Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Loans and Allowance for Credit Losses

Loans and Allowance for Credit Losses

Note 6. Loans and allowance for credit losses

Loans includes (i) loans held for investment that are accounted for at amortized cost net of allowance for credit losses or (ii) loans held at fair value under the fair value option and (iii) loans held for sale, at fair value that are accounted for at the lower of cost or fair value. The classification for a loan is based on product type and management’s strategy for the loan.

Loans with the “Other” classification are generally LMM acquired loans that have nonconforming characteristics for the Fixed rate, Bridge, Construction, or Freddie Mac classifications due to loan size, rate type, collateral, or borrower criteria.

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, 2023				December 31, 2022
(in thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Bridge	$	1,444,770	$	1,448,281	$	2,236,333	$	2,247,173
Fixed rate		247,476		241,674		182,415		175,285
Construction		1,207,783		1,212,526		445,814		448,923
Freddie Mac		9,500		9,719		10,040		9,932
SBA – 7(a)		995,974		1,003,323		491,532		509,672
Other		196,087		198,499		266,702		270,748
Total Loans, before allowance for loan losses	$	4,101,590	$	4,114,022	$	3,632,836	$	3,661,733
Allowance for loan losses	$	(81,430)	$	—	$	(61,037)	$	—
Total Loans, net	$	4,020,160	$	4,114,022	$	3,571,799	$	3,661,733
Loans in consolidated VIEs
Bridge		5,370,251		5,389,535		5,098,539		5,134,790
Fixed rate		790,068		790,967		856,345		856,914
SBA – 7(a)		213,892		227,636		64,226		70,904
Other		257,289		258,029		322,070		322,975
Total Loans, in consolidated VIEs, before allowance for loan losses	$	6,631,500	$	6,666,167	$	6,341,180	$	6,385,583
Allowance for loan losses on loans in consolidated VIEs	$	(20,175)	$	—	$	(29,482)	$	—
Total Loans, net, in consolidated VIEs	$	6,611,325	$	6,666,167	$	6,311,698	$	6,385,583
Loans, held for sale, at fair value
Fixed rate		—		—		60,551		68,280
Freddie Mac		20,955		20,729		13,791		13,611
SBA – 7(a)		59,421		55,769		44,037		41,674
Other		1,223		1,297		5,356		4,414
Total Loans, held for sale, at fair value	$	81,599	$	77,795	$	123,735	$	127,979
Total Loans, net and Loans, held for sale, at fair value	$	10,713,084	$	10,857,984	$	10,007,232	$	10,175,295
Paycheck Protection Program loans
Paycheck Protection Program loans, held-for-investment		34,432		35,637		186,409		196,222
Paycheck Protection Program loans, held at fair value		165		165		576		576
Total Paycheck Protection Program loans	$	34,597	$	35,802	$	186,985	$	196,798
Total Loan portfolio	$	10,747,681	$	10,893,786	$	10,194,217	$	10,372,093

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. Total Loans, net includes Loans, net in consolidated VIEs and a specific

allowance for loan losses of $57.1 million, including $21.4 million of PCD loan reserves as of December 31, 2023, and a specific allowance for loan losses of $32.8 million, including $16.0 million of PCD loan reserves, as of December 31, 2022.

The tables below summarize the classification, UPB, carrying value and gross write-offs of loans by year of origination.

