Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

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, (ii) loans held at fair value under the fair value option, (iii) loans held for sale that are accounted for at the lower of cost or fair value net of valuation allowance and (iv) loans held for sale at fair value under the fair value option. 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, unpaid principal balance (“UPB”), and carrying value of loans held by the Company including loans of consolidated VIEs.

	March 31, 2024				December 31, 2023
(in thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Bridge	$	1,180,936	$	1,184,751	$	1,444,770	$	1,448,281
Fixed rate		192,216		190,017		247,476		241,674
Construction		902,301		904,162		1,207,783		1,212,526
Freddie Mac		—		—		9,500		9,719
SBA - 7(a)		1,004,680		1,012,504		995,974		1,003,323
Other		174,287		176,328		196,087		198,499
Total Loans, before allowance for loan losses	$	3,454,420	$	3,467,762	$	4,101,590	$	4,114,022
Allowance for loan losses	$	(53,939)	$	—	$	(81,430)	$	—
Total Loans, net	$	3,400,481	$	3,467,762	$	4,020,160	$	4,114,022
Loans in consolidated VIEs
Bridge		5,118,769		5,133,800		5,370,251		5,389,535
Fixed rate		784,290		783,420		790,068		790,967
SBA - 7(a)		208,405		221,402		213,892		227,636
Other		244,704		245,493		257,289		258,029
Total Loans, in consolidated VIEs, before allowance for loan losses	$	6,356,168	$	6,384,115	$	6,631,500	$	6,666,167
Allowance for loan losses on loans in consolidated VIEs	$	(13,484)	$	—	$	(20,175)	$	—
Total Loans, net, in consolidated VIEs	$	6,342,684	$	6,384,115	$	6,611,325	$	6,666,167
Loans, held for sale
Bridge		160,786		251,375		—		—
Fixed rate		43,265		45,931		—		—
Construction		270,519		314,010		—		—
Freddie Mac		15,160		15,356		20,955		20,729
SBA - 7(a)		74,019		68,720		59,421		55,769
Other		20,323		20,110		1,223		1,297
Total Loans, held for sale	$	584,072	$	715,502	$	81,599	$	77,795
Loans, held for sale in consolidated VIEs
Bridge		10,973		19,173		—		—
Total Loans, held for sale in consolidated VIEs	$	10,973	$	19,173	$	—	$	—
Total	$	10,338,210	$	10,586,552	$	10,713,084	$	10,857,984

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 $21.6 million, including $11.2 million of PCD loan reserves as of March 31, 2024, and a specific allowance for loan losses of $57.1 million, including $21.4 million of PCD loan reserves, as of December 31, 2023.

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		2024		2023		2022		2021		2020		Pre 2020		Total
March 31, 2024
Bridge	$	6,318,551	$	86,682	$	290,638	$	2,775,887	$	2,817,308	$	206,891	$	119,945	$	6,297,351
Fixed rate		973,437		—		4,007		110,737		181,596		90,433		588,440		975,213
Construction		904,162		—		111,323		138,755		138,497		47,469		454,388		890,432
SBA - 7(a)		1,233,906		44,096		150,457		348,424		302,761		111,453		249,911		1,207,102
Other		421,821		6,337		2,806		4,832		11,813		8,654		384,498		418,940
Total Loans, before general allowance for loan losses	$	9,851,877	$	137,115	$	559,231	$	3,378,635	$	3,451,975	$	464,900	$	1,797,182	$	9,789,038
General allowance for loan losses															$	(45,873)
Total Loans, net															$	9,743,165
Gross write-offs			$	—	$	494	$	873	$	35	$	201	$	4,150	$	5,753
	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

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

			Carrying Value by Year of Origination
(in thousands)	UPB		2024		2023		2022		2021		2020		Pre 2020		Total
March 31, 2024
Current	$	9,014,343	$	137,108	$	540,691	$	3,116,363	$	3,060,184	$	413,838	$	1,708,790	$	8,976,974
30 - 59 days past due		199,535		7		3,490		141,674		38,498		1,650		11,781		197,100
60+ days past due		637,999		—		15,050		120,598		353,293		49,412		76,611		614,964
Total Loans, before general allowance for loan losses	$	9,851,877	$	137,115	$	559,231	$	3,378,635	$	3,451,975	$	464,900	$	1,797,182	$	9,789,038
General allowance for loan losses															$	(45,873)
Total Loans, net															$	9,743,165
	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

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
March 31, 2024
Bridge	$	5,705,330	$	139,459	$	452,562	$	6,297,351	$	306,049	$	—
Fixed rate		952,931		—		22,282		975,213		22,283		—
Construction		730,640		31,891		127,901		890,432		76,861		48,956
SBA - 7(a)		1,173,270		25,448		8,384		1,207,102		36,190		—
Other		414,803		302		3,835		418,940		14,335		—
Total Loans, before general allowance for loan losses	$	8,976,974	$	197,100	$	614,964	$	9,789,038	$	455,718	$	48,956
General allowance for loan losses							$	(45,873)
Total Loans, net							$	9,743,165
Percentage of loans outstanding		91.7%		2.0%		6.3%		100%		4.7%		0.5%
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%

