Medallion Financial - Earnings Call - Q3 2025

Executive Summary

• Q3 delivered record net interest income and strong NIM expansion, but GAAP EPS of $0.32 was slightly below S&P Global consensus $0.345; excluding a non-recurring $3.5M Series F preferred redemption, operating EPS would have been $0.46, implying a beat on a normalized basis. S&P Global consensus: EPS $0.345, revenue $53.8M; actual revenue $83.8M, a clear top-line beat* [*].
• Net interest income grew 6% YoY to $55.7M; NIM on gross loans improved to 8.21% (net loans 8.56%); average deposit cost remained contained at 3.82% at quarter-end.
• Strategic Partnerships scaled to a record $208.4M of originations (fees $1.0M; 5-day average hold), diversifying fee income; recreation/home improvement credit quality remained solid despite seasonal upticks in delinquencies.
• Capital return supported by an unchanged $0.12 dividend for Q4 and $14.4M buyback authorization remaining; book value per share rose to $17.07.
• Management expects further NIM expansion with Fed cuts and sees accelerated loan growth with potential loan sales and new partner onboarding—near-term catalysts alongside leadership transition to Andrew Murstein as CEO effective Jan 31, 2026.

What Went Well and What Went Wrong

• What Went Well

  • Net interest income reached a record $55.7M (+6% YoY); NIM on gross loans improved to 8.21% and on net loans to 8.56%, reflecting higher asset yields and stable funding costs.
  • Strategic Partnerships posted a record $208.4M of originations (fees $1.0M; 5-day average hold), up sharply YoY, demonstrating scalable, capital-light growth.
  • Taxi medallion runoff generated $6.1M cash collections and $3.4M net recoveries; book value per share increased to $17.07; management emphasized data-driven underwriting and platform analytics as competitive advantages (“record highs in net interest income, loan volume and total assets”).

• What Went Wrong

  • GAAP diluted EPS of $0.32 missed S&P consensus $0.345 owing to a $3.5M non-recurring redemption charge; operating EPS ex-charge was $0.46 but Street may not have fully normalized this [*].
  • Operating expenses rose to $20.7M (technology platform investments and talent), and recreation/home improvement allowances ticked up (Rec ACL 5.10%, HI ACL 2.55%) alongside seasonal delinquency increases.
  • Home improvement originations declined YoY to $59.7M; commercial equity gains were modest at $0.3M vs stronger prior periods, tempering non-interest income contribution this quarter.

Transcript

Operator (participant)

Good day and welcome to Medallion Financial Corp third quarter of 2025 earnings call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw a question, please press star then two. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Val Serra, Investor Relations. Please go ahead.

Val Serra (Investor Relations)

Thank you and good morning. Welcome to Medallion Financial Corp's third quarter earnings call. Joining me today are Andrew Murstein, President and Chief Operating Officer, and Anthony Cotrone, Executive Vice President and Chief Financial Officer. Certain statements made during the call today constitute forward-looking statements. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in our earnings press release issued yesterday and in our filings with the SEC. The forward-looking statements made today are as of the date of this call and we do not undertake any obligation to update these forward-looking statements. In addition to our earnings press release, you can find our third quarter supplement presentation on our website by visiting medallion.com and clicking Investor Relations. The presentation is near the top of the page. With that, I'll turn it over to Andrew.

Andrew Murstein (President and COO)

Thank you and good morning everyone. We are pleased with the strong performance we delivered in the third quarter of 2025 as compared to the third quarter of last year. Our net income was $7.8 million, $11.3 million when excluding a non-recurring $3.5 million charge related to the redemption of first stock at Medallion Bank, supported by a 6% increase in net interest income to $55.7 million and continued momentum across our core lending verticals. We also saw a further improvement in net interest margin on both gross and net loans, which is reflected in our earnings during the quarter. We redeemed the Series F Preferred Stock at Medallion Bank. While that resulted in a one-time $3.5 million charge to earnings, it lowers our ongoing cost of capital at the bank and positions us well going forward across the portfolio.

We continue to execute effectively with meaningful contributions from our recreation, home improvement, and commercial lending lines. Total loans reached $2.559 billion and loan originations came in at $427 million for the period, an increase from both the previous quarter and year-over-year. This improved performance reflects the continued strength across our lending segments, driven by disciplined execution and strategic positioning, which I will now walk through in further detail. I'll start with consumer lending, our largest and most profitable business line, which continues to anchor our performance. With interest income of $74.1 million for the quarter, growing 5% as compared to the same period of last year, despite consumer lending originations being $201.4 million as compared to $235.6 million a year ago. Within the consumer lending segment, the recreational loan book grew 3% to $1.603 billion at September 30, 2025, representing 63% of our total.

Loan originations also grew slightly to $141.7 million compared to $139.1 million a year ago, and interest income rose 4% to $53.6 million. Delinquencies of 90+ days were just 0.57% of gross recreational loans, and the allowance for credit losses was 5.1% to reflect expected seasonal and economic dynamics as compared to 4.53% a year ago. The home improvement loan book decreased modestly to $804 million at September 30, 2025, representing 31% of our total loans. Originations were $59.7 million versus $96.5 million last year. Delinquencies of 90+ days were just 0.16% of gross home improvement loans, and the allowance for credit losses was 2.55% compared to 2.42% a year ago.

Importantly, we are originating loans to individuals. In these niches that have strong credit quality with average FICO on new originations now 688 for rec and 779 for home improvement. The vast majority of our book falls within super prime to near prime, which has moved up over the years. Moving on to our commercial segment, which continues to deliver meaningful equity gains, we had new originations of $17.5 million during the quarter and the portfolio grew to $135.1 million with an average interest rate of 13.71%. Additionally, as of September 30th, we had nearly three dozen equity investments with a book value of just $9.3 million on our balance sheet. These equity components are a result of our long term strategic investments, and while the timing of exits is inherently unpredictable, we remain confident in our pipeline.

During the quarter, gains from equity investments were modest, generating $300,000 of income, but have generated $15.8 million year to date and we do expect more realizations in the coming quarters. Our strategic partnership program, whereby we earn an origination fee and about three to five days of interest on holding loans before selling them back to the partner, had its fourth straight quarter of over $120 million of originations, reaching a record level of $208.4 million this quarter. Total loans held as of quarter end under the strategic partnership program were $15.3 million. Most of these loans are outside of rec and home improvement and are mostly offered as employee benefits by large employers and loans for unplanned or elective medical procedures.

Although this program represents a small part of fees and interest generated from Medallion Financial approximately $1.5 million in total this quarter, it has nearly tripled from a year ago and continues to expand each quarter and represents a further diversification of our income sources. We continue to do work on our growing pipeline of new partner prospects and expect to add new partners over time. Furthermore, we are taking a very methodical approach to growth to ensure we continue to do it the right way. Turning to our taxi medallion assets, we collected $6.1 million of cash during the quarter, which resulted in net recoveries and gains of $3.4 million. Net taxi medallion assets declined to just $5.1 million and now represents less than 0.2% of our total assets.

Despite the small size, these assets continue to generate cash, and with more than $150 million of charge-off medallion loans, a majority in New York City, we believe there continue to be recovery opportunities. From a capital allocation perspective, we remain committed to returning capital to shareholders. During the quarter, we paid a quarterly dividend of $0.12 per share, and although we did not repurchase any shares this quarter, with $14.4 million remaining under a $40 million repurchase program, we would expect to see additional purchases in the quarters to come, enhancing the return we provide to shareholders. From a credit perspective, we continue to benefit from a diversified portfolio, prudent underwriting standards, and attractive returns on our lending activities. Our approach is highly analytical and data-driven, supported by advanced digital tools that help optimize underwriting, origination, servicing, and overall portfolio visibility.

These capabilities allow us to assess risk with precision and maintain consistently strong performance across operating environments with solid execution across our businesses. A disciplined approach to credit, a strong demand for our loan products. We believe we're well positioned to deliver sustainable growth and attractive shareholder returns over the long term. With that, I'll now turn it over to Anthony, who will provide some additional insight into our quarter.

Anthony Cotrone (EVP and CFO)

Thank you, Andrew. Good morning everyone. For the third quarter, net interest income grew 6% to $55.7 million from the same quarter a year ago. Our net interest margin was 8.21%, up 10 basis points from a year ago. Our total interest yield increased 17 basis points from a year ago to 11.92%, and the average interest rate on our deposits was 3.82% at the end of September, up just 1 basis point from the prior quarter. During the third quarter, we originated $141.7 million of recreation loans at an average rate of 15.77% and $59.7 million of home improvement loans at an average rate of 10.9%. We continue to originate both recreation and home improvement loans at rates above our current weighted average coupon in these portfolios, with new originations in October at rates averaging around 15.5% for recreation loans and averaging around 10.5% for home improvement loans.

Our loan portfolio reached a value of $2.559 billion at September 30, up 3% from a year ago, and included both loans held for investment and those loans held for sale. Total loans included $1.6 billion of recreation loans, $804 million of home improvement loans, $135 million of commercial loans, and $15.3 million of strategic partnership loans. For the quarter, the average yield on our total loan portfolio increased 27 basis points from a year ago to 12.39%. Consumer loans more than 90 days past due were $10.2 million, or 0.43% of total consumer loans, as compared to $9 million or 0.39% a year ago. Our provision for credit loss was $18.6 million for the quarter, a decrease from $21.6 million in the second quarter and a decrease from $20.2 million in the prior year quarter.

During the quarter, we increased the allowance for credit loss in the commercial loan portfolio by $300,000 as well as increasing the allowance for credit loss on our consumer loans given both seasonality and economic uncertainties, which resulted in additional provision of $3.9 million, $3.8 million of which was related to recreation loans with the remainder tied to home improvement loans. Additionally, the current quarter provision included $1.7 million of benefits related to taxi medallion loans. Total net benefits related to taxi medallion during the quarter were $3.4 million. Net charge-offs in the recreation portfolio during the quarter were $12.9 million or 3.36% of the average portfolio and were $2.1 million or 1.03% of the average home improvement portfolio. Turning to expenses, operating costs totaled $20.7 million during the quarter, up from $19 million in the prior year quarter.

The $1.7 million increase over the prior year included costs associated with technological initiatives surrounding our servicing platform and capabilities, resulting in higher third-party professional services and higher depreciation expense. As we've said in the past, the upgraded platform allows for greater flexibility in the servicing of our consumer loans with a fair amount of self-service tools, which we believe will add to an improved customer experience and greater efficiencies long term. As previously disclosed, these costs are expected to remain elevated in comparison to prior years as we continue to expand our capabilities and incur the cost of the customized platform. Employee costs increased roughly $700,000 from a year ago, both as a function of retaining talent as well as enhancing our talent pool. For the quarter, net income attributable to shareholders was $7.8 million or $0.32 per diluted share.

Net income to shareholders included a non-recurring charge of $3.5 million, an impact of $0.14 related to the redemption of Medallion Bank Series F Preferred Stock. Excluding this non-recurring charge, earnings would have been $11.3 million compared to $8.6 million or $0.37 per share earned in the prior year quarter. Our net book value per share as of September 30, was $17.07, up from $16.77 a quarter ago and $15.70 a year ago. Our adjusted tangible book value, which excludes the value of goodwill, intangible assets, and the correlated deferred tax liability associated with both, was $11.64 at the end of the quarter, up from $11.32 a quarter ago and $10.17 a year ago. That covers our third quarter results. Andrew and I are now happy to take your question.

Operator (participant)

We will now begin the question and answer session again. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If you'd like to withdraw a question, please press star then two. At this time, we will pause just momentarily to assemble our roster and our First question here will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Christopher Nolan (SVP)

Hey guys. Anthony, was the operating EPS $0.46 a share?

Anthony Cotrone (EVP and CFO)

$0.32 and $0.14 on that $3.5 million charge on the redemption of the bank's Series F Preferred Stock would get you to $0.46.

Christopher Nolan (SVP)

Okay. Were there any loans sold in the quarter?

Anthony Cotrone (EVP and CFO)

Other than within the strategic partnership program, we still have a fair amount of recreation loans that we do anticipate selling. I don't know if it'll happen in Q4, but we are targeting sometime in the next couple of quarters. What we're seeing is with the capital levels we have at the bank, that might not be necessary. As something comes together, we'll determine whether or not we want to bring those back and hold them or if we want to continue to sell them.

Christopher Nolan (SVP)

Okay. I noticed that on the income statement, non-controlling income increased quarter-over-quarter. On the balance sheet, non-controlling interest decreased. Does that relate to the Series F Preferred Stock redemption?

Anthony Cotrone (EVP and CFO)

Yeah. The decrease on the balance sheet is the redemption of the Series F. That's correct. On the income statement, we broke it out. You've got the $3.5 million on the redemption of the Series F and also the interest or the dividend, the preferred dividend on those, on the SPLF and the Series G. That's going to be recurring, that's 9% of that non-controlling interest. That's what we would expect to see going forward.

