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 June 30, 2019
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	132,048		$	11,352		$	5,142		$	148,542
Interest expense	(93,912		)	(6,595		)	(15,713		)	(116,220		)
Net interest income (loss)	38,136			4,757			(10,571		)	32,322
Non-interest income
Mortgage banking activities, net	—			19,160			—			19,160
Investment fair value changes, net	3,297			—			(159		)	3,138
Other income (expense), net	2,874			(156		)	(311		)	2,407
Realized gains, net	2,827			—			—			2,827
Total non-interest income, net	8,998			19,004			(470		)	27,532
Direct operating expenses	(2,258		)	(11,571		)	(12,426		)	(26,255		)
Provision for income taxes	(896		)	(1,437		)	—			(2,333		)
Segment Contribution	$	43,980		$	10,753		$	(23,467	)
Net Income										$	31,266
Non-cash amortization income (expense), net	$	2,622		$	(2,014	)	$	(1,125	)	$	(517	)



	Three Months Ended June 30, 2018
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	64,569		$	13,084		$	5,323		$	82,976
Interest expense	(27,004		)	(7,629		)	(13,580		)	(48,213		)
Net interest income (loss)	37,565			5,455			(8,257		)	34,763
Non-interest income
Mortgage banking activities, net	—			10,596			—			10,596
Investment fair value changes, net	1,600			—			(711		)	889
Other income, net	3,322			—			—			3,322
Realized gains, net	4,714			—			—			4,714
Total non-interest income, net	9,636			10,596			(711		)	19,521
Direct operating expenses	(1,858		)	(5,739		)	(11,412		)	(19,009		)
Provision for income taxes	(1,130		)	(1,398		)	—			(2,528		)
Segment Contribution	$	44,213		$	8,914		$	(20,380	)
Net Income										$	32,747
Non-cash amortization income (expense), net	$	4,654		$	(22	)	$	(891	)	$	3,741



	Six Months Ended June 30, 2019
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	247,500		$	21,729		$	10,354		$	279,583
Interest expense	(171,799		)	(12,159		)	(31,538		)	(215,496		)
Net interest income (loss)	75,701			9,570			(21,184		)	64,087
Non-interest income
Mortgage banking activities, net	—			31,469			—			31,469
Investment fair value changes, net	23,853			—			(556		)	23,297
Other income, net	4,095			(323		)	2,222			5,994
Realized gains, net	13,513			—			—			13,513
Total non-interest income, net	41,461			31,146			1,666			74,273
Direct operating expenses	(4,919		)	(19,675		)	(24,820		)	(49,414		)
Provision for income taxes	(1,238		)	(1,978		)	—			(3,216		)
Segment Contribution	$	111,005		$	19,063		$	(44,338	)
Net Income										$	85,730
Non-cash amortization income (expense), net	$	4,990		$	(2,737	)	$	(2,425	)	$	(172	)



	Six Months Ended June 30, 2018
(In Thousands)	Investment Portfolio			Mortgage Banking			Corporate/ Other			Total
Interest income	$	123,326		$	25,981		$	10,288		$	159,595
Interest expense	(46,867		)	(13,766		)	(29,094		)	(89,727		)
Net interest income (loss)	76,459			12,215			(18,806		)	69,868
Non-interest income
Mortgage banking activities, net	—			37,172			—			37,172
Investment fair value changes, net	3,190			—			(692		)	2,498
Other income, net	5,440			—			—			5,440
Realized gains, net	14,077			—			—			14,077
Total non-interest income, net	22,707			37,172			(692		)	59,187
Direct operating expenses	(3,865		)	(14,371		)	(23,803		)	(42,039		)
Provision for income taxes	(2,018		)	(5,406		)	—			(7,424		)
Segment Contribution	$	93,283		$	29,610		$	(43,301	)
Net Income										$	79,592
Non-cash amortization income (expense), net	$	9,271		$	(44	)	$	(1,845	)	$	7,382

Table 24.2 – Components of Corporate/Other



	Three Months Ended June 30,
	2019									2018
(In Thousands)	Legacy Consolidated VIEs ⁽¹⁾			Other			Total			Legacy Consolidated VIEs ⁽¹⁾			Other			Total
Interest income	$	4,776		$	366		$	5,142		$	5,017		$	306		$	5,323
Interest expense	(3,981		)	(11,732		)	(15,713		)	(4,215		)	(9,365		)	(13,580		)
Net interest income (loss)	795			(11,366		)	(10,571		)	802			(9,059		)	(8,257		)
Non-interest income
Investment fair value changes, net	(123		)	(36		)	(159		)	(720		)	9			(711		)
Other income	—			(311		)	(311		)	—			—			—
Total non-interest income, net	(123		)	(347		)	(470		)	(720		)	9			(711		)
Direct operating expenses	—			(12,426		)	(12,426		)	—			(11,412		)	(11,412		)
Total	$	672		$	(24,139	)	$	(23,467	)	$	82		$	(20,462	)	$	(20,380	)



	Six Months Ended June 30,
	2019									2018
(In Thousands)	Legacy Consolidated VIEs ⁽¹⁾			Other			Total			Legacy Consolidated VIEs ⁽¹⁾			Other			Total
Interest income	$	9,629		$	725		$	10,354		$	9,829		$	459		$	10,288
Interest expense	(8,096		)	(23,442		)	(31,538		)	(8,067		)	(21,027		)	(29,094		)
Net interest income (loss)	1,533			(22,717		)	(21,184		)	1,762			(20,568		)	(18,806		)
Non-interest income
Investment fair value changes, net	(497		)	(59		)	(556		)	(728		)	36			(692		)
Other income	—			2,222			2,222			—			—			—
Total non-interest income, net	(497		)	2,163			1,666			(728		)	36			(692		)
Direct operating expenses	—			(24,820		)	(24,820		)	—			(23,803		)	(23,803		)
Total	$	1,036		$	(45,374	)	$	(44,338	)	$	1,034		$	(44,335	)	$	(43,301	)

Table 24.3 – Supplemental Segment Information



(In Thousands)	Investment Portfolio		Mortgage Banking		Corporate/ Other		Total
June 30, 2019
Residential loans	$	5,777,759	$	1,047,856	$	457,750	$	7,283,365
Business purpose residential loans	159,353		91,501		—		250,854
Multifamily loans	3,749,657		—		—		3,749,657
Real estate securities	1,477,486		—		—		1,477,486
Other investments	369,900		2,230		—		372,130
Goodwill and intangible assets	—		50,999		—		50,999
Total assets	11,790,419		1,225,117		836,050		13,851,586

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