Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2019

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES (Bank Holding Company Accounting)

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at December 31, 2019 and 2018.

	As of December 31, 2019						As of December 31, 2018
(Dollars in thousands)	Amount			As a Percent of Gross Loans			Amount			As a Percent of Gross Loans
Recreation	$	713,332			62	%	$	587,038			58	%
Home improvement		247,324			21			183,155			18
Commercial		69,767			6			64,083			6
Medallion		130,432			11			183,606			18
Total gross loans		1,160,855			100	%		1,017,882			100	%
Allowance for loan losses		(46,093	)					(36,395	)
Total net loans	$	1,114,762					$	981,487

The following table show the components of changes in gross loans for the twelve months ended December 31, 2019.

Twelve Months Ended December 31, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Total
Gross loans – December 31, 2018	$	587,038		$	183,155		$	64,083		$	183,606		$	1,017,882
Loan originations		301,403			142,112			18,578			—			462,093
Principal payments		(146,873	)		(76,157	)		(13,553	)		(15,070	)		(251,653	)
Charge-offs, net		(17,419	)		(786	)		(819	)		(18,664	)		(37,688	)
Transfer to loans in process of foreclosure, net		(14,512	)		—			—			(16,836	)		(31,348	)
Amortization of origination costs		(6,428	)		1,561			34			(119	)		(4,952	)
Amortization of loan premium		(247	)		(416	)		—			(2,626	)		(3,289	)
FASB origination costs		10,370			(2,145	)		610			141			8,976
Paid-in-kind interest		—			—			834			—			834
Gross loans – December 31, 2019	$	713,332		$	247,324		$	69,767		$	130,432		$	1,160,855

The following table sets forth the activity in the allowance for loan losses for the twelve months ended December 31, 2019 and the nine months ended December 31, 2018.

(Dollars in thousands)	Twelve Months Ended December 31, 2019			Nine Months Ended December 31, 2018
Allowance for loan losses – beginning balance	$	36,395		$	—		⁽¹⁾
Charge-offs
Recreation		(24,433	)		(12,697	)
Home improvement		(2,504	)		(1,562	)
Commercial		(819	)		—
Medallion		(22,205	)		(14,277	)
Total charge-offs		(49,961	)		(28,536	)
Recoveries
Recreation		7,014			4,437
Home improvement		1,718			905
Commercial		—			4
Medallion		3,541			577
Total recoveries		12,273			5,923
Net charge-offs ⁽²⁾		(37,688	)	(22,613)
Provision for loan losses		47,386			59,008		⁽⁴⁾
Allowance for loan losses – ending balance ⁽³⁾	$	46,093		$	36,395

(1)	Beginning balance reflects the transition to Bank Holding Company Accounting by netting previously established unrealized depreciation against the gross loan balances, resulting in a starting point of zero for this table.

(2)	As of December 31, 2019, cumulative charge-offs of loans and loans in process of foreclosure in the medallion loan portfolio were $241,214, representing collection opportunities for the Company.

(3)

Includes $3,173 of a general reserve as of December 31, 2019, for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 7% of the total allowance, and 2.56% of the loans in question. This figure excludes $17,351 of a general reserve on loans at the Bank, which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves benefit of $2,230.

(4)	Includes $8,161 of reversal of provision for loan losses related to the deconsolidation of Trust III in the 2018 fourth quarter.

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

December 31, 2019 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	18,075		39	%		2.53	%
Home Improvement		2,608		6			1.05
Commercial		—		—		—
Medallion		25,410		55			19.48
Total	$	46,093		100	%		3.97	%

December 31, 2018 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	6,856		19	%		1.17	%
Home Improvement		1,796		5			0.98
Commercial		—		—			—
Medallion		27,743		76			15.11
Total	$	36,395		100	%		3.58	%

The following table presents total nonaccrual loans and foregone interest, substantially all of which is in the medallion portfolio. The decline reflects the charge-offs of certain loans and their movement to loan collateral in process of foreclosure. The fluctuation in nonaccrual interest foregone is due to past due loans and market conditions.

	Bank Holding Company Accounting						Investment Company Accounting
(Dollars in thousands)	December 31, 2019			December 31, 2018			December 31, 2017 ⁽¹⁾
Total nonaccrual loans	$	26,484		$	34,877		$	98,494
Interest foregone for the year		2,152			1,153			823
Amount of foregone interest applied to principal for the year		254			535			52
Interest foregone life-to-date		2,744			1,952			12,485
Amount of foregone interest applied to principal life-to-date		471			1,214			3,495
Percentage of nonaccrual loans to gross loan portfolio		2	%		3	%		31	%

(1)

Does not include the Bank’s nonaccrual loans of $32,668, interest income foregone for the year of $795 and foregone interest paid and applied to principal for the year of $917, interest income foregone life-to-date of $1,487 and foregone interest paid and applied to principal life-to-date of $1,221.

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

December 31, 2019 (Dollars in thousands)	Performing		Nonperforming			Total		Percentage of Nonperforming to Total
Recreation	$	705,070	$	8,262		$	713,332		1.16	%
Home improvement		247,139		185			247,324		0.07
Commercial		57,905		11,862			69,767		17.00
Medallion		88,248		42,184			130,432		32.34
Total	$	1,098,362	$	62,493	⁽¹⁾	$	1,160,855		5.38	%

December 31, 2018 (Dollars in thousands)	Performing		Nonperforming			Total		Percentage of Nonperforming to Total
Recreation	$	581,250	$	5,788		$	587,038		0.99	%
Home improvement		183,018		137			183,155		0.07
Commercial		60,249		3,834			64,083		5.98
Medallion		145,391		38,215			183,606		20.81
Total	$	969,908	$	47,974	⁽¹⁾	$	1,017,882		4.71	%

(1)

Includes $36,009 and $13,097 of TDRs as of December 31, 2019 and 2018, which are accruing and paying currently, but which are considered nonperforming loans under GAAP.