			Carrying Value by Year of Origination
(in thousands)	UPB		2023		2022		2021		2020		2019		Pre 2019		Total
December 31, 2023
Bridge	$	6,837,816	$	323,648	$	2,956,697	$	2,949,521	$	288,647	$	166,266	$	111,303	$	6,796,082
Fixed rate		1,032,641		4,007		110,800		207,510		90,794		318,077		300,642		1,031,830
Construction		1,212,526		108,218		253,100		182,920		73,370		434,151		128,876		1,180,635
Freddie Mac		9,719		—		—		3,810		5,690		—		—		9,500
SBA - 7(a)		1,230,959		151,878		353,871		318,208		115,019		76,080		189,622		1,204,678
Other		456,528		2,599		4,877		18,549		8,708		43,724		374,776		453,233
Total Loans, before general allowance for loan losses	$	10,780,189	$	590,350	$	3,679,345	$	3,680,518	$	582,228	$	1,038,298	$	1,105,219	$	10,675,958
General allowance for loan losses															$	(44,473)
Total Loans, net															$	10,631,485
Gross write-offs			$	100	$	950	$	3,236	$	258	$	360	$	25,731	$	30,635
	UPB		2022		2021		2020		2019		2018		Pre 2018		Total
December 31, 2022
Bridge	$	7,381,963	$	2,942,695	$	3,575,213	$	355,647	$	288,957	$	137,463	$	27,971	$	7,327,946
Fixed rate		1,032,199		96,897		154,077		92,080		343,500		134,666		213,406		1,034,626
Construction		448,923		27,532		—		10,000		348,622		42,651		—		428,805
Freddie Mac		9,932		—		3,891		6,149		—		—		—		10,040
SBA - 7(a)		580,576		110,549		79,946		36,853		77,449		89,085		158,378		552,260
Other		593,723		5,893		17,015		10,393		74,762		13,832		465,635		587,530
Total Loans, before general allowance for loan losses	$	10,047,316	$	3,183,566	$	3,830,142	$	511,122	$	1,133,290	$	417,697	$	865,390	$	9,941,207
General allowance for loan losses															$	(57,710)
Total Loans, net															$	9,883,497

The tables below present delinquency information on loans, net by year of origination.

			Carrying Value by Year of Origination
(in thousands)	UPB		2023		2022		2021		2020		2019		Pre 2019		Total
December 31, 2023
Current	$	9,632,399	$	574,507	$	3,351,046	$	3,409,643	$	495,433	$	881,868	$	875,348	$	9,587,845
30 – 59 days past due		172,355		582		59,988		80,684		510		22,586		7,148		171,498
60+ days past due		975,435		15,261		268,311		190,191		86,285		133,844		222,723		916,615
Total Loans, before general allowance for loan losses	$	10,780,189	$	590,350	$	3,679,345	$	3,680,518	$	582,228	$	1,038,298	$	1,105,219	$	10,675,958
General allowance for loan losses															$	(44,473)
Total Loans, net															$	10,631,485
	UPB		2022		2021		2020		2019		2018		Pre 2018		Total
December 31, 2022
Current	$	9,663,456	$	3,098,103	$	3,826,008	$	500,807	$	1,060,723	$	298,208	$	810,085	$	9,593,934
30 – 59 days past due		111,992		85,403		3,483		1,634		6,654		11,190		1,948		110,312
60+ days past due		271,868		60		651		8,681		65,913		108,299		53,357		236,961
Total Loans, before general allowance for loan losses	$	10,047,316	$	3,183,566	$	3,830,142	$	511,122	$	1,133,290	$	417,697	$	865,390	$	9,941,207
General allowance for loan losses															$	(57,710)
Total Loans, net															$	9,883,497

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, 2023
Bridge	$	6,186,367	$	87,163	$	522,552	$	6,796,082	$	339,073	$	—
Fixed rate		986,755		21,798		23,277		1,031,830		13,928		—
Construction		782,123		49,694		348,818		1,180,635		241,751		82,781
Freddie Mac		9,500		—		—		9,500		2,695		—
SBA – 7(a)		1,179,231		8,619		16,828		1,204,678		30,549		40
Other		443,869		4,224		5,140		453,233		6,005		—
Total Loans, before general allowance for loan losses	$	9,587,845	$	171,498	$	916,615	$	10,675,958	$	634,001	$	82,821
General allowance for loan losses							$	(44,473)
Total Loans, net							$	10,631,485
Percentage of loans outstanding		89.8%		1.6%		8.6%		100%		5.9%		0.8%
December 31, 2022
Bridge	$	7,120,162	$	94,823	$	112,961	$	7,327,946	$	113,360	$	—
Fixed rate		993,832		8,101		32,693		1,034,626		28,719		—
Construction		372,812		—		55,993		428,805		55,993		—
Freddie Mac		6,947		—		3,093		10,040		3,093		—
SBA – 7(a)		541,378		6,690		4,192		552,260		12,790		—
Other		558,803		698		28,029		587,530		27,544		—
Total Loans, before general allowance for loan losses	$	9,593,934	$	110,312	$	236,961	$	9,941,207	$	241,499	$	—
General allowance for loan losses							$	(57,710)
Total Loans, net							$	9,883,497
Percentage of loans outstanding		96.5%		1.1%		2.4%		100%		2.4%		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 economic 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.

