Medallion Financial (US:MFIN)2025-03-13 20:01PART I ITEM 1. OUR BUSINESS Medallion Financial Corp is a specialty finance company focused on consumer and commercial lending through its regulated subsidiaries - Medallion Financial Corp is a specialty finance company with total assets of $2.9 billion as of December 31, 2024, up from $2.6 billion in 2023, primarily focused on consumer finance and commercial lending11 Loans Receivable by Segment (December 31, 2024) | Segment | Loans ($ thousands) | Allowance for Credit Losses ($ thousands) | Net Loans ($ thousands) | | :--- | :--- | :--- | :--- | | Recreation | 1,422,403 | 71,102 | 1,351,301 | | Home improvement | 827,211 | 20,536 | 806,675 | | Commercial | 111,273 | 5,190 | 106,083 | | Taxi medallion | 1,909 | 540 | 1,369 | | Total held for investment | 2,362,796 | 97,368 | 2,265,428 | | Recreation (held for sale) | 120,840 | — | 120,840 | | Strategic partnership (held for sale) | 7,386 | — | 7,386 | | Total loans | 2,491,022 | 97,368 | 2,393,654 | - The company's strategy includes capitalizing on relationships with dealers and contractors, focusing on niche industries, employing disciplined underwriting, and seeking strategic acquisitions282930313233 Key Capital Ratios for Medallion Bank (Minimum vs. Required) | Capital Ratio | Minimum U.S. Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer | | :--- | :--- | | CET1 risk-based capital ratio | 7.0% | | Tier 1 risk-based capital ratio | 8.5% | | Total risk-based capital ratio | 10.5% | ITEM 1A. RISK FACTORS The company faces significant risks from its consumer lending concentration, interest rate fluctuations, regulatory challenges, and operational threats - The business is heavily concentrated in consumer lending, making it highly susceptible to macroeconomic conditions such as recession, inflation, and rising interest rates109110111112114115 - The company's ability to originate consumer loans is highly dependent on relationships with a limited number of dealers and contractors, with top ten relationships accounting for 48% of home improvement and 38% of recreation new loan originations in 2024124 - Medallion Bank relies on brokered deposits for funding and must maintain 'well-capitalized' status under FDIC regulations, failure of which would materially impair its operations135136137 - The company is subject to pending SEC litigation for alleged violations of federal securities laws, with a settlement in principle reached that could result in material fines140141142 - Cybersecurity threats pose a significant risk to the company's information and operations, potentially leading to legal liability and reputational damage171172 ITEM 1B. UNRESOLVED STAFF COMMENTS The company reports no unresolved comments from regulatory staff - There are no unresolved staff comments204 ITEM 1C. CYBERSECURITY Cybersecurity risk is managed through an enterprise program overseen by the Audit Committee, with no material financial impact to date - Cybersecurity risks are managed through an enterprise risk management program, overseen by the Audit Committee, with programs guided by the NIST Cybersecurity Framework205206208 - Cybersecurity programs include employee training, incident response, third-party evaluations, vulnerability scanning, and business continuity mechanisms206 - To date, cyber-attacks have not had a material impact on the company's financial condition, but the risk remains heightened due to evolving threats172207 ITEM 2. PROPERTIES The company leases its primary office locations and does not own significant real property - Medallion Financial Corp leases office space for its corporate headquarters in New York City, Medallion Bank in Salt Lake City, and commercial lending in Excelsior, Minnesota211 - The company does not own any real property, other than foreclosed properties obtained from lending relationships211 ITEM 3. LEGAL PROCEEDINGS The company is involved in pending SEC litigation and other legal matters incidental to its business - The company is involved in pending SEC litigation, as detailed in Note 10 of the consolidated financial statements212 - Management believes that other legal proceedings incident to the normal course of business will not result in a material adverse impact on the company's financial condition563 ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the registrant213 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The company's common stock trades on NASDAQ, with details on dividends, stock repurchases, and shareholder information provided - Medallion Financial Corp's common stock (MFIN) is quoted on NASDAQ with 23,262,103 shares outstanding as of March 12, 20253215 - The company reinstated quarterly dividends in March 2022 and increased the dividend to $0.11 per share in November 2024216 - In 2024, 570,404 shares were repurchased for $4.6 million, leaving $15,392,299 authorized for future repurchases218220 ITEM 6. [RESERVED] This item is intentionally left blank ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, highlighting loan growth offset by higher credit provisions and interest expenses, resulting in lower net income - Medallion Financial Corp is a specialty finance company with consumer loans representing 95% of its gross loan portfolio as of December 31, 2024222 - Total assets grew to $2.9 billion as of December 31, 2024, from $2.6 billion as of December 31, 2023222 Consolidated Average Balances and Rates (2024 vs. 