Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2020

Text Block [Abstract]

Loans and Allowance for Loan Losses

(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, 2020 and December 31, 2019.

	As of June 30, 2020						As of December 31, 2019
(Dollars in thousands)	Amount			As a Percent of Gross Loans			Amount			As a Percent of Gross Loans
Recreation	$	786,785			62	%	$	713,332			62	%
Home improvement		282,072			22			247,324			21
Commercial		71,476			6			69,767			6
Medallion		120,253			10			130,432			11
Strategic partnership		8			—			—			—
Total gross loans		1,260,594			100	%		1,160,855			100	%
Allowance for loan losses		(66,977	)					(46,093	)
Total net loans	$	1,193,617					$	1,114,762

The following tables show the activity of the gross loans for the three and six ended June 30, 2020 and 2019.

Three Months Ended June 30, 2020 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – March 31, 2020	$	735,175		$	255,899		$	68,257		$	124,448		$	—		$	1,183,779
Loan originations		106,206			44,713			3,000			—			153			154,072
Principal payments, sales and maturities		(49,457	)		(18,496	)		(132	)		(1,687	)		(145	)		(69,917	)
Charge-offs, net		(3,565	)		(196	)		—			(260	)		—			(4,021	)
Transfer to loan collateral in process of foreclosure, net		(3,003	)		—			—			(2,185	)		—			(5,188	)
Amortization of origination costs		(2,031	)		455			2			(13	)		—			(1,587	)
Amortization of loan premium		(51	)		(82	)		—			(46	)		—			(179	)
FASB origination costs		3,511			(221	)		8			(4	)		—			3,294
Paid-in-kind interest		—			—			341			—			—			341
Gross loans – June 30, 2020	$	786,785		$	282,072		$	71,476		$	120,253		$	8		$	1,260,594

Six Months Ended June 30, 2020 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – December 31, 2019	$	713,332		$	247,324		$	69,767		$	130,432		$	—		$	1,160,855
Loan originations		175,850			78,178			5,175			—			153			259,356
Principal payments, sales and maturities		(86,529	)		(42,720	)		(4,112	)		(3,780	)		(145	)		(137,286	)
Charge-offs, net		(9,946	)		(832	)		—			(1,820	)		—			(12,598	)
Transfer to loan collateral in process of foreclosure, net		(7,781	)		—			—			(4,344	)		—			(12,125	)
Amortization of origination costs		(3,760	)		896			4			(31	)		—			(2,891	)
Amortization of loan premium		(103	)		(168	)		—			(237	)		—			(508	)
FASB origination costs		5,722			(606	)		8			33			—			5,157
Paid-in-kind interest		—			—			634			—			—			634
Gross loans – June 30, 2020	$	786,785		$	282,072		$	71,476		$	120,253		$	8		$	1,260,594

Three Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Total
Gross loans – March 31, 2019	$	609,999		$	193,275		$	55,211		$	165,715		$	1,024,200
Loan originations		102,695			33,533			9,270			—			145,498
Principal payments, sales and maturities		(40,088	)		(16,837	)		(226	)		(3,162	)		(60,313	)
Charge-offs, net		(2,433	)		(86	)		—			(8,844	)		(11,363	)
Transfer to loan collateral in process of foreclosure, net		(3,491	)		—			—			(6,863	)		(10,354	)
Amortization of origination costs		(1,582	)		347			1			(4	)		(1,238	)
Amortization of loan premium		(67	)		(111	)		—			(903	)		(1,081	)
FASB origination costs		3,507			(572	)		(2	)		5			2,938
Paid-in-kind interest		—			—			188			—			188
Gross loans – June 30, 2019	$	668,540		$	209,549		$	64,442		$	145,944		$	1,088,475

Six Months Ended June 30, 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		166,327			60,180			9,770			—			236,277
Principal payments, sales and maturities		(73,140	)		(33,072	)		(9,805	)		(6,599	)		(122,616	)
Charge-offs, net		(7,363	)		(245	)		—			(16,631	)		(24,239	)
Transfer to loan collateral in process of foreclosure, net		(6,883	)		—			—			(12,568	)		(19,451	)
Amortization of origination costs		(3,020	)		693			30			(92	)		(2,389	)
Amortization of loan premium		(136	)		(220	)		—			(1,817	)		(2,173	)
FASB origination costs		5,717			(942	)		(61	)		45			4,759
Paid-in-kind interest		—			—			425			—			425
Gross loans – June 30, 2019	$	668,540		$	209,549		$	64,442		$	145,944		$	1,088,475

