MEDALLION FINANCIAL CORP, 10-Q filed on 08 Aug 22
v3.22.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2022
Aug. 05, 2022
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2022  
Document Fiscal Year Focus 2022  
Document Fiscal Period Focus Q2  
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   24,238,939
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  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol MFIN  
Security Exchange Name NASDAQ  
v3.22.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2022
Dec. 31, 2021
Assets    
Cash and cash equivalents [1] $ 33,796 $ 64,482
Federal funds sold 92,534 60,002
Investment securities 50,358 44,772
Equity investments 10,942 9,726
Loans 1,734,621 1,488,924
Allowance for loan losses (59,152) [2],[3] (50,166)
Net loans receivable 1,675,469 1,438,758
Goodwill 150,803 150,803
Loan collateral in process of foreclosure [4] 26,974 37,430
Intangible assets, net 22,759 23,480
Property, equipment, and right-of-use lease asset, net 12,565 11,762
Accrued interest receivable 11,534 10,621
Income tax receivable 1,362 833
Other assets 23,035 20,388
Total assets 2,112,131 1,873,057
Liabilities    
Deposits [5] 1,469,241 1,250,880
Long-term debt [6] 219,377 219,973
Deferred tax liabilities, net 24,048 18,210
Operating lease liabilities 9,078 9,053
Accrued interest payable 3,548 3,395
Accounts payable and accrued expenses [7] 23,998 15,718
Total liabilities 1,749,290 1,517,229
Commitments and contingencies
Stockholders’ equity    
Preferred stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding) 0 0
Common stock (50,000,000 shares of $0.01 par value stock authorized - 28,530,373 shares at June 30, 2022 and 28,124,629 shares at December 31, 2021 issued) 285 281
Additional paid in capital 281,647 280,038
Treasury stock (4,291,053 shares at June 30, 2022 and 2,951,243 shares at December 31, 2021) (35,510) (24,919)
Accumulated other comprehensive income (loss) (2,101) 1,034
Retained earnings 49,732 30,606
Total stockholders’ equity 294,053 287,040
Non-controlling interest in consolidated subsidiaries 68,788 68,788
Total equity 362,841 355,828
Total liabilities and equity $ 2,112,131 $ 1,873,057
Number of shares outstanding 24,239,320 25,173,386
Book value per share $ 12.13 $ 11.40
[1] Includes no restricted cash requirement as of June 30, 2022 and $3.0 million as of December 31, 2021.
[2] As of June 30, 2022 and June 30, 2021, there were no allowance for loan losses and net charge-offs related to the strategic partnership loans.
[3] As of June 30, 2022, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion loan portfolio were $252.1 million, some of which may represent collection opportunities for the Company.
[4] Includes financed sales of this collateral to third parties that are reported separately from the loan portfolio, of $7.7 million as of June 30, 2022 and $7.4 million as of December 31, 2021
[5] Includes $3.8 million and $3.2 million of deferred financing costs as of June 30, 2022 and December 31, 2021. Refer to Note 5 for more details.
[6] Includes $3.6 million and $4.0 million of deferred financing costs as of June 30, 2022 and December 31, 2021. Refer to Note 5 for more details.
[7] Includes the short-term portion of lease liabilities of $2.1 million and $2.2 million as of June 30, 2022 and December 31, 2021. Refer to Note 6 for more details.
v3.22.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2022
Dec. 31, 2021
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 28,530,373 28,124,629
Treasury stock,shares 4,291,053 2,951,243
Restricted cash $ 0.0 $ 3.0
Loan collateral in process of foreclosure, financed sales collateral to third parties 7.7 7.4
Short term lease liabilities 2.1 2.2
Deposits [Member]    
Deferred financing costs 3.8 3.2
Long-Term Debt [Member]    
Deferred financing costs $ 3.6 $ 4.0
v3.22.2
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2022
Jun. 30, 2021
Jun. 30, 2022
Jun. 30, 2021
Income Statement [Abstract]        
Interest and fees on loans $ 46,740 $ 37,132 $ 89,804 $ 73,987
Interest and dividends on investment securities 371 243 610 468
Total interest income [1] 47,111 37,375 90,414 74,455
Interest on deposits 4,912 4,465 9,066 9,176
Interest on long-term debt 3,318 3,173 6,539 6,467
Interest on short-term borrowings 0 246 0 649
Total interest expense 8,230 7,884 15,605 16,292
Net interest income (loss) 38,881 29,491 74,809 58,163
Provision (benefit) for loan losses 7,759 (682) 10,999 2,336
Net interest income (loss) after loss provision 31,122 30,173 63,810 55,827
Other income (loss)        
Gain on equity investments 4,241 3,205 4,108 3,205
Write-down of loan collateral in process of foreclosure (128) (2,162) (514) (4,947)
Gain on extinguishment of debt 0 2,859 0 4,626
Sponsorship and race winnings, net 0 4,345 0 6,818
Other income (loss) 3,245 (480) 5,293 1
Total other income net 7,358 7,767 8,887 9,703
Other expenses        
Salaries and employee benefits 7,730 7,901 15,298 13,586
Professional fees 4,392 2,224 8,384 2,730
Loan servicing fees 2,119 1,731 4,072 3,378
Collection costs 999 1,641 2,342 2,874
Rent expense 490 624 1,135 1,299
Regulatory fees 560 456 1,011 895
Amortization of intangible assets 363 361 721 722
Race team related expenses 0 2,674 0 4,796
Other expenses 2,160 2,208 3,882 4,182
Total other expenses 18,813 19,820 36,845 34,462
Income before income taxes 19,667 18,120 35,852 31,068
Income tax provision 4,856 6,528 9,687 10,406
Net income after taxes 14,811 11,592 26,165 20,662
Less: income attributable to the non-controlling interest 1,511 1,325 3,024 1,964
Total net income attributable to Medallion Financial Corp. $ 13,300 $ 10,267 $ 23,141 $ 18,698
Basic net income per share $ 0.55 $ 0.42 $ 0.95 $ 0.76
Diluted net income per share $ 0.54 $ 0.41 $ 0.93 $ 0.75
Weighted average common shares outstanding        
Basic 24,153,015 24,595,822 24,459,870 24,557,511
Diluted 24,421,867 24,950,512 24,751,012 24,923,023
[1] Included in interest income is $0.2 million and $0.3 million of paid-in-kind interest for the three and six months ended June 30, 2022 and $0.2 million and $0.5 million for the three and six months ended June 30, 2021.
v3.22.2
Consolidated Statements of Operations (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2022
Jun. 30, 2021
Jun. 30, 2022
Jun. 30, 2021
Income Statement [Abstract]        
Interest paid-in-kind $ 0.2 $ 0.2 $ 0.3 $ 0.5
v3.22.2
Consolidated Statements of Other Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2022
Jun. 30, 2021
Jun. 30, 2022
Jun. 30, 2021
Statement of Comprehensive Income [Abstract]        
Net income after taxes $ 14,811 $ 11,592 $ 26,165 $ 20,662
Other comprehensive (loss) income, net of tax (1,418) 27 (3,135) (578)
Total comprehensive income 13,393 11,619 23,030 20,084
Less comprehensive income attributable to the non-controlling interest 1,511 1,325 3,024 1,964
Total comprehensive income attributable to Medallion Financial Corp. $ 11,882 $ 10,294 $ 20,006 $ 18,120
v3.22.2
Consolidated Statement of Changes in Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Capital in Excess of Par [Member]
Treasury Stock [Member]
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Parent [Member]
Noncontrolling Interest [Member]
Balance at Dec. 31, 2020 $ 304,561 $ 278 $ 277,539 $ (24,919) $ (23,502) $ 2,012 $ 231,408 $ 73,153
Balance, shares at Dec. 31, 2020   27,828,871   (2,951,243)        
Net income 9,071       8,431   8,431 640
Distributions to non-controlling interest (1,511)             (1,511)
Stock-based compensation expense 498 $ 2 496       498  
Issuance of restricted stock, net, shares   163,561            
Forfeiture of restricted stock, net, shares   (7,602)            
Exercise of stock options, shares   768            
Other comprehensive (loss) income, net of tax (605)         (605) (605)  
Ending balance at Mar. 31, 2021 312,014 $ 280 278,035 $ (24,919) (15,071) 1,407 239,732 72,282
Ending balance, shares at Mar. 31, 2021   27,985,598   (2,951,243)        
Balance at Dec. 31, 2020 304,561 $ 278 277,539 $ (24,919) (23,502) 2,012 231,408 73,153
Balance, shares at Dec. 31, 2020   27,828,871   (2,951,243)        
Net income 20,662              
Other comprehensive (loss) income, net of tax (578)              
Ending balance at Jun. 30, 2021 322,814 $ 280 278,727 $ (24,919) (4,804) 1,434 250,718 72,096
Ending balance, shares at Jun. 30, 2021   28,013,007   (2,951,243)        
Balance at Dec. 31, 2020 $ 304,561 $ 278 277,539 $ (24,919) (23,502) 2,012 231,408 73,153
Balance, shares at Dec. 31, 2020   27,828,871   (2,951,243)        
Exercise of stock options, shares [1] 44,070              
Net change in unrealized gains (losses) on investments, net of tax $ (1,000)              
Ending balance at Dec. 31, 2021 $ 355,828 $ 281 280,038 $ (24,919) 30,606 1,034 287,040 68,788
Ending balance, shares at Dec. 31, 2021 25,173,386 28,124,629   (2,951,243)        
Balance at Mar. 31, 2021 $ 312,014 $ 280 278,035 $ (24,919) (15,071) 1,407 239,732 72,282
Balance, shares at Mar. 31, 2021   27,985,598   (2,951,243)        
Net income 11,592       10,267   10,267 1,325
Distributions to non-controlling interest (1,511)             (1,511)
Stock-based compensation expense 576   576       576  
Issuance of restricted stock, net, shares   15,514            
Forfeiture of restricted stock, net, shares   (10,332)            
Exercise of stock options 116   116       116  
Exercise of stock options, shares   22,227            
Other comprehensive (loss) income, net of tax 27              
Net change in unrealized gains (losses) on investments, net of tax 27         27 27  
Ending balance at Jun. 30, 2021 322,814 $ 280 278,727 $ (24,919) (4,804) 1,434 250,718 72,096
Ending balance, shares at Jun. 30, 2021   28,013,007   (2,951,243)        
Balance at Dec. 31, 2021 $ 355,828 $ 281 280,038 $ (24,919) 30,606 1,034 287,040 68,788
Balance, shares at Dec. 31, 2021 25,173,386 28,124,629   (2,951,243)        
Net income $ 11,353       9,841   9,841 1,512
Distributions to non-controlling interest (1,512)             (1,512)
Stock-based compensation expense 598 $ 4 594       598  
Issuance of restricted stock, net, shares   383,925            
Forfeiture of restricted stock, net, shares   (5,730)            
Exercise of stock options $ 152   152       152  
Exercise of stock options, shares 23,192 [1] 23,192            
Purchase of common stock (in Shares)       (67,660)        
Purchase of common stock $ (617)     $ (617)     (617)  
Dividend paid on common stock (2,044)       (2,044)   (2,044)  
Other comprehensive (loss) income, net of tax (1,717)         (1,717) (1,717)  
Ending balance at Mar. 31, 2022 362,041 $ 285 280,784 $ (25,536) 38,403 (683) 293,253 68,788
Ending balance, shares at Mar. 31, 2022   28,526,016   (3,018,903)        
Balance at Dec. 31, 2021 $ 355,828 $ 281 280,038 $ (24,919) 30,606 1,034 287,040 68,788
Balance, shares at Dec. 31, 2021 25,173,386 28,124,629   (2,951,243)        
Net income $ 26,165              
Other comprehensive (loss) income, net of tax (3,135)              
Net change in unrealized gains (losses) on investments, net of tax (3,100)              
Ending balance at Jun. 30, 2022 $ 362,841 $ 285 281,647 $ (35,510) 49,732 (2,101) 294,053 68,788
Ending balance, shares at Jun. 30, 2022 24,239,320 28,530,373   (4,291,053)        
Balance at Mar. 31, 2022 $ 362,041 $ 285 280,784 $ (25,536) 38,403 (683) 293,253 68,788
Balance, shares at Mar. 31, 2022   28,526,016   (3,018,903)        
Net income 14,811       13,300   13,300 1,511
Distributions to non-controlling interest (1,511)             (1,511)
Stock-based compensation expense $ 863   863       863  
Issuance of restricted stock, net, shares   4,944            
Forfeiture of restricted stock, net, shares (587)              
Exercise of stock options, shares 0              
Purchase of common stock (in Shares)       (1,272,150)        
Purchase of common stock $ (9,974)     $ (9,974)     (9,974)  
Dividend paid on common stock (1,971)       (1,971)   (1,971)  
Other comprehensive (loss) income, net of tax (1,418)         (1,418) (1,418)  
Net change in unrealized gains (losses) on investments, net of tax (1,400)              
Ending balance at Jun. 30, 2022 $ 362,841 $ 285 $ 281,647 $ (35,510) $ 49,732 $ (2,101) $ 294,053 $ 68,788
Ending balance, shares at Jun. 30, 2022 24,239,320 28,530,373   (4,291,053)        
[1] The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at the exercise date and the related exercise price of the underlying options, was $0 and less than $0.1 million for the three and six months ended June 30, 2022 and was $0.2 million for the year ended December 31, 2021.
v3.22.2
Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) - $ / shares
Jun. 30, 2022
Mar. 31, 2022
Statement of Stockholders' Equity [Abstract]    
Dividends payable, amount per share $ 0.08 $ 0.08
v3.22.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2022
Jun. 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 26,165 $ 20,662
Adjustments to reconcile net income resulting from operations to net cash provided by operating activities:    
Provision for loan losses 10,999 2,336
Paid-in-kind interest income (347) (495)
Depreciation and amortization 2,844 4,082
Amortization of origination fees, net 4,670 3,723
Increase in deferred and other tax liabilities, net 5,309 8,469
Net change in value of loan collateral in process of foreclosure 2,487 7,243
Net realized gains on sale of investments (4,108) (3,205)
Stock-based compensation expense 1,461 1,072
Gain on extinguishment of debt 0 (4,626)
(Increase) decrease in accrued interest receivable (913) 813
Increase in other assets (5,470) (574)
Increase in accounts payable and accrued expenses 8,186 1,109
(Decrease) increase in accrued interest payable 153 (790)
Net cash provided by operating activities 51,436 39,819
CASH FLOWS FROM INVESTING ACTIVITIES    
Loans originated (528,139) (365,416)
Proceeds from principal receipts, sales, and maturities of loans 270,009 225,976
Purchases of investments (15,809) (15,318)
Proceeds from principal receipts, sales, and maturities of investments 9,937 14,006
Proceeds from the sale and principal payments on loan collateral in process of foreclosure 13,766 8,942
Net cash used for investing activities (250,236) (131,810)
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from time deposits and funds borrowed 506,158 409,810
Repayments of time deposits and funds borrowed (288,154) (335,403)
Cash dividend paid on common stock (3,896) 0
Distributions to non-controlling interests (3,023) (3,019)
Treasury stock repurchased (10,591) 0
Proceeds from the exercise of stock options 152 116
Net cash provided by financing activities 200,646 71,504
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,846 (20,487)
Cash, and cash equivalents beginning of period [1] 124,484 112,040
Cash and cash equivalents, end of period (1) [1] 126,330 91,553
SUPPLEMENTAL INFORMATION    
Cash paid during the period for interest 14,123 15,769
Cash paid during the period for income taxes 3,175 1,688
NON-CASH INVESTING    
Loans transferred to loan collateral in process of foreclosure, net $ 5,797 $ 10,663
[1] Includes Federal Funds Sold.
v3.22.2
Organization of Medallion Financial Corp. and its Subsidiaries
6 Months Ended
Jun. 30, 2022
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 specialty 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 formed in May 2002 for the purpose of obtaining an industrial bank charter pursuant to the laws of the State of Utah. The Bank originates consumer loans on a national basis for the purchase of recreational vehicles (“RVs”), boats and other consumer recreational equipment and to finance home improvements such as replacement windows and roofs. Prior to 2014, the Bank originated commercial loans to finance the purchase of taxi medallions, all of which are serviced by the Company. The loans are financed primarily with time certificates of deposits which are originated nationally through a variety of brokered deposit relationships. In 2019, the Bank began building a strategic partnership program that targets relationships with financial technology, or fintech, companies to offer loans and other financial services to customers. The Bank entered into an initial partnership in 2020, a second partnership in 2021, and a third partnership in 2022. The Bank continues to explore opportunities with additional fintech companies.

The Company also conducts business through its subsidiaries Medallion Capital, Inc., or MCI, a Small Business Investment Company, or SBIC, which conducts a mezzanine financing business; Medallion Funding LLC, or MFC, an SBIC, which originates and services medallion and commercial loans; and Freshstart Venture Capital Corp., or FSVC, an SBIC that originated and services medallion and commercial loans. MCI, MFC, 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 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 $34.0 million at June 30, 2022, 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 $8.7 million of City of Chicago taxi medallions out of foreclosure. These 159 taxi medallions are carried at a net realizable value of $1.0 million in other assets on the Company’s consolidated balance sheet at June 30, 2022 and December 31, 2021.

v3.22.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2022
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 U.S., 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. As of June 30, 2022, cash includes $1.3 million of interest-bearing funds deposited in other banks, that are mainly callable, with original 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 a readily determinable fair value to be valued as such, and those without a readily determinable fair value, are measured at cost, less any impairment plus or minus any observable price changes. Equity investments of $10.9 million and $9.7 million at June 30, 2022 and December 31, 2021, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost less any impairment plus or minus observable price changes. As of June 30, 2022, the Company determined that there was no impairment or observable price change.

During 2021, the Company purchased $2.0 million of equity securities with a readily determinable fair value. As a result, all unrealized gains and losses are included in gain (loss) on equity investments. As of June 30, 2022 and December 31, 2021, the fair value of these securities were $1.8 million and $2.0 million and are included in other assets on the consolidated balance sheet.

