Servicing Rights

3 Months Ended

Mar. 31, 2024

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.

	Three Months Ended March 31,
(in thousands)	2024		2023
SBA servicing rights, at amortized cost
Beginning net carrying amount	$	29,536	$	19,756
Additions due to loans sold, servicing retained		2,677		1,512
Amortization		(855)		(835)
Recovery (impairment)		(15)		1,607
Ending net carrying amount	$	31,343	$	22,040
Multi-family servicing rights, at amortized cost
Beginning net carrying amount		73,301		67,361
Additions due to loans sold, servicing retained		1,738		3,081
Amortization		(2,827)		(2,531)
Ending net carrying amount	$	72,212	$	67,911
Total servicing rights, at amortized cost	$	103,555	$	89,951

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 servicing rights.

	As of March 31, 2024				As of December 31, 2023
(in thousands)	UPB		Carrying Value		UPB		Carrying Value
SBA	$	1,289,023	$	31,343	$	1,208,201	$	29,536
Multi-family		5,763,756		72,212		5,689,872		73,301
Total	$	7,052,779	$	103,555	$	6,898,073	$	102,837

The table below presents significant assumptions used in the estimated valuation of servicing rights carried at amortized cost.

		March 31, 2024						December 31, 2023
		Range of input values				Weighted Average		Range of input values				Weighted Average
SBA servicing rights
	Forward prepayment rate	0.0	-	5.2	%	5.0	%	0.0	-	4.5	%	4.4	%
	Forward default rate	0.0	-	7.2	%	6.9	%	0.0	-	7.3	%	7.0	%
	Discount rate	12.5	-	22.5	%	12.8	%	14.4	-	22.9	%	14.6	%
	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	%	5.5	%	0.0	-	6.5	%	5.4	%
	Forward default rate	0.0	-	0.9	%	0.6	%	0.0	-	0.9	%	0.6	%
	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 servicing rights.

(in thousands)	March 31, 2024		December 31, 2023
SBA servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(690)	$	(543)
Impact of 20% adverse change	$	(1,355)	$	(1,069)
Default rate
Impact of 10% adverse change	$	(184)	$	(165)
Impact of 20% adverse change	$	(366)	$	(328)
Discount rate
Impact of 10% adverse change	$	(1,514)	$	(1,530)
Impact of 20% adverse change	$	(2,905)	$	(2,922)
Servicing expense
Impact of 10% adverse change	$	(2,260)	$	(2,047)
Impact of 20% adverse change	$	(4,520)	$	(4,095)
Multi-family servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(481)	$	(491)
Impact of 20% adverse change	$	(947)	$	(965)
Default rate
Impact of 10% adverse change	$	(14)	$	(14)
Impact of 20% adverse change	$	(28)	$	(29)
Discount rate
Impact of 10% adverse change	$	(2,305)	$	(2,320)
Impact of 20% adverse change	$	(4,496)	$	(4,524)
Servicing expense
Impact of 10% adverse change	$	(2,590)	$	(2,587)
Impact of 20% adverse change	$	(5,180)	$	(5,173)

The table below presents estimated future amortization expense for servicing rights.

(in thousands)	March 31, 2024
2024	$	11,877
2025		14,078
2026		12,693
2027		11,347
2028		10,140
Thereafter		43,420
Total	$	103,555