Medallion Bank Reports 2024 Second Quarter Results and Declares Series F Preferred Stock Dividend

Rhea-AI Summary

Medallion Bank (Nasdaq: MBNKP) reported its Q2 2024 results, showing mixed performance. Net income decreased to $15.0 million from $19.3 million in the prior year quarter, while net interest income increased to $50.2 million from $47.0 million. The bank's total loan portfolio grew 10% year-over-year to $2.3 billion. However, the net interest margin declined to 8.55% from 8.91%, and annualized net charge-offs increased to 2.31% from 0.63%. The recreation lending segment saw 12% growth, while home improvement lending grew 6%. The bank maintained a strong Tier 1 leverage ratio of 16.14% and declared a quarterly dividend of $0.50 per share on its Series F Preferred Stock.

Positive

• Net interest income increased to $50.2 million from $47.0 million year-over-year
• Total loan portfolio grew 10% year-over-year to $2.3 billion
• Recreation loan portfolio grew 12% year-over-year to $1.497 billion
• Home improvement loan portfolio grew 6% year-over-year to $773.2 million
• Strong Tier 1 leverage ratio of 16.14% maintained

Negative

• Net income decreased to $15.0 million from $19.3 million year-over-year
• Net interest margin declined to 8.55% from 8.91% year-over-year
• Annualized net charge-offs increased to 2.31% from 0.63% year-over-year
• Total provision for credit losses increased to $18.2 million from $8.9 million year-over-year
• Delinquencies 30 days or more past due increased in both recreation and home improvement segments

Insights

Financial Analyst

Medallion Bank's Q2 2024 results present a mixed picture, with some positive developments offset by challenges. The 10% year-over-year growth in the total loan portfolio to $2.3 billion demonstrates the bank's ability to expand its market presence, particularly in the recreational and home improvement lending segments. However, this growth comes with increased risk, as evidenced by the higher provision for credit losses of $18.2 million, up from $8.9 million in the prior year quarter.

The bank's net interest income showed improvement, increasing to $50.2 million from $47.0 million in the prior year quarter. However, the net interest margin contracted to 8.55% from 8.91%, indicating some pressure on profitability. This compression, coupled with the higher provision for credit losses, led to a decrease in net income to $15.0 million from $19.3 million in the prior year quarter.

Of particular concern is the sharp increase in annualized net charge-offs to 2.31% of average loans outstanding, up from 0.63% in the prior year quarter. This significant jump suggests deteriorating credit quality and could be a red flag for investors. The increase in delinquencies in both the recreation and home improvement segments further underscores this concern.

On a positive note, the bank maintains a strong capital position with a Tier 1 leverage ratio of 16.14%, providing a cushion against potential losses. The declared quarterly dividend of $0.50 per share on the Series F Preferred Stock also signals management's confidence in the bank's financial stability.

Overall, while Medallion Bank continues to grow its loan portfolio and maintain solid interest income, the increasing credit risk and declining profitability metrics warrant close monitoring by investors in the coming quarters.

Credit Risk Analyst

The Q2 2024 results for Medallion Bank reveal a concerning trend in credit quality that demands attention. The substantial increase in the provision for credit losses to $18.2 million from $8.9 million year-over-year is a clear indicator of heightened risk in the loan portfolio. This rise outpaces the 10% growth in the loan book, suggesting that the quality of new loans may be deteriorating or economic conditions are putting pressure on existing borrowers.

Particularly worrying is the spike in annualized net charge-offs to 2.31% of average loans outstanding, nearly quadrupling from 0.63% in the prior year quarter. This dramatic increase points to a significant deterioration in the ability of borrowers to meet their obligations. The recreation lending segment appears to be the primary driver of this trend, with net charge-offs rising to 2.99% from 1.87%.

Delinquency rates have also climbed across both major lending segments. In the recreation portfolio, loans 30 days or more past due increased to 3.75% from 3.33%, while in home improvement, they rose to 0.89% from 0.72%. These upticks, while not dramatic, add to the overall picture of increasing credit stress.

