MEDALLION FINANCIAL CORP, 10-Q filed on 08 Aug 19
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 06, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Trading Symbol MFIN  
Entity Registrant Name MEDALLION FINANCIAL CORP  
Entity Central Index Key 0001000209  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   24,609,815
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Shell Company false  
Entity Current Reporting Status Yes  
Entity File Number 001-37747  
Entity Tax Identification Number 043291176  
Entity Address, Address Line One 437 MADISON AVENUE, 38th Floor  
Entity Address, City or Town NEW YORK  
Entity Address, State or Province NEW YORK  
Entity Address, Postal Zip Code 10022  
City Area Code 212  
Local Phone Number 328-2100  
v3.19.2
Consolidated Balance Sheet - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Assets    
Cash [1] $ 35,138 $ 23,842
Federal funds sold 37,010 33,871
Equity investments 9,797 9,197
Investment securities 44,820 45,324
Loans 1,088,475 1,017,882
Allowance for losses (40,670) [2] (36,395)
Net loans receivable 1,047,805 981,487
Accrued interest receivable 7,742 7,413
Property, equipment, and right-of-use lease asset, net 12,821 1,222
Loan collateral in process of foreclosure [3] 52,368 49,495
Goodwill 150,803 150,803
Intangible assets, net 53,259 53,982
Other assets 30,390 25,210
Total assets 1,481,953 1,381,846
Liabilities    
Accounts payable and accrued expenses [4] 20,223 18,789
Accrued interest payable 4,205 3,852
Deposits 927,658 848,040
Short-term borrowings 46,688 55,178
Deferred tax liabilities and other tax payables 5,412 6,973
Operating lease liabilities 11,273  
Long-term debt 180,990 158,810
Total liabilities 1,196,449 1,091,642
Commitments and contingencies [5]
Stockholders’ equity    
Preferred stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding)
Common stock (50,000,000 shares of $0.01 par value stock authorized- 27,550,801 shares at June 30, 2019 and 27,385,600 shares at December 31, 2018 issued) 275 274
Additional paid in capital 274,796 274,292
Treasury stock (2,951,243 shares at June 30, 2019 and December 31, 2018) (24,919) (24,919)
Accumulated other comprehensive income (loss) 1,145 (82)
Retained earnings 6,771 13,043
Total stockholders’ equity 258,068 262,608
Non-controlling interest in consolidated subsidiaries 27,436 27,596
Total equity 285,504 290,204
Total liabilities and equity $ 1,481,953 $ 1,381,846
Number of shares outstanding 24,599,558 24,434,357
Book value per share $ 10.49 $ 10.75
[1] Includes restricted cash of $2,475 as of June 30, 2019.
[2] Includes $5,247 of a general reserve for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 13% of the total allowance, and 3.82% of the loans under 90 days past due as of June 30, 2019. This figure excludes $17,351 of a general reserve on loans at the Bank, much of which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves of $6,092.
[3] Includes financed sales of this collateral to third parties that are reported separately from the loan portfolio, and that are conducted by the Bank of $4,290 as of June 30, 2019 and $3,134 as of December 31, 2018.
[4] Includes the short-term portion of lease liabilities of $1,872 as of June 30, 2019. Refer to Note 8 for more details.
[5] Refer to Note 14 for details.
v3.19.2
Consolidated Balance Sheet (Parenthetical) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares outstanding 0 0
Common stock, shares authorized 50,000,000 50,000,000
Common stock, par value $ 0.01 $ 0.01
Common stock, shares issued 27,550,801 27,385,600
Treasury stock,shares 2,951,243 2,951,243
Restricted cash $ 2,475  
Loan collateral in process of foreclosure, financed sales collateral to third parties 4,290 $ 3,134
Short term lease liabilities $ 1,872  
v3.19.2
Consolidated Statement of Income - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Interest and fees on loans $ 31,313,000 $ 32,026,000 $ 60,752,000 $ 32,026,000 [1]
Interest and dividends on investment securities 669,000 588,000 1,235,000 602,000 [1]
Medallion lease income 33,000 30,000 71,000 70,000 [1]
Interest income on investments [1]       3,287,000
Interest income 32,015,000 32,644,000 62,058,000  
Total interest income/total investment income [2] 32,015,000 32,644,000 62,058,000 36,677,000 [1]
Interest on deposits 5,485,000 4,200,000 10,406,000 4,200,000 [1]
Interest on short-term borrowings 904,000 1,859,000 1,886,000 1,859,000 [1]
Interest on long-term debt 2,432,000 1,866,000 4,251,000 1,866,000 [1]
Interest expense [1]       3,551,000
Total interest expense [3] 8,821,000 7,925,000 16,543,000 11,476,000 [1]
Net interest income/net investment income 23,194,000 24,719,000 45,515,000 25,201,000 [1]
Provision for loan losses 15,171,000 30,576,000 28,514,000 30,576,000 [1]
Net interest income (loss) after provision for loan losses 8,023,000 (5,857,000) 17,001,000 (5,375,000) [1]
Other income (loss)        
Sponsorship and race winnings 4,889,000 5,228,000 8,068,000 5,228,000 [1]
Change in collateral value on in process of foreclosure (1,972,000) (96,000) (4,091,000) (96,000) [1]
Gain on the extinguishment of debt     4,145,000  
Impairment of equity investments   (474,000)   (474,000) [1]
Other income (loss) (1,234,000) 220,000 424,000 280,000 [1]
Total other income, net 1,683,000 4,878,000 8,546,000 4,938,000 [1]
Other expenses        
Salaries and employee benefits 6,321,000 5,639,000 11,662,000 7,988,000 [1]
Race team related expenses 2,550,000 2,540,000 4,548,000 2,540,000 [1]
Collection costs 2,253,000 837,000 2,891,000 957,000 [1]
Professional fees 2,048,000 2,246,000 3,684,000 2,969,000 [1]
Loan servicing fees 1,293,000 1,128,000 2,487,000 1,128,000 [1]
Rent expense 577,000 591,000 1,177,000 834,000 [1]
Regulatory fees 448,000 582,000 895,000 582,000 [1]
Amortization of intangible assets 362,000 361,000 723,000 361,000 [1]
Travel, meals, and entertainment 205,000 603,000 470,000 809,000 [1]
Other expenses [4] 2,127,000 2,399,000 4,349,000 2,866,000 [1]
Total other expenses 18,184,000 16,926,000 32,886,000 21,034,000 [1]
Loss before income taxes/net investment loss before taxes [5] (8,478,000) (17,905,000) (7,339,000) (21,471,000) [1]
Income tax benefit 1,835,000 4,021,000 2,091,000 4,357,000 [1]
Net loss after taxes/net investment loss after taxes (6,643,000) (13,884,000) (5,248,000) (17,114,000) [1]
Net realized losses on investments [1],[6]       (34,745,000)
Income tax benefit [1]       8,426,000
Total net realized losses on investments [1]       (26,319,000)
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries [1]       29,115,000
Net change in unrealized depreciation on investments other than securities [1]       (1,915,000)
