Discontinued Operations and Assets and Liabilities For Sale

6 Months Ended

Jun. 30, 2024

Discontinued operations and assets and liabilities held for sale

Discontinued operations and assets and liabilities held for sale

Note 9. Discontinued Operations and Assets and Liabilities Held for Sale

In the fourth quarter of 2023, the Board approved a plan to strategically shift the Company’s core focus to LMM commercial real estate lending and government backed small business loans, which contemplates the disposition of assets and liabilities of the Company’s residential mortgage banking segment. Accordingly, the then Residential Mortgage Banking segment met the criteria to be classified as held for sale on the consolidated balance sheets, presented as discontinued operations on the consolidated statements of operations, and excluded from continuing operations for all periods presented. As of June 30, 2024, the Company sold $4.7 billion of residential mortgage servicing rights for net proceeds of $61.8 million as part of the Company’s disposition of its residential mortgage banking segment. The Company expects to complete the disposition of its residential mortgage banking segment in the current year.

The table below presents the assets and liabilities of the Residential Mortgage Banking segment classified as held for sale.

(in thousands)		June 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	20,438	$	13,694
Restricted cash		5,666		6,314
Loans, net		3,860		2,778
Loans, held for sale		156,264		133,204
Loans eligible for repurchase from Ginnie Mae		89,679		86,872
Derivative instruments		—		847
Servicing rights(1)		125,795		188,855
Other assets		22,192		22,032
Total Assets	$	423,894	$	454,596
Liabilities
Secured borrowings		229,906		230,965
Liabilities for loans eligible for repurchase from Ginnie Mae		89,679		86,872
Derivative instruments		813		1,321
Accounts payable and other accrued liabilities		11,867		13,999
Total Liabilities	$	332,265	$	333,157
(1) Servicing rights are Level 3 assets that had been measured at fair value using the income approach valuation technique. Refer to Note 7- Fair Value Measurements for further details.

The table below presents the operating results of the Residential Mortgage Banking segment presented as discontinued operations.

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Interest income	$	2,121	$	1,880	$	3,962	$	3,485
Interest expense		(2,755)		(2,313)		(5,285)		(3,839)
Net interest expense	$	(634)	$	(433)	$	(1,323)	$	(354)
Non-interest income
Residential mortgage banking activities		11,353		9,884		20,595		19,053
Net realized gain (loss) on financial instruments		2,938		—		2,938		—
Net unrealized gain (loss) on financial instruments		(7,219)		8,818		(7,219)		2,725
Servicing income, net of amortization and impairment		8,472		9,393		17,888		18,754
Other income		4		23		8		54
Total non-interest income	$	15,548	$	28,118	$	34,210	$	40,586
Non-interest expense
Employee compensation and benefits		(5,818)		(5,295)		(11,502)		(10,707)
Variable expenses on residential mortgage banking activities		(8,122)		(6,574)		(14,208)		(12,059)
Professional fees		(259)		(123)		(412)		(297)
Loan servicing expense		(2,412)		(2,221)		(4,741)		(4,029)
Other operating expenses		(2,002)		(1,684)		(3,836)		(3,393)
Total non-interest expense	$	(18,613)	$	(15,897)	$	(34,699)	$	(30,485)
Income (loss) from discontinued operations before provision for income taxes		(3,699)		11,788		(1,812)		9,747
Income tax (provision) benefit		925		(2,947)		453		(2,437)
Net income (loss) from discontinued operations	$	(2,774)	$	8,841	$	(1,359)	$	7,310