UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
(State of Incorporation) |
(IRS Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 August 5, 2022, was
MEDALLION FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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 pending litigation with the Securities and Exchange Commission as well as the ongoing COVID-19 pandemic and the related impact on the U.S. 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 56
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PREPARATION
We, Medallion Financial Corp., or the Company, are a specialty finance company organized as a Delaware corporation. Our strategic focus is the growth of our consumer finance and commercial lending businesses. Our total assets were $2.1 billion and $1.9 billion as of June 30, 2022 and December 31, 2021.
We conduct our business through various wholly-owned subsidiaries including:
Our consolidated balance sheet as of June 30, 2022, and the related consolidated statements of operations, consolidated statements of other comprehensive income, consolidated statements of stockholders’ equity and cash flows for the three months then ended included in Item 1 have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly our consolidated financial position and results of operations. The results of operations for the three and six months ended June 30, 2022 may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Page 3 of 56
MEDALLION FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands, except share and per share data) |
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June 30, 2022 |
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December 31, 2021 |
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Assets |
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Cash and cash equivalents (1) |
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$ |
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$ |
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Federal funds sold |
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Investment securities |
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Equity investments |
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Loans |
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Allowance for loan losses |
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Net loans receivable |
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Goodwill |
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Loan collateral in process of foreclosure (2) |
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Intangible assets, net |
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Property, equipment, and right-of-use lease asset, net |
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Accrued interest receivable |
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Income tax receivable |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Deposits (3) |
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$ |
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$ |
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Long-term debt (4) |
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Deferred tax liabilities, net |
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Operating lease liabilities |
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Accrued interest payable |
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Accounts payable and accrued expenses (5) |
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Total liabilities |
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(6) |
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Stockholders’ equity |
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Preferred stock ( |
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Common stock ( |
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Additional paid in capital |
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Treasury stock ( |
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Accumulated other comprehensive income (loss) |
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Retained earnings |
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Total stockholders’ equity |
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Non-controlling interest in consolidated subsidiaries |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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Number of shares outstanding |
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Book value per share |
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$ |
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$ |
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The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 4 of 56
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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(Dollars in thousands, except share and per share data) |
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2022 |
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2021 |
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2022 |
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2021 |
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Interest and fees on loans |
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$ |
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$ |
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$ |
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$ |
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Interest and dividends on investment securities |
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Total interest income(1) |
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Interest on deposits |
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Interest on long-term debt |
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Interest on short-term borrowings |
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Total interest expense |
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Net interest income |
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Provision (benefit) for loan losses |
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Net interest income after provision for loan losses |
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Other income (loss) |
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Gain on equity investments |
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Write-down of loan collateral in process of foreclosure |
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Gain on extinguishment of debt |
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Sponsorship and race winnings, net |
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Other income (loss) |
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Total other income, net |
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Other expenses |
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Salaries and employee benefits |
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Professional fees |
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Loan servicing fees |
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Collection costs |
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Rent expense |
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Regulatory fees |
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Amortization of intangible assets |
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Race team related expenses |
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Other expenses |
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Total other expenses |
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Income before income taxes |
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Income tax provision |
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Net income after taxes |
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Less: income attributable to the non-controlling interest |
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Total net income attributable to Medallion Financial Corp. |
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$ |
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$ |
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$ |
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$ |
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Basic net income per share |
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$ |
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$ |
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$ |
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$ |
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Diluted net income per share |
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$ |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding |
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Basic |
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Diluted |
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The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 5 of 56
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(UNAUDITED)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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(Dollars in thousands) |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income after taxes |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income, net of tax |
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( |
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( |
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( |
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Total comprehensive income |
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Less comprehensive income attributable to the non-controlling interest |
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Total comprehensive income attributable to Medallion Financial Corp. |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 6 of 56
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(Dollars in thousands) |
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Common |
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Common |
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Capital in |
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Treasury |
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Treasury |
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Retained |
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Accumulated |
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Total |
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Non- |
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Total |
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Balance at December 31, 2021 |
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$ |
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$ |
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( |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions to non-controlling interest |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of restricted stock, net |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Forfeiture of restricted stock, net |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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Purchase of common stock |
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— |
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— |
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— |
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( |
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( |
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— |
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— |
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( |
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— |
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( |
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Dividend paid on common stock ($ |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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— |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions to non-controlling interest |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|||
Issuance of restricted stock, net |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Forfeiture of restricted stock, net |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Purchase of common stock |
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— |
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— |
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— |
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( |
) |
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( |
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— |
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— |
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( |
) |
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— |
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( |
) |
Dividend paid on common stock ($ |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
) |
Balance at June 30, 2022 |
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$ |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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(Dollars in thousands) |
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Common |
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Common |
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Capital in |
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Treasury |
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Treasury |
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Retained |
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Accumulated |
|
|
Total |
|
|
Non-controlling |
|
|
Total |
|
||||||||||
Balance at December 31, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Distributions to non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Issuance of restricted stock, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeiture of restricted stock, net |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of stock options |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Distributions to non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance of restricted stock, net |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeiture of restricted stock, net |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of stock options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Net change in unrealized gains on investments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance at June 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 7 of 56
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six Months Ended June 30, |
|
|||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net income resulting from operations |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income resulting from operations to net cash provided by operating activities: |
|
|
|
|
|
|
||
Provision for loan losses |
|
|
|
|
|
|
||
Paid-in-kind interest income |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of origination fees, net |
|
|
|
|
|
|
||
Increase in deferred and other tax liabilities, net |
|
|
|
|
|
|
||
Net change in value of loan collateral in process of foreclosure |
|
|
|
|
|
|
||
Net realized gains on sale of investments |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
||
Gain on extinguishment of debt |
|
|
|
|
|
( |
) |
|
(Increase) decrease in accrued interest receivable |
|
|
( |
) |
|
|
|
|
Increase in other assets |
|
|
( |
) |
|
|
( |
) |
Increase in accounts payable and accrued expenses |
|
|
|
|
|
|
||
(Decrease) increase in accrued interest payable |
|
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Loans originated |
|
|
( |
) |
|
|
( |
) |
Proceeds from principal receipts, sales, and maturities of loans |
|
|
|
|
|
|
||
Purchases of investments |
|
|
( |
) |
|
|
( |
) |
Proceeds from principal receipts, sales, and maturities of investments |
|
|
|
|
|
|
||
Proceeds from the sale and principal payments on loan collateral in process of foreclosure |
|
|
|
|
|
|
||
Net cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Proceeds from time deposits and funds borrowed |
|
|
|
|
|
|
||
Repayments of time deposits and funds borrowed |
|
|
( |
) |
|
|
( |
) |
Cash dividend paid on common stock |
|
|
( |
) |
|
|
|
|
Distributions to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Treasury stock repurchased |
|
|
( |
) |
|
|
|
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents beginning of period(1) |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period (1) |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
||
Cash paid during the period for interest |
|
$ |
|
|
$ |
|
||
Cash paid during the period for income taxes |
|
|
|
|
|
|
||
NON-CASH INVESTING |
|
|
|
|
|
|
||
Loans transferred to loan collateral in process of foreclosure, net |
|
$ |
|
|
$ |
|
||
The accompanying notes should be read in conjunction with these consolidated financial statements.
Page 8 of 56
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES
Medallion Financial Corp., or the Company, is a specialty finance company organized as a Delaware corporation that reports as a bank holding company, but is not a bank holding company for regulatory purposes. The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Bank, or the Bank, a Federal Deposit Insurance Corporation, or FDIC, insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activities. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes examinations by those agencies. The Bank was formed in May 2002 for the purpose of obtaining an industrial bank charter pursuant to the laws of the State of Utah. The Bank originates consumer loans on a national basis for the purchase of recreational vehicles (“RVs”), boats and other consumer recreational equipment and to finance home improvements such as replacement windows and roofs. Prior to 2014, the Bank originated commercial loans to finance the purchase of taxi medallions, all of which are serviced by the Company. The loans are financed primarily with time certificates of deposits which are originated nationally through a variety of brokered deposit relationships. In 2019, the Bank began building a strategic partnership program that targets relationships with financial technology, or fintech, companies to offer loans and other financial services to customers. The Bank entered into an initial partnership in 2020, a second partnership in 2021, and a third partnership in 2022. The Bank continues to explore opportunities with additional fintech companies.
The Company also conducts business through its subsidiaries Medallion Capital, Inc., or MCI, a Small Business Investment Company, or SBIC, which conducts a mezzanine financing business; Medallion Funding LLC, or MFC, an SBIC, which originates and services medallion and commercial loans; and Freshstart Venture Capital Corp., or FSVC, an SBIC that originated and services medallion and commercial loans. MCI, MFC, and FSVC, as SBICs, are regulated by the Small Business Administration, or SBA. MCI and FSVC are financed in part by the SBA.
The Company established a wholly-owned subsidiary, Medallion Financing Trust I, or Fin Trust, for the purpose of issuing unsecured preferred securities to investors. Fin Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of Fin Trust, will be entitled to be satisfied out of Fin Trust’s assets prior to any value in Fin Trust becoming available to Fin Trust’s equity holders. The assets of Fin Trust, aggregating $
MFC, through several wholly-owned subsidiaries, together, Medallion Chicago, purchased $
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S., or GAAP, requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions change, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of loans and loan collateral in process of foreclosure, goodwill and intangible assets, and investments, among other effects.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its wholly-owned and controlled subsidiaries. All significant intercompany transactions, balances, and profits (losses) have been eliminated in consolidation.
The consolidated financial statements have been prepared in accordance with GAAP. The Company consolidates all entities it controls through a majority voting interest, a controlling interest through other contractual rights, or as being identified as the primary beneficiary of VIEs. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party’s holding is recorded as non-controlling interest.
Page 9 of 56
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that exceed the federally insured limits. As of June 30, 2022, cash includes $
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 $
During 2021, the Company purchased $
The table below presents the unrealized portion related to the equity securities held.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net losses recognized during the period on equity securities |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Less: Net gains (losses) recognized during the period on equity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized losses recognized during the reporting period on |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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 $
Page 10 of 56
Loans
The Company’s loans are currently reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan.
Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At June 30, 2022 and December 31, 2021, net loan origination costs were $
Interest income is recorded on the accrual basis. Medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. The consumer loan portfolio has different characteristics, typified by a larger number of smaller dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is unlikely the Company will be able to collect all amounts due according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have not been charged-off, to be impaired. Consumer loans are placed on nonaccrual when they become 90 days past due, or earlier if they enter bankruptcy, and are charged-off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate recovery efforts against both the borrower and the underlying collateral are initiated. For the recreation loan portfolio, the process to repossess the collateral is typically started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged-off. If the collateral is repossessed, a loss is recorded by writing the collateral down to its fair value less selling costs, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off. Proceeds collected on charged-off accounts are recorded as recoveries. Total loans 90 days or more past due were $
In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants concessions to the borrower for other than an insignificant period of time that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring, or TDR. The Company strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before they reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize the economic loss to the Company and to avoid foreclosure or repossession of the collateral. For modifications where the Company forgives principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans. All consumer loans which are party to a Chapter 13 bankruptcy are immediately classified as TDRs. The Company’s policy with regard to bankrupt recreation loans is to take an immediate
Loan collateral in process of foreclosure primarily includes medallion loans that have reached 120 days past due and have been charged-down to their net realizable value, in addition to consumer repossessed collateral in the process of being sold. For New York City medallion loans in the process of foreclosure, although market prices fluctuate and may exceed the internally determined value, the Company continued to utilize a net value of $
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
Page 11 of 56
it requires estimates that are susceptible to significant revision as more information becomes available. As a result of COVID-19, the Company determined that anticipated payment activity on the medallion portfolio was impossible to quantify upon exit of the six-month deferral period with borrowers, and therefore deemed all such loans as impaired in the third quarter of 2020. As a result, all medallion loans were placed on nonaccrual and reserved down to collateral value, net of liquidation costs, which was $
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
The table below shows the details of the intangible assets as of the dates presented.
(Dollars in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Brand-related intellectual property |
|
$ |
|
|
$ |
|
||
Home improvement contractor relationships |
|
|
|
|
|
|
||
Total intangible assets |
|
$ |
|
|
$ |
|
||
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
Deferred Costs
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 12 of 56
Earnings Per Share (EPS)
Basic earnings per share are computed by dividing net income resulting from operations available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, or if restricted stock vests, and has been computed after considering to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands, except share and per share data) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income available to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted average common shares outstanding applicable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of restricted stock grants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic net income per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Potentially dilutive common shares excluded from the above calculations aggregated
Stock Compensation
The Company follows FASB ASC Topic 718, or ASC 718, Compensation – Stock Compensation, for its equity incentive, stock option, and restricted stock plans, and accordingly, the Company recognizes the expense of these grants as required. Stock-based employee compensation costs pertaining to stock options are reflected in net income resulting from operations for any new grants using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Stock-based employee compensation costs pertaining to restricted stock are reflected in net income resulting from operations for any new grants using the grant date fair value of the shares granted, expensed over the vesting period of the underlying stock.
During the six months ended June 30, 2022 and 2021, the Company issued
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the FDIC and the Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.
FDIC-insured banks, including the Bank, are subject to certain federal laws, which impose various legal limitations on the extent to which banks may finance or otherwise supply funds to certain of their affiliates. In particular, the Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions with, such as certain purchases of assets, the Company or its affiliates.
Page 13 of 56
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
|
|
Regulatory |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
Minimum |
|
|
Well-Capitalized |
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||
Common equity tier 1 capital |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total capital |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Risk-weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Leverage ratio (1) |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Common equity tier 1 capital ratio (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tier 1 capital ratio (3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total capital ratio (3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
In the table above, the minimum risk-based ratios as of June 30, 2022 and December 31, 2021 reflect the capital conservation buffer of
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, or Topic 326: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. Under the FASB’s new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing “probable” and “incurred” loss recognition threshold is removed. Loss estimates are based upon lifetime “expected” credit losses. The use of past and current events must now be supplemented with “reasonable and supportable” expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model. ASU 2016-13 applies to all entities and is effective for fiscal years beginning after December 15, 2019 for public entities, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10 to defer implementation of the standard for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022. The Company is assessing the impact the update will have on the accompanying financial statements, and expects the update to have a material impact on the Company’s accounting for estimated credit losses on its loans.
In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements, or Topic 205: Depository and Lending, or Topic 942: and Financial Services – Investment Companies, or Topic 946: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. This new standard amends certain SEC paragraphs from the Codification in response to the issuance of SEC Final Rule No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses and SEC Rule No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The Company has assessed the impact the update and determined it does not have a material impact on the accompanying financial statements.
Page 14 of 56
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses, or Topic 326: Troubled Debt Restructurings and Vintage Disclosures, or ASU 2022-02. The main objective of this new standard is to amend ASU 2016-13 in response to feedback received from the post-implementation review process. The amendments update ASU 2016-13 to require that an entity measure and record the lifetime expected credit losses on an asset upon origination or acquisition, and, as a result, credit losses from loans modified as troubled debt restructurings (TDRs) have been incorporated into the allowance for credit losses. The amendments also require the disclosure of current period gross write-offs, by year of origination, for financing receivables. ASU 2022-02 is effective upon the adoption of ASU 2016-13. The Company is assessing the impact the update will have on the accompanying financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement, or Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, or ASU 2016-13. This new standard clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The Company has assessed the impact the update and determined it does not have a material impact on the accompanying financial statements.
Reclassifications
Certain reclassifications have been made to prior year balances to conform with the current year presentation. These reclassifications have no effect on the previously reported results of operations.
(3) INVESTMENT SECURITIES
Fixed maturity securities available for sale at June 30, 2022 and December 31, 2021 consisted of the following:
June 30, 2022 |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair |
|
||||
Mortgage-backed securities, principally obligations of U.S. federal agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
State and municipalities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2021 |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair |
|
||||
Mortgage-backed securities, principally obligations of U.S. federal agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
State and municipalities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The amortized cost and estimated market value of investment securities at June 30, 2022 by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
June 30, 2022 |
|
Amortized |
|
|
Fair |
|
||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through five years |
|
|
|
|
|
|
||
Due after five years through ten years |
|
|
|
|
|
|
||
Due after ten years |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The following tables show information pertaining to securities with gross unrealized losses at June 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position.
|
|
Less than Twelve Months |
|
|
Twelve Months and Over |
|
||||||||||
June 30, 2022 |
|
Gross |
|
|
Fair |
|
|
Gross |
|
|
Fair |
|
||||
Mortgage-backed securities, principally obligations of U.S. federal agencies |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
State and municipalities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Less than Twelve Months |
|
|
Twelve Months and Over |
|
||||||||||
December 31, 2021 |
|
Gross |
|
|
Fair |
|
|
Gross |
|
|
Fair |
|
||||
Mortgage-backed securities, principally obligations of U.S. federal agencies |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
State and municipalities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Page 15 of 56
The Company had
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at June 30, 2022 and December 31, 2021.