The table below presents the unrealized portion related to the equity securities held.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net losses recognized during the period on equity securities

 

$

(63

)

 

$

(3

)

 

$

(154

)

 

$

(31

)

Less: Net gains (losses) recognized during the period on equity
   securities sold during the period

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses recognized during the reporting period on
   equity securities still held at the reporting date

 

$

(63

)

 

$

(3

)

 

$

(154

)

 

$

(31

)

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 $0.1 million at June 30, 2022 and $0.3 million at December 31, 2021, and less than $0.1 million was amortized to interest income for the three and six months ended June 30, 2022 and less than $0.1 million for the three and six months ended June 30, 2021. 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.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At June 30, 2022 and December 31, 2021, net loan origination costs were $31.6 million and $26.1 million. Net amortization to income for the three and six months ended June 30, 2022 was $2.4 million and $4.5 million and was $2.1 million and $3.7 million for the three and six months ended June 30, 2021.

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 loan portfolio has different characteristics, typified by a larger number of smaller dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is unlikely the Company will be able 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. Consumer 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 recovery efforts against both the borrower and the underlying collateral are initiated. For the recreation loan portfolio, the process to repossess the collateral is typically 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 by writing 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 recoveries. Total loans 90 days or more past due were $4.3 million at June 30, 2022, or 0.25% of the total loan portfolio, compared to $4.0 million, or 0.28%, at December 31, 2021.

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. All consumer loans which are party to a Chapter 13 bankruptcy are immediately classified as TDRs. The Company’s policy with regard to bankrupt recreation loans is to take an immediate 40% write down of the loan balance.

Loan collateral in process of foreclosure primarily includes medallion loans that have reached 120 days past due and have been charged-down to their net realizable value, in addition to consumer repossessed collateral in the process of being sold. For New York City medallion loans in the process of foreclosure, although market prices fluctuate and may exceed the internally determined value, the Company continued to utilize a net value of $79,500 when assessing net realizable value for the medallion loans, despite fluctuating current transfer prices which may exceed that level from time to time. The "loan collateral in the process of foreclosure" designation reflects that the collection activities on these loans have transitioned from working with the borrower, to the liquidation of the collateral securing the loans. 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 $19.7 million and $20.5 million at June 30, 2022 and December 31, 2021. The Company has evaluated the servicing aspect of its business in accordance with FASB ASC 860 and determined that no material servicing asset or liability existed as of June 30, 2022 and December 31, 2021.

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 collateral value for the most recent quarter. Collateral value for the medallion loans is generally determined utilizing factors deemed relevant under the circumstances of the market including but not limited to: actual transfers, pending transfers, median and average sales prices, discounted cash flows, market direction and sentiment, and general economic trends for the industry and economy. 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, 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 in the third quarter of 2020. As a result, all medallion loans were placed on nonaccrual and reserved down to collateral value, net of liquidation costs, which was $79,500 for New York City medallions. The Company continued to use $79,500 as its internally determined value for assessing net realizable value for these medallion loans, despite fluctuating current transfer prices which may exceed that level from time to time. The Company continues to monitor the impact of COVID-19 on the consumer, commercial, and medallion loans. 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 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 June 30, 2022 and December 31, 2021, the Company had goodwill of $150.8 million, all of which related to the Bank. As of June 30, 2022 and December 31, 2021, the Company had intangible assets of $22.8 million and $23.5 million. Amortization expense on the intangible assets for the three and six months ended June 30, 2022 and 2021 was $0.4 million and $0.7 million. Additionally, loan portfolio premiums of $12.4 million were determined as of April 2, 2018, of which $0.2 million and $0.5 million were outstanding as of June 30, 2022 and December 31, 2021, and of which $0.2 million and $0.3 million was amortized to interest income for the three and six months ended June 30, 2022 and $1.7 million and $1.9 million was amortized to interest income for the three and six months ended June 30, 2021. Management performed a step 0 analysis in assessing the goodwill and intangibles for impairment at December 31, 2021, concluding that there was no impairment of these assets. The Company has reviewed these assets, all of which relate to the Bank, and concluded that no impairment exists as of June 30, 2022.

