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 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) our expectation that the mortgage market and interest rates will stabilize such that our earnings will more consistently reflect our operational progress each quarter and serve as a primary valuation metric for the Company; (iii) statements we make regarding the outlook for the mortgage market, including our expectations relating to contraction in total U.S. residential loan originations in 2014 from 2013, continuing pressure on loan sale margins until industry-wide excess capacity is reduced, and the timing of future adjustments in industry capacity; (iv) statements we make regarding the near-term strategy for our residential business, including our intent to increase our market share and grow loan purchase volumes by adding sellers, ramping up our GSE product line, eventually adding other mortgage products such as non-QM loans, remaining opportunistic during the market correction, including with respect our expectations of increased volume in mortgage servicing rights for sale as originators are impacted by lower loan sale margins, and our expectations regarding our loan sale profit margins relative to our long-term target of 25-to-50 basis points (net of hedges); (v) statements we make regarding the outlook for our commercial business, including our expectations related to the volume of commercial mortgage loans maturing in 2014 and annually over the following three years, the related market opportunity this presents to us and our goal of originating $1 billion of commercial loans in 2014; (vi) statements regarding the role of private capital in reducing the government’s current outsized role in residential mortgage markets, including through an expansion of private label securitization, risk-sharing arrangements with the GSEs and eventual mortgage reform legislation; (vii) statements regarding our efforts to hedge our exposure to interest rate changes in our residential and commercial loan pipelines and the effectiveness of those hedges; (viii) statements relating to our estimate of our investment capacity (including that we estimate our investment capacity at March 31, 2014 to be approximately $110 million), 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 our expectations relating to our ability to source capital internally, by selling or financing existing investments, and externally, via the issuance of debt or equity securities or other types of securities in public or private offerings; and (ix) 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 $46 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 “first quarter” refer to the quarter ending March 31, 2014, and references to the “fourth quarter” refer to the quarter ending December 31, 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:

As we handicap the developing market opportunities that lie ahead for Redwood, we remain bullish on the competitive position, strategy, and long-term prospects for our residential and commercial mortgage banking and investment businesses. We have noted repeatedly in the past that our business strategies are focused on the opportunities we see over the next several years, not just over the next several quarters. However, we understand that the near-term matters too, especially as we steer through industry-wide headwinds that will likely put pressure on our earnings for much of 2014. We therefore think it makes sense to include an update on our current outlook in this Shareholder Letter as well.

Our quarterly financial and operating results were once again impacted by volatility in interest rates. We note that there has been continued noise in our recent quarterly income statements due to timing differences between quarters, valuation adjustments (some of which are reflected in earnings, while others are only reflected in the balance sheet), and the general sensitivity of our net income to sharp movements in interest rates. Over time, we expect that the mortgage market and interest rates will stabilize such that our earnings will more consistently reflect our operational progress each quarter and serve as a primary valuation metric for the company. But we are not there yet. So how do we measure our overall performance for the first quarter of 2014?

Getting back to our analysis and current outlook for the mortgage market, the latest industry projections call for a contraction in total U.S. residential loan originations from about $1.8 trillion in 2013 to about $1.2 trillion in 2014. While home purchase activity remains a source of new originations, refinancing activity has largely dried up in the face of rising interest rates. If history repeats itself, loan sale margins will remain under pressure until industry-wide excess capacity is eliminated. It’s always a disorderly process, but it seems to be happening more rationally than in the past. We still believe, however, that it will take another six to nine months of adjustment before industry capacity is back in line with demand.

Our plan for the next few quarters is to seize market share at a time when many of our competitors are shrinking. While we remain conscious of near-term margins and costs, we intend to continue increasing our market share and growing loan purchase volumes by adding sellers, ramping up our new GSE product line, and adding other mortgage products – such as non-QM loans – down the road. We also plan to remain opportunistic during the market correction. For example, we expect to see an increase in the amount of mortgage servicing rights (MSRs) for sale, particularly from smaller originators. As these originators are impacted by lower loan sale margins, they may seek to boost their liquidity by selling MSRs.

Now let’s move on to the commercial mortgage market. Our commercial business had its challenges during the first quarter of 2014, but we maintain a positive near-term outlook. Although we observed a number of new competitors emerge in the first quarter, about $250 billion of commercial mortgage loans are set to mature in 2014 and annually over the following three years, presenting a huge market opportunity for us. And while margins have compressed from heightened 2013 levels, they still remain attractive. Based on our expectation of rising demand for commercial loans over the coming quarters, we are maintaining our goal of originating $1 billion of commercial loans in 2014.

Before you turn the page to our detailed quarterly results, here are a few final thoughts on the big picture. Once again we will beat a familiar drum. In a deleveraging world, awash with liquidity and dominated by government intervention, Redwood’s strategy for success is based on building operating businesses capable of creating their own investments and fee-generating opportunities. That means building flexible and scalable loan platforms that allow us to pivot in response to the evolving residential and commercial mortgage markets.

It is clear to us that the residential mortgage market is coming our way as “private capital” is called upon to help reduce the government’s current outsized role. We believe this will ultimately happen through an expansion of private label securitization, through risk-sharing arrangements with the GSEs while they are in conservatorship, and eventually after mortgage reform legislation has been enacted. The commercial market has already largely recovered, and should continue to present significant opportunities for us to generate fees and investments as refinancing needs rise over the next few years.

As always, we appreciate your continued support of this effort.

Martin S. Hughes		Brett D. Nicholas
CEO		President

First Quarter 2014 Results

Overview

In the face of challenging mortgage market conditions in the first quarter of 2014 and continued interest rate volatility that carried through to our financial results, we made progress in a number of key aspects of our business. We continued to expand our residential operations by adding sellers and increasing our loan acquisitions (counter to the industry trend) compared to the fourth quarter of 2013. We also completed our first full quarter of conforming loan acquisitions, priced a jumbo residential securitization, and made progress on a few longer-term initiatives to expand our residential loan production.

Before we get into the details, here is a summary of Redwood’s first quarter 2014 results, followed by an overview of the market conditions that impacted our results during the quarter.

Residential Mortgage Banking Market Conditions

It was a challenging environment to source newly originated residential loans during the first quarter of 2014. The Mortgage Bankers Association projected that first quarter 2014 overall industry originations would be $226 billion, down 23% from the fourth quarter of 2013 and down 57% from the first quarter of 2013. Industry projections for 2014 origination volumes continue to range about 35% below the $1.8 trillion of mortgage originations in 2013. Although 30-year fixed mortgage rates hovered around 4.40% during the first quarter, rates remained nearly 100 basis points higher than the average for the first quarter of 2013.

Higher rates sharply reduced refinance-related mortgage origination volume to an estimated 49% of total originations in the first quarter of 2014, down from 74% of originations in the first quarter of 2013. With lenders competing for fewer loans and incurring higher regulatory and compliance costs, margins continued to grind lower. The Mortgage Bankers Association reported in March 2014 that the average profit per loan originated in the fourth quarter of 2013 was $150, down from $743 per loan in the third quarter of 2013. We believe that industry loan profit margins for the first quarter of 2014 continued to trend lower.

The private label securitization market demonstrated modest improvement in terms of investor acceptance and liquidity during the first quarter of 2014, with $1.3 billion of new issuance, as compared with $0.8 billion in the fourth quarter of 2013. Strong demand by banks for whole loans continues to make whole loan sale profit margins higher, in general, than comparable margins achievable through the securitization of similar collateral. Nevertheless, we continually evaluate the trade-off between whole loan sale profit margins and the long-term benefits of creating assets for our investment portfolio and building our brand through securitization.

In addition to the overall increase in rates over the past year, which has negatively impacted refinance origination volumes, rising and then falling interest rates over the past few quarters (shown in the graph below) have significantly impacted our quarterly earnings comparisons. In particular, our interest rate sensitive assets (e.g., IOs and MSRs), loan pipeline hedging derivatives, and investment portfolio hedging derivatives – which are marked to market through the income statement – generally increase in value as rates rise and decline in value when rates fall. As a consequence, there were some earnings impacts between the fourth quarter of 2013 and the first quarter of 2014 as a result of interest rate volatility and timing differences. This impact is discussed in the Financial Results section below.

