Medallion Financial (MFIN) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis - Medallion Financial Corp. is a specialty finance company focused on consumer finance and commercial lending, operating through wholly-owned subsidiaries including Medallion Bank[13] Selected Consolidated Financial Data | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $2,879,994 | $2,868,606 | | Total Liabilities | $2,347,429 | $2,429,648 | | Total Equity | $532,565 | $438,958 | | Common Shares Outstanding | 23,246,593 | 23,135,624 | | Book Value Per Common Share | $16.77 | $16.00 | ITEM 1. FINANCIAL STATEMENTS This section presents Medallion Financial Corp.'s unaudited consolidated financial statements for Q2 and YTD 2025 Basis of Preparation The financial statements are unaudited, prepared under SEC rules and GAAP, focusing on consumer and commercial lending growth - The financial statements are unaudited and prepared in accordance with SEC rules and GAAP, with certain condensed disclosures[13] - The Company's strategic focus is on growing its consumer finance and commercial lending businesses[13] Total Assets | Metric | June 30, 2025 (in billions) | December 31, 2024 (in billions) | | :---------- | :-------------------------- | :------------------------------ | | Total Assets | $2.88 | $2.87 | Consolidated Balance Sheets Overview of the company's financial position, including assets, liabilities, and equity Table Data | Asset/Liability Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $110,361 | $98,238 | | Net loans receivable | $2,305,665 | $2,265,428 | | Total assets | $2,879,994 | $2,868,606 | | Deposits | $2,009,176 | $2,090,071 | | Long-term debt | $199,928 | $232,159 | | Total liabilities | $2,347,429 | $2,429,648 | | Total stockholders' equity | $389,896 | $370,170 | | Non-controlling interest | $142,669 | $68,788 |\ | Total equity | $532,565 | $438,958 | - Total assets increased slightly to $2.88 billion as of June 30, 2025, from $2.87 billion at December 31, 2024. Net loans receivable saw an increase, while deposits decreased[16] - Non-controlling interest in consolidated subsidiaries significantly increased from $68.8 million to $142.7 million, contributing to the overall increase in total equity[16] Consolidated Statements of Operations Analysis of the company's revenues, expenses, and net income over specific periods Table Data | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $77,442 | $70,704 | $152,867 | $137,774 | | Total interest expense | $24,072 | $20,836 | $48,085 | $39,989 | | Net interest income | $53,370 | $49,868 | $104,782 | $97,785 | | Provision for credit losses | $21,562 | $18,577 | $43,576 | $35,778 | | Net income attributable to Medallion Financial Corp. | $11,069 | $7,101 | $23,083 | $17,125 | | Basic earnings per share | $0.49 | $0.31 | $1.02 | $0.76 | | Diluted earnings per share | $0.46 | $0.30 | $0.96 | $0.73 | - Net income attributable to Medallion Financial Corp. increased significantly by 55.9% for the three months ended June 30, 2025, and by 34.8% for the six months ended June 30, 2025, compared to the prior year periods[21] - Total interest income grew, driven by increased interest and fees on loans, while total interest expense also rose due to higher interest on deposits and borrowings[21] Consolidated Statements of Other Comprehensive Income Details of net income and other comprehensive income components Table Data | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income after taxes | $13,667 | $8,613 | $27,193 | $20,149 | | Other comprehensive (loss) income, net of tax | $(89) | $102 | $549 | $(48) | | Total comprehensive income attributable to Medallion Financial Corp. | $10,980 | $7,203 | $23,632 | $17,077 | - Total comprehensive income attributable to Medallion Financial Corp. increased by 52.4% for the three months and 38.4% for the six months ended June 30, 2025, compared to the same periods in 2024[24] Consolidated Statement of Changes in Stockholders' Equity Summary of changes in equity, including net income and non-controlling interests - Total equity increased from $438.96 million at December 31, 2024, to $532.57 million at June 30, 2025, primarily driven by net income and a significant increase in non-controlling interest equity raised by Medallion Bank[26] Table Data | Equity Component (in thousands) | Balance at Dec 31, 2024 | Balance at June 30, 2025 | | :------------------------------ | :---------------------- | :----------------------- | | Common Stock | $293 | $295 | | Additional Paid In Capital | $293,412 | $295,834 | | Treasury Stock | $(50,144) | $(51,130) | | Retained Earnings | $130,256 | $147,995 | | Accumulated Other Comprehensive Loss | $(3,647) | $(3,098) | | Total Stockholders' Equity | $370,170 | $389,896 | | Non-controlling Interest | $68,788 | $142,669 | | Total Equity | $438,958 | $532,565 | - Medallion Bank raised $73.13 million in non-controlling interest equity during the six months ended June 30, 2025[26] Consolidated Statements of Cash Flows Analysis of cash generated and used by operating, investing, and financing activities Table Data | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $25,536 | $59,900 | | Net cash used for investing activities | $(30,296) | $(204,517) | | Net cash (used in) provided by financing activities | $(12,818) | $152,733 | | Net (decrease) increase in cash and cash equivalents | $(17,578) | $8,116 | | Cash and cash equivalents, end of period | $151,994 | $157,961 | - Net cash provided by operating activities decreased significantly in the first six months of 2025 compared to 2024, primarily due to changes in other assets and accounts payable/accrued expenses[31] - Financing activities shifted from providing $152.7 million in cash in 2024 to using $12.8 million in 2025, despite $73.1 million in non-controlling interest equity raised by Medallion Bank, due to higher repayments of time deposits and funds borrowed[31] Notes to Consolidated Financial Statements Detailed explanations and disclosures supporting the consolidated financial statements (1) Organization of Medallion Financial Corp. and Its Subsidiaries Overview of Medallion Financial Corp.'s structure and primary business segments - Medallion Financial Corp. is a specialty finance company operating through wholly-owned subsidiaries, primarily Medallion Bank, which originates consumer loans for recreational vehicles, boats, collector cars, and home improvements[34] - Other subsidiaries include Medallion Capital (SBIC for mezzanine financing) and Medallion Funding LLC (historically taxi medallion lending)[35] - The Bank funds loans primarily with nationally originated time certificates of deposit and has not originated new taxi medallion loans since 2014[34] (2) Summary of Significant Accounting Policies Key accounting principles and estimates used in preparing the financial statements - The consolidated financial statements are prepared in accordance with GAAP, requiring management estimates for items like goodwill, intangible assets, and allowance for credit losses[37] - Loans held for investment are reported at amortized cost, while loans held for sale are reported at the lower of amortized cost or fair value[47][52] - The Company follows ASC 326 (CECL methodology) for allowance for credit losses, recognizing lifetime expected losses based on historical performance, qualitative adjustments, and macroeconomic factors[54] Bank Capital Ratios (June 30, 2025 vs. December 31, 2024): | Capital Ratio | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Tier 1 leverage ratio | 19.3% | 15.7% | | Common equity tier 1 capital ratio | 13.8% | 13.3% | | Tier 1 capital ratio | 19.5% | 16.1% | | Total capital ratio | 20.8% | 17.4% | - The Bank's Tier 1 leverage ratio was 19.3% at June 30, 2025, exceeding the 15% minimum required by $106.9 million, indicating a 'well-capitalized' status[69] (3) Investment Securities Details of the company's investment securities portfolio and unrealized gains/losses Investment Securities Available for Sale (in thousands): | Category | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :------------------------------------------- | :----------------------- | :--------------------------- | | Mortgage-backed securities | $42,930 | $36,701 | | State and municipalities | $18,433 | $15,938 | | Agency bonds | $166 | $2,166 | | Total | $61,529 | $54,805 | - Total investment securities increased to $61.5 million at June 30, 2025, from $54.8 million at December 31, 2024[76] - The Company had $5.5 million in gross unrealized losses on investment securities at June 30, 2025, primarily in mortgage-backed securities and state/municipal bonds, but does not intend to sell these securities and expects to recover amortized cost[76][78] (4) Loans and Allowance for Credit Losses Analysis of the loan portfolio, credit quality, and allowance for credit losses Loan Portfolio Classification (in thousands): | Loan Type | June 30, 2025 Amount | June 30, 2025 % of Total | December 31, 2024 Amount | December 31, 