The bank's management appears to be responding to these challenges by tightening credit standards, as evidenced by President Donald Poulton's statement about prioritizing quality growth. However, the effectiveness of these measures remains to be seen and investors should closely monitor future quarters for signs of stabilization or further deterioration in credit metrics.

While the bank maintains a strong capital position, the rapid increase in credit losses could erode this buffer if the trend continues. The coming quarters will be important in determining whether this is a temporary spike or the beginning of a more prolonged credit cycle downturn for Medallion Bank.

Market Research Analyst

Medallion Bank's Q2 2024 results offer valuable insights into consumer behavior and market trends in the recreational vehicle, boat and home improvement sectors. The 12% growth in the recreation loan portfolio to $1.497 billion suggests continued strong demand for recreational vehicles and boats, despite economic uncertainties. This growth outpaces the overall loan portfolio expansion, indicating that consumers are still prioritizing leisure and lifestyle purchases.

However, the increase in delinquencies and charge-offs in the recreation segment raises questions about the sustainability of this demand. It could signal that some consumers may be overextending themselves financially to make these purchases, potentially due to pent-up demand following the pandemic or a desire to invest in experiences over material goods.

The home improvement loan portfolio's more modest 6% growth to $773.2 million reflects a still-active but potentially cooling housing market. With rising interest rates affecting mortgage refinancing, homeowners may be opting for improvements over relocations, but at a more cautious pace than in previous years.

The bank's focus on "prudent balance sheet and credit risk management" and tightening of credit standards suggests a recognition of potential economic headwinds. This approach may lead to slower growth but could position the bank more favorably if economic conditions deteriorate.

The seasonality mentioned in loan growth is an important factor for investors to consider, as it impacts the bank's quarterly performance and provisioning needs. Understanding these cyclical patterns is important for accurately assessing the bank's performance and projecting future results.

Overall, while consumer demand remains robust, particularly in the recreation sector, the increasing credit risk indicators suggest a potential shift in the market. Investors and industry observers should watch for signs of whether this represents a temporary blip or the beginning of a broader consumer spending pullback in these discretionary sectors.

SALT LAKE CITY, July 30, 2024 (GLOBE NEWSWIRE) -- Medallion Bank (Nasdaq: MBNKP, the “Bank”), an FDIC-insured bank providing consumer loans for the purchase of recreational vehicles, boats, and home improvements, along with loan origination services to fintech strategic partners, announced today its results for the quarter ended June 30, 2024. The Bank is a wholly owned subsidiary of Medallion Financial Corp. (Nasdaq: MFIN).

2024 Second Quarter Highlights

• Net income of $15.0 million, compared to $19.3 million in the prior year quarter.
• Net interest income of $50.2 million, compared to $47.0 million in the prior year quarter.
• Net interest margin of 8.55%, compared to 8.91% in the prior year quarter.
• Total provision for credit losses was $18.2 million, compared to $8.9 million in the prior year quarter. Total provision for credit losses included $0.9 million of net taxi medallion recoveries, compared to $5.0 million of net taxi medallion recoveries in the prior year quarter.
• Annualized net charge-offs were 2.31% of average loans outstanding, compared to 0.63% in the prior year quarter.
• Annualized return on assets and return on equity were 2.57% and 16.77%, respectively, compared to 3.66% and 24.38% for the prior year period.
• The total loan portfolio grew 10% from June 30, 2023 to $2.3 billion as of June 30, 2024.
• Total assets were $2.4 billion and the Tier 1 leverage ratio was 16.14% at June 30, 2024.

Donald Poulton, President and Chief Executive Officer of Medallion Bank, stated, “Asset growth resumed in the second quarter, reflecting the seasonality of our business and ongoing strong demand for our lending programs. While loan growth will increase interest income, it comes at a short-term cost in the form of elevated credit loss provisions as we build the reserve for expected losses. Credit performance improvement during the quarter was notable. Both loan losses and delinquency fell compared to the first quarter, with recreation loan net charge-offs down 137 basis points and home improvement loan net charge-offs down 63 basis points. Our credit standards remained relatively tight as we prioritized quality growth that maintains our market position. Consistent with the last few quarters, our focus remains on prudent balance sheet and credit risk management.”

Recreation Lending Segment

• The Bank’s recreation loan portfolio grew 12% to $1.497 billion as of June 30, 2024, compared to $1.331 billion at June 30, 2023.
• Net interest income was $37.9 million, compared to $34.4 million in the prior year quarter.
• Recreation loans were 66% of loans receivable as of June 30, 2024, compared to 65% at June 30, 2023.
• Annualized net charge-offs were 2.99% of average recreation loans outstanding, compared to 1.87% in the prior year quarter.
• Delinquencies 30 days or more past due were $54.3 million, or 3.75%, of recreation loans as of June 30, 2024, compared to $42.9 million, or 3.33%, at June 30, 2023.
• The provision for recreation credit losses was $15.8 million, compared to $10.1 million in the prior year quarter.

Home Improvement Lending Segment

• The Bank’s home improvement loan portfolio grew 6% to $773.2 million as of June 30, 2024, compared to $728.5 million at June 30, 2023.
• Net interest income was $12.1 million, compared to $11.6 million in the prior year quarter.
• Home improvement loans were 34% of loans receivable as of June 30, 2024, compared to 35% at June 30, 2023.
• Annualized net charge-offs were 1.49% of average home improvement loans outstanding, compared to 1.12% in the prior year quarter.
• Delinquencies 30 days or more past due were $6.9 million, or 0.89%, of home improvement loans as of June 30, 2024, compared to $5.3 million, or 0.72%, at June 30, 2023.
• The provision for home improvement credit losses was $3.3 million, compared to $3.7 million in the prior year quarter.

Series F Preferred Stock Dividend

On July 25, 2024, the Bank’s Board of Directors declared a quarterly cash dividend of $0.50 per share on the Bank’s Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, which trades on the Nasdaq Capital Market under the ticker symbol “MBNKP.” The dividend is payable on October 1, 2024, to holders of record at the close of business on September 16, 2024.

About Medallion Bank

Medallion Bank specializes in providing consumer loans for the purchase of recreational vehicles, boats, and home improvements, along with loan origination services to fintech strategic partners. The Bank works directly with thousands of dealers, contractors and financial service providers serving their customers throughout the United States. Medallion Bank is a Utah-chartered, FDIC-insured industrial bank headquartered in Salt Lake City and is a wholly owned subsidiary of Medallion Financial Corp. (Nasdaq: MFIN).

For more information, visit www.medallionbank.com

Please note that this press release contains forward-looking statements that involve risks and uncertainties relating to business performance, cash flow, costs, sales, net investment income, earnings, returns and growth. These statements are often, but not always, made through the use of words or phrases such as “remains” “ongoing” or the negative versions of these words or other comparable words or phrases of a future or forward-looking nature. These statements may relate to our future earnings, returns, capital levels, sources of funding, growth prospects, asset quality and pursuit and execution of our strategy. Medallion Bank’s actual results may differ significantly from the results discussed in such forward-looking statements. For a description of certain risks to which Medallion Bank is or may be subject, please refer to the factors discussed under the captions “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included in Medallion Bank’s Form 10-K for the year ended December 31, 2023, and in its Quarterly Reports on Form 10-Q, filed with the FDIC. Medallion Bank’s Form 10-K, Form 10-Qs and other FDIC filings are available in the Investor Relations section of Medallion Bank’s website. Medallion Bank’s financial results for any period are not necessarily indicative of Medallion Financial Corp.’s results for the same period.