Commercial Mortgage Banking Market Conditions

Competition among originators for commercial mortgage loans has increased over the past few months, as they position to provide refinancing for the estimated $250 billion of commercial loans that are expected to mature annually over the next five years. By our count, there are currently more than 35 commercial originators vying for loans, more than at the market peak in 2007. As a result, certain originators have loosened their underwriting standards in an attempt to gain origination volume. Pricing also became more competitive in the first quarter of 2014, with most originators pricing to earn less than 150 basis points of profit margin on loans originated, down from over 200 basis points, on average, in 2013. Despite the increased competition, we continued to see opportunities to originate and distribute senior commercial loans at attractive margins – albeit lower than recent prior quarters – while creating additional commercial investments for our portfolio.

Financial Results

In the first quarter of 2014, we earned $12 million, or $0.14 per share, a decrease from $25 million, or $0.29 per share, in the fourth quarter of 2013. The following table sets forth the components of Redwood’s GAAP income for the first quarter of 2014 and fourth quarter of 2013.

Net Interest Income

Net interest income was $36 million for the first quarter of 2014, down from $38 million in the fourth quarter of 2013. After taking into account a $2 million commercial loan prepayment penalty received during the fourth quarter of 2013, our net interest income remained a steady source of earnings as has been the case over the past few quarters. Included in net interest income for the first quarter of 2014 was $24.7 million from our residential investment portfolio, a $1.4 million increase from the prior quarter. This increase was offset by lower net interest income from mortgage banking activities as we held lower balances of residential and commercial loans in inventory awaiting sale or securitization in comparison to the fourth quarter of 2013.

Financial Results (continued)

Non Interest Income

Mortgage Banking Activities, net

The following table presents the details of mortgage banking activities, net, for the first quarter of 2014 and fourth quarter of 2013:

Residential Mortgage Banking Activities, net

Income from residential mortgage banking activities, net, was a loss of $2 million for the first quarter of 2014, as compared to income of $10 million for the fourth quarter of 2013. Similar to recent prior quarters, we continue to experience timing differences related to our jumbo mortgage pipeline (defined as those loans we have identified for purchase) and the hedging for those loans that make it difficult to fully ascertain our quarterly operating performance from our high-level GAAP results.

To illustrate, valuation increases for residential loans of $7 million (net) for the first quarter of 2014 reflected both higher loan purchase volumes than the prior quarter and declining interest rates that contributed to an increase in the value of our residential loan inventory. However, valuation adjustments for jumbo residential loans in our pipeline at March 31, 2014 were not included in the $7 million, whereas the hedges for those unpurchased loans were included in our first quarter of 2014 mortgage banking results, creating a timing difference. As those loans are purchased in the following period(s), valuation adjustments will be incurred at that time and reflected in that quarter’s results, creating another timing difference. Our first quarter of 2014 also had negative valuation adjustments for loans in our pipeline at the end of the fourth quarter of 2013, for which the hedging gains were reflected in that quarter, creating yet another timing difference.

The impact of interest rate volatility can be more easily ascertained from the valuation changes of risk management derivatives and Sequoia IO securities over the past two quarters. The marks on these instruments generally offset valuation changes in our residential pipeline and are not subject to the

Financial Results (continued)

timing differences described above. As shown in the preceding table, risk management derivatives associated with our residential loan pipeline declined in value by $4 million during the first quarter of 2014, a $3 million adverse fluctuation from the fourth quarter of 2013, while Sequoia IO securities declined in value by $4 million during the first quarter of 2014, a $10 million adverse fluctuation from the fourth quarter of 2013. The combined $14 million fluctuation is attributable to the volatility in interest rates, as previously discussed.

After taking into account the effect of volatile interest rates and timing differences that affect our high-level GAAP results, we believe the loan sale profit margins generated by our operations during the first quarter of 2014 were only modestly down from the prior quarter and within our long-term target of 25-to-50 basis points (net of hedges) that we have disclosed in the past.

Commercial Mortgage Banking Activities, net

Our commercial platform generated income from mortgage banking activities of $1 million in the first quarter of 2014, as compared to $7 million in the fourth quarter of 2013. As is often typical in the commercial mortgage business, our first quarter origination volume was down from a strong fourth quarter. In the first quarter of 2014, we funded six senior commercial loans totaling $119 million, as compared to 23 loans totaling $242 million in the fourth quarter of 2013. For comparison, industry-wide CMBS issuance was down 20% to $20.4 billion in the first quarter of 2014, as compared to the fourth quarter of 2013. Although we did experience declines in the value of hedging derivatives related to our commercial loan pipeline, these amounts relate to loans originated and/or sold during the first quarter and did not include timing differences similar to those discussed above for residential loans.

