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Business Combinations | 9 Months Ended
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Sep. 30, 2022
Business Combinations |
Business Combinations | Note 5. Business Combinations ​ On March 16, 2022, the Company acquired the Mosaic Funds, a group of privately held, real estate structured finance opportunities funds, with a focus on construction lending. See Note 1 for more information about the Mosaic Mergers. 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 table below summarizes the fair value of assets acquired and liabilities assumed from the acquisition. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(in thousands) |  | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation
Assets | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and cash equivalents | ​ | $ | 100,236 | $ | — | $ | 100,236
Restricted cash | ​ |  | 23,330 |  | — |  | 23,330
Loans, net | ​ |  | 432,779 |  | (20,034) |  | 412,745
Investments held to maturity | ​ |  | 165,302 |  | (6,306) |  | 158,996
Real estate owned, held for sale | ​ |  | 78,693 |  | (33,945) |  | 44,748
Other assets | ​ |  | 25,761 |  | (3,683) |  | 22,078
Total assets acquired | ​ | $ | 826,101 | $ | (63,968) | $ | 762,133
Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​
Secured borrowings | ​ | ​ | 66,202 | ​ | — | ​ | 66,202
Loan participations sold | ​ | ​ | 73,656 | ​ | — | ​ | 73,656
Due to third parties | ​ | ​ | 24,634 | ​ | (333) | ​ | 24,301
Accounts payable and other accrued liabilities | ​ | ​ | 38,182 | ​ | (900) | ​ | 37,282
Total liabilities assumed | ​ | $ | 202,674 | $ | (1,233) | $ | 201,441
Net assets acquired | ​ | $ | 623,427 | $ | (62,735) | $ | 560,692
Non-controlling interests | ​ | ​ | (82,257) | ​ | — | ​ | (82,257)
Net assets acquired, net of non-controlling interests | ​ | $ | 541,170 | $ | (62,735) | $ | 478,435
​ 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 for the Mosaic Mergers, certain fair value estimates may change once all information necessary to make a final fair value assessment has been received. The provisional amounts presented in the table above pertained to the preliminary purchase price allocation reported at the time of the Mosaic Mergers based on information that was available to management at the time the consolidated financial statements were prepared. The preliminary purchase price allocation is subject to change as the Company completes its analysis of the fair value of the assets acquired and liabilities assumed, which could have an impact on the consolidated financial statements. During September 2022, the Company recorded a measurement period adjustment based on the updated valuations obtained by decreasing net assets acquired by $62.7 million and decreasing the fair value of the CERs issued by $59.3 million, with the remainder of the offset recorded as a $3.4 million increase to goodwill as reflected in the table below. In addition, the Company recognized $2.8 million of interest from non-credit discounts on acquired assets which was reported as interest income in the consolidated statements of income. ​ The table below illustrates the aggregate consideration transferred, net assets acquired, and the related goodwill. ​
​ | ​ | ​ | ​ | ​ | ​ | ​
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation
Fair value of net assets acquired | $ | 541,170 | $ | (62,735) | $ | 478,435
​ | ​ | ​ | ​ | ​ | ​ | ​
Consideration transferred based on the value of Class B shares issued | ​ | 437,311 | ​ | — | ​ | 437,311
Consideration transferred based on the value of OP units issued | ​ | 20,745 | ​ | — | ​ | 20,745
Fair value of CERs issued | ​ | 84,348 | ​ | (59,348) | ​ | 25,000
Total consideration transferred | $ | 542,404 | $ | (59,348) | $ | 483,056
​ | ​ | ​ | ​ | ​ | ​ | ​
Goodwill | $ | 1,234 | $ | 3,387 | $ | 4,621
​ The table above includes contingent consideration in the form of CERs valued at approximately $25.0 million or $0.83 per CER. See Note 7 for more information about the valuation of the CERs. ​ ​ On July 31, 2021, the Company acquired Red Stone, a privately owned real estate finance and investment company that provides innovative financial products and services to multifamily affordable housing. See Note 1 for more information about the Red Stone acquisition. 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 table below summarizes the fair value of assets acquired and liabilities assumed from the acquisition. ​
​ | ​ | ​ | ​
(in thousands) |  | July 31, 2021
Assets | ​ | ​ | ​
Cash and cash equivalents | ​ | $ | 1,553
Restricted cash | ​ |  | 6,994
Investment in unconsolidated joint ventures | ​ |  | 20,793
Servicing rights | ​ |  | 30,503
Other assets: | ​ |  | ​
Intangible Assets | ​ | ​ | 9,300
Other | ​ | ​ | 1,330
Total assets acquired | ​ | $ | 70,473
Liabilities | ​ | ​ | ​
Accounts payable and other accrued liabilities | ​ | ​ | 9,082
Total liabilities assumed | ​ | $ | 9,082
Net assets acquired | ​ | $ | 61,391
​ The table below illustrates the aggregate consideration transferred, net assets acquired, and the related goodwill. ​
​ | ​ | ​
(in thousands)
Fair value of net assets acquired | $ | 61,391
​ | ​ | ​
Cash paid | ​ | 63,000
Contingent consideration | ​ | 12,400
Total consideration transferred | $ | 75,400
​ | ​ | ​
Goodwill | $ | 14,009
​ In the table above, the future value of the contingent consideration is dependent on the probability of the acquiree achieving certain financial performance targets using earnings before interest, taxes, depreciation and amortization (“EBITDA”) as a metric. ​ On March 19, 2021, the Company completed a merger with Anworth, a specialty finance company that focused primarily on residential MBS and loans that are either rated “investment grade” or are guaranteed by federally sponsored enterprises. See Note 1 for more information about the Anworth 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 table below 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 owned, held for sale | ​ |  | 26,107
Accrued interest | ​ |  | 8,183
Other assets | ​ | ​ | 38,216
Total assets acquired | ​ | $ | 2,296,353
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 | ​ | $ | 410,526
​ In the table above, the gross contractual unpaid principal amount for acquired loans held for sale, at fair value was $98.3 million, all of which is expected to be collected. ​ The table below illustrates the aggregate consideration transferred, net assets acquired, and the related goodwill. ​
​ | ​ | ​
(in thousands, except per share data)
Fair value of net assets acquired | $ | 410,526
​ | ​ | ​
Anworth 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 Anworth 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 issued | $ | 50,257
Total consideration transferred | $ | 417,898
Goodwill | $ | 7,372
​ As of September 30, 2022, the goodwill recorded in connection with the Mosaic Mergers, Anworth Merger and Red Stone acquisition have been allocated to the SBC Lending and Acquisitions segment. ​ The following pro-forma income and earnings (unaudited) of the combined company are presented as if the Mosaic Mergers had occurred on January 1, 2022 and January 1, 2021. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three Months Ended September 30, | ​ | ​ | Nine Months Ended September 30,
(in thousands) | ​ | ​ | 2022 | ​ | 2021 |  | ​ | 2022 | ​ | 2021
Selected Financial Data | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest income | ​ | $ | 186,026 | ​ | $ | 124,888 | ​ | $ | 477,163 | ​ | $ | 337,126
Interest expense | ​ | ​ | (115,495) | ​ | ​ | (52,555) | ​ | ​ | (260,264) | ​ | ​ | (168,877)
Provision for loan losses | ​ | ​ | (3,431) | ​ | ​ | (1,579) | ​ | ​ | (583) | ​ | ​ | (7,088)
Non-interest income | ​ | ​ | 78,528 | ​ | ​ | 88,512 | ​ | ​ | 217,768 | ​ | ​ | 253,365
Non-interest expense | ​ | ​ | (73,064) | ​ | ​ | (93,595) | ​ | ​ | (206,336) | ​ | ​ | (250,485)
Income before provision for income taxes | ​ | $ | 72,564 | ​ | $ | 65,671 | ​ | $ | 227,748 | ​ | $ | 164,041
Income tax expense | ​ | ​ | (4,776) | ​ | ​ | (6,540) | ​ | ​ | (32,943) | ​ | ​ | (22,216)
Net income | ​ | $ | 67,788 | ​ | $ | 59,131 | ​ | $ | 194,805 | ​ | $ | 141,825
​ Non-recurring pro-forma transaction costs directly attributable to the Mosaic Mergers were $1.5 million and $8.6 million for the three and nine months ended September 30, 2022, respectively 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 Mosaic Mergers. ​

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