2024 % of Total | | :------------------ | :------------------- | :----------------------- | :----------------------- | :--------------------------- | | Recreation | $1,486,047 | 60% | $1,422,403 | 57% | | Home improvement | $803,535 | 32% | $827,211 | 33% | | Commercial | $121,415 | 5% | $111,273 | 4% | | Taxi medallion | $1,564 | * | $1,909 | * | | Loans held for sale | $72,490 | 2% | $128,226 | 5% | | Total Loans | $2,485,051 | 100% | $2,491,022 | 100% | Allowance for Credit Losses (in thousands): | Loan Type | June 30, 2025 Amount | June 30, 2025 % of Allowance | June 30, 2025 % of Loan Category | | :--------------- | :------------------- | :--------------------------- | :------------------------------- | | Recreation | $75,040 | 70% | 5.05% | | Home improvement | $20,422 | 19% | 2.54% | | Commercial | $11,096 | 10% | 9.14% | | Taxi medallion | $338 | 1% | 21.62% | | Total | $106,896 | 100% | | - Total loans decreased slightly from $2.49 billion at December 31, 2024, to $2.48 billion at June 30, 2025. Recreation loans increased, while home improvement and loans held for sale decreased[81] - The total allowance for credit losses increased to $106.9 million at June 30, 2025, from $97.4 million at December 31, 2024, with recreation loans accounting for the largest portion[87][90] Loans 90 Days or More Past Due (in thousands): | Loan Type | June 30, 2025 Amount | June 30, 2025 % of Total Loans | December 31, 2024 Amount | December 31, 2024 % of Total Loans | | :--------------- | :------------------- | :----------------------------- | :----------------------- | :--------------------------------- | | Recreation | $7,265 | 0.3% | $10,018 | 0.4% | | Home improvement | $1,292 | 0.1% | $1,386 | 0.1% | | Commercial | $20,402 | 0.8% | $16,337 | 0.7% | | Total | $28,959 | 1.2% | $27,741 | 1.1% | (5) Funds Borrowed Details of the company's funding sources, including deposits and various borrowings Outstanding Funds Borrowed (in thousands): | Source | June 30, 2025 Amount | December 31, 2024 Amount | Weighted Average Contractual Rate (June 30, 2025) | | :---------------------------- | :------------------- | :----------------------- | :------------------------------------------------ | | Deposits | $2,009,767 | $2,091,663 | 3.81% | | Privately placed notes | $146,500 | $146,500 | 8.12% | | SBA debentures and borrowings | $70,500 | $70,250 | 3.81% | | Trust preferred securities | $33,000 | $33,000 | 6.70% | | Federal reserve and other borrowings | $40,000 | $35,000 | 4.50% | | Total | $2,299,767 | $2,376,413 | 4.14% | - Total outstanding funds borrowed decreased from $2.38 billion at December 31, 2024, to $2.30 billion at June 30, 2025, primarily due to a reduction in deposits[100] - The weighted average contractual interest rate on total borrowings increased slightly to 4.14% at June 30, 2025, from 4.09% at December 31, 2024[100] - The Bank had $40.0 million utilized from its $88.7 million secured borrowing capacity with the Federal Reserve, collateralized by home improvement loans[104] (6) Leases Information on operating lease assets, liabilities, and associated costs Operating Lease Information (in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $5,946 | $6,922 | | Total operating lease liabilities | $6,331 | $7,422 | | Weighted average remaining lease term | 3.5 years | 4.1 years | | Weighted average discount rate | 5.55% | 5.56% | - Operating lease costs for the three and six months ended June 30, 2025, were $0.56 million and $1.18 million, respectively, showing a slight decrease from the prior year[114] (7) Income Taxes Analysis of deferred tax assets, liabilities, and the income tax provision Deferred Tax Assets and Liabilities (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Total deferred tax assets | $23,329 | $21,777 | | Total deferred tax liabilities | $42,590 | $42,772 | | Deferred tax liability, net | $19,261 | $20,995 | Income Tax Provision (in thousands): | Component | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Current Federal | $5,757 | $4,792 | $10,418 | $6,521 | | Current State | $2,569 | $1,476 | $4,091 | $2,119 | | Deferred Federal | $(1,709) | $(1,916) | $(1,448) | $1,200 | | Deferred State | $(812) | $(570) | $(543) | $300 | | Net provision for income taxes | $5,805 | $3,782 | $12,518 | $10,140 | - The net deferred tax liability decreased to $19.26 million at June 30, 2025, from $20.99 million at December 31, 2024[118] - The total income tax provision increased for both the three and six months ended June 30, 