MSR Income, net

Income from our investment in mortgage servicing rights totaled $1 million in the first quarter of 2014, down from $6 million in the fourth quarter of 2013. Fee income generated from MSRs was $3 million for the first quarter of 2014, consistent with the fourth quarter of 2013. While our fourth quarter of 2013 results benefited from $2 million in positive market valuation adjustments to our MSRs primarily related to increases in interest rates over the course of the quarter, our first quarter of 2014 results were adversely effected by declining interest rates that resulted in slightly less than $3 million of negative market valuation adjustments.

Other Market Valuation Adjustments, net

Other market valuation adjustments, net, was negative $6 million for the first quarter of 2014, as compared to zero for the fourth quarter of 2013, a $6 million decline. This decline is attributable to declines in the value of derivatives used to hedge certain residential investments on our balance sheet, as a result of declining interest rates during the first quarter of 2014. While we believe we effectively hedged our exposure to the decline in interest rates during the first quarter (as reflected in our GAAP book value), the derivatives used to hedge our interest rate exposure are marked to market through earnings each quarter while some of the corresponding price changes to hedged assets are not. This contributed to additional volatility in our first quarter 2014 earnings, as discussed throughout this Quarterly Overview.

Financial Results (continued)

Realized Gains, net

In the first quarter of 2014, we recognized $1 million of net gains from securities called during the quarter, as compared to $2 million of net gains from the sale of $3 million of available-for-sale (AFS) securities in the fourth quarter of 2013.

Operating Expenses / Other

Operating expenses were $20 million for the first quarter of 2014, as compared to $19 million for the fourth quarter of 2013. The increase primarily resulted from an increase in fixed compensation expense associated with our residential and commercial mortgage banking operations. The increased operating expense was offset by a benefit from taxes of $2 million for the first quarter of 2014 that relates to a quarterly net loss at a taxable REIT subsidiary. This loss was due to declines in the value of derivatives used to manage interest rate volatility during the first quarter of 2014.

GAAP Book Value

The following table presents a summary of GAAP book value for the first quarter of 2014 and fourth quarter of 2013.

Financial Results (continued)

Quarterly Investment Activity

Our capital deployment declined in the first quarter of 2014 from prior quarter levels, reflecting the low issuance of new residential securities and a limited supply of attractively priced seasoned residential securities. The following table details our capital invested for the first quarter of 2014 and fourth quarter of 2013.

(1) Included in our third-party RMBS acquisitions was one $24 million acquisition late in the first quarter of 2014 that did not settle until early in the second quarter of 2014. In order to reflect the fact that capital had not yet been used to acquire this asset at March 31, 2014, the short-term debt / other liabilities line item in the table above includes a $24 million payable associated with this transaction. In early April 2014, we completed the purchase of this security using $22 million of short-term debt, resulting in net capital invested of $2 million that is not reflected in the table above.

At March 31, 2014, our residential securities portfolio had a market value of $1.74 billion, up from $1.68 billion at December 31, 2013. This increase included $74 million of acquisitions, $24 million in positive valuation adjustments, and $38 million in net principal paydowns. Included in these numbers are $106 million of Sequoia IO securities at March 31, 2014, which are included in our Residential Mortgage Banking segment for reporting purposes.

Our residential securities acquisitions of $74 million in the first quarter of 2014 included $64 million of senior securities, and $10 million of re-REMIC securities. These acquisitions in the first quarter were funded with $67 million of short-term debt and $7 million of capital. We also added $3 million of MSRs in the first quarter associated with $273 million of loans. At March 31, 2014, our investment in MSRs was $65 million, associated with $6.0 billion (principal balance) of residential loans.

Following the end of the first quarter of 2014 and through April 30, 2014, we acquired $36 million of third-party securities, $24 million of Sequoia securities from SEMT 2014-1, and $5 million of MSRs, deploying $18 million of capital, net of financing.

