Earnings call transcript: Medallion Financial Q2 2025 sees EPS beat, revenue miss

Medallion Financial Corp. (MFIN) reported its earnings for the second quarter of 2025, revealing a significant earnings per share (EPS) beat but a miss on revenue expectations. The company posted an EPS of $0.46, surpassing the forecast of $0.315 by 46.03%. However, revenue fell short of expectations, coming in at $53.37 million against a forecast of $60.28 million, marking an 11.46% miss. Following these results, the stock saw a modest increase of 0.69% in regular trading hours, with further gains in pre-market trading. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculation, with the stock trading at an attractive P/E ratio of 6.08x.

Key Takeaways

• EPS exceeded expectations by 46.03%, reaching $0.46.
• Revenue fell short by 11.46%, totaling $53.37 million.
• Stock price increased by 0.69% post-earnings.
• Net income rose by 56% to $11.1 million.
• Strategic partnerships and fintech initiatives expanded.

Company Performance

Medallion Financial demonstrated robust growth in net income, which surged 56% to reach $11.1 million. The company’s net interest income also grew by 7% to $53.4 million, while its net interest margin remained stable at 8.09%. The total loan portfolio increased by 4% year-over-year to $2.49 billion, indicating steady growth in its core business areas. InvestingPro data shows the company maintains excellent financial health with an overall score of 3.13 (rated as "GREAT"), supported by a strong current ratio of 17.04x, indicating robust liquidity management.

Financial Highlights

• Revenue: $53.37 million, a decrease compared to forecasts.
• Earnings per share: $0.46, up from the forecast of $0.315.
• Net interest income: $53.4 million, up 7% year-over-year.
• Net book value per share: $16.77, up from $16.36 in the previous quarter.

Earnings vs. Forecast

Medallion Financial’s EPS of $0.46 outperformed the forecast of $0.315 by 46.03%, marking a significant positive surprise. However, the revenue of $53.37 million fell short of the $60.28 million expectation, resulting in an 11.46% miss. This mixed performance reflects the company’s ability to manage costs and improve profitability despite revenue challenges.

Market Reaction

Following the earnings announcement, Medallion’s stock price increased by 0.69% to $10.17. The stock continued to rise in pre-market trading, adding another 2.97% to reach $10.40. This movement suggests a positive investor sentiment driven by the strong EPS performance, despite the revenue miss. The stock has demonstrated impressive momentum, delivering a 28.02% return over the past year. For deeper insights into Medallion Financial’s valuation and growth prospects, including access to 8 additional ProTips and comprehensive financial metrics, visit InvestingPro.

Outlook & Guidance

Looking ahead, Medallion Financial is targeting high single-digit loan growth while maintaining current credit standards. The company anticipates increased origination numbers with the infusion of new capital and plans to expand its strategic partnership program further. Future EPS forecasts for the upcoming quarters remain steady at around $0.38, with full-year projections of $1.62 for 2025 and $1.59 for 2026.

Executive Commentary

"We are not a bank holding company and not regulated by the Fed, but through Medallion Bank are able to take in FDIC insured deposits," stated Andrew Merstein, President and COO, highlighting the company’s unique position in the financial sector. CFO Anthony Cotrone noted, "Our net interest margin on gross loans was 8.09%, down three basis points from a year ago," emphasizing the company’s focus on maintaining profitability.

Risks and Challenges

• Revenue shortfall: The significant miss on revenue forecasts could indicate challenges in market conditions or competition. Discover comprehensive risk analysis and detailed financial metrics in the Pro Research Report, available exclusively on InvestingPro, covering Medallion Financial and 1,400+ other US stocks.
• Operating costs: Increased operating and employee costs may pressure margins.
• Loan delinquencies: Delinquencies from older loan vintages could impact future performance.
• Regulatory environment: Changes in financial regulations could affect the company’s unique charter benefits.
• Market volatility: Fluctuations in the financial markets may impact investor sentiment and stock performance.

Q&A

During the earnings call, analysts questioned the company’s loan sale strategy, particularly the occasional $53 million recreational loan sales. Medallion confirmed that strategic partnership loans are typically held for only five days, highlighting the dynamic nature of its loan portfolio management. The absence of significant non-recurring items and the focus on maintaining credit standards were also discussed, providing insights into the company’s operational priorities.

Full transcript - Medallion Financial Corp (MFIN) Q2 2025:

Conference Operator: Good day, and welcome to the Medallion Financial Corp. Second Quarter Earnings Conference Call. All participants will be in the listen only mode. 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.

Please note this event is being recorded. I would now like to turn the conference over to Val Ferrero. Please go ahead.

