Note 26 – Segment Reporting

The Company operates in four reportable segments: i) Loan Acquisitions, ii) SBC Conventional Originations, iii) SBA Originations, Acquisitions and Servicing, and iv) Residential Mortgage Banking.

Through the Loan Acquisitions segment, the Company acquires performing and non-performing SBC loans and intends to continue to acquire these loans as part of the Company’s business strategy. Within the Loan Acquisition segment, the Company holds SBC loans originated by the SBC Conventional Originations segment, which were subsequently acquired by the Loan Acquisitions segment through internally sourced REMIC transactions.

Through the SBC Conventional Originations segment, the Company originates SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels. Additionally, as part of this segment, we originate and service multi-family loan products under the Freddie Mac program.

Through the SBA Originations, Acquisitions, and Servicing segment, the Company acquires, originates and services owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program.

Through the Residential Mortgage Banking segment, the Company originates residential mortgage loans eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, USDA and VA through retail, correspondent and broker channels. The historical results of our Residential mortgage banking segment has been reclassified in the consolidated statements of income to conform to our current period’s presentation of residential mortgage banking activities, net.

In accordance with ASC 280, Segment Reporting, the Company has not included discontinued operations in the segment reporting. The Company uses segment net income or loss from continuing operations as the measure of profitability of its reportable segments.

Reportable segments for the three months ended June 30, 2017 are summarized in the below table.


			SBC		SBA Originations,		Residential
	Loan		Conventional		Acquisitions,		Mortgage
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Consolidated
Interest income
Loans, held-for-investment	$	16,590	$	2,140	$	9,752	$	25	$	28,507
Loans, held at fair value		613		1,591		—		—		2,204
Loans, held for sale, at fair value		373		241		—		1,024		1,638
Mortgage backed securities, at fair value		899		—		—		—		899
Total interest income	$	18,475		3,972	$	9,752	$	1,049	$	33,248
Interest expense
Securitized debt obligations of consolidated VIEs		(4,492)		—		(269)		—		(4,761)
Borrowings under repurchase agreements		(2,596)		(1,452)		—		—		(4,048)
Guaranteed loan financing		—		—		(3,520)		—		(3,520)
Borrowings under credit facilities		(1,584)		(170)		(477)		(827)		(3,058)
Senior secured note		—		(1,777)		—		—		(1,777)
Promissory note payable		(66)		—		—		—		(66)
Total interest expense	$	(8,738)	$	(3,399)	$	(4,266)	$	(827)	$	(17,230)
Net interest income before provision for loan losses	$	9,737	$	573	$	5,486	$	222	$	16,018
Provision for loan losses		(102)		12		(69)		—		(159)
Net interest income after provision for loan losses	$	9,635	$	585	$	5,417	$	222	$	15,859
Non-interest income (expense)
Residential mortgage banking activities, net	$	—	$	—	$	—	$	10,985	$	10,985
Other income (loss)		754		1,022		(222)		34		1,588
Servicing income		26		139		1,246		4,220		5,631
Employee compensation and benefits		5		(1,890)		(2,488)		(9,078)		(13,451)
Allocated employee compensation and benefits from related party		179		(615)		(595)		23		(1,008)
Professional fees		(188)		(579)		(868)		(388)		(2,023)
Management fees – related party		(1,156)		(282)		(322)		(247)		(2,007)
Loan servicing expense		(997)		(288)		479		(1,805)		(2,611)
Other operating expenses		(390)		(2,090)		(1,470)		(2,256)		(6,206)
Total non-interest income (expense)	$	(1,767)	$	(4,583)	$	(4,240)	$	1,488	$	(9,102)
Net realized gain on financial instruments		396		1,740		2,355		—		4,491
Net unrealized gain (loss) on financial instruments		863		1,782		—		(1,671)		974
Net income (loss) before provision for income taxes	$	9,127	$	(476)	$	3,532	$	39	$	12,222
Provision for income taxes		452		5		(1,270)		(256)		(1,069)
Net income	$	9,579	$	(471)	$	2,262	$	(217)	$	11,153
Total Assets	$	1,253,880	$	345,597	$	530,482	$	316,961	$	2,446,920

Reportable segments for the six months ended June 30, 2017 are summarized in the below table.


