Company: SWKH
Filing Date: 2025-03-20
Form Type: 10-K
Source: 0001628280-25-013989
Chunk: 91

Company: SWK Holdings Corp
Filing Date: 2025-03-20
Form: 10-K
Item: Item 1B
Chunk 91
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 Company adopted ASU 2016-13, as amended, on January 1, 2023 using the modified retrospective approach method. The implementation of ASU 2016-13 also impacted the Company's ACL on unfunded loan commitments, as the ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company. The reserve for unfunded commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment. The funding rate represents management's estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $0.4 million for the adoption of ASU 2016-13. As of December 31, 2024 and December 31, 2023, the Company has a $0.1 million and $0.2 million, respectively, liability for credit losses on off-balance sheet exposures related to unfunded commitments, with this liability included in accounts payable and accrued liabilities on the consolidated balance sheets. Please refer to Note 9 for further information on the Company's unfunded commitments.Allowance for Credit Losses - methodology updateDuring the year ended December 31, 2024, the Company revised its methodology for calculating the allowance for credit losses to be more directly tied to the individual risk ratings, as determined by management, of finance receivables. This resulted in a re-allocation of the existing allowance and did not have a material impact on the total allowance for credit losses amount. Previously, the Company's quarterly assessment of the allowance included two portfolio pools: Term Loans and Royalties. After the change in methodology effective for the quarter ended June 30, 2024, these pools are further broken down into individual risk ratings applied to each investment to allow for a more precise method for calculating the allowance for credit losses.

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The following table details the changes in the allowance for credit losses by portfolio segment for the respective periods (in thousands):December 31, 2024December 31, 2023Term LoansRoyaltiesTotalTerm LoansRoyaltiesTotalAllowance at beginning of period$9,731 $4,170 $13,901 $— $11,846 $11,846 Effect of adoption of ASU 2016-13