Val Ferrero, Investor Relations, Medallion Financial Corp.: Thank you, and good morning. Welcome to Medallion Financial Corp. Second quarter earnings call. Joining me today are Andrew Merstein, 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 second 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 Merstein, President and Chief Operating Officer, Medallion Financial Corp.: Thank you and good morning everyone. Before discussing our second quarter performance for all of you new to our story, I would like to start by providing an overview of Medallion Financial. Medallion Financial is a specialty finance company primarily operating via two subsidiaries, Medallion Bank and Medallion Capital. Medallion Bank is an industrial bank, a special and unique banking charter. These charters are highly sought after and there are only about 15 of them in The US.

We are not a bank holding company and not regulated by the Fed, but through Medallion Bank are able to take in FDIC insured deposits, thus giving us a low cost dependable funding source for our lending business. We originate and service a growing portfolio of consumer loans working with more than 4,000 dealers, contractors, and financial service providers to finance RVs, boats, collector cars, other consumer recreational equipment and home improvements. We also offer loan origination services via our Fintech strategic partners. Medallion Bank recently raised over 75,000,000 through a public offering of non cumulative perpetual preferred stock that trades under the symbol MBNKO on the Nasdaq. Medallion Capital is a small business investment company or SBIC with its founding dating back to the nineteen eighties.

As an SBIC, Medallion Capital is able to access 10 debentures from the Small Business Administration. These debentures, along with capital, are what fund our growing commercial loan portfolio. While most SBICs have a finite life, Medallion Capital has a permanent capital base which has allowed it to operate and grow for nearly four decades. This unique structure is advantageous and allows us to invest over a longer time horizon than many of our competitors. Medallion Capital originates and services mezzanine loans in various commercial industries and as an equity investment in many of the portfolio companies it finances.

Now, moving on to our quarterly results. We are very pleased with our second quarter performance. As compared to the second quarter of last year, our net income increased 56% to $11,100,000 and our earnings increased to $0.46 per share. Net interest income also increased 7% to 53,400,000 and our net interest margin remained steady at 8.09%. 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. While total originations for both recreational and home improvement segments were lower at $197,000,000 compared to $277,600,000 a year ago, interest income rose 9% to 71,200,000.0. The recreation loan book grew modestly to 1,550,000,000.00 representing 62% of our total loans. While originations were lower at $142,800,000 compared to $209,600,000 a year ago, interest income rose 8% to 51,100,000.0 Delinquencies of ninety plus days were just 0.49% of gross recreational loans and the allowance for credit losses was 5.05% to reflect expected seasonal and economic dynamics as compared to 4.35% a year ago. The home improvement loan book also grew modestly to 803,500,000.0 as of 06/30/2025 representing 32% of our total loans.

Originations were 54,300,000.0 versus 68,000,000 last year. Delinquencies of ninety plus days were just point 16% of gross home improvement loans and the allowance for credit losses was 2.54% compared to 2.38% a year ago. Importantly, we are originating loans to individuals in these niches that have strong credit quality with average FICOs and new originations now $6.87 for recreational and $7.81 for home improvement. The vast majority of our book falls within super prime to near prime, which has moved up over the years. Our commercial segment continues to deliver meaningful equity gains.

It generated $3,300,000 of income this quarter and equity gains have now generated a total of $27,600,000 of income over the past eight quarters. The portfolio grew to $121,400,000 with an average interest rate of 13.43%. Additionally, as of June 30, we had more than 30 equity investments with a book value of just $8,100,000 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. 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 third straight quarter of over 120,000,000 of originations reaching a record level of 168,600,000.0 this quarter.

Most of these loans are outside of rec and home improvement and are mostly offered as employee benefit 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 1,200,000.0 this quarter, This business 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 $2,300,000 of cash during the quarter.

Net taxi medallion assets declined to just $5,900,000 and now represent less than 0.3% of our total assets. Despite the small size, these assets continue to generate cash and with more than $150,000,000 of charge off medallion loans, a majority in New York City, we believe there continues to be recovery opportunities. From a capital allocation perspective, we remain committed to returning capital to shareholders. During the quarter, we repurchased more than 48,000 shares of our stock and have approximately $14,400,000 remaining under our $40,000,000 repurchase program. Additionally, we paid a quarterly dividend of $0.12 per share representing a 20% increase year over year and marked the third increase to our dividend since we reinstated it three years ago.

Overall, we remain encouraged by the momentum across our business lines and believe we are well positioned for continued success. With that, I’ll now turn it over to Anthony, who will provide some additional insight into our quarter.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Thank you, Andrew. Good morning, everyone. For the second quarter, net interest income grew 7% to 53,400,000 from the same quarter a year ago. Our net interest margin on gross loans was 8.09%, down three basis points from a year ago. Our total interest yield increased 23 basis points from a year ago to 11.75%, and the average interest rate on our deposits was 3.81% at the June.

