MEDALLION FINANCIAL CORP, 10-K filed on 30 Mar 20
v3.20.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Mar. 27, 2020
Jun. 28, 2019
Document and Entity Information [Line Items]      
Document Type 10-K    
Amendment Flag false    
Document Annual Report true    
Document Transition Report false    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Registrant Name MEDALLION FINANCIAL CORP    
Entity Central Index Key 0001000209    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Interactive Data Current Yes    
Entity Filer Category Accelerated Filer    
Entity Common Stock, Shares Outstanding   24,806,656  
Entity Public Float     $ 137,883,018
Entity Emerging Growth Company false    
Entity Small Business true    
Entity Shell Company false    
Entity Incorporation, State or Country Code DE    
Entity File Number 001-37747    
Entity Tax Identification Number 04-3291176    
Entity Address, Address Line One 437 MADISON AVENUE, 38th Floor    
Entity Address, City or Town NEW YORK    
Entity Address, State or Province NY    
Entity Address, Postal Zip Code 10022    
City Area Code 212    
Local Phone Number 328-2100    
Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement for its 2020 Annual Meeting of Shareholders, which Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year-end of December 31, 2019, are incorporated by reference into Part III of this Form 10-K.

   
Common Stock [Member]      
Document and Entity Information [Line Items]      
Title of 12(b) Security Common Stock, par value $0.01 per share    
Trading Symbol MFIN    
Security Exchange Name NASDAQ    
9.000% Senior Notes due 2021 [Member]      
Document and Entity Information [Line Items]      
Title of 12(b) Security 9.000% Senior Notes due 2021    
Trading Symbol MFINL    
Security Exchange Name NASDAQ    
v3.20.1
Consolidated Balance Sheet - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Assets    
Cash [1] $ 17,700 $ 23,842
Federal funds sold 50,121 33,871
Equity investments 10,079 9,197
Investment securities 48,998 45,324
Loans 1,160,855 1,017,882
Allowance for loan losses [2] (46,093) (36,395)
Net loans receivable 1,114,762 981,487
Accrued interest receivable 8,662 7,413
Property, equipment, and right-of-use lease asset, net 14,375 1,222
Loan collateral in process of foreclosure [3] 52,711 49,495
Goodwill 150,803 150,803
Intangible assets, net 52,536 53,982
Income tax receivable 1,516  
Other assets 19,404 25,210
Total assets 1,541,667 1,381,846
Liabilities    
Accounts payable and accrued expenses [4] 16,234 18,789
Accrued interest payable 4,398 3,852
Deposits [5] 951,651 848,040
Short-term borrowings 38,223 55,178
Deferred tax liabilities [6] 9,341 6,973
Operating lease liabilities 12,738  
Long-term debt [7] 174,614 158,810
Total liabilities 1,207,199 1,091,642
Commitments and contingencies [8]
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- 27,597,802 shares at December 31, 2019 and 27,385,600 shares at December 31, 2018 issued) 276 274
Additional paid in capital 275,511 274,292
Treasury stock (2,951,243 shares at December 31, 2019 and December 31, 2018) (24,919) (24,919)
Accumulated other comprehensive income (loss) 999 (82)
Retained earnings 11,281 13,043
Total stockholders’ equity 263,148 262,608
Non-controlling interest in consolidated subsidiaries 71,320 27,596
Total equity 334,468 290,204
Total liabilities and equity $ 1,541,667 $ 1,381,846
Number of shares outstanding 24,646,559 24,434,357
Book value per share $ 10.68 $ 10.75
[1] Includes restricted cash of $2,970 as of December 31, 2019.
[2] Includes $3,173 of a general reserve as of December 31, 2019, for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 7% of the total allowance, and 2.56% of the loans in question. This figure excludes $17,351 of a general reserve on loans at the Bank, which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves benefit of $2,230.
[3] Includes financed sales of this collateral to third parties that are reported separately from the loan portfolio, and that are conducted by Medallion Bank of $8,163 and $3,134 as of December 31, 2019 and 2018.
[4] Includes the short-term portion of lease liabilities of $2,085 as of December 31, 2019. Refer to Note 8 for more details.
[5] Includes $2,594 of deferred financing costs as of December 31, 2019. Refer to Note 7 for more details.
[6] Includes $1,812 of income tax receivable as of December 31, 2018. Refer to Note 9 for more details.
[7] Includes $2,511 of deferred financing costs as of December 31, 2019. Refer to Note 7 for more details.
[8] Refer to Note 13 for details.
v3.20.1
Consolidated Balance Sheet (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
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 27,597,802 27,385,600
Treasury stock,shares 2,951,243 2,951,243
Restricted cash $ 2,970  
Loan collateral in process of foreclosure, financed sales collateral to third parties 8,163 $ 3,134
Short term lease liabilities 2,085  
Income tax receivable   $ 1,812
Deposits [Member]    
Deferred financing costs 2,594  
Long-Term Debt [Member]    
Deferred financing costs $ 2,511  
v3.20.1
Consolidated Statements of Income - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Interest and fees on loans [1]   $ 95,080,000  
Interest and dividends on investment securities [1]   1,644,000  
Medallion lease income [1]   133,000  
Interest income on investments [1]   3,287,000  
Interest income $ 132,562,000    
Dividends and interest income on short-term investments [1]   0  
Total interest income /total investment income [1],[2]   100,836,000  
Interest on deposits [1]   14,230,000  
Interest on short-term borrowings [1]   4,441,000  
Interest on long-term debt [1]   6,145,000  
Interest expense [1]   3,551,000  
Total interest expense 35,045,000 28,367,000 [1],[3]  
Net interest income/net investment income 97,517,000 72,469,000 [1]  
Provision for loan losses 47,386,000 59,008,000 [1]  
Net interest income after provision for loan losses 50,131,000 13,461,000 [1]  
Other income (loss)      
Gain on deconsolidation of Trust III [1]   25,325,000  
Sponsorship and race winnings, net 18,742,000 14,368,000 [1]  
Gain on the extinguishment of debt 4,145,000    
Gain on sale of loans [1]   4,946,000  
Writedown of loan collateral in process of foreclosure [1]   (2,188,000)  
Impairment of equity investments [1]   (939,000)  
Other income [1]   494,000  
Total other income, net [1]   42,006,000  
Other expenses      
Salaries and employee benefits [1]   21,706,000  
Race team related expenses 8,996,000 7,121,000 [1]  
Professional fees [1]   9,332,000  
