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Segment Information
 12 Months Ended
Dec. 31, 2017
Segment Reporting [Abstract]  
Segment Information
Segment Information
Redwood operates in two segments: Investment Portfolio and Residential Mortgage Banking. Beginning in the first quarter of 2017, we eliminated our Commercial segment and renamed our Residential Investments segment as the Investment Portfolio segment. 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, see Item 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 corporate expenses not directly assigned or allocated to one of our two segments, as well as activity from certain consolidated Sequoia entities and commercial mortgage banking activities (in prior years) are included in the Corporate/Other column as reconciling items to our consolidated financial statements. These unallocated corporate 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, 2017, 2016, and 2015.
Table 21.1 – Business Segment Financial Information
 
 
Year Ended December 31, 2017
(In Thousands)
 
Investment Portfolio
 
 Residential Mortgage Banking
 
 Corporate/
Other
 
 Total
Interest income
 
$
188,760

 
$
39,309

 
$
19,988

 
$
248,057

Interest expense
 
(36,690
)
 
(17,369
)
 
(54,757
)
 
(108,816
)
Net interest income (loss)
 
152,070


21,940


(34,769
)
 
139,241

Non-interest income
 
 
 
 
 
 
 

Mortgage banking activities, net
 
—

 
53,908

 
—

 
53,908

MSR income, net
 
7,860

 
—

 
—

 
7,860

Investment fair value changes, net
 
18,414

 
—

     
(8,040
)
 
10,374

Other income
 
4,576

 
—

 
—

 
4,576

Realized gains, net
 
14,107

 
—

 
(752
)
 
13,355

Total non-interest income, net
 
44,957


53,908


(8,792
)
 
90,073

Direct operating expenses
 
(6,028
)
 
(25,113
)
 
(46,015
)
 
(77,156
)
Provision for income taxes
 
(5,328
)
 
(6,424
)
 
—

 
(11,752
)
Segment Contribution
 
$
185,671


$
44,311


$
(89,576
)


Net Income
 
 
 
 
 
 
 
$
140,406

Non-cash amortization income (expense), net
 
$
20,974

 
$
(102
)
 
$
(3,410
)
 
$
17,462

 
 
Year Ended December 31, 2016
(In Thousands)
 
Investment Portfolio
 
 Residential Mortgage Banking
 
 Corporate/
Other
 
 Total
Interest income
 
$
192,200

 
$
33,661

 
$
20,494

 
$
246,355

Interest expense
 
(22,997
)
 
(14,191
)
 
(51,340
)
 
(88,528
)
Net interest income (loss)
 
169,203


19,470


(30,846
)
 
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, net
 
14,353

 
—

 
—

 
14,353

Investment fair value changes, net
 
(24,367
)
     
—

     
(4,207
)
 
(28,574
)
Other income
 
6,338

 
—

 
—

 
6,338

Realized gains, net
 
27,717

 
—

 
292

 
28,009

Total non-interest income, net
 
24,041


40,753


(5,977
)
 
58,817

Direct operating expenses (1)
 
(10,421
)
 
(23,252
)
 
(55,113
)
 
(88,786
)
Provision for income taxes
 
(1,848
)
 
(1,860
)
 
—

 
(3,708
)
Segment Contribution
 
$
188,077


$
35,111


$
(91,936
)
 
 
Net Income
 
 
 
 
 
 
 
$
131,252

Non-cash amortization income (expense), net
 
$
29,806

 
$
(130
)
 
$
(3,972
)
 
$
25,704

 
 
Year Ended December 31, 2015
(In Thousands)
 
Investment Portfolio
 
 Residential Mortgage Banking
 
 Corporate/
Other
 
 Total
Interest income
 
$
177,595

 
$
52,260

 
$
29,577

 
$
259,432

Interest expense
 
(22,684
)
 
(17,207
)
 
(55,992
)
 
(95,883
)
Net interest income (loss)
 
154,911


35,053


(26,415
)
 
163,549

Reversal of provision for loan losses
 
355

 
—

 
—

 
355

Non-interest income
 
 
 
