Medallion Financial Corp. operates as a specialty finance company.
The company’s strategic focus is growing its consumer finance and commercial lending businesses. The company conducts its business through various wholly-owned subsidiaries, including:
Medallion Bank, or the bank, a Federal Deposit Insurance Corporation, or FDIC, insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activities;
Medallion Capital, Inc., or Medallion Capital, a Small...
Medallion Financial Corp. operates as a specialty finance company.
The company’s strategic focus is growing its consumer finance and commercial lending businesses. The company conducts its business through various wholly-owned subsidiaries, including:
Medallion Bank, or the bank, a Federal Deposit Insurance Corporation, or FDIC, insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activities;
Medallion Capital, Inc., or Medallion Capital, a Small Business Investment Company, or SBIC, which conducts a mezzanine financing business;
Medallion Funding LLC, or Medallion Funding, an SBIC, historically the company’s primary taxi medallion lending company; and
Freshstart Venture Capital Corp., or Freshstart, which historically originated and serviced taxi medallion and commercial loans, and was an SBIC through 2023.
Market
The company provides loans to individuals and small to mid-size businesses, through the company’s subsidiaries, under four operating segments: loans that finance consumer purchases of recreational vehicles, or RVs, boats, collector cars, and other consumer recreational equipment; loans that finance consumer home improvements; loans that finance commercial businesses; and historically, loans that finance taxi medallions.
Recreation Lending
Recreation lending is a return-oriented business focused on originating prime and non-prime recreation loans, comprising 57% of the company’s loans receivable as of December 31, 2024. The segment is a significant source of income, accounting for 67% of its interest income for the year ended December 31, 2024. All of its recreation loans are serviced by a third-party loan servicer.
The company maintains relationships with approximately 3,300 dealers and financial service providers, or FSPs, not all of which are active at any one time. FSPs are entities that provide finance and insurance, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves. The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable to the company. The company receives approximately half of its loan volume from dealers, and the other half from FSPs.
The loans are fixed rate, with an average term at origination of 14 years. The weighted average maturity of the company’s loans outstanding is 11 years. The size, geographic dispersion, source, and collateral variety of the loans reduces its risk. The loans are secured primarily by RVs, or recreational vehicles, boats, collector cars, and other consumer recreational equipment, of which RVs make up 55% of the portfolio, boat loans making up 20%, and collector cars making up 11% of the portfolio as of December 31, 2024.
Home Improvement Lending
Working directly with contractors and FSPs, the company offers flexible customer financing for window, siding, and roof replacement, swimming pool installations, and other home improvement projects. The company’s core product is a standard installment loan, which features affordable monthly payments and competitive interest rates for prime credit customers. The company also offers a variety of promotional loan options to help contractors close a challenging sale. Promotional loan options include same-as-cash, no interest, and deferred payment features, which allow borrowers to reduce the total cost of financing or start repayments when it is most convenient.
Home improvement lending operates in a manner similar to recreation lending, with a few key differences. The company maintains a smaller number of relationships, with approximately 900 contractors and FSPs. Management monitors the number of contractors and FSPs, and their relative contributions as a means of assessing market share and segment growth. Most of the company’s home improvement-financed sales take place in the borrower’s home instead of a store, with the contractor presenting the borrower with a bid that includes a financing option.
A large proportion of the company’s home improvement-financed sales are facilitated by contractor salespeople with limited financing backgrounds rather than by contractor employees who provide F&I services. The result is contractor demand for financing services that facilitate an in-home transaction (e.g., digital tools, including mobile applications for phone or tablet, support for E-SIGN compliant electronic signatures, and extended operating hours), and additional resources for the salesperson throughout the financing process. The company’s top ten contractors and FSP relationships were responsible for 48% of home improvement lending’s new loan originations for the year ended December 31, 2024.
The company offers home improvement loans with only fixed rates, with an average term at origination of 15 years. The weighted average maturity of the company’s loans outstanding was 13 years as of December 31, 2024.
Commercial Lending
The company originates both senior and subordinated loans nationwide to businesses to finance either the purchase of the equipment and related assets necessary to open a new business, or the purchase or improvement of an existing business.
The company focuses its marketing efforts on the manufacturing, professional, scientific, and technical services, with California, Wisconsin, and Texas having 28%, 10%, and 10% of the segment portfolio. The company seeks to expand its commercial loan activities by developing a more diverse borrower base with a wider geographic area of coverage, and by expanding the targeted industries.
Commercial loans are generally secured by equipment, accounts receivable, real estate, or other assets, and have interest rates averaging 547 basis points over the prevailing prime rate at the end of 2024.
Strategic Partnerships
In 2019, the bank launched a strategic partnership program to provide lending and other services to financial technology, or fintech, companies. The bank entered into an initial partnership in 2020 and began issuing its first loans. The associated activities are currently limited to originating loans or other receivables facilitated by the company’s strategic partners, and selling those loans or receivables to its strategic partners or other third parties without recourse within a specified time after origination, such as three business days.
