatorship, through structured risk-sharing and contractual recourse arrangements.

¹ For a more detailed analysis of this development, please refer to our Letter to Shareholders in the Redwood Review for the second quarter of 2013, in which we discussed in detail what we believe were the underlying reasons for this spread widening.

² The 32% projected decline in 2014 projected industry origination volume is the average of projections by Fannie Mae, Freddie Mac and the Mortgage Bankers Association.

Commercial

Our commercial team had a very successful year in 2013, originating $805 million of senior commercial loans. Although we fell short of our goal of $1 billion of senior commercial originations, our loan sale profit margins significantly exceeded our expectations, as did the overall profitability of the business.

In the near term, if the economy continues to grind forward with low-to-moderate growth in 2014, underlying commercial real estate fundamentals should continue to moderately improve as well. Various industry forecasts call for CMBS issuance to increase in 2014 for the fifth consecutive year to a range of $90 to $100 billion, as compared to approximately $85 billion in 2013. With close to $250 billion worth of commercial real estate loans set to mature annually over the next four years, we expect to see substantial refinancing opportunities for those with established commercial origination platforms such as Redwood.

We plan to expand our commercial platform in 2014 by adding experienced originators, paving the way for us to exceed our $1 billion annual commercial senior loan origination goal we had set for 2013, while also boosting our mezzanine loan origination activity. At this point, we project that the capital we had previously allocated to our commercial mortgage banking and investment activities should remain adequate for us to continue growing this platform.

The long-term outlook continues to look attractive for our commercial business. With the exception of the multifamily segment, the commercial market operates largely without the government competition that dominates the residential market. Participants are able to build business models based on market dynamics, rather than competing with government entities and regulatory and political priorities.

In Closing

We see 2014 shaping up to be another good year for our commercial business, while the near-term outlook for Redwood’s residential business is likely to be more challenging for us as well as all other residential market participants. These challenges have our full attention, but as Henry Ford said, “When everything seems to be going against you, remember that an airplane takes off against the wind, not with it.”

We are confident that our focus on the long-term direction of the residential and commercial mortgage markets, coupled with the strategic actions we are taking, positions Redwood to be a leading investor and provider of private risk capital to the mortgage market for many years to come.

As always, we appreciate your continued support.

Martin S. Hughes		Brett D. Nicholas
CEO		President

Fourth Quarter 2013 Results

Overview

Redwood generated solid financial results in the fourth quarter of 2013 to cap a productive year of operations. The commercial group had its strongest quarter to date and the residential group – which produced satisfactory results despite lower acquisition activity – expanded into the conforming residential mortgage market. Also of note, our investment portfolio continued to generate attractive returns as our credit-sensitive securities and MSRs increased in value during the quarter.

Here is a summary of Redwood’s fourth quarter 2013 results:

Financial Results

In the fourth quarter of 2013, Redwood earned $0.29 per share, an increase from $0.25 per share in the third quarter of 2013. Both of these quarters include significant items. The fourth quarter included charges of $0.15 per share for litigation reserves and the third quarter included negative valuation adjustments of $0.17 per share due to the reversal of certain timing differences related to our residential loan pipeline and related hedges.

The following table sets forth the components of GAAP income for the fourth and third quarters of 2013.

Net interest income for the fourth quarter of 2013 was $38 million, an increase of $2 million from the third quarter. The increase primarily reflects lower utilization of short-term debt as we funded a significant portion of our residential mortgage loan acquisitions with cash in the fourth quarter.

Provision for loan losses at legacy Sequoia entities was $3 million for the fourth quarter of 2013, as compared to $1 million in the third quarter. The increase in provision largely reflects efforts by servicers to resolve delinquent loans still held at legacy Sequoia entities. Our provision for loan losses for commercial mezzanine loans was $1 million for the fourth quarter.

Financial Results (continued)

MSR income increased to $6 million in the fourth quarter of 2013 from $3 million in the third quarter, primarily resulting from positive market valuation adjustments related to the overall market’s expectation of slower prepayment rates in the near future.

