Note 21. Segment Information

Redwood operates in three segments: residential mortgage banking, residential investments, and commercial mortgage banking and investments. 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 Note 1—Redwood Trust.

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 legacy 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 and nine months ended September 30, 2014 and 2013.

Business Segment Financial Information


	Three Months Ended September 30, 2014
(In Thousands)	Residential Mortgage Banking		Residential Investments		Commercial Mortgage Banking and Investments		Corporate/ Other		Total
Interest income	$	16,911	$	27,600	$	12,603	$	6,237	$	63,351
Interest expense		(4,192)		(3,142)		(4,526)		(11,490)		(23,350)

Net interest income (loss)		12,719		24,458		8,077		(5,253)		40,001
Reversal of provision (provision) for loan losses		-		-		888		708		1,596
Mortgage banking activities, net		11,386		-		6,486		-		17,872
MSR income (loss), net		-		5,821		-		-		5,821
Other market valuation adjustments, net		43		(3,371)		-		(378)		(3,706)
Realized gains, net		-		7,836		-		696		8,532
Operating expenses		(9,982)		(802)		(2,279)		(8,343)		(21,406)
Other income		-		-		-		1,600		1,600
(Provision for) benefit from income taxes		(3,352)		150		(1,764)		(247)		(5,213)

Segment Contribution	$	10,814	$	34,092	$	11,408	$	(11,217)

Net Income									$	45,097


Non-cash amortization income (expense)		(43)		10,890		(191)		(2,049)		8,607


	Three Months Ended September 30, 2013
(In Thousands)	Residential Mortgage Banking		Residential Investments		Commercial Mortgage Banking and Investments		Corporate/ Other		Total
Interest income	$	15,954	$	22,887	$	10,740	$	7,839	$	57,420
Interest expense		(3,501)		(2,229)		(3,560)		(12,435)		(21,725)

Net interest income (loss)		12,453		20,658		7,180		(4,596)		35,695
Reversal of provision (provision) for loan losses		-		-		(844)		(883)		(1,727)
Mortgage banking activities, net		(12,236)		-		3,538		-		(8,698)
MSR income (loss), net		-		3,113		-		-		3,113
Other market valuation adjustments, net		(11)		549		-		(76)		462
Realized gains, net		-		10,469		-		-		10,469
Operating expenses		(7,874)		(229)		(2,176)		(12,041)		(22,320)
(Provision for) benefit from income taxes		4,867		377		29		(338)		4,935

Segment Contribution	$	(2,801)	$	34,937	$	7,727	$	(17,934)

Net Income									$	21,929


Non-cash amortization income (expense)		(13)		8,702		(228)		(2,256)		6,205


	Nine Months Ended September 30, 2014
(In Thousands)	Residential Mortgage Banking		Residential Investments		Commercial Mortgage Banking and Investments		Corporate/ Other		Total
Interest income	$	40,015	$	83,120	$	34,204	$	19,481	$	176,820
Interest expense		(7,674)		(9,106)		(12,234)		(34,546)		(63,560)

Net interest income (loss)		32,341		74,014		21,970		(15,065)		113,260
Provision for loan losses		-		-		(56)		685		629
Mortgage banking activities, net		11,650		-		12,300		-		23,950
MSR income (loss), net		-		4,650		-		-		4,650
Other market valuation adjustments, net		54		(13,117)		-		(903)		(13,966)
Realized gains, net		-		9,815		-		872		10,687
Operating expenses		(26,577)		(2,667)		(7,085)		(27,330)		(63,660)
Other income		-		-		-		1,600		1,600
(Provision for) benefit from income taxes		(3,258)		1,826		(2,159)		(112)		(3,703)

Segment Contribution	$	14,210	$	74,521	$	24,970	$	(40,253)

Net Income									$	73,447


Non-cash amortization income (expense)		(131)		32,724		(579)		(6,068)		25,946


	Nine Months Ended September 30, 2013
(In Thousands)	Residential Mortgage Banking		Residential Investments		Commercial Mortgage Banking and Investments		Corporate/ Other		Total
Interest income	$	40,869	$	70,420	$	30,534	$	26,841	$	168,664
Interest expense		(8,631)		(7,448)		(8,928)		(36,437)		(61,444)

