Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2020

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

Note 6. Loans and allowance for credit losses

The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-deteriorated at the date of acquisition. The Company accounts for loans based on the following loan program categories:

● Originated or purchased loans held-for-investment– originated transitional loans, originated conventional SBC and SBA loans, or acquired loans with no signs of credit deterioration at time of purchase

● Loans at fair value – certain originated conventional SBC loans and PPP loans for which the Company has elected the fair value option

● Loans, held-for-sale, at fair value – originated or acquired that we intend to sell in the near term

Loan portfolio

The following table summarizes the classification, unpaid principal balance (“UPB”), and carrying value of loans held by the Company including loans of consolidated VIEs:

	December 31, 2020				December 31, 2019
(In Thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Originated Transitional loans	$	530,671	$	535,963	$	593,657	$	600,226
Originated SBA 7(a) loans		310,537		314,938		297,934		299,580
Acquired SBA 7(a) loans		201,066		210,115		255,240		269,396
Originated SBC loans		173,190		167,470		133,118		132,227
Acquired loans		351,381		352,546		430,307		433,079
Originated PPP loans, at fair value		74,931		74,931		—		—
Originated SBC loans, at fair value		13,795		14,088		20,212		19,565
Originated Residential Agency loans		3,208		3,208		3,396		3,395
Total Loans, before allowance for loan losses	$	1,658,779	$	1,673,259	$	1,733,864	$	1,757,468
Allowance for loan losses	$	(33,224)	$	—	$	(5,880)	$	—
Total Loans, net	$	1,625,555	$	1,673,259	$	1,727,984	$	1,757,468
Loans in consolidated VIEs
Originated SBC loans	$	889,566	$	885,235	$	1,037,844	$	1,026,921
Originated Transitional loans		788,403		792,432		490,913		493,217
Acquired loans		697,567		701,133		666,226		671,698
Originated SBA 7(a) loans		68,625		72,451		79,457		83,559
Acquired SBA 7(a) loans		42,154		52,456		53,320		66,997
Total Loans, in consolidated VIEs, before allowance for loan losses	$	2,486,315	$	2,503,707	$	2,327,760	$	2,342,392
Allowance for loan losses on loans in consolidated VIEs	$	(13,508)	$	—	$	(1,561)	$	—
Total Loans, net, in consolidated VIEs	$	2,472,807	$	2,503,707	$	2,326,199	$	2,342,392
Loans, held for sale, at fair value
Originated Residential Agency loans	$	260,447	$	249,852	$	136,506	$	132,016
Originated Freddie Mac loans		51,248		50,408		21,775		21,513
Originated SBC loans		17,850		17,850		—		—
Originated SBA 7(a) loans		10,232		9,436		28,551		26,669
Acquired loans		511		499		1,245		1,208
Total Loans, held for sale, at fair value	$	340,288	$	328,045	$	188,077	$	181,406
Loans, held for sale, at fair value in consolidated VIEs
Acquired loans	$	—	$	—	$	4,434	$	4,400
Total Loans, held for sale, at fair value in consolidated VIEs	$	—	$	—	$	4,434	$	4,400
Total Loan portfolio	$	4,438,650	$	4,505,011	$	4,246,694	$	4,285,666

Loan vintage and credit quality indicators

The Company monitors credit quality of our loan portfolio based on primary credit quality indicators. Delinquency rates are a primary credit quality indicator for our types of loans. Loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties and/or who may be unable or unwilling to repay the loan. As the loan continues to age, it becomes clearer that the borrower is likely either unable or unwilling to pay.

The following table summarizes the classification, UPB and carrying value of loans by year of origination:

