Medallion Financial (MFIN) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Q2 2024, including balance sheets, income statements, cash flows, and explanatory notes Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,760,876 | $2,587,827 | | Net Loans Receivable | $2,295,802 | $2,131,651 | | Total Liabilities | $2,338,087 | $2,176,053 | | Deposits | $2,006,782 | $1,866,657 | | Total Equity | $422,789 | $411,774 | | Book Value Per Share | $15.25 | $14.63 | Consolidated Statements of Operations Highlights (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $49,868 | $46,691 | $97,785 | $90,293 | | Provision for Credit Losses | $18,577 | $8,476 | $35,778 | $12,514 | | Net Income Attributable to MFIN | $7,101 | $14,170 | $17,125 | $29,531 | | Diluted EPS | $0.30 | $0.62 | $0.73 | $1.29 | Consolidated Statements of Cash Flows Highlights (Unaudited, in thousands) | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $59,900 | $58,284 | | Net Cash Used for Investing Activities | ($204,517) | ($265,338) | | Net Cash Provided by Financing Activities | $152,733 | $226,010 | | Net Increase in Cash and Cash Equivalents | $8,116 | $18,956 | Note 4: Loans and Allowance for Credit Losses This note details the loan portfolio composition, allowance for credit losses activity, and loan quality metrics including delinquency status Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2024 (in thousands) | % of Gross Loans | December 31, 2023 (in thousands) | % of Gross Loans | | :--- | :--- | :--- | :--- | :--- | | Recreation | $1,497,428 | 63% | $1,336,226 | 60% | | Home improvement | $773,184 | 32% | $760,617 | 34% | | Commercial | $110,197 | 5% | $114,827 | 5% | | Taxi medallion | $3,482 | <1% | $3,663 | <1% | | Total Gross Loans | $2,385,590 | 100% | $2,215,886 | 100% | Allowance for Credit Losses Activity (in thousands) | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Beginning Balance | $84,235 | $63,845 | | CECL Transition Amount | - | $13,712 | | Total Charge-offs | ($41,689) | ($30,959) | | Total Recoveries | $11,464 | $15,859 | | Net Charge-offs | ($30,225) | ($15,100) | | Provision for Credit Losses | $35,778 | $12,514 | | Ending Balance | $89,788 | $74,971 | - Total loans 90 days or more past due decreased to $15.6 million (0.67% of total loans) at June 30, 2024, from $16.8 million (0.77%) at December 31, 2023[27] Note 5: Funds Borrowed This note describes the company's debt financing sources, including deposits, privately placed notes, and other borrowings, along with recent financing activities Composition of Funds Borrowed (June 30, 2024, in thousands) | Borrowing Type | Balance (in thousands) | Interest Rate (2) | | :--- | :--- | :--- | | Deposits | $2,009,656 | 3.50% | | Privately placed notes | $141,500 | 8.10% | | SBA debentures and borrowings | $72,750 | 3.54% | | Trust preferred securities | $33,000 | 7.73% | | Federal reserve and other borrowings | $25,000 | 5.50% | | Total | $2,281,906 | 3.87% | - In June 2024, the Company amended privately placed notes, increasing the principal amount from $12.5 million to $17.5 million, reducing the interest rate to 8.875%, and extending the maturity to June 2039[67] - As of June 30, 2024, Medallion Bank had utilized $25 million of its approximately $40.1 million secured borrowing capacity from the Federal Reserve discount window[66] Note 9: Segment Reporting This note provides detailed financial performance for the company's five segments, including lending and non-operating, highlighting interest income, provisions, and net income Net Income (Loss) After Taxes by Segment (Six Months Ended June 30, 2024, in thousands) | Segment | Net Income (Loss) (in thousands) | | :--- | :--- | | Recreation Lending | $12,652 | | Home Improvement Lending | $6,396 | | Commercial Lending | $4,058 | | Taxi Medallion Lending | $700 | | Corporate and Other Investments | ($3,657) | | Total | $20,149 | - The Recreation lending segment is the largest contributor to earnings, followed by the Home Improvement and Commercial lending segments[90] Note 10: Commitments and Contingencies This note discloses significant commitments and potential liabilities, including ongoing SEC litigation and employment agreements with key officers - The SEC filed a civil complaint against the Company and its President in December 2021, alleging violations of federal securities laws between 2015 and 2017. The Company intends to defend itself vigorously but notes a potential loss could be material[96] - As of June 30, 2024, the company has future minimum payment commitments