Other income and operating expenses

12 Months Ended

Dec. 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, respectively. 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 direct lender and 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 elected the fair value option and thus, classified the loans as held at fair value on our consolidated balance sheets. 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. Such loans are not carried on our consolidated balance sheet and fees totaling $43.3 million were recognized as services were performed. Unrecognized fees as of December 31, 2021 were $0.3 million. Expenses related to PPP loans under the CARES Act are recognized in the period in which they are incurred.

The table below present details about the Company’s assets and liabilities related to its PPP activities.

(in thousands)	December 31, 2021		December 31, 2020
Assets
Restricted cash	$	—	$	178
Paycheck Protection Program loans		867,109		—
Paycheck Protection Program loans, at fair value		3,243		74,931
Other assets		—		—
Prepaid expenses		—		77
PPP fee receivable		407		18
Deferred financing costs		—		—
Accrued interest receivable		7,025		510
Total PPP related assets	$	877,784	$	75,714
Liabilities
Paycheck Protection Program Liquidity Facility borrowings	$	941,505	$	76,276
Interest payable		2,358		104
Deferred LSP revenue		286		10,700
Accrued PPP related costs		12,460		498
Payable to third parties		2,091		2,716
Repair and denial reserve		12,844		3,305
Total PPP related liabilities	$	971,544	$	93,599

In the table above,

● Originations of PPP loans under the Economic Aid Act were $2.2 billion. These loans are classified as held-for-investment and are accounted for under ASC 310-10, Receivables.

● Total net fees of $123.7 million are deferred over the expected life of the loans and will be recognized as interest income.

● As of December 31, 2021, PPPLF borrowings exceed PPP loans on the balance sheet due to net fees of $60.7 million. In addition, PPP loans are forgiven before the related PPPLF borrowings are repaid. These proceeds are unrestricted and held in cash and cash equivalents on the consolidated balance sheet.

The table below presents details about the Company’s income and expenses related to its pre-tax PPP activities.

(in thousands)		Year Ended December 31, 2021		Year Ended December 31, 2020	Financial statement account
Income
LSP origination fees	$	—	$	27,768	Other income
PPP processing fees		—		5,162	Other income
LSP fee income		10,414		4,829	Servicing income
Interest income		79,201		739	Interest income
Total PPP related income	$	89,615	$	38,498
Expense
Direct operating expenses	$	8,241	$	9,600	Other operating expenses
Repair and denial reserve		9,539		3,305	Other income
Interest expense		15,774		2,174	Interest expense
Total PPP related expenses (direct)	$	33,554	$	15,079
Net PPP related income	$	56,061	$	23,419

Other income and expenses

The table below presents the composition of other income and operating expenses.

	For the Year Ended December 31,
(in thousands)	2021		2020		2019
Other income:
Origination income	$	12,415	$	40,836	$	5,860
Change in repair and denial reserve		(10,168)		(4,133)		345
Other		6,762		4,813		4,873
Total other income	$	9,009	$	41,516	$	11,078
Other operating expenses:
Origination costs	$	24,337	$	19,815	$	10,168
Technology expense		7,971		6,722		4,834
Impairment on real estate		2,293		3,520		1,317
Rent and property tax expense		6,680		5,006		4,310
Recruiting, training and travel expense		1,309		1,419		2,352
Marketing expense		3,025		1,970		2,052
Loan acquisition costs		110		722		575
Financing costs on purchased future receivables		117		1,495		376
Other		12,559		13,700		7,178
Total other operating expenses	$	58,401	$	54,369	$	33,162