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
March 31, 2024
Bridge	$	2,259	$	102,161	$	700,851	$	5,353,476	$	108,534	$	30,070	$	6,297,351
Fixed rate		4,231		32,393		441,069		476,391		19,833		1,296		975,213
Construction		15,292		25,152		128,515		572,255		95,989		53,229		890,432
SBA - 7(a)		12,165		72,245		225,117		361,900		229,108		306,567		1,207,102
Other		117,819		144,546		76,557		63,569		5,107		11,342		418,940
Total Loans, before general allowance for loan losses	$	151,766	$	376,497	$	1,572,109	$	6,827,591	$	458,571	$	402,504	$	9,789,038
General allowance for loan losses													$	(45,873)
Total Loans, net													$	9,743,165
Percentage of loans outstanding		1.6%		3.8%		16.1%		69.7%		4.7%		4.1%
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%
(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)	March 31, 2024		December 31, 2023
Texas	19.0	%	18.6	%
California	11.8		11.4
Florida	7.0		6.4
Georgia	6.8		7.1
Arizona	6.7		6.1
Oregon	6.3		5.9
New York	4.7		4.8
North Carolina	4.4		4.1
Ohio	3.5		3.2
Washington	3.1		3.4
Other	26.7		29.0
Total	100.0	%	100.0	%

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

Collateral Concentration (% of UPB)	March 31, 2024		December 31, 2023
Multi-family	62.4	%	60.9	%
SBA	12.5		11.4
Mixed Use	8.4		8.4
Industrial	5.3		4.3
Retail	4.0		4.3
Office	3.4		4.4
Lodging	1.4		1.6
Other	2.6		4.7
Total	100.0	%	100.0	%

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

Collateral Concentration (% of UPB)	March 31, 2024		December 31, 2023
Lodging	23.1	%	23.4	%
Gasoline Service Stations	13.0		12.8
Eating Places	6.3		6.2
Child Day Care Services	5.6		5.6
Offices of Physicians	4.0		4.1
General Freight Trucking, Local	3.3		3.5
Grocery Stores	2.3		2.3
Coin-Operated Laundries and Drycleaners	1.9		1.9
Beer, Wine, and Liquor Stores	1.4		1.3
Funeral Service & Crematories	1.3		1.4
Other	37.8		37.5
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
March 31, 2024
General	$	10,827	$	5,971	$	11,886	$	14,596	$	2,593	$	45,873
Specific		2,354		1,293		690		5,983		51		10,371
PCD		—		—		11,179		—		—		11,179
Ending balance	$	13,181	$	7,264	$	23,755	$	20,579	$	2,644	$	67,423
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

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
Three Months Ended March 31, 2024
Beginning balance	$	36,241	$	13,598	$	30,870	$	17,867	$	3,029	$	101,605
Provision for (recoveries of) loan losses		(23,060)		(3,705)		(5,636)		4,163		(319)		(28,557)
Charge-offs and sales		—		(2,629)		(1,479)		(1,579)		(66)		(5,753)
Recoveries		—		—		—		128		—		128
Ending balance	$	13,181	$	7,264	$	23,755	$	20,579	$	2,644	$	67,423
Three Months Ended March 31, 2023
Beginning balance	$	49,905	$	6,531	$	17,334	$	14,299	$	2,450	$	90,519
Provision for (recoveries of) loan losses		(8,975)		2,654		(63)		1,395		443		(4,546)
Charge-offs and sales		(611)		(100)		(16,898)		(613)		—		(18,222)
Recoveries		—		—		—		29		—		29
Ending balance	$	40,319	$	9,085	$	373	$	15,110	$	2,893	$	67,780

The table above excludes $0.6 million and $1.6 million of allowance for loan losses on unfunded lending commitments as of March 31, 2024 and March 31, 2023, 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)	March 31, 2024		December 31, 2023
Non-accrual loans
With an allowance	$	429,080	$	607,292
Without an allowance		26,638		26,709
Total recorded carrying value of non-accrual loans	$	455,718	$	634,001
Allowance for loan losses related to non-accrual loans	$	(22,075)	$	(50,796)
UPB of non-accrual loans	$	481,839	$	688,282
	March 31, 2024		March 31, 2023
Interest income on non-accrual loans for the three months ended	$	3,052	$	817

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.

As of March 31, 2024, substantially all of the loan modifications provided by the Company consisted of a 7-month payment deferral and a 7-month addition to the weighted average life of the original loan term and were deemed to be continuations of the existing loans based on the Company’s analysis. As of March 31, 2024, the carrying value of such commercial real estate and SBA - 7(a) loans were $67.2 million and $0.1 million, respectively or 0.7% of total Loans, net. These modified loans were predominantly comprised of loans secured by multifamily and residential properties. As of December 31, 2023, 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 continuations 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 were $467.9 million and $1.3 million, respectively or 4.4% of total Loans, net. These modified loans were 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 both March 31, 2024 and 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 March 31, 2024 and December 31, 2023, the Company’s total carrying amount of loans in the foreclosure process was $23.6 million and $95.0 million, respectively.

As of March 31, 2024, lending commitments to borrowers experiencing financial difficulty for which the Company has modified the loan terms were $12.9 million. As of December 31, 2023, lending commitments to borrowers experiencing financial difficulty for which the Company has modified the loan terms were not material.

PCD loans

Subsequent to the determination of the preliminary purchase price allocation, 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 March 31, 2024 and March 31, 2023.