Medallion Financial Corp. (MFIN) Q2 2026 Earnings Report, Transcript and Summary

Thank you. Good day and welcome to the Medallion Financial Corp Q2 2026 Earnings Conference Call. Please note this event is being recorded. I would like now to turn the conference over to [ Ken Cooper ], Investor Relations. Please go ahead. Unknown Executive Thank you and good morning. Welcome to Medallion Financial Corp's second quarter 2026 earnings call. Joining me today are Andrew Murstein, President and Chief Executive Officer, Anthony Cutrone, Executive Vice President and Chief Financial Officer, and [ Justin Haley ], President and CEO of Medallion Bank. Certain statements made during the call today are not subject to any comment. 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.

Thank you, Ken, and good morning, everyone. Our second quarter results further demonstrated the strength, stability, and growth potential of our lending platform. The highlights included our home improvement originations were up over twofold where they were last second quarter. As a matter of fact, the $128.6 million of originations was the highest origination quarter in our history for home improvement lending. We are doing this with stable credit quality and this level of origination has continued through July. Equally as impressive was our origination activity in recreation, where originations were up 60% from a year ago to $228.5 million. Home improvement, this was a record high for originations and a quarter for this segment. Here again, we are achieving this with stable credit quality, and we are seeing this level of activity continue through July. This acceleration of origination activity led to outstanding total loan growth for the quarter. We are now at $2.79 billion in loans, a 12% increase year over year, and impressive 7% sequential growth from a quarter ago. Our company surpassed an important milestone during this quarter as we exceeded $3 billion in assets. Achieving this milestone is a testament to our entire organization, and we are very pleased with where we are today and where we intend on going in the future. In many ways, the second quarter marked the continuation of our performance across our operating segments and many of our key performance indicators. For the second quarter, the $57.2 million of net interest income is a new quarterly record, which was particularly satisfying as we maintained our net interest margin of the approximate 8% level. Our strategic partnership program continues to gain traction. We added a fifth partner in the quarter, which contributed to originating $247.1 million of loans and over $1.1 million in fee income in the quarter. We continue to work on our growing pipeline of new partner prospects and expect to add new partners over time. As I have said in the past, long term, we believe our program will scale to a more significant size. However, we are taking a very methodical approach to growth to ensure we satisfy the needs of all stakeholders, including our borrowers, team, partners, and regulators. That said, we are very pleased with progress particularly over the last year or so. From a capital allocation perspective, we remain committed to our shareholders. During the quarter, our Board of Directors approved a second quarter dividend of $0.14 per share, representing a 16.7% increase from last quarter and a 75% increase since we reinstated the dividend in the second quarter of 2022. We also bought back nearly 780,000 shares of stock during the quarter, which we were able to do at a discount to both book value and tangible book value. Our commercial lending business grew 5% during the quarter, with two new loans originated for a total of $7.1 million. The portfolio now sits at $126 million with the weighted average coupon being 14.37%. Our company is well positioned for future growth. We have a clear track record of growing assets, net interest income, and our book value. We have proven to be able to do this profitably and believe we will continue to do so. As we have stated since our founding, our net income and earnings per share may be choppy quarter to quarter due to timing related to several unique drivers of our business, but all add shareholder value long term. Lastly, we recently completed our relocation to our new New York office, a move that is expected to reduce our annual occupancy costs and further enhance shareholder value through ongoing expense savings. With that, I'll now turn it over to Anthony, who will provide some additional insight into our quarter.

