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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-37747

MEDALLION FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

04-3291176

(State of Incorporation)

(IRS Employer

Identification No.)

437 MADISON AVENUE, 38th Floor

NEW YORK, New York 10022

(Address of Principal Executive Offices) (Zip Code)

(212) 328-2100

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbols

 

Name of each exchange

on which registered

Common Stock, par value $0.01 per share

 

 

MFIN

 

 

NASDAQ Global Select Market

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by checkmark 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 November 3, 2023, was 23,363,731.

 

 


 

MEDALLION FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS

 

 

Page

PART I – FINANCIAL INFORMATION

 

3

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

3

 

 

 

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

 

36

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

58

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

58

 

 

 

PART II—OTHER INFORMATION

 

58

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

58

 

 

 

ITEM 1A. RISK FACTORS

 

58

 

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

58

 

 

 

ITEM 6. EXHIBITS

 

59

 

 

 

SIGNATURES

 

60

 

 

 

 

 

 

 

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 U.S. and global economies, including the current inflationary environment and the risk of recession.

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

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

Page 2 of 60


 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASIS OF PREPARATION

We, Medallion Financial Corp., or the Company, are a specialty finance company organized as a Delaware corporation. Our strategic focus is growing our consumer finance and commercial lending businesses. Our total assets were $2.6 billion and $2.3 billion as of September 30, 2023 and December 31, 2022, respectively.

We conduct our business through various wholly-owned subsidiaries including:

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;
Medallion Capital, Inc., or Medallion Capital, a Small Business Investment Company, or SBIC, which operates a mezzanine financing business;
Medallion Funding LLC, or Medallion Funding, an SBIC, historically our primary taxi medallion lending company; and
Freshstart Venture Capital Corp., or Freshstart, an SBIC which historically originated and serviced taxi medallion and commercial loans.

Our consolidated balance sheet as of September 30, 2023, and the related consolidated statements of operations, consolidated statements of other comprehensive income, consolidated statements of stockholders’ equity and cash flows for the three and nine 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 note 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 nine months ended September 30, 2023 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, 2022.

Page 3 of 60


 

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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

 

September 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,472

 

 

$

33,172

 

Federal funds sold

 

 

90,170

 

 

 

72,426

 

Investment securities

 

 

53,175

 

 

 

48,492

 

Equity investments

 

 

10,542

 

 

 

10,293

 

Loans

 

 

2,203,038

 

 

 

1,916,953

 

Allowance for credit losses

 

 

(79,133

)

 

 

(63,845

)

Net loans receivable

 

 

2,123,905

 

 

 

1,853,108

 

Goodwill

 

 

150,803

 

 

 

150,803

 

Intangible assets, net

 

 

20,952

 

 

 

22,035

 

Loan collateral in process of foreclosure (1)

 

 

15,923

 

 

 

21,819

 

Accrued interest receivable

 

 

13,593

 

 

 

12,613

 

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

 

 

13,278

 

 

 

13,168

 

Income tax receivable

 

 

 

 

 

2,095

 

Other assets

 

 

28,814

 

 

 

19,855

 

Total assets

 

$

2,558,627

 

 

$

2,259,879

 

Liabilities

 

 

 

 

 

 

Deposits (2)

 

$

1,855,096

 

 

$

1,607,110

 

Long-term debt (3)

 

 

218,137

 

 

 

214,320

 

Short-term borrowings

 

 

18,489

 

 

 

5,000

 

Deferred tax liabilities, net

 

 

23,131

 

 

 

26,753

 

Operating lease liabilities

 

 

7,075

 

 

 

8,408

 

Accrued interest payable

 

 

4,624

 

 

 

4,790

 

Income tax payable

 

 

2,866

 

 

 

 

Accounts payable and accrued expenses (4)

 

 

31,947

 

 

 

22,974

 

Total liabilities

 

 

2,161,365

 

 

 

1,889,355

 

Commitments and contingencies (5)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding)

 

 

 

 

 

 

Common stock (50,000,000 shares of $0.01 par value stock authorized - 28,965,885
   shares at September 30, 2023
 and 28,663,827 shares at December 31, 2022 issued)

 

 

290

 

 

 

287

 

Additional paid in capital

 

 

286,782

 

 

 

283,663

 

Treasury stock (5,602,154 shares at September 30, 2023 and December 31, 2022)

 

 

(45,538

)

 

 

(45,538

)

Accumulated other comprehensive loss

 

 

(4,960

)

 

 

(3,349

)

Retained earnings

 

 

91,900

 

 

 

66,673

 

Total stockholders’ equity

 

 

328,474

 

 

 

301,736

 

Non-controlling interest in consolidated subsidiaries

 

 

68,788

 

 

 

68,788

 

Total equity

 

 

397,262

 

 

 

370,524

 

Total liabilities and equity

 

$

2,558,627

 

 

$

2,259,879

 

Number of shares outstanding

 

 

23,363,731

 

 

 

23,061,673

 

Book value per share

 

$

14.06

 

 

$

13.08

 

(1)
Includes financed sales of this collateral to third parties that are reported separately from the loan portfolio, of $6.2 million as of September 30, 2023 and $7.5 million as of December 31, 2022.
(2)
Includes $4.1 million and $3.8 million of deferred financing costs as of September 30, 2023 and December 31, 2022. Refer to Note 5 for more details.
(3)
Includes $4.1 million and $3.2 million of deferred financing costs as of September 30, 2023 and December 31, 2022. Refer to Note 5 for more details.
(4)
Includes the short-term portion of lease liabilities of $2.2 million as of both September 30, 2023 and December 31, 2022. Refer to Note 6 for more details.
(5)
Refer to Note 10 for details.

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

Page 4 of 60


 

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

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

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest and fees on loans

 

$

64,608

 

 

$

50,955

 

 

$

179,407

 

 

$

140,759

 

Interest and dividends on investment securities

 

 

1,278

 

 

 

739

 

 

 

4,048

 

 

 

1,349

 

Total interest income (1)

 

 

65,886

 

 

 

51,694

 

 

 

183,455

 

 

 

142,108

 

Interest on deposits

 

 

13,432

 

 

 

6,240

 

 

 

33,360

 

 

 

15,306

 

Interest on long-term debt

 

 

2,901

 

 

 

3,414

 

 

 

8,694

 

 

 

9,952

 

Interest on short-term borrowings

 

 

769

 

 

 

 

 

 

2,325

 

 

 

 

Total interest expense

 

 

17,102

 

 

 

9,654

 

 

 

44,379

 

 

 

25,258

 

Net interest income

 

 

48,784

 

 

 

42,040

 

 

 

139,076

 

 

 

116,850

 

Provision for credit losses

 

 

14,532

 

 

 

10,047

 

 

 

27,045

 

 

 

21,046

 

Net interest income after provision for credit losses

 

 

34,252

 

 

 

31,993

 

 

 

112,031

 

 

 

95,804

 

Other income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of loans and taxi medallions

 

 

1,417

 

 

 

518

 

 

 

4,578

 

 

 

5,061

 

Gain (loss) on equity investments

 

 

2,180

 

 

 

(1,123

)

 

 

2,189

 

 

 

2,985

 

Write-down of loan collateral in process of foreclosure

 

 

(30

)

 

 

(94

)

 

 

(303

)

 

 

(608

)

Other income

 

 

739

 

 

 

468

 

 

 

1,868

 

 

 

1,217

 

Total other income (loss), net

 

 

4,306

 

 

 

(231

)

 

 

8,332

 

 

 

8,655

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

9,630

 

 

 

8,411

 

 

 

27,805

 

 

 

23,709

 

Loan servicing fees

 

 

2,501

 

 

 

2,159

 

 

 

7,084

 

 

 

6,231

 

Collection costs

 

 

1,583

 

 

 

1,593

 

 

 

4,729

 

 

 

3,935

 

Professional fees

 

 

1,148

 

 

 

3,722

 

 

 

4,223

 

 

 

12,106

 

Rent expense

 

 

629

 

 

 

629

 

 

 

1,855

 

 

 

1,764

 

Regulatory fees

 

 

1,021

 

 

 

610

 

 

 

2,484

 

 

 

1,621

 

