Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2020

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at March 31, 2020 and December 31, 2019.

	As of March 31, 2020						As of December 31, 2019
(Dollars in thousands)	Amount			As a Percent of Gross Loans			Amount			As a Percent of Gross Loans
Recreation	$	735,175			62	%	$	713,332			62	%
Home improvement		255,899			22			247,324			21
Commercial		68,257			6			69,767			6
Medallion		124,448			10			130,432			11
Total gross loans		1,183,779			100	%		1,160,855			100	%
Allowance for loan losses		(54,057	)					(46,093	)
Total net loans	$	1,129,722					$	1,114,762

The following tables show the activity of the gross loans for the three ended March 31, 2020 and 2019.

Three Months Ended March 31, 2020 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Total
Gross loans – December 31, 2019	$	713,332		$	247,324		$	69,767		$	130,432		$	1,160,855
Loan originations		69,643			33,465			2,175			—			105,283
Principal payments		(37,070	)		(24,225	)		(3,999	)		(2,075	)		(67,369	)
Charge-offs, net		(6,382	)		(636	)		—			(1,559	)		(8,577	)
Transfer to loan collateral in process of foreclosure, net		(4,779	)		—			—			(2,159	)		(6,938	)
Amortization of origination costs		(1,728	)		441			2			(19	)		(1,304	)
Amortization of loan premium		(52	)		(86	)		—			(191	)		(329	)
FASB origination costs		2,211			(384	)		19			19			1,865
Paid-in-kind interest		—			—			293			—			293
Gross loans – March 31, 2020	$	735,175		$	255,899		$	68,257		$	124,448		$	1,183,779

Three Months Ended March 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		63,632			26,647			500			—			90,779
Principal payments		(33,373	)		(15,849	)		(9,580	)		(3,438	)		(62,240	)
Charge-offs, net		(4,929	)		(159	)		—			(7,788	)		(12,876	)
Transfer to loan collateral in process of foreclosure, net		(3,391	)		—			—			(5,705	)		(9,096	)
Amortization of origination costs		(1,438	)		346			29			(88	)		(1,151	)
Amortization of loan premium		(70	)		(109	)		—			(913	)		(1,092	)
FASB origination costs		2,530			(756	)		(58	)		41			1,757
Paid-in-kind interest		—			—			237			—			237
Gross loans – March 31, 2019	$	609,999		$	193,275		$	55,211		$	165,715		$	1,024,200

The following table sets forth the activity in the allowance for loan losses for the three months ended March 31, 2020 and 2019.

	Three Months Ended March 31,
(Dollars in thousands)	2020			2019
Allowance for loan losses – beginning balance	$	46,093		$	36,395
Charge-offs
Recreation		(8,244	)		(6,525	)
Home improvement		(1,011	)		(549	)
Commercial	—				—
Medallion		(1,924	)		(8,788	)
Total charge-offs		(11,179	)		(15,862	)
Recoveries
Recreation		1,862			1,596
Home improvement		375			390
Commercial	—				—
Medallion		365			1,000
Total recoveries		2,602			2,986
Net charge-offs⁽¹⁾		(8,577	)		(12,876	)
Provision for loan losses		16,541			13,343
Allowance for loan losses – ending balance⁽²⁾	$	54,057		$	36,862

(1)	As of March 31, 2020, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion loan portfolio were $243,428, representing collection opportunities for the Company.

(2)

Includes $2,469 of a general reserve for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 5% of the total allowance, and 2.07% of the medallion loans under 90 days past due as of March 31, 2020. 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 a general reserve benefit of $7,266.

The following tables set forth the allowance for loan losses by type as of March 31, 2020 and December 31, 2019.

March 31, 2020 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	22,294		41	%		3.03	%
Home improvement		3,507		7			1.37
Commercial		—		—			0.00
Medallion		28,256		52			22.71
Total	$	54,057		100	%		4.57	%

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	%

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

(Dollars in thousands)	March 31, 2020			December 31, 2019			March 31, 2019
Total nonaccrual loans	$	61,635		$	26,484		$	21,549
Interest foregone quarter to date		623			1,121			403
Amount of foregone interest applied to principal in the quarter		52			53			115
Interest foregone life to date		3,358			2,744			1,634
Amount of foregone interest applied to principal life to date		494			471			819
Percentage of nonaccrual loans to gross loan portfolio		5	%		2	%		2	%

The following tables present the performance status of loans as of March 31, 2020 and December 31, 2019.

March 31, 2020 (Dollars in thousands)	Performing		Nonperforming			Total		Percentage of Nonperforming to Total
Recreation	$	727,847	$	7,328		$	735,175		1.00	%
Home improvement		255,677		222			255,899		0.09
Commercial		56,395		11,862			68,257		17.38
Medallion		81,856		42,592			124,448		34.22
Total	$	1,121,775	$	62,004	⁽¹⁾	$	1,183,779		5.24	%

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	%

(1)

Includes $369 and $36,009 of TDRs as of March 31, 2020 and December 31, 2019, which are accruing and paying currently, but which are considered nonperforming loans under GAAP.

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

The following tables provide additional information on attributes of the nonperforming loan portfolio as of March 31, 2020 and 2019, and December 31, 2019, all of which had an allowance recorded against the principal balance.

	March 31, 2020						For the Three Months Ended March 31, 2020
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Recreation	$	7,328	$	7,328	$	318	$	7,456	$	161
Home improvement		222		222		4		222		—
Commercial		11,862		11,867		—		11,976		1
Medallion		42,592		43,081		20,011		45,105		415
Total nonperforming loans with an allowance	$	62,004	$	62,498	$	20,333	$	64,759	$	577

	December 31, 2019						March 31, 2019						For the Three Months Ended March 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment Recorded		Interest Income Recognized
With an allowance recorded
Recreation	$	8,262	$	8,262	$	329	$	5,137	$	5,137	$	183	$	5,173	$	132
Home improvement		185		185		3		158		158		3		158		—
Commercial		11,862		11,867		—		4,265		4,360		455		4,233		—
Medallion		42,184		42,650		14,824		23,692		24,416		19,116		26,942		153
Total nonperforming loans with an allowance	$	62,493	$	62,964	$	15,156	$	33,252	$	34,071	$	19,757	$	36,506	$	285

The following tables show the aging of all loans as of March 31, 2020 and December 31, 2019.

	Days Past Due
March 31, 2020 (Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total ⁽¹⁾		Recorded Investment 90 Days and Accruing
Recreation	$	28,231	$	6,660	$	5,225	$	40,116	$	671,107	$	711,223	$	—
Home improvement		912		164		220		1,296		258,136		259,432		—
Commercial		—		—		107		107		68,150		68,257		—
Medallion		12,718		15,996		1,462		30,176		90,318		120,494		—
Total	$	41,861	$	22,820	$	7,014	$	71,695	$	1,087,711	$	1,159,406	$	—

(1)	Excludes loan premiums of $5,429 resulting from purchase price accounting and $18,944 of capitalized loan origination costs.

	Days Past Due
December 31, 2019 (Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total ⁽¹⁾		Recorded Investment 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.

The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 244%, 190%, and 213% as of March 31, 2020, December 31, 2019, and March 31, 2019.

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

(Dollars in thousands)

Number of

Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Recreation loans

502

434

Medallion loans

1,121

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

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

(Dollars in thousands)

Number of

Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Medallion loans

2,895

During the twelve months ended March 31, 2019, four loans modified as TDRs were in default and had an investment value of $1,396,000 as of March 31, 2019, net of a $938,000 allowance for loan losses.

The following tables show the activity of the loan collateral in process of foreclosure, which relate only to the recreation and medallion loans, for the three months ended March 31, 2020 and 2019.

Three Months Ended March 31, 2020 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – December 31, 2019	$	1,476		$	51,235		$	52,711
Transfer from loans, net		4,779			2,159			6,938
Sales		(1,999	)		(300	)		(2,299	)
Cash payments received		—			(1,708	)		(1,708	)
Collateral valuation adjustments		(2,539	)		(6,286	)		(8,825	)
Loan collateral in process of foreclosure – March 31, 2020	$	1,717		$	45,100		$	46,817

Three Months Ended March 31, 2019 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – December 31, 2018	$	1,503		$	47,992		$	49,495
Transfer from loans, net		3,391			5,705			9,096
Sales		(2,076	)		(377	)		(2,453	)
Cash payments received		—			(2,573	)		(2,573	)
Collateral valuation adjustments		(1,638	)		(2,119	)		(3,757	)
Loan collateral in process of foreclosure – March 31, 2019	$	1,180		$	48,628		$	49,808