Segment Information

3 Months Ended

Mar. 31, 2016

Segment Reporting [Abstract]

Segment Information

Segment Information

Redwood operates in three segments: Residential Mortgage Banking, Residential Investments, and Commercial. Beginning in the first quarter of 2016, we renamed our former "Commercial mortgage banking and investments" segment to our "Commercial" segment, as a result of our announcement to discontinue the origination of commercial loans. Our segments are based on our organizational and management structure, which aligns with how our results are monitored and performance is assessed. For a full description of our segments, see Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2015.

Segment contribution represents the measure of profit that management uses to assess the performance of our business segments and make resource allocation and operating decisions. Certain expenses not directly assigned or allocated to one of the three primary segments, as well as activity from certain consolidated Sequoia entities consolidated for GAAP financial reporting purposes, are included in the Corporate/Other column as reconciling items to our consolidated financial statements. These unallocated expenses primarily include interest expense associated with certain long-term debt, indirect operating expenses, and other expense.

The following tables present financial information by segment for the three months ended March 31, 2016 and 2015.

Table 22.1 – Business Segment Financial Information

	Three Months Ended March 31, 2016
(In Thousands)	Residential Mortgage Banking			Residential Investments			Commercial			Corporate/ Other			Total
Interest income	$	7,869		$	39,936		$	9,581		$	4,942		$	62,328
Interest expense	(3,289		)	(4,953		)	(2,952		)	(12,756		)	(23,950		)
Net interest income (loss)	4,580			34,983			6,629			(7,814		)	38,378
Reversal of provision for loan losses	—			—			(289		)	—			(289		)
Non-interest income
Mortgage banking activities, net	9,280			—			(2,062		)	—			7,218
MSR income (loss), net	—			6,281			—			—			6,281
Investment fair value changes, net	—			(17,765		)	(137		)	(1,636		)	(19,538		)
Other income	—			955			—			—			955
Realized gains, net	—			9,246			—			292			9,538
Total non-interest income, net	9,280			(1,283		)	(2,199		)	(1,344		)	4,454
Direct operating expenses (1)	(5,321		)	(1,861		)	(1,602		)	(21,668		)	(30,452		)
Provision for income taxes	—			(28		)	—			—			(28		)
Segment Contribution	$	8,539		$	31,811		$	2,539		$	(30,826	)
Net Income													$	12,063
Non-cash amortization income (expense)	$	(43	)	$	8,068		$	(16	)	$	(990	)	$	7,019

(1) For the three months ended March 31, 2016, charges associated with the restructuring of our conforming residential mortgage loan operations and commercial operations are presented under the Corporate/Other column. See Note 11 for further discussion of these restructuring charges.

	Three Months Ended March 31, 2015
(In Thousands)	Residential Mortgage Banking			Residential Investments			Commercial			Corporate/ Other			Total
Interest income	$	15,795		$	30,012		$	10,914		$	7,025		$	63,746
Interest expense	(3,778		)	(2,810		)	(3,489		)	(13,884		)	(23,961		)
Net interest income (loss)	12,017			27,202			7,425			(6,859		)	39,785
Provision for loan losses	—			—			(206		)	—			(206		)
Non-interest income
Mortgage banking activities, net	2,215			—			(292		)	—			1,923
MSR income (loss), net	—			(10,924		)	—			—			(10,924		)
Investment fair value changes, net	2			(19		)	—			(1,128		)	(1,145		)
Other income	—			809			—			—			809
Realized gains, net	—			4,306			—			—			4,306
Total non-interest income, net	2,217			(5,828		)	(292		)	(1,128		)	(5,031		)
Direct operating expenses	(10,903		)	(1,118		)	(3,482		)	(9,560		)	(25,063		)
Benefit from income taxes	8			3,510			853			945			5,316
Segment Contribution	$	3,339		$	23,766		$	4,298		$	(16,602	)
Net Income													$	14,801
Non-cash amortization income (expense)	$	(46	)	$	9,838		$	(49	)	$	(981	)	$	8,762

The following tables present the components of Corporate/Other for the three months ended March 31, 2016 and 2015.

Table 22.2 – Components of Corporate/Other

	Three Months Ended March 31,
	2016									2015
(In Thousands)	Legacy VIEs (1)			Other			Total			Legacy VIEs (1)			Other			Total
Interest income	$	4,777		$	165		$	4,942		$	7,018		$	7		$	7,025
Interest expense	(3,297		)	(9,459		)	(12,756		)	(4,482		)	(9,402		)	(13,884		)
Net interest income (loss)	1,480			(9,294		)	(7,814		)	2,536			(9,395		)	(6,859		)
Reversal of provision for loan losses	—			—			—			—			—			—
Non-interest income
Mortgage banking activities, net	—			—			—			—			—			—
MSR income (loss), net	—			—			—			—			—			—
Investment fair value changes, net	(1,580		)	(56		)	(1,636		)	(1,093		)	(35		)	(1,128		)
Other income	—			—			—			—			—			—
Realized gains, net	—			292			292			—			—			—
Total non-interest income, net	(1,580		)	236			(1,344		)	(1,093		)	(35		)	(1,128		)
Direct operating expenses	—			(21,668		)	(21,668		)	—			(9,560		)	(9,560		)
(Provision for) benefit from income taxes	—			—			—			—			945			945
Total	$	(100	)	$	(30,726	)	$	(30,826	)	$	1,443		$	(18,045	)	$	(16,602	)

(1) Legacy VIEs represent legacy Sequoia entities that are consolidated for GAAP financial reporting purposes. See Note 4 for further discussion on VIEs.

The following table presents supplemental information by segment at March 31, 2016 and December 31, 2015.

Table 22.3 – Supplemental Segment Information

(In Thousands)	Residential Mortgage Banking		Residential Investments		Commercial		Corporate/ Other		Total
March 31, 2016
Residential loans	$	441,076	$	2,343,953	$	—	$	930,027	$	3,715,056
Commercial loans	—		—		363,893		—		363,893
Real estate securities	—		909,569		10,358		—		919,927
Mortgage servicing rights	—		126,620		—		—		126,620
Total assets	472,213		3,552,629		377,452		1,324,586		5,726,880
December 31, 2015
Residential loans	$	1,115,738	$	1,791,195	$	—	$	1,021,870	$	3,928,803
Commercial loans	—		—		402,647		—		402,647
Real estate securities	197,007		1,028,171		8,078		—		1,233,256
Mortgage servicing rights	—		191,976		—		—		191,976
Total assets	1,347,492		3,140,604		415,716		1,316,235		6,220,047