Medallion Financial (MFIN) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Medallion Financial Corp.'s unaudited consolidated financial statements for Q3 and 9M 2020 detail financial performance, accounting policies, and COVID-19 impact on loan portfolios Basis of Preparation Medallion Financial Corp. focuses on consumer loans through Medallion Bank, strategically shifting from medallion lending, with consumer loans now 91% of its net portfolio - Medallion Financial Corp. (the Company) is a finance company, organized as a Delaware corporation, with Medallion Bank as its primary operating subsidiary[12] - The Company has transitioned away from medallion lending, placing strategic focus on its growing consumer finance portfolio, which includes recreational vehicles, boats, trailers, and small-scale home improvements[12][13] - Total assets under management grew at a compound annual growth rate of 9% from $215 million at the end of 1996 to $1.717 billion as of September 30, 2020[13] Loan Portfolio Composition (as of September 30, 2020) | Loan Type | Percentage of Net Loan Portfolio | | :----------------- | :------------------------------- | | Consumer Loans | 91% | | Commercial Loans | 6% | | Medallion Loans | 3% | Total Assets Under Management (in thousands) | Date | Amount | | :--------------- | :----------- | | September 30, 2020 | $1,717,000 | | December 31, 2019 | $1,660,000 | | End of 1996 | $215,000 | Consolidated Balance Sheets The consolidated balance sheet shows an increase in total assets and liabilities from December 31, 2019, to September 30, 2020, primarily driven by growth in the loan portfolio and deposits, while stockholders' equity and book value per share decreased Consolidated Balance Sheet Highlights (Dollars in thousands) | Item | September 30, 2020 | December 31, 2019 | | :------------------------ | :----------------- | :---------------- | | Total assets | $1,604,275 | $1,541,667 | | Loans | $1,281,054 | $1,160,855 | | Allowance for losses | $(90,510) | $(46,093) | | Net loans receivable | $1,190,544 | $1,114,762 | | Deposits | $1,057,499 | $951,651 | | Total liabilities | $1,307,068 | $1,207,199 | | Total stockholders' equity | $224,467 | $263,148 | | Book value per share | $9.05 | $10.68 | - Total assets increased by $62.6 million (4.1%) from December 31, 2019, to September 30, 2020[18] - Net loans receivable increased by $75.8 million (6.8%) while the allowance for losses significantly increased by $44.4 million (96.3%)[18] - Total stockholders' equity decreased by $38.7 million (14.7%) and book value per share declined from $10.68 to $9.05[18] Consolidated Statements of Operations The company reported a significant net loss for Q3 and 9M 2020, primarily due to a substantial increase in the provision for loan losses, particularly for medallion loans, and a decrease in other income Consolidated Statements of Operations Highlights (Dollars in thousands) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest income | $37,440 | $34,640 | $108,570 | $96,698 | | Total interest expense | $8,384 | $9,225 | $26,219 | $25,768 | | Net interest income | $29,056 | $25,415 | $82,351 | $70,930 | | Provision for loan losses | $39,749 | $8,337 | $73,231 | $36,851 | | Net interest income after provision for loan losses | $(10,693) | $17,078 | $9,120 | $34,079 | | Total other income (loss), net | $960 | $8,874 | $(2,764) | $17,420 | | Income (loss) before income taxes | $(28,414) | $7,600 | $(47,782) | $261 | | Net income (loss) after taxes | $(20,033) | $7,435 | $(35,299) | $2,187 | | Total net income (loss) attributable to Medallion Financial Corp. | $(23,630) | $4,975 | $(41,250) | $(1,297) | | Basic net income (loss) per share | $(0.97) | $0.20 | $(1.69) | $(0.05) | - Net loss attributable to Medallion Financial Corp. for Q3 2020 was $(23.63 million), a significant decline from net income of $4.975 million in Q3 2019, primarily driven by a substantial increase in provision for loan losses[23] - For the nine months ended September 30, 2020, the net loss attributable to Medallion Financial Corp. was $(41.25 million), compared to a loss of $(1.297 million) in the prior year, largely due to increased loan loss provisions and reduced other income[23] Consolidated Statements of Other Comprehensive Income/(Loss) The consolidated statements of other comprehensive income/(loss) show a total comprehensive loss attributable to Medallion Financial Corp. of $(23.683 million) for Q3 2020 and $(40.175 million) for 9M 2020, reflecting net loss from operations and other comprehensive income/loss components Total Comprehensive Income (Loss) Attributable to Medallion Financial Corp. (Dollars in thousands) | Period | 2020 | 2019 | | :----------------------------------------- | :---------- | :--------- | | Three Months Ended September 30, 2020/2019 | $(23,683) | $5,070 | | Nine Months Ended September 30, 2020/2019 | $(40,175) | $25 | Consolidated Statement of Changes in Stockholders' Equity The consolidated statement of changes in stockholders' equity reflects a decrease in total equity from $334.468 million at December 31, 2019, to $297.207 million at September 30, 2020, primarily driven by net losses Total Equity (Dollars in thousands) | Date | Total Equity | | :--------------- | :----------- | | December 31, 2019 | $334,468 | | September 30, 2020 | $297,207 | - The decrease in total equity is primarily due to net losses of $(13.643 million), $(3.977 million), and $(23.63 million) for the quarters ending March 31, June 30, and September 30, 2020, respectively[29] - Stock-based compensation contributed $466K, $520K, and $508K to additional paid-in capital for the respective quarters in 2020[29] Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, net cash provided by operating activities increased to $56.568 million, while net cash used for investing activities remained substantial at $(171.608 million), resulting in an overall net decrease in cash and cash equivalents of $(18.09 million) Cash Flow Summary (Nine Months Ended September 30, Dollars in thousands) | Cash Flow Activity | 2020 | 2019 | | :--------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $56,568 | $44,49