Collection costs [1]   5,207,000  
Loan servicing fees [1]   3,470,000  
Rent expense [1]   2,040,000  
Regulatory fees [1]   1,703,000  
Amortization of intangible assets 1,446,000 1,083,000 [1]  
Travel, meals, and entertainment [1]   1,448,000  
Intangible asset impairment [1]   5,615,000  
Other expenses [1],[4]   7,464,000  
Total other expenses [1],[5]   66,189,000  
Income (loss) before income taxes/net investment loss before taxes 2,337,000 (10,722,000) [1],[5]  
Income tax (provision) benefit [1]   (373,000)  
Net income (loss) after taxes/net investment income (loss) after taxes [1]   (11,095,000)  
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 appreciation (depreciation) on investments [1]   (4,403,000)  
Income tax (provision) benefit [1]   (8,122,000)  
Net unrealized appreciation on investments [1]   14,675,000  
Net realized/unrealized gains (losses) on investments [1]   (11,644,000)  
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations $ 1,996,000 (22,739,000) [1]  
Less: income attributable to the non-controlling interest [1]   2,307,000  
Total net income (loss) attributable to Medallion Financial Corp./net increase (decrease) on net assets resulting from operations [1]   $ (25,046,000)  
Basic net income (loss) per share $ (0.07) $ (1.03) [1] $ 0.01
Diluted net income (loss) per share $ (0.07) $ (1.03) [1] $ 0.01
Weighted average common shares outstanding      
Basic 24,342,979 24,214,978 [1] 23,919,994
Diluted 24,342,979 24,214,978 [1] 24,053,307
Bank Holding Company Accounting [Member]      
Interest and fees on loans $ 130,167,000    
Interest and dividends on investment securities 2,225,000    
Medallion lease income 170,000    
Total interest income /total investment income [2] 132,562,000    
Interest on deposits 22,521,000    
Interest on short-term borrowings 3,242,000    
Interest on long-term debt 9,282,000    
Total interest expense [3] 35,045,000    
Net interest income/net investment income 97,517,000    
Provision for loan losses 47,386,000    
Net interest income after provision for loan losses 50,131,000    
Other income (loss)      
Sponsorship and race winnings, net 18,742,000    
Gain on the extinguishment of debt 4,145,000    
Writedown of loan collateral in process of foreclosure (4,381,000)    
Other income 1,881,000    
Total other income, net 20,387,000    
Other expenses      
Salaries and employee benefits 24,971,000    
Race team related expenses 8,996,000    
Professional fees 7,402,000    
Collection costs 6,638,000    
Loan servicing fees 5,253,000    
Rent expense 2,419,000    
Regulatory fees 1,722,000    
Amortization of intangible assets 1,446,000    
Travel, meals, and entertainment 1,138,000    
Other expenses [4] 8,196,000    
Total other expenses [5] 68,181,000    
Income (loss) before income taxes/net investment loss before taxes [5] 2,337,000    
Income tax (provision) benefit (341,000)    
Net income (loss) after taxes/net investment income (loss) after taxes 1,996,000    
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations 1,996,000    
Less: income attributable to the non-controlling interest 3,758,000    
Total net income (loss) attributable to Medallion Financial Corp./net increase (decrease) on net assets resulting from operations $ (1,762,000)    
Basic net income (loss) per share $ (0.07)    
Diluted net income (loss) per share $ (0.07)    
Weighted average common shares outstanding      
Basic 24,342,979    
Diluted 24,342,979    
Investment Company Accounting [Member]      
Medallion lease income     $ 198,000
Interest income on investments     14,564,000
Dividends and interest income on short-term investments     878,000
Total interest income /total investment income [2]     19,624,000
Interest expense     13,770,000
Total interest expense [3]     13,770,000
Net interest income/net investment income     5,854,000
Net interest income after provision for loan losses     5,854,000
Other income (loss)      
Other income     107,000
Total other income, net     107,000
Other expenses      
Salaries and employee benefits     7,508,000
Professional fees     2,619,000
Collection costs     316,000
Rent expense     1,069,000
Travel, meals, and entertainment     750,000
Other expenses [4]     1,548,000
Total other expenses [5]     13,810,000
Income (loss) before income taxes/net investment loss before taxes [5]     (7,849,000)
Income tax (provision) benefit     728,000
Net income (loss) after taxes/net investment income (loss) after taxes     (7,121,000)
Net realized losses on investments [6]     (43,744,000)
Income tax benefit     15,955,000
Total net realized losses on investments     (27,789,000)
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries     9,483,000
Net change in unrealized depreciation on investments other than securities     (2,060,000)
Net change in unrealized appreciation (depreciation) on investments     8,222,000
Income tax (provision) benefit     19,543,000
Net unrealized appreciation on investments     35,188,000
Net realized/unrealized gains (losses) on investments     7,399,000
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations     278,000
Total net income (loss) attributable to Medallion Financial Corp./net increase (decrease) on net assets resulting from operations     $ 278,000
Basic net income (loss) per share     $ 0.01
Diluted net income (loss) per share     $ 0.01
Weighted average common shares outstanding      
Basic     23,919,994
Diluted     24,053,307
Controlled Subsidiary Investment [Member]      
Dividend income from controlled subsidiaries [1]   $ 28,000  
Interest income [1]   10,000  
Controlled Subsidiary Investment [Member] | Investment Company Accounting [Member]      
Dividend income from controlled subsidiaries     $ 1,278,000
Interest income     165,000
Affiliate Investment [Member]      
Interest income [1]   $ 654,000  
Affiliate Investment [Member] | Investment Company Accounting [Member]      
Interest income     $ 2,541,000
[1] Balance includes the nine months ended December 31, 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 $834, $1,869 and $2,268 of paid in kind interest for the years ended December 31, 2019, 2018, and 2017.
[3] Average borrowings outstanding were $1,138,746, $1,198,124, and $334,022, and the related average borrowing costs were 3.08%, 2.37%, and 4.12% for the years ended December 31, 2019, 2018, and 2017.
[4] See Note 16 for the components of other expenses for the three months ended March 31, 2018 and the year ended December 31, 2017.
