MEDALLION FINANCIAL CORP, 10-K filed on 16 Mar 21
v3.20.4
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2020
Mar. 12, 2021
Jun. 30, 2020
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, 2020    
Document Fiscal Year Focus 2020    
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   25,039,969  
Entity Public Float     $ 54,470,199
Entity Emerging Growth Company false    
Entity Small Business true    
Entity Shell Company false    
ICFR Auditor Attestation Flag true    
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 2021 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, 2020, 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 $0.01 per share    
Trading Symbol MFIN    
Security Exchange Name NASDAQ    
9.000% Senior Notes due 2021 [Member]      
Document and Entity Information [Line Items]      
Title of 12(b) Security 9.000% Senior Notes due 2021    
Trading Symbol MFINL    
Security Exchange Name NASDAQ    
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents [1] $ 54,743 $ 17,700
Federal funds sold 57,297 50,121
Equity investments 9,746 10,079
Investment securities 46,792 48,998
Loans 1,229,838 1,160,855
Allowance for loan losses [2],[3] (57,548) (46,093)
Net loans receivable 1,172,290 1,114,762
Accrued interest receivable 10,338 8,662
Property, equipment, and right-of-use lease asset, net 12,404 14,375
Loan collateral in process of foreclosure [4] 54,560 52,711
Goodwill 150,803 150,803
Intangible assets, net 51,090 52,536
Income tax receivable 1,757 1,516
Other assets 20,591 19,404
Total assets 1,642,411 1,541,667
Liabilities    
Accounts payable and accrued expenses [5] 14,902 16,234
Accrued interest payable 4,673 4,398
Deposits [6] 1,065,398 951,651
Short-term borrowings 87,334 38,223
Deferred tax liabilities, net 807 9,341
Operating lease liabilities 11,018 12,738
Long-term debt [7] 153,718 174,614
Total liabilities 1,337,850 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- 27,828,871 shares at December 31, 2020 and 27,597,802 shares at December 31, 2019 issued) 278 276
Additional paid in capital 277,539 275,511
Treasury stock (2,951,243 shares at December 31, 2020 and December 31, 2019) (24,919) (24,919)
Accumulated other comprehensive income (loss) 2,012 999
Retained earnings (accumulated deficit) (23,502) 11,281
Total stockholders’ equity 231,408 263,148
Non-controlling interest in consolidated subsidiaries 73,153 71,320
Total equity 304,561 334,468
Total liabilities and equity $ 1,642,411 $ 1,541,667
Number of shares outstanding 24,877,628 24,646,559
Book value per share $ 9.30 $ 10.68
[1] Includes restricted cash of $2,970 as of December 31, 2020 and 2019.
[2] As of December 31, 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 December 31, 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 Medallion Bank of $3,535 and $8,163 as of December 31, 2020 and 2019.
[5] Includes the short-term portion of lease liabilities of $2,004 and $2,085 as of December 31, 2020 and 2019. Refer to Note 7 for more details.
[6] Includes $2,674 and $2,594 of deferred financing costs as of December 31, 2020 and 2019. Refer to Note 6 for more details.
[7] Includes $3,131 and $2,511 of deferred financing costs as of December 31, 2020 and 2019. Refer to Note 6 for more details.
[8] Refer to Note 11 for details.
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 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 27,828,871 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 3,535 8,163
Short term lease liabilities 2,004 2,085
Deposits [Member]    
Deferred financing costs 2,674 2,594
Long-Term Debt [Member]    
Deferred financing costs $ 3,131 $ 2,511
v3.20.4
Consolidated Statements of Operations - USD ($)
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
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
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 [1],[3]     28,367,000
Net interest income/net investment income $ 110,811,000 $ 97,517,000 72,469,000 [1]
Provision for loan losses 69,817,000 47,386,000 59,008,000 [1]
Net interest income after provision for loan losses 40,994,000 50,131,000 13,461,000 [1]
Other income (loss)      
Writedown of loan collateral in process of foreclosure [1]     (2,188,000)
Sponsorship and race winnings, net 20,042,000 18,742,000 14,368,000 [1]
Gain (loss) on equity investments [1]     (939,000)
Gain on the extinguishment of debt   4,145,000  
Gain on deconsolidation of Trust III [1]     25,325,000
Gain on sale of loans [1]     4,946,000
Other income [1]     494,000
Total other income (loss), net [1]     42,006,000
Other expenses      
Salaries and employee benefits [1]     21,706,000
Race team related expenses 8,366,000 8,996,000 7,121,000 [1]
Professional fees [1]     9,332,000
Loan servicing fees [1]     3,470,000