	LTV(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, 2023
Bridge	$	2,308	$	97,309	$	756,353	$	5,781,651	$	82,517	$	75,944	$	6,796,082
Fixed rate		5,222		36,021		449,804		517,628		19,965		3,190		1,031,830
Construction		25,173		94,856		532,730		355,631		119,191		53,054		1,180,635
Freddie Mac		—		—		2,995		6,505		—		—		9,500
SBA – 7(a)		10,627		56,061		172,743		404,102		226,327		334,818		1,204,678
Other		127,310		159,386		81,291		68,451		14,124		2,671		453,233
Total Loans, before general allowance for loan losses	$	170,640	$	443,633	$	1,995,916	$	7,133,968	$	462,124	$	469,677	$	10,675,958
General allowance for loan losses													$	(44,473)
Total Loans, net													$	10,631,485
Percentage of loans outstanding		1.6%		4.2%		18.7%		66.8%		4.3%		4.4%
December 31, 2022
Bridge	$	717	$	104,606	$	700,835	$	6,331,353	$	167,521	$	22,914	$	7,327,946
Fixed rate		9,102		35,459		386,040		578,456		17,056		8,513		1,034,626
Construction		10,817		12,910		26,387		349,085		24,142		5,464		428,805
Freddie Mac		—		—		3,056		6,984		—		—		10,040
SBA – 7(a)		7,275		45,366		92,592		189,733		78,577		138,717		552,260
Other		173,720		214,370		115,934		70,124		8,153		5,229		587,530
Total Loans, before general allowance for loan losses	$	201,631	$	412,711	$	1,324,844	$	7,525,735	$	295,449	$	180,837	$	9,941,207
General allowance for loan losses													$	(57,710)
Total Loans, net													$	9,883,497
Percentage of loans outstanding		2.0%		4.2%		13.3%		75.7%		3.0%		1.8%
(1) LTV is calculated by dividing the current carrying amount by the most recent collateral value received. The most recent value for performing loans is often the third-party as-is valuation utilized during the original underwriting process

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

Geographic Concentration (% of UPB)	December 31, 2023		December 31, 2022
Texas	18.6	%	20.2	%
California	11.4		11.1
Georgia	7.1		7.6
Florida	6.4		6.3
Arizona	6.1		6.8
Oregon	5.9		4.4
New York	4.8		5.5
North Carolina	4.1		4.2
Illinois	3.7		3.9
Washington	3.4		1.6
Other	28.5		28.4
Total	100.0	%	100.0	%

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

Collateral Concentration (% of UPB)	December 31, 2023		December 31, 2022
Multi-family	60.9	%	67.0	%
SBA	11.4		5.8
Mixed Use	8.4		8.1
Office	4.4		4.9
Industrial	4.3		5.0
Retail	4.3		5.5
Lodging	1.6		1.6
Other	4.7		2.1
Total	100.0	%	100.0	%

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

Collateral Concentration (% of UPB)	December 31, 2023		December 31, 2022
Lodging	23.4	%	14.6	%
Gasoline Service Stations	12.8		2.5
Eating Places	6.2		3.7
Child Day Care Services	5.6		5.7
Offices of Physicians	4.1		7.5
General Freight Trucking, Local	3.5		2.5
Grocery Stores	2.3		1.6
Coin-Operated Laundries and Drycleaners	1.9		0.8
Funeral Service & Crematories	1.4		1.2
Beer, Wine, and Liquor Stores	1.3		1.0
Other	37.5		58.9
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)	Bridge		Fixed Rate		Construction		SBA – 7(a)		Other		Total
December 31, 2023
General	$	17,302	$	7,884	$	3,722	$	12,679	$	2,886	$	44,473
Specific		18,939		5,714		5,726		5,188		143		35,710
PCD		—		—		21,422		—		—		21,422
Ending balance	$	36,241	$	13,598	$	30,870	$	17,867	$	3,029	$	101,605
December 31, 2022
General	$	42,979	$	2,397	$	325	$	10,801	$	1,208	$	57,710
Specific		6,926		4,134		1,037		3,498		1,242		16,837
PCD		—		—		15,972		—		—		15,972
Ending balance	$	49,905	$	6,531	$	17,334	$	14,299	$	2,450	$	90,519

