XML 41 R29.htm IDEA: XBRL DOCUMENT
v3.7.0.1

Segment Information | 6 Months Ended
--- | ---
Jun. 30, 2017
Segment Reporting [Abstract] |
Segment Information | Segment Information During the first quarter of 2017, we reorganized our segments to align with changes in how we view our segments for making operating decisions and assessing performance. Specifically, we eliminated our Commercial segment and renamed our Residential Investments segment as the Investment Portfolio segment. This Investment Portfolio segment now includes both residential investments and our commercial investments, which are primarily comprised of investments in multifamily securities. Our Commercial segment previously included our commercial mortgage banking operations and our commercial loan investments, which were wound-down and sold, respectively, during 2016. We conformed the presentation of prior periods, whereby commercial loan investments are included in the Investment Portfolio segment and commercial mortgage banking activities are included in Corporate/Other. Following is a full description of our current segments. Our Investment Portfolio segment primarily consists of investments in residential jumbo loans, real estate securities, and MSRs. Our securities portfolio primarily includes investments in residential mortgage-backed securities ("RMBS") retained from our Sequoia securitizations and RMBS issued by third parties, Agency issued CRT securities, as well as investments in Agency issued multifamily securities. Our residential loan investments are made through a subsidiary of Redwood Trust that is a member of the Federal Home Loan Bank of Chicago ("FHLBC") that utilizes attractive long-term financing from the FHLBC to make long-term investments directly in residential loans. Our MSR investments are primarily associated with residential loans we have sold, securitized, or retained for investment. The Investment Portfolio segment’s main sources of revenue are interest income from investment portfolio securities and residential loans held-for-investment, as well as MSR income. Additionally, this segment may realize gains and losses upon the sale of securities. Funding expenses, hedging expenses, direct operating expenses, and tax provisions associated with these activities are also included in this segment. Our Residential Mortgage Banking segment primarily consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to our investment portfolio. We typically acquire prime, jumbo mortgages and the related mortgage servicing rights on a flow basis from our network of loan sellers and distribute those loans through our Sequoia private-label securitization program or to institutions that acquire pools of whole loans. We occasionally supplement our flow purchases with bulk loan acquisitions. This segment also includes various derivative financial instruments that we utilize to manage certain risks associated with residential loans we acquire. Our Residential Mortgage Banking segment’s main source of revenue is income from mortgage banking activities, which includes valuation increases (or gains) on the sale or securitization of loans and valuation changes from hedges used to manage risks associated with these activities. Additionally, this segment may generate interest income on loans held pending securitization or sale. Funding expenses, direct operating expenses, and tax expenses associated with these activities are also included in this segment. Segment contribution represents the measure of profit that we use 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 our two segments, as well as activity from certain consolidated Sequoia entities and commercial mortgage banking activities (in the prior year), 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 six months ended June 30, 2017 and 2016. Table 21.1 – Business Segment Financial Information
|  | Three Months Ended June 30, 2017
(In Thousands) |  | Investment Portfolio |  | Residential Mortgage Banking |  | Corporate/ Other |  | Total
Interest income |  | $ | 45,833 |  |  | $ | 8,415 |  |  | $ | 4,976 |  |  | $ | 59,224 |
Interest expense |  | (7,231 | ) |  | (4,403 | ) |  | (12,600 | ) |  | (24,234 | )
Net interest income (loss) |  | 38,602 |  |  | 4,012 |  |  | (7,624 | ) |  | 34,990 |
Non-interest income |  |  |  |  |  |  |  |
Mortgage banking activities, net |  | — |  |  | 12,046 |  |  | — |  |  | 12,046 |
MSR income, net |  | 2,778 |  |  | — |  |  | — |  |  | 2,778 |
Investment fair value changes, net |  | 9,115 |  |  | — |  |  | (1,000 | ) |  | 8,115 |
Other income |  | 986 |  |  | — |  |  | — |  |  | 986 |
Realized gains, net |  | 2,124 |  |  | — |  |  | (752 | ) |  | 1,372 |