Collection costs [1]     5,207,000
Rent expense [1]     2,040,000
Regulatory fees [1]     1,703,000
Amortization of intangible assets 1,445,000 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]     7,464,000
Total other expenses [1],[4]     66,189,000
Income (loss) before income taxes/net investment loss before taxes (36,981,000) 2,337,000 (10,722,000) [1],[4]
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],[5]     (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 $ (26,907,000) $ 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 loss per share $ (1.42) $ (0.07) $ (1.03) [1]
Diluted net loss per share $ (1.42) $ (0.07) $ (1.03) [1]
Weighted average common shares outstanding      
Basic 24,445,452 24,342,979 24,214,978 [1]
Diluted 24,445,452 24,342,979 24,214,978 [1]
Bank Holding Company Accounting [Member]      
Interest and fees on loans $ 143,701,000 $ 130,167,000  
Interest and dividends on investment securities 1,208,000 2,225,000  
Medallion lease income 53,000 170,000  
Total interest income /total investment income [2] 144,962,000 132,562,000  
Interest on deposits 22,330,000 22,521,000  
Interest on short-term borrowings 2,006,000 3,242,000  
Interest on long-term debt 9,815,000 9,282,000  
Total interest expense [3] 34,151,000 35,045,000  
Net interest income/net investment income 110,811,000 97,517,000  
Provision for loan losses 69,817,000 47,386,000  
Net interest income after provision for loan losses 40,994,000 50,131,000  
Other income (loss)      
Writedown of loan collateral in process of foreclosure (24,523,000) (4,381,000)  
Sponsorship and race winnings, net 20,042,000 18,742,000  
Gain (loss) on equity investments (2,985,000)    
Gain on the extinguishment of debt   4,145,000  
Other income 1,530,000 1,881,000  
Total other income (loss), net (5,936,000) 20,387,000  
Other expenses      
Salaries and employee benefits 28,172,000 24,971,000  
Race team related expenses 8,366,000 8,996,000  
Professional fees 8,047,000 7,402,000  
Loan servicing fees 6,737,000 5,253,000  
Collection costs 5,454,000 6,638,000  
Rent expense 2,833,000 2,419,000  
Regulatory fees 1,822,000 1,722,000  
Amortization of intangible assets 1,445,000 1,446,000  
Travel, meals, and entertainment 375,000 1,138,000  
Other expenses 8,788,000 8,196,000  
Total other expenses [4] 72,039,000 68,181,000  
Income (loss) before income taxes/net investment loss before taxes [4] (36,981,000) 2,337,000  
Income tax (provision) benefit 10,074,000 (341,000)  
Net income (loss) after taxes/net investment income (loss) after taxes (26,907,000) 1,996,000  
Net income (loss) after taxes/net increase (decrease) on net assets resulting from operations (26,907,000) 1,996,000  
Less: income attributable to the non-controlling interest 7,876,000 3,758,000  
Total net income (loss) attributable to Medallion Financial Corp./net increase (decrease) on net assets resulting from operations $ (34,783,000) $ (1,762,000)  
Basic net loss per share $ (1.42) $ (0.07)  
Diluted net loss per share $ (1.42) $ (0.07)  
Weighted average common shares outstanding      
Basic 24,445,452 24,342,979  
Diluted 24,445,452 24,342,979  
Controlled Subsidiary Investment [Member]      
Dividend income from controlled subsidiaries [1]     $ 28,000
Interest income [1]     10,000
Affiliate Investment [Member]      
Interest income [1]     $ 654,000
[1] 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 $1,188, $834, and $1,869 of paid in kind interest for the years ended December 31, 2020, 2019, and 2018.
[3] Average borrowings outstanding were $1,258,486, $1,138,746, and $1,198,124, and the related average borrowing costs were 2.71%, 3.08%, and 2.37% for the years ended December 31, 2020, 2019, and 2018.
[4] Includes $256 of net revenues received from Medallion Bank for the year ended December 31, 2018, primarily for expense reimbursements. See Notes 5 and 12 for additional information.
[5] There were no net losses on investment securities of affiliated issuers for the year ended December 31, 2018.
v3.20.4
Consolidated Statements of Operations (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Interest paid in kind $ 1,188 $ 834 $ 1,869
Average borrowings outstanding   $ 1,138,746 $ 1,198,124
Average borrowing costs rate   3.08% 2.37%
Net realized gains (losses) on investments [1],[2]     $ (34,745)
Affiliated Entity [Member]      
Net realized gains (losses) on investments     0
Medallion Bank [Member]      
Revenue     $ 256
[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 year ended December 31, 2018.
v3.20.4
Consolidated Statements of Other Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
[1]
Statement Of Income And Comprehensive Income [Abstract]      
Net income (loss) after taxes/net decrease on net assets resulting from operations $ (26,907) $ 1,996 $ (22,739)
Other comprehensive income (loss), net of tax 1,013 1,081 (82)
Total comprehensive income (loss) (25,894) 3,077 (22,821)
Less: comprehensive income attributable to the non-controlling interest 7,876 3,758 2,307
Total comprehensive loss attributable to Medallion Financial Corp. $ (33,770) $ (681) $ (25,128)
[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.
v3.20.4
Consolidated Statement of Changes in Stockholders' Equity and Changes in Net Assets - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Common Stock [Member]
Common Stock [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Capital in Excess of Par [Member]
Capital in Excess of Par [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Treasury Stock [Member]
Treasury Stock [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Parent [Member]
Parent [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Noncontrolling Interest [Member]
Noncontrolling Interest [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance [Member]
Accumulated Undistributed Net Investment Loss [Member]
Accumulated Undistributed Net Investment Loss [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Net Unrealized Appreciation on Investment Net of Tax [Member]
Net Unrealized Appreciation on Investment Net of Tax [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Balance at Dec. 31, 2017 $ 287,159   $ 273   $ 273,716   $ (24,919)           $ 287,159              
Balance (Investment Company Accounting [Member]) at Dec. 31, 2017                                 $ (65,592)   $ 103,681  
Balance, shares at Dec. 31, 2017     27,294,327       (2,951,243)                          
Net 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 $ 299,502 $ 274 $ 274 273,867 $ 273,867 $ (24,919) $ (24,919)   $ 23,215 $ 23,215   272,437 $ 272,437   $ 27,065        
Ending balance (Investment Company Accounting [Member]) at Mar. 31, 2018                                 (103,891) $ 103,891 127,106 $ (127,106)
Ending balance, shares at Mar. 31, 2018     27,390,053 27,390,053     (2,951,243) (2,951,243)                        
Change in Accounting Principle, Type [Extensible List]                   mfin:AdoptionOfBankHoldingCompanyAccountingMember                    
Change in Accounting Principle, Type [Extensible List] | Investment Company Accounting [Member]                                   mfin:AdoptionOfBankHoldingCompanyAccountingMember   mfin:AdoptionOfBankHoldingCompanyAccountingMember
Balance at Dec. 31, 2017 287,159   $ 273   273,716   $ (24,919)           287,159              
Balance (Investment Company Accounting [Member]) at Dec. 31, 2017                                 (65,592)   103,681  
Balance, shares at Dec. 31, 2017     27,294,327       (2,951,243)                          
Net income (loss) [1] (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     27,385,600       (2,951,243)                          
Balance at Mar. 31, 2018 272,437 $ 299,502 $ 274 $ 274 273,867 $ 273,867 $ (24,919) $ (24,919)   $ 23,215 $ 23,215   272,437 $ 272,437   $ 27,065        
Balance (Investment Company Accounting [Member]) at Mar. 31, 2018                                 $ (103,891) $ 103,891 $ 127,106 $ (127,106)
Balance, shares at Mar. 31, 2018     27,390,053 27,390,053     (2,951,243) (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     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 [2] 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                                  
Issuance of restricted stock, net, shares     216,148                                  
Forfeiture of restricted stock, net     $ 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)                          
Net income (loss) $ (26,907)               (34,783)       (34,783)   7,876          
Distributions to non-controlling interest (6,043)                           (6,043)          
Stock-based compensation 2,030   $ 2   2,028               2,030              
Issuance of restricted stock, net     $ 0                                  
Issuance of restricted stock, net, shares     229,408                                  
Forfeiture of restricted stock, net     $ 0                                  
Forfeiture of restricted stock, net, shares     (8,755)                                  
Issuance of restricted stock units, net, shares     10,416                                  
Net change in unrealized gains (losses) on investments, net of tax 1,013                     1,013 1,013              
Ending balance at Dec. 31, 2020 $ 304,561   $ 278   $ 277,539   $ (24,919)   $ (23,502)     $ 2,012 $ 231,408   $ 73,153          
Ending balance, shares at Dec. 31, 2020 24,877,628   27,828,871       (2,951,243)                          
[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]