Net change in unrealized depreciation on investments [1]       (4,403,000)
Income tax provision [1]       (8,122,000)
Net unrealized appreciation on investments [1]       14,675,000
Net realized/unrealized losses on investments [1]       (11,644,000)
Net loss after taxes/net decrease on net assets resulting from operations (6,643,000) (13,884,000) (5,248,000) (28,758,000) [1]
Less: income attributable to the noncontrolling interest 857,000 763,000 1,024,000 763,000 [1]
Total net loss attributable to Medallion Financial Corp./net decrease on net assets resulting from operations $ (7,500,000) $ (14,647,000) $ (6,272,000) $ (29,521,000) [1]
Basic and diluted net loss per share $ (0.31) $ (0.60) $ (0.26) $ (1.22) [1]
Weighted average common shares outstanding        
Basic and diluted 24,359,280 24,230,815 24,323,967 24,193,057 [1]
Controlled Subsidiary Investment [Member]        
Dividend income from controlled subsidiaries [1]       $ 28,000
Interest income [1]       10,000
Affiliate Investment [Member]        
Interest income [1]       $ 654,000
[1] Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
[2] Included in interest and investment income is $188 and $425 of paid in kind interest for the three and six months ended June 30, 2019 and $487 and $978 for the comparable 2018 periods.
[3] Average borrowings outstanding were $1,127,509 and $1,108,512, and the related average borrowing costs were 3.14% and 3.01% for the three and six months ended June 30, 2019, and were $1,197,450 and $1,201,386 and 2.65% and 1.93% for the comparable 2018 periods.
[4] See Note 12 for the components of other operating expenses as of March 31, 2018.
[5] Includes $256 of net revenues received from Medallion Bank for the three months ended March 31, 2018, primarily for expense reimbursements. See Notes 6 and 15 for additional information
[6] There were no net losses on investment securities of affiliated issuers for the three months ended March 31, 2018.
v3.19.2
Consolidated Statement of Income (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Mar. 31, 2018
Jun. 30, 2019
Jun. 30, 2018
Interest paid in kind $ 188 $ 487   $ 425 $ 978
Average borrowings outstanding $ 1,127,509 $ 1,197,450   $ 1,108,512 $ 1,201,386
Average borrowing costs rate 3.14% 2.65%   3.01% 1.93%
Net Gain/losses on investment securities of affiliated [1],[2]         $ (34,745)
Affiliated Entity [Member]          
Net Gain/losses on investment securities of affiliated     $ 0    
Medallion Bank [Member]          
Revenue     $ 256    
[1] Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
[2] There were no net losses on investment securities of affiliated issuers for the three months ended March 31, 2018.
v3.19.2
Consolidated Statements of Other Comprehensive Income/(Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
[1]
Statement Of Income And Comprehensive Income [Abstract]        
Net loss after taxes/net decrease on net assets resulting from operations $ (6,643) $ (13,884) $ (5,248) $ (28,758)
Other comprehensive income (loss), net of tax 558 (255) 1,227 (255)
Total comprehensive loss (6,085) (14,139) (4,021) (29,013)
Less: comprehensive income attributable to the noncontrolling interest 857 763 1,024 763
Total comprehensive loss attributable to Medallion Financial Corp. $ (6,942) $ (14,902) $ (5,045) $ (29,776)
[1] Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
v3.19.2
Consolidated Statement of Changes in Stockholders' Equity and Changes in Net Assets - USD ($)
$ in Thousands
Total
Common Stock [Member]
Preferred Stock [Member]
Capital in Excess of Par [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income [Member]
Parent [Member]
Noncontrolling Interest [Member]
Accumulated Undistributed Net Investment Loss [Member]
Net Unrealized Appreciation on Investment Net of Tax [Member]
Balance at Dec. 31, 2017 $ 287,159 $ 273   $ 273,716 $ (24,919)     $ 287,159      
Balance (Investment Company Accounting [Member]) at Dec. 31, 2017                   $ (65,592) $ 103,681
Balance, shares at Dec. 31, 2017   27,294,327     (2,951,243)            
Net decrease in net assets resulting from operations (14,874)             (14,874)      
Net decrease in net assets resulting from operations | Investment Company Accounting [Member]                   (38,299) 23,425
Stock based compensation expense 152 $ 1   151       152      
Issuance of restricted stock, net, shares   95,726                  
Ending balance at Mar. 31, 2018 272,437 $ 274   273,867 $ (24,919)     272,437      
Ending balance (Investment Company Accounting [Member]) at Mar. 31, 2018                   (103,891) 127,106
Ending balance, shares at Mar. 31, 2018   27,390,053     (2,951,243)            
Adoption of Bank Holding Company Accounting at Mar. 31, 2018           $ 23,215          
Adoption of Bank Holding Company Accounting (Investment Company Accounting [Member]) at Mar. 31, 2018                   103,891 (127,106)
Balance at April 2, 2018 at Mar. 31, 2018 299,502 $ 274   273,867 $ (24,919) 23,215   272,437 $ 27,065    
Balance at Dec. 31, 2017 287,159 $ 273   273,716 $ (24,919)     287,159      
Balance (Investment Company Accounting [Member]) at Dec. 31, 2017                   (65,592) 103,681
Balance, shares at Dec. 31, 2017   27,294,327     (2,951,243)            
Net income (loss) [1] (28,758)                    
Ending balance at Jun. 30, 2018 284,916 $ 274   274,012 $ (24,919) 8,568 $ (255) 257,680 27,236    
Ending balance, shares at Jun. 30, 2018   27,390,066     (2,951,243)            
Balance at Dec. 31, 2017 287,159 $ 273   273,716 $ (24,919)     287,159      
Balance (Investment Company Accounting [Member]) at Dec. 31, 2017                   (65,592) 103,681
Balance, shares at Dec. 31, 2017   27,294,327     (2,951,243)            
Net change in unrealized gains (losses) on investments, net of tax (82)                    
Ending balance at Dec. 31, 2018 $ 290,204 $ 274   274,292 $ (24,919) 13,043 (82) 262,608 27,596    
Ending balance, shares at Dec. 31, 2018 24,434,357 27,385,600     (2,951,243)            
Balance at Mar. 31, 2018 $ 272,437 $ 274   273,867 $ (24,919)     272,437      
Balance (Investment Company Accounting [Member]) at Mar. 31, 2018                   $ (103,891) $ 127,106
Balance, shares at Mar. 31, 2018   27,390,053     (2,951,243)            
Net income (loss) (13,884)         (14,647)   (14,647) 763    
Distributions to non- controlling interest (592)               (592)    
Stock based compensation expense 145     145       145      
Issuance of restricted stock, net, shares   13                  
Net change in unrealized gains (losses) on investments, net of tax (255)           (255) (255)      