Amortization of intangible assets

 

 

361

 

 

 

359

 

 

 

1,084

 

 

 

1,082

 

Other expenses

 

 

2,216

 

 

 

1,926

 

 

 

7,220

 

 

 

5,807

 

Total other expenses

 

 

19,089

 

 

 

19,409

 

 

 

56,484

 

 

 

56,255

 

Income before income taxes

 

 

19,469

 

 

 

12,353

 

 

 

63,879

 

 

 

48,204

 

Income tax provision

 

 

6,727

 

 

 

3,205

 

 

 

18,582

 

 

 

12,892

 

Net income after taxes

 

 

12,742

 

 

 

9,148

 

 

 

45,297

 

 

 

35,312

 

Less: income attributable to the non-controlling interest

 

 

1,512

 

 

 

1,512

 

 

 

4,536

 

 

 

4,535

 

Total net income attributable to Medallion Financial Corp.

 

$

11,230

 

 

$

7,636

 

 

$

40,761

 

 

$

30,777

 

Basic net income per share

 

$

0.50

 

 

$

0.33

 

 

$

1.81

 

 

$

1.28

 

Diluted net income per share

 

$

0.48

 

 

$

0.32

 

 

$

1.77

 

 

$

1.26

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,596,982

 

 

 

23,154,775

 

 

 

22,469,968

 

 

 

24,020,058

 

Diluted

 

 

23,392,901

 

 

 

23,510,645

 

 

 

23,067,944

 

 

 

24,332,776

 

(1)
Included in interest income is $0.4 million and $1.1 million of paid-in-kind interest for the three and nine months ended September 30, 2023 and $0.2 million and $0.5 million for the three and nine months ended September 30, 2022.

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

Page 5 of 60


 

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(UNAUDITED)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income after taxes

 

$

12,742

 

 

$

9,148

 

 

$

45,297

 

 

$

35,312

 

Other comprehensive loss, net of tax

 

 

(1,211

)

 

 

(1,461

)

 

 

(1,611

)

 

 

(4,596

)

Total comprehensive income

 

 

11,531

 

 

 

7,687

 

 

 

43,686

 

 

 

30,716

 

Less comprehensive income attributable to the non-controlling interest

 

 

1,512

 

 

 

1,512

 

 

 

4,536

 

 

 

4,535

 

Total comprehensive income attributable to Medallion Financial Corp.

 

$

10,019

 

 

$

6,175

 

 

$

39,150

 

 

$

26,181

 

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

Page 6 of 60


 

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(Dollars in thousands)

 

Common
Stock Shares

 

 

Common
Stock

 

 

Capital in
Excess of
Par

 

 

Treasury
Stock Shares

 

 

Treasury
Stock

 

 

Retained
Earnings (Accumulated Deficit)

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Stockholders’
Equity

 

 

Non-
controlling
Interest

 

 

Total
Equity

 

Balance at December 31, 2022

 

 

28,663,827

 

 

$

287

 

 

$

283,663

 

 

 

(5,602,154

)

 

$

(45,538

)

 

$

66,673

 

 

$

(3,349

)

 

$

301,736

 

 

$

68,788

 

 

$

370,524

 

Adoption of ASU 2016-13, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,935

)

 

 

 

 

 

(9,935

)

 

 

 

 

 

(9,935

)

Balance at January 1, 2023

 

 

28,663,827

 

 

 

287

 

 

 

283,663

 

 

 

(5,602,154

)

 

 

(45,538

)

 

 

56,738

 

 

 

(3,349

)

 

 

291,801

 

 

 

68,788

 

 

 

360,589

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,361

 

 

 

 

 

 

15,361

 

 

 

1,512

 

 

 

16,873

 

Distributions to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,512

)

 

 

(1,512

)

Stock-based compensation expense

 

 

 

 

 

2

 

 

 

1,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,036

 

 

 

 

 

 

1,036

 

Issuance of restricted stock, net

 

 

304,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Withheld restricted stock for employees' tax obligations

 

 

(91,169

)

 

 

 

 

 

(768

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(768

)

 

 

 

 

 

(768

)

Forfeiture of restricted stock, net

 

 

(9,843

)