MEDALLION FINANCIAL CORP

Previous wording

The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the three months ended March 31, 2024 and the year ended December 31, 2023. This section is intended to provide management’s perspective of our financial condition and results of operations. In addition, this section contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the Risk Factors section in our Annual Report on Form 10-K.

Current wording

The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the three and six months ended June 30, 2024 and the year ended December 31, 2023. This section is intended to provide management’s perspective of our financial condition and results of operations. In addition, this section contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the Risk Factors section in our Annual Report on Form 10-K.

Previous wording

We are a specialty finance company whose focus and growth has been our consumer finance and commercial lending businesses operated by Medallion Bank, or the Bank, and Medallion Capital, Inc., or Medallion Capital. The Bank is a wholly-owned subsidiary that originates consumer loans for the purchase of recreational vehicles, boats, collector automobiles, and home improvements, and provides loan origination and other services to fintech partners. Medallion Capital is a wholly-owned subsidiary that originates commercial loans through its mezzanine financing business. As of March 31, 2024, our consumer loans represented 95% of our gross loan portfolio, and commercial loans represented 5%. Total assets were $2.6 billion as of both March 31, 2024 and December 31, 2023.

Current wording

We are a specialty finance company whose focus and growth has been our consumer finance and commercial lending businesses operated by Medallion Bank, or the Bank, and Medallion Capital, Inc., or Medallion Capital. The Bank is a wholly-owned subsidiary that originates consumer loans for the purchase of recreational vehicles, boats, collector automobiles, and home improvements, and provides loan origination and other services to fintech partners. Medallion Capital is a wholly-owned subsidiary that originates commercial loans through its mezzanine financing business. As of June 30, 2024, our consumer loans represented 95% of our gross loan portfolio, and commercial loans represented 5%. Total assets were $2.8 billion and $2.6 billion as of June 30, 2024 and December 31, 2023.

Previous wording

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements. The amendments in this update seek to clarify or improve disclosure and presentation requirements. We are assessing the impact of the update on the accompanying financial statements.

Current wording

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements. The amendments in this update seek to clarify or improve disclosure and presentation requirements. The amendments in this update will be effective on the date on which the SEC’s removal of related disclