Other income and operating expenses

3 Months Ended

Mar. 31, 2021

Other income and operating expenses

Other income and operating expenses

Note 20. Other income and operating expenses

Paycheck Protection Program

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or “Round 1”), signed into law on March 27, 2020, and the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Economic Aid Act” or “Round 2”), signed into law on December 27, 2020, established and extended the PPP. Both the CARES Act and the Economic Aid Act, among other things, provide 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 is the PPP, an SBA loan that temporarily supports businesses to retain their workforce and cover certain operating expenses during the COVID-19 pandemic. Furthermore, the PPP includes a 100% guarantee from the federal government and principal forgiveness for borrowers if the funds are used for defined purposes.

The Company has participated in the PPP as both a direct lender and as service provider. Under the CARES Act, we originated $109.5 million of PPP loans and were a Lender Service Provider (“LSP”) for $2.5 billion of PPP loans. For our originations as direct lender, we classified the loans as held at fair value and elected the fair value option. Fees totaling $5.2 million, were recognized in the period of origination. For loans processed under the LSP, we were obligated to perform certain services including: 1) assistance and services to the third-party in the underwriting, marketing, processing and funding of loans, 2) processing forgiveness of the loans with the SBA and 3) servicing and management of subsequently resulting PPP loan portfolios. We do not hold these loans on balance sheet and fees totaling $43.3 million were recognized as services are performed. As of March 31, 2021, we have $4.0 million in unrecognized fees. Expenses related to PPP loans under the CARES Act were recognized in the period in which they were incurred.

Under the Economic Aid Act, we have originated $1.3 billion of PPP loans. These loans are classified loans as held-for-investment and are accounted for the loans under ASC 310-10, Receivables. Net fees totaling $73.3 million are deferred over the expected life of the PPP loans and will be recognized as interest income. As of March 31, 2021, we have $67.8 million in unrecognized net fees.

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

(In Thousands)	March 31, 2021
Assets
Restricted cash	$	10,000
Paycheck Protection Program loans		1,254,420
Paycheck Protection Program loans, at fair value		38,388
Prepaid expenses		13
PPP fee receivable		31,413
Deferred financing costs		1,065
Accrued interest receivable		1,554
Total PPP related assets	$	1,336,853
Liabilities
Secured borrowings	$	230,483
Paycheck Protection Program Liquidity Facility borrowings		1,132,536
Interest payable		364
Deferred LSP revenue		3,959
Accrued PPP related costs		30,620
Payable to third parties		365
Repair and denial reserve		4,961
Total PPP related liabilities	$	1,403,288

(In Thousands)	Three Months Ended March 31, 2021		Financial statement account
Income
LSP fee income	$	6,741	Servicing income
Interest income		6,892	Interest income
Total PPP related income	$	13,633
Expense
Direct operating expenses	$	4,545	Other operating expenses - origination costs
Repair and denial reserve		1,656	Other income - change in repair and denial reserve
Interest expense		3,861	Interest expense
Total PPP related expenses (direct)	$	10,062
Net PPP related income	$	3,571

Other income and expenses

The following table details the Company’s other income and operating expenses.

	Three Months Ended March 31,
(In Thousands)	2021		2020
Other income
Origination income	$	1,613	$	2,495
Change in repair and denial reserve		(2,069)		136
Other		1,027		1,442
Total other income	$	571	$	4,073
Other operating expenses
Origination costs	$	8,145	$	3,025
Technology expense		1,872		1,580
Impairment on real estate		—		2,969
Rent and property tax expense		1,686		1,184
Recruiting, training and travel expense		496		624
Marketing expense		576		546
Loan acquisition costs		34		98
Financing costs on purchased future receivables		24		624
Other		2,651		3,094
Total other operating expenses	$	15,484	$	13,744