During the second quarter, we originated $142,800,000 of recreation loans at an average rate of fifteen point nine six percent and $54,300,000 of home improvement loans at an average rate of 11.57%. 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 July at rates averaging around 16% for recreation loans and averaging around 11% for home improvement loans. Our loan portfolio was $2,490,000,000 at the June, up 4% from a year ago and included both loans held for investment and loans held for sale. Total loans included 1,500,000,000 of recreation loans, 803,500,000.0 of home improvement loans, and $121,400,000 of commercial loans. For the quarter, the average yield on our loan portfolio increased 29 basis points from a year ago to 12.27%.

Consumer loans more than ninety days past due were 8,600,000.0 or 0.37% of total consumer loans, as compared to $11,400,000 or 0.49% at the 2024 and $7,200,000 or 0.33% a year ago. Our provision for credit loss was $21,600,000 for the quarter, a decrease from $22,000,000 in the first quarter and an increase from $18,600,000 in the prior year quarter. During the quarter, we increased the allowance for credit loss in the commercial loan portfolio by $2,900,000 as well as increasing the allowance for credit loss on our consumer loans, which resulted in an additional provision of $3700000.03500000.0 dollars of which was related to recreation loans and $200,000 tied to home improvement loans. In addition, the current quarter provision included $600,000 of benefits related to taxi medallions. The total net benefits related to taxi medallions during the quarter were $1,400,000 Net charge offs in the recreation portfolio during the quarter were $11,900,000 or 3.25% of the average portfolio and were $3,800,000 or 1.87% of the average home improvement portfolio.

Turning to expenses. Operating costs totaled $21,500,000 during the quarter, up from $20,000,000 in the prior year quarter. The increase over the prior year included costs associated with technological initiatives surrounding our servicing platform and capabilities. These initiatives will allow 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 efficiency long term. These costs are expected to remain elevated in comparison to prior years as we continue to expand our capabilities and incur the costs of the customized platform.

Employee costs increased roughly $700,000 both as a function of retaining talent as well as enhancing our talent pool. For the quarter, net income attributable to our shareholders was $11,100,000 or $0.46 per diluted share. Our net book value per share as of June 30 was $16.77 up from $16.36 a quarter ago and $15.25 a year ago. Our adjusted tangible book value per share, which excludes the value of goodwill, intangible assets, and the correlated deferred tax liability associated with both, was $11.32 at the end of the quarter, up from $10.9 a quarter ago and $9.74 a year ago. That covers our second quarter results.

Andrew and I are now happy to take your questions.

Conference Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. Our first question comes from Christopher Nolan with Ladenburg Thalmann.

Please go ahead.

Christopher Nolan, Analyst, Ladenburg Thalmann: Hi. Congratulations on the quarter. What were the strategic partners that you sold the loans to identified? I didn’t see it.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: No. Are you referring to the loan sale that generated the $1,300,000

Christopher Nolan, Analyst, Ladenburg Thalmann: Correct.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Yes. So those weren’t the strategic partnership loans. Those were actual rec loans. We had started talking with a couple of different potential buyers six or seven months ago, and we closed a sale of about $53,000,000 in April. So those were our typical rec loans that we usually hold on the balance sheet.

Christopher Nolan, Analyst, Ladenburg Thalmann: Okay. And is that going to be an ongoing thing?

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Yes. Wouldn’t expect to see it on a quarterly basis every quarter, but we do think it’s a good way for us to keep the engine going with our origination platforms. There’s clearly an appetite for this type of loan product. So we do expect to do more of these in the future.

Christopher Nolan, Analyst, Ladenburg Thalmann: And the strategic loan, those remain on the balance sheet, if I understand it correctly, is that right?

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: They remain on the balance sheet only for five days, I think on average the whole period. So we’ll fund these loans. We do our diligence. We fund these loans and then five days later, the partner or related entity of the partner would buy these loans back from us.

Christopher Nolan, Analyst, Ladenburg Thalmann: Got you. Were there any non recurring items in the quarter aside from the gains?

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Other than the $1,300,000 gain on the loan sale, which we’ll probably see more of those as we get through the upcoming quarters. I don’t think there’s anything that I would call out as non recurring. Everything that’s going on right now is core to our business.

Christopher Nolan, Analyst, Ladenburg Thalmann: Got you. And then, I guess, with the fair value loans, should we start seeing more regular gains and losses on the income statement as the values of those fluctuate?

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: I think the fair value portfolio of these loans sits right around $60,000,000 right now. So we hold them at the lower of amortized cost or fair value. So currently fair value was higher, which is why we were able to book a gain. So we don’t intend on marking those loans up until there’s actually an exit. If something were to happen in the market and we couldn’t sell these loans, that portfolio obviously we would have to take a charge and mark those downs.

But we would only expect to see gains going forward upon the exit.

