PART I Our Business Medallion Financial Corp. is a specialty finance company with total assets of $2.9 billion as of December 31, 2024, focusing on consumer and commercial lending through diversified segments and strategic partnerships - The company's strategic focus is on growing its consumer finance and commercial lending businesses, with total assets reaching $2.9 billion at the end of 2024, up from $2.6 billion in 202311 Net Loans Receivable by Segment (December 31, 2024) | Loan Segment | Net Loans (in thousands) | Percentage of Total | | :--- | :--- | :--- | | Recreation | $1,351,301 | 56.4% | | Home improvement | $806,675 | 33.7% | | Commercial | $106,083 | 4.4% | | Taxi medallion | $1,369 | 0.1% | | Total Loans Held for Investment | $2,265,428 | 94.6% | | Loans Held for Sale | $128,226 | 5.4% | | Total Net Loans | $2,393,654 | 100.0% | Lending Segments The company's lending activities are diversified across recreation, home improvement, and commercial segments, with recreation being the largest and a growing fintech partnership program - Recreation lending is the company's most significant segment, accounting for 57% of loans receivable and 67% of interest income for the year ended December 31, 202415 - Home improvement loans, offered through contractors and FSPs, comprised 33% of the company's loans receivable as of December 31, 202418 - The strategic partnership program with fintech companies originated $203.6 million in loans in 2024, a significant increase from $118.3 million in 202325 Our Strategy The company's core strategy focuses on dominating profitable niche markets by leveraging relationships, disciplined underwriting, experienced management, and expanding fintech partnerships - A key strategy is to capitalize on relationships with dealers, contractors, and Financial Service Providers (FSPs), which generated all consumer loans retained in the portfolio in 202428 - The company emphasizes disciplined underwriting and rigorous portfolio monitoring, imposing more restrictive standards to mitigate concentration risks30 - Expansion of the strategic partnership program is a core growth driver, with two new partnerships launched in 2024 and others being evaluated32 Sources of Funds Operations are primarily funded by brokered certificates of deposit, supplemented by privately placed notes and SBA debentures, with a strategy to optimize debt structure Sources of Funds (December 31, 2024) | Source | Amount (in thousands) | Avg. Interest Rate | | :--- | :--- | :--- | | Cash, cash equivalents, and federal funds sold | $169,572 | N/A | | Brokered certificates of deposit & other funds | $2,094,663 | 3.71% | | Privately placed notes | $146,500 | 8.12% | | SBA debentures and borrowings | $70,250 | 3.53% | | Trust preferred securities | $33,000 | 6.83% | | Federal reserve and other borrowings | $35,000 | 4.50% | | Total Debt Outstanding | $2,379,413 | N/A | Human Capital Resources As of December 31, 2024, the company employed 174 people, primarily at Medallion Bank, emphasizing equal opportunity and comprehensive employee incentives - Total employees increased to 174 at year-end 2024 from 169 at year-end 2023, with the majority (135) employed at Medallion Bank45 Supervision and Regulation The company operates in a highly regulated environment, with Medallion Bank subject to extensive federal and state banking laws, and SBIC subsidiaries regulated by the SBA - Medallion Bank is subject to extensive regulation by the FDIC and the Utah Department of Financial Institutions, intended primarily for the protection of depositors5152 - As a condition of its FDIC insurance, Medallion Bank must maintain a 15% Tier 1 leverage ratio, which it met as of year-end 202463 - The company's subsidiaries, Medallion Funding and Medallion Capital, are licensed and regulated by the Small Business Administration (SBA) as Small Business Investment Companies (SBICs)90 Risk Factors The company faces significant risks from its concentrated consumer lending portfolio, funding dependence on brokered deposits, pending SEC litigation, and intense market competition Risks Related to Our Loan Portfolios and Business The business is highly susceptible to economic downturns due to its concentrated consumer lending, particularly in non-prime recreation loans, and relies on limited third-party relationships for originations - The business is heavily concentrated in consumer lending, making it highly sensitive to macroeconomic conditions like recession risk, inflation, and interest rate changes that impact consumer spending107108 - As of December 31, 2024, 37% of recreation loans originated were non-prime, which are expected to have higher default rates than prime loans115 - The company's ability to originate loans depends on relationships with a limited number of dealers and FSPs; in 2024, the top ten relationships accounted for 48% of home improvement and 38% of recreation loan originations122 Financing and Related Risks Key financial risks include debt covenant compliance, the critical reliance on brokered deposits for Medallion Bank's funding, and the holding company's dependence on subsidiary dividends - Medallion Bank relies heavily on brokered deposits for funding, and its ability to accept them is contingent on maintaining a "well-capitalized" status under FDIC regulations; loss of this status would materially impair its funding