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MFIN Medallion Financial

Filed: 10 May 19, 4:05pm
Table of Contents

 

 

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 ended March 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission file number001-37747

 

 

MEDALLION FINANCIAL CORP.

(Exact Name of Registrant as Specified in 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) (Zip Code)

(212)328-2100

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant (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 registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ☒    NO  ☐

Indicate by check mark whether the registrant 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,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting 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 registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    YES  ☐    NO  ☒

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

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of May 8, 2019 was 24,599,299.

 

 

 


Table of Contents

MEDALLION FINANCIAL CORP.

FORM10-Q

TABLE OF CONTENTS

 

   Page 

PART I – FINANCIAL INFORMATION

   3 

ITEM 1. FINANCIAL STATEMENTS

   3 

ITEM  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   41 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   65 

ITEM 4. CONTROLS AND PROCEDURES

   65 

PART II—OTHER INFORMATION

   66 

ITEM 1. LEGAL PROCEEDINGS

   66 

ITEM 1A. RISK FACTORS

   66 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

   66 

ITEM 6. EXHIBITS

   67 

SIGNATURES

   68 

CERTIFICATIONS

  

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 Form10-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 Form10-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 Form10-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 Form10-Q. The inclusion of the forward-looking statements contained in this Form10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form10-Q will be achieved. In light of the foregoing, readers of this Form10-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 Form10-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 68


Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASIS OF PREPARATION

We, Medallion Financial Corp. or the Company, are a 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 consolidated 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 we are not a bank holding company for regulatory purposes.

In accordance with FASB Accounting Standards Codification, or ASC, Topic 946 – Financial Services – Investment Company, we made this change to our financial reporting prospectively, and have not restated or revised 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, or GAAP, applicable to bank holding companies, or Bank Holding Company Accounting, which applies commencing April 2, 2018, and to that applicable to investment companies under the 1940 Act, or Investment Company Accounting, which applies to prior periods.

We historically have 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 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 16% (19% if there had been no loan sales during 2016, 2017, and 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 and management of our wholly-owned subsidiaries, which includes our managed net investment portfolio, as well as assets serviced for third party investors, were $1,565,000,000 as of March 31, 2019, and were $1,522,000,000 as of December 31, 2018, and have grown at a compound annual growth rate of 9% from $215,000,000 at the end of 1996. Since our initial public offering in 1996, we have paid/declared 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 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.

Our other consolidated subsidiaries are comprised of Medallion Fine Art, Inc.,CDI-LP Holdings, Inc., Medallion Motorsports, LLC, and RPAC Racing LLC, or RPAC. In addition, we make both marketable and nonmarketable equity investments, primarily as a function of our mezzanine lending business.

Our consolidated balance sheet as of March 31, 2019, and the related consolidated statements of operations, consolidated statements of other comprehensive loss, consolidated statements of stockholders’ equity and cash flows for the quarter 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 ended March 31, 2019 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, 2018.

 

Page 3 of 68


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MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

 

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

  UNAUDITED
March 31, 2019
  December 31, 2018 

Assets

   

Cash (1)

  $53,505  $23,842 

Federal funds sold

   32,616   33,871 

Equity investments

   8,699   9,197 

Investment securities

   44,682   45,324 

Loans

   1,024,200   1,017,882 

Allowance for losses

   (36,862  (36,395
  

 

 

  

 

 

 

Net loans receivable

   987,338   981,487 
  

 

 

  

 

 

 

Accrued interest receivable

   7,108   7,413 

Property, equipment, andright-of-use lease asset, net

   13,296   1,222 

Loan collateral in process of foreclosure (2)

   49,808   49,495 

Goodwill

   150,803   150,803 

Intangible assets, net

   53,620   53,982 

Other assets

   27,253   25,210 
  

 

 

  

 

 

 

Total assets

  $1,428,728  $1,381,846 
  

 

 

  

 

 

 

Liabilities

   

Accounts payable and accrued expenses (3)

  $16,279  $18,789 

Accrued interest payable

   3,131   3,852 

Deposits

   864,131   848,040 

Short-term borrowings

   81,872   55,178 

Deferred tax liabilities and other tax payables

   7,037   6,973 

Operating lease liabilities

   11,724   —   

Long-term debt

   152,713   158,810 
  

 

 

  

 

 

 

Total liabilities

   1,136,887   1,091,642 
  

 

 

  

 

 

 

Commitments and contingencies (4)

   

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 stockauthorized-27,546,999 shares at March 31, 2019 and 27,385,600 shares at December 31, 2018 issued)

   275   274 

Additional paid in capital

   274,456   274,292 

Treasury stock(2,951,243 shares at March 31, 2019 and December 31, 2018)

   (24,919  (24,919

Accumulated other comprehensive income (loss)

   587   (82

Retained earnings

   14,271   13,043 
  

 

 

  

 

 

 

Total stockholders’ equity

   264,670   262,608 
  

 

 

  

 

 

 

Non-controlling interest in consolidated subsidiaries

   27,171   27,596 
  

 

 

  

 

 

 

Total equity

   291,841   290,204 
  

 

 

  

 

 

 

Total liabilities and equity

  $1,428,728  $1,381,846 
  

 

 

  

 

 

 

Number of shares outstanding

   24,595,756   24,434,357 

Book value per share

  $10.76  $10.75 

 

(1)

Includes restricted cash of $2,475 as of March 31, 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 $3,930 as of March 31, 2019 and $3,134 as of December 31, 2018.

(3)

Includes the short-term portion of lease liabilities of $1,846 as of March 31, 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.

 

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MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Bank Holding
Company
Accounting
  Investment
Company
Accounting
 

(Dollars in thousands, except per share data)

  For the Three
Months Ended
March 31, 2019
  For the Three
Months Ended
March 31, 2018
 

Interest and fees on loans

  $29,439  $—   

Interest income on investments

   —     3,287 

Interest and dividends on investment securities

   566   14 

Dividend income from controlled subsidiaries

   —     28 

Interest income from affiliated
investments

   —     654 

Interest income from controlled subsidiaries

   —     10 

Medallion lease income

   38   40 
  

 

 

  

 

 

 

Total interest income(1)/total investment
income(1)

   30,043   4,033 
  

 

 

  

 

 

 

Interest on deposits

   4,921   —   

Interest on short-term borrowings

   982   —   

Interest on long-term debt

   1,819   —   

Interest expense

   —     3,551 
  

 

 

  

 

 

 

Total interest expense(2)

   7,722   3,551 
  

 

 

  

 

 

 

Net interest income/net investment income

   22,321   482 
  

 

 

  

 

 

 

Provision for loan losses

   13,343   —   
  

 

 

  

 

 

 

Net interest income after provision for loan losses

   8,978   482 
  

 

 

  

 

 

 

Other income (loss)

   

Gain on the extinguishment of debt

   4,145   —   

Sponsorship and race winnings

   3,179   —   

Change in collateral value on loans in process of foreclosure

   (2,119  —   

Other income

   1,658   60 
  

 

 

  

 

 

 

Total other income

   6,863   60 
  

 

 

  

 

 

 

Other expenses

   

Salaries and employee benefits

   5,341   2,349 

Race team related expenses

   1,998   —   

Professional fees

   1,636   723 

Loan servicing fees

   1,194   —   

Collection costs

   638   120 

Rent expense

   600   243 

Regulatory fees

   447   —   

Amortization of intangible assets

   361   —   

Travel, meals and entertainment

   265   206 

Other expenses(3)

   2,222   467 
  

 

 

  

 

 

 

Total other expenses

   14,702   4,108 
  

 

 

  

 

 

 

Income before income taxes/net investment loss before taxes(4)

   1,139   (3,566
  

 

 

  

 

 

 

Income tax benefit

   256   336 
  

 

 

  

 

 

 

 

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Table of Contents
   Bank Holding
Company
Accounting
   Investment
Company
Accounting
 

(Dollars in thousands, except per share data)

  For the Three
Months Ended
March 31, 2019
   For the Three
Months Ended
March 31, 2018
 

Net income after taxes/net investment loss after taxes

   1,395    (3,230
  

 

 

   

 

 

 

Net realized losses on investments(5)

   —      (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 income after taxes/net decrease on net assets resulting from operations

   1,395    (14,874
  

 

 

   

 

 

 

Less: income attributable to thenon-controlling interest

   167    —   
  

 

 

   

 

 

 

Total net income attributable to Medallion Financial Corp./net (decrease) on net assets resulting from operations

  $1,228   $(14,874
  

 

 

   

 

 

 

Basic net income (loss) per share

  $0.05   $(0.62

Diluted net income (loss) per share

  $0.05   $(0.62
  

 

 

   

 

 

 

Distributions declared per share

  $—     $—   
  

 

 

   

 

 

 

Weighted average common shares outstanding

    

Basic

   24,288,263    24,154,879 

Diluted

   24,616,890    24,154,879 
  

 

 

   

 

 

 

 

(1)

Included in interest and investment income is $237 and $491 of paid in kind interest for the three months ended March 31, 2019 and 2018.

(2)

Average borrowings outstanding were $1,067,075 and $324,322, and the related average borrowing costs were 2.93% and 4.44% for the three months ended March 31, 2019 and 2018.

(3)

See Note 12 for the components of other operating expenses as of March 31, 2018.

(4)

Includes $256 of net revenues received from Medallion Bank for the three months ended March 31, 2018, primarily for expense reimbursements. See Notes 6 and 15 for additional information.

(5)

There were no net losses on investment securities of affiliated issuers for the three months ended March 31, 2018.

The accompanying notes should be read in conjunction with these consolidated financial statements.

 

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MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME/LOSS

(UNAUDITED)

 

   Bank Holding
Company
Accounting
   Investment Company
Accounting
 

(Dollars in thousands)

  For the Three
Months Ended
March 31, 2019
   For the Three
Months Ended
March 31, 2018
 

Net income after taxes/net decrease on net assets resulting from operations

  $1,395   $(14,874

Other comprehensive income, net of tax

   669     
  

 

 

   

 

 

 

Total comprehensive income (loss)

   2,064    (14,874
  

 

 

   

 

 

 

Less: comprehensive income attributable to thenon-controlling interest

   167     
  

 

 

   

 

 

 

Total comprehensive income (loss) attributable to Medallion Financial Corp.

  $1,897   $(14,874
  

 

 

   

 

 

 

The accompanying notes should be read in conjunction with these consolidated financial statements.

 

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MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND CHANGES IN NET ASSETS

(UNAUDITED)

 

  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 tonon-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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

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Table of Contents
  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
  Non-controlling
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 

Net increase (decrease) in net assets resulting from operations

  —     —     —     —     —     —     ( 38,299  —     23,425   —     (14,874

Stock-based compensation

  —     1   —     151   —     —     —     —     —     —     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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The accompanying notes should be read in conjunction with these consolidated financial statements.

 

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MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Bank Holding
Company
Accounting
  Investment
Company
Accounting
 

(Dollars in  thousands)

  For the Three
Months
Ended
March 31,
2019
  For the Three
Months
Ended
March 31,
2018
 

CASH FLOWS FROM OPERATING ACTIVITIES

   

Net income/net (decrease) in net assets resulting from operations

  $1,395  $(14,874

Adjustments to reconcile net income/net decrease in net assets resulting from operations to net cash provided by operating activities:

   

Provision for loan losses

   13,343   —   

Loans originated

   —     (8,193

Proceeds from principal receipts, sales, and maturities of loans

   —     13,279 

Paid-in-kind interest

   (237  (491

Depreciation and amortization

   2,046   246 

Increase in deferred and other tax liabilities

   65   3,858 

Amortization of origination fees, net

   1,151   13 

Proceeds from the sale and for principal payments on loan collateral in process of foreclosure

   5,026   —   

Net change in loan collateral in process of foreclosure

   3,757   —   

Capital returned by Medallion Bank and other controlled subsidiaries, net

   —     93 

Net change in unrealized (appreciation) depreciation on investments

   (598  4,403 

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 gains on investments

   —     34,745 

Stock-based compensation expense

   165   152 

Gain on the extinguishment of debt

   (4,145  —   

Decrease in accrued interest receivable

   305   130 

(Increase) decrease in other assets

   (2,144  54 

Decrease in accounts payable and accrued expenses

   (3,355  (675

Decrease in accrued interest payable

   (687  (249
  

 

 

  

 

 

 

Net cash provided by operating activities

   16,087   5,291 

CASH FLOWS FROM INVESTING ACTIVITIES

   

Loans originated

   (92,533  —   

Proceeds from principal receipts, sales, and maturities of loans

   62,239   —   

Purchases of investments

   (50  —   

Proceeds from principal receipts, sales, and maturities of investments

   2,456   —   
  

 

 

  

 

 

 

Net cash used for investing activities

   (27,888  —   

CASH FLOWS FROM FINANCING ACTIVITIES

   

Proceeds from time deposits and funds borrowed

   118,586   —   

Repayments of time deposits and funds borrowed

   (77,785  (6,961

Distributions tonon-controlling interests

   (592  —   

Payments of declared distributions

   —     (64
  

 

 

  

 

 

 

Net cash provided by (used for) financing activities

   40,209   (7,025
  

 

 

  

 

 

 

 

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   Bank Holding
Company
Accounting
   Investment
Company
Accounting
 

(Dollars in  thousands)

  For the Three
Months
Ended
March 31,
2019
   For the Three
Months
Ended
March 31,
2018
 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

   28,408    (1,734

Cash and cash equivalents and restricted cash,beginning of period(1)

   57,713    12,690 
  

 

 

   

 

 

 

Cash and cash equivalents and restricted cash,end of period(1)

  $86,121   $10,956 
  

 

 

   

 

 

 

SUPPLEMENTAL INFORMATION

    

Cash paid during the period for interest

  $7,887   $3,577 

Cash paid during the period for income taxes

   14    —   
  

 

 

   

 

 

 

 

(1)

Includes federal funds sold for the three months ended March 31, 2019.

The accompanying notes should be read in conjunction with these consolidated financial statements.

 

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MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES

Medallion Financial Corp. (the Company) is a finance company organized as a Delaware corporation that reports as a bank holding company, but is not a bank holding company for regulatory purposes. The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Bank (the Bank), a Federal Deposit Insurance Corporation (FDIC) insured industrial bank, that originates consumer loans, raises deposits, and conducts other banking activities. Medallion 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. Medallion 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 Medallion Bank’s affiliates that have extensive prior experience in these asset groups. Subsequent to its formation, Medallion Bank began originating consumer loans to finance the purchases of 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 that conducts a mezzanine financing business, and Freshstart Venture Capital Corp. (FSVC), an SBIC that 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, the primary owner of RPAC Racing, LLC (RPAC), a professional car racing team that competes in the Monster Energy NASCAR Cup Series and is also consolidated with the Company.

The Company formed a wholly-owned subsidiary, Medallion Servicing Corporation (MSC), to provide loan services to Medallion Bank. The Company has assigned all of its loan servicing rights for Medallion Bank, which consists of servicing taxi medallion loans originated by Medallion Bank, to MSC, which bills and collects the related service fee income from Medallion Bank, which is allocated and charged by the Company for MSC’s share of these servicing costs.

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 18. Trust III is a separate legal and corporate entity with its own creditors which, in any liquidation of Trust III, will be entitled to be satisfied out of Trust III’s assets prior to any value in Trust III becoming available to Trust III’s equity holders. The assets of Trust III are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Trust III. Trust III’s loans are serviced by MFC.

The Company established a wholly-owned subsidiary, Medallion Financing Trust I (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 $36,141,000 at March 31, 2019, are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Fin Trust.