Thank you, Andrew. Good morning, everyone. For the quarter, net interest income grew 7% to $57.2 million from $53.4 million in the prior year quarter. The increase was driven by growth in our loan portfolio, generating higher interest income, outpacing interest expense, which was higher due to an increase in both borrowings and average borrowing cost. Our net interest margin was 7.94% during the quarter, down 15 basis points from a year ago and down 60 basis points from the first quarter. Our interest yield on loans of 12.28% increased 1 basis point from a year ago, and our average cost of borrowings in the quarter was 4.32% compared to 4.20% a year ago. During the quarter, our average cost of deposits at Medallion Bank was 3.96% compared to 3.84% in the prior year quarter. As of June 30, the weighted average coupon of recreation loans was 15.06% and was 9.69% for home improvement loans. During the quarter, we originated loans at rates averaging around 14.875% for recreation loans and 9.25% for home improvement loans. During July, we have continued to originate both recreation and home improvement loans at similar rates. The provision for credit loss was $22.3 million for the quarter, a slight decrease from $22.5 million for the first quarter, and a slight increase from $21.6 million in the prior year quarter. Current quarter provision included approximately $6.5 million of Day 1 provisioning, the allowance for credit loss we book when a loan is originated in comparison to approximately $2.5 million in the prior quarter and an approximate $400,000 benefit in the prior year quarter. As we continue to grow our consumer loan portfolios, particularly recreation loans, there is a steep penalty that presents itself on the income statement on the date of growth in terms of increased provisions. The $6.5 million of additional provisions translates into roughly $0.18 per share of reduced earnings in the quarter. If we chose to keep our loan book size static, excluding the impact of portfolio mix, we would not have those additional costs. However, we don't believe that to be in the best interest of our company or our shareholders. Net charge-offs in the recreation portfolio during the quarter were $13.3 million, or 3.14%, compared to 3.11% in the 2025 quarter, and were $2.9 million, or 1.37% of the average home improvement portfolio, compared to 1.87% in the 2025 quarter. Turning to expenses, operating costs totaled $25 million in the second quarter, which were up from $21.5 million in the prior year quarter. With the increase tied to both higher employee costs as well as higher servicing expenses, both of which are associated with our growing loan portfolio. Additionally, our professional fee costs were elevated in the quarter related to this year's proxy. As we continue to expand our platform and focus on growth, we anticipate higher operating costs. As we've stated previously, long term, we expect the growth in our net interest income to outpace any growth in operating costs. For the quarter, net income attributable to our shareholders was $7.4 million, or $0.31 per diluted share, compared to $11.1 million, or $0.46 per share in the prior year quarter. With the prior year quarter including $5.9 million of higher gains on equity investments compared to the current quarter, and the current quarter including a significant amount of additional credit loss provisions tied to the growth we experienced when compared to a year ago as we just previously discussed. Our net book value per share as of June 30 was $17.62, compared to $17.66 a year ago, and our tangible book value per share, which excludes the value of goodwill, intangible assets, and the correlated deferred tax liability associated with both, was $12.17 at the end of the quarter, up from $11.32 a year ago. A reconciliation of our book value per share, the tangible book value per share, is available on our website. That covers our second quarter results. We are now happy to answer any questions you may have.

The first question is from [ Ken Cote ], Raymond James.

Starting out with loans. I know you guys have been pretty optimistic with loan growth and balance sheet growth going forward, but this level, this quarter was really impressive. I'm just trying to get a sense to how sustainable this level is going forward.

Yes, no, we were quite happy with the loan origination volumes this quarter, and we do think that they're sustainable. We would expect there to be continued seasonality like we've seen it. Q2 and Q3 are going to be our stronger origination months. With home improvement, there's just a huge ecosystem of loans to be done, and we're a growing but still a small player in that space. So we feel really good about that.

Awesome. Maybe sticking with home improvement, as you know, is really strong growth. I'm just wondering if the recent EnerBank and Regions hires that you guys made contributed to that outsized growth and if they're gaining traction?

Yes, they have. We really brought over a great person from EnerBank. As you know, EnerBank sold to Regions and I think they sold for 2.5x or 3x book value. That often happens with mergers and acquisitions that the smaller bank usually people leave after the deal is done. The atmosphere is different, the culture is different, they want more of a growing smaller, more energetic company perhaps, and that's what we've found. These people have done a great job for us. We're actually bringing over some more of them in the coming weeks.

Awesome. It's good to know. And maybe if I could sneak one more in. Looks like you guys recognize some gains on the sale of recreation loans. Just wondering if you can provide maybe a little bit of color there. What was the balance of the loan sold? What drove the decision to sell? Maybe pricing and demand from the buyers?

That'd be great, thanks. So [ Justin Haley ] is Medallion Bank CEO is on the call. Justin, you wanna jump in on that? Unknown Executive Hi, Ken. About $50 million sold and we're seeing plenty of demand for that. Good economics on it. We would anticipate as we're growing at the pace we're growing in order to manage our capital effectively that we'll have periodic sales. We'd like it to be consistent.

