Servicing Rights

6 Months Ended

Jun. 30, 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 June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
SBA servicing rights, at amortized cost
Beginning net carrying amount	$	31,343	$	22,040	$	29,536	$	19,756
Additions		5,596		2,043		8,273		3,555
Amortization		(1,105)		(921)		(1,960)		(1,756)
Recovery (impairment)		(507)		1,166		(522)		2,773
Ending net carrying amount	$	35,327	$	24,328	$	35,327	$	24,328
Multi-family servicing rights, at amortized cost
Beginning net carrying amount		72,212		67,911		73,301		67,361
Additions		882		5,311		2,620		8,392
Amortization		(2,872)		(2,657)		(5,699)		(5,188)
Ending net carrying amount	$	70,222	$	70,565	$	70,222	$	70,565
USDA servicing rights, at amortized cost
Beginning net carrying amount		—		—		—		—
Additions		14,413		—		14,413		—
Amortization		(194)		—		(194)		—
Ending net carrying amount	$	14,219	$	—	$	14,219	$	—
Total servicing rights	$	119,768	$	94,893	$	119,768	$	94,893

The Company’s 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 June 30, 2024				As of December 31, 2023
(in thousands)	UPB		Carrying Value		UPB		Carrying Value
SBA	$	1,534,092	$	35,327	$	1,208,201	$	29,536
Multi-family		5,885,203		70,222		5,689,872		73,301
USDA		506,131		14,219		—		—
Total	$	7,925,426	$	119,768	$	6,898,073	$	102,837

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

		June 30, 2024						December 31, 2023
		Range of input values				Weighted Average		Range of input values				Weighted Average
SBA servicing rights
	Forward prepayment rate	1.5	-	21.6	%	9.1	%	0.0	-	4.5	%	4.4	%
	Forward default rate	0.0	-	6.6	%	6.3	%	0.0	-	7.3	%	7.0	%
	Discount rate	11.6	-	20.9	%	12.2	%	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	%	5.6	%	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	%
USDA servicing rights (1)
	Forward prepayment rate	2.1	-	6.5	%	5.6	%	N/A		N/A		N/A
	Discount rate	6.9	-	6.9	%	6.9	%	N/A		N/A		N/A
	Servicing expense	0.3	-	0.3	%	0.3	%	N/A		N/A		N/A
(1) Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Madison One Acquisition

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)	June 30, 2024		December 31, 2023
SBA servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(1,164)	$	(543)
Impact of 20% adverse change	$	(2,261)	$	(1,069)
Default rate
Impact of 10% adverse change	$	(162)	$	(165)
Impact of 20% adverse change	$	(323)	$	(328)
Discount rate
Impact of 10% adverse change	$	(1,244)	$	(1,530)
Impact of 20% adverse change	$	(2,401)	$	(2,922)
Servicing expense
Impact of 10% adverse change	$	(2,258)	$	(2,047)
Impact of 20% adverse change	$	(4,515)	$	(4,095)
Multi-family servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(466)	$	(491)
Impact of 20% adverse change	$	(918)	$	(965)
Default rate
Impact of 10% adverse change	$	(14)	$	(14)
Impact of 20% adverse change	$	(27)	$	(29)
Discount rate
Impact of 10% adverse change	$	(2,238)	$	(2,320)
Impact of 20% adverse change	$	(4,365)	$	(4,524)
Servicing expense
Impact of 10% adverse change	$	(2,567)	$	(2,587)
Impact of 20% adverse change	$	(5,135)	$	(5,173)
USDA servicing rights
Forward prepayment rate
Impact of 10% adverse change	$	(804)	$	—
Impact of 20% adverse change	$	(1,543)	$	—
Discount rate
Impact of 10% adverse change	$	(485)	$	—
Impact of 20% adverse change	$	(942)	$	—
Servicing expense
Impact of 10% adverse change	$	(625)	$	—
Impact of 20% adverse change	$	(1,250)	$	—

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

(in thousands)	June 30, 2024
2024	$	10,183
2025		17,730
2026		15,673
2027		13,755
2028		12,074
Thereafter		50,353
Total	$	119,768