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FAIR VALUE OF FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
FAIR VALUE OF FINANCIAL INSTRUMENTS | 12. FAIR VALUE OF FINANCIAL INSTRUMENTS We determine the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The hierarchy for inputs used in measuring fair value is as follows: Level 1 Inputs—Quoted prices in active markets for identical assets or liabilities Level 2 Inputs—Observable inputs other than quoted prices in active markets for identical assets and liabilities Level 3 Inputs—Unobservable inputs In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. The estimated fair values of those financial instruments which are not recorded at fair value on a recurring basis on our consolidated balance sheets are as follows:
|  | September 30, 2020 |  | December 31, 2019 |  |
|  | Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value |  | Level
|  | (in thousands) |  |
Assets: |  |  |  |  |  |  |  |  |  |
SBA 7(a) loans receivable, subject to credit risk |  | $ | 31,911 |  |  | $ | 33,296 |  |  | $ | 26,149 |  |  | $ | 28,041 |  |  | 3 |
SBA 7(a) loans receivable, subject to loan-backed notes |  | 24,232 |  |  | 26,001 |  |  | 27,595 |  |  | 30,076 |  |  | 3 |
SBA 7(a) loans receivable, paycheck protection program |  | 15,504 |  |  | 16,016 |  |  | — |  |  | — |  |  | 3 |
SBA 7(a) loans receivable, subject to secured borrowings |  | 8,925 |  |  | 9,018 |  |  | 12,682 |  |  | 12,780 |  |  | 3 |
SBA 7(a) loans receivable, held for sale |  | 8,742 |  |  | 9,695 |  |  | 1,653 |  |  | 1,753 |  |  | 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Mortgage payable |  | 96,946 |  |  | 106,067 |  |  | 96,926 |  |  | 99,764 |  |  | 3 |
Junior subordinated notes |  | 25,365 |  |  | 24,200 |  |  | 25,299 |  |  | 24,406 |  |  | 3 |
Management’s estimation of the fair value of our financial instruments is based on a Level 3 valuation in the fair value hierarchy established for disclosure of how a company values its financial instruments. In general, quoted market prices from active markets for the identical financial instrument (Level 1 inputs), if available, should be used to value a financial instrument. If quoted prices are not available for the identical financial instrument, then a determination should be made if Level 2 inputs are available. Level 2 inputs include quoted prices for similar financial instruments in active markets for identical or similar financial instruments in markets that are not active (i.e., markets in which there are few transactions for the financial instruments, the prices are not current, price quotations vary substantially, or in which little information is released publicly). There is limited reliable market information for our financial instruments and we utilize other methodologies based on unobservable inputs for valuation purposes since there are no Level 1 or Level 2 inputs available. Accordingly, Level 3 inputs are used to measure fair value. In general, estimates of fair value may differ from the carrying amounts of the financial assets and liabilities primarily as a result of the effects of discounting future cash flows. Considerable judgment is required to interpret market data and develop estimates of fair value. Accordingly, the estimates presented are made at a point in time and may not be indicative of the amounts we could realize in a current market exchange. The carrying amounts of our secured borrowings—government guaranteed loans, SBA 7(a) loan-backed notes, 2018 revolving credit facility and borrowed funds from the Federal Reserve through the PPPLF approximate their fair values, as the interest rates on these securities are variable and or approximate current market interest rates. SBA 7(a) Loans Receivable, Subject to Credit Risk—Loans receivable were initially recorded at estimated fair value at the Acquisition Date. Loans receivable originated subsequent to the Acquisition Date are recorded at cost upon origination and adjusted by net loan origination fees and discounts. In order to determine the estimated fair value of our loans receivable, we use a present value technique for the anticipated future cash flows using certain assumptions. As of September 30, 2020, our assumptions included discount rates ranging from 5.25% to 6.75% and prepayment rates ranging from 9.85% to 17.50%. As of December 31, 2019, our assumptions included discount rates ranging from 5.25% to 7.75% and prepayment rates ranging from 9.85% to 17.50%. SBA 7(a) Loans Receivable, Subject to Loan-Backed Notes—These loans receivable represent the unguaranteed portions of loans originated under the SBA 7(a) Small Business Loan Program which were transferred to a trust and are held as collateral in connection with a securitization transaction. The proceeds from the transfer have been recorded as SBA 7(a) loan-backed notes payable. In order to determine the estimated fair value of these loans receivable, we use a present value technique for the anticipated future cash flows using certain assumptions. As of September 30, 2020, our assumptions included discount rates ranging from 4.75% to 6.25% and prepayment rates ranging from 13.41% to 16.80%. As of December 31, 2019, our assumptions included discount rates ranging from 5.25% to 7.25% and prepayment rates ranging from 13.41% to 16.80%. SBA 7(a) Loans Receivable, Paycheck Protection Program—These loans receivable represent the loans originated under the Paycheck Protection Program described in Note 4 above. For a borrower who does not meet the criteria required for forgiveness, the loan will convert to a loan with either a twenty-four month or sixty month term and an interest rate of 1.00%. The loans are not secured by any collateral or personal guarantees; however, the loans are fully guaranteed by the SBA provided that we follow the requirements set forth in the Paycheck Protection Program. As of September 30, 2020, we estimated the fair value of these loans receivable using a discount rate of 1.00%. There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal. SBA 7(a) Loans Receivable, Subject to Secured Borrowings—These loans receivable represent the government guaranteed portion of loans which were sold with the proceeds received from the sale reflected as secured borrowings—government guaranteed loans. There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal. In order to determine the estimated fair value of these loans receivable, we use a present value technique for the anticipated future cash flows taking into consideration the lack of credit risk. As of September 30, 2020, our assumptions included discount rates ranging from 5.75% to 6.00% and prepayment rates ranging from and 11.77% to 16.80%. As of December 31, 2019, our assumptions included discount rates ranging from 6.75% to 7.50% and prepayment rates ranging from 11.77% to 16.80%. SBA 7(a) Loans Receivable, Held for Sale— These loans receivable represent the government guaranteed portion of loans held for sale at the end of the period or that had been sold but in respect of which proceeds had not been received as of the end of the period. The value of the government guaranteed portions of loans held for sale is based primarily on the anticipated proceeds to be received upon sale. Mortgage Payable—The fair value of our mortgage payable is estimated based on current interest rates available for debt instruments with similar terms. The fair value of our mortgage payable is sensitive to fluctuations in interest rates. Discounted cash flow analysis is generally used to estimate the fair value of our mortgage payable, using a rate of 2.44% and 3.67% as of September 30, 2020 and December 31, 2019, respectively. Junior Subordinated Notes—The fair value of the junior subordinated notes is estimated based on current interest rates available for debt instruments with similar terms. Discounted cash flow analysis is generally used to estimate the fair value of our junior subordinated notes. The rate used was 4.48% and 6.16% as of September 30, 2020 and December 31, 2019, respectively.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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