Quarterly report pursuant to Section 13 or 15(d)

ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION AND BASIS OF PRESENTATION (Tables)

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ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION AND BASIS OF PRESENTATION (Tables)
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Total Consideration for Shellpoint Acquisition The total consideration is summarized as follows:
Total Consideration (in millions)
 
Amount
Cash Consideration
 
$
212.3

Earnout Payment(A)
 
39.3

Effective Settlement of Preexisting Relationships(B)
 
173.9

Total Consideration
 
$
425.5


(A)
The range of outcomes for this contingent consideration is from $0 to $60.0 million, dependent on the performance of Shellpoint. New Residential derived a fair value of the remaining contingent consideration payment in three years of $39.3 million. This amount excludes contingent payments to the long-term employee incentive plans that require continuing employment and are recognized as compensation expense within General and Administrative expenses in the post-acquisition consolidated financial statements separate from New Residential’s acquisition of assets and assumption of liabilities in the business combination. On September 5, 2019, New Residential paid $10.0 million as the first of three potential earnout payments. As of September 30, 2019, the contingent consideration had a fair value of $38.3 million.
(B)
Represents the effective settlement of preexisting relationships between New Residential and Shellpoint including 1) MSR acquisitions, 2) a note payable and 3) operating accounts receivable and payable existing prior to the acquisition date. The effective settlement of these preexisting relationships had no impact to New Residential’s condensed consolidated statements of income.

New Residential has performed an allocation of the total consideration of $425.5 million to Shellpoint’s assets and liabilities, as set forth below. The final amount and allocation of total consideration reflects certain measurement period adjustments identified during the fourth quarter of 2018, including the effect on earnings that would have been recorded during the third quarter of 2018 had the accounting been completed at the acquisition date. Such measurement period adjustments included 1) a decrease of $3.5 million in the amount of contingent consideration based upon finalization of the internal valuation 2) a decrease of $6.4 million to consideration transferred for the effective settlement of existing relationships 3) an increase of $14.1 million to the fair value of identifiable intangible assets based upon receipt of the final valuation report from a third-party valuation firm and 4) an increase of $0.3 million to other assets due to a decrease in the fair value discount on certain servicing advance receivables. These measurement period adjustments resulted in a corresponding decrease to goodwill in the amount of $24.3 million.
Total Consideration ($ in millions)
 
$
425.5

Assets
 
 
Cash and cash equivalents
 
$
79.2

Restricted cash
 
9.9

Residential mortgage loans, held-for-sale, at fair value
 
488.2

Mortgage servicing rights, at fair value(A)
 
286.6

Residential mortgage loans, held-for-investment, at fair value
 
125.3

Residential mortgage loans subject to repurchase
 
121.4

Intangible assets(B)
 
18.4

Other assets
 
81.5

Total Assets Acquired
 
$
1,210.5

 
 
 
Liabilities
 
 
Repurchase agreements
 
$
439.6

Notes and bonds payable
 
20.7

Mortgage-backed securities issued, at fair value
 
120.7

Residential mortgage loans repurchase liability
 
121.4

Excess spread financing, at fair value
 
48.3

Accrued expenses and other liabilities
 
50.6

Total Liabilities Assumed
 
$
801.3

 
 
 
Noncontrolling Interest
 
$
8.3

 
 
 
Net Assets
 
$
400.9

 
 
 
Goodwill
 
$
24.6


(A)
Includes $135.3 million of Ginnie Mae MSRs where New Residential acquired the rights to the economic value of the servicing rights from Shellpoint prior to the acquisition date.
(B)
Includes intangible assets in the form of mortgage origination and servicing licenses, internally developed software and a tradename. New Residential determined that mortgage origination and servicing licenses have an indefinite useful life and will be evaluated for impairment given no legal, regulatory, contractual, competitive or economic factors that would limit the useful life. Internally developed software will be amortized over a finite useful life of five years and tradenames were fully amortized over six months, respectively, based on the expected software development timeline and New Residential’s determination of the time to change a tradename with limited value.
Pro Forma Financial Information The following table presents unaudited pro forma combined Servicing and Originations Revenue, which is comprised of 1) servicing revenue, net and 2) gain on sale of originated mortgage loans, net, and Income Before Income Taxes for the three and nine months ended September 30, 2019 and 2018 prepared as if the Shellpoint Acquisition had been consummated on January 1, 2018.
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended  
 September 30,
 
 
2019
 
2018
 
2019
 
2018
Pro Forma
 
 
 
 
 
 
 
 
Servicing and Originations Revenue
 
$
153,591

 
$
221,087

 
$
327,395

 
$
733,901

Income Before Income Taxes
 
239,220

 
199,040

 
394,532

 
1,003,378