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
As a |
|
|
Amount |
|
|
As a |
|
||||
Recreation |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Strategic partnership |
|
|
|
|
* |
|
|
|
|
|
* |
|
||||
Total gross loans |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Allowance for loan losses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Total net loans |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
(*) Less than 1%
The following tables show the activity of the gross loans for the three and six months ended June 30, 2022 and 2021.
Three Months Ended June 30, 2022 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Loan originations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Principal payments, sales, maturities, and recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Charge-offs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Transfer to loan collateral in process of foreclosure, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Amortization of origination costs |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||
Amortization of loan premium |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
FASB origination costs, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Paid-in-kind interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross loans – June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Six Months Ended June 30, 2022 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Loan originations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Principal payments, sales, maturities, and recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Charge-offs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Transfer to loan collateral in process of foreclosure, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Amortization of origination costs |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||
Amortization of loan premium |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
FASB origination costs, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Paid-in-kind interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross loans – June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Page 16 of 56
Three Months Ended June 30, 2021 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – March 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Loan originations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Principal payments, sales, maturities, and recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Charge-offs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Transfer to loan collateral in process of foreclosure, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Amortization of origination costs |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||
Amortization of loan premium |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
FASB origination costs, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Paid-in-kind interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross loans – June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Six Months Ended June 30, 2021 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Loan originations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Principal payments, sales, maturities, and recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Charge-offs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Transfer to loan collateral in process of foreclosure, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Amortization of origination costs |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Amortization of loan premium |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
FASB origination costs, net |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Paid-in-kind interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross loans – June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The following table sets forth the activity in the allowance for loan losses for the three and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Allowance for loan losses – beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recreation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Home improvement |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Commercial |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Medallion |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total charge-offs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recreation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net recoveries (charge-offs) (1) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Provision (benefit) for loan losses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Allowance for loan losses – ending balance (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Page 17 of 56
The following tables set forth the allowance for loan losses by type as of June 30, 2022 and December 31, 2021.
June 30, 2022 |
|
Amount |
|
|
Percentage |
|
|
Allowance as |
|
|
Allowance as |
|
||||
Recreation |
|
$ |
|
|
|
% |
|
|
% |
|
|
% |
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
% |
|
|
% |
|
|
% |
||||
December 31, 2021 |
|
Amount |
|
|
Percentage |
|
|
Allowance as |
|
|
Allowance as |
|
||||
Recreation |
|
$ |
|
|
|
% |
|
|
% |
|
|
% |
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
% |
|
|
% |
|
|
% |
||||
The following table presents total nonaccrual loans and foregone interest. The fluctuation in nonaccrual interest foregone is due to past due loans and market conditions.
(Dollars in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Total nonaccrual loans |
|
$ |
|
|
$ |
|
||
Interest foregone quarter to date |
|
|
|
|
|
|
||
Amount of foregone interest applied to principal in the quarter |
|
|
|
|
|
|
||
Interest foregone year to date |
|
|
|
|
|
|
||
Amount of foregone interest applied to principal for the year |
|
|
|
|
|
|
||
Interest foregone life-to-date |
|
|
|
|
|
|
||
Amount of foregone interest applied to principal life-to-date |
|
|
|
|
|
|
||
Percentage of nonaccrual loans to gross loan portfolio |
|
|
% |
|
|
% |
||
Percentage of allowance for loan losses to nonaccrual loans |
|
|
% |
|
|
% |
||
The following tables present the performance status of loans as of June 30, 2022 and December 31, 2021.
June 30, 2022 |
|
Performing |
|
|
Nonperforming |
|
|
Total |
|
|
Percentage of |
|
||||
Recreation |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Strategic partnership |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2021 |
|
Performing |
|
|
Nonperforming |
|
|
Total |
|
|
Percentage of |
|
||||
Recreation |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Strategic partnership |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||
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.
Page 18 of 56
The following tables provide additional information on attributes of the nonperforming loan portfolio as of June 30, 2022 and December 31, 2021, all of which had an allowance recorded against the principal balance.
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
(Dollars in thousands) |
|
Recorded |
|
|
Unpaid |
|
|
Related |
|
|
Recorded |
|
|
Unpaid |
|
|
Related |
|
||||||
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recreation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total nonperforming loans with an allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Three Months Ended June 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
(Dollars in thousands) |
|
Average |
|
|
Interest Income |
|
|
Average |
|
|
Interest Income |
|
||||
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recreation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total nonperforming loans with an allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Six Months Ended June 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
(Dollars in thousands) |
|
Average |
|
|
Interest Income |
|
|
Average |
|
|
Interest Income |
|
||||
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recreation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total nonperforming loans with an allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following tables show the aging of all loans as of June 30, 2022 and December 31, 2021.
June 30, 2022 |
|
Days Past Due |
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|||||||||||||
(Dollars in thousands) |
|
30-59 |
|
|
60-89 |
|
|
90 + |
|
|
Total |
|
|
Current |
|
|
Total (1) |
|
|
Accruing |
|
|||||||
Recreation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Strategic partnership |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
December 31, 2021 |
|
Days Past Due |
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|||||||||||||
(Dollars in thousands) |
|
30-59 |
|
|
60-89 |
|
|
90 + |
|
|
Total |
|
|
Current |
|
|
Total (1) |
|
|
Accruing |
|
|||||||
Recreation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Home improvement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Medallion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Strategic partnership |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Page 19 of 56
The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately
The following table shows the TDRs which the Company entered into during the three and six months ended June 30, 2022.
(Dollars in thousands) |
|
Number of Loans |
|
|
Pre- |
|
|
Post- |
|
|||
Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Recreation loans |
|
|
|
|
$ |
|
|
$ |
|
|||
Medallion loans |
|
|
|
|
|
|
|
|
|
|||
Six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|||
Recreation loans |
|
|
|
|
$ |
|
|
$ |
|
|||
Medallion loans |
|
|
|
|
|
|
|
|
|
|||
As of June 30, 2022, no medallion or commercial loans modified as TDRs in the previous 12 months were in default. As of June 30, 2022,
The following table shows the TDRs which the Company entered into during the three and six months ended June 30, 2021.
(Dollars in thousands) |
|
Number of Loans |
|
|
Pre- |
|
|
Post- |
|
|||
Three months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Recreation loans |
|
|
|
|
$ |
|
|
$ |
|
|||
Medallion loans |
|
|
|
|
|
|
|
|
|
|||
Six months ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|||
Recreation loans |
|
|
|
|
$ |
|
|
$ |
|
|||
Medallion loans |
|
|
|
|
|
|
|
|
|
|||
As of June 30, 2021,
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 and six months ended June 30, 2022 and 2021.
Three Months Ended June 30, 2022 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – March 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Transfer from loans, net |
|
|
|
|
|
|
|
|
|
|||
Sales |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash payments received |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Collateral valuation adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loan collateral in process of foreclosure – June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Six Months Ended June 30, 2022 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Transfer from loans, net |
|
|
|
|
|
|
|
|
|
|||
Sales |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash payments received |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Collateral valuation adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loan collateral in process of foreclosure – June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Three Months Ended June 30, 2021 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – March 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Transfer from loans, net |
|
|
|
|
|
|
|
|
|
|||
Sales |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash payments received |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Collateral valuation adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loan collateral in process of foreclosure – June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Six Months Ended June 30, 2021 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Transfer from loans, net |
|
|
|
|
|
|
|
|
|
|||
Sales |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash payments received |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Collateral valuation adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loan collateral in process of foreclosure – June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Page 20 of 56
As of June 30, 2022, medallion loans in the process of foreclosure included 462 medallions in the New York City market, 335 medallions in the Chicago market, 61 medallions in the Newark market, and 47 medallions in other markets.
(5) FUNDS BORROWED
The outstanding balances of funds borrowed were as follows:
|
|
Payments Due for the Twelve Months Ending June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
(Dollars in thousands) |
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
Thereafter |
|
|
June 30, 2022(1) |
|
|
December 31, 2021(1) |
|
|
Interest |
|
|||||||||
Deposits (3) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||||
Privately placed notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
SBA debentures and borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Preferred securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|||||||||
(A) DEPOSITS
Substantially all deposits are raised through the use of investment brokerage firms that package time deposits in denominations of less than $
(Dollars in thousands) |
|
June 30, 2022 |
|
|
Three months or less |
|
$ |
|
|
Over three months through six months |
|
|
|
|
Over six months through one year |
|
|
|
|
Over one year |
|
|
|
|
Total deposits |
|
$ |
|
|
(B) PRIVATELY PLACED NOTES
In February 2021, the Company completed a private placement to certain institutional investors of $
In December 2020, the Company completed a private placement to certain institutional investors of $
In March 2019, the Company completed a private placement to certain institutional investors of $
(C) SBA DEBENTURES AND BORROWINGS
Over the years, the SBA has approved commitments for MCI and FSVC, typically for a term and a
Page 21 of 56
On July 31, 2020, MCI accepted a commitment from the SBA for $
(D) PREFERRED SECURITIES
In June 2007, the Company issued and sold $36.1 million aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35.0 million 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 (
(E) COVENANT COMPLIANCE
From time to time the Company may enter into debt agreements which may contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including minimum net worth. As of June 30, 2022, the Company did not have any borrowing agreements that contained any such restrictions.
(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 and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Right-of-use asset obtained in exchange for lease liability |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
The following table presents the breakout of the operating leases as of June 30, 2022 and December 31, 2021.
(Dollars in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
Operating lease liabilities |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
|
|
|
|
|
||
Weighted average remaining lease term |
|
|
|
|
||||
Weighted average discount rate |
|
|
% |
|
|
% |
||
At June 30, 2022, maturities of the lease liabilities were as follows:
(Dollars in thousands) |
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less imputed interest |
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
(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.
Page 22 of 56
The following table sets forth the significant components of our deferred and other tax assets and liabilities as of June 30, 2022 and December 31, 2021.
(Dollars in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Goodwill and other intangibles |
|
$ |
( |
) |
|
$ |
( |
) |
Provision for loan losses |
|
|
|
|
|
|
||
Net operating loss carryforwards (1) |
|
|
|
|
|
|
||
Accrued expenses, compensation, and other assets |
|
|
|
|
|
|
||
Unrealized gains on other investments |
|
|
|
|
|
|
||
Total deferred tax liability |
|
|
( |
) |
|
|
( |
) |
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Deferred tax liability, net |
|
$ |
( |
) |
|
$ |
( |
) |
The components of our tax provision for the three and six months ended June 30, 2022 and 2021 was as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Current |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Federal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
State |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
State |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net provision for income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents a reconciliation of statutory federal income tax provision to consolidated actual income tax provision for the three and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Statutory Federal income tax provision at |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
State and local income taxes, net of federal income tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in state income tax accruals |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in effective state income tax rates and accrual |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income attributable to non-controlling interest |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Non deductible expenses |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total income tax provision |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 June 30, 2022.
The Company has filed tax returns in many states and jurisdictions. Federal, New York State, New York City, and Utah 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, and subsequently on April 26, 2022, the Company’s Board of Directors approved an additional 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 14, 2022. A total of
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
Page 23 of 56
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
The Company had a stock option plan, 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
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
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
Additional shares are only available for future issuance under the 2018 Plan. At June 30, 2022,
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 $
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Risk free interest rate |
|
|
|
|
|
% |
||
Expected dividend yield |
|
|
|
|
|
|
||
Expected life of option in years (1) |
|
|
— |
|
|
|
|
|
Expected volatility (2) |
|
|
|
|
|
% |
||
Page 24 of 56
The following table presents the activity for the stock option programs for the 2022 first and second quarters and the 2021 full year.
|
|
Number of |
|
|
|
Exercise |
|
|
Weighted |
|
|||
Outstanding at December 31, 2020 (2) |
|
|
|
|
$ |
|
$ |
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|||
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Exercised (1) |
|
|
( |
) |
|
|
|
|
|
|
|||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
$ |
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|||
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Exercised (1) |
|
|
( |
) |
|
|
|
|
|
|
|||
Outstanding at March 31, 2022 (2) |
|
|
|
|
$ |
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Exercised (1) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Outstanding at June 30, 2022 (2) |
|
|
|
|
$ |
|
|
$ |
|
||||
Options exercisable at: |
|
|
|
|
|
|
|
|
|
|
|||
December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
||||
June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
||||
The following table presents the activity for the restricted stock programs for the 2022 first and second quarters and the 2021 full year.
|
|
Number of |
|
|
|
Grant |
|
|
Weighted |
|
|||
Outstanding at December 31, 2020 |
|
|
|
|
$ |
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
||||
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Vested (1) |
|
|
( |
) |
|
|
|
|
|
|
|||
Outstanding at December 31, 2021(2) |
|
|
|
|
$ |
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|||
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Vested (1) |
|
|
( |
) |
|
|
|
|
|
|
|||
Outstanding at March 31, 2022(2) |
|
|
|
|
$ |
|
|
$ |
|
||||
Granted |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Vested (1) |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Outstanding at June 30, 2022(2) |
|
|
|
|
$ |
|
|
$ |
|
||||
During the three and six months ended June 30, 2022, the Company granted
The following table presents the activity for the unvested options outstanding under the plans for the 2022 first and second quarters.
|
|
Number of |
|
|
|
Exercise Price |
|
|
Weighted |
|
|||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
||||
Granted |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
|
|
|
|
|||
Outstanding at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
||||
Granted |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|||
Vested |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Outstanding at June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
||||
The intrinsic value of the options vested was $
Page 25 of 56
(9) SEGMENT REPORTING
The Company currently has
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 operated by the Bank and include loans in all fifty states. The highest concentrations of recreation loans are in Texas and Florida at
Our corporate and other investments segment is a non-operating segment that includes items not allocated to our operating segments such as investment securities, equity investments, intercompany eliminations, and other corporate elements. Additionally, through December 1, 2021, the date of disposition, the Company had another non-operating segment, RPAC, a race car team.
As part of segment reporting, capital ratios for all operating segments have been normalized as a percentage of consolidated total equity divided by total assets, with the net adjustment applied to corporate and other investments. In addition, the commercial segment primarily represents the mezzanine lending business, with certain legacy commercial loans (immaterial to total) allocated to corporate and other investments.
The following tables present segment data as of and for the three and six months ended June 30, 2022 and 2021.