of approximately $9.8 million under employment agreements with key officers, expiring at various dates through 2027[94] Management's Discussion and Analysis (MD&A) Management analyzes financial performance, focusing on consumer and commercial lending growth, net interest income, loan quality, segment results, liquidity, and capital resources - The company's strategic focus is on its consumer finance and commercial lending businesses. As of June 30, 2024, consumer loans (Recreation and Home Improvement) represented 95% of the gross loan portfolio[109] - Net income for the six months ended June 30, 2024 was $17.1 million ($0.73/share), a decrease from $29.5 million ($1.29/share) in the prior-year period, primarily due to a significant increase in the provision for credit losses[154] - The provision for credit losses increased to $35.8 million for the first six months of 2024, compared to $12.5 million for the same period in 2023. This was driven by lower taxi medallion recoveries, higher charge-off activity, and portfolio growth[154] - Net interest margin tightened, with the gross margin at 8.11% for the first six months of 2024, down from 8.45% in the prior-year period, as the rising cost of borrowings outpaced the increase in yields on loans[154] Segment Results This section details the performance of the company's four lending segments, highlighting growth drivers and the wind-down of the Taxi Medallion portfolio - Recreation Lending: The portfolio grew 12% to $1.5 billion in the six months ended June 30, 2024. Originations were $315.3 million, up from $291.7 million in the prior year period, despite more restrictive underwriting[139] - Home Improvement Lending: The portfolio increased 2% to $773.2 million. Originations for the first six months of 2024 were $119.6 million, down from $212.0 million in the prior year period[141][143] - Commercial Lending: This segment, focused on mezzanine loans, recognized net gains of $3.7 million on equity investments during the first six months of 2024. The loan portfolio stood at $110.2 million[145][154] - Taxi Medallion Lending: The company collected $5.3 million related to taxi medallion assets in the first six months of 2024, resulting in net recoveries and gains of $2.9 million. The portfolio continues to be wound down[148] Liquidity and Capital Resources This section discusses the company's liquidity sources, including deposits and debt issuances, along with financing activities and interest rate risk management - The company's one-year cumulative interest rate gap was negative $706.6 million, or 28% of interest rate sensitive assets, indicating that more liabilities than assets will reprice within the next year[158] - The board of directors authorized a quarterly dividend of $0.10 per share, which was paid in March and May 2024[165] - During Q2 2024, the company repurchased 183,900 shares for $1.5 million. As of June 30, 2024, $16.4 million remained authorized for repurchase under the current program[165][168] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk disclosures have occurred since the 2023 Annual Report on Form 10-K - There has been no material change in disclosure regarding quantitative and qualitative disclosures about market risk since the 2023 Form 10-K[166] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[167] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[168] PART II—OTHER INFORMATION Legal Proceedings This section refers to Note 10 for details on legal proceedings, primarily the ongoing litigation with the U.S. Securities and Exchange Commission - The company is involved in a civil litigation with the SEC filed in December 2021 concerning events from 2015-2017. The company is vigorously defending itself against the claims[96][168] Risk Factors No material changes to risk factors have been reported since the 2023 Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the 2023 Form 10-K[168] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity during Q2 2024 under its authorized program Common Stock Repurchases (Q2 2024) | Period | Total Shares Repurchased | Average Price Paid per Share ($) | Total Amount Paid ($) | | :--- | :--- | :--- | :--- | | April 2024 | — | $— | $— | | May 2024 | 107,000 | $8.15 | $872,413 | | June 2024 | 76,900 | $8.35 | $642,241 | | Total | 183,900 | $8.24 | $1,514,654 | - As of June 30, 2024, approximately $16.4 million remained available for future repurchases under the company's stock repurchase program[168][169] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files