2023) | Metric | 2024 Average Balance ($ thousands) | 2024 Average Yield/Cost | 2023 Average Balance ($ thousands) | 2023 Average Yield/Cost | | :--- | :--- | :--- | :--- | :--- | | Total interest-earning assets, net of allowance | 2,425,819 | 11.99% | 2,167,433 | 11.58% | | Total interest-bearing liabilities | 2,241,387 | 3.93% | 1,989,589 | 3.16% | | Net interest income | | | | | | Net interest margin, gross | | 8.05% | | 8.38% | - Net income attributable to shareholders decreased to $35.9 million ($1.52 per share) for 2024, from $55.1 million ($2.37 per share) for 2023307 - Total loan originations increased to $1.0 billion in 2024 from $960.1 million in 2023, driven by recreation and home improvement loans308 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risks are interest rate fluctuations and the illiquidity of its loan portfolios - The principal market risks are fluctuations in interest rates and portfolio valuations352 - A hypothetical immediate 1% increase in interest rates would result in an annualized increase to net income of $2.2 million, but a reduction of $2.7 million over a one-year period353 - The illiquidity of portions of the loan portfolio and investments may adversely affect the ability to dispose of them at advantageous times353 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section incorporates by reference the company's financial statements and supplementary data - Financial statements and supplementary data are incorporated by reference from Item 15 (A) (1) of this Annual Report on Form 10-K354 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The company reports no changes in or disagreements with its accountants - There are no changes in or disagreements with accountants on accounting and financial disclosure355 ITEM 9A. CONTROLS AND PROCEDURES Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2024, providing reasonable assurance for financial reporting356 - Management assessed the effectiveness of internal control over financial reporting using the COSO framework and concluded it was effective as of December 31, 2024360 - No material changes to internal control over financial reporting occurred during the fourth quarter of 2024362 - Plante & Moran, PLLC, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting366 ITEM 9B. OTHER INFORMATION No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended December 31, 2024373 ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This disclosure is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable374 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding directors, officers, and corporate governance is incorporated by reference from the company's Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the Definitive Proxy Statement for the 2025 Annual Meeting of Shareholders375 ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the company's Proxy Statement - Information on executive compensation is incorporated by reference from the Definitive Proxy Statement for the 2025 Annual Meeting of Shareholders376 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information regarding security ownership is incorporated by reference from the company's Proxy Statement - Information on security ownership of certain beneficial owners and management, and related stockholder matters is incorporated by reference from the Definitive Proxy Statement for the 2025 Annual Meeting of Shareholders376 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding related party transactions and director independence is incorporated by reference from the company's Proxy Statement - Information on certain relationships and related transactions, and director independence is incorporated by reference from the Definitive Proxy Statement for the 2025 Annual Meeting of Shareholders377 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Definitive Proxy Statement for the 2025 Annual Meeting of Shareholders377 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists all financial statements, schedules, and exhibits filed with the annual report - The consolidated financial statements and the Report of Independent Public Accountants are included as set forth on the Index to Financial Statements on F-1379 - Exhibits include corporate governance documents, various note purchase agreements, employment agreements for key executives, equity incentive plans, and lease agreements380381382 - The section also lists certifications from the CEO and CFO, consents of independent registered public accounting firms, and XBRL instance and taxonomy documents385 ITEM 16. FORM 10-K SUMMARY This item is not applicable to the company - Form 10-K Summary is not applicable384 SIGNATURES SIGNATURES This section contains the certifying signatures of the company's directors and executive officers - The report is signed by Alvin Murstein, Chairman and Chief Executive Officer, and other directors and executive officers, dated March 13, 2025387388 INDEX TO FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS This section provides an index to the audited consolidated financial statements and accompanying notes - The index lists the Report of Independent Registered Public Accounting Firm from Plante & Moran, PLLC and Mazars USA LLP390 - It includes the Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Stockholders' Equity, and Cash Flows390 - Detailed Notes to Consolidated Financial Statements cover significant accounting