			SBC		SBA Originations,		Residential
	Loan		Conventional		Acquisitions,		Mortgage
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Consolidated
Interest income
Loans, held-for-investment	$	35,157	$	3,330	$	19,895	$	225	$	58,607
Loans, held at fair value		876		2,953		—		—		3,829
Loans, held for sale, at fair value		794		424		—		1,854		3,072
Mortgage backed securities, at fair value		1,622		—		—		—		1,622
Total interest income	$	38,449		6,707	$	19,895	$	2,079	$	67,130
Interest expense
Securitized debt obligations of consolidated VIEs		(9,316)		—		(567)		—		(9,883)
Borrowings under repurchase agreements		(5,612)		(2,657)		—		—		(8,269)
Guaranteed loan financing		—		—		(6,784)		—		(6,784)
Borrowings under credit facilities		(3,260)		(360)		(902)		(1,513)		(6,035)
Senior secured note		—		(2,568)		—		—		(2,568)
Promissory note payable		(134)		—		—		—		(134)
Total interest expense	$	(18,322)	$	(5,585)	$	(8,253)	$	(1,513)	$	(33,673)
Net interest income before provision for loan losses	$	20,127	$	1,122	$	11,642	$	566	$	33,457
Provision for loan losses		(724)		(84)		(583)		—		(1,391)
Net interest income after provision for loan losses	$	19,403	$	1,038	$	11,059	$	566	$	32,066
Non-interest income (expense)
Residential mortgage banking activities, net	$	—	$	—	$	—	$	21,495	$	21,495
Other income (loss)		889		1,577		(89)		52		2,429
Servicing income		32		(363)		2,043		8,362		10,074
Employee compensation and benefits		(616)		(3,916)		(4,687)		(17,696)		(26,915)
Allocated employee compensation and benefits from related party		(405)		(757)		(757)		(101)		(2,020)
Professional fees		(1,232)		(907)		(1,355)		(688)		(4,182)
Management fees – related party		(2,296)		(559)		(639)		(490)		(3,984)
Loan servicing expense		(1,897)		(535)		1,587		(3,281)		(4,126)
Other operating expenses		(1,981)		(3,894)		(2,355)		(3,506)		(11,736)
Total non-interest income (expense)	$	(7,506)	$	(9,354)	$	(6,252)	$	4,147	$	(18,965)
Net realized gain on financial instruments		986		3,060		3,410		—		7,456
Net unrealized gain (loss) on financial instruments		1,469		2,800		212		(2,224)		2,257
Net income (loss) before provision for income taxes	$	14,352	$	(2,456)	$	8,429	$	2,489	$	22,814
Provision for income taxes		554		265		(2,177)		(746)		(2,104)
Net income	$	14,906	$	(2,191)	$	6,252	$	1,743	$	20,710
Total Assets	$	1,253,880	$	345,597	$	530,482	$	316,961	$	2,446,920

Reportable segments for the three months ended June 30, 2016 are summarized in the below table.