MFC, through several wholly-owned subsidiaries (together, Medallion Chicago), purchased $8,689,000 of City of Chicago taxicab medallions out of foreclosure, which are leased to fleet operators while being held for sale. The 159 medallions are carried at a net realizable value of $4,676,000 in other assets on the Company’s consolidated balance sheet at March 31, 2019, compared to a net realizable value of $4,305,000 at December 31, 2018 and a fair value of $5,535,000 at March 31, 2018.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change to Bank Holding Company Accounting

Effective April 2, 2018, the Company withdrew its previous election to be regulated as a business development company (BDC) under the Investment Company Act of 1940 (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 Medallion 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.

 

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Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US (GAAP) requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions change, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of loans and loans in process of foreclosure, goodwill and intangible assets, and investments, among other effects.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned and controlled subsidiaries commencing with the three months ended June 30, 2018. All significant intercompany transactions, balances, and profits (losses) have been eliminated in consolidation. As a result of the Company’s election to withdraw from being regulated as a BDC under the 1940 Act effective April 2, 2018, Medallion Bank and various other Company subsidiaries that were not previously consolidated with the Company prior to the three months ended June 30, 2018, were now consolidated effective April 2, 2018. See Note 6 for the presentation of financial information for Medallion 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 asnon-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 16 and 17 to the consolidated financial statements.

Equity Investments

Equity investments of $8,699,000 and $9,197,000 at March 31, 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.

Investment Securities (Bank Holding Company Accounting)

The Company follows FASB ASC Topic 320, 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

 

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recognized on a level yield basis as an adjustment to the yield of the related investment. The net premium on investment securities totaled $142,000, and $12,000 was amortized to interest income for the three months ended March 31, 2019. Medallion Bank, a previously unconsolidated subsidiary under Investment Company Accounting, for the period, had net premium on investment securities of $244,000 as of March 31, 2018, and $21,000 was amortized to interest income for the three months ended March 31, 2018. 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 shareholders’ 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 shareholders’ 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 Medallion 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 Medallion Bank on at least an annual basis. The Company’s analysis included factors such as various regulatory restrictions that were established at Medallion 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 Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used Medallion 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 Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion 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 Medallion Bank had a fair value in excess of book value. In addition, in the 2016 third quarter there was a court ruling involving a marketplace lender that the Company believes heightened the interest of marketplace lenders to acquire or merge with Utah industrial banks. The Company also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion 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.

Loans

The Company’s loans are currently reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. Effective April 2, 2018, the existing loan balances were adjusted to fair value in connection with the change in reporting, and balances, net of reserves and fees, became the opening balances.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At March 31, 2019 and December 31, 2018, net loan origination costs were $15,086,000 and $14,416,000. The majority of these loan origination costs were capitalized into the loan balances on April 2, 2018 in connection with the change in reporting status. Net amortization (accretion) to income for the three months ended March 31, 2019 and 2018 was $1,151,000 and ($13,000) ($852,000 when combined with Medallion Bank).

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 arecharged-off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated. For the recreation 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 ischarged-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 oncharged-off accounts are recorded as a recovery. Total loans more than 90 days past due were $8,102,000 at March 31, 2019, or 0.81% of the total loan portfolio, compared to $20,154,000, or 2.03% at December 31, 2018.

 

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Loan collateral in process of foreclosure primarily includes taxicab medallion loans that have reached 120 days past due and have been charged-down to their net realizable value, in addition to consumer repossessed collateral in the process of being sold. The taxicab medallion loan component reflects that the collection activities on the loans have transitioned from working with the borrower, to the liquidation of the collateral securing the loans.

The Company had $34,732,000 and $40,500,000 of net loans and loans in process of foreclosure pledged as collateral under borrowing arrangements at March 31, 2019 and December 31, 2018.

The Company accounts 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 $135,807,000 at March 31, 2019 and $140,180,000 at December 31, 2018. The Company has evaluated the servicing aspect of its business in accordance with FASB ASC 860, which relates to servicing assets held by MFC (related to the remaining assets in Trust III) and determined that no material servicing asset or liability existed as of March 31, 2019 and December 31, 2018. The Company assigned its servicing rights of 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 Medallion Bank by MSC.

Allowance for Loan Losses (Bank Holding Company Accounting)

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a one year lookback period for consumer loans. For commercial loans deemed nonperforming, the historical loss experience and other projections are looked at, and for medallion loans, nonperforming loans are valued at the median sales price over the most recent quarter, and performing medallion loans are reserved utilizing historical loss ratios over a three-year lookback period. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. As a result, reserves of $6,173,000 were recorded by the Company as a general reserve on medallion loans as an additional buffer against future losses, not including the Bank general reserve of $17,351,000 which was netted against loan balances at consolidation on April 2, 2018. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.

Unrealized Appreciation (Depreciation) and Realized Gains (Losses) on Investments (Investment Company Accounting)

Prior to April 2, 2018, under Investment Company Accounting, the Company’s loans, net of participations and any unearned discount, were considered investment securities under the 1940 Act and recorded at fair value. As part of the fair value methodology, loans were valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market existed for these loans, the fair value was determined in good faith by the Board of Directors. In determining the fair value, the Board of Directors considered factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, cash flows of the borrower, market conditions for loans (e.g. values used by other lenders and any active bid/ask market), historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. Investments other than securities, which represent collateral received from defaulted borrowers, were valued similarly.

Under Investment Company Accounting, the Company recognized unrealized appreciation (depreciation) on investments as the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Refer to Note 5 for additional details.

Goodwill and Intangible Assets

The Company’s goodwill and intangible assets arose as a result of the excess of fair value over book value for several of the Company’s previously unconsolidated portfolio investment companies as of April 2, 2018. This fair value was brought forward under the Company’s new reporting, and was subject to a purchase price accounting allocation process conducted by an independent third party expert to arrive at the current categories and amounts. Goodwill is not amortized, but is subject to impairment testing on an annual basis. Intangible assets are amortized over their useful life of approximately 20 years. As of March 31, 2019 and December 31, 2018, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $53,620,000 and

 

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$53,982,000, respectively, and the Company recognized $361,000 of amortization expense on the intangible assets for the three months ended March 31, 2019. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $7,956,000 and $9,048,000 were outstanding at March 31, 2019 and December 31, 2018, and of which $1,092,000 was amortized to interest income for the three months ended March 31, 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 Medallion 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.

 

(Dollars in thousands)

  March 31, 2019   December 31, 2018 

Brand-related intellectual property

  $20,900   $21,176 

Home improvement contractor relationships

   6,555    6,641 

Race organization

   26,165    26,165 
  

 

 

   

 

 

 

Total intangible assets

  $53,620   $53,982 
  

 

 

   

 

 

 

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $100,000 and $23,000 ($67,000 had Medallion Bank been consolidated) for the quarters ended March 31, 2019 and 2018.

Deferred Costs

Deferred financing costs, included in other assets, represent costs associated with obtaining the Company’s borrowing facilities, and are amortized on a straight line basis over the lives of the related financing agreements and life of the respective pool. Amortization expense was $520,000 and $223,000 ($528,000 had Medallion Bank been consolidated) for the quarters ended March 31, 2019 and 2018. 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 $4,411,000, $4,461,000, and $2,862,000 ($4,884,000 had Medallion Bank been consolidated) as of March 31, 2019, December 31, 2018, and March 31, 2018.

Income Taxes

Income taxes are accounted for using the asset and liability approach in accordance with FASB ASC Topic 740, Income Taxes (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 the 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.

 

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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 March 31, 

(Dollars in thousands, except per share data)

  2019   2018 

Net income/net decrease in net assets resulting from operations available to common shareholders

  $1,228   $(14,874
  

 

 

   

 

 

 

Weighted average common shares outstanding applicable to basic EPS

   24,288,263    24,154,879 

Effect of dilutive stock options

   17,423    —   

Effect of restricted stock grants

   311,204    —   
  

 

 

   

 

 

 

Adjusted weighted average common shares outstanding applicable to diluted EPS

   24,616,890    24,154,879 
  

 

 

   

 

 

 

Basic earnings (loss) per share

  $0.05   $(0.62

Diluted earnings (loss) per share

   0.05    (0.62
  

 

 

   

 

 

 

Potentially dilutive common shares excluded from the above calculations aggregated 471,000 and 290,960 shares as of March 31, 2019 and 2018.

Stock Compensation

The Company follows FASB ASC Topic 718 (ASC 718), Compensation – Stock Compensation, for its equity incentive, stock option, and restricted stock plans, and accordingly, the Company recognizes the expense of these grants as required. Stock-based employee compensation costs pertaining to stock options are reflected in net increase in net income/net assets resulting from operations for any new grants using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Stock-based employee compensation costs pertaining to restricted stock are reflected in net income/net increase net assets resulting from operations for any new grants using the grant date fair value of the shares granted, expensed over the vesting period of the underlying stock.

During the three months ended March 31, 2019 and 2018, the Company issued 163,098 and 97,952 of restricted shares of stock-based compensation awards, and 374,377 and 0 shares of stock options, and recognized $165,000 and $152,000, or $0.01 and $0.01 per share for each period, ofnon-cash stock-based compensation expense related to the grants. As of March 31, 2019, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $2,169,000, which is expected to be recognized over the next 16 quarters (see Note 10).

Regulatory Capital

Medallion Bank is subject to various regulatory capital requirements administered by the FDIC and the Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, 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 Medallion 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, Medallion 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.

 

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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 their ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of March 31, 2019, the Bank’s Tier 1 leverage ratio was 16.56%. The Bank’s actual capital amounts and ratios, and the regulatory minimum ratios are presented in the following table.

 

   Regulatory       

(Dollars in  thousands)

  Minimum  Well-capitalized  March 31, 2019  December 31, 2018 

Common equity Tier 1 capital

   —     —    $143,409  $141,608 

Tier 1 capital

   —     —     169,712   167,911 

Total capital

   —     —     182,858   180,917 

Average assets

   —     —     1,025,114   1,059,461 

Risk-weighted assets

   —     —     1,005,656   993,374 

Leverage ratio(1)

   4.0  5.0  16.6  15.8

Common equity Tier 1 capital ratio(2)

   7.0   6.5   14.3   14.3 

Tier 1 capital ratio(3)

   8.5   8.0   16.9   16.9 

Total capital ratio(3)

   10.5   10.0   18.2   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 increased by 0.625% each subsequent January 1 until January 1, 2019. Including the buffer, as of January 1, 2019, the Bank is 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.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU2018-13 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 – 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 – 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) were identified as weaknesses 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 statements, and expects the update to have a significant impact on how the Company will account for estimated credit losses on its loans.

 

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(3) INVESTMENT SECURITIES (Bank Holding Company Accounting)

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

 

March 31, 2019

(Dollars in thousands)

  Amortized Cost   Gross
Unrealized
Gains
   Gross Unrealized
Losses
   Fair Value 

Mortgage-backed securities, principally obligations of US federal agencies

  $31,710   $154   $(239  $31,625 

State and municipalities

   13,155    130    (228   13,057 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $44,865   $284   $(467  $44,682 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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 March 31, 2019 by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollars in thousands)

  Amortized Cost   Fair Value 

Due in one year or less

  $20   $20 

Due after one year through five years

   8,936    8,870 

Due after five years through ten years

   12,366    12,330 

Due after ten years

   23,543    23,462 
  

 

 

   

 

 

 

Total

  $44,865   $44,682 
  

 

 

   

 

 

 

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

 

   Less than Twelve Months   Twelve Months and Over 

March 31, 2019

(Dollars in thousands)

  Gross Unrealized
Losses
   Fair Value   Gross Unrealized
Losses
   Fair Value 

Mortgage-backed securities, principally obligations of US federal agencies

  $—    $—    $(239  $19,106 

State and municipalities

   (50   2,950    (178   7,683 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $(50  $2,950   $(417  $26,789 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   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 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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.

(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 March 31, 2019 and December 31, 2018.

 

   As of March 31, 2019  As of December 31, 2018 

(Dollars in thousands)

  Amount   As a Percent of
Gross Loans
  Amount   As a Percent of
Gross Loans
 

Recreation

  $609,999    60 $587,038    58

Home improvement

   193,275    19   183,155    18 

Commercial

   55,211    5   64,083    6 

Medallion

   165,715    16   183,606    18 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total gross loans

   1,024,200    100  1,017,882    100
    

 

 

    

 

 

 

Allowance for loan losses

   (36,862    (36,395  
  

 

 

    

 

 

   

Total net loans

  $987,338    $981,487   
  

 

 

    

 

 

   

The following table shows the activity of the gross loans for the three months ended March 31, 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

   65,757   26,296   442   —     92,495 

Principal payments

   (33,373  (15,849  (9,344  (3,438  (62,004

Charge-offs

   (4,929  (159  —     (7,788  (12,876

Transfer to loans in process of foreclosure, net

   (3,391  —     —     (5,705  (9,096

Other

   (1,103  (168  30   (960  (2,201
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross loans- March 31, 2019

  $609,999  $193,275  $55,211  $165,715  $1,024,200 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The following table sets forth the activity in the allowance for loan losses for the three months ended March 31, 2019.

 

(Dollars in thousands)

  Three Months Ended
March 31, 2019
 

Allowance for loan losses – beginning balance

  $36,395 

Charge-offs

  

Recreation

   (6,525

Home improvement

   (549

Commercial

   —   

Medallion

   (8,788
  

 

 

 

Total charge-offs

   (15,862
  

 

 

 

Recoveries

  

Recreation

   1,596 

Home improvement

   390 

Commercial

   —   

Medallion

   1,000 
  

 

 

 

Total recoveries

   2,986 
  

 

 

 

Net charge-offs

   (12,876) (1) 
  

 

 

 

Provision for loan losses

   13,343 
  

 

 

 

Allowance for loan losses – ending balance(2)

  $36,862 
  

 

 

 

 

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(1)

As of March 31, 2019, cumulative net charge-offs of loans and loans in process of foreclosure in the medallion portfolio were $228,508, representing collection opportunities for the Company.

(2)

Includes $6,173 of a general reserve, for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 17% of the total allowance, and 3.96% of the loans in question. This figure excludes the general reserve on loans at the bank which existed prior to April 2, 2018, which was netted against loan balances at consolidation on April 2, 2018.

The following tables set forth the composition of the allowance for loan losses by type as of March 31, 2019 and December 31, 2018.

 

March 31, 2019

(Dollars in thousands)

  Amount   Percentage of
Allowance
  Allowance as a
Percent of Loan
Category
 

Recreation

  $8,932    24  1.46

Home Improvement

   2,186    6   1.13 

Commercial

   455   1   0.82 

Medallion

   25,289    69   15.26 
  

 

 

   

 

 

  

Total

  $36,862    100  3.60
  

 

 

   

 

 

  

 

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
  

 

 

   

 

 

  

The following table presents total nonaccrual loans and foregone interest, substantially all of which is in the medallion portfolio. The decline reflects the charge-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)

  March 31, 2019  December 31, 2018  March 31, 2018 (1) 

Total nonaccrual loans

  $21,549  $34,877  $77,998 

Interest foregone quarter to date

   403   487   1,642 

Amount of foregone interest applied to principal in the quarter

   115   166   792 

Interest foregone life to date

   1,634   1,952   14,127 

Amount of foregone interest applied to principal life to date

   819   1,214   4,287 

Percentage of nonaccrual loans to gross loan portfolio

   2  3  28

 

(1)

Does not include Medallion Bank nonaccrual loans of $35,920, interest income foregone for the quarter of $213 and foregone interest paid and applied to principal for the quarter of $153, interest income foregonelife-to-date of $1,118 and foregone interest paid and applied to principallife-to-date of $1,005.

 

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The following tables present the performance status of loans as of March 31, 2019 and December 31, 2018.

 

March 31, 2019

(Dollars in  thousands)

  Performing   Nonperforming   Total   Percentage of
Nonperforming
to Total
 

Recreation

  $604,862   $5,137   $609,999    0.84

Home improvement

   193,117    158    193,275    0.08 

Commercial

   50,946    4,265    55,211    7.72 

Medallion

   153,726    11,989    165,715    7.23 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,002,651   $21,549   $1,024,200    2.10
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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
  

 

 

   

 

 

   

 

 

   

 

 

 

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 tables provide additional information on attributes of the nonperforming loan portfolio as of March 31, 2019 and December 31, 2018, all of which had an allowance recorded against the principal balance.

 

   March 31, 2019   Three Months Ended
March 31, 2019
 

(Dollars in  thousands)

  Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Average Recorded
Investment
   Interest Income
Recognized
 

With an allowance recorded

 

      

Recreation

  $5,137   $5,137   $183   $5,173   $132 

Home improvement

   158    158    3    158    —   

Commercial

   4,265    4,360    455    4,233    —   

Medallion

   11,989    12,712    19,116    16,307    54 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming loans with an allowance

  $21,549   $22,367   $19,757   $25,871   $186 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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   December 31, 2018 

(Dollars in thousands)

  Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
 

With an allowance recorded

 

  

Recreation

  $5,788   $5,788   $204 

Home improvement

   137    137    3 

Commercial

   3,834    3,929    —   

Medallion

   25,118    26,237    22,035 
  

 

 

   

 

 

   

 

 

 

Total with allowance

  $34,877   $36,091   $22,242 
  

 

 

   

 

 

   

 

 

 

Total nonperforming loans

  $34,877   $36,091   $22,242 
  

 

 

   

 

 

   

 

 

 

The following table provides additional information on attributes of the nonperforming loan portfolio as of March 31, 2018 under Investment Company Accounting.

 

(Dollars in  thousands)

  Recorded
Investment (1) (2)
   Unpaid Principal
Balance
   Average Recorded
Investment
 

March 31, 2018

      

Medallion(3)

  $59,394   $62,519   $142,364 

Commercial(3)

   18,604    20,880    19,151 

 

(1)

As of March 31, 2018, $24,256 of unrealized depreciation was recorded as a valuation allowance on these loans.

(2)

Interest income of $85 was recognized on loans for the three months ended March 31, 2018.

(3)

Included in the unpaid principal balance is unearnedpaid-in-kind interest on nonaccrual loans of $5,401 as of March 31, 2018, which is included in the nonaccrual disclosures on page 21.

The following tables show the aging of all loans as of March 31, 2019 and December 31, 2018:

 

   Days Past Due           Recorded
Investment >
90 Days and
Accruing
 

March 31, 2019

(Dollars in thousands)

  31-60   61-90   91 +   Total   Current   Total(1) 

Recreation

  $13,186   $4,019   $3,282   $20,487   $569,065   $589,552   $—  

Home improvement

   436    183    156    775    195,120    195,895    —   

Commercial

   —      —      710    710    54,501    55,211    —   

Medallion

   47,655    3,309    3,954    54,918    104,939    159,857    —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $61,277   $7,511   $8,102   $76,890   $923,625   $1,000,515   $—  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Excludes loan premiums of $7,956 resulting from purchase price accounting and $15,729 of capitalized loan origination costs.

 

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   Days Past Due           Recorded
Investment >
90 Days and
Accruing
 

December 31, 2018

(Dollars in thousands)

  31-60   61-90   91 +   Total   Current   Total(1) 

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.

The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 213%, 220%, and 209% as of March 31, 2019, December 31, 2018, and March 31, 2018.

The following table shows the troubled debt restructurings which the Company entered into during the three months ended March 31, 2019 under Bank Holding Company Accounting.

 

(Dollars in  thousands)

  Number of Loans   Pre-
Modification
Investment
   Post-
Modification
Investment
 

Medallion loans

   7   $2,895   $2,895 
  

 

 

   

 

 

   

 

 

 

During the twelve months ended March 31, 2019, four loans modified as troubled debt restructurings were in default and had an investment value of $1,396,000 as of March 31, 2019, net of $938,000 of an allowance for loan losses under Bank Holding Company Accounting.

The Company did not enter into any troubled debt restructurings for the quarter ended March 31, 2018.

During the twelve months ended March 31, 2018, eight loans modified as troubled debt restructurings were in default and had an investment value of $1,334,000 as of March 31, 2018, net of $1,630,000 of unrealized depreciation under Investment Company Accounting.

The following table shows the activity of the loans in process of foreclosure, which relates only to the recreation and medallion loans, for the three months ended March 31, 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

   3,391    5,705    9,096 

Sales

   (2,076   (377   (2,453

Cash payments received

   —      (2,573   (2,573

Collateral valuation adjustments

   (1,638   (2,119   (3,757
  

 

 

   

 

 

   

 

 

 

Loans in process of foreclosure – March 31, 2019

  $1,180   $48,628   $49,808 
  

 

 

   

 

 

   

 

 

 

 

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(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 for the three months ended March 31, 2018.

 

(Dollars in thousands)

 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 

Net change in unrealized

      

Appreciation on investments

  —     —     38,795   (998  —     37,797 

Depreciation on investments

  (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 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance March 31, 2018

 ($23,761 ($495 $197,715  $2,123  ($3,405 $172,177 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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 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
  

 

 

 

(6) INVESTMENTS IN MEDALLION BANK AND OTHER CONTROLLED SUBSIDIARIES

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 Medallion Bank’s results.

The following table presents information derived from Medallion Bank’s statement of comprehensive income and other valuation adjustments on other controlled subsidiaries for the three months ended March 31, 2018 under Investment Company Accounting.

 

(Dollars in thousands)

  Three Months
Ended
March 31,
2018
 

Statement of comprehensive income

  

Investment income

  $26,880 

Interest expense

   3,615 
  

 

 

 

Net interest income

   23,265 

 

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(Dollars in thousands)

  Three Months
Ended
March 31,
2018
 

Noninterest income

   19 

Operating expenses

   7,158 
  

 

 

 

Net investment income before income taxes

   16,126 

Income tax benefit

   3,321 
  

 

 

 

Net investment income after income taxes

   19,447 

Net realized/unrealized losses of Medallion Bank

   (28,539
  

 

 

 

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

  $29,115 
  

 

 

 

 

(1)

Unrealized depreciation on Medallion Bank reflects the adjustment to the investment carrying amount to reflect the dividends declared to the US Treasury, and the fair value adjustments to the carrying amount of Medallion Bank.

(7) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows:

 

  Payments Due for the Fiscal Year Ending March 31,  March 31,  December 31,  Interest 

(Dollars in  thousands)

 2020  2021  2022  2023  2024  Thereafter  2019  2018  Rate (1) 

Deposits

 $286,501  $193,929  $192,309  $128,236  $63,156  $—   $864,131  $848,040   2.24

SBA debentures and borrowings

  28,380   8,500   —     5,000   2,500   35,000   79,380   80,099   3.40

Retail and privately placed notes

  —     —     33,625   —     30,000  —     63,625   33,625   8.65

Notes payable to banks

  45,811   4,318   280   280  210   —     50,899   59,615   4.70

Preferred securities

  —     —     —     —     —     33,000   33,000   33,000   4.73

Other borrowings

  7,681   —     —     —     —     —     7,681   7,649   2.00
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total

 $368,373  $206,747  $226,214  $133,516  $95,866  $68,000  $1,098,716  $1,062,028   2.89
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

(1)

Weighted average contractual rate as of March 31, 2019.

(A) DEPOSITS

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)

  March 31, 2019 

Three months or less

  $110,012 

Over three months through six months

   108,138 

Over six months through one year

   68,351 

Over one year

   577,630 
  

 

 

 

Total deposits

  $864,131 
  

 

 

 

 

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(B) DZ LOAN

In December 2008, Trust III entered into the 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 September 2019. The line was reduced to $150,000,000, and was further reduced in stages to $125,000,000 on July 1, 2016, remained as an amortizing facility and was restructured during the fourth quarter of 2018.

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. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. See Note 19 for more information about Trust III and the DZ loan.

(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 a minimum of $7,600,000 of principal and interest to be paid on or before 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 March 31, 2019, $172,485,000 of commitments had been fully utilized, there were $3,000,000 of commitments available, and $79,380,000 was outstanding, including $28,380,000 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. The notes are typically secured by various assets of the underlying borrower.

The table below summarizes the key attributes of the Company’s various borrowing arrangements with these lenders as of March 31, 2019.

 

(Dollars in thousands)

 

Borrower

 # of Lenders/
Notes
  Note
Dates
  Maturity
Dates
  Type  Note
Amounts
  Balance
Outstanding at
March 31,
2019
  Monthly Payment  Average Interest
Rate at
March 31,
2019
  Interest Rate
Index(1)
 

The Company

  6/6   4/11 - 8/14   4/19 - 9/20   



Term loans
and demand
notes secured
by pledged
loans(2)
 
 
 
 
 
 $37,741(2)  $37,741   
Interest
only(3)
 
 
  5.10  Various(3) 

Medallion Chicago

  2/23   11/11 - 12/11   6/19  



Term loans
secured by
owned
Chicago
medallions(4)
 
 
 
 
 
  18,449   11,828   

$134 of
principal &
interest
 
 
 
  3.50  N/A 

Medallion Funding

  1/1   11/18   12/23    1,330   1,330   



$70
principal &
interest
paid
quarterly
 
 
 
 
 
  4.00  N/A 
     

 

 

  

 

 

    
     $57,520  $50,899    
     

 

 

  

 

 

    

 

(1)

At March 31, 2019, 30 day LIBOR was 2.49%, 360 day LIBOR was 2.71%, and the prime rate was 5.50%.

(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 $12 to $75.

(4)

Guaranteed by the Company.

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 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.

 

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(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.

(F) PREFERRED SECURITIES

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 (2.60% at March 31, 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 March 31, 2019, $33,000,000 was outstanding on the preferred securities.

(G) OTHER BORROWINGS

In November and December 2017, RPAC amended the terms of various promissory notes with affiliate Richard Petty (refer to Note 13 for more details). At December 31, 2017, the total outstanding on these notes was $7,007,894 at a 2.00% annual interest rate compounded monthly and due March 31, 2020. As of March 31, 2019, $7,181,000 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, 2019.

(H) COVENANT COMPLIANCE

Certain of our debt agreements contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including debt to equity and minimum net worth, which in the event of noncompliance could preclude their ability to pay dividends to the Company.

(8) LEASES

The Company has 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 which no adjustments have been made to the prior year balances.

The following table presents the operating lease costs and additional information for the three months ended March 31, 2019.

 

(Dollars in  thousands)

  March 31, 2019 

Operating lease costs

  $531 
  

 

 

 

Other information

  

Cash paid for amounts included in the measurement of lease liabilities:

  

Operating cash flows from operating leases

   587 

Right-of-use asset obtained in exchange for lease liability

   (16
  

 

 

 

 

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The following table presents the breakout of the operating leases as of March 31, 2019.

 

(Dollars in thousands)

  March 31, 2019 

Operating leaseright-of-use assets

  $12,165 
  

 

 

 

Other current liabilities

   1,846 

Operating lease liabilities

   11,724 
  

 

 

 

Total operating lease liabilities

   13,570 
  

 

 

 

Weighted average remaining lease term

   4 years 

Weighted average discount rate

   4.29 
  

 

 

 

At March 31, 2019, maturities of the lease liabilities were as follows.

 

(Dollars in thousands)

    

2019 (excluding the three months ended March 31, 2019)

  $1,772 

2020

   2,380 

2021

   2,278 

2022

   2,216 

2023

   2,136 

Thereafter

   6,048 
  

 

 

 

Total lease payments

   16,830 
  

 

 

 

Less imputed interest

   3,260 
  

 

 

 

Total operating lease liabilities

  $13,570 
  

 

 

 

(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% 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 March 31, 2019 and December 31, 2018.

 

(Dollars in thousands)

  March 31, 2019   December 31,
2018
 

Goodwill and other intangibles

  $(44,922  $(45,272

Provision for loan losses

   21,592    25,790 

Net operating loss carryforwards(1)

   17,296    11,132 

Accrued expenses, compensation, and other assets

   1,098    1,844 

Unrealized gains on other investments

   (3,659   (2,024
  

 

 

   

 

 

 

Total deferred tax liability

   (8,595   (8,530

Valuation allowance

   (124   (255
  

 

 

   

 

 

 

Deferred tax liability, net

   (8,719   (8,785

Taxes receivable

   1,682    1,812 
  

 

 

   

 

 

 

Net deferred and other tax liabilities

  $(7,037  $(6,973
  

 

 

   

 

 

 

 

(1)

As of March 31, 2019, the Company and its subsidiaries had an estimated $67,837 of net operating loss carryforwards, $1,712 of which expire at various dates between December 31, 2026 and December 31, 2035, which had a net asset value of $17,172 as of the balance sheet date.

The components of our tax benefit for the three months ended March 31, 2019 and 2018 were as follows.

 

   Three Months Ended
March 31,
 

(Dollars in thousands)

  2019   2018 

Current

    

Federal

  $(869  $5,895 

State

   (823   1,182 

Deferred

    

Federal

   610    (3,891

State

   1,338    (2,546
  

 

 

   

 

 

 

Net (provision) benefit for income taxes

  $256   $640 
  

 

 

   

 

 

 

 

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The following table presents a reconciliation of statutory federal income tax benefit to consolidated actual income tax benefit reported in net income/net increase in net assets for the three months ended March 31, 2019 and 2018.

 

   Three Months Ended
March 31,
 

(Dollars in thousands)

  2019   2018 

Statutory Federal income tax (provision) benefit at 21%

  ($379  $3,258 

State and local income taxes, net of federal income tax benefit

   (107   504 

Appreciation of Medallion Bank

   —      (1,974

Change in state income tax accruals

   686    —   

Change in effective state income tax rate

   —      (1,358

Other

   56    210 
  

 

 

   

 

 

 

Total income tax benefit

  $256   $640 
  

 

 

   

 

 

 

On December 22, 2017, the US government 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 determined the necessary valuation allowance as of March 31, 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 2015 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 2015 to 2017.

(10) STOCK OPTIONS AND RESTRICTED STOCK

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 andnon-employee directors, including options, restricted stock, stock appreciation rights, etc. A total of 1,500,253 shares of the Company’s common stock are issuable under the 2018 Plan, and 920,932 remained issuable as of March 31, 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 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 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 provided 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 transferability until such forfeiture restrictions have lapsed. A total of 700,000 shares of the Company’s common stock were issuable under the 2015 Restricted Stock Plan, and 241,919 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.

 

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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 were 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 granted 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 were elected to serve less than a full term. 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. Options granted under the 2015 Director Plan are exercisable annually, as defined in the 2015 Director Plan. The term of the options could 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 would 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 were elected to serve less than a full term. 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. Options granted under the Amended Director Plan are exercisable annually, as defined in the Amended Director Plan. The term of the options could not exceed ten years.

Additional shares are only available for future issuance under the 2018 Plan. At March 31, 2019, 501,043 options on the Company’s common stock were outstanding under the Company’s plans, of which 63,889 options were exercisable, and there were 250,482 unvested shares of the Company’s common stock outstanding under the 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 three months ended March 31, 2019, and there were no options granted during the three months ended March 31, 2018. The following assumption categories are used to determine the value of any option grants.

 

   Three Months Ended March 31, 
   2019  2018 

Risk free interest rate

   2.39  NA 

Expected dividend yield

   0.79   NA 

Expected life of option in years(1)

   6.25   NA 

Expected volatility(2)

   48.45   NA 

 

(1)

Expected life is calculated using the simplified method.

(2)

We determine our expected volatility based on our historical volatility.

 

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The following table presents the activity for the stock option programs for the three months ended March 31, 2019 and December 31, 2018.

 

   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(2)

   501,043   $2.14-13.84   $6.63 

Options exercisable at March 31, 2019(2)

   63,889   $2.14-13.84   $9.48 
  

 

 

   

 

 

   

 

 

 

 

(1)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at the exercise date and the related exercise price of the underlying options, was $0 and $0 for the 2019 and 2018 first quarters.

(2)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at March 31, 2019 and the related exercise price of the underlying options, was $348,000 for outstanding options and $45,000 for exercisable options as of March 31, 2019. The remaining contractual life was 9.27 years for outstanding options and 5.64 years for exercisable options at March 31, 2019.

The following table presents the activity for the restricted stock programs for the three months ended March 31, 2019 and December 31, 2018.

 

   Number of Shares   Exercise
Price Per
Share
   Weighted
Average
Exercise Price
 

Outstanding at December 31, 2017

   408,582   $2.06-10.38   $3.45 

Granted

   101,010    3.93-5.27    4.41 

Cancelled

   (9,737   3.93-9.08    4.66 

Vested(1)

   (308,940   2.06-10.38    3.35 
  

 

 

   

 

 

   

 

 

 

Outstanding at December 31, 2018

   190,915    2.14-5.27    4.06 

Granted

   163,098    6.55    6.55 

Cancelled

   (1,699   3.93-3.95    3.94 

Vested(1)

   (101,832   3.93-4.39    4.07 
  

 

 

   

 

 

   

 

 

 

Outstanding at March 31, 2019(2)

   250,482   $2.14-6.55   $5.68 
  

 

 

   

 

 

   

 

 

 

 

(1)

The aggregate fair value of the restricted stock vested was $623,000 and $1,209,000 for the three months ended March 31, 2019 and 2018.

(2)

The aggregate fair value of the restricted stock was $1,728,000 as of March 31, 2019. The remaining vesting period was 3.02 years at March 31, 2019.

The following table presents the activity for the unvested options outstanding under the plans for the 2019 first quarter.

 

   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 
  

 

 

   

 

 

   

 

 

 

The intrinsic value of the options vested was $0 for the three months ended March 31, 2019.

 

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(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%, 10%, and 10% of loans outstanding and with no other states over 10% as of March 31, 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, of which RVs, boats, and trailers make up 62%, 19%, and 10% of the portfolio. 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 windows, at 29%, 16%, 15%, and 11% of total loans outstanding, respectively, and with no other product lines over 10% as of March 31, 2019. The commercial lending segment focuses on enterprise wide industries, including manufacturing, retail trade, information, recreation and various other industries, in which 52% 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 87% were in New York City as of March 31, 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.

The following table presents segment data at March 31, 2019 and for the three months then ended.

 

  Consumer Lending  Commercial
Lending
  Medallion
Lending
  RPAC  Corp.
and
Other
Investments
  Consolidated 

(Dollars in thousands)

 Recreation  Home
Improvement
 

Total interest income

 $22,479  $4,325  $1,967  $841  $—   $431  $30,043 

Total interest expense

  2,774   906   961   1,909   36   1,136   7,722 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net interest income (loss)

  19,705   3,419   1,006   (1,068  (36  (705  22,321 

Provision for loan losses

  7,005   549   455   5,334   —     —     13,343 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net interest income (loss) after loss provision

  12,700   2,870   551   (6,402  (36  (705  8,978 

Sponsorship and race winnings

  —     —     —     —     3,179   —     3,179 

Race team related expenses

  —     —     —     —     (1,998  —     (1,998

Other income (expense)

  (5,382  (1,637  (253  1,214   (1,797  (1,165  (9,020
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) before taxes

  7,318   1,233   298   (5,188  (652  (1,870  1,139 

Income tax benefit (provision)

  (1,895  (319  (72  1,251   157   1,134   256 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) after tax

 $5,423  $914  $226  ($3,937 ($495 ($736 $1,395 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance Sheet Data

       

Total loans net

 $601,067  $191,089  $54,756  $140,426  $—   $—   $987,338 

Total assets

  611,702   199,999   86,906   254,714   30,952   244,455   1,428,728 

Total funds borrowed

  487,165   159,251   78,060   202,255   7,681   164,304   1,098,716 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Selected Financial Ratios

       

Return on assets

  3.66  2.38  1.03  (6.05%)   (6.60%)   (1.32%)   0.36

Return on equity

  13.83   9.53   5.16   (30.23  (65.48  (4.70  1.72 

Interest yield

  15.50   9.42   13.56   2.33   N/A   N/A   11.52 

Net interest margin

  13.58   7.45   6.93   (2.96  N/A   N/A   8.56 

Reserve coverage

  1.46   1.13   0.82   15.26   N/A   N/A   3.60 

Delinquency ratio

  0.56   0.08   1.29   2.47   N/A   N/A   0.81 

Charge-off ratio

  3.40   0.35   0.00   21.59   N/A   N/A   5.33 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

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(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
 

Directors’ fees

  $89 

Miscellaneous taxes

   120 

Computer expenses

   74 

Depreciation and amortization

   23 

Other expenses

   161 
  

 

 

 

Total other operating expenses

  $467 
  

 

 

 

(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 under Investment Company Accounting.

 

(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%) 

 

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(1)

Includes $0 of undistributed net investment income per share and $0 of undistributed net realized gains per share as of March 31, 2018.

(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 operating expenses of $1,150, which formerly were the Company’s, were now MSC’s for the three months ended March 31, 2018. Excluding the impact of the MSC amounts, the total expense ratio, operating expense ratio, and net investment income ratio would have been 11.75%, 7.51%, and (4.49%) in the March 31, 2018 quarter.

(14) COMMITMENTS AND CONTINGENCIES

(A) EMPLOYMENT AGREEMENTS

The Company has employment agreements with certain key officers for eithera 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 witha two-year term will renew fornew 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 thecurrent 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.

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 $4,500,000.

(B) OTHER COMMITMENTS

The Company had no commitments outstanding at March 31, 2019. Generally, commitments are on the same terms as loans to or investments in existing borrowers or investees, and generally have fixed expiration dates. Since some commitments are 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 March 31, 2019, minimal rental commitments fornon-cancelable leases were $16,822,000.

(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 Freshstart’s transfer to liquidation status and the restructure of the Freshstart 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 Medallion 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 $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 ayear-end bonus. In addition, Mr. Rudnick provides consulting services to the Company directly for a monthly retainer of $4,200.

 

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The Company’s consolidated subsidiary RPAC, has an agreement with minority shareholder Richard Petty, in which they make 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 $7,181,000 that earns interest at an annual rate of 2% as of March 31, 2019.

The Company and MSC serviced $308,346,000 of loans for Medallion Bank at March 31, 2018. Under Investment Company Accounting, included in net investment income were amounts as described in the table below that were received from Medallion 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 Medallion Bank by MSC. As a result, in the three months ended March 31, 2018, $1,290,000 of servicing fee income was earned by MSC.

The following table summarizes the net revenues received from Medallion Bank not eliminated under Investment Company Accounting.

 

(Dollars in thousands)

  Three Months
Ended
March 31, 2018
 

Reimbursement of operating expenses

  $250 

Loan origination and servicing fees

   6 
  

 

 

 

Total other income

  $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. Additionally, the Company recognized $10,000 of interest income not eliminated for the three months ended March 31, 2018 with respect to this loan.

The Company and MCI have loans to RPAC, an affiliate of Medallion Motorsports LLC, which have been eliminated in consolidation for the three months ended as of March 31, 2019. 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 with respect to these loans.

(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 fair 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 March 31, 2019 and December 31, 2018, the estimated fair value of theseoff-balance-sheet instruments was not material.

(g)Fixedrateborrowings—The fair value of the debentures payable to the SBA is estimated based on current market interest rates for similar debt.

 

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   March 31, 2019   December 31, 2018 

(Dollars in thousands)

  Carrying Amount   Fair Value   Carrying Amount   Fair Value 

Financial assets

        

Cash and federal funds sold(1)

  $86,121   $86,121   $57,713   $57,713 

Equity investments

   8,699    8,699    9,197    9,197 

Investment securities

   44,682    44,682    45,324    45,324 

Loans receivable

   987,338    987,338    981,487    981,487 

Accrued interest receivable(2)

   7,108    7,108    7,413    7,413 

Financial liabilities

        

Funds borrowed(3)

   1,098,716    1,100,397    1,062,028    1,062,297 

Accrued interest payable(2)

   3,131    3,131    3,852    3,852 

 

(1)

Categorized as level 1 within the fair value hierarchy. See Note 16.

(2)

Categorized as level 3 within the fair value hierarchy. See Note 16.

(3)

As of March 31, 2019 and December 31, 2018, publicly traded retail notes traded at a premium to par of $1,681 and $269.

(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 government 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:

 

 A)

Quoted prices for similar assets or liabilities in active markets (for example, restricted stock);

 

 B)

Quoted price for identical or similar assets or liabilities innon-active markets (for example, corporate and municipal bonds, which trade infrequently);

 

 C)

Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include mostover-the-counter derivatives, including interest rate and currency swaps); and

 

 D)

Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage-related assets, including loans, securities, and derivatives).

Level 3. Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the assets or liability (examples include certain private equity investments, and certain residential and commercial mortgage-related assets, including loans, securities, and derivatives).

 

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A review of fair value hierarchy classification is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain assets or liabilities. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in/out of the level 3 category as of the beginning of the quarter in which the reclassifications occur. The following paragraph describes the sensitivity of the various level 3 valuations to the factors that are relevant in their valuation analysis under Bank Holding Company Accounting (applicable as of June 30, 2018 and for the quarter then ended) and shows the table under Investment Company Accounting (applicable to prior periods).

Commencing with the quarter ended June 30, 2018, equity investments are recorded at cost and are evaluated for impairment periodically.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.

 

March 31, 2019

(Dollars in thousands)

  Level 1   Level 2   Level 3   Total 

Assets

        

Equity investments

  $—     $—     $8,699   $8,699 

Available for sale investment securities(1)

   —      44,682    —      44,682 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $—     $44,682   $8,699   $53,381 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Total unrealized income of $669, net of tax, was included in accumulated other comprehensive income (loss) for the three months ended March 31, 2019 related to these assets.

 

December 31, 2018

(Dollars in thousands)

  Level 1   Level 2   Level 3   Total 

Assets

        

Equity investments

  $—     $—     $9,197   $9,197 

Available for sale investment securities(1)

   —      45,324    —      45,324 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $—     $45,324   $9,197   $54,521 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Total unrealized losses of $82, net of tax, was included in accumulated other comprehensive income (loss) for the nine months ended December 31, 2018 related to these assets.

The following tables provide a summary of changes in fair value of the Company’s level 3 assets and liabilities for the quarter ended March 31, 2019, under Bank Holding Company Accounting, and for the quarter ended March 31, 2018 under Investment Company Accounting.

 

(Dollars in  thousands)

  Equity
Investments
 

December 31, 2018

  $9,197 

Gains included in earnings

   598 

Purchases, investments, and issuances

   50 

Sales, maturities, settlements, and distributions

   (1,146
  

 

 

 

March 31, 2019

  $8,699 
  

 

 

 

Amounts related to held assets(1)

  $196 
  

 

 

 

 

(1)

Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of March 31, 2019.

 

(Dollars in  thousands)

  Medallion
Loans
  Commercial
Loans
  Investments in
Medallion
Bank & Other
Controlled
Subsidiaries
  Equity
Investments
  Investments
Other Than
Securities
  Other
Assets
 

December 31, 2017

  $208,279  $90,188  $302,147  $9,521  $7,450  $339 

Gains (losses) included in earnings

   (38,190  (8  29,143   (993  (1,915  —   

Purchases, investments, and issuances

   7   7,252   462   935   —     —   

Sales, maturities, settlements, and distributions

   (8,941  (3,812  (583  (5  —     —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

March 31, 2018

  $161,155  $93,620  $331,169  $9,458  $5,535  $339 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Amounts related to held assets(1)

  ($38,190 ($10 $29,143  ($993 ($1,915 $—   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

Total realized and unrealized gains (losses) included in income for the period, which relate to assets held as of March 31, 2018.

 

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The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on anon-recurring basis as of March 31, 2019 and December 31, 2018 under Bank Holding Company Accounting.

 

March 31, 2019

(Dollars in thousands)

  Level 1   Level 2   Level 3   Total 

Assets

        

Impaired loans

  $—     $—     $21,549   $21,549 

Loan collateral in process of foreclosure

   —      —      49,808    49,808 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $—     $—     $71,357   $71,357 
  

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2018

(Dollars in thousands)

  Level 1   Level 2   Level 3   Total 

Assets

        

Impaired loans

  $—     $—     $34,877   $34,877 

Loan collateral in process of foreclosure

   —      —      49,495    49,495 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $—     $—     $84,372   $84,372 
  

 

 

   

 

 

   

 

 

   

 

 

 

Significant Unobservable Inputs

ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. The tables below are not intended to beall-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

The valuation techniques and significant unobservable inputs used in recurring level 3 fair value measurements of assets and liabilities as of March 31, 2019 and December 31, 2018 were as follows under Bank Holding Company Accounting.

 

(Dollars in thousands)

  Fair Value
at 3/31/19
   

Valuation Techniques

  

Unobservable Inputs

  Range
(Weighted Average)
 

Equity Investments

   5,488   Investee financial analysis  Financial condition and operating performance of the borrower   N/A 
      Collateral support   N/A 
   1,756   Investee book value adjusted for market appreciation  Financial condition and operating performance of the investee   N/A 
    Precedent arm’s length offer  Business enterprise value  $6,014 – $7,214 
      Business enterprise value/revenue multiples   0.96x – 4.44x 
   1,455   Precedent market transaction  Offering price  $8.73 / share 

 

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(Dollars in thousands)

  Fair Value
at 12/31/18
   

Valuation Techniques

  

Unobservable Inputs

  Range
(Weighted Average)
 

Equity investments

  $5,683   Investee financial analysis  Financial condition and operating performance of the borrower   N/A 
      Collateral support   N/A 
   1,850   Investee book value adjusted for market appreciation  Financial condition and operating performance of the investee   N/A 
    Precedent arm’s length offer  Business enterprise value  $6,014 – $7,214 
      Business enterprise value/revenue multiples   0.96x – 4.54x 
   1,455   Precedent market transaction  Offering price  $8.73 / share 
   209   Investee book value  Valuation indicated by investee filings   N/A 

(18) SMALL BUSINESS LENDING FUND PROGRAM (SBLF) AND TROUBLED ASSETS RELIEF PROGRAM (TARP)

On February 27, 2009 and December 22, 2009, Medallion Bank issued, and the US Treasury purchased under the TARP Capital Purchase Program (the CPP) Medallion Bank’s fixedrate non-cumulative Perpetual Preferred Stock, Series A, B, C, and D for an aggregate purchase price of $21,498,000 in cash. On July 21, 2011, Medallion Bank issued, and the US Treasury purchased 26,303 shares ofSenior Non-Cumulative Perpetual Preferred Stock, Series E (Series E) for an aggregate purchase price of $26,303,000 under the SBLF. The SBLF is a voluntary program intended to encourage small business lending by providing capital to qualified smaller banks at favorable rates. In connection with the issuance of the Series E, Medallion Bank exited the CPP by redeeming the Series A, B, C, and D; and received approximately $4,000,000, net of dividends due on the repaid securities. Medallion Bank pays a dividend rate of 9% on the Series E.

(19) VARIABLE INTEREST ENTITIES

During the 2018 third quarter, the Company determined that Trust III was a VIE. Trust III had been consolidated as a subsidiary of MFC historically, although it should have been consolidated under the variable interest model, since MFC was its primary beneficiary until October 31, 2018. Trust III is a VIE since the key decision-making authority rests in the servicing agreement (where MFC is the servicer for Trust III) rather than in the voting rights of the equity interests and as a result the decision-making rights are considered a variable interest. This conclusion is supported by a qualitative assessment that Trust III does not have sufficient equity at risk. Since the inception of Trust III, MFC had also been party to a limited guaranty which was considered a variable interest because, pursuant to the guaranty, MFC absorbed variability as a result of theon-going performance of the loans in Trust III. As of October 31, 2018, the Company determined that MFC was no longer the primary beneficiary of Trust III and accordingly deconsolidated the VIE, leading to a net gain of $25,325,000 recorded as well as a new promissory note payable by MFC of $1,400,000 issued in settlement of the limited guaranty (see Note 7 for more details). In addition, the Company remains the servicer of the assets of Trust III for a fee.

(20) SUBSEQUENT EVENTS

On April 30, 2019, a demand note with a maturity date of April 30, 2019 was extended to December 15, 2020, or the earliest date prior to December 15, 2020, to which the term of any Company note payable to banks has been extended.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

We are a finance company that has historically 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), which originates consumer loans for the purchase of recreational vehicles (RVs), boats, motorcycles, 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 16% (19% if there had been no loan sales during 2016, 2017, and 2018). We are transitioning away from medallion lending and placing our strategic focus on our growing consumer finance business. As a result of our change in strategy, as of March 31, 2019, our consumer loans represented 80% of our net loan portfolio, with medallion loans representing 14% and commercial loans representing 6%. Total assets under management and management of our unconsolidated wholly-owned subsidiaries (prior to April 2, 2018), which includes our managed net investment portfolio, as well as assets serviced for third party investors and unconsolidated subsidiaries, were $1,565,000,000 as of March 31, 2019, and were $1,522,000,000 and $1,507,000,000 as of December 31, 2018 and March 31, 2018, and have grown at a compound annual growth rate of 9% from $215,000,000 at the end of 1996.

Our loan-related earnings depend primarily on our level of net interest income. Net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, such as bank certificates of deposit issued to customers, debentures issued to and guaranteed by the SBA, privately placed notes, and bank term debt. Net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds, as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by us. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the availability of funding to finance our lending activities. We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities.

We also provide debt, mezzanine, and equity investment capital to companies in a variety of industries, consistent with our investment objectives. These investments may be venture capital style investments which may not be fully collateralized. Our investments are typically in the form of secured debt instruments with fixed interest rates accompanied by an equity stake or warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt instruments.

On March 7, 2018, a majority of the Company’s shareholders authorized the Company’s Board of Directors to withdraw the Company’s election to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended, (1940 Act) and we withdrew such election effective April 2, 2018. At that point, we were no longer a BDC or subject to the provisions of the 1940 Act applicable to BDCs. Historically, the composition of the Company’s assets caused it to meet the definition of an “investment company,” and the Company made a corresponding election to be treated as a BDC. Now that the Company hasde-elected BDC status, it operates so as to fall outside the definition of an “investment company” or within an applicable exception.

As a result of this change in status, commencing with the three months ended June 30, 2018:

 

  

we consolidated 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 we are not a bank holding company for regulatory purposes).

As we made this change to our financial reporting prospectively, in this report we refer to both accounting in accordance with US generally accepted accounting principles (GAAP) applicable to bank holding companies (Bank Holding Company Accounting), which applies commencing April 2, 2018, and to that applicable to investment companies under the 1940 Act (Investment Company Accounting), which applies to prior periods.

Our wholly-owned subsidiary, Medallion Bank, is a bank regulated by the FDIC and the Utah Department of Financial Institutions that originates consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit. To take advantage of this low cost of funds, historically we have referred a portion of our taxicab medallion and commercial loans to Medallion Bank, which originated these loans, and have been serviced by MSC. However, at this time Medallion Bank is not originating any new taxi medallion loans and is working with MSC to service its existing portfolio. The FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital, although it is less than one times Tier 1 capital as of March 31, 2019. MSC earns referral and servicing fees for these activities.

 

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The assets of Taxi Medallion Loan Trust III (Trust III) were not available to pay obligations of its affiliates or any other party. Trust III’s loans are serviced by Medallion Funding LLC (MFC). On November 8, 2018, a limited guaranty in favor of DZ Bank was terminated in exchange for a $1.4 million note, payable in quarterly installments over five years. As a result of such restructuring, effective as of such date, Trust III is no longer consolidated in our financial statements.

Average Balances and Rates (Bank Holding Company Accounting)

The following table shows the Company’s consolidated average balance sheet, interest income and expense and the average interest earning/bearing assets and liabilities, and which reflects the average yield on assets and average costs on liabilities as of and for three months ended March 31, 2019.

 

   As of and for
Three Months Ended March 31, 2019
 

(Dollars in thousands)

  Average Balance   Interest   Average Yield/Cost 

Interest-earning assets

      

Interest-earning cash and cash equivalents

  $33,496   $145    1.76

Investment securities

   44,494    286    2.61 

Loans

      

Recreation

   588,262    22,479    15.50 

Home improvement

   186,129    4,325    9.42 

Commercial loans

   58,840    1,967    13.56 

Medallion loans

   146,267    841    2.33 
  

 

 

   

 

 

   

Total loans

   979,498    29,612    12.26 
  

 

 

   

 

 

   

Total interest-earning assets

   1,057,488   $30,043    11.52
  

 

 

   

 

 

   

 

 

 

Non-interest-earning assets

      

Cash

   33,099     

Equity investments

   8,954     

Loan collateral in process of foreclosure(1)

   51,501     

Goodwill and intangible assets

   204,604     

Other assets

   40,844     
  

 

 

     

Totalnon-interest-earning assets

   339,002     
  

 

 

     

Total assets

  $1,396,490     
  

 

 

     

Interest-bearing liabilities

      

Deposits

  $850,765   $4,922    2.35

SBA debentures and borrowings

   79,885    764    3.88 

Notes payable to banks

   59,037    665    4.57 

Retail and privately placed notes

   36,725    937    10.35 

Preferred securities

   33,000    398    4.89 

Other borrowings

   7,663    36    1.91 
  

 

 

   

 

 

   

Total interest-bearing liabilities

   1,067,075   $7,722    2.93
  

 

 

   

 

 

   

 

 

 

Non-interest-bearing liabilities

      

Deferred tax liability

   6,898     

Other liabilities

   32,745     
  

 

 

     

Totalnon-interest-bearing liabilities

   39,643     
  

 

 

     

Total liabilities

   1,106,718     
  

 

 

     

Non controlling interest

   27,490     

Total stockholders’ equity

   262,282     
  

 

 

     

Total liabilities and stockholders’ equity

  $1,369,490     
  

 

 

     

Net interest income

    $22,321   
    

 

 

   

Net interest margin

       8.56
      

 

 

 

 

 (1)

Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by the Bank of $3,930.

During the quarter, our net loans receivable had a yield of 12.26%, which was mainly driven by the recreation and commercial loans with yields of 15.50% and 13.56%. The recreation loans are mainly driven by the RV and boat business and led to a majority of our interest income. The debt, mainly certificates of deposit, helps fund the business, mainly the consumer loans.

 

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Rate/Volume Analysis (Bank Holding Company Accounting)

The following table presents the change in interest income and expense due to changes in the average balances (volume) and average rates, calculated for the period indicated.

 

   Three Months Ended March 31, 2019 

(Dollars in thousands)

  Increase (Decrease) In
Volume
   Increase
(Decrease) In Rate
   Net Change 

Interest-earning assets

      

Interest-earning cash and cash equivalents

  ($178  $38   ($140

Investment securities

   (13   9    (4

Loans

      

Recreation

   403    (660   (257

Home improvement

   257    (125   132 

Commercial

   (609   76    (533

Medallion

   (244   82    (162
  

 

 

   

 

 

   

 

 

 

Total loans receivable

  ($193  ($627  ($820
  

 

 

   

 

 

   

 

 

 

Total interest-earning assets

  ($384  ($580  ($964
  

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities

      

Deposits

  ($309  $264   ($45

DZ loan

   (121   (120   (241

SBA debentures and other borrowings

   (22   5    (17

Notes payable to banks

   (48   (3   (51

Retail and privately placed notes

   60    2    62 

Preferred securities

   —      13    13 

Other borrowings

   (1   (2   (3
  

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

  ($441  $159   ($282
  

 

 

   

 

 

   

 

 

 

Net

  $57   ($739  ($682
  

 

 

   

 

 

   

 

 

 

Our interest expense is driven by the interest rates payable on our bank certificates of deposit, short-term credit facilities with banks, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. Medallion Bank issues brokered bank certificates of deposit, which are our lowest borrowing costs. Medallion Bank is able to bid on these deposits at a wide variety of maturity levels, which allows for improved interest rate management strategies.

Our cost of funds is primarily driven by the rates paid on our various debt instruments and their relative mix, and changes in the levels of average borrowings outstanding. See Note 7 to the consolidated financial statements for details on the terms of our outstanding debt. Our debentures issued to the SBA typically have terms of ten years.

We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The following tables show the average borrowings and related borrowing costs for the three months ended March 31, 2019 and 2018. Our average balances declined during the current quarter, reflecting the contraction in the loan portfolio, mainly due to the deconsolidation of Trust III and the consumer loan sale in the third quarter of 2018. The increase in borrowing costs primarily reflected the repricing of term borrowings based upon the current market conditions, and deposit balances reflecting the lengthening of their maturity profile.

 

(Dollars in thousands)

  Bank Holding Company Accounting 
  Three Months Ended March 31, 2019 
  Interest
Expense
   Average
Balance
   Average
Borrowing
Costs
 

Deposits

  $4,922   $850,765    2.35

SBA debentures and borrowings

   764    79,885    3.88 

Notes payable to banks

   665    59,037    4.57 

Retail and privately placed borrowings

   937    36,725    10.35 

Preferred securities

   398    33,000    4.89 

Other borrowings

   36    7,663    1.91 
  

 

 

   

 

 

   

Total borrowings

  $7,722   $1,067,075    2.93 
  

 

 

   

 

 

   

 

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   Investment Company Accounting 
   Three Months Ended March 31, 2018 

(Dollars in thousands)

  Interest
Expense
   Average
Balance
   Average
Borrowing
Costs
 

DZ loan

  $802   $98,984    3.29

Notes payable to banks

   813    80,006    4.12 

SBA debentures and other borrowings

   749    78,707    3.86 

Retail notes

   875    33,625    10.55 

Preferred securities

   312    33,000    3.83 
  

 

 

   

 

 

   

Total

   3,551    324,322    4.44 
  

 

 

   

 

 

   

Medallion Bank borrowings

   3,615    853,027    1.72 
  

 

 

   

 

 

   

Total managed borrowings

  $7,166   $1,177,349    2.47 
  

 

 

   

 

 

   

We will continue to seek SBA funding through Medallion Capital to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the SBIA and SBA regulations. We believe that financing operations primarily with short-term floating rate secured bank debt has generally decreased our interest expense, but has also increased our exposure to the risk of increases in market interest rates, which we mitigate with certain interest rate strategies. At March 31, 2019 and 2018, short-term adjustable rate debt constituted 6% and 55% (15% on a managed basis, which included borrowings of Medallion Bank) of total debt.

Loans

The gross loans are 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. During the three months ended March 31, 2019, there had been continued growth in the consumer lending segments which was partially offset by the various commercial loans settled during the quarter and payments received from borrowers.

 

(Dollars in thousands)

  Recreation  Home
Improvement
  Commercial  Medallion  Total 

Gross loans- December 31, 2018

  $587,038  $183,155  $64,083  $183,606  $1,017,882 

Loan originations

   65,757   26,296   442   —     92,495 

Principal payments

   (33,373  (15,849  (9,344  (3,438  (62,004

Charge-offs, net

   (4,929  (159  —     (7,788  (12,876

Transfer to loans in process of foreclosure, net

   (3,391  —     —     (5,705  (9,096

Other

   (1,103  (168  30   (960  (2,201
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross loans- March 31, 2019

  $609,999  $193,275  $55,211  $165,715  $1,024,200 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Provision and Allowance for Loan Loss (Bank Holding Company Accounting)

During the quarter ended March 31, 2019, the New York medallion values declined from the prior quarter to a net realizable value of $169,500 from $181,000. Additionally, loans continued to age over 90 or 120 days, and were reserved andcharged-off down to their collateral value. The provision also included $465,000 of an additional general reserve for a total of $6,173,000, for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses. This figure excludes the general reserve of $17,351,000 at the Bank, which was netted against loan balances at consolidation on April 2, 2018

 

 

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(Dollars in thousands)

  Three Months
Ended
March 31,
2019
 

Allowance for loan losses – beginning balance

  $36,395 

Charge-offs

  

Recreation

   (6,525

Home improvement

   (549

Commercial

   —   

Medallion

   (8,788
  

 

 

 

Total charge-offs

   (15,862
  

 

 

 

Recoveries

  

Recreation

   1,596 

Home improvement

   390 

Commercial

   —   

Medallion

   1,000 
  

 

 

 

Total recoveries

   2,986 
  

 

 

 

Net charge-offs

   (12,876(1) 
  

 

 

 

Provision for loan losses(2)

   13,343 
  

 

 

 

Allowance for loan losses – ending balance

  $36,862 
  

 

 

 

 

(1)

As of March 31, 2019, cumulative net charge-offs of loans and loans in process of foreclosure in the medallion portfolio were $228,508, representing collection opportunities for the Company.

(2)

Includes $6,173 of a general reserve, for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 17% of the total allowance, and 3.96% of the loans in question. This figure excludes the general reserve for the Bank, which was netted against loan balances at consolidation on April 2, 2018.

The following tables present the allowance by segment as a percentage of loans as of March 31, 2019 and December 31, 2018 under Bank Holding Company Accounting.

 

March 31, 2019

(Dollars in thousands)

  Amount   Percentage
of
Allowance
  Allowance as a
Percent of Loan
Category
 

Recreation

  $8,932    24  1.46

Home Improvement

   2,186    6   1.13 

Commercial

   455    1  0.82

Medallion

   25,289    69   15.26 
  

 

 

   

 

 

  

Total

  $36,862    100  3.60
  

 

 

   

 

 

  

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
  

 

 

   

 

 

  

 

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The following table sets forth thepre-tax changes in our unrealized appreciation (depreciation) on investments for the three months ended March 31, 2018 under Investment Company Accounting.

 

(Dollars in thousands)

  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 

Net change in unrealized

        

Appreciation on investments

   —     —     38,795    (998  —     37,797 

Depreciation on investments

   (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 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Balance March 31, 2018

  ($23,761 ($495 $197,715   $2,123  $(3,405 $172,177 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Under both Bank Holding Company Accounting and Investment Company Accounting, we generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. A loan is considered to be delinquent if the borrower fails to make a payment on time; however, during the course of discussion on delinquent status, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in accordance with the original loan agreement. For loan modifications, the loan will only be returned to accrual status if all past due interest and principal payments are brought fully current. For credit that is collateral based, we evaluate the anticipated net residual value we would receive upon foreclosure of such loans, if necessary. There can be no assurance, however, that the collateral securing these loans will be adequate in the event of foreclosure. For credit that is cash flow-based, we assess our collateral position, and evaluate most of these relationships as ongoing businesses, expecting to locate and install a new operator to run the business and reduce the debt.