Three Months Ended June 30, 2022 |
|
Consumer Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
(Dollars in thousands) |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
|
Medallion |
|
|
Corporate and Other Investments |
|
|
Consolidated |
|
||||||
Total interest income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Provision (recoveries) for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Net interest income (loss) after loss provision |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
||||
Other income (expense), net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Income tax (provision) benefit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net income (loss) after taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total loans, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total funds borrowed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Return on average assets |
|
|
% |
|
|
% |
|
|
% |
|
|
|
% |
|
|
( |
)% |
|
|
% |
|||||
Return on average stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Interest yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
||||||
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
||||||
Reserve coverage |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
|
|
||||||
Delinquency status(2) |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
|
|
||||||
Charge-off (recovery) ratio(4) |
|
|
|
|
|
|
|
|
( |
) |
(3) |
|
|
( |
) |
|
N/A |
|
|
|
( |
) |
|||
Page 26 of 56
Six Months Ended June 30, 2022 |
|
Consumer Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
(Dollars in thousands) |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
|
Medallion |
|
|
Corporate and Other Investments |
|
|
Consolidated |
|
||||||
Total interest income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Provision (recoveries) for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Net interest income (loss) after loss provision |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
||||
Other income (expense), net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Income tax (provision) benefit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net income (loss) after taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total loans, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total funds borrowed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Return on average assets |
|
|
% |
|
|
% |
|
|
% |
|
|
|
% |
|
|
( |
)% |
|
|
% |
|||||
Return on average stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Interest yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
||||||
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
||||||
Reserve coverage |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
|
|
||||||
Delinquency status(2) |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
|
|
||||||
Charge-off (recovery) ratio(4) |
|
|
|
|
|
|
|
|
|
(3) |
|
|
( |
) |
|
N/A |
|
|
|
|
|||||
Three Months Ended June 30, 2021 |
|
Consumer Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(Dollars in thousands) |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
|
Medallion |
|
|
RPAC |
|
|
Corporate and Other Investments |
|
|
Consolidated |
|
|||||||
Total interest income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net interest income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||||
Net interest income (loss) after loss provision |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Sponsorship and race winnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Race team related expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Other income (expense), net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Income tax (provision) benefit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Net income (loss) after taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total loans net |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total funds borrowed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Return on average assets |
|
|
% |
|
|
% |
|
|
% |
|
|
|
( |
)% |
|
|
( |
)% |
|
|
( |
)% |
|
|
% |
||||
Return on average equity |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Interest yield |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
N/A |
|
|
N/A |
|
|
|
|
||||||
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
N/A |
|
|
N/A |
|
|
|
|
||||||
Reserve coverage |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
|||||||
Delinquency status(2) |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
|||||||
Charge-off (recovery) ratio(4) |
|
|
( |
) |
|
|
|
|
|
|
(3) |
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
||||||
Page 27 of 56
Six Months Ended June 30, 2021 |
|
Consumer Lending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(Dollars in thousands) |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
|
Medallion |
|
|
RPAC |
|
|
Corporate and Other Investments |
|
|
Consolidated |
|
|||||||
Total interest income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net interest income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Net interest income (loss) after loss provision |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Sponsorship and race winnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Race team related expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Other income (expense), net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income (loss) before taxes |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Income tax (provision) benefit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Net income (loss) after taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total loans net |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total funds borrowed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Return on average assets |
|
|
% |
|
|
% |
|
|
% |
|
|
|
( |
)% |
|
|
( |
)% |
|
|
( |
)% |
|
|
% |
||||
Return on average equity |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Interest yield |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
N/A |
|
|
N/A |
|
|
|
|
||||||
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
N/A |
|
|
N/A |
|
|
|
|
||||||
Reserve coverage |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
|||||||
Delinquency status(2) |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
|||||||
Charge-off (recovery) ratio |
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
|||||||
(10) COMMITMENTS AND CONTINGENCIES
(A) EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain key officers for either a one-, two-, three- or five-year term. Annually, the contracts with a five-year term will renew for new five-year terms unless prior to the end of the first year 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 term (as applicable); however, there is currently one agreement that renews after two years for additional one-year terms and one agreement with a three-year term that does not have a renewal period. 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.
(B) OTHER COMMITMENTS
As of June 30, 2022, the Company had one commitment to extend credit of up to $
(C) SEC LITIGATION
On December 29, 2021, the SEC filed a civil complaint in the U.S. District Court for the Southern District of New York against the Company and its President and Chief Operating Officer alleging certain violations of the antifraud, books and records, internal controls and anti-touting provisions of the federal securities laws. The litigation relates to certain issues that occurred during the period 2015 to 2017, including (i) the Company’s retention of third parties in 2015 and 2016 concerning posting information about the Company on certain financial websites and (ii) the Company’s financial reporting and disclosures concerning certain assets, including Medallion Bank, in 2016 and 2017, a period when the Company had previously reported as a business development company (BDC) under the Investment Company Act of 1940. Since April 2018, the Company does not report as a BDC, and has not worked with such third parties
Page 28 of 56
since 2016. The Company does not expect to change previously reported financial results. The Company filed a motion to dismiss the complaint on March 22, 2022, the SEC filed an amended complaint on April 26, 2022 and the Company filed a motion to dismiss the amended complaint on August 5, 2022.
The SEC is seeking injunctive relief, disgorgement plus pre-judgment interest and civil penalties in amounts unspecified, as well as an officer and director bar against the Company’s President and Chief Operating Officer. The Company and its President and Chief Operating Officer intend to defend themselves vigorously and believe that the SEC will not prevail on its claims. Nevertheless, depending on the outcome of the litigation, the Company could incur a loss and other penalties that could be material to the Company, its results of operations and/or financial condition, as well as a bar against its President and Chief Operating Officer. In addition, the Company has and expects to further incur significant legal fees and expenses in defending such charges by the SEC and the Company may be subject to shareholder litigation relating to these SEC matters.
(D) OTHER LITIGATION AND REGULATORY MATTERS
The Company and its subsidiaries are subject to inquiries from certain regulators and are currently involved in various legal proceedings incident to the normal course of business, including collection matters with respect to certain loans. We intend to vigorously defend any outstanding claims and pursue our legal rights. In the opinion of management, based on the advice of legal counsel, except for the pending SEC litigation, as described above, 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.
(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, serves as the Company’s Senior Vice President at a salary of $
(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 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, considering the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At June 30, 2022 and December 31, 2021, the estimated fair value of these off-balance-sheet instruments was not material.
Page 29 of 56
(g) Fixed rate borrowings—
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
(Dollars in thousands) |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash, cash equivalents, and federal funds sold (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrued interest receivable (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity securities(3) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Funds borrowed |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accrued interest payable (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(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 30 of 56
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 U.S. 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:
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 June 30, 2022 and December 31, 2021.
June 30, 2022 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest-bearing deposits |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Available for sale investment securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total(1) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
December 31, 2021 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest-bearing deposits |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Available for sale investment securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total(1) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Page 31 of 56
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 June 30, 2022 and December 31, 2021.
June 30, 2022 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Impaired loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Loan collateral in process of foreclosure |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
December 31, 2021 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Impaired loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Loan collateral in process of foreclosure |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
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 June 30, 2022 and December 31, 2021.
(Dollars in thousands) |
|
Fair Value |
|
|
Valuation Techniques |
|
Unobservable Inputs |
|
Range |
|
Equity investments |
|
$ |
|
|
Investee financial analysis |
|
Financial condition and operating performance of the borrower (1) |
|
N/A |
|
|
|
|
|
|
|
|
Collateral support |
|
N/A |
|
|
|
|
|
|
Precedent market transaction |
|
Offering price |
|
$ |
|
Impaired loans |
|
|
|
|
Market approach |
|
Historical and actual loss experience |
|
||
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
Transfer prices (2) |
|
$ |
|
|
|
|
|
|
|
|
Collateral value |
|
N/A |
|
Loan collateral in process of foreclosure |
|
|
|
|
Market approach |
|
Transfer prices (2) |
|
$ |
|
|
|
|
|
|
|
|
Collateral value (3) |
|
$ |
|
(Dollars in thousands) |
|
Fair Value |
|
|
Valuation Techniques |
|
Unobservable Inputs |
|
Range |
|
Equity investments |
|
$ |
|
|
Investee financial analysis |
|
Financial condition and operating performance of the borrower (1) |
|
N/A |
|
|
|
|
|
|
|
|
Collateral support |
|
N/A |
|
|
|
|
|
|
Precedent market transaction |
|
Offering price |
|
$ |
|
Impaired loans |
|
|
|
|
Market approach |
|
Historical and actual loss experience |
|
||
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
Transfer prices (2) |
|
$ |
|
|
|
|
|
|
|
|
Collateral value |
|
N/A |
|
Loan collateral in process of foreclosure |
|
|
|
|
Market approach |
|
Transfer prices (2) |
|
$ |
|
|
|
|
|
|
|
|
Collateral value (3) |
|
$ |
|
Page 32 of 56
(14) MEDALLION BANK PREFERRED STOCK (Non-controlling interest)
On December 17, 2019, the Bank closed an initial public offering of
On July 21, 2011, the Bank issued, and the U.S. Treasury purchased,
(15) SUBSEQUENT EVENTS
The Company has evaluated the effects of events that have occurred subsequent to June 30, 2022 through the date of financial statement issuance. As of such date, there were no subsequent events that required disclosure.
Page 33 of 56
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the three and six months ended June 30, 2022 and the year ended December 31, 2021. 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 our Annual Report on Form 10-K.
COMPANY BACKGROUND
We are a specialty finance company whose focus and growth has been our consumer finance and commercial lending businesses operated by Medallion Bank, or the Bank, and Medallion Capital, Inc., or Medallion Capital. The Bank is a wholly-owned subsidiary, that originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and home improvements, and provides loan origination and other services to fintech partners. Medallion Capital is a wholly-owned subsidiary that originates commercial loans through its mezzanine financing business. As of June 30, 2022, our consumer loans represented 94% of our gross loan portfolio, and commercial loans represented 6%. Total assets were $2.1 billion and $1.9 billion as of June 30, 2022 and December 31, 2021.
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, including bank certificates of deposit issued to customers, debentures issued to and guaranteed by the SBA, privately placed notes, and preferred securities. Net interest income fluctuates with changes in the yield on our loan portfolios and changes in the cost of borrowed funds, as well as changes in the amount of interest-earning 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, either due to inflation or other factors, on a different basis than our interest-bearing liabilities. We continue to monitor global supply chain disruptions, gas prices, labor shortages, unemployment, and other factors contributing to U.S. inflation.
We also provide debt, mezzanine, and equity investment capital to companies in a variety of commercial industries. 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.
The Bank is an industrial 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 referred a portion of our medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing Corp., or MSC. However, other than in connection with dispositions of existing medallion assets, the Bank has not originated any new medallion loans since 2014 (and Medallion Financial Corp. has not originated any new medallion loans since 2015) and is working with MSC to service its remaining portfolio, as it winds down. MSC earns referral and servicing fees for these activities. In 2019, the Bank started building a strategic partnership program to provide lending and other services to financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and began issuing its first loans, then entered into a second and third strategic partnership in 2021 and 2022. The Bank continues to explore opportunities with additional fintech companies.
We continue to consider various alternatives for the Bank, which may include an initial public offering of its common stock, the sale of all or part of the Bank, a spin-off or other potential transaction. We do not have a deadline for its consideration of these alternatives, and there can be no assurance that this process will result in any transaction being announced or consummated.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are fundamental to understanding management's discussion and analysis of its financial condition and results of operations. At June 30, 2022, we identified our policies on the allowance for loan loss, goodwill and intangible assets, and deferred taxes, to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Our critical accounting policies are described in detail in Part I, Item 7 in Medallion Financial Corp.'s Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no material changes in such policies and estimates since the date of such report.
Page 34 of 56
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 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 us, to fiscal years beginning after December 15, 2022. We are assessing the impact the update will have on our financial statements, and expect the update to have a material impact on our accounting for estimated credit losses on our loans.
In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements, or Topic 205: Depository and Lending, or Topic 942: and Financial Services – Investment Companies, or Topic 946: Measurement of Credit Losses on Financial Instruments, or ASU 2021-06. This new standard amends certain SEC paragraphs from the Codification in response to the issuance of SEC Final Rule No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses and SEC Rule No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. We have assessed the impact the update and determined it does not have a material impact on our financial statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses, or Topic 326: Troubled Debt Restructurings and Vintage Disclosures, or ASU 2022-02. The main objective of this new standard is to amend ASU 2016-13 in response to feedback received from the post-implementation review process. The amendments update ASU 2016-13 to require that an entity measure and record the lifetime expected credit losses on an asset upon origination or acquisition, and, as a result, credit losses from loans modified as troubled debt restructurings (TDRs) have been incorporated into the allowance for credit losses. The amendments also require the disclosure of current period gross write-offs, by year of origination, for financing receivables. ASU 2022-02 is effective upon the adoption of ASU 2016-13. We are assessing the impact the update will have on our financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement, or Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, or ASU 2016-13. This new standard clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. We have assessed the impact the update and determined it does not have a material impact on our financial statements.
CONTROL STATUTES
Because the Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act and we are a “financial institution holding company” within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of us and, indirectly, the Bank, without, in most cases, prior written approval of the FDIC or the Commissioner of Utah Department of Financial Institutions, as applicable. Under the Change in Bank Control Act, control is conclusively presumed if, among other things, a person or company acquires 25% or more of any class of our voting stock. A rebuttable presumption of control arises if a person or company acquires 10% or more of any class of voting stock and is subject to a number of specified “control factors” as set forth in the applicable regulations. Although the Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act, your investment in the Company is not insured or guaranteed by the FDIC, or any other agency, and is subject to loss. Under the Utah Financial Institutions Act, control is defined as the power directly or indirectly or through or in concert with one or more persons to (1) direct or exercise a controlling influence over the management or policies of us or the election of a majority of the directors of us, or (2) to vote 20% or more of any class of our voting securities by an individual or to vote more than 10% of any class of our voting securities by a person other than an individual. If any holder of any series of the Bank’s preferred stock is or becomes entitled to vote for the election of the Bank’s directors, such series will be deemed a class of voting stock, and any other person will be required to obtain the non-objection of the FDIC under the Change in Bank Control Act to acquire or maintain 10% or more of that series. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our common stock in excess of the amount which can be acquired without regulatory approval.
Page 35 of 56
In addition to the regulations detailed above, our operations are subject to supervision and regulation by other federal, state, and local laws and regulations. Additionally, our operations may be subject to various laws and judicial and administrative decisions. This oversight may serve to:
Changes to laws of states in which we do business could affect the operating environment in substantial and unpredictable ways. We cannot predict whether such changes will occur or, if they occur, the ultimate effect they would have upon our financial condition or results of operations.
COVID-19
In March 2020, in response to the COVID-19 pandemic, 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 June 30, 2022, no consumer or medallion loans remained on deferral related to COVID-19. For our medallion portfolio, we determined that anticipated payment activity on our medallion portfolio was impossible to quantify upon the end of the deferral moratorium, and therefore all medallion loans were deemed impaired, placed on nonaccrual status, and written down to each market’s net collateral value in the 2020 third quarter, with additional write-offs taken during 2021. We will continue to monitor our medallion portfolio and related assets, which may result in additional write-downs, charge-offs or impairments.
In addition to modifying payment policies, we have taken steps to accommodate remote work and implemented several cost-cutting measures, such as reducing employee headcount at our parent company, Medallion Financial Corp., and closing satellite offices in Long Island City, New York; Chicago, Illinois; and Boston, Massachusetts.
With COVID-19 continuing and new variants emerging, the potential future effects of COVID-19 on our consumer loan portfolio and consumer businesses remain uncertain, and we could suffer potential losses on our consumer loan portfolios as a result of the effects on the ability of our borrowers to repay their loans as well as on the economy and on demand for our loans.