Income from mortgage banking activities, net, was $17 million for the fourth quarter of 2013, as compared to a loss of $9 million in the third quarter, which included $15 million of negative market valuation adjustments, as discussed above.

Contributing to fourth quarter mortgage banking income was $5 million of gains from $980 million of residential loan sales and valuation increases, $6 million of gains from $186 million of commercial loan sales and valuation increases, and $6 million of gains from valuation increases on Sequoia Interest-Only (IO) securities and other related derivatives.

In the fourth quarter of 2013, we recognized $2 million of net gains from the sale of $3 million of available-for-sale (AFS) securities, as compared to gains of $10 million from the sale of $168 million of AFS securities in the third quarter. In the fourth quarter of 2013, we sold $13 million of Sequoia IO securities, as compared to $14 million in the third quarter.

Operating expenses were $19 million in the fourth quarter of 2013, as compared to $22 million in the third quarter. The decline primarily resulted from a lower accrual for variable compensation expense. As noted above, in the fourth quarter, we established a $12 million reserve related to previously disclosed litigation regarding certain legacy Sequoia securitizations, which is reflected in other expense on our income statement, and, therefore, impacts variable compensation.

Fourth quarter 2013 income tax expense was $2 million, as compared to a $5 million benefit from income taxes in the third quarter. The $2 million expense was related to taxable income earned during the fourth quarter at our taxable subsidiaries that are primary engaged in mortgage banking activities. The $5 million benefit taken in the third quarter reflected the release of a valuation allowance against a deferred tax asset that we now expect to utilize. See the Taxable Income and Dividends section of this Review for additional information on our tax results.

The following table presents a summary of GAAP book value for the fourth and third quarters of 2013.

Financial Results (continued)

Capital Invested

We deployed $76 million of capital into new investments in the fourth quarter of 2013, as compared to $146 million in the third quarter, including acquisitions of $368 million of securities, $3 million of commercial mezzanine loans, and $2 million of MSRs, as shown in the following table.

Residential Investments

At December 31, 2013, our residential securities portfolio had a market value of $1.57 billion, up from $1.21 billion at September 30, 2013. This increase included $368 million in acquisitions and $34 million in positive valuation adjustments, less $1 million in sales (net) and $34 million in principal paydowns and other items.

Our securities acquisitions in the fourth quarter of 2013 included $319 million of seasoned senior securities, as well as $22 million of retained subordinate securities from our fourth quarter 2013 Sequoia securitization. An additional $27 million were subordinate securities recently issued by third-party RMBS sponsors. The subordinate securities included AA, A, BBB, BB and non-rated securities.

Following the end of the fourth quarter of 2013 through February 15, 2014, we acquired $22 million of securities and deployed $3 million of capital, net of financing.

At December 31, 2013, the market value of our MSRs was $65 million, or 1.12% of the $5.8 billion principal amount of the loans serviced.

Financial Results (continued)

Residential Mortgage Banking Activities

Industry mortgage volumes remained under pressure during the fourth quarter of 2013, as mortgage rates rose in response to the Federal Reserve’s long anticipated plan to begin “tapering” its purchases of Treasury and mortgage-backed securities. In addition, large banks continued to price higher quality 30-year jumbo loans originated through their retail loan channels below the price for conforming loans. This pricing anomaly in part reflects a combination of the increased guarantee fees that Fannie Mae and Freddie Mac require for conforming loans, as well as the desire of some large banks with excess liquidity to invest in higher yielding and presumably safer jumbo mortgages. Despite this anomaly, however, our loan pricing remained very competitive with banks’ correspondent lending channels and we continued to identify loans for purchase in the fourth quarter of 2013 at a similar pace to the third quarter of 2013.

Financial Results (continued)

We identified $982 million of residential jumbo loans for purchase during the fourth quarter of 2013, of which 55% were purchase-related mortgages, up from 54% in the third quarter of 2013. From the start of the first quarter of 2014 through February 15, 2014, we identified an additional $529 million of jumbo loans for purchase.

