Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2021

Loans and Allowance for Credit Losses

Loans and Allowance for Credit 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 the time of purchase

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

● Loans, held-for-sale, at fair value – originated or acquired loans with the intention to sell in the near term

● Paycheck Protection Program loans, held at fair value – SBA loans originated in round 1 of the PPP program for which the Company has elected the fair value option

● Paycheck Protection Program loans, held for investment – SBA loans originated in round 2 of the PPP program

Loan portfolio

The table below summarizes the classification, UPB, and carrying value of loans held by the Company including loans of consolidated VIEs.

	December 31, 2021				December 31, 2020
(in thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Originated Transitional loans	$	1,693,471	$	1,705,037	$	530,671	$	535,963
Originated SBA 7(a) loans		351,664		361,392		310,537		314,938
Acquired SBA 7(a) loans		152,327		158,016		201,066		210,115
Originated SBC loans		266,026		259,786		173,190		167,470
Acquired loans		471,842		480,088		351,381		352,546
Originated SBC loans, at fair value		10,766		10,956		13,795		14,088
Originated Residential Agency loans		2,566		2,566		3,208		3,208
Total Loans, before allowance for loan losses	$	2,948,662	$	2,977,841	$	1,583,848	$	1,598,328
Allowance for loan losses	$	(33,216)	$	—	$	(33,224)	$	—
Total Loans, net	$	2,915,446	$	2,977,841	$	1,550,624	$	1,598,328
Loans in consolidated VIEs
Originated SBC loans	$	718,201	$	715,842	$	892,316	$	887,917
Originated Transitional loans		2,693,186		2,717,487		785,653		789,750
Acquired loans		594,274		593,649		697,567		701,133
Originated SBA 7(a) loans		55,580		58,792		68,625		72,451
Acquired SBA 7(a) loans		32,768		39,812		42,154		52,456
Total Loans, in consolidated VIEs, before allowance for loan losses	$	4,094,009	$	4,125,582	$	2,486,315	$	2,503,707
Allowance for loan losses on loans in consolidated VIEs	$	(12,161)	$	—	$	(13,508)	$	—
Total Loans, net, in consolidated VIEs	$	4,081,848	$	4,125,582	$	2,472,807	$	2,503,707
Loans, held for sale, at fair value
Originated Residential Agency loans	$	235,925	$	231,196	$	260,447	$	249,852
Originated Freddie Mac loans		42,384		41,864		51,248		50,408
Originated SBC loans		101,172		100,655		17,850		17,850
Originated SBA 7(a) loans		42,761		38,966		10,232		9,436
Acquired loans		130,693		128,079		511		499
Total Loans, held for sale, at fair value	$	552,935	$	540,760	$	340,288	$	328,045
Total Loans, net and Loans, held for sale, at fair value	$	7,550,229	$	7,644,183	$	4,363,719	$	4,430,080
Paycheck Protection Program loans
Paycheck Protection Program loans, held-for-investment	$	867,109	$	927,766	$	—	$	—
Paycheck Protection Program loans, held at fair value		3,243		3,243		74,931		74,931
Total Paycheck Protection Program loans	$	870,352	$	931,009	$	74,931	$	74,931
Total Loan portfolio	$	8,420,581	$	8,575,192	$	4,438,650	$	4,505,011

Loan vintage and credit quality indicators

The Company monitors the credit quality of its loan portfolio based on primary credit quality indicators, such as delinquency rates. Loans that are 30 days or more past due, provide an indication of the borrower’s capacity and willingness to meet its financial obligations. In the tables below, Total Loans, net includes Loans, net in consolidated VIEs and a specific allowance for loan losses of $17.3 million and $17.2 million as of December 31, 2021 and 2020, respectively.

The tables below summarizes the classification, UPB and carrying value of loans by year of origination.