Page 36 of 56
AVERAGE BALANCES AND RATES
The following table shows our 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 and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
(Dollars in thousands) |
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest earning cash equivalents |
|
$ |
4,278 |
|
|
$ |
40 |
|
|
|
3.75 |
% |
|
$ |
2,993 |
|
|
$ |
14 |
|
|
|
1.88 |
% |
Federal funds sold |
|
|
74,285 |
|
|
|
88 |
|
|
|
0.48 |
|
|
|
48,557 |
|
|
|
4 |
|
|
|
0.03 |
|
Investment securities |
|
|
47,705 |
|
|
|
281 |
|
|
|
2.36 |
|
|
|
44,119 |
|
|
|
225 |
|
|
|
2.05 |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recreation |
|
|
1,013,037 |
|
|
|
33,515 |
|
|
|
13.27 |
|
|
|
825,695 |
|
|
|
28,877 |
|
|
|
14.03 |
|
Home improvement |
|
|
490,662 |
|
|
|
10,588 |
|
|
|
8.66 |
|
|
|
348,066 |
|
|
|
8,228 |
|
|
|
9.48 |
|
Commercial |
|
|
86,455 |
|
|
|
2,338 |
|
|
|
10.85 |
|
|
|
63,855 |
|
|
|
1,516 |
|
|
|
9.52 |
|
Medallion |
|
|
4,633 |
|
|
|
232 |
|
|
|
20.09 |
|
|
|
8,480 |
|
|
|
(1,495 |
) |
|
|
(70.71 |
) |
Strategic partnerships |
|
|
373 |
|
|
|
29 |
|
|
|
31.18 |
|
|
|
60 |
|
|
|
6 |
|
|
|
40.11 |
|
Total loans |
|
|
1,595,160 |
|
|
|
46,702 |
|
|
|
11.74 |
|
|
|
1,246,156 |
|
|
|
37,132 |
|
|
|
11.95 |
|
Total interest-earning assets |
|
|
1,721,428 |
|
|
|
47,111 |
|
|
|
11.00 |
|
|
|
1,341,825 |
|
|
|
37,375 |
|
|
|
11.17 |
|
Non-interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash |
|
|
41,820 |
|
|
|
|
|
|
|
|
|
45,257 |
|
|
|
|
|
|
|
||||
Equity investments |
|
|
10,762 |
|
|
|
|
|
|
|
|
|
9,714 |
|
|
|
|
|
|
|
||||
Loan collateral in process of foreclosure(1) |
|
|
30,806 |
|
|
|
|
|
|
|
|
|
50,678 |
|
|
|
|
|
|
|
||||
Goodwill and intangible assets |
|
|
173,744 |
|
|
|
|
|
|
|
|
|
201,354 |
|
|
|
|
|
|
|
||||
Other assets |
|
|
45,899 |
|
|
|
|
|
|
|
|
|
45,846 |
|
|
|
|
|
|
|
||||
Total non-interest-earning assets |
|
|
303,031 |
|
|
|
|
|
|
|
|
|
352,849 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
2,024,459 |
|
|
|
|
|
|
|
|
$ |
1,694,674 |
|
|
|
|
|
|
|
||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits |
|
$ |
1,386,967 |
|
|
$ |
4,912 |
|
|
|
1.42 |
% |
|
$ |
1,104,935 |
|
|
$ |
4,465 |
|
|
|
1.62 |
% |
Retail and privately placed notes |
|
|
121,000 |
|
|
|
2,507 |
|
|
|
8.31 |
|
|
|
125,744 |
|
|
|
2,592 |
|
|
|
8.27 |
|
SBA debentures and borrowings |
|
|
69,407 |
|
|
|
561 |
|
|
|
3.24 |
|
|
|
60,763 |
|
|
|
509 |
|
|
|
3.36 |
|
Preferred securities |
|
|
33,000 |
|
|
|
250 |
|
|
|
3.04 |
|
|
|
33,000 |
|
|
|
191 |
|
|
|
2.32 |
|
Notes payable to banks |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,570 |
|
|
|
94 |
|
|
|
3.94 |
|
Other borrowings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,558 |
|
|
|
33 |
|
|
|
1.55 |
|
Total interest-bearing liabilities |
|
|
1,610,374 |
|
|
|
8,230 |
|
|
|
2.05 |
|
|
|
1,342,570 |
|
|
|
7,884 |
|
|
|
2.36 |
|
Non-interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deferred tax liability |
|
|
21,648 |
|
|
|
|
|
|
|
|
|
5,835 |
|
|
|
|
|
|
|
||||
Other liabilities (2) |
|
|
28,748 |
|
|
|
|
|
|
|
|
|
26,982 |
|
|
|
|
|
|
|
||||
Total non-interest-bearing liabilities |
|
|
50,396 |
|
|
|
|
|
|
|
|
|
32,817 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
|
1,660,770 |
|
|
|
|
|
|
|
|
|
1,375,387 |
|
|
|
|
|
|
|
||||
Non-controlling interest |
|
|
69,166 |
|
|
|
|
|
|
|
|
|
72,489 |
|
|
|
|
|
|
|
||||
Total stockholders’ equity |
|
|
294,523 |
|
|
|
|
|
|
|
|
|
246,798 |
|
|
|
|
|
|
|
||||
Total liabilities and stockholders’ equity |
|
$ |
2,024,459 |
|
|
|
|
|
|
|
|
$ |
1,694,674 |
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
|
$ |
38,881 |
|
|
|
|
|
|
|
|
$ |
29,491 |
|
|
|
|
||||
Net interest margin |
|
|
|
|
|
|
|
|
9.07 |
% |
|
|
|
|
|
|
|
|
8.84 |
% |
||||
Page 37 of 56
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
(Dollars in thousands) |
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest earning cash equivalents |
|
$ |
4,277 |
|
|
$ |
86 |
|
|
|
4.05 |
% |
|
$ |
3,198 |
|
|
$ |
32 |
|
|
|
2.02 |
% |
Federal funds sold |
|
|
67,103 |
|
|
|
103 |
|
|
|
0.31 |
|
|
|
43,274 |
|
|
|
9 |
|
|
|
4.19 |
|
Investment securities |
|
|
45,926 |
|
|
|
500 |
|
|
|
2.20 |
|
|
|
43,797 |
|
|
|
427 |
|
|
|
1.97 |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recreation |
|
|
980,673 |
|
|
|
64,650 |
|
|
|
13.29 |
|
|
|
801,074 |
|
|
|
56,319 |
|
|
|
14.18 |
|
Home improvement |
|
|
469,125 |
|
|
|
20,288 |
|
|
|
8.72 |
|
|
|
340,655 |
|
|
|
16,146 |
|
|
|
9.56 |
|
Commercial |
|
|
82,581 |
|
|
|
4,366 |
|
|
|
10.66 |
|
|
|
63,078 |
|
|
|
3,076 |
|
|
|
9.83 |
|
Medallion |
|
|
4,690 |
|
|
|
378 |
|
|
|
16.25 |
|
|
|
10,075 |
|
|
|
(1,564 |
) |
|
|
31.30 |
|
Strategic partnerships |
|
|
283 |
|
|
|
43 |
|
|
|
30.64 |
|
|
|
41 |
|
|
|
10 |
|
|
|
49.18 |
|
Total loans |
|
|
1,537,352 |
|
|
|
89,725 |
|
|
|
11.77 |
|
|
|
1,214,923 |
|
|
|
73,987 |
|
|
|
12.28 |
|
Total interest-earning assets |
|
|
1,654,658 |
|
|
|
90,414 |
|
|
|
11.04 |
|
|
|
1,305,192 |
|
|
|
74,455 |
|
|
|
11.50 |
|
Non-interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash |
|
|
48,842 |
|
|
|
|
|
|
|
|
|
51,219 |
|
|
|
|
|
|
|
||||
Equity investments |
|
|
10,461 |
|
|
|
|
|
|
|
|
|
9,666 |
|
|
|
|
|
|
|
||||
Loan collateral in process of foreclosure(1) |
|
|
33,114 |
|
|
|
|
|
|
|
|
|
52,307 |
|
|
|
|
|
|
|
||||
Goodwill and intangible assets |
|
|
173,925 |
|
|
|
|
|
|
|
|
|
201,534 |
|
|
|
|
|
|
|
||||
Other assets |
|
|
45,219 |
|
|
|
|
|
|
|
|
|
45,642 |
|
|
|
|
|
|
|
||||
Total non-interest-earning assets |
|
|
311,561 |
|
|
|
|
|
|
|
|
|
360,368 |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
1,966,219 |
|
|
|
|
|
|
|
|
$ |
1,665,560 |
|
|
|
|
|
|
|
||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits |
|
$ |
1,332,971 |
|
|
$ |
9,066 |
|
|
|
1.37 |
% |
|
$ |
1,077,260 |
|
|
$ |
9,176 |
|
|
|
1.72 |
% |
Retail and privately placed notes |
|
|
121,000 |
|
|
|
5,005 |
|
|
|
8.34 |
|
|
|
120,450 |
|
|
|
5,224 |
|
|
|
8.75 |
|
SBA debentures and borrowings |
|
|
69,604 |
|
|
|
1,084 |
|
|
|
3.14 |
|
|
|
62,654 |
|
|
|
1,081 |
|
|
|
3.48 |
|
Preferred securities |
|
|
33,000 |
|
|
|
450 |
|
|
|
2.75 |
|
|
|
33,000 |
|
|
|
356 |
|
|
|
3.91 |
|
Notes payable to banks |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,378 |
|
|
|
380 |
|
|
|
2.32 |
|
Other borrowings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,619 |
|
|
|
75 |
|
|
|
1.75 |
|
Total interest-bearing liabilities |
|
|
1,556,575 |
|
|
|
15,605 |
|
|
|
2.02 |
|
|
|
1,320,361 |
|
|
|
16,292 |
|
|
|
2.49 |
|
Non-interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deferred tax liability |
|
|
20,052 |
|
|
|
|
|
|
|
|
|
3,575 |
|
|
|
|
|
|
|
||||
Other liabilities (2) |
|
|
27,521 |
|
|
|
|
|
|
|
|
|
27,521 |
|
|
|
|
|
|
|
||||
Total non-interest-bearing liabilities |
|
|
47,573 |
|
|
|
|
|
|
|
|
|
31,096 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
|
1,604,148 |
|
|
|
|
|
|
|
|
|
1,351,457 |
|
|
|
|
|
|
|
||||
Non-controlling interest |
|
|
69,220 |
|
|
|
|
|
|
|
|
|
72,833 |
|
|
|
|
|
|
|
||||
Total stockholders’ equity |
|
|
292,851 |
|
|
|
|
|
|
|
|
|
241,270 |
|
|
|
|
|
|
|
||||
Total liabilities and stockholders’ equity |
|
$ |
1,966,219 |
|
|
|
|
|
|
|
|
$ |
1,665,560 |
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
|
$ |
74,809 |
|
|
|
|
|
|
|
|
$ |
58,163 |
|
|
|
|
||||
Net interest margin |
|
|
|
|
|
|
|
|
9.15 |
% |
|
|
|
|
|
|
|
|
9.01 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
RATE/VOLUME ANALYSIS
During the quarter, our net loans receivable had a yield of 11.74% (compared to 11.95% in the prior year’s second quarter), with the yield driven by our recreation, home improvement and commercial loans. The 21 basis point decrease from the prior year’s second quarter is attributable to our changing mix of loans, mainly driven by the growth in the home improvement loans, which have a lower coupon than our recreation and commercial loans. Our debt, a significant component being certificates of deposit, funds our growing lending businesses. Despite the current year increase in interest rates, our average interest cost during the quarter of 2.05% decreased 21 basis points from the prior year second quarter, primarily reflecting the decreasing rates for certificate of deposits issued during 2021 compared to maturing older deposits which bore a higher cost. During the year to date period, our net loans receivable had a yield of 11.77% (compared to 12.28% in the prior year’s second quarter), the decrease similarly driven by the changing mix of our loans, mainly driven by the growth in the home improvement loan portfolio. Similar to the quarter, despite the current year increase in interest rates, our average interest cost during the year to date period of 2.02% decreased 47 basis points from the prior year period, primarily reflecting the decreasing rates for certificate of deposits issued during 2021 compared to maturing older deposits which bore a higher cost, and to a lesser extent the repayment of retail notes in the prior year, which carried a higher rate of interest when compared to privately placed notes issued in the prior year.
Page 38 of 56
The following tables present the change in interest income and expense due to changes in the average balances (volume) and average yield/cost, calculated for the periods indicated.
|
|
Three Months Ended June 30, |
|
|||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
(Dollars in thousands) |
|
Increase |
|
|
Increase |
|
|
Net Change |
|
|
Increase |
|
|
Increase |
|
|
Net Change |
|
||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest earning cash and cash equivalents |
|
$ |
44 |
|
|
$ |
66 |
|
|
$ |
110 |
|
|
$ |
(443 |
) |
|
$ |
450 |
|
|
$ |
7 |
|
Investment securities |
|
|
21 |
|
|
|
35 |
|
|
|
56 |
|
|
|
(15 |
) |
|
|
(11 |
) |
|
|
(26 |
) |
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recreation |
|
|
6,198 |
|
|
|
(1,560 |
) |
|
|
4,638 |
|
|
|
3,264 |
|
|
|
(1,616 |
) |
|
|
1,648 |
|
Home improvement |
|
|
3,077 |
|
|
|
(717 |
) |
|
|
2,360 |
|
|
|
2,019 |
|
|
|
(117 |
) |
|
|
1,902 |
|
Commercial |
|
|
611 |
|
|
|
211 |
|
|
|
822 |
|
|
|
(157 |
) |
|
|
(105 |
) |
|
|
(262 |
) |
Medallion |
|
|
(193 |
) |
|
|
1,920 |
|
|
|
1,727 |
|
|
|
14,903 |
|
|
|
(16,391 |
) |
|
|
(1,488 |
) |
Strategic partnerships |
|
|
24 |
|
|
|
(1 |
) |
|
|
23 |
|
|
|
5 |
|
|
|
1 |
|
|
|
6 |
|
Total loans |
|
$ |
9,717 |
|
|
$ |
(147 |
) |
|
$ |
9,570 |
|
|
$ |
20,034 |
|
|
$ |
(18,228 |
) |
|
$ |
1,806 |
|
Total interest-earning assets |
|
$ |
9,782 |
|
|
$ |
(46 |
) |
|
$ |
9,736 |
|
|
$ |
19,576 |
|
|
$ |
(17,789 |
) |
|
$ |
1,787 |
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits |
|
$ |
999 |
|
|
$ |
(552 |
) |
|
$ |
447 |
|
|
$ |
124 |
|
|
$ |
(1,579 |
) |
|
$ |
(1,455 |
) |
Retail and privately placed notes |
|
|
(98 |
) |
|
|
13 |
|
|
|
(85 |
) |
|
|
(96 |
) |
|
|
(51 |
) |
|
|
(147 |
) |
SBA debentures and borrowings |
|
|
70 |
|
|
|
(18 |
) |
|
|
52 |
|
|
|
(221 |
) |
|
|
27 |
|
|
|
(194 |
) |
Notes payable to banks |
|
|
— |
|
|
|
(94 |
) |
|
|
(94 |
) |
|
|
1,162 |
|
|
|
(254 |
) |
|
|
908 |
|
Preferred securities |
|
|
— |
|
|
|
59 |
|
|
|
59 |
|
|
|
1 |
|
|
|
(57 |
) |
|
|
(56 |
) |
Other borrowings |
|
|
— |
|
|
|
(33 |
) |
|
|
(33 |
) |
|
|
3 |
|
|
|
(10 |
) |
|
|
(7 |
) |
Total interest-bearing liabilities |
|
$ |
971 |
|
|
$ |
(625 |
) |
|
$ |
346 |
|
|
$ |
973 |
|
|
$ |
(1,924 |
) |
|
$ |
(951 |
) |
Net |
|
$ |
8,811 |
|
|
$ |
579 |
|
|
$ |
9,390 |
|
|
$ |
18,603 |
|
|
$ |
(15,865 |
) |
|
$ |
2,738 |
|
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
(Dollars in thousands) |
|
Increase |
|
|
Increase |
|
|
Net Change |
|
|
Increase |
|
|
Increase |
|
|
Net Change |
|
||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest earning cash and cash equivalents |
|
$ |
66 |
|
|
$ |
82 |
|
|
$ |
148 |
|
|
$ |
26 |
|
|
$ |
(104 |
) |
|
$ |
(78 |
) |
Investment securities |
|
|
23 |
|
|
|
50 |
|
|
|
73 |
|
|
|
46 |
|
|
|
(201 |
) |
|
|
(155 |
) |
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recreation |
|
|
11,840 |
|
|
|
(3,509 |
) |
|
|
8,331 |
|
|
|
5,898 |
|
|
|
(3,142 |
) |
|
|
2,756 |
|
Home improvement |
|
|
5,556 |
|
|
|
(1,414 |
) |
|
|
4,142 |
|
|
|
3,903 |
|
|
|
30 |
|
|
|
3,933 |
|
Commercial |
|
|
1,031 |
|
|
|
259 |
|
|
|
1,290 |
|
|
|
(149 |
) |
|
|
(433 |
) |
|
|
(582 |
) |
Medallion |
|
|
(434 |
) |
|
|
2,376 |
|
|
|
1,942 |
|
|
|
15,363 |
|
|
|
(17,922 |
) |
|
|
(2,559 |
) |
Strategic partnerships |
|
|
37 |
|
|
|
(4 |
) |
|
|
33 |
|
|
|
10 |
|
|
|
— |
|
|
|
10 |
|
Total loans |
|
$ |
18,030 |
|
|
$ |
(2,292 |
) |
|
$ |
15,738 |
|
|
$ |
25,025 |
|
|
$ |
(21,467 |
) |
|
$ |
3,558 |
|
Total interest-earning assets |
|
$ |
18,119 |
|
|
$ |
(2,160 |
) |
|
$ |
15,959 |
|
|
$ |
25,097 |
|
|
$ |
(21,772 |
) |
|
$ |
3,325 |
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits |
|
$ |
1,739 |
|
|
$ |
(1,849 |
) |
|
$ |
(110 |
) |
|
$ |
1,328 |
|
|
$ |
(4,013 |
) |
|
$ |
(2,685 |
) |
Retail and privately placed notes |
|
|
23 |
|
|
|
(242 |
) |
|
|
(219 |
) |
|
|
(127 |
) |
|
|
(135 |
) |
|
|
(262 |
) |
SBA debentures and borrowings |
|
|
108 |
|
|
|
(105 |
) |
|
|
3 |
|
|
|
(243 |
) |
|
|
(25 |
) |
|
|
(268 |
) |
Notes payable to banks |
|
|
— |
|
|
|
(356 |
) |
|
|
(356 |
) |
|
|
2,195 |
|
|
|
(337 |
) |
|
|
1,858 |
|
Preferred securities |
|
|
— |
|
|
|
70 |
|
|
|
70 |
|
|
|
65 |
|
|
|
(246 |
) |
|
|
(181 |
) |
Other borrowings |
|
|
— |
|
|
|
(75 |
) |
|
|
(75 |
) |
|
|
7 |
|
|
|
(12 |
) |
|
|
(5 |
) |
Total interest-bearing liabilities |
|
$ |
1,870 |
|
|
$ |
(2,557 |
) |
|
$ |
(687 |
) |
|
$ |
3,225 |
|
|
$ |
(4,768 |
) |
|
$ |
(1,543 |
) |
Net |
|
$ |
16,249 |
|
|
$ |
397 |
|
|
$ |
16,646 |
|
|
$ |
21,872 |
|
|
$ |
(17,004 |
) |
|
$ |
4,868 |
|
Page 39 of 56
During the three and six months ended June 30, 2022, the increase in the interest earning assets was mainly driven by the increase in volume of consumer loans, even as the yield on these loans declined. The increase in debt similarly was driven by the increase in the borrowings, mainly driven by deposits, which are used to fund our growing loan portfolio.