capabilities132133134 - As a holding company, it depends on dividends from subsidiaries to fund its operations and debt payments; in 2024, it received $24.0 million in dividends from Medallion Bank and $1.6 million from Medallion Capital136 Legal and Regulatory Risks Significant legal and regulatory risks include pending SEC litigation, the highly regulated banking environment, and compliance with various financial protection and anti-money laundering laws - The company faces pending litigation with the SEC regarding alleged violations from 2015-2017; an agreement in principle to settle was reached in December 2024, but it remains subject to approval by SEC Commissioners and the court137138 - The banking industry is highly regulated, and failure to comply with laws from the FDIC and Utah DFI could result in sanctions, civil money penalties, or reputational damage144 - The company's SBIC subsidiaries are subject to SBA regulations, and non-compliance could lead to penalties, including loss of access to SBA debentures153154 Risk Relating to Our Growth and Operations Growth and operations face risks from intense market competition, new uncertainties from strategic partnerships, cybersecurity threats, and reliance on key senior management and third-party vendors - The consumer lending market is highly competitive, with rivals including banks, credit unions, and finance companies that may have greater resources or less restrictive regulations158 - The Strategic Partnership Program with fintech companies exposes the company to new and potentially uncertain legal and regulatory risks, including "true lender" challenges159 - The business is vulnerable to security breaches and cyber-attacks, which could compromise sensitive data and lead to liability, regulatory penalties, and reputational damage166 Unresolved Staff Comments The company reports that there are no unresolved staff comments - None198 Cybersecurity Cybersecurity risks are managed through an enterprise risk management program, overseen by the Audit Committee, with subsidiary programs guided by the NIST framework - Cybersecurity risk is managed as part of the enterprise risk management program, overseen by the Audit Committee, which receives quarterly reports from the Information Security Director199202 - The company's cybersecurity programs are guided by the National Institute of Standards and Technology (NIST) Cybersecurity Framework and include safeguards like employee training, incident response programs, and third-party risk management200 Properties The company leases all its primary office spaces in New York City, Salt Lake City, and Excelsior, Minnesota, owning no real property other than foreclosed assets - The company leases all its primary office spaces, with key locations in New York, NY; Salt Lake City, UT; and Excelsior, MN205 Legal Proceedings The company refers to Note 10 of its consolidated financial statements for details regarding legal proceedings, including the pending SEC litigation - Details of legal proceedings, including the pending SEC litigation, are provided in Note 10 to the consolidated financial statements206 Mine Safety Disclosures This item is not applicable to the company - Not applicable207 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, paid increased quarterly dividends in 2024, and repurchased shares under its authorized program - The company reinstated its quarterly dividend in March 2022 and increased it from $0.10 to $0.11 per share in October 2024210 - During FY2024, the company repurchased 570,404 shares of its common stock at an aggregate cost of $4.6 million; as of year-end, $15.4 million remained available under the repurchase authorization212 Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2024, total assets grew to $2.9 billion, but net income declined to $35.9 million due to higher credit loss provisions and increased interest expenses, compressing the net interest margin Key Financial Highlights (FY2024 vs. FY2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $2.9 billion | $2.6 billion | | Net Income (attributable) | $35.9 million | $55.1 million | | Diluted EPS | $1.52 | $2.37 | | Net Interest Income | $202.5 million | $188.1 million | | Provision for Credit Losses | $76.5 million | $37.8 million | | Net Interest Margin (gross) | 8.05% | 8.38% | - The increase in the allowance for credit losses to $97.4 million was primarily driven by rising loss rates and elevated delinquencies in the recreation loan portfolio226250 Critical Accounting Estimates Critical accounting estimates involve significant judgment for the allowance for credit losses and goodwill valuation, both assessed using historical data, economic factors, and expert analysis - The allowance for credit losses is a critical estimate, based on historical data, economic conditions, and qualitative factors; a 50 basis point change in the qualitative loss factor would change the recreation and home improvement reserves by $7.1 million and $4.1 million, respectively224225 - Goodwill of $150.8 million was assessed for impairment at year-end 2024 by a third-party expert using a discounted cash flow analysis (50% weight) and market approaches (50% weight); the assessment concluded that the fair value of the lending segments exceeded their carrying value230231232 Loans The total gross loan portfolio grew to $2.49 billion in 2024, driven by $1.04 billion in new originations primarily in recreation and home improvement segments, consisting mostly of fixed-rate loans Loan Portfolio Activity (Year Ended Dec 31, 2024) | (in thousands) | Recreation | Home Improvement | Commercial | Strategic Partnership | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Gross Loans (Start) | $1,336,226 | $760,617 | $114,827 | $553 | $2,215,886 | | Loan Originations | $526,634 | $298,642 | $14,300 | $203,627 | $1,043,453 | | Gross Loans (End) | $1,543,243 | $827,211 | $111,273 | $7,386 | $2,491,022 | Allowance for Credit Losses The allowance for credit losses increased to $97.4 million at year-end 2024, driven by a $76.5 million provision and higher expected losses, particularly in the recreation loan portfolio Allowance for Credit Losses Activity (Year Ended Dec 31, 2024) | (in thousands) | Recreation | Home Improvement | Commercial | Taxi Medallion | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2023 | $57,532 | $21,019 | $4,148 | $1,536 | $84,235 | | Provision (Benefit) | $67,995 | $13,458 | $1,084 | ($6,035) | $76,502 | | Net Charge-offs | ($54,425) | ($13,941) | ($42) | ($5,039) | ($63,369) | | Balance at Dec 31, 2024 | $71,102 | $20,536 | $5,190 | $540 | $97,368 | - Loans 90 days or more past due increased to $27.7 million (1.1% of total loans) at the end of 2024, up from $16.8 million (0.8% of total loans) at the end of 2023255 Segment Results In 2024, Recreation Lending remained the primary earnings driver despite a higher credit loss provision, while Home Improvement and Commercial Lending segments saw increased net income Net Income by Segment (FY2024 vs. FY2023) | Segment (in thousands) | Net Income 2024 | Net Income 2023 | | :--- | :--- | :--- | | Recreation Lending | $32,460 | $42,281 | | Home Improvement Lending | $12,759 | $7,273 | | Commercial Lending | $7,827 | $6,791 | | Taxi Medallion Lending | $1,996 | $17,011 | | Corporate and Other Investments | ($13,117) | ($12,230) | Consolidated Results of Operations Net income attributable to shareholders decreased to $35.9 million in FY2024, primarily due to a doubling of the provision for credit losses and a 40% increase in interest expense Consolidated Statement of Operations Summary | (in millions) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Interest Income | $202.5 | $188.1 | | Provision for Credit Losses | $76.5 | $37.8 | | Net Interest Income after Provision | $126.0 | $150.3 | | Total Other Income, net | $11.3 | $11.3 | | Total Other Expenses | $74.4 | $75.6 | | Net Income (attributable) | $35.9 | $55.1 | Asset/Liability Management The company manages interest rate risk from fixed-rate assets and variable-rate liabilities, with a negative $0.6 billion one-year interest rate gap, and actively manages capital through debt issuances - The one-year cumulative interest rate sensitivity gap was negative $0.6 billion, or 22% of interest rate sensitive assets, as of December 31, 2024313 - A hypothetical immediate 1% increase in interest rates would increase net income by $2.2 million on an annualized basis as of December 31, 2024333 - The company actively manages its capital resources, completing a $5.0 million private placement in August 2024 and amending notes in June 2024 to increase principal and extend maturity316317 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations and portfolio valuations, with a hypothetical 1% rate increase estimated to increase net income by $2.2 million annually - The principal market risks are fluctuations in interest rates and portfolio valuations343 - A hypothetical immediate 1% increase in interest rates would result in an estimated increase to net income of $2.2 million on an annualized basis as of December 31, 2024344 Financial Statements and Supplementary Data This section incorporates by reference the company's audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2024 - This section contains the audited consolidated financial statements and supplementary data for Medallion Financial Corp. for the fiscal year ended December 31, 2024345 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None346 Controls and Procedures Management and independent auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2024347 - Management assessed internal control over financial reporting as effective as of December 31, 2024, based on the COSO framework351 - The independent auditor, Plante & Moran, PLLC, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2024357 Other Information No director or officer trading plans under Rule 10b5-1 were adopted, modified, or terminated during the fourth quarter of 2024 - No director or officer trading plans under Rule 10b5-1 were adopted, modified, or terminated during the fourth quarter of 2024364 PART III Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10 through 14 is incorporated by reference from the company's forthcoming 2025 Definitive Proxy Statement - Information required for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's forthcoming 2025 Definitive Proxy Statement366367368 PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and various exhibits filed as part of the Form 10-K, including corporate documents and certifications - This section contains the index to financial statements and a list of all exhibits filed with the 10-K report369
MEDALLION BANK F(MBNKP) - 2024 Q4 - Annual Report