[5] Includes $256 and $870 of net revenues received from Medallion Bank for the years ended December 31, 2018 and 2017, primarily for expense reimbursements. See Notes 6 and 14 for additional information.
[6] There were no net losses on investment securities of affiliated issuers for the years ended December 31, 2018 and 2017.
v3.20.1
Consolidated Statements of Income (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Interest paid in kind $ 834 $ 1,869 $ 2,268
Average borrowings outstanding $ 1,138,746 $ 1,198,124 $ 334,022
Average borrowing costs rate 3.08% 2.37% 4.12%
Net realized gains (losses) on investments [1],[2]   $ (34,745)  
Affiliated Entity [Member]      
Net realized gains (losses) on investments   0 $ 0
Medallion Bank [Member]      
Revenue   $ 256 $ 870
[1] Balance includes the nine months ended December 31, 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 years ended December 31, 2018 and 2017.
v3.20.1
Consolidated Statements of Other Comprehensive Income/(Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
[1]
Dec. 31, 2017
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations $ 1,996 $ (22,739)  
Other comprehensive income (loss), net of tax 1,081 (82)  
Total comprehensive income (loss) 3,077 (22,821)  
Less: comprehensive income attributable to the non-controlling interest 3,758 2,307  
Total comprehensive income (loss) attributable to Medallion Financial Corp. $ (681) $ (25,128)  
Investment Company Accounting [Member]      
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations     $ 278
Total comprehensive income (loss)     278
Total comprehensive income (loss) attributable to Medallion Financial Corp.     $ 278
[1] Balance includes the nine months ended December 31, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
v3.20.1
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 (Loss) [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, 2016 $ 286,096                    
Ending balance at Dec. 31, 2017 287,159 $ 273   $ 273,716 $ (24,919)     $ 287,159      
Ending balance (Investment Company Accounting [Member]) at Dec. 31, 2017                   $ (65,592) $ 103,681
Ending balance, shares at Dec. 31, 2017   27,294,327     (2,951,243)            
Net income (loss) [1] (14,874)                    
Net increase (decrease) in net assets resulting from operations (14,874)             (14,874)      
Net increase (decrease) in net assets resulting from operations | Investment Company Accounting [Member]                   (38,299) 23,425
Stock-based compensation 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) [2] (22,739)                    
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) (7,865)         (10,172)   (10,172) 2,307    
Distributions to non-controlling interest (1,776)               (1,776)    
Stock-based compensation 425     425       425      
Forfeiture of restricted stock, net, shares   (4,453)                  
Net change in unrealized gains (losses) on investments, net of tax (82)           (82) (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)            
Net income (loss) $ 1,996         (1,762)   (1,762) 3,758    
Non-controlling interest equity raised by Medallion Bank [3] 42,485               42,485    
Distributions to non-controlling interest (2,519)               (2,519)    
Stock-based compensation 1,221 $ 2   1,219       1,221      
Issuance of restricted stock, net 0 $ 0 $ 0 0 $ 0 0 0 0 0    
Issuance of restricted stock, net, shares   216,148                  
Forfeiture of restricted stock, net 0 $ 0 $ 0 0 0 0 0 0 0    
Forfeiture of restricted stock, net, shares   (3,946)                  
Net change in unrealized gains (losses) on investments, net of tax 1,081           1,081 1,081      
Ending balance at Dec. 31, 2019 $ 334,468 $ 276   $ 275,511 $ (24,919) $ 11,281 $ 999 $ 263,148 $ 71,320    
Ending balance, shares at Dec. 31, 2019 24,646,559 27,597,802     (2,951,243)            
[1] The three months ended March 31, 2018 and earlier quarters have been accounted for under Investment Company Accounting, and subsequent quarters have been accounted for under Bank Holding Company Accounting.
[2] Balance includes the nine months ended December 31, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
[3] Refer to Note 21 for details.
v3.20.1
Consolidated Statements of Changes In Net Assets
$ in Thousands
12 Months Ended
Dec. 31, 2018
USD ($)
shares
Dec. 31, 2017
USD ($)
shares
Net investment loss after income taxes $ (11,095) [1]  
Net realized losses on investments, net of tax (26,319) [1]  
Net unrealized appreciation on investments, net of tax 14,675 [1]  
Net increase in net assets resulting from operations (25,046) $ 278
Stock-based compensation expense $ 576 [1]  
Capital share activity    
Exercise of stock options | shares 0 [2] 0 [2]
Common stock issued, end of period | shares 27,385,600  
Treasury stock, end of period | shares (2,951,243)  
Common stock outstanding | shares 24,434,357  
Investment Company Accounting [Member]    
Net investment loss after income taxes   $ (7,121)
Net realized losses on investments, net of tax   (27,789)
Net unrealized appreciation on investments, net of tax   35,188
Net increase in net assets resulting from operations   278
Realized gains from investment transactions, net   0
Stock-based compensation expense   785
Capital share transactions   785
Total increase in net assets   1,063
Net assets at the beginning of the period $ 287,159 [3] 286,096
Net assets at the end of the period   $ 287,159 [3]
Capital share activity    
Common stock issued, beginning of period | shares 27,294,327 26,976,064
Issuance of restricted stock, net | shares   318,263
Common stock issued, end of period | shares   27,294,327
Treasury stock, beginning of period | shares (2,951,243) (2,951,243)
Treasury stock, end of period | shares   (2,951,243)
Common stock outstanding | shares   24,343,084
[1] Balance includes the nine months ended December 31, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.
[2] The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at the exercise date and the related exercise price of the underlying options, was $0 for 2019, 2018, and 2017.
[3] Includes $0 of undistributed net investment income and $0 of undistributed net realized gains on investments, and $0 of capital loss carryforwards at December 31, 2017.
v3.20.1
Consolidated Statements of Changes In Net Assets (Parenthetical)
12 Months Ended
Dec. 31, 2017
USD ($)
$ / shares
Investment Company Accounting [Member]  
Distributions declared Per share | $ / shares $ 0.00
Undistributed net investment income $ 0
