XML 25 R11.htm IDEA: XBRL DOCUMENT v3.19.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets.  
Goodwill and Intangible Assets

Note 5.—Goodwill and Intangible assets

Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired.  Other intangible assets with definite lives included trademarks, customer relationships, and non-compete agreements. In the first quarter of 2015, the Company acquired CCM and recorded $104.6 million of goodwill and intangible assets of $33.1 million, consisting of $17.2 million for trademark, $10.2 million for customer relationships and $5.7 million for a non-compete agreement with the former owner of CCM. The purchase price allocation was prepared with the assistance of a third party valuation firm.

For goodwill, the determination of fair value of a reporting unit involves, among other things, application of the income approach, which includes developing forecasts of future cash flows and determining an appropriate discount rate. Goodwill is considered a Level 3 nonrecurring fair value measurement.

The methodology used to determine the fair value of trademarks includes assumptions with inherent uncertainty, including projected sales volumes and related projected revenues, long-term growth rates, royalty rates that a market participant might assume and judgments regarding the factors to develop an applied discount rate. The carrying value of intangible assets is at risk of impairment if future projected usage, revenues or long-term growth rates are lower than those currently projected, or if factors used in the development of a discount rate result in the application of a higher discount rate.  The intangible assets are considered Level 3 nonrecurring fair value measurements.

 

The Company tested its goodwill and intangible assets for impairment at least annually as of December 31, or more frequently if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value.  As of March 31, 2018, the Company performed an interim goodwill impairment evaluation for this reporting unit and determined that there was no impairment.  As previously disclosed in the Company’s quarterly and annual reports, CCM had continued to experience declines in mortgage refinancing originations and margin compression, primarily a result of sustained increases in market interest rates from a historically low interest rate environment. In addition, the business model of CCM had led to additional margin compression on conventional originations through adverse demand from investors, as a result of the borrowers’ propensity to refinance.  

 

During the second quarter of 2018, the CCM brand continued to experience a material loss in value resulting from i) the aforementioned adverse treatment from capital market participants for loans produced by the reporting unit, ii) consumer uncertainty due to the use of a similar brand name by an unaffiliated financial services company and iii) substantial deterioration in brand awareness.  In light of these developments, a significant reduction in the anticipated future cash flows and estimated fair value for this reporting unit had occurred. 

 

Using this updated information, as of June 30, 2018, the Company performed an impairment test to evaluate the CCM goodwill and intangible assets for impairment.  The Company compared the fair value of its net assets upon early adoption of ASU 2017-04, using three methodologies (two income approaches and one market approach), to the carrying value and determined that its goodwill was impaired.  As a result, in the second quarter of 2018, the Company recorded an impairment charge of $74.7 million related to goodwill and $13.4 million related to intangible assets.  During the third quarter of 2018, CCM continued to experience a significant decline in origination volume and margin compression in excess of the Company’s updated projections from the second quarter of 2018 and continued adverse treatment from capital markets for conventional originations from the reporting unit.  As a result, during the third quarter of 2018, the Company recorded an impairment charge of $29.9 million related to goodwill and $4.9 million related to intangible assets.  The Company’s fair value estimates utilize significant unobservable inputs and thus represent Level 3 fair value measurements. 

 

The following table presents the changes in the carrying amount of goodwill for the period indicated:

 

 

 

 

 

Balance at December 31, 2016

 

$

104,938

 

Impairment charge

 

 

(351)

 

Balance at December 31, 2017

 

$

104,587

 

Impairment charges

 

 

(104,587)

 

Balance at December 31, 2018

 

$

 —

 

 

The following table presents the net carrying amount of the intangible assets acquired as part of the CCM acquisition as of December 31, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Gross

    

Accumulated

    

Aggregate

    

Net

As of December 31, 2018:

 

Carrying Amount

 

Amortization

 

Impairment Charges

 

Carrying Amount

Intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

 

$

17,251

 

$

(3,801)

 

$

(13,450)

 

$

 —

Customer relationships

 

 

10,170

 

 

(5,273)

 

 

(4,897)

 

 

 —

Non-compete agreement

 

 

5,701

 

 

(5,701)

 

 

 —

 

 

 —

Total intangible assets acquired

 

$

33,122

 

$

(14,775)

 

$

(18,347)

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

    

Gross

    

Accumulated

    

Net

As of December 31, 2017:

 

Carrying Amount

 

Amortization

 

Carrying Amount

Intangible assets:

 

 

 

 

 

 

 

 

 

Trademark

 

$

17,251

 

$

(3,216)

 

$

14,035

Customer relationships

 

 

10,170

 

 

(4,143)

 

 

6,027

Non-compete agreement

 

 

5,701

 

 

(4,181)

 

 

1,520

Total intangible assets acquired

 

$

33,122

 

$

(11,540)

 

$

21,582

The Company recognized $3.2 million and $4.2 million of amortization expense associated with intangible assets within general, administrative and other expense in the accompanying consolidated statements of operations, for the years ended December 31, 2018 and 2017, respectively.