Business Combination

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Mergers, Acquisitions and Dispositions Disclosures

Business Combinations

As of September 30, 2022, the Company held a 49.6% ownership interest (the "Existing Equity Interest") in Longbridge Financial, LLC of $38.9 million. On October 3, 2022, the Company acquired an additional 49.6% ownership interest (the "Additional Equity Interest") in Longbridge (the "Longbridge Transaction"). In combination, the Existing Equity Interest and the Additional Equity Interest constitute a controlling interest in Longbridge. The Longbridge Transaction is accounted for using the acquisition method of accounting, in accordance with the provisions of ASC 805. The total consideration for the Longbridge Transaction was $77.8 million, which is equal to the cash paid to acquire the Additional Equity Interest and the estimated fair value of the Existing Equity Interest (the “Total Consideration”).

The Company performed an allocation of the Total Consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on their estimated fair values using the information available as of the acquisition date using valuation methodologies consistent with the methodologies outlined in Note 2—Valuation.

In conjunction with the purchase price allocation, the Company recognized a bargain purchase gain of $7.9 million, which is calculated as the recognized amount of the identifiable net assets acquired less: (i) the fair value of the consideration transferred, (ii) the fair value of the previously held 49.6% equity interest in Longbridge, (iii) the fair value of the non-controlling interest, and (iv) the deferred tax liability associated with the bargain purchase gain. The Company recognized a bargain purchase gain at the date of acquisition, as the fair value of net assets acquired was greater than the total net consideration; such bargain purchase gain is included in Bargain purchase gain, on the Consolidated Statement of Operations.

The following table summarizes the Company’s purchase price allocation as of the acquisition date:

	October 3, 2022
Purchase Price:	(In thousands)
Cash	$	38,886
Investment in unconsolidated entity, at fair value	38,886
Total Consideration	77,772
Allocated to:
Cash and cash equivalents	20,368
Restricted cash	2,250
Loans, at fair value	7,698,426
Loan commitments, at fair value	3,090
Mortgage servicing rights, at fair value	8,174
Real estate owned	8,511
Financial derivatives—assets, at fair value	7,121
Due from brokers	7,534
Other assets	51,475
Intangible assets, net(2)	3,500
Total assets acquired	7,810,449
HMBS related obligations, at fair value	7,448,524
Other secured borrowings	218,261
Interest payable	1,273
Accrued expenses and other liabilities	51,592
Total liabilities assumed	7,719,650
Total identifiable net assets	90,799
Non-controlling interests(1)	2,237
Total net assets acquired	88,562
Deferred tax liability related to bargain purchase gain	2,858
Total net assets acquired less deferred tax liability	85,704
Bargain purchase gain	$	7,932

(1)Represents net assets of Longbridge not acquired by the Company.

(2)See Note 10 for additional details on intangibles assets acquired by the Company.

The following table provides unaudited proforma information for the combined entity for the year ended December 31, 2022 and 2021, after giving effect to the Longbridge Transaction, including associated transaction costs and various other adjustments, and is intended to reflect the impact of the consolidation of Longbridge by the Company.

	Year Ended December 31,
(In thousands)	2022		2021
Interest income	$	289,082	$	179,432
Total other income (loss)(1)	(45,772)		123,508
Earnings (losses) from investments in unconsolidated entities(2)	(26,511)		44,217
Net Income (Loss)(3)(4)	(75,095)		168,280

(1)Includes $7.9 million bargain purchase for the year ended December 31, 2021 and excludes such bargain purchase gain for the year ended December 31, 2022.

(2)For the years ended December 31, 2022 and 2021, includes an adjustment to reverse $(37.1) million and $13.9 million of net unrealized and realized gains (losses) recognized by the Company related to its existing non-controlling equity interest in Longbridge, for which the Company had elected the fair value option as provided for under ASC 825, Financial Instruments.

(3)Reflects adjustment for the amortization expense related to intangible assets acquired of $0.4 million and $1.0 million, for the years ended December 31, 2022 and 2021, respectively. See Note 10 for additional details on the Company's intangible assets.

(4)Includes an adjustment to recognize a $2.9 million income tax benefit related to the bargain purchase gain for the year ended December 31, 2021 and an adjustment to reverse such amount for the year ended December 31, 2022.

The following table summarizes interest income, total other income (loss), and net income (loss) of Longbridge that has been recognized by the Company from the date of the Longbridge Transaction through December 31, 2022.

(In thousands)	Year Ended December 31, 2022
Interest income	$	2,859
Total other income (loss)	39,935
Net Income (Loss)	14,492