Total non-interest income, net |  | 15,003 |  |  | 12,046 |  |  | (1,752 | ) |  | 25,297 |
Direct operating expenses |  | (1,454 | ) |  | (6,021 | ) |  | (11,166 | ) |  | (18,641 | )
Provision for income taxes |  | (2,320 | ) |  | (3,002 | ) |  | — |  |  | (5,322 | )
Segment Contribution |  | $ | 49,831 |  |  | $ | 7,035 |  |  | $ | (20,542 | ) |  |
Net Income |  |  |  |  |  |  |  | $ | 36,324 |
Non-cash amortization income (expense) |  | $ | 5,194 |  |  | $ | (27 | ) |  | $ | (744 | ) |  | $ | 4,423 |
|  | Three Months Ended June 30, 2016
(In Thousands) |  | Investment Portfolio |  | Residential Mortgage Banking |  | Corporate/ Other |  | Total
Interest income |  | $ | 54,046 |  |  | $ | 7,910 |  |  | $ | 4,831 |  |  | $ | 66,787 |
Interest expense |  | (6,159 | ) |  | (3,604 | ) |  | (12,681 | ) |  | (22,444 | )
Net interest income (loss) |  | 47,887 |  |  | 4,306 |  |  | (7,850 | ) |  | 44,343 |
Reversal of provision for loan losses |  | 6,532 |  |  | — |  |  | — |  |  | 6,532 |
Non-interest income |  |  |  |  |  |  |  |
Mortgage banking activities, net |  | — |  |  | 7,728 |  |  | — |  |  | 7,728 |
MSR income, net |  | 2,783 |  |  | — |  |  | — |  |  | 2,783 |
Investment fair value changes, net |  | (10,779 | ) |  | — |  |  | (287 | ) |  | (11,066 | )
Other income |  | 1,559 |  |  | — |  |  | — |  |  | 1,559 |
Realized gains, net |  | 9,884 |  |  | — |  |  | — |  |  | 9,884 |
Total non-interest income, net |  | 3,447 |  |  | 7,728 |  |  | (287 | ) |  | 10,888 |
Direct operating expenses |  | (2,827 | ) |  | (6,047 | ) |  | (11,281 | ) |  | (20,155 | )
Provision for income taxes |  | (327 | ) |  | — |  |  | — |  |  | (327 | )
Segment Contribution |  | $ | 54,712 |  |  | $ | 5,987 |  |  | $ | (19,418 | ) |  |
Net Income |  |  |  |  |  |  |  | $ | 41,281 |
Non-cash amortization income (expense) |  | $ | 6,332 |  |  | $ | (31 | ) |  | $ | (1,005 | ) |  | $ | 5,296 |
|  | Six Months Ended June 30, 2017
(In Thousands) |  | Investment Portfolio |  | Residential Mortgage Banking |  | Corporate/ Other |  | Total
Interest income |  | $ | 88,083 |  |  | $ | 15,889 |  |  | $ | 9,880 |  |  | $ | 113,852 |
Interest expense |  | (12,495 | ) |  | (7,327 | ) |  | (25,443 | ) |  | (45,265 | )
Net interest income (loss) |  | 75,588 |  |  | 8,562 |  |  | (15,563 | ) |  | 68,587 |
Non-interest income |  |  |  |  |  |  |  |
Mortgage banking activities, net |  | — |  |  | 29,650 |  |  | — |  |  | 29,650 |
MSR income, net |  | 4,491 |  |  | — |  |  | — |  |  | 4,491 |
Investment fair value changes, net |  | 12,474 |  |  | — |  |  | (2,808 | ) |  | 9,666 |
Other income |  | 2,170 |  |  | — |  |  | — |  |  | 2,170 |
Realized gains, net |  | 7,827 |  |  | — |  |  | (752 | ) |  | 7,075 |
Total non-interest income, net |  | 26,962 |  |  | 29,650 |  |  | (3,560 | ) |  | 53,052 |
Direct operating expenses |  | (3,047 | ) |  | (11,902 | ) |  | (21,918 | ) |  | (36,867 | )
Provision for income taxes |  | (4,057 | ) |  | (7,422 | ) |  | — |  |  | (11,479 | )
Segment Contribution |  | $ | 95,446 |  |  | $ | 18,888 |  |  | $ | (41,041 | ) |  |
Net Income |  |  |  |  |  |  |  | $ | 73,293 |
Non-cash amortization income (expense) |  | $ | 11,041 |  |  | $ | (54 | ) |  | $ | (1,741 | ) |  | $ | 9,246 |
|  | Six Months Ended June 30, 2016
(In Thousands) |  | Investment Portfolio |  | Residential Mortgage Banking |  | Corporate/ Other |  | Total
Interest income |  | $ | 102,809 |  |  | $ | 15,779 |  |  | $ | 10,527 |  |  | $ | 129,115 |
Interest expense |  | (13,666 | ) |  | (6,893 | ) |  | (25,835 | ) |  | (46,394 | )
Net interest income (loss) |  | 89,143 |  |  | 8,886 |  |  | (15,308 | ) |  | 82,721 |
Reversal of provision for loan losses |  | 6,243 |  |  | — |  |  | — |  |  | 6,243 |
Non-interest income |  |  |  |  |  |  |  |
Mortgage banking activities, net |  | — |  |  | 17,008 |  |  | (2,062 | ) |  | 14,946 |
MSR income, net |  | 9,064 |  |  | — |  |  | — |  |  | 9,064 |
Investment fair value changes, net |  | (28,681 | ) |  | — |  |  | (1,923 | ) |  | (30,604 | )
Other income |  | 2,514 |  |  | — |  |  | — |  |  | 2,514 |
Realized gains, net |  | 19,130 |  |  | — |  |  | 292 |  |  | 19,422 |
Total non-interest income, net |  | 2,027 |  |  | 17,008 |  |  | (3,693 | ) |  | 15,342 |
Direct operating expenses (1) |  | (4,938 | ) |  | (11,368 | ) |  | (34,301 | ) |  | (50,607 | )
Provision for income taxes |  | (355 | ) |  | — |  |  | — |  |  | (355 | )
Segment Contribution |  | $ | 92,120 |  |  | $ | 14,526 |  |  | $ | (53,302 | ) |  |
Net Income |  |  |  |  |  |  |  | $ | 53,344 |
Non-cash amortization income (expense) |  | $ | 14,384 |  |  | $ | (74 | ) |  | $ | (1,995 | ) |  | $ | 12,315 |
(1) | For the six months ended June 30, 2016, $11 million of costs 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.