For those performing loans aged under 90 days past due, there is a possibility that their delinquency status will continue to deteriorate and they will subsequently be placed on nonaccrual status and be reserved for, and as such, deemed nonperforming.

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

	December 31, 2019						Twelve Months Ended December 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment Recorded		Interest Income (Expense) Recognized
With an allowance recorded
Recreation	$	8,262	$	8,262	$	329	$	8,317	$	471
Home improvement		185		185		3		185		—
Commercial		11,862		11,867		—		7,886		392
Medallion		42,184		42,650		14,824		44,721		346
Total nonperforming loans with an allowance	$	62,493	$	62,964	$	15,156	$	61,109	$	1,209

	December 31, 2018						Nine Months Ended December 31, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment Recorded		Interest Income (Expense) Recognized
With an allowance recorded
Recreation	$	5,788	$	5,788	$	204	$	6,165	$	357
Home improvement		137		137		3		137		—
Commercial		3,834		3,929		—		6,036		(12	)
Medallion		38,215		39,334		28,940		59,915		725
Total nonperforming loans with an allowance	$	47,974	$	49,188	$	29,147	$	72,253	$	1,070

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

	Days Past Due												Recorded Investment
December 31, 2019 (Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total ⁽¹⁾		90 Days and Accruing
Recreation	$	27,357	$	8,426	$	5,800	$	41,583	$	648,227	$	689,810	$	—
Home improvement		931		427		184		1,542		249,288		250,830		—
Commercial		—		—		107		107		69,660		69,767		—
Medallion		12,491		2,118		2,572		17,181		109,106		126,287		—
Total	$	40,779	$	10,971	$	8,663	$	60,413	$	1,076,281	$	1,136,694	$	—

(1)	Excludes loan premiums of $5,758 resulting from purchase price accounting and $18,403 of capitalized loan origination costs.

	Days Past Due												Recorded Investment
December 31, 2018 (Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total ⁽¹⁾		90 Days and Accruing
Recreation	$	19,584	$	6,198	$	4,133	$	29,915	$	537,294	$	567,209	$	—
Home improvement	723		296		135			1,154		184,507		185,661		—
Commercial		—		454		279		733		63,350		64,083		—
Medallion		8,720		2,694		16,678		28,092		148,743		176,835		—
Total	$	29,027	$	9,642	$	21,225	$	59,894	$	933,894	$	993,788	$	—

(1)Excludes loan premiums of $9,047 resulting from purchase price accounting and $15,047 of capitalized loan origination costs.

The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 190% and 220% as of December 31, 2019 and 2018.

The following table shows the troubled debt restructurings which the Company entered into during the year ended December 31, 2019.

(Dollars in thousands)

Number of Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Recreation loans

294

4,433

2,831

Medallion loans

31,376

31,385

During the twelve months ended December 31, 2019, four medallion loans modified as troubled debt restructurings were in default and had an investment value of $1,023,000 as of December 31, 2019, net of $428,000 of an allowance for loan loss, and 213 recreation loans modified as troubled debt restructuring were in default and had an investment value of $1,905,000 as of December 31, 2019, net of a $76,000 allowance for loan losses.

The following table shows the troubled debt restructurings which the Company entered into during the year ended December 31, 2018.

(Dollars in thousands)

Number of Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Medallion loans

5,581

During the year ended December 31, 2018, one loan modified as a troubled debt restructuring was in default and had an investment value of $218,000 as of December 31, 2018, net of $71,000 of an allowance for loan loss.

The following tables show the activity of the loans in process of foreclosure, which relates only to the recreation and medallion loans, for the twelve months ended December 31, 2019 and the nine months ended December 31, 2018.

Twelve Months Ended December 31, 2019 (Dollars in thousands)	Recreation			Medallion			Total
Loans in process of foreclosure – December 31, 2018	$	1,503		$	47,992		$	49,495
Transfer from loans, net		14,512			16,836			31,348
Sales		(7,591	)		(1,515	)		(9,106	)
Cash payments received		—			(7,697	)		(7,697	)
Collateral valuation adjustments		(6,948	)		(4,381	)		(11,329	)
Loans in process of foreclosure – December 31, 2019	$	1,476		$	51,235		$	52,711

Nine Months Ended December 31, 2018 (Dollars in thousands)	Recreation			Medallion			Total
Loans in process of foreclosure – beginning balance ⁽¹⁾	$	1,369		$	51,479		$	52,848
Transfer from loans, net		9,289			25,369			34,658
Sales		(451	)		(2,533	)		(2,984	)
Cash payments received		(4,354	)		(4,337	)		(8,691	)
Collateral valuation adjustments		(4,350	)		(4,122	)		(8,472	)
Deconsolidation of Trust III		—			(17,864	)		(17,864	)
Loans in process of foreclosure – December 31, 2018	$	1,503		$	47,992		$	49,495

(1)	Beginning balance for the nine months ended December 31, 2018 reflects the transition to Bank Holding Company Accounting by reclassifying the medallions loans of the Company of $31,099,000 from investments to loans in process of foreclosure as of April 2, 2018.