policies, loans and allowance for credit losses, segment reporting, and other key areas390 Report of Independent Registered Public Accounting Firm (Plante & Moran, PLLC) The firm issued an unqualified opinion on the financial statements and internal controls, identifying credit loss allowances and goodwill as critical audit matters - Plante & Moran, PLLC issued an unqualified opinion on the consolidated financial statements as of December 31, 2024, and on the effectiveness of internal control over financial reporting394395 - Critical audit matters included the Allowance for Credit Losses (ACL) for consumer and commercial loans, due to significant judgment in selecting and applying the ACL methodology400401 - Another critical audit matter was Goodwill impairment testing, which was complex and highly judgmental due to measurement uncertainty in determining fair value403 Report of Independent Registered Public Accounting Firm (Mazars USA LLP) The former auditor issued an unqualified opinion on the 2023 consolidated financial statements - Mazars USA LLP, the company's auditor from 2005 to 2024, issued an unqualified opinion on the consolidated financial statements as of December 31, 2023406409 Consolidated Balance Sheets Total assets grew to $2.87 billion in 2024, driven by an increase in net loans Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | December 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total assets | $2,868,606 | $2,587,827 | | Total liabilities | $2,429,648 | $2,176,053 | | Total stockholders' equity | $370,170 | $342,986 | | Net loans | $2,265,428 | $2,131,651 | | Allowance for credit losses | $(97,368) | $(84,235) | | Deposits | $2,090,071 | $1,866,657 | - Loans held for sale increased significantly to $128.2 million in 2024 from zero in 2023, comprising recreation and strategic partnership loans411 Consolidated Statements of Operations Net income decreased to $35.88 million in 2024 due to higher interest expense and provision for credit losses Consolidated Statements of Operations Highlights (Dollars in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total interest income | $290,702 | $251,040 | $196,621 | | Total interest expense | $88,167 | $62,946 | $36,185 | | Net interest income | $202,535 | $188,094 | $160,436 | | Provision for credit losses | $76,502 | $37,810 | $30,059 | | Net income attributable to Medallion Financial Corp | $35,878 | $55,079 | $43,840 | | Basic earnings per share | $1.59 | $2.45 | $1.86 | | Diluted earnings per share | $1.52 | $2.37 | $1.83 | - Total interest income increased due to continued growth in recreation and home improvement lending segments and higher rates on new loan originations308 - Total interest expense increased due to higher average borrowings and higher average borrowing costs, with the average cost of borrowed funds rising to 3.93% in 2024311 - A $3.0 million penalty was recorded in 2024 pursuant to an agreement in principle to settle SEC litigation314 Consolidated Statements of Other Comprehensive Income Total comprehensive income decreased to $35.93 million in 2024, reflecting the decline in net income Consolidated Statements of Other Comprehensive Income Highlights (Dollars in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net income after taxes | $41,925 | $61,126 | $49,887 | | Other comprehensive income (loss), net of tax | $49 | $(347) | $(4,383) | | Total comprehensive income attributable to Medallion Financial Corp | $35,927 | $54,732 | $39,457 | Consolidated Statements of Changes in Stockholders' Equity Total equity increased to $438.96 million in 2024, driven by net income and partially offset by dividends and share repurchases Consolidated Statements of Changes in Stockholders' Equity Highlights (Dollars in thousands) | Metric | December 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total stockholders' equity | $370,170 | $342,986 | | Non-controlling interest | $68,788 | $68,788 | | Total equity | $438,958 | $411,774 | | Net income | $35,878 | $55,079 | | Dividends paid on common stock | $(9,505) | $(7,934) | | Treasury stock repurchased | $(4,606) | $(45,538) | | Stock-based compensation expense | $6,053 | $4,713 | | CECL transition amount (Jan 1, 2023) | — | $(9,935) | - The adoption of ASU 2016-13 (CECL) on January 1, 2023, resulted in a net-of-tax cumulative-effect adjustment of $(9,935) thousand to the beginning balance of retained earnings422 Consolidated Statements of Cash Flows The company experienced a net cash increase of $19.73 million in 2024, with operating cash inflows funding investing activities Consolidated Statements of Cash Flows Highlights (Dollars in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $115,513 | $113,764 | $108,740 | | Net cash used for investing activities | $(335,778) | $(340,696) | $(449,005) | | Net cash provided by financing activities | $239,992 | $271,179 | $321,379 | | Net increase (decrease) in cash and cash equivalents | $19,727 | $44,247 | $(18,886) | | Cash and cash equivalents, end of period | $169,572 | $149,845 | $105,598 | - Loan originations were $1,059.24 million in 2024, with proceeds from principal receipts, sales, and maturities of loans totaling $701.27 million425 - Proceeds from time deposits and funds borrowed amounted to $1,322.67 million in 2024, while repayments were $1,061.95 million425 Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial instruments, segment reporting, and contingencies