For the 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 ischarged-off to realized losses. If the collateral is repossessed, a realized loss is recorded to write the collateral down to its net realizable value, 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 as a realized loss, and any excess proceeds are recorded as a realized gain. Proceeds collected on charged off accounts are recorded as realized gains. All collection, repossession, and recovery efforts are handled on behalf of Medallion Bank by the servicer.

 

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The following table shows the trend in loans 90 days or more past due as of the dates indicated.

 

   Bank Holding Company Accounting  Investment Company
Accounting
 
   March 31, 2019  December 31, 2018  March 31, 2018 

(Dollars in  thousands)

  Amount   %(1)  Amount   %(1)  Amount   %(1) 

Recreation

  $3,282    0.3 $4,020    0.4  N/A    N/A 

Home improvement

   156    0.0  135    0.0  N/A    N/A 

Commercial

   710    0.1   279    0.0  $730    0.3

Medallion

   3,954    0.4   15,720    1.6   38,354    13.7 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total loans 90 days or more past due

  $8,102    0.8 $20,154    2.0 $39,084    14.0
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total Medallion Bank loans(2)

   N/A    N/A   N/A    N/A  $17,710    1.9
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total managed loans 90 days or more past due

   N/A    N/A   N/A    N/A  $56,794    4.7
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

 

(1)

Percentages are calculated against the total or managed loan portfolio, as appropriate.

(2)

Includes medallion and consumer loans held at Medallion Bank.

We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 213%, 220%, and 209% as of March 31, 2019, December 31, 2018, and March 31, 2018.

For recreation and medallion loans that reach 120 days past due, they are charged down to collateral value and reclassified to loans in process of foreclosure. The following table shows the activity of loans in process of foreclosure for the three months ended March 31, 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

   3,391    5,705    9,096 

Sales

   (2,076   (377   (2,453

Cash payments received

   —      (2,573   (2,573

Collateral valuation adjustments

   (1,638   (2,119   (3,757
  

 

 

   

 

 

   

 

 

 

Loans in process of foreclosure – March 31, 2019

  $1,180   $48,628   $49,808 
  

 

 

   

 

 

   

 

 

 

The following table presents the credit-related information for the investment portfolios as of March 31, 2018 shown under Investment Company Accounting.

 

(Dollars in thousands)

  March 31, 2018 

Total loans

  

Medallion loans

  $161,155 

Commercial loans

   93,620 
  

 

 

 

Total loans

   254,775 

Investments in Medallion Bank and other controlled subsidiaries

   331,169 

Equity investments(1)

   9,458 

Investment securities

   —   
  

 

 

 

Net investments

  $595,402 
  

 

 

 

Net investments in Medallion Bank and other controlled subsidiaries

  $918,904 

Managed net investments

  $1,384,449 
  

 

 

 

Unrealized appreciation (depreciation) on investments

  

Medallion loans

  ($23,761

Commercial loans

   (495
  

 

 

 

Total loans

   (24,256

 

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(Dollars in thousands)

  March 31, 2018 

Investments in Medallion Bank and other controlled subsidiaries

   197,715 

Equity investments

   2,123 

Investment securities

   —   
  

 

 

 

Total unrealized appreciation on investments

  $175,582 
  

 

 

 

Net unrealized depreciation on investments at Medallion Bank and other controlled subsidiaries

  ($69,561

Managed total unrealized appreciation on investments

  $106,021 
  

 

 

 

Unrealized appreciation (depreciation) as a % of balances outstanding (2)

  

Medallion loans

   (12.86%) 

Commercial loans

   (0.53

Total loans

   (8.70

Investments in Medallion Bank and other controlled subsidiaries

   148.15 

Equity investments

   28.95 

Investment securities

   —   

Net investments

   41.83 

Net investments at Medallion Bank and other controlled subsidiaries

   (7.12%) 

Managed net investments

   8.36
  

 

 

 

 

(1)

Represents common stock, warrants, preferred stock, and limited partnership interests held as investments.

(2)

Unlike other lending institutions, we were not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio was adjusted quarterly to reflect estimates of the current realizable value of the investment portfolio. These percentages represent the discount or premium that investments were carried on the books at, relative to their par or gross value.

The following table presents the gain/loss experience on the investment portfolio for the three months ended March 31, 2018 under Investment Company Accounting.

 

(Dollars in thousands)

  Three Months
Ended

March 31,
2018
 

Realized gains (losses) on loans and equity investments

  

Medallion loans

  ($34,747

Commercial loans

   2 
  

 

 

 

Total loans

   (34,745

Investments in Medallion Bank and other controlled subsidiaries

   —   

Equity investments

   —   

Investment securities

   —   
  

 

 

 

Total realized losses on loans and equity investments

  ($34,745
  

 

 

 

Net realized losses on investments at Medallion Bank and other controlled subsidiaries

  ($23,073
  

 

 

 

Total managed realized losses on loans and equity investments

  ($57,818
  

 

 

 

Realized gains (losses) as a % of average balances outstanding

  

Medallion loans

   (65.74%) 

 

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(Dollars in thousands)

  Three Months
Ended

March 31,
2018
 

Commercial loans

   0.01 

Total loans

   (45.96

Investments in Medallion Bank and other controlled subsidiaries

   —   

Equity investments

   —   

Investment securities

   —   

Net investments

   (30.89
  

 

 

 

Net investments at Medallion Bank and other controlled subsidiaries

   (9.66%) 

Managed net investments

   (18.22%) 
  

 

 

 

The following table sets forth thepre-tax changes in our unrealized and realized gains and losses in the investment portfolio for the three months ended March 31, 2018 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

Other gains

   —   

Direct recoveries (charge-offs)

   2 

Realized gains on investments other than securities and other assets

   —   
  

 

 

 

Total

  ($34,745
  

 

 

 

SEGMENT RESULTS

We manage our financial results under four operating segments and report like a bank holding company. The operating segments are recreation lending, home improvement lending, commercial lending, and medallion lending. We also show results for twonon-operating segments; RPAC and corporate and other investments. Prior to April 2, 2018, we operated as one segment. All results are for the three months ended March 31, 2019.

 

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Recreation Lending

The recreation lending segment is a high-growth prime andnon-prime consumer finance business which is a significant source of income for us, accounting for 75% of our interest income for the three months ended March 31, 2019. The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 62% of the portfolio, boat loans making up 19% of the portfolio, and trailer loans of 10%. Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, California, and Florida, at 18%, 11%, and 10% of loans outstanding, and with no other states over 10%.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2019.

 

(Dollars in thousands)

  Three Months
Ended
March 31,
2019
 

Selected Earnings Data

  

Total interest income

  $22,479 

Total interest expense

   2,774 
  

 

 

 

Net interest income

   19,705 

Provision for loan losses

   7,005 
  

 

 

 

Net interest income after loss provision

   12,700 

Totalnon-interest income (expense)

   (5,382
  

 

 

 

Net income before taxes

   7,318 

Income tax (provision)

   (1,895
  

 

 

 

Net income

  $5,423 
  

 

 

 

Balance Sheet Data

  

Total loans, gross

  $609,999 

Total loan allowance

   8,932 
  

 

 

 

Total loans, net

   601,067 

Total assets

   611,702 

Total borrowings

   487,165 
  

 

 

 

Selected Financial Ratios

  

Return on average assets

   3.66

Return on average equity

   13.83 

Interest yield

   15.50 

Net interest margin

   13.58 

Reserve coverage

   1.46 

Delinquency status(1)

   0.56 

Charge-off %

   3.40 
  

 

 

 

 

(1)

Loans 90 days or more past due.

 

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Home Improvement Lending

The home improvement lending segment works with contractors and financial service providers to finance residential home improvements and is concentrated in swimming pools, roofs, solar panels, and windows at 29%, 16%, 15%, and 11% of total loans outstanding, with no other collateral types over 10%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, Florida, and Ohio at 14%, 10%, and 10% of loans outstanding, and with no other states over 10%.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2019.

 

(Dollars in thousands)

  Three Months
Ended
March 31,
2019
 

Selected Earnings Data

  

Total interest income

  $4,325 

Total interest expense

   906 
  

 

 

 

Net interest income

   3,419 

Provision for loan losses

   549 
  

 

 

 

Net interest income after loss provision

   2,870 

Totalnon-interest income (expense)

   (1,637
  

 

 

 

Net income before taxes

   1,233 

Income tax (provision)

   (319
  

 

 

 

Net income

  $914 
  

 

 

 

Balance Sheet Data

  

Total loans, gross

  $193,275 

Total loan allowance

   2,186 
  

 

 

 

Total loans, net

   191,089 

Total assets

   199,999 

Total borrowings

   159,251 
  

 

 

 

Selected Financial Ratios

  

Return on average assets

   2.38

Return on average equity

   9.53 

Interest yield

   9.42 

Net interest margin

   7.45 

Reserve coverage

   1.13 

Delinquency status(1)

   0.08 

Charge-off %

   0.35 
  

 

 

 

 

(1)

Loans 90 days or more past due.

 

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Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 62% of which are located in the Midwest and Northeast regions, with the rest scattered across the country. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2,000,000 to $5,000,000 at origination, and typically included an equity component as part of the financing. The commercial lending business has concentrations in manufacturing, professional, scientific, and technical services; and transportation and warehousing making up 49%, 16% and 11% of the total business.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2019.

 

(Dollars in thousands)

  Three Months
Ended
March 31,
2019
 

Selected Earnings Data

  

Total interest income

  $1,967 

Total interest expense

   961 
  

 

 

 

Net interest income

   1,006 

Provision for loan losses

   455 
  

 

 

 

Net interest income after loss provision

   551 

Totalnon-interest income (expense)

   (253
  

 

 

 

Net income before taxes

   298 

Income tax (provision)

   (72
  

 

 

 

Net income

  $226 
  

 

 

 

Balance Sheet Data

  

Total loans, gross

  $55,211 

Total loan allowance

   455 
  

 

 

 

Total loans, net

   54,756 

Total assets

   86,906 

Total borrowings

   78,060 
  

 

 

 

Selected Financial Ratios

  

Return on average assets

   1.03

Return on average equity

   5.16 

Interest yield

   13.56 

Net interest margin

   6.93 

Reserve coverage

   0.82 

Delinquency status(1)

   1.29 

Charge-off %

   0.00 
  

 

 

 

 

(1)

Loans 90 days or more past due.

 

Geographic Concentrations

  Total Gross Loans   % of Market 

Minnesota

  $9,920    18

Illinois

   5,475    10

California

   4,984    9

Oregon

   4,293    8

Kansas

   4,065    7

Other(1)

   26,474    48
  

 

 

   

Total

  $55,211    100
  

 

 

   

 

 

 

 

(1)

Includes 11 other states with none greater than 7%.

 

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Medallion Lending

The medallion lending segment operates mainly in the New York, Newark, and Chicago markets. We have a long history of owning, managing, and financing taxicab fleets, taxicab medallions, and corporate car services. During the three months ended March 31, 2019, we saw a slight decline in the medallion values for New York (market value of $169,500, net of liquidation costs), and a slight increase in Chicago (market value of $29,500, net of liquidation costs). Additionally, we have continued to see a decline in interest income due to loans aging greater than 90 days and being placed on nonaccrual and by removing underperforming loans from the portfolio by transferring them to loan collateral in process of foreclosure with charge-offs to collateral value. All the loans are secured by the medallions and enhanced by personal guarantees of the shareholders and owners.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2019.

 

(Dollars in thousands)

  Three Months
Ended
March 31,
2019
 

Selected Earnings Data

  

Total interest income

  $841 

Total interest expense

   1,909 
  

 

 

 

Net interest loss

   (1,068

Provision for loan losses

   5,334 
  

 

 

 

Net interest loss after loss provision

   (6,402

Totalnon-interest income (expense)

   1,214 
  

 

 

 

Net loss before taxes

   (5,188

Income tax benefit

   1,251 
  

 

 

 

Net loss

  ($3,937
  

 

 

 

Balance Sheet Data

  

Total loans, gross

  $165,715 

Total loan allowance

   25,289 
  

 

 

 

Total loans, net

   140,426 

Total assets

   254,714 

Total borrowings

   202,255 
  

 

 

 

Selected Financial Ratios

  

Return on average assets

   (6.05%) 

Return on average equity

   (30.23

Interest yield

   2.33 

Net interest margin

   (2.96

Reserve coverage

   15.26 

Delinquency status(1)

   2.47 

Charge-off %

   21.59 
  

 

 

 

 

(1)

Loans 90 days or more past due.

 

Geographic

Concentration

  Total Gross
Loans
   % of Market 

New York City

  $144,113    87

Newark

   17,923    11

Chicago

   2,919    2

All Other

   760    0
  

 

 

   

 

 

 

Total

  $165,715    100
  

 

 

   

 

 

 

 

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RPAC

We are the majority owner and managing member of RPAC Racing, LLC, a performance and marketing company for NASCAR. Revenues are mainly earned through sponsorships and race winning activity over the nine month race season (February through November) during the year.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2019.

 

(Dollars in thousands)

  Three Months Ended
March 31, 2019
 

Selected Earnings Data

  

Sponsorship, race winnings, and other income

  $3,179 

Race and other expenses

   3,795 

Interest expense

   36 
  

 

 

 

Total expenses

   3,831 

Net loss before taxes

   (652

Income tax benefit

   157 
  

 

 

 

Net loss

  ($495
  

 

 

 

Balance Sheet Data

  

Total assets

  $30,952 

Total borrowings

   7,681 

Selected Financial Ratios

  

Return on average assets

   (6.60%) 

Return on average equity

   (65.48

Corporate and Other Investments

This nonoperating segment relates to our equity and investment securities as well as other assets, liabilities, revenues, and expenses not allocated to the other main operating segments. This activity also includes the elimination of all intercompany activity amongst the entities.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2019.

 

(Dollars in thousands)

  Three Months Ended
March 31, 2019
 

Selected Earnings Data

  

Interest income

  $431 

Interest expense

   1,136 
  

 

 

 

Net interest loss

   (705

Total non interest income (expense), net

   (1,165
  

 

 

 

Net loss before taxes

   (1,870

Income tax benefit

   1,134 
  

 

 

 

Net loss

  ($736
  

 

 

 

Balance Sheet Data

  

Total assets

  $244,455 

Total borrowings

   164,304 

Selected Financial Ratios

  

Return on average assets

   (1.32%) 

Return on average equity

   (4.70

 

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Trends in Investment Portfolio under Investment Company Accounting

Our investment income is driven by the principal amount of and yields on our investment portfolio. To identify trends in the balances and yields, the following table illustrates our investments at fair value, grouped by medallion loans, commercial loans, equity investments, and investment securities, and also presents the portfolio information for Medallion Bank, at the date indicated under Investment Company Accounting.