			Carrying Value by Year of Origination
(In Thousands)	UPB		2020		2019		2018		2017		2016		Pre 2016		Total
December 31, 2020
Loans(1) (2)
Originated Transitional loans	$	1,328,395	$	385,183	$	583,593	$	306,971	$	23,783	$	18,480	$	1,064	$	1,319,074
Originated SBC loans		1,052,705		66,715		486,033		237,313		110,354		43,696		112,444		1,056,555
Acquired loans		1,053,679		21,414		40,572		42,167		38,649		19,533		883,774		1,046,109
Originated SBA 7(a) loans		387,389		47,939		98,568		133,812		68,375		22,056		4,041		374,791
Acquired SBA 7(a) loans		262,571		139		19,658		14,636		283		19		204,703		239,438
Originated PPP loans, at fair value		74,931		74,931		—		—		—		—		—		74,931
Originated SBC loans, at fair value		14,088		—		—		—		1,598		6,442		5,755		13,795
Originated Residential Agency loans		3,208		1,571		645		705		—		88		199		3,208
Total Loans, before general allowance for loans losses	$	4,176,966	$	597,892	$	1,229,069	$	735,604	$	243,042	$	110,314	$	1,211,980	$	4,127,901
General allowance for loan losses															$	(29,539)
Total Loans, net															$	4,098,362
(1) Loan balances include specific allowance for loan losses of $17.2 million
(2) Includes Loans, net in consolidated VIEs

The following table presents delinquency information on loans, net by year of origination:

			Carrying Value by Year of Origination
(In Thousands)	UPB		2020		2019		2018		2017		2016		Pre 2016		Total
December 31, 2020
Loans(1) (2)
Current and less than 30 days past due	$	3,979,225	$	591,405	$	1,221,227	$	707,068	$	203,331	$	100,003	$	1,125,100	$	3,948,134
30 - 59 days past due		38,836		5,812		5,191		15,097		401		2		11,933		38,436
60+ days past due		158,905		675		2,651		13,439		39,310		10,309		74,947		141,331
Total Loans, before general allowance for loans losses	$	4,176,966	$	597,892	$	1,229,069	$	735,604	$	243,042	$	110,314	$	1,211,980	$	4,127,901
General allowance for loan losses															$	(29,539)
Total Loans, net															$	4,098,362
(1) Loan balances include specific allowance for loan losses of $17.2 million
(2) Includes Loans, net in consolidated VIEs

The following tables present delinquency information on loans, net as of the consolidated balance sheet dates:

	December 31, 2020
Loans (In Thousands)	Current and less than 30 days past due		30-59 days past due		60+ days past due		Total Loans Carrying Value		Non-Accrual Loans		90+ days past due and Accruing
Loans(1)(2)
Originated Transitional loans	$	1,281,579	$	17,713	$	19,782	$	1,319,074	$	19,416	$	—
Originated SBC loans		1,000,878		6,591		49,086		1,056,555		37,635		—
Acquired loans		978,346		7,729		60,034		1,046,109		57,020		—
Originated SBA 7(a) loans		369,416		1,741		3,634		374,791		8,668		—
Acquired SBA 7(a) loans		228,651		4,008		6,779		239,438		9,001		—
Originated PPP loans, at fair value		74,931		—		—		74,931		—		—
Originated SBC loans, at fair value		13,795		—		—		13,795		—		—
Originated Residential Agency loans		538		654		2,016		3,208		2,418		—
Total Loans, before general allowance for loans losses	$	3,948,134	$	38,436	$	141,331	$	4,127,901	$	134,158	$	—
General allowance for loan losses							$	(29,539)
Total Loans, net							$	4,098,362
Percentage of loans outstanding		95.7%		0.9%		3.4%		100%		3.3%		0.0%
(1) Loan balances include specific allowance for loan losses of $17.2 million
(2) Includes Loans, net in consolidated VIEs

	December 31, 2019
Loans (In Thousands)	Current and less than 30 days past due		30-59 days past due		60+ days past due		Total Loans Carrying Value		Non-Accrual Loans		90+ days past due and Accruing
Loans(1)(2)
Originated Transitional loans	$	1,074,955	$	5,728	$	5,645	$	1,086,328	$	24,587	$	—
Originated SBC loans		1,137,140		11,769		19,990		1,168,899		16,089		—
Acquired loans		1,032,259		41,830		20,194		1,094,283		23,500		3,382
Acquired SBA 7(a) loans		297,172		4,048		5,640		306,860		9,177		1,326
Originated SBC loans, at fair value		20,212		—		—		20,212		—		—
Originated SBA 7(a) loans		370,101		2,085		4,443		376,629		8,882		—
Originated Residential Agency loans		582		209		2,605		3,396		2,105		74
Total Loans, before general allowance for loans losses	$	3,932,421	$	65,669	$	58,517	$	4,056,607	$	84,340	$	4,782
General allowance for loan losses							$	(2,424)
Total Loans, net							$	4,054,183
Percentage of loans outstanding		97.0%		1.6%		1.4%		100%		2.1%		0.1%
(1) Loan balances include specific allowance for loan losses of $5.0 million
(2) Includes Loans, net in consolidated VIEs

