Loans Held for Investment and Loans Held for Investment at Fair Value

6 Months Ended

Jun. 30, 2020

Loans Held for Investment and Loans Held for Investment at Fair Value

Note 6 — Loans Held for Investment and Loans Held for Investment at Fair Value

The following tables summarize loans held for investment as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020									December 31, 2019
	Loans held for investment, net			Loans held for investment, at fair value			Total loans held for investment			Total loans held for investment
Unpaid principal balance	$	1,841,238		$	3,369		$	1,844,607		$	1,843,290
Valuation adjustments on FVO loans		—			(413	)		(413	)		(444	)
Deferred loan origination costs		25,801			—			25,801			25,714
		1,867,039			2,956			1,869,995			1,868,560
Allowance for loan losses		(5,220	)		—			(5,220	)		(2,240	)
Total loans held for investment and loans held for investment at fair value, net	$	1,861,819		$	2,956		$	1,864,775		$	1,866,320

As of June 30, 2020, $293.7 million of loans held for investment have participated in the COVID-19 forbearance program. Accrued interest on these loans was $11.6 million as of June 30, 2020.

As of June 30, 2020 and December 31, 2019, the gross unpaid principal balance of loans held for investment pledged as collateral for the Company’s warehouse facility agreements, and securitizations issued were as follows (in thousands):

	June 30, 2020		December 31, 2019
Citibank warehouse repurchase agreement	$	148,272	$	108,504
Barclays warehouse repurchase agreement		120,498		175,689
Pacific Western Bank agreement		—		3,331
Total pledged loans	$	268,770	$	287,524

2014-1 Trust		26,124		29,559
2015-1 Trust		59,168		64,876
2016-1 Trust		82,693		97,727
2016-2 Trust		56,517		68,961
2017-1 Trust		95,491		116,670
2017-2 Trust		157,558		173,390
2018-1 Trust		129,111		141,567
2018-2 Trust		239,362		260,278
2019-1 Trust		218,681		229,151
2019-2 Trust		193,185		210,312
2019-3 Trust		146,479		157,119
2020-1 Trust		256,683		—
2020-2 Trust		128,207
Total	$	1,789,259	$	1,549,610

(a)	Nonaccrual Loans

The following tables present the amortized cost basis, or recorded investment, of the Company’s loans held for investment that were nonperforming and on nonaccrual status as of June 30, 2020 and December 31, 2019, and accruing loans that were 90 days or more past due as of June 30, 2020 under the Company’s COVID-19 payment deferral programs. There were no loans accruing interest that were greater than 90 days past due as of December 31, 2019.

	June 30, 2020
	Nonaccrual With				Loans 90+ DPD
	No Allowance		Total		Still Accruing
	for Loan Loss		Nonaccrual		COVID-19 Program
	(In thousands)
Commercial - Purchase	$	19,269	$	20,615	$	18,798
Commercial - Refinance		109,897		113,350		54,323
Residential 1-4 Unit - Purchase		21,760		22,017		14,603
Residential 1-4 Unit - Refinance		109,005		114,790		36,264
Total	$	259,931	$	270,772	$	123,988

Troubled Debt Restructuring included in nonaccrual loans:	$	—	$	175	$	—

	December 31, 2019
	($ in thousands)
Nonaccrual loans:
Recorded investment	$	125,819
Percentage of the originated loans held for investment		6.7	%
Impaired loans:
Unpaid principal balance	$	124,050
Recorded investment		125,998
Recorded investment of impaired loans requiring a specific allowance		12,286
Specific allowance		913
Specific allowance as a percentage of recorded investment of impaired loans requiring a specific allowance		7.4	%
Recorded investment of impaired loans not requiring a specific allowance	$	113,712
Percentage of recorded investment of impaired loans not requiring a specific allowance		90.2	%
TDRs included in impaired loans:
Recorded investment of TDRs	$	179
Recorded investment of TDRs with a specific allowance		179
Specific allowance		25
Recorded investment of TDRs without a specific allowance		—

