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Loans and Allowance for Credit Losses

9 Months Ended

Sep. 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.


	September 30, 2022				December 31, 2021
(in thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Residential	$	2,311	$	2,485	$	3,641	$	3,914
SBA - 7(a)		490,134		508,213		503,991		519,408
Fixed rate		124,677		121,215		344,673		341,356
Freddie Mac		6,164		6,056		3,087		2,985
Bridge		2,904,295		2,926,835		1,849,524		1,861,932
Construction		389,104		392,650		—		—
Other		293,201		297,358		243,746		248,246
Total Loans, before allowance for loan losses	$	4,209,886	$	4,254,812	$	2,948,662	$	2,977,841
Allowance for loan losses	$	(51,079)	$	—	$	(33,216)	$	—
Total Loans, net	$	4,158,807	$	4,254,812	$	2,915,446	$	2,977,841
Loans in consolidated VIEs
Fixed rate	$	853,188	$	853,661	$	749,364	$	746,720
Bridge		4,429,262		4,458,450		2,693,186		2,717,487
SBA - 7(a)		68,892		76,435		88,348		98,604
Other		341,139		341,906		563,111		562,771
Total Loans, in consolidated VIEs, before allowance for loan losses	$	5,692,481	$	5,730,452	$	4,094,009	$	4,125,582
Allowance for loan losses on loans in consolidated VIEs	$	(9,174)	$	—	$	(12,161)	$	—
Total Loans, net, in consolidated VIEs	$	5,683,307	$	5,730,452	$	4,081,848	$	4,125,582
Loans, held for sale, at fair value
Residential	$	156,987	$	159,572	$	269,164	$	263,479
SBA - 7(a)		47,913		45,061		42,760		38,966
Fixed rate		187,334		214,259		197,290		195,114
Freddie Mac		7,575		7,429		42,384		41,864
Other		3,800		3,657		1,337		1,337
Total Loans, held for sale, at fair value	$	403,609	$	429,978	$	552,935	$	540,760
Total Loans, net and Loans, held for sale, at fair value	$	10,245,723	$	10,415,242	$	7,550,229	$	7,644,183
Paycheck Protection Program loans
Paycheck Protection Program loans, held-for-investment	$	275,162	$	289,041	$	867,109	$	927,766
Paycheck Protection Program loans, held at fair value		599		599		3,243		3,243
Total Paycheck Protection Program loans	$	275,761	$	289,640	$	870,352	$	931,009
Total Loan portfolio	$	10,521,484	$	10,704,882	$	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 $30.5 million, including $16.0 million of reserves of PCD loans as of September 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
September 30, 2022
Bridge	$	7,385,285	$	2,754,528	$	3,682,145	$	387,775	$	326,252	$	146,296	$	30,930	$	7,327,926
Construction		392,650		24,234		—		10,000		296,171		42,727		—		373,132
Fixed rate		974,876		46,499		143,773		92,381		335,631		135,456		219,679		973,419
Freddie Mac		6,056		—		—		6,164		—		—		—		6,164
Residential		2,485		308		156		—		441		345		1,060		2,310
SBA - 7(a)		584,648		80,993		82,948		40,450		85,024		94,669		171,439		555,523
Other		639,264		2,227		27,294		10,452		71,874		13,911		507,678		633,436
Total Loans, before general allowance for loan losses	$	9,985,264	$	2,908,789	$	3,936,316	$	547,222	$	1,115,393	$	433,404	$	930,786	$	9,871,910
General allowance for loan losses															$	(29,796)
Total Loans, net															$	9,842,114
	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
September 30, 2022
Current and less than 30 days past due	$	9,700,041	$	2,908,789	$	3,927,896	$	539,893	$	1,052,098	$	317,302	$	876,602	$	9,622,580
30 - 59 days past due		10,145		—		7,730		3		—		—		2,184		9,917
60+ days past due		275,078		—		690		7,326		63,295		116,102		52,000		239,413
Total Loans, before general allowance for loan losses	$	9,985,264	$	2,908,789	$	3,936,316	$	547,222	$	1,115,393	$	433,404	$	930,786	$	9,871,910
General allowance for loan losses															$	(29,796)
Total Loans, net															$	9,842,114
			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
September 30, 2022
Bridge	$	7,200,286	$	7,730	$	119,910	$	7,327,926	$	124,037	$	—
Construction		317,329		—		55,803		373,132		55,804		—
Fixed rate		948,958		—		24,461		973,419		20,662		—
Freddie Mac		3,071		—		3,093		6,164		3,093		—
Residential		700		—		1,610		2,310		1,610		—
SBA - 7(a)		550,061		860		4,602		555,523		11,277		—
Other		602,175		1,327		29,934		633,436		33,277		—
Total Loans, before general allowance for loan losses	$	9,622,580	$	9,917	$	239,413	$	9,871,910	$	249,760	$	—
General allowance for loan losses							$	(29,796)
Total Loans, net							$	9,842,114
Percentage of loans outstanding		97.5%		0.1%		2.4%		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.


	LTV ⁽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
September 30, 2022
Bridge	$	—	$	299,929	$	700,981	$	6,045,241	$	254,893	$	26,882	$	7,327,926
Construction		10,895		12,267		26,090		294,166		23,877		5,837		373,132
Fixed rate		9,962		43,667		378,783		518,464		15,768		6,775		973,419
Freddie Mac		—		—		3,071		3,093		—		—		6,164
Residential		59		48		705		587		911		—		2,310
SBA - 7(a)		7,846		46,696		96,027		186,722		81,930		136,302		555,523
Other		169,728		255,929		157,909		35,484		10,085		4,301		633,436
Total Loans, before general allowance for loan losses	$	198,490	$	658,536	$	1,363,566	$	7,083,757	$	387,464	$	180,097	$	9,871,910
General allowance for loan losses													$	(29,796)
Total Loans, net													$	9,842,114
Percentage of loans outstanding		2.0%		6.7%		13.8%		71.8%		3.9%		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) LTV 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)	September 30, 2022		December 31, 2021
Texas	20.9	%	19.2	%
California	10.1		14.3
Georgia	7.6		7.0
Arizona	6.8		7.4
Florida	6.5		6.7
New York	5.5		7.3
Illinois	4.4		4.3
North Carolina	4.2		2.6
Washington	1.6		2.1
Colorado	1.3		1.9
Other	31.1		27.2
Total	100.0	%	100.0	%

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


Collateral Concentration (% of Unpaid Principal Balance)	September 30, 2022		December 31, 2021
Multi-family	66.8	%	54.4	%
Mixed Use	7.6		7.1
Retail	5.9		10.2
SBA	5.9		8.7
Office	5.1		8.2
Industrial	4.9		6.4
Lodging/Residential	1.7		1.8
Other	2.1		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)	September 30, 2022		December 31, 2021
Lodging	14.9	%	17.0	%
Offices of Physicians	8.4		10.9
Child Day Care Services	6.0		7.4
Gasoline Service Stations	4.0		3.7
Eating Places	3.8		5.0
Veterinarians	1.8		2.4
Grocery Stores	1.7		1.8
Funeral Service & Crematories	1.3		1.9
Couriers	1.1		1.3
Car washes	0.7		1.4
Other	56.3		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
September 30, 2022
General	$	14,823	$	971	$	1,928	$	4	$	9,842	$	2,228	$	29,796
Specific		5,631		—		4,446		1		3,503		904		14,485
PCD		—		15,972		—		—		—		—		15,972
Ending balance	$	20,454	$	16,943	$	6,374	$	5	$	13,345	$	3,132	$	60,253
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 September 30, 2022
Beginning balance	$	18,393	$	5,122	$	6,222	$	57	$	13,126	$	3,205	$	46,125
Provision for (recoveries of) loan losses		2,061		849		242		(1)		200		(72)		3,279
Measurement period adjustment - PCD		—		10,972		—		—		—		—		10,972
Charge-offs and sales		—		—		(90)		—		(692)		—		(782)
Recoveries		—		—		—		(51)		711		(1)		659
Ending balance	$	20,454	$	16,943	$	6,374	$	5	$	13,345	$	3,132	$	60,253
Three Months Ended September 30, 2021
Beginning balance	$	21,178	$	—	$	6,865	$	61		13,350	$	8,175	$	49,629
Provision for (recoveries of) loan losses		4,056		—		(1,142)		—		20		(1,214)		1,720
Charge-offs and sales		—		—		—		—		(1,401)		(27)		(1,428)
Recoveries		(660)		—		—		—		30		(44)		(674)
Ending balance	$	24,574	$	—	$	5,723	$	61	$	11,999	$	6,890	$	49,247
Nine Months Ended September 30, 2022
Beginning balance	$	19,519	$	—	$	6,861	$	60	$	12,180	$	6,757	$	45,377
Provision for (recoveries of) loan losses		935		971		(397)		(4)		1,691		(3,404)		(208)
PCD⁽¹⁾		—		15,972		—		—		—		—		15,972
Charge-offs and sales		—		—		(90)		—		(1,191)		(7)		(1,288)
Recoveries		—		—		—		(51)		665		(214)		400
Ending balance	$	20,454	$	16,943	$	6,374	$	5	$	13,345	$	3,132	$	60,253
Nine Months Ended September 30, 2021
Beginning balance	$	14,588	$	—	$	7,629	$	52	$	14,600	$	9,863	$	46,732
Provision for (recoveries of) loan losses		10,646		—		(406)		9		461		(2,893)		7,817
Charge-offs and sales		—		—		(1,311)		—		(3,105)		(26)		(4,442)
Recoveries		(660)		—		(189)		—		43		(54)		(860)
Ending balance	$	24,574	$	—	$	5,723	$	61	$	11,999	$	6,890	$	49,247

(1)	Includes impact of measurement period adjustment related to the Mosaic Mergers. See Note 5 for further details on assets acquired and liabilities assumed in connection with the Mosaic Mergers.

The table above excludes $1.0 million and $0.2 million of allowance for loan losses on unfunded lending commitments as of September 30, 2022 and September 30, 2021, respectively. Refer to Note 3 – Summary of Significant Accounting Policies for more information on 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)	September 30, 2022		December 31, 2021
Non-accrual loans
With an allowance	$	201,950	$	71,644
Without an allowance		47,810		27,858
Total recorded carrying value of non-accrual loans	$	249,760	$	99,502
Allowance for loan losses related to non-accrual loans	$	(30,543)	$	(17,264)
Unpaid principal balance of non-accrual loans	$	286,406	$	119,554

	September 30, 2022		September 30, 2021
Interest income on non-accrual loans for the three months ended	$	506	$	586
Interest income on non-accrual loans for the nine months ended	$	4,218	$	2,144

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.


	September 30, 2022						December 31, 2021
(in thousands)	SBC		SBA		Total		SBC		SBA		Total
Carrying value of modified loans classified as TDRs:
On accrual status	$	106	$	12,177	$	12,283	$	284	$	8,242	$	8,526
On non-accrual status		10,848		8,875		19,723		11,220		11,409		22,629
Total carrying value of modified loans classified as TDRs	$	10,954	$	21,052	$	32,006	$	11,504	$	19,651	$	31,155
Allowance for loan losses on loans classified as TDRs	$	38	$	1,121	$	1,159	$	46	$	2,626	$	2,672

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


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
(in thousands, except number of loans)	SBC		SBA		Total		SBC		SBA		Total
Number of loans permanently modified		1		7		8		—		3		3
Pre-modification recorded balance ^(a)	$	1,036	$	752	$	1,788	$	—	$	322	$	322
Post-modification recorded balance ^(a)	$	1,036	$	752	$	1,788	$	—	$	321	$	321

Number of loans that remain in default ^(b)		1		—		1		—		—		—
Balance of loans that remain in default ^(b)	$	1,036	$	—	$	1,036	$	—	$	—	$	—

Concession granted ^(a):
Term extension	$	—	$	706	$	706	$	—	$	277	$	277
Interest rate reduction		—		—		—		—		—		—
Principal reduction		—		—		—		—		—		—
Foreclosure		1,036		—		1,036		—		—		—
Total	$	1,036	$	706	$	1,742	$	—	$	277	$	277
	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
(in thousands, except number of loans)	SBC		SBA		Total		SBC		SBA		Total
Number of loans permanently modified		2		13		15		1		20		21
Pre-modification recorded balance ^(a)	$	1,532	$	2,306	$	3,838	$	1,276	$	8,630	$	9,906
Post-modification recorded balance ^(a)	$	1,532	$	1,812	$	3,344	$	1,276	$	8,164	$	9,440

Number of loans that remain in default ^(b)		1		1		2		—		3		3
Balance of loans that remain in default ^(b)	$	1,036	$	5	$	1,041	$	—	$	686	$	686

Concession granted ^(a):
Term extension	$	—	$	1,662	$	1,662	$	—	$	6,912	$	6,912
Interest rate reduction		—		—		—		—		—		—
Principal reduction		—		—		—		—		—		—
Foreclosure		1,036		—		1,036		1,276		90		1,366
Total	$	1,036	$	1,662	$	2,698	$	1,276	$	7,002	$	8,278
(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 September 30, 2022 and December 31, 2021, the Company’s total carrying amount of loans in the foreclosure process was $31.9 million and $2.3 million, respectively.

PCD loans

During September 2022, based on updated valuations obtained, the Company recorded a measurement period adjustment of $11.0 million to increase the PCD allowance in connection with the Mosaic Mergers. A reconciliation between the PCD asset’s UPB and purchase price is presented in the table below. Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Mosaic Mergers.



(in thousands)	PCD Reconciliation
Unpaid principal balance	$	21,960
Allowance for credit losses		(15,972)
Non-credit discount		(732)
Purchase price of loans classified as PCD	$	5,256

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