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MFIN Medallion Financial

Filed: 5 May 21, 4:12pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-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, 2021

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 number 001-37747

 

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)

 

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

 

 

MFIN

 

 

NASDAQ Global Select Market

 

 

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 Regulation S-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, a non-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” in Rule 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 Rule 12b-2 of the Exchange Act).    YES      NO  

 

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of May 3, 2021 was 25,033,486.

 

 


 

 

MEDALLION FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS

 

 

The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.

This report contains forward-looking statements relating to future events and future performance applicable to us within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language. In connection with certain forward-looking statements contained in this Form 10-Q and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-Q were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory, and other uncertainties and contingencies, all of which are difficult or impossible to predict, and many of which are beyond control of the Company. In particular, any forward-looking statements are subject to the risks and great uncertainties associated with the ongoing COVID-19 pandemic and the related impact on the US and global economies.

All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statements. The statements have not been audited by, examined by, compiled by, or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-Q should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-Q. The inclusion of the forward-looking statements contained in this Form 10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-Q will be achieved.

In light of the foregoing, readers of this Form 10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein. You should consider these risks and those described under Risk Factors in the Company’s Annual Report on Form 10-K and others that are detailed in the other reports that the Company files from time to time with the Securities and Exchange Commission.

Page 2 of 60


 

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. In recent years, our strategic growth has been through Medallion Bank, which originates consumer loans for the purchase of recreational vehicles, boats, and trailers and to finance home improvements. We historically have had a leading position in originating, acquiring, and servicing loans that finance taxi medallions and various types of commercial businesses.

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 have transitioned away from medallion lending and have placed our strategic focus on our growing consumer finance portfolio. Total assets under management, which includes assets serviced for third-party investors, were $1.8 billion as of March 31, 2021 and December 31, 2020, and have grown at a compound annual growth rate of 9% from $215,000,000 at the end of 1996.

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 taxi 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 taxi 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, 2021, and the related consolidated statements of operations, consolidated statements of other comprehensive income/(loss), consolidated statements of stockholders’ equity and cash flows for the three months then ended included in Item 1 have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or 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 three months ended March 31, 2021 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 Form 10-K for the year ended December 31, 2020.

 

Page 3 of 60


 

 

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

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

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents(1)

 

$

69,477

 

 

$

54,743

 

Federal funds sold

 

 

70,800

 

 

 

57,297

 

Investment securities

 

 

38,081

 

 

 

46,792

 

Equity investments

 

 

9,529

 

 

 

9,746

 

Loans

 

 

1,259,215

 

 

 

1,229,838

 

Allowance for loan losses

 

 

(57,809

)

 

 

(57,548

)

Net loans receivable

 

 

1,201,406

 

 

 

1,172,290

 

Accrued interest receivable

 

 

9,215

 

 

 

10,338

 

Income tax receivable

 

 

859

 

 

 

1,757

 

Property, equipment, and right-of-use lease asset, net

 

 

11,858

 

 

 

12,404

 

Loan collateral in process of foreclosure(2)

 

 

50,733

 

 

 

54,560

 

Goodwill

 

 

150,803

 

 

 

150,803

 

Intangible assets, net

 

 

50,729

 

 

 

51,090

 

Other assets

 

 

25,260

 

 

 

20,591

 

Total assets

 

$

1,688,750

 

 

$

1,642,411

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses(3)

 

$

17,746

 

 

$

14,902

 

Accrued interest payable

 

 

4,762

 

 

 

4,673

 

Deposits(4)

 

 

1,084,074

 

 

 

1,065,398

 

Short-term borrowings

 

 

73,937

 

 

 

87,334

 

Deferred tax liabilities, net

 

 

3,528

 

 

 

807

 

Operating lease liabilities

 

 

10,464

 

 

 

11,018

 

Long-term debt(5)

 

 

182,225

 

 

 

153,718

 

Total liabilities

 

 

1,376,736

 

 

 

1,337,850

 

Commitments and contingencies(6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock (1,000,000 shares of $0.01 par value stock authorized-NaN outstanding)

 

 

 

 

 

Common stock (50,000,000 shares of $0.01 par value stock authorized- 27,985,598 shares at March 31, 2021 and 27,828,871 shares at December 31, 2020 issued)

 

 

280

 

 

 

278

 

Additional paid in capital

 

 

278,035

 

 

 

277,539

 

Treasury stock (2,951,243 shares at March 31, 2021 and December 31, 2020)

 

 

(24,919

)

 

 

(24,919

)

Accumulated other comprehensive income

 

 

1,407

 

 

 

2,012

 

Retained earnings (accumulated deficit)

 

 

(15,071

)

 

 

(23,502

)

Total stockholders’ equity

 

 

239,732

 

 

 

231,408

 

Non-controlling interest in consolidated subsidiaries

 

 

72,282

 

 

 

73,153

 

Total equity

 

 

312,014

 

 

 

304,561

 

Total liabilities and equity

 

$

1,688,750

 

 

$

1,642,411

 

Number of shares outstanding

 

 

25,034,355

 

 

 

24,877,628

 

Book value per share

 

$

9.58

 

 

$

9.30

 

 

(1)

Includes restricted cash of $2,970 as of March 31, 2021 and December 31, 2020.

(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 $3,818 as of March 31, 2021 and $3,535 as of December 31, 2020.

(3)

Includes the short-term portion of lease liabilities of $2,048 and $2,004 as of March 31, 2021 and December 31, 2020. Refer to Note 6 for more details.

(4)

Includes $2,661 and $2,674 of deferred financing costs as of March 31, 2021 and December 31, 2020. Refer to Note 5 for more details.

(5)

Includes $3,862 and $3,131 of deferred financing costs as of March 31, 2021 and December 31, 2020. Refer to Note 5 for more details.

(6)

Refer to Note 10 for details.

 

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

Page 4 of 60


 

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months Ended March 31,

 

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

 

2021

 

 

2020

 

Interest and fees on loans

 

$

36,855

 

 

$

35,019

 

Interest and dividends on investment securities

 

 

225

 

 

 

470

 

Medallion lease income

 

 

 

 

 

53

 

Total interest income(1)

 

 

37,080

 

 

 

35,542

 

Interest on deposits

 

 

4,711

 

 

 

5,941

 

Interest on short-term borrowings

 

 

403

 

 

 

564

 

Interest on long-term debt

 

 

3,293

 

 

 

2,495

 

Total interest expense(2)

 

 

8,407

 

 

 

9,000

 

Net interest income

 

 

28,673

 

 

 

26,542

 

Provision for loan losses

 

 

3,019

 

 

 

16,541

 

Net interest income after provision for loan losses

 

 

25,654

 

 

 

10,001

 

Other income (loss)

 

 

 

 

 

 

 

 

Write-down of loan collateral in process of foreclosure

 

 

(2,785

)

 

 

(6,286

)

Sponsorship and race winnings, net

 

 

2,473

 

 

 

2,573

 

Gain on extinguishment of debt

 

 

1,767

 

 

 

 

Loss on equity investments

 

 

 

 

 

(3,510

)

Other income

 

 

482

 

 

 

243

 

Total other income (loss), net

 

 

1,937

 

 

 

(6,980

)

Other expenses

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,685

 

 

 

6,933

 

Race team related expenses

 

 

2,122

 

 

 

2,130

 

Loan servicing fees

 

 

1,647

 

 

 

1,612

 

Collection costs

 

 

1,232

 

 

 

1,229

 

Professional fees

 

 

507

 

 

 

3,589

 

Rent expense

 

 

675

 

 

 

697

 

Regulatory fees

 

 

438

 

 

 

365

 

Amortization of intangible assets

 

 

361

 

 

 

361

 

Other expenses

 

 

1,975

 

 

 

2,355

 

Total other expenses

 

 

14,642

 

 

 

19,271

 

Income (loss) before income taxes

 

 

12,949

 

 

 

(16,250

)

Income tax (provision) benefit

 

 

(3,878

)

 

 

3,249

 

Net income (loss) after taxes

 

 

9,071

 

 

 

(13,001

)

Less: income attributable to the non-controlling interest

 

 

640

 

 

 

642

 

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

 

$

8,431

 

 

$

(13,643

)

Basic net income (loss) per share

 

$

0.34

 

 

$

(0.56

)

Diluted net income (loss) per share

 

$

0.34

 

 

$

(0.56

)

Distributions declared per share

 

$

 

 

$

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

24,518,775

 

 

 

24,401,773

 

Diluted

 

 

24,895,108

 

 

 

24,401,773

 

 

 

 

 

 

 

 

 

 

 

(1)

Included in interest and investment income is $325 and $293 of paid-in-kind interest for the three months ended March 31, 2021 and 2020.

(2)

Average borrowings outstanding were $1,305,162 and $1,164,483, and the related average borrowing costs were 2.61% and 3.11%, for the three months ended March 31, 2021 and 2020.  

 

  

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

 

Page 5 of 60


 

 

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)

 

 

 

For the Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Net income (loss) after taxes

 

$

9,071

 

 

$

(13,001

)

Other comprehensive income (loss), net of tax

 

 

(605

)

 

 

147

 

Total comprehensive income (loss)

 

 

8,466

 

 

 

(12,854

)

Less comprehensive income attributable to the non-controlling interest

 

 

640

 

 

 

642

 

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

 

$

7,826

 

 

$

(13,496

)

 

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

 

Page 6 of 60


 

 

 

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

(Dollars in thousands)

 

Common

Stock Shares

 

 

Common

Stock

 

 

Preferred

Stock

 

 

Capital in

Excess of

Par

 

 

Treasury

Stock Shares

 

 

Treasury

Stock

 

 

Retained

Earnings (Accumulated Deficit)

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Stockholders’

Equity

 

 

Non-

controlling

Interest

 

 

Total

Equity

 

Balance at December 31, 2020

 

 

27,828,871

 

 

$

278

 

 

$

-

 

 

$

277,539

 

 

 

(2,951,243

)

 

$

(24,919

)

 

$

(23,502

)

 

$

2,012

 

 

$

231,408

 

 

$

73,153

 

 

$

304,561

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,431

 

 

 

 

 

 

8,431

 

 

 

640

 

 

 

9,071

 

Distributions to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,511

)

 

 

(1,511

)

Stock-based compensation expense

 

 

 

 

 

2

 

 

 

 

 

 

496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

498

 

 

 

 

 

 

498

 

Issuance of restricted stock, net

 

 

163,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock, net

 

 

(7,602

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gains

   on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(605

)

 

 

(605

)

 

 

 

 

 

(605

)

Balance at March 31, 2021

 

 

27,985,598

 

 

$

280

 

 

$

 

 

$

278,035

 

 

 

(2,951,243

)

 

$

(24,919

)

 

$

(15,071

)

 

$

1,407

 

 

$

239,732

 

 

$

72,282

 

 

$

312,014

 

 

 

.

 

(Dollars in thousands)

 

Common

Stock Shares

 

 

Common

Stock

 

 

Preferred

Stock

 

 

Capital in

Excess of

Par

 

 

Treasury

Stock Shares

 

 

Treasury

Stock

 

 

Retained

Earnings (Accumulated Deficit)

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Stockholders’

Equity

 

 

Non-controlling

Interest

 

 

Total

Equity

 

Balance at December 31, 2019

 

 

27,597,802

 

 

$

276

 

 

 

 

 

$

275,511

 

 

 

(2,951,243

)

 

$

(24,919

)

 

$

11,281

 

 

$

999

 

 

$

263,148

 

 

$

71,320

 

 

$

334,468

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,643

)

 

 

 

 

 

(13,643

)

 

 

642

 

 

 

(13,001

)

Distributions to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,507

)

 

 

(1,507

)

Stock-based compensation expense

 

 

 

 

 

2

 

 

 

 

 

 

464

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

466

 

 

 

 

 

 

466

 

Issuance of restricted stock, net

 

 

165,674

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Forfeiture of restricted stock, net

 

 

(5,577

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Net change in unrealized gains on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

147

 

 

 

147

 

 

 

 

 

 

147

 

Balance at March 31, 2020

 

 

27,757,899

 

 

$

278

 

 

 

 

 

$

275,975

 

 

 

(2,951,243

)

 

$

(24,919

)

 

$

(2,362

)

 

$

1,146

 

 

$

250,118

 

 

$

70,455

 

 

$

320,573

 

 

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

 

Page 7 of 60


 

 

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

9,071

 

 

$

(13,001

)

Adjustments to reconcile net loss from operations to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,019

 

 

 

16,541

 

Paid-in-kind interest

 

 

(325

)

 

 

(293

)

Depreciation and amortization

 

 

1,321

 

 

 

1,590

 

Increase (decrease) in deferred and other tax liabilities

 

 

3,620

 

 

 

(2,713

)

Amortization of origination fees, net

 

 

1,656

 

 

 

1,304

 

Net change in value of loan collateral in process of foreclosure

 

 

4,002

 

 

 

8,825

 

Net realized losses on investments

 

 

 

 

 

3,554

 

Stock-based compensation expense

 

 

498

 

 

 

466

 

Gain on extinguishment of debt

 

 

(1,767

)

 

 

 

Decrease in accrued interest receivable

 

 

1,123

 

 

 

125

 

(Increase) decrease in other assets

 

 

(2,228

)

 

 

205

 

Increase in accounts payable and accrued expenses

 

 

944

 

 

 

1,249

 

(Increase) decrease in accrued interest payable

 

 

126

 

 

 

(1,062

)

Net cash provided by operating activities

 

 

21,060

 

 

 

16,790

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Loans originated

 

 

(150,598

)

 

 

(107,149

)

Proceeds from principal receipts, sales, and maturities of loans

 

 

113,144

 

 

 

67,368

 

Purchases of investments

 

 

(2,000

)

 

 

(6,541

)

Proceeds from principal receipts, sales, and maturities of investments

 

 

8,280

 

 

 

7,692

 

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

   of foreclosure

 

 

3,627

 

 

 

4,007

 

Net cash used for investing activities

 

 

(27,547

)

 

 

(34,623

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from time deposits and funds borrowed

 

 

181,179

 

 

 

114,418

 

Repayments of time deposits and funds borrowed

 

 

(144,944

)

 

 

(107,402

)

Distributions to non-controlling interests

 

 

(1,511

)

 

 

(1,507

)

Net cash provided by financing activities

 

 

34,724

 

 

 

5,509

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND

  RESTRICTED CASH

 

 

28,237

 

 

 

(12,324

)

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

 

 

112,040

 

 

 

67,821

 

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

 

$

140,277

 

 

$

55,497

 

SUPPLEMENTAL INFORMATION

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

7,637

 

 

$

9,339

 

Cash paid during the period for income taxes

 

 

4

 

 

 

3

 

NON-CASH INVESTING

 

 

 

 

 

 

 

 

Loans transferred to loan collateral in process of foreclosure, net

 

$

3,802

 

 

$

6,938

 

  

(1)

Includes federal funds sold.

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

Page 8 of 60


 

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

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

Medallion Financial Corp., or the Company, is a finance company organized as a Delaware corporation that reports as a bank holding company, but is not a bank holding company for regulatory purposes. The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Bank, or the Bank, a Federal Deposit Insurance Corporation, or FDIC, insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activities. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes examinations by those agencies. The Bank was initially formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxi medallions, 2) asset-based commercial loans, and 3) SBA 7(a) loans. Subsequent to its formation, the Bank began originating consumer loans to finance the purchases of recreational vehicles, or RVs, boats, and other related items, and to finance home improvements. The Company also conducts business through Medallion Funding LLC, or MFC, a Small Business Investment Company, or SBIC, which originates and services medallion and commercial loans.

The Company also conducts business through its subsidiaries Medallion Capital, Inc., or MCI, an SBIC which conducts a mezzanine financing business, and Freshstart Venture Capital Corp., or FSVC, an SBIC that originated and services medallion and commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated by the Small Business Administration, or SBA. MCI and FSVC are financed in part by the SBA.

The Company has a controlling ownership stake in Medallion Motorsports, LLC, the primary owner of RPAC Racing, LLC, or RPAC, a professional car racing team that competes in the Monster Energy NASCAR Cup Series, which is also consolidated with the Company.

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

In 2019, the Bank began the process to build out a strategic partnership program with financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and a second partnership in 2021, which will soon be active, and began issuing its first loans, while continuing to explore opportunities with additional fintech companies.