Ending balance at Jun. 30, 2018 284,916 $ 274   274,012 $ (24,919) 8,568 (255) 257,680 27,236    
Ending balance, shares at Jun. 30, 2018   27,390,066     (2,951,243)            
Balance at Dec. 31, 2018 $ 290,204 $ 274   274,292 $ (24,919) 13,043 (82) 262,608 27,596    
Balance, shares at Dec. 31, 2018 24,434,357 27,385,600     (2,951,243)            
Net income (loss) $ 1,395         1,228   1,228 167    
Distributions to non- controlling interest (592)               (592)    
Stock based compensation expense 165 $ 1   164       165      
Issuance of restricted stock, net 0 $ 0 $ 0 0 $ 0 0 0 0 0    
Issuance of restricted stock, net, shares   163,098                  
Forfeiture of restricted stock, net 0 $ 0 0 0 0 0 0 0 0    
Forfeiture of restricted stock, net, shares   (1,699)                  
Net change in unrealized gains (losses) on investments, net of tax 669           669 669      
Ending balance at Mar. 31, 2019 291,841 $ 275   274,456 $ (24,919) 14,271 587 264,670 27,171    
Ending balance, shares at Mar. 31, 2019   27,546,999     (2,951,243)            
Balance at Dec. 31, 2018 $ 290,204 $ 274   274,292 $ (24,919) 13,043 (82) 262,608 27,596    
Balance, shares at Dec. 31, 2018 24,434,357 27,385,600     (2,951,243)            
Net income (loss) $ (5,248)                    
Net change in unrealized gains (losses) on investments, net of tax 1,227                    
Ending balance at Jun. 30, 2019 $ 285,504 $ 275   274,796 $ (24,919) 6,771 1,145 258,068 27,436    
Ending balance, shares at Jun. 30, 2019 24,599,558 27,550,801     (2,951,243)            
Balance at Mar. 31, 2019 $ 291,841 $ 275   274,456 $ (24,919) 14,271 587 264,670 27,171    
Balance, shares at Mar. 31, 2019   27,546,999     (2,951,243)            
Net income (loss) (6,643)         (7,500)   (7,500) 857    
Distributions to non- controlling interest (592)               (592)    
Stock based compensation expense 340     340       340      
Issuance of restricted stock, net 0 $ 0 0 0 $ 0 0 0 0 0    
Issuance of restricted stock, net, shares   4,751                  
Forfeiture of restricted stock, net 0 $ 0 $ 0 0 0 0 0 0 0    
Forfeiture of restricted stock, net, shares   (949)                  
Net change in unrealized gains (losses) on investments, net of tax 558           558 558      
Ending balance at Jun. 30, 2019 $ 285,504 $ 275   $ 274,796 $ (24,919) $ 6,771 $ 1,145 $ 258,068 $ 27,436    
Ending balance, shares at Jun. 30, 2019 24,599,558 27,550,801     (2,951,243)            
[1] Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
v3.19.2
Consolidated Statements of Cash Flows - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss after taxes/net decrease on net assets resulting from operations $ (5,248,000) $ (28,758,000) [1]
Adjustments to reconcile net loss/net decrease in net assets resulting from operations to net cash provided by operating activities:    
Provision for loan losses 28,514,000 30,576,000 [1]
Paid-in-kind interest (425,000) (978,000) [1]
Depreciation and amortization 4,186,000 1,283,000 [1]
(Decrease) increase in deferred and other tax liabilities (1,560,000) 3,204,000 [1]
Amortization of origination fees, net 2,389,000 1,045,000 [1]
Proceeds from the sale and principal payments on loan collateral in process of foreclosure 9,167,000  
Net change in loan collateral in process of foreclosure 7,411,000 2,967,000 [1]
Net change in unrealized depreciation on investments (96,000) 4,995,000 [1]
Stock-based compensation expense 505,000 297,000 [1]
Gain on extinguishment of debt (4,145,000)  
(Increase) decrease in accrued interest receivable (329,000) 130,000 [1]
Increase in other assets (5,505,000) (4,845,000) [1]
Decrease (increase) in accounts payable and accrued expenses 139,000 (675,000) [1]
Increase (decrease) in accrued interest payable 353,000 (249,000) [1]
Loans originated [1]   (8,193,000)
Proceeds from principal receipts, sales, and maturities of loans [1]   13,279,000
Capital returned by Medallion Bank and other controlled subsidiaries, net [1]   93,000
Net realized losses on sale of investments [1]   96,000
Net change in unrealized depreciation on investment other than securities [1]   1,915,000
Increase in unrealized appreciation on Medallion Bank and other controlled subsidiaries [1]   (29,115,000)
Net realized losses on investments [1],[2]   34,745,000
Increase in other liabilities [1]   2,779,000
Net cash provided by operating activities 35,356,000 24,591,000 [1]
CASH FLOWS FROM INVESTING ACTIVITIES    
Loans originated (240,523,000) (135,205,000) [1]
Proceeds from principal receipts, sales, and maturities of loans 122,106,000 64,631,000 [1]
Purchases of investments (1,650,000) (4,940,000) [1]
Proceeds from principal receipts, sales, and maturities of investments 2,877,000 732,000 [1]
Net cash (used for) investing activities (117,190,000) (74,782,000) [1]
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from time deposits and funds borrowed 292,725,000 173,737,000 [1]
Repayments of time deposits and funds borrowed (195,272,000) (137,822,000) [1]
Purchase of federal funds [1]   8,000,000
Distributions to noncontrolling interests (1,184,000) (592,000) [1]
Payments of declared distributions [1]   (64,000)
Net cash provided by financing activities 96,269,000 43,259,000 [1]
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 14,435,000 (6,932,000) [1]
Cash and cash equivalents and restricted cash, beginning of period [3] 57,713,000 42,513,000 [1]
Cash and cash equivalents and restricted cash, end of period [4] 72,148,000 35,581,000 [1]
SUPPLEMENTAL INFORMATION    
Cash paid during the period for interest 15,077,000 10,038,000 [1]
Cash paid during the period for income taxes 120,000 42,000 [1]
Deposit [5] $ 35,138,000  
Previously Unconsolidated Subsidiaries [Member]    
SUPPLEMENTAL INFORMATION    
Cash, cash equivalents and federal funds sold   29,923,000
Medallion Bank [Member]    
SUPPLEMENTAL INFORMATION    
Deposit   $ 100,000
[1] Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
[2] There were no net losses on investment securities of affiliated issuers for the three months ended March 31, 2018.
[3] The beginning balance for the six months ended June 30, 2018 includes $29,923 of cash, cash equivalents and federal funds sold as a result of the consolidation of previously unconsolidated subsidiaries and excludes $100 of cash held by the Company on deposit with Medallion Bank.
[4] Includes federal funds sold.
[5] Includes restricted cash of $2,475 as of June 30, 2019.
v3.19.2
Organization of Medallion Financial Corp. and its Subsidiaries
6 Months Ended
Jun. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization of Medallion Financial Corp. and its Subsidiaries