			SBC		SBA Originations,		Residential
	Loan		Conventional		Acquisitions,		Mortgage
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Consolidated
Interest income
Loans, held-for-investment	$	17,391	$	1,445	$	11,941	$	—	$	30,777
Loans, held at fair value		588		2,072		—		—		2,660
Loans, held for sale, at fair value		—		—		—		—		—
Mortgage backed securities, at fair value		1,064		—		—		—		1,064
Total interest income	$	19,043	$	3,517	$	11,941	$	—	$	34,501
Interest expense
Securitized debt obligations of consolidated VIEs		(4,149)		—		(381)		—		(4,530)
Borrowings under repurchase agreements		(1,895)		(1,792)		—		—		(3,687)
Guaranteed loan financing		—		—		(3,414)		—		(3,414)
Promissory note payable		(67)								(67)
Borrowings under credit facilities		(1,616)		—		(462)		—		(2,078)
Total interest expense	$	(7,727)	$	(1,792)	$	(4,257)	$	—	$	(13,776)
Net interest income before provision for loan losses	$	11,316	$	1,725	$	7,684	$	—	$	20,725
Provision for loan losses		(1,345)		—		(672)		—		(2,017)
Net interest income after provision for loan losses	$	9,971	$	1,725	$	7,012	$	—	$	18,708
Non-interest income (expense)
Residential mortgage banking activities, net	$	—	$	—	$	—	$	—	$	—
Other income		310		973		16		—		1,299
Servicing income		20		190		1,137		—		1,347
Employee compensation and benefits		(191)		(2,169)		(1,752)		—		(4,112)
Allocated employee compensation and benefits from related party		(551)		(181)		(168)		—		(900)
Professional fees		(1,865)		(619)		(1,193)		—		(3,677)
Management fees – related party		(1,122)		(369)		(342)		—		(1,833)
Loan servicing (expense) income		(1,367)		(115)		297		—		(1,185)
Other operating expenses		(876)		(1,774)		(1,168)		—		(3,818)
Total non-interest income (expense)	$	(5,642)	$	(4,064)	$	(3,173)	$	—	$	(12,879)
Net realized (loss) gain on financial instruments		(169)		313		931		—		1,075
Net unrealized gain on financial instruments		1,509		1,093		—		—		2,602
Net income (loss) before provision for income taxes	$	5,669	$	(933)	$	4,770	$	—	$	9,506
Provision for income taxes		—		755		(1,613)		—		(858)
Net income		5,669		(178)		3,157		-	$	8,648
Total Assets	$	1,241,579	$	244,983	$	660,744	$	—	$	2,147,305

Reportable segments for the six months ended June 30, 2016 are summarized in the below table.


			SBC		SBA Originations,		Residential
	Loan		Conventional		Acquisitions,		Mortgage
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Consolidated
Interest income
Loans, held-for-investment	$	35,254	$	2,067	$	25,788	$	—	$	63,109
Loans, held at fair value		1,173		4,849		—		—		6,022
Loans, held for sale, at fair value		—		—		—		—		—
Mortgage backed securities, at fair value		3,237		—		—		—		3,237
Total interest income	$	39,664	$	6,916	$	25,788	$	—	$	72,368
Interest expense
Securitized debt obligations of consolidated VIEs		(8,266)		—		(805)		—		(9,071)
Borrowings under repurchase agreements		(4,164)		(3,382)		—		—		(7,546)
Guaranteed loan financing		—		—		(7,363)		—		(7,363)
Promissory note payable		(67)		—		—		—		(67)
Borrowings under credit facilities		(3,088)		—		(942)		—		(4,030)
Total interest expense	$	(15,585)	$	(3,382)	$	(9,110)	$	—	$	(28,077)
Net interest income before provision for loan losses	$	24,079	$	3,534	$	16,678	$	—	$	44,291
Provision for loan losses		(3,522)		—		(679)		—		(4,201)
Net interest income after provision for loan losses	$	20,557	$	3,534	$	15,999	$	—	$	40,090
Non-interest income (expense)
Residential mortgage banking activities, net	$	—	$	—	$	—	$	—	$	—
Other income		897		1,289		1,421		—		3,607
Servicing income		35		310		2,415		—		2,760
Employee compensation and benefits		(191)		(4,453)		(4,538)		—		(9,182)
Allocated employee compensation and benefits from related party		(1,054)		(401)		(345)		—		(1,800)
Professional fees		(2,588)		(824)		(2,041)		—		(5,453)
Management fees – related party		(2,149)		(819)		(703)		—		(3,671)
Loan servicing expense		(2,419)		(240)		598		—		(2,061)
Other operating expenses		(2,138)		(3,533)		(2,010)		—		(7,681)
Total non-interest income (expense)	$	(9,607)	$	(8,671)	$	(5,203)	$	—	$	(23,481)
Net realized gain (loss) on financial instruments		(2,440)		1,770		1,936		—		1,266
Net unrealized gain (loss) on financial instruments		3,232		(966)		—		—		2,266
Net income before provision for income taxes	$	11,742	$	(4,333)	$	12,732	$	—	$	20,141
Provisions for income taxes		—		2,490		(4,519)		—		(2,029)
Net income (loss) from continuing operations	$	11,742	$	(1,843)	$	8,213	$	—	$	18,112
Loss from discontinued operations										(351)
Net income									$	17,761
Total Assets	$	1,241,579	$	244,983	$	660,744	$	—	$	2,147,305