			Carrying Value by Year of Origination
(in thousands)	UPB		2021		2020		2019		2018		2017		Pre 2017		Total
December 31, 2021
Originated Transitional loans	$	4,422,524	$	3,339,437	$	420,486	$	424,118	$	192,901	$	—	$	5,340	$	4,382,282
Originated SBC loans		975,628		142,947		58,651		394,648		163,912		98,123		121,752		980,033
Acquired loans		1,073,737		126,803		80,705		50,720		44,530		26,194		733,996		1,062,948
Originated SBA 7(a) loans		420,184		91,991		44,878		91,208		108,631		48,771		18,779		404,258
Acquired SBA 7(a) loans		197,828		39		77		13,730		13,605		261		154,842		182,554
Originated SBC loans, at fair value		10,956		—		—		—		—		—		10,766		10,766
Originated Residential Agency loans		2,566		1,414		492		468		—		—		192		2,566
Total Loans, before general allowance for loan losses	$	7,103,423	$	3,702,631	$	605,289	$	974,892	$	523,579	$	173,349	$	1,045,667	$	7,025,407
General allowance for loan losses															$	(28,113)
Total Loans, net															$	6,997,294
	UPB		2020		2019		2018		2017		2016		Pre 2016		Total
December 31, 2020
Originated Transitional loans	$	1,325,713	$	385,183	$	583,593	$	306,971	$	23,783	$	16,794	$	—	$	1,316,324
Originated SBC loans		1,055,387		66,715		486,033		237,313		110,354		45,382		113,508		1,059,305
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 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 loan losses	$	4,102,035	$	522,961	$	1,229,069	$	735,604	$	243,042	$	110,314	$	1,211,980	$	4,052,970
General allowance for loan losses															$	(29,539)
Total Loans, net															$	4,023,431

The table below presents delinquency information on loans, net by year of origination.

			Carrying Value by Year of Origination
(in thousands)	UPB		2021		2020		2019		2018		2017		Pre 2017		Total
December 31, 2021
Current and less than 30 days past due	$	6,901,474	$	3,666,020	$	596,289	$	953,269	$	473,798	$	167,629	$	984,680	$	6,841,685
30 - 59 days past due		73,836		35,549		352		18,393		3,714		228		14,601		72,837
60+ days past due		128,113		1,062		8,648		3,230		46,067		5,492		46,386		110,885
Total Loans, before general allowance for loan losses	$	7,103,423	$	3,702,631	$	605,289	$	974,892	$	523,579	$	173,349	$	1,045,667	$	7,025,407
General allowance for loan losses															$	(28,113)
Total Loans, net															$	6,997,294
			Carrying Value by Year of Origination
	UPB		2020		2019		2018		2017		2016		Pre 2016		Total
December 31, 2020
Current and less than 30 days past due	$	3,904,294	$	516,474	$	1,221,227	$	707,068	$	203,331	$	100,003	$	1,125,100	$	3,873,203
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 loan losses	$	4,102,035	$	522,961	$	1,229,069	$	735,604	$	243,042	$	110,314	$	1,211,980	$	4,052,970
General allowance for loan losses															$	(29,539)
Total Loans, net															$	4,023,431

The table below presents delinquency information on loans, net by portfolio.

(in thousands)	Current		30-59 days past due		60+ days past due		Total		Non-Accrual Loans		90+ days past due and Accruing
December 31, 2021
Originated Transitional loans	$	4,289,571	$	52,997	$	39,714	$	4,382,282	$	30,038	$	—
Originated SBC loans		944,803		—		35,230		980,033		27,125		—
Acquired loans		1,018,805		13,099		31,044		1,062,948		25,803		—
Originated SBA 7(a) loans		397,554		5,309		1,395		404,258		10,822		—
Acquired SBA 7(a) loans		179,039		1,432		2,083		182,554		4,297		—
Originated SBC loans, at fair value		10,766		—		—		10,766		—		—
Originated Residential Agency loans		1,147		—		1,419		2,566		1,418		—
Total Loans, before general allowance for loan losses	$	6,841,685	$	72,837	$	110,885	$	7,025,407	$	99,503	$	—
General allowance for loan losses							$	(28,113)
Total Loans, net							$	6,997,294
Percentage of loans outstanding		97.4%		1.0%		1.6%		100%		1.4%		0.0%
December 31, 2020
Originated Transitional loans	$	1,278,829	$	17,713	$	19,782	$	1,316,324	$	19,416	$	—
Originated SBC loans		1,003,628		6,591		49,086		1,059,305		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 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 loan losses	$	3,873,203	$	38,436	$	141,331	$	4,052,970	$	134,158	$	—
General allowance for loan losses							$	(29,539)
Total Loans, net							$	4,023,431
Percentage of loans outstanding		95.6%		0.9%		3.5%		100%		3.3%		0.0%

In addition to delinquency rates, the current estimated LTV ratio, geographic distribution of the loan collateral and collateral concentration are primary credit quality indicators that provide insight into a borrower’s capacity and willingness to meet its financial obligation. High LTV loans tend to have higher delinquency rates than loans where the borrower has equity in the collateral. The geographic distribution of the loan collateral considers factors such as the regional economy, property price changes and specific events such as natural disasters, which will affect credit quality. The collateral concentration of the loan portfolio considers factors or events may have a more pronounced impact on certain sectors or property types.