Refer to Note 18 for details.

v3.20.4
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income (loss) after taxes/net decrease on net assets resulting from operations $ (26,907,000) $ 1,996,000 $ (22,739,000) [1]
Adjustments to reconcile net income (loss)/net decrease in net assets resulting from operations to net cash provided by operating activities:      
Provision for loan losses 69,817,000 47,386,000 59,008,000 [1]
Paid-in-kind interest (1,188,000) (834,000) (1,869,000) [1]
Depreciation and amortization 7,714,000 7,499,000 5,564,000 [1]
Amortization of origination fees, net 6,022,000 4,952,000 3,132,000 [1]
(Decrease) increase in deferred and other tax liabilities, net (8,776,000) 853,000 13,637,000 [1]
Net change in value of loan collateral in process of foreclosure 31,926,000 11,838,000 9,926,000 [1]
Net realized (gains) losses on sale of investments 4,305,000 (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 2,030,000 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 (1,676,000) (1,249,000) 797,000 [1]
Decrease in other assets 2,223,000 2,838,000 1,309,000 [1]
Decrease in accounts payable and accrued expenses (7,206,000) (8,024,000) (675,000) [1]
Increase in accrued interest payable 422,000 690,000 139,000 [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 78,706,000 64,935,000 66,551,000 [1]
CASH FLOWS FROM INVESTING ACTIVITIES      
Loans originated (506,106,000) (471,069,000) (333,740,000) [1]
Proceeds from principal receipts, sales, and maturities of loans 321,831,000 251,653,000 302,409,000 [1]
Purchases of investments (15,580,000) (10,507,000) (10,376,000) [1]
Proceeds from principal receipts, sales, and maturities of investments 15,399,000 7,119,000 6,417,000 [1]
Proceeds from the sale and principal payments on loan collateral in process of foreclosure 13,499,000 16,294,000 11,593,000 [1]
Net cash used for investing activities (170,957,000) (206,510,000) (23,697,000) [1]
CASH FLOWS FROM FINANCING ACTIVITIES      
Proceeds from time deposits and funds borrowed 668,577,000 525,842,000 364,139,000 [1]
Repayments of time deposits and funds borrowed (526,064,000) (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 (6,043,000) (2,367,000) (1,776,000) [1]
Payments of declared distributions [1]     (66,000)
Net cash provided by (used for) financing activities 136,470,000 151,683,000 (27,654,000) [1]
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 44,219,000 10,108,000 15,200,000 [1]
Cash and cash equivalents, beginning of period [3],[4] 67,821,000 57,713,000 [1] 42,513,000 [1]
Cash and cash equivalents, end of period [4] 112,040,000 67,821,000 [3] 57,713,000 [1],[3]
SUPPLEMENTAL INFORMATION      
Cash paid during the period for interest 31,204,000 32,008,000 25,102,000 [1]
Cash paid during the period for income taxes 104,000 310,000 85,000 [1]
NON-CASH INVESTING      
Loans transferred to loan collateral in process of foreclosure, net 47,254,000 $ 31,348,000 32,125,000 [1]
Loans transferred to other foreclosed property $ 1,800,000    
Previously Unconsolidated Subsidiaries [Member]      
SUPPLEMENTAL INFORMATION      
Cash, cash equivalents and federal funds sold     29,923,000
Medallion Bank [Member]      
SUPPLEMENTAL INFORMATION      
Deposit     $ 100,000
[1] 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 year ended December 31, 2018.
[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.
v3.20.4
Organization of Medallion Financial Corp. and its Subsidiaries
12 Months Ended
Dec. 31, 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 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.