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

(Dollars in thousands)

 

June 30, 2022

 

 

December 31, 2021

 

Brand-related intellectual property

 

$

17,325

 

 

$

17,874

 

Home improvement contractor relationships

 

 

5,434

 

 

 

5,606

 

Total intangible assets

 

$

22,759

 

 

$

23,480

 

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 $0.1 million and $0.2 million for the three and six months ended June 30, 2022 and 2021.

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 $0.7 million and $1.3 million for the three and six months ended June 30, 2022 and was $0.6 million and $1.2 million for the three and six months ended June 30, 2021. 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 $7.4 million and $7.1 million as of June 30, 2022 and December 31, 2021.

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.

 

Earnings Per Share (EPS)

Basic earnings per share are computed by dividing net income 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 considering to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. The table below shows the calculation of basic and diluted EPS.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

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

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income available to common stockholders

 

$

13,300

 

 

$

10,267

 

 

$

23,141

 

 

$

18,698

 

Weighted average common shares outstanding applicable
   to basic EPS

 

 

24,153,015

 

 

 

24,595,822

 

 

 

24,459,870

 

 

 

24,557,511

 

Effect of dilutive stock options

 

 

84,232

 

 

 

127,493

 

 

 

86,869

 

 

 

74,331

 

Effect of restricted stock grants

 

 

184,620

 

 

 

227,197

 

 

 

204,273

 

 

 

291,181

 

Adjusted weighted average common shares outstanding
   applicable to diluted EPS

 

 

24,421,867

 

 

 

24,950,512

 

 

 

24,751,012

 

 

 

24,923,023

 

Basic net income per share

 

$

0.55

 

 

$

0.42

 

 

$

0.95

 

 

$

0.76

 

Diluted net income per share

 

 

0.54

 

 

 

0.41

 

 

 

0.93

 

 

 

0.75

 

Potentially dilutive common shares excluded from the above calculations aggregated 832,895 and 396,373 shares as of June 30, 2022 and 2021.

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 six months ended June 30, 2022 and 2021, the Company issued 383,925 and 163,561 restricted shares of stock-based compensation awards, issued 0 and 317,398 shares of other stock-based compensation awards, issued 0 and 16,803 restricted stock units. The Company recognized $0.9 million and $1.5 million, or $0.04 and $0.06 per share, for the three and six months ended June 30, 2022, and $0.6 million and $1.1 million, or $0.02 and $0.04 per share, for the three and six months ended June 30, 2021, of non-cash stock-based compensation expense related to the grants. As of June 30, 2022, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $4.2 million, which is expected to be recognized over the next 11 quarters.

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%, a level which could preclude its ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of June 30, 2022, the Bank’s Tier 1 leverage ratio was 17.0%. The Bank’s actual capital amounts and ratios, and the regulatory minimum ratios are presented in the following table.

 

 

Regulatory

 

 

 

 

 

 

 

(Dollars in thousands)

 

Minimum

 

 

Well-Capitalized

 

 

June 30, 2022

 

 

December 31, 2021

 

Common equity tier 1 capital

 

 

 

 

 

 

 

$

217,079

 

 

$

193,459

 

Tier 1 capital

 

 

 

 

 

 

 

 

285,867

 

 

 

262,247

 

Total capital

 

 

 

 

 

 

 

 

307,653

 

 

 

281,211

 

Average assets

 

 

 

 

 

 

 

 

1,681,043

 

 

 

1,495,726

 

Risk-weighted assets

 

 

 

 

 

 

 

 

1,706,568

 

 

 

1,482,678

 

Leverage ratio (1)

 

 

4.0

%

 

 

5.0

%

 

 

17.0

%

 

 

17.5

%

Common equity tier 1 capital ratio (2)

 

 

7.0

 

 

 

6.5

 

 

 

12.7

 

 

 

13.1

 

Tier 1 capital ratio (3)

 

 

8.5

 

 

 

8.0

 

 

 

16.8

 

 

 

17.7

 

Total capital ratio (3)

 

 

10.5

 

 

 

10.0

 

 

 

18.0

 

 

 

19.0

 

(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 June 30, 2022 and December 31, 2021 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 June 30, 2022 and December 31, 2021.

