Medallion Financial Corp. Reports 2018 Fourth Quarter Results

NEW YORK–(BUSINESS WIRE)–Medallion Financial Corp. (Nasdaq: MFIN, “Medallion” or the “Company”), a
finance company that originates and services loans in various
consumer and commercial niche industries, announced today its 2018
fourth quarter results. Effective April 2, 2018, Medallion Financial
Corp. withdrew its BDC election, and now operates as a finance company
following the reporting conventions of bank holding companies, for the
nine months ended December 31, 2018. A major component of this change is
that we now consolidate wholly-owned or controlled subsidiaries,
particularly Medallion Bank, which were previously treated as
unconsolidated portfolio investment companies.

2018 Fourth Quarter Highlights

  • Net income was $9.2 million, or $0.38 per share, compared to a net
    loss of $4.7 million, or $0.19 per share, in the third quarter,
    highest quarterly profit since September 2004
  • Total assets were $1.38 billion as of December 31, 2018
  • Medallion Bank’s Tier 1 leverage ratio at quarter-end improved to
    15.85%
  • Net interest income before the provision for loan losses was $23.0
    million, reflecting primarily the contributions of the consumer
    lending segments
  • Net income from Medallion’s commercial segment was $1.6 million for
    the fourth quarter
  • Net interest margin was 8.07% in the 2018 fourth quarter, compared to
    7.41% in the prior year period on a combined basis with Medallion Bank
  • 90 day plus medallion loan delinquencies were $15.7 million or 8.9% of
    gross medallion loans, down from $71.9 million or 15.9% in the 2017
    fourth quarter when combined with Medallion Bank
  • The provision for medallion loan losses was $3.4 million in the 2018
    fourth quarter, reflecting the reversal of $8.2 million of reserves as
    a result of the deconsolidation of Trust III, compared to $13.3
    million in the third quarter, $24.7 million in the second quarter, and
    $62.7 million in the first quarter (when combined with Medallion
    Bank), recorded as non-cash valuation adjustments and realized
    losses/charge-offs
  • In November, the Company successfully deconsolidated the Trust III
    facility, which resulted in a recorded gain to earnings and tangible
    book value of approximately $19.2 million after taxes and eliminated
    $63.2 million of medallion loans and loans in process of foreclosure
    from the Company’s balance sheet, along with $98.5 million of debt and
    payables that Trust III owed to its lender while remaining as a fee
    based servicer of the loans in Trust III

2018 Full Year and Nine-Month Highlights

  • Medallion Bank’s net interest income for full year 2018 was $98.2
    million
  • Net interest margin for nine months ended December 31, 2018 was 8.19%
  • Income before taxes for nine months ended December 31, 2018 from the
    Company’s consumer lending segments was $37.5 million
  • Net managed medallion portfolio reduced from $388 million to $156
    million, or 60%, year over year

Andrew Murstein, President of Medallion, stated, “We ended 2018 with a
strong fourth quarter and positive year end results and continued to
successfully navigate the headwinds on the medallion side throughout the
year. We are pleased we were able to deliver on our three main
objectives laid out in our 2018 strategy: reduce the Company’s medallion
exposure, grow our consumer segments and deconsolidate the Trust III
facility. In addition, the Company successfully withdrew its BDC
election and now operates as a non-investment company, consolidating all
wholly-owned or controlled subsidiaries, including Medallion Bank,
providing a more transparent financial presentation. Taking a step back
and looking at what the Company has accomplished over the last three
years, we reduced our net medallion portfolio 76% from $641 million at
the end of 2015 to $156 million at the end 2018. In addition, we have
greatly reduced our bank medallion-related debt also by 76% from $252
million at the end of 2015 to $60 million at year end, positioning
ourselves for a bright future.

The consumer and commercial lending segments continue to prosper. These
divisions had an exceptional year as income before taxes from our
mezzanine, home improvement and recreation lending divisions totaled
$41.0 million for the nine months ended December 31. The Company
recorded $23.0 million of net interest income in the fourth quarter and
$72.5 million of net interest/investment income for the full year. We
also recorded a net interest margin of 8.1% in the fourth quarter, and
we look forward to building on this momentum.”

Mr. Murstein continued: “We also had some higher than typical expenses
in the quarter as we recorded impairment charges against the intangible
assets related to our sports holdings, and increased our collection
expenses by 116% from the third quarter as we ramped up our collection
efforts for delinquent medallion borrowers. When looking at the
medallion portfolio, quarter after quarter, we continue to lower our
loan exposure. At the end of 2018, taxi medallion loans comprised 16% of
our net loans, compared to 28% at the end of 2017. We are confident we
took the appropriate measures throughout the year to reduce the
Company’s exposure while continuing our recovery efforts. We also had a
few current borrowers who have elected to pay us off. For example, we
received $9.6 million in payoffs in the fourth quarter from several
borrowers who were able to leverage other personal assets as collateral.
We charge off loans that are 120 days past due down to their medallion
collateral value. If payments then come in at 121 days for instance, it
is applied to reduce the principal balance of the loan. We aren’t
recognizing any income until the loan is disposed of, or reduced to
zero, or until a meaningful period of performance has occurred. In terms
of the valuation of medallion collateral, we are optimistic that the
marketplace continues to stabilize. We continue to monitor the
legislative proposals and regulations proposed by the TLC, and once
again, commend them for their continued efforts to support the
hard-working taxi medallion owners and drivers. One recent proposal was
by a NYC Council Member to bail-out individual medallion owners by
calling for the Council to take immediate action to provide financial
assistance to taxi and livery drivers. In addition, the latest proposed
regulation that came out this week from both Mayor De Blasio and
Governor Cuomo implementing congestion pricing is another positive for
both the City and State of New York. It potentially also benefits the
medallion industry, as it could lead to increased taxi usage as personal
and commercial vehicles may no longer overwhelm the regulated zone.
Taximeters may turn over more quickly, with less time being stuck in
traffic. While there can be no guarantee that any of these proposals
will pass, it’s a positive sign that City and State officials continue
to try to take measures that could meaningfully help.”

Consumer Lending Segments

Medallion’s net consumer lending portfolio was $761.5 million as of
December 31, 2018 compared to $741.8 million at the end of the prior
quarter. Excluding the impact of $420 million of loans sold over the
last three years, the consumer segments continued to grow in excess of
25% per year. Net interest income for the fourth quarter was $23.6
million. The average interest rate on the portfolio was 15.06% compared
to 15.18% in the third quarter. Consumer loan delinquencies over 90 days
past due as of December 31, 2018 were 0.55%, compared to 0.46% in the
prior quarter.

Commercial Lending Segment

The Company’s net commercial lending portfolio as of December 31, 2018
was $64.1 million. The average interest rate on the portfolio was 13.6%
compared to 11.9% a year ago on a managed basis. Net income for the
fourth quarter was $1.6 million. The Company continues to focus on
expanding its commercial loan activities by developing a more diverse
borrower base, a wider geographic area of coverage, and by expanding
targeted industries.

Medallion Lending Segment

The Company’s net medallion lending portfolio as of December 31, 2018
was $155.9 million, compared to $388.0 million at December 31, 2017 on a
combined basis with Medallion Bank, a 60% decrease. The average interest
rate on the medallion portfolio was 4.43% versus 4.36% a year ago on a
combined basis with Medallion Bank. Total medallion delinquencies over
90 days were $15.7 million as of December 31, 2018, compared to $10.3
million in the preceding quarter, and $71.9 million in the prior year
period. Medallion provision for loan losses was $3.4 million in the
quarter, down from $13.3 million in the prior quarter and $29.7 million
in the prior year period, recorded as non-cash valuation adjustments and
realized losses/charge-offs when combined with Medallion Bank. Taxi
medallion loans comprised 16% of our net loans receivable as of December
31, 2018, compared to 28% of our managed net investment portfolio as of
December 31, 2017.

Conference Call Information

The Company will be hosting a conference call to discuss the fourth
quarter financial results on Thursday, February 28, at 9:00 a.m. Eastern
time.

The dial-in number for the conference call is (877) 407-0789
(toll-free) or (201) 689-8562 (direct).
Please dial the number 10
minutes prior to the scheduled start time.
A live webcast of the
conference call will also be available on Medallion Financial’s website
at
http://www.medallion.com/investors.html.

A replay will be available following the end of the call through
Thursday, March 7, 2019, by telephone at (844) 512-2921 (toll-free) or
(412) 317-6671 (direct), passcode 13687822.
A webcast replay of
the call will be available at
http://www.medallion.com/investors.html
until the next quarter is announced.

* * *

About Medallion Financial Corp.

Medallion Financial Corp. is a finance company that originates and
services loans in various industries, and its wholly-owned subsidiary,
Medallion Bank, also originates and services consumer loans.
Medallion
Financial Corp. has lent more than $8 billion since its initial public
offering in 1996.

Please note that this press release contains forward-looking
statements that involve risks and uncertainties relating to business
performance, cash flow, costs, sales, net investment income, earnings,
and growth.
Medallion’s actual results may differ significantly
from the results discussed in such forward-looking statements.
Factors
that might cause such a difference include, but are not limited to,
those factors discussed under the heading “Risk Factors,” in Medallion’s
2017 Annual Report on Form 10-K.

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 
(Dollars in thousands, except per share data) For the Three Months Ended December 31, 2018
Total interest income $ 31,007
Total interest expense   8,004
Net interest income 23,003
 
Provision for loan losses   10,227
Net interest income after provision for loan losses   12,776
 
Other income (loss)
Gain on deconsolidation of Trust III 25,325
Sponsorship and race winnings 3,769
Loss on sale of loans, net (542)
Write-down of loan collateral in process of foreclosure (827)
Impairment of equity investments (77)
Write-down of other assets (338)
Other income   317
Total other income   27,627
 
Other expenses
Salaries and employee benefits 7,719
Intangible asset impairment 5,615
Collection costs 2,989
Professional fees 2,412
Race team related expenses 1,705
Loan servicing fees 1,157
Rent expense 591
Regulatory fees 558
Amortization of intangible assets 361
Travel, meals and entertainment 326
Other expenses   2,258
Total other expenses   25,691
Income before income taxes 14,712
Income tax provision   (4,847)
Net income after taxes 9,865
Less: income attributable to the non-controlling interest   693
Total net income attributable to Medallion Financial Corp. $ 9,172
Basic net income per share $ 0.38
Diluted net income per share $ 0.38
Weighted average common shares outstanding
Basic 24,237,841
Diluted   24,404,010

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

 

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

December 31, 2018
Assets
Cash and federal funds sold $ 57,713

Equity investments and investment securities

54,521
Loans 1,017,882
Allowance for losses   (36,395)
 
Net loans receivable   981,487
 
Loan collateral in process of foreclosure 49,495

Goodwill and intangible assets

204,785

Other assets

  33,845

Total assets

$ 1,381,846
Liabilities

Accounts payable, accrued expenses, and accrued interest payable

$ 22,641
Deposits 848,040

Short-term borrowings

55,178
Deferred tax liability and other tax payables 6,973

Long-term debt

  158,810

Total liabilities

  1,091,642
 
Commitments and contingencies  
Total stockholders’s equity   262,608

Non-controlling interest in consolidated subsidiaries

  27,596

Total equity

  290,204

Total liabilities and equity

$ 1,381,846
Number of shares outstanding 24,434,357

Book value per share

$ 10.75

Contacts

Company Contact:
Alex E. Arzeno
Investor
Relations
212-328-2176
[email protected]

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