And I would just add that despite that portfolio sale, we still grew in the quarter 5% recreation loan. So this didn't hinder our ability to grow. And we see this as a good outlet, not just to generate more recurring earnings, but also to an outlet for these original originations that we seem to, you know, be lucky to have.

The next question from Mike Grondahl, Northland Securities. Please go ahead.

Can you just dig in a little bit about how you are feeling about current credit trends and your outlook for credit in the second half of 2026?

Sure. I think we're feeling positive about credit, particularly home improvement. I mean, charge-offs have come in sizably and performed much better than they have maybe a year ago. So, we're optimistic about that. Rec is still elevated, but it's not ticking up, and it did come in, you know, as expected from Q1. So I think we look good. The economy is going to dictate to a larger extent where we end up, but I think the changes we made in terms of pricing that we spoke about last quarter on recreation loans should over time and in the coming quarters produce a better charge-off ratio, which for us is going to produce a better charge-off adjusted NIM.

Got it. And then originations were pretty robust across Rec and home improvement. Granted 2Q is seasonally a strong quarter, but can you guys just go a little deeper talking about the underlying drivers of this growth for each segment?

Justin, you want to jump in again? Unknown Executive Yes. Hi, Logan. So it's two different stories in the recreation business. You think of our recreation business, it's got a couple of components to it. The one we talk about most is our non-prime business, which is near prime and subprime originations for RV and marine buyers. And in that business, as Anthony mentioned, we took a look at where we fell in the waterfall. And as a second look lender, we're not going to be at the top of the waterfall, but where we fall in the waterfall comes down to how competitive we are. And we chose to be a little more competitive and you're seeing the result of that in volume in the year. We also have what we call prime niche businesses, so they're small market businesses that allow us to originate some volume. We met with and engaged with some of our larger relationships there and modified the programs, not by modifying credit, but by modifying delivery and how we price in order to ensure that we met their needs and we could win more often. So that's Rec. And home improvement, as mentioned before, we have new talent in the team. You'll see this quarter we went from 700 contractors to 800 active contractors. Our marketing engine has stood up. We do expect to have better contractor acquisition going forward and to continue that growth. But for the volume today, it's like Rec, we're leaning into our existing relationships and asking them how we can win. They're telling us, and then we're making the modifications to win. So we do think this is all sustainable.

Thank you. Yes, that was very helpful. Impressive numbers in 2Q. One last one from us. We have been calling out 2026 as the year of investing in the business. Can you guys provide an update on how those investments are going so far and what still needs to be done?

I'll jump into this one as well. Yes, you're doing a good job, Justin. Keep going. Unknown Executive Thank you. So the investments thus far have, we made some technology investments in 2025. And in 2026, right now, we're focused a lot on bringing talent in the bank, because we have the platform in place, we just need more talent to be able to leverage it effectively. So mentioned marketing already, we brought in some technology talent, we're adding analytics talent, both data analytics and credit analytics. We're also bringing folks into our collection and recovery area, not because we're intending to replace our long-term servicer SST, but because we want to supplement them where we can do better. Looking forward, the next big shift will be a replacement of our loan origination system, which is anticipated to be done in Q1 2027 before our busy season. Once that happens, that unlocks the ability for us to roll out new credit scoring models, including the addition of some alternative data into our credit underwriting. The whole purpose of that is to ensure that we're underwriting with a level of sophistication that befits a $3, $4, $5 billion bank.

The next question from Manuel Navas, Piper Sandler, please go ahead. Manuel Navas I appreciate a lot of the commentary on expenses. Just wondering, could you quantify the benefit from the headquarter move? Also, you just talked about investments just how does that all fit in with the forward trajectory of expense growth.

I'd say the headquarters, we moved to about half the space that we had. A lot of our old space was pricey and was for the medallion business and that's down to virtually zero today. So we're probably saving about, I don't know, $500,000 or so a year. We do start costs by about 30%. So over the life of the new deal, you're probably talking about $5 million of savings. So we're definitely happy with that and Anthony could touch base on the other point.