Taxi Medallion Lending
All taxi medallion loans and assets are located in the New York City metropolitan area. A New York City taxi medallion is the only permitted license to operate a taxi and accept street hails in New York City.
The company’s taxi medallion loans are secured by the taxi medallion and enhanced with personal guarantees of the owners, shareholders, or equity members. When a borrower defaults on a loan, the company has the ability to restructure the underlying loan or repossess the taxi medallion collateralizing that loan, and sell it in the market or through a foreclosure auction, and pursue the personal guarantees, all of which it has done.
Strategy
The key elements of the company’s strategy to grow its consumer lending (recreation and home improvement) and commercial lending businesses, and increase their profitability include capitalizing on its relationships with dealers, contractors, and FSPs; focusing on niche industries and its expertise in these niche fields; employing disciplined underwriting policies, and maintaining rigorous portfolio monitoring; expanding its strategic partnership program; and seeking strategic acquisitions.
Loan Characteristics
Consumer Loans: The bank has established relationships with dealers, contractors, and FSPs, which are the sources for consumer loan volumes. The company’s recreation loans are secured primarily by RVs, boats, collector cars, and other consumer recreational equipment, with a small proportion of loans secured by other collateral, such as motorcycles and boat motors. The company’s home improvement loans are secured by the personal property installed on real property, and the security interest for some of these loans is perfected with a UCC fixture filing.
Commercial Loans: These loans are generally retained and typically have maturities ranging from three to ten years, and require monthly payments ranging from full amortization over the loan term to fully deferred interest and principal at maturity, with multiple payment options in between. All loans may be prepaid, and in the first five years, a prepayment fee may be owed to the company.
Investment Securities
As of December 31, 2024, the company's securities were mortgage-backed securities, principally obligations of the U.S. federal agencies, state and municipalities, and agency bonds.
Deposits
Most deposits are raised through the use of investment brokerage firms that package time deposits in denominations of less than $250,000 qualifying for FDIC insurance into larger pools that are sold to the bank. Additionally, the bank raised deposits through listing services, and, as of December 31, 2024, in April 2023, the bank began to originate retail savings deposits through a third-party service provider, and as of December 31, 2024, the bank had $6.0 million in retail savings deposit balances.
Supervision and Regulation
In May 2002, the company formed the bank, which received approval from the FDIC for federal deposit insurance in October 2003. The bank is subject to extensive federal and state banking laws, regulations, and policies that are intended primarily for the protection of depositors, the Deposit Insurance Fund, customers, and the banking system as a whole, and not for the protection of its other creditors and stockholders.
The bank is subject to risk-based and leverage-based capital ratio requirements under the U.S. Basel III capital rules adopted by the federal banking regulators.
The bank is subject to FDIC regulations that apply to every FDIC-insured depository institution, setting out a system of mandatory and discretionary supervisory actions that generally become more severe as the capital levels of an individual institution decline.
The bank’s deposits have the benefit of FDIC insurance up to the applicable limits. The FDIC’s Deposit Insurance Fund, or DIF, is funded by assessments on insured depository institutions, such as the company.
The bank is subject to a number of federal and state consumer protection laws that extensively govern the bank’s consumer lending businesses. These laws include, but are not limited to, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Electronic Fund Transfer Act, and these laws’ respective state-law counterparts, as well as laws regarding unfair and deceptive acts and practices.
The bank is subject to certain requirements and reporting obligations under the Community Reinvestment Act, or CRA. The bank received a rating of ‘Outstanding’ in its most recently completed CRA examination.
The bank is subject to certain federal laws that restrict and control the company’s ability to extend credit and provide to or receive services from its affiliates under Sections 23A and 23B of the Federal Reserve Act and Regulation W promulgated thereunder.
The bank is subject to the anti-money laundering, or AML, provisions of the Bank Secrecy Act, or the BSA, as amended by the USA PATRIOT Act, or the PATRIOT Act, and implementing regulations issued by the FDIC and the U.S. Treasury.
Medallion Funding and Medallion Capital are each licensed by the SBA to operate as SBICs, under the Small Business Investment Act of 1958, as amended, or the SBIA.
The company is typically examined by the SBA for compliance with applicable SBA regulations.
Because the bank is an ‘insured depository institution’ within the meaning of the FDIA and the Change in Bank Control Act, as well as the company being a ‘financial institution holding company’ within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of the bank or the company, without, in most cases, prior written approval of the FDIC or the Commissioner of the Utah DFI, as applicable.
The company must undergo regular on-site examinations by the FDIC and the Utah DFI, which examine the bank for adherence to a range of legal and regulatory compliance responsibilities.
History
Medallion Financial Corp., a Delaware corporation, was founded in 1995. The company was incorporated in 1995.
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