Redwood operates in two segments: Investment Portfolio and Mortgage Banking. 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 Part I, Item 1—Business in our Annual Report on Form 10-K for the year ended December 31, 2018.

Our Mortgage Banking segment includes activity from both our residential and business purpose mortgage banking operations. Our business purpose mortgage banking operations includes activity from our wholly-owned subsidiary 5 Arches and our single-family rental loans that we are aggregating for subsequent sale or securitization. In connection with our acquisition of 5 Arches on March 1, 2019, the goodwill, intangible assets, and contingent consideration we recorded on our consolidated balance sheets were included in our Mortgage Banking segment. The gain on re-measurement of our initial minority investment and purchase option in 5 Arches during the three months ended March 31, 2019 was included in Corporate/Other.

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, 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.



	Three Months Ended September 30, 2019
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	132,894		$	12,491		$	4,732		$	150,117
Interest expense	(94,519		)	(6,657		)	(15,428		)	(116,604		)
Net interest income (loss)	38,375			5,834			(10,696		)	33,513
Non-interest income
Mortgage banking activities, net	—			9,515			—			9,515
Investment fair value changes, net	11,896			—			(452		)	11,444
Other income (expense), net	2,313			(252		)	(236		)	1,825
Realized gains, net	4,714			—			—			4,714
Total non-interest income, net	18,923			9,263			(688		)	27,498
Direct operating expenses	(2,191		)	(11,907		)	(12,717		)	(26,815		)
(Provision for) benefit from income taxes	(89		)	203			—			114
Segment Contribution	$	55,018		$	3,393		$	(24,101	)
Net Income										$	34,310
Non-cash amortization income (expense), net	$	2,456		$	(2,028	)	$	(1,148	)	$	(720	)



	Three Months Ended September 30, 2018
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	79,556		$	14,427		$	5,414		$	99,397
Interest expense	(40,852		)	(7,537		)	(15,962		)	(64,351		)
Net interest income (loss)	38,704			6,890			(10,548		)	35,046
Non-interest income
Mortgage banking activities, net	—			11,224			—			11,224
Investment fair value changes, net	10,566			—			(234		)	10,332
Other income, net	3,334			—			119			3,453
Realized gains, net	7,275			—			—			7,275
Total non-interest income, net	21,175			11,224			(115		)	32,284
Direct operating expenses	(2,659		)	(6,570		)	(12,261		)	(21,490		)
Provision for income taxes	(2,840		)	(2,079		)	—			(4,919		)
Segment Contribution	$	54,380		$	9,465		$	(22,924	)
Net Income										$	40,921
Non-cash amortization income (expense), net	$	4,019		$	(54	)	$	(1,176	)	$	2,789



	Nine Months Ended September 30, 2019
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	380,394		$	34,220		$	15,086		$	429,700
Interest expense	(266,318		)	(18,816		)	(46,966		)	(332,100		)
Net interest income (loss)	114,076			15,404			(31,880		)	97,600
Non-interest income
Mortgage banking activities, net	—			40,984			—			40,984
Investment fair value changes, net	35,749			—			(1,008		)	34,741
Other income, net	6,408			(575		)	1,986			7,819
Realized gains, net	18,227			—			—			18,227
Total non-interest income, net	60,384			40,409			978			101,771
Direct operating expenses	(7,110		)	(31,582		)	(37,537		)	(76,229		)
Provision for income taxes	(1,327		)	(1,775		)	—			(3,102		)
Segment Contribution	$	166,023		$	22,456		$	(68,439	)
Net Income										$	120,040
Non-cash amortization income (expense), net	$	7,446		$	(4,765	)	$	(3,573	)	$	(892	)



	Nine Months Ended September 30, 2018
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	202,882		$	40,408		$	15,702		$	258,992
Interest expense	(87,719		)	(21,303		)	(45,056		)	(154,078		)
Net interest income (loss)	115,163			19,105			(29,354		)	104,914
Non-interest income
Mortgage banking activities, net	—			48,396			—			48,396
Investment fair value changes, net	13,756			—			(926		)	12,830
Other income, net	8,774			—			119			8,893
Realized gains, net	21,352			—			—			21,352
Total non-interest income, net	43,882			48,396			(807		)	91,471
Direct operating expenses	(6,524		)	(20,941		)	(36,064		)	(63,529		)
Provision for income taxes	(4,858		)	(7,485		)	—			(12,343		)
Segment Contribution	$	147,663		$	39,075		$	(66,225	)
Net Income										$	120,513
Non-cash amortization income (expense), net	$	13,290		$	(99	)	$	(3,021	)	$	10,170

Table 24.2 – Components of Corporate/Other



	Three Months Ended September 30,
	2019									2018
(In Thousands)	Legacy Consolidated VIEs ⁽¹⁾			Other			Total			Legacy Consolidated VIEs ⁽¹⁾			Other			Total
Interest income	$	4,295		$	437		$	4,732		$	5,174		$	240		$	5,414
Interest expense	(3,452		)	(11,976		)	(15,428		)	(4,257		)	(11,705		)	(15,962		)
Net interest income (loss)	843			(11,539		)	(10,696		)	917			(11,465		)	(10,548		)
Non-interest income
Investment fair value changes, net	(407		)	(45		)	(452		)	(248		)	14			(234		)
Other income	—			(236		)	(236		)	—			119			119
Total non-interest income, net	(407		)	(281		)	(688		)	(248		)	133			(115		)
Direct operating expenses	—			(12,717		)	(12,717		)	—			(12,261		)	(12,261		)
Total	$	436		$	(24,537	)	$	(24,101	)	$	669		$	(23,593	)	$	(22,924	)



	Nine Months Ended September 30,
	2019									2018
(In Thousands)	Legacy Consolidated VIEs ⁽¹⁾			Other			Total			Legacy Consolidated VIEs ⁽¹⁾			Other			Total
Interest income	$	13,924		$	1,162		$	15,086		$	15,003		$	699		$	15,702
Interest expense	(11,548		)	(35,418		)	(46,966		)	(12,324		)	(32,732		)	(45,056		)
Net interest income (loss)	2,376			(34,256		)	(31,880		)	2,679			(32,033		)	(29,354		)
Non-interest income
Investment fair value changes, net	(904		)	(104		)	(1,008		)	(976		)	50			(926		)
Other income	—			1,986			1,986			—			119			119
Total non-interest income, net	(904		)	1,882			978			(976		)	169			(807		)
Direct operating expenses	—			(37,537		)	(37,537		)	—			(36,064		)	(36,064		)
Total	$	1,472		$	(69,911	)	$	(68,439	)	$	1,703		$	(67,928	)	$	(66,225	)

Table 24.3 – Supplemental Segment Information



(In Thousands)	Investment Portfolio		Mortgage Banking		Corporate/ Other		Total
September 30, 2019
Residential loans	$	7,326,757	$	925,887	$	429,159	$	8,681,803
Business purpose residential loans	225,601		110,434		—		336,035
Multifamily loans	3,791,622		—		—		3,791,622
Real estate securities	1,285,426		—		—		1,285,426
Other investments	346,136		1,571		—		347,707
Goodwill and intangible assets	—		49,121		—		49,121
Total assets	13,347,460		1,166,639		962,184		15,476,283

December 31, 2018
Residential loans	$	5,685,983	$	1,048,801	$	519,958	$	7,254,742
Business purpose residential loans	112,798		28,460		—		141,258
Multifamily loans	2,144,598		—		—		2,144,598
Real estate securities	1,452,494		—		—		1,452,494
Other investments	427,764		—		10,754		438,518
Total assets	10,093,993		1,103,090		740,323		11,937,406