FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2024

NOTE 10—FAIR VALUE MEASUREMENTS:

The following tables present fair value measurements of certain of the Company’s assets and liabilities measured at fair value and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values as of September 30, 2024 and December 31, 2023:


	Fair Value Measurements at September 30, 2024
	Total		Level 1		Level 2		Level 3
Assets:

Debt securities available-for-sale
U.S. Treasury notes	$	20,810	$	20,810	$	—	$	—
Government agency debentures	2,980		—		2,980		—
Loans held for sale, at fair value	242,225		—		—		242,225
Loans held for investment, at fair value	394,471		—		—		394,471
Other real estate owned 1	2,199		—		—		2,199
Non-controlled/affiliate investments	740		—		—		740
Servicing assets2	23,967		—		—		23,967
Joint ventures	55,750		—		—		55,750
Total assets measured at fair value	$	743,142	$	20,810	$	2,980	$	719,352
Liabilities:
Equity warrants3	$	108	$	—	$	—	$	108
Derivative instruments,3,4	68		—		68		—
Total liabilities measured at fair value	$	176	$	—	$	68	$	108

1 Included in Other assets on the Consolidated Statements of Financial Condition.

2 $24.0 million of servicing assets at held at FV and $22.1 million of servicing assets are held at LCM. Refer to NOTE 7—SERVICING ASSETS.

3 Included in Accounts payable, accrued expenses, and other liabilities on the Consolidated Statements of Financial Condition.

4 Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.


	Fair Value Measurements at December 31, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Debt securities available-for-sale
U.S. Treasury notes	$	29,304	$	29,304	$	—	$	—
Government agency debentures	2,867		—		2,867		—
Loans held for sale, at fair value	118,867		—		—		118,867
Loans held for investment, at fair value	469,801		—		—		469,801
Other real estate owned 1	1,110		—		—		1,110
Non-controlled/affiliate investments	728		—		—		728
Servicing assets2	29,336		—		—		29,336
Joint ventures	40,859		—		—		40,859
Total assets measured at fair value	$	692,872	$	29,304	$	2,867	$	660,701
Liabilities:
Equity warrants3	$	141	$	—	$	—	$	141
Derivative instruments3,4	630		—		630		—
Total liabilities measured at fair value	$	771	$	—	$	630	$	141

1 Included in Other assets on the Consolidated Statements of Financial Condition.

2 $29.3 million of servicing assets held at FV and $10.4 million of servicing assets are held at LCM. Refer to NOTE 7—SERVICING ASSETS

2 Included in Accounts payable, accrued expenses, and other liabilities on the Consolidated Statements of Financial Condition.

3 Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.

The following tables represents the changes in the investments, servicing assets and liabilities measured at fair value using Level 3 inputs for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30, 2024
	Loans HFI, at FV		Loans HFS, at FV		Joint Ventures		Servicing Assets, at FV		Non-Control Investments		Warrant Liabilities2		Other Real Estate Owned1
Fair value, December 31, 2023	$	469,801	$	118,867	$	40,859	$	29,336	$	728	$	141	$	1,110
Reclasses between loans at FV and LCM	263		2,508		—		—		—		—		—
Sales	(2,888)		(166,648)		—		—		—		—		(956)
Principal payments received	(54,656)		(9,375)		—		—		—		—		—
Foreclosed real estate acquired	(2,251)		—		—		—		—		—		2,251
SBA loans, funded	122		12,966		—		—		—		—		—
ALP loans, funded	—		191,440		—		—		—		—		—
Mortgage loans, funded	—		79,432		—		—		—		—		—
Additions	—		—		—		14		—		—		—
Purchases and repurchases of loans	1,296		—		—		—		—		—		—
Capital contributions/(distributions)	—		—		5,457		—		(116)		—		—
Change in valuation due to:
Changes in valuation inputs or assumptions	2,614		13,058		9,434		805		128		(33)		(206)
Other factors	(19,830)		(23)		—		(6,188)		—		—		—
Fair value, September 30, 2024	$	394,471	$	242,225	$	55,750	$	23,967	$	740	$	108	$	2,199

1 Included in Other assets on the Consolidated Statements of Financial Condition.

2 Included in Accounts payable, accrued expenses, and other liabilities on the Consolidated Statements of Financial Condition.