Undistributed net realized gains on investments 0
Capital Loss carryforwards $ 0
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations $ 1,996,000 $ (22,739,000) [1]  
Adjustments to reconcile net loss/net increase in net assets resulting from operations to net cash provided by operating activities:      
Provision for loan losses 47,386,000 59,008,000 [1]  
Paid-in-kind interest (834,000) (1,869,000) [1]  
Depreciation and amortization 7,499,000 5,564,000 [1]  
Amortization of origination fees, net 4,952,000 3,132,000 [1]  
(Decrease) increase in deferred and other tax liabilities, net 853,000 13,637,000 [1]  
Net change in loan collateral in process of foreclosure 11,838,000 9,926,000 [1]  
Net realized gains on sale of investments (1,820,000) (5,921,000) [1]  
Net change in unrealized (appreciation) depreciation on investments 1,734,000 6,457,000 [1]  
Stock-based compensation expense 1,221,000 576,000 [1]  
Gain on deconsolidation of Trust III [1]   (25,325,000)  
Gain on extinguishment of debt (4,145,000)    
Intangible asset impairment [1]   5,615,000  
(Increase) decrease in accrued interest receivable (1,249,000) 797,000 [1]  
Decrease in other assets 2,838,000 1,309,000 [1]  
Decrease in accounts payable and accrued expenses (8,024,000) (675,000) [1]  
Increase in accrued interest payable 690,000 139,000 [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 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]   4,196,000  
Net cash provided by operating activities 64,935,000 66,551,000 [1]  
CASH FLOWS FROM INVESTING ACTIVITIES      
Loans originated (471,069,000) (333,740,000) [1]  
Proceeds from principal receipts, sales, and maturities of loans 251,653,000 302,409,000 [1]  
Purchases of investments (10,507,000) (10,376,000) [1]  
Proceeds from principal receipts, sales, and maturities of investments 7,119,000 6,417,000 [1]  
Proceeds from the sale of loan collateral in process of foreclosure 16,294,000 11,593,000 [1]  
Net cash used for investing activities (206,510,000) (23,697,000) [1]  
CASH FLOWS FROM FINANCING ACTIVITIES      
Proceeds from time deposits and funds borrowed 525,842,000 364,139,000 [1]  
Repayments of time deposits and funds borrowed (414,277,000) (389,951,000) [1]  
Purchase of federal funds 4,000,000 8,000,000 [1]  
Repayments of federal funds (4,000,000) (8,000,000) [1]  
Non-controlling interest equity raised by Medallion Bank 42,485,000    
Distributions to non-controlling interests (2,367,000) (1,776,000) [1]  
Payments of declared distributions [1]   (66,000)  
Net cash provided by (used for) financing activities 151,683,000 (27,654,000) [1]  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,108,000 15,200,000 [1]  
Cash and cash equivalents, beginning of period [1],[3] 57,713,000 [4] 42,513,000  
Cash and cash equivalents, end of period 67,821,000 [4] 57,713,000 [1],[3],[4] $ 42,513,000 [1],[3]
SUPPLEMENTAL INFORMATION      
Cash paid during the period for interest 32,008,000 25,102,000 [1]  
Cash paid during the period for income taxes 310,000 85,000 [1]  
Deposit [5] 17,700,000 23,842,000  
NON-CASH INVESTING      
Loans transferred to loan collateral in process of foreclosure $ 31,348,000 32,125,000 [1]  
Medallion Bank [Member]      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations     56,408,000
SUPPLEMENTAL INFORMATION      
Deposit   100,000  
Investment Company Accounting [Member]      
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations     278,000
Adjustments to reconcile net loss/net increase in net assets resulting from operations to net cash provided by operating activities:      
Paid-in-kind interest     (2,268,000)
Depreciation and amortization     1,019,000
Amortization of origination fees, net     68,000
(Decrease) increase in deferred and other tax liabilities, net     (33,364,000)
Net change in unrealized (appreciation) depreciation on investments     (8,222,000)
Stock-based compensation expense     785,000
(Increase) decrease in accrued interest receivable     222,000
Decrease in other assets     122,000
Decrease in accounts payable and accrued expenses     (907,000)
Increase in accrued interest payable     949,000
Loans originated     (29,131,000)
Proceeds from principal receipts, sales, and maturities of loans     46,755,000
Capital returned by Medallion Bank and other controlled subsidiaries, net     696,000
Net change in unrealized depreciation on investment other than securities     2,060,000
Increase in unrealized appreciation on Medallion Bank and other controlled subsidiaries     (9,483,000)
Net realized losses on investments [2]     43,744,000
Net cash provided by operating activities     13,323,000
CASH FLOWS FROM FINANCING ACTIVITIES      
Repayments of time deposits and funds borrowed     (21,450,000)
Payments of declared distributions     (145,000)
Net cash provided by (used for) financing activities     (21,595,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (8,272,000)
Cash and cash equivalents, beginning of period   12,690,000 [4] 20,962,000 [3]
Cash and cash equivalents, end of period [4]     12,690,000
SUPPLEMENTAL INFORMATION      
Cash paid during the period for interest     11,897,000
Cash paid during the period for income taxes     $ 62,000
Previously Unconsolidated Subsidiaries [Member]      
SUPPLEMENTAL INFORMATION      
Cash, cash equivalents and federal funds sold   $ 29,923,000  
[1] Balance includes the nine months ended December 31, 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 years ended December 31, 2018 and 2017.
[3] Included in the beginning balance for the year ended December 31, 2018 was $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 the Bank.
[4] Includes federal funds sold at December 31, 2019 and 2018.
[5] Includes restricted cash of $2,970 as of December 31, 2019.
v3.20.1
Organization of Medallion Financial Corp. and its Subsidiaries
12 Months Ended
Dec. 31, 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., or 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, or the Bank, a Federal Deposit Insurance Corporation, or 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 taxi medallions, 2) asset-based commercial loans, and 3) SBA 7(a) loans. Subsequent to its formation, the Bank began originating consumer loans to finance the purchases of recreational vehicles, or RVs, boats, and other related items, and to finance small scale home improvements. The Company also conducts business through Medallion Funding LLC, or MFC, a Small Business Investment Company, or SBIC, which originates and services taxi medallion and commercial loans.