 
 
 
 

Mortgage banking activities, net
 
—

 
8,268

 
2,704

 
10,972

MSR 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
 
15,550


8,268


1,436

 
25,254

Direct operating expenses
 
(7,179
)
 
(43,182
)
 
(47,055
)
 
(97,416
)
Benefit from income taxes
 
846

 
4,169

 
5,331

 
10,346

Segment Contribution
 
$
164,483


$
4,308


$
(66,703
)
 

Net Income
 
 
 
 
 
 
 
$
102,088

Non-cash amortization income (expense), net
 
$
36,583

 
$
(186
)
 
$
(3,994
)
 
$
32,403

Hedging allocations
 
(1,070
)
 
1,120

 
(50
)
 
—

(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 10 for further discussion of these restructuring charges.
The following table presents the components of Corporate/Other for the years ended December 31, 2017, 2016, and 2015.
Table 21.2 – Components of Corporate/Other
 
 
Years Ended December 31,
 
 
2017
 
2016
 
2015
(In Thousands)
 
Legacy Consolidated VIEs (1)
 
Other
 
Total
 
Legacy Consolidated VIEs (1)
 
Other
 
 Total
 
Legacy Consolidated VIEs (1)
 
Other
 
 Total
Interest income
 
$
19,407

 
$
581

 
$
19,988

 
$
19,537

 
$
957

 
$
20,494

 
$
24,814

 
$
4,763

 
$
29,577

Interest expense
 
(14,789
)
 
(39,968
)
 
(54,757
)
 
(13,103
)
 
(38,237
)
 
(51,340
)
 
(15,646
)
 
(40,346
)
 
(55,992
)
Net interest income (loss)
 
4,618

 
(39,387
)
 
(34,769
)
 
6,434

 
(37,280
)
 
(30,846
)
 
9,168

 
(35,583
)
 
(26,415
)
Non-interest income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage banking activities, net
 
—

 
—

 
—

 
—

 
(2,062
)
 
(2,062
)
 
—

 
2,704

 
2,704

Investment fair value changes, net
 
(8,027
)
     
(13
)
 
(8,040
)
 
(4,200
)
 
(7
)
 
(4,207
)
 
(1,192
)
 
(76
)
 
(1,268
)
Realized gains, net
 
—

 
(752
)
 
(752
)
 
—

 
292

 
292

 
—

 
—

 
—

Total non-interest (loss) income, net
 
(8,027
)
 
(765
)
 
(8,792
)
 
(4,200
)
 
(1,777
)
 
(5,977
)
 
(1,192
)
 
2,628

 
1,436

Direct operating expenses
 
—

 
(46,015
)
 
(46,015
)
 
—

 
(55,113
)
 
(55,113
)
 
—

 
(47,055
)
 
(47,055
)
Benefit from income taxes
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5,331

 
5,331

Total
 
$
(3,409
)
 
$
(86,167
)
 
$
(89,576
)
 
$
2,234

 
$
(94,170
)
 
$
(91,936
)
 
$
7,976

 
$
(74,679
)
 
$
(66,703
)
(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, 2017 and December 31, 2016.
Table 21.3 – Supplemental Segment Information
(In Thousands)
 
Investment Portfolio
 
Residential Mortgage Banking
 
Corporate/
Other
 
Total
December 31, 2017
 
 
 
 
 
 
 
 
Residential loans
 
$
3,054,448

 
$
1,427,945

 
$
632,817

 
$
5,115,210

Real estate securities
 
1,476,510

 
—

 
—

 
1,476,510

Mortgage servicing rights
 
63,598

 
—

 
—

 
63,598

Total assets
 
4,743,873

 
1,453,069

 
842,880

 
7,039,822

 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
Residential loans
 
$
2,261,016

 
$
835,399

 
$
791,636

 
$
3,888,051

Real estate securities
 
1,018,439

 
—

 
—

 
1,018,439

Mortgage servicing rights
 
118,526

 
—

 
—

 
118,526

Total assets
 
3,615,535

 
866,356

 
1,001,586

 
5,483,477