The net number of residential loan originators selling to our platform increased by six in the fourth quarter of 2013, bringing the total number of active sellers to 118 at December 31, 2013. These sellers consisted of 55 regional banks (or their subsidiaries) and 63 mortgage companies, located throughout the U.S.

Residential private label securitization activity was relatively slow in the fourth quarter of 2013. There were three securitizations completed by market participants totaling $0.8 billion in the fourth quarter (including our $325 million Sequoia securitization), down from nine securitizations totaling $3.9 billion in the third quarter of 2013. The decline in securitization activity reflects lower origination volumes, strong demand for whole loans sold in bulk, and relatively weak securitization execution due to the widening of triple-A credit spreads. Thus far in 2014, triple-A credit spreads have narrowed and we currently expect to complete a securitization late in the first quarter or early in the second quarter of 2014 subject to market and other conditions. While we continue to expect a significant portion of our loan inventory to be distributed through bulk whole-loan sales, we value our leadership position in the securitization market and remain committed to expanding this important area of our franchise as market conditions improve.

Commercial Mortgage Banking Activities and Investments

Our commercial group finished the year strong, originating $805 million of senior commercial loans in 2013, including those table-funded by third parties, as compared to $61 million in 2012. This included 23 senior commercial loans totaling $242 million originated in the fourth quarter of 2013, as compared to 12 loans totaling $113 million in the third quarter. We sold $186 million of senior commercial loans in the fourth quarter of 2013, as compared to $238 million in the third quarter of 2013.

Commercial mezzanine loan originations totaled two loans for $3 million in the fourth quarter of 2013, as compared to two loans for $9 million in the third quarter of 2013. For the full year in 2013, commercial mezzanine loan origination totaled $65 million, as compared to $157 million in 2012. At December 31, 2013, our portfolio of non-securitized mezzanine loans consisted of 23 loans for $86 million. Our securitized mezzanine portfolio totaled $258 million at December 31, 2013, and Redwood’s investment in this securitized portfolio amounted to $108 million.

Financial Results (continued)

Cash, Debt, and Capital

At December 31, 2013, we held $173 million in cash, and our current investment capacity (defined as the approximate amount of capital we have readily available for long-term investments) was approximately $130 million. Total capital of $1.67 billion at December 31, 2013, included $1.25 billion of equity capital and $427 million of long-term debt.

We ended the fourth quarter of 2013 with short-term warehouse debt of $185 million, which was used to finance residential loans, and had additional uncommitted borrowing capacity of $1.2 billion under existing warehouse lines of credit to finance additional residential and commercial loans. At December 31, 2013, short-term debt used to finance residential securities was $678 million, as compared to $371 million at September 30, 2013.

We currently expect that our available capital and liquidity is sufficient to fund our business and investment objectives for most or all of 2014, in part because we believe we can source capital internally by selling or financing existing investments if needed to fund higher yielding investment opportunities. To the extent our expectation changes and we need external capital to fund our investment and business activities, we would consider the issuance of debt or equity securities under the shelf registration statement currently on file with the SEC, or the issuance of similar or other types of securities in public or private offerings, including the possibility of raising dedicated capital for the commercial platform.

Balance Sheet

The following table shows the components of our balance sheet at December 31, 2013.

(1) We are required under GAAP to consolidate the assets and liabilities of certain securitization entities we have sponsored for financial reporting purposes. However, the securitized assets of these entities are not legally ours and we own only the securities and interests that we acquired from these securitization entities. Similarly, the liabilities of these entities are obligations payable only from the cash flow generated by their securitized assets and are not obligations of Redwood.

(2) Included in the “At Redwood” column are the assets and liabilities of the Residential Resecuritization and Commercial Securitization transactions we completed in 2011 and 2012, respectively. These transactions are treated as secured borrowings under GAAP. At December 31, 2013, the Residential Resecuritization accounted for $264 million of assets ($263 million of available-for-sale securities at fair value and $1 million of other assets) and $95 million of asset-backed securities issued (at amortized cost). Our $169 million investment in this resecuritization, as estimated for GAAP, equals the difference between these assets and liabilities. At December 31, 2013, the Commercial Securitization accounted for $270 million of assets ($258 million of commercial real estate loans at historical cost and $12 million of other assets) and $154 million of asset-backed securities issued (at amortized cost). Our $116 million investment in this securitization, as estimated for GAAP, equals the difference between these assets and liabilities.

