Other income and operating expenses

12 Months Ended

Dec. 31, 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 former 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. 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, for $43.3 million in total fees. $27.8 million of the total fees have been recognized at the time of origination, and the remaining $15.5 million are recognized as servicing and forgiveness are performed. As of December 31, 2020, $10.7 million of fees were unearned.

The following tables present details about the Company’s financial position related to its PPP activities:

(In Thousands)	December 31, 2020
Assets
Restricted cash	$	178
PPP loans, at fair value		74,931
Other assets
Prepaid expenses		77
PPP fee receivable		18
Accrued interest receivable		510
Total PPP related assets	$	75,714
Liabilities
Secured borrowings	$	76,276
Interest payable		104
Deferred LSP revenue		10,700
Accrued PPP related costs		498
Payable to third parties		2,716
Repair and denial reserve		3,305
Total PPP related liabilities	$	93,599

(In Thousands)	Year Ended December 31, 2020		Financial statement account
Income
LSP origination fees	$	27,768	Other income - origination fees
PPP processing fees		5,162	Other income - origination fees
LSP fee income		4,829	Servicing income
Interest income		739	Interest income
Total PPP related income	$	38,498
Expense
Direct operating expenses	$	9,600	Other operating expenses - origination costs
R&D reserve		3,305	Other income - change in repair and denial reserve
Interest expense		2,174	Interest expense
Total PPP related expenses (direct)	$	15,079
Net PPP related income	$	23,419

Other income and expenses

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

	For the Year Ended December 31,
(In Thousands)	2020		2019		2018
Other income
Origination income	$	40,836	$	5,860	$	4,590
Change in repair and denial reserve		(4,133)		345		163
Other		4,813		4,873		833
Total other income	$	41,516	$	11,078	$	5,586
Other operating expenses
Origination costs	$	19,815	$	10,168	$	7,752
Technology expense		6,722		4,834		3,624
Impairment on real estate		3,520		1,317		1,086
Rent and property tax expense		5,006		4,310		2,524
Recruiting, training and travel expense		1,419		2,352		2,287
Marketing expense		1,970		2,052		2,433
Loan acquisition costs		722		575		1,458
Financing costs on purchased future receivables		1,495		376		—
Other		13,700		7,178		7,583
Total other operating expenses	$	54,369	$	33,162	$	28,747