2025, compared to the prior year periods, reflecting higher income before taxes[120] (8) Stock Options and Restricted Stock Details of equity incentive plans and stock-based compensation - The Company's 2018 Equity Incentive Plan was amended to increase authorized shares, with 2,287,437 shares remaining issuable as of June 30, 2025[123] Stock-Based Compensation Data (June 30, 2025): | Metric | Amount/Shares | | :-------------------------------------- | :------------ | | Outstanding stock options | 838,813 | | Unvested restricted stock | 727,415 | | Unvested performance stock units (PSUs) | 823,854 | | Unvested restricted stock units (RSUs) | 86,410 | | Vested, unissued RSUs | 323,977 | | Total unrecognized compensation cost | $8.1 million | Stock-Based Compensation Expense (in thousands): | Period | 2025 (3 months) | 2024 (3 months) | 2025 (6 months) | 2024 (6 months) | | :------------------------------------ | :-------------- | :-------------- | :-------------- | :-------------- | | Total stock-based compensation expense | $1,700 | $1,600 | $3,400 | $3,100 | (9) Segment Reporting Financial performance and characteristics of the company's operating segments - The Company operates through four lending segments: recreation, home improvement, commercial, and taxi medallion lending, plus a non-operating segment for corporate and other investments[143] - The recreation lending segment is the largest, with 54% of its portfolio in RVs, 21% in boats, and 12% in collector cars, concentrated in Texas (16%) and Florida (10%)[144] - The home improvement lending segment focuses on roofs (30%), swimming pools (30%), and windows (11%), with concentrations in Florida (13%) and Texas (12%)[144] Net Income After Taxes by Segment (in thousands): | Segment | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------------------- | :------ | :------ | :------- | :------- | | Recreation Lending | $9,949 | $6,711 | $17,963 | $12,652 | | Home Improvement Lending | $2,935 | $2,010 | $6,263 | $6,396 | | Commercial Lending | $3,298 | $481 | $8,207 | $4,058 | | Taxi Medallion Lending | $394 | $87 | $891 | $700 | | Corporate and Other Investments | $(2,909) | $(676) | $(6,131) | $(3,657) | | Consolidated | $13,667 | $8,613 | $27,193 | $20,149 | (10) Commitments and Contingencies Information on contractual commitments and potential legal liabilities - The Company has employment agreements with key officers, with future minimum payments of approximately $8.6 million expiring through 2028[163] - The SEC litigation regarding anti-fraud, books and records, internal controls, and anti-touting provisions from 2015-2017 was resolved with a Final Judgment on May 30, 2025. The Company paid a civil penalty of $3.0 million and agreed to compliance undertakings[165] - As of June 30, 2025, there were no other material commitments or legal proceedings expected to have a material adverse impact on the Company's financial condition or results of operations[164][166] (11) Related Party Transactions Disclosure of transactions with related parties, including officers and directors - Jeffrey Rudnick, son of a Company director, serves as Executive Vice President with an annual salary of $269,000 and received cash and equity bonuses[168] (12) Fair Value of Financial Instruments Estimates of fair value for various financial instruments - Fair value estimates for financial instruments are derived using various methods, including discounted cash flow for loans and market spreads for fixed-rate borrowings[171][173] Fair Value of Financial Instruments (in thousands): | Financial Instrument | June 30, 2025 Carrying Amount | June 30, 2025 Fair Value | December 31, 2024 Carrying Amount | December 31, 2024 Fair Value | | :------------------------------- | :------------------------------ | :----------------------- | :-------------------------------- | :--------------------------- | | Cash, cash equivalents, and federal funds sold | $151,994 | $151,994 | $169,572 | $169,572 | | Investment securities | $61,529 | $61,529 | $54,805 | $54,805 | | Loans held for investment, net of allowance | $2,305,665 | $2,255,160 | $2,265,428 | $2,238,645 | | Loans held for sale | $72,490 | $75,573 | $128,226 | $133,244 | | Funds borrowed | $2,304,317 | $2,318,531 | $2,379,413 | $2,371,434 | (13) Fair Value of Assets and Liabilities Categorization of assets and liabilities measured at fair value using a hierarchy - The Company categorizes assets and liabilities measured at fair value into a three-level hierarchy based