(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES

Medallion Financial Corp. (the Company) is a finance company organized as a Delaware corporation that reports as a bank holding company, but is not a bank holding company for regulatory purposes. The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Bank (the Bank), a Federal Deposit Insurance Corporation (FDIC) insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activities. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes examinations by those agencies. The Bank was initially formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxicab medallions, 2) asset-based commercial loans, and 3) SBA 7(a) loans. The loans are marketed and serviced by the Bank’s affiliates that have extensive prior experience in these asset groups. Subsequent to its formation, the Bank began originating consumer loans to finance the purchases of recreational vehicles (RVs), boats, and other related items, and to finance small scale home improvements. The Company also conducts business through Medallion Funding LLC (MFC), a Small Business Investment Company (SBIC), which originates and services taxicab medallion and commercial loans.

The Company also conducts business through its subsidiaries Medallion Capital, Inc. (MCI), an SBIC that conducts a mezzanine financing business, and Freshstart Venture Capital Corp. (FSVC), an SBIC that originates and services taxicab medallion and commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated by the Small Business Administration (SBA). MCI and FSVC are financed in part by the SBA.

The Company has a controlling ownership stake in Medallion Motorsports, LLC, the primary owner of RPAC Racing, LLC (RPAC), a professional car racing team that competes in the Monster Energy NASCAR Cup Series and is also consolidated with the Company.

The Company formed a wholly-owned subsidiary, Medallion Servicing Corporation (MSC), to provide loan services to the Bank. The Company has assigned all of its loan servicing rights for the Bank, which consists of servicing taxi medallion loans originated by the Bank, to MSC, which bills and collects the related service fee income from the Bank, which is allocated and charged by the Company for MSC’s share of these servicing costs.

Taxi Medallion Loan Trust III (Trust III) was established for the purpose of owning medallion loans originated by MFC or others. Trust III is a variable interest entity (VIE), and MFC was the primary beneficiary. As a result, the Company consolidated Trust III in its financial results until the consummation of a restructuring in the 2018 fourth quarter. For a discussion of the restructuring, see Note 19. Trust III is a separate legal and corporate entity with its own creditors which, in any liquidation of Trust III, will be entitled to be satisfied out of Trust III’s assets prior to any value in Trust III becoming available to Trust III’s equity holders. The assets of Trust III are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Trust III. Trust III’s loans are serviced by MFC.

The Company established a wholly-owned subsidiary, Medallion Financing Trust I (Fin Trust) for the purpose of issuing unsecured preferred securities to investors. Fin Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of Fin Trust, will be entitled to be satisfied out of Fin Trust’s assets prior to any value in Fin Trust becoming available to Fin Trust’s equity holders. The assets of Fin Trust, aggregating $36,140,000 at June 30, 2019, are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Fin Trust.

