UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-27812
MEDALLION FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
| DELAWARE | 04-3291176 | |
| (State of Incorporation) | (IRS Employer Identification No.) |
437 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 328-2100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No. ¨
The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of November 8, 2004 was 17,555,109.
1
MEDALLION FINANCIAL CORP.
FORM 10-Q
| PART I – FINANCIAL INFORMATION |
3 | |||
| ITEM 1. |
FINANCIAL STATEMENTS | 3 | ||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 | ||
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 46 | ||
| ITEM 4. |
CONTROLS AND PROCEDURES | 46 | ||
| PART II – OTHER INFORMATION |
46 | |||
| ITEM 1. |
LEGAL PROCEEDINGS | 46 | ||
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 46 | ||
| ITEM 6. |
EXHIBITS | 47 | ||
| 48 | ||||
| 49 | ||||
2
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
BASIS OF PREPARATION
Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. As an adjunct to the Company’s taxicab medallion finance business, the Company had operated a taxicab rooftop advertising business through two subsidiaries, the primary operator Medallion Taxi Media, Inc. (Media), and a small operating subsidiary in Japan (Japan), (together MTM). During the 2004 third quarter, Media was merged with and into a subsidiary of Clear Channel Communications, Inc. (CCU), and Japan was sold in a stock sale to its management. The Company no longer conducts a taxicab rooftop advertising business. See note 3 for additional information about the transactions.
The financial information is divided into two sections. The first section, Item 1, includes the unaudited consolidated financial statements of the Company including related footnotes. The second section, Item 2, consists of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended September 30, 2004.
The consolidated balance sheet of the Company as of September 30, 2004, the related consolidated statements of operations for the three and nine months ended September 30, 2004, and the consolidated statements of cash flows for the nine months ended September 30, 2004 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments necessary to summarize fairly the Company’s financial position and results of operations. The results of operations for the three and nine months ended September 30, 2004, or for any other interim period, may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
3
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Interest and dividend income on investments |
$ | 10,692,530 | $ | 6,558,507 | $ | 27,169,393 | $ | 19,441,511 | ||||||||
| Interest income on short-term investments |
173,650 | 43,623 | 372,924 | 157,001 | ||||||||||||
| Medallion lease income |
111,815 | 91,203 | 321,815 | 91,203 | ||||||||||||
| Total investment income |
10,977,995 | 6,693,333 | 27,864,132 | 19,689,715 | ||||||||||||
| Interest on floating rate borrowings |
2,493,258 | 1,840,736 | 6,158,612 | 6,074,940 | ||||||||||||
| Interest on fixed rate borrowings |
2,033,317 | 971,067 | 4,922,050 | 3,263,850 | ||||||||||||
| Total interest expense |
4,526,575 | 2,811,803 | 11,080,662 | 9,338,790 | ||||||||||||
| Net interest income |
6,451,420 | 3,881,530 | 16,783,470 | 10,350,925 | ||||||||||||
| Gain on sales of loans |
331,685 | 87,967 | 730,126 | 803,666 | ||||||||||||
| Other income |
596,587 | 905,534 | 1,818,222 | 2,765,880 | ||||||||||||
| Total noninterest income |
928,272 | 993,501 | 2,548,348 | 3,569,546 | ||||||||||||
| Salaries and benefits |
2,463,084 | 2,070,463 | 7,167,565 | 6,943,720 | ||||||||||||
| Professional fees |
307,528 | 430,916 | 1,311,133 | 819,241 | ||||||||||||
| Other operating expenses |
2,201,942 | 1,709,192 | 5,889,500 | 4,876,287 | ||||||||||||
| Total operating expenses |
4,972,554 | 4,210,571 | 14,368,198 | 12,639,248 | ||||||||||||
| Net investment income before income taxes |
2,407,138 | 664,460 | 4,963,620 | 1,281,223 | ||||||||||||
| Income tax provision |
566,180 | 21,846 | 1,674,277 | 41,149 | ||||||||||||
| Net investment income after income taxes |
1,840,958 | 642,614 | 3,289,343 | 1,240,074 | ||||||||||||
| Net realized gains (losses) on investments |
(2,784,101 | ) | 4,494,411 | (3,298,663 | ) | 12,146,878 | ||||||||||