on the observability of valuation inputs[181] Fair Value Hierarchy for Assets (in thousands): | Category | June 30, 2025 Level 1 | June 30, 2025 Level 2 | June 30, 2025 Level 3 | June 30, 2025 Total | | :------------------ | :-------------------- | :-------------------- | :-------------------- | :------------------ | | Investment securities | $0 | $61,529 | $0 | $61,529 | | Equity securities | $1,763 | $0 | $0 | $1,763 | | Total | $1,763 | $61,529 | $0 | $63,292 | - Equity investments without readily determinable fair value are measured at cost less impairment plus or minus observable price changes, with cumulative impairment of $6.3 million as of June 30, 2025[42] (14) Medallion Bank Preferred Stock (Non-controlling interest) Details of Medallion Bank's preferred stock issuances and redemptions - On May 29, 2025, Medallion Bank closed an initial public offering of Series G Preferred Stock, raising $73.1 million in net proceeds for general corporate purposes, including increasing capital levels and growing loan portfolios[196] - The Bank announced the redemption of all outstanding Series F Preferred Stock on July 1, 2025, for $46.0 million, which will result in a $3.5 million charge to earnings attributable to common shareholders[197] - The Bank also has Series E Preferred Stock outstanding, purchased by the U.S. Treasury under the SBLF program, with a 9% dividend rate[199] (15) Subsequent Events Significant events occurring after the balance sheet date - On July 1, 2025, Medallion Bank redeemed its Series F Preferred Stock for $46.0 million, resulting in a $3.5 million charge to earnings attributable to common shareholders[200] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations - The Company's focus and growth are in consumer finance and commercial lending, primarily through Medallion Bank and Medallion Capital[203] - Net interest income is the primary driver of earnings, influenced by loan portfolio yield and the cost of borrowed funds, which include bank certificates of deposit, SBA debentures, and privately placed notes[204] - Total assets were $2.88 billion as of June 30, 2025, with consumer loans representing 95% of the gross loan portfolio[203] Company Background Overview of Medallion Financial Corp.'s business model and strategic focus - Medallion Financial Corp. is a specialty finance company with a strategic focus on consumer finance and commercial lending, primarily through Medallion Bank and Medallion Capital[203] - The Bank originates consumer loans for RVs, boats, collector cars, and home improvements, and provides services to fintech partners, while Medallion Capital focuses on mezzanine financing[203] - The Bank launched a strategic partnership program in 2019 to provide lending services to fintech companies[208] Critical Accounting Policies and Estimates Key accounting policies requiring significant management judgment - Critical accounting policies include the allowance for credit losses and goodwill and intangible assets, which involve significant management judgments and uncertainties[210] - No material changes in critical accounting policies and estimates have occurred since the Annual Report on Form 10-K for December 31, 2024[210] Recently Issued and Adopted Accounting Standards Impact of new accounting pronouncements on the financial statements - ASU 2023-09 (Income Taxes) is effective for annual periods after December 15, 2024, and is not expected to have a material impact[211] - ASU 2024-03 (Expense Disaggregation of Income Statement Expenses) requires additional disaggregation of expenses and is effective for public business entities after December 15, 2026, with the Company currently assessing its impact[212] Control Statutes and Regulations Regulatory environment and compliance requirements for the company and its bank subsidiary - The Bank is an FDIC-insured industrial bank subject to federal and Utah laws and regulations, including capital requirements and restrictions on transactions with affiliates[213] - Acquiring control (e.g., 25% or more of voting stock, or 10% with certain control factors) of the Bank or Medallion Financial Corp. requires prior regulatory approval[213][214] - The Company's operations are subject to various federal, state, and local laws regulating credit granting, interest rates, disclosures, collection practices, and anti-discrimination[215] Average Balances and Rates Analysis of average interest-earning assets, interest-bearing liabilities, and their rates Average Yield