The Company also conducts business through its subsidiaries Medallion Capital, Inc., or MCI, an SBIC which conducts a mezzanine financing business, and Freshstart Venture Capital Corp., or FSVC, an SBIC that originated and services medallion and commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated by the Small Business Administration, or 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, or RPAC, a professional car racing team that competes in the Monster Energy NASCAR Cup Series, which is also consolidated with the Company.

The Company formed a wholly-owned subsidiary, Medallion Servicing Corporation, or 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 medallion loans originated by the Bank, to MSC, which bills and collects the related service fee income from the Bank, and is allocated and charged by the Company for MSC’s share of these servicing costs.

Taxi Medallion Loan Trust III, or Trust III, was established for the purpose of owning medallion loans originated by MFC or others. Trust III is a variable interest entity, or VIE, and MFC was the primary beneficiary until the 2018 fourth quarter. As a result, the Company consolidated Trust III in its financial results until consummation of a restructuring in the 2018 fourth quarter. For a discussion of the restructuring, see Note 23. 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, or 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 $36,083,000 at December 31, 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, or together, Medallion Chicago, purchased $8,689,000 of City of Chicago taxi medallions out of foreclosure, some of which are leased to fleet operators. 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 December 31, 2019 compared to a net realizable value of $4,305,000 at December 31, 2018.

v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 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, or BDC, under the Investment Company Act of 1940, or 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 were not consolidated with the Company prior to the three months ended June 30, 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 $2,970,000 of an interest reserve associated with the private placements of debt in March and August 2019, which cannot be used for any other purpose until March 2022.

Fair Value of Assets and Liabilities

The Company follows the Financial Accounting Standards Board, or FASB, Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, or 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 19 and 20 to the consolidated financial statements.

Equity Investments

Equity investments of $10,079,000 and $9,197,000 at December 31, 2019 and 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, or 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 $248,000 and $154,000 at December 31, 2019 and 2018, and $79,000  was amortized to interest income for the year ended December 31, 2019, and $80,000 was amortized to interest income for the nine months ended December 31, 2018. The Bank, a previously unconsolidated subsidiary under Investment Company Accounting prior to April 2, 2018, amortized $21,000 and $81,000 to interest income for the three months ended March 31, 2018 and for year ended December 31, 2017. 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 financial statements, and reported in accumulated other comprehensive income (loss) as a separate component of stockholders’ 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 stockholder’s 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 has continued. The Company incorporated these new factors in the Medallion 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 2018 first quarter. 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 December 31, 2019 and 2018, net loan origination costs were $17,839,000 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 years ended December 31, 2019, 2018 and 2017 was $4,952,000, $3,128,000 ($3,993,000 when combined with the Bank), and $68,000 ($3,581,000 when combined with the Bank).

Interest income is recorded on the accrual basis. 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 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 90 days or more past due were $8,663,000 at December 31, 2019, or 0.76% of the total loan portfolio, compared to $21,225,000, or 2.14% at December 31, 2018.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concessions to the borrower for other than an insignificant period of time that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring, or TDR. The Company strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before they reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, term extensions, payment forbearance, and other actions intended to minimize the economic loss to the Company and to avoid foreclosure or repossession of the collateral. For modifications where the Company forgives principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans. Beginning in 2019, all consumer loans which are party to a Chapter 13 bankruptcy are immediately classified as TDRs. The Company’s policy with regard to bankrupt loans is take an immediate 40% write down of the loan balance.

Loan collateral in process of foreclosure primarily includes 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 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 $28,833,000 and $40,500,000 of net loans pledged as collateral under borrowing arrangements at December 31, 2019 and 2018.

The Company accounts for its sales of loans in accordance with FASB Accounting Standards Codification Topic 860, Transfers and Servicing, or 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 $113,581,000 and $140,180,000 at December 31, 2019 and 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 the Bank, and determined that no material servicing asset or liability existed as of December 31, 2019 and 2018. The Company assigned its servicing rights of the Bank’s 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 $3,173,000 were recorded by the Company as a general reserve on medallion loans as an additional buffer against future losses, not including the Bank 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 a general reserve benefit of $2,230,000. 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 were 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, and such testing is performed at least on an annual basis. Intangible assets are amortized over their useful life of approximately 20 years. As of December 31, 2019 and 2018, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $52,536,000 and $53,982,000, and the Company recognized $1,446,000 and $1,083,000 of amortization expense on the intangible assets for the twelve months ended December 31, 2019 and 2018. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $5,758,000 and $9,048,000 were outstanding at December 31, 2019 and 2018, and of which $3,289,000 and $3,339,000 were amortized to interest income for the twelve months ended December 31, 2019 and 2018. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2019 and 2018, who concluded there was no impairment on the Bank and there was 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 of the dates presented.

 

(Dollars in thousands)

 

December 31, 2019

 

 

December 31, 2018

 

Brand-related intellectual property

 

$

20,075

 

 

$

21,176

 

Home improvement contractor relationships

 

 

6,296

 

 

 

6,641

 

Race organization

 

 

26,165

 

 

 

26,165

 

Total intangible assets

 

$

52,536

 

 

$

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 $418,000, $422,000, and $94,000 ($232,000 had the Bank been consolidated) for the years ended December 31, 2019, 2018, and 2017.

Deferred Costs

Deferred financing costs 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 $2,348,000, $1,864,000, and $925,000 ($2,255,000 had the Bank been consolidated) for the years ended December 31, 2019, 2018, and 2017, recorded as interest expense. 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 will be amortized against income over an appropriate period, or written off. The amounts on the Company’s balance sheet for all of these purposes were $5,105,000 and $4,461,000 at December 31, 2019 and 2018.

Income Taxes

Income taxes are accounted for using the asset and liability approach in accordance with FASB ASC Topic 740, Income Taxes, or 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 when the Company’s performance obligations are completed in accordance with 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 stockholders 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.

 

 

 

Years Ended December 31,

 

(Dollars in thousands, except share and per share)

 

2019

 

 

2018

 

 

2017

 

Net income (loss)/net increase in net assets resulting from

   operations available to common stockholders

 

$

(1,762

)

 

$

(25,046

)

 

$

278

 

Weighted average common shares outstanding applicable

   to basic EPS

 

 

24,342,979

 

 

 

24,214,978

 

 

 

23,919,994

 

Effect of dilutive stock options

 

 

 

 

 

 

 

 

439

 

Effect of restricted stock grants

 

 

 

 

 

 

 

 

132,874

 

Adjusted weighted average common shares outstanding

   applicable to diluted EPS

 

 

24,342,979

 

 

 

24,214,978

 

 

 

24,053,307

 

Basic income (loss) per share

 

$

(0.07

)

 

$

(1.03

)

 

$

0.01

 

Diluted income (loss) per share

 

 

(0.07

)

 

 

(1.03

)

 

 

0.01

 

 

Potentially dilutive common shares excluded from the above calculations aggregated 462,180, 100,000, and 366,245 shares as of December 31, 2019, 2018, and 2017.