Company Contact:
Investor Relations
212-328-2176
InvestorRelations@medallion.com

MEDALLION BANK STATEMENTS OF OPERATIONS (UNAUDITED)
	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)		2024				2023				2024				2023
Total interest income	$	66,759			$	58,287			$	129,727			$	111,221
Total interest expense		16,524				11,337				31,277				19,937
Net interest income		50,235				46,950				98,450				91,284
Provision for credit losses		18,190				8,857				35,192				12,716
Net interest income after provision for credit losses		32,045				38,093				63,258				78,568
Other non-interest income		869				263				1,471				295
Non-interest expense
Salaries and benefits		4,953				4,588				9,937				8,980
Loan servicing		3,049				2,901				5,916				5,716
Collection costs		1,569				1,506				2,974				2,963
Regulatory fees		888				781				1,865				1,463
Professional fees		385				495				817				1,162
Information Technology		273				267				541				498
Occupancy and equipment		226				211				433				413
Other		1,059				996				1,809				1,867
Total non-interest expense		12,402				11,745				24,292				23,062
Income before income taxes		20,512				26,611				40,437				55,801
Provision for income taxes		5,476				7,282				10,922				15,047
Net income	$	15,036			$	19,329			$	29,515			$	40,754
Less: Preferred stock dividends		1,512				1,512				3,024			$	3,024
Net income attributable to common shareholder	$	13,524			$	17,817			$	26,491			$	37,730

MEDALLION BANK BALANCE SHEETS (UNAUDITED)
(In thousands)	June 30, 2024				December 31, 2023				June 30, 2023
Assets
Cash and federal funds sold	$	119,457			$	110,043			$	97,492
Investment securities, available-for-sale		55,830				54,282				53,692
Loans, inclusive of net deferred loan acquisition fees and costs		2,274,740				2,100,338				2,063,963
Allowance for credit losses		(84,213	)			(79,283	)			(71,447	)
Loans, net		2,190,527				2,021,055				1,992,516
Loan collateral in process of foreclosure		3,103				4,165				7,259
Fixed assets and right-of-use lease assets, net		8,850				8,140				7,366
Deferred tax assets		12,866				12,761				10,400
Accrued interest receivable and other assets		52,759				51,610				51,244
Total assets	$	2,443,392			$	2,262,056			$	2,219,969
Liabilities and Shareholders’ Equity
Liabilities
Deposits and other funds borrowed	$	2,031,782			$	1,866,657			$	1,841,549
Accrued interest payable		5,281				4,029				2,037
Income tax payable		21,127				21,219				27,441
Other liabilities		17,983				17,509				22,454
Due to affiliates		983				849				823
Total liabilities		2,077,156				1,910,263				1,894,304
Shareholder’s Equity
Series E Preferred stock		26,303				26,303				26,303
Series F Preferred stock		42,485				42,485				42,485
Common stock		1,000				1,000				1,000
Additional paid in capital		77,500				77,500				77,500
Accumulated other comprehensive loss, net of tax		(4,578	)			(4,529	)			(4,583	)
Retained earnings		223,526				209,034				182,960
Total shareholders’ equity		366,236				351,793				325,665
Total liabilities and shareholders’ equity	$	2,443,392			$	2,262,056			$	2,219,969

FAQ

What was Medallion Bank's (MBNKP) net income for Q2 2024?

Medallion Bank reported a net income of $15.0 million for Q2 2024, compared to $19.3 million in the prior year quarter.

How much did Medallion Bank's (MBNKP) loan portfolio grow in Q2 2024?

Medallion Bank's total loan portfolio grew 10% year-over-year to $2.3 billion as of June 30, 2024.

What was the dividend declared for Medallion Bank's (MBNKP) Series F Preferred Stock?

Medallion Bank declared a quarterly cash dividend of $0.50 per share on its Series F Preferred Stock, payable on October 1, 2024.

How did Medallion Bank's (MBNKP) recreation lending segment perform in Q2 2024?

The recreation loan portfolio grew 12% year-over-year to $1.497 billion, with net interest income of $37.9 million.

What was Medallion Bank's (MBNKP) Tier 1 leverage ratio as of June 30, 2024?

Medallion Bank's Tier 1 leverage ratio was 16.14% as of June 30, 2024.