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, or ASU 2016-13. 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 the accompanying financial statements, and expects the update to have a material impact on the Company’s accounting for estimated credit losses on its loans.

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements, or Topic 205: Depository and Lending, or Topic 942: and Financial Services – Investment Companies, or Topic 946: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. This new standard amends certain SEC paragraphs from the Codification in response to the issuance of SEC Final Rule No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses and SEC Rule No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The Company has assessed the impact the update and determined it does not have a material impact on the accompanying financial statements.

 

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses, or Topic 326: Troubled Debt Restructurings and Vintage Disclosures, or ASU 2022-02. The main objective of this new standard is to amend ASU 2016-13 in response to feedback received from the post-implementation review process. The amendments update ASU 2016-13 to require that an entity measure and record the lifetime expected credit losses on an asset upon origination or acquisition, and, as a result, credit losses from loans modified as troubled debt restructurings (TDRs) have been incorporated into the allowance for credit losses. The amendments also require the disclosure of current period gross write-offs, by year of origination, for financing receivables. ASU 2022-02 is effective upon the adoption of ASU 2016-13. The Company is assessing the impact the update will have on the accompanying financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement, or Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, or ASU 2016-13. This new standard clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The Company has assessed the impact the update and determined it does not have a material impact on the accompanying financial statements.

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.

v3.22.2
Investment Securities
6 Months Ended
Jun. 30, 2022
Schedule of Investments [Abstract]  
Investment Securities

(3) INVESTMENT SECURITIES

Fixed maturity securities available for sale at June 30, 2022 and December 31, 2021 consisted of the following:

June 30, 2022
(Dollars in thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Mortgage-backed securities, principally obligations of U.S. federal agencies

 

$

44,155

 

 

$

4

 

 

$

(3,680

)

 

$

40,479

 

State and municipalities

 

 

10,280

 

 

 

73

 

 

 

(474

)

 

 

9,879

 

Total

 

$

54,435

 

 

$

77

 

 

$

(4,154

)

 

$

50,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021
(Dollars in thousands)

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Mortgage-backed securities, principally obligations of U.S. federal agencies

 

$

35,469

 

 

$

672

 

 

$

(403

)

 

$

35,738

 

State and municipalities

 

 

9,025

 

 

 

60

 

 

 

(51

)

 

 

9,034

 

Total

 

$

44,494

 

 

$

732

 

 

$

(454

)

 

$

44,772

 

The amortized cost and estimated market value of investment securities at June 30, 2022 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.

June 30, 2022
(Dollars in thousands)

 

Amortized
Cost

 

 

Fair
Value

 

Due in one year or less

 

$

22

 

 

$

22

 

Due after one year through five years

 

 

9,435

 

 

 

9,241

 

Due after five years through ten years

 

 

9,568

 

 

 

8,737

 

Due after ten years

 

 

35,410

 

 

 

32,358

 

Total

 

$

54,435

 

 

$

50,358

 

The following tables show information pertaining to securities with gross unrealized losses at June 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position.

 

 

Less than Twelve Months

 

 

Twelve Months and Over

 

June 30, 2022
(Dollars in thousands)

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Mortgage-backed securities, principally obligations of U.S. federal agencies

 

$

(1,861

)

 

$

26,941

 

 

$

(1,819

)

 

$

10,263

 

State and municipalities

 

 

(47

)

 

 

3,543

 

 

 

(427

)

 

 

3,246

 

Total

 

$

(1,908

)

 

$

30,484

 

 

$

(2,246

)

 

$

13,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than Twelve Months

 

 

Twelve Months and Over

 

December 31, 2021
(Dollars in thousands)

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

 

Gross
Unrealized
Losses

 

 

Fair
Value

 

Mortgage-backed securities, principally obligations of U.S. federal agencies

 

$

(403

)

 

$

16,330

 

 

$

 

 

$

 

State and municipalities