During the first quarter of 2014 we funded $2 million of commercial mezzanine loans associated with senior mortgage loans we originated during the quarter, as compared to $3 million of mezzanine loans funded in the fourth quarter of 2013. In addition, we retained $5 million of B-Notes from 3 senior loans we had originated.

Financial Results (continued)

Capital and Liquidity

At March 31, 2014, we held $150 million in cash, and our investment capacity (defined as the approximate amount of capital we had readily available for long-term investments) was estimated to be approximatey $110 million. Total capital of $1.7 billion at March 31, 2014, included $1.3 billion of equity capital, $140 million of long-term debt, and $288 million of long-term convertible debt.

We ended the first quarter of 2014 with total short-term debt of $1.3 billion, which included $512 million of warehouse debt used to finance residential loans, $68 million of warehouse debt used to finance commercial loans, and $708 million of repurchase facilities used to finance residential securities. Our additional uncommitted borrowing capacity was $0.9 billion under existing residential and commercial loan warehouse facilities at March 31, 2014.

During the first quarter of 2014, our reported long-term debt increased by $37 million primarily as a result of our requirement under GAAP to classify certain senior commercial loans we originated and sold to third-parties as secured borrowings and not sales. For these particular loans, we recorded $38 million of commercial loans and $35 million of long-term debt liabilities, which on a net basis reflects our $3 million B-Note investments in these loans. See the Financial Insights section of this Redwood Review for additional details on our long-term debt at March 31, 2014. In addition, we financed a portion of our B-Note investments with $2 million of long-term warehouse debt.

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 as higher yielding investment opportunities arise. To the extent our expectation changes and we need external capital to fund our investment and business activities, we would most likely consider the issuance of debt or equity securities under the shelf registration statement we currently have on file with the SEC, or the issuance of similar or other types of securities in public or private offerings.

Balance Sheet

The following table shows the components of our balance sheet at March 31, 2014.

(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 March 31, 2014, the Residential Resecuritization accounted for $257 million of assets ($256 million of available-for-sale securities at fair value and $1 million of other assets) and $82 million of asset-backed securities issued (at amortized cost). Our $175 million investment in this resecuritization, as estimated for GAAP, equals the difference between these assets and liabilities. At March 31, 2014, the Commercial Securitization accounted for $262 million of assets ($257 million of commercial real estate loans at historical cost and $5 million of other assets) and $148 million of asset-backed securities issued (at amortized cost). Our $114 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 $71 million at March 31, 2014, 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 $523 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)

Residential Loans

The table below details residential loan activity at Redwood during the first quarter of 2014 and the fourth quarter of 2013.

At March 31, 2014, we owned $775 million of prime residential loans, including $625 million of jumbo loans and $150 million of conforming loans. These prime residential loans included $510 million of 30-year fixed-rate loans, $138 million of 15-year or 20-year fixed-rate loans, $126 million of hybrid loans, and $1 million of ARM loans. At March 31, 2014, our pipeline of loans identified for purchase included $668 million of jumbo loans and $155 million of conforming loans. See the Residential Mortgage Banking section on page 31 for additional information.

Balance Sheet (continued)

Commercial Loans

The following table details commercial loan activity during the first quarter of 2014 and the fourth quarter of 2013.

At March 31, 2014, we owned $491 million of commercial loans, as compared to $432 million of commercial loans at December 31, 2013. During the first quarter of 2014, we originated and funded six senior loans and sold six senior loans. Additionally, we originated one mezzanine loan. We also sold two senior A-Note commercial mortgages to third-parties that did not qualify as sales under GAAP, and remain on our balance sheet. These loans and the associated B-Note mortgage loans we retained are held at fair value and are shown separately in the table above. See the Commercial Mortgage Banking Activities section on page 34 for additional information.

Balance Sheet (continued)

Residential Real Estate Securities

The following table presents the fair value of residential real estate securities held at March 31, 2014. 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 $256 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 $163 million at March 31, 2014. As a result, to adjust at March 31, 2014 for the legal and economic interests that resulted from the resecuritization, Total Senior Securities would be decreased by $256 million to $752 million, Prime Re-REMIC Securities would be increased by $163 million to $355 million, and Total Real Estate Securities would be reduced by $93 million to $1.65 billion.

