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Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2022

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 or (ii) loans held at fair value under the fair value option and (iii) loans held for sale at fair value that are accounted for at the lower of cost or fair value. The classification for a loan is based on product type and management’s strategy for the loan. Loans with the “Other” classification are generally SBC acquired loans that have nonconforming characteristics for the Fixed rate, Bridge, or Freddie Mac securitizations due to loan size, rate type, collateral, or borrower criteria.

Loan portfolio

The table below summarizes the classification, UPB, and carrying value of loans held by the Company including loans of consolidated VIEs.


	June 30, 2022				December 31, 2021
(in thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Residential	$	2,689	$	2,873	$	3,641	$	3,914
SBA - 7(a)		490,564		508,251		503,991		519,408
Fixed rate		116,512		113,060		344,673		341,356
Freddie Mac		6,179		6,070		3,087		2,985
Bridge		2,563,807		2,586,024		1,849,524		1,861,932
Construction		439,519		434,520		—		—
Other		324,183		328,504		243,746		248,246
Total Loans, before allowance for loan losses	$	3,943,453	$	3,979,302	$	2,948,662	$	2,977,841
Allowance for loan losses	$	(36,132)	$	—	$	(33,216)	$	—
Total Loans, net	$	3,907,321	$	3,979,302	$	2,915,446	$	2,977,841
Loans in consolidated VIEs
Fixed rate	$	903,579	$	903,097	$	749,364	$	746,720
Bridge		4,469,478		4,502,893		2,693,186		2,717,487
SBA - 7(a)		73,798		82,085		88,348		98,604
Other		367,426		368,078		563,111		562,771
Total Loans, in consolidated VIEs, before allowance for loan losses	$	5,814,281	$	5,856,153	$	4,094,009	$	4,125,582
Allowance for loan losses on loans in consolidated VIEs	$	(9,993)	$	—	$	(12,161)	$	—
Total Loans, net, in consolidated VIEs	$	5,804,288	$	5,856,153	$	4,081,848	$	4,125,582
Loans, held for sale, at fair value
Residential	$	199,378	$	197,531	$	269,164	$	263,479
SBA - 7(a)		51,239		47,878		42,760		38,966
Fixed rate		200,459		214,380		197,290		195,114
Freddie Mac		17,859		17,648		42,384		41,864
Other		507		554		1,337		1,337
Total Loans, held for sale, at fair value	$	469,442	$	477,991	$	552,935	$	540,760
Total Loans, net and Loans, held for sale, at fair value	$	10,181,051	$	10,313,446	$	7,550,229	$	7,644,183
Paycheck Protection Program loans
Paycheck Protection Program loans, held-for-investment	$	388,426	$	415,640	$	867,109	$	927,766
Paycheck Protection Program loans, held at fair value		763		763		3,243		3,243
Total Paycheck Protection Program loans	$	389,189	$	416,403	$	870,352	$	931,009
Total Loan portfolio	$	10,570,240	$	10,729,849	$	8,420,581	$	8,575,192

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. In the tables below, Total Loans, net includes Loans, net in consolidated VIEs and a specific allowance for loan losses of $18.7 million, including $5.0 million of reserves of PCD loans as of June 30, 2022 and $17.3 million of specific allowance for loan losses as of December 31, 2021.

The tables below summarize the classification, UPB and carrying value of loans by year of origination.


			Carrying Value by Year of Origination
(in thousands)	UPB		2022		2021		2020		2019		2018		Pre 2018		Total
June 30, 2022
Bridge	$	7,088,917	$	2,273,190	$	3,839,216	$	384,815	$	331,772	$	166,603	$	32,763	$	7,028,359
Construction		434,520		—		—		10,000		364,124		60,395		—		434,519
Fixed rate		1,016,157		38,292		143,770		95,074		346,706		143,314		248,954		1,016,110
Freddie Mac		6,070		—		—		6,179		—		—		—		6,179
Residential		2,873		1,141		156		—		—		183		1,157		2,637
SBA - 7(a)		590,336		54,407		85,108		42,224		91,154		102,958		184,659		560,510
Other		696,582		2,323		27,420		12,517		72,354		16,959		559,131		690,704
Total Loans, before general allowance for loan losses	$	9,835,455	$	2,369,353	$	4,095,670	$	550,809	$	1,206,110	$	490,412	$	1,026,664	$	9,739,018
General allowance for loan losses															$	(27,409)
Total Loans, net															$	9,711,609
	UPB		2021		2020		2019		2018		2017		Pre 2017		Total
December 31, 2021
Bridge	$	4,579,419	$	3,461,864	$	430,248	$	399,603	$	205,855	$	11,327	$	29,490	$	4,538,387
Fixed rate		1,088,076		142,801		103,528		393,563		163,912		98,123		187,918		1,089,845
Freddie Mac		2,985		—		3,093		—		—		—		—		3,093
Residential		3,914		1,413		492		468		—		—		1,215		3,588
SBA - 7(a)		618,012		92,030		44,955		104,938		122,242		49,031		173,616		586,812
Other		811,017		4,523		22,973		76,320		31,570		14,868		653,428		803,682
Total Loans, before general allowance for loan losses	$	7,103,423	$	3,702,631	$	605,289	$	974,892	$	523,579	$	173,349	$	1,045,667	$	7,025,407
General allowance for loan losses															$	(28,113)
Total Loans, net															$	6,997,294

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


			Carrying Value by Year of Origination
(in thousands)	UPB		2022		2021		2020		2019		2018		Pre 2018		Total
June 30, 2022
Current and less than 30 days past due	$	9,577,193	$	2,369,245	$	4,095,520	$	546,341	$	1,161,571	$	353,190	$	971,228	$	9,497,095
30 - 59 days past due		16,211		—		—		—		14,675		—		1,462		16,137
60+ days past due		242,051		108		150		4,468		29,864		137,222		53,974		225,786
Total Loans, before general allowance for loan losses	$	9,835,455	$	2,369,353	$	4,095,670	$	550,809	$	1,206,110	$	490,412	$	1,026,664	$	9,739,018
General allowance for loan losses															$	(27,409)
Total Loans, net															$	9,711,609
			Carrying Value by Year of Origination
	UPB		2021		2020		2019		2018		2017		Pre 2017		Total
December 31, 2021
Current and less than 30 days past due	$	6,901,474	$	3,666,020	$	596,289	$	953,269	$	473,798	$	167,629	$	984,680	$	6,841,685
30 - 59 days past due		73,836		35,549		352		18,393		3,714		228		14,601		72,837
60+ days past due		128,113		1,062		8,648		3,230		46,067		5,492		46,386		110,885
Total Loans, before general allowance for loan losses	$	7,103,423	$	3,702,631	$	605,289	$	974,892	$	523,579	$	173,349	$	1,045,667	$	7,025,407
General allowance for loan losses															$	(28,113)
Total Loans, net															$	6,997,294

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
June 30, 2022
Bridge	$	6,927,794	$	14,675	$	85,890	$	7,028,359	$	96,137	$	—
Construction		360,124		—		74,395		434,519		74,395		—
Fixed rate		988,947		—		27,163		1,016,110		21,923		—
Freddie Mac		3,086		—		3,093		6,179		3,093		—
Residential		1,537		—		1,100		2,637		1,102		—
SBA - 7(a)		557,134		730		2,646		560,510		11,034		—
Other		658,473		732		31,499		690,704		36,040		—
Total Loans, before general allowance for loan losses	$	9,497,095	$	16,137	$	225,786	$	9,739,018	$	243,724	$	—
General allowance for loan losses							$	(27,409)
Total Loans, net							$	9,711,609
Percentage of loans outstanding		97.5%		0.2%		2.3%		100%		2.5%		0.0%
December 31, 2021
Bridge	$	4,451,230	$	52,997	$	34,160	$	4,538,387	$	28,820	$	—
Fixed rate		1,057,708		—		32,137		1,089,845		24,031		—
Freddie Mac		—		—		3,093		3,093		3,093		-
Residential		1,674		—		1,914		3,588		1,914		—
SBA - 7(a)		576,593		6,741		3,478		586,812		15,119		—
Other		754,480		13,099		36,103		803,682		26,525		—
Total Loans, before general allowance for loan losses	$	6,841,685	$	72,837	$	110,885	$	7,025,407	$	99,502	$	—
General allowance for loan losses							$	(28,113)
Total Loans, net							$	6,997,294
Percentage of loans outstanding		97.4%		1.0%		1.6%		100%		1.4%		0.0%

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.


	Loan-to-Value ⁽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
June 30, 2022
Bridge	$	—	$	240,207	$	859,550	$	5,609,293	$	290,016	$	29,293	$	7,028,359
Construction		10,800		10,000		49,595		364,124		—		—		434,519
Fixed rate		11,625		59,157		361,397		560,290		16,844		6,797		1,016,110
Freddie Mac		—		—		3,086		3,093		—		—		6,179
Residential		62		549		942		1,084		—		—		2,637
SBA - 7(a)		8,459		44,630		99,499		186,780		90,845		130,297		560,510
Other		183,161		278,346		166,127		47,285		9,842		5,943		690,704
Total Loans, before general allowance for loan losses	$	214,107	$	632,889	$	1,540,196	$	6,771,949	$	407,547	$	172,330	$	9,739,018
General allowance for loan losses													$	(27,409)
Total Loans, net													$	9,711,609
Percentage of loans outstanding		2.2%		6.5%		15.8%		69.5%		4.2%		1.8%
December 31, 2021
Bridge	$	—	$	107,606	$	338,355	$	3,432,820	$	640,215	$	19,391	$	4,538,387
Fixed rate		13,983		40,570		390,213		624,462		9,972		10,645		1,089,845
Freddie Mac		—		—		—		3,093		—		—		3,093
Residential		69		262		835		1,050		1,219		153		3,588
SBA - 7(a)		7,219		41,943		119,114		197,950		81,388		139,198		586,812
Other		221,823		300,723		185,538		76,590		8,701		10,307		803,682
Total Loans, before general allowance for loan losses	$	243,094	$	491,104	$	1,034,055	$	4,335,965	$	741,495	$	179,694	$	7,025,407
General allowance for loan losses													$	(28,113)
Total Loans, net													$	6,997,294
Percentage of loans outstanding		3.5%		7.0%		14.7%		61.7%		10.5%		2.6%
(1) Loan-to-value is calculated using carrying amount as a percentage of current collateral value

The table below presents the geographic concentration of loans, net, secured by real estate.


Geographic Concentration (% of Unpaid Principal Balance)	June 30, 2022		December 31, 2021
Texas	19.8	%	19.2	%
California	11.4		14.3
Georgia	7.4		7.0
Arizona	6.9		7.4
Florida	6.8		6.7
New York	5.7		7.3
Illinois	4.7		4.3
North Carolina	3.2		2.6
Washington	1.6		2.1
Colorado	1.3		1.9
Other	31.2		27.2
Total	100.0	%	100.0	%

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


Collateral Concentration (% of Unpaid Principal Balance)	June 30, 2022		December 31, 2021
Multi-family	64.4	%	54.4	%
Mixed Use	8.5		7.1
Retail	6.5		10.2
SBA	6.0		8.7
Office	5.6		8.2
Industrial	4.9		6.4
Lodging/Residential	1.8		1.8
Other	2.3		3.2
Total	100.0	%	100.0	%

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


Collateral Concentration (% of Unpaid Principal Balance)	June 30, 2022		December 31, 2021
Lodging	14.9	%	17.0	%
Offices of Physicians	9.1		10.9
Child Day Care Services	6.5		7.4
Eating Places	4.0		5.0
Gasoline Service Stations	3.7		3.7
Grocery Stores	2.0		1.8
Veterinarians	1.9		2.4
Funeral Service & Crematories	1.8		1.9
Couriers	1.2		1.3
Car washes	0.8		1.4
Other	54.1		47.2
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		Construction		Fixed Rate		Residential		SBA - 7(a)		Other		Total Allowance for loan losses
June 30, 2022
General	$	13,466	$	122	$	2,241	$	5	$	9,275	$	2,300	$	27,409
Specific		4,927		—		3,981		52		3,851		905		13,716
PCD		—		5,000		—		—		—		—		5,000
Ending balance	$	18,393	$	5,122	$	6,222	$	57	$	13,126	$	3,205	$	46,125
December 31, 2021
General	$	15,204	$	—	$	2,667	$	8	$	6,653	$	3,581	$	28,113
Specific		4,315		—		4,194		52		5,527		3,176		17,264
Ending balance	$	19,519	$	—	$	6,861	$	60	$	12,180	$	6,757	$	45,377

The table below presents a summary of the changes in the allowance for loan losses.


(in thousands)	Bridge		Construction		Fixed Rate		Residential		SBA - 7(a)		Other		Total Allowance for loan losses
Three Months Ended June 30, 2022
Beginning balance	$	19,878	$	5,323	$	6,524	$	60	$	13,233	$	6,226	$	51,244
Provision for (recoveries of) loan losses		(1,485)		(201)		(302)		(3)		219		(2,956)		(4,728)
Charge-offs and sales		—		—		—		—		(326)		(7)		(333)
Recoveries		—		—		—		—		—		(58)		(58)
Ending balance	$	18,393	$	5,122	$	6,222	$	57	$	13,126	$	3,205	$	46,125
Three Months Ended June 30, 2021
Beginning balance	$	17,057	$	—	$	6,753	$	60		13,599	$	8,180	$	45,649
Provision for loan losses		4,121		—		612		1		794		6		5,534
Charge-offs and sales		—		—		(311)		—		(1,045)		—		(1,356)
Recoveries		—		—		(189)		—		2		(11)		(198)
Ending balance	$	21,178	$	—	$	6,865	$	61	$	13,350	$	8,175	$	49,629
Six Months Ended June 30, 2022
Beginning balance	$	19,519	$	—	$	6,861	$	60	$	12,180	$	6,757	$	45,377
Provision for (recoveries of) loan losses		(1,126)		122		(639)		(3)		1,491		(3,332)		(3,487)
Purchased financial assets with credit deterioration		—		5,000		—		—		—		—		5,000
Charge-offs and sales		—		—		—		—		(499)		(7)		(506)
Recoveries		—		—		—		—		(46)		(213)		(259)
Ending balance	$	18,393	$	5,122	$	6,222	$	57	$	13,126	$	3,205	$	46,125
Six Months Ended June 30, 2021
Beginning balance	$	14,588	$	—	$	7,629	$	52	$	14,600	$	9,863	$	46,732
Provision for (recoveries of) loan losses		6,590		—		736		9		439		(1,677)		6,097
Charge-offs and sales		—		—		(1,311)		—		(1,703)		—		(3,014)
Recoveries		—		—		(189)		—		14		(11)		(186)
Ending balance	$	21,178	$	—	$	6,865	$	61	$	13,350	$	8,175	$	49,629

The table above excludes $0.9 million and $0.4 million of allowance for loan losses on unfunded lending commitments as of June 30, 2022 and June 30, 2021, respectively. Refer to Note 3 – Summary of Significant Accounting Policies for more information on our 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)	June 30, 2022		December 31, 2021
Non-accrual loans
With an allowance	$	159,014	$	71,644
Without an allowance		84,710		27,858
Total recorded carrying value of non-accrual loans	$	243,724	$	99,502
Allowance for loan losses related to non-accrual loans	$	(18,797)	$	(17,264)
Unpaid principal balance of non-accrual loans	$	261,272	$	119,554

	June 30, 2022		June 30, 2021
Interest income on non-accrual loans for the three months ended	$	365	$	611
Interest income on non-accrual loans for the six months ended	$	1,773	$	1,727

Troubled debt restructurings

A loan is classified as a TDR when there is a reasonable expectation that the original terms of the loan agreement will be modified by granting concessions to a borrower who is experiencing financial difficulty. Concessions typically include modifications to the interest rate, maturity date, timing of principal and interest payments and principal forgiveness. Modified loans that are classified as TDRs are individually evaluated and measured for impairment.

The table below presents details on TDR loans by type.


	June 30, 2022						December 31, 2021
(in thousands)	SBC		SBA		Total		SBC		SBA		Total
Carrying value of modified loans classified as TDRs:
On accrual status	$	837	$	11,837	$	12,674	$	284	$	8,242	$	8,526
On non-accrual status		9,441		9,012		18,453		11,220		11,409		22,629
Total carrying value of modified loans classified as TDRs	$	10,278	$	20,849	$	31,127	$	11,504	$	19,651	$	31,155
Allowance for loan losses on loans classified as TDRs	$	38	$	1,093	$	1,131	$	46	$	2,626	$	2,672

The table below presents TDR loan activity and the financial effects of these modifications by type.


	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
(in thousands, except number of loans)	SBC		SBA		Total		SBC		SBA		Total
Number of loans permanently modified		—		3		3		—		10		10
Pre-modification recorded balance ^(a)	$	—	$	1,087	$	1,087	$	—	$	6,867	$	6,867
Post-modification recorded balance ^(a)	$	—	$	906	$	906	$	—	$	6,867	$	6,867

Number of loans that remain in default ^(b)		—		—		—		—		—		—
Balance of loans that remain in default ^(b)	$	—	$	—	$	—	$	—	$	—	$	—

Concession granted ^(a):
Term extension	$	—	$	811	$	811	$	—	$	6,345	$	6,345
Interest rate reduction		—		—		—		—		—		—
Principal reduction		—		—		—		—		—		—
Foreclosure		—		—		—		—		93		93
Total	$	—	$	811	$	811	$	—	$	6,438	$	6,438
	Six Months Ended June 30, 2022						Six Months Ended June 30, 2021
(in thousands, except number of loans)	SBC		SBA		Total		SBC		SBA		Total
Number of loans permanently modified		1		6		7		1		17		18
Pre-modification recorded balance ^(a)	$	496	$	1,554	$	2,050	$	1,276	$	8,309	$	9,585
Post-modification recorded balance ^(a)	$	496	$	1,060	$	1,556	$	1,276	$	7,842	$	9,118

Number of loans that remain in default ^(b)		1		1		2		—		1		1
Balance of loans that remain in default ^(b)	$	356	$	1	$	357	$	—	$	58	$	58

Concession granted ^(a):
Term extension	$	—	$	978	$	978	$	—	$	7,319	$	7,319
Interest rate reduction		—		—		—		—		—		—
Principal reduction		—		—		—		—		—		—
Foreclosure		356		—		356		1,276		93		1,369
Total	$	356	$	978	$	1,334	$	1,276	$	7,412	$	8,688
(a) Represents carrying value.
(b) Represents carrying values of the TDRs that occurred during the respective periods ended and remained in default as of the current period ended. Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected. For purposes of this schedule, a loan is considered in default if it is 30 or more days past due.

The remaining elements of the Company’s modification programs are generally considered insignificant and do not have a material impact on financial results. For loans that 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 June 30, 2022 and December 31, 2021, the Company’s total carrying amount of loans in the foreclosure process was $1.2 million and $2.3 million, respectively.

PCD loans

The Company did not acquire any PCD loans during the three months ended June 30, 2022 and June 30, 2021.