Our interest expense is driven by the interest rates payable on our bank certificates of deposit, privately placed notes, fixed-rate, long-term debentures issued to the SBA, and have, in the past, included credit facilities with banks and other short-term notes payable. The Bank issues brokered time certificates of deposit, which are our lowest borrowing costs. The Bank is able to bid on these deposits at a variety of maturity options, 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.
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 and six months ended June 30, 2022 and 2021.
We continue to seek SBA funding through Medallion Capital, Inc., 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 $25.0 million commitment from the SBA. At June 30, 2022 and 2021, adjustable rate debt constituted just 2% and 3% of total debt.
LOANS
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 and six months ended June 30, 2022, there was continued growth in the consumer lending segments along with recoveries in 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 June 30, 2022 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – March 31, 2022 |
|
$ |
1,004,091 |
|
|
$ |
473,408 |
|
|
$ |
77,867 |
|
|
$ |
13,849 |
|
|
$ |
226 |
|
|
$ |
1,569,441 |
|
Loan originations |
|
|
170,207 |
|
|
|
105,172 |
|
|
|
19,272 |
|
|
|
472 |
|
|
|
9,830 |
|
|
|
304,953 |
|
Principal payments, sales, maturities, and recoveries |
|
|
(73,114 |
) |
|
|
(51,006 |
) |
|
|
(386 |
) |
|
|
(30 |
) |
|
|
(9,463 |
) |
|
|
(133,999 |
) |
Charge-offs |
|
|
(5,074 |
) |
|
|
(1,108 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,182 |
) |
Transfer to loan collateral in process of foreclosure, net |
|
|
(2,618 |
) |
|
|
— |
|
|
|
— |
|
|
|
(139 |
) |
|
|
— |
|
|
|
(2,757 |
) |
Amortization of origination costs |
|
|
(2,931 |
) |
|
|
380 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,551 |
) |
Amortization of loan premium |
|
|
(60 |
) |
|
|
(90 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(150 |
) |
FASB origination costs, net |
|
|
6,169 |
|
|
|
(478 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,691 |
|
Paid-in-kind interest |
|
|
— |
|
|
|
— |
|
|
|
175 |
|
|
|
— |
|
|
|
— |
|
|
|
175 |
|
Gross loans – June 30, 2022 |
|
$ |
1,096,670 |
|
|
$ |
526,278 |
|
|
$ |
96,928 |
|
|
$ |
14,152 |
|
|
$ |
593 |
|
|
$ |
1,734,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Six Months Ended June 30, 2022 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – December 31, 2021 |
|
$ |
961,320 |
|
|
$ |
436,772 |
|
|
$ |
76,696 |
|
|
$ |
14,046 |
|
|
$ |
90 |
|
|
$ |
1,488,924 |
|
Loan originations |
|
|
284,613 |
|
|
|
194,992 |
|
|
|
23,672 |
|
|
|
564 |
|
|
|
14,839 |
|
|
|
518,680 |
|
Principal payments, sales, maturities, and recoveries |
|
|
(138,230 |
) |
|
|
(103,170 |
) |
|
|
(2,203 |
) |
|
|
(115 |
) |
|
|
(14,336 |
) |
|
|
(258,054 |
) |
Charge-offs |
|
|
(10,141 |
) |
|
|
(2,168 |
) |
|
|
(1,584 |
) |
|
|
(75 |
) |
|
|
— |
|
|
|
(13,968 |
) |
Transfer to loan collateral in process of foreclosure, net |
|
|
(5,529 |
) |
|
|
— |
|
|
|
— |
|
|
|
(268 |
) |
|
|
— |
|
|
|
(5,797 |
) |
Amortization of origination costs |
|
|
(5,370 |
) |
|
|
700 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,670 |
) |
Amortization of loan premium |
|
|
(120 |
) |
|
|
(180 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(300 |
) |
FASB origination costs, net |
|
|
10,127 |
|
|
|
(668 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,459 |
|
Paid-in-kind interest |
|
|
— |
|
|
|
— |
|
|
|
347 |
|
|
|
— |
|
|
|
— |
|
|
|
347 |
|
Gross loans – June 30, 2022 |
|
$ |
1,096,670 |
|
|
$ |
526,278 |
|
|
$ |
96,928 |
|
|
$ |
14,152 |
|
|
$ |
593 |
|
|
$ |
1,734,621 |
|
Page 40 of 56
Three Months Ended June 30, 2021 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – March 31, 2021 |
|
$ |
822,932 |
|
|
$ |
342,121 |
|
|
$ |
58,854 |
|
|
$ |
35,250 |
|
|
$ |
58 |
|
|
$ |
1,259,215 |
|
Loan originations |
|
|
134,467 |
|
|
|
62,992 |
|
|
|
11,059 |
|
|
|
— |
|
|
|
2,426 |
|
|
|
210,944 |
|
Principal payments, sales, maturities, and recoveries |
|
|
(67,084 |
) |
|
|
(36,171 |
) |
|
|
(564 |
) |
|
|
(467 |
) |
|
|
(2,414 |
) |
|
|
(106,700 |
) |
Charge-offs |
|
|
(2,672 |
) |
|
|
(786 |
) |
|
|
— |
|
|
|
(12,791 |
) |
|
|
— |
|
|
|
(16,249 |
) |
Transfer to loan collateral in process of foreclosure, net |
|
|
(2,980 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,933 |
) |
|
|
— |
|
|
|
(6,913 |
) |
Amortization of origination costs |
|
|
(2,477 |
) |
|
|
410 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,067 |
) |
Amortization of loan premium |
|
|
(60 |
) |
|
|
(90 |
) |
|
|
— |
|
|
|
(1,545 |
) |
|
|
— |
|
|
|
(1,695 |
) |
FASB origination costs, net |
|
|
4,080 |
|
|
|
(219 |
) |
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
3,862 |
|
Paid-in-kind interest |
|
|
— |
|
|
|
— |
|
|
|
170 |
|
|
|
— |
|
|
|
— |
|
|
|
170 |
|
Gross loans – June 30, 2021 |
|
$ |
886,206 |
|
|
$ |
368,257 |
|
|
$ |
69,520 |
|
|
$ |
16,514 |
|
|
$ |
70 |
|
|
$ |
1,340,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Six Months Ended June 30, 2021 |
|
Recreation |
|
|
Home |
|
|
Commercial |
|
|
Medallion |
|
|
Strategic |
|
|
Total |
|
||||||
Gross loans – December 31, 2020 |
|
$ |
792,686 |
|
|
$ |
334,033 |
|
|
$ |
65,327 |
|
|
$ |
37,768 |
|
|
$ |
24 |
|
|
$ |
1,229,838 |
|
Loan originations |
|
|
228,317 |
|
|
|
111,051 |
|
|
|
15,216 |
|
|
|
— |
|
|
|
4,370 |
|
|
|
358,954 |
|
Principal payments, sales, maturities, and recoveries |
|
|
(123,043 |
) |
|
|
(75,807 |
) |
|
|
(11,541 |
) |
|
|
(1,102 |
) |
|
|
(4,324 |
) |
|
|
(215,817 |
) |
Charge-offs |
|
|
(7,725 |
) |
|
|
(1,467 |
) |
|
|
— |
|
|
|
(13,905 |
) |
|
|
— |
|
|
|
(23,097 |
) |
Transfer to loan collateral in process of foreclosure, net |
|
|
(6,033 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,630 |
) |
|
|
— |
|
|
|
(10,663 |
) |
Amortization of origination costs |
|
|
(4,639 |
) |
|
|
907 |
|
|
|
11 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
(3,723 |
) |
Amortization of loan premium |
|
|
(101 |
) |
|
|
(166 |
) |
|
|
— |
|
|
|
(1,615 |
) |
|
|
— |
|
|
|
(1,882 |
) |
FASB origination costs, net |
|
|
6,744 |
|
|
|
(294 |
) |
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
6,462 |
|
Paid-in-kind interest |
|
|
— |
|
|
|
— |
|
|
|
495 |
|
|
|
— |
|
|
|
— |
|
|
|
495 |
|
Gross loans – June 30, 2021 |
|
$ |
886,206 |
|
|
$ |
368,257 |
|
|
$ |
69,520 |
|
|
$ |
16,514 |
|
|
$ |
70 |
|
|
$ |
1,340,567 |
|
The following table presents the approximate maturities and sensitivity to changes in interest rates for our loans as of June 30, 2022.
|
|
Loan Maturity |
|
|||||||||||||||||
|
|
Within 1 year |
|
|
After 1 to 5 years |
|
|
After 5 to 15 years |
|
|
After 15 years |
|
|
Total |
|
|||||
Fixed-rate |
|
$ |
34,927 |
|
|
$ |
207,242 |
|
|
$ |
1,321,917 |
|
|
$ |
133,685 |
|
|
$ |
1,697,771 |
|
Recreation |
|
|
2,302 |
|
|
|
104,962 |
|
|
|
937,422 |
|
|
|
13,419 |
|
|
|
1,058,105 |
|
Home improvement |
|
|
17,209 |
|
|
|
26,932 |
|
|
|
364,179 |
|
|
|
120,266 |
|
|
|
528,586 |
|
Commercial |
|
|
12,498 |
|
|
|
64,114 |
|
|
|
20,316 |
|
|
|
— |
|
|
|
96,928 |
|
Medallion |
|
|
2,918 |
|
|
|
11,234 |
|
|
|
— |
|
|
|
— |
|
|
|
14,152 |
|
Adjustable-rate |
|
$ |
3,436 |
|
|
$ |
1,032 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,468 |
|
Recreation |
|
|
3,436 |
|
|
|
1,032 |
|
|
|
— |
|
|
|
— |
|
|
|
4,468 |
|
Home improvement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Medallion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total loans(1) |
|
$ |
38,363 |
|
|
$ |
208,274 |
|
|
$ |
1,321,917 |
|
|
$ |
133,685 |
|
|
$ |
1,702,239 |
|
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Our methodology to calculate the general reserve portion of the allowance includes the use of quantitative and qualitative factors. We initially determine an allowance based on quantitative loss factors for loans evaluated collectively for impairment. The quantitative loss factors are based primarily on historical loss rates, after considering loan type, historical loss and delinquency experience. The quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Qualitative loss factors are used to modify the reserve determined by the quantitative factors and are designed to account for losses that may not be included in the quantitative calculation according to management’s best judgment. If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $5.3 million and $2.6 million, respectively. Likewise, if our qualitative loss factor rates were to decrease 50 basis points, our recreation and home improvement general reserve would decrease by $5.3 million and $2.6 million, respectively. Performing loans are recorded at book value and the general reserve maintained to absorb expected losses consistent with GAAP.
For medallion loans, during the three and six months ended June 30, 2022, we continued to utilize a value of $79,500 for New York City taxi medallions in determining loan loss allowances, despite reported transfer prices exceeding that level at various points during the period, as we continue to deem the entire medallion portfolio as impaired.
Page 41 of 56
The following table sets forth the activity in the allowance for loan losses for the three and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Allowance for loan losses – beginning balance |
|
$ |
50,686 |
|
|
$ |
57,809 |
|
|
$ |
50,166 |
|
|
$ |
57,548 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recreation |
|
|
(5,074 |
) |
|
|
(2,672 |
) |
|
|
(10,141 |
) |
|
|
(7,725 |
) |
Home improvement |
|
|
(1,108 |
) |
|
|
(786 |
) |
|
|
(2,168 |
) |
|
|
(1,467 |
) |
Commercial |
|
|
— |
|
|
|
— |
|
|
|
(1,584 |
) |
|
|
— |
|
Medallion |
|
|
— |
|
|
|
(12,791 |
) |
|
|
(75 |
) |
|
|
(13,905 |
) |
Total charge-offs |
|
|
(6,182 |
) |
|
|
(16,249 |
) |
|
|
(13,968 |
) |
|
|
(23,097 |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recreation |
|
|
3,615 |
|
|
|
3,588 |
|
|
|
7,125 |
|
|
|
6,057 |
|
Home improvement |
|
|
585 |
|
|
|
558 |
|
|
|
1,144 |
|
|
|
990 |
|
Commercial |
|
|
13 |
|
|
|
— |
|
|
|
47 |
|
|
|
— |
|
Medallion |
|
|
2,676 |
|
|
|
1,922 |
|
|
|
3,639 |
|
|
|
3,112 |
|
Total recoveries |
|
|
6,889 |
|
|
|
6,068 |
|
|
|
11,955 |
|
|
|
10,159 |
|
Net charge-offs (recoveries) (1) |
|
|
707 |
|
|
|
(10,181 |
) |
|
|
(2,013 |
) |
|
|
(12,938 |
) |
Provision for loan losses |
|
|
7,759 |
|
|
|
(682 |
) |
|
|
10,999 |
|
|
|
2,336 |
|
Allowance for loan losses – ending balance (2) |
|
$ |
59,152 |
|
|
$ |
46,946 |
|
|
$ |
59,152 |
|
|
$ |
46,946 |
|
The following tables set forth the allowance for loan losses by type as of June 30, 2022 and December 31, 2021.
June 30, 2022 |
|
Amount |
|
|
Percentage |
|
|
Allowance as |
|
|
Allowance as a Percent of Nonaccrual |
|
||||
Recreation |
|
$ |
37,772 |
|
|
|
64 |
% |
|
|
3.44 |
% |
|
|
113.48 |
% |
Home improvement |
|
|
9,234 |
|
|
|
16 |
|
|
|
1.75 |
|
|
|
27.74 |
|
Commercial |
|
|
2,720 |
|
|
|
4 |
|
|
|
2.81 |
|
|
|
8.17 |
|
Medallion |
|
|
9,426 |
|
|
|
16 |
|
|
|
66.61 |
|
|
|
28.32 |
|
Total |
|
$ |
59,152 |
|
|
|
100 |
% |
|
|
3.41 |
% |
|
|
177.71 |
% |
December 31, 2021 |
|
Amount |
|
|
Percentage |
|
|
Allowance as |
|
|
Allowance as a Percent of Nonaccrual |
|
||||
Recreation |
|
$ |
32,435 |
|
|
|
64 |
% |
|
|
3.37 |
% |
|
|
91.18 |
% |
Home improvement |
|
|
7,356 |
|
|
|
15 |
|
|
|
1.68 |
|
|
|
20.68 |
|
Commercial |
|
|
1,141 |
|
|
|
2 |
|
|
|
1.49 |
|
|
|
3.21 |
|
Medallion |
|
|
9,234 |
|
|
|
19 |
|
|
|
65.74 |
|
|
|
25.96 |
|
Total |
|
$ |
50,166 |
|
|
|
100 |
% |
|
|
3.37 |
% |
|
|
141.03 |
% |
As of June 30, 2022, the total allowance rate for loan losses increased 4 basis points from December 31, 2021, with the actual allowance increasing 18%, reflecting the overall increase in size of the loan portfolio. For recreation and home improvement loans, as of June 30, 2022 the allowances exclude $2.1 million and $0.2 million of loan loss allowances which have been netted within loans as a result of the consolidation of Medallion Bank.
For the recreation loan portfolio, the process to repossess the collateral is typically started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged-off in full. If the collateral is repossessed, a 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 contracted servicer.
The following table shows the trend in loans 90 days or more past due as of the dates indicated.