MFC, through several wholly-owned subsidiaries (together, Medallion Chicago), purchased $8,689,000 of City of Chicago taxicab medallions out of foreclosure, some of which are leased to fleet operators while being held for sale. The 159 medallions are carried at a net realizable value of $3,091,000 in other assets on the Company’s consolidated balance sheet at June 30, 2019, compared to a net realizable value of $4,305,000 and $5,535,000 at December 31, 2018 and June 30, 2018.

v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change to Bank Holding Company Accounting

Effective April 2, 2018, the Company withdrew its previous election to be regulated as a business development company (BDC) under the Investment Company Act of 1940 (the 1940 Act). Prior to such time, the Company was a closed-end, non-diversified management investment company that had elected to be treated as a BDC under the 1940 Act. Accordingly, commencing with the three months ended June 30, 2018, the Company (which now consolidates the results of the Bank and its other subsidiaries) reports in accordance with Bank Holding Company Accounting; periods prior to such change in status are reported in accordance with Investment Company Accounting. Significant accounting policies that differ between such periods are described in more detail below.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US (GAAP) requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions change, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of loans and loans in process of foreclosure, goodwill and intangible assets, and investments, among other effects.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned and controlled subsidiaries commencing with the three months ended June 30, 2018. All significant intercompany transactions, balances, and profits (losses) have been eliminated in consolidation. As a result of the Company’s election to withdraw from being regulated as a BDC under the 1940 Act effective April 2, 2018, the Bank and various other Company subsidiaries that were not previously consolidated with the Company prior to the three months ended June 30, 2018, were now consolidated effective April 2, 2018. See Note 6 for the presentation of financial information for the Bank and other controlled subsidiaries for such prior periods.

The consolidated financial statements have been prepared in accordance with GAAP. The Company consolidates all entities it controls through a majority voting interest, a controlling interest through other contractual rights, or as being identified as the primary beneficiary of VIEs. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party’s holding is recorded as non-controlling interest.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that exceed the federally insured limits. Cash includes $2,475,000 of an interest reserve associated with the private placement of debt in March 2019, which cannot be used for any other purpose until March 2022.

Fair Value of Assets and Liabilities

The Company follows FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (FASB ASC 820), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as an exit price (i.e. a price that would be received to sell, as opposed to acquire, an asset or transfer a liability), and emphasizes that fair value is a market-based measurement. It establishes a fair value hierarchy that distinguishes between assumptions developed based on market data obtained from independent external sources and the reporting entity’s own assumptions. Further, it specifies that fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. See also Notes 16 and 17 to the consolidated financial statements.

Equity Investments

Equity investments of $9,797,000 and $9,197,000 at June 30, 2019 and December 31, 2018, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost and are evaluated for impairment periodically. Prior to April 2, 2018, equity investments were recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair value of investments that had no ready market were determined in good faith by the Board of Directors, based upon the financial condition and operating performance of the underlying investee companies as well as general market trends for businesses in the same industry.

Investment Securities (Bank Holding Company Accounting)

The Company follows FASB ASC Topic 320, Investments – Debt and Equity Securities (ASC 320), which requires that all applicable investments in equity securities with readily determinable fair values, and debt securities be classified as trading securities, available-for-sale securities, or held-to-maturity securities. Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized on a level yield basis as an adjustment to the yield of the related investment. The net premium on investment securities totaled $129,000 at June 30, 2019 and $154,000 at December 31, 2018, and $13,000 and $25,000 was amortized to interest income for the three and six months ended June 30, 2019, and $21,000 was amortized to interest income for the three months ended June 30, 2018. Refer to Note 3 for more details. ASC 320 further requires that held-to-maturity securities be reported at amortized cost and available-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings at the date of the consolidated financial statements, and reported in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity, net of the effect of income taxes, until they are sold. At the time of sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results and any amounts previously included in shareholders’ equity, which were recorded net of the income tax effect, will be reversed.

Other Investment Valuation (Investment Company Accounting)

Prior to April 2, 2018, under the 1940 Act, the Company’s investment in the Bank, as a wholly owned portfolio investment, was subject to quarterly assessments of fair value. The Company conducted a thorough valuation analysis, and also received an opinion regarding the valuation from an independent third party to assist the Board of Directors in its determination of the fair value of the Bank on at least an annual basis. The Company’s analysis included factors such as various regulatory restrictions that were established at the Bank’s inception, by the FDIC and State of Utah, and also by additional regulatory restrictions, such as the prior moratorium imposed by the Dodd-Frank Act on the acquisition of control of an industrial bank by a “commercial firm” (a company whose gross revenues are primarily derived from non-financial activities) which expired in July 2013 and the lack of any new charter issuances since the moratorium’s expiration. Because of these restrictions and other factors, the Company’s Board of Directors had previously determined that the Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used the Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the 2015 second quarter, the Company first became aware of external interest in the Bank and its portfolio assets at values in excess of their book value. Expression of interest in the Bank from both investment bankers and interested parties continued. The Company incorporated these new factors in the Bank’s fair value analysis and the Board of Directors determined that the Bank had a fair value in excess of book value. In addition, in the 2016 third quarter there was a court ruling involving a marketplace lender that the Company believes heightened the interest of marketplace lenders to acquire or merge with Utah industrial banks. The Company also engaged a valuation specialist to assist the Board of Directors in their determination of the Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $128,918,000 was recorded in 2016, $7,849,000 was recorded in 2017, and $39,826,000 was recorded in the first quarter of 2018. Refer to Note 6 for additional details.

Loans

The Company’s loans are currently reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. Effective April 2, 2018, the existing loan balances were adjusted to fair value in connection with the change in reporting, and balances, net of reserves and fees, became the opening balances.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At June 30, 2019 and December 31, 2018, net loan origination costs were $16,786,000 and $14,416,000. The majority of these loan origination costs were capitalized into the loan balances on April 2, 2018 in connection with the change in reporting status. Net amortization to income for the three months ended June 30, 2019 and 2018 was $1,238,000 and $1,040,000, and was $2,389,000 and $1,053,000 ($1,918,000 when combined with the Bank) for the comparable six month period.

