UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Endedquarterly period ended June 30, 20182019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file number001-37747
MEDALLION FINANCIAL CORP.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)
DELAWARE | 04-3291176 | |
(State of Incorporation) | (IRS Employer Identification No.) |
437 MADISON AVENUE, 38th Floor
NEW YORK, NEW YORK 10022
(Address of principal executive offices)Principal Executive Offices) (Zip Code)
(212)328-2100
(Registrant’s telephone number, including area code)Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbols | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share 9.000% Senior Notes due 2021 | MFIN MFINL | NASDAQ Global Select Market NASDAQ Global Select Market |
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” inRule 12b-2 of the Exchange Act. (check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule12b-2 of the Exchange Act). YES ☐ NO ☒
The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of August 10, 20186, 2019 was 24,438,823.24,609,815.
FORM10-Q
The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.
This report contains forward-looking statements relating to future events and future performance applicable to us within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language. In connection with certain forward-looking statements contained in this Form 10-Q and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-Q were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory, and other uncertainties and contingencies, all of which are difficult or impossible to predict, and many of which are beyond control of the Company. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statements. The statements have not been audited by, examined by, compiled by, or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-Q should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-Q. The inclusion of the forward-looking statements contained in this Form 10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-Q will be achieved. In light of the foregoing, readers of this Form 10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein. You should consider these risks and those described under Risk Factors in the Company’s Annual Report on Form 10-K and others that are detailed in the other reports that the Company files from time to time with the Securities and Exchange Commission.
Page 2 of 9776
PART I – FINANCIAL INFORMATION
BASIS OF PREPARATION
We, Medallion Financial Corp., or the Company, are a commercial finance company, organized as a Delaware corporation, that includes Medallion Bank, our primary operating subsidiary. Effective April 2, 2018, following authorization by our shareholders, we withdrew our previous election to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. Prior to such time, we werea closed-end, non-diversified management investment company that had elected to be treated as a BDC under the 1940 Act.
As a result of this change in status, commencing with the three months ended June 30, 2018:
we consolidateconsolidated the results of Medallion Bank and our other subsidiaries in our financial statements, which, as an investment company, we were previously precluded from doing; and
with the consolidation of Medallion Bank, given its significance to our overall financial results, we now report as a bank holding company for accounting purposes under Article 9 and Guide 3 of RegulationS-X, (but but we are not a bank holding company for regulatory purposes).purposes.
In accordance with FASB Accounting Standards Codification, (ASC)or ASC, Topic 946 – Financial Services – Investment Company, we are makingmade this change to our financial reporting prospectively, and have not restatingrestated or revisingrevised periods prior to our change in status to anon-investment company effective April 2, 2018. Accordingly, in this report we refer to both accounting in accordance with US generally accepted accounting principles, (GAAP)or GAAP, applicable to bank holding companies, (Bankor Bank Holding Company Accounting),Accounting, which applies commencing April 2, 2018, and to that applicable to investment companies under the 1940 Act, (Investmentor Investment Company Accounting),Accounting, which applies to prior periods.
In order to maintain its status as anon-investment company, the Company operates so as to fall outside the definition of an “investment company” or within an applicable exception. The Company expects to continue to fall within the exception from the definition of an “investment company” provided under Section 3(c)(6) of the 1940 Act as a company primarily engaged, directly or through majority-owned subsidiaries, in the business of, among other things, (i) banking, (ii) purchasing and otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance and services, and (iii) making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services. The Company is required to monitor its continued compliance with this exception, which it met for the second quarter of 2018.
We are a commercial finance company that historically hashave had a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. Recently, our strategic growth has been through Medallion Bank a wholly-owned subsidiary of ours, which originates consumer loans for the purchase of recreational vehicles, boats, and trailers, and to finance small-scale home improvements. Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 17% (20%16% (19% if there had been no loan sales during 2016, 2017, and 2017)2018). In January 2017, we announced our plans to transform our overall strategy. We are transitioning away from medallion lending and placing our strategic focus on our growing consumer finance portfolio. Total assets under management, which includes our portfolio, as well as assets serviced for third party investors, were $1,561,000,000$1,620,000,000 as of June 30, 2018,2019, and were $1,593,000,000 and $1,606,000,000$1,522,000,000 as of December 31, 2017 and June 30, 2017,2018, and have grown at a compound annual growth rate of 10%9% from $215,000,000 at the end of 1996. Since our initial public offering in 1996, we have paid/declaredpaid distributions in excess of $263,060,000 or $14.66 per share.
We conduct our business through various wholly-owned subsidiaries including:
Medallion Bank, or the Bank, an FDIC-insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activity;activities, and has a separate board of directors with a majority of independent directors;
Medallion Funding LLC, or Medallion Funding, a Small Business Investment Company, or SBIC, our primary taxicab medallion lending company;
Medallion Capital, Inc., or Medallion Capital, an SBIC which conducts a mezzanine financing business;
Freshstart Venture Capital Corp., or Freshstart, an SBIC which originates and services taxicab medallion and commercial loans; and
Medallion Servicing Corp., or MSC, which provides loan services to the Bank.
Page 3 of 97
Our other consolidated subsidiaries are comprised of Medallion Fine Art, Inc., Medallion Taxi Media, Inc.,CDI-LP Holdings, Inc., and Medallion Motorsports, LLC, the managing member ofand RPAC Racing LLC, or RPAC. In addition, we make both marketable and nonmarketable equity investments, primarily as a function of our mezzanine lending business.
The financial information is divided into two sections. The first section, Item 1, includes our unaudited consolidated financial statements including related footnotes. The second section, Item 2, consists of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the quarter ended June 30, 2018.
Our consolidated balance sheet as of June 30, 2018,2019, and the related consolidated statements of operations, consolidated statements of other comprehensive loss, consolidated statementstatements of stockholdersstockholders’ equity and cash flows for the quarter and six months then ended included in Item 1 have been prepared by us, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the US have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly our consolidated financial position and results of operations. The results of operations for the quarter and six months ended June 30, 20182019 may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form10-K for the year ended December 31, 2017.
Page 43 of 9776
CONSOLIDATED BALANCE SHEETS
Bank Holding Company Accounting | Investment Company Accounting | |||||||
(Dollars in thousands, except share and per share data) | UNAUDITED June 30, 2018 | December 31, 2017 | ||||||
Assets | ||||||||
Cash | $ | 10,344 | $ | 12,690 | ||||
Federal funds sold | 25,237 | — | ||||||
Equity investments | 10,773 | — | ||||||
Equity investments, at fair value | — | 5,213 | ||||||
Equity investments in affiliated entities, at fair value | — | 4,308 | ||||||
Investment securities | 44,717 | — | ||||||
Investments in Medallion Bank and other controlled subsidiaries, at fair value | — | 302,147 | ||||||
Loans | 1,150,123 | — | ||||||
Medallion loans, at fair value | — | 208,279 | ||||||
Commercial loans, at fair value | — | 53,737 | ||||||
Commercial loans to affiliated entities, at fair value | — | 999 | ||||||
Commercial loans to controlled subsidiaries, at fair value | — | 35,452 | ||||||
Allowance for losses | (21,425 | ) | — | |||||
|
|
|
| |||||
Net loans receivable | 1,128,698 | — | ||||||
|
|
|
| |||||
Net investments | — | 610,135 | ||||||
|
|
|
| |||||
Accrued interest receivable | 7,360 | 547 | ||||||
Property and equipment, net | 1,128 | 235 | ||||||
Loan collateral in process of foreclosure | 60,052 | — | ||||||
Goodwill and intangible assets | 211,123 | — | ||||||
Deferred tax assets and other tax receivables, net | 3,460 | — | ||||||
Investments other than securities | — | 7,450 | ||||||
Other assets | 31,637 | 4,465 | ||||||
|
|
|
| |||||
Total assets | $ | 1,534,529 | $ | 635,522 | ||||
|
|
|
| |||||
Liabilities | ||||||||
Accounts payable and accrued expenses | $ | — | $ | 4,373 | ||||
Accrued interest payable | 4,246 | 3,831 | ||||||
Deposits | 896,402 | — | ||||||
Short-term borrowings | 179,692 | — | ||||||
Deferred tax liabilities and other tax payables | — | 12,536 | ||||||
Other liabilities | 19,025 | — | ||||||
Long-term debt | 150,248 | — | ||||||
Funds borrowed | — | 327,623 | ||||||
|
|
|
| |||||
Total liabilities | 1,249,613 | 348,363 | ||||||
|
|
|
| |||||
Commitments and contingencies | — | — | ||||||
Stockholders’ equity | ||||||||
Preferred stock (1,000,000 shares of $0.01 par value stockauthorized-none outstanding) | — | — | ||||||
Common stock (50,000,000 shares of $0.01 par value stock authorized- 27,390,066 shares at June 30, 2018 and 27,294,327 shares at December 31, 2017 issued) | 274 | 273 | ||||||
Additional paid in capital | 274,012 | 273,716 | ||||||
Treasury stock (2,951,243 shares at June 30, 2018 and December 31, 2017) | (24,919 | ) | (24,919 | ) | ||||
Accumulated undistributed net investment loss | — | (65,592 | ) | |||||
Net unrealized appreciation on investments, net of tax | — | 103,681 | ||||||
Accumulated other comprehensive loss | (255 | ) | — | |||||
Retained earnings | 8,568 | — | ||||||
|
|
|
| |||||
Total stockholders’ equity | 257,680 | 287,159 | ||||||
|
|
|
|
(Dollars in thousands, except share and per share data) |
| UNAUDITED June 30, 2019 |
|
| December 31, 2018 |
| ||
Assets |
|
|
|
|
|
|
|
|
Cash (1) |
| $ | 35,138 |
|
| $ | 23,842 |
|
Federal funds sold |
|
| 37,010 |
|
|
| 33,871 |
|
Equity investments |
|
| 9,797 |
|
|
| 9,197 |
|
Investment securities |
|
| 44,820 |
|
|
| 45,324 |
|
Loans |
|
| 1,088,475 |
|
|
| 1,017,882 |
|
Allowance for losses |
|
| (40,670 | ) |
|
| (36,395 | ) |
Net loans receivable |
|
| 1,047,805 |
|
|
| 981,487 |
|
Accrued interest receivable |
|
| 7,742 |
|
|
| 7,413 |
|
Property, equipment, and right-of-use lease asset, net |
|
| 12,821 |
|
|
| 1,222 |
|
Loan collateral in process of foreclosure (2) |
|
| 52,368 |
|
|
| 49,495 |
|
Goodwill |
|
| 150,803 |
|
|
| 150,803 |
|
Intangible assets, net |
|
| 53,259 |
|
|
| 53,982 |
|
Other assets |
|
| 30,390 |
|
|
| 25,210 |
|
Total assets |
| $ | 1,481,953 |
|
| $ | 1,381,846 |
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (3) |
| $ | 20,223 |
|
| $ | 18,789 |
|
Accrued interest payable |
|
| 4,205 |
|
|
| 3,852 |
|
Deposits |
|
| 927,658 |
|
|
| 848,040 |
|
Short-term borrowings |
|
| 46,688 |
|
|
| 55,178 |
|
Deferred tax liabilities and other tax payables |
|
| 5,412 |
|
|
| 6,973 |
|
Operating lease liabilities |
|
| 11,273 |
|
|
| — |
|
Long-term debt |
|
| 180,990 |
|
|
| 158,810 |
|
Total liabilities |
|
| 1,196,449 |
|
|
| 1,091,642 |
|
Commitments and contingencies (4) |
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Preferred stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding) |
| — |
|
|
| — |
| |
Common stock (50,000,000 shares of $0.01 par value stock authorized- 27,550,801 shares at June 30, 2019 and 27,385,600 shares at December 31, 2018 issued) |
|
| 275 |
|
|
| 274 |
|
Additional paid in capital |
|
| 274,796 |
|
|
| 274,292 |
|
Treasury stock (2,951,243 shares at June 30, 2019 and December 31, 2018) |
|
| (24,919 | ) |
|
| (24,919 | ) |
Accumulated other comprehensive income (loss) |
|
| 1,145 |
|
|
| (82 | ) |
Retained earnings |
|
| 6,771 |
|
|
| 13,043 |
|
Total stockholders’ equity |
|
| 258,068 |
|
|
| 262,608 |
|
Non-controlling interest in consolidated subsidiaries |
|
| 27,436 |
|
|
| 27,596 |
|
Total equity |
|
| 285,504 |
|
|
| 290,204 |
|
Total liabilities and equity |
| $ | 1,481,953 |
|
| $ | 1,381,846 |
|
Number of shares outstanding |
|
| 24,599,558 |
|
|
| 24,434,357 |
|
Book value per share |
| $ | 10.49 |
|
| $ | 10.75 |
|
Page 5 of 97
Bank Holding Company Accounting | Investment Company Accounting | |||||||
(Dollars in thousands, except share and per share data) | UNAUDITED June 30, 2018 | December 31, 2017 | ||||||
Non-controlling interest in consolidated subsidiaries | 27,236 | — | ||||||
|
|
|
| |||||
Total equity | 284,916 | 287,159 | ||||||
|
|
|
| |||||
Total liabilities and equity | $ | 1,534,529 | $ | 635,522 | ||||
|
|
|
| |||||
Number of shares outstanding | 24,438,823 | 24,438,084 | ||||||
Book value per share/net asset value per share | $ | 10.54 | $ | 11.80 | ||||
|
|
|
|
(1) | Includes restricted cash of $2,475 as of June 30, 2019. |
(2) | Includes financed sales of this collateral to third parties that are reported separately from the loan portfolio, and that are conducted by the Bank of $4,290 as of June 30, 2019 and $3,134 as of December 31, 2018. |
(3) | Includes the short-term portion of lease liabilities of $1,872 as of June 30, 2019. Refer to Note 8 for more details. |
(4) | Refer to Note 14 for details. |
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 64 of 9776
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Bank Holding Company Accounting | Investment Company Accounting | Combined | Investment Company Accounting | |||||||||||||||||
(Dollars in thousands, except per share data) | For the Three Months Ended June 30, 2018 | For the Three Months Ended March 31, 2018 | For the Six Months Ended June 30, 2018 | For the Three Months Ended June 30, 2017 | For the Six Months Ended June 30, 2017 | |||||||||||||||
Interest and fees on loans | $ | 32,026 | $ | — | $ | 32,026 | $ | — | $ | — | ||||||||||
Interest income on investments | — | 3,287 | 3,287 | 2,915 | 6,385 | |||||||||||||||
Dividend income from controlled subsidiaries | — | 28 | 28 | — | — | |||||||||||||||
Interest income from affiliated investments | — | 654 | 654 | 765 | 1,392 | |||||||||||||||
Interest income from controlled subsidiaries | — | 10 | 10 | 44 | 126 | |||||||||||||||
Medallion lease income | 30 | 40 | 70 | 52 | 119 | |||||||||||||||
Interest and dividends on investment securities | 588 | 14 | 602 | — | — | |||||||||||||||
Dividends and interest income on short-term investments | — | — | — | 11 | 15 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total interest income(1)/total investment income(1) | 32,644 | 4,033 | 36,677 | 3,787 | 8,037 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest on deposits | 4,200 | — | 4,200 | — | — | |||||||||||||||
Interest on short-term borrowings | 1,859 | — | 1,859 | — | — | |||||||||||||||
Interest on long-term debt | 1,866 | — | 1,866 | — | — | |||||||||||||||
Interest expense | — | 3,551 | 3,551 | 3,408 | 6,742 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total interest expense(2) | 7,925 | 3,551 | 11,476 | 3,408 | 6,742 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net interest income/net investment income | 24,719 | 482 | 25,201 | 379 | 1,295 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Provision for loan losses | 30,576 | — | 30,576 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net interest loss after provision for loan losses | (5,857 | ) | 482 | (5,375 | ) | 379 | 1,295 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other income (loss) | ||||||||||||||||||||
Sponsorship and race winnings | �� | 5,228 | — | 5,228 | — | — | ||||||||||||||
Impairment of equity investments | (474 | ) | — | (474 | ) | — | — | |||||||||||||
Writedown of loan collateral in process of foreclosure | (96 | ) | — | (96 | ) | — | — | |||||||||||||
Other income | 220 | 60 | 280 | 12 | 14 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other income | 4,878 | 60 | 4,938 | 12 | 14 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other expenses | ||||||||||||||||||||
Salaries and employee benefits | 5,639 | 2,349 | 7,988 | 2,097 | 2,861 | |||||||||||||||
Race team related expenses | 2,540 | — | 2,540 | — | — | |||||||||||||||
Professional fees | 2,246 | 723 | 2,969 | 616 | 1,308 | |||||||||||||||
Loan servicing fees | 1,128 | — | 1,128 | — | — | |||||||||||||||
Collection costs | 837 | — | 837 | — | — | |||||||||||||||
Travel, meals and entertainment | 603 | 206 | 809 | 220 | 415 | |||||||||||||||
Rent expense | 591 | 243 | 834 | 262 | 527 | |||||||||||||||
Regulatory fees | 582 | — | 582 | — | — | |||||||||||||||
Amortization of intangible assets | 361 | — | 361 | — | — | |||||||||||||||
Other expenses(3) | 2,399 | 587 | 2,986 | 487 | 796 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other expenses | 16,926 | 4,108 | 21,034 | 3,682 | 5,907 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Loss before income taxes/net investment loss before taxes(4) | (17,905 | ) | (3,566 | ) | (21,471 | ) | (3,291 | ) | (4,598 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income tax benefit | 4,021 | 336 | 4,357 | 1,998 | 2,870 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net loss after taxes/net investment loss after taxes | (13,884 | ) | (3,230 | ) | (17,114 | ) | (1,293 | ) | (1,728 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net realized gains (losses) on investments(5) | — | (34,745 | ) | (34,745 | ) | 1,996 | 2,841 |
|
| Bank Holding Company Accounting |
|
| Bank Holding Company Accounting |
|
| Combined (1) |
| |||||||
(Dollars in thousands, except per share data) |
| For the Three Months Ended June 30, 2019 |
|
| For the Six Months Ended June 30, 2019 |
|
| For the Three Months Ended June 30, 2018 |
|
| For the Six Months Ended June 30, 2018 |
| ||||
Interest and fees on loans |
| $ | 31,313 |
|
| $ | 60,752 |
|
| $ | 32,026 |
|
| $ | 32,026 |
|
Interest and dividends on investment securities |
|
| 669 |
|
|
| 1,235 |
|
|
| 588 |
|
|
| 602 |
|
Medallion lease income |
|
| 33 |
|
|
| 71 |
|
|
| 30 |
|
|
| 70 |
|
Interest income on investments |
| — |
|
| — |
|
|
| — |
|
|
| 3,287 |
| ||
Dividend income from controlled subsidiaries |
| — |
|
| — |
|
|
| — |
|
|
| 28 |
| ||
Interest income from affiliated investments |
| — |
|
| — |
|
|
| — |
|
|
| 654 |
| ||
Interest income from controlled subsidiaries |
| — |
|
| — |
|
|
| — |
|
|
| 10 |
| ||
Total interest income(2)/total investment income(2) |
|
| 32,015 |
|
|
| 62,058 |
|
|
| 32,644 |
|
|
| 36,677 |
|
Interest on deposits |
|
| 5,485 |
|
|
| 10,406 |
|
|
| 4,200 |
|
|
| 4,200 |
|
Interest on short-term borrowings |
|
| 904 |
|
|
| 1,886 |
|
|
| 1,859 |
|
|
| 1,859 |
|
Interest on long-term debt |
|
| 2,432 |
|
|
| 4,251 |
|
|
| 1,866 |
|
|
| 1,866 |
|
Interest expense |
| — |
|
| — |
|
|
| — |
|
|
| 3,551 |
| ||
Total interest expense(3) |
|
| 8,821 |
|
|
| 16,543 |
|
|
| 7,925 |
|
|
| 11,476 |
|
Net interest income/net investment income |
|
| 23,194 |
|
|
| 45,515 |
|
|
| 24,719 |
|
|
| 25,201 |
|
Provision for loan losses |
|
| 15,171 |
|
|
| 28,514 |
|
|
| 30,576 |
|
|
| 30,576 |
|
Net interest income (loss) after provision for loan losses |
|
| 8,023 |
|
|
| 17,001 |
|
|
| (5,857 | ) |
|
| (5,375 | ) |
Other income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsorship and race winnings |
|
| 4,889 |
|
|
| 8,068 |
|
|
| 5,228 |
|
|
| 5,228 |
|
Change in collateral value on in process of foreclosure |
|
| (1,972 | ) |
|
| (4,091 | ) |
|
| (96 | ) |
|
| (96 | ) |
Gain on the extinguishment of debt |
| — |
|
|
| 4,145 |
|
|
| — |
|
|
| — |
| |
Impairment of equity investments |
| — |
|
| — |
|
|
| (474 | ) |
|
| (474 | ) | ||
Other income (loss) |
|
| (1,234 | ) |
|
| 424 |
|
|
| 220 |
|
|
| 280 |
|
Total other income, net |
|
| 1,683 |
|
|
| 8,546 |
|
|
| 4,878 |
|
|
| 4,938 |
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 6,321 |
|
|
| 11,662 |
|
|
| 5,639 |
|
|
| 7,988 |
|
Race team related expenses |
|
| 2,550 |
|
|
| 4,548 |
|
|
| 2,540 |
|
|
| 2,540 |
|
Collection costs |
|
| 2,253 |
|
|
| 2,891 |
|
|
| 837 |
|
|
| 957 |
|
Professional fees |
|
| 2,048 |
|
|
| 3,684 |
|
|
| 2,246 |
|
|
| 2,969 |
|
Loan servicing fees |
|
| 1,293 |
|
|
| 2,487 |
|
|
| 1,128 |
|
|
| 1,128 |
|
Rent expense |
|
| 577 |
|
|
| 1,177 |
|
|
| 591 |
|
|
| 834 |
|
Regulatory fees |
|
| 448 |
|
|
| 895 |
|
|
| 582 |
|
|
| 582 |
|
Amortization of intangible assets |
|
| 362 |
|
|
| 723 |
|
|
| 361 |
|
|
| 361 |
|
Travel, meals, and entertainment |
|
| 205 |
|
|
| 470 |
|
|
| 603 |
|
|
| 809 |
|
Other expenses(4) |
|
| 2,127 |
|
|
| 4,349 |
|
|
| 2,399 |
|
|
| 2,866 |
|
Total other expenses |
|
| 18,184 |
|
|
| 32,886 |
|
|
| 16,926 |
|
|
| 21,034 |
|
Loss before income taxes/net investment loss before taxes(5) |
|
| (8,478 | ) |
|
| (7,339 | ) |
|
| (17,905 | ) |
|
| (21,471 | ) |
Income tax benefit |
|
| 1,835 |
|
|
| 2,091 |
|
|
| 4,021 |
|
|
| 4,357 |
|
Net loss after taxes/net investment loss after taxes |
|
| (6,643 | ) |
|
| (5,248 | ) |
|
| (13,884 | ) |
|
| (17,114 | ) |
Net realized losses on investments(6) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,745 | ) |
Income tax benefit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,426 |
|
Total net realized losses on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,319 | ) |
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29,115 |
|
Net change in unrealized depreciation on investments other than securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,915 | ) |
Net change in unrealized depreciation on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,403 | ) |
Income tax provision |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,122 | ) |
Net unrealized appreciation on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,675 |
|
Net realized/unrealized losses on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,644 | ) |
Net loss after taxes/net decrease on net assets resulting from operations |
|
| (6,643 | ) |
|
| (5,248 | ) |
|
| (13,884 | ) |
|
| (28,758 | ) |
Less: income attributable to the noncontrolling interest |
|
| 857 |
|
|
| 1,024 |
|
|
| 763 |
|
|
| 763 |
|
Total net loss attributable to Medallion Financial Corp./net decrease on net assets resulting from operations |
| $ | (7,500 | ) |
| $ | (6,272 | ) |
| $ | (14,647 | ) |
| $ | (29,521 | ) |
Basic and diluted net loss per share |
| $ | (0.31 | ) |
| $ | (0.26 | ) |
| $ | (0.60 | ) |
| $ | (1.22 | ) |
Distributions declared per share |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 24,359,280 |
|
|
| 24,323,967 |
|
|
| 24,230,815 |
|
|
| 24,193,057 |
|
Page 7 of 97
Bank Holding Company Accounting | Investment Company Accounting | Combined | Investment Company Accounting | |||||||||||||||||
(Dollars in thousands, except per share data) | For the Three Months Ended June 30, 2018 | For the Three Months Ended March 31, 2018 | For the Six Months Ended June 30, 2018 | For the Three Months Ended June 30, 2017 | For the Six Months Ended June 30, 2017 | |||||||||||||||
Income tax benefit | — | 8,426 | 8,426 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total net realized gains (losses) on investments | — | (26,319 | ) | (26,319 | ) | 1,996 | 2,841 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net change in unrealized appreciation on Medallion bank and other controlled subsidiaries | — | 29,115 | 29,115 | 930 | 9,054 | |||||||||||||||
Net change in unrealized depreciation on investments other than securities | — | (1,915 | ) | (1,915 | ) | — | — | |||||||||||||
Net change in unrealized depreciation on investments | — | (4,403 | ) | (4,403 | ) | (11,450 | ) | (19,973 | ) | |||||||||||
Income tax (provision) benefit | — | (8,122 | ) | (8,122 | ) | 5,020 | 6,120 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net unrealized appreciation (depreciation) on investments | — | 14,675 | 14,675 | (5,500 | ) | (4,799 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net realized/unrealized losses on investments | — | (11,644 | ) | (11,644 | ) | (3,504 | ) | (1,958 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net loss after taxes/net decrease on net assets resulting from operations | (13,884 | ) | (14,874 | ) | (28,758 | ) | (4,797 | ) | (3,686 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: income attributable to the noncontrolling interest | 763 | — | 763 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total net income (loss) attributable to Medallion Financial Corp./net decrease on net assets resulting from operations | $ | (14,647 | ) | $ | (14,874 | ) | $ | (29,521 | ) | $ | (4,797 | ) | $ | (3,686 | ) | |||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic and diluted net loss per share | $ | (0.60 | ) | $ | (0.62 | ) | $ | (1.22 | ) | $ | (0.20 | ) | $ | (0.15 | ) | |||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Distributions declared per share | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic and diluted | 24,230,815 | 24,154,879 | 24,193,057 | 23,925,567 | 23,909,344 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting. |
(2) | Included in interest and investment income is |
Page 5 of 76
(4) | See Note |
(5) | Includes $256 of net revenues received from Medallion Bank for the three months ended March 31, 2018, |
(6) | There were no net losses on investment securities of affiliated issuers for the three months ended March 31, |
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 86 of 9776
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSSINCOME/(LOSS)
(UNAUDITED)
Bank Holding Company Accounting | Investment Company Accounting | Combined | Investment Company Accounting | |||||||||||||||||
(Dollars in thousands) | For the Three Months Ended June 30, 2018 | For the Three Months Ended March 31, 2018 | For the Six Months Ended June 30, 2018 | For the Three Months Ended June 30, 2017 | For the Six Months Ended June 30, 2017 | |||||||||||||||
Net loss after taxes/net decrease on net assets resulting from operations | $ | (13,884 | ) | $ | (14,874 | ) | $ | (28,758 | ) | $ | (4,797 | ) | $ | (3,686 | ) | |||||
Other comprehensive loss, net of tax | (255 | ) | — | (255 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive loss | (14,139 | ) | (14,874 | ) | (29,013 | ) | (4,797 | ) | (3,686 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: comprehensive income attributable to the noncontrolling interest | 763 | — | 763 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive loss attributable to Medallion Financial Corp. | ($ | 14,902 | ) | (14,874 | ) | ($ | 29,776 | ) | ($ | 4,797 | ) | ($ | 3,686 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
| Bank Holding Company Accounting |
|
| Bank Holding Company Accounting |
|
| Combined (1) |
| |||||||
(Dollars in thousands) |
| For the Three Months Ended June 30, 2019 |
|
| For the Six Months Ended June 30, 2019 |
|
| For the Three Months Ended June 30, 2018 |
|
| For the Six Months Ended June 30, 2018 |
| ||||
Net loss after taxes/net decrease on net assets resulting from operations |
| $ | (6,643 | ) |
| $ | (5,248 | ) |
| $ | (13,884 | ) |
| $ | (28,758 | ) |
Other comprehensive income (loss), net of tax |
|
| 558 |
|
|
| 1,227 |
|
|
| (255 | ) |
|
| (255 | ) |
Total comprehensive loss |
|
| (6,085 | ) |
|
| (4,021 | ) |
|
| (14,139 | ) |
|
| (29,013 | ) |
Less: comprehensive income attributable to the noncontrolling interest |
|
| 857 |
|
|
| 1,024 |
|
|
| 763 |
|
|
| 763 |
|
Total comprehensive loss attributable to Medallion Financial Corp. |
| $ | (6,942 | ) |
| $ | (5,045 | ) |
| $ | (14,902 | ) |
| $ | (29,776 | ) |
Page 9 of 97
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND CHANGES IN NET ASSETS
(UNAUDITED)
Bank Holding & Investment Company Accounting | Investment Company Accounting | Bank Holding Company Accounting | Bank Holding & Investment Company Accounting | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in | Common Stock Shares | Common Stock | Preferred Stock | Capital in Excess of Par | Treasury Stock Shares | Treasury Stock | Accumulated undistributed net investment loss | Accumulated undistributed net realized gains on investments | Net unrealized appreciation on investments, net of tax | Retained Earnings | Accumulated Other Comprehensive Income | Total Stockholders’ Equity | Noncontrolling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | 27,294,327 | $ | 273 | $ | — | $ | 273,716 | (2,951,243 | ) | ( $ | 24,919 | ) | ( $ | 65,592 | ) | — | $ | 103,681 | — | $ | — | $ | 287,159 | $ | — | $ | 287,159 | |||||||||||||||||||||||||||||
Net decrease in net assets resulting from operations | — | — | — | — | — | — | ( 38,299 | ) | — | 23,425 | — | — | (14,874 | ) | — | (14,874 | ) | |||||||||||||||||||||||||||||||||||||||
Stock based compensation expense | — | 1 | — | 151 | — | — | — | — | — | — | — | 152 | — | 152 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net | 95,726 | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Balance at March 31, 2018 | 27,390,053 | 274 | — | 273,867 | (2,951,243 | ) | (24,919 | ) | ($ | 103,891 | ) | — | 127,106 | $ | — | — | 272,437 | — | 272,437 | |||||||||||||||||||||||||||||||||||||
Adoption of Bank Holding Company Accounting | — | — | — | — | — | — | 103,891 | — | (127,106 | ) | 23,215 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Balance at April 2, 2018 | 27,390,053 | 274 | — | 273,867 | (2,951,243 | ) | ( 24,919 | ) | — | — | — | 23,215 | — | 272,437 | 27,065 | 299,502 | ||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (14,647 | ) | — | (14,647 | ) | 763 | (13,884 | ) | |||||||||||||||||||||||||||||||||||||||
Distributions on noncontrolling interest | — | — | — | — | — | — | — | — | — | — | — | — | (592 | ) | (592 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock based compensation | — | — | 145 | — | — | — | — | — | — | — | 145 | — | 145 | |||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net | 13 | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized losses on investments, net of tax | — | — | — | — | — | — | — | — | — | — | (255 | ) | (255 | ) | — | (255 | ) | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Total | 27,390,066 | $ | 274 | — | $ | 274,012 | (2,951,243 | ) | ($ | 24,919 | ) | — | | — | | — | $ | 8,568 | ($ | 255 | ) | $ | 257,680 | $ | 27,236 | $ | 284,916 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting. |
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 107 of 9776
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND CHANGES IN NET ASSETS
(UNAUDITED)
Investment Company Accounting | ||||||||
(Dollars in thousands, except per share data) | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | ||||||
Net investment loss after income taxes | $ | (1,293 | ) | $ | (1,728 | ) | ||
Net realized gains on investments, net of tax | 1,996 | 2,841 | ||||||
Net unrealized depreciation on investments, net of tax | (5,500 | ) | (4,799 | ) | ||||
|
|
|
| |||||
Net decrease in net assets resulting from operations | (4,797 | ) | (3,686 | ) | ||||
|
|
|
| |||||
Investment income, net | — | — | ||||||
Return of capital | — | — | ||||||
Realized gains from investment transactions, net | — | — | ||||||
|
|
|
| |||||
Distributions to shareholders (1) | — | — | ||||||
|
|
|
| |||||
Stock-based compensation expense | 201 | 329 | ||||||
Exercise of stock options | — | — | ||||||
|
|
|
| |||||
Capital share transactions | 201 | 329 | ||||||
|
|
|
| |||||
Total decrease in net assets | (4,596 | ) | (3,357 | ) | ||||
Net assets at the beginning of the period | 287,335 | 286,096 | ||||||
|
|
|
| |||||
Net assets at the end of the period(2) | $ | 282,739 | $ | 282,739 | ||||
|
|
|
| |||||
Capital share activity | ||||||||
Common stock issued, beginning of period | 27,076,016 | 26,976,064 | ||||||
Exercise of stock options | — | — | ||||||
Issuance of restricted stock, net | 151,275 | 251,227 | ||||||
|
|
|
| |||||
Common stock issued, end of period | 27,227,291 | 27,227,291 | ||||||
|
|
|
| |||||
Treasury stock, beginning of period | (2,951,243 | ) | (2,951,243 | ) | ||||
Treasury stock acquired | — | — | ||||||
|
|
|
| |||||
Treasury stock, end of period | (2,951,243 | ) | (2,951,243 | ) | ||||
|
|
|
| |||||
Common stock outstanding | 24,276,048 | 24,276,048 | ||||||
|
|
|
|
|
| Bank Holding Company Accounting |
| |||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| Common Stock Shares |
|
| Common Stock |
|
| Preferred Stock |
|
| Capital in Excess of Par |
|
| Treasury Stock Shares |
|
| Treasury Stock |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Total Stockholders’ Equity |
|
| Non- controlling Interest |
|
| Total Equity |
| |||||||||||
Balance at December 31, 2018 |
|
| 27,385,600 |
|
| $ | 274 |
|
|
| — |
|
| $ | 274,292 |
|
|
| (2,951,243 | ) |
| $ | (24,919 | ) |
| $ | 13,043 |
|
| $ | (82 | ) |
| $ | 262,608 |
|
| $ | 27,596 |
|
| $ | 290,204 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,228 |
|
|
| — |
|
|
| 1,228 |
|
|
| 167 |
|
|
| 1,395 |
|
Distributions to non- controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (592 | ) |
|
| (592 | ) |
Stock-based compensation |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 164 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 165 |
|
|
| — |
|
|
| 165 |
|
Issuance of restricted stock, net |
|
| 163,098 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeiture of restricted stock, net |
|
| (1,699 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net change in unrealized gains on investments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 669 |
|
|
| 669 |
|
|
| — |
|
|
| 669 |
|
Balance at March 31, 2019 |
|
| 27,546,999 |
|
| $ | 275 |
|
|
| — |
|
| $ | 274,456 |
|
|
| (2,951,243 | ) |
| $ | (24,919 | ) |
| $ | 14,271 |
|
| $ | 587 |
|
| $ | 264,670 |
|
| $ | 27,171 |
|
| $ | 291,841 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,500 | ) |
|
| — |
|
|
| (7,500 | ) |
|
| 857 |
|
|
| (6,643 | ) |
Distributions to non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (592 | ) |
|
| (592 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 340 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 340 |
|
|
| — |
|
|
| 340 |
|
Issuance of restricted stock, net |
|
| 4,751 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeiture of restricted stock, net |
|
| (949 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net change in unrealized gains on investments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 558 |
|
|
| 558 |
|
|
| — |
|
|
| 558 |
|
Balance at June 30, 2019 |
|
| 27,550,801 |
|
| $ | 275 |
|
|
| — |
|
| $ | 274,796 |
|
|
| (2,951,243 | ) |
| $ | (24,919 | ) |
| $ | 6,771 |
|
| $ | 1,145 |
|
| $ | 258,068 |
|
| $ | 27,436 |
|
| $ | 285,504 |
|
|
|
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 8 of 76
|
| Bank Holding & Investment Company Accounting |
|
| Investment Company Accounting |
|
| Bank Holding Company Accounting |
|
| Bank Holding & Investment Company Accounting |
| ||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| Common Stock Shares |
|
| Common Stock |
|
| Preferred Stock |
|
| Capital in Excess of Par |
|
| Treasury Stock Shares |
|
| Treasury Stock |
|
| Accumulated undistributed net investment loss |
|
| Accumulated undistributed net realized gains on investments |
|
| Net unrealized appreciation on investments, net of tax |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Total Stockholders’ Equity |
|
| Noncontrolling Interest |
|
| Total Equity |
| ||||||||||||||
Balance at December 31, 2017 |
|
| 27,294,327 |
|
| $ | 273 |
|
|
| — |
|
| $ | 273,716 |
|
|
| (2,951,243 | ) |
| $ | (24,919 | ) |
| $ | (65,592 | ) |
|
| — |
|
| $ | 103,681 |
|
| $ | — |
|
| $ | — |
|
| $ | 287,159 |
|
| $ | — |
|
| $ | 287,159 |
|
Net decrease in net assets resulting from operations |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38,299 | ) |
|
| — |
|
|
| 23,425 |
|
|
| — |
|
|
| — |
|
|
| (14,874 | ) |
|
| — |
|
|
| (14,874 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 151 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 152 |
|
|
| — |
|
|
| 152 |
|
Issuance of restricted stock, net |
|
| 95,726 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Balance at March 31, 2018 |
|
| 27,390,053 |
|
|
| 274 |
|
|
| — |
|
|
| 273,867 |
|
|
| (2,951,243 | ) |
|
| (24,919 | ) |
| $ | (103,891 | ) |
|
| — |
|
|
| 127,106 |
|
|
| — |
|
|
| — |
|
|
| 272,437 |
|
|
| — |
|
|
| 272,437 |
|
Adoption of Bank Holding Company Accounting |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 103,891 |
|
|
| — |
|
|
| (127,106 | ) |
|
| 23,215 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at April 2, 2018 |
|
| 27,390,053 |
|
|
| 274 |
|
|
| — |
|
|
| 273,867 |
|
|
| (2,951,243 | ) |
|
| (24,919 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,215 |
|
|
| — |
|
|
| 272,437 |
|
|
| 27,065 |
|
|
| 299,502 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,647 | ) |
|
| — |
|
|
| (14,647 | ) |
|
| 763 |
|
|
| (13,884 | ) |
Distributions to noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (592 | ) |
|
| (592 | ) |
Stock-based compensation |
|
| — |
|
|
|
|
|
|
| — |
|
|
| 145 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 145 |
|
|
| — |
|
|
| 145 |
|
Issuance of restricted stock, net |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Net change in unrealized losses on investments, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (255 | ) |
|
| (255 | ) |
|
| — |
|
|
| (255 | ) |
Balance at June 30, 2018 |
|
| 27,390,066 |
|
| $ | 274 |
|
|
| — |
|
| $ | 274,012 |
|
|
| (2,951,243 | ) |
| $ | (24,919 | ) |
|
| — |
|
| — |
|
|
| — |
|
| $ | 8,568 |
|
| $ | (255 | ) |
| $ | 257,680 |
|
| $ | 27,236 |
|
| $ | 284,916 |
|
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 119 of 9776
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Bank Holding Company Accounting | Investment Company Accounting | Combined | Investment Company Accounting | |||||||||||||
(Dollars in thousands) | For the Three Months Ended June 30, 2018 | For the Three Months Ended March 31, 2018 | For the Six Months Ended June 30, 2018 | For the Six Months Ended June 30, 2017 | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net loss | $ | (13,884 | ) | $ | (14,874 | ) | $ | (28,758 | ) | $ | (3,686 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||
Provision for loan losses | 30,576 | — | 30,576 | — | ||||||||||||
Loans originated | — | (8,193 | ) | (8,193 | ) | (8,993 | ) | |||||||||
Proceeds from principal receipts, sales, and maturities of loans | — | 13,279 | 13,279 | 28,918 | ||||||||||||
Paid-in-kind interest | (487 | ) | (491 | ) | (978 | ) | — | |||||||||
Depreciation and amortization | 1,037 | 246 | 1,283 | 276 | ||||||||||||
(Increase) decrease/ increase (decrease) in deferred and other tax asset/ liabilities, net | (654 | ) | 3,858 | 3,204 | (7,645 | ) | ||||||||||
Amortization of origination fees, net | 1,032 | 13 | 1,045 | 38 | ||||||||||||
Net change in loan collateral in process of foreclosure | 2,967 | — | 2,967 | — | ||||||||||||
Capital returned by Medallion Bank and other controlled subsidiaries, net | — | 93 | 93 | 595 | ||||||||||||
Net realized losses on sale of investments | 96 | — | 96 | — | ||||||||||||
Net change in unrealized depreciation on investments | 592 | 4,403 | 4,995 | 19,973 | ||||||||||||
Net change in unrealized depreciation on investment other than securities | — | 1,915 | 1,915 | — | ||||||||||||
Increase in unrealized appreciation on Medallion Bank and other controlled subsidiaries | — | (29,115 | ) | (29,115 | ) | (9,054 | ) | |||||||||
Net realized (gains) losses on investments | — | 34,745 | 34,745 | (2,841 | ) | |||||||||||
Stock-based compensation expense | 145 | 152 | 297 | 329 | ||||||||||||
Decrease in accrued interest receivable | — | 130 | 130 | 14 | ||||||||||||
Increase in other liabilities | 2,779 | — | 2,779 | — | ||||||||||||
(Increase) decrease in other assets | (4,899 | ) | 54 | (4,845 | ) | 263 | ||||||||||
Decrease in accounts payable and accrued expenses | — | (675 | ) | (675 | ) | (1,211 | ) | |||||||||
Increase (decrease) in accrued interest payable | — | (249 | ) | (249 | ) | 284 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by operating activities | 19,300 | 5,291 | 24,591 | 17,260 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Loans originated | (135,205 | ) | — | (135,205 | ) | — | ||||||||||
Proceeds from principal receipts, sales, and maturities of loans | 64,631 | — | 64,631 | — | ||||||||||||
Purchases of investments | (4,940 | ) | — | (4,940 | ) | — | ||||||||||
Proceeds from principal receipts, sales, and maturities of investments | 732 | — | 732 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash (used for) investing activities | (74,782 | ) | — | (74,782 | ) | — | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Proceeds from time deposits and funds borrowed | 173,737 | — | 173,737 | — | ||||||||||||
Repayments of time deposits and funds borrowed | (130,861 | ) | (6,961 | ) | (137,822 | ) | (15,957 | ) | ||||||||
Purchase of federal funds | 8,000 | — | 8,000 | — | ||||||||||||
Repayments of federal funds | — | — | — | — | ||||||||||||
Distributions to noncontrolling interests | (592 | ) | — | (592 | ) | — | ||||||||||
Payments of declared distributions | — | (64 | ) | (64 | ) | (139 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by (used for) financing activities | 50,284 | (7,025 | ) | 43,259 | (16,096 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| Bank Holding Company Accounting |
|
| Combined (1) |
| ||
(Dollars in thousands) |
| For the Six Months Ended June 30, 2019 |
|
| For the Six Months Ended June 30, 2018 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net (loss)/net (decrease) in net assets resulting from operations |
| $ | (5,248 | ) |
| $ | (28,758 | ) |
Adjustments to reconcile net loss/net decrease in net assets resulting from operations to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
| 28,514 |
|
|
| 30,576 |
|
Paid-in-kind interest |
|
| (425 | ) |
|
| (978 | ) |
Depreciation and amortization |
|
| 4,186 |
|
|
| 1,283 |
|
(Decrease) increase in deferred and other tax liabilities |
|
| (1,560 | ) |
|
| 3,204 |
|
Amortization of origination fees, net |
|
| 2,389 |
|
|
| 1,045 |
|
Proceeds from the sale and principal payments on loan collateral in process of foreclosure |
|
| 9,167 |
|
|
| — |
|
Net change in loan collateral in process of foreclosure |
|
| 7,411 |
|
|
| 2,967 |
|
Net change in unrealized depreciation on investments |
|
| (96 | ) |
|
| 4,995 |
|
Stock-based compensation expense |
|
| 505 |
|
|
| 297 |
|
Gain on extinguishment of debt |
|
| (4,145 | ) |
|
| — |
|
(Increase) decrease in accrued interest receivable |
|
| (329 | ) |
|
| 130 |
|
Increase in other assets |
|
| (5,505 | ) |
|
| (4,845 | ) |
Decrease (increase) in accounts payable and accrued expenses |
|
| 139 |
|
|
| (675 | ) |
Increase (decrease) in accrued interest payable |
|
| 353 |
|
|
| (249 | ) |
Loans originated |
| — |
|
|
| (8,193 | ) | |
Proceeds from principal receipts, sales, and maturities of loans |
| — |
|
|
| 13,279 |
| |
Capital returned by Medallion Bank and other controlled subsidiaries, net |
| — |
|
|
| 93 |
| |
Net realized losses on sale of investments |
| — |
|
|
| 96 |
| |
Net change in unrealized depreciation on investment other than securities |
| — |
|
|
| 1,915 |
| |
Increase in unrealized appreciation on Medallion Bank and other controlled subsidiaries |
| — |
|
|
| (29,115 | ) | |
Net realized losses on investments |
| — |
|
|
| 34,745 |
| |
Increase in other liabilities |
| — |
|
|
| 2,779 |
| |
Net cash provided by operating activities |
|
| 35,356 |
|
|
| 24,591 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Loans originated |
|
| (240,523 | ) |
|
| (135,205 | ) |
Proceeds from principal receipts, sales, and maturities of loans |
|
| 122,106 |
|
|
| 64,631 |
|
Purchases of investments |
|
| (1,650 | ) |
|
| (4,940 | ) |
Proceeds from principal receipts, sales, and maturities of investments |
|
| 2,877 |
|
|
| 732 |
|
Net cash (used for) investing activities |
|
| (117,190 | ) |
|
| (74,782 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from time deposits and funds borrowed |
|
| 292,725 |
|
|
| 173,737 |
|
Repayments of time deposits and funds borrowed |
|
| (195,272 | ) |
|
| (137,822 | ) |
Purchase of federal funds |
| — |
|
|
| 8,000 |
| |
Distributions to noncontrolling interests |
|
| (1,184 | ) |
|
| (592 | ) |
Payments of declared distributions |
| — |
|
|
| (64 | ) | |
Net cash provided by financing activities |
|
| 96,269 |
|
|
| 43,259 |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 14,435 |
|
|
| (6,932 | ) |
Cash and cash equivalents and restricted cash, beginning of period (2) |
|
| 57,713 |
|
|
| 42,513 |
|
Cash and cash equivalents and restricted cash, end of period (3) |
| $ | 72,148 |
|
| $ | 35,581 |
|
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 15,077 |
|
| $ | 10,038 |
|
Cash paid during the period for income taxes |
|
| 120 |
|
|
| 42 |
|
Page 12 of 97
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(1) | (5,198 | ) | (1,734 | ) | (6,932 | ) | 1,164 | |||||||||
Cash and cash equivalents,beginning of period(1) | 40,779 | 12,690 | 42,513 | 20,962 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents,end of period(2) | $ | 35,581 | $ | 10,956 | $ | 35,581 | $ | 22,126 | ||||||||
|
|
|
|
|
|
|
| |||||||||
SUPPLEMENTAL INFORMATION | ||||||||||||||||
Cash paid during the period for interest | $ | 6,461 | $ | 3,577 | $ | 10,038 | $ | 6,231 | ||||||||
Cash paid during the period for income taxes | 42 | — | 42 | 48 | ||||||||||||
|
|
|
|
|
|
|
|
(1) |
|
(2) | The beginning balance for the |
(3) | Includes federal funds |
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 10 of 76
Page 13 of 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 20182019
(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES
Medallion Financial Corp. (the Company) is a commercial finance company organized as a Delaware corporation that reports as a bank holding company, (butbut is not a bank holding company for regulatory purposes).purposes. The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Bank (the Bank), a Federal Deposit Insurance Corporation (FDIC) insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activities. MedallionThe 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. MedallionThe Bank was initially formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxicab medallions, 2) asset-based commercial loans, and 3) SBA 7(a) loans. The loans are marketed and serviced by Medallionthe Bank’s affiliates that have extensive prior experience in these asset groups. Subsequent to its formation, Medallionthe Bank began originating consumer loans to finance the purchases of RVs,recreational vehicles (RVs), boats, and other related items, and to finance small scale home improvements. The Company also conducts business through Medallion Funding LLC (MFC), a Small Business Investment Company (SBIC), which originates and services taxicab medallion and commercial loans.
The Company also conducts business through its subsidiaries Medallion Capital, Inc. (MCI), an SBIC whichthat conducts a mezzanine financing business, and Freshstart Venture Capital Corp. (FSVC), an SBIC whichthat originates and services taxicab medallion and commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated by the Small Business Administration (SBA). MCI and FSVC are financed in part by the SBA.
The Company has a controlling ownership stake in Medallion Motorsports, LLC.,LLC, the primary owner of RPAC Racing, LLC (RPAC), a professional car racing team that competes in the Monster Energy NASCAR Cup Series whichand is also consolidated with the Company.
The Company formed a wholly-owned subsidiary, Medallion Servicing Corporation (MSC), to provide loan services to Medallionthe Bank. The Company has assigned all of its loan servicing rights for Medallionthe Bank, which consists of servicing taxi medallion loans originated by Medallionthe Bank, to MSC, which bills and collects the related service fee income from Medallionthe Bank, andwhich is allocated and charged by the Company for MSC’s share of these servicing costs.
MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust III (Trust III), was established for the purpose of owning medallion loans originated by MFC or others. Trust III is a variable interest entity (VIE), and MFC was the primary beneficiary. As a result, the Company consolidated Trust III in its financial results until the consummation of a restructuring in the 2018 fourth quarter. For a discussion of the restructuring, see Note 19. Trust III is a separate legal and corporate entity with its own creditors who,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 aggregating $72,462,000 at June 30, 2018, 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. As of June 30, 2018, Trust III had a deficit of $26,590,000, as a result of losses taken on the medallion loans in Trust III. This amount exceeded our maximum exposure to Trust III, which is solely due to a limited guarantee by MFC of $6,065,000, by $20,525,000. Due to technical consolidation accounting rules, we are required to record these losses, even though we are under no obligation to cover them financially. The Company is exploring alternative approaches to this investment to allow for full or partial recovery of these amounts as well as to not incur additional losses in this entity going forward. There can be no assurance that the Company will be able to do so.
The Company established a wholly-owned subsidiary, Medallion Financing Trust I (Fin Trust) for the purpose of issuing unsecured preferred securities to investors. Fin Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of Fin Trust, will be entitled to be satisfied out of Fin Trust’s assets prior to any value in Fin Trust becoming available to Fin Trust’s equity holders. The assets of Fin Trust, aggregating $36,143,000$36,140,000 at June 30, 2018,2019, are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Fin Trust.
MFC, through several wholly-owned subsidiaries (together, Medallion Chicago), purchased $8,689,000 of City of Chicago taxicab medallions out of foreclosure, some of which are leased to fleet operators while being held for sale. The 159 medallions are carried at a net realizable value of $5,535,000$3,091,000 in other assets on the Company’s consolidated balance sheet at June 30, 20182019, compared to faira net realizable value of $7,450,000$4,305,000 and $9,510,000$5,535,000 at December 31, 20172018 and June 30, 2017.2018.
Page 11 of 76
Page 14 of 97
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change to Bank Holding Company Accounting
As described above, effectiveEffective April 2, 2018, the Company withdrew its previous election to be regulated as a BDCbusiness development company (BDC) under the Investment Company Act of 1940 Act.(the 1940 Act). Prior to such time, the Company wasa 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 Medallionthe Bank and its other subsidiaries) reports in accordance with Bank Holding Company Accounting; periods prior to such change in status are reported in accordance with Investment Company Accounting. Significant accounting policies that differ between such periods are described in more detail below.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US (GAAP) requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions change, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of loans and other receivables, investments other than securities, loans held for sale,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. Prior toAs a result of the Company’s election to withdraw from being regulated as a BDC under the 1940 Act effective April 2, 2018, Medallionthe Bank and various other Company subsidiaries that were not previously consolidated with the Company prior to the three months ended June 30, 2018, and as such seewere now consolidated effective April 2, 2018. See Note 6 for the presentation of financial information for Medallionthe Bank and other controlled subsidiaries for such prior periods.
The consolidated financial statements have been prepared in accordance with GAAP. The Company consolidates all entities it controls through a majority voting interest, a controlling interest through other contractual rights, or as being identified as the primary beneficiary of VIEs. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party’s holding is recorded as non-controlling interest.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that exceed the federally insured limits. Cash includes $2,475,000 of an interest reserve associated with the private placement of debt in March 2019, which cannot be used for any other purpose until March 2022.
Fair Value of Assets and Liabilities
The Company follows FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (FASB ASC 820), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as an exit price (i.e. a price that would be received to sell, as opposed to acquire, an asset or transfer a liability), and emphasizes that fair value is a market-based measurement. It establishes a fair value hierarchy that distinguishes between assumptions developed based on market data obtained from independent external sources and the reporting entity’s own assumptions. Further, it specifies that fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. See also Notes 1416 and 1517 to the consolidated financial statements.
Page 12 of 76
Equity investments of $10,773,000$9,797,000 and $9,197,000 at June 30, 2019 and December 31, 2018, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost and are evaluated for impairment periodically. Prior to April 2, 2018, equity investments were recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair value of investments that had no ready market were determined in good faith by the Board of Directors, based upon the financial condition and operating performance of the underlying investee companies as well as general market trends for businesses in the same industry. Included in the equity investments werenon-marketable securities of $9,521,000 at December 31, 2017.
Investment Securities (Bank Holding Company Accounting)
The Company follows FASB ASC Topic 320, Investments–Investments – Debt and Equity Securities (ASC 320), which requires that all applicable investments in equity securities with readily determinable fair values, and debt securities be classified as tradingsecurities, available-for-sale securities,or held-to-maturity securities. Investment securities are purchasedfrom 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
Page 15 of 97
totaled $212,000,$129,000 at June 30, 2019 and $154,000 at December 31, 2018, and $13,000 and $25,000 was amortized to interest income for the three and six months ended June 30, 2019, and $21,000 was amortized to interest income for the three months ended June 30, 2018. Medallion Bank, a previously unconsolidated subsidiary under Investment Company Accounting for the period, had net premium on investment securities of $265,000, and $20,000 and $40,000 was amortized to interest income for the three and six months ended June 30, 2017. Refer to Note 3 for more details. ASC 320 further requiresthat held-to-maturity securities be reported at amortized cost andavailable-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 shareholder’sshareholders’ 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 shareholder’sshareholders’ 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 Medallionthe 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 Medallionthe Bank on at least an annual basis. The Company’s analysis included factors such as various regulatory restrictions that were established at Medallionthe 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 fromnon-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 Medallionthe Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used Medallionthe 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 Medallionthe Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallionthe 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 Medallionthe 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 heightensheightened 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 Medallionthe Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $128,918,000 was recorded in 2016, $7,849,000 was recorded in 2017, and $39,826,000 was recorded in the first quarter of 2018. Refer to Note 6 for additional details.
At December 31, 2017, there werenon-marketable securities of $302,147,000 related to portfolio investments in controlled subsidiaries that were not consolidated with the Company. Because of the inherent uncertainty of valuations, the Board of Directors’ estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.
Loans
The Company’s loans are currently reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. Effective April 2, 2018, the existing loan balances were recharged atadjusted to fair value in connection with the change in reporting, and balances, net of reserves and fees, became the fair value opening balances.
Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At June 30, 20182019 and December 31, 2017,2018, net loan origination costs were $13,696,000$16,786,000 and $90,000 ($11,187,000 when combined$14,416,000. The majority of these loan origination costs were capitalized into the loan balances on April 2, 2018 in connection with Medallion Bank).the change in reporting status. Net amortization to income for the three months ended June 30, 2019 and 2018 was $1,238,000 and 2017 was $1,040,000, and $18,000 ($852,000 when combined with Medallion Bank),was $2,389,000 and was $1,053,000 ($1,918,000 when combined with Medallion Bank) and $38,000 ($1,701,000 when combined with Medallionthe Bank) for the comparable six month periods.period.
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Interest income is recorded on the accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. The consumer portfolio has different characteristics, typified by a larger number of lower dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is likely the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have notbeen 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 offcharged-off in their entirety when deemed
Page 16 of 97
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 recreationalrecreation consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off.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 offcharged-off accounts are recorded as a recovery. Total loans more than 90 days past due were $15,161,000$8,255,000 at June 30, 2018,2019, or 1.32%0.78% of the total loan portfolio, compared to $60,450,000,$20,154,000, or 18.9%2.03% at December 31, 2017.2018.
Loan collateral in process of foreclosure primarily includes taxicab medallion loans that have reached 120 days past due and have been charged downcharged-down to their net realizable value, in addition to consumer repossessed collateral in the process of being sold. The taxicab medallion loan component reflects that the collection activities on the loans have transitionstransitioned from working with the borrower, to the liquidation of the collateral securing the loans.
The Company had $126,052,000$32,871,000 and $183,529,000$40,500,000 of net loans and loans in process of foreclosure pledged as collateral under borrowing arrangements at June 30, 20182019 and December 31, 2017.2018.
The Company accountedaccounts for its sales of loans in accordance with FASB Accounting Standards Codification Topic 860, Transfers and Servicing (FASB ASC 860), which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. In accordance with FASB ASC 860, the Company had elected the fair value measurement method for its servicing assets and liabilities. The principal portion of loans serviced for others by the Company and its affiliates was $26,583,000$134,122,000 at June 30, 20182019 and $338,867,000$140,180,000 at December 31, 2017, which included $311,988,000 of loans serviced for Medallion Bank.2018. The Company hadhas evaluated the servicing aspect of its business in accordance with FASB ASC 860, most of which relates to servicing assets held by Medallion Bank,MFC (related to the remaining assets in Trust III) and determined that no material servicing asset or liability existed as of June 30, 20182019 and December 31, 2017.2018. The Company assigned its servicing rights toof the Medallion Bank portfolio to MSC. The costs of servicing were allocated to MSC by the Company, and the servicing fee income was billed to and collected from Medallionthe Bank by MSC.
Allowance for Loan Losses (Bank Holding Company Accounting)
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a one year lookback period for consumer loans. For commercial loans deemed nonperforming, the historical loss experience and other projections are looked at, and for medallion loans, non performingnonperforming loans are valued at the median sales price over the most recent quarter.quarter, and performing medallion loans are reserved utilizing historical loss ratios over a three-year lookback period. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. As a result, reserves areof $5,247,000 were recorded aboveby the calculated amountsCompany as a general reserve on medallion loans as an additional buffer against future losses.losses, not including the Bank’s general reserve of $17,351,000 which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves of $6,092,000. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.
Unrealized Appreciation (Depreciation) and Realized Gains (Losses) on Investments (Investment Company Accounting)
Prior to April 2, 2018, under Investment Company Accounting, the Company’s loans, net of participations and any unearned discount, were considered investment securities under the 1940 Act and recorded at fair value. As part of the fair value methodology, loans were valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market existed for these loans, the fair value was determined in good faith by the Board of Directors. In determining the fair value, the Board of Directors considered factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, cash flows of the borrower, market conditions for loans (e.g. values used by other lenders and any active bid/ask market), historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. Investments other than securities, which represent collateral received from defaulted borrowers, were valued similarly.
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Under Investment Company Accounting, the Company recognized unrealized appreciation (depreciation) on investments as the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Unrealized appreciation on investments was $139,700,000, and $110,374,000 as of December 31, 2017 and June 30, 2017. Refer to Note 5 for additional details.
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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 Bank Holding Company reporting, and was subject to a purchase price accounting allocation process conducted by an independent third party expert to arrive at the current categories and amounts. Goodwill is not amortized, but is subject to quarterly review by management to determine whether additional impairment testing is needed, said testing which is performed at least on an annual basis. Intangible assets are amortized over their useful life of approximately 20 years. See below for detailed informationAs of June 30, 2019, December 31, 2018, and June 30, 2018, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $53,259,000, $53,982,000 and $60,320,000, and the Company recognized $362,000 and $361,000 of amortization expense on the fair value allocationintangible assets for the three months ended June 30, 2019 and 2018, and $723,000 of amortization expense on the intangible assets for the six months ended June 30, 2019. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018.2018, of which $6,875,000, $9,048,000, and $12,387,000 were outstanding at June 30, 2019, December 31, 2018, and June 30, 2018, and of which $1,081,000 and $0 was amortized to interest income for the three months ended June 30, 2019 and 2018, and of which $2,173,000 was amortized to interest income for the six months ended June 30, 2019. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2018, who concluded there was no impairment on the Bank and impairment on the RPAC intangible asset of $5,615,000, which was recorded in the 2018 fourth quarter.
The table below shows the details of the intangible assets as of the periods presented.
(in thousands) | Fair Value as of March 31, 2018 | Allocation as of April 2, 2018 | ||||||
Medallion Bank | ||||||||
Assets | ||||||||
Net loans(1) | $ | $ | 890,000 | |||||
Other assets | 130,393 | |||||||
Liabilities | ||||||||
Funds borrowed and other liabilities | (853,650 | ) | ||||||
|
|
|
| |||||
Total fair value excluding goodwill and intangibles | 166,743 | |||||||
Goodwill | 150,803 | |||||||
Intangibles | 28,900 | |||||||
|
|
|
| |||||
Total fair value(2) | $ | 346,446 | $ | 346,446 | ||||
|
|
|
|
(Dollars in thousands) |
| June 30, 2019 |
|
| December 31, 2018 |
| ||
Brand-related intellectual property |
| $ | 20,625 |
|
| $ | 21,176 |
|
Home improvement contractor relationships |
|
| 6,469 |
|
|
| 6,641 |
|
Race organization |
|
| 26,165 |
|
|
| 26,165 |
|
Total intangible assets |
| $ | 53,259 |
|
| $ | 53,982 |
|
|
|
(in thousands) | Fair Value as of March 31, 2018 | Allocation as of April 2, 2018 | ||||||
RPAC Racing LLC | ||||||||
Assets | ||||||||
Cash | $ | $ | 1,647 | |||||
Net fixed assets | 774 | |||||||
Race cars and parts, net | 203 | |||||||
Race cars held for sale | 916 | |||||||
Other assets | 1,902 | |||||||
Liabilities | ||||||||
Deferred revenue | (6,531 | ) | ||||||
Notes payable(1) | (27,220 | ) | ||||||
Other liabilities | (2,275 | ) | ||||||
|
|
|
| |||||
Total fair value excluding goodwill and intangibles | (30,584 | ) | ||||||
Intangibles | 31,779 | |||||||
|
|
|
| |||||
Total fair value(2) | $ | 1,195 | $ | 1,195 | ||||
|
|
|
|
|
|
Page 18 of 97
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 $135,000$105,000 and $24,000$135,000 for the quartersthree months ended June 30, 2019 and 2018, and 2017,was $205,000 and was $158,000 and $49,000 for the comparable six months.
Deferred Costs
Deferred financing costs, included in other assets, representsrepresent 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 $541,000$597,000 and $240,000 ($591,000 had Medallion Bank been consolidated)$541,000 for the quartersthree months ended June 30, 2019 and 2018, and 2017,was $1,118,000 and was $764,000 and $468,000 ($1,164,000 had Medallion Bank been consolidated) for the comparable six months, recorded as interest expense.months. In addition, the Company capitalizes certain costs for transactions in the process of completion (other than business combinations), including those for potential investments, and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts are amortized against income over an appropriate period, or written off. The amount on the Company’s balance sheet for all of these purposes was $5,012,000, $3,070,000 ($5,011,000 had Medallion Bank been consolidated),$5,584,000, $4,461,000, and $3,567,000 ($5,623,000 had Medallion Bank been consolidated)$5,012,000 as of June 30, 2018,2019, December 31, 20172018, and June 30, 2017.2018.
Page 15 of 76
Income taxes are accounted for using the asset and liability approach in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”)(ASC 740). Deferred tax assets and liabilities reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are also recorded for net operating losses, capital losses and any tax credit carryforwards. A valuation allowance is provided against a deferred tax asset when it is more likely than not that some or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether a valuation allowance for deferred tax assets is needed. Items considered in determining our valuation allowance include expectations of future earnings of the appropriate tax character, recent historical financial results, tax planning strategies, the length of statutory carryforward periods and the expected timing of the reversal of temporary differences. Under ASC 740, forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence, such as cumulative losses in recent years. The Company recognizes tax benefits of uncertain tax positions only when the position is more likely than not to be sustained assuming examination by tax authorities. The Company records income tax related interest and penalties, if applicable, within current income tax expense.
Sponsorship and Race Winnings
The Company accounts for sponsorship and race winnings revenue under FASB ASC Topic 606, Revenue from Contracts with Customers. Sponsorship revenue is recognized based upon the contract terms of the sponsorship contract. Race winnings revenue is recognized after each race during the season based upon terms provided by NASCAR and the placement of the driver.
Earnings (Loss) Per Share (EPS)
Basic earnings (loss) per share are computed by dividing net income (loss)/net increase (decrease) in net assets resulting from operations available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, or if restricted stock vests, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period.
The table below shows the calculation of basic and diluted EPS.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Dollars in thousands, except per share data) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net loss/ net decrease in net assets resulting from operations available to common shareholders | ($ | 14,647 | ) | ($ | 4,797 | ) | ($ | 29,521 | ) | ($ | 3,686 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding applicable to basic EPS | 24,230,815 | 23,925,567 | 24,193,057 | 23,909,344 | ||||||||||||
Effect of dilutive stock options | — | — | — | — | ||||||||||||
Effect of restricted stock grants | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjusted weighted average common shares outstanding applicable to diluted EPS | 24,230,815 | 23,925,567 | 24,193,057 | 23,909,344 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic loss per share | ($ | 0.60 | ) | ($ | 0.20 | ) | ($ | 1.22 | ) | ($ | 0.15 | ) | ||||
Diluted loss per share | (0.60 | ) | (0.20 | ) | (1.22 | ) | (0.15 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(Dollars in thousands, except per share data) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net loss/net decrease in net assets resulting from operations available to common shareholders |
| $ | (7,500 | ) |
| $ | (14,647 | ) |
| $ | (6,272 | ) |
| $ | (29,521 | ) |
Weighted average common shares outstanding applicable to basic EPS |
|
| 24,359,280 |
|
|
| 24,230,815 |
|
|
| 24,323,967 |
|
|
| 24,193,057 |
|
Effect of dilutive stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Effect of restricted stock grants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Adjusted weighted average common shares outstanding applicable to diluted EPS |
|
| 24,359,280 |
|
|
| 24,230,815 |
|
|
| 24,323,967 |
|
|
| 24,193,057 |
|
Basic loss per share |
| $ | (0.31 | ) |
| $ | (0.60 | ) |
| $ | (0.26 | ) |
| $ | (1.22 | ) |
Diluted loss per share |
|
| (0.31 | ) |
|
| (0.60 | ) |
|
| (0.26 | ) |
|
| (1.22 | ) |
Page 19 of 97
Potentially dilutive common shares excluded from the above calculations aggregated 100,000498,714 and 682,000100,000 shares as of June 30, 20182019 and 2017.2018.
Stock Compensation
The Company follows FASB ASC Topic 718 (ASC 718), “CompensationCompensation – Stock Compensation”,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 isare reflected in net income (loss)/increase in net increase (decrease) in income/net assets resulting from operations for any new grants using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Stock-based employee compensation costs pertaining to restricted stock are reflected in net income (loss)/income/net increase in 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.
Page 16 of 76
During the six months ended June 30, 20182019 and 2017,2018, the Company issued 98,164167,849 and 258,23298,164 of restricted shares of stock-based compensation awards, and 24,000375,481 and 12,00024,000 shares of other stock-based compensation awards,stock options, and recognized $340,000 and $505,000, or $0.01 and $0.02 per share for the 2019 second quarter and six months, and $145,000 and $296,000, or $0.01 per share for the 2018 second quarter and six months, and $200,000 and $329,000, or $0.01 and $0.01 per share ineach of the comparable 20172018 periods, ofnon-cash stock-based compensation expense related to the grants. As of June 30, 2018,2019, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $533,000,$1,831,000, which is expected to be recognized over the next 1215 quarters (see Note 9)10).
Derivatives
The Company manages its exposure to increases in market rates of interest by periodically purchasing interest rate caps to lock in the cost of funds of its variable-rate debt in the event of a rapid run up in interest rates. The Company entered into contracts to purchase interest rate caps on $30,000,000 of notional value of principal from various multinational banks, with termination dates ranging to December 2018. The caps provide for payments to the Company if various LIBOR thresholds are exceeded during the cap terms. Total cap purchases were generally fully expensed when paid, including $0 for the three and six months ended June 30, 2018 and $19,000 and $19,000 for the comparable 2017 periods, and all are carried at $0 on the balance sheet at June 30, 2018.
Regulatory Capital
MedallionThe Bank is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC)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, andcertain 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 Medallionthe 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, Medallionthe Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions, such as certain purchases of assets, with the Company or its affiliates.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting the Bank’s application for federal deposit insurance, the FDIC ordered that the Tier 1 leverage capital to total assets ratio, as defined, be not less than 15%, which would preclude its ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of June 30, 2018,2019, the Bank’s Tier 1 leverage capital ratio was 14.95%15.96%. The Bank’s actual capital amounts and ratios, and the regulatory minimum ratios are presented in the following table.
Page 20 of 97
Regulatory |
| Regulatory |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
(Dollars in thousands) | Minimum | Well-capitalized | June 30, 2018 | December 31, 2017 |
| Minimum |
|
| Well- Capitalized |
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||
Common equity tier 1 capital | — | — | $ | 127,258 | $ | 137,494 | ||||||||||||||||||||||||||
Common equity Tier 1 capital |
|
| — |
|
|
| — |
|
| $ | 144,886 |
|
| $ | 141,608 |
| ||||||||||||||||
Tier 1 capital | — | — | 153,561 | 163,797 |
|
| — |
|
|
| — |
|
|
| 171,189 |
|
|
| 167,911 |
| ||||||||||||
Total capital | — | — | 167,344 | 176,876 |
|
| — |
|
|
| — |
|
|
| 185,117 |
|
|
| 180,917 |
| ||||||||||||
Average assets | — | — | 1,027,419 | 1,127,087 |
|
| — |
|
|
| — |
|
|
| 1,072,712 |
|
|
| 1,059,461 |
| ||||||||||||
Risk-weighted assets | — | — | 1,045,884 | 995,145 |
|
| — |
|
|
| — |
|
|
| 1,068,566 |
|
|
| 993,374 |
| ||||||||||||
Leverage ratio(1) | 4.0 | % | 5.0 | % | 14.9 | % | 14.5 | % |
|
| 4.0 | % |
|
| 5.0 | % |
|
| 16.0 | % |
|
| 15.8 | % | ||||||||
Common equity tier 1 capital ratio (2) | 4.5 | 6.5 | 12.2 | 13.8 | ||||||||||||||||||||||||||||
Common equity Tier 1 capital ratio(2) |
|
| 7.0 |
|
|
| 6.5 |
|
|
| 13.6 |
|
|
| 14.3 |
| ||||||||||||||||
Tier 1 capital ratio(3) | 6.0 | 8.0 | 14.7 | 16.5 |
|
| 8.5 |
|
|
| 8.0 |
|
|
| 16.0 |
|
|
| 16.9 |
| ||||||||||||
Total capital ratio(3) | 8.0 | 10.0 | 16.0 | 17.8 |
|
| 10.5 |
|
|
| 10.0 |
|
|
| 17.3 |
|
|
| 18.2 |
|
(1) | Calculated by dividing Tier 1 capital by average assets. |
(2) | Calculated by subtracting preferred stock ornon-controlling interests from Tier 1 capital and dividing by risk-weighted assets. |
(3) | Calculated by dividing Tier 1 or total capital by risk-weighted assets. |
In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer on top of the minimum risk-based capital ratios. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will increaseincreased by 0.625% each subsequent January 1 until January 1, 2019. Including the buffer, byas of January 1, 2019, the Bank will beis required to maintain the following minimum capital ratios: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0%, a Tier 1 risk-based capital ratio of greater than 8.5% and a total risk-based capital ratio of greater than 10.5%. Since the FDIC’s new capital rule has been fully phased in, the minimum capital requirements plus the capital conservation buffer exceed the Prompt Corrective Action well-capitalized thresholds.
Page 17 of 76
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The objective of this update is to modify the disclosure requirements as they relate to the fair value of assets and liabilities. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial condition.
In January 2017, the FASB issued ASU2017-04 Intangibles— Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of this update is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial condition.
In June 2016, the FASB issuedASU 2016-13, “Financial Instruments—Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. The aftermath of the global economic crisis and the delayed recognition of credit losses associated with loans (and other financial instruments) was identified as a weakness in the application of existing accounting standards. Specifically, because the existing “incurred” loss model delays recognition until it is probable a credit loss was incurred, the FASB explored alternatives that would use more forward-looking information. 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 and is effective for fiscal years beginning after December 15, 2020 for all other entities, with early adoption permitted. The Company is assessing the impact the update will have on its financial statement, butstatements, and expects the update to have a significant impact on how the Company expects to accountCompany’s accounting for estimated credit losses on its loans.
In February 2016, the FASB issued ASU2016-02, Leases (Topic 842). ASU2016-02 requires the recognition of lease assets and lease liabilities by lessees for leases classified as operating under GAAP. ASU2016-02 applies to all entities and is effective for fiscal years beginning after December 15, 2018 for public entities. The Company has assessed the impact the update will have on its financial condition and does not believe this update will have a material impact on its financial condition.
Page 21 of 97
(3) INVESTMENT SECURITIES (Bank Holding Company Accounting)
Fixed maturity securities available for sale atas of June 30, 2019 and December 31, 2018 consisted of the following:
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
June 30, 2019 (Dollars in thousands) |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||||||||||||||||||
Mortgage-backed securities, principally obligations of US federal agencies | $ | 35,924 | $ | 14 | $ | (1,025 | ) | $ | 34,913 |
| $ | 31,083 |
|
| $ | 488 |
|
| $ | (31 | ) |
| $ | 31,540 |
| |||||||
State and municipalities | 10,128 | 3 | (327 | ) | 9,804 |
|
| 13,155 |
|
|
| 218 |
|
|
| (93 | ) |
|
| 13,280 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 46,052 | $ | 17 | $ | (1,352 | ) | $ | 44,717 |
| $ | 44,238 |
|
| $ | 706 |
|
| $ | (124 | ) |
| $ | 44,820 |
| |||||||
|
|
|
|
December 31, 2018 (Dollars in thousands) |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Mortgage-backed securities, principally obligations of US federal agencies |
| $ | 32,184 |
|
| $ | 15 |
|
| $ | (742 | ) |
| $ | 31,457 |
|
State and municipalities |
|
| 14,239 |
|
|
| 35 |
|
|
| (407 | ) |
|
| 13,867 |
|
Total |
| $ | 46,423 |
|
| $ | 50 |
|
| $ | (1,149 | ) |
| $ | 45,324 |
|
The amortized cost and estimated market value of investment securities as of June 30, 20182019 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 |
| Amortized Cost |
|
| Fair Value |
| ||||||||
Due in one year or less | $ | 3 | $ | 3 |
| $ | 20 |
|
| $ | 20 |
| ||||
Due after one year through five years | 7,802 | 7,597 |
|
| 8,889 |
|
|
| 8,959 |
| ||||||
Due after five years through ten years | 14,272 | 13,830 |
|
| 12,112 |
|
|
| 12,298 |
| ||||||
Due after ten years | 23,975 | 23,287 |
|
| 23,217 |
|
|
| 23,543 |
| ||||||
|
| |||||||||||||||
Total | $ | 46,052 | $ | 44,717 |
| $ | 44,238 |
|
| $ | 44,820 |
| ||||
|
|
Information
Page 18 of 76
The following table shows information pertaining to securities with gross unrealized losses at June 30, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows.position.
| Less than Twelve Months |
|
| Twelve Months and Over |
| |||||||||||||||||||||||||||
Less than Twelve Months | Twelve Months and Over | |||||||||||||||||||||||||||||||
(Dollars in thousands) | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
June 30, 2019 (Dollars in thousands) |
| Gross Unrealized Losses |
|
| Fair Value |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||||||||||||||||||
Mortgage-backed securities, principally obligations of US federal agencies | $ | (523 | ) | $ | 20,798 | $ | (502 | ) | $ | 11,975 |
| $ | — |
|
| $ | — |
|
| $ | (31 | ) |
| $ | 7,401 |
| ||||||
State and municipalities | (164 | ) | 6,121 | (163 | ) | 3,506 |
|
| — |
|
|
| — |
|
|
| (93 | ) |
|
| 8,016 |
| ||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | (687 | ) | $ | 26,919 | $ | (665 | ) | $ | 15,481 |
| $ | — |
|
| $ | — |
|
| $ | (124 | ) |
| $ | 15,417 |
| ||||||
|
|
|
|
|
| Less than Twelve Months |
|
| Twelve Months and Over |
| ||||||||||
December 31, 2018 (Dollars in thousands) |
| Gross Unrealized Losses |
|
| Fair Value |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Mortgage-backed securities, principally obligations of US federal agencies |
| $ | (54 | ) |
| $ | 4,616 |
|
| $ | (688 | ) |
| $ | 24,871 |
|
State and municipalities |
|
| (78 | ) |
|
| 5,429 |
|
|
| (329 | ) |
|
| 6,259 |
|
Total |
| $ | (132 | ) |
| $ | 10,045 |
|
| $ | (1,017 | ) |
| $ | 31,130 |
|
Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.
As of December 31, 2017, under Investment Company Accounting, investment securities made up 0% of the net investments.
Page 22 of 97
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES (Bank Holding Company Accounting)
The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at June 30, 2018 under Bank Holding Company Accounting.2019 and December 31, 2018.
| As of June 30, 2019 |
|
| As of December 31, 2018 |
| |||||||||||||||
(Dollars in thousands) |
| Amount |
|
| As a Percent of Gross Loans |
|
| Amount |
|
| As a Percent of Gross Loans |
| ||||||||
Recreation | $ | 597,348 |
| $ | 668,540 |
|
|
| 62 | % |
| $ | 587,038 |
|
|
| 58 | % | ||
Home improvement | 195,876 |
|
| 209,549 |
|
|
| 19 |
|
|
| 183,155 |
|
|
| 18 |
| |||
Commercial | 80,105 |
|
| 64,442 |
|
|
| 6 |
|
|
| 64,083 |
|
|
| 6 |
| |||
Medallion | 276,794 |
|
| 145,944 |
|
|
| 13 |
|
|
| 183,606 |
|
|
| 18 |
| |||
| ||||||||||||||||||||
Total gross loans | 1,150,123 |
|
| 1,088,475 |
|
|
| 100 | % |
|
| 1,017,882 |
|
|
| 100 | % | |||
Allowance for loan losses | (21,425 | ) |
|
| (40,670 | ) |
|
|
|
|
|
| (36,395 | ) |
|
|
|
| ||
| ||||||||||||||||||||
Total net loans | $ | 1,128,698 |
| $ | 1,047,805 |
|
|
|
|
|
| $ | 981,487 |
|
|
|
|
| ||
|
The following table shows the activity of the gross loans for the three and six months ended June 30, 2019.
Three Months Ended June 30, 2019 (Dollars in thousands) |
| Recreation |
|
| Home Improvement |
|
| Commercial |
|
| Medallions |
|
| Total |
| |||||
Gross loans- March 31, 2019 |
| $ | 609,999 |
|
| $ | 193,275 |
|
| $ | 55,211 |
|
| $ | 165,715 |
|
| $ | 1,024,200 |
|
Loan originations |
|
| 102,695 |
|
|
| 33,533 |
|
|
| 9,270 |
|
|
| — |
|
|
| 145,498 |
|
Principal payments |
|
| (41,641 | ) |
|
| (16,580 | ) |
|
| (70 | ) |
|
| (3,164 | ) |
|
| (61,455 | ) |
Charge-offs, net |
|
| (2,433 | ) |
|
| (86 | ) |
|
| — |
|
|
| (8,844 | ) |
|
| (11,363 | ) |
Transfer to loans in process of foreclosure, net |
|
| (3,491 | ) |
|
| — |
|
|
| — |
|
|
| (6,863 | ) |
|
| (10,354 | ) |
Other |
|
| 3,411 |
|
|
| (593 | ) |
|
| 31 |
|
|
| (900 | ) |
|
| 1,949 |
|
Gross loans- June 30, 2019 |
| $ | 668,540 |
|
| $ | 209,549 |
|
| $ | 64,442 |
|
| $ | 145,944 |
|
| $ | 1,088,475 |
|
Page 19 of 76
Six Months Ended June 30, 2019 (Dollars in thousands) |
| Recreation |
|
| Home Improvement |
|
| Commercial |
|
| Medallions |
|
| Total |
| |||||
Gross loans- December 31, 2018 |
| $ | 587,038 |
|
| $ | 183,155 |
|
| $ | 64,083 |
|
| $ | 183,606 |
|
| $ | 1,017,882 |
|
Loan originations |
|
| 166,327 |
|
|
| 60,180 |
|
|
| 9,770 |
|
|
| — |
|
|
| 236,277 |
|
Principal payments |
|
| (72,890 | ) |
|
| (32,779 | ) |
|
| (9,413 | ) |
|
| (6,599 | ) |
|
| (121,681 | ) |
Charge-offs, net |
|
| (7,363 | ) |
|
| (245 | ) |
|
| — |
|
|
| (16,631 | ) |
|
| (24,239 | ) |
Transfer to loans in process of foreclosure, net |
|
| (6,883 | ) |
|
| — |
|
|
| — |
|
|
| (12,568 | ) |
|
| (19,451 | ) |
Other |
|
| 2,311 |
|
|
| (762 | ) |
|
| 2 |
|
|
| (1,864 | ) |
|
| (313 | ) |
Gross loans- June 30, 2019 |
| $ | 668,540 |
|
| $ | 209,549 |
|
| $ | 64,442 |
|
| $ | 145,944 |
|
| $ | 1,088,475 |
|
The following table sets forth the activity in the allowance for loan losses for the three and six months ended June 30, 2018 under Bank Holding Company Accounting.2019 and the three months ended June 30, 2018.
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| |||||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| |||||||
Allowance for loan losses—beginning balance(1) | $ | — | |||||||||||||||
Charge-offs: | |||||||||||||||||
Allowance for loan losses – beginning balance |
| $ | 36,862 |
|
| $ | — |
| (1) | $ | 36,395 |
|
| ||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Recreation | (4,646 | ) |
|
| (4,395 | ) |
|
| (4,646 | ) |
|
| (10,921 | ) |
| ||
Home improvement | (561 | ) |
|
| (539 | ) |
|
| (561 | ) |
|
| (1,088 | ) |
| ||
Commercial | — |
| — |
|
|
| — |
|
| — |
|
| |||||
Medallion | (6,280 | ) |
|
| (9,242 | ) |
|
| (6,280 | ) |
|
| (18,029 | ) |
| ||
| |||||||||||||||||
Total charge-offs | (11,487 | ) |
|
| (14,176 | ) |
|
| (11,487 | ) |
|
| (30,038 | ) |
| ||
| |||||||||||||||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Recreation | 1,899 |
|
| 1,962 |
|
|
| 1,899 |
|
|
| 3,558 |
|
| |||
Home improvement | 239 |
|
| 453 |
|
|
| 239 |
|
|
| 843 |
|
| |||
Commercial | 4 |
| — |
|
|
| 4 |
|
| — |
|
| |||||
Medallion | 194 |
|
| 398 |
|
|
| 194 |
|
|
| 1,398 |
|
| |||
| |||||||||||||||||
Total recoveries | 2,336 |
|
| 2,813 |
|
|
| 2,336 |
|
|
| 5,799 |
|
| |||
| |||||||||||||||||
Net charge-offs | (9,151 | ) | |||||||||||||||
Provision for loan losses(2) | 30,576 | ||||||||||||||||
| |||||||||||||||||
Allowance for loan losses—ending balance | $ | 21,425 | |||||||||||||||
| |||||||||||||||||
Net charge-offs(2) |
|
| (11,363 | ) |
|
| (9,151 | ) |
|
| (24,239 | ) |
| ||||
Provision for loan losses |
|
| 15,171 |
|
|
| 30,576 |
|
|
| 28,514 |
|
| ||||
Allowance for loan losses – ending balance |
| $ | 40,670 |
| (3) | $ | 21,425 |
|
| $ | 40,670 |
| (3) |
(1) | Beginning balance reflects the transition to Bank Holding Company Accounting by netting previously established unrealized depreciation against the gross loan balances resulting in a starting point of zero for |
(2) | As of June 30, 2019, cumulative net charge-offs of loans and loans in process of foreclosure in the medallion portfolio were $237,671, representing collection opportunities for the Company. |
(3) | Includes |
The following table setstables set forth the composition of the allowance for loan losses by type as of June 30, 2018:2019 and December 31, 2018.
Amount | Percentage of Allowance | Allowance as a Percent of Loan Category | ||||||||||||||||||||||
June 30, 2019 (Dollars in thousands) |
| Amount |
|
| Percentage of Allowance |
|
| Allowance as a Percent of Loan Category |
| |||||||||||||||
Recreation | $ | 1,963 | 9 | % | 0.33 | % |
| $ | 12,672 |
|
|
| 31 | % |
|
| 1.90 | % | ||||||
Home Improvement | 555 | 3 | 0.28 | |||||||||||||||||||||
Home improvement |
|
| 2,913 |
|
|
| 7 |
|
|
| 1.39 |
| ||||||||||||
Commercial | 175 | 1 | 0.22 |
|
| 455 |
|
|
| 1 |
|
|
| 0.71 |
| |||||||||
Medallion | 18,732 | 87 | 6.77 |
|
| 24,630 |
|
|
| 61 |
|
|
| 16.88 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total | $ | 21,425 | 100 | % | 1.86 | % |
| $ | 40,670 |
|
|
| 100 | % |
|
| 3.74 |
| ||||||
|
|
Page 20 of 76
December 31, 2018 (Dollars in thousands) |
| Amount |
|
| Percentage of Allowance |
|
| Allowance as a Percent of Loan Category |
| |||
Recreation |
| $ | 6,856 |
|
|
| 19 | % |
|
| 1.17 | % |
Home Improvement |
|
| 1,796 |
|
|
| 5 |
|
|
| 0.98 |
|
Commercial |
|
| — |
|
|
| — |
|
|
| 0.00 |
|
Medallion |
|
| 27,743 |
|
|
| 76 |
|
|
| 15.11 |
|
Total |
| $ | 36,395 |
|
|
| 100 | % |
|
| 3.58 | % |
Page 23 of 97
The following table presents total nonaccrual loans and foregone interest, substantially all of which is in the medallion portfolio. The decline reflects the chargeoffscharge-offs of certain loans and their movement to loan collateral in process of foreclosure. The fluctuation in nonaccrual interest foregone is due to past due loans and market conditions.
Bank Holding Company Accounting | Investment Company Accounting | |||||||||||||||||||||||
(Dollars in thousands) | June 30, 2018 | December 31, 2017 (1) | June 30, 2017 (2) |
| June 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2018 |
| ||||||||||||
Total nonaccrual loans | $ | 47,904 | $ | 98,494 | $ | 122,042 |
| $ | 26,878 |
|
| $ | 34,877 |
|
| $ | 47,904 |
| ||||||
Interest foregone quarter to date | 770 | 823 | 2,248 |
|
| 379 |
|
|
| 487 |
|
|
| 770 |
| |||||||||
Amount of foregone interest applied to principal in the quarter | 400 | 52 | 679 |
|
| 116 |
|
|
| 166 |
|
|
| 400 |
| |||||||||
Interest foregone life to date | 8,281 | 12,485 | 14,934 |
|
| 1,809 |
|
|
| 1,952 |
|
|
| 8,281 |
| |||||||||
Amount of foregone interest applied to principal life to date | 3,748 | 3,495 | 9,711 |
|
| 847 |
|
|
| 1,214 |
|
|
| 3,748 |
| |||||||||
Percentage of nonaccrual loans to gross loan portfolio | 4 | % | 31 | % | 34 | % |
|
| 2 | % |
|
| 3 | % |
|
| 4 | % |
|
|
The following presents ourtables present the performance status of loans as of June 30, 2018 under Bank Holding Company Accounting.2019 and December 31, 2018.
(Dollars in thousands) | Performing | Non- Performing | Total | |||||||||||||||||||||||||
June 30, 2019 (Dollars in thousands) |
| Performing |
|
| Nonperforming |
|
| Total |
|
| Percentage of Nonperforming to Total |
| ||||||||||||||||
Recreation | $ | 593,177 | $ | 4,171 | $ | 597,348 |
| $ | 662,785 |
|
| $ | 5,755 |
|
| $ | 668,540 |
|
|
| 0.86 | % | ||||||
Home improvement | 195,759 | 117 | 195,876 |
|
| 209,384 |
|
|
| 165 |
|
|
| 209,549 |
|
|
| 0.08 |
| |||||||||
Commercial | 72,664 | 7,441 | 80,105 |
|
| 55,699 |
|
|
| 8,743 |
|
|
| 64,442 |
|
|
| 13.57 |
| |||||||||
Medallion | 238,965 | 37,829 | 276,794 |
|
| 133,729 |
|
|
| 12,215 |
|
|
| 145,944 |
|
|
| 8.37 |
| |||||||||
|
|
| ||||||||||||||||||||||||||
Total | $ | 1,100,565 | $ | 49,558 | $ | 1,150,123 |
| $ | 1,061,597 |
|
| $ | 26,878 |
|
| $ | 1,088,475 |
|
|
| 2.47 |
| ||||||
|
|
|
December 31, 2018 (Dollars in thousands) |
| Performing |
|
| Nonperforming |
|
| Total |
|
| Percentage of Nonperforming to Total |
| ||||
Recreation |
| $ | 581,250 |
|
| $ | 5,788 |
|
| $ | 587,038 |
|
|
| 0.99 | % |
Home improvement |
|
| 183,018 |
|
|
| 137 |
|
|
| 183,155 |
|
|
| 0.07 |
|
Commercial |
|
| 60,249 |
|
|
| 3,834 |
|
|
| 64,083 |
|
|
| 5.98 |
|
Medallion |
|
| 158,488 |
|
|
| 25,118 |
|
|
| 183,606 |
|
|
| 13.68 |
|
Total |
| $ | 983,005 |
|
| $ | 34,877 |
|
| $ | 1,017,882 |
|
|
| 3.43 | % |
Page 21 of 76
For those loans aged31-90 days, there is a possibility that their delinquency status will continue to deteriorate and they will subsequently be placed on nonaccrual status and be reserved for, and as such, deemed nonperforming.
The following table providestables provide additional information on attributes of the nonperforming loan portfolio as of June 30, 2019 and December 31, 2018, under Bank Holding Company Accounting.all of which had an allowance recorded against the principal balance.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Page 24 of 97
June 30, 2018 | Three Months Ended June 30, 2018 | |||||||||||||||||||||
(Dollars in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Investment Recorded | Interest Income Recognized | |||||||||||||||||
With an allowance recorded |
| |||||||||||||||||||||
Recreation | $ | 4,171 | $ | 4,171 | $ | 145 | $ | 5,577 | $ | 125 | ||||||||||||
Home improvement | 117 | 117 | 2 | 116 | — | |||||||||||||||||
Commercial | 7,441 | 7,441 | 175 | 8,256 | 70 | |||||||||||||||||
Medallion | 37,829 | 37,829 | 12,069 | 55,213 | 114 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total with allowance | $ | 49,558 | $ | 49,558 | $ | 12,391 | $ | 69,162 | $ | 309 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total nonperforming loans | $ | 49,558 | $ | 49,558 | $ | 12,391 | $ | 69,162 | $ | 309 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
The following table provides additional information on attributes of the nonperforming loan portfolio as of December 31, 2017 and June 30, 2017.
(Dollars in thousands) | Recorded Investment (1) (2) | Unpaid Principal Balance | Average Recorded Investment | |||||||||
December 31, 2017 | ||||||||||||
Medallion(3) | $ | 79,871 | $ | 82,612 | $ | 128,671 | ||||||
Commercial(3) | 18,623 | 20,491 | 18,792 | |||||||||
June 30, 2017 | ||||||||||||
Medallion(3) | $ | 112,327 | $ | 114,351 | $ | 124,084 | ||||||
Commercial(3) | 9,714 | 17,403 | 9,904 |
|
|
|
The following tables show the aging of all loans as of June 30, 20182019 and December 31, 2017:2018:
| Days Past Due |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Bank Holding Company Accounting | Days Past Due | Recorded Investment > 90 Days and Accruing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2018 (Dollars in thousands) | 31-60 | 61-90 | 91 + | Total | Current | Total(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 (Dollars in thousands) |
| 31-60 |
|
| 61-90 |
|
| 91 + |
|
| Total |
|
| Current |
|
| Total (1) |
|
| Recorded Investment 90 Days and Accruing |
| |||||||||||||||||||||||||||||||||||
Recreation | $ | 12,981 | $ | 3,242 | $ | 2,402 | $ | 18,625 | $ | 554,995 | $ | 573,620 | $ | — |
| $ | 16,482 |
|
| $ | 5,286 |
|
| $ | 3,613 |
|
| $ | 25,381 |
|
| $ | 620,882 |
|
| $ | 646,263 |
|
| $ | — |
| ||||||||||||||
Home improvement | 391 | 173 | 115 | 679 | 200,882 | 201,561 | — |
|
| 672 |
|
|
| 216 |
|
|
| 165 |
|
|
| 1,053 |
|
|
| 211,451 |
|
|
| 212,504 |
|
|
| — |
| |||||||||||||||||||||
Commercial | 492 | — | 215 | 707 | 79,398 | 80,105 | — |
|
| — |
|
|
| — |
|
|
| 731 |
|
|
| 731 |
|
|
| 63,711 |
|
|
| 64,442 |
|
|
| — |
| |||||||||||||||||||||
Medallion | 8,517 | 10,429 | 12,429 | 31,375 | 236,808 | 268,183 | 506 |
|
| 18,024 |
|
|
| 3,098 |
|
|
| 3,746 |
|
|
| 24,868 |
|
|
| 116,122 |
|
|
| 140,990 |
|
|
| — |
| |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 22,381 | $ | 13,844 | $ | 15,161 | $ | 51,386 | $ | 1,072,083 | $ | 1,123,469 | $ | 506 |
| $ | 35,178 |
|
| $ | 8,600 |
|
| $ | 8,255 |
|
| $ | 52,033 |
|
| $ | 1,012,166 |
|
| $ | 1,064,199 |
|
| $ | — |
| ||||||||||||||
|
|
|
|
|
|
|
(1) | Excludes loan premiums of |
Investment Company Accounting | Days Past Due | Recorded Investment > 90 Days and Accruing | ||||||||||||||||||||||||||
December 31, 2017 (Dollars in thousands) | 31-60 | 61-90 | 91 + | Total | Current | Total | ||||||||||||||||||||||
Medallion loans | $ | 16,049 | $ | 12,387 | $ | 59,701 | $ | 88,137 | $ | 140,279 | $ | 228,416 | $ | 265 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||
Secured mezzanine | — | — | — | — | 88,334 | 88,334 | — |
|
| Days Past Due |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
December 31, 2018 (Dollars in thousands) |
| 31-60 |
|
| 61-90 |
|
| 91 + |
|
| Total |
|
| Current |
|
| Total (1) |
|
| Recorded Investment > 90 Days and Accruing |
| |||||||
Recreation |
| $ | 18,483 |
|
| $ | 5,655 |
|
| $ | 4,020 |
|
| $ | 28,158 |
|
| $ | 539,051 |
|
| $ | 567,209 |
|
| $ | — |
|
Home improvement |
|
| 715 |
|
|
| 283 |
|
|
| 135 |
|
|
| 1,133 |
|
|
| 184,528 |
|
|
| 185,661 |
|
|
| — |
|
Commercial |
|
| — |
|
|
| 454 |
|
|
| 279 |
|
|
| 733 |
|
|
| 63,350 |
|
|
| 64,083 |
|
|
| — |
|
Medallion |
|
| 8,689 |
|
|
| 3,652 |
|
|
| 15,720 |
|
|
| 28,061 |
|
|
| 148,774 |
|
|
| 176,835 |
|
|
| — |
|
Total |
| $ | 27,887 |
|
| $ | 10,044 |
|
| $ | 20,154 |
|
| $ | 58,085 |
|
| $ | 935,703 |
|
| $ | 993,788 |
|
| $ | — |
|
(1) | Excludes loan premiums of $9,047 resulting from purchase price accounting and $15,047 of capitalized loan origination costs. |
Page 22 of 76
The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 210%, 220%, and 211% as of June 30, 2019, December 31, 2018, and June 30, 2018.
The following table shows the troubled debt restructurings which the Company entered into during the three months ended June 30, 2019.
(Dollars in thousands) |
| Number of Loans |
|
| Pre- Modification Investment |
|
| Post- Modification Investment |
| |||
Medallion loans |
|
| 3 |
|
| $ | 842 |
|
| $ | 842 |
|
Page 25
The following table shows the troubled debt restructurings which the Company entered into during the six months ended June 30, 2019.
(Dollars in thousands) |
| Number of Loans |
|
| Pre- Modification Investment |
|
| Post- Modification Investment |
| |||
Medallion loans |
|
| 10 |
|
| $ | 3,737 |
|
| $ | 3,737 |
|
During the twelve months ended June 30, 2019, five loans modified as troubled debt restructurings were in default and had an investment value of 97$1,530,000 as of June 30, 2019, net of a $912,000 allowance for loan losses.
Investment Company Accounting | Days Past Due | Recorded Investment > 90 Days and Accruing | ||||||||||||||||||||||||||
December 31, 2017 (Dollars in thousands) | 31-60 | 61-90 | 91 + | Total | Current | Total(1) | ||||||||||||||||||||||
Other secured commercial | — | — | 749 | 749 | 1,728 | 2,477 | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total commercial loans | — | — | 749 | 749 | 90,062 | 90,811 | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 16,049 | $ | 12,387 | $ | 60,450 | $ | 88,886 | $ | 230,341 | $ | 319,227 | $ | 265 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the troubled debt restructurings which the Company entered into during the three and six months ended June 30, 2018.
(Dollars in thousands) | Number of Loans | Pre- Modification Investment | Post- Modification Investment |
| Number of Loans |
|
| Pre- Modification Investment |
|
| Post- Modification Investment |
| ||||||||||||
Medallion loans | 7 | $ | 2,695 | $ | 2,695 |
|
| 7 |
|
| $ | 2,695 |
|
| $ | 2,695 |
| |||||||
|
|
|
During the twelve months ended June 30, 2018, five loans modified as troubled debt restructurings were in default and had an investment value of $904,000 as of June 30, 2018.2018, net of a $6,000 allowance for loan losses.
The following table shows troubled debt restructuringstables show the activity of the loans in process of foreclosure, which relate only to the Company entered into duringrecreation and medallion loans, for the quarter ended June 30, 2017.
(Dollars in thousands) | Number of Loans | Pre- Modification Investment | Post- Modification Investment | |||||||||
Medallion loans | 12 | $ | 8,249 | $ | 8,175 | |||||||
|
|
|
|
|
|
The following table shows troubled debt restructurings which the Company entered into during thethree and six months ended June 30, 2017.2019.
(Dollars in thousands) | Number of Loans | Pre- Modification Investment | Post- Modification Investment | |||||||||
Medallion loans | 47 | $ | 31,911 | $ | 31,837 | |||||||
|
|
|
|
|
| |||||||
Commercial loans | 2 | 6,547 | 6,547 | |||||||||
|
|
|
|
|
| |||||||
Total | 49 | $ | 38,458 | $ | 38,384 | |||||||
|
|
|
|
|
|
Three Months Ended June 30, 2019 (Dollars in thousands) |
| Recreation |
|
| Medallion |
|
| Total |
| |||
Loans in process of foreclosure – March 31, 2019 |
| $ | 1,180 |
|
| $ | 48,628 |
|
| $ | 49,808 |
|
Transfer from loans, net |
|
| 3,491 |
|
|
| 6,863 |
|
|
| 10,354 |
|
Sales |
|
| (2,034 | ) |
|
| (175 | ) |
|
| (2,209 | ) |
Cash payments received |
|
| — |
|
|
| (1,931 | ) |
|
| (1,931 | ) |
Collateral valuation adjustments |
|
| (1,682 | ) |
|
| (1,972 | ) |
|
| (3,654 | ) |
Loans in process of foreclosure – June 30, 2019 |
| $ | 955 |
|
| $ | 51,413 |
|
| $ | 52,368 |
|
During the twelve months ended June 30, 2017, ten loans modified as troubled debt restructurings were in default and had an investment value of $3,503,000 as of June 30, 2017, net of $2,456,000 of unrealized depreciation.
Six Months Ended June 30, 2019 (Dollars in thousands) |
| Recreation |
|
| Medallion |
|
| Total |
| |||
Loans in process of foreclosure – December 31, 2018 |
| $ | 1,503 |
|
| $ | 47,992 |
|
| $ | 49,495 |
|
Transfer from loans, net |
|
| 6,883 |
|
|
| 12,568 |
|
|
| 19,451 |
|
Sales |
|
| (4,111 | ) |
|
| (551 | ) |
|
| (4,662 | ) |
Cash payments received |
|
| — |
|
|
| (4,505 | ) |
|
| (4,505 | ) |
Collateral valuation adjustments |
|
| (3,320 | ) |
|
| (4,091 | ) |
|
| (7,411 | ) |
Loans in process of foreclosure – June 30, 2019 |
| $ | 955 |
|
| $ | 51,413 |
|
| $ | 52,368 |
|
Page 2623 of 9776
(5) UNREALIZED APPRECIATION (DEPRECIATION) AND REALIZED GAINS (LOSSES) ON INVESTMENTS (Investment Company Accounting)
The following table sets forth thepre-tax change in the Company’s unrealized appreciation (depreciation) on investments under Investment Company Accounting for the three months ended March 31, 2018 and the three and six months ended June 30, 2017.2018.
(Dollars in thousands) | Medallion Loans | Commercial Loans | Investments in Subsidiaries | Equity Investments | Investments Other Than Securities | Total |
| Medallion Loans |
|
| Commercial Loans |
|
| Investments in Subsidiaries |
|
| Equity Investments |
|
| Investments Other Than Securities |
|
| Total |
| ||||||||||||||||||||||||
Balance December 31, 2017 | ($ | 20,338 | ) | ($ | 513 | ) | $ | 158,920 | $ | 3,121 | ($ | 1,490 | ) | $ | 139,700 |
| $ | (20,338 | ) |
| $ | (513 | ) |
| $ | 158,920 |
|
| $ | 3,121 |
|
| $ | (1,490 | ) |
| $ | 139,700 |
| |||||||||
Net change in unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Appreciation on investments | — | — | 38,795 | (998 | ) | — | 37,797 |
|
| — |
|
|
| — |
|
|
| 38,795 |
|
|
| (998 | ) |
|
| — |
|
|
| 37,797 |
| |||||||||||||||||
Depreciation on investments | (38,170 | ) | 18 | — | — | (1,915 | ) | (40,067 | ) |
|
| (38,170 | ) |
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| (1,915 | ) |
|
| (40,067 | ) | |||||||||||||||
Reversal of unrealized appreciation (depreciation) related to realized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Gains on investments | — | — | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||
Losses on investments | 34,747 | — | — | — | — | 34,747 |
|
| 34,747 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 34,747 |
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Balance March 31, 2018 | ($ | 23,761 | ) | ($ | 495 | ) | $ | 197,715 | $ | 2,123 | ($ | 3,405 | ) | $ | 172,177 |
| $ | (23,761 | ) |
| $ | (495 | ) |
| $ | 197,715 |
|
| $ | 2,123 |
|
| $ | (3,405 | ) |
| $ | 172,177 |
| |||||||||
|
|
|
|
|
|
(Dollars in thousands) | Medallion Loans | Commercial Loans | Investment in Subsidiaries | Equity Investments | Investment Securities | Investments Other Than Securities | Total | |||||||||||||||||||||
Balance December 31, 2016 | ($ | 28,523 | ) | ($ | 1,378 | ) | $ | 152,750 | $ | 3,934 | $ | — | $ | 584 | $ | 127,367 | ||||||||||||
Net change in unrealized | ||||||||||||||||||||||||||||
Appreciation on investments | — | — | 3,751 | 1,261 | — | — | 5,012 | |||||||||||||||||||||
Depreciation on investments | (8,670 | ) | (332 | ) | — | — | — | — | (9,002 | ) | ||||||||||||||||||
Reversal of unrealized appreciation (depreciation) related to realized | ||||||||||||||||||||||||||||
Gains on investments | — | — | — | (2,093 | ) | — | — | (2,093 | ) | |||||||||||||||||||
Losses on investments | 825 | — | — | 486 | — | — | 1,311 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance March 31, 2017 | ($ | 36,368 | ) | ($ | 1,710 | ) | $ | 156,501 | $ | 3,588 | $ | — | $ | 584 | $ | 122,595 | ||||||||||||
Net change in unrealized | ||||||||||||||||||||||||||||
Appreciation on investments | — | — | (771 | ) | 120 | — | — | (651 | ) | |||||||||||||||||||
Depreciation on investments | (12,425 | ) | (118 | ) | — | — | — | — | (12,543 | ) | ||||||||||||||||||
Reversal of unrealized appreciation (depreciation) related to realized | ||||||||||||||||||||||||||||
Gains on investments | — | — | — | — | — | — | — | |||||||||||||||||||||
Losses on investments | 337 | 636 | — | — | — | — | 973 | |||||||||||||||||||||
Other | — | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance June 30, 2017 | ($ | 48,456 | ) | ($ | 1,192 | ) | $ | 155,730 | $ | 3,708 | $ | — | $ | 584 | $ | 110,374 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below summarizespre-tax components of unrealized and realized gains and losses in the investment portfolio for the three months ended March 31, 2018 and the three and six months ended June 30, 2017 under Investment Company Accounting.
(Dollars in thousands) |
| Three Months Ended March 31, 2018 |
| |
Net change in unrealized appreciation (depreciation) on investments |
|
|
|
|
Unrealized appreciation |
| $ | (998 | ) |
Unrealized depreciation |
|
| (38,152 | ) |
Net unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries |
|
| 29,115 |
|
Realized gains |
|
| — |
|
Realized losses |
|
| 34,747 |
|
Net unrealized losses on investments other than securities and other assets |
|
| (1,915 | ) |
Total |
| $ | 22,797 |
|
Net realized gains (losses) on investments |
|
|
|
|
Realized gains |
| $ | — |
|
Realized losses |
|
| (34,747 | ) |
Direct recoveries |
|
| 2 |
|
Total |
| $ | (34,745 | ) |
Page 2724 of 9776
Three Months Ended | ||||||||||||
(Dollars in thousands) | March 31, 2018 | June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||
Net change in unrealized appreciation (depreciation) on investments | ||||||||||||
Unrealized appreciation | ($ | 998 | ) | $ | 235 | $ | 1,493 | |||||
Unrealized depreciation | (38,152 | ) | (12,659 | ) | (21,661 | ) | ||||||
Net unrealized appreciation on investment in Medallion Bank and other controlled subsidiaries | 29,115 | 930 | 9,054 | |||||||||
Realized gains | — | — | (2,090 | ) | ||||||||
Realized losses | 34,747 | 974 | 2,285 | |||||||||
Net unrealized losses on investments other than securities and other assets | (1,915 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 22,797 | $ | (10,520 | ) | $ | (10,919 | ) | ||||
|
|
|
|
|
| |||||||
Net realized gains (losses) on investments | ||||||||||||
Realized gains | $ | — | $ | 1 | $ | 2,091 | ||||||
Realized losses | (34,747 | ) | (974 | ) | (2,285 | ) | ||||||
Other gains | — | 2,958 | 3,002 | |||||||||
Direct recoveries | 2 | 11 | 33 | |||||||||
Realized gains on investments other than securities and other assets | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | ($ | 34,745 | ) | $ | 1,996 | $ | 2,841 | |||||
|
|
|
|
|
|
Page 28 of 97
(6) INVESTMENTS IN MEDALLION BANK AND OTHER CONTROLLED SUBSIDIARIES (Investment Company Accounting)
The following note is included for informational purposes as it relates to the prior periods when the Company reported under Investment Company Accounting and as such, was not able to consolidate Medallionthe Bank’s results.
The following table presents information derived from Medallionthe Bank’s statement of comprehensive income and other valuation adjustments on other controlled subsidiaries for the three and six months ended June 30, 2017.March 31, 2018 under Investment Company Accounting.
(Dollars in thousands) | Three Months Ended | Six Months Ended | ||||||||||
June 30, 2017 | June 30, 2017 |
| Three Months Ended March 31, 2018 |
| ||||||||
Statement of comprehensive income |
|
|
|
| ||||||||
Investment income | $ | 26,660 | $ | 52,989 |
| $ | 26,880 |
| ||||
Interest expense | 3,186 | 6,293 |
|
| 3,615 |
| ||||||
|
| |||||||||||
Net interest income | 23,474 | 46,696 |
|
| 23,265 |
| ||||||
Noninterest income | 37 | 72 |
|
| 19 |
| ||||||
Operating expenses | 6,650 | 12,700 |
|
| 7,158 |
| ||||||
|
| |||||||||||
Net investment income before income taxes | 16,861 | 34,068 |
|
| 16,126 |
| ||||||
Income tax (provision) | (1,638 | ) | (4,095 | ) | ||||||||
|
| |||||||||||
Income tax benefit |
|
| 3,321 |
| ||||||||
Net investment income after income taxes | 15,223 | 29,973 |
|
| 19,447 |
| ||||||
Net realized/unrealized losses of Medallion Bank | (13,306 | ) | (23,728 | ) |
|
| (28,539 | ) | ||||
|
| |||||||||||
Net increase in net assets resulting from operations of Medallion Bank | 1,917 | 6,245 | ||||||||||
Unrealized depreciation on Medallion Bank (1) | (592 | ) | (620 | ) | ||||||||
Net realized/unrealized gains (losses) on controlled subsidiaries other than Medallion Bank | (395 | ) | 3,429 | |||||||||
|
| |||||||||||
Net decrease in net assets resulting from operations of Medallion Bank |
|
| (9,092 | ) | ||||||||
Unrealized appreciation on Medallion Bank(1) |
|
| 39,092 |
| ||||||||
Net realized/unrealized losses on controlled subsidiaries other than Medallion Bank |
|
| (885 | ) | ||||||||
Net increase in net assets resulting from operations of Medallion Bank and other controlled subsidiaries | $ | 930 | $ | 9,054 |
| $ | 29,115 |
| ||||
|
|
(1) | Unrealized depreciation on |
The following table presents Medallion Bank’s balance sheet and the net investment in other controlled subsidiaries as of December 31, 2017.
(Dollars in thousands) | December 31, 2017 | |||
Loans | $ | 864,819 | ||
Investment securities, at fair value | 43,478 | |||
|
| |||
Net investments | 908,297 | |||
Cash | 110,233 | |||
Other assets, net | 58,827 | |||
|
| |||
Total assets | $ | 1,077,357 | ||
|
| |||
Other liabilities | $ | 3,836 | ||
Due to affiliates | 1,055 | |||
Deposits and other borrowings, including accrued interest payable | 908,236 | |||
|
| |||
Total liabilities | 913,127 | |||
Medallion Bank equity(2) | 164,230 | |||
|
| |||
Total liabilities and equity | $ | 1,077,357 | ||
|
| |||
Investment in other controlled subsidiaries | $ | 11,449 | ||
Total investment in Medallion Bank and other controlled subsidiaries (3) | $ | 302,147 | ||
|
|
|
|
Page 29 of 97
(7) FUNDS BORROWED
The outstanding balances of funds borrowed were as follows:
Payments Due for the Fiscal Year Ending June 30, | Bank June 30, | Investment Company Accounting December 31, | Interest |
| Payments Due for the Twelve Months Ending June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | 2018 | 2017 | Rate (1) |
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| June 30, 2019 |
|
| December 31, 2018 |
|
| Interest Rate (1) |
| ||||||||||||||||||||||||||||||||||||
Deposits | $ | 330,290 | $ | 255,172 | $ | 128,143 | $ | 142,250 | $ | 40,547 | $ | — | $ | 896,402 | $ | — | 1.91 | % |
| $ | 330,902 |
|
| $ | 183,873 |
|
| $ | 229,929 |
|
| $ | 97,811 |
|
| $ | 85,143 |
|
| $ | — |
|
| $ | 927,658 |
|
| $ | 848,040 |
|
|
| 2.36 | % | ||||||||||||||||||
DZ loan | 96,925 | — | — | — | — | — | 96,925 | 99,984 | 3.75 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SBA debentures and borrowings | 3,716 | 25,881 | 8,500 | — | 5,000 | 35,000 | 78,097 | 79,564 | 3.39 | % |
|
| 24,452 |
|
|
| 8,500 |
|
| — |
|
|
| 5,000 |
|
|
| 2,500 |
|
|
| 35,000 |
|
|
| 75,452 |
|
|
| 80,099 |
|
|
| 3.41 | % | |||||||||||||||||||||||||||
Retail and privately placed notes |
| — |
|
|
| 33,625 |
|
| — |
|
|
| — |
|
|
| 30,000 |
|
| — |
|
|
| 63,625 |
|
|
| 33,625 |
|
|
| 8.65 | % | |||||||||||||||||||||||||||||||||||||||
Notes payable to banks | 70,551 | 2,164 | — | — | — | — | 72,715 | 81,450 | 4.19 | % |
|
| 14,523 |
|
|
| 32,665 |
|
|
| 280 |
|
|
| 280 |
|
|
| 140 |
|
| — |
|
|
| 47,888 |
|
|
| 59,615 |
|
|
| 4.78 | % | |||||||||||||||||||||||||||
Retail notes | — | — | 33,625 | — | — | — | 33,625 | 33,625 | 9.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred securities | — | — | — | — | — | 33,000 | 33,000 | 33,000 | 4.44 | % |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| 33,000 |
|
|
| 33,000 |
|
|
| 33,000 |
|
|
| 4.60 | % | |||||||||||||||||||||||||||||||
Other borrowings | 8,500 | 7,078 | — | — | — | — | 15,578 | — | 2.26 | % |
|
| 7,713 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| 7,713 |
|
|
| 7,649 |
|
|
| 2.00 | % | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 509,982 | $ | 290,295 | $ | 170,268 | $ | 142,250 | $ | 45,547 | $ | 68,000 | $ | 1,226,342 | $ | 327,623 | 2.59 | % |
| $ | 377,590 |
|
| $ | 258,663 |
|
| $ | 230,209 |
|
| $ | 103,091 |
|
| $ | 117,783 |
|
| $ | 68,000 |
|
| $ | 1,155,336 |
|
| $ | 1,062,028 |
|
|
| 2.94 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Weighted average contractual rate as of June 30, |
Page 25 of 76
Deposits are raised through the use of investment brokerage firms who package deposits qualifying for FDIC insurance into pools that are sold to the Bank. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions. Additionally, a brokerage fee is paid, depending on the maturity of the deposits, which averages less than 0.15%. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually, or at maturity. All time deposits are in denominations of less than $250,000 and have been originated through certificates of deposit broker relationships. The table presents time deposits of $100,000 or more by their maturity:
(Dollars in thousands) | June 30, 2018 |
| June 30, 2019 |
| ||||
Three months or less | $ | 109,148 |
| $ | 116,138 |
| ||
Over three months to six months | 65,750 | |||||||
Over three months through six months |
|
| 59,460 |
| ||||
Over six months through one year | 155,392 |
|
| 155,304 |
| |||
Over one year | 566,112 |
|
| 596,756 |
| |||
| ||||||||
Total deposits | $ | 896,402 |
| $ | 927,658 |
| ||
|
(B) DZ LOAN
In December 2008, Trust III entered into athe DZ loan agreement with DZ Bank, to provide up to $200,000,000 of financing through a commercial paper conduit to acquire medallion loans from MFC (DZ loan), which was extended in December 2013 until December 2016 through an amended and restated credit agreement, which has been further extended several times and currently terminates in December 2018.September 2019. The line was reduced to $150,000,000, and was further reduced in stages to $125,000,000 on July 1, 2016, and remainsremained as an amortizing facility with $96,925,000 outstanding at June 30,and was restructured during the fourth quarter of 2018. During 2017 and 2018, the DZ loan was amended several times, for the most part to improve Trust III’s flexibility under the credit facility. Also, see Note 7(H) below.
Borrowings under Trust III’s DZ loan are collateralized by Trust III’s assets. MFC is the servicer of the loans owned by Trust III. The DZ loan includes a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. The interest rate withSee Note 19 for more information about Trust III and the 2013 extension is a pooled short-term commercial paper rate which approximates LIBOR (30 day LIBOR was 2.09% at June 30, 2018) plus 1.65%.
Page 30 of 97
(C) SBA DEBENTURES AND BORROWINGS
Over the years, the SBA has approved commitments for MCI and FSVC, typically for a four and half year term and a 1% fee, which was paid. During 2017, the SBA restructured FSVC’s debentures with SBA totaling $33,485,000 in principal into a new loan by the SBA to FSVC in the principal amount of $34,024,756 (the SBA Loan). In connection with the SBA Loan, FSVC executed a Note (the SBA Note), with an effective date of March 1, 2017, in favor of SBA, in the principal amount of $34,024,756. The SBA Loan bears interest at a rate of 3.25% per annum, required a minimum of $5,000,000 of principal and interest to be paid on or before February 1, 2018 (which was paid), and requires a minimum of $10,000,000$7,600,000 of principal and interest to be paid on or before February 1,March 27, 2019 (which was paid), and all remaining unpaid principal and interest on or before February 1, 2020, the final maturity date. The SBA Loan agreement contains covenants and events of defaults, including, without limitation, payment defaults, breaches of representations and warranties and covenants defaults. As of June 30, 2018, $169,985,0002019, $172,485,000 of commitments had been fully utilized, there were $5,500,000$3,000,000 of commitments available, and $78,097,000$75,452,000 was outstanding, including $29,597,000$24,452,000 under the SBA Note.
(D) NOTES PAYABLE TO BANKS
The Company and its subsidiaries have entered into note agreements with a variety of local and regional banking institutions over the years, as well as othernon-bank lenders.years. The notes are typically secured by various assets of the underlying borrower.
Page 26 of 76
The table below summarizes the key attributes of the Company’s various borrowing arrangements with these lenders as of June 30, 2018.2019.
(Dollars in thousands) | (Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Borrower | # of Lenders / Notes | Note Dates | Maturity Dates | Type | Note Amounts | Balance Outstanding at June 30, 2018 | Monthly Payment | Average Interest Rate at June 30, 2018 | Interest Rate Index(1) |
| # of Lenders/ Notes |
| Note Dates |
| Maturity Dates |
| Type |
| Note Amounts |
|
|
| Balance Outstanding at June 30, 2019 |
|
| Monthly Payment |
| Average Interest Rate at June 30, 2019 |
|
| Interest Rate Index(1) | ||||||||||||||||||||||||||||||
The Company | 6/6 | 4/11 - 8/14 | 7/18 - 8/19 | | Term loans and demand notes secured by pledged loans (2) | | $ | 51,217 | $ | 51,217 | Interest(3) | 4.54% | Various (2) |
| 6/6 |
| 4/11 - 8/14 |
| 7/19 - 3/21 |
| Term loans and demand notes secured by pledged loans (2) |
| $ | 35,096 |
| (2) |
| $ | 35,096 |
|
| Interest only(3) |
|
| 5.23 | % |
| Various(3) | |||||||||||||||||||||||
Medallion Chicago | 3/28 | 11/11 - 12/11 | 10/16 - 6/19 | | Term loans secured by owned Chicago medallions (4) | | 25,708 | 21,498 | | $181 principal & interest | 3.34% | N/A |
| 2/23 |
| 11/11 - 12/11 |
| 2/21 |
| Term loans secured by owned Chicago medallions(4) |
|
| 18,449 |
|
|
|
| 11,532 |
|
| $134 of principal & interest |
|
| 3.50 | % |
| N/A | ||||||||||||||||||||||||
Medallion Funding |
| 1/1 |
| 11/18 |
| 12/23 |
|
|
|
| 1,260 |
|
|
|
| 1,260 |
|
| $70 principal & interest paid quarterly |
|
| 4.00 | % |
| N/A | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| $ | 54,805 |
|
|
| $ | 47,888 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
$ | 76,925 | $ | 72,715 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
(1) | At June 30, |
(2) | One note has an interest rate of Prime, one note has an interest rate of Prime plus 0.50%, one note has a fixed interest rate of 3.75%, one note has an interest rate of LIBOR plus 3.75%, and the other interest rates on these borrowings are LIBOR plus 2%. |
(3) | Various agreements call for remittance of all principal received on pledged loans subject to minimum monthly payments ranging from |
(4) |
|
In March 2019, the Company used some of the proceeds of the privately placed notes to pay off one of the notes payable to banks at a 50% discount, resulting in a gain on debt extinguishment of $4,145,000 in the 2019 first quarter.
In November 2018, MFC entered into a note to the benefit of DZ Bank for $1,400,000 at a 4.00% interest rate due December 2023, as part of the restructuring of the DZ loan. See Note 19 for more information.
(E) RETAIL AND PRIVATELY PLACED NOTES
In March 2019, the Company completed a private placement to certain institutional investors of $30,000,000 aggregate principal amount of 8.25% unsecured senior notes due 2024, with interest payable semiannually. The Company used the net proceeds from the offering for general corporate purposes, including repaying certain borrowings under its notes payable to banks at a discount which led to a gain of $4,145,000 in the 2019 first quarter.
In April 2016, the Company issued a total of $33,625,000 aggregate principal amount of 9.00% unsecured notes due 2021, with interest payable quarterly in arrears. The Company used the net proceeds from the offering of approximately $31,786,000 to make loans and other investments in portfolio companies and for general corporate purposes, including repaying borrowings under its DZ loan in the ordinary course of business.
Page 27 of 76
In June 2007, the Company issued and sold $36,083,000 aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35,000,000 of preferred securities to Merrill Lynch International and issued 1,083 shares of common stock to the Company. The notes bear a variable rate of interest of 90 day LIBOR (2.34%(2.32% at June 30, 2018)2019) plus 2.13%. The notes mature in September 2037 and are prepayable at par. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially identical. In December 2007, $2,000,000 of the preferred securities were repurchased from a third party investor. At June 30, 2018,2019, $33,000,000 was outstanding on the preferred securities.
Page 31 of 97
(G) OTHER BORROWINGS
In November and December 2017, RPAC amended the terms of various promissory notes with affiliate Richard Petty (refer to Note 1315 for more details). At December 31, 2017,2018, the total outstanding on these notes was $7,007,894$7,149,000 at a 2.00% annual interest rate compounded monthly and due March 31, 2020. As of June 30, 2018, $7,078,0002019, $7,213,000 was outstanding on these notes. Additionally, RPAC has a short term promissory note to Travis Burt, an unrelated party for $500,000 due on December 31, 2018.2019.
In June 2018, the Company issued federal funds of $8,000,000 at a 2.50% interest rate that was repaid in July 2018.
(H) COVENANT COMPLIANCE
Certain of the Company’sour debt agreements contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including debt to equity and minimum net worth. worth, which in the event of noncompliance could preclude their ability to pay dividends to the Company.
(8) LEASES
The Company was nothas leased premises that expire at various dates through April 30, 2027 that are operating leases. The Company has implemented ASC Topic 842 under a modified retrospective approach in compliance with a financial covenant inwhich no adjustments have been made to the DZ loan agreementprior year balances.
The following table presents the operating lease costs and additional information for the three and six months ended June 30, 2019.
(Dollars in thousands) |
| Three Months Ended June 30, 2019 |
|
| Six Months Ended June 30, 2019 |
| ||
Operating lease costs |
| $ | 531 |
|
| $ | 1,062 |
|
Other information |
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
| 537 |
|
|
| 1,124 |
|
Right-of-use asset obtained in exchange for lease liability |
|
| (14 | ) |
|
| (30 | ) |
The following table presents the breakout of the operating leases as of June 30, 2018. The Company is currently in the process2019.
(Dollars in thousands) |
| June 30, 2019 |
| |
Operating lease right-of-use assets |
| $ | 11,767 |
|
Other current liabilities |
|
| 1,872 |
|
Operating lease liabilities |
|
| 11,273 |
|
Total operating lease liabilities |
|
| 13,145 |
|
Weighted average remaining lease term |
| 4 years |
| |
Weighted average discount rate |
|
| 4.26 |
|
Page 28 of working with DZ Bank to amend such covenant in the DZ loan agreement. Historically the Company has received approvals for similar amendments. While there can be no assurance that it will be received, the Company has received preliminary indication from DZ Bank that it will obtain approval for such an amendment. Except as previously set forth, the Company is in compliance with such restrictions as of76
At June 30, 2018.2019, maturities of the lease liabilities were as follows.
(8)
(Dollars in thousands) |
|
|
|
|
Remainder of 2019 |
| $ | 1,180 |
|
2020 |
|
| 2,380 |
|
2021 |
|
| 2,278 |
|
2022 |
|
| 2,216 |
|
2023 |
|
| 2,136 |
|
Thereafter |
|
| 6,049 |
|
Total lease payments |
| $ | 16,239 |
|
Less imputed interest |
|
| 3,094 |
|
Total operating lease liabilities |
| $ | 13,145 |
|
(9) INCOME TAXES
The Company is subject to federal and applicable state corporate income taxes on its taxable ordinary income and capital gains. As a corporation taxed under Subchapter C of the Internal Revenue Code, the Company is able, and intends, to file a consolidated federal income tax return with corporate subsidiaries, in which it holds 80 percent80% or more of the outstanding equity interest measured by both vote and fair value.
The following table sets forth the significant components of our deferred and other tax assets and liabilities as of June 30, 20182019 and December 31, 2017.2018.
(Dollars in thousands) | Bank Holding Company Accounting June 30, 2018 | Investment Company Accounting December 31, 2017 | ||||||
Goodwill and other intangibles/unrealized gain on investments in Medallion Bank | ($ | 46,089 | ) | ($ | 35,297 | ) | ||
Provision for loan losses/unrealized losses on loans and nonaccrual interest | 31,152 | 10,071 | ||||||
Net operating loss carryforwards(1) | 2,133 | 615 | ||||||
Unrealized gains on investments in other controlled subsidiaries | — | (3,617 | ) | |||||
Unrealized gains on investments other than securities | — | (1,395 | ) | |||||
Accrued expenses, compensation, and other | 1,218 | 782 | ||||||
Unrealized gains on investments and other assets | (3,958 | ) | (542 | ) | ||||
|
|
|
| |||||
Total deferred tax liability | (15,544 | ) | (29,383 | ) | ||||
Valuation allowance | (108 | ) | (39 | ) | ||||
|
|
|
| |||||
Deferred tax liability, net | (15,652 | ) | (29,422 | ) | ||||
Taxes receivable | 19,112 | 16,886 | ||||||
|
|
|
| |||||
Net deferred and other tax assets (liabilities) | $ | 3,460 | ($ | 12,536 | ) | |||
|
|
|
|
(Dollars in thousands) |
| June 30, 2019 |
|
| December 31, 2018 |
| ||
Goodwill and other intangibles |
| $ | (44,574 | ) |
| $ | (45,272 | ) |
Provision for loan losses |
|
| 20,743 |
|
|
| 25,790 |
|
Net operating loss carryforwards(1) |
|
| 19,464 |
|
|
| 11,132 |
|
Accrued expenses, compensation, and other assets |
|
| 1,374 |
|
|
| 1,844 |
|
Unrealized gains on other investments |
|
| (3,399 | ) |
|
| (2,024 | ) |
Total deferred tax liability |
|
| (6,392 | ) |
|
| (8,530 | ) |
Valuation allowance |
|
| (223 | ) |
|
| (255 | ) |
Deferred tax liability, net |
|
| (6,615 | ) |
|
| (8,785 | ) |
Taxes receivable |
|
| 1,203 |
|
|
| 1,812 |
|
Net deferred and other tax liabilities |
| $ | (5,412 | ) |
| $ | (6,973 | ) |
(1) | As of June 30, |
The components of our tax benefit for the three and six months ended June 30, 20182019 and 20172018 were as follows.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Current | ||||||||||||||||
Federal | $ | 418 | $ | 780 | $ | 6,313 | $ | 1,549 | ||||||||
State | 58 | 185 | 1,240 | 363 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | — |
|
| $ | 418 |
|
| $ | (869 | ) |
| $ | 6,313 |
|
State |
|
| (136 | ) |
|
| 58 |
|
|
| (959 | ) |
|
| 1,240 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 1,588 |
|
|
| 2,919 |
|
|
| 2,198 |
|
|
| (972 | ) |
State |
|
| 383 |
|
|
| 626 |
|
|
| 1,721 |
|
|
| (1,920 | ) |
Net benefit for income taxes |
| $ | 1,835 |
|
| $ | 4,021 |
|
| $ | 2,091 |
|
| $ | 4,661 |
|
Page 3229 of 9776
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Deferred | ||||||||||||||||
Federal | 2,919 | 4,785 | (972 | ) | 5,666 | |||||||||||
State | 626 | 1,268 | (1,920 | ) | 1,412 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net benefit for income taxes | $ | 4,021 | $ | 7,018 | $ | 4,661 | $ | 8,990 | ||||||||
|
|
|
|
|
|
|
|
The following table presents a reconciliation of statutory federal income tax benefit to consolidated actual income tax benefit reported in net income/loss/net increasedecrease in net assets for the three and six months ended June 30, 20182019 and 2017.2018.
Three Months Ended June 30, | Six Months Ended June 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2018 | 2017 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||||||||||
Statutory Federal Income tax benefit at 21% (35% in 2017) | $ | 3,971 | $ | 4,135 | $ | 7,229 | $ | 4,437 | ||||||||||||||||||||||||
Statutory Federal Income tax benefit at 21% |
| $ | 1,663 |
|
| $ | 3,971 |
|
| $ | 1,284 |
|
| $ | 7,229 |
| ||||||||||||||||
State and local income taxes, net of federal income tax benefit | 598 | 652 | 1,101 | 699 |
|
| 194 |
|
|
| 598 |
|
|
| 87 |
|
|
| 1,101 |
| ||||||||||||
Appreciation of Medallion Bank | — | 537 | (1,974 | ) | 2,061 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,974 | ) | |||||||||||
Utilization of carry forwards | (663 | ) | 1,338 | (663 | ) | 2,256 |
|
| — |
|
|
| (663 | ) |
|
| — |
|
|
| (663 | ) | ||||||||||
Change in state income tax accruals |
|
| — |
|
|
| — |
|
|
| 686 |
|
|
| — |
| ||||||||||||||||
Change in effective state income tax rate | — | — | (1,358 | ) | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,358 | ) | |||||||||||
Other | 115 | 356 | 326 | (463 | ) |
|
| (22 | ) |
|
| 115 |
|
|
| 34 |
|
|
| 326 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total income tax benefit | $ | 4,021 | $ | 7,018 | $ | 4,661 | $ | 8,990 |
| $ | 1,835 |
|
| $ | 4,021 |
|
| $ | 2,091 |
|
| $ | 4,661 |
| ||||||||
|
|
|
|
On December 22, 2017, the US Governmentgovernment signed into law the “Tax Cuts and Jobs Act” which, starting in 2018, reduced the Company’s corporate statutory income tax rate from 35% to 21%, but eliminated or increased certain permanent differences.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible pursuant to ASC 740. The Company considers the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company’s evaluation of the realizability of deferred tax assets must consider both positive and negative evidence. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. Based upon these considerations, the Company has determined the necessary valuation allowance as of June 30, 2018.2019.
The Company has filed tax returns in many states. Federal, New York State, New York City, and Utah tax filings of the Company for the tax years 20142015 through the present are the more significant filings that are open for examination. Currently the Company and the Bank are undergoing various state exams covering the years 2009 to 2011 and 2013 to 2016.
(9)(10) STOCK OPTIONS AND RESTRICTED STOCK
The Company has a stock option plan (2006 Stock Option Plan) available to grant both incentive and nonqualified stock options to employees. The 2006 Stock Option Plan, which was approved by the Board of Directors on February 15, 2006 and the Company’s shareholders on June 16, 2006, provided for the issuance of a maximum of 800,000 shares of common stock of the Company. No additional shares are available for issuance under the 2006 Stock Option Plan. The 2006 Stock Option Plan is administered by the Compensation Committee of the Board of Directors. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. The term and vesting periods of the options are determined by the Compensation Committee, provided that the maximum term of an option may not exceed a period of ten years.
The Company’s Board of Directors approved the 2018 Equity Incentive Plan (2018 Plan), which was approved by the Company’s shareholders on June 15, 2018. The terms of 2018 Plan provide for grants of a variety of different type of stock awards to the Company’s employees and non-employee directors, including options, restricted stock, stock appreciation rights, etc. A total of 1,494,5581,500,253 shares of the Company’s common stock are issuable under the 2018 Plan, and 1,470,558917,173 remained issuable as of June 30, 2018.2019. Awards under the 2018 Plan are subject to certain limitations as set forth in the 2018 Plan, which will terminate when all shares of common stock authorized for delivery have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2018 Plan, whichever first occurs.
The Company’s Board of Directors approved the 2015 Employee Restricted Stock Plan (2015 Restricted Stock Plan) on February 13, 2015, which was approved by the Company’s shareholders on June 5, 2015. The 2015 Restricted Stock Plan became effective upon the Company’s receipt of exemptive relief from the SEC on March 1, 2016. The terms of 2015 Restricted Stock Plan provideprovided for grants of restricted stock awards to the Company’s employees. A grant of restricted stock is a grant of shares of the Company’s common stock which, at the time of issuance, is subject to certain forfeiture provisions, and thus is restricted as to
Page 33 of 97
transferability until such forfeiture restrictions have lapsed. A total of 700,000 shares of the Company’s common stock arewere issuable under the 2015 Restricted Stock Plan, and 236,224241,919 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Awards under the 2015 Restricted Stock Plan are subject to certain limitations as set forth in the 2015 Restricted Stock Plan. The 2015 Restricted Stock Plan will terminate when all shares of common stock authorized for delivery under the 2015 Restricted Stock Plan have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2015 Restricted Stock Plan, whichever first occurs.
Page 30 of 76
The Company had a stock option plan (2006 Stock Option Plan) available to grant both incentive and nonqualified stock options to employees. The 2006 Stock Option Plan, which was approved by the Board of Directors on February 15, 2006 and shareholders on June 16, 2006, provided for the issuance of a maximum of 800,000 shares of common stock of the Company. No additional shares are available for issuance under the 2006 Stock Option Plan. The 2006 Stock Option Plan was administered by the Compensation Committee of the Board of Directors. The option price per share could not be less than the current market value of the Company’s common stock on the date the option was granted. The term and vesting periods of the options were determined by the Compensation Committee, provided that the maximum term of an option could not exceed a period of ten years.
The Company’s Board of Directors approved the 2015Non-Employee Director Stock Option Plan (2015 Director Plan) on March 12, 2015, which was approved by the Company’s shareholders on June 5, 2015, and on which exemptive relief to implement the 2015 Director Plan was received from the SEC on February 29, 2016. A total of 300,000 shares of the Company’s common stock arewere issuable under the 2015 Director Plan, and 258,334 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Under the 2015 Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the 2015 Director Plan, the Company will grantgranted options to purchase 12,000 shares of the Company’s common stock to anon-employee director upon election to the Board of Directors, with an adjustment for directors who arewere elected to serve less than a full term. The option price per share maycould not be less than the current market value of the Company’s common stock on the date the option iswas granted. Options granted under the 2015 Director Plan are exercisable annually, as defined in the 2015 Director Plan. The term of the options maycould not exceed ten years.
The Company’s Board of Directors approved the First Amended and Restated 2006 Director Plan (the Amended Director Plan) on April 16, 2009, which was approved by the Company’s shareholders on June 5, 2009, and on which exemptive relief to implement the Amended Director Plan was received from the SEC on July 17, 2012. A total of 200,000 shares of the Company’s common stock were issuable under the Amended Director Plan. No additional shares are available for issuance under the Amended Director Plan. Under the Amended Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the Amended Director Plan, the Company willwould grant options to purchase 9,000 shares of the Company’s common stock to an Eligible Director upon election to the Board of Directors, with an adjustment for directors who arewere elected to serve less than a full term. The option price per share maycould not be less than the current market value of the Company’s common stock on the date the option iswas granted. Options granted under the Amended Director Plan are exercisable annually, as defined in the Amended Director Plan. The term of the options maycould not exceed ten years.
Additional shares are only available for future issuance under the 2018 Plan. At June 30, 2018, 129,6662019, 498,714 options on the Company’s common stock were outstanding under the 2006 Stock Option Plan, and 2015 Director Plan,Company’s plans, of which 76,00077,889 options were exercisable, and there were 208,008237,878 unvested shares of the Company’s common stock outstanding under the 2015 Restricted Stock Plan.Company’s restricted stock plans.
The fair value of each restricted stock grant is determined on the date of grant by the closing market price of the Company’s common stock on the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair value of options granted was $2.98 per share for the six months ended June 30, 2019, and there were no options granted during the six months ended June 30, 2018. The following assumption categories are used to determine the value of any option grants.
Six Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
Risk free interest rate | 2.82 | % | 1.84 | % |
|
| 2.39 | % |
|
| 2.82 | % | ||||
Expected dividend yield | 4.86 | 7.39 |
|
| 0.79 |
|
|
| 4.86 |
| ||||||
Expected life of option in years(1) | 6.00 | 6.00 |
|
| 6.25 |
|
|
| 6.00 |
| ||||||
Expected volatility(2) | 30.00 | 30.00 |
|
| 48.45 |
|
|
| 30.00 |
|
(1) | Expected life is calculated using the simplified method. |
(2) | We determine our expected volatility based on our historical volatility. |
Page 31 of 76
The following table presents the activity for the stock option programs for the 20182019 quarters and the 20172018 full year.
Number of Options | Exercise Price Per Share | Weighted Average Exercise Price | ||||||||||
Outstanding at December 31, 2016 | 345,518 | $ | 7.10-13.84 | $ | 9.67 | |||||||
Granted | 29,666 | 2.14-2.61 | 2.35 | |||||||||
Cancelled | (54,558 | ) | 10.76-11.21 | 10.94 | ||||||||
Exercised (1) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Outstanding at December 31, 2017 | 320,626 | 2.14-13.84 | 8.78 |
|
| Number of Options |
|
|
| Exercise Price Per Share |
|
| Weighted Average Exercise Price |
| |||
Outstanding at December 31, 2017 |
|
| 320,626 |
|
| $ | 2.14-13.84 |
|
| $ | 8.78 |
| |
Granted |
|
| 39,000 |
|
|
| 5.27-5.58 |
|
|
| 5.46 |
| |
Cancelled |
|
| (214,960 | ) |
|
| 9.22-9.24 |
|
|
| 9.22 |
| |
Exercised(1) |
|
| — |
|
|
|
| — |
|
|
| — |
|
Outstanding at December 31, 2018 |
|
| 144,666 |
|
|
| 2.06-13.84 |
|
|
| 7.23 |
| |
Granted |
|
| 374,377 |
|
|
| 5.21-6.55 |
|
|
| 6.48 |
| |
Cancelled |
|
| (18,000 | ) |
|
| 7.49-9.38 |
|
|
| 8.44 |
| |
Exercised(1) |
|
| — |
|
|
|
| — |
|
|
| — |
|
Outstanding at March 31, 2019 |
|
| 501,043 |
|
|
| 2.14-13.84 |
|
|
| 6.63 |
| |
Granted |
|
| 1,104 |
|
|
|
| 6.55 |
|
|
| 6.55 |
|
Cancelled |
|
| (3,433 | ) |
|
| 6.55-7.49 |
|
|
| 7.10 |
| |
Exercised(1) |
|
| — |
|
|
|
| — |
|
|
| — |
|
Outstanding at June 30, 2019(2) |
|
| 498,714 |
|
| $ | 2.14-13.84 |
|
| $ | 6.62 |
| |
Options exercisable at June 30, 2019(2) |
|
| 77,889 |
|
| $ | 2.14-13.84 |
|
| $ | 8.63 |
|
Page 34 of 97
Number of Options | Exercise Price Per Share | Weighted Average Exercise Price | ||||||||||
Granted | — | — | — | |||||||||
Cancelled | — | — | — | |||||||||
Exercised(1) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Outstanding at March 31, 2018 | 320,626 | 2.14-13.84 | 8.78 | |||||||||
Granted | 24,000 | 5.58 | 5.58 | |||||||||
Cancelled | (214,960 | ) | 9.22-9.24 | 9.22 | ||||||||
Exercised(1) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Outstanding at June 30, 2018(2) | 129,666 | $ | 2.14-13.84 | $ | 7.45 | |||||||
Options exercisable at June 30, 2018(2) | 76,000 | $ | 2.22-13.84 | $ | 9.78 | |||||||
|
|
|
|
|
|
(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 for each of the 2019 and |
(2) | The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at June 30, |
The following table presents the activity for the restricted stock programs for the 20182019 quarters and the 20172018 full year.
Number of Shares | Exercise Price Per Share | Weighted Average Exercise Price | |||||||||||||||||||||||
Outstanding at December 31, 2016 | 167,703 | $ | 3.95-13.46 | $ | 8.88 | ||||||||||||||||||||
Granted | 327,251 | 2.06-3.93 | 2.48 | ||||||||||||||||||||||
Cancelled | (8,988 | ) | 2.14-10.08 | 3.07 | |||||||||||||||||||||
Vested(1) | (77,384 | ) | 9.08-13.46 | 11.09 | |||||||||||||||||||||
|
|
|
| Number of Shares |
|
|
| Exercise Price Per Share |
|
| Weighted Average Exercise Price |
| |||||||||||||
Outstanding at December 31, 2017 | 408,582 | 2.06-10.38 | 3.45 |
|
| 408,582 |
|
| $ | 2.06-10.38 |
|
| $ | 3.45 |
| ||||||||||
Granted | 97,952 | 4.39 | 4.39 |
|
| 101,010 |
|
| 3.93-5.27 |
|
|
| 4.41 |
| |||||||||||
Cancelled | (2,226 | ) | 3.93-9.08 | 5.86 |
|
| (9,737 | ) |
| 3.93-9.08 |
|
|
| 4.66 |
| ||||||||||
Vested(1) | (296,313 | ) | 2.06-10.38 | 3.24 |
|
| (308,940 | ) |
|
| 2.06-10.38 |
|
|
| 3.35 |
| |||||||||
|
|
| |||||||||||||||||||||||
Outstanding at March 31, 2018 | 207,995 | 2.06-7.98 | 4.16 | ||||||||||||||||||||||
Outstanding at December 31, 2018 |
|
| 190,915 |
|
|
| 2.14-5.27 |
|
|
| 4.06 |
| |||||||||||||
Granted | 212 | 3.93 | 3.93 |
|
| 163,098 |
|
|
| 6.55 |
|
|
| 6.55 |
| ||||||||||
Cancelled | (199 | ) | 3.93 | 3.93 |
|
| (1,699 | ) |
| 3.93-3.95 |
|
|
| 3.94 |
| ||||||||||
Vested(1) | — | — | — |
|
| (101,832 | ) |
|
| 3.93-4.39 |
|
|
| 4.07 |
| ||||||||||
|
|
| |||||||||||||||||||||||
Outstanding at June 30, 2018(2) | 208,008 | $ | 2.06-13.84 | $ | 7.45 | ||||||||||||||||||||
|
|
| |||||||||||||||||||||||
Outstanding at March 31, 2019 |
|
| 250,482 |
|
|
| 2.14-6.55 |
|
|
| 5.68 |
| |||||||||||||
Granted |
|
| 4,751 |
| �� |
| 6.55-7.03 |
|
|
| 6.98 |
| |||||||||||||
Cancelled |
|
| (949 | ) |
| 3.95-6.55 |
|
|
| 6.40 |
| ||||||||||||||
Vested(1) |
|
| (16,406 | ) |
|
| 2.06-7.03 |
|
|
| 3.35 |
| |||||||||||||
Outstanding at June 30, 2019(2) |
|
| 237,878 |
|
| $ | 3.95-6.55 |
|
| $ | 5.86 |
|
(1) | The aggregate fair value of the restricted stock vested was |
(2) | The aggregate fair value of the restricted stock was |
Page 32 of 76
The following table presents the activity for the unvested options outstanding under the plans for the quarter ended June 30, 2018.2019 quarters.
Number of Options | Exercise Price Per Share | Weighted Average Exercise Price | ||||||||||
Outstanding at December 31, 2017 and March 31, 2018 | 46,666 | $ | 2.14-9.38 | $ | 4.52 | |||||||
Granted | 24,000 | 5.58 | 5.58 | |||||||||
Cancelled | — | — | — | |||||||||
Vested | (17,000 | ) | 2.22-9.38 | 7.16 | ||||||||
|
|
|
|
|
| |||||||
Outstanding at June 30, 2018 | 53,666 | $ | 2.14-7.10 | $ | 4.16 | |||||||
|
|
|
|
|
|
|
| Number of Options |
|
|
| Exercise Price Per Share |
|
| Weighted Average Exercise Price |
| |||
Outstanding at December 31, 2018 |
|
| 62,777 |
|
| $ | 2.14-7.10 |
|
| $ | 4.59 |
| |
Granted |
|
| 374,377 |
|
|
| 5.21-6.55 |
|
|
| 6.48 |
| |
Cancelled |
|
| — |
|
|
|
| — |
|
|
| — |
|
Vested |
|
| — |
|
|
|
| — |
|
|
| — |
|
Outstanding at March 31, 2019 |
|
| 437,154 |
|
|
| 2.14-7.10 |
|
|
| 6.21 |
| |
Granted |
|
| 1,104 |
|
|
|
| 6.55 |
|
|
| 6.55 |
|
Cancelled |
|
| (1,433 | ) |
|
|
| 6.55 |
|
|
| 6.55 |
|
Vested |
|
| (16,000 | ) |
|
| 2.22-7.10 |
|
|
| 5.12 |
| |
Outstanding at June 30, 2019 |
|
| 420,825 |
|
| $ | 2.14-6.55 |
|
| $ | 6.25 |
|
Page 35 of 97
The intrinsic value of the options vested was $14,000$26,000 for each of the three and six months ended June 30, 2018.2019.
(10)(11) SEGMENT REPORTING (Bank Holding Company Accounting)
Under Bank Holding Company Accounting, the Company has six business segments, which include four lending and twonon-operating segments, which are reflective of how Company management makes decisions about its business and operations.
Prior to April 2, 2018, the Company had one business segment, its lending and investing operations. This segment originated and serviced medallion, secured commercial, and consumer loans, and invested in both marketable and nonmarketable securities.
The four lending segments reflect the main types of lending performed at the Company, which are recreation, home improvement, commercial, and medallion. The recreation and home improvement lending segments are conducted by the Bank in all fifty states, with the highest concentrations in Texas, California, and Florida at 17%16%, 11%10%, and 11%10% of loans outstanding and with no other states over 10%. as of June 30, 2019. The recreation lending segment is a consumer finance business that works with third-party dealers and financial service providers for the purpose of financing RVs, boats, and other consumer recreational equipment.equipment, of which RVs, boats, and trailers make up 62%, 19%, and 11% of the segment portfolio as of June 30, 2019. The home improvement lending segment works with contractors and financial service providers to finance residential home improvements concentrated in swimming pools, roofs, solar panels, and roofing,windows, at 38%26%, 15%18%, 11%14%, and 12% of total home improvement loans outstanding, and with no other product lines over 10%. as of June 30, 2019. The commercial lending segment focuses on enterprise wide industries, including manufacturing retail trade, information, recreationservices, and various other industries, in which 47%59% of these loans are made in the Midwest. The medallion lending segment arose in connection with the financing of the taxicab medallions, taxicabs, and related assets, of which 88% were in New York City as of June 30, 2018.2019.
In addition, ournon-operating segments include RPAC, which is a race car team, and our corporate and other investments segment which includes items not allocated to our operating segments such as investment securities, equity investments, intercompany eliminations, and other corporate elements.
As part of the segment reporting, capital ratios for all operating segments have been normalized at 20%, which approximates the percentage of consolidated total equity divided by total assets, with the net adjustment applied to corporate and other investments for the three and six months ended June 30, 2019. In addition, in the current quarter the commercial segment exclusively represents the mezzanine lending business, and the legacy commercial loan business (immaterial to total) has been re-allocated to corporate and other investments for all periods presented.
Page 33 of 76
The following table presentstables present segment data atas of June 30, 2019 and for the three and six months then ended, and as of June 30, 2018, and for the three months then ended.
| Consumer Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corp. |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Consumer Lending | Commercial Lending | Medallion Lending | RPAC | Corp. and Other | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Recreation | Home Improvement | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2019 (Dollars in thousands) |
| Recreation |
|
| Home Improvement |
|
| Commercial Lending |
|
| Medallion Lending |
|
| RPAC |
|
| and Other Investments |
|
| Consolidated |
| |||||||||||||||||||||||||||||||||||
Total interest income | $ | 22,132 | $ | 4,637 | $ | 2,322 | $ | 3,189 | $ | — | $ | 364 | $ | 32,644 |
| $ | 24,370 |
|
| $ | 4,678 |
|
| $ | 1,641 |
|
| $ | 666 |
|
| $ | — |
|
| $ | 660 |
|
| $ | 32,015 |
| ||||||||||||||
Total interest expense | 2,136 | 739 | 655 | 3,373 | 41 | 981 | 7,925 |
|
| 3,189 |
|
|
| 1,037 |
|
|
| 666 |
|
|
| 1,591 |
|
|
| 36 |
|
|
| 2,302 |
|
|
| 8,821 |
| |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income (loss) | 19,996 | 3,898 | 1,667 | (184 | ) | (41 | ) | (617 | ) | 24,719 |
|
| 21,181 |
|
|
| 3,641 |
|
|
| 975 |
|
|
| (925 | ) |
|
| (36 | ) |
|
| (1,642 | ) |
|
| 23,194 |
| ||||||||||||||||||
Provision for loan losses | 4,710 | 877 | 175 | 24,814 | — | — | 30,576 |
|
| 6,176 |
|
|
| 813 |
|
|
| — |
|
|
| 8,182 |
|
|
| — |
|
|
| — |
|
|
| 15,171 |
| |||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income after loss provision | 15,286 | 3,021 | 1,492 | (24,998 | ) | (41 | ) | (617 | ) | (5,857 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Sponsorship and race winning | — | — | — | — | 5,228 | — | 5,228 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income (loss) after loss provision |
|
| 15,005 |
|
|
| 2,828 |
|
|
| 975 |
|
|
| (9,107 | ) |
|
| (36 | ) |
|
| (1,642 | ) |
|
| 8,023 |
| ||||||||||||||||||||||||||||
Sponsorship and race winnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,889 |
|
|
| — |
|
|
| 4,889 |
| ||||||||||||||||||||||||||||
Race team related expenses | — | — | — | — | (2,540 | ) | — | (2,540 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,550 | ) |
|
| — |
|
|
| (2,550 | ) | |||||||||||||||||||
Other income (expense) | (5,520 | ) | (1,685 | ) | (1,110 | ) | (2,811 | ) | (2,237 | ) | (1,373 | ) | (14,736 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income before taxes | 9,766 | 1,336 | 382 | (27,809 | ) | 410 | (1,990 | ) | (17,905 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Other (expense) |
|
| (5,938 | ) |
|
| (1,719 | ) |
|
| (780 | ) |
|
| (6,558 | ) |
|
| (1,717 | ) |
|
| (2,128 | ) |
|
| (18,840 | ) | ||||||||||||||||||||||||||||
Net income (loss) before taxes |
|
| 9,067 |
|
|
| 1,109 |
|
|
| 195 |
|
|
| (15,665 | ) |
|
| 586 |
|
|
| (3,770 | ) |
|
| (8,478 | ) | ||||||||||||||||||||||||||||
Income tax benefit (provision) | (2,162 | ) | (296 | ) | (85 | ) | 6,157 | (43 | ) | 450 | 4,021 |
|
| (2,349 | ) |
|
| (288 | ) |
|
| (48 | ) |
|
| 3,779 |
|
|
| (141 | ) |
|
| 882 |
|
|
| 1,835 |
| |||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (loss) after tax | $ | 7,604 | $ | 1,040 | $ | 297 | ($ | 21,652 | ) | $ | 367 | ($ | 1,540 | ) | ($ | 13,884 | ) | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) after tax |
| $ | 6,718 |
|
| $ | 821 |
|
| $ | 147 |
|
| $ | (11,886 | ) |
| $ | 445 |
|
| $ | (2,888 | ) |
| $ | (6,643 | ) | ||||||||||||||||||||||||||||
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Total loans net | $ | 595,385 | $ | 195,321 | $ | 79,930 | $ | 258,062 | $ | — | $ | — | $ | 1,128,698 |
| $ | 655,868 |
|
| $ | 206,636 |
|
| $ | 60,395 |
|
| $ | 121,314 |
|
| $ | — |
|
| $ | 3,592 |
|
| $ | 1,047,805 |
| ||||||||||||||
Total assets | 599,960 | 206,298 | 109,261 | 386,225 | 37,861 | 194,924 | 1,534,529 |
|
| 667,600 |
|
|
| 217,757 |
|
|
| 86,725 |
|
|
| 235,948 |
|
|
| 33,526 |
|
|
| 240,397 |
|
|
| 1,481,953 |
| |||||||||||||||||||||
Total funds borrowed | 456,955 | 159,913 | 68,224 | 402,955 | 7,578 | 130,717 | 1,226,342 |
|
| 531,708 |
|
|
| 173,226 |
|
|
| 68,654 |
|
|
| 187,575 |
|
|
| 7,713 |
|
|
| 186,460 |
|
|
| 1,155,336 |
| |||||||||||||||||||||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Return on assets |
|
| 4.21 | % |
|
| 1.94 | % |
|
| 0.66 | % |
|
| (19.43 | )% |
|
| 5.54 | % |
|
| (4.82 | )% |
|
| (2.06 | )% | ||||||||||||||||||||||||||||
Return on equity |
|
| 16.16 |
|
|
| 7.88 |
|
|
| 3.31 |
|
|
| (97.16 | ) |
|
| (47.72 | ) |
|
| (20.68 | ) |
|
| (10.34 | ) | ||||||||||||||||||||||||||||
Interest yield |
|
| 15.53 |
|
|
| 9.46 |
|
|
| 11.02 |
|
|
| 1.99 |
|
| N/A |
|
| N/A |
|
|
| 11.67 |
| ||||||||||||||||||||||||||||||
Net interest margin |
|
| 13.50 |
|
|
| 7.36 |
|
|
| 6.55 |
|
|
| (2.77 | ) |
| N/A |
|
| N/A |
|
|
| 8.46 |
| ||||||||||||||||||||||||||||||
Reserve coverage |
|
| 1.90 |
|
|
| 1.39 |
|
|
| 0.71 |
| (1) |
| 16.88 |
|
| N/A |
|
| N/A |
|
|
| 3.74 |
| ||||||||||||||||||||||||||||||
Delinquency ratio |
|
| 0.56 |
|
|
| 0.08 |
|
|
| 1.13 |
| (1) |
| 2.66 |
|
| N/A |
|
| N/A |
|
|
| 0.78 |
| ||||||||||||||||||||||||||||||
Charge-off ratio |
|
| 1.55 |
|
|
| 0.17 |
|
|
| 0.00 |
| (1) |
| 26.47 |
|
| N/A |
|
| N/A |
|
|
| 4.46 |
|
(1) | Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business. |
Page 34 of 76
|
| Consumer Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corp. |
|
|
|
|
| ||||||
Six Months Ended June 30, 2019 (Dollars in thousands) |
| Recreation |
|
| Home Improvement |
|
| Commercial Lending |
|
| Medallion Lending |
|
| RPAC |
|
| and Other Investments |
|
| Consolidated |
| |||||||
Total interest income |
| $ | 46,849 |
|
| $ | 9,003 |
|
| $ | 3,517 |
|
| $ | 1,507 |
|
| $ | — |
|
| $ | 1,182 |
|
| $ | 62,058 |
|
Total interest expense |
|
| 5,963 |
|
|
| 1,943 |
|
|
| 1,367 |
|
|
| 3,500 |
|
|
| 72 |
|
|
| 3,698 |
|
|
| 16,543 |
|
Net interest income (loss) |
|
| 40,886 |
|
|
| 7,060 |
|
|
| 2,150 |
|
|
| (1,993 | ) |
|
| (72 | ) |
|
| (2,516 | ) |
|
| 45,515 |
|
Provision for loan losses |
|
| 13,181 |
|
|
| 1,362 |
|
|
| — |
|
|
| 13,516 |
|
|
| — |
|
|
| 455 |
|
|
| 28,514 |
|
Net interest income (loss) after loss provision |
|
| 27,705 |
|
|
| 5,698 |
|
|
| 2,150 |
|
|
| (15,509 | ) |
|
| (72 | ) |
|
| (2,971 | ) |
|
| 17,001 |
|
Sponsorship and race winnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,068 |
|
|
| — |
|
|
| 8,068 |
|
Race team related expenses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,548 | ) |
|
| — |
|
|
| (4,548 | ) |
Other (expense) |
|
| (11,320 | ) |
|
| (3,356 | ) |
|
| (1,095 | ) |
|
| (5,344 | ) |
|
| (3,514 | ) |
|
| (3,231 | ) |
|
| (27,860 | ) |
Net income (loss) before taxes |
|
| 16,385 |
|
|
| 2,342 |
|
|
| 1,055 |
|
|
| (20,853 | ) |
|
| (66 | ) |
|
| (6,202 | ) |
|
| (7,339 | ) |
Income tax benefit (provision) |
|
| (4,244 | ) |
|
| (607 | ) |
|
| (254 | ) |
|
| 5,030 |
|
|
| 16 |
|
|
| 2,150 |
|
|
| 2,091 |
|
Net income (loss) after tax |
| $ | 12,141 |
|
| $ | 1,735 |
|
| $ | 801 |
|
| $ | (15,823 | ) |
| $ | (50 | ) |
| $ | (4,052 | ) |
| $ | (5,248 | ) |
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans net |
| $ | 655,868 |
|
| $ | 206,636 |
|
| $ | 60,395 |
|
| $ | 121,314 |
|
| $ | — |
|
| $ | 3,592 |
|
| $ | 1,047,805 |
|
Total assets |
|
| 667,600 |
|
|
| 217,757 |
|
|
| 86,725 |
|
|
| 235,948 |
|
|
| 33,526 |
|
|
| 240,397 |
|
|
| 1,481,953 |
|
Total funds borrowed |
|
| 531,708 |
|
|
| 173,226 |
|
|
| 68,654 |
|
|
| 187,575 |
|
|
| 7,713 |
|
|
| 186,460 |
|
|
| 1,155,336 |
|
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets |
|
| 3.93 | % |
|
| 1.98 | % |
|
| 1.81 | % |
|
| (12.53 | )% |
|
| (0.32 | )% |
|
| (3.16 | )% |
|
| (0.89 | )% |
Return on equity |
|
| 16.26 |
|
|
| 8.65 |
|
|
| 9.03 |
|
|
| (62.63 | ) |
|
| (3.13 | ) |
|
| (12.54 | ) |
|
| (4.36 | ) |
Interest yield |
|
| 15.49 |
|
|
| 9.44 |
|
|
| 11.85 |
|
|
| 2.17 |
|
| N/A |
|
| N/A |
|
|
| 11.58 |
| ||
Net interest margin |
|
| 13.52 |
|
|
| 7.40 |
|
|
| 7.24 |
|
|
| (2.87 | ) |
| N/A |
|
| N/A |
|
|
| 8.49 |
| ||
Reserve coverage |
|
| 1.90 |
|
|
| 1.39 |
|
|
| 0.71 |
| (1) |
| 16.88 |
|
| N/A |
|
| N/A |
|
|
| 3.74 |
| ||
Delinquency ratio |
|
| 0.56 |
|
|
| 0.08 |
|
|
| 1.13 |
| (1) |
| 2.66 |
|
| N/A |
|
| N/A |
|
|
| 0.78 |
| ||
Charge-off ratio |
|
| 2.43 |
|
|
| 0.26 |
|
|
| 0.00 |
| (1) |
| 23.94 |
|
| N/A |
|
| N/A |
|
|
| 4.88 |
|
(1) | Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business. |
Page 3635 of 9776
Selected Financial Ratios | ||||||||||||||||||||||||||||
Return on assets | 5.32 | % | 2.13 | % | 1.05 | % | (21.69 | %) | 3.89 | % | (2.99 | %) | (4.53 | %) | ||||||||||||||
Return on equity | 23.33 | 9.74 | 2.53 | NM | 22.38 | (8.15 | ) | (22.00 | ) | |||||||||||||||||||
Interest yield | 15.62 | 10.02 | 10.54 | 4.43 | N/A | N/A | 11.23 | |||||||||||||||||||||
Net interest margin | 14.12 | 8.43 | 7.57 | (0.26 | ) | N/A | N/A | 8.57 | ||||||||||||||||||||
Reserve coverage | 0.33 | 0.28 | 0.22 | 6.77 | N/A | N/A | 1.86 | |||||||||||||||||||||
Delinquency ratio | 0.40 | 0.06 | 0.27 | 4.49 | N/A | N/A | 1.32 | |||||||||||||||||||||