The following tables present the components of Corporate/Other for the three and six months ended June 30, 2017 and 2016. Table 21.2 – Components of Corporate/Other
|  | Three Months Ended June 30,
|  | 2017 |  | 2016
(In Thousands) |  | Legacy Consolidated VIEs (1) |  | Other |  | Total |  | Legacy Consolidated VIEs (1) |  | Other |  | Total
Interest income |  | $ | 4,863 |  |  | $ | 113 |  |  | $ | 4,976 |  |  | $ | 4,911 |  |  | $ | (80 | ) |  | $ | 4,831 |
Interest expense |  | (3,692 | ) |  | (8,908 | ) |  | (12,600 | ) |  | (3,271 | ) |  | (9,410 | ) |  | (12,681 | )
Net interest income (loss) |  | 1,171 |  |  | (8,795 | ) |  | (7,624 | ) |  | 1,640 |  |  | (9,490 | ) |  | (7,850 | )
Non-interest income |  |  |  |  |  |  |  |  |  |  |  |
Investment fair value changes, net |  | (987 | ) |  | (13 | ) |  | (1,000 | ) |  | (251 | ) |  | (36 | ) |  | (287 | )
Realized gains, net |  | — |  |  | (752 | ) |  | (752 | ) |  | — |  |  | — |  |  | — |
Total non-interest income, net |  | (987 | ) |  | (765 | ) |  | (1,752 | ) |  | (251 | ) |  | (36 | ) |  | (287 | )
Direct operating expenses |  | — |  |  | (11,166 | ) |  | (11,166 | ) |  | — |  |  | (11,281 | ) |  | (11,281 | )
Total |  | $ | 184 |  |  | $ | (20,726 | ) |  | $ | (20,542 | ) |  | $ | 1,389 |  |  | $ | (20,807 | ) |  | $ | (19,418 | )
|  | Six Months Ended June 30,
|  | 2017 |  | 2016
(In Thousands) |  | Legacy Consolidated VIEs (1) |  | Other |  | Total |  | Legacy Consolidated VIEs (1) |  | Other |  | Total
Interest income |  | $ | 9,701 |  |  | $ | 179 |  |  | $ | 9,880 |  |  | $ | 9,688 |  |  | $ | 839 |  |  | $ | 10,527 |
Interest expense |  | (7,208 | ) |  | (18,235 | ) |  | (25,443 | ) |  | (6,568 | ) |  | (19,267 | ) |  | (25,835 | )
Net interest income (loss) |  | 2,493 |  |  | (18,056 | ) |  | (15,563 | ) |  | 3,120 |  |  | (18,428 | ) |  | (15,308 | )
Non-interest income |  |  |  |  |  |  |  |  |  |  |  |
Mortgage banking activities, net |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,062 | ) |  | (2,062 | )
Investment fair value changes, net |  | (2,797 | ) |  | (11 | ) |  | (2,808 | ) |  | (1,831 | ) |  | (92 | ) |  | (1,923 | )
Realized gains, net |  | — |  |  | (752 | ) |  | (752 | ) |  | — |  |  | 292 |  |  | 292 |
Total non-interest income, net |  | (2,797 | ) |  | (763 | ) |  | (3,560 | ) |  | (1,831 | ) |  | (1,862 | ) |  | (3,693 | )
Direct operating expenses |  | — |  |  | (21,918 | ) |  | (21,918 | ) |  | — |  |  | (34,301 | ) |  | (34,301 | )
Total |  | $ | (304 | ) |  | $ | (40,737 | ) |  | $ | (41,041 | ) |  | $ | 1,289 |  |  | $ | (54,591 | ) |  | $ | (53,302 | )
(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 June 30, 2017 and December 31, 2016. Table 21.3 – Supplemental Segment Information
(In Thousands) |  | Investment Portfolio |  | Residential Mortgage Banking |  | Corporate/ Other |  | Total
June 30, 2017 |  |  |  |  |  |  |  |
Residential loans |  | $ | 2,360,234 |  |  | $ | 837,371 |  |  | $ | 707,686 |  |  | $ | 3,905,291 |
Real estate securities |  | 1,218,503 |  |  | — |  |  | — |  |  | 1,218,503 |
Mortgage servicing rights |  | 63,770 |  |  | — |  |  | — |  |  | 63,770 |
Total assets |  | 3,809,618 |  |  | 859,706 |  |  | 986,158 |  |  | 5,655,482 |
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 |

X
- References No definition available. + Details
Name: | us-gaap_SegmentReportingAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8981-108599 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9038-108599 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 33 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8971-108599 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8595-108599 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8380-108599 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8933-108599 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8844-108599 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8984-108599 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9031-108599 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9054-108599 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8538-108599 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 29 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8864-108599 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8924-108599 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8906-108599 + Details
Name: | us-gaap_SegmentReportingDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration