MEDALLION FINANCIAL CORP, 10-Q filed on 05 Nov 20
v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 03, 2020
Document and Entity Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Sep. 30, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Registrant Name MEDALLION FINANCIAL CORP  
Entity Central Index Key 0001000209  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   24,814,103
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  
Common Stock [Member]    
Document and Entity Information [Line Items]    
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol MFIN  
Security Exchange Name NASDAQ  
9.000% Senior Notes due 2021 [Member]    
Document and Entity Information [Line Items]    
Title of 12(b) Security 9.000% Senior Notes due 2021  
Trading Symbol MFINL  
Security Exchange Name NASDAQ  
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents [1] $ 12,592 $ 17,700
Federal funds sold 37,139 50,121
Equity investments 10,284 10,079
Investment securities 45,991 48,998
Loans 1,281,054 1,160,855
Allowance for losses (90,510) [2],[3] (46,093)
Net loans receivable 1,190,544 1,114,762
Accrued interest receivable 10,590 8,662
Property, equipment, and right-of-use lease asset, net 12,621 14,375
Loan collateral in process of foreclosure [4] 48,742 52,711
Goodwill 150,803 150,803
Intangible assets, net 51,452 52,536
Income tax receivable 1,639 1,516
Deferred tax assets 1,648  
Other assets 30,230 19,404
Total assets 1,604,275 1,541,667
Liabilities    
Accounts payable and accrued expenses [5] 25,735 16,234
Accrued interest payable 3,784 4,398
Deposits [6] 1,057,499 951,651
Short-term borrowings 87,696 38,223
Deferred tax liabilities   9,341
Operating lease liabilities 11,159 12,738
Long-term debt [7] 121,195 174,614
Total liabilities 1,307,068 1,207,199
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- 27,765,346 shares at September 30, 2020 and 27,597,802 shares at December 31, 2019 issued) 278 276
Additional paid in capital 277,003 275,511
Treasury stock (2,951,243 shares at September 30, 2020 and December 31, 2019) (24,919) (24,919)
Accumulated other comprehensive income 2,074 999
Retained earnings (deficit) (29,969) 11,281
Total stockholders’ equity 224,467 263,148
Non-controlling interest in consolidated subsidiaries 72,740 71,320
Total equity 297,207 334,468
Total liabilities and equity $ 1,604,275 $ 1,541,667
Number of shares outstanding 24,814,103 24,646,559
Book value per share $ 9.05 $ 10.68
[1] Includes restricted cash of $2,970 as of September 30, 2020 and December 31, 2019.
[2] As of September 30, 2020, the general reserves previously recorded for the Company’s medallion loan portfolio had been reversed as all loans had been deemed impaired and written down to collateral value.    
[3] As of September 30, 2020, there was no allowance for loan losses and net charge-offs related to the strategic partnership loans.
[4] 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 $9,701 as of September 30, 2020 and $8,163 as of December 31, 2019.
[5] Includes the short-term portion of lease liabilities of $2,086 and $2,085 as of September 30, 2020 and December 31, 2019. Refer to Note 6 for more details.
[6] Includes $2,638 and $2,594 of deferred financing costs as of September 30, 2020 and December 31, 2019.
[7] Includes $2,157 and $2,511 of deferred financing costs as of September 30, 2020 and December 31, 2019.
[8] Refer to Note 10 for details.
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
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 27,765,346 27,597,802
Treasury stock,shares 2,951,243 2,951,243
Restricted cash $ 2,970 $ 2,970
Loan collateral in process of foreclosure, financed sales collateral to third parties 9,701 8,163
Short term lease liabilities 2,086 2,085
Deposits [Member]    
Deferred financing costs 2,638 2,594
Long-Term Debt [Member]    
Deferred financing costs $ 2,157 $ 2,511
v3.20.2
Consolidated Statement of Income - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Interest and fees on loans $ 37,201,000 $ 34,081,000 $ 107,544,000 $ 94,833,000
Interest and dividends on investment securities 239,000 521,000 973,000 1,756,000
Medallion lease income   38,000 53,000 109,000
Total interest income [1] 37,440,000 34,640,000 108,570,000 96,698,000
Interest on deposits 5,454,000 6,003,000 17,315,000 16,409,000
Interest on short-term borrowings 520,000 730,000 1,565,000 2,616,000
Interest on long-term debt 2,410,000 2,492,000 7,339,000 6,743,000
Total interest expense [2] 8,384,000 9,225,000 26,219,000 25,768,000
Net interest income 29,056,000 25,415,000 82,351,000 70,930,000
Provision for loan losses 39,749,000 8,337,000 73,231,000 36,851,000
Net interest income after provision for loan losses (10,693,000) 17,078,000 9,120,000 34,079,000
Other income (loss)        
Sponsorship and race winnings 8,962,000 7,940,000 15,161,000 16,008,000
Write-down of loan collateral in process of foreclosure (8,559,000) (113,000) (15,828,000) (4,204,000)
Gain (loss) on equity investments 137,000   (3,423,000)  
Gain on the extinguishment of debt 23,000   23,000 4,145,000
Other income (loss) 397,000 1,047,000 1,303,000 1,471,000
Total other income (loss), net 960,000 8,874,000 (2,764,000) 17,420,000
Other expenses        
Salaries and employee benefits 7,081,000 6,795,000 20,716,000 18,457,000
Race team related expenses 2,636,000 2,663,000 6,584,000 7,211,000
Professional fees 1,651,000 2,277,000 6,559,000 5,961,000
Loan servicing fees 1,729,000 1,364,000 5,070,000 3,851,000
Collection costs 1,516,000 1,698,000 4,206,000 4,589,000
Rent expense 676,000 592,000 2,004,000 1,769,000
Amortization of intangible assets 362,000 361,000 1,084,000 1,084,000
Regulatory fees 348,000 252,000 949,000 1,147,000
Other expenses 2,682,000 2,350,000 6,966,000 7,169,000
Total other expenses 18,681,000 18,352,000 54,138,000 51,238,000
Income (loss) before income taxes (28,414,000) 7,600,000 (47,782,000) 261,000
Income tax (provision) benefit 8,381,000 (165,000) 12,483,000 1,926,000
Net income (loss) after taxes (20,033,000) 7,435,000 (35,299,000) 2,187,000
Less: income attributable to the non-controlling interest 3,597,000 2,460,000 5,951,000 3,484,000
Total net income (loss) attributable to Medallion Financial Corp. $ (23,630,000) $ 4,975,000 $ (41,250,000) $ (1,297,000)
Basic net income (loss) per share $ (0.97) $ 0.20 $ (1.69) $ (0.05)
Diluted net income (loss) per share $ (0.97) $ 0.20 $ (1.69) $ (0.05)
Weighted average common shares outstanding        
Basic 24,461,488 24,361,680 24,440,067 24,336,677
Diluted 24,461,488 24,607,167 24,440,067 24,336,677
[1] Included in interest and investment income is $306 and $940 of paid-in-kind interest for the three and nine months ended September 30, 2020, and $212 and $637 for the three and nine months ended September 30, 2019.
[2] Average borrowings outstanding were $1,309,787 and $1,255,053, and the related average borrowing costs were 2.55% and 2.79%, for the three and nine months ended September 30, 2020, and were $1,169,182 and $1,121,693 and 3.13% and 3.07% for the three and nine months ended September 30, 2019.  
v3.20.2
Consolidated Statement of Income (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Interest paid-in-kind $ 306 $ 212 $ 940 $ 637
Average borrowings outstanding $ 1,309,787 $ 1,169,182 $ 1,255,053 $ 1,121,693
Average borrowing costs rate 2.55% 3.13% 2.79% 3.07%
v3.20.2
Consolidated Statements of Other Comprehensive Income/(Loss) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]        
Net income (loss) after taxes from operations $ (20,033) $ 7,435 $ (35,299) $ 2,187
Other comprehensive income (loss), net of tax (53) 95 1,075 1,322
Total comprehensive income (loss) (20,086) 7,530 (34,224) 3,509
Less comprehensive income attributable to the non-controlling interest 3,597 2,460 5,951 3,484
Total comprehensive income (loss) attributable to Medallion Financial Corp. $ (23,683) $ 5,070 $ (40,175) $ 25
v3.20.2
Consolidated Statement of Changes in Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Preferred Stock [Member]
Capital in Excess of Par [Member]
Treasury Stock [Member]
Retained Earnings (Deficit) [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Parent [Member]
Noncontrolling Interest [Member]
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   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   27,385,600     (2,951,243)        
Net income (loss) 2,187                
Ending balance at Sep. 30, 2019 292,790 $ 276   275,143 $ (24,919) 11,746 1,240 263,486 29,304
Ending balance, shares at Sep. 30, 2019   27,560,539     (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   27,385,600     (2,951,243)        
Net change in unrealized gains (losses) on investments, net of tax 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)        
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, shares   4,751              
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   27,550,801     (2,951,243)        
Net income (loss) 7,435         4,975   4,975 2,460
Distributions to non- controlling interest (592)               (592)
Stock based compensation expense 348 $ 1   347       348  
Issuance of restricted stock, net, shares   10,417              
Forfeiture of restricted stock, net, shares   (679)              
Net change in unrealized gains (losses) on investments, net of tax 95           95 95  
Ending balance at Sep. 30, 2019 292,790 $ 276   275,143 $ (24,919) 11,746 1,240 263,486 29,304
Ending balance, shares at Sep. 30, 2019   27,560,539     (2,951,243)        
Balance at Dec. 31, 2019 $ 334,468 $ 276   275,511 $ (24,919) 11,281 999 263,148 71,320
Balance, shares at Dec. 31, 2019 24,646,559 27,597,802     (2,951,243)        
Net income (loss) $ (13,001)         (13,643)   (13,643) 642
Distributions to non- controlling interest (1,507)               (1,507)
Stock based compensation expense 466 $ 2   464       466  
Issuance of restricted stock, net, shares   165,674              
Forfeiture of restricted stock, net, shares   (5,577)              
Net change in unrealized gains (losses) on investments, net of tax 147           147 147  
Ending balance at Mar. 31, 2020 320,573 $ 278   275,975 $ (24,919) (2,362) 1,146 250,118 70,455
Ending balance, shares at Mar. 31, 2020   27,757,899     (2,951,243)        
Balance at Dec. 31, 2019 $ 334,468 $ 276   275,511 $ (24,919) 11,281 999 263,148 71,320
Balance, shares at Dec. 31, 2019 24,646,559 27,597,802     (2,951,243)        
Net income (loss) $ (35,299)                
Net change in unrealized gains (losses) on investments, net of tax 1,075                
Ending balance at Sep. 30, 2020 $ 297,207 $ 278   277,003 $ (24,919) (29,969) 2,074 224,467 72,740
Ending balance, shares at Sep. 30, 2020 24,814,103 27,765,346     (2,951,243)        
Balance at Mar. 31, 2020 $ 320,573 $ 278   275,975 $ (24,919) (2,362) 1,146 250,118 70,455
Balance, shares at Mar. 31, 2020   27,757,899     (2,951,243)        
Net income (loss) (2,265)         (3,977)   (3,977) 1,712
Distributions to non- controlling interest (1,512)               (1,512)
Stock based compensation expense 520     520       520  
Issuance of restricted stock, net, shares   10,416              
Forfeiture of restricted stock, net, shares   (696)              
Net change in unrealized gains (losses) on investments, net of tax 981           981 981  
Ending balance at Jun. 30, 2020 318,297 $ 278   276,495 $ (24,919) (6,339) 2,127 247,642 70,655
Ending balance, shares at Jun. 30, 2020   27,767,619     (2,951,243)        
Net income (loss) (20,033)         (23,630)   (23,630) 3,597
Distributions to non- controlling interest (1,512)               (1,512)
Stock based compensation expense 508     508       508  
Forfeiture of restricted stock, net, shares   (2,273)              
Net change in unrealized gains (losses) on investments, net of tax (53)           (53) (53)  
Ending balance at Sep. 30, 2020 $ 297,207 $ 278   $ 277,003 $ (24,919) $ (29,969) $ 2,074 $ 224,467 $ 72,740
Ending balance, shares at Sep. 30, 2020 24,814,103 27,765,346     (2,951,243)        
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income (loss) $ (35,299,000) $ 2,187,000
Adjustments to reconcile net loss from operations to net cash provided by operating activities:    
Provision for loan losses 73,231,000 36,851,000
Paid-in-kind interest (940,000) (637,000)
Depreciation and amortization 5,060,000 6,014,000
Decrease in deferred and other tax liabilities (11,113,000) (1,375,000)
Amortization of origination fees, net 4,572,000 3,753,000
Net change in value of loan collateral in process of foreclosure 21,235,000 9,126,000
Net realized losses (gains) on investments 3,754,000 (1,810,000)
Net change in unrealized appreciation on investments   1,299,000
Stock-based compensation expense 1,495,000 853,000
Gain on extinguishment of debt (23,000) (4,145,000)
Increase in accrued interest receivable (1,928,000) (627,000)
Increase in other assets (7,878,000) (4,890,000)
Increase (decrease) in accounts payable and accrued expenses 4,883,000 (1,763,000)
Decrease in accrued interest payable (504,000) (341,000)
Net cash provided by operating activities 56,568,000 44,495,000
CASH FLOWS FROM INVESTING ACTIVITIES    
Loans originated (404,006,000) (374,642,000)
Proceeds from principal receipts, sales, and maturities of loans 222,592,000 188,226,000
Purchases of investments (11,480,000) (6,849,000)
Proceeds from principal receipts, sales, and maturities of investments 12,983,000 5,902,000
Proceeds from the sale and principal payments on loan collateral in process of foreclosure 8,303,000 12,714,000
Net cash used for investing activities (171,608,000) (174,649,000)
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from time deposits and funds borrowed 515,982,000 450,192,000
Repayments of time deposits and funds borrowed (414,501,000) (324,960,000)
Purchase of federal funds   4,000,000
Distributions to non-controlling interests (4,531,000) (1,776,000)
Net cash provided by financing activities 96,950,000 127,456,000
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH (18,090,000) (2,698,000)
Cash, cash equivalents and restricted cash, beginning of period [1] 67,821,000 57,713,000
Cash, cash equivalents and restricted cash, end of period [1] 49,731,000 55,015,000
SUPPLEMENTAL INFORMATION    
Cash paid during the period for interest 24,769,000 24,252,000
Cash paid during the period for income taxes 100,000 135,000
NON-CASH INVESTING    
Loans transferred to loan collateral in process of foreclosure, net 25,569,000 $ 25,884,000
Loans transferred to other foreclosed property $ 1,800,000  
[1] Includes federal funds sold.
v3.20.2
Organization of Medallion Financial Corp. and its Subsidiaries
9 Months Ended
Sep. 30, 2020
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 home improvements. The Company also conducts business through Medallion Funding LLC, or MFC, a Small Business Investment Company, or SBIC, which originates and services 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.

Beginning in 2019, the Bank began the process to build out a strategic partnership program with financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and began issuing its first loans, while continuing to explore opportunities with additional fintech companies.

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 15. 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 September 30, 2020, 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 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 September 30, 2020, December 31, 2019, and September 30, 2019.

v3.20.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US, or 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 loan collateral 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. All significant intercompany transactions, balances, and profits (losses) have been eliminated in consolidation.

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. Cash also includes $2,500,000 of interest-bearing funds deposited in other banks, that are mainly callable, with terms of 4 to 7 years.

Fair Value of Assets and Liabilities

The Company follows the Financial Accounting Standards Board, or FASB, 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 12 and 13 to the consolidated financial statements.

Equity Investments

The Company follows FASB ASC Topic 321, Investments – Equity Securities, or ASC 321, which requires all applicable investments in equity securities with readily determinable fair value to be valued as such, and those that do not to be measured at cost, less any impairment plus or minus any observable price changes. Equity investments of $10,284,000 and $10,079,000 at September 30, 2020 and December 31, 2019, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost less any impairment plus or minus observable price changes. As of September 30, 2020 and December 31, 2019, the Company determined that there was no impairment or observable price change.

Investment Securities

The Company follows FASB ASC Topic 320, Investments – Debt Securities, or ASC 320, which requires that all applicable investments in 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 $298,000 at September 30, 2020 and $248,000 at December 31, 2019, and $85,000 and $219,000 was amortized to interest income for the three and nine months ended September 30, 2020 and $21,000 and $46,000 was amortized to interest income for the three and nine months ended September 30, 2019. 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 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 stockholders’ equity, which were recorded net of the income tax effect, will be reversed.

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 Company withdrew its previous election to be regulated as a business development company under the Investment Company Act of 1940, and therefore changed the Company’s financial reporting from investment company accounting to bank holding company accounting. As a result, 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 September 30, 2020 and December 31, 2019, net loan origination costs were $20,806,000 and $17,839,000. Net amortization to income for the three months ended September 30, 2020 and 2019 was $1,681,000 and $1,364,000, and was $4,572,000 and $3,753,000 for the nine months ended September 30, 2020 and 2019.

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 $13,402,000 at September 30, 2020, or 1.07% of the total loan portfolio, compared to $8,663,000, or 0.76% at December 31, 2019.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law to address the economic impacts of the COVID-19 pandemic. Under the CARES Act and related guidance from the FDIC, the Company had temporarily suspended its delinquency and nonperforming treatment for certain loans that have been granted a payment accommodation that facilitates the borrowers’ ability to work through the immediate impact of the virus. Borrowers who were current prior to becoming affected by COVID-19 and then receive payment accommodations as a result of the effects of the COVID-19 pandemic, generally are not reported as past due if all payments are current in accordance with the revised terms of the loans. The Company had chosen to apply this part of the CARES Act in connection with eligible accommodations and did not report the applicable loans as past due for any payments not made during the deferment period. As of September 30, 2020, the deferment period ended for all of the medallion loans and for 95% of the consumer loans that were placed on deferment, which, as a result, were returned to the general loan pool. The Company has continued to age these loans based the Company’s standard aging policy.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants 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 the third quarter 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. Under the CARES Act, during the applicable period beginning March 1, 2020 and ending on the earlier of December 31, 2020 or 60 days after the date which the coronavirus, or COVID-19, national emergency terminates, companies may elect to (a) suspend the requirements of US GAAP for loan modifications related to COVID-19 that would otherwise be categorized as TDRs and (b) suspend any determination of a loan modified as a result of the effects of COVID-19 as a TDR, including impairment for accounting purposes. Any such suspension is applicable for the term of the loan modification, but solely with respect to any modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019, and shall not apply to any adverse impact on the credit of a borrower that is not related to COVID-19. As of September 30, 2020, there were no consumer or medallion loan modifications related to COVID-19 that would have otherwise been classified as a TDR, and therefore there was no need for the Company to elect this relief under the CARES Act during the 2020 third quarter. However, we expect to have loan modifications related to COVID-19 that would apply under this provision of the CARES Act in the future.

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 $18,908,000 and $28,833,000 of net loans pledged as collateral under borrowing arrangements at September 30, 2020 and December 31, 2019.

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 $107,809,000 at September 30, 2020 and $113,581,000 at December 31, 2019. 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 September 30, 2020 and December 31, 2019. 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

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. For medallion loans, delinquent nonperforming loans are valued at the median sales price for the collateral over the most recent quarter, historically non-delinquent nonperforming loans are valued at either the median sales price for the collateral over the most recent quarter or the discounted cash flow if such loans were modified and it is clear that sources other than the taxi business were instrumental in keeping such loans current, 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 of COVID-19, there was an increase in the reserve percentages of 50 basis points on the recreational subprime loan business during the nine months ended September 30, 2020. In addition, the Company determined that anticipated payment activity on the medallion portfolio was impossible to quantify upon exit of the six month deferral period with borrowers, and therefore deemed all such loans as impaired. As a result, all medallion loans were written down to collateral value, net of liquidation costs, of $90,300 for New York City medallions. This write-down, together with a decline in most other markets in accordance with prior methodology, consistently applied, resulted in an increased provision for loan losses of $24,749,000 during the 2020 third quarter, which included the reversal of the general reserves that had been previously recorded for the Company and the Bank.  The Company continues to monitor the impact of COVID-19 on the consumer, commercial, and medallion loans. Had there been no payment deferrals offered to borrowers under the CARES Act, potential loans 90 days or more past due would have resulted in increased reserves and/or charge-offs. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.

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 change to bank holding company accounting, 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 September 30, 2020, December 31, 2019, and September 30, 2019, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $51,452,000, $52,536,000 and $52,898,000, and the Company recognized $362,000 and $361,000 of amortization expense on the intangible assets for the three months ended September 30, 2020 and 2019, and $1,084,000 of amortization expense on the intangible assets for both the nine months ended September 30, 2020 and 2019. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $4,358,000, $5,758,000, and $6,161,000 were outstanding at September 30, 2020, December 31, 2019, and September 30, 2019, and of which $893,000 and $713,000 were amortized to interest income for the three months ended September 30, 2020 and 2019, and of which $1,401,000 and $2,886,000 was amortized to interest income for the nine months ended September 30, 2020 and 2019. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2019, who concluded there was no impairment on the Bank and on the RPAC intangible asset. The Company reviewed the goodwill related to the Bank and the RPAC intangible assets, considered whether the current COVID-19 pandemic had any effect on such goodwill, and concluded that there was no additional impairment as of September 30, 2020.

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

 

(Dollars in thousands)

 

September 30, 2020

 

 

December 31, 2019

 

Brand-related intellectual property

 

$

19,249

 

 

$

20,075

 

Home improvement contractor relationships

 

 

6,038

 

 

 

6,296

 

Race organization

 

 

26,165

 

 

 

26,165

 

Total intangible assets

 

$

51,452

 

 

$

52,536

 

 

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 $142,000 and $109,000 for the three months ended September 30, 2020 and 2019, and was $403,000 and $313,000 for the nine months ended September 30, 2020 and 2019.

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 $648,000 and $613,000 for the three months ended September 30, 2020 and 2019, and was $1,957,000 and $1,731,000 for the nine months ended September 30, 2020 and 2019. 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 amount on the Company’s balance sheet for all of these purposes were $4,795,000, $5,105,000, and $5,589,000 as of September 30, 2020, December 31, 2019, and September 30, 2019.

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 the Company’s 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. 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) 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.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands, except share and per share data)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss) resulting from operations

   available to common stockholders

 

$

(23,630

)

 

$

4,975

 

 

$

(41,250

)

 

$

(1,297

)

Weighted average common shares outstanding applicable to

   basic EPS

 

 

24,461,488

 

 

 

24,361,680

 

 

 

24,440,067

 

 

 

24,336,677

 

Effect of dilutive stock options

 

 

 

 

 

16,543

 

 

 

 

 

 

 

Effect of restricted stock grants

 

 

 

 

 

228,944

 

 

 

 

 

 

 

Adjusted weighted average common shares outstanding

   applicable to diluted EPS

 

 

24,461,488

 

 

 

24,607,167

 

 

 

24,440,067

 

 

 

24,336,677

 

Basic income (loss) per share

 

$

(0.97

)

 

$

0.20

 

 

$

(1.69

)

 

$

(0.05

)

Diluted income (loss) per share

 

 

(0.97

)

 

 

0.20

 

 

 

(1.69

)

 

 

(0.05

)

 

Potentially dilutive common shares excluded from the above calculations aggregated 834,684 and 468,055 shares as of September 30, 2020 and 2019.

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 income 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 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 nine months ended September 30, 2020 and 2019, the Company issued 165,674 and 178,266 of restricted shares of stock-based compensation awards, issued 335,773 and 375,481 shares of other stock-based compensation awards, and issued 47,156 and 26,040 restricted stock units and recognized $508,000 and $1,495,000, or $0.02 and $0.06 per share, for the three and nine months ended September 30, 2020, and $348,000 and $853,000, or $0.01 and $0.03 per share, for the three and nine months ended September 30, 2019, of non-cash stock-based compensation expense related to the grants. As of September 30, 2020, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $2,484,000, which is expected to be recognized over the next 14 quarters. (See Note 8 for more details.)

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 with, such as certain purchases of assets, 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 September 30, 2020, the Bank’s Tier 1 leverage ratio was 15.47%. 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

 

 

September 30, 2020

 

 

December 31, 2019

 

Common equity Tier 1 capital

 

 

 

 

 

 

 

$

137,193

 

 

$

158,187

 

Tier 1 capital

 

 

 

 

 

 

 

 

205,981

 

 

 

226,975

 

Total capital

 

 

 

 

 

 

 

 

222,945

 

 

 

241,842

 

Average assets

 

 

 

 

 

 

 

 

1,331,077

 

 

 

1,172,866

 

Risk-weighted assets

 

 

 

 

 

 

 

 

1,275,599

 

 

 

1,144,337

 

Leverage ratio(1)

 

 

4.0

%

 

 

5.0

%

 

 

15.5

%

 

 

19.4

%

Common equity Tier 1 capital ratio(2)

 

 

7.0

 

 

 

6.5

 

 

 

10.8

 

 

 

13.8

 

Tier 1 capital ratio(3)

 

 

8.5

 

 

 

8.0

 

 

 

16.1

 

 

 

19.8

 

Total capital ratio(3)

 

 

10.5

 

 

 

10.0

 

 

 

17.5

 

 

 

21.1

 

 

(1)

Calculated by dividing Tier 1 capital by average assets.

(2)

Calculated by subtracting preferred stock or non-controlling interest 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 September 30, 2020 and December 31, 2019 reflect the capital conservation buffer of 2.5%. The minimum regulatory requirements, inclusive of the capital conservation buffer, were the binding requirements for the risk-based requirements, and the “well-capitalized” requirements were the binding requirements for Tier 1 leverage capital as of both September 30, 2020 and December 31, 2019.