Taxi Medallion Loan Trust III, or Trust III, was established for the purpose of owning medallion loans originated by MFC or others. Trust III is a variable interest entity, or VIE, and MFC was the primary beneficiary until the 2018 fourth quarter. As a result, the Company consolidated Trust III in its financial results until consummation of a restructuring in the 2018 fourth quarter. For a discussion of the restructuring, see Note 15. Trust III is a separate legal and corporate entity with its own creditors which, in any liquidation of Trust III, will be entitled to be satisfied out of Trust III’s assets prior to any value in Trust III becoming available to Trust III’s equity holders. The assets of Trust III are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Trust III. Trust III’s loans are serviced by MFC.

The Company established a wholly-owned subsidiary, Medallion Financing Trust I, or Fin Trust, for the purpose of issuing unsecured preferred securities to investors. Fin Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of Fin Trust, will be entitled to be satisfied out of Fin Trust’s assets prior to any value in Fin Trust becoming available to Fin Trust’s equity holders. The assets of Fin Trust, aggregating $36,083,000 at March 31, 2021, are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Fin Trust.

MFC, through several wholly-owned subsidiaries, together, Medallion Chicago, purchased $8,689,000 of City of Chicago taxi medallions out of foreclosure, some of which are leased to fleet operators. The 159 taxi medallions are carried at a net realizable value of $2,298,000 in other assets on the Company’s consolidated balance sheet at March 31, 2021, compared to a net realizable value of $2,932,000 and $3,091,000 at December 31, 2020 and March 31, 2020.

Page 9 of 60


 

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  

Use of Estimates

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

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned and controlled subsidiaries. All significant intercompany transactions, balances, and profits (losses) have been eliminated in consolidation.

The consolidated financial statements have been prepared in accordance with GAAP. The Company consolidates all entities it controls through a majority voting interest, a controlling interest through other contractual rights, or as being identified as the primary beneficiary of VIEs. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party’s holding is recorded as non-controlling interest.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that exceed the federally insured limits. Cash includes $2,970,000 of an interest reserve associated with the private placements of debt in March and August 2019, which cannot be used for any other purpose until March 2022. Cash also includes $1,500,000 of interest-bearing funds deposited in other banks, that are mainly callable, with terms of 4 to 7 years.

Fair Value of Assets and Liabilities

The Company follows the Financial Accounting Standards Board, or FASB, FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, or FASB ASC 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as an exit price (i.e. a price that would be received to sell, as opposed to acquire, an asset or transfer a liability), and emphasizes that fair value is a market-based measurement. It establishes a fair value hierarchy that distinguishes between assumptions developed based on market data obtained from independent external sources and the reporting entity’s own assumptions. Further, it specifies that fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. See also Notes 12 and 13 to the consolidated financial statements.

Equity Investments

The Company follows FASB ASC Topic 321, Investments – Equity Securities, or ASC 321, which requires all applicable investments in equity securities with a readily determinable fair value to be valued as such, and those without a readily determinable fair value, are measured at cost, less any impairment plus or minus any observable price changes. Equity investments of $9,529,000 and $9,746,000 at March 31, 2021 and December 31, 2020, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost less any impairment plus or minus observable price changes. As of March 31, 2021 and December 31, 2020, the Company determined that there was no impairment or observable price change.   

In the 2021 first quarter, the Company purchased $2,000,000 of equity securities with a readily determinable fair value. As a result, all unrealized gains and losses are included in earnings, and the fair value of these securities of $1,972,000 as of March 31, 2021 are included in other assets on the consolidated balance sheet.

Page 10 of 60


 

The table below presents the unrealized portion related to the equity securities held as of March 31, 2021.

 

(Dollars in thousands)

 

March 31, 2021

 

Net losses recognized during the period on equity securities

 

$

(28

)

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

 

 

 

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

 

$

(28

)

 

Investment Securities

The Company follows FASB ASC Topic 320, Investments – Debt Securities, or ASC 320, which requires that all applicable investments in debt securities be classified as trading securities, available-for-sale securities, or held-to-maturity securities. Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized on a level yield basis as an adjustment to the yield of the related investment. The net premium on investment securities totaled $235,000 at March 31, 2021 and $278,000 at December 31, 2020, and $43,000 and $55,000 was amortized to interest income for the three months ended March 31, 2021 and 2020. Refer to Note 3 for more details. ASC 320 further requires that held-to-maturity securities be reported at amortized cost and available-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings at the date of the consolidated financial statements, and reported in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity, net of the effect of income taxes, until they are sold. At the time of sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results and any amounts previously included in stockholders’ equity, which were recorded net of the income tax effect, will be reversed.

Loans

The Company’s loans are currently reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. Effective April 2, 2018, the Company withdrew its previous election to be regulated as a business development company under the Investment Company Act of 1940, and therefore changed the Company’s financial reporting from investment company accounting to bank holding company accounting. As a result, the existing loan balances were adjusted to fair value in connection with the change in reporting, and balances, net of reserves and fees, became the opening balances.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At March 31, 2021 and December 31, 2020, net loan origination costs were $21,618,000 and $20,684,000. Net amortization to income for the three months ended March 31, 2021 and 2020 was $1,656,000 and $1,304,000.

Interest income is recorded on the accrual basis. Medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. The consumer portfolio has different characteristics, typified by a larger number of lower dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is likely the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have not been charged-off, to be impaired. These loans are placed on nonaccrual when they become 90 days past due, or earlier if they enter bankruptcy, and are charged-off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated. For the recreation loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged-off. If the collateral is repossessed, a loss is recorded to write the collateral down to its fair value less selling costs, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off. Proceeds collected on charged-off accounts are recorded as a recovery. Total loans 90 days or more past due were $4,118,000 at March 31, 2021, or 0.33% of the total loan portfolio, compared to $6,878,000, or 0.57% at December 31, 2020.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants concessions to the borrower for other than an insignificant period of time that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring, or TDR. The Company strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before they reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize the economic loss to the Company and to avoid foreclosure or repossession of the collateral. For modifications where the Company forgives principal, the

Page 11 of 60


 

entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans. Beginning in the third quarter 2019, all consumer loans which are party to a Chapter 13 bankruptcy are immediately classified as TDRs. The Company’s policy with regard to bankrupt loans is to take an immediate 40% write down of the loan balance. As a result of the Consolidated Appropriations Act, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, relief period was extended to the later of January 1, 2022 or 60 days after the date which the coronavirus, or COVID-19, national emergency terminates. During the relief period, companies may elect to (a) suspend the requirements of GAAP for loan modifications related to COVID-19 that would otherwise be categorized as TDRs and (b) suspend any determination of a loan modified as a result of the effects of COVID-19 as a TDR, including impairment for accounting purposes. Any such suspension is applicable for the term of the loan modification, but solely with respect to any modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019, and shall not apply to any adverse impact on the credit of a borrower that is not related to COVID-19. As of March 31, 2021, there were no consumer or medallion loan modifications related to COVID-19 that would have otherwise been classified as a TDR, and therefore there was no need for the Company to elect this relief under the CARES Act during 2020 and 2021. However, we expect to have loan modifications related to COVID-19 that would apply under this provision of the CARES Act in the future.

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

The Company had $11,020,000 and $15,367,000 of net loans pledged as collateral under borrowing arrangements at March 31, 2021 and December 31, 2020.

The Company accounts for its sales of loans in accordance with FASB Accounting Standards Codification Topic 860, Transfers and Servicing, or FASB ASC 860, which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. In accordance with FASB ASC 860, the Company had elected the fair value measurement method for its servicing assets and liabilities. The principal portion of loans serviced for others by the Company and its affiliates was $106,325,000 at March 31, 2021 and $107,131,000 at December 31, 2020. The Company has evaluated the servicing aspect of its business in accordance with FASB ASC 860, which relates to servicing assets held by MFC (related to the remaining assets in Trust III) and the Bank, and determined that no material servicing asset or liability existed as of March 31, 2021 and December 31, 2020. The Company assigned its servicing rights of the Bank’s portfolio to MSC. The costs of servicing were allocated to MSC by the Company, and the servicing fee income was billed to and collected from the Bank by MSC.

Allowance for Loan Losses

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a one-year lookback period for consumer loans. For commercial loans deemed nonperforming, the historical loss experience and other projections are looked at. For medallion loans, delinquent nonperforming loans are valued at collateral value for the most recent quarter. Collateral value for the medallion loans is generally determined utilizing factors deemed relevant under the circumstances of the market including but not limited to: actual transfers, pending transfers, median and average sales prices, discounted cash flows, market direction and sentiment, and general economic trends for the industry and economy. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. As a result of COVID-19, there was an increase in the reserve percentages of 50 basis points on the recreation subprime loan business during 2020, of which there was an increase of 25-50 basis points for the three months ended March 31, 2020. In addition, the Company determined that anticipated payment activity on the medallion portfolio was impossible to quantify upon exit of the six-month deferral period with borrowers, and therefore deemed all such loans as impaired in the third quarter of 2020. As a result, all medallion loans were placed on nonaccrual and written down to collateral value, net of liquidation costs, of $79,500 for New York City medallions.  The Company continues to monitor the impact of COVID-19 on the consumer, commercial, and medallion loans. Had there been no payment deferrals offered to borrowers under the CARES Act, potential loans 90 days or more past due would have resulted in increased reserves and/or charge-offs. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.

Goodwill and Intangible Assets

The Company’s goodwill and intangible assets arose as a result of the excess of fair value over book value for several of the Company’s previously unconsolidated portfolio investment companies as of April 2, 2018. This fair value was brought forward under the Company’s new reporting, and was subject to a purchase price accounting allocation process conducted by an independent third-party expert to arrive at the current categories and amounts. Goodwill is not amortized, but is subject to quarterly review by management to determine whether additional impairment testing is needed, and such testing is performed at least on an annual basis. Intangible assets are amortized over their useful life of approximately 20 years. As of March 31, 2021, December 31, 2020, and March 31, 2020, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $50,729,000, $51,090,000, and $52,175,000, and the Company recognized $361,000 of amortization expense on the intangible assets for the three months ended March 31, 2021 and 2020. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $2,530,000, $2,717,000, and $5,429,000 were outstanding at March 31, 2021, December 31, 2020, and March 31, 2020, and of which $187,000 and $329,000 were amortized to interest income for the three months ended March 31, 2021 and 2020. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2020, who concluded there was 0 impairment on the Bank and on the RPAC intangible asset. The Company reviewed the goodwill related to the Bank and the RPAC intangible assets, considered whether the current COVID-19 pandemic had any effect on such goodwill, and concluded that there was 0 additional impairment as of March 31, 2021.

Page 12 of 60


 

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

 

(Dollars in thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Brand-related intellectual property

 

$

18,699

 

 

$

18,974

 

Home improvement contractor relationships

 

 

5,865

 

 

 

5,951

 

Race organization

 

 

26,165

 

 

 

26,165

 

Total intangible assets, net

 

$

50,729

 

 

$

51,090

 

 

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 $84,000 and $121,000 for the three months ended March 31, 2021 and 2020.

Deferred Costs

Deferred financing costs represent costs associated with obtaining the Company’s borrowing facilities, and are amortized on a straight line basis over the lives of the related financing agreements and life of the respective pool. Amortization expense was $645,000 and $723,000 for the three months ended March 31, 2021 and 2020. In addition, the Company capitalizes certain costs for transactions in the process of completion (other than business combinations), including those for potential investments, and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income over an appropriate period, or written off. The amount on the Company’s balance sheet for all of these purposes were $6,523,000, $5,805,000, and $4,674,000 as of March 31, 2021, December 31, 2020, and March 31, 2020.

Income Taxes

Income taxes are accounted for using the asset and liability approach in accordance with FASB ASC Topic 740, Income Taxes, or ASC 740. Deferred tax assets and liabilities reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are also recorded for net operating losses, capital losses and any tax credit carryforwards. A valuation allowance is provided against a deferred tax asset when it is more likely than not that some or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether a valuation allowance for deferred tax assets is needed. Items considered in determining the Company’s valuation allowance include expectations of future earnings of the appropriate tax character, recent historical financial results, tax planning strategies, the length of statutory carryforward periods and the expected timing of the reversal of temporary differences. The Company recognizes tax benefits of uncertain tax positions only when the position is more likely than not to be sustained assuming examination by tax authorities. The Company records income tax related interest and penalties, if applicable, within current income tax expense.

Page 13 of 60


 

Sponsorship and Race Winnings

The Company accounts for sponsorship and race winnings revenue under FASB ASC Topic 606, Revenue from Contracts with Customers. Sponsorship revenue is recognized when the Company’s performance obligations are completed in accordance with the contract terms of the sponsorship contract. Race winnings revenue is recognized after each race during the season based upon terms provided by NASCAR and the placement of the driver.

Earnings (Loss) Per Share (EPS)

Basic earnings (loss) per share are computed by dividing net income (loss) resulting from operations available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, or if restricted stock vests, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. The table below shows the calculation of basic and diluted EPS.

 

 

 

Three Months Ended March 31,

 

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

 

2021

 

 

2020

 

Net income (loss) resulting from operations

   available to common stockholders

 

$

8,431

 

 

$

(13,643

)

Weighted average common shares outstanding applicable to

   basic EPS

 

 

24,518,775

 

 

 

24,401,773

 

Effect of dilutive stock options

 

 

21,168

 

 

 

 

Effect of restricted stock grants

 

 

355,165

 

 

 

 

Adjusted weighted average common shares outstanding

   applicable to diluted EPS

 

 

24,895,108

 

 

 

24,401,773

 

Basic income (loss) per share

 

$

0.34

 

 

$

(0.56

)

Diluted income (loss) per share

 

 

0.34

 

 

 

(0.56

)

 

Potentially dilutive common shares excluded from the above calculations aggregated 1,188,455 and 807,368 shares as of March 31, 2021 and 2020.

Stock Compensation

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

During the three months ended March 31, 2021 and 2020, the Company issued 163,561 and 165,674 restricted shares of stock-based compensation awards, issued 317,398 and 335,773 shares of other stock-based compensation awards, and issued 0 restricted stock units; and recognized $498,000 and $466,000, or $0.02 and $0.02 per share, for the three months ended March 31, 2021 and 2020, of non-cash stock-based compensation expense related to the grants. As of March 31, 2021, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $4,100,000, which is expected to be recognized over the next 16 quarters. See Note 8 for additional details.

Regulatory Capital

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

Page 14 of 60


 

practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.

FDIC-insured banks, including the Bank, are subject to certain federal laws, which impose various legal limitations on the extent to which banks may finance or otherwise supply funds to certain of their affiliates. In particular, the Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions with, such as certain purchases of assets, the Company or its affiliates.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting the Bank’s application for federal deposit insurance, the FDIC ordered that the Tier 1 leverage capital to total assets ratio, as defined, be not less than 15%, which could preclude its ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of March 31, 2021, the Bank’s Tier 1 leverage ratio was 18.03%. 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, 2021

 

 

December 31, 2020

 

Common equity Tier 1 capital

 

 

0

 

 

 

0

 

 

$

159,268

 

 

$

148,507

 

Tier 1 capital

 

 

0

 

 

 

0

 

 

 

228,056

 

 

 

217,295

 

Total capital

 

 

0

 

 

 

0

 

 

 

244,623

 

 

 

233,460

 

Average assets

 

 

0

 

 

 

0

 

 

 

1,265,004

 

 

 

1,283,664

 

Risk-weighted assets

 

 

0

 

 

 

0

 

 

 

1,276,656

 

 

 

1,243,783

 

Leverage ratio(1)

 

 

4.0

%

 

 

5.0

%

 

 

18.0

%

 

 

16.9

%

Common equity Tier 1 capital ratio(2)

 

 

7.0

 

 

 

6.5

 

 

 

12.5

 

 

 

11.9

 

Tier 1 capital ratio(3)

 

 

8.5

 

 

 

8.0

 

 

 

17.9

 

 

 

17.5

 

Total capital ratio(3)

 

 

10.5

 

 

 

10.0

 

 

 

19.2

 

 

 

18.8

 

 

(1)

Calculated by dividing Tier 1 capital by average assets.

(2)

Calculated by subtracting preferred stock or non-controlling interest from Tier 1 capital and dividing by risk-weighted assets.

(3)

Calculated by dividing Tier 1 or total capital by risk-weighted assets.

In the table above, the minimum risk-based ratios as of March 31, 2021 and December 31, 2020 reflect the capital conservation buffer of 2.5%. The minimum regulatory requirements, inclusive of the capital conservation buffer, were the binding requirements for the risk-based requirements, and the “well-capitalized” requirements were the binding requirements for Tier 1 leverage capital as of both March 31, 2021 and December 31, 2020.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, or Topic 326: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. Under the FASB’s new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing “probable” and “incurred” loss recognition threshold is removed. Loss estimates are based upon lifetime “expected” credit losses. The use of past and current events must now be supplemented with “reasonable and supportable” expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model. ASU 2016-13 applies to all entities and is effective for fiscal years beginning after December 15, 2019 for public entities, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10 to defer implementation of the standard for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022. The Company is assessing the impact the update will have on its financial statements, and expects the update to have a material impact on the Company’s accounting for estimated credit losses on its loans.

Reclassifications

Certain reclassifications have been made to prior year balances to conform with the current year presentation. These reclassifications have no effect on the previously reported results of operations.

Page 15 of 60


 

(3) INVESTMENT SECURITIES

Fixed maturity securities available for sale at March 31, 2021 and December 31, 2020 consisted of the following:

 

March 31, 2021

(Dollars in thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of US

   federal agencies

 

$

29,365

 

 

$

1,005

 

 

$

(219

)

 

$

30,151

 

State and municipalities

 

 

7,919

 

 

 

92

 

 

 

(81

)

 

 

7,930

 

Total

 

$

37,284

 

 

$

1,097

 

 

$

(300

)

 

$

38,081

 

 

December 31, 2020

(Dollars in thousands)

 

Amortized Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of

   US federal agencies

 

$

34,929

 

 

$

1,495

 

 

$

(45

)

 

$

36,379

 

State and municipalities

 

 

10,226

 

 

 

189

 

 

 

(2

)

 

 

10,413

 

Total

 

$

45,155

 

 

$

1,684

 

 

$

(47

)

 

$

46,792

 

 

The amortized cost and estimated market value of investment securities at March 31, 2021 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

 

 

8,678

 

 

 

8,977

 

Due after five years through ten years

 

 

14,006

 

 

 

14,344

 

Due after ten years

 

 

14,580

 

 

 

14,740

 

Total

 

$

37,284

 

 

$

38,081

 

 

The following tables show information pertaining to securities with gross unrealized losses at March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position.

 

 

 

Less than Twelve Months

 

 

Twelve Months and Over

 

March 31, 2021

(Dollars in thousands)

 

Gross Unrealized

Losses

 

 

Fair Value

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of

   US federal agencies

 

$

(219

)

 

$

5,577

 

 

$

 

                      -

$

 

State and municipalities

 

 

(78

)

 

 

3,935

 

 

 

(3

)

 

 

127

 

Total

 

$

(297

)

 

$

9,512

 

 

$

(3

)

 

$

127

 

 

 

 

Less than Twelve Months

 

 

Twelve Months and Over

 

December 31, 2020

(Dollars in thousands)

 

Gross Unrealized

Losses

 

 

Fair Value

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Mortgage-backed securities, principally obligations of

   US federal agencies

 

$

(45

)

 

$

4,028

 

 

$

 

 

$

 

State and municipalities

 

 

 

 

 

 

 

 

(2

)

 

 

196

 

Total

 

$

(45

)

 

$

4,028

 

 

$

(2

)

 

$

196

 

 

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.

Page 16 of 60


 

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at March 31, 2021 and December 31, 2020.

 

 

 

March 31, 2021

 

 

December 31, 2020

 

(Dollars in thousands)

 

Amount

 

 

As a Percent of

Gross Loans

 

 

Amount

 

 

As a Percent of

Gross Loans

 

Recreation

 

$

822,932

 

 

 

65

%

 

$

792,686

 

 

 

65

%

Home improvement

 

 

342,121

 

 

 

27

 

 

 

334,033

 

 

 

27

 

Commercial

 

 

58,854

 

 

 

5

 

 

 

65,327

 

 

 

5

 

Medallion

 

 

35,250

 

 

 

3

 

 

 

37,768

 

 

 

3

 

Strategic partnership

 

 

58

 

 

 

 

 

 

24

 

 

 

 

Total gross loans

 

 

1,259,215

 

 

 

100

%

 

 

1,229,838

 

 

 

100

%

Allowance for loan losses

 

 

(57,809

)

 

 

 

 

 

 

(57,548

)

 

 

 

 

Total net loans

 

$

1,201,406

 

 

 

 

 

 

$

1,172,290

 

 

 

 

 

 

The following tables show the activity of the gross loans for the three months ended March 31, 2021 and 2020.

 

Three Months Ended March 31, 2021

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

 

 

Medallion

 

 

Strategic Partnership

 

 

Total

 

Gross loans – December 31, 2020

 

$

792,686

 

 

$

334,033

 

 

$

65,327

 

 

$

37,768

 

 

$

24

 

 

$

1,229,838

 

Loan originations

 

 

93,850

 

 

 

48,059

 

 

 

4,156

 

 

 

 

 

 

1,944

 

 

 

148,009

 

Principal payments, sales, and maturities

 

 

(58,427

)

 

 

(40,069

)

 

 

(10,965

)

 

 

(1,825

)

 

 

(1,910

)

 

 

(113,196

)

Charge-offs, net

 

 

(2,584

)

 

 

(249

)

 

 

 

 

 

 

75

 

 

 

 

 

 

(2,758

)

Transfer to loan collateral in process

   of foreclosure, net

 

 

(3,053

)

 

 

 

 

 

 

 

 

(696

)

 

 

 

 

 

(3,749

)

Amortization of origination costs

 

 

(2,162

)

 

 

497

 

 

 

11

 

 

 

(2

)

 

 

 

 

 

(1,656

)

Amortization of loan premium

 

 

(41

)

 

 

(76

)

 

 

 

 

 

(70

)

 

 

 

 

 

(187

)

FASB origination costs

 

 

2,663

 

 

 

(74

)

 

 

 

 

 

 

 

 

 

 

 

2,589

 

Paid-in-kind interest

 

 

 

 

 

 

 

 

325

 

 

 

 

 

 

 

 

 

325

 

Gross loans – March 31, 2021

 

$

822,932

 

 

$

342,121

 

 

$

58,854

 

 

$

35,250

 

 

$

58

 

 

$

1,259,215

 

 

 

Three Months Ended March 31, 2020

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

 

 

Medallion

 

 

Total

 

Gross loans – December 31, 2019

 

$

713,332

 

 

$

247,324

 

 

$

69,767

 

 

$

130,432

 

 

$

1,160,855

 

Loan originations

 

 

69,643

 

 

 

33,465

 

 

 

2,175

 

 

 

 

 

105,283

 

Principal payments, sales and maturities

 

 

(37,070

)

 

 

(24,225

)

 

 

(3,999

)

 

 

(2,075

)

 

 

(67,369

)

Charge-offs, net

 

 

(6,382

)

 

 

(636

)

 

 

 

 

 

(1,559

)

 

 

(8,577

)

Transfer to loan collateral in process

   of foreclosure, net

 

 

(4,779

)

 

 

 

 

 

 

 

(2,159

)

 

 

(6,938

)

Amortization of origination costs

 

 

(1,728

)

 

 

441

 

 

 

2

 

 

 

(19

)

 

 

(1,304

)

Amortization of loan premium

 

 

(52

)

 

 

(86

)

 

 

 

 

(191

)

 

 

(329

)

FASB origination costs

 

 

2,211

 

 

 

(384

)

 

 

19

 

 

 

19

 

 

 

1,865

 

Paid-in-kind interest

 

 

 

 

 

 

293

 

 

 

 

 

293

 

Gross loans – March 31, 2020

 

$

735,175

 

 

$

255,899

 

 

$

68,257

 

 

$

124,448

 

 

$

1,183,779

 

 

 

Page 17 of 60


 

 

The following table sets forth the activity in the allowance for loan losses for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Allowance for loan losses – beginning balance

 

$

57,548

 

 

$

46,093

 

Charge-offs

 

 

 

 

 

 

 

 

Recreation

 

 

(5,053

)

 

 

(8,244

)

Home improvement

 

 

(681

)

 

 

(1,011

)

Commercial

 

 

 

 

 

 

Medallion

 

 

(1,114

)

 

 

(1,924

)

Total charge-offs

 

 

(6,848

)

 

 

(11,179

)

Recoveries

 

 

 

 

 

 

 

 

Recreation

 

 

2,469

 

 

 

1,862

 

Home improvement

 

 

432

 

 

 

375

 

Commercial

 

 

 

 

 

 

Medallion

 

 

1,189

 

 

 

365

 

Total recoveries

 

 

4,090

 

 

 

2,602

 

Net charge-offs(1)

 

 

(2,758

)

 

 

(8,577

)

Provision for loan losses

 

 

3,019

 

 

 

16,541

 

Allowance for loan losses – ending balance(2) (3)

 

$

57,809

 

 

$

54,057

 

 

(1)

As of March 31, 2021, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion loan portfolio were $282,450, some of which represent collection opportunities for the Company.

(2)

As of September 30, 2020, the general reserves previously recorded for the Company’s medallion loan portfolio had been reversed as all loans had been deemed impaired and written down to collateral value.    

(3)

As of March 31, 2021, there was 0 allowance for loan losses and net charge-offs related to the strategic partnership loans.

The following tables set forth the allowance for loan losses by type as of March 31, 2021 and December 31, 2020.

 

March 31, 2021

(Dollars in thousands)

 

Amount

 

 

Percentage of

Allowance

 

 

Allowance as

a Percent of

Loan Category

 

 

Allowance as

a Percent of Nonaccrual

 

Recreation

 

$

28,378

 

 

 

49

%

 

 

3.45

%

 

 

561.61

%

Home improvement

 

 

5,358

 

 

 

9

 

 

 

1.57

 

 

NM

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

Medallion

 

 

24,073

 

 

 

42

 

 

 

68.29

 

 

 

70.05

 

Total

 

$

57,809

 

 

 

100

%

 

 

4.59

%

 

 

101.61

%

 

December 31, 2020

(Dollars in thousands)

 

Amount

 

 

Percentage of

Allowance

 

 

Allowance as

a Percent of

Loan Category

 

 

Allowance as

a Percent of Nonaccrual

 

Recreation

 

$

27,348

 

 

 

48

%

 

 

3.45

%

 

 

378.20

%

Home improvement

 

 

5,157

 

 

 

9

 

 

 

1.54

 

 

NM

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Medallion

 

 

25,043

 

 

 

43

 

 

 

66.31

 

 

 

68.01

 

Total

 

$

57,548

 

 

 

100

%

 

 

4.68

%

 

 

93.17

%

Page 18 of 60


 

 

The following table presents total nonaccrual loans and foregone interest, substantially all of which is in the medallion portfolio. The fluctuation in nonaccrual interest foregone is due to past due loans and market conditions.

 

(Dollars in thousands)

 

March 31, 2021

 

 

December 31, 2020

 

 

March 31, 2020

 

Total nonaccrual loans

 

$

56,893

 

 

$

61,767

 

 

$

61,635

 

Interest foregone quarter to date

 

 

578

 

 

 

2,306

 

 

 

623

 

Amount of foregone interest applied

   to principal in the quarter

 

 

169

 

 

 

595

 

 

 

52

 

Interest foregone life to date

 

 

5,086

 

 

 

5,252

 

 

 

3,358

 

Amount of foregone interest applied

   to principal life to date

 

 

905

 

 

 

792

 

 

 

494

 

Percentage of nonaccrual loans to gross loan

   portfolio

 

 

5

%

 

 

5

%

 

 

5

%

Percentage of allowance for loan losses to

   nonaccrual loans

 

 

102

 

 

 

93

 

 

 

88

 

 

The following tables present the performance status of loans as of March 31, 2021 and December 31, 2020.

 

March 31, 2021

(Dollars in thousands)

 

Performing

 

 

Nonperforming

 

 

Total

 

 

Percentage of

Nonperforming

to Total

 

Recreation

 

$

817,490

 

 

$

5,442

 

 

$

822,932

 

 

 

0.66

%

Home improvement

 

 

341,971

 

 

 

150

 

 

 

342,121

 

 

 

0.04

 

Commercial

 

 

42,414

 

 

 

16,440

 

 

 

58,854

 

 

 

27.93

 

Medallion

 

 

 

 

 

35,250

 

(1)

 

35,250

 

 

 

100.00

 

Strategic partnership

 

 

58

 

 

 

 

 

 

58

 

 

 

 

Total

 

$

1,201,933

 

 

$

57,282

 

 

$

1,259,215

 

 

 

4.55

%

 

December 31, 2020

(Dollars in thousands)

 

Performing

 

 

Nonperforming

 

 

Total

 

 

Percentage of

Nonperforming

to Total

 

Recreation

 

$

785,047

 

 

$

7,639

 

 

$

792,686

 

 

 

0.96

%

Home improvement

 

 

333,862

 

 

 

171

 

 

 

334,033

 

 

 

0.05

 

Commercial

 

 

48,731

 

 

 

16,596

 

 

 

65,327

 

 

 

25.40

 

Medallion

 

 

 

 

 

37,768

 

(1)

 

37,768

 

 

 

100.00

 

Strategic partnership

 

 

24

 

 

 

 

 

 

24

 

 

 

 

Total

 

$

1,167,664

 

 

$

62,174

 

 

$

1,229,838

 

 

 

5.06

%

 

 

(1)

Includes medallion loan premiums of $1,545and $1,615 at March 31, 2021 and December 31, 2020.  

 

For those loans aged under 90 days past due, 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, 2021 and 2020, and December 31, 2020, all of which had an allowance recorded against the principal balance.

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

March 31, 2020

 

(Dollars in thousands)

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreation

 

$

5,442

 

 

$

5,442

 

 

$

188

 

 

$

7,639

 

 

$

7,639

 

 

$

264

 

 

$

7,328

 

 

$

7,328

 

 

$

318

 

Home improvement

 

 

150

 

 

 

150

 

 

 

2

 

 

 

171

 

 

 

171

 

 

 

3

 

 

 

222

 

 

 

222

 

 

 

4

 

Commercial

 

 

16,440

 

 

 

16,447

 

 

 

 

 

 

16,596

 

 

 

16,600

 

 

 

 

 

 

11,862

 

 

 

11,867

 

 

 

 

Medallion

 

 

35,250

 

 

 

35,990

 

 

 

24,073

 

 

 

37,768

 

 

 

38,368

 

 

 

25,043

 

 

 

42,592

 

 

 

43,081

 

 

 

20,011

 

Total nonperforming loans

  with an allowance

 

$

57,282

 

 

$

58,029

 

 

$

24,263

 

 

$

62,174

 

 

$

62,778

 

 

$

25,310

 

 

$

62,004

 

 

$

62,498

 

 

$

20,333

 

Page 19 of 60


 

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

Average

Investment

Recorded

 

 

Interest

Income

Recognized

 

 

Average

Investment

Recorded

 

 

Interest

Income

Recognized

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreation

 

$

5,617

 

 

$

184

 

 

$

7,456

 

 

$

161

 

Home improvement

 

 

150

 

 

 

 

 

 

222

 

 

 

 

Commercial

 

 

17,358

 

 

 

 

 

 

11,976

 

 

 

1

 

Medallion

 

 

35,535

 

 

 

 

 

 

45,105

 

 

 

415

 

Total nonperforming loans

   with an allowance

 

$

58,660

 

 

$

184

 

 

$

64,759

 

 

$

577

 

 

The following tables show the aging of all loans as of March 31, 2021 and December 31, 2020.

 

 

 

Days Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

(Dollars in thousands)

 

30-59

 

 

60-89

 

 

90 +

 

 

Total

 

 

Current

 

 

Total (1)

 

 

Recorded

Investment

90 Days and

Accruing

 

Recreation

 

$

13,371

 

 

$

3,908

 

 

$

3,152

 

 

$

20,431

 

 

$

776,728

 

 

$

797,159

 

 

$

0

 

Home improvement

 

 

509

 

 

 

193

 

 

 

149

 

 

 

851

 

 

 

343,776

 

 

 

344,627

 

 

 

0

 

Commercial

 

 

 

 

 

 

 

 

75

 

 

 

75

 

 

 

58,781

 

 

 

58,856

 

 

 

0

 

Medallion

 

 

1,710

 

 

 

17,048

 

 

 

742

 

 

 

19,500

 

 

 

14,205

 

 

 

33,705

 

 

 

0

 

Strategic partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58

 

 

 

58

 

 

 

0

 

Total

 

$

15,590

 

 

$

21,149

 

 

$

4,118

 

 

$

40,857

 

 

$

1,193,548

 

 

$

1,234,405

 

 

$

0

 

 

(1)

Excludes loan premiums of $2,530 resulting from purchase price accounting and $22,280 of capitalized loan origination costs.

 

 

 

Days Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

(Dollars in thousands)

 

30-59

 

 

60-89

 

 

90 +

 

 

Total

 

 

Current

 

 

Total (1)

 

 

Recorded

Investment

90 Days and

Accruing

 

Recreation

 

$

22,058

 

 

$

7,582

 

 

$

5,343

 

 

$

34,983

 

 

$

732,391

 

 

$

767,374

 

 

$

0

 

Home improvement

 

 

813

 

 

 

218

 

 

 

170

 

 

 

1,201

 

 

 

335,684

 

 

 

336,885

 

 

 

0

 

Commercial

 

 

 

 

 

 

 

 

75

 

 

 

75

 

 

 

65,265

 

 

 

65,340

 

 

 

0

 

Medallion

 

 

2,019

 

 

 

973

 

 

 

1,290

 

 

 

4,282

 

 

 

31,871

 

 

 

36,153

 

 

 

0

 

Strategic partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

24

 

 

 

0

 

Total

 

$

24,890

 

 

$

8,773

 

 

$

6,878

 

 

$

40,541

 

 

$

1,165,235

 

 

$

1,205,776

 

 

$

0

 

 

(1)

Excludes loan premiums of $2,717 resulting from purchase price accounting and $21,345 of capitalized loan origination costs.

The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 362%, 327%, and 244% as of March 31, 2021, December 31, 2020, and March 31, 2020.

The following table shows the TDRs which the Company entered into during the three months ended March 31, 2021.

 

(Dollars in thousands)

 

Number of

Loans

 

 

Pre-

Modification

Investment

 

 

Post-

Modification

Investment

 

     Recreation

 

 

18

 

 

$

172

 

 

$

166

 

     Medallion

 

 

8

 

 

 

2,738

 

 

 

2,738

 

 

During the twelve months ended March 31, 2021, 35 medallion loans modified as TDRs were in default and had an investment value of $20,567,000 as of March 31, 2021, net of a $16,113,000 allowance for loan losses, 36 recreation loans modified as TDRs

Page 20 of 60


 

were in default and had an investment value of $355,000 as of March 31, 2021, net of a $12,000 allowance for loan losses, and 0 commercial loans modified as TDRs were in default.

The following table shows the TDRs which the Company entered into during the three months ended March 31, 2020.

 

(Dollars in thousands)

 

Number of

Loans

 

 

Pre-

Modification

Investment

 

 

Post-

Modification

Investment

 

     Recreation

 

 

33

 

 

$

502

 

 

$

434

 

     Medallion

 

 

13

 

 

 

1,121

 

 

 

1,121

 

 

During the twelve months ended March 31, 2020, 28 medallion loans modified as TDRs were in default and had an investment value of $13,113,000 as of March 31, 2020, net of a $6,868,000 allowance for loan losses, and 106 recreation loans modified as TDRs were in default and had an investment value of $1,115,000 as of March 31, 2020, net of a $48,000 allowance for loan losses.

The following tables show the activity of loan collateral in process of foreclosure, which relate only to the recreation and medallion loans, for the three months ended March 31, 2021 and 2020.

 

Three Months Ended March 31, 2021

(Dollars in thousands)

 

Recreation

 

 

Medallion

 

 

Total

 

Loan collateral in process of foreclosure – December 31, 2020

 

$

1,432

 

 

$

53,128

 

 

$

54,560

 

Transfer from loans, net

 

 

3,053

 

 

 

749

 

 

 

3,802

 

Sales

 

 

(2,298

)

 

 

 

 

 

(2,298

)

Cash payments received

 

 

 

 

 

(1,329

)

 

 

(1,329

)

Collateral valuation adjustments

 

 

(1,217

)

 

 

(2,785

)

 

 

(4,002

)

Loan collateral in process of foreclosure – March 31, 2021

 

$

970

 

 

$

49,763

 

 

$

50,733

 

 

 

Three Months Ended March 31, 2020

(Dollars in thousands)

 

Recreation

 

 

Medallion

 

 

Total

 

Loan collateral in process of foreclosure – December 31, 2019

 

$

1,476

 

 

$

51,235

 

 

$

52,711

 

Transfer from loans, net

 

 

4,779

 

 

 

2,159

 

 

 

6,938

 

Sales

 

 

(1,999

)

 

 

(300

)

 

 

(2,299

)

Cash payments received

 

 

 

 

 

(1,708

)

 

 

(1,708

)

Collateral valuation adjustments

 

 

(2,539

)

 

 

(6,286

)

 

 

(8,825

)

Loan collateral in process of foreclosure – March 31, 2020

 

$

1,717

 

 

$

45,100

 

 

$

46,817

 

 

 

(5) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows:

 

 

 

Payments Due for the Twelve Months Ending March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

Thereafter

 

 

March 31, 2021(1)

 

 

December 31, 2020(1)

 

 

Interest

Rate (2)

 

Deposits(3)

 

$

398,096

 

 

$

244,883

 

 

$

193,105

 

 

$

116,117

 

 

$

134,284

 

 

$

 

 

$

1,086,485

 

 

$

1,067,822

 

 

 

1.61

%

Retail and privately placed

   notes

 

 

33,625

 

 

 

 

 

36,000

 

 

 

 

 

 

28,250

 

 

 

42,100

 

 

 

139,975

 

 

 

103,225

 

 

 

8.00

%

SBA debentures and

   borrowings

 

 

14,008

 

 

 

5,000

 

 

 

2,500

 

 

 

12,500

 

 

 

15,500

 

 

 

10,000

 

 

 

59,508

 

 

 

68,008

 

 

 

3.12

%

Preferred securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,000

 

 

 

33,000

 

 

 

33,000

 

 

 

2.30

%

Notes payable to banks

 

 

18,325

 

 

 

280

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

18,815

 

 

 

31,261

 

 

 

3.72

%

Other borrowings

 

 

7,979

 

 

 

 

 

 

 

 

 

 

 

 

747

 

 

 

 

 

 

8,726

 

 

 

8,689

 

 

 

1.91

%

Total

 

$

472,033

 

 

$

250,163

 

 

$

231,815

 

 

$

128,617

 

 

$

178,781

 

 

$

85,100

 

 

$

1,346,509

 

 

$

1,312,005

 

 

 

2.43

%

Page 21 of 60


 

 

 

(1)

Excludes deferred financing costs of $6,523 and $5,805 as of March 31, 2021 and December 31, 2020.

(2)

Weighted average contractual rate as of March 31, 2021.

(3)

Balance excludes $250 of strategic partner reserve deposits as of March 31, 2021 and December 31, 2020.

(A) DEPOSITS

Deposits are raised through the use of investment brokerage firms that package time deposits in denominations of less than $250,000 qualifying for FDIC insurance into larger pools that are sold to the Bank. The rates paid on the deposits are 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. The Bank did 0t have any individual time deposits greater than $100,000 as of March 31, 2021. In October 2020, the Bank began to originate time deposits through an internet listing service. These deposits are from other financial institutions, which as of March 31, 2021, totaled $4,036,000 in listing service deposits. The following table presents the maturity of the broker pools, excluding strategic partner reserve deposits, as of March 31, 2021.

 

(Dollars in thousands)

 

March 31, 2021

 

Three months or less

 

$

137,602

 

Over three months through six months

 

 

108,194

 

Over six months through one year

 

 

152,300

 

Over one year

 

 

688,389

 

Total deposits

 

$

1,086,485

 

 

 

(B) RETAIL AND PRIVATELY PLACED NOTES

In February 2021, the Company completed a private placement to certain institutional investors of $25,000,000 aggregate principal amount of 7.25% unsecured senior notes due February 2026, with interest payable semiannually. In March 2021, an additional $3,250,000 principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $3,000,000 principal amount of such notes was issued to certain institutional investors. The Company will use the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

In December 2020, the Company completed a private placement to certain institutional investors of $33,600,000 aggregate principal amount of 7.50% unsecured senior notes due December 2027, with interest payable semiannually. In February and March 2021, an additional $8,500,000 principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $11,650,000 principal amount of such notes was issued to certain institutional investors. The Company will use the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

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 August 2019, an additional $6,000,000 principal amount of such notes was issued to certain institutional investors.

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. These notes were repaid at maturity on April 15, 2021.

(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, or the SBA Loan. In connection with the SBA Loan, FSVC executed a Note, or 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% and all remaining unpaid principal and interest are due on April 30, 2024, the maturity date. As of March 31, 2021, $175,485,000 of commitments had been fully utilized, there were $25,000,000 commitments available, and $59,508,000 was outstanding, including $14,008,000 under the SBA Note.

Page 22 of 60


 

On July 31, 2020, MCI accepted a commitment from the SBA for $25,000,000 in debenture financing. As part of the acceptance, MCI paid the SBA a $250,000 commitment fee. The commitment is valid for approximately five years and expires September 24, 2024. $8,500,000 of the commitments has been reserved to replace debentures which matured in 2021. The remaining balance of $16,500,000 is drawable upon the infusion of $8,250,000 of capital from either the capitalization of retained earnings or capital infusion from the Company. As of March 31, 2021, NaN of the commitments had been drawn.

(D) 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 (0.19% at March 31, 2021) 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, 2021, $33,000,000 was outstanding on the preferred securities.

(E) 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, 2021.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrower

(Dollars in thousands)

 

# of Lenders/Notes

 

Note Dates

 

Maturity Dates

 

Type

 

Note Amounts

 

 

 

Balance Outstanding at March 31, 2021

 

 

Payment

 

Average Interest Rate at March 31, 2021

 

 

Interest Rate Index(1)

Medallion Financial

   Corp.

 

3/3

 

4/11 - 8/14

 

8/21-12/21

 

Term loans

and demand

notes secured

by pledged

loans(2)

 

$

9,172

 

(2)

 

$

9,172

 

 

Interest

only(3)

 

 

3.91

%

 

Various(3)

Medallion Chicago

 

2/23

 

11/11 - 12/11

 

4/21-12/21

 

Term loans

secured by

owned

Chicago

medallions(4)

 

 

18,449

 

 

 

 

8,873

 

 

$134 of

principal &

interest

paid

monthly

 

 

3.50

%

 

N/A

Medallion Funding

 

1/1

 

11/18

 

12/23

 

 

 

 

1,400

 

 

 

 

770

 

 

$70

principal &

interest

paid

quarterly

 

 

4.00

%

 

N/A

 

 

 

 

 

 

 

 

 

 

$

29,021

 

 

 

$

18,815

 

 

 

 

 

 

 

 

 

 

(1)

At March 31, 2021, 30-day LIBOR was 0.11%, 360-day LIBOR was 0.28%, and the prime rate was 3.25%.

(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 up to or from $12 to $85.

(4)

Guaranteed by the Company.

In April 2021, the Company used some of the proceeds of the privately placed notes to pay off fourteen of its notes payable to banks aggregating $6,703,000 principal amount, due in April 2021, resulting in a gain on debt extinguishment of $2,316,000.

Page 23 of 60


 

In March 2021, the Company used some of the proceeds of the privately placed notes to pay off two of its notes payable to banks aggregating $5,207,000 principal amount, one with a maturity of April 15, 2021 and one with a maturity of September 1, 2021, resulting in a gain on debt extinguishment of $1,767,000.

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 15 for more information.

(F) OTHER BORROWINGS

In November and December 2017, RPAC amended the terms of various promissory notes with affiliate Richard Petty. (Refer to Note 11 for more details.) At March 31, 2021, the total outstanding on these notes was $7,479,000 at a 2.00% annual interest rate compounded monthly and due March 31, 2022. Additionally, RPAC has a short term promissory note to an unrelated party for $500,000 due on December 31, 2021.

On June 17, 2020, RPAC was approved for and received a Paycheck Protection Program, or PPP, loan under the CARES Act. As of March 31, 2021, the total outstanding balance of such loan was $747,000 at a 1.00% annual interest rate due in five years. Under the terms of the note, RPAC could be granted forgiveness for all or a portion of the balance if the loan proceeds are used in accordance with the requirements set forth in the PPP. As of March 31, 2021, RPAC had not applied for forgiveness of this loan.

(G) COVENANT COMPLIANCE

Certain of the Company’s debt agreements contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including debt to equity and minimum net worth. The Company was in compliance with such restrictions as of March 31, 2021.

(6) LEASES

The Company has leased premises that expire at various dates through November 30, 2027 subject to various 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, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Operating lease costs

 

$

572

 

 

$

596

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

 

675

 

 

 

692

 

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

 

 

(18

)

 

 

(14

)

 

The following table presents the breakout of the operating leases as of March 31, 2021 and December 31, 2020.

 

(Dollars in thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Operating lease right-of-use assets

 

$

11,244

 

 

$

11,737

 

Other current liabilities

 

 

2,048

 

 

 

2,004

 

Operating lease liabilities

 

 

10,464

 

 

 

11,018

 

Total operating lease liabilities

 

 

12,512

 

 

 

13,022

 

Weighted average remaining lease term

 

6.1 years

 

 

6.4 years

 

Weighted average discount rate

 

 

5.54

%

 

 

5.54

%

Page 24 of 60


 

 

 

At March 31, 2021, maturities of the lease liabilities were as follows:

 

(Dollars in thousands)

 

 

 

 

Remainder of 2021

 

$

1,849

 

2022

 

 

2,406

 

2023

 

 

2,356

 

2024

 

 

2,373

 

2025

 

 

2,390

 

Thereafter

 

 

3,521

 

Total lease payments

 

$

14,895

 

Less imputed interest

 

 

2,383

 

Total operating lease liabilities

 

$

12,512

 

 

(7) 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, 2021 and December 31, 2020.

 

(Dollars in thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Goodwill and other intangibles

 

$

(44,662

)

 

$

(44,799

)

Provision for loan losses

 

 

19,275

 

 

 

19,556

 

Net operating loss carryforwards(1)

 

 

27,847

 

 

 

30,493

 

Accrued expenses, compensation, and other assets

 

 

717

 

 

 

1,174

 

Unrealized gains on other investments

 

 

(6,243

)

 

 

(6,769

)

Total deferred tax liability

 

 

(3,066

)

 

 

(345

)

Valuation allowance

 

 

(462

)

 

 

(462

)

Deferred tax liability, net

 

 

(3,528

)

 

 

(807

)

Taxes receivable

 

 

859

 

 

 

1,757

 

Net deferred and other tax assets (liabilities)

 

$

(2,669

)

 

$

950

 

 

(1)

As of March 31, 2021, the Company and its subsidiaries had an estimated $113,613 of net operating loss carryforwards, $1,712 of which expires at various dates between December 31, 2026 and December 31, 2035, which had a net carrying value of $27,385 as of March 31, 2021.

The components of our tax (provision) benefit for the three months ended March 31, 2021 and 2020 were as follows:

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Current

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

 

State

 

 

(170

)

 

 

(86

)

Deferred

 

 

 

 

 

 

 

 

Federal

 

 

(3,053

)

 

 

2,525

 

State

 

 

(655

)

 

 

810

 

Net (provision) benefit for income taxes

 

$

(3,878

)

 

$

3,249

 

 

Page 25 of 60


 

 

The following table presents a reconciliation of statutory federal income tax (provision) benefit to consolidated actual income tax (provision) benefit for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Statutory Federal income tax (provision) benefit at 21%

 

$

(2,719

)

 

$

3,412

 

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

 

 

(532

)

 

 

638

 

Change in state income tax accruals

 

 

(170

)

 

 

(46

)

Change in effective state income tax rate

 

 

200

 

 

 

(378

)

Income attributable to non-controlling interest

 

 

219

 

 

 

(216

)

Non deductible expenses

 

 

(172

)

 

 

(214

)

Other

 

 

(704

)

 

 

53

 

Total income tax (provision) benefit

 

$

(3,878

)

 

$

3,249

 

 

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, 2021.

The Company has filed tax returns in many states. Federal, New York State, New York City, and Utah state tax filings of the Company for the tax years 2018 through the present are the more significant filings that are open for examination.

(8) STOCK OPTIONS AND RESTRICTED STOCK

The Company’s Board of Directors approved the 2018 Equity Incentive Plan, or the 2018 Plan, which was approved by the Company’s stockholders on June 15, 2018. The terms of 2018 Plan provide for grants of a variety of different type of stock awards to the Company’s employees and non-employee directors, including options, restricted stock, restricted stock units, and stock appreciation rights, etc. On April 22, 2020, the Company’s Board of Directors approved an amendment to the 2018 Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder, which was approved by the Company’s stockholders on June 19, 2020. A total of 2,210,968 shares of the Company’s common stock are issuable under the 2018 Plan, and 392,746 remained issuable as of March 31, 2021. 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 occurs first.

The Company’s Board of Directors approved the 2015 Employee Restricted Stock Plan, or the 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 occurs first.