on Interest-Earning Assets: | Asset Category | Q2 2025 Yield | Q2 2024 Yield | YTD 2025 Yield | YTD 2024 Yield | | :------------- | :------------ | :------------ | :------------- | :------------- | | Total Loans | 12.27% | 11.98% | 12.16% | 11.89% | | Total Interest-Earning Assets (net of allowance) | 12.23% | 11.94% | 12.16% | 11.84% | Average Cost of Interest-Bearing Liabilities: | Liability Category | Q2 2025 Cost | Q2 2024 Cost | YTD 2025 Cost | YTD 2024 Cost | | :----------------- | :----------- | :----------- | :------------ | :------------ | | Deposits | 3.84% | 3.41% | 3.83% | 3.31% | | Total Interest-Bearing Liabilities | 4.20% | 3.82% | 4.19% | 3.75% | - The yield on total loans increased by 29 basis points for Q2 2025 and 27 basis points for YTD 2025, reflecting higher rates on new consumer originations[222] - The average interest cost for Q2 2025 and YTD 2025 increased by 38 and 44 basis points, respectively, primarily due to higher costs associated with deposits in the current interest rate environment[224] Rate/Volume Analysis Impact of changes in interest rates and volumes on net interest income - The increase in interest income for Q2 and YTD 2025 was mainly driven by the growth in consumer loan portfolios and higher yields on interest-earning assets[227] - The increase in interest expense was primarily due to higher borrowing costs, especially for deposits, as older deposits mature and are replaced at current market rates, and an overall increase in borrowings[227] - The Company expects borrowing costs to continue increasing as new deposits and funds are secured at prevailing higher rates[230] Loans Detailed analysis of loan originations and portfolio trends by segment - The recreation segment continued to grow, while the home improvement lending segment experienced a decline in the three and six months ended June 30, 2025, compared to the prior year[233] Gross Loan Originations (in thousands): | Segment | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------ | :------ | :------ | :------- | :------- | | Recreation | $142,789 | $209,563 | $229,622 | $315,328 | | Home improvement | $54,253 | $67,990 | $103,049 | $119,566 | | Commercial | $9,368 | $7,000 | $19,075 | $7,000 | | Strategic partnership | $168,637 | $24,288 | $304,877 | $40,034 | | Total | $375,047 | $309,091 | $656,695 | $482,178 | - Strategic partnership loan originations significantly increased in 2025, contributing to the overall growth in total originations[234] Provision and Allowance for Credit Losses Assessment of credit quality and the allowance for expected loan losses Allowance for Credit Losses (in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Total allowance for credit losses | $106,896 | $97,368 | | % of total loans held for investment | 4.43% | 4.12% | Provision for Credit Losses (in thousands): | Period | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------------------- | :------ | :------ | :------- | :------- | | Total provision for credit losses | $21,562 | $18,577 | $43,576 | $35,778 | | Recreation loans provision | $15,336 | $15,795 | $32,206 | $32,825 | | Home improvement loans provision | $3,934 | $3,279 | $6,779 | $4,177 | | Commercial loans provision | $2,912 | $478 | $6,026 | $694 | - The allowance for credit losses increased by 31 basis points as a percentage of total loans from December 31, 2024, to June 30, 2025[246] - Provisions for credit losses increased for both the three and six months ended June 30, 2025, driven by rising loss rates and expected losses in recreation loans, partially offset by decreases in home improvement loans[238] Segment Results Financial performance and key metrics for each operating segment Recreation Lending Performance and portfolio characteristics of the recreation lending segment - Recreation lending is a significant income source, accounting for 66% of total interest income for Q2 and YTD 2025[251] - The recreation loan portfolio totaled $1.5 billion as of June 30, 2025, with an average interest rate of 15.12%, up 32 basis points from a year ago[255] Recreation Loan Originations (in thousands): | Period | 2025 | 2024 | 2023 | | :------------ | :-------- | :-------- | :-------- | | First Quarter | $86,833 | $105,765 | $101,681 | | Second Quarter | $142,789 | $209,563 | $190,007 | | Year Ended | $229,622 | $526,634 | $447,039 | - Origination volumes decreased in 2025, reflecting a focus on originating loans expected to perform better during economic downturns[256] - Non-prime originations