Other income and operating expenses

6 Months Ended

Jun. 30, 2020

Other income and operating expenses

Other income and operating expenses

Note 20 – Other income and operating expenses

Paycheck protection program

On March 27, 2020, the U.S. Congress approved, and President Trump signed into law, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act provides approximately $2 trillion in financial assistance to individuals and businesses resulting from the outbreak of COVID-19. The CARES Act, among other things, provides certain measures to support individuals and businesses in maintaining solvency through monetary relief in the form of financing and loan forgiveness and/or forbearance. The primary catalyst of small business stimulus in the CARES Act is referred to as the Paycheck Protection Program (“PPP”), an SBA loan that temporarily supports businesses in order to retain their workforce during the COVID-19 pandemic.

Through the CARES Act, the initiative calls for existing SBA lenders to extend loans to small businesses to cover payroll, occupancy and operating expenses through the PPP. Furthermore, the PPP includes a 100% guarantee from the federal government for loans up to $10 million and principal forgiveness for borrowers if the funds are used primarily for retaining employees. Beginning in April 2020 the Company, as one of fourteen non-bank SBA lenders, emerged as a prominent player in the market, facilitating access for small businesses to PPP loans throughout the United States. In the aggregate, the Company has facilitated the fundings of approximately $2.7 billion of loans through this program.

Based on pricing set forth by the SBA, processing fees paid to PPP lenders are based on the outstanding balance of the note and are tiered as follows:

• 5% for loans of not more than $350,000;

• 3% percent for loans of more than $350,000 and less than $2,000,000; and

• 1% percent for loans of at least $2,000,000

During April 2020, the Company funded loans totaling approximately $114.7 million in outstanding balance, through our online loan application platform. The Company has elected fair value option for these loans that are held-for-investment. As a result of these activities, the Company recognized approximately $5.2 million in processing fees based on the outstanding loan balance of loans originated during April 2020.

On April 28, 2020, the Company entered into a Lender Service Provider (“LSP”) agreement with a third-party. Under this agreement, the Company agreed to provide the following services:

a.assistance and services to the third-party in the underwriting, marketing, processing and funding of loans

b.processing forgiveness of the loans with the SBA

c.servicing and management of subsequently resulting PPP loan portfolios

The Company received a fee for providing such services, which represents one-half of the total fees received by the third-party from the SBA, less any agent fees paid directly by the third-party for referrals.

During May 2020, the Company sourced and underwrote approximately $2.5 billion of PPP loans, which were sold to the third-party as part of the LSP agreement. As a result of these activities, the Company recognized an additional $27.1 million of revenue during the second quarter of 2020, resulting in total PPP related revenue of $32.3 million for the second quarter of 2020.

The following table details the balance sheet impact as a result of the Company’s PPP activities:

(In Thousands)	June 30, 2020
Assets
Cash and cash equivalents	$	63,553
Restricted cash		23,513
PPP loans, at fair value		105,248
Other assets
Prepaid expenses		826
PPP fee receivable		260
Accrued interest receivable		88
Total PPP related assets	$	193,488
Liabilities
Secured borrowings	$	100,012
Interest payable		926
Deferred LSP revenue		14,493
Accrued PPP related costs		5,077
Payable to third parties		40,554
Repair and denial reserve		2,319
Total PPP related liabilities	$	163,381

The following table details the Company’s income and expenses related to its PPP activities:

(In Thousands)	Three months ended June 30, 2020		Financial statement account
Income
LSP origination fees	$	26,116	Other income - origination fees
PPP processing fees		5,155	Other income - origination fees
LSP fee income		853	Servicing income
Interest income		194	Interest income
Total PPP related income	$	32,318
Expense
Direct operating expenses	$	5,525	Other operating expenses - origination costs
R&D reserve		2,319	Other income - change in repair and denial reserve
Interest expense		1,402	Interest expense
Total PPP related expenses (direct)	$	9,246
Net PPP related income	$	23,072

Other income and expenses

The following table details the Company’s other income and operating expenses for the unaudited interim consolidated statements of income.

	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2020		2019		2020		2019
Other income
Origination income	$	33,617		1,709	$	36,112		2,517
Change in repair and denial reserve		(2,651)		(76)		(2,515)		(165)
Other		628		1,159		2,070		1,340
Total other income	$	31,594	$	2,792	$	35,667	$	3,692
Other operating expenses
Origination costs		9,430		2,734		12,455		3,923
Technology expense		1,742		1,057		3,322		2,158
Impairment on real estate		106		375		3,075		680
Rent and property tax expense		1,200		1,103		2,384		1,794
Recruiting, training and travel expense		235		592		859		1,179
Marketing expense		385		582		931		1,127
Loan acquisition costs		356		(5)		453		105
Financing costs on purchased future receivables		789		—		1,413		—
Other		3,502		1,647		6,595		3,981
Total other operating expenses	$	17,745	$	8,085	$	31,487	$	14,947