	Nine Months Ended September 30, 2023
	Loans HFI, at FV		Loans HFS, at FV		Controlled Investments		Joint Ventures		Servicing Assets, at FV		Non-Control Investments		Warrant Liabilities2		Other Real Estate Owned1
Fair value, December 31, 2022	$	505,268	$	19,168	$	259,217	$	23,022	$	30,268	$	1,360	$	—	$	3,529
Net gain (loss) on loans under the fair value option	12,132		456
Additions/(removal) of entities consolidating after Conversion to BHC	—		69,745		(259,217)		—		—		—		—		—
Reclass of Loans HFS to HFI	5,879		(24,712)		—		—		—		—		—		—
Change in valuation due to:
Changes in valuation inputs or assumptions	—		—		—		3,141		3,584		—		—		—
Other factors	—		—		—		—		(5,150)		—		—		(240)
Realized gain (loss)	(18,032)		13,700		—		—		—		—		(117)		(457)
SBA investments, funded	38,616		161,742		—		—		—		—		—		—
ALP loans, funded	—		44,660		—		—		—		—		—		—
Foreclosed real estate acquired	(2,195)		—		—		—		—		—		—		2,195
Purchases and repurchases of loans	9,461		5,279		—		14,550		—		—		—		—
Sales	—		(212,673)		—		—		—		—		—		(2,198)
Principal payments received	(58,142)		(6,898)		—		—		—		—		—		—
Additions	—		—		—		—		2,590		—		311		—
Fair Value, September 30, 2023	$	492,987	$	70,467	$	—	$	40,713	$	31,292	$	1,360	$	194	$	2,829

1 Included in Other assets on the Consolidated Statements of Financial Condition.

2 Included in Accounts payable, accrued expenses, and other liabilities on the Consolidated Statements of Financial Condition.

The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements as of September 30, 2024 and December 31, 2023. In addition to the inputs noted in the table below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements at September 30, 2024 and December 31, 2023.


	Fair Value as of			Weighted		Range
	September 30, 2024		Unobservable Input	Average		Minimum		Maximum
Assets:
Loans HFI, at FV - accrual	$	334,872	Market yields	6.55	%	6.55	%	6.55	%
			Cumulative prepayment rate	22.50	%	22.50	%	22.50	%
			Average cumulative default rate	19.00	%	19.00	%	19.00	%
Loans HFI, at FV - non-accrual	$	59,599	Market yields	6.66	%	6.66	%	6.66	%
			Cumulative prepayment rate	—	%	—	%	—	%
			Average cumulative default rate	30.00	%	30.00	%	30.00	%
Loans HFS, at FV	$	242,225	Market yields	7.03	%	6.44	%	7.61	%
			Cumulative prepayment rate	75.00	%	75.00	%	75.00	%
			Average cumulative default rate	12.50	%	5.00	%	20.00	%
Joint ventures	$	55,750	Market yields	7.61	%	7.61	%	7.61	%
			Cost of equity	11.00	%	8.00	%	14.00	%
			Weighted average cost of capital	7.50	%	6.00	%	9.00	%
Non-control equity investments	$	740	Market yields	10.00	%	8.00	%	12.00	%
			Weighted average cost of capital	23.20	%	23.20	%	23.20	%
Servicing assets1	$	23,967	Market yields	12.50	%	12.50	%	12.50	%
			Cumulative prepayment rate	22.50	%	22.50	%	22.50	%
			Average cumulative default rate	19.00	%	19.00	%	19.00	%
Other real estate owned	$	2,199	Appraised value	N/A		N/A		N/A

Liabilities:
Equity warrants	$	108	Expected volatility	45.00	%	45.00	%	45.00	%
			Dividend yield	6.10	%	6.10	%	6.10	%
			Risk free rate	3.73	%	3.73	%	3.73	%

1 $24.0 million of servicing assets at held at FV and $22.1 million of servicing assets are held at LCM. Refer to NOTE 7—SERVICING ASSETS.