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 20. 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, 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, 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 $2,932,000 in other assets on the Company’s consolidated balance sheet at December 31, 2020, compared to a net realizable value of $3,091,000 at December 31, 2019.

v3.20.4
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
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, 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 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.

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 $1,500,000 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, 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 16 and 17 to the consolidated financial statements.

Equity Investments

The Company follows FASB ASC Topic 321, Investments – Equity Securities, or ASC 321, which requires all applicable investment in equity securities with readily determinable value to be valued as such, and those that do not are measured at cost, less any impairment plus or minus any observable price change. Equity investments of $9,746,000 and $10,079,000 at December 31, 2020 and 2019, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost less any impairment plus or minus observable price changes. As of December 31, 2020 and 2019, the Company determined that there was no impairment or observable price change.

Investment Securities (Bank Holding Company Accounting)

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 $278,000 and $248,000 at December 31, 2020 and 2019, and $291,000 and $79,000 was amortized to interest income for the years ended December 31, 2020 and 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 to interest income for the three months ended March 31, 2018. Refer to Note 3 for more details. ASC 320 further requires that held-to-maturity securities be reported at amortized cost and available-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings at the date of the 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 5 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 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 December 31, 2020 and 2019, net loan origination costs were $20,684,000 and $17,839,000. Net amortization to income for the years ended December 31, 2020, 2019 and 2018 was $6,021,000, $4,952,000, and 3,128,000 ($3,993,000 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 $6,878,000 at December 31, 2020, or 0.57% of the total loan portfolio, compared to $8,663,000, or 0.76% at December 31, 2019.

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. As a result of the Consolidated Appropriations Act, the CARES Act relief period was extended to the later of January 1, 2022 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 December 31, 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 2020. 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 $15,367,000 and $28,833,000 of net loans pledged as collateral under borrowing arrangements at December 31, 2020 and 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 $107,131,000 and $113,581,000 at December 31, 2020 and 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 December 31, 2020 and 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 (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. 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 recreation subprime loan business during the twelve months ended December 31, 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 $79,500 for New York City medallions. In total, write-downs on medallion assets were approximately $46,087,000 during 2020.  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.

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, 2020 and 2019, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $51,090,000 and $52,536,000, and the Company recognized $1,445,000, $1,446,000 and $1,083,000 of amortization expense on the intangible assets for the twelve months ended December 31, 2020, 2019, and 2018. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $2,717,000 and $5,758,000 were outstanding at December 31, 2020 and 2019, and of which $3,041,000, $3,289,000 and $3,339,000 were amortized to interest income for the twelve months ended December 31, 2020, 2019, and 2018. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2020 and 2019, who concluded there was no impairment on the Bank and on the RPAC intangible asset.

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

 

(Dollars in thousands)

 

December 31, 2020

 

 

December 31, 2019

 

Brand-related intellectual property

 

$

18,974

 

 

$

20,075

 

Home improvement contractor relationships

 

 

5,951

 

 

 

6,296

 

Race organization

 

 

26,165

 

 

 

26,165

 

Total intangible assets

 

$

51,090

 

 

$

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 $412,000, $418,000, and $422,000 for the years ended December 31, 2020, 2019, and 2018.