constituted 36% of total originations for the six months ended June 30, 2025[259] Home Improvement Lending Performance and portfolio characteristics of the home improvement lending segment - The home improvement loan portfolio totaled $803.5 million as of June 30, 2025, with an average interest rate of 9.87%, up 16 basis points from a year ago[265] Home Improvement Loan Originations (in thousands): | Period | 2025 | 2024 | 2023 | | :------------ | :-------- | :-------- | :-------- | | First Quarter | $48,796 | $51,576 | $94,981 | | Second Quarter | $54,253 | $67,990 | $117,035 | | Year Ended | $103,049 | $298,642 | $357,394 | - Origination volumes were lower in 2025, reflecting a focus on higher-performing loans during economic downturns[266] - The allowance for credit losses increased by 11% from a year ago, reflecting higher delinquency and potential losses[265] Commercial Lending Performance and portfolio characteristics of the commercial lending segment - The commercial lending segment originates senior and subordinated mezzanine loans nationwide, with a concentration in California (29% of the portfolio)[273][277] - Net gains on equity investments were $6.1 million for Q2 2025 and $15.5 million for YTD 2025, significantly higher than the prior year[275] - Provision for credit losses in commercial lending increased substantially to $2.9 million for Q2 2025 and $6.0 million for YTD 2025, reflecting specific commercial loan assessments[275] Taxi Medallion Lending Performance and portfolio characteristics of the taxi medallion lending segment - The taxi medallion lending segment operates primarily in the New York City metropolitan area, with a consistent valuation of $79,500 for New York City and Newark medallions[278] - All taxi medallion loans are on nonaccrual status, with underperforming loans transferred to loan collateral in process of foreclosure[278] - Net recoveries and gains from taxi medallion and related assets were $1.4 million for Q2 2025 and $3.0 million for YTD 2025, reflecting collection efforts[279] Corporate and Other Investments Financial results for corporate activities and other investment holdings - This segment includes equity and investment securities, legacy commercial business, and unallocated corporate items, with all goodwill related to the Bank's recreation and home improvement segments[284] - Strategic partnership loans, issued by the Bank and sold to third parties without recourse, significantly increased to $12.3 million at June 30, 2025, from $1.3 million at June 30, 2024[285] Strategic Partnership Loan Originations (in thousands): | Period | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :----- | :------ | :------ | :------- | :------- | | Amount | $168,637 | $24,288 | $304,900 | $40,000 | Summary Consolidated Financial Data Key consolidated financial ratios and performance indicators Selected Consolidated Financial Ratios: | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------------------- | :------ | :------ | :------- | :------- | | Return on average assets | 1.93% | 1.30% | 1.93% | 1.55% | | Return on average equity | 11.13% | 8.25% | 11.63% | 9.70% | | Net interest margin, gross | 8.09% | 8.12% | 8.01% | 8.11% | | Equity to assets | 18.49% | 15.31% | 18.49% | 15.31% | | Debt to equity | 4.3x | 5.4x | 4.3x | 5.4x | | Net charge-offs as a % of average loans receivable | 2.44% | 2.20% | 2.77% | 2.68% | | Reserve coverage ratio | 4.43% | 3.76% | 4.43% | 3.76% | - Return on average assets and equity improved for both the three and six months ended June 30, 2025, compared to the prior year periods[289] - Equity to assets ratio increased to 18.49% at June 30, 2025, from 15.31% at June 30, 2024, while the debt to equity ratio improved from 5.4x to 4.3x[289] Consolidated Results of Operations Overall financial performance, including net income and key revenue/expense items Key Financial Performance (in thousands, except EPS): | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------------------- | :------ | :------ | :------- | :------- | | Net income attributable to shareholders | $11,100 | $7,100 | $23,100 | $17,100 | | Diluted EPS | $0.46 | $0.30 | $0.96 | $0.73 | | Total interest income | $77,400 | $70,700 | $152,900 | $137,800 | | Total interest expense | $24,100 | $20,800 | $48,100 | $40,000 | | Net interest income | $53,400 | $49,900 | $104,800 | $97,800 | | Provision for credit losses | $21,600 | $18,600 | $43,600 | $35,800 | | Net other income | $9,200 | $1,100 | $20,800 | $6,500 | | Operating expenses | $21,500 | $20,000 | $42,300 | $38,200 | - Net income attributable to shareholders and diluted EPS significantly increased for both the three and six months ended June 30, 2025, compared to the prior year[292] - Net interest margin before allowance for credit losses slightly tightened to 8.09% for Q2 2025 and 8.01% for YTD 2025, reflecting rising borrowing costs partially offset by higher loan yields[299] - Net other income saw a substantial increase, driven by higher gains on equity investments and strategic partnership fees[300] Asset/Liability Management Management of interest rate risk and balance sheet structure - The Company is exposed to interest rate risk due to mismatches in repricing of interest-earning assets and interest-bearing liabilities[303] - The one-year cumulative interest rate gap was a negative $563.4 million, or 21% of interest rate sensitive assets, at June 30, 2025, indicating more repricing liabilities than assets within one year[309] - A hypothetical immediate 1% increase in interest rates would result in an annualized increase to net income of $1.7 million as of June 30, 2025[328] Liquidity and Capital Resources Sources of liquidity, capital adequacy, and capital management strategies - Sources of liquidity include brokered certificates of deposit, SBA debenture commitments, loan amortization, private/public debt issuances, and subsidiary preferred securities[311] - Medallion Bank raised $73.1 million in net proceeds from its Series G Preferred Stock IPO in May 2025 to increase capital and grow loan portfolios[312] - The Company repurchased 48,166 shares of common stock for $0.5 million during Q2 2025, with $14.4 million remaining authorized under its stock repurchase program[336] Contractual Obligations (in thousands) as of June 30, 2025: | Obligation Type | Less than 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | More than 5 years | Total | | :-------------------------- | :--------------- | :-------- | :-------- | :-------- | :-------- | :---------------- | :---- | | Borrowings | $750,778 | $547,954 | $439,412 | $241,129 | $216,994 | $103,500 | $2,299,767 | | Operating lease obligations | $2,556 | $2,275 | $638 | $582 | $598 | $247 | $6,896 | | Total | $753,334 | $550,229 | $440,050 | $241,711 | $217,592 | $103,747 | $2,306,663 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Disclosure of market risk exposures and management strategies - No material changes in market risk disclosures since the last Annual Report on Form 10-K[338] ITEM 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and internal control over financial reporting Evaluation of Disclosure Controls and Procedures Assessment of the effectiveness of disclosure controls and procedures - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[339] Changes in Internal Control over Financial Reporting Report on any material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that there were no material changes in internal control over financial reporting during the quarter ended June 30, 2025[340] PART II—OTHER INFORMATION This section provides additional information not covered in Part I ITEM 1. LEGAL PROCEEDINGS Details of legal proceedings and related commitments are provided - Details of legal proceedings are provided in Note 10 to the consolidated financial statements[342] ITEM 1A. RISK FACTORS The company faces various risks in its operations and financial performance - No material changes in risk factors since the Annual Report on Form 10-K for December 31, 2024[343] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Details of unregistered equity sales and stock repurchase activities - The Company repurchased 48,166 shares of common stock at an aggregate cost of $0.5 million during the quarter ended June 30, 2025[344][345] - As of June 30, 2025, $14,406,534 remained authorized for repurchase under the stock repurchase program[344][345] ITEM 5. OTHER INFORMATION Disclosure of trading arrangements by directors and officers - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the quarter[346] ITEM 6. EXHIBITS List of documents filed as exhibits to the report - Exhibits include Amendment No. 3 to Medallion Financial Corp. 2018 Equity Incentive Plan, certifications from CEO and CFO, and XBRL instance documents[347] SIGNATURES Official signatures confirming the submission of the report - The report was signed by Alvin Murstein (Chairman and CEO) and Anthony N. Cutrone (EVP and CFO) on August 5, 2025[350][351]