Business Combinations

3 Months Ended

Mar. 31, 2021

Business Combinations

Business Combinations

Note 5. Business Combinations

ANH Merger

On March 19, 2021, the Company completed the ANH Merger. See Note 1 for more information about the ANH Merger. The consideration transferred was allocated to the assets acquired and liabilities assumed based on their respective fair values. The methodologies used and key assumptions made to estimate the fair value of the assets acquired and liabilities assumed are primarily based on future cash flows and discount rates. The following table summarizes the fair value of assets acquired and liabilities assumed from the merger:

(In Thousands)	March 19, 2021
Assets
Cash and cash equivalents	$	110,545
Mortgage backed, securities, at fair value		2,010,504
Loans, held for sale, at fair value		102,798
Real estate, held for sale		26,107
Accrued interest		8,453
Other assets		38,707
Total assets acquired	$	2,297,114
Liabilities
Secured borrowings		1,784,047
Corporate debt, net		36,250
Derivative instruments, at fair value		60,719
Accounts payable and other accrued liabilities		4,811
Total liabilities assumed	$	1,885,827
Net assets acquired	$	411,287

For acquired loan receivables, the gross contractual unpaid principal acquired is $98.3 million and we expect to collect all contractual amounts.

The aggregate consideration transferred, net assets acquired, and the related goodwill was as follows:

Total consideration transferred (in thousands, except per share data)
Fair value of net assets acquired	$	411,287
ANH shares outstanding at March 19, 2021		99,374
Exchange ratio	x	0.1688
Shares issued		16,774
Market price as of March 19, 2021	$	14.28
Consideration transferred based on value of common shares issued	$	239,537
Cash paid per share	$	0.61
Cash paid based on outstanding ANH shares	$	60,626
Preferred Stock, Series B Issued		1,919,378
Market price as of March 19, 2021	$	25.00
Consideration transferred based on value of Preferred Stock, Series B issued	$	47,984
Preferred Stock, Series C Issued		779,743
Market price as of March 19, 2021	$	25.00
Consideration transferred based on value of Preferred Stock, Series C issued	$	19,494
Preferred Stock, Series D Issued		2,010,278
Market price as of March 19, 2021	$	25.00
Consideration transferred based on value of Preferred Stock, Series D shares issued	$	50,257
Total consideration transferred	$	417,898
Goodwill	$	6,611

Acquisition-related costs directly attributable to the ANH Merger, including legal, accounting, valuation, and other professional or consulting fees, totaling $6.3 million for the three months ended March 31, 2021, were expensed as incurred and are reflected separately within the consolidated statements of income.

In a business combination, the initial allocation of the purchase price is considered preliminary and, therefore, is subject to change until the end of the measurement period. The final determination must occur within one year of the acquisition date. Because the measurement period is still open, certain fair value estimates may change once all information necessary to make a final fair value assessment has been received.

As of March 31, 2021, the goodwill recorded in the ANH Merger has not been allocated to any reporting unit because the benefitting reportable segment has yet to be determined.

The following pro-forma income and earnings (unaudited) of the combined company are presented as if the merger had occurred on January 1, 2021 and January 1, 2020:

		For the three months ended		For the three months ended
(In Thousands)		March 31, 2021		March 31, 2020
Selected Financial Data
Interest income	$	85,120	$	105,314
Interest expense		(54,289)		(70,317)
Recovery of (provision for) loan losses		8		(39,860)
Non-interest income		91,690		19,463
Non-interest expense		(79,584)		(296,474)
Income (loss) before provision for income taxes		42,945		(281,874)
Income tax benefit (expense)		(8,681)		7,937
Net income (loss)	$	34,264	$	(273,937)

Non-recurring pro-forma transaction costs directly attributable to the merger were $6.3 million for the three months ended March 31, 2021, and have been deducted from the non-interest expense amount above. These costs included legal, accounting, valuation, and other professional or consulting fees directly attributable to the merger.