Medallion Financial Corp. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparison is primarily with 2020. Medallion is a specialty finance company whose primary operating subsidiary, Medallion Bank, lends for recreational purchases and home improvements. Consumer loans were 94% of gross loans at year-end; assets under management were $1.9 billion.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Total interest income | $159.0 million | $145.0 million |
| Net interest income | $127.8 million | $110.8 million |
| Net interest margin | 9.25% | 8.65% |
| Provision for loan losses | $4.6 million | $69.8 million |
| Net income attributable to Medallion Financial Corp. | $54.1 million | Net loss of $34.8 million |
| Diluted earnings (loss) per share | $2.17 | $(1.42) |
| Net charge-offs | $12.0 million | $58.4 million |
| Operating cash flow | $78.7 million | $78.7 million |
At December 31, 2021, gross loans were $1.489 billion, net loans $1.439 billion, and the allowance for loan losses $50.2 million. Total assets were $1.873 billion; total equity was $355.8 million. Cash and federal funds sold totaled $124.5 million. Debt outstanding was approximately $1.478 billion, at a reported weighted-average contractual rate of 1.82%; the debt-to-equity ratio was 4.2x. Investing cash outflow was $238.3 million and financing cash inflow was $172.0 million, contributing to a $12.4 million net increase in cash and cash equivalents.
Material changes versus 2020
- Gross loans grew 21% to $1.489 billion, mainly from recreation and home-improvement originations. Recreation loans rose to $961.3 million and home-improvement loans to $436.8 million.
- Net income swung to $54.1 million attributable to shareholders from a $34.8 million loss. The lower loan-loss provision and higher other income were significant contributors.
- Net charge-offs fell to $12.0 million from $58.4 million; loans 90 days or more past due declined to $4.0 million from $6.9 million.
- Medallion loans contracted to $14.0 million from $37.8 million and remain fully on nonaccrual. Medallion collateral in process of foreclosure fell to $35.7 million from $53.1 million.
- Interest expense declined to $31.1 million from $34.2 million as average borrowing cost fell to 2.28% from 2.71%, partly offset by higher average debt.
Outlook, commentary, risks and unusual items
- Management’s stated focus is growing consumer finance and commercial lending. The filing gives no quantified earnings or originations guidance. The company is considering alternatives for Medallion Bank, including a possible IPO, sale, or spin-off; it provides no timetable or assurance of a transaction.
- Management expects interest expense to rise as certificates of deposit mature and are replaced at higher rates. About $653 million of borrowings mature during 2022–2023, mostly brokered CDs; continued access depends in part on the Bank maintaining required capital status.
- Unusual income included an $11.3 million gain on selling approximately 80% of the Upgrade investment and a $4.6 million gain on debt extinguishment. RPAC was sold in December 2021; the company expects no further racing sponsorship revenue or race-team costs. A $0.7 million PPP loan received by RPAC was forgiven and recorded as income in 2021.
- The SEC filed a civil complaint in December 2021 against the company and its President and COO concerning alleged securities-law violations relating to 2015–2017 conduct. Remedies sought include unspecified penalties and disgorgement, plus an officer-and-director bar for the executive. The company disputes the claims; potential financial and other consequences are uncertain and could be material.
- COVID-19 effects, consumer credit performance, non-prime borrower exposure, interest-rate and funding-cost risk, and the legacy taxi-medallion portfolio remain key risks. Medallion values and recoveries are uncertain; cumulative medallion net charge-offs were $258.3 million. The company says it expects CECL adoption, scheduled for 2023 for the company, to materially affect credit-loss accounting.
- The board reinstated a quarterly dividend, with payment planned for March 2022, but the filing cautions that future dividends are not assured. No distributions were declared for 2021.
- The auditor issued unqualified opinions on the financial statements and internal controls; management reported effective disclosure controls and internal control over financial reporting.
Most important facts for investors to verify
- Developments, possible losses, legal costs, and management or governance consequences in the SEC litigation.
- Allowance adequacy and subsequent credit performance in the fast-growing recreation and home-improvement portfolios, including non-prime loans.
- Medallion collateral values, foreclosure recoveries, and further write-down or charge-off exposure.
- Brokered-deposit renewals, upcoming maturities, borrowing costs, and the Bank’s regulatory capital and dividend capacity.
- Whether the Bank strategic review leads to a transaction, and whether the reinstated dividend can be sustained.
- Reconcile reported earnings across the filing: the statements show consolidated net income of $57.7 million and attributable net income of $54.1 million; the MD&A also contains some differing segment and ratio figures.