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

(3) Prime mezzanine includes securities initially rated AA, A, and BBB- and issued in 2012 or later.

Balance Sheet (continued)

The table below details the change in fair value of real estate securities during the first quarter of 2014 and the fourth quarter of 2013.

During the first quarter of 2014, we acquired $64 million of prime senior securities and $10 million of residential senior re-REMIC securities. There were no security sales during the first quarter of 2014.

At March 31, 2014, residential securities we own (as a percentage of current market value) consisted of fixed-rate assets (43%), adjustable-rate assets (16%), hybrid assets that reset within the next year (35%), and hybrid assets that reset between 12 and 36 months (6%).

Balance Sheet (continued)

Mortgage Servicing Rights

The table below details the change in fair value of Redwood’s MSRs during the first quarter of 2014 and the fourth quarter of 2013.

At March 31, 2014, we owned $59 million jumbo MSR investments and $6 million of conforming MSR investments associated with principal balances of $5.5 billion and $0.5 billion, respectively. We earn fees from these MSRs, but outsource the actual servicing of the associated loans to a third-party servicer.

During the first quarter of 2014, we added $3 million of MSRs associated with $273 million of residential loans. The estimated fair value of our MSRs at March 31, 2014, is equal to 1.08% of the principal balance of the associated residential loans. At March 31, 2014, the loans associated with our MSRs had a 30-day delinquency ratio of 0.31% and none of these loans were greater than 30 days delinquent.

Derivatives

The following table presents the fair value and notional value of derivative financial instruments held at March 31, 2014 and December 31, 2013, which are components of other assets and accrued expenses and other liabilities on our consolidated balance sheets.

Balance Sheet (continued)

We use derivative financial instruments in an effort to manage the interest rate risk associated with some of our residential and commercial mortgage banking activity, in addition to the net interest rate exposure within our investment portfolio. Net changes in the fair value of risk management derivatives are reflected in our income statement in mortgage banking activities, net, for residential and commercial mortgage banking segments, and in other market valuation adjustments, net, for our residential investments segment. 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 first quarter of 2014, the aggregate fair value of risk management derivatives, including those agreements that we exited during the quarter, declined by $13 million.

We also record conforming loan purchase and forward sale commitments as derivatives. In the first quarter of 2014 and the fourth quarter of 2013, these derivatives had negligible market valuation changes.

Falling benchmark interest rates also resulted in a $9 million increase 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 $71 million at March 31, 2014. 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.

Short-Term Debt

At March 31, 2014, we had short-term residential mortgage warehouse debt outstanding of $512 million, which was used to finance a portion of the $775 million inventory of residential mortgage loans held for sale. We also had short-term commercial mortgage warehouse debt outstanding of $68 million, which was used to finance a portion of the $107 million inventory of commercial mortgage loans held at fair value.

At March 31, 2014, 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 March 31, 2014, we had short-term debt incurred through securities repurchase facilities of $708 million, which was secured by $875 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).

Balance Sheet (continued)

The table below details the activity of short-term debt during the first quarter of 2014 and fourth quarter of 2013.

Long-Term Debt and ABS Issued

At March 31, 2014, 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 March 31, 2014, 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 March 31, 2014, we had $51 million of borrowings outstanding under a $150 million commercial warehouse facility for mezzanine and B-Note loans. Due to the 18-month term of this facility, it is classified as long-term debt on our consolidated balance sheet.

At March 31, 2014, we had commercial secured borrowings of $35 million as a result of our requirement under GAAP to classify certain senior commercial loans we originated and sold to third-parties as secured borrowings and not sales. These secured borrowings are recorded at their estimated fair values, which is equal to the fair value of the associated senior loans that were sold but remain on our balance sheet.

At March 31, 2014, we had $82 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 $148 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 March 31, 2014, our total capital was $1.7 billion, including $1.3 billion of equity capital, $140 million of long-term debt, and $288 million of long-term convertible 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 $150 million at March 31, 2014.

GAAP Income

Our consolidated GAAP net income for the first quarter of 2014 was $12 million, or $0.14 per share, as compared to $25 million, or $0.29 per share, for the fourth quarter of 2013. The following tables present the results at Redwood and Consolidated Sequoia Entities and their estimated effect on GAAP income for the first quarter of 2014 and fourth quarter of 2013.