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
% (1) |
|
|
Amount |
|
|
% (1) |
|
||||
Recreation |
|
$ |
3,810 |
|
|
|
0.2 |
% |
|
$ |
3,818 |
|
|
|
0.3 |
% |
Home improvement |
|
|
396 |
|
|
* |
|
|
|
132 |
|
|
* |
|
||
Commercial |
|
|
74 |
|
|
* |
|
|
|
74 |
|
|
* |
|
||
Total loans 90 days or more past due |
|
$ |
4,280 |
|
|
|
0.3 |
% |
|
$ |
4,024 |
|
|
|
0.3 |
% |
(*) Less than 0.1%
We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 320% and 295% as of June 30, 2022 and December 31, 2021.
Page 42 of 56
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 June 30, 2022 and 2021.
Three Months Ended June 30, 2022 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – March 31, 2022 |
|
$ |
1,369 |
|
|
$ |
32,465 |
|
|
$ |
33,834 |
|
Transfer from loans, net |
|
|
2,618 |
|
|
|
139 |
|
|
|
2,757 |
|
Sales |
|
|
(2,146 |
) |
|
|
(1,999 |
) |
|
|
(4,145 |
) |
Cash payments received |
|
|
— |
|
|
|
(4,381 |
) |
|
|
(4,381 |
) |
Collateral valuation adjustments |
|
|
(963 |
) |
|
|
(128 |
) |
|
|
(1,091 |
) |
Loan collateral in process of foreclosure – June 30, 2022 |
|
$ |
878 |
|
|
$ |
26,096 |
|
|
$ |
26,974 |
|
|
|
|
|
|
|
|
|
|
|
|||
Six Months Ended June 30, 2022 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – December 31, 2021 |
|
$ |
1,720 |
|
|
$ |
35,710 |
|
|
$ |
37,430 |
|
Transfer from loans, net |
|
|
5,529 |
|
|
|
268 |
|
|
|
5,797 |
|
Sales |
|
|
(4,398 |
) |
|
|
(2,115 |
) |
|
|
(6,513 |
) |
Cash payments received |
|
|
— |
|
|
|
(7,253 |
) |
|
|
(7,253 |
) |
Collateral valuation adjustments |
|
|
(1,973 |
) |
|
|
(514 |
) |
|
|
(2,487 |
) |
Loan collateral in process of foreclosure – June 30, 2022 |
|
$ |
878 |
|
|
$ |
26,096 |
|
|
$ |
26,974 |
|
Three Months Ended June 30, 2021 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – March 31, 2021 |
|
$ |
970 |
|
|
$ |
49,763 |
|
|
$ |
50,733 |
|
Transfer from loans, net |
|
|
2,980 |
|
|
|
3,933 |
|
|
|
6,913 |
|
Sales |
|
|
(1,989 |
) |
|
|
(231 |
) |
|
|
(2,220 |
) |
Cash payments received |
|
|
— |
|
|
|
(3,146 |
) |
|
|
(3,146 |
) |
Collateral valuation adjustments |
|
|
(1,079 |
) |
|
|
(2,162 |
) |
|
|
(3,241 |
) |
Loan collateral in process of foreclosure – June 30, 2021 |
|
$ |
882 |
|
|
$ |
48,157 |
|
|
$ |
49,039 |
|
|
|
|
|
|
|
|
|
|
|
|||
Six Months Ended June 30, 2021 |
|
Recreation |
|
|
Medallion |
|
|
Total |
|
|||
Loan collateral in process of foreclosure – December 31, 2020 |
|
$ |
1,432 |
|
|
$ |
53,128 |
|
|
$ |
54,560 |
|
Transfer from loans, net |
|
|
6,033 |
|
|
|
4,630 |
|
|
|
10,663 |
|
Sales |
|
|
(4,288 |
) |
|
|
(231 |
) |
|
|
(4,519 |
) |
Cash payments received |
|
|
— |
|
|
|
(4,423 |
) |
|
|
(4,423 |
) |
Collateral valuation adjustments |
|
|
(2,295 |
) |
|
|
(4,947 |
) |
|
|
(7,242 |
) |
Loan collateral in process of foreclosure – June 30, 2021 |
|
$ |
882 |
|
|
$ |
48,157 |
|
|
$ |
49,039 |
|
As of June 30, 2022, medallion loans in the process of foreclosure included 462 medallions in the New York City market, 335 medallions in the Chicago market, 61 medallions in the Newark market, and 47 medallions in other markets.
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 non-operating segments; RPAC and corporate and other investments. As mentioned earlier, the Company disposed of its investment in RPAC on December 1, 2021 and, as a result, all presented segment results are through such date. For information related to RPAC, refer to our 2021 Form 10-K. All results are for the three and six months ended June 30, 2022 and 2021.
Page 43 of 56
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 71% and 72% of our interest income for the three and six months ended June 30, 2022, and 77% for the three and six months ended June 30, 2021. The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 59% of the portfolio, boat loans making up 20% of the portfolio, and trailer loans 13% as of June 30, 2022, compared to 60%, 20% and 10% as of June 30, 2021. Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, Florida, and California at 16%, 10%, and 9% of loans outstanding, compared to 16%, 9%, and 10% as of June 30, 2021, and with no other states over 10%.
During the three and six months ended June 30, 2022, the recreation portfolio grew, with the interest yield in both periods decreasing from the prior year periods as a result of the change in portfolio mix toward higher credit quality but lower yielding assets. Additionally, reserve rates increased 2 basis points from June 30, 2021, an insignificant change as we continue to see delinquencies and net charge-offs at near historic lows.
The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Selected Earnings Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest income |
|
$ |
33,514 |
|
|
$ |
28,886 |
|
|
$ |
64,650 |
|
|
$ |
56,328 |
|
Total interest expense |
|
|
4,096 |
|
|
|
2,863 |
|
|
|
7,697 |
|
|
|
5,657 |
|
Net interest income |
|
|
29,418 |
|
|
|
26,023 |
|
|
|
56,953 |
|
|
|
50,671 |
|
Provision for loan losses |
|
|
6,674 |
|
|
|
1,017 |
|
|
|
8,354 |
|
|
|
4,630 |
|
Net interest income after loss provision |
|
|
22,744 |
|
|
|
25,006 |
|
|
|
48,599 |
|
|
|
46,041 |
|
Total other expense, net |
|
|
(7,551 |
) |
|
|
(7,455 |
) |
|
|
(14,371 |
) |
|
|
(12,918 |
) |
Net income before taxes |
|
|
15,193 |
|
|
|
17,551 |
|
|
|
34,228 |
|
|
|
33,123 |
|
Income tax provision |
|
|
(3,567 |
) |
|
|
(4,519 |
) |
|
|
(9,248 |
) |
|
|
(8,529 |
) |
Net income after taxes |
|
$ |
11,626 |
|
|
$ |
13,032 |
|
|
$ |
24,980 |
|
|
$ |
24,594 |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total loans, gross |
|
|
|
|
|
|
|
$ |
1,096,670 |
|
|
$ |
886,206 |
|
||
Total loan allowance |
|
|
|
|
|
|
|
|
37,772 |
|
|
|
30,306 |
|
||
Total loans, net |
|
|
|
|
|
|
|
|
1,058,898 |
|
|
|
855,900 |
|
||
Total assets |
|
|
|
|
|
|
|
|
1,072,356 |
|
|
|
868,709 |
|
||
Total borrowings |
|
|
|
|
|
|
|
|
861,083 |
|
|
|
712,777 |
|
||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Return on average assets |
|
|
4.53 |
% |
|
|
6.24 |
% |
|
|
5.04 |
% |
|
|
6.06 |
% |
Return on average equity |
|
|
25.52 |
|
|
|
31.19 |
|
|
|
27.27 |
|
|
|
30.32 |
|
Interest yield |
|
|
13.27 |
|
|
|
14.03 |
|
|
|
13.29 |
|
|
|
14.18 |
|
Net interest margin |
|
|
11.65 |
|
|
|
12.64 |
|
|
|
11.71 |
|
|
|
12.76 |
|
Reserve coverage |
|
|
3.44 |
|
|
|
3.42 |
|
|
|
3.44 |
|
|
|
3.42 |
|
Delinquency status (1) |
|
|
0.36 |
|
|
|
0.32 |
|
|
|
0.36 |
|
|
|
0.32 |
|
Charge-off (recovery) ratio(2) |
|
|
0.43 |
|
|
|
(0.44 |
) |
|
|
0.44 |
|
|
|
0.12 |
|
Page 44 of 56
Home Improvement Lending
The home improvement lending segment is a consumer finance business that works with contractors and financial service providers to finance home improvements and is concentrated in roofs, swimming pools, and windows at 36%, 25%, and 12% of total loans outstanding as of June 30, 2022, as compared to 29%, 27%, and 12% as of June 30, 2021, with no other collateral types over 10%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas and Florida at 11% and 10% of loans outstanding June 30, 2022, compared to 11% and 10% as of June 30, 2021, with no other states over 10%.
During the three and six months ended June 30, 2022, the home improvement lending segment grew substantially with loans increasing 42% from the prior year. Reserve rates increased 15 basis points from a year ago. The interest yield was 8.65% and 8.72% for the three and six months ended June 30, 2022, compared to 9.48% and 9.56% for the three and six months ended June 30, 2021.
The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Selected Earnings Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest income |
|
$ |
10,587 |
|
|
$ |
8,228 |
|
|
$ |
20,288 |
|
|
$ |
16,146 |
|
Total interest expense |
|
|
1,625 |
|
|
|
1,143 |
|
|
|
2,967 |
|
|
|
2,351 |
|
Net interest income |
|
|
8,962 |
|
|
|
7,085 |
|
|
|
17,321 |
|
|
|
13,795 |
|
Provision for loan losses |
|
|
1,697 |
|
|
|
756 |
|
|
|
2,902 |
|
|
|
1,206 |
|
Net interest income after loss provision |
|
|
7,265 |
|
|
|
6,329 |
|
|
|
14,419 |
|
|
|
12,589 |
|
Other income (expense), net |
|
|
(3,210 |
) |
|
|
(2,638 |
) |
|
|
(6,106 |
) |
|
|
(4,552 |
) |
Net income before taxes |
|
|
4,055 |
|
|
|
3,691 |
|
|
|
8,313 |
|
|
|
8,037 |
|
Income tax provision |
|
|
(975 |
) |
|
|
(951 |
) |
|
|
(2,246 |
) |
|
|
(2,070 |
) |
Net income after taxes |
|
$ |
3,080 |
|
|
$ |
2,740 |
|
|
$ |
6,067 |
|
|
$ |
5,967 |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total loans, gross |
|
|
|
|
|
|
|
$ |
526,278 |
|
|
$ |
368,257 |
|
||
Total loan allowance |
|
|
|
|
|
|
|
|
9,234 |
|
|
|
5,887 |
|
||
Total loans, net |
|
|
|
|
|
|
|
|
517,044 |
|
|
|
362,370 |
|
||
Total assets |
|
|
|
|
|
|
|
|
521,931 |
|
|
|
375,189 |
|
||
Total borrowings |
|
|
|
|
|
|
|
|
419,101 |
|
|
|
295,887 |
|
||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Return on average assets |
|
|
2.49 |
% |
|
|
3.04 |
% |
|
|
2.56 |
% |
|
|
3.39 |
% |
Return on average equity |
|
|
14.02 |
|
|
|
15.19 |
|
|
|
13.87 |
|
|
|
16.96 |
|
Interest yield |
|
|
8.65 |
|
|
|
9.48 |
|
|
|
8.72 |
|
|
|
9.56 |
|
Net interest margin |
|
|
7.33 |
|
|
|
8.16 |
|
|
|
7.45 |
|
|
|
8.17 |
|
Reserve coverage |
|
|
1.75 |
|
|
|
1.60 |
|
|
|
1.75 |
|
|
|
1.60 |
|
Delinquency status (1) |
|
|
0.07 |
|
|
|
0.02 |
|
|
|
0.07 |
|
|
|
0.02 |
|
Charge-off (recovery) ratio |
|
|
0.58 |
|
|
|
0.26 |
|
|
|
0.62 |
|
|
|
0.99 |
|
Page 45 of 56
Commercial Lending
We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 47% 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, wholesale trade, administrative and support services, and construction making up 53%, 11%, 11%, and 10% of the loans outstanding as of June 30, 2022.
During 2022, the commercial portfolio continued to grow, with $19.3 million of new originations in the quarter and $23.7 million of new originations in the six months. Additionally, reserve rates reflected specific reserves on aged investments.
The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021. 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 increased in the current year as originations exceeded repayments.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Selected Earnings Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest income |
|
$ |
2,278 |
|
|
$ |
1,383 |
|
|
$ |
4,208 |
|
|
$ |
2,865 |
|
Total interest expense |
|
|
785 |
|
|
|
716 |
|
|
|
1,507 |
|
|
|
1,288 |
|
Net interest income |
|
|
1,493 |
|
|
|
667 |
|
|
|
2,701 |
|
|
|
1,577 |
|
Provision for loan losses |
|
|
1,879 |
|
|
|
— |
|
|
|
3,134 |
|
|
|
— |
|
Net interest (expense) income after loss provision |
|
|
(386 |
) |
|
|
667 |
|
|
|
(433 |
) |
|
|
1,577 |
|
Other income (expense), net |
|
|
3,263 |
|
|
|
(69 |
) |
|
|
1,932 |
|
|
|
(529 |
) |
Net income (loss) before taxes |
|
|
2,877 |
|
|
|
598 |
|
|
|
1,499 |
|
|
|
1,048 |
|
Income tax (provision) benefit |
|
|
(817 |
) |
|
|
(150 |
) |
|
|
(405 |
) |
|
|
(263 |
) |
Net (loss) income after taxes |
|
$ |
2,060 |
|
|
$ |
448 |
|
|
$ |
1,094 |
|
|
$ |
785 |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total loans, gross |
|
|
|
|
|
|
|
$ |
96,928 |
|
|
$ |
66,236 |
|
||
Total loan allowance |
|
|
|
|
|
|
|
|
2,720 |
|
|
|
— |
|
||
Total loans, net |
|
|
|
|
|
|
|
|
94,208 |
|
|
|
66,236 |
|
||
Total assets |
|
|
|
|
|
|
|
|
103,643 |
|
|
|
90,563 |
|
||
Total borrowings |
|
|
|
|
|
|
|
|
83,223 |
|
|
|
72,450 |
|
||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Return on average assets |
|
|
8.06 |
% |
|
|
2.36 |
% |
|
|
2.15 |
% |
|
|
1.95 |
% |
Return on average equity |
|
|
49.17 |
|
|
|
11.78 |
|
|
|
12.21 |
|
|
|
9.77 |
|
Interest yield |
|
|
10.60 |
|
|
|
9.16 |
|
|
|
10.28 |
|
|
|
9.66 |
|
Net interest margin |
|
|
6.95 |
|
|
|
4.42 |
|
|
|
6.60 |
|
|
|
5.32 |
|
Reserve coverage(1) |
|
|
2.81 |
|
|
|
— |
|
|
|
2.81 |
|
|
|
— |
|
Delinquency status (1) (2) |
|
|
0.08 |
|
|
|
0.11 |
|
|
|
0.08 |
|
|
|
0.11 |
|
Charge-off (recovery) ratio(3) |
|
|
(0.00 |
) |
|
|
— |
|
|
|
3.75 |
|
|
|
— |
|
|
|
As of June 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
Geographic Concentrations |
|
Total Gross |
|
|
% of |
|
|
Total Gross |
|
|
% of |
|
||||
California |
|
|
15,110 |
|
|
|
16 |
% |
|
|
5,008 |
|
|
|
8 |
% |
Illinois |
|
|
12,857 |
|
|
|
13 |
|
|
|
16,689 |
|
|
|
25 |
|
Minnesota |
|
|
12,356 |
|
|
|
13 |
|
|
|
8,086 |
|
|
|
12 |
|
Michigan |
|
|
6,332 |
|
|
|
7 |
|
|
|
10,794 |
|
|
|
16 |
|
Other (1) |
|
|
50,273 |
|
|
|
51 |
|
|
|
25,659 |
|
|
|
39 |
|
Total |
|
$ |
96,928 |
|
|
|
100 |
% |
|
$ |
66,236 |
|
|
|
100 |
% |
Page 46 of 56
Medallion Lending
The medallion lending segment operates primarily in New York City, and to a lesser extent in Newark, Chicago and other markets. During the three and six months ended June 30, 2022, taxi medallion values remained consistent in the New York City market. We continue to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020, and by transferring underperforming loans from the portfolio to loan collateral in process of foreclosure with charge-offs to collateral value, once loans become more than 120 days past due. All the loans are secured by taxi medallions and enhanced by personal guarantees of the shareholders and owners.