Interest income is recorded on the accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. The consumer portfolio has different characteristics, typified by a larger number of lower dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is likely the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have not been charged-off, to be impaired. These loans are placed on nonaccrual, when they become 90 days past due, or earlier if they enter bankruptcy, and are charged-off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated. For the recreation consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged-off. If the collateral is repossessed, a loss is recorded to write the collateral down to its fair value less selling costs, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off. Proceeds collected on charged-off accounts are recorded as a recovery. Total loans more than 90 days past due were $8,255,000 at June 30, 2019, or 0.78% of the total loan portfolio, compared to $20,154,000, or 2.03% at December 31, 2018.

Loan collateral in process of foreclosure primarily includes taxicab medallion loans that have reached 120 days past due and have been charged-down to their net realizable value, in addition to consumer repossessed collateral in the process of being sold. The taxicab medallion loan component reflects that the collection activities on the loans have transitioned from working with the borrower, to the liquidation of the collateral securing the loans.

The Company had $32,871,000 and $40,500,000 of net loans and loans in process of foreclosure pledged as collateral under borrowing arrangements at June 30, 2019 and December 31, 2018.

The Company accounts for its sales of loans in accordance with FASB Accounting Standards Codification Topic 860, Transfers and Servicing (FASB ASC 860), which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. In accordance with FASB ASC 860, the Company had elected the fair value measurement method for its servicing assets and liabilities. The principal portion of loans serviced for others by the Company and its affiliates was $134,122,000 at June 30, 2019 and $140,180,000 at December 31, 2018. The Company has evaluated the servicing aspect of its business in accordance with FASB ASC 860, which relates to servicing assets held by MFC (related to the remaining assets in Trust III) and determined that no material servicing asset or liability existed as of June 30, 2019 and December 31, 2018. The Company assigned its servicing rights of the Bank portfolio to MSC. The costs of servicing were allocated to MSC by the Company, and the servicing fee income was billed to and collected from the Bank by MSC.

Allowance for Loan Losses (Bank Holding Company Accounting)

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a one year lookback period for consumer loans. For commercial loans deemed nonperforming, the historical loss experience and other projections are looked at, and for medallion loans, nonperforming loans are valued at the median sales price over the most recent quarter, and performing medallion loans are reserved utilizing historical loss ratios over a three-year lookback period. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. As a result, reserves of $5,247,000 were recorded by the Company as a general reserve on medallion loans as an additional buffer against future losses, not including the Bank’s general reserve of $17,351,000 which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves of $6,092,000. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.

Unrealized Appreciation (Depreciation) and Realized Gains (Losses) on Investments (Investment Company Accounting)

Prior to April 2, 2018, under Investment Company Accounting, the Company’s loans, net of participations and any unearned discount, were considered investment securities under the 1940 Act and recorded at fair value. As part of the fair value methodology, loans were valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market existed for these loans, the fair value was determined in good faith by the Board of Directors. In determining the fair value, the Board of Directors considered factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, cash flows of the borrower, market conditions for loans (e.g. values used by other lenders and any active bid/ask market), historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. Investments other than securities, which represent collateral received from defaulted borrowers, were valued similarly.

Under Investment Company Accounting, the Company recognized unrealized appreciation (depreciation) on investments as the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Refer to Note 5 for additional details.

Goodwill and Intangible Assets

The Company’s goodwill and intangible assets arose as a result of the excess of fair value over book value for several of the Company’s previously unconsolidated portfolio investment companies as of April 2, 2018. This fair value was brought forward under the Company’s new reporting, and was subject to a purchase price accounting allocation process conducted by an independent third party expert to arrive at the current categories and amounts. Goodwill is not amortized, but is subject to quarterly review by management to determine whether additional impairment testing is needed, said testing which is performed at least on an annual basis. Intangible assets are amortized over their useful life of approximately 20 years. As of June 30, 2019, December 31, 2018, and June 30, 2018, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $53,259,000, $53,982,000 and $60,320,000, and the Company recognized $362,000 and $361,000 of amortization expense on the intangible assets for the three months ended June 30, 2019 and 2018, and $723,000 of amortization expense on the intangible assets for the six months ended June 30, 2019. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $6,875,000, $9,048,000, and $12,387,000 were outstanding at June 30, 2019, December 31, 2018, and June 30, 2018, and of which $1,081,000 and $0 was amortized to interest income for the three months ended June 30, 2019 and 2018, and of which $2,173,000 was amortized to interest income for the six months ended June 30, 2019. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2018, who concluded there was no impairment on the Bank and impairment on the RPAC intangible asset of $5,615,000, which was recorded in the 2018 fourth quarter.

The table below shows the details of the intangible assets as of the periods presented.

 

(Dollars in thousands)

 

June 30,

2019

 

 

December 31,

2018

 

Brand-related intellectual property

 

$

20,625

 

 

$

21,176

 

Home improvement contractor relationships

 

 

6,469

 

 

 

6,641

 

Race organization

 

 

26,165

 

 

 

26,165

 

Total intangible assets

 

$

53,259

 

 

$

53,982

 

 

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $105,000 and $135,000 for the three months ended June 30, 2019 and 2018, and was $205,000 and $158,000 for the comparable six months.

Deferred Costs

Deferred financing costs, included in other assets, represent costs associated with obtaining the Company’s borrowing facilities, and are amortized on a straight line basis over the lives of the related financing agreements and life of the respective pool. Amortization expense was $597,000 and $541,000 for the three months ended June 30, 2019 and 2018, and was $1,118,000 and $764,000 for the comparable six months. In addition, the Company capitalizes certain costs for transactions in the process of completion (other than business combinations), including those for potential investments, and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts are amortized against income over an appropriate period, or written off. The amount on the Company’s balance sheet for all of these purposes was $5,584,000, $4,461,000, and $5,012,000 as of June 30, 2019, December 31, 2018, and June 30, 2018.