Stock Compensation

The Company follows FASB ASC Topic 718, or 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 2019, 2018, and 2017, the Company issued 216,148, 101,010, and 327,251 restricted shares of stock-based compensation awards, issued 449,450, 39,000, and 29,666 shares of other stock-based compensation awards, and issued 26,040, 0, and 0 of restricted share units of stock based compensation awards, and recognized $1,221,000, $576,000, and $785,000, or $0.05, $0.02, and $0.03, per diluted common share for each respective year, of non-cash stock-based compensation expense related to the grants. As of December 31, 2019, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $1,797,000, which is expected to be recognized over the next 17 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 could preclude its ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of December 31, 2019, the Bank’s Tier 1 leverage ratio was 19.35%. 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

 

 

December 31, 2019

 

 

December 31, 2018

 

Common Equity Tier 1 capital

 

 

 

 

 

 

 

$

158,187

 

 

$

141,608

 

Tier 1 capital

 

 

 

 

 

 

 

 

226,975

 

 

 

167,911

 

Total capital

 

 

 

 

 

 

 

 

241,842

 

 

 

180,917

 

Average assets

 

 

 

 

 

 

 

 

1,172,866

 

 

 

1,059,461

 

Risk-weighted assets

 

 

 

 

 

 

 

 

1,144,337

 

 

 

993,374

 

Leverage ratio (1)

 

 

4.0

%

 

 

5.0

%

 

 

19.4

%

 

 

15.8

%

Common Equity Tier 1 capital ratio (2)

 

 

7.0

 

 

 

6.5

 

 

 

13.8

 

 

 

14.3

 

Tier 1 capital ratio (3)

 

 

8.5

 

 

 

8.0

 

 

 

19.8

 

 

 

16.9

 

Total capital ratio (3)

 

 

10.5

 

 

 

10.0

 

 

 

21.1

 

 

 

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 the table above, the minimum risk-based ratios as of December 31, 2018 reflect the 75% phase-in of the capital conservation buffer of 2.5%, and the minimum risk-based ratios as of December 31, 2019 reflect the capital conservation buffer of 2.5%. The “well-capitalized” requirements were the binding requirements for risk-based capital ratios as of December 31, 2018 because of the transitional provisions then applicable to the capital conservation buffer and were the binding requirements for Tier 1 leverage capital as of both December 31, 2019 and December 31, 2018.

Recently Issued Accounting Standards

In March 2020, the FASB issues ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The objective of this is to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting due to the cessation of the London Interbank Offered Rate (LIBOR). The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not believe this will have a material impact on its financial condition.

In December 2019, the FASB issued ASU 2019-12 “Income Taxes, or Topic 740,: Simplifying the Accounting for Income Taxes.” The objective of this update is to simplify the accounting for income taxes by removing certain exceptions to the general principles and improve consistent application of and simplify other areas of Topic 740. The amendments in this update are effective for annual periods beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial condition.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement, or 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, or 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, or 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 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. In October 2019, the FASB voted to defer implementation of the standard for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022. The Company is assessing the impact the update will have on its financial statements, and expects the update to have an impact on the Company’s accounting for estimated credit losses on its loans.

Reclassifications

Certain reclassifications have been made to prior year balances to conform with the current year presentation. These reclassifications have no effect on the previously reported results of operations.

v3.20.1
Investment Securities (Bank Holding Company Accounting)
12 Months Ended
Dec. 31, 2019
Schedule Of Investments [Abstract]  
Investment Securities (Bank Holding Company Accounting)

(3) INVESTMENT SECURITIES (Bank Holding Company Accounting)

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

 

December 31, 2019

(Dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

Mortgage-backed securities, principally obligations of US

   federal agencies

 

$

36,335

 

 

$

411

 

 

$

(112

)

 

$

36,634

 

State and municipalities

 

 

12,279

 

 

 

186

 

 

 

(101

)

 

 

12,364

 

Total

 

$

48,614

 

 

$

597

 

 

$

(213

)

 

$

48,998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 December 31, 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

 

$

2,035

 

 

$

2,029

 

Due after one year through five years

 

 

10,254

 

 

 

10,281

 

Due after five years through ten years

 

 

10,052

 

 

 

10,101

 

Due after ten years

 

 

26,273

 

 

 

26,587

 

Total

 

$

48,614

 

 

$

48,998

 

 

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

 

 

 

Less than Twelve Months

 

 

Twelve Months and Over

 

December 31, 2019

(Dollars in thousands)

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

Mortgage-backed securities, principally obligations of US

   federal agencies

 

$

(74

)

 

$

8,291

 

 

$

(38

)

 

$

4,939

 

State and municipalities

 

 

(17

)

 

 

2,099

 

 

 

(84

)

 

 

2,739

 

Total

 

$

(91

)

 

$

10,390

 

 

$

(122

)

 

$

7,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than Twelve Months