The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Selected Earnings Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest income (loss) |
|
$ |
231 |
|
|
$ |
(1,475 |
) |
|
$ |
377 |
|
|
$ |
(1,544 |
) |
Total interest expense |
|
|
140 |
|
|
|
2,524 |
|
|
|
293 |
|
|
|
3,894 |
|
Net interest loss |
|
|
91 |
|
|
|
(3,999 |
) |
|
|
84 |
|
|
|
(5,438 |
) |
(Benefit) provision for loan losses |
|
|
(2,675 |
) |
|
|
(2,943 |
) |
|
|
(3,544 |
) |
|
|
(3,987 |
) |
Net interest income (loss) after loss provision |
|
|
2,766 |
|
|
|
(1,056 |
) |
|
|
3,628 |
|
|
|
(1,451 |
) |
Other expense, net |
|
|
(760 |
) |
|
|
(1,157 |
) |
|
|
(1,566 |
) |
|
|
(3,301 |
) |
Net income (loss) before taxes |
|
|
2,006 |
|
|
|
(2,213 |
) |
|
|
2,062 |
|
|
|
(4,752 |
) |
Income tax (provision) benefit |
|
|
(541 |
) |
|
|
556 |
|
|
|
(557 |
) |
|
|
1,193 |
|
Net income (loss) after taxes |
|
$ |
1,465 |
|
|
$ |
(1,657 |
) |
|
$ |
1,505 |
|
|
$ |
(3,559 |
) |
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total loans, gross |
|
|
|
|
|
|
|
$ |
14,152 |
|
|
$ |
16,514 |
|
||
Total loan allowance |
|
|
|
|
|
|
|
|
9,426 |
|
|
|
10,750 |
|
||
Total loans, net |
|
|
|
|
|
|
|
|
4,726 |
|
|
|
5,764 |
|
||
Total assets |
|
|
|
|
|
|
|
|
31,258 |
|
|
|
101,205 |
|
||
Total borrowings |
|
|
|
|
|
|
|
|
25,099 |
|
|
|
80,959 |
|
||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Return on average assets |
|
|
17.05 |
% |
|
|
(6.10 |
)% |
|
|
5.86 |
% |
|
|
(6.29 |
)% |
Return on average equity |
|
|
95.49 |
|
|
|
(30.51 |
) |
|
|
30.74 |
|
|
|
(31.44 |
) |
Interest yield |
|
|
19.61 |
|
|
|
(70.71 |
) |
|
|
16.07 |
|
|
|
(30.90 |
) |
Net interest margin |
|
|
7.78 |
|
|
|
(189.15 |
) |
|
|
3.58 |
|
|
|
(108.84 |
) |
Reserve coverage |
|
|
66.61 |
|
|
|
65.11 |
|
|
|
66.61 |
|
|
|
65.11 |
|
Delinquency status (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Charge-off (recovery) ratio |
|
|
(232.80 |
) |
|
|
513.86 |
|
|
|
(153.24 |
) |
|
|
216.01 |
|
|
|
As of June 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
Geographic Concentration |
|
Total Gross |
|
|
% of |
|
|
Total Gross |
|
|
% of |
|
||||
New York City |
|
$ |
13,035 |
|
|
|
92 |
% |
|
$ |
14,056 |
|
|
|
85 |
% |
Newark |
|
|
1,079 |
|
|
|
8 |
|
|
|
2,393 |
|
|
|
15 |
|
All Other |
|
|
38 |
|
|
* |
|
|
|
65 |
|
|
* |
|
||
Total |
|
$ |
14,152 |
|
|
|
— |
% |
|
$ |
16,514 |
|
|
|
100 |
% |
(*) Less than 1%
|
|
As of June 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
Geographic Concentration |
|
Total Loan Collateral in Process of Foreclosure |
|
|
% of |
|
|
Total Loan Collateral in Process of Foreclosure |
|
|
% of |
|
||||
New York City |
|
$ |
21,327 |
|
|
|
82 |
% |
|
$ |
32,411 |
|
|
|
67 |
% |
Newark |
|
|
3,664 |
|
|
|
14 |
|
|
|
6,009 |
|
|
|
12 |
|
Chicago |
|
|
987 |
|
|
|
4 |
|
|
|
2,689 |
|
|
|
6 |
|
All Other |
|
|
118 |
|
|
* |
|
|
|
7,048 |
|
|
|
15 |
|
|
Total |
|
$ |
26,096 |
|
|
|
100 |
% |
|
$ |
48,157 |
|
|
|
100 |
% |
(*) Less than 1%
Page 47 of 56
Corporate and Other Investments
This non-operating segment relates to our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses, which are not specifically allocated to the operating segments. Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is currently included within this segment. The associated activities of the strategic partnership business are currently limited to originating loans or other receivables facilitated by our strategic partners and selling those loans or receivables to our strategic partners or other third parties, without recourse, within a specified time after origination, such as three business days. Strategic partnerships represent $0.6 million in net loans as of June 30, 2022, compared to less than $0.1 million as of June 30, 2021, having originations of $9.8 million and $14.8 million during the three and six months ended June 30, 2022 and $2.4 million and $4.4 million during the three and six months ended June 30, 2021.
The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.
(Dollars in thousands) |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Selected Earnings Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest income |
|
$ |
501 |
|
|
$ |
353 |
|
|
$ |
891 |
|
|
$ |
660 |
|
Total interest expense |
|
|
1,584 |
|
|
|
604 |
|
|
|
3,141 |
|
|
|
3,027 |
|
Net interest loss |
|
|
(1,083 |
) |
|
|
(251 |
) |
|
|
(2,250 |
) |
|
|
(2,367 |
) |
Total interest expense |
|
|
184 |
|
|
|
488 |
|
|
|
153 |
|
|
|
487 |
|
Net interest loss |
|
|
(1,267 |
) |
|
|
(739 |
) |
|
|
(2,403 |
) |
|
|
(2,854 |
) |
Other expense, net |
|
|
(3,197 |
) |
|
|
(543 |
) |
|
|
(7,847 |
) |
|
|
(1,858 |
) |
Net loss before taxes |
|
|
(4,464 |
) |
|
|
(1,282 |
) |
|
|
(10,250 |
) |
|
|
(4,712 |
) |
Income tax benefit (provision) |
|
|
1,044 |
|
|
|
(1,521 |
) |
|
|
2,769 |
|
|
|
(1,158 |
) |
Net loss after taxes |
|
$ |
(3,420 |
) |
|
$ |
(2,803 |
) |
|
$ |
(7,481 |
) |
|
$ |
(5,870 |
) |
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total loans, gross |
|
|
|
|
|
|
|
$ |
593 |
|
|
$ |
3,351 |
|
||
Total loan allowance |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total loans, net |
|
|
|
|
|
|
|
$ |
593 |
|
|
|
3,351 |
|
||
Total assets |
|
|
|
|
|
|
|
|
382,943 |
|
|
|
272,204 |
|
||
Total borrowings |
|
|
|
|
|
|
|
|
307,499 |
|
|
|
212,020 |
|
||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Return on average assets |
|
|
(3.56 |
)% |
|
|
(3.85 |
)% |
|
|
(4.24 |
)% |
|
|
(4.08 |
)% |
Return on average equity |
|
|
(20.01 |
) |
|
|
(1.95 |
) |
|
|
(24.85 |
) |
|
|
(30.46 |
) |
SUMMARY CONSOLIDATED FINANCIAL DATA
The table below presents our selected financial data for the three and six months ended June 30, 2022 and 2021.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(Dollars in thousands, Except per share data) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Return on average assets (ROA) |
|
|
2.63 |
% |
|
|
2.43 |
% |
|
|
2.37 |
% |
|
|
2.26 |
% |
Return on average stockholders' equity (ROE) |
|
|
18.11 |
|
|
|
16.69 |
|
|
|
15.93 |
|
|
|
15.63 |
|
Dividend payout ratio |
|
|
14.40 |
|
|
|
— |
|
|
|
17.11 |
|
|
|
— |
|
Net interest margin |
|
|
9.07 |
|
|
|
8.84 |
|
|
|
9.50 |
|
|
|
9.01 |
|
Other income ratio (1) |
|
|
1.71 |
|
|
|
2.32 |
|
|
|
1.08 |
|
|
|
1.50 |
|
Total expense ratio (2) |
|
|
5.17 |
|
|
|
10.23 |
|
|
|
5.21 |
|
|
|
9.45 |
|
Equity to assets (3) |
|
|
17.18 |
|
|
|
18.56 |
|
|
|
17.18 |
|
|
|
18.56 |
|
Debt to equity (4) |
|
4.3x |
|
|
4.2x |
|
|
4.3x |
|
|
4.2x |
|
||||
Loans receivable to assets |
|
|
79 |
% |
|
|
74 |
% |
|
|
79 |
% |
|
|
74 |
% |
Net (recoveries) charge-offs |
|
|
(707 |
) |
|
|
10,181 |
|
|
|
2,013 |
|
|
|
12,938 |
|
Net (recoveries) charge-offs as a % of average loans receivable |
|
|
(0.18 |
)% |
|
|
3.36 |
% |
|
|
0.26 |
% |
|
|
2.15 |
% |
Allowance coverage ratio |
|
|
3.41 |
|
|
|
3.50 |
|
|
|
3.41 |
|
|
|
3.50 |
|
Page 48 of 56
CONSOLIDATED RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2022 compared to the Three and Six Months Ended June 30, 2021
Net income attributable to shareholders was $13.3 million and $23.1 million, or $0.54 and $0.93 per share, for the three and six months ended June 30, 2022, compared to $10.3 million and $18.7 million, or $0.41 and $0.75 per share, for the three and six months ended June 30, 2021.
Total interest income was $47.1 million and $90.4 million for the three and six months ended June 30, 2022 compared to $37.4 million and $74.5 million for the three and six months ended June 30, 2021. The increase in interest income reflected the continued growth in our loan portfolio, despite slightly lower average margins reflected in our recreation, home improvement and commercial loans. The yield on interest earning assets was 11.00% and 11.04% for the three and six months ended June 30, 2022, compared to 11.17% and 11.50% for the three and six months ended June 30, 2021. Average interest earning assets were $1.7 billion for the three and six months ended June 30, 2022, an increase from $1.3 billion for the three and six months ended June 30, 2021. We began increasing rates on new home improvement loans in the 2022 second quarter and anticipate increasing rates on new recreation loans during the second half of 2022 as a response to rising interest rates which effect our cost of funds.
Loans before allowance for loan losses were $1.7 billion as of June 30, 2022, comprised of recreation ($1.1 billion), home improvement ($526.3 million), commercial ($96.9 million), medallion ($14.2 million), and strategic partnership loans ($0.6 million). We had an allowance for loan losses as of June 30, 2022 of $59 million, which was attributable to the recreation (64%), medallion (16%), home improvement (16%), and commercial (4%) loans. We experienced significant growth in our consumer and commercial loan business during the three and six months ended June 30, 2022, and do expect continued growth as we look ahead, however we don’t expect origination growth to continue at this pace long term.
Loans increased $246 million, or 16.5%, from December 31, 2021 as a result of $519 million of loan originations, partially offset by principal payments, and to a lesser extent transfers to loan collateral in process of foreclosure and net charge-offs. The provision for loan losses was $7.8 million and $11.0 million for the three and six months ended June 30, 2022, compared to a $0.7 million benefit and $2.3 million provision for the three and six months ended June 30, 2021. The net charge-off (recovery) ratios on the loan portfolios were (0.18)% and 0.26% for the three and six months ended June 30, 2022 compared to 3.36% and 2.15% for the three and six months ended June 30, 2021. Net charge-offs in the current year quarter and year to date period included recoveries of $6.9 million and $12.0 million, inclusive of $2.7 million and $3.7 million of medallion loan recoveries for the three and six months ended June 30, 2022. Charge-offs in our consumer businesses continue to be below historic levels. Although we are not seeing any current indications that charge-offs will return to normal levels in the near term, we do expect a return to normal experience in the future.
Interest expense was $8.2 million and $15.6 million for the three and six months ended June 30, 2022, as compared to $7.9 million and $16.3 million for the three and six months ended June 30, 2021, reflective of higher average borrowings, even as average borrowing costs decreased. The average cost of borrowed funds was 2.05% and 2.02% for the three and six months ended June 30, 2022, compared to 2.36% and 2.49% for the three and six months ended June 30, 2021, mainly driven by the decline in market rates for deposits throughout 2021, and which generally carry a lower cost of funds than other forms of borrowings, and the repayment of our retail notes, offset to a lesser extent with the replacement of notes payable to banks with higher fixed rate private notes. We expect an increase in the cost of funds throughout the remainder of 2022 as older deposits mature and newer deposits are issued both to replace maturing deposits and to facilitate our growth in our lending. Average debt outstanding was $1.6 billion for the three and six months ended June 30, 2022, up from $1.3 billion for the three and six months ended June 30, 2021, as we issued additional certificates of deposits to increase our liquidity and fund our loan growth. See page 33 for tables that show average balances and cost of funds for our funding sources.
Net interest income was $38.9 million and $74.8 million for the three and six months ended June 30, 2022, compared to $29.5 million and $58.2 million for the three and six months ended June 30, 2021. The net interest margin was 9.07% and 9.15% for the three and six months ended June 30, 2022, compared to 8.84% and 9.01%, for the three and six months ended June 30, 2021, reflecting the above.
Net other income, which is comprised of net recoveries of loan collateral, a majority of which relate to recoveries in the Medallion segment, prepayment fees, servicing fee income, late charges, write-downs of loan collateral, impairment of equity investments, and other miscellaneous income was $7.4 million and $8.9 million for the three and six months ended June 30, 2022, compared to $7.8 million and $9.7 million for the three and six months ended June 30, 2021. The current year periods included a $4.2 million gain associated with the exit of an equity investment tied to our commercial lending business, as well as $2.7 million and $4.5 million of gains related to the disposition of medallion assets during the three and six month periods. The decrease from the prior year was primarily due to the absence of race team related revenue, as well as the absence of gains on the extinguishment of debt which occurred in the prior year.
Page 49 of 56
Operating expenses were $18.8 million and $36.8 million for the three and six months ended June 30, 2022, compared to $19.8 million and $34.5 million for the three and six months ended June 30, 2021. Salaries and benefits were $7.7 million and $15.3 million for the three and six months ended June 30, 2022, compared to $7.9 million and $13.6 million for the three and six months ended June 30, 2021, with the increase primarily reflective of reduced bonus expense in the prior year. Professional fees were $4.4 million and $8.4 million for the three and six months ended June 30, 2022, compared to $2.2 million and $2.7 million for the three and six months ended June 30, 2021, primarily reflecting higher legal and professional costs for a variety of corporate matters inclusive of the SEC litigation.
Total income tax expense was $4.9 million and $9.7 million for the three and six months ended June 30, 2022, compared to $6.5 and $10.4 for the three and six months ended June 30, 2021.
Loan collateral in process of foreclosure was $27.0 million at June 30, 2022, a decline from $37.4 million at December 31, 2021. The decrease was primarily reflective of cash payments received and structured settlements during the period. See page 37 for a table that shows the changes during the quarter.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
We, like other financial institutions, are subject to interest rate risk to the extent that our interest-earning assets (consisting of consumer, commercial, and medallion loans, and investment securities) reprice on a different basis over time in comparison to our interest-bearing liabilities (consisting primarily of bank certificates of deposit, credit facilities and borrowings from banks and other lenders, and SBA debentures and borrowings).
Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at the higher prevailing interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk.
The effect of changes in interest rates is mitigated by regular turnover of the portfolio. We believe that the average life of our loan portfolio varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment because the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. However, borrowers may prepay for a variety of other reasons, such as to monetize increases in the underlying collateral values. In addition, we manage our exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals on certificates of deposit, for terms of up to five years.
A relative measure of interest rate risk can be derived from our interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.
Page 50 of 56
The following table presents our interest rate sensitivity gap at June 30, 2022. The principal amounts of interest earning assets are assigned to the time frames in which such principal amounts are contractually obligated to be repriced. We do not reflect any prepayment assumptions in preparing the analysis, despite historical average life experience being significantly shorter than contractual terms.