Page 26 of 60


 

The Company had a stock option plan, or the 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. NaN 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 Non-Employee Director Stock Option Plan, or the 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 a non-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, or 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. NaN 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, 2021, 1,264,315 options on the Company’s common stock were outstanding under the Company’s plans, of which 361,363 options were exercisable. Additionally there were 452,522 unvested shares of the Company’s common stock outstanding and 62,780 unvested restricted share units 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 $3.24 per share and $3.30 per share for the three months ended March 31, 2021 and 2020. The following assumption categories are used to determine the value of any option grants.

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Risk free interest rate

 

 

0.97

%

 

 

1.46

%

Expected dividend yield

 

 

 

 

 

 

Expected life of option in years(1)

 

 

6.25

 

 

 

6.25

 

Expected volatility(2)

 

 

53.98

 

 

 

50.18

 

 

(1)

Expected life is calculated using the simplified method.

(2)

We determine our expected volatility based on our historical volatility.

Page 27 of 60


 

 

The following table presents the activity for the stock option programs for the 2021 first quarter and the 2020 full year.

 

 

 

Number of

Options

 

 

 

Exercise

Price Per

Share

 

 

Weighted

Average

Exercise Price

 

Outstanding at December 31, 2019

 

 

550,040

 

 

$

2.14-13.53

 

 

$

6.58

 

Granted

 

 

444,557

 

 

 

4.89-6.68

 

 

 

6.24

 

Cancelled

 

 

(42,928

)

 

 

2.22-13.53

 

 

 

6.91

 

Exercised(1)

 

 

0

 

 

 

 

0

 

 

 

0

 

Outstanding at December 31, 2020

 

 

951,669

 

 

 

2.14-12.55

 

 

 

6.41

 

Granted

 

 

317,398

 

 

 

 

6.79

 

 

 

6.79

 

Cancelled

 

 

(3,984

)

 

 

6.55-7.25

 

 

 

6.89

 

Exercised(1)

 

 

(768

)

 

 

6.55-7.25

 

 

 

6.79

 

Outstanding at March 31, 2021

 

 

1,264,315

 

 

 

2.14-12.55

 

 

 

6.50

 

Options exercisable at March 31, 2021(2)

 

 

361,363

 

 

 

2.14-15.55

 

 

 

6.50

 

 

(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 $1,000 and $0 for the three months ended March 31, 2021 and 2020.

(2)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at March 31, 2021 and the related exercise price of the underlying options, was $789,000 for outstanding options and $282,000 for exercisable options as of March 31, 2021. The remaining contractual life was 8.75 years for outstanding options and 7.73 years for exercisable options at March 31, 2021.

The following table presents the activity for the restricted stock programs for the 2021 first quarter and the 2020 full year.

 

 

 

Number of

Shares

 

 

 

Grant

Price Per

Share

 

 

Weighted

Average

Exercise Price

 

Outstanding at December 31, 2019

 

 

284,879

 

 

$

3.95-7.25

 

 

$

6.01

 

Granted

 

 

229,408

 

 

 

4.89-6.68

 

 

 

6.21

 

Cancelled

 

 

(8,755

)

 

 

3.95-7.25

 

 

 

6.93

 

Vested(1)

 

 

(89,392

)

 

 

3.95-6.55

 

 

 

5.37

 

Outstanding at December 31, 2020

 

 

416,140

 

 

 

4.39-7.25

 

 

 

6.24

 

Granted

 

 

163,561

 

 

 

 

6.79

 

 

 

6.79

 

Cancelled

 

 

(7,602

)

 

 

4.89-7.25

 

 

 

5.96

 

Vested(1)

 

 

(119,577

)

 

 

4.39-7.25

 

 

 

6.09

 

Outstanding at March 31, 2021

 

 

452,522

 

 

 

4.80-7.25

 

 

 

6.48

 

 

(1)

The aggregate fair value of the restricted stock vested was $813,000 and $553,000 for the three months ended March 31, 2021 and 2020.

(2)

The aggregate fair value of the restricted stock was $3,190,000 as of March 31, 2021. The remaining vesting period was 3.56 years at March 31, 2021.

Page 28 of 60


 

During the three months ended March 31, 2021, the Company granted 0 restricted stock units, or RSUs, and during the year ended December 31, 2020, granted 47,156 RSUs that vest on June 19, 2021 with a grant price of $3.16. For the RSUs granted in 2019, unitholders have the option of deferring settlement until a future date if the recipient makes a formal election under the guidelines of IRC Section 409A, which was done for 15,624 units. The remaining 10,416 units vested and were settled.

The following table presents the activity for the unvested options outstanding under the plans for the 2021 first quarter.

 

 

 

Number of

Options

 

 

 

Exercise

Price

Per Share

 

 

Weighted

Average

Exercise Price

 

Outstanding at December 31, 2020

 

 

773,362

 

 

$

4.89-7.25

 

 

$

6.42

 

Granted

 

 

317,398

 

 

 

 

6.79

 

 

 

6.79

 

Cancelled

 

 

(2,530

)

 

 

6.55-7.25

 

 

 

6.96

 

Vested

 

 

(185,278

)

 

 

6.55-7.25

 

 

 

6.67

 

Outstanding at March 31, 2021

 

 

902,952

 

 

 

4.89-7.25

 

 

 

6.50

 

 

The intrinsic value of the options vested was $48,000 for the three months ended March 31, 2021.

(9) SEGMENT REPORTING

The Company has 6 business segments, which include 4 lending and 2 non-operating segments, which are reflective of how Company management makes decisions about its business and operations.

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 and include loans in all fifty states, with the highest concentrations in Texas, Florida, and California at 15%, 10%, and 9% of loans outstanding and with no other states over 9% as of March 31, 2021. 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 60%, 19%, and 11% of the segment portfolio as of March 31, 2021. The home improvement lending segment works with contractors and financial service providers to finance residential home improvements concentrated in roofs, swimming pools, windows, and solar panels, at 25%, 25%, 13%, and 7% of total home improvement loans outstanding, and with no other product lines over 7% as of March 31, 2021. The commercial lending segment focuses on enterprise wide industries, including manufacturing services, and various other industries, in which 68% of these loans are made in the Midwest. The medallion lending segment arose in connection with the financing of taxi medallions, taxis, and related assets, of which 91% were in New York City as of March 31, 2021.

In addition, our non-operating segments include RPAC, which is a race car team, and our corporate and other investments segment which includes items not allocated to our operating segments such as investment securities, equity investments, intercompany eliminations, and other corporate elements. As a result of COVID-19, the prior year race season had been suspended from March 15, 2020 through May 17, 2020. As states reopened, NASCAR resumed races and completed all races scheduled in 2020. Commencing in the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is currently included within the corporate and other investment segment due to its small size.

As part of segment reporting, capital ratios for all operating segments have been normalized at 20%, which approximates the percentage of consolidated total equity divided by total assets, with the net adjustment applied to corporate and other investments. In addition, the commercial segment exclusively represents the mezzanine lending business, and the legacy commercial loan business (immaterial to total) has been allocated to corporate and other investments.

Page 29 of 60


 

The following tables present segment data as of and for the three months ended March 31, 2021 and 2020.

 

 

 

Consumer Lending

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corp.

 

 

 

 

 

Three Months Ended March 31, 2021

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

Lending

 

 

Medallion

Lending

 

 

RPAC

 

 

and

Other

Investments

 

 

Consolidated

 

Total interest income

 

$

27,442

 

 

$

7,918

 

 

$

1,482

 

 

$

(69

)

 

$

 

 

$

307

 

 

$

37,080

 

Total interest expense

 

 

2,794

 

 

 

1,208

 

 

 

572

 

 

 

1,370

 

 

 

41

 

 

 

2,422

 

 

 

8,407

 

Net interest income (loss)

 

 

24,648

 

 

 

6,710

 

 

 

910

 

 

 

(1,439

)

 

 

(41

)

 

 

(2,115

)

 

 

28,673

 

Provision for loan losses (benefit)

 

 

3,613

 

 

 

450

 

 

 

 

 

 

(1,044

)

 

 

 

 

 

 

 

 

3,019

 

Net interest income (loss)

   after loss provision

 

 

21,035

 

 

 

6,260

 

 

 

910

 

 

 

(395

)

 

 

(41

)

 

 

(2,115

)

 

 

25,654

 

Sponsorship and race winnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,473

 

 

 

 

 

 

2,473

 

Race team related expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,122

)

 

 

 

 

 

(2,122

)

Other income (expense), net

 

 

(5,463

)

 

 

(1,914

)

 

 

(460

)

 

 

(2,144

)

 

 

(1,761

)

 

 

(1,314

)

 

 

(13,056

)

Net income (loss) before taxes

 

 

15,572

 

 

 

4,346

 

 

 

450

 

 

 

(2,539

)

 

 

(1,451

)

 

 

(3,429

)

 

 

12,949

 

Income tax (provision)  benefit

 

 

(4,010

)

 

 

(1,119

)

 

 

(113

)

 

 

637

 

 

 

364

 

 

 

363

 

 

 

(3,878

)

Net income (loss)

 

$

11,562

 

 

$

3,227

 

 

$

337

 

 

$

(1,902

)

 

$

(1,087

)

 

$

(3,066

)

 

$

9,071

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans, net

 

$

794,554

 

 

$

336,763

 

 

$

55,567

 

 

$

11,177

 

 

$

 

 

$

3,345

 

 

$

1,201,406

 

Total assets

 

 

807,244

 

 

 

348,456

 

 

 

71,922

 

 

 

116,639

 

 

 

32,724

 

 

 

311,765

 

 

 

1,688,750

 

Total funds borrowed

 

 

641,993

 

 

 

277,672

 

 

 

59,533

 

 

 

92,469

 

 

 

8,726

 

 

 

266,366

 

 

 

1,346,759

 

Selected Financial Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

5.92

%

 

 

3.80

%

 

 

1.79

%

 

 

(6.40

)%

 

 

(13.27

)%

 

 

(4.16

)%

 

 

2.08

%

Return on average equity

 

 

29.59

 

 

 

19.00

 

 

 

8.96

 

 

 

(31.98

)

 

 

(378.20

)

 

 

(30.80

)

 

 

11.09

 

Interest yield

 

 

14.36

 

 

 

9.66

 

 

 

10.37

 

 

 

(2.34

)

 

N/A

 

 

N/A

 

 

 

11.84

 

Net interest margin

 

 

12.90

 

 

 

8.19

 

 

 

6.37

 

 

 

(48.86

)

 

N/A

 

 

N/A

 

 

 

9.18

 

Reserve coverage

 

 

3.45

 

 

 

1.57

 

 

 

0.00

 

(1)

 

68.29

 

 

N/A

 

 

N/A

 

 

 

4.59

 

Delinquency status(2)

 

 

0.40

 

 

 

0.04

 

 

 

0.13

 

(1)

 

2.20

 

 

N/A

 

 

N/A

 

 

 

0.33

 

Charge-off ratio

 

 

1.35

 

 

 

0.30

 

 

 

0.00

 

(3)

 

(2.55

)

 

N/A

 

 

N/A

 

 

 

0.95

 

 

(1)

Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business.

(2)

Loans 90 days or more past due.

(3)

Ratio is based on total commercial lending balances, and relates to the total loan business.

 

 

     

Page 30 of 60


 

 

 

 

 

Consumer Lending

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corp.

 

 

 

 

 

Three Months Ended March 31, 2020

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

Lending

 

 

Medallion

Lending

 

 

RPAC

 

 

and

Other

Investments

 

 

Consolidated

 

Total interest income

 

$

26,334

 

 

$

5,887

 

 

$

1,758

 

 

$

1,002

 

 

$

 

 

$

561

 

 

$

35,542

 

Total interest expense

 

 

3,566

 

 

 

1,287

 

 

 

657

 

 

 

1,849

 

 

 

40

 

 

 

1,601

 

 

 

9,000

 

Net interest income (loss)

 

 

22,768

 

 

 

4,600

 

 

 

1,101

 

 

 

(847

)

 

 

(40

)

 

 

(1,040

)

 

 

26,542

 

Provision for loan losses

 

 

10,601

 

 

 

1,536

 

 

 

 

 

 

4,404

 

 

 

 

 

 

 

 

 

16,541

 

Net interest income (loss) after loss

   provision

 

 

12,167

 

 

 

3,064

 

 

 

1,101

 

 

 

(5,251

)

 

 

(40

)

 

 

(1,040

)

 

 

10,001

 

Sponsorship and race winning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,573

 

 

 

 

 

 

2,573

 

Race team related expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,130

)

 

 

 

 

 

(2,130

)

Other income (expense), net

 

 

(7,372

)

 

 

(2,340

)

 

 

(895

)

 

 

(8,573

)

 

 

(1,845

)

 

 

(5,669

)

 

 

(26,694

)

Net income (loss) before taxes

 

 

4,795

 

 

 

724

 

 

 

206

 

 

 

(13,824

)

 

 

(1,442

)

 

 

(6,709

)

 

 

(16,250

)

Income tax (provision) benefit

 

 

(1,226

)

 

 

(185

)

 

 

(51

)

 

 

3,445

 

 

 

359

 

 

 

907

 

 

 

3,249

 

Net income (loss)

 

$

3,569

 

 

$

539

 

 

$

155

 

 

$

(10,379

)

 

$

(1,083

)

 

$

(5,802

)

 

$

(13,001

)

Balance Sheet Data as of March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans, net

 

$

712,881

 

 

$

252,392

 

 

$

64,911

 

 

$

96,192

 

 

$

 

 

$

3,346

 

 

$

1,129,722

 

Total assets

 

 

725,337

 

 

 

261,743

 

 

 

83,864

 

 

 

201,959

 

 

 

30,171

 

 

 

231,321

 

 

 

1,534,395

 

Total funds borrowed

 

 

577,715

 

 

 

208,519

 

 

 

68,469

 

 

 

160,812

 

 

 

7,830

 

 

 

153,300

 

 

 

1,176,645

 

Balance Sheet Data as of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans, net

 

$

765,338

 

 

$

328,876

 

 

$

62,037

 

 

$

12,725

 

 

$

 

 

$

3,314

 

 

$

1,172,290

 

Total assets

 

 

777,605

 

 

 

340,494

 

 

 

80,622

 

 

 

124,554

 

 

 

33,711

 

 

 

285,425

 

 

 

1,642,411

 

Total funds borrowed

 

 

621,735

 

 

 

272,284

 

 

 

65,924

 

 

 

98,636

 

 

 

8,689

 

 

 

244,987

 

 

 

1,312,255

 

Selected Financial Ratios as of March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

2.00

%

 

 

0.84

%

 

 

0.74

%

 

 

(19.90

)%

 

 

(14.12

)%

 

 

(9.74

)%

 

 

(3.57

)%

Return on average equity

 

 

10.02

 

 

 

4.20

 

 

 

3.69

 

 

 

(98.50

)

 

NM

 

 

 

(29.89

)

 

 

(16.56

)

Interest yield

 

 

15.08

 

 

 

9.53

 

 

 

10.40

 

 

 

3.93

 

 

N/A

 

 

N/A

 

 

 

11.82

 

Net interest margin

 

 

13.04

 

 

 

7.43

 

 

 

6.51

 

 

 

(3.32

)

 

N/A

 

 

N/A

 

 

 

8.80

 

Reserve coverage

 

 

3.03

 

 

 

1.37

 

 

 

0.00

 

(1)

 

22.71

 

 

N/A

 

 

N/A

 

 

 

4.57

 

Delinquency status(2)

 

 

0.73

 

 

 

0.08

 

 

 

0.16

 

(1)

 

1.21

 

 

N/A

 

 

N/A

 

 

 

0.60

 

Charge-off ratio

 

 

3.65

 

 

 

1.03

 

 

 

0.00

 

(3)

 

6.11

 

 

N/A

 

 

N/A

 

 

 

3.08

 

 

(1)

Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business.

(2)

Loans 90 days or more past due.

(3)

Ratio is based on total commercial lending balances, and relates to the total loan business.

 

  

  

 

 

 

 

 

 

   

Page 31 of 60


 

 

(10) COMMITMENTS AND CONTINGENCIES

(A) EMPLOYMENT AGREEMENTS

The Company has employment agreements with certain key officers for either a one-, two- or five-year term. Annually, the contracts with a five-year term will generally renew for new five-year terms unless prior to the end of the first year of each five-year term, either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current five-year term. Typically, the contracts with a one- or two-year term will renew for new one- or two-year terms unless prior to the term either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current one or two-year terms; however, there is currently one agreement that renews after two years for additional one- year terms. 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 2025, with future minimum payments under these agreements of approximately $10,720,000.

