Executive Summary / Key Takeaways

• Strategic Transformation and Growth: Medallion Financial Corp. has successfully pivoted from its legacy taxi medallion business to become a robust specialty finance company, driving significant growth in its consumer (recreation and home improvement) and commercial lending segments, achieving over $1 billion in loan originations in 2024 for the first time.
• Differentiated Funding and Capital Strength: The company benefits from a unique funding structure through its Medallion Bank subsidiary, an FDIC-insured industrial bank, which provides a low-cost, dependable deposit base. Recent capital raises, including a $77.5 million Series G Preferred Stock offering in May 2025, have bolstered capital levels, enabling accelerated loan growth.
• Robust Credit Quality and Yield Expansion: MFIN maintains high credit standards, with average FICO scores on new originations of 688 for recreation and 779 for home improvement loans. The company is actively originating new loans at rates above its current weighted average coupon, leading to stabilizing and expanding net interest margins despite a rising cost of funds.
• Accretive Commercial and Strategic Partnerships: The commercial lending segment consistently delivers meaningful equity gains, with $15.8 million year-to-date in Q3 2025, while the strategic partnership program is rapidly diversifying income streams with record originations of $208.4 million in Q3 2025.
• Shareholder Returns and Leadership Transition: MFIN demonstrates a strong commitment to shareholder returns through consistent dividends, recently increased to $0.12 per share, and an active share repurchase program. A planned leadership transition in January 2026, with Andrew Murstein becoming CEO, is poised to build on current momentum and drive future growth.

A Specialty Finance Powerhouse Forging Ahead

Medallion Financial Corp. (NASDAQ:MFIN) stands as a distinctive specialty finance company, strategically repositioned from its historical roots to capitalize on high-growth consumer and commercial lending markets. Incorporated in 1995, MFIN's journey has been marked by a significant pivot away from its legacy taxi medallion lending, which Medallion Bank ceased in 2014 and the parent company in 2015, towards a diversified portfolio. This strategic evolution is underpinned by its key subsidiaries: Medallion Bank, an FDIC-insured industrial bank, and Medallion Capital, a Small Business Investment Company (SBIC) with a unique permanent capital base. These foundational elements provide MFIN with a low-cost, dependable funding source and the ability to invest over longer time horizons than many competitors.

The company's overarching strategy centers on disciplined growth in its core lending verticals while maintaining stringent credit quality. This approach has enabled MFIN to achieve a significant milestone in 2024, surpassing $1 billion in loan originations for the first time in its history, a testament to its refined focus and operational effectiveness. MFIN's commitment to a "highly analytical and data-driven" approach, utilizing advanced digital tools, is central to its competitive positioning and operational efficiency.

Competitive Edge Through Niche Focus and Digital Tools

In the dynamic financial services landscape, Medallion Financial carves out a distinct niche, setting it apart from broader market players. Unlike diversified digital lenders such as LendingClub (LC), which emphasize a marketplace model and rapid online loan origination, MFIN's strength lies in its specialized segments like recreation and home improvement lending. While LendingClub's technological infrastructure offers faster processing and broader accessibility, MFIN's deep expertise and established relationships in these specific verticals foster stronger customer loyalty and potentially higher pricing power in underserved markets.

Against subprime auto lenders like Credit Acceptance Corporation (CACC), MFIN offers a more diversified consumer lending portfolio, reducing its singular exposure to any one segment. While CACC benefits from economies of scale in its high-volume auto lending, MFIN's multi-segment approach provides strategic adaptability to mitigate risks. Similarly, compared to online financial service providers like Enova International (ENVA), which excel in rapid, digitally-focused short-term lending, MFIN's traditional, relationship-based services in commercial and niche consumer segments offer stability, though it may lag in the speed of digital innovation. Ally Financial (ALLY), a digital bank with a broad auto financing and consumer lending platform, possesses wider reach and efficiency. However, MFIN's specialized focus, particularly in areas like medallion lending (though a diminishing part of its portfolio), allows for unique market positioning where larger competitors have limited presence.

MFIN's competitive advantages, or "moats," are built on its niche expertise, strong customer relationships, and specialized regulatory licenses. These translate into tangible benefits such as potentially higher margins through efficient capital allocation in less competitive segments. The company's "highly analytical and data-driven" approach, supported by advanced digital tools, optimizes underwriting, origination, servicing, and overall portfolio visibility. These capabilities enable precise risk assessment and consistent performance across various operating environments. The upgraded servicing platform, for instance, offers greater flexibility and self-service tools, which are expected to improve customer experience and drive long-term efficiencies, even as these technological initiatives contribute to elevated operating expenses. This strategic investment in technology, while increasing costs in the short term, is designed to enhance MFIN's competitive standing and support its growth trajectory.

Segmental Performance and Growth Drivers

MFIN's diversified lending portfolio is the engine of its profitability, with each segment contributing uniquely to the company's financial health.

Recreation Lending: A Core Growth Engine

The Recreation Lending segment, MFIN's largest, continues to be a significant income source, accounting for 63% of total loans. As of September 30, 2025, the gross loan book stood at $1.60 billion, a 3% increase from a year prior. Interest income for Q3 2025 rose 4% to $53.57 million, contributing to a year-to-date Q3 2025 interest income of $155.13 million, up 8.6% from the previous year. New originations in Q3 2025 were $141.67 million, a slight increase year-over-year, though year-to-date originations were down 18.3% as the company focused on higher-quality loans. The weighted average FICO score for new originations in YTD Q3 2025 was 688, reflecting management's emphasis on strong credit quality. Delinquencies (90+ days past due) were 0.57% of total loans, with an allowance for credit losses at 5.10% of gross loans held for investment. Management anticipates accelerated growth in the coming quarters, leveraging recently raised capital and low-cost deposits.