The table below presents quantitative information on the credit quality of loans, net.

	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, 2021
Originated Transitional loans	$	782	$	109,954	$	330,935	$	3,294,838	$	628,489	$	17,284	$	4,382,282
Originated SBC loans		416		27,976		311,758		613,021		16,217		10,645		980,033
Acquired loans		234,677		305,414		271,862		224,246		14,182		12,567		1,062,948
Originated SBA 7(a) loans		1,222		10,780		49,750		159,246		56,174		127,086		404,258
Acquired SBA 7(a) loans		5,997		31,163		69,364		38,704		25,214		12,112		182,554
Originated SBC loans, at fair value		—		5,817		—		4,949		—		—		10,766
Originated Residential Agency loans		—		—		386		961		1,219		—		2,566
Total Loans, before general allowance for loan losses	$	243,094	$	491,104	$	1,034,055	$	4,335,965	$	741,495	$	179,694	$	7,025,407
General allowance for loan losses													$	(28,113)
Total Loans, net													$	6,997,294
Percentage of loans outstanding		3.5%		7.0%		14.7%		61.7%		10.5%		2.6%
December 31, 2020
Originated Transitional loans	$	5,485	$	7,205	$	251,112	$	891,895	$	157,900	$	2,727	$	1,316,324
Originated SBC loans		5,372		77,963		455,067		515,023		—		5,880		1,059,305
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 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 loan losses	$	285,928	$	532,200	$	1,075,306	$	1,728,645	$	289,919	$	140,972	$	4,052,970
General allowance for loan losses													$	(29,539)
Total Loans, net													$	4,023,431
Percentage of loans outstanding		7.1%		13.0%		26.5%		42.7%		7.2%		3.5%
(1) Loan-to-value is calculated using carrying amount as a percentage of current collateral value

The table below presents geographic concentration of loans, net, secured by real estate.

Geographic Concentration (% of Unpaid Principal Balance)	December 31, 2021		December 31, 2020
Texas	19.2	%	14.2	%
California	14.3		18.1
Arizona	7.4		2.8
New York	7.3		9.8
Georgia	7.0		4.9
Florida	6.7		7.8
Illinois	4.3		5.2
North Carolina	2.6		3.1
Washington	2.1		3.1
Colorado	1.9		2.8
Other	27.2		28.2
Total	100.0	%	100.0	%

The table below presents the collateral type concentration of loans, net.

Collateral Concentration (% of Unpaid Principal Balance)	December 31, 2021		December 31, 2020
Multi-family	54.4	%	23.8	%
Retail	10.2		17.3
SBA	8.7		17.4
Office	8.2		13.1
Mixed Use	7.1		12.9
Industrial	6.4		7.1
Lodging/Residential	1.8		3.2
Other	3.2		5.2
Total	100.0	%	100.0	%

The table below presents the collateral type concentration of SBA loans within loans, net.

Collateral Concentration (% of Unpaid Principal Balance)	December 31, 2021		December 31, 2020
Lodging	17.0	%	17.2	%
Offices of Physicians	10.9		12.0
Child Day Care Services	7.4		7.2
Eating Places	5.0		5.3
Gasoline Service Stations	3.7		3.4
Veterinarians	2.4		3.3
Funeral Service & Crematories	1.9		1.8
Grocery Stores	1.8		1.7
Car washes	1.4		1.4
Couriers	1.3		1.0
Other	47.2		45.7
Total	100.0	%	100.0	%

Allowance for credit losses

The allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost. Such loans and lending commitments are reviewed quarterly considering credit quality indicators, including probable and historical losses, collateral values, LTV ratios, and economic conditions.

The table below presents the allowance for loan losses by loan product and impairment methodology.

(in thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
December 31, 2021
General	$	2,666	$	15,841	$	2,953	$	543	$	6,110	$	28,113
Specific		4,194		4,375		3,168		2,541		2,986		17,264
Ending balance	$	6,860	$	20,216	$	6,121	$	3,084	$	9,096	$	45,377
December 31, 2020
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

The table below present a summary of the changes in the allowance for loan losses.