| Net change in unrealized appreciation (depreciation) on investments |
20,998,466 | (4,025,981 | ) | 18,933,821 | (11,090,773 | ) | ||||||||||
| Net realized/unrealized gain on investments |
18,214,365 | 468,430 | 15,635,158 | 1,056,105 | ||||||||||||
| Net increase in net assets resulting from operations |
$ | 20,055,323 | $ | 1,111,044 | $ | 18,924,501 | $ | 2,296,179 | ||||||||
| Net increase in net assets resulting from operations per common share |
||||||||||||||||
| Basic |
$ | 1.11 | $ | 0.06 | $ | 1.04 | $ | 0.13 | ||||||||
| Diluted |
1.09 | 0.06 | 1.02 | 0.13 | ||||||||||||
| Dividends declared per share |
$ | 0.10 | $ | 0.05 | $ | 0.26 | $ | 0.09 | ||||||||
| Weighted average common shares outstanding |
||||||||||||||||
| Basic |
18,075,879 | 18,245,228 | 18,144,724 | 18,243,570 | ||||||||||||
| Diluted |
18,456,246 | 18,517,491 | 18,540,732 | 18,355,123 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
MEDALLION FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Medallion loans, at fair value |
$ | 348,412,907 | $ | 288,211,557 | ||||
| Commercial loans, at fair value |
134,013,635 | 85,970,205 | ||||||
| Consumer loans, at fair value |
67,389,895 | — | ||||||
| Equity investments, at fair value |
34,150,233 | 4,976,763 | ||||||
| Investment securities, at fair value |
15,407,620 | — | ||||||
| Net investments ($259,611,000 at September 30, 2004 and $251,880,000 at December 31, 2003 pledged as collateral under borrowing arrangements) |
599,374,290 | 379,158,525 | ||||||
| Investment in and loans to MTM |
— | 3,614,485 | ||||||
| Total investments |
599,374,290 | 382,773,010 | ||||||
| Cash ($670,661 at September 30, 2004 and $605,000 at December 31, 2003 restricted as to use by lender) |
28,150,202 | 47,675,537 | ||||||
| Accrued interest receivable |
3,309,105 | 1,727,719 | ||||||
| Servicing fee receivable |
2,429,623 | 2,663,468 | ||||||
| Fixed assets, net |
1,079,688 | 1,351,887 | ||||||
| Goodwill, net |
5,007,583 | 5,007,583 | ||||||
| Other assets, net |
18,670,871 | 15,295,253 | ||||||
| Total assets |
$ | 658,021,362 | $ | 456,494,457 | ||||
| Liabilities |
||||||||
| Accounts payable and accrued expenses |
$ | 11,556,172 | $ | 5,726,830 | ||||
| Accrued interest payable |
554,131 | 1,197,248 | ||||||
| Floating rate borrowings |
239,986,032 | 230,519,057 | ||||||
| Fixed rate borrowings |
232,530,101 | 56,935,000 | ||||||
| Total liabilities |
$ | 484,626,436 | 294,378,135 | |||||
| Shareholders’ equity |
||||||||
| Preferred Stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding) |
— | — | ||||||
| Common stock (50,000,000 shares of $0.01 par value stock authorized) |
182,901 | 182,524 | ||||||
| Treasury stock at cost (451,451 shares at September 30, 2004 and 30,934 shares at December 31, 2003) |
(4,150,391 | ) | (431,584 | ) | ||||
| Capital in excess of par value |
174,008,835 | 173,831,049 | ||||||
| Cumulative effect of foreign currency translation |
— | (72,861 | ) | |||||
| Accumulated net investment losses |
3,353,581 | (11,392,806 | ) | |||||
| Total shareholders’ equity |
173,394,926 | 162,116,322 | ||||||
| Total liabilities and shareholders’ equity |
$ | 658,021,362 | $ | 456,494,457 | ||||
| Number of common shares outstanding |
17,860,611 | 18,242,178 | ||||||
| Net asset value per share |
$ | 9.71 | $ | 8.89 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net increase in net assets resulting from operations |
$ | 18,924,501 | $ | 2,296,179 | ||||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities: |
||||||||
| Depreciation and amortization |
481,240 | 489,647 | ||||||
| Amortization of origination costs and portfolio purchase premiums |
1,916,396 | 999,063 | ||||||
| Increase in net unrealized (appreciation) depreciation on investments |
(21,760,421 | ) | 7,763,081 | |||||
| Net realized (gains) losses on investments |
3,298,663 | (12,146,878 | ) | |||||
| Gains on sales of loans |
(730,126 | ) | (803,666 | ) | ||||
| Increase in unrealized depreciation on MTM |
2,826,604 | 3,327,692 | ||||||
| (Increase) decrease in accrued interest receivable |
(676,830 | ) | 315,854 | |||||
| Decrease in servicing fee receivable |
233,845 | 73,245 | ||||||
| (Increase) decrease in other assets, net |
139,808 | (708,024 | ) | |||||
| Increase (decrease) in accounts payable and accrued expenses |
1,879,371 | (726,487 | ) | |||||
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