Income Taxes

Income taxes are accounted for using the asset and liability approach in accordance with FASB ASC Topic 740, Income Taxes (ASC 740). Deferred tax assets and liabilities reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are also recorded for net operating losses, capital losses and any tax credit carryforwards. A valuation allowance is provided against a deferred tax asset when it is more likely than not that some or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether a valuation allowance for deferred tax assets is needed. Items considered in determining our valuation allowance include expectations of future earnings of the appropriate tax character, recent historical financial results, tax planning strategies, the length of statutory carryforward periods and the expected timing of the reversal of temporary differences. Under ASC 740, forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence, such as cumulative losses in recent years. The Company recognizes tax benefits of uncertain tax positions only when the position is more likely than not to be sustained assuming examination by tax authorities. The Company records income tax related interest and penalties, if applicable, within current income tax expense.

Sponsorship and Race Winnings

The Company accounts for sponsorship and race winnings revenue under FASB ASC Topic 606, Revenue from Contracts with Customers. Sponsorship revenue is recognized based upon the contract terms of the sponsorship contract. Race winnings revenue is recognized after each race during the season based upon terms provided by NASCAR and the placement of the driver.

Earnings (Loss) Per Share (EPS)

Basic earnings (loss) per share are computed by dividing net income (loss)/net increase (decrease) in net assets resulting from operations available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, or if restricted stock vests, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. The table below shows the calculation of basic and diluted EPS.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands, except per share data)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss/net decrease in net assets resulting from operations

   available to common shareholders

 

$

(7,500

)

 

$

(14,647

)

 

$

(6,272

)

 

$

(29,521

)

Weighted average common shares outstanding applicable to

   basic EPS

 

 

24,359,280

 

 

 

24,230,815

 

 

 

24,323,967

 

 

 

24,193,057

 

Effect of dilutive stock options

 

 

 

 

 

 

 

 

 

 

 

 

Effect of restricted stock grants

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average common shares outstanding

   applicable to diluted EPS

 

 

24,359,280

 

 

 

24,230,815

 

 

 

24,323,967

 

 

 

24,193,057

 

Basic loss per share

 

$

(0.31

)

 

$

(0.60

)

 

$

(0.26

)

 

$

(1.22

)

Diluted loss per share

 

 

(0.31

)

 

 

(0.60

)

 

 

(0.26

)

 

 

(1.22

)

 

Potentially dilutive common shares excluded from the above calculations aggregated 498,714 and 100,000 shares as of June 30, 2019 and 2018.

Stock Compensation

The Company follows FASB ASC Topic 718 (ASC 718), Compensation – Stock Compensation, for its equity incentive, stock option, and restricted stock plans, and accordingly, the Company recognizes the expense of these grants as required. Stock-based employee compensation costs pertaining to stock options are reflected in net increase in net income/net assets resulting from operations for any new grants using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Stock-based employee compensation costs pertaining to restricted stock are reflected in net income/net increase net assets resulting from operations for any new grants using the grant date fair value of the shares granted, expensed over the vesting period of the underlying stock.

During the six months ended June 30, 2019 and 2018, the Company issued 167,849 and 98,164 of restricted shares of stock-based compensation awards, and 375,481 and 24,000 shares of stock options, and recognized $340,000 and $505,000, or $0.01 and $0.02 per share for the 2019 second quarter and six months, and $145,000 and $296,000, or $0.01 per share for each of the comparable 2018 periods, of non-cash stock-based compensation expense related to the grants. As of June 30, 2019, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $1,831,000, which is expected to be recognized over the next 15 quarters (see Note 10).

Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the FDIC and the Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.

FDIC-insured banks, including the Bank, are subject to certain federal laws, which impose various legal limitations on the extent to which banks may finance or otherwise supply funds to certain of their affiliates. In particular, the Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions, such as certain purchases of assets, with the Company or its affiliates.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting the Bank’s application for federal deposit insurance, the FDIC ordered that the Tier 1 leverage capital to total assets ratio, as defined, be not less than 15%, which would preclude its ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of June 30, 2019, the Bank’s Tier 1 leverage ratio was 15.96%. The Bank’s actual capital amounts and ratios, and the regulatory minimum ratios are presented in the following table.

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Minimum

 

 

Well-

Capitalized

 

 

June 30,

2019

 

 

December 31,

2018

 

Common equity Tier 1 capital

 

 

 

 

 

 

 

$

144,886

 

 

$

141,608

 

Tier 1 capital

 

 

 

 

 

 

 

 

171,189

 

 

 

167,911

 

Total capital

 

 

 

 

 

 

 

 

185,117

 

 

 

180,917

 

Average assets

 

 

 

 

 

 

 

 

1,072,712

 

 

 

1,059,461

 

Risk-weighted assets

 

 

 

 

 

 

 

 

1,068,566

 

 

 

993,374

 

Leverage ratio(1)

 

 

4.0

%

 

 

5.0

%

 

 

16.0

%

 

 

15.8

%

Common equity Tier 1 capital ratio(2)

 

 

7.0

 

 

 

6.5

 

 

 

13.6

 

 

 

14.3

 

Tier 1 capital ratio(3)

 

 

8.5

 

 

 

8.0

 

 

 

16.0

 

 

 

16.9

 

Total capital ratio(3)

 

 

10.5

 

 

 

10.0

 

 

 

17.3

 

 

 

18.2

 

 

(1)

Calculated by dividing Tier 1 capital by average assets.

(2)

Calculated by subtracting preferred stock or non-controlling interests from Tier 1 capital and dividing by risk-weighted assets.

(3)

Calculated by dividing Tier 1 or total capital by risk-weighted assets.

In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer on top of the minimum risk-based capital ratios. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and increased by 0.625% each subsequent January 1 until January 1, 2019. Including the buffer, as of January 1, 2019, the Bank is required to maintain the following minimum capital ratios: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0%, a Tier 1 risk-based capital ratio of greater than 8.5% and a total risk-based capital ratio of greater than 10.5%. Since the FDIC’s new capital rule has been fully phased in, the minimum capital requirements plus the capital conservation buffer exceed the Prompt Corrective Action well-capitalized thresholds.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The objective of this update is to modify the disclosure requirements as they relate to the fair value of assets and liabilities. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial condition.