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

(in thousands)	Bridge		Fixed Rate		Construction		SBA – 7(a)		Other		Total
Year Ended December 31, 2023
Beginning balance	$	49,905	$	6,531	$	17,334	$	14,299	$	2,450	$	90,519
Provision for (recoveries of) loan losses		(13,045)		8,571		6,363		5,598		1,185		8,672
PCD (1)		—		—		32,862		—		—		32,862
Charge-offs and sales		(619)		(1,504)		(25,689)		(2,217)		(606)		(30,635)
Recoveries		—		—		—		187		—		187
Ending balance	$	36,241	$	13,598	$	30,870	$	17,867	$	3,029	$	101,605
Year Ended December 31, 2022
Beginning balance	$	19,519	$	6,861	$	—	$	12,180	$	6,757	$	45,317
Provision for (recoveries of) loan losses		31,086		(240)		1,362		2,971		(4,225)		30,954
PCD (2)		—		—		15,972		—		—		15,972
Charge-offs and sales		(700)		(90)		—		(1,536)		(82)		(2,408)
Recoveries		—		—		—		684		—		684
Ending balance	$	49,905	$	6,531	$	17,334	$	14,299	$	2,450	$	90,519
(1) Includes impact of measurement period adjustment related to the Broadmark Merger. See Note 5 for further details on assets acquired and liabilities assumed in connection with the Broadmark Merger.
(2) Includes impact of measurement period adjustment related to the Mosaic Mergers. See Note 5 for further details on assets acquired and liabilities assumed in connection with the Mosaic Mergers.

The table above excludes $0.7 million and $3.8 million of allowance for loan losses on unfunded lending commitments as of December 31, 2023 and 2022, respectively. Refer to Note 3 – Summary of Significant Accounting Policies for more information on 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, 2023		December 31, 2022
Non-accrual loans
With an allowance	$	607,292	$	197,101
Without an allowance		26,709		44,398
Total recorded carrying value of non-accrual loans	$	634,001	$	241,499
Allowance for loan losses related to non-accrual loans	$	(50,796)	$	(32,809)
UPB of non-accrual loans	$	688,282	$	277,095
Interest income on non-accrual loans for the year ended	$	12,282	$	5,721

Loan modifications made to borrowers experiencing financial difficulty

In certain situations, the Company may provide loan modifications to borrowers experiencing financial difficulty. These modifications may include interest rate reductions, principal forgiveness, term extensions, and other-than-insignificant payment delay intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral. Substantially all of the loan modifications provided by the Company consisted of a 12-month payment deferral and an 18-month addition to the weighted average life of the original loan term and were deemed to be continuation of the existing loans based on the Company’s analysis. As of December 31, 2023, the carrying value of such commercial real estate and SBA – 7(a) loans modified in 2023 were $467.9 million and $1.3 million, respectively or 4.4% of total Loans, net. These modified loans are predominantly comprised of loans secured by mixed use real estate.

The Company’s allowance for loan losses reflects estimates of expected life-time loan losses, which considers historical loan losses including losses from modified loans to borrowers experiencing financial difficulty. The Company continues to estimate the allowance for loan losses after modification using loan-specific inputs. Substantially all of the modified loans were performing in accordance with the modified contractual terms as of December 31, 2023.

The remaining elements of the Company’s modification programs are generally considered insignificant and do not have a material impact on financial results. On loans for which 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, 2023 and December 31, 2022, the Company’s total carrying amount of loans in the foreclosure process was $95.0 million and $34.9 million, respectively.

As of December 31, 2023, lending commitments to borrowers experiencing financial difficulty for which the Company has modified the loan terms was not material.

PCD loans

In 2023, based on updated valuations obtained, the Company recorded a measurement period adjustment of $5.2 million to increase the PCD allowance in connection with the Broadmark Merger. A reconciliation between the PCD asset’s UPB and purchase price is presented in the table below. Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Broadmark Merger. The table below presents a reconciliation of the Company’s purchase price with the par value of the purchased loans.

(in thousands)	Preliminary Purchase Price Allocation		Measurement Period Adjustments		Updated Purchase Price Allocation
UPB	$	244,932	$	38,750	$	283,682
Allowance for credit losses		(27,617)		(5,245)		(32,862)
Non-credit discount		(6,035)		(3,342)		(9,377)
Purchase price of loans classified as PCD	$	211,280	$	30,163	$	241,443

The Company did not acquire any PCD loans during the three months ended December 31, 2023 and December 31, 2022.