Servicing Rights

12 Months Ended

Dec. 31, 2023

Servicing Rights

Servicing Rights

Note 8. Servicing rights

The Company performs servicing activities for third parties, which primarily include collecting principal, interest and other payments from borrowers, remitting the corresponding payments to investors and monitoring delinquencies. The Company’s servicing fees are specified by pooling and servicing agreements.

The table below presents information about servicing rights.

	Year Ended December 31,
(in thousands)	2023		2022
SBA servicing rights, at amortized cost
Beginning net carrying amount	$	19,756	$	22,157
Additions due to loans sold, servicing retained		6,976		7,608
Amortization		(3,450)		(3,817)
Recovery (impairment)		6,254		(6,192)
Ending net carrying amount	$	29,536	$	19,756
Multi-family servicing rights, at amortized cost
Beginning net carrying amount		67,361		62,300
Additions due to loans sold, servicing retained		16,655		14,705
Amortization		(10,715)		(9,644)
Ending net carrying amount	$	73,301	$	67,361
Total servicing rights, at amortized cost	$	102,837	$	87,117

Servicing rights – SBA and multi-family portfolio. The Company’s SBA and multi-family servicing rights are carried at amortized cost and evaluated quarterly for impairment. The Company estimates the fair value of these servicing rights by using a combination of internal models and data provided by third-party valuation experts. The assumptions used in the Company’s internal models include forward prepayment rates, forward default rates, discount rates, and servicing expenses.

The Company’s models calculate the present value of expected future cash flows utilizing assumptions that it believes are used by market participants. Forward prepayment rates, forward default rates and discount rates are derived from historical experiences adjusted for prevailing market conditions. Components of the estimated future cash flows include servicing fees, late fees, other ancillary fees and cost of servicing.

The table below presents additional information about SBA and multi-family servicing rights.

	As of December 31, 2023				As of December 31, 2022
(in thousands)	UPB		Carrying Value		UPB		Carrying Value
SBA	$	1,208,201	$	29,536	$	1,019,770	$	19,756
Multi-family		5,689,872		73,301		4,839,028		67,361
Total	$	6,898,073	$	102,837	$	5,858,798	$	87,117

The table below presents significant assumptions used in the estimated valuation of SBA and multi-family servicing rights carried at amortized cost.

		December 31, 2023						December 31, 2022
		Range of input values				Weighted Average		Range of input values				Weighted Average
SBA servicing rights
	Forward prepayment rate	0.0	-	4.5	%	4.4	%	10.2	-	21.6	%	10.6	%
	Forward default rate	0.0	-	7.3	%	7.0	%	0.0	-	10.0	%	9.2	%
	Discount rate	14.4	-	22.9	%	14.6	%	18.0	-	31.4	%	18.7	%
	Servicing expense	0.4	-	0.4	%	0.4	%	0.4	-	0.4	%	0.4	%
Multi-family servicing rights
	Forward prepayment rate	0.0	-	6.5	%	5.4	%	0.0	-	7.2	%	3.5	%
	Forward default rate	0.0	-	0.9	%	0.6	%	0.0	-	1.1	%	0.8	%
	Discount rate	6.0	-	6.0	%	6.0	%	6.0	-	6.0	%	6.0	%
	Servicing expense	0.0	-	0.8	%	0.1	%	0.0	-	0.8	%	0.1	%

Assumptions can change between and at each reporting period as market conditions and projected interest rates change.

The table below presents the possible impact of 10% and 20% adverse changes to key assumptions on SBA and multi-family servicing rights.

(in thousands)	December 31, 2023		December 31, 2022
SBA servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(543)	$	(578)
Impact of 20% adverse change	$	(1,069)	$	(1,125)
Default rate
Impact of 10% adverse change	$	(165)	$	(125)
Impact of 20% adverse change	$	(328)	$	(249)
Discount rate
Impact of 10% adverse change	$	(1,530)	$	(861)
Impact of 20% adverse change	$	(2,922)	$	(1,642)
Servicing expense
Impact of 10% adverse change	$	(2,047)	$	(1,228)
Impact of 20% adverse change	$	(4,095)	$	(2,455)
Multi-family servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(491)	$	(271)
Impact of 20% adverse change	$	(965)	$	(537)
Default rate
Impact of 10% adverse change	$	(14)	$	(22)
Impact of 20% adverse change	$	(29)	$	(44)
Discount rate
Impact of 10% adverse change	$	(2,320)	$	(2,057)
Impact of 20% adverse change	$	(4,524)	$	(4,012)
Servicing expense
Impact of 10% adverse change	$	(2,587)	$	(2,685)
Impact of 20% adverse change	$	(5,173)	$	(5,370)

The table below presents estimated future amortization expense for SBA and multi-family servicing rights.

(in thousands)	December 31, 2023
2024	$	14,197
2025		13,165
2026		11,866
2027		10,616
2028		9,494
Thereafter		43,499
Total	$	102,837