 

   March 31, 2018 

(Dollars in  thousands)

  Interest
Rate (1)
  Investment
Balances
 

Medallion loans

   

New York

   4.33 $140,661 

Newark

   5.38   21,316 

Chicago

   4.72   15,718 

Boston

   4.41   6,304 

Cambridge

   4.49   309 

Other

   7.93   421 
   

 

 

 

Total medallion loans

   4.50   184,729 
  

 

 

  

Deferred loan acquisition costs

    187 

Unrealized depreciation on loans

    (23,761
   

 

 

 

Net medallion loans

   $161,155 
   

 

 

 

Commercial loans

   

Secured mezzanine

   12.14 $92,782 

Other secured commercial

   7.37   1,434 
   

 

 

 

Total commercial loans

   12.07   94,216 
  

 

 

  

Deferred loan acquisition income

    (101

Unrealized depreciation on loans

    (495
   

 

 

 

Net commercial loans

   $93,620 
   

 

 

 

Investment in Medallion Bank and other controlled subsidiaries

   0.90 $133,454 

Unrealized appreciation on subsidiary investments

    197,715 
   

 

 

 

Investment in Medallion Bank and other controlled subsidiaries, net

   $331,169 
   

 

 

 

Equity investments

   0.00 $7,335 
  

 

 

  

Unrealized appreciation on equities

    2,123 
   

 

 

 

Net equity investments

   $9,458 
   

 

 

 

Investment securities

   —   $—  
  

 

 

  

Unrealized depreciation on investment securities

    —   
   

 

 

 

Net investment securities

   $—  
   

 

 

 

Investments at cost(2)

   4.97 $419,733 
  

 

 

  

Deferred loan acquisition costs

    86 

Unrealized appreciation on controlled subsidiaries, equity investments, and investment securities

    199,839 

Unrealized depreciation on loans

    (24,256
   

 

 

 

Net investments

   $595,402 
   

 

 

 

Medallion Bank investments

   

Consumer loans

   14.86 $726,838 

Medallion loans

   4.34   204,570 

Commercial loans

   2.52   3,180 

Investment securities

   2.40   42,036 
   

 

 

 

Medallion Bank investments at cost(2)

   12.08   976,624 
  

 

 

  

Deferred loan acquisition costs

    11,597 

Unrealized depreciation on investment securities

    (986

Premiums paid on purchased securities

    244 

Unrealized depreciation on loans

    (68,575
   

 

 

 

Medallion Bank net investments

   $918,904 
   

 

 

 

 

(1)

Represents the weighted average interest or dividend rate of the respective portfolio as of the date indicated.

(2)

The weighted average interest rate for the entire managed loan portfolio (medallion, commercial, and consumer loans) was 11.26% at March 31, 2018.

 

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Investment Activity

The following table sets forth the components of investment activity in the investment portfolio for the period indicated under Investment Company Accounting.

 

(Dollars in thousands)

  Three Months
Ended

March 31, 2018
 

Net investments at beginning of period

  $610,135 

Investments originated(1)

   8,684 

Repayments of investments(1)

   (13,371

Net realized losses on investments

   (34,745

Net increase in unrealized appreciation (depreciation)(2)

   24,712 

Accretion of net origination fees

   (13
  

 

 

 

Net decrease in investments

   (14,733
  

 

 

 

Net investments at end of period

  $595,402 
  

 

 

 

 

(1)

Includes refinancings.

(2)

Excludes net unrealized depreciation of $1,915 for the three months ended March 31, 2018 related to investments other than securities and other assets.

SELECTED FINANCIAL DATA

Summary Consolidated Financial Data

You should read the consolidated financial information below with the consolidated financial statements and accompanying notes thereto included in this report. As described therein, for the quarter ended March 31, 2019, the Company reported under Bank Holding Company Accounting.

 

(Dollars in thousands, except per share data)

  Three Months Ended
March 31, 2019
 

Statement of operations

  

Net interest income

  $22,321 

Provision for loan losses

   13,343 

Non-interest income (expense), net

   (7,839
  

 

 

 

Net income before taxes

   1,139 

Income tax benefit

   256 

Lessnon-controlling interest

   167 
  

 

 

 

Net income after taxes

   1,228 
  

 

 

 

Per share data

  

Net income after taxes

   0.05 

Distributions per share

   0.00 
  

 

 

 

Weighted average common shares outstanding

  

Diluted

   24,616,890 
  

 

 

 
   March 31, 2019 

Balance sheet data

  

Net loans receivable

  $987,338 

Total assets

   1,428,728 

Total borrowings(1)

   1,112,286 

Total liabilities

   1,136,887 

Total equity(2)

   291,841 
  

 

 

 
   Three Months Ended
March 31, 2019
 

Selected financial ratios

  

Return on average assets (ROA)

   0.36

Return on average equity (ROE)

   1.72 

 

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(Dollars in thousands, except per share data)

  Three Months Ended
March 31, 2019
 

Dividend payout ratio

   0.00 

Net interest margin

   8.56 

Other income ratio(2)

   2.63 

Total expense ratio(3)

   8.50 

Equity to assets(1)

   20 

Debt to equity(1)

   3.8x 

Loans receivable to assets

   69

Net charge-offs

   12,876 

Net charge-offs as a % of average loans receivable

   5.33

Allowance coverage ratio

   3.60 
  

 

 

 

 

(1)

Includes $13,570 related to the operating lease liability.

(2)

Includes $27,171 related tonon-controlling interest in consolidated subsidiaries.

(3)

Other income ratio represents other income divided by average interest earning assets, and includes the gain on extinguishment of debt of $4,145.

(4)

Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average interest earning assets.

You should read the consolidated financial information below with the consolidated financial statements and accompanying notes thereto included in this report. As noted therein, for the three months ended March 31, 2018, the Company reported under Investment Company Accounting.

 

   Three Months
Ended March 31,
 

(Dollars in thousands, except per share data)

  2018 

Statement of operations

  

Investment income

  $4,033 

Interest expense

   3,551 
  

 

 

 

Net interest income

   482 

Noninterest income

   60 

Operating expenses

   4,108 
  

 

 

 

Net investment loss before income taxes

   (3,566

Income tax benefit

   336 
  

 

 

 

Net investment loss after income taxes

   (3,230

Net realized losses on investments

   (34,745

Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries(1)

   29,115 

Net change in unrealized depreciation on investments other than securities

   (4,403

Net change in unrealized depreciation on investments(1)

   (1,915

Income tax benefit

   304 
  

 

 

 

Net decrease in net assets resulting from operations

  ($14,874
  

 

 

 

Per share data

  

Net investment loss

  ($0.15

Income tax benefit

   0.03 

Net realized losses on investments

   (1.44

Net change in unrealized appreciation on investments(1)

   0.94 
  

 

 

 

Net decrease in net assets resulting from operations

  ($0.62
  

 

 

 

Distributions declared per share

  $0.00 
  

 

 

 

Weighted average common shares outstanding

  

Basic

   24,154,879 

Diluted

   24,154,879 
  

 

 

 

 

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   March 31, 2018 

Balance sheet data

  

Net investments

  $595,402 

Total assets

   616,710 

Total funds borrowed

   320,662 

Total liabilities

   344,273 

Total shareholders’ equity

   272,437 
  

 

 

 

Managed balance sheet data (2)

  

Net investments

  $1,386,136 

Total assets

   1,479,826 

Total funds borrowed

   1,167,888 

Total liabilities

   1,207,389 

 

   Three Months
Ended March 31,
2018
 

Selected financial ratios and other data

  

Return on average assets (ROA)(3)

  

Net investment loss after taxes

   (2.08)% 

Net decrease in net assets resulting from operations

   (9.55

Return on average equity (ROE)(4)

  

Net investment loss after taxes

   (4.62

Net decrease in net assets resulting from operations

   (21.24
  

 

 

 

Weighted average yield

   2.70

Weighted average cost of funds

   2.38 
  

 

 

 

Net interest margin(5)

   0.32 
  

 

 

 

Noninterest income ratio(6)

   0.01 

Total expense ratio(7)

   1.16 

Operating expense ratio(8)

   0.68 
  

 

 

 
   March 31, 2018 

As a percentage of net investment portfolio

  

Medallion loans

   27

Commercial loans

   15 

Investment in Medallion Bank and other controlled subsidiaries

   56 

Equity investments

   2 

Investment securities

   —   
  

 

 

 

Investments to assets(9)

   97

Equity to assets(10)

   44 

Debt to equity(11)

   118 
  

 

 

 

 

(1)

Unrealized appreciation (depreciation) on investments represents the increase (decrease) for the period in the fair value of our investments, including the results of operations for Medallion Bank and other controlled subsidiaries, where applicable.

(2)

Includes the balances of wholly owned, unconsolidated portfolio companies, primarily Medallion Bank.

(3)

ROA represents the net investment income after taxes or net increase in net assets resulting from operations, divided by average total assets.

(4)

ROE represents the net investment income (losses) after taxes or net increase (decrease) in net assets resulting from operations, divided by average shareholders’ equity.

(5)

Net interest margin represents net interest income for the year divided by average interest earning assets, and included dividends from Medallion Bank and other controlled subsidiaries of $28 for the three months ended March 31, 2018. On a managed basis, combined with Medallion Bank, the net interest margin was 6.96% for the three months ended March 31, 2018.

(6)

Noninterest income ratio represents noninterest income divided by average interest earning assets.

(7)

Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average interest earning assets.

(8)

Operating expense ratio represents operating expenses divided by average interest earning assets.

(9)

Represents net investments divided by total assets as of the date indicated.

(10)

Represents total shareholders’ equity divided by total assets as of the date indicated.

(11)

Represents total funds borrowed divided by total shareholders’ equity as of the date indicated.

 

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Consolidated Results of Operations

2019 First Quarter under Bank Holding Company Accounting

Net income attributable to shareholders was $1,228,000, or $0.05 per diluted share for the three months ended March 31, 2019.

Total interest income was $30,043,000 for the three months primarily reflective of activity on the consumer and commercial loans, which had slightly declined from the three months ended December 31, 2018 due to exits in the commercial loans and lower earnings on recreation loans. The yield on interest earning assets was 11.52%. Average interest earning assets were $1,057,488,000 for the three months.

Loans before allowance for loan losses were $1,024,200,000 as of March 31, 2019, and were comprised of recreation ($609,999,000), home improvement ($193,275,000), medallion ($165,715,000), and commercial ($55,211,000) loans. The Company had an allowance for loan losses as of March 31, 2019 of $36,862,000, which was attributable to the medallion (69%), recreation (24%), home improvement (6%), and commercial (1%) loan portfolios. The provision for loan loss remained relatively in line with provision as of December 31, 2018 even as total gross loans had increased, mainly due to consumer loan originations. The provision for loan loss was $13,343,000, reflecting an increase of reserves on the consumer loan portfolio and to a lesser extent an increase in reserves on the medallion portfolio due to a decline in the medallion values. See Note 4 for additional information on loans and allowance for loan losses.

Interest expense was $7,722,000 for the 2019 first quarter and the cost of borrowed funds was 2.93%. Interest expense declined from $8,004,000 for the three months ended December 31, 2018 mainly due to lower borrowings as the DZ loan had been settled during the fourth quarter of 2018. Average debt outstanding was $1,067,075,000. See page 43 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $22,321,000 and the net interest margin was 8.56% for the 2019 first quarter for the reasons stated above.

Noninterest income was $6,863,000 for the 2019 first quarter, which included a $4,145,000 gain on the extinguishment of debt, $3,179,000 of race team related revenues, as well as gains on equity investments and value adjustments on the Chicago owned medallions, which were partly offset by the decline in collateral value on the loans in process of foreclosure of $2,119,000 mainly due to the change in the New York market.

Operating expenses were $14,702,000 for the three months compared to $25,691,000 for the three months ended December 31, 2018. For the current three months, salaries and benefits were $5,341,000, race team costs were $1,998,000, professional fees were $1,636,000, loan servicing costs were $1,194,000, primarily related to the recreation and home improvement consumer loans, and occupancy and other operating expenses were $4,533,000. For the three months ended December 31, 2018, the majority of the change was due the $5,615,000 impairment recorded as well as higher collection costs incurred mainly related to medallion loans.

Total income tax benefit was $256,000 for the three months. See Note 9 for more information.

Loan collateral in process of foreclosure was $49,808,000 at March 31, 2019, an increase from $49,495,000 at December 31, 2018. The increase was primarily reflective of additional loans having reached 120 days past due being charged-down to their collateral value and reclassified to loans in process of foreclosure, partially offset by the decline in collateral values and to a lesser extent the disposition of collateral assets.

Goodwill and intangible assets were $204,423,000 at March 31, 2019, compared to $204,785,00 as of December 31, 2018. See Note 2 for further information regarding goodwill and intangible assets.

2018 First Quarter under Investment Company Accounting

Net decrease in net assets resulting from operations was $14,874,000 or ($0.62) per diluted common share in the 2018 first quarter primarily reflecting an increase in net realized/unrealized losses on the investment portfolio, increased operating expenses and higher income taxes. Net investment loss after income taxes was $3,230,000 or ($0.13) per share in the 2018 quarter.

 

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Investment income was $4,033,000 in the 2018 first quarter and included $1,643,000 of interest reversals related to nonaccrual loans in 2018. The yield on the investment portfolio was 2.69% in the 2018 quarter.

Interest expense was $3,551,000 in the 2018 first quarter. The increase in interest expense was primarily due to increased borrowing costs. The cost of borrowed funds was 4.44% in 2018 reflecting the continuing increase in market interest rates. Average debt outstanding was $324,322,000 for the 2018 quarter primarily reflecting decreased borrowings required to fund the contracting loan portfolio.

Net interest income was $482,000 and the net interest margin was 0.32% for the 2018 quarter.

Noninterest income, which is comprised of prepayment fees, servicing fee income, late charges, and other miscellaneous income, was $60,000 in the 2018 quarter primarily reflecting the reversal of a previously earned management fee due from a portfolio company in the prior year quarter.

Operating expenses were $4,108,000 in the 2018 first quarter. Salaries and benefits expense was $2,349,000 in the 2018 quarter primarily due to executive and employee bonus accrual. Professional fees were $723,000 in 2018 primarily reflecting higher legal expenses for a variety of corporate and investment-related matters. Occupancy and other operating expenses of $1,036,000 in 2018 primarily reflecting higher road or miscellaneous taxes, collection costs related to the medallion loan portfolio and directors’ fees.

Total income tax benefit was $640,000 in 2018, and was comprised of three components, a $336,000 benefit related to the net investment loss, a $8,426,000 benefit related to realized losses, and a provision of $8,122,000 related to net unrealized gains on investments.

Net change in unrealized appreciation (depreciation) on investments before income tax was appreciation of $22,797,000 in the 2018 first quarter. Net change in unrealized appreciation other than the portion related to Medallion Bank and the other controlled subsidiaries, was depreciation of $6,318,000 in 2018, resulting in decreased depreciation of $2,205,000 and related almost entirely to the medallion portfolio. Unrealized appreciation (depreciation) arises when we make valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The current quarter activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $29,115,000 and by reversals of unrealized depreciation on loans which were charged off of $34,747,000, offset by unrealized depreciation on loans and other investments of $40,067,000 mainly due to the continuing declining values of the medallions.

Our net realized losses on investments before taxes were $34,745,000 in the 2018 quarter. The 2018 activity reflected the realized losses in the loan portfolio.

Our net realized/unrealized loss on investments before income taxes was $11,948,000 in the 2018 first quarter reflecting the above.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

We, like other financial institutions, are subject to interest rate risk to the extent that our interest-earning assets (consisting of medallion; commercial; and consumer loans; and investment securities) reprice on a different basis over time in comparison to our interest-bearing liabilities (consisting primarily of bank certificates of deposit, credit facilities and borrowings from banks and other lenders, and SBA debentures).

Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at the higher prevailing interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk.

 

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The effect of changes in interest rates is mitigated by regular turnover of the portfolio. Based on past experience, we anticipate that approximately 40% of the taxicab medallion portfolio will mature or be prepaid each year. We believe that the average life of our loan portfolio varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment because the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. However, borrowers may prepay for a variety of other reasons, such as to monetize increases in the underlying collateral values, particularly in the medallion loan portfolio.

In addition, we manage our exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals on certificates of deposit, for terms of up to five years. We had outstanding SBA debentures of $79,380,000 with a weighted average interest rate of 3.40%, constituting 7% of our total indebtedness, and retail notes of $33,625,000, with a weighted average interest rate of 9.00%, constituting 3% of total indebtedness, and $30,000,000 of private placement notes, with a weighted average interest rate of 8.25%, constituting 3% of total indebtedness as of March 31, 2019. Also, as of March 31, 2019, certain of the certificates of deposit were for terms of up to 59 months, further mitigating the immediate impact of changes in market interest rates.

