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LOANS RECEIVABLE | 9 Months Ended
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Sep. 30, 2024
Receivables [Abstract] |
LOANS RECEIVABLE | 5. LOANS RECEIVABLE Loans receivable consist of the following (in thousands):
|  | September 30, 2024 |  | December 31, 2023
SBA 7(a) loans receivable, subject to credit risk |  | $ | 13,660 |  |  | $ | 10,393 |
SBA 7(a) loans receivable, subject to loan-backed notes |  | 39,466 |  |  | 43,983 |
SBA 7(a) loans receivable, subject to secured borrowings |  | 1,832 |  |  | 3,105 |
SBA 7(a) loans receivable, held for sale |  | 1,539 |  |  | 74 |
Loans receivable |  | 56,497 |  |  | 57,555 |
Deferred capitalized costs, net |  | 1,111 |  |  | 1,130 |
Current expected credit losses |  | (1,866) |  |  | (1,680) |
Loans receivable, net |  | $ | 55,742 |  |  | $ | 57,005 |
SBA 7(a) Loans Receivable, Subject to Credit Risk—Represents the unguaranteed portions of loans originated under the SBA 7(a) Program which were retained by the Company. SBA 7(a) Loans Receivable, Subject to Loan-Backed Notes—Represents the unguaranteed portions of loans originated under the SBA 7(a) Program which were transferred to a trust and are held as collateral in connection with a securitization transaction. The proceeds received from the transfer were reflected as loan-backed notes payable (Note 7). These loans are subject to credit risk. SBA 7(a) Loans Receivable, Subject to Secured Borrowings—Represents the government guaranteed portions of loans originated under the SBA 7(a) Program 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 guarantees payment of the principal. SBA 7(a) Loans Receivable, Held for Sale— Represents 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. Current Expected Credit Losses CECL reflects the Company’s current estimate of potential credit losses related to loans receivable included in the Company’s consolidated balance sheets as of September 30, 2024 pursuant to ASU 2016-13 as implemented effective January 1, 2023. Refer to Note 2 for further discussion of CECL. The following table presents the activity in the Company’s CECL for the nine months ended September 30, 2024 and September 30, 2023 (dollar amounts in thousands):
|  | Loans Receivable
Current expected credit losses as of December 31, 2023 |  | $ | 1,680 |
Net adjustment to reserve for expected credit losses |  | (36) |
Current expected credit losses as of March 31, 2024 |  | $ | 1,644 |
Net adjustment to reserve for expected credit losses |  | (37) |
Current expected credit losses as of June 30, 2024 |  | $ | 1,607 |
Net adjustment to reserve for expected credit losses |  | 259 |
Current expected credit losses as of September 30, 2024 |  | $ | 1,866 |
Allowance for credit losses as of December 31, 2022 |  | $ | 1,106 |
Transition adjustment on January 1, 2023 |  | 783 |
Net adjustment to reserve for expected credit losses |  | 51 |
Current expected credit losses as of March 31, 2023 |  | $ | 1,940 |
Write-offs |  | (85) |
Reserve for expected credit losses |  | (142) |
Current expected credit losses as of June 30, 2023 |  | $ | 1,713 |
Reserve for expected credit losses |  | (9) |
Current expected credit losses as of September 30, 2023 |  | $ | 1,704 |
The net adjustments to the reserve for expected credit losses are recognized through net income on the Company’s consolidated statements of operations. During the three and nine months ended September 30, 2024, the Company recorded an increase of $259,000 and $186,000, respectively, in its CECL related to its loans receivable, which was recorded in general and administrative expenses in the consolidated statement of operations. During the three and nine months ended September 30, 2023, the Company recorded a decrease of $9,000 and $100,000, respectively, in its CECL related to its loan receivable, which is recorded in general and administrative expenses in the consolidated statement of operations, and recorded a decrease due to write-offs of $85,000. Risk Ratings As further described in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies, the Company evaluates its loans receivable portfolio on a quarterly basis. Each quarter, the Company assesses the risk factors of each loan and assigns a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, loan and credit structure, current LTV ratio, debt yield, collateral performance and the quality and condition of the sponsor, borrower and guarantor(s). Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies. The Company’s primary credit quality indicator is its risk ratings, which are further discussed above. The following table presents the net book value of the Company’s loans receivable portfolio as of September 30, 2024 by year of origination, loan type and risk rating (dollar amounts in thousands):
|  |  | Amortized Cost of Loans Receivable by Year of Origination As of September 30, 2024
| Number of Loans |  | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total
Loans by internal risk rating: |  |  |  |  |  |  |  |  |
1 | 106 |  | $ | 4,050 |  | $ | 5,357 |  | $ | 4,807 |  | $ | 6,946 |  | $ | 2,187 |  | $ | 10,089 |  | $ | 33,436 |
2 | 55 |  | 475 |  | 4,100 |  | 3,475 |  | 2,491 |  | 1,494 |  | 6,323 |  | $ | 18,358 |
3 | 1 |  | — |  | — |  | — |  | 430 |  | — |  | — |  | $ | 430 |
4 | 1 |  | — |  | 902 |  | — |  | — |  | — |  | — |  | $ | 902 |
5 | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total | 163 |  | $ | 4,525 |  | $ | 10,359 |  | $ | 8,282 |  | $ | 9,867 |  | $ | 3,681 |  | $ | 16,412 |  | $ | 53,126 |
Plus: SBA 7(a) loans receivable, subject to secured borrowings (1) |  |  |  |  |  |  |  |  | 1,832 |
Plus: Deferred capitalized costs, net |  |  |  |  |  |  |  |  | 1,111 |
Less: Current expected credit losses |  |  |  |  |  |  |  |  | (1,866) |
Less: Held for sale guaranteed portion |  |  |  |  |  |  |  |  | 1,539 |
Total loans receivable, net |  |  |  |  |  |  |  |  | $ | 55,742 |
Weighted average risk rating |  |  |  |  |  |  |  |  | 1.4
____________________ (1)The Company does not assign a risk rating to its SBA 7(a) loans receivable that are subject to secured borrowings or the government guaranteed portion of loans held for sale. The Company has determined there is no credit risk associated with these loans since the SBA has guaranteed payment of the principal. Other As of September 30, 2024 and December 31, 2023, 99.4% and 100.0%, respectively, of the Company’s loans subject to credit risk were concentrated in the hospitality industry. As of September 30, 2024 and December 31, 2023, 94.9% and 99.3%, respectively, of the Company’s loans subject to credit risk were current. The Company classifies loans with negative characteristics in substandard categories ranging from special mention to doubtful. As of September 30, 2024 and December 31, 2023, $4.0 million and $1.3 million, respectively, of loans subject to credit risk were classified in substandard categories.

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- Definition The entire disclosure for claims held for amounts due to entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 310 -SubTopic 10 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/310-10/tableOfContent Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 835 -SubTopic 30 -Name Accounting Standards Codification -Section 45 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482925/835-30-45-2 + Details
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