The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the accounting policy election to write off accrued interest receivables by reversing interest income when loans are placed on nonaccrual status, or 90 days or more past due, other than the COVID-19 forbearance-granted loans. The Company will continue to evaluate the COVID-19 forbearance-granted loans on an individual basis to determine if a reserve should be established on the collectability of the accrued interest and whether any loans should be placed on nonaccrual status at a future date. The following table presents the amortized cost basis in the loans held for investment as of June 30, 2020 and 2019, and the amount of accrued interest receivables written off by reversing interest income by portfolio segment for the six months ended June 30, 2020 and 2019 (in thousands):

	June 30, 2020				June 30, 2019
	Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal
Commercial - Purchase	$	303,373	$	425	$	255,802	$	119
Commercial - Refinance		711,397		2,633	$	647,838		558
Residential 1-4 Unit - Purchase		245,579		404	$	237,445		154
Residential 1-4 Unit - Refinance		606,432		2,255	$	544,663		499
Total	$	1,866,781	$	5,717	$	1,685,748	$	1,330

For the six months ended June 30, 2020 and 2019, there was no accrued interest income recognized on nonaccrual loans, cash basis interest income recognized on nonaccrual loans was $6.7 million and $5.4 million, respectively, and the average recorded investment of individually evaluated loans, computed using month-end balances, was $180.2 million and $105.2 million, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified as of June 30, 2020 and December 31, 2019.

(b)	Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,
	2020													2019
					Residential			Residential
	Commercial		Commercial		1-4 Unit			1-4 Unit
	Purchase		Refinance		Purchase			Refinance			Total			Total
Allowance for credit losses:
Beginning balance	$	352	$	1,594	$	250		$	1,300		$	3,496		$	1,916
Provision for loan losses		172		1,093		211			324			1,800			212
Charge-offs		—		—		(58	)		(18	)		(76	)		(32	)
Ending balance	$	524	$	2,687	$	403		$	1,606		$	5,220		$	2,096

	Six Months Ended June 30,
	2020														2019
						Residential			Residential
	Commercial			Commercial		1-4 Unit			1-4 Unit
	Purchase			Refinance		Purchase			Refinance			Total			Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326	$	304		$	1,016	$	148		$	772		$	2,240		$	1,680
Impact of adopting ASC 326		19			62		9			47			137			—
Provision for loan losses		280			1,609		382			817			3,088			560
Charge-offs		(79	)		—		(136	)		(30	)		(245	)		(144	)
Ending balance	$	524		$	2,687	$	403		$	1,606		$	5,220		$	2,096

Allowance related to:
Loans individually evaluated	$	181		$	592	$	96		$	404		$	1,273		$	803
Loans collectively evaluated		342			2,095		307			1,203			3,947			1,293
Amortized cost related to:
Loans individually evaluated	$	20,615		$	113,350	$	22,017		$	114,790		$	270,772		$	99,905
Loans collectively evaluated		282,759			598,046		223,561			491,643			1,596,009			1,585,843

(c)	Credit Quality Indicator

A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-off rate in relation to its nonperforming loans as its credit quality indicator. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. For the three months ended June 30, 2020, the annualized charge-off rate was 0.1%of average nonperforming loans. The charged-off rate was 0.52% for the year ended December 31, 2019.

Other credit quality indicators include aging status and accrual status. The following table presents the aging status of the amortized cost basis in the loans held for investment portfolio as of June 30, 2020, which includes $293.7 million loans in the Company’s COVID-19 forbearance program, and as of December 31, 2019 (in thousands):

	30–59 days		60–89 days		90+days		Total				Total
June 30, 2020	past due		past due		past due⁽¹⁾		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	256	$	2,346	$	18,013	$	20,615	$	—	$	20,615
Commercial - Refinance		6,349		3,957		102,869		113,175		175		113,350
Residential 1-4 Unit - Purchase		—		193		21,824		22,017		—		22,017
Residential 1-4 Unit - Refinance		2,122		3,741		108,927		114,790		—		114,790
Total loans individually evaluated	$	8,727	$	10,237	$	251,633	$	270,597	$	175	$	270,772
Loans collectively evaluated
Commercial - Purchase	$	20,880	$	21,454	$	18,798	$	61,132	$	221,626	$	282,758
Commercial - Refinance		42,512		57,863		54,323		154,698		443,349		598,047
Residential 1-4 Unit - Purchase		16,377		17,571		14,603.0		48,551		175,011		223,562
Residential 1-4 Unit - Refinance		43,251		51,319		36,264.0		130,834		360,808		491,642
Total loans collectively evaluated	$	123,020	$	148,207	$	123,988	$	395,215	$	1,200,794	$	1,596,009
Ending balance	$	131,747	$	158,444	$	375,621	$	665,812	$	1,200,969	$	1,866,781