(in thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Year Ended December 31, 2021
Beginning balance	$	8,840	$	14,995	$	8,297	$	4,549	$	10,051	$	46,732
Provision for (recoveries of) loan losses		(480)		9,971		(1,426)		(555)		1,217		8,727
Charge-offs and sales		(1,311)		(4,300)		(26)		(949)		(2,179)		(8,765)
Recoveries		(189)		(450)		(724)		39		7		(1,317)
Ending balance	$	6,860	$	20,216	$	6,121	$	3,084	$	9,096	$	45,377
Year Ended December 31, 2020
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

The table above excludes $0.3 million and $0.9 million of provision for loan losses on unfunded lending commitments as of December 31, 2021 and 2020, respectively. Refer to Note 3 – Summary of Significant Accounting Policies for more information on our accounting policies, methodologies and judgment applied to determine the allowance for loan losses and lending commitments.

Non-accrual loans

A loan is placed on nonaccrual status when it is probable that principal and interest will not be collected under the original contractual terms. At that time, interest income is no longer accrued.

The table below presents information on non-accrual loans.

(in thousands)	December 31, 2021		December 31, 2020
Non-accrual loans
With an allowance	$	71,645	$	75,862
Without an allowance		27,858		58,296
Total recorded carrying value of non-accrual loans	$	99,503	$	134,158
Allowance for loan losses related to non-accrual loans	$	(17,264)	$	(17,367)
Unpaid principal balance of non-accrual loans	$	119,554	$	158,471
Interest income on non-accrual loans for the year ended	$	1,364	$	3,212

Troubled debt restructurings

A loan is classified as a TDR when there is a reasonable expectation that the original terms of the loan agreement will be modified by granting concessions to a borrower who is experiencing financial difficulty. Concessions typically include modifications to the interest rate, maturity date, timing of principal and interest payments and principal forgiveness. Modified loans that are classified as TDRs are individually evaluated and measured for impairment.

The table below presents details on TDR loans by type.

	December 31, 2021						December 31, 2020
(in thousands)	SBC		SBA		Total		SBC		SBA		Total
Carrying value of modified loans classified as TDRs:
On accrual status	$	284	$	8,242	$	8,526	$	307	$	6,888	$	7,195
On non-accrual status		11,220		11,409		22,629		7,020		11,044		18,064
Total carrying value of modified loans classified as TDRs	$	11,504	$	19,651	$	31,155	$	7,327	$	17,932	$	25,259
Allowance for loan losses on loans classified as TDRs	$	46	$	2,626	$	2,672	$	17	$	3,323	$	3,340

The table below presents TDR loan activity and the financial effects of these modifications by type.

	Year Ended December 31, 2021						Year Ended December 31, 2020
(in thousands, except number of loans)	SBC		SBA		Total		SBC		SBA		Total
Number of loans permanently modified		2		29		31		5		28		33
Pre-modification recorded balance (a)	$	8,660	$	9,547	$	18,207	$	10,963	$	8,420	$	19,383
Post-modification recorded balance (a)	$	8,660	$	9,024	$	17,684	$	10,963	$	8,455	$	19,418
Number of loans that remain in default (b)		2		7		9		3		4		7
Balance of loans that remain in default (b)	$	8,660	$	1,532	$	10,192	$	5,285	$	302	$	5,587
Concession granted (a):
Term extension	$	—	$	7,616	$	7,616	$	—	$	7,020	$	7,020
Interest rate reduction		—				—		—		—		—
Principal reduction		—				—		—		—		—
Foreclosure		8,660		86		8,746		5,285		302		5,587
Total	$	8,660	$	7,702	$	16,362	$	5,285	$	7,322	$	12,607
(a) Represents carrying value.
(b) Represents carrying values of the TDRs that occurred during the respective periods ended and remained in default as of the current period ended. 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 remaining elements of the Company’s modification programs are generally considered insignificant and do not have a material impact on financial results. For loans that the Company determines foreclosure of the collateral is probable, expected losses are measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. As of December 31, 2021 and 2020, the Company’s total carrying amount of loans in the foreclosure process was $2.3 million and $2.2 million, respectively

PCD loans

The Company did not acquire any PCD loans as of the years ended December 2021 and 2020.