(B) OTHER COMMITMENTS

The Company had no commitments to extend credit or make investments outstanding at March 31, 2021. Generally, any commitments would be on the same terms as loans to or investments in existing borrowers or investees, and generally have fixed expiration dates. Since some commitments would be expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

(C) LITIGATION

The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management, based on the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision could result in a material adverse impact on the financial condition or results of operations of the Company.

(D) REGULATORY

In the ordinary course of business, the Company and its subsidiaries are subject to inquiries from certain regulators. During 2014, FSVC was examined by the SBA. The foregoing regulatory examination was resolved in January 2017 as a result of FSVC’s transfer to liquidation status and the restructure of the FSVC loan described in Note 5.

(11) RELATED PARTY TRANSACTIONS

Certain directors, officers and stockholders of the Company are also directors and officers of its main consolidated subsidiaries, MFC, MCI, FSVC, and the 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, was an officer of LAX Group, LLC (LAX), one of the Company’s equity investments that sold its assets on December 16, 2020. In January 2020, Mr. Rudnick received a salary from LAX of $178,000 per year, which was reduced to $133,000 in the 2020 second quarter, and certain equity from LAX consisting of 10% ownership in LAX Class B stock, vesting at 3.34% per year; 5% of any new equity raised from outside investors at a valuation of $1,500,000 or higher; and 10% of LAX’s profits as a year-end bonus. In addition, Mr. Rudnick provided consulting services to the Company directly for a monthly retainer of $4,200. Effective March 1, 2021, Mr. Rudnick serves as the Company’s Senior Vice President at a salary of $195,000 per year and is no longer providing consulting services to the Company.

The Company’s subsidiary RPAC, has an agreement with minority shareholder Richard Petty, in which it makes an annual payment of $700,000 per year for services provided to the entity. In addition, RPAC has a note payable to a trust controlled by Mr. Petty of $7,479,000 that earns interest at an annual rate of 2% through March 31, 2021, NaN of which has been paid to date.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 825, “Financial Instruments,” requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, or off-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

Page 32 of 60


 

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 investments and securities—The Company’s equity securities are recorded at cost less any impairment plus or minus observable price changes.

(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) Floating rate borrowings—Due to the short-term nature of these instruments, the carrying amount approximated fair value.

(f) Commitments to extend credit—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, 2021 and December 31, 2020, the estimated fair value of these off-balance-sheet instruments was not material.

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

(Dollars in thousands)

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and federal funds sold(1)

 

$

140,277

 

 

$

140,277

 

 

$

112,040

 

 

$

112,040

 

Equity investments

 

 

9,529

 

 

 

9,529

 

 

 

9,746

 

 

 

9,746

 

Investment securities

 

 

38,081

 

 

 

38,081

 

 

 

46,792

 

 

 

46,792

 

Loans receivable

 

 

1,201,406

 

 

 

1,201,406

 

 

 

1,172,290

 

 

 

1,172,290

 

Accrued interest receivable(2)

 

 

9,215

 

 

 

9,215

 

 

 

10,338

 

 

 

10,338

 

Equity securities(3)

 

 

1,972

 

 

 

1,972

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds borrowed(4)

 

 

1,346,759

 

 

 

1,346,772

 

 

 

1,312,255

 

 

 

1,312,591

 

Accrued interest payable(2)

 

 

4,762

 

 

 

4,762

 

 

 

4,673

 

 

 

4,673

 

 

(1)

Categorized as level 1 within the fair value hierarchy, excluding $1,500 in interest bearing deposits categorized as level 2 as of March 31, 2021 and December 31, 2020. See Note 13.

(2)

Categorized as level 3 within the fair value hierarchy. See Note 13.

(3)

Included within other assets on the balance sheet.

(4)

As of March 31, 2021 and December 31, 2020, publicly traded retail notes traded at a premium to par of $13 and $336.

(13) 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 (levels 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 (levels 1 and 2) and unobservable inputs (level 3).

Page 33 of 60


 

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 in non-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 most over-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).

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.

Equity investments were recorded at cost less impairment plus or minus observable price changes. Commencing in 2020, the Company elected to measure equity investments at fair value on a non-recurring basis, which have been adjusted for all periods presented.

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.

 

March 31, 2021

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

$

 

 

$

1,500

 

 

$

 

 

$

1,500

 

Available for sale investment securities

 

 

 

 

 

38,081

 

 

 

 

 

 

38,081

 

Equity securities

 

 

1,972

 

 

 

 

 

 

 

 

 

1,972

 

Total(1)

 

$

1,972

 

 

$

39,581

 

 

$

 

 

$

41,553

 

 

(1)

Total unrealized loss of $605, net of tax, was included in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 related to these assets.

 

December 31, 2020

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

$

 

 

$

1,500

 

 

$

 

 

$

1,500

 

Available for sale investment securities(1)

 

 

 

 

 

46,792

 

 

 

 

 

 

46,792

 

Total

 

$

 

 

$

48,292

 

 

$

 

 

$

48,292

 

 

(1)

Total unrealized loss of $1,013, net of tax, was included in accumulated other comprehensive income (loss) for the year ended December 31, 2020 related to these assets.

 

 

Page 34 of 60


 

 

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2021 and December 31, 2020.

 

March 31, 2021

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity investments

 

$

 

 

$

 

 

$

9,529

 

 

$

9,529

 

Impaired loans

 

 

 

 

 

 

 

 

57,282

 

 

 

57,282

 

Loan collateral in process of foreclosure

 

 

 

 

 

 

 

 

50,733

 

 

 

50,733

 

Total

 

$

 

 

$

 

 

$

117,544

 

 

$

117,544

 

 

December 31, 2020

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity investments

 

$

 

 

$

 

 

$

9,746

 

 

$

9,746

 

Impaired loans

 

 

 

 

 

 

 

 

62,174

 

 

 

62,174

 

Loan collateral in process of foreclosure

 

 

 

 

 

 

 

 

54,560

 

 

 

54,560

 

Total

 

$

 

 

$

 

 

$

126,480

 

 

$

126,480

 

 

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 be all-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 non-recurring level 3 fair value measurements of assets and liabilities as of March 31, 2021 and December 31, 2020.

 

(Dollars in thousands)

 

Fair Value at 3/31/21

 

 

Valuation Techniques

 

Unobservable Inputs

 

Range

(Weighted Average)

Equity investments

 

$

8,074

 

 

Investee financial

   analysis

 

Financial condition and

   operating performance

   of the borrower (1)

 

N/A

 

 

 

 

 

 

 

 

Collateral support

 

N/A

 

 

 

1,455

 

(4)

Precedent market

   transaction

 

Offering price

 

$8.73 / share

Impaired loans

 

 

57,282

 

 

Market approach

 

Historical and actual loss

   experience

 

1.50% - 6.00%

 

 

 

 

 

 

 

 

 

 

60% of balance

 

 

 

 

 

 

 

 

Transfer prices (2)

 

$0.0 - 79.5

 

 

 

 

 

 

 

 

Collateral value

 

N/A

Loan collateral in process of

   foreclosure

 

 

50,733

 

 

Market approach

 

Transfer prices (2)

 

$0.0 - 79.5

 

 

 

 

 

 

 

 

Collateral value (3)

 

$0.7 - 31.1

 

Page 35 of 60


 

 

(Dollars in thousands)

 

Fair Value at 12/31/20

 

 

Valuation Techniques

 

Unobservable Inputs

 

Range

(Weighted Average)

Equity investments

 

$

8,291

 

 

Investee financial

   analysis

 

Financial condition and

   operating performance

   of the borrower (1)

 

N/A

 

 

 

 

 

 

 

 

Collateral support

 

N/A

 

 

 

1,455

 

 

Precedent market

   transaction

 

Offering price

 

$8.73 / share

Impaired loans

 

 

62,174

 

 

Market approach

 

Historical and actual loss

   experience

 

1.50% - 6.00%

 

 

 

 

 

 

 

 

 

 

60% of balance

 

 

 

 

 

 

 

 

Transfer prices (2)

 

$0.6 - 108.7

 

 

 

 

 

 

 

 

Collateral value

 

N/A

Loan collateral in process of

   foreclosure

 

 

53,128

 

 

Market approach

 

Transfer prices (2)

 

$0.6 - 108.7

 

 

 

1,432

 

 

 

 

Collateral value (3)

 

$0.7 - 32.3

 

 

(1)

Includes projections based on revenue, EBITDA, leverage, and liquidation amounts. These assumptions are based on a variety of factors, including economic conditions, industry, and market developments, market valuations of comparable companies, and company-specific developments, including exit strategies and realization opportunities.

 

(2)

Represents amount net of liquidation costs.

 

(3)

Relates to the recreation portfolio.

 

(4)

Subsequent to quarter end, the Company sold 25% of the equity investment for a gain of approximately $1,527,000.

 

(14) MEDALLION BANK PREFERRED STOCK (Non-controlling interest)

On December 17, 2019, the Bank closed an initial public offering of 1,840,000 shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, with a $46,000,000 aggregate liquidation amount, yielding net proceeds of $42,485,000, which were recorded in the Bank’s shareholders’ equity. Dividends are payable quarterly from the date of issuance to, but excluding April 1, 2025, at a rate of 8% per annum, and from and including April 1, 2025, at a floating rate equal to a benchmark rate (which is expected to be three-month Secured Overnight Financing Rate, or SOFR) plus a spread of 6.46% per annum.

On July 21, 2011, the Bank issued, and the US Treasury purchased 26,303 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series E, or Series E, for an aggregate purchase price of $26,303,000 under the Small Business Lending Fund Program, or SBLF, with a liquidation amount of $1,000 per share. The SBLF is a voluntary program intended to encourage small business lending by providing capital to qualified smaller banks at favorable rates. The Bank pays a dividend rate of 9% on the Series E.

(15) 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 the on-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 5 for more details. The Company’s interest in Trust III is accounted for as an equity investment and has a value of $0 as of March 31, 2021 and December 31, 2020. In addition, the Company remains the servicer of the assets of Trust III for a fee.  

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, or the DZ loan. The loan, which has an outstanding balance of $86,750,000, currently terminates on May 15, 2021. Borrowings under the DZ loan are collateralized by Trust III’s assets.

Page 36 of 60


 

 

(16) SUBSEQUENT EVENTS

 

 The Company evaluated the effects of events that have occurred subsequent to March 31, 2021, through the date of financial statement issuance.

 

One of the notes payable to banks with an outstanding amount of $528,000 with a maturity date of August 31, 2021 was extended until December 31, 2021.

 

Page 37 of 60


 

 

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

OBJECTIVE

The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the quarter ended March 31, 2021 and the year ended December 31, 2020. This section is intended to provide management’s perspective of our financial condition and results of operations. In addition, this section contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the Risk Factors in the Company’s Annual Report on Form 10-K.

GENERAL

We are a finance company whose strategic focus and growth in recent years has been through Medallion Bank (a wholly-owned subsidiary), which originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and trailers, and to finance home improvements. Historically we have had a leading position in originating, acquiring, and servicing loans that finance taxi medallions and various types of commercial businesses.

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 have transitioned away from medallion lending and have placed our strategic focus on our growing consumer finance portfolio. As a result of our change in strategy, as of March 31, 2021, our consumer loans represented 92% of our loan portfolio, with commercial loans representing 5% and medallion loans representing 3%. Total assets under management, which includes assets serviced for third-party investors, were $1.8 billion as of March 31, 2021 and December 31, 2020 and $1.6 billion as of March 31, 2020, 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.

In 2019, Medallion Bank began the process to build-out a strategic partnership program with financial technology, or fintech, companies. Medallion Bank entered into an initial partnership in 2020 and began issuing its first loans and entered into another strategic partnership in 2021, which will soon be active, while continuing to explore opportunities with additional fintech companies.

In recent years, we have focused on growing our consumer lending segments and maintaining the profitability of our commercial lending segment. Since the beginning of 2020, we have taken various steps to pursue this strategy, including:

 

carrying-out cost-cutting measures, such as reducing our employee headcount by 21% at our parent company Medallion Financial Corp. and closing satellite offices in Long Island City, Chicago, and Boston;

 

exiting non-core investments, such as selling the assets of LAX Group, LLC on December 16, 2020, and expecting to sell, when practicable to maximize our proceeds, other non-core investments like our remaining art investments of less than $1,000,000 in Medallion Fine Art, Inc.;

 

strengthening our initiative to grow the Bank by partnering with two fintech companies in our strategic partnership program; and

Page 38 of 60


 

Our wholly-owned subsidiary, Medallion Bank, or the 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. The 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 medallion and commercial loans to the Bank, which originated these loans, and have been serviced by Medallion Servicing Corp., or MSC. However, at this time the Bank is not originating any new medallion loans and is working with MSC to service its existing portfolio. MSC earns referral and servicing fees for these activities.

COVID-19

The ongoing coronavirus, or COVID-19, pandemic, its broad impact and preventive measures taken to contain or mitigate the outbreak have had, and are likely to continue to have, significant negative effects on the US and global economy, employment levels, employee productivity, and financial market conditions. This has had, and may continue to have increasingly negative effects on the ability of our borrowers to repay outstanding loans, the value of collateral securing loans, the demand for loans and other financial services products and consumer discretionary spending. As a result of these or other consequences, the outbreak has adversely and materially affected our business, results of operations and financial condition. Although we are seeing early signs of recovery, it remains uncertain, and the effects of the outbreak on us could be exacerbated given that our business model is largely consumer and small business directed, which are more severely affected by COVID-19 and the preventative measures taken to contain or mitigate the outbreak, including its significant negative effects on consumer discretionary spending. The full extent to which the outbreak will continue to impact our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the continued outbreak, the actions taken to contain or mitigate the outbreak and how long, and to what extent the economic recovery from its effects will take.

We have taken steps to operate through this crisis, including having our workforce work remotely on a part-time basis in New York, though our employees outside of New York largely continue to work remotely. Despite elevated risks associated with a remote workforce, we implemented additional mitigating controls to help reduce such risks. In addition, we implemented a number of cost-cutting measures, such as reducing employee headcount by 21% at our parent company, Medallion Financial Corp., and closing satellite offices in Long Island City, Chicago and Boston.

In March 2020, we adjusted the payment policies and procedures with our consumer and medallion businesses, and allowed borrowers to defer payments up to 180 days. As of March 31, 2021, minimal consumer loans remained on deferral and no medallion loans remained on deferral. For our consumer loan portfolios, although we believe that our deferral programs have been effective to date in mitigating the effect of COVID-19, the ultimate effects of COVID-19 on these portfolios remains to be seen. For our medallion portfolio, we determined that anticipated payment activity on our medallion portfolio was impossible to quantify upon exit of the deferral moratorium, and therefore deemed all such loans as impaired. As a result, all medallion loans were placed on nonaccrual status and written down to net collateral value of $79,500 at December 31, 2020 and remained at that level as of March 31, 2021 for New York City taxi medallions. We will continue to monitor our medallion portfolio and related assets, which may result in additional write-downs, charge-offs or impairments, the impact of which could be material to our results of operations and financial condition.

Substantially all our medallion loans and related assets are concentrated in New York City. As a result of the COVID-19 pandemic, economic activity and taxi ridership decreased dramatically in New York City and despite the reopening of New York City, there has not been a substantial increase in ridership and gross meter fares. The extent to which the COVID-19 pandemic will continue to adversely affect taxi medallion owners and, by extension, our medallion loans and related assets, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, actions taken by governmental authorities, and the direct and indirect impact of the pandemic on taxi medallion owners and the behaviors of people who have historically taken taxis.

In regards to our commercial business, many of our mezzanine portfolio companies were able to access the Paycheck Protection Program, providing needed liquidity during a period of depressed market demands. MCI drew on its remaining unfunded commitments and received a commitment from the SBA for $25,000,000 in debenture financing with a ten-year term, upon a capital infusion from Medallion Financial Corp. For the commercial portfolio, performance is slowly recovering although lingering impacts of COVID-19 continue to weigh on performance.

RPAC received $747,000 under the Paycheck Protection Program in the 2020 second quarter, and has not yet applied for forgiveness, but expects to.

Page 39 of 60


 

Average Balances and Rates

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 for the three months ended March 31, 2021 and 2020.