(3) Consolidated Sequoia Entities includes certain Sequoia securitizations completed prior to 2012 that we are required to consolidate under GAAP. Our estimated GAAP investment in these entities was $75 million at December 31, 2013, representing the difference between the aggregate assets and liabilities of these entities.

(4) Sequoia securitizations completed between January 2012 and December 2013 are treated as sales for GAAP, and the $516 million of securities we have retained from these transactions are reflected in the “At Redwood” column above as part of “Real Estate Securities — Sequoia.”

Balance Sheet (continued)

The table below details residential loan activity at Redwood during the fourth and third quarters of 2013.

At December 31, 2013, we owned $404 million of prime residential loans, of which $280 million were 30-year fixed-rate loans, $29 million were 15-year and 20-year fixed-rate loans, and $95 million were hybrid loans. Our pipeline of loans identified for purchase was $589 million, including $546 million of non-conforming loans and $43 million of conforming loans, at December 31, 2013. See the Residential Mortgage Banking section on page 29 for additional information.

Commercial Loans

At December 31, 2013, we owned $432 million of commercial loans, as compared to $380 million of commercial loans at September 30, 2013. The following tables detail commercial loan activity during the fourth and third quarters of 2013.

Balance Sheet (continued)

During the fourth quarter of 2013, we originated two mezzanine loans and 23 senior loans and sold 20 senior loans. Additionally, two commercial mezzanine loans prepaid in full during the fourth quarter. See the Commercial Mortgage Banking and Investments section on page 32 for additional information.

Residential Real Estate Securities

The following table presents the fair value of real estate securities at December 31, 2013. We categorize our Sequoia and third-party securities by portfolio vintage (the year(s) the securities were issued), priority of cash flow (senior, re-REMIC, and subordinate) and underwriting characteristics of the underlying loans (prime and non-prime).

(1) Included in the real estate securities table above are $263 million of senior securities that are included in the Residential Resecuritization that we completed in July 2011. Under GAAP accounting, we account for the resecuritization as a financing even though these securities are owned by the resecuritization entity and are legally not ours. We own only the securities and interests that we acquired from the resecuritization entity, which amounted to $152 million at December 31, 2013. As a result, to adjust at December 31, 2013 for the legal and economic interests that resulted from the resecuritization, Total Senior Securities would be decreased by $263 million to $712 million, Prime Re-REMIC Securities would be increased by $152 million to $329 million, and Total Real Estate Securities would be reduced by $111 million to $1.57 billion.

(2) Non-prime residential securities consist of $202 million of Alt-A senior securities.

(3) Prime mezzanine includes securities rated AA, A, and BBB—.

(4) Prime non-investment grade includes securities that have below investment grade ratings and un-rated securities.

Balance Sheet (continued)

Residential Real Estate Securities (continued)

The table below details the change in fair value of real estate securities during the fourth quarter of 2013.

During the fourth quarter of 2013, securities acquisitions included $22 million of Sequoia securities, $319 million of third-party senior securities, and $27 million of third-party mezzanine and non-investment grade securities. Sales in the fourth quarter included $13 million of Sequoia IOs and $3 million of third-party subordinate securities.

Mortgage Servicing Rights

At December 31, 2013, we owned MSRs associated with $5.8 billion of residential loans primarily acquired through our conduit operations. We earn fees from these MSRs, but outsource the actual servicing of the associated loans to a licensed third-party servicer. The table below details the change in fair value of Redwood’s MSRs during the fourth quarter of 2013.

During the fourth quarter of 2013, we added $2 million of MSRs associated with $264 million of residential loans acquired through our conduit operations. The GAAP carrying value, which is the estimated fair value, of our MSRs at December 31, 2013 is equal to 1.12% of the principal balance of the associated residential loans.