The following table sets forth the activity in the allowance for loan losses for the three and six months ended June 30, 2020 and 2019.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2020			2019			2020			2019
Allowance for loan losses – beginning    balance	$	54,057		$	36,862		$	46,093		$	36,395
Charge-offs
Recreation		(5,708	)		(4,395	)		(13,951	)		(10,921	)
Home improvement		(548	)		(539	)		(1,558	)		(1,088	)
Commercial	—				—			—		—
Medallion		(1,771	)		(9,242	)		(3,696	)		(18,029	)
Total charge-offs		(8,027	)		(14,176	)		(19,205	)		(30,038	)
Recoveries
Recreation		2,143			1,962			4,005			3,558
Home improvement		352			453			726			843
Commercial	—				—			—			—
Medallion		1,511			398			1,876			1,398
Total recoveries		4,006			2,813			6,607			5,799
Net charge-offs(1)		(4,021	)		(11,363	)		(12,598	)		(24,239	)
Provision for loan losses		16,941			15,171			33,482			28,514
Allowance for loan losses – ending balance(2) (3)	$	66,977		$	40,670		$	66,977		$	40,670

(1) As of June 30, 2020, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion loan portfolio were $245,058, representing collection opportunities for the Company.

(2) Includes $2,025 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 3% of the total allowance, and 1.94% of the medallion loans under 90 days past due as of June 30, 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 $11,555.

(3) As of June 30, 2020, there was no allowance for loan loss and net charge-offs related to the strategic partnership loans.

The following tables set forth the allowance for loan losses by type as of June 30, 2020 and December 31, 2019.

June 30, 2020 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	27,021		40	%		3.43	%
Home improvement		4,072		6			1.44
Commercial	—			—		—
Medallion		35,884		54			29.84
Total	$	66,977		100	%		5.31	%

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)	June 30, 2020			December 31, 2019			June 30, 2019
Total nonaccrual loans	$	81,539		$	26,484		$	26,878
Interest foregone quarter to date		1,202			1,121			379
Amount of foregone interest applied    to principal in the quarter		8			53			116
Interest foregone year to date		1,734			2,152			615
Amount of foregone interest applied    to principal in the year		57			254			219
Interest foregone life to date		4,171			2,744			1,809
Amount of foregone interest applied    to principal life to date		973			471			847
Percentage of nonaccrual loans to gross loan    portfolio		6	%		2	%		2	%

The following tables present the performance status of loans as of June 30, 2020 and December 31, 2019.

June 30, 2020 (Dollars in thousands)	Performing		Nonperforming			Total		Percentage of Nonperforming to Total
Recreation	$	781,473	$	5,312		$	786,785		0.68	%
Home improvement		281,935		137			282,072		0.05
Commercial		56,230		15,246			71,476		21.33
Medallion		59,023		61,230			120,253		50.92
Strategic partnership		8		—			8		—
Total	$	1,178,669	$	81,925	(1)	$	1,260,594		6.50	%

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 $386 and $36,009 of TDRs as of June 30, 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 June 30, 2020 and 2019, and December 31, 2019, all of which had an allowance recorded against the principal balance.

	June 30, 2020						December 31, 2019						June 30, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With an allowance recorded
Recreation	$	5,312	$	5,312	$	243	$	8,262	$	8,262	$	329	$	5,755	$	5,755	$	211
Home improvement		137		137		2		185		185		3		165		165		3
Commercial		15,246		15,251		—		11,862		11,867		—		8,743		8,838		455
Medallion		61,230		61,555		35,838		42,184		42,650		14,824		12,215		12,967		19,383
Total nonperforming loans   with an allowance	$	81,925	$	82,255	$	36,083	$	62,493	$	62,964	$	15,156	$	26,878	$	27,725	$	20,052

	For the Three Months Ended June 30, 2020				For the Six Months Ended June 30, 2020				For the Three Months Ended June 30, 2019				For the Six Months Ended June 30, 2019
(Dollars in thousands)	Average Investment Recorded		Interest Income Recognized		Average Investment Recorded		Interest Income Recognized		Average Investment Recorded		Interest Income Recognized		Average Investment Recorded		Interest Income Recognized
With an allowance recorded
Recreation	$	5,544	$	158	$	5,653	$	299	$	5,777	$	135	$	5,951	$	246
Home improvement		137		1		137		1		167		—		167		—
Commercial		15,360		—		15,359		1		6,656		30		5,776		73
Medallion		54,418		203		63,731		605		15,932		20		15,557		27
Total nonperforming loans    with an allowance	$	75,459	$	362	$	84,880	$	906	$	28,532	$	185	$	27,451	$	346

The following tables show the aging of all loans as of June 30, 2020 and December 31, 2019.