Net interest income (loss)		32,238		62,972		21,606		(9,596)		107,220
Reversal of provision (provision) for loan losses		-		-		(2,419)		1,926		(493)
Mortgage banking activities, net		69,278		-		16,284		-		85,562
MSR income (loss), net		-		14,681		-		-		14,681
Other market valuation adjustments, net		67		(5,759)		-		(407)		(6,099)
Realized gains, net		-		23,032		210		49		23,291
Operating expenses		(18,565)		(3,768)		(8,026)		(36,578)		(66,937)
(Provision for) benefit from income taxes		(6,447)		(1,284)		(1,689)		307		(9,113)

Segment Contribution	$	76,571	$	89,874	$	25,966	$	(44,299)

Net Income									$	148,112


Non-cash amortization income (expense)		(132)		24,348		(639)		(5,637)		17,940

The following tables present the components of Corporate/Other for the three and nine months ended September 30, 2014 and 2013.


	Three Months Ended September 30,
	2014						2013
(In Thousands)	Legacy Consolidated VIEs		Other		Total		Legacy Consolidated VIEs		Other		Total
Interest income	$	6,233	$	4	$	6,237	$	7,835	$	4	$	7,839
Interest expense		(5,250)		(6,240)		(11,490)		(6,190)		(6,245)		(12,435)

Net interest income (loss)		983		(6,236)		(5,253)		1,645		(6,241)		(4,596)
Reversal of provision for loan losses		708		-		708		(883)		-		(883)
Mortgage banking activities, net		-		-		-		-		-		-
MSR income, net		-		-		-		-		-		-
Other market valuation adjustments, net		(361)		(17)		(378)		(76)		-		(76)
Realized gains, net		696		-		696		-		-		-
Operating expenses		(26)		(8,317)		(8,343)		(51)		(11,990)		(12,041)
Other income		-		1,600		1,600		-		-		-
(Provision for) benefit from income taxes		-		(247)		(247)		-		(338)		(338)

Total	$	2,000	$	(13,217)	$	(11,217)	$	635	$	(18,569)	$	(17,934)


Non-cash amortization expense		(1,412)		(637)		(2,049)		(1,724)		(532)		(2,256)


	Nine Months Ended September 30,
	2014						2013
(In Thousands)	Legacy Consolidated VIEs		Other		Total		Legacy Consolidated VIEs		Other		Total
Interest income	$	19,473	$	8	$	19,481	$	26,688	$	153	$	26,841
Interest expense		(15,950)		(18,596)		(34,546)		(20,188)		(16,249)		(36,437)

Net interest income (loss)		3,523		(18,588)		(15,065)		6,500		(16,096)		(9,596)
Reversal of provision (provision) for loan losses		685		-		685		1,926		-		1,926
Mortgage banking activities, net		-		-		-		-		-		-
MSR income, net		-		-		-		-		-		-
Other market valuation adjustments, net		(825)		(78)		(903)		(407)		-		(407)
Realized gains, net		872		-		872		49		-		49
Operating expenses		(120)		(27,210)		(27,330)		(158)		(36,420)		(36,578)
Other income		-		1,600		1,600		-		-		-
(Provision for) benefit from income taxes		-		(112)		(112)		-		307		307

Total	$	4,135	$	(44,388)	$	(40,253)	$	7,910	$	(52,209)	$	(44,299)


Non-cash amortization expense		(4,207)		(1,861)		(6,068)		(4,388)		(1,249)		(5,637)

The following table presents supplemental information by segment at September 30, 2014 and December 31, 2013.

Supplemental Disclosures


(In Thousands)	Residential Mortgage Banking		Residential Investments		Commercial Mortgage Banking and Investments		Corporate/ Other		Total
September 30, 2014
Residential loans, held-for-sale	$	1,502,429	$	-	$	-	$	-	$	1,502,429
Residential loans, held-for-investment		-		238,651		-		1,546,507		1,785,158
Commercial loans		-		-		497,997		-		497,997
Real estate securities		100,613		1,294,372		-		-		1,394,985
Mortgage servicing rights		-		135,152		-		-		135,152
Total assets		1,635,463		1,696,343		527,094		1,752,868		5,611,768

December 31, 2013
Residential loans, held-for-sale	$	404,267	$	-	$	-	$	-	$	404,267
Residential loans, held-for-investment		-		-		-		1,762,167		1,762,167
Commercial loans		-		-		432,455		-		432,455
Real estate securities		110,505		1,572,356		-		-		1,682,861
Mortgage servicing rights		-		64,824		-		-		64,824
Total assets		531,092		1,655,209		439,139		1,983,088		4,608,528