Recently Issued Accounting Standards

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 for 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 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. In November 2019, the FASB issued ASU 2019-10 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 a material 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.

v3.20.2
Investment Securities
9 Months Ended
Sep. 30, 2020
Schedule Of Investments [Abstract]  
Investment Securities

(3) INVESTMENT SECURITIES

Fixed maturity securities available for sale as of September 30, 2020 and December 31, 2019 consisted of the following:

 

September 30, 2020

(Dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of US

   federal agencies

 

$

35,965

 

 

$

1,571

 

 

$

(8

)

 

$

37,528

 

State and municipalities

 

 

8,226

 

 

 

237

 

 

 

 

 

 

8,463

 

Total

 

$

44,191

 

 

$

1,808

 

 

$

(8

)

 

$

45,991

 

 

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

 

 

The amortized cost and estimated market value of investment securities as of September 30, 2020 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

 

$

25

 

 

$

25

 

Due after one year through five years

 

 

12,480

 

 

 

12,946

 

Due after five years through ten years

 

 

12,452

 

 

 

13,221

 

Due after ten years

 

 

19,234

 

 

 

19,799

 

Total

 

$

44,191

 

 

$

45,991

 

 

The following tables show information pertaining to securities with gross unrealized losses at September 30, 2020 and December 31, 2019, 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

 

September 30, 2020

(Dollars in thousands)

 

Gross Unrealized

Losses

 

 

Fair Value

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations

   of US federal agencies

 

$

(8

)

 

$

4,073

 

 

$

 

 

$

 

State and municipalities

 

 

 

 

 

 

 

 

 

 

 

197

 

Total

 

$

(8

)

 

$

4,073

 

 

$

 

 

$

197

 

 

 

 

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

 

 

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.

v3.20.2
Loans and Allowance for Loan Losses
9 Months Ended
Sep. 30, 2020
Text Block [Abstract]  
Loans and Allowance for Loan Losses

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at September 30, 2020 and December 31, 2019.

 

 

 

September 30, 2020

 

 

December 31, 2019

 

(Dollars in thousands)

 

Amount

 

 

As a Percent of

Gross Loans

 

 

Amount

 

 

As a Percent of

Gross Loans

 

Recreation

 

$

802,938

 

 

 

63

%

 

$

713,332

 

 

 

62

%

Home improvement

 

 

315,442

 

 

 

25

 

 

 

247,324

 

 

 

21

 

Commercial

 

 

71,369

 

 

 

5

 

 

 

69,767

 

 

 

6

 

Medallion

 

 

91,298

 

 

 

7

 

 

 

130,432

 

 

 

11

 

Strategic partnership

 

 

7

 

 

 

 

 

 

 

 

 

 

Total gross loans

 

 

1,281,054

 

 

 

100

%

 

 

1,160,855

 

 

 

100

%

Allowance for loan losses

 

 

(90,510

)

 

 

 

 

 

 

(46,093

)

 

 

 

 

Total net loans

 

$

1,190,544

 

 

 

 

 

 

$

1,114,762

 

 

 

 

 

 

The following tables show the activity of the gross loans for the three and nine months ended September 30, 2020 and 2019.

 

Three Months Ended September 30, 2020

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

 

 

Medallion

 

 

Strategic Partnership

 

 

Total

 

Gross loans – June 30, 2020

 

$

786,785

 

 

$

282,072

 

 

$

71,476

 

 

$

120,253

 

 

$

8

 

 

$

1,260,594

 

Loan originations

 

 

73,534

 

 

 

62,515

 

 

 

900

 

 

 

 

 

 

142

 

 

 

137,091

 

Principal payments, sales and maturities

 

 

(54,161

)

 

 

(29,312

)

 

 

(1,318

)

 

 

(401

)

 

 

(143

)

 

 

(85,335

)

Charge-offs, net

 

 

(850

)

 

 

(65

)

 

 

3

 

 

 

(15,304

)

 

 

 

 

 

(16,216

)

Transfer to loan collateral in process of foreclosure, net

 

 

(2,833

)

 

 

 

 

 

 

 

 

(10,590

)

 

 

 

 

 

(13,423

)

Amortization of origination costs

 

 

(2,093

)

 

 

509

 

 

 

2

 

 

 

(99

)

 

 

 

 

 

(1,681

)

Amortization of loan premium

 

 

(49

)

 

 

(81

)