Christopher Nolan (SVP)

We should see what should be the non-controlling income quarterly going forward on a runway.

Anthony Cotrone (EVP and CFO)

It's the $2.33 million.

Christopher Nolan (SVP)

Versus 1.5%, which was roughly the runway earlier. Correct?

Anthony Cotrone (EVP and CFO)

Right. Our non-controlling interest, the preferred stock at the bank, has increased over the last year. It's gone up, and the Series F a year ago had an 8% coupon. The Series G has a 9%, which is higher than last year but lower than what the Series F stepped up to in Q2.

Andrew Murstein (President and COO)

Got it.

Christopher Nolan (SVP)

Final question, and I guess for Andrew, given the government shutdown, do you guys have exposure to government employees?

Andrew Murstein (President and COO)

No. Nothing that would affect this at all.

Christopher Nolan (SVP)

Okay, great. All right. Nice call. Thanks, guys.

Anthony Cotrone (EVP and CFO)

Thanks, Chris.

Operator (participant)

Our next question will come from Mike Grondahl with Northland Securities. Please go ahead.

Hey, this is Logan on for Mike. Thanks for taking our question. First, congrats on the continued growth of the strategic partnership program loans. Could you give us some color on how you guys are viewing strategic originations and fees in 2026? Thank you.

Andrew Murstein (President and COO)

That's been growing for quite some time now. We're pleased with the way it's been performing the last several quarters. We're going to try to bring on. One or two new partners in the next one to two quarters. Therefore, I think you're going to see a continued increase in performance there. The volume should go up significantly, probably, if we're able to contract with those firms. Even if we don't, I think the volume is just ramping up nicely on its own.

Great. Can you provide some color on why recreation originations were flat year-over-year and what your outlook is for that segment?

Part of it is just the capital. We raised our credit standards the last several quarters. We didn't complete our offering. I think it was May or so. We were just cautious. We didn't know if we were going. To be able to successfully close the transaction. We thought we would, but until, you know, senior money's in the bank, so to speak, you never know for sure. Now that we're able to use that money and leverage it up with low cost deposits, I think you're going to see accelerated growth the next several quarters.

Got it. With the Fed cutting rates yesterday for the second time, how should we be thinking about margins going forward?

Anthony Cotrone (EVP and CFO)

Yeah, I think the trend we saw in Q3 with margin expansion is something we would continue. You know, we're currently writing loans at rates above where our WACC sits, so we would expect our yield to continue. We should start to see some drop in cost of funds over the next couple of quarters. It might take, you know, another quarter or two. I wouldn't expect any additional compression. We should start to see some expansion, you know, further expansion in the coming quarters.

Got it. One last one from us. How do you feel about overall loan growth going forward?

Andrew Murstein (President and COO)

I think we all feel pretty positive about it.

It should grow closer to what it was several years ago when we had the excess capital, and again we have it now. We also brought in a significant group that was doing home improvement lending, and they just started with us a couple of weeks ago. I'm hearing great things about their names and reputations, and we may put out a release about it in the next few weeks. That should really be supercharged for us. I think if they can perform like. We believe they can. I think that's going to really accelerate the home improvement loans.

Got it. Thanks, guys. Congrats on the quarter.

Thank you.

Operator (participant)

With that, we will conclude our question and answer session. I'd like to turn the conference back over to Andrew Murstein for any closing remarks.

Andrew Murstein (President and COO)

Thank you. Before closing the call, as many of you know, the board of directors appointed me into an expanded role as CEO starting January 31st, 2026. I'm truly excited about this opportunity to build on our momentum and continue driving the company forward. I'm going to continue to work closely with our leadership team to assess performance across all of our business lines, identify new opportunities, and ensure we remain agile in a rapidly evolving market environment. Over the past quarters, our focus has been on executing our strategic priorities, strengthening our operational foundation, and positioning the company for sustainable long term growth. As we approach the end of the year, we're proud of the strong performance.

We've achieved so far in 2025 and remain confident that we will continue to deliver solid results in the final quarter of this year. Moving forward, we plan to maintain the growth strategy that has guided our lending business successfully over the past several years. Our commitment to our shareholders remains strong, evidenced by our consistent earnings, our strategic buyback, and our dividend. Thank you again for your investment and interest in Medallion, and have a great rest of your day.