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

Average

Balance

 

 

Interest

 

 

Average

Yield/Cost

 

 

Average

Balance

 

 

Interest

 

 

Average

Yield/Cost

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning cash and cash equivalents

 

$

2,993

 

 

$

18

 

 

 

2.44

%

 

$

 

 

$

 

 

 

0.00

%

Federal funds sold

 

 

44,873

 

 

 

5

 

 

 

0.05

 

 

 

41,402

 

 

 

108

 

 

 

1.05

 

Investment securities

 

 

42,046

 

 

 

202

 

 

 

1.95

 

 

 

47,031

 

 

 

331

 

 

 

2.83

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreation

 

 

774,823

 

 

 

27,442

 

 

 

14.36

 

 

 

702,380

 

 

 

26,334

 

 

 

15.08

 

Home improvement

 

 

332,270

 

 

 

7,918

 

 

 

9.66

 

 

 

248,355

 

 

 

5,887

 

 

 

9.53

 

Commercial

 

 

61,244

 

 

 

1,560

 

 

 

10.33

 

 

 

68,003

 

 

 

1,880

 

 

 

11.12

 

Medallion

 

 

11,945

 

 

 

(69

)

 

 

(2.34

)

 

 

102,574

 

 

 

1,002

 

 

 

3.93

 

Strategic partnership

 

 

27

 

 

 

4

 

 

 

60.08

 

 

 

 

 

 

 

 

 

 

Total loans

 

 

1,180,309

 

 

 

36,855

 

 

 

12.66

 

 

 

1,121,312

 

 

 

35,103

 

 

 

12.59

 

Total interest-earning assets

 

 

1,270,221

 

 

 

37,080

 

 

 

11.84

 

 

 

1,209,745

 

 

 

35,542

 

 

 

11.82

 

Non-interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

61,370

 

 

 

 

 

 

 

 

 

 

 

17,567

 

 

 

 

 

 

 

 

 

Equity investments

 

 

9,583

 

 

 

 

 

 

 

 

 

 

 

10,687

 

 

 

 

 

 

 

 

 

Income tax receivable

 

 

518

 

 

 

 

 

 

 

 

 

 

 

500

 

 

 

 

 

 

 

 

 

Loan collateral in process of foreclosure(1)

 

 

53,543

 

 

 

 

 

 

 

 

 

 

 

51,090

 

 

 

 

 

 

 

 

 

Goodwill and intangible assets

 

 

201,715

 

 

 

 

 

 

 

 

 

 

 

203,160

 

 

 

 

 

 

 

 

 

Other assets

 

 

45,702

 

 

 

 

 

 

 

 

 

 

 

41,400

 

 

 

 

 

 

 

 

 

Total non-interest-earning assets

 

 

372,431

 

 

 

 

 

 

 

 

 

 

 

324,404

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,642,652

 

 

 

 

 

 

 

 

 

 

$

1,534,149

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,045,381

 

 

$

4,711

 

 

 

1.83

%

 

$

949,262

 

 

$

5,941

 

 

 

2.52

%

Retail and privately placed notes

 

 

125,372

 

 

 

2,632

 

 

 

8.51

 

 

 

69,625

 

 

 

1,683

 

 

 

9.72

 

SBA debentures and borrowings

 

 

65,080

 

 

 

572

 

 

 

3.56

 

 

 

71,525

 

 

 

686

 

 

 

3.86

 

Preferred securities

 

 

33,000

 

 

 

193

 

 

 

2.37

 

 

 

33,000

 

 

 

314

 

 

 

3.83

 

Notes payable to banks

 

 

27,622

 

 

 

258

 

 

 

3.79

 

 

 

33,259

 

 

 

336

 

 

 

4.06

 

Other borrowings

 

 

8,707

 

 

 

41

 

 

 

1.91

 

 

 

7,812

 

 

 

40

 

 

 

2.06

 

Total interest-bearing liabilities

 

 

1,305,162

 

 

 

8,407

 

 

 

2.61

 

 

 

1,164,483

 

 

 

9,000

 

 

 

3.11

 

Non-interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liability

 

 

1,304

 

 

 

 

 

 

 

 

 

 

 

8,265

 

 

 

 

 

 

 

 

 

Other liabilities(2)

 

 

27,788

 

 

 

 

 

 

 

 

 

 

 

30,066

 

 

 

 

 

 

 

 

 

Total non-interest-bearing liabilities

 

 

29,092

 

 

 

 

 

 

 

 

 

 

 

38,331

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,334,254

 

 

 

 

 

 

 

 

 

 

 

1,202,814

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

73,040

 

 

 

 

 

 

 

 

 

 

 

70,855

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

235,358

 

 

 

 

 

 

 

 

 

 

 

260,480

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

1,642,652

 

 

 

 

 

 

 

 

 

 

$

1,534,149

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

28,673

 

 

 

 

 

 

 

 

 

 

$

26,542

 

 

 

 

 

Net interest margin

 

 

 

 

 

 

 

 

 

 

9.18

%

 

 

 

 

 

 

 

 

 

 

8.80

%

 

(1)

Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by Medallion Bank of $3,818 and $9,157 as of March 31, 2021 and 2020.

(2)

Includes deferred financing costs of $6,523 and $4,674 as of March 31, 2021 and 2020.

Page 40 of 60


 

 

During the quarter, our net loans receivable had a yield of 11.84% (compared to 11.82% in the prior year’s first quarter), mainly driven by the increased yield in the home improvement portfolio as well as the new strategic partnership loans and other interest earning cash and cash equivalents, which was largely offset by the decline in yield for the recreation portfolio due to the increased reserves percentages as a result of COVID-19 as well as the decline in both commercial and the medallion portfolios as a result of the non-accruals. The debt, mainly certificates of deposit, helps fund our growing consumer loan business and as market rates have decreased, so has the average cost of borrowings. In addition, we issued new privately placed notes since December 31, 2020, which were at lower rates compared to the prior issuances.

Rate/Volume Analysis

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,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

Increase

(Decrease)

In Volume

 

 

Increase

(Decrease)

in Rate

 

 

Net

Change

 

 

Increase

(Decrease)

In Volume

 

 

Increase

(Decrease)

in Rate

 

 

Net

Change

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning cash and cash equivalents

 

$

18

 

 

$

-

 

 

$

18

 

 

$

 

 

$

 

 

$

 

Federal funds sold

 

 

9

 

 

 

(112

)

 

 

(103

)

 

 

35

 

 

 

(72

)

 

 

(37

)

Investment securities

 

 

(35

)

 

 

(94

)

 

 

(129

)

 

 

20

 

 

 

25

 

 

 

45

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreation

 

 

2,493

 

 

 

(1,386

)

 

 

1,107

 

 

 

4,467

 

 

 

(613

)

 

 

3,854

 

Home improvement

 

 

1,951

 

 

 

80

 

 

 

2,031

 

 

 

1,511

 

 

 

51

 

 

 

1,562

 

Commercial

 

 

(187

)

 

 

(132

)

 

 

(319

)

 

 

310

 

 

 

(397

)

 

 

(87

)

Medallion

 

 

(485

)

 

 

(586

)

 

 

(1,071

)

 

 

(421

)

 

 

582

 

 

 

161

 

Strategic partnerships

 

 

4

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

Total loans

 

 

3,776

 

 

 

(2,024

)

 

 

1,752

 

 

 

5,867

 

 

 

(377

)

 

 

5,490

 

Total interest-earning assets

 

 

3,768

 

 

 

(2,230

)

 

 

1,538

 

 

 

5,922

 

 

 

(424

)

 

 

5,498

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

597

 

 

$

(1,828

)

 

$

(1,231

)

 

$

656

 

 

$

362

 

 

$

1,018

 

Retail and privately placed notes

 

 

1,156

 

 

 

(206

)

 

 

950

 

 

 

804

 

 

 

(57

)

 

 

747

 

SBA debentures and borrowings

 

 

(62

)

 

 

(52

)

 

 

(114

)

 

 

(74

)

 

 

(4

)

 

 

(78

)

Notes payable to banks

 

 

(55

)

 

 

(23

)

 

 

(78

)

 

 

(255

)

 

 

(74

)

 

 

(329

)

Preferred securities

 

 

 

 

 

(121

)

 

 

(121

)

 

 

 

 

 

(84

)

 

 

(84

)

Other borrowings

 

 

4

 

 

 

(3

)

 

 

1

 

 

 

1

 

 

 

3

 

 

 

4

 

Total interest-bearing liabilities

 

 

1,640

 

 

 

(2,233

)

 

 

(593

)

 

 

1,132

 

 

 

146

 

 

 

1,278

 

Net

 

$

2,128

 

 

$

3

 

 

$

2,131

 

 

$

4,790

 

 

$

(570

)

 

$

4,220

 

 

 

During the three months ended March 31, 2021, the increase in the interest earning assets was mainly driven by the increase in volume of consumer loans, even as the rates declined. The debt change similarly was driven by the increase in the borrowings, mainly driven by the deposits, which are used to fund the consumer loans, along with new privately placed notes.

 

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. The Bank issues brokered bank certificates of deposit, which are our lowest borrowing costs. The 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 5 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.

Page 41 of 60


 

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 tables above show the average borrowings and related borrowing costs for the three months ended March 31, 2021 and 2020.

 

We continue to seek SBA funding through Medallion Capital, Inc., or 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 Small Business Investment Act of 1985, as amended, or the SBIA, and SBA regulations. In July 2020, we obtained a $25,000,000 commitment from the SBA. 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, 2021 and 2020, short-term adjustable rate debt constituted 3% and 4% of total debt.

Loans

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 are amortized to interest income over the life of the loan. During the three months ended March 31, 2021, there was continued growth in the consumer lending segments along with recoveries on the medallion segment, which was partly offset by consumer and medallion charge-offs during the period, the continuing of loans aged over 120 days transferred to loan collateral in process of foreclosure and payments received from borrowers.

 

 

Three Months Ended March 31, 2021

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

 

 

Medallion

 

 

Strategic Partnership

 

 

Total

 

Gross loans – December 31, 2020

 

$

792,686

 

 

$

334,033

 

 

$

65,327

 

 

$

37,768

 

 

$

24

 

 

$

1,229,838

 

Loan originations

 

 

93,850

 

 

 

48,059

 

 

 

4,156

 

 

 

 

 

 

1,944

 

 

 

148,009

 

Principal payments, sales, and maturities

 

 

(58,427

)

 

 

(40,069

)

 

 

(10,965

)

 

 

(1,825

)

 

 

(1,910

)

 

 

(113,196

)

Charge-offs, net

 

 

(2,584

)

 

 

(249

)

 

 

 

 

 

75

 

 

 

 

 

 

(2,758

)

Transfer to loan collateral in process

   of foreclosure, net

 

 

(3,053

)

 

 

 

 

 

 

 

 

(696

)

 

 

 

 

 

(3,749

)

Amortization of origination costs

 

 

(2,162

)

 

 

497

 

 

 

11

 

 

 

(2

)

 

 

 

 

 

(1,656

)

Amortization of loan premium

 

 

(41

)

 

 

(76

)

 

 

 

 

 

(70

)

 

 

 

 

 

(187

)

FASB origination costs

 

 

2,663

 

 

 

(74

)

 

 

 

 

 

 

 

 

 

 

 

2,589

 

Paid-in-kind interest

 

 

 

 

 

 

 

 

325

 

 

 

 

 

 

 

 

 

325

 

Gross loans – March 31, 2021

 

$

822,932

 

 

$

342,121

 

 

$

58,854

 

 

$

35,250

 

 

$

58

 

 

$

1,259,215

 

 

 

Three Months Ended March 31, 2020

(Dollars in thousands)

 

Recreation

 

 

Home

Improvement

 

 

Commercial

 

 

Medallion

 

 

Total

 

Gross loans – December 31, 2019

 

$

713,332

 

 

$

247,324

 

 

$

69,767

 

 

$

130,432

 

 

$

1,160,855

 

Loan originations

 

 

69,643

 

 

 

33,465

 

 

 

2,175

 

 

 

 

 

 

105,283

 

Principal payments, sales, and maturities

 

 

(37,070

)

 

 

(24,225

)

 

 

(3,999

)

 

 

(2,075

)

 

 

(67,369

)

Charge-offs, net

 

 

(6,382

)

 

 

(636

)

 

 

 

 

 

(1,559

)

 

 

(8,577

)

Transfer to loan collateral in process

   of foreclosure, net

 

 

(4,779

)

 

 

 

 

 

 

 

 

(2,159

)

 

 

(6,938

)

Amortization of origination costs

 

 

(1,728

)

 

 

441

 

 

 

2

 

 

 

(19

)

 

 

(1,304

)

Amortization of loan premium

 

 

(52

)

 

 

(86

)

 

 

 

 

(191

)

 

 

(329

)

FASB origination costs

 

 

2,211

 

 

 

(384

)

 

 

19

 

 

 

19

 

 

 

1,865

 

Paid-in-kind interest

 

 

 

 

 

 

293

 

 

 

 

 

293

 

Gross loans – March 31, 2020

 

$

735,175

 

 

$

255,899

 

 

$

68,257

 

 

$

124,448

 

 

$

1,183,779

 

 

The following table presents the approximate maturities and sensitivity to changes in interest rates for our loans as of March 31, 2021.

 

Page 42 of 60


 

 

 

 

Loan Maturity

 

 

(Dollars in thousands)

 

Within 1 year

 

 

After 1 to 5 years

 

 

After 5 to 15 years

 

 

After 15 years

 

 

Total

 

Fixed-rate

 

$

30,381

 

 

$

160,621

 

 

$

975,023

 

 

$

55,763

 

 

$

1,221,788

 

   Recreation

 

 

1,640

 

 

 

75,649

 

 

 

708,451

 

 

 

1,885

 

 

 

787,625

 

   Home improvement

 

 

12,468

 

 

 

17,558

 

 

 

260,723

 

 

 

53,878

 

 

 

344,627

 

   Commercial

 

 

7,591

 

 

 

43,626

 

 

 

5,849

 

 

 

 

 

 

57,066

 

   Medallion

 

 

8,682

 

 

 

23,788

 

 

 

 

 

 

 

 

 

32,470

 

Adjustable-rate

 

$

5,919

 

 

$

6,600

 

 

$

40

 

 

$

 

 

$

12,559

 

   Recreation

 

 

4,684

 

 

 

4,810

 

 

 

40

 

 

 

 

 

 

9,534

 

   Home improvement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Commercial

 

 

 

 

 

1,790

 

 

 

 

 

 

 

 

 

1,790

 

   Medallion

 

 

1,235

 

 

 

 

 

 

 

 

 

 

 

 

1,235

 

Total(1)(2)

 

$

36,300

 

 

$

167,221

 

 

$

975,063

 

 

$

55,763

 

 

$

1,234,347

 

 

 

(1)

Excludes strategic partnership loans.

 

(2)

As of March 31, 2021, there were no floating rate loans.

 

Provision and Allowance for Loan Loss

During the three months ended March 31, 2021, New York City taxi medallion values remained constant at a net realizable value of $79,500, even as other markets slightly declined, whereas for the three months ended March 31 2020 as a result of the initial impact of COVID-19, the New York City taxi medallion values had decreased from $167,000 to $124,500. In addition, the consumer and recreation loan allowance percentages had remained relatively in line for the three months ended March 31, 2021, whereas for the three months ended March 31, 2020, due to the change in economic factors due to COVID-19, the Company increased the reserve percentages for the consumer loan portfolio between 25 to 50 basis points.

The following table set forth the activity in the allowance for loan losses for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Allowance for loan losses – beginning balance

 

$

57,548

 

 

$

46,093

 

Charge-offs

 

 

 

 

 

 

 

 

Recreation

 

 

(5,053

)

 

 

(8,244

)

Home improvement

 

 

(681

)

 

 

(1,011

)

Commercial

 

 

 

 

 

 

Medallion

 

 

(1,114

)

 

 

(1,924

)

Total charge-offs

 

 

(6,848

)

 

 

(11,179

)

Recoveries

 

 

 

 

 

 

 

 

Recreation

 

 

2,469

 

 

 

1,862

 

Home improvement

 

 

432

 

 

 

375

 

Commercial

 

 

 

 

 

 

Medallion

 

 

1,189

 

 

 

365

 

Total recoveries

 

 

4,090

 

 

 

2,602

 

Net charge-offs(1)

 

 

(2,758

)

 

 

(8,577

)

Provision for loan losses

 

 

3,019

 

 

 

16,541

 

Allowance for loan losses – ending balance(2) (3)

 

$

57,809

 

 

$

54,057

 

 

(1)

As of March 31, 2021, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion portfolio were $282,450, some of which represents collection opportunities for the Company.

(2)

As of September 30, 2020, the general reserves previously recorded for the Company’s medallion loan portfolio had been reversed as all loans had been deemed impaired and written down to collateral value.