In addition to delinquency rates, the current estimated LTV ratio is another indicator that can provide insight into a borrower’s continued willingness to pay, as the delinquency rate of high LTV loans tends to be greater than that for loans where the borrower has equity in the collateral. The geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, property price changes and specific events such as natural disasters, will affect credit quality. The collateral concentration of the loan portfolio also provides insight as to the credit quality of the portfolio, as certain economic factors or events may have a more pronounced impact on certain sectors or property types. The Company monitors the loan-to-value ratio and associated risks on a monthly basis.

The following table presents quantitative information on the credit quality of loans, net as of the consolidated balance sheet dates:

	Loan-to-Value  (1)
(In Thousands)	0.0 – 20.0%		20.1 – 40.0%		40.1 – 60.0%		60.1 – 80.0%		80.1 – 100.0%		Greater than 100.0%		Total
December 31, 2020
Loans(2) (3)
Originated Transitional loans	$	5,485	$	8,269	$	252,798	$	891,895	$	157,900	$	2,727	$	1,319,074
Originated SBC loans		5,372		76,899		453,381		515,023		—		5,880		1,056,555
Acquired loans		266,345		385,579		228,262		113,023		40,838		12,062		1,046,109
Originated SBA 7(a) loans		1,203		15,013		51,133		147,020		61,297		99,125		374,791
Acquired SBA 7(a) loans		7,523		39,086		89,644		54,007		28,332		20,846		239,438
Originated PPP loans, at fair value		—		—		—		—		—		74,931		74,931
Originated SBC loans, at fair value		—		7,354		—		6,441		—		—		13,795
Originated Residential Agency loans		—		—		88		1,236		1,552		332		3,208
Total Loans, before general allowance for loans losses	$	285,928	$	532,200	$	1,075,306	$	1,728,645	$	289,919	$	215,903	$	4,127,901
General allowance for loan losses													$	(29,539)
Total Loans, net													$	4,098,362
Percentage of loans outstanding		6.9%	%	12.9%	%	26.1%	%	41.9%	%	7.0%	%	5.2%	%
December 31, 2019
Loans(2) (3)
Originated Transitional loans	$	1,736	$	28,108	$	277,388	$	750,298	$	28,059	$	739	$	1,086,328
Originated SBC loans		—		60,601		431,312		660,733		8,045		8,208		1,168,899
Acquired loans		218,679		371,471		293,216		161,431		35,731		13,755		1,094,283
Acquired SBA 7(a) loans		7,712		39,566		103,590		83,954		39,726		32,312		306,860
Originated SBC loans, at fair value		—		8,192		—		6,422		5,598		—		20,212
Originated SBA 7(a) loans		865		13,843		41,166		130,177		78,544		112,034		376,629
Originated Residential Agency loans		—		51		—		830		2,393		122		3,396
Total Loans, before general allowance for loans losses	$	228,992	$	521,832	$	1,146,672	$	1,793,845	$	198,096	$	167,170	$	4,056,607
General allowance for loan losses													$	(2,424)
Total Loans, net													$	4,054,183
Percentage of loans outstanding		5.6%	%	12.9%	%	28.3%	%	44.2%	%	4.9%	%	4.1%	%
(1) Loan-to-value is calculated as carrying amount as a percentage of current collateral value
(2) Loan balances include specific allowance for loan loss reserves
(3) Includes Loans, net in consolidated VIEs

As of December 31, 2020 and 2019, the Company’s total carrying amount of loans in the foreclosure process was $2.2 million and $0.8 million, respectively.

The following table displays the geographic concentration of the Company’s loans, net, secured by real estate recorded on our consolidated balance sheets.