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 $2,558,000, $2,348,000, and $1,864,000 for the years ended December 31, 2020, 2019, and 2018, 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 $5,805,000 and $5,105,000 at December 31, 2020 and 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)/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 data)

 

2020

 

 

2019

 

 

2018

 

Net loss/net increase in net assets resulting from

   operations available to common stockholders

 

$

(34,783

)

 

$

(1,762

)

 

$

(25,046

)

Weighted average common shares outstanding applicable

   to basic EPS

 

 

24,445,452

 

 

 

24,342,979

 

 

 

24,214,978

 

Effect of dilutive stock options

 

 

 

 

 

 

 

 

 

Effect of restricted stock grants

 

 

 

 

 

 

 

 

 

Adjusted weighted average common shares outstanding

   applicable to diluted EPS

 

 

24,445,452

 

 

 

24,342,979

 

 

 

24,214,978

 

Basic loss per share

 

$

(1.42

)

 

$

(0.07

)

 

$

(1.03

)

Diluted loss per share

 

 

(1.42

)

 

 

(0.07

)

 

 

(1.03

)

 

Potentially dilutive common shares excluded from the above calculations aggregated 934,003, 462,180, and 100,000 shares as of December 31, 2020, 2019, and 2018.

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/ net increase in 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 2020, 2019, and 2018, the Company issued 229,408, 216,148, and 101,010 restricted shares of stock-based compensation awards, issued 444,557, 449,450, and 39,000 shares of other stock-based compensation awards, and issued 47,156, 26,040, and 0 of restricted share units of stock based compensation awards, and recognized $2,030,000, $1,221,000, and $576,000, or $0.08, $0.05, and $0.02, per diluted common share for each respective year, of non-cash stock-based compensation expense related to the grants. As of December 31, 2020, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $2,405,000, which is expected to be recognized over the next 16 quarters. See Note 9 for additional 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, 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, 2020, the Bank’s Tier 1 leverage ratio was 16.93%. 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, 2020

 

 

December 31, 2019

 

Common equity tier 1 capital

 

 

 

 

 

 

 

$

148,507

 

 

$

158,187

 

Tier 1 capital

 

 

 

 

 

 

 

 

217,295

 

 

 

226,975

 

Total capital

 

 

 

 

 

 

 

 

233,460

 

 

 

241,842

 

Average assets

 

 

 

 

 

 

 

 

1,283,664

 

 

 

1,172,866

 

Risk-weighted assets

 

 

 

 

 

 

 

 

1,243,783

 

 

 

1,144,337

 

Leverage ratio (1)

 

 

4.0

%

 

 

5.0

%

 

 

16.9

%

 

 

19.4

%

Common equity tier 1 capital ratio (2)

 

 

7.0

 

 

 

6.5

 

 

 

11.9

 

 

 

13.8

 

Tier 1 capital ratio (3)

 

 

8.5

 

 

 

8.0

 

 

 

17.5

 

 

 

19.8

 

Total capital ratio (3)

 

 

10.5

 

 

 

10.0

 

 

 

18.8

 

 

 

21.1

 

 

(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, 2020 and 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 December 31, 2020 and 2019.

Recently Issued Accounting Standards

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.

v3.20.4
Investment Securities
12 Months Ended
Dec. 31, 2020
Schedule Of Investments [Abstract]  
Investment Securities

(3) INVESTMENT SECURITIES

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

 

December 31, 2020

(Dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

Mortgage-backed securities, principally obligations of US

   federal agencies

 

$

34,929

 

 

$

1,495

 

 

$

(45

)

 

$

36,379

 

State and municipalities

 

 

10,226

 

 

 

189

 

 

 

(2

)

 

 

10,413

 

Total

 

$

45,155

 

 

$

1,684

 

 

$

(47

)

 

$

46,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 December 31, 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

 

 

12,485

 

 

 

12,956

 

Due after five years through ten years

 

 

14,499

 

 

 

15,214

 

Due after ten years

 

 

18,146

 

 

 

18,597

 

Total

 

$

45,155

 

 

$

46,792

 

 

 

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

(Dollars in thousands)

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

Mortgage-backed securities, principally obligations of US

   federal agencies

 

$

(45

)

 

$

4,028

 

 

$

 

 

$

 

State and municipalities

 

 

 

 

 

 

 

 

(2

)

 

 

196

 

Total

 

$

(45

)

 

$

4,028

 

 

$

(2

)

 

$

196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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