June 30, 2022 Cumulative Rate Gap (1) |
|
|||||||||||||||||||||||||||||||
(Dollars in thousands) |
|
Less |
|
|
More |
|
|
More |
|
|
More |
|
|
More |
|
|
More |
|
|
Thereafter |
|
|
Total |
|
||||||||
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fixed-rate |
|
$ |
34,925 |
|
|
$ |
17,612 |
|
|
$ |
40,625 |
|
|
$ |
45,492 |
|
|
$ |
103,512 |
|
|
$ |
64,683 |
|
|
$ |
1,390,920 |
|
|
$ |
1,697,769 |
|
Adjustable rate |
|
|
3,436 |
|
|
|
898 |
|
|
|
113 |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,468 |
|
Investment securities |
|
|
6,074 |
|
|
|
283 |
|
|
|
3,493 |
|
|
|
5,151 |
|
|
|
288 |
|
|
|
4,655 |
|
|
|
37,789 |
|
|
|
57,733 |
|
Cash |
|
|
125,080 |
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
|
|
750 |
|
|
|
— |
|
|
|
— |
|
|
|
126,330 |
|
Total earning assets |
|
$ |
169,515 |
|
|
$ |
18,793 |
|
|
$ |
44,231 |
|
|
$ |
51,164 |
|
|
$ |
104,550 |
|
|
$ |
69,338 |
|
|
$ |
1,428,709 |
|
|
$ |
1,886,300 |
|
Interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Deposits |
|
$ |
394,619 |
|
|
$ |
347,548 |
|
|
$ |
412,380 |
|
|
$ |
131,077 |
|
|
$ |
186,452 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,472,076 |
|
Privately placed notes |
|
|
— |
|
|
|
36,000 |
|
|
|
— |
|
|
|
31,250 |
|
|
|
— |
|
|
|
— |
|
|
|
53,750 |
|
|
|
121,000 |
|
SBA debentures and borrowings |
|
|
5,000 |
|
|
|
10,429 |
|
|
|
12,500 |
|
|
|
15,500 |
|
|
|
4,500 |
|
|
|
— |
|
|
|
21,000 |
|
|
|
68,929 |
|
Preferred securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33,000 |
|
|
|
33,000 |
|
Total liabilities |
|
$ |
399,619 |
|
|
$ |
393,977 |
|
|
$ |
424,880 |
|
|
$ |
177,827 |
|
|
$ |
190,952 |
|
|
$ |
— |
|
|
$ |
107,750 |
|
|
$ |
1,695,005 |
|
Interest rate gap |
|
$ |
(230,104 |
) |
|
$ |
(375,184 |
) |
|
$ |
(380,649 |
) |
|
$ |
(126,663 |
) |
|
$ |
(86,402 |
) |
|
$ |
69,338 |
|
|
$ |
1,320,959 |
|
|
$ |
191,295 |
|
Cumulative interest rate gap |
|
$ |
(230,104 |
) |
|
$ |
(605,288 |
) |
|
$ |
(985,937 |
) |
|
$ |
(1,112,600 |
) |
|
$ |
(1,199,002 |
) |
|
$ |
(1,129,664 |
) |
|
$ |
191,295 |
|
|
$ |
— |
|
December 31, 2021 (2) |
|
$ |
(230,601 |
) |
|
$ |
(455,807 |
) |
|
$ |
(770,239 |
) |
|
$ |
(891,489 |
) |
|
$ |
(1,007,810 |
) |
|
$ |
(940,350 |
) |
|
$ |
153,539 |
|
|
$ |
— |
|
December 31, 2020 (2) |
|
$ |
(366,801 |
) |
|
$ |
(570,449 |
) |
|
$ |
(719,385 |
) |
|
$ |
(827,236 |
) |
|
$ |
(907,295 |
) |
|
$ |
(860,941 |
) |
|
$ |
52,347 |
|
|
$ |
— |
|
Our interest rate sensitive assets were $1.9 billion and interest rate sensitive liabilities were $1.7 billion at June 30, 2022. The one-year cumulative interest rate gap was a negative $230.1 million or 12% of interest rate sensitive assets. We seek to manage interest rate risk by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, by originating adjustable-rate loans, and by other options consistent with managing interest rate risk.
With the cessation of LIBOR in 2023, we are currently reviewing the impact on our loans and borrowings. We do not have lendings tied to LIBOR and do not expect a significant impact on our loans. We have trust preferred securities that bear a variable rate of interest of 90 day LIBOR (2.29% at June 30, 2022) plus 2.13%. We expect to rely on our lenders to adjust and communicate rate adjustments; however, we do not expect a material impact on our borrowings.
Liquidity and Capital Resources
Our sources of liquidity include unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private issuances of debt securities, participations or sales of loans to third parties, the disposition of our other assets, and dividends from Medallion Capital and the Bank, and are subject to compliance with regulatory ratios. As of June 30, 2022, we had unfunded commitments from the SBA of $9.5 million.
Additionally, the Bank has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. The Bank has up to $45.0 million available under Fed Funds lines with several commercial banks.
In February 2021, we completed a private placement to certain institutional investors of $25.0 million aggregate principal amount of 7.25% unsecured senior notes due February 2026, with interest payable semiannually. Follow-on offerings of these notes in March and April 2021 raised an additional $3.3 million and $3.0 million.
In December 2020, we completed a private placement to certain institutional investors of $33.6 million aggregate principal amount of 7.50% unsecured senior notes due December 2027, with interest payable semiannually. Follow-on offerings of these notes in February and March 2021 raised an additional $8.5 million. In April 2021, we raised an additional $11.7 million in a follow-on offering, and repaid substantially all of our remaining bank borrowings.
The net proceeds from the December 2020, February 2021, March 2021 and April 2021 private placements were used for general corporate purposes, including repayment of outstanding debt, including repayment of our 9.00% retail notes at maturity in April 2021 and to pay down other borrowings, including some borrowings at a discount.
In December 2019, the Bank closed an initial public offering of $46.0 million aggregate liquidation amount, yielding net proceeds of $42.5 million, of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F. 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
Page 51 of 56
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.
In March 2019, we completed a private placement to certain institutional investors of $30.0 million aggregate principal amount of 8.25% unsecured notes due 2024, with interest payable semiannually. A follow-on offering of these notes in the 2019 third quarter raised an additional $6.0 million.
The table below presents the components of our debt were as of June 30, 2022, exclusive of deferred financing costs of June 30, 2022. See Note 4 to the consolidated financial statements for details of the contractual terms of our borrowings.
(Dollars in thousands) |
|
Balance |
|
|
Percentage |
|
|
Rate (1) |
|
|||
Deposits (2) |
|
$ |
1,472,077 |
|
|
|
87 |
% |
|
|
1.46 |
% |
Privately placed notes |
|
|
121,000 |
|
|
|
7 |
|
|
|
7.66 |
|
SBA debentures and borrowings |
|
|
68,929 |
|
|
|
4 |
|
|
|
2.94 |
|
Preferred securities |
|
|
33,000 |
|
|
|
2 |
|
|
|
3.75 |
|
Total outstanding debt |
|
$ |
1,695,006 |
|
|
|
100 |
% |
|
|
2.00 |
% |
Our contractual obligations expire on or mature at various dates through September 2037. The following table shows all contractual obligations at June 30, 2022.
|
|
Payments due by period |
|
|
|
|
||||||||||||||||||||||
(Dollars in thousands) |
|
Less than |
|
|
1 – 2 |
|
|
2 – 3 |
|
|
3 – 4 |
|
|
4 – 5 |
|
|
More than |
|
|
Total (1) |
|
|||||||
Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Deposits (2) |
|
$ |
394,619 |
|
|
$ |
347,548 |
|
|
$ |
412,380 |
|
|
$ |
131,077 |
|
|
$ |
186,452 |
|
|
$ |
— |
|
|
$ |
1,472,076 |
|
Privately placed notes |
|
|
— |
|
|
|
36,000 |
|
|
|
— |
|
|
|
31,250 |
|
|
|
— |
|
|
|
53,750 |
|
|
|
121,000 |
|
SBA debentures and borrowings |
|
|
5,000 |
|
|
|
10,429 |
|
|
|
12,500 |
|
|
|
15,500 |
|
|
|
4,500 |
|
|
|
21,000 |
|
|
|
68,929 |
|
Preferred securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33,000 |
|
|
|
33,000 |
|
Total outstanding borrowings |
|
|
399,619 |
|
|
|
393,977 |
|
|
|
424,880 |
|
|
|
177,827 |
|
|
|
190,952 |
|
|
|
107,750 |
|
|
|
1,695,005 |
|
Operating lease obligations |
|
|
2,512 |
|
|
|
2,516 |
|
|
|
2,516 |
|
|
|
2,473 |
|
|
|
2,471 |
|
|
|
1,251 |
|
|
|
13,738 |
|
Total contractual obligations |
|
$ |
402,131 |
|
|
$ |
396,493 |
|
|
$ |
427,396 |
|
|
$ |
180,300 |
|
|
$ |
193,423 |
|
|
$ |
109,001 |
|
|
$ |
1,708,743 |
|
Approximately $794 million of our borrowings have maturity dates during the next two years, a vast majority of which are brokered CDs.
In addition, the illiquidity of portions of our loan portfolio and investments may adversely affect our ability to dispose of them at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of our portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net interest income.
We use a combination of long-term and short-term borrowings and equity capital to finance our lending and investing activities. Our long-term fixed-rate investments are financed primarily with fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of June 30, 2022 by $1.3 million on an annualized basis, and the impact of such an immediate increase of 1% over an one year period would have been a reduction in net income by $0.3 million at June 30, 2022. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net income from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.
Page 52 of 56
From time to time, we work with investment banking firms and other financial intermediaries to investigate the viability of several other financing options which include, among others, the sale or spinoff of certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.
The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at June 30, 2022. See Note 5 to the consolidated financial statements for additional information about each credit facility.
(Dollars in thousands) |
|
Medallion |
|
|
MFC |
|
|
MCI |
|
|
FSVC |
|
|
MB |
|
|
All Other |
|
|
June 30, |
|
|
December 31, |
|
||||||||
Cash, cash equivalents and federal funds sold |
|
$ |
27,719 |
|
|
$ |
511 |
|
|
$ |
3,955 |
|
(1) |
$ |
274 |
|
(1) |
$ |
93,846 |
|
|
$ |
25 |
|
|
$ |
126,330 |
|
|
$ |
124,484 |
|
Preferred Securities |
|
|
33,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,000 |
|
|
|
33,000 |
|
|||||
Average interest rate |
|
|
3.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.75 |
% |
|
|
2.31 |
% |
|||||
Maturity |
|
9/37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/37 |
|
|
9/37 |
|
||||||||
Retailed notes and privately placed borrowings |
|
|
121,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,000 |
|
|
|
121,000 |
|
|||||
Average interest rate |
|
|
7.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.66 |
% |
|
|
7.66 |
% |
|||||
Maturity |
|
3/24 - 12/27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/24 - 12/27 |
|
|
3/24-12/27 |
|
||||||||
SBA debentures & borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,429 |
|
|
|
79,463 |
|
||||||
Amounts available |
|
|
|
|
|
|
|
|
9,500 |
|
|
|
|
|
|
|
|
|
|
|
|
9,500 |
|
|
|
9,500 |
|
|||||
Amounts outstanding |
|
|
|
|
|
|
|
|
61,000 |
|
|
|
7,929 |
|
|
|
|
|
|
|
|
|
68,929 |
|
|
|
69,963 |
|
||||
Average interest rate |
|
|
|
|
|
|
|
|
2.90 |
% |
|
|
3.25 |
% |
|
|
|
|
|
|
|
|
2.94 |
% |
|
|
2.72 |
% |
||||
Maturity |
|
|
|
|
|
|
|
3/23 - 3/32 |
|
|
4/30/24 |
|
|
|
|
|
|
|
|
3/23- 3/32 |
|
|
3/23- 3/32 |
|
||||||||
Brokered CD's & other funds borrowed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,473,076 |
|
(2) |
|
|
|
|
1,473,076 |
|
|
|
1,254,038 |
|
|||||
Average interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.46 |
% |
|
|
|
|
|
1.46 |
% |
|
|
1.20 |
% |
|||||
Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
7/22 - 6/27 |
|
|
|
|
|
7/22 - 6/27 |
|
|
1/22-12/26 |
|
||||||||
Total Cash |
|
$ |
27,719 |
|
|
$ |
511 |
|
|
$ |
3,955 |
|
|
$ |
274 |
|
|
$ |
93,846 |
|
|
$ |
25 |
|
|
$ |
126,330 |
|
|
$ |
124,484 |
|
Total debt outstanding |
|
$ |
154,000 |
|
|
$ |
— |
|
|
$ |
61,000 |
|
|
$ |
7,929 |
|
|
$ |
1,473,076 |
|
|
$ |
— |
|
|
$ |
1,696,005 |
|
|
$ |
1,478,001 |
|
Loan amortization, prepayments, and sales also provide a source of funding for us. Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition.
We also generate liquidity through deposits generated at the Bank, the offering of privately placed notes, through the issuance of SBA debentures, and through our preferred securities, and have utilized borrowing arrangements with other banks in the past, as well as from cash flow from operations. In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We regularly seek additional sources of liquidity; however, given current market conditions, there can be no assurance that we will be able to secure additional liquidity on terms favorable to us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to conserve capital until credit conditions in the market become more favorable; or we may be required to dispose of assets when we would not otherwise do so, and at prices which may be below the net book value of such assets in order for us to repay indebtedness on a timely basis.
Dividends and Stock Repurchases
Beginning March 2022, the Company's board of directors reinstated our quarterly dividend, with dividends of $0.08 per share, paid in March 2022 and May 2022. We may, however, re-evaluate this new dividend policy in the future depending on market conditions. There can be no assurance that we will continue to pay any cash distributions, as we may retain our earnings to facilitate the growth of our business, to finance our investments, to provide liquidity, or for other corporate purposes.
On May 1, 2022, the Company's board of directors authorized a new stock repurchase program, pursuant to which the Company is authorized to repurchase up to $35 million of its shares. Such new repurchase program replaced the existing one, which was terminated. During the six months ended June 30, 2022 we repurchased 1,272,150 shares of our common stock at an aggregate cost of $9,974,553. Accordingly, as of June 30, 2022, up to $25,025,447 of shares remain authorized for repurchase under our stock repurchase program.
Page 53 of 56
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in disclosure regarding quantitative and qualitative disclosures about market risk since we filed our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a—15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, and have concluded that they are effective as of June 30, 2022 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated our internal control over financial reporting to determine whether any changes occurred during the 2022 second quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, and have concluded that there have been no changes that occurred during the 2022 second quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10 “Commitments and Contingencies” subsections (c) and (d) to the consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for details of the Company’s legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 14, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 1, 2022 the Company's board of directors authorized a new stock repurchase program, pursuant to which the Company is authorized to repurchase up to $35 million of its shares. Such new repurchase program replaces the existing one, which was terminated. During the six months ended June 30, 2022 we repurchased 1,272,150 shares of our common stock at an aggregate cost of $9,974,553. Accordingly, as of June 30, 2022, up to $25,025,447 of shares remain authorized for repurchase under our stock repurchase program.
|
|
Total Shares of Common Stock Repurchased |
|
|
Average Price Paid per Share |
|
|
Total |
|
|
Maximum Value of Shares Yet to Be Purchased |
|
||||
April 1 - April 30 |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
22,257,654 |
|
May 1 - May 31 |
|
|
1,056,933 |
|
|
|
7.87 |
|
|
|
8,316,012 |
|
|
|
26,683,988 |
|
June 1 - June 30 |
|
|
215,217 |
|
|
|
7.71 |
|
|
|
1,658,542 |
|
|
|
25,025,447 |
|
Total |
|
|
1,272,150 |
|
|
$ |
7.84 |
|
|
$ |
9,974,553 |
|
|
$ |
25,025,447 |
|
Page 54 of 56
ITEM 6. EXHIBITS
EXHIBITS
Number |
|
Description |
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Page 55 of 56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MEDALLION FINANCIAL CORP. |
|
|
|
|
|
Date: |
August 8, 2022 |
|
|
By: |
/s/ Alvin Murstein |
|
Alvin Murstein |
|
Chairman and Chief Executive Officer |
|
|
By: |
/s/ Anthony N. Cutrone |
|
Anthony N. Cutrone |
|
Executive Vice President and Chief Financial Officer |
|
|
|
Signing on behalf of the registrant as principal financial and accounting officer. |
Page 56 of 56