In January 2017, the FASB issued ASU 2017-04 Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of this update is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial condition.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. Under the FASB’s new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing “probable” and “incurred” loss recognition threshold is removed. Loss estimates are based upon lifetime “expected” credit losses. The use of past and current events must now be supplemented with “reasonable and supportable” expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model. ASU 2016-13 applies to all entities and is effective for fiscal years beginning after December 15, 2019 for public entities, with early adoption permitted. The Company is assessing the impact the update will have on its financial statements, and expects the update to have a significant impact on the Company’s accounting for estimated credit losses on its loans.

v3.19.2
Investment Securities (Bank Holding Company Accounting)
6 Months Ended
Jun. 30, 2019
Investments Schedule [Abstract]  
Investment Securities (Bank Holding Company Accounting)

(3) INVESTMENT SECURITIES (Bank Holding Company Accounting)

Fixed maturity securities available for sale as of June 30, 2019 and December 31, 2018 consisted of the following:

 

June 30, 2019

(Dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of US

   federal agencies

 

$

31,083

 

 

$

488

 

 

$

(31

)

 

$

31,540

 

State and municipalities

 

 

13,155

 

 

 

218

 

 

 

(93

)

 

 

13,280

 

Total

 

$

44,238

 

 

$

706

 

 

$

(124

)

 

$

44,820

 

 

December 31, 2018

(Dollars in thousands)

 

Amortized Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of

   US federal agencies

 

$

32,184

 

 

$

15

 

 

$

(742

)

 

$

31,457

 

State and municipalities

 

 

14,239

 

 

 

35

 

 

 

(407

)

 

 

13,867

 

Total

 

$

46,423

 

 

$

50

 

 

$

(1,149

)

 

$

45,324

 

 

The amortized cost and estimated market value of investment securities as of June 30, 2019 by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollars in thousands)

 

Amortized Cost

 

 

Fair Value

 

Due in one year or less

 

$

20

 

 

$

20

 

Due after one year through five years

 

 

8,889

 

 

 

8,959

 

Due after five years through ten years

 

 

12,112

 

 

 

12,298

 

Due after ten years

 

 

23,217

 

 

 

23,543

 

Total

 

$

44,238

 

 

$

44,820

 

 

The following table shows information pertaining to securities with gross unrealized losses at June 30, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position.

 

 

 

Less than Twelve Months

 

 

Twelve Months and Over

 

June 30, 2019

(Dollars in thousands)

 

Gross Unrealized

Losses

 

 

Fair Value

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations

   of US federal agencies

 

$

 

 

$

 

 

$

(31

)

 

$

7,401

 

State and municipalities

 

 

 

 

 

 

 

 

(93

)

 

 

8,016

 

Total

 

$

 

 

$

 

 

$

(124

)

 

$

15,417

 

 

 

 

Less than Twelve Months

 

 

Twelve Months and Over

 

December 31, 2018

(Dollars in thousands)

 

Gross Unrealized

Losses

 

 

Fair Value

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of

   US federal agencies

 

$

(54

)

 

$

4,616

 

 

$

(688

)

 

$

24,871

 

State and municipalities

 

 

(78

)

 

 

5,429

 

 

 

(329

)

 

 

6,259

 

Total

 

$

(132

)

 

$

10,045

 

 

$

(1,017

)

 

$

31,130

 

 

Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.

v3.19.2
Loans and Allowance for Loan Losses
6 Months Ended
Jun. 30, 2019
Text Block [Abstract]  
Loans and Allowance for Loan Losses

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES (Bank Holding Company Accounting)

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at June 30, 2019 and December 31, 2018.

 

 

 

As of June 30, 2019

 

 

As of December 31, 2018

 

(Dollars in thousands)

 

Amount

 

 

As a Percent of

Gross Loans

 

 

Amount

 

 

As a Percent of

Gross Loans

 

Recreation

 

$

668,540

 

 

 

62

%

 

$

587,038

 

 

 

58

%

Home improvement

 

 

209,549

 

 

 

19

 

 

 

183,155

 

 

 

18

 

Commercial

 

 

64,442

 

 

 

6

 

 

 

64,083

 

 

 

6

 

Medallion

 

 

145,944

 

 

 

13

 

 

 

183,606

 

 

 

18

 

Total gross loans

 

 

1,088,475

 

 

 

100

%

 

 

1,017,882

 

 

 

100

%

Allowance for loan losses

 

 

(40,670

)

 

 

 

 

 

 

(36,395

)

 

 

 

 

Total net loans

 

$

1,047,805

 

 

 

 

 

 

$

981,487

 

 

 

 

 

 

The following table shows the activity of the gross loans for the three and six months ended June 30, 2019.

 

Three Months Ended June 30, 2019

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

 

 

Medallions

 

 

Total

 

Gross loans- March 31, 2019

 

$

609,999

 

 

$

193,275

 

 

$

55,211

 

 

$

165,715

 

 

$

1,024,200

 

Loan originations

 

 

102,695

 

 

 

33,533

 

 

 

9,270

 

 

 

 

 

 

145,498

 

Principal payments

 

 

(41,641

)

 

 

(16,580

)

 

 

(70

)

 

 

(3,164

)

 

 

(61,455

)

Charge-offs, net

 

 

(2,433

)

 

 

(86

)

 

 

 

 

 

(8,844

)

 

 

(11,363

)

Transfer to loans in process of foreclosure, net

 

 

(3,491

)

 

 

 

 

 

 

 

 

(6,863

)

 

 

(10,354

)

Other

 

 

3,411

 

 

 

(593

)

 

 

31

 

 

 

(900

)

 

 

1,949

 

Gross loans- June 30, 2019

 

$

668,540

 

 

$

209,549

 

 

$

64,442

 

 

$

145,944

 

 

$

1,088,475

 

 

Six Months Ended June 30, 2019

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

 

 

Medallions

 

 

Total

 

Gross loans- December 31, 2018

 

$

587,038

 

 

$

183,155

 

 

$

64,083

 

 

$

183,606

 

 

$

1,017,882

 

Loan originations

 

 

166,327

 

 

 

60,180