	Days Past Due
June 30, 2020 (Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total (1)		Recorded Investment 90 Days and Accruing
Recreation	$	12,749	$	4,228	$	3,365	$	20,342	$	741,061	$	761,403	$	45
Home improvement		461		225		137		823		284,632		285,455		—
Commercial		—		6		107		113		71,363		71,476		—
Medallion(2)		16,134		5,406		11,967		33,507		82,838		116,345		—
Strategic partnership		—		—		—		—		8		8		—
Total	$	29,344	$	9,865	$	15,576	$	54,785	$	1,179,902	$	1,234,687	$	45

(1) Excludes loan premiums of $5,251 resulting from purchase price accounting and $20,656 of capitalized loan origination costs.

(2) Included in the current medallion loan aging bucket were $80,403 of loans that had been granted deferral status under the CARES Act, some or all of which may have become delinquent had they not been granted the deferral status.

	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 254%, 190%, and 210% as of June 30, 2020, December 31, 2019, and June 30, 2019.

The following table shows the TDRs which the Company entered into during the three and six months ended June 30, 2020.

(Dollars in thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Three months ended June 30, 2020
Recreation		21	$	231	$	185
Medallion		17		12,519		12,519
Six months ended June 30, 2020
Recreation		51	$	633	$	426
Medallion		30		13,641		13,641

During the twelve months ended June 30, 2020, 20 medallion loans modified as TDRs were in default and had an investment value of $11,419,000 as of June 30, 2020, net of a $6,680,000 allowance for loan losses, and 88 recreation loans modified as TDRs were in default and had an investment value of $802,000 as of June 30, 2020, net of a $37,000 allowance for loan losses.

The following table shows the TDRs which the Company entered into during the three and six months ended June 30, 2019.

(Dollars in thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Three months ended June 30, 2019
Medallion		3	$	842	$	842
Six months ended June 30, 2019
Medallion		10	$	3,737	$	3,737

During the twelve months ended June 30, 2019, five loans modified as TDRs were in default and had an investment value of $1,530,000 as of June 30, 2019, net of a $912,000 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 and six months ended June 30, 2020 and 2019.

Three Months Ended June 30, 2020 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – March 31, 2020	$	1,717		$	45,100		$	46,817
Transfer from loans, net		3,003			2,185			5,188
Sales		(1,988	)		—			(1,988	)
Cash payments received		—			(185	)		(185	)
Collateral valuation adjustments		(1,474	)		(983	)		(2,457	)
Loan collateral in process of foreclosure – June 30, 2020	$	1,258		$	46,117		$	47,375

Six Months Ended June 30, 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		7,781			4,344			12,125
Sales		(3,986	)		(300	)		(4,286	)
Cash payments received		—			(1,893	)		(1,893	)
Collateral valuation adjustments		(4,013	)		(7,269	)		(11,282	)
Loan collateral in process of foreclosure – June 30, 2020	$	1,258		$	46,117		$	47,375

Three Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – March 31, 2019	$	1,180		$	48,628		$	49,808
Transfer from loans, net		3,491			6,863			10,354
Sales		(2,034	)		(175	)		(2,209	)
Cash payments received		—			(1,931	)		(1,931	)
Collateral valuation adjustments		(1,682	)		(1,972	)		(3,654	)
Loan collateral in process of foreclosure – June 30, 2019	$	955		$	51,413		$	52,368

Six Months Ended June 30, 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		6,883			12,568			19,451
Sales		(4,111	)		(551	)		(4,662	)
Cash payments received		—			(4,505	)		(4,505	)
Collateral valuation adjustments		(3,320	)		(4,091	)		(7,411	)
Loan collateral in process of foreclosure – June 30, 2019	$	955		$	51,413		$	52,368