Yes, so, you know, in terms of operating costs, you know, as we continue to grow, obviously our costs are going to grow with that. And as Justin mentioned, you know, we're committed to, you know, developing and bringing in the right talent. That's going to come at a cost that's going to allow us to grow, but grow prudently. Prudently grow with loans that we want to hold that are going to perform, you know, better in different cycles. Manuel Navas I appreciate that. I hear you on this quarter being a really strong origination quarter. You've talked about mid-teens, long growth. Is there any shift for the full year, given how strong this quarter was? No, I think that's still what we're targeting. You know, obviously when we get to the latter part of Q3, things will start to slow to some extent, particularly in Rec. But no, I think what we were expecting is still what we're expecting. Manuel Navas Okay. I know that gains on equity investments is pretty lumpy. Is there any sight line to anything in the back half of the year, or is it too soon to tell? It's too soon to tell. We're not aware of anything. There's one or two portfolio companies where there's talk of them exiting. But, you know, we don't count those chips until it's paid out. There's just too much volatility in that space, you know, surrounding these exits. So we continue to hold these at, you know, cost and then, you know, less impairment if there is some. And then when there's an exit and we get real cash, then we recognize the game. Manuel Navas And just my last one here, buyback pace was quite impressive. What's the appetite to continue? What's the capacity to continue? Where does it fit in with your capital deployment priorities?

I have a back and below book value and a very low price to earnings as well. So they're obviously very creative when we do that. We announced a $40 million buyback several years ago. I think we're down to about $6 million left. The hope depends on what happens to the share price, but I expect us to probably finish that within the next six months. And then reload? Yes, I think we'd reload and put a new plan in place. We look at growth, dividends, and buybacks, and we're actually in a very good position these days. We're able to do all three very effectively, so I don't think one has to come at the expense of the other. I think we can do all three.

And I think, you know, just those three that Andy mentioned, you know, growth, dividends, buybacks, you know, we look at all of them as shareholder return, you know, and growth, just, you know, our type of business. Way we view our business, we think that's just as important, if not more important, than dividends and buybacks. So, you know, allocating to that and then opportunistically being in the market when, you know, we're not getting the valuation we know exists is also important. I think we had a couple of questions came in from Christopher Nolan of Ladenburg Thalmann. That he's on the call, but he's having some issues with his microphone, so we just wanted to go through those. He asked if there were any non-recurring items affecting the second quarter earnings. I don't, you know, professional fees were slightly elevated because of this year's proxy. Was probably a penny or two, you know, when it hit the bottom line. Other than that, we don't view anything in this quarter as significant non-recurring. A year ago, we had a pretty sizable equity gains. We had a small amount of equity gains, which is, you know, that's all part and partial to our business, but, you know, we don't see it that is being outliers. And the gain on the recreation loans was about $1.3 million. Again, we expect to have more of those on a recurring basis, maybe not every quarter, but on a more frequent basis, just given our origination platforms and where that's going. So, from our perspective, this was a fairly clean quarter. The one thing that we talk about internally and we think is important and spoke about it just a few minutes ago is that with growth comes a significant amount of penalty in terms of that Day 1 provision on the Rec portfolio. So that was $6.5 million of additional provision because of the growth. You know, it's in our best interest to grow. It's in the shareholders' best interest for us to grow. So we'll continue to have those penalties to the extent we grow, but that translates into real earnings down the line. One other question from Chris Nolan was asking about the buybacks and what the impact was to EPS. The buybacks occurred throughout the quarter, and the way dilution works is it's a weighted average outstanding shares throughout the quarter. So we had about a penny, that benefit will be higher in Q3 when we get the full benefit of the weighted average, you know, reduced share count. So we are happy about that.

If there are no more questions, this concludes our Q&A session. I would like to turn the conference back over to Andrew Murstein for any closing remarks. Thank you.

Thank you. In closing, I just want to highlight what a strong growth quarter this was. We delivered one of our highest loan volume quarters on record, reflecting exceptional demand for our products and the success of our team's origination efforts. We're excited about the underlying business momentum and confident the strong volume positions as well, for solid returns ahead. We are very pleased with our performance and where things stand halfway through the year, and we have a very bright future in front of us. We're always accessible, so please don't hesitate to reach out with any questions or thoughts. Thank you all for your continued support. We look forward to updating you on our progress next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.