Other income and operating expenses

12 Months Ended

Dec. 31, 2023

Other income and operating expenses

Other income and operating expenses

Note 19. 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, the Company originated $109.5 million of PPP loans and was a Lender Service Provider (“LSP”) for $2.5 billion of PPP loans. For the Company’s originations as direct lender, it elected the fair value option and thus, classified the loans as held at fair value on the consolidated balance sheets. Fees totaling $5.2 million were recognized in the period of origination. For loans processed under the LSP, the Company was 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 the consolidated balance sheet and fees totaling $43.3 million were recognized as services were performed. Unrecognized fees as of December 31, 2023 and December 31, 2022 were less than $0.1 million and $0.1 million, respectively. Expenses related to PPP loans under the CARES Act are recognized in the period in which they are incurred.

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

(in thousands)	December 31, 2023		December 31, 2022
Assets
PPP loans	$	34,432	$	186,409
PPP loans, at fair value		165		576
PPP fee receivable		283		328
Accrued interest receivable		586		3,196
Total PPP related assets	$	35,466	$	190,509
Liabilities
PPPLF borrowings		36,036		201,011
Interest payable		340		1,176
Deferred LSP revenue		6		122
Accrued PPP related costs		146		4,016
Payable to third parties		735		277
Repair and denial reserve		1,027		4,878
Total PPP related liabilities	$	38,290	$	211,480

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.

● Total net fees of $123.7 million are deferred over the expected life of the loans and is being recognized as interest income. Unrecognized fees as of December 31, 2023 were $1.2 million.

● As of December 31, 2023 and December 31, 2022, PPPLF borrowings exceeded PPP loans on the balance sheet due to net fees of $1.2 million and $9.8 million, respectively. 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.

		Year Ended December 31,			Financial statement account
(in thousands)		2023		2022
Income
LSP fee income	$	57	$	5,369	Servicing income
Interest income		10,350		54,518	Interest income
Repair and denial reserve		3,055		7,530	Other income - change in repair and denial reserve
Total PPP related income	$	13,462	$	67,417
Expense
Direct operating expenses		233		211	Other operating expenses - origination costs
Interest expense		413		1,699	Interest expense
Total PPP related expenses	$	646	$	1,910
Net PPP related income	$	12,816	$	65,507

Other income and expenses

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

	For the Year Ended December 31,
(in thousands)	2023		2022		2021
Other income:
Origination income	$	20,866	$	15,672	$	12,415
Change in repair and denial reserve		3,229		6,977		(10,224)
Employee retention credit consulting income		53,622		9,410		—
Other		25,410		18,659		4,665
Total other income	$	103,127	$	50,718	$	6,856
Other operating expenses:
Origination costs		7,345		12,906		24,337
Technology expense		7,430		6,164		5,154
Impairment on real estate		8,638		4,033		2,293
Rent and property tax expense		5,001		4,519		5,436
Recruiting, training and travel expense		2,782		2,618		1,273
Marketing expense		1,120		706		1,341
Bad debt expense - ERC		8,447		—		—
Other		18,828		16,707		10,069
Total other operating expenses	$	59,591	$	47,653	$	49,903