Balance Sheet (continued)

Derivatives

The following table presents the fair value and notional value of derivative financial instruments held at December 31, 2013 and September 30, 2013, which are a component of other assets and accrued expenses and other liabilities on our consolidated balance sheets.

We use derivative financial instruments in part to mitigate the interest rate risk associated with some of our residential and commercial loan activity. Net changes in the fair value of risk management derivatives are reflected in our income statement in mortgage banking activities, net. The timing of when we enter into and exit these derivatives, and the corresponding levels of benchmark interest rates, has a significant effect on the amount of valuation income or loss recognized. During the fourth quarter of 2013, the aggregate fair value of risk management derivatives, including those agreements that we exited during the quarter, increased by less than $1 million.

Rising benchmark interest rates also resulted in a $7 million reduction to our derivative liability related to cash flow hedges on our long-term debt. Changes in the fair value of our cash flow hedges were recorded in shareholders’ equity through accumulated other comprehensive income.

Investments in Consolidated Sequoia Entities

Investments in Consolidated Sequoia Entities, as estimated for GAAP, totaled $75 million at December 31, 2013. This amount reflects the book value of retained investments in Consolidated Sequoia Entities and is based on the difference between the consolidated assets and liabilities of the entities in the aggregate according to their GAAP carrying amounts.

Balance Sheet (continued)

Short-Term Debt

At December 31, 2013, we had short-term mortgage warehouse debt outstanding of $185 million, which was used to finance a portion of the $404 million inventory of residential mortgage loans held for sale.

At December 31, 2013, we had five uncommitted residential mortgage warehouse facilities with an aggregate borrowing capacity of $1.4 billion, and one uncommitted commercial mortgage warehouse facility for senior loans with a borrowing capacity of $100 million.

At December 31, 2013, we had short-term debt incurred through securities repurchase facilities of $678 million, which was secured by $839 million of residential securities, resulting in a debt-to-equity leverage ratio for these residential securities of 4.2x (excluding the additional risk capital we hold related to these short-term borrowings).

The table below details the activity of short-term debt during the fourth and third quarters of 2013.

Long-Term Debt and ABS Issued

At December 31, 2013, we had $288 million of convertible senior notes outstanding at a stated interest rate of 4.625% (excluding deferred issuance costs), that are convertible into 41.1320 shares of common stock per $1,000 principal amount (equivalent to a conversion price of $24.31 per common share and subject to certain adjustments) on or before their maturity in April 2018.

At December 31, 2013, we had $140 million of other long-term debt outstanding due in 2037 with a stated interest rate of three-month LIBOR plus 225 basis points. In 2010, we effectively fixed the interest rate on this long-term debt at approximately 6.75% (excluding deferred issuance costs) through interest rate swaps.

At December 31, 2013, we had $49 million of borrowings outstanding under a $150 million commercial warehouse facility for mezzanine loans. Due to the 24-month term of this facility, it is classified as long-term debt on our consolidated balance sheet.

At December 31, 2013, we had $95 million outstanding of non-recourse, asset-backed debt issued at a stated interest rate of one-month LIBOR plus 200 basis points related to our Residential Resecuritization. We also had $154 million outstanding of non-recourse, asset-backed debt issued at a stated interest rate of 5.62% (excluding deferred issuance costs) related to our Commercial Securitization.

Balance Sheet (continued)

Capital and Cash

At December 31, 2013, our total capital was $1.7 billion, including $1.2 billion of shareholders’ equity, and $427 million of long-term debt. We use capital to invest in earning assets, meet lender capital requirements, and fund our operations and working capital needs. Our cash balance was $173 million at December 31, 2013.

GAAP Income

Our consolidated GAAP net income for the fourth quarter of 2013 was $25 million, or $0.29 per share, as compared to $22 million, or $0.25 per share, for the third quarter of 2013. The following tables present the results at Redwood and Consolidated Sequoia Entities and their estimated effect on GAAP income for the fourth and third quarters of 2013.