Charge off ratio | 0.82 | 0.30 | 0.00 | 2.18 | N/A | N/A | 3.19 |
|
| Consumer Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corp. |
|
|
|
|
| ||||||
Three Months Ended June 30, 2018 (Dollars in thousands) |
| Recreation |
|
| Home Improvement |
|
| Commercial Lending |
|
| Medallion Lending |
|
| RPAC |
|
| and Other Investments |
|
| Consolidated |
| |||||||
Total interest income |
| $ | 22,132 |
|
| $ | 4,637 |
|
| $ | 2,217 |
|
| $ | 3,189 |
|
| $ | — |
|
| $ | 469 |
|
| $ | 32,644 |
|
Total interest expense |
|
| 2,136 |
|
|
| 739 |
|
|
| 485 |
|
|
| 3,373 |
|
|
| 41 |
|
|
| 1,151 |
|
|
| 7,925 |
|
Net interest income (loss) |
|
| 19,996 |
|
|
| 3,898 |
|
|
| 1,732 |
|
|
| (184 | ) |
|
| (41 | ) |
|
| (682 | ) |
|
| 24,719 |
|
Provision for loan losses |
|
| 4,710 |
|
|
| 877 |
|
|
| 175 |
|
|
| 24,814 |
|
|
| — |
|
|
| — |
|
|
| 30,576 |
|
Net interest income (loss) after loss provision |
|
| 15,286 |
|
|
| 3,021 |
|
|
| 1,557 |
|
|
| (24,998 | ) |
|
| (41 | ) |
|
| (682 | ) |
|
| (5,857 | ) |
Sponsorship and race winning |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,228 |
|
|
| — |
|
|
| 5,228 |
|
Race team related expenses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,540 | ) |
|
| — |
|
|
| (2,540 | ) |
Other (expense) |
|
| (5,520 | ) |
|
| (1,685 | ) |
|
| (942 | ) |
|
| (2,811 | ) |
|
| (2,237 | ) |
|
| (1,541 | ) |
|
| (14,736 | ) |
Net income (loss) before taxes |
|
| 9,766 |
|
|
| 1,336 |
|
|
| 615 |
|
|
| (27,809 | ) |
|
| 410 |
|
|
| (2,223 | ) |
|
| (17,905 | ) |
Income tax benefit (provision) |
|
| (2,162 | ) |
|
| (296 | ) |
|
| (136 | ) |
|
| 6,157 |
|
|
| (43 | ) |
|
| 501 |
|
|
| 4,021 |
|
Net income (loss) after tax |
| $ | 7,604 |
|
| $ | 1,040 |
|
| $ | 479 |
|
| $ | (21,652 | ) |
| $ | 367 |
|
| $ | (1,722 | ) |
| $ | (13,884 | ) |
Balance Sheet Data as of June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans net |
| $ | 595,385 |
|
| $ | 195,321 |
|
| $ | 74,610 |
|
| $ | 258,062 |
|
| $ | — |
|
| $ | 5,320 |
|
| $ | 1,128,698 |
|
Total assets |
|
| 599,960 |
|
|
| 206,298 |
|
|
| 86,107 |
|
|
| 386,225 |
|
|
| 37,861 |
|
|
| 218,078 |
|
|
| 1,534,529 |
|
Total funds borrowed |
|
| 456,955 |
|
|
| 159,913 |
|
|
| 50,872 |
|
|
| 402,955 |
|
|
| 7,578 |
|
|
| 148,069 |
|
|
| 1,226,342 |
|
Balance Sheet Data as of December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans net |
| $ | 580,182 |
|
| $ | 181,359 |
|
| $ | 59,973 |
|
| $ | 155,863 |
|
| $ | — |
|
| $ | 4,110 |
|
| $ | 981,487 |
|
Total assets |
|
| 590,746 |
|
|
| 188,892 |
|
|
| 90,264 |
|
|
| 273,501 |
|
|
| 29,925 |
|
|
| 208,518 |
|
|
| 1,381,846 |
|
Total funds borrowed |
|
| 434,527 |
|
|
| 143,815 |
|
|
| 51,266 |
|
|
| 294,465 |
|
|
| 7,649 |
|
|
| 130,306 |
|
|
| 1,062,028 |
|
Selected Financial Ratios as of June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets |
|
| 5.32 | % |
|
| 2.13 | % |
|
| 2.17 | % |
|
| (21.69 | %) |
|
| 3.89 | % |
|
| (3.01 | %) |
|
| (4.53 | %) |
Return on equity |
|
| 23.33 |
|
|
| 9.74 |
|
|
| 4.64 |
|
| NM |
|
|
| 22.38 |
|
|
| (8.32 | ) |
|
| (22.00 | ) | |
Interest yield |
|
| 15.62 |
|
|
| 10.02 |
|
|
| 11.10 |
|
|
| 4.43 |
|
| N/A |
|
| N/A |
|
|
| 11.23 |
| ||
Net interest margin |
|
| 14.12 |
|
|
| 8.43 |
|
|
| 8.67 |
|
|
| (0.26 | ) |
| N/A |
|
| N/A |
|
|
| 8.57 |
| ||
Reserve coverage |
|
| 0.33 |
|
|
| 0.28 |
|
|
| 0.23 |
|
|
| 6.77 |
|
| N/A |
|
| N/A |
|
|
| 1.86 |
| ||
Delinquency ratio |
|
| 0.40 |
|
|
| 0.06 |
|
|
| 0.27 |
| (1) |
| 4.49 |
|
| N/A |
|
| N/A |
|
|
| 1.32 |
| ||
Charge off ratio |
|
| 0.82 |
|
|
| 0.30 |
|
|
| 0.00 |
| (1) |
| 2.18 |
|
| N/A |
|
| N/A |
|
|
| 3.19 |
|
(11)
(1) | Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business. |
(12) OTHER OPERATING EXPENSES (Investment Company Accounting)
The major components of other operating expenses were as follows:
(dollars in thousands) | For the Three Months Ended March 31, 2018 | For the Three Months Ended June 30, 2017 | For the Six Months Ended June 30, 2017 | |||||||||||||
(Dollars in thousands) |
| For the Three Months Ended March 31, 2018 |
| |||||||||||||
Directors’ fees | $ | 89 | $ | 114 | $ | 129 |
| $ | 89 |
| ||||||
Miscellaneous taxes | 120 | 69 | 87 |
|
| 120 |
| |||||||||
Computer expenses | 74 | 65 | 125 |
|
| 74 |
| |||||||||
Depreciation and amortization | 23 | 24 | 49 |
|
| 23 |
| |||||||||
Other expenses | 281 | 215 | 406 |
|
| 161 |
| |||||||||
|
|
| ||||||||||||||
Total other operating expenses | $ | 587 | $ | 487 | $ | 796 |
| $ | 467 |
| ||||||
|
|
|
(12)
Page 36 of 76
(13) SELECTED FINANCIAL RATIOS AND OTHER DATA (Investment Company Accounting)
The following table provides selected financial ratios and other data for the three months ended March 31, 2018 and June 30, 2017 and the six months ended June 30, 2017 under Investment Company Accounting.
Three Months Ended, | Six Months Ended, | |||||||||||
(Dollars in thousands, except per share data) | March 31, 2018 | June 30, 2017 | June 30, 2017 | |||||||||
Net share data | ||||||||||||
Net asset value at the beginning of the period | $ | 11.80 | $ | 11.91 | $ | 11.91 | ||||||
Net investment loss | (0.15 | ) | (0.14 | ) | (0.19 | ) | ||||||
Income tax benefit | 0.03 | 0.29 | 0.37 | |||||||||
Net realized gains (losses) on investments | (1.44 | ) | 0.08 | 0.12 | ||||||||
Net change in unrealized appreciation (depreciation) on investments | 0.94 | (0.43 | ) | (0.45 | ) | |||||||
|
|
|
|
|
| |||||||
Net decrease in net assets resulting from operations | (0.62 | ) | (0.20 | ) | (0.15 | ) | ||||||
Issuance of common stock | (0.03 | ) | (0.06 | ) | (0.11 | ) | ||||||
Repurchase of common stock | — | — | — | |||||||||
Net investment income | — | — | — | |||||||||
Return of capital | — | — | — | |||||||||
Net realized gains on investments | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total distributions | — | — | — | |||||||||
Other | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total decrease in net asset value | (0.65 | ) | (0.26 | ) | (0.26 | ) | ||||||
|
|
|
|
|
| |||||||
Net asset value at the end of the period(1) | $ | 11.15 | $ | 11.65 | $ | 11.65 | ||||||
|
|
|
|
|
| |||||||
Per share market value at beginning of period | $ | 3.53 | $ | 1.98 | $ | 3.02 |
(Dollars in thousands, except per share data) |
| Three Months Ended March 31, 2018 |
| |
Net share data |
|
|
|
|
Net asset value at the beginning of the period |
| $ | 11.80 |
|
Net investment loss |
|
| (0.15 | ) |
Income tax benefit |
|
| 0.03 |
|
Net realized losses on investments |
|
| (1.44 | ) |
Net change in unrealized appreciation on investments |
|
| 0.94 |
|
Net decrease in net assets resulting from operations |
|
| (0.62 | ) |
Issuance of common stock |
|
| (0.03 | ) |
Repurchase of common stock |
|
| — |
|
Net investment income |
|
| — |
|
Return of capital |
|
| — |
|
Net realized gains on investments |
|
| — |
|
Total distributions |
|
| — |
|
Total decrease in net asset value |
|
| (0.65 | ) |
Net asset value at the end of the period(1) |
| $ | 11.15 |
|
Per share market value at beginning of period |
| $ | 3.53 |
|
Per share market value at end of period |
|
| 4.65 |
|
Total return(2) |
|
| (129 | )% |
Ratios/supplemental data |
|
|
|
|
Total shareholders’ equity (net assets) |
| $ | 272,437 |
|
Average net assets |
| $ | 284,021 |
|
Total expense ratio(3) (4) |
|
| 10.02 | % |
Operating expenses to average net assets(4) |
|
| 5.87 |
|
Net investment loss after income taxes to average net assets(4) |
|
| (4.61 | )% |
Page 37 of 97
Three Months Ended, | Six Months Ended, | |||||||||||
(Dollars in thousands, except per share data) | March 31, 2018 | June 30, 2017 | June 30, 2017 | |||||||||
Per share market value at end of period | 4.65 | 2.39 | 2.39 | |||||||||
Total return(2) | 129 | % | 83 | % | (42 | %) | ||||||
|
|
|
|
|
| |||||||
Ratios/supplemental data | ||||||||||||
Total shareholders’ equity (net assets) | $ | 272,437 | $ | 282,739 | $ | 282,739 | ||||||
Average net assets | $ | 284,021 | $ | 287,153 | $ | 286,123 | ||||||
Total expense ratio(3) (4) | 10.02 | % | 0.10 | % | 2.58 | % | ||||||
Operating expenses to average net assets(4) | 5.87 | 5.14 | 4.16 | |||||||||
Net investment loss after income taxes to average net assets (4) | (4.61 | %) | (1.81 | %) | (1.22 | %) |
(1) | Includes |
(2) | Total return is calculated by dividing the change in market value of a share of common stock during the period, assuming the reinvestment of distributions on the payment date, by the per share market value at the beginning of the period. |
(3) | Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average net assets. |
(4) | MSC has assumed certain of the Company’s servicing obligations, and as a result, servicing fee income of $1,290, and |
(13)(14) COMMITMENTS AND CONTINGENCIES
(A) EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain key officers for either a two- or five-year term. Annually, the contracts with a five-year term will renew for new five-year terms unless prior to the end of the first year, either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current five-year term. Annually, the contracts with a two-year term will renew for new two-year terms unless prior to the term either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current one-year term. In the event of a change in control, as defined, during the employment period, the agreements provide for severance compensation to the executive in an amount equal to the balance of the salary, bonus, and value of fringe benefits which the executive would be entitled to receive for the remainder of the employment period.
Page 37 of 76
Employment agreements expire at various dates through 2023, with no material changes since December 31, 2018. Accordingly, the future minimum payments under these agreements were approximately $4,916,000.
(B) OTHER COMMITMENTS
Except as described in the following paragraph, the Company had no commitments to extend credit or make investments outstanding at June 30, 2019. Generally, any commitments would be on the same terms as loans to or investments in existing borrowers or investees, and generally have fixed expiration dates. Since some commitments would be expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The Company has commitments for leased premises that expire at various dates through April 30, 2027. At June 30, 2019, minimal rental commitments for non-cancelable leases were $16,218,000.
(C) LITIGATION
The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management, based on the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision could result in a material adverse impact on the financial condition or results of operations of the Company.
(D) REGULATORY
In the ordinary course of business, the Company and its subsidiaries are subject to inquiries from certain regulators. During 2014, FSVC was examined by the SBA. The foregoing regulatory examination was resolved in January 2017 as a result of FSVC’s transfer to liquidation status and the restructure of the FSVC loan described in Note 7.
(15) RELATED PARTY TRANSACTIONS
Certain directors, officers and shareholders of the Company are also directors and officers of its main consolidated subsidiaries, MFC, MCI, FSVC, and Medallionthe Bank, as well as other subsidiaries. Officer salaries are set by the Board of Directors of the Company.
Jeffrey Rudnick, the son of one of the Company’s directors, is an officer of LAX Group, LLC (LAX), one of the Company’s equity investments. Mr. Rudnick receives a salary from LAX of $172,000$171,000 per year, and certain equity from LAX consisting of 10% ownership in LAX Class B stock, vesting at 3.34% per year; 5% of any new equity raised from outside investors at a valuation of $1,500,000 or higher; and 10% of LAX’s profits as a year endyear-end bonus. In addition, Mr. Rudnick provides consulting services to the Company directly for a monthly retainer of $4,200.
The Company’s consolidated subsidiary RPAC, has an agreement with minority shareholder Richard Petty, in which they makeit makes an annual payment of $700,000 per year for services provided to the entity. In addition, RPAC has a note payable to a trust controlled by Mr. Petty of $7,078,000$7,213,000 that earns interest at an annual rate of 2% as of June 30, 2018.2019.
In the 2019 second quarter, RPAC entered into a sponsorship agreement with Victory Junction, a 501(c)(3) public charity for which Richard Petty is a Board member, for $7,000,000 for sponsorship during the remaining 2019 race car season.
The Company and MSC serviced $311,988,000 and $318,961,000$308,346,000 of loans for Medallionthe Bank at DecemberMarch 31, 2017 and June 30, 2017.2018. Under Investment Company Accounting, included in net investment income were amounts as described in the table below that were received from Medallionthe Bank for services rendered in originating and servicing loans, and also for reimbursement of certain expenses incurred on their behalf.
The Company had assigned its servicing rights to the Medallion Bank portfolio to MSC, a wholly-owned entity that had been unconsolidated under Investment Company Accounting. The costs of servicing are allocated to MSC by the Company, and the servicing fee income is billed and collected from Medallionthe Bank by MSC. As a result, in the three months ended March 31, 2018, and the three and six months ended June 30, 2017, $1,290,000 $1,295,000 and $2,608,000 of servicing fee income werewas earned by MSC.
Page 38 of 9776
The following table summarizes the net revenues received from Medallionthe Bank not eliminated under Investment Company Accounting.
Three Months Ended, | Six Months Ended, June 30, 2017 | |||||||||||||||
(Dollars in thousands) | March 31, 2018 | June 30, 2017 |
| Three Months Ended March 31, 2018 |
| |||||||||||
Reimbursement of operating expenses | $ | 250 | $ | 227 | $ | 454 |
| $ | 250 |
| ||||||
Loan origination and servicing fees | 6 | 3 | 3 |
|
| 6 |
| |||||||||
|
|
| ||||||||||||||
Total other income | $ | 256 | $ | 230 | $ | 457 |
| $ | 256 |
| ||||||
|
|
|
The Company had a loan to Medallion Fine Art, Inc. in the amount of $999,000 as of December 31, 2017, which was repaid in full during the 2018 first quarter. The loan bore interest at a rate of 12%, all of which was paid in kind. During 2017, the Company advanced $0, and was repaid $2,015,000 with respect to this loan. Additionally, the Company recognized $10,000 of interest income not eliminated for the three and six months ended June 30,March 31, 2018 and $44,000 and $126,000 in the three and six months ended June 30, 2017 with respect to this loan.
The Company and MCI have loans to RPAC an affiliate of Medallion Motorsports LLC, which totaled $16,472,000 as of December 31, 2017 and under Investment Company Accounting had not been eliminated, and which were placed on nonaccrual during 2017. These loans have been eliminated in consolidation for the three months ended as of June 30,since April 2, 2018. The loans bear interest at 2%, inclusive of cash and paid in kind interest. The Company and MCI recognized $0 of interest income for the three months ended March 31, 2018 and $118,000 and $208,000 for the three and six months ended June 30, 2017 with respect to these loans.
(14)(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB ASC Topic 825, “Financial Instruments,” requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, oroff-balance-sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instrument. Fair value estimates that were derived from broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.
(a)Cash—Book value equals marketfair value.
(b)Equity securities—The Company’s equity securities are recorded at cost less impairment, which approximated fair value.
(c)Investment securities—The Company’s investments are recorded at the estimated fair value of such investments.
(d)Loans receivable—The Company’s loans are recorded at book value which approximated fair value.
(e)Floatingrateborrowings—Due to the short-term nature of these instruments, the carrying amount approximates fair value.
(f)Commitmentstoextendcredit—The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At June 30, 20182019 and December 31, 2017,2018, the estimated fair value of theseoff-balance-sheet instruments was not material.
Page 39 of 97
(g)Fixedrateborrowings—The fair value of the debentures payable to the SBA is estimated based on current market interest rates for similar debt.
Bank Holding Company Accounting June 30, 2018 | Investment Company Accounting December 31, 2017 |
| June 30, 2019 |
|
| December 31, 2018 |
| |||||||||||||||||||||||||
(Dollars in thousands) | Carrying Amount | Fair Value | Carrying Amount | Fair Value |
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
| ||||||||||||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and federal funds sold(1) | $ | 35,581 | $ | 35,581 | $ | 12,690 | $ | 12,690 |
| $ | 72,148 |
|
| $ | 72,148 |
|
| $ | 57,713 |
|
| $ | 57,713 |
| ||||||||
Equity investments | 10,773 | 10,773 | — | — |
|
| 9,797 |
|
|
| 9,797 |
|
|
| 9,197 |
|
|
| 9,197 |
| ||||||||||||
Investment securities | 44,717 | 44,717 | — | — |
|
| 44,820 |
|
|
| 44,820 |
|
|
| 45,324 |
|
|
| 45,324 |
| ||||||||||||
Loans receivable | 1,128,698 | 1,128,698 | — | — |
|
| 1,047,805 |
|
|
| 1,047,805 |
|
|
| 981,487 |
|
|
| 981,487 |
| ||||||||||||
Investments | — | — | 610,135 | 610,135 | ||||||||||||||||||||||||||||
Accrued interest receivable (2) | 7,360 | 7,360 | 547 | 547 |
|
| 7,742 |
|
|
| 7,742 |
|
|
| 7,413 |
|
|
| 7,413 |
| ||||||||||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Funds borrowed(3) | 1,226,342 | 1,226,694 | 327,623 | 330,084 |
|
| 1,155,336 |
|
|
| 1,157,206 |
|
|
| 1,062,028 |
|
|
| 1,062,297 |
| ||||||||||||
Accrued interest payable | 4,246 | 4,246 | 3,831 | 3,831 | ||||||||||||||||||||||||||||
Accrued interest payable(2) |
|
| 4,205 |
|
|
| 4,205 |
|
|
| 3,852 |
|
|
| 3,852 |
|
(1) | Categorized as level 1 within the fair value hierarchy. See Note 17. |
(2) | Categorized as level 3 within the fair value hierarchy. See Note 17. |
(3) | As of June 30, |
(15)Page 39 of 76
(17) FAIR VALUE OF ASSETS AND LIABILITIES
The Company follows the provisions of FASB ASC 820, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements.
In accordance with FASB ASC 820, the Company has categorized its assets and liabilities measured at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). Our assessment and classification of an investment within a level can change over time based upon maturity or liquidity of the investment and would be reflected at the beginning of the quarter in which the change occurred.
As required by FASB ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a level 3 fair value measurement may include inputs that are observable (level 1 and 2) and unobservable (level 3). Therefore gains and losses for such assets and liabilities categorized within the level 3 table below may include changes in fair value that are attributable to both observable inputs (level 1 and 2) and unobservable inputs (level 3).
Assets and liabilities measured at fair value, recorded on the consolidated balance sheets, are categorized based on the inputs to the valuation techniques as follows:
Level 1. Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, most US Governmentgovernment and agency securities, and certain other sovereign government obligations).
Level 2. Assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
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