December 31, 2019:
Impaired loans	$	6,195	$	7,696	$	111,928	$	125,819	$	179	$	125,998
Nonimpaired loans		119,465		41,138		—		160,603		1,578,984		1,739,587
Ending balance	$	125,660	$	48,834	$	111,928	$	286,422	$	1,579,163	$	1,865,585

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due

The following table presents the aging of the amortized cost basis of loans held for investment in the Company's COVID-19 forbearance program as of June 30, 2020 (in thousands):

	30–59 days		60–89 days		90+days		Total				Total
June 30, 2020	past due		past due		past due⁽¹⁾		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	—	$	607	$	493	$	1,100	$	—	$	1,100
Commercial - Refinance		2,143		2,659		5,938		10,740		—		10,740
Residential 1-4 Unit - Purchase		—		—		—		—		—		—
Residential 1-4 Unit - Refinance		—		677		6,935		7,612		—		7,612
Total loans individually evaluated	$	2,143	$	3,943	$	13,366	$	19,452	$	—	$	19,452
Loans collectively evaluated
Commercial - Purchase	$	6,397	$	18,220	$	18,798	$	43,415	$	1,357	$	44,772
Commercial - Refinance		14,932		39,382		54,323		108,637		5,128		113,765
Residential 1-4 Unit - Purchase		4,447		12,957		14,603.0		32,007		504		32,511
Residential 1-4 Unit - Refinance		11,607		30,649		36,264.0		78,520		4,718		83,238
Total loans collectively evaluated	$	37,383	$	101,208	$	123,988	$	262,579	$	11,707	$	274,286
Ending balance	$	39,526	$	105,151	$	137,354	$	282,031	$	11,707	$	293,738

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due

In addition to the aging status, the Company also evaluates credit quality by accrual status. The following table presents the amortized cost in loans held for investment, excluding loans held for investment at fair value, based on accrual status and by loan origination year.

	Term Loans Amortized Cost Basis by Origination Year
June 30, 2020:	2020		2019		2018		2017		2016		Pre-2016		Total
Commercial - Purchase
Payment performance
Performing	$	34,584	$	108,737	$	69,533	$	43,403	$	12,436	$	14,065	$	282,758
Nonperforming		1,248		2,311		7,556		5,455		1,638		2,407		20,615
Total Commercial - Purchase	$	35,832	$	111,048	$	77,089	$	48,858	$	14,074	$	16,472	$	303,373

Commercial - Refinance
Payment performance
Performing	$	47,092	$	189,377	$	162,485	$	97,438	$	41,402	$	60,253	$	598,047
Nonperforming		4,329		24,968		36,661		26,465		8,234		12,693		113,350
Total Commercial - Refinance	$	51,421	$	214,345	$	199,146	$	123,903	$	49,636	$	72,946	$	711,397

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	17,197	$	79,654	$	52,571	$	33,293	$	9,076	$	31,771	$	223,562
Nonperforming		—		6,057		6,715		4,355		1,348		3,542		22,017
Total Residential 1-4 Unit - Purchase	$	17,197	$	85,711	$	59,286	$	37,648	$	10,424	$	35,313	$	245,579

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	45,449	$	194,144	$	106,217	$	73,069	$	28,540	$	44,223	$	491,642
Nonperforming		3,206		35,013		37,479		16,467		7,400		15,225		114,790
Total Residential 1-4 Unit - Purchase	$	48,655	$	229,157	$	143,696	$	89,536	$	35,940	$	59,448	$	606,432

Total Portfolio	$	153,105	$	640,261	$	479,217	$	299,945	$	110,074	$	184,179	$	1,866,781