A relative measure of interest rate risk can be derived from our interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.

The following table presents our interest rate sensitivity gap at March 31, 2019. The principal amounts of interest earning assets are assigned to the time frames in which such principal amounts are contractually obligated to be repriced. We have not reflected an assumed annual prepayment rate for such assets in this table.

 

March 31, 2019 Cumulative Rate Gap(1)

 

(Dollars in thousands)

  Less Than 1
Year
  More Than
1 and Less
Than 2
Years
  More Than 2
and Less
Than 3
Years
  More Than
3 and Less
Than 4
Years
  More Than
4 and Less
Than 5
Years
  More Than
5 and Less
Than 6
Years
  Thereafter   Total 

Earning assets

          

Floating-rate

  $32,752  $—    $—    $—    $—    $—    $—     $32,752 

Adjustable rate

   33,404   2,765   9,137   3,044   19,396   4,500   6,749    78,995 

Fixed-rate

   67,626   36,627   38,058   59,471   56,931   51,248   656,283    966,244 

Cash

   53,505   —     —     —     —     —     —      53,505 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total earning assets

  $187,287  $39,392  $47,195  $62,515  $76,327  $55,748  $663,032   $1,131,496 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Interest bearing liabilities

          

Deposits

  $286,501  $193,929  $192,309  $128,236  $63,156  $—    $—     $864,131 

SBA debentures and borrowings

   28,380   8,500   —     5,000   2,500   12,500   22,500    79,380 

Notes payable to banks

   45,387   4,182   —     1,330   —     —     —      50,899 

Retail and privately placed notes

   —     —     33,625   —     30,000  —     —      63,625 

Preferred securities

   33,000   —     —     —     —     —     —      33,000 

Other borrowings

   7,681   —     —     —     —     —     —      7,681 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total liabilities

  $400,949  $206,611  $225,934  $134,566  $95,656  $12,500  $22,500   $1,098,716 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Interest rate gap

  ($213,662 ($167,219 ($178,739 ($72,051 ($19,329 $43,248  $640,532   $32,780 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Cumulative interest rate gap(2)

  ($213,662 ($380,881 ($559,620 ($631,671 ($651,000 ($607,752 $32,780    —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

December 31, 2018

  ($232,323 ($409,272 ($563,100 ($638,264 ($600,146 ($554,335 $59,833    —   

December 31, 2017(3)

  ($172,208 ($324,049 ($361,494 ($425,785 ($411,672 ($379,286 $168,501    —   
�� 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

 

(1)

The ratio of the cumulative one year gap to total interest rate sensitive assets was (19%) as of March 31, 2019.

(2)

Adjusted for the medallion loan 40% prepayment assumption results in a cumulative one year negative interest rate gap and related ratio of ($160,366) or (14%) for March 31, 2019.

(3)

Represents the cumulative rate gap on a combined basis with Medallion Bank for the years noted.

 

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Our interest rate sensitive assets were $1,131,496,000 and interest rate sensitive liabilities were $1,098,716,000 at March 31, 2019. Theone-year cumulative interest rate gap was a negative $213,662,000 or 19% of interest rate sensitive assets. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $160,366,000 or 14% at March 31, 2019. We seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, and by other options consistent with managing interest rate risk.

Liquidity and Capital Resources

Our sources of liquidity are with a variety of local and regional banking institutions, unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private issuances of debt securities, participations or sales of loans to third parties, the disposition of other assets of the Company, and dividends from Medallion Capital and Medallion Bank, although we have not received any from Medallion Bank since 2016, and are subject to compliance with regulatory ratios. Additionally, we had $3,000,000 of unfunded commitments from the SBA as of March 31, 2019.

Additionally, Medallion Bank has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. Medallion Bank has $45,000,000 available under Fed Funds lines with several commercial banks as of March 31, 2019. In addition, Medallion Bank can retain earnings in the business to fund future growth.

In March 2019, we completed a private placement to certain institutional investors of $30,000,000 aggregate principal amount of 8.25% unsecured notes due 2024, with interest payable semiannually.

The components of our debt were as follows at March 31, 2019. See Note 7 to the consolidated financial statements for details of the contractual terms of our borrowings.

 

(Dollars in thousands)

  Balance   Percentage  Rate (1) 

Deposits

  $864,131    79  2.24

SBA debentures and borrowings

   79,380    7   3.40 

Retail and privately placed notes

   63,625    6   8.65 

Notes payable to banks

   50,899    4   4.70 

Preferred securities

   33,000    3   4.73 

Other borrowings

   7,681    1   2.00 
  

 

 

   

 

 

  

Total outstanding debt

  $1,098,716    100  2.89
  

 

 

   

 

 

  

 

 

 

 

(1)

Weighted average contractual rate as of March 31, 2019.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows our contractual obligations at March 31, 2019.

 

   Payments due by period 

(Dollars in thousands)

  Less than 1 year   1 – 2 years   2 – 3 years   3 – 4 years   4 – 5 years   More than 5 years   Total 

Deposits

  $286,501   $193,929   $192,309   $128,236   $63,156   $—     $864,131 

SBA debentures and borrowings

   28,380    8,500    —      5,000    2,500   35,000    79,380 

Retail and privately placed notes

   —      —      33,625    —      30,000    —      63,625 

Notes payable to banks

   45,811    4,318   280    280    210   —      50,899 

Preferred securities

   —      —      —      —      —      33,000    33,000 

Other borrowings

   7,681    —      —      —      —      —      7,681 

Operating lease obligations

   2,363    2,346    2,273    2,203   2,048   5,589    16,822 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $370,736   $209,093   $228,487   $135,719   $97,914   $73,589   $1,115,538 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Most of our borrowing relationships have maturity dates during 2019 through 2021. We have been in active and ongoing discussions with each of these lenders and have extended each of the facilities as they matured. The lenders have worked with us to extend and change the terms of the borrowing agreements. We have arranged for changes to the terms of the notes and payment and borrowing base calculations which we anticipate will facilitate our operations for the foreseeable future.

 

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In addition, the illiquidity of portions of our loan portfolio and investments may adversely affect our ability to dispose of them at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of our portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net interest income.

We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed primarily with short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to the line item net income as of March 31, 2019 by $1,211,000 on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been ($1,198,000) at March 31, 2019. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net income from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

We continue to work with investment banking firms and other financial intermediaries to investigate the viability of a number of other financing options which include, among others, the sale or spinoff of certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.

The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at March 31, 2019. See Note 7 to the consolidated financial statements for additional information about each credit facility.

 

(Dollars in  thousands)

 The Company  MFC  MCI  FSVC  MB  RPAC and
Other
  March 31,
2019
  December 31, 2018 

Cash

 $25,566 (1)  $379  $26,775  $253  $32,651  $497  $86,121  $57,713 

Bank loans

  37,741   13,158   —     —     —     —     50,899   59,615 

Average interest rate

  5.10  3.55  —     —     —     —     4.70  4.55

Maturity

  4/19-9/20   6/19-12/23   —     —     —     —     4/19-12/23   3/19-12/23 

Preferred securities

  33,000   —     —     —     —     —     33,000   33,000 

Average interest rate

  4.73  —     —     —     —     —     4.73  4.86

Maturity

  9/37   —     —     —     —     —     9/37   9/37 

Retail and privately placed notes

  63,625   —     —     —     —     —     63,625   33,625 

Average interest rate

  8.65  —     —     —     —     —     8.65  83,099 

Maturity

  4/21-4/24   —     —     —     —     —     4/21-3/24  

SBA debentures and borrowings

  —     —     54,000   28,380   —     —     82,380   83,099 

Amounts undisbursed

  —     —     3,000   —     —     —     3,000   3,000 

Amounts outstanding

  —     —     51,000   28,380   —     —     79,380   80,099 

Average interest rate

  —     —     3.48  3.25  —     —     3.40  3.40

Maturity

  —     —     3/21-3/29   2/20   —     —     2/20-3/29   2/20-3/29 

Brokered CDs & other funds borrowed

  —     —     —     —     864,131   —     864,131   848,040 

Average interest rate

  —     —     —     —     2.24  —     2.24  2.14

Maturity

  —     —     —     —     04/19-03/24   —     4/19-03/24   1/19-07/23 

Other borrowings

  —     —     —     —     —     7,681   7,681   7,649 

Average interest rate

  —     —     —     —     —     2.00  2.00  2.00

Maturity

  —     —     —     —     —     12/19-3/20   12/19-3/20   12/19-3/20 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total cash

 $25,566  $379  $26,775  $253  $32,651  $497  $86,121  $57,713 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total debt outstanding

 $134,366  $13,158  $51,000  $28,380  $864,131  $7,681  $1,098,716  $1,062,028 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

Includes $2,475,000 of an interest reserve associated with the March 2019 private placement, which can be used for no other purpose for three years.

 

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Loan amortization, prepayments, and sales also provide a source of funding for us. Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition.

We also generate liquidity through deposits generated at Medallion Bank, borrowing arrangements with other banks, and through the issuance of SBA debentures, as well as from cash flow from operations. In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We are actively seeking additional sources of liquidity, however, given current market conditions, we cannot assure you that we will be able to secure additional liquidity on terms favorable to us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to conserve capital until credit conditions in the market become more favorable; or we may be required to dispose of assets when we would not otherwise do so, and at prices which may be below the net book value of such assets in order for us to repay indebtedness on a timely basis.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU2018-13 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. We do not believe this update will have a material impact on our financial condition.

In January 2017, the FASB issued ASU2017-04, “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. We do not believe this update will have a material impact on our financial condition.

In June 2016, the FASB issuedASU 2016-13, “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) were identified as weaknesses 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. We are assessing the impact the update will have on our financial statements and expects the update to have a significant impact on how we will account for estimated credit losses on our loans.

Common Stock

Our common stock is quoted on NASDAQ under the symbol “MFIN.” Our common stock commenced trading on May 23, 1996. As of May 8, 2019, there were approximately 416 holders of record of our common stock. On May 8, 2019, the last reported share price of our common stock was $7.58 per share.

 

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We are subject to federal and applicable state corporate income taxes on our taxable ordinary income and capital gains. Thus, there can be no assurance that we will pay any cash distributions as we may retain our earnings in certain circumstances to facilitate the growth of our business, to finance our investments, to provide liquidity or for other corporate purposes. We have not paid dividends since 2016 and do not currently anticipate paying dividends. We may, however,re-evaluate paying dividends in the future depending on market conditions.

Control Statutes

Because Medallion Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act and we are a “financial institution holding company” within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of us and, indirectly, Medallion Bank, without, in most cases, prior written approval of the FDIC or the Commissioner of Utah Department of Financial Institutions, as applicable. Under the Change in Bank Control Act, control is conclusively presumed if, among other things, a person or company acquires 25% or more of any class of our voting stock. A rebuttable presumption of control arises if a person or company acquires 10% or more of any class of voting stock and is subject to a number of specified “control factors” as set forth in the applicable regulations.AlthoughMedallionBankisan“insureddepositoryinstitution”withinthemeaningoftheFederalDepositInsuranceActandtheChangeinBankControlAct,yourinvestmentinMedallionFinancialCorp.isnotinsured or guaranteedbytheFDIC,or any other agency, andissubjecttoloss. Under the Utah Financial Institutions Act, control is defined as the power to vote 20% or more of any class of our voting securities by an individual or to vote more than 10% of any class of our voting securities by a person other than an individual. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our common stock in excess of the amount which can be acquired without regulatory approval.

In addition to the regulations detailed above, our operations are subject to supervision and regulation by other federal, state, and local laws and regulations. Additionally, our operations may be subject to various laws and judicial and administrative decisions. This oversight may serve to:

 

  

regulate credit granting activities, including establishing licensing requirements, if any, in various jurisdictions;

 

  

establish maximum interest rates, finance charges and other charges;

 

  

require disclosures to customers;

 

  

govern secured transactions;

 

  

set collection, foreclosure, repossession and claims handling procedures and other trade practices;

 

  

prohibit discrimination in the extension of credit and administration of loans; and

 

  

regulate the use and reporting of information related to a borrower’s credit experience and other data collection.

Changes to laws of states in which we do business could affect the operating environment in substantial and unpredictable ways. We cannot predict whether such changes will occur or, if they occur, the ultimate effect they would have upon our financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in disclosure regarding quantitative and qualitative disclosures about market risk since we filed our Annual Report on Form10-K for the year ended December 31, 2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a—15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, and have concluded that they are effective as of March 31, 2019 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Office and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the first quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s intern control over financial reporting.

 

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently involved in various legal proceedings incident to the ordinary course of our business, including collection matters with respect to certain loans. We intend to vigorously defend any outstanding claims and pursue our legal rights. In the opinion of our management and based upon 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 effect on our results of operations or financial condition.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A of our Annual Report on Form10-K for the fiscal year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 13, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not repurchase any of our shares during the three months ended March 31, 2019. Accordingly, under our Stock Repurchase Program previously authorized by our Board of Directors, up to $22,874,509 of shares remain authorized for repurchase under the program.

 

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ITEM 6. EXHIBITS

EXHIBITS

 

Number  

Description

4.1  Amendment No. 4 to Note, dated and effective as of March  14, 2019, by and between U.S. Small Business Administration and Freshstart Venture Capital Corp. Filed as Exhibit 4.1 to the Current Report on Form8-K filed on March 15, 2019 (File No. 001-37747) and incorporated by reference herein.
4.2  Form of Note Purchase Agreement, including the form of Note attached thereto. Filed as Exhibit 4.1 to the Current Report on Form8-K filed on March 26, 2019 (File No. 001-37747) and incorporated by reference herein.
4.3  Amendment No. 5 to Note, dated and effective as of March  27, 2019, by and between U.S. Small Business Administration and Freshstart Venture Capital Corp. Filed as Exhibit 4.1 to the Current Report on Form8-K filed on March 29, 2019 (File No. 001-37747) and incorporated by reference herein.
10.1  Amendment No. 5 to Loan Agreement, dated and effective as of March  14, 2019, by and between U.S. Small Business Administration and Freshstart Venture Capital Corp. Filed as Exhibit 10.1 to the Current Report on Form8-K filed on March 15, 2019 (File No. 001-37747) and incorporated by reference herein.
10.2  Amendment No. 6 to Loan Agreement, dated and effective as of March  27, 2019, by and between U.S. Small Business Administration and Freshstart Venture Capital Corp. Filed as Exhibit 10.1 to the Current Report on Form8-K filed on March 29, 2019 (File No. 001-37747) and incorporated by reference herein.
31.1  Certification of Alvin Murstein pursuant to Rule13a-14(a) and15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2  Certification of Larry D. Hall pursuant to Rule13a-14(a) and15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1  Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2  Certification of Larry D. Hall pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101.INS  XBRL Instance
101.SCH  XBRL Taxonomy Extension Schema
101.CAL  XBRL Taxonomy Extension Calculation
101.DEF  XBRL Taxonomy Extension Definition
101.LAB  XBRL Taxonomy Extension Labels
101.PRE  XBRL Taxonomy Extension Presentation

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

MEDALLION FINANCIAL CORP.
Date: May 10, 2019
By: 

/s/ Alvin Murstein

 Alvin Murstein
 Chairman and Chief Executive Officer
By: 

/s/ Larry D. Hall

 Larry D. Hall
 Senior Vice President and
 Chief Financial Officer
 Signing on behalf of the registrant as principal financial and accounting officer.

 

 

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