Home Improvement Lending: Poised for Acceleration

The Home Improvement Lending segment, comprising 31% of total loans, saw its loan book modestly decrease to $804.00 million as of September 30, 2025. Interest income for Q3 2025 grew 7.6% to $20.45 million, with YTD Q3 2025 interest income reaching $60.36 million, an 11.6% increase. Originations in Q3 2025 were $59.71 million, down 38.2% year-over-year, as the company maintained its focus on credit quality. The average FICO score for new originations in YTD Q3 2025 was a robust 779. Delinquencies (90+ days past due) improved to 0.16% from 0.19% a year ago, and the allowance for credit losses was 2.55%. Management expects a "supercharge" in this segment following the recent addition of a significant home improvement lending team, signaling strong growth prospects.

Commercial Lending: Equity Gains and Strategic Investments

The Commercial Lending segment, focusing on mezzanine loans, continues to be a source of meaningful equity gains. The gross loan portfolio expanded to $135.12 million as of September 30, 2025, up 22.7% year-over-year. Interest income for Q3 2025 was $4.23 million, and year-to-date equity gains were a substantial $15.78 million, significantly higher than $3.14 million in YTD Q3 2024. The segment's equity investments, with a book value of $9.30 million, represent a pipeline for future realizations. Delinquencies (90+ days past due) were 13.99%, with an allowance for credit losses at 8.43%, reflecting the higher-risk, higher-reward nature of this business.

Taxi Medallion Lending: Winding Down with Recoveries

The legacy Taxi Medallion Lending segment continues its wind-down, yet still generates cash. In Q3 2025, the company collected $6.1 million in cash, resulting in net recoveries and gains of $3.4 million. Net taxi medallion assets have dwindled to just $5.1 million, less than 0.2% of total assets. Despite its diminishing size, management believes there are still recovery opportunities from over $150 million of charged-off medallion loans.

Strategic Partnership Program: Diversifying Income Streams

The non-operating Corporate and Other Investments segment includes the rapidly expanding strategic partnership program. This program, which involves originating loans for fintech partners and selling them within days, saw record originations of $208.35 million in Q3 2025, a 422% increase year-over-year. Strategic partnership fee income nearly tripled to $0.99 million in Q3 2025. Management plans to add one or two new partners in the coming quarters, expecting significant volume increases and further income diversification.

Financial Performance and Capital Strength

Medallion Financial has demonstrated robust financial performance, reflecting its strategic focus. For Q3 2025, net income attributable to shareholders was $7.8 million, or $11.3 million excluding a nonrecurring $3.5 million charge from the redemption of Medallion Bank's Series F preferred stock. This was supported by a 6% increase in net interest income to $55.7 million.

The total interest yield on loans increased 27 basis points year-over-year to 12.39% in Q3 2025, driven by higher rates on new originations. While the average cost of borrowed funds rose to 4.28% in Q3 2025 due to the higher interest rate environment, the net interest margin has recently stabilized and shown expansion, a trend expected to continue as funding costs stabilize.

Liquidity is robust, supported by brokered certificates of deposit, SBA debentures, and recent capital raises. In May 2025, Medallion Bank successfully completed an initial public offering of 3.10 million shares of Series G Preferred Stock, raising $73.10 million in net proceeds. This capital infusion, as noted by Anthony Cutrone, provides "ample capital to continue growth now." The company also maintains borrowing capacity with the Federal Reserve and correspondent banks.

MFIN's commitment to shareholder returns is evident through its consistent dividend policy, with the quarterly dividend recently increased to $0.12 per share, and an active share repurchase program with $14.41 million remaining under authorization as of September 30, 2025. Net book value per share stood at $17.07 as of September 30, 2025, up from $15.70 a year prior.

Risks and Forward Outlook

Despite strong performance, MFIN faces inherent risks, primarily interest rate sensitivity. The company's one-year cumulative interest rate gap was a negative $494.9 million, or 18% of interest rate sensitive assets, as of September 30, 2025, indicating exposure to rising interest rates. While a hypothetical immediate 1% increase in rates could increase annualized net income by $1.7 million, a sustained increase over a year could reduce net income by $0.9 million. Management actively monitors this exposure, aiming to mitigate adverse effects on earnings. Economic uncertainties, including inflation and recession risks, also influence loan demand and credit quality, prompting MFIN to maintain strong credit standards and moderate growth.

Looking ahead, management anticipates continued growth in its consumer and commercial lending businesses, with Andrew Murstein, the incoming CEO, expressing excitement to "build on our momentum and continue driving the company forward." Loan growth for 2025 is projected to be in the mid-to-high single digits, with potential for accelerated growth in recreation and home improvement lending, leveraging new capital and strategic initiatives. Net interest margins are expected to see further expansion as funding costs stabilize and new loans are originated at higher rates. Operating expenses are projected to remain elevated, around $21-$21.5 million per quarter, reflecting ongoing investments in technology and talent, which are expected to be offset by increased income generation. The strategic partnership program is poised for significant volume increases with new partners, further diversifying income streams.

Conclusion

Medallion Financial Corp. has successfully navigated a transformative period, emerging as a focused and financially robust specialty finance company. Its strategic pivot to consumer and commercial lending, supported by a unique industrial bank charter and SBIC structure, provides a stable funding base and long-term investment flexibility. The company's disciplined underwriting, coupled with its investment in advanced digital tools, underpins its strong credit quality and expanding net interest margins. With consistent equity gains from commercial lending and rapid growth in strategic partnerships, MFIN is diversifying its income streams and enhancing profitability. The commitment to shareholder returns, evidenced by increasing dividends and share repurchases, combined with a clear succession plan, positions MFIN for continued sustainable growth and attractive long-term value creation for discerning investors.