Segment Information

12 Months Ended

Dec. 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. The accounting policies of the reportable segments are the same as those described in Note 3 — Summary of Significant Accounting Policies. For a full description of our segments, seeItem 1—Business in this Annual Report on Form 10-K.

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 years ended December 31, 2016, 2015, and 2014.

Table 22.1 – Business Segment Financial Information

	Year Ended December 31, 2016
(In Thousands)	Residential Mortgage Banking			Residential Investments			Commercial			Corporate/ Other			Total
Interest income	$	33,661		$	160,174		$	32,780		$	19,740		$	246,355
Interest expense	(14,191		)	(18,394		)	(5,001		)	(50,942		)	(88,528		)
Net interest income (loss)	19,470			141,780			27,779			(31,202		)	157,827
Reversal of provision for loan losses	—			—			7,102			—			7,102
Non-interest income
Mortgage banking activities, net	40,753			—			(2,062		)	—			38,691
MSR income (loss), net	—			14,353			—			—			14,353
Investment fair value changes, net	—			(26,945		)	2,578			(4,207		)	(28,574		)
Other income	—			6,070			268			—			6,338
Realized gains, net	—			22,516			5,201			292			28,009
Total non-interest income, net	40,753			15,994			5,985			(3,915		)	58,817
Direct operating expenses (1)	(23,252		)	(9,042		)	(2,731		)	(53,761		)	(88,786		)
Provision for income taxes	(1,860		)	(1,848		)	—			—			(3,708		)
Segment Contribution	$	35,111		$	146,884		$	38,135		$	(88,878	)
Net Income													$	131,252
Non-cash amortization income (expense)	$	(130	)	$	29,830		$	(24	)	$	(3,972	)	$	25,704

	Year Ended December 31, 2015
(In Thousands)	Residential Mortgage Banking			Residential Investments			Commercial			Corporate/ Other			Total
Interest income	$	52,260		$	135,395		$	46,933		$	24,844		$	259,432
Interest expense	(17,207		)	(11,204		)	(13,809		)	(53,663		)	(95,883		)
Net interest income (loss)	35,053			124,191			33,124			(28,819		)	163,549
Reversal of provision for loan losses	—			—			355			—			355
Non-interest income
Mortgage banking activities, net	8,268			—			2,704			—			10,972
MSR income (loss), net	—			(3,922		)	—			—			(3,922		)
Investment fair value changes, net	—			(20,089		)	—			(1,268		)	(21,357		)
Other income	—			3,192			—			—			3,192
Realized gains, net	—			36,369			—			—			36,369
Total non-interest income, net	8,268			15,550			2,704			(1,268		)	25,254
Direct operating expenses	(43,182		)	(4,346		)	(11,331		)	(38,557		)	(97,416		)
Benefit from income taxes	4,169			847			1,452			3,878			10,346
Segment Contribution	$	4,308		$	136,242		$	26,304		$	(64,766	)
Net Income													$	102,088
Non-cash amortization income (expense)	$	(186	)	$	36,850		$	(267	)	$	(3,994	)	$	32,403
Hedging allocations	1,120			(1,070		)	—			(50		)	—

	Year Ended December 31, 2014
(In Thousands)	Residential Mortgage Banking			Residential Investments			Commercial			Corporate/ Other			Total
Interest income	$	58,272		$	110,433		$	47,567		$	25,798		$	242,070
Interest expense	(12,776		)	(11,848		)	(15,836		)	(47,003		)	(87,463		)
Net interest income (loss)	45,496			98,585			31,731			(21,205		)	154,607
Provision for loan losses	—			—			(84		)	(877		)	(961		)
Non-interest income
Mortgage banking activities, net	21,554			—			13,440			—			34,994
MSR income (loss), net	—			(4,261		)	—			—			(4,261		)
Investment fair value changes, net	—			(9,178		)	—			(1,024		)	(10,202		)
Other income	—			181			—			1,600			1,781
Realized gains, net	—			13,777			—			1,701			15,478
Total non-interest income, net	21,554			519			13,440			2,277			37,790
Direct operating expenses	(37,664		)	(3,681		)	(11,324		)	(37,454		)	(90,123		)
(Provision for) benefit from income taxes	(1,774		)	1,340			(234		)	(76		)	(744		)
Segment Contribution	$	27,612		$	96,763		$	33,529		$	(57,335	)
Net Income													$	100,569
Non-cash amortization income (expense)	$	(181	)	$	42,784		$	(673	)	$	(8,232	)	$	33,698

(1) For the year ended December 31, 2016, charges associated with the restructuring of our conforming residential mortgage loan operations and commercial operations, included in the direct operating expense line item, are presented under the Corporate/Other column. See Note 11 for further discussion of these restructuring charges.

The following table presents the components of Corporate/Other for the years ended December 31, 2016, 2015, and 2014.

Table 22.2 – Components of Corporate/Other

	Years Ended December 31,
	2016									2015									2014
(In Thousands)	Legacy Consolidated VIEs (1)			Other			Total			Legacy Consolidated VIEs (1)			Other			Total			Legacy Consolidated VIEs (1)			Other			Total
Interest income	$	19,537		$	203		$	19,740		$	24,814		$	30		$	24,844		$	25,786		$	12		$	25,798
Interest expense	(13,103		)	(37,839		)	(50,942		)	(15,646		)	(38,017		)	(53,663		)	(20,844		)	(26,159		)	(47,003		)
Net interest income (loss)	6,434			(37,636		)	(31,202		)	9,168			(37,987		)	(28,819		)	4,942			(26,147		)	(21,205		)
Provision for loan losses	—			—			—			—			—			—			(877		)	—			(877		)
Non-interest income
Investment fair value changes, net	(4,200		)	(7		)	(4,207		)	(1,192		)	(76		)	(1,268		)	(894		)	(130		)	(1,024		)
Other income	—			—			—			—			—			—			—			1,600			1,600
Realized gains, net	—			292			292			—			—			—			1,701			—			1,701
Total non-interest income (loss), net	(4,200		)	285			(3,915		)	(1,192		)	(76		)	(1,268		)	807			1,470			2,277
Direct operating expenses	—			(53,761		)	(53,761		)	—			(38,557		)	(38,557		)	(165		)	(37,289		)	(37,454		)
(Provision for) benefit from income taxes	—			—			—			—			3,878			3,878			—			(76		)	(76		)
Total	$	2,234		$	(91,112	)	$	(88,878	)	$	7,976		$	(72,742	)	$	(64,766	)	$	4,707		$	(62,042	)	$	(57,335	)

(1) Legacy consolidated 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 December 31, 2016 and December 31, 2015.

Table 22.3 – Supplemental Segment Information

(In Thousands)	Residential Mortgage Banking		Residential Investments		Commercial		Corporate/ Other		Total
December 31, 2016
Residential loans	$	835,399	$	2,261,016	$	—	$	791,636	$	3,888,051
Commercial loans	—		—		2,700		—		2,700
Real estate securities	—		926,669		91,770		—		1,018,439
Mortgage servicing rights	—		118,526		—		—		118,526
Total assets	866,356		3,518,518		97,017		1,001,586		5,483,477
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