Christopher Nolan, Analyst, Ladenburg Thalmann: Okay. Final question, I apologize for the string of questions, but this is an important one.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: No problem. That’s why we’re here.

Christopher Nolan, Analyst, Ladenburg Thalmann: Your reserve ratio is going up. Your capital ratios are going up, which are all good things. It gives you some flexibility. What’s the thinking in terms of managing both the reserves and the capital levels going forward?

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Yes. So the capital, particularly at the bank, our capital went up significantly during the quarter and that’s driven by the offering we did in May raising $77,500,000 of perpetual preferred stock. We think we’ve got ample capital to continue growth now. We should expect growth higher than what we’ve seen in the two quarters. And we still target on average that high single digits growth rate long term.

In terms of allowance, yes, I think that’s more of a function of us managing our growth and really ties to the economics, the overall economy as well as the performance of the portfolio.

Christopher Nolan, Analyst, Ladenburg Thalmann: Okay. That’s it for me. Thank you.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Thanks, Chris.

Conference Operator: Thank you. Our next question comes from Mike Grondahl with Northland Securities. Please go ahead.

Logan, Analyst, Northland Securities: Hey, guys. This is Logan on for Mike. Thanks for taking our question. Hi, Logan. Hey, guys.

It appears like rec loan delinquency seems to be trending up year over year. Is there anything to call out on that? Thanks.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: No, nothing to call out. We’ve spoken about it in the past, probably halfway through 2023, we took a big step up in the credit and the type of loans that we wanted to write, while maintaining the yield that we get on these loans. I think what we’re seeing in terms of delinquency is that, are those older vintages pre that big step up in credit where the charge offs remain slightly elevated and the performance isn’t as good. We’re definitely seeing improved performance in our newer vintages and that’s the type of loans that we’re writing currently. So we would expect that improve as the quarters and years go by.

Logan, Analyst, Northland Securities: Great. That’s good to hear. And then when excluding strategic partnership loans, originations were down about $78,000,000 year over year. Is this just due to a tightening of underwriting? Any color there would be great.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Yes, think it’s our underwriting standards. It’s managing capital. One of the things that we’ve got to do is make sure that we’ve got enough capital, not just for today, but based upon our projections. I think with this additional capital that we’ve raised, we’ll be able to grow and put more originations and more loans on the book. Wouldn’t expect it to all happen in Q3.

It’s a slow process, but we do think that with this capital, could see that origination number go up.

Logan, Analyst, Northland Securities: Yes, that makes sense. And then for clarification purposes, can you walk us through unit economics of these strategic partnership loans and how they compare to consumer loans?

Andrew Merstein, President and Chief Operating Officer, Medallion Financial Corp.: Sure. So the way that works is we have about five FinTech partners. We hope to sign another large one in the next ninety days or so. But the ones that we have, they’ll send us their loans, we’ll fund them, we’ll charge a fee of ranges from 20 basis points to 50 basis points. And then we’ll get the float for a couple of days as Anthony mentioned about five days or so.

So the float is nicely to our numbers because these yields are about 20% interest rates. They’re a lot higher than our typical consumer loans.

Logan, Analyst, Northland Securities: Thanks for the color there. And one last one from us. Anything else to call out in terms of outlook for loan growth, margin and credit quality going forward? Thanks.

Anthony Cotrone, Executive Vice President and Chief Financial Officer, Medallion Financial Corp.: Yes. No, I don’t think there’s anything to call out. As I think we just spoke about, we would expect to maintain our current credit standards. We’re not looking to reduce rates, although we do want to we are mindful of competition and we don’t want to price ourselves out of the market. In terms of margin, we’re hovering around that eight ish where we’ve been for a number of quarters now.

We would expect it to remain in that realm over the next few quarters with some expansion coming when we start to see interest rates eventually fall.

Andrew Merstein, President and Chief Operating Officer, Medallion Financial Corp.: Then eight ish is a big number. It’s 800 basis points or so, which is a pretty high standard compared to where other banks are getting their net interest margins these days.

Logan, Analyst, Northland Securities: Great. Thank you guys. Congrats on the quarter.

Val Ferrero, Investor Relations, Medallion Financial Corp.: Thank you.

Conference Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Andrew Merstein for any closing remarks.

Andrew Merstein, President and Chief Operating Officer, Medallion Financial Corp.: Thank you. As mentioned, we’re pleased with our performance for the first half of the year. As we move into the second half of the year and beyond, we will remain focused on delivering value to our shareholders through the execution of our prudent growth strategy. Our commitment to our shareholders remains strong, evidenced by our ongoing delivery of earnings, our opportunistic buybacks and our recently increased dividends. As always, if you have any questions, please feel free to contact our Investor Relations team.

The contact info is on the last page of our earnings supplement as well as the IR section of our website. Thank you again for your time and interest in Medallion. Have a great rest of your day.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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