	Fair Value as of			Weighted		Range
	December 31, 2023		Unobservable Input	Average		Minimum		Maximum
Assets:
Loans HFI, at FV - accrual	$	421,627	Market yields	7.75	%	7.75	%	7.75	%
			Cumulative prepayment rate	22.50	%	22.50	%	22.50	%
			Average cumulative default rate	19.00	%	19.00	%	19.00	%
Loans HFI, at FV - non-accrual	$	48,174	Market yields	7.39	%	7.39	%	7.39	%
			Cumulative prepayment rate	—	%	—	%	—	%
			Average cumulative default rate	30.00	%	30.00	%	30.00	%
Loans HFS, at FV	$	118,867	Market yields	6.85	%	6.50	%	7.75	%
			Cumulative prepayment rate	61.03	%	55.60	%	75.00	%
			Average cumulative default rate	20.00	%	20.00	%	20.00	%
Joint ventures	$	40,859	Market yields	8.00	%	8.00	%	8.00	%
			Cost of equity	12.00	%	10.00	%	14.00	%
			Weighted average cost of capital	8.50	%	7.50	%	9.50	%
Non-control equity investments	$	368	Market yields	10.00	%	8.00	%	12.00	%
	$	360	Cost	N/A		N/A		N/A
Servicing assets1	$	29,336	Market yields	13.50	%	13.50	%	13.50	%
			Cumulative prepayment rate	22.50	%	22.50	%	22.50	%
			Average cumulative default rate	19.00	%	19.00	%	19.00	%
Other real estate owned	$	1,110	Appraised value	N/A		N/A		N/A

Liabilities:
Equity warrants	$	141	Expected volatility	43.00	%	43.00	%	43.00	%
			Dividend yield	5.20	%	5.20	%	5.20	%
			Risk free rate	3.88	%	3.88	%	3.88	%

1 $29.3 million of servicing assets held at FV and $10.4 million of servicing assets are held at LCM. Refer to NOTE 7—SERVICING ASSETS

Estimated Fair Value of Other Financial Instruments

GAAP also requires disclosure of the fair value of financial instruments carried at book value on the Consolidated Statements of Financial Condition. The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows:


	September 30, 2024
	Carrying Amount		Fair Value Amount by Level:						Total Fair Value
			Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	9,688	$	9,688	$	—	$	—	$	9,688
Restricted cash	27,929		27,929		—		—		27,929
Interest bearing deposits in banks	152,805		152,805		—		—		152,805
Debt securities available-for-sale, at FV	23,790		20,810		2,980		—		23,790
Loans HFS, at FV	242,225		—		—		242,225		242,225
Loans HFS, at LCM	60,203		—		—		60,256		60,256
Loans HFI, at FV	394,471		—		—		394,471		394,471
Total loans HFI, at amortized cost, net of deferred fees and costs	518,489		—		—		554,506		554,506
Federal Home Loan Bank and Federal Reserve Bank stock	3,608		—		3,608		—		3,608
Joint ventures, at FV	55,750		—		—		55,750		55,750
Non-control investments	740		—		—		740		740
Financial Liabilities:
Time deposits	256,774		—		277,569		—		277,569
Borrowings	655,834		—		301,213		361,273		662,486

	December 31, 2023
	Carrying Amount		Fair Value Amount by Level:						Total Fair Value
			Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	15,398	$	15,398	$	—	$	—	$	15,398
Restricted cash	30,919		30,919		—		—		30,919
Interest bearing deposits in banks	137,689		137,689		—		—		137,689
Debt securities available-for-sale, at FV	32,171		29,305		2,866		—		32,171
Loans HFS, at FV	118,867		—		—		118,867		118,867
Loans HFS, at LCM	56,607		—		—		56,733		56,733
Loans HFI, at FV	469,801		—		—		469,801		469,801
Total loans HFI, at amortized cost, net of deferred fees and costs	336,305		—		—		337,133		337,133
Federal Home Loan Bank and Federal Reserve Bank stock	3,635		—		3,635		—		3,635
Joint ventures, at FV	40,859		—		—		40,859		40,859
Non-control investments	728		—		—		728		728
Financial Liabilities:
Time deposits	167,041		—		168,542		—		168,542
Borrowings	644,122		—		187,555		454,239		641,794

- 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

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+ Details