(3)

As of March 31, 2021, there was no allowance for loan loss and net charge-offs related to the strategic partnership loans.

Page 43 of 60


 

 

The following tables set forth the allowance for loan losses by type as of March 31, 2021 and December 31, 2020.

 

March 31, 2021

(Dollars in thousands)

 

Amount

 

 

Percentage

of Allowance

 

 

Allowance as

a Percent of

Loan Category

 

 

Allowance as

a Percent of

Nonaccrual

 

Recreation

 

$

28,378

 

 

 

49

%

 

 

3.45

%

 

 

561.61

%

Home improvement

 

 

5,358

 

 

 

9

 

 

 

1.57

 

 

NM

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

Medallion

 

 

24,073

 

 

 

42

 

 

 

68.29

 

 

 

70.05

 

Total

 

$

57,809

 

 

 

100

%

 

 

4.59

%

 

 

1.02

%

 

December 31, 2020

(Dollars in thousands)

 

Amount

 

 

Percentage

of Allowance

 

 

Allowance as

a Percent of

Loan Category

 

 

Allowance as

a Percent of

Nonaccrual

 

Recreation

 

$

27,348

 

 

 

48

%

 

 

3.45

%

 

 

378.20

%

Home improvement

 

 

5,157

 

 

 

9

 

 

 

1.54

 

 

NM

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Medallion

 

 

25,043

 

 

 

43

 

 

 

66.31

 

 

 

68.01

 

Total

 

$

57,548

 

 

 

100

%

 

 

4.68

%

 

 

93.17

%

 

As of March 31, 2021, the allowance for loan losses had remained relatively in line with December 31, 2020, mainly driven by the New York City medallion collateral value remaining consistent due to the economy slowly re-opening and recovering from the COVID-19 pandemic as well as the consumer rates remaining consistent.

 

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 collateral, 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. We cannot predict the ultimate impact that the ongoing COVID-19 pandemic will have on the loan portfolios due to the greater than typical uncertainty surrounding COVID-19 and its related significant negative effects on the economy and financial markets.

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 is charged-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 recovery. Proceeds collected on charged off accounts are recorded as recoveries. All collection, repossession, and recovery efforts are handled on behalf of the Bank by the servicer.

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

March 31, 2020

 

(Dollars in thousands)

 

Amount

 

 

%(1)

 

 

Amount

 

 

%(1)

 

 

Amount

 

 

%(1)

 

Recreation

 

$

3,152

 

 

 

0.2

%

 

$

5,343

 

 

 

0.5

%

 

$

5,225

 

 

 

0.5

%

Home improvement

 

 

149

 

 

 

0.0

 

 

 

170

 

 

 

0.0

 

 

 

220

 

 

 

0.0

 

Commercial

 

 

75

 

 

 

0.0

 

 

 

75

 

 

 

0.0

 

 

 

107

 

 

 

0.0

 

Medallion

 

 

742

 

 

 

0.1

 

 

 

1,290

 

 

 

0.1

 

 

 

1,462

 

 

 

0.1

 

Total loans 90 days or more

   past due

 

$

4,118

 

 

 

0.3

%

 

$

6,878

 

 

 

0.6

%

 

$

7,014

 

 

 

0.6

%

 

(1)

Percentages are calculated against the total loan portfolio.

Page 44 of 60


 

 

We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 362%, 327%, and 244% as of March 31, 2021, December 31, 2020, and March 31, 2020.

Recreation and medallion loans that reach 120 days past due are charged down to collateral value and reclassified to loan collateral in process of foreclosure. The following tables show the activity of loan collateral in process of foreclosure for the three months ended March 31, 2021 and 2020.

 

Three Months Ended March 31, 2021

(Dollars in thousands)

 

Recreation

 

 

Medallion

 

 

Total

 

Loan collateral in process of foreclosure – December 31, 2020

 

$

1,432

 

 

$

53,128

 

 

$

54,560

 

Transfer from loans, net

 

 

3,053

 

 

 

749

 

 

 

3,802

 

Sales

 

 

(2,298

)

 

 

 

 

 

(2,298

)

Cash payments received

 

 

 

 

 

(1,329

)

 

 

(1,329

)

Collateral valuation adjustments

 

 

(1,217

)

 

 

(2,785

)

 

 

(4,002

)

Loan collateral in process of foreclosure – March 31, 2021

 

$

970

 

 

$

49,763

 

 

$

50,733

 

 

Three Months Ended March 31, 2020

(Dollars in thousands)

 

Recreation

 

 

Medallion

 

 

Total

 

Loan collateral in process of foreclosure – December 31, 2019

 

$

1,476

 

 

$

51,235

 

 

$

52,711

 

Transfer from loans, net

 

 

4,779

 

 

 

2,159

 

 

 

6,938

 

Sales

 

 

(1,999

)

 

 

(300

)

 

 

(2,299

)

Cash payments received

 

 

 

 

 

(1,708

)

 

 

(1,708

)

Collateral valuation adjustments

 

 

(2,539

)

 

 

(6,286

)

 

 

(8,825

)

Loan collateral in process of foreclosure – March 31, 2020

 

$

1,717

 

 

$

45,100

 

 

$

46,817

 

SEGMENT RESULTS

We manage our financial results under four operating segments: recreation lending, home improvement lending, commercial lending, and medallion lending. We also show results for two non-operating segments; RPAC and corporate and other investments. All results are for the three months ended March 31, 2021 and 2020.

Recreation Lending

The recreation lending segment is a high-growth prime and non-prime consumer finance business which is a significant source of income for us, accounting for 74% of our interest income for the three months ended March 31, 2021 and 2020. The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 60% of the portfolio, boat loans making up 19% of the portfolio, and trailer loans 11% as of March 31, 2021, compared to 61%, 18% and 13% as of March 31, 2020. Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, California, and Florida, at 17%, 10%, and 10% of loans outstanding, compared to 18%, 10%, and 10% as of March 31, 2020, and with no other states over 10%.

During the three months ended March 31, 2021, the recreation portfolio continued its growth compared to the three months ended March 31, 2020. Additionally, reserves were strengthened while the delinquencies and charge-offs improved. Also, the allowance percentages remained in line whereas in the prior period there had been an increase due to the uncertainty regarding the COVID-19 pandemic.

Page 45 of 60


 

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Selected Earnings Data

 

 

 

 

 

 

 

 

Total interest income

 

$

27,442

 

 

$

26,334

 

Total interest expense

 

 

2,794

 

 

 

3,566

 

Net interest income

 

 

24,648

 

 

 

22,768

 

Provision for loan losses

 

 

3,613

 

 

 

10,601

 

Net interest income after loss provision

 

 

21,035

 

 

 

12,167

 

Other income (expense), net

 

 

(5,463

)

 

 

(7,372

)

Net income before taxes

 

 

15,572

 

 

 

4,795

 

Income tax provision

 

 

(4,010

)

 

 

(1,226

)

Net income after taxes

 

$

11,562

 

 

$

3,569

 

Balance Sheet Data

 

 

 

 

 

 

 

 

Total loans, gross

 

$

822,932

 

 

$

735,175

 

Total loan allowance

 

 

28,378

 

 

 

22,294

 

Total loans, net

 

 

794,554

 

 

 

712,881

 

Total assets

 

 

807,244

 

 

 

725,337

 

Total borrowings

 

 

641,993

 

 

 

577,715

 

Selected Financial Ratios

 

 

 

 

 

 

 

 

Return on average assets

 

 

5.92

%

 

 

2.00

%

Return on average equity

 

 

29.59

 

 

 

10.02

 

Interest yield

 

 

14.36

 

 

 

15.08

 

Net interest margin

 

 

12.90

 

 

 

13.04

 

Reserve coverage

 

 

3.45

 

 

 

3.03

 

Delinquency status(1)

 

 

0.40

 

 

 

0.73

 

Charge-off %

 

 

1.35

 

 

 

3.65

 

 

(1)

Loans 90 days or more past due.

Home Improvement Lending

The home improvement lending segment works with contractors and financial service providers to finance residential home improvements and is concentrated in roofs, swimming pools, windows, and solar panels at 25%, 25%, 13%, and 7% of total loans outstanding as of March 31, 2021, as compared to 22%, 22%, 14%, and 12% as of March 31, 2020, with no other collateral types over 7%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations in Florida, Texas, and Ohio at 11%, 11%, and 9% of loans outstanding March 31, 2021, compared to 10%, 11%, and 11% as of March 31, 2020, and with no other states over 9%.

For the three months ended March 31, 2021, the home improvement loan portfolio continued to grow rapidly, leading to an increase in interest income and overall net income, while maintaining its high net interest margin. Additionally, loan loss reserves were strengthened while charge-offs and delinquencies improved.

Page 46 of 60


 

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Selected Earnings Data

 

 

 

 

 

 

 

 

Total interest income

 

$

7,918

 

 

$

5,887

 

Total interest expense

 

 

1,208

 

 

 

1,287

 

Net interest income

 

 

6,710

 

 

 

4,600

 

Provision for loan losses

 

 

450

 

 

 

1,536

 

Net interest income after loss provision

 

 

6,260

 

 

 

3,064

 

Other income (expense), net

 

 

(1,914

)

 

 

(2,340

)

Net income before taxes

 

 

4,346

 

 

 

724

 

Income tax provision

 

 

(1,119

)

 

 

(185

)

Net income after taxes

 

$

3,227

 

 

$

539

 

Balance Sheet Data

 

 

 

 

 

 

 

 

Total loans, gross

 

$

342,121

 

 

$

255,899

 

Total loan allowance

 

 

5,358

 

 

 

3,507

 

Total loans, net

 

 

336,763

 

 

 

252,392

 

Total assets

 

 

348,456

 

 

 

261,743

 

Total borrowings

 

 

277,672

 

 

 

208,519

 

Selected Financial Ratios

 

 

 

 

 

 

 

 

Return on average assets

 

 

3.80

%

 

 

0.84

%

Return on average equity

 

 

19.00

 

 

 

4.20

 

Interest yield

 

 

9.66

 

 

 

9.53

 

Net interest margin

 

 

8.19

 

 

 

7.43

 

Reserve coverage

 

 

1.57

 

 

 

1.37

 

Delinquency status(1)

 

 

0.04

 

 

 

0.08

 

Charge-off %

 

 

0.30

 

 

 

1.03

 

 

(1)

Loans 90 days or more past due.

Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 68% of which are located in the Midwest region, 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 include an equity component as part of the financing. The commercial lending business has concentrations in manufacturing and professional, scientific, and technical services, making up 56% and 15% of the loans outstanding as of March 31, 2021, compared to 58% and 14% as of March 31, 2020.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020. The commercial segment encompasses the mezzanine lending business, and the other legacy commercial loans (immaterial to total) have been allocated to corporate and other investments. The commercial segment decreased as early payoffs exceeded new loans recorded during the quarter. Net income improved as expenses decreased and credit quality remained solid.

Page 47 of 60


 

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Selected Earnings Data

 

 

 

 

 

 

 

 

Total interest income

 

$

1,482

 

 

$

1,758

 

Total interest expense

 

 

572

 

 

 

657

 

Net interest income

 

 

910

 

 

 

1,101

 

Provision for loan losses

 

 

 

 

 

 

Net interest income after loss provision

 

 

910

 

 

 

1,101

 

Other income (expense), net

 

 

(460

)

 

 

(895

)

Net income before taxes

 

 

450

 

 

 

206

 

Income tax provision

 

 

(113

)

 

 

(51

)

Net income after taxes

 

$

337

 

 

$

155

 

Balance Sheet Data

 

 

 

 

 

 

 

 

Total loans, gross

 

$

55,567

 

 

$

64,911

 

Total loan allowance

 

 

 

 

 

 

Total loans, net

 

 

55,567

 

 

 

64,911

 

Total assets

 

 

71,922

 

 

 

83,864

 

Total borrowings

 

 

59,533

 

 

 

68,469

 

Selected Financial Ratios

 

 

 

 

 

 

 

 

Return on average assets

 

 

1.79

%

 

 

0.74

%

Return on average equity

 

 

8.96

 

 

 

3.69

 

Interest yield

 

 

10.37

 

 

 

10.40

 

Net interest margin

 

 

6.37

 

 

 

6.51

 

Reserve coverage(1)

 

 

0.00

 

 

 

0.00

 

Delinquency status(1) (2)

 

 

0.13

 

 

 

0.16

 

Charge-off %(3)

 

 

0.00

 

 

 

0.00

 

 

(1)

Ratio is based off of total commercial balances, and relates solely to the legacy commercial loan balances.

(2)

Loans 90 days or more past due.

(3)

Ratio is based on total commercial lending balances, and relates to the total loan business.

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Geographic Concentrations (Dollars in thousands)

 

Total Gross

Loans

 

 

% of Market

 

 

Total Gross

Loans

 

 

% of Market

 

Illinois

 

$

11,146

 

 

 

20

%

 

$

9,239

 

 

 

14

%

Michigan

 

 

10,502

 

 

 

19

 

 

 

10,357

 

 

 

16

 

Minnesota

 

 

8,208

 

 

 

15

 

 

 

5,710

 

 

 

9

 

North Carolina

 

 

5,849

 

 

 

11

 

 

 

5,250

 

 

 

8

 

Texas

 

 

5,569

 

 

 

10

 

 

 

5,555

 

 

 

9

 

New Jersey

 

 

4,164

 

 

 

7

 

 

 

4,981

 

 

 

8

 

Kansas

 

 

4,107

 

 

 

7

 

 

 

4,107

 

 

 

6

 

Other(1)

 

 

6,022

 

 

 

11

 

 

 

19,712

 

 

 

30

 

Total

 

$

55,567

 

 

 

100

%

 

$

64,911

 

 

 

100

%

 

(1)

Includes four other states, which were all under 6% as of March 31, 2021, and eight other states, all under 8% as of March 31, 2020.

Medallion Lending

The medallion lending segment operates mainly in the New York City, Newark, and Chicago markets. We have a long history of owning, managing, and financing taxi fleets, taxi medallions, and corporate car services. During the three months ended March 31, 2021, taxi medallion values remained consistent in the New York City market even as other markets saw declines. We continue to experience a decline in interest income due to all loans being placed on nonaccrual as of September 30, 2020, 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 taxi medallions and enhanced by personal guarantees of the shareholders and owners.

Page 48 of 60


 

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

 

 

 

Three Months Ended March 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Selected Earnings Data

 

 

 

 

 

 

 

 

Total interest income

 

$

(69

)

 

$

1,002

 

Total interest expense

 

 

1,370

 

 

 

1,849

 

Net interest loss

 

 

(1,439

)

 

 

(847

)

Provision for loan losses

 

 

(1,044

)

 

 

4,404

 

Net interest loss after loss provision

 

 

(395

)

 

 

(5,251

)

Other income (expense), net

 

 

(2,144

)

 

 

(8,573

)

Net loss before taxes

 

 

(2,539

)

 

 

(13,824

)

Income tax benefit

 

 

637

 

 

 

3,445

 

Net loss after taxes

 

$

(1,902

)

 

$

(10,379

)

Balance Sheet Data

 

 

 

 

 

 

 

 

Total loans, gross

 

$

35,250

 

 

$

124,448

 

Total loan allowance

 

 

24,073

 

 

 

28,256

 

Total loans, net

 

 

11,177

 

 

 

96,192

 

Total assets

 

 

116,639

 

 

 

201,959

 

Total borrowings

 

 

92,469

 

 

 

160,812

 

Selected Financial Ratios

 

 

 

 

 

 

 

 

Return on average assets

 

 

(6.40

)%

 

 

(19.90

)%

Return on average equity

 

 

(31.98

)

 

 

(98.50

)

Interest yield

 

 

(2.34

)

 

 

3.93

 

Net interest margin

 

 

(48.86

)

 

 

(3.32

)

Reserve coverage

 

 

68.29

 

 

 

22.71

 

Delinquency status(1)

 

 

2.20

 

 

 

1.21

 

Charge-off %

 

 

(2.55

)

 

 

6.11

 

 

(1)

Loans 90 days or more past due.

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Geographic Concentration (Dollars in thousands)

 

Total Gross

Loans

 

 

% of Market

 

 

Total Gross

Loans

 

 

% of Market

 

New York City

 

$

32,037

 

 

 

91

%

 

$

111,696

 

 

 

90

%

Newark

 

 

2,939

 

 

 

8

 

 

 

12,013

 

 

 

10

 

All Other

 

 

274

 

 

 

1

 

 

 

739

 

 

 

 

Total

 

$

35,250

 

 

 

100

%

 

$

124,448

 

 

 

100

%