Geographic Concentration (% of Unpaid Principal Balance)	December 31, 2020		December 31, 2019
California	18.1	%	16.9	%
Texas	14.2		15.2
New York	9.8		8.3
Florida	7.8		8.3
Illinois	5.2		5.2
Georgia	4.9		4.8
North Carolina	3.1		3.2
Washington	3.1		2.8
Arizona	2.8		3.4
Colorado	2.8		2.8
Other	28.2		29.1
Total	100.0	%	100.0	%

The following table displays the collateral type concentration of the Company’s loans, net, on our consolidated balance sheets.

Collateral Concentration (% of Unpaid Principal Balance)	December 31, 2020		December 31, 2019
Multi-family	23.8	%	26.6	%
SBA(1)	17.4		17.6
Retail	17.3		17.5
Office	13.1		12.9
Mixed Use	13.1		10.4
Industrial	7.0		6.4
Lodging/Residential	3.2		3.3
Other	5.1		5.3
Total	100.0	%	100.0	%
(1) Further detail provided on SBA collateral concentration is included in table below.

The following table displays the collateral type concentration of the Company’s SBA loans within loans, net, on our consolidated balance sheets.

Collateral Concentration (% of Unpaid Principal Balance)	December 31, 2020		December 31, 2019
Lodging	17.2	%	17.3	%
Offices of Physicians	12.0		14.1
Child Day Care Services	7.2		8.1
Eating Places	5.3		6.1
Gasoline Service Stations	3.4		3.7
Veterinarians	3.3		4.1
Executive Search Services	2.6		—
All Other Miscellaneous Store Retailers (except Tobacco Stores)	2.3		—
Funeral Service & Crematories	1.8		2.0
Grocery Stores	1.7		2.0
Other	43.2		42.6
Total	100.0	%	100.0	%

Allowance for credit losses

The allowance for loan losses represents the Company’s estimate of expected credit losses inherent in the Company’s held-for-investment loan portfolio. This is assessed by considering credit quality indicators, including probable and historical losses, collateral values, loan-to-value (“LTV”) ratios, and economic conditions.

The following tables present the allowance for loan losses by loan product and impairment methodology:

	Year Ended December 31, 2020
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Originated Residential Agency Loans		Total Allowance for loan losses
General	$	2,640	$	14,995	$	5,457	$	767	$	5,680	$	—	$	29,539
Specific		6,200		—		2,840		3,782		4,371		—		17,193
Ending balance	$	8,840	$	14,995	$	8,297	$	4,549	$	10,051	$	—	$	46,732

	Year Ended December 31, 2019
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Originated Residential Agency Loans		Total Allowance for loan losses
General	$	124	$	64	$	803	$	414	$	1,019	$	—	$	2,424
Specific		180		124		86		941		762		—		2,093
PCD		—		—		2,165		759		—		—		2,924
Ending balance	$	304	$	188	$	3,054	$	2,114	$	1,781	$	—	$	7,441

The following tables detail the activity of the allowance for loan losses for loans:

	Year Ended December 31, 2020
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Originated Residential Agency Loans		Total Allowance for loan losses
Beginning balance	$	304	$	188	$	3,054	$	2,114	$	1,781	$	—	$	7,441
Cumulative-effect adjustment upon adoption of ASU 2016-13		2,400		1,906		1,878		3,562		1,379		—		11,125
Provision for (Recoveries of) loan losses		6,335		16,247		3,502		141		7,560		—		33,785
Charge-offs and sales		(199)		(3,346)		(137)		(1,396)		(717)		—		(5,795)
Recoveries		—		—		—		128		48		—		176
Ending balance	$	8,840	$	14,995	$	8,297	$	4,549	$	10,051	$	—	$	46,732

	Year Ended December 31, 2019
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Originated Residential Agency Loans		Total Allowance for loan losses
Beginning balance	$	11	$	353	$	5,052	$	2,318	$	586	$	—	$	8,320
Provision for (recoveries of) loan losses		420		(167)		781		939		1,711		—		3,684
Charge-offs and sales		(127)		—		(1,144)		(1,282)		(516)		—		(3,069)
Recoveries		—		2		(1,635)		139		—		—		(1,494)
Ending balance	$	304	$	188	$	3,054	$	2,114	$	1,781	$	—	$	7,441

The tables above exclude $0.9 million of provision for loan losses on unfunded lending commitments as of December 31, 2020. There was no such provision for loan losses on unfunded commitments as of December 31, 2019. Refer to ‘Notes to Consolidated Financial Statements, Note 3 – Summary of Significant Accounting Policies” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for more information on our accounting policies, methodologies and judgment applied to determine the allowance for loan losses and lending commitments.

Non-accrual loans

The following table details information about the Company’s non-accrual loans:

(In Thousands)	December 31, 2020		December 31, 2019
Non-accrual loans
With an allowance	$	75,862	$	20,657
Without an allowance		58,296		63,683
Total recorded carrying value of non-accrual loans	$	134,158	$	84,340
Allowance for loan losses related to non-accrual loans	$	(17,367)	$	(3,581)
Unpaid principal balance of non-accrual loans	$	158,471	$	98,498
Interest income on non-accrual loans for the year ended	$	3,212	$	3,132

Troubled debt restructurings

If the borrower is determined to be in financial difficulty, then the Company will determine whether a financial concession has been granted to the borrower by analyzing the value of the loan as compared to the recorded investment, modifications of the interest rate as compared to market rates, modification of the stated maturity date, modification of the timing of principal and interest payments and the partial forgiveness of the loan. Modified loans that are classified as TDRs are individually evaluated and measured for impairment.

In March 2020, a joint statement was issued by federal and state regulatory agencies, after consultation with the FASB, to clarify that short-term loan modifications are not TDRs if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief. Under this guidance, six months is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification program is implemented. The guidance also provides that these modified loans generally will not be classified as non-accrual during the term of the modification. For borrowers who are 30 days or more past due when enrolling in a loan modification program related to the COVID-19 pandemic, we evaluate the loan modifications under our existing TDR framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest.

The following table summarizes the recorded investment of TDRs in the consolidated balance sheet by loan type as of the consolidated balance sheet dates.

	December 31, 2020						December 31, 2019
(In Thousands)	SBC		SBA		Total		SBC		SBA		Total
Recorded carrying value modified loans classified as TDRs	$	7,327	$	17,932	$	25,259	$	6,258	$	14,204	$	20,462
Allowance for loan losses on loans classified as TDRs	$	17	$	3,323	$	3,340	$	274	$	454	$	728
Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	$	307	$	6,888	$	7,195	$	333	$	7,437	$	7,770
Carrying value of modified loans classified as TDRs on non-accrual status		7,020		11,044		18,064		5,925		6,767		12,692
Total carrying value of modified loans classified as TDRs	$	7,327	$	17,932	$	25,259	$	6,258	$	14,204	$	20,462

The following table summarizes the TDR activity that occurred during the years ended December 31, 2020 and 2019 and the financial effects of these modifications.

	Year Ended December 31, 2020						Year Ended December 31, 2019
(In Thousands, except number of loans)	SBC		SBA		Total		SBC		SBA		Total
Number of loans permanently modified		5		28		33		3		31		34
Pre-modification recorded balance (a)	$	10,963	$	8,420	$	19,383	$	2,169	$	4,045	$	6,214
Post-modification recorded balance (a)	$	10,963		8,455	$	19,418	$	2,169	$	3,778	$	5,947
Number of loans that remain in default as of 2020 (b)		3		4		7		3		8		11
Balance of loans that remain in default as of 2020 (b)	$	5,285	$	302	$	5,587	$	2,240	$	534	$	2,774
Concession granted (a):
Term extension	$	—	$	7,020	$	7,020	$	—	$	4,033	$	4,033
Interest rate reduction		—		—		—		—		—		—
Principal reduction		—		—		—		—		—		—
Foreclosure		5,285		302		5,587		2,240		264		2,504
Total	$	5,285	$	7,322	$	12,607	$	2,240	$	4,297	$	6,537
(a) Represents carrying value.
(b) Represents the December 31, 2020 carrying values of the TDRs that occurred during the year ended December 31, 2020 and 2019 that remained in default as of December 31, 2020. Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.  For purposes of this schedule, a loan is considered in default if it is 30 or more days past due.

The Company does not believe the financial impact of the presented TDRs to be material. The other elements of the Company’s modification programs do not have a significant impact on financial results given their relative size, or do not have a direct financial impact as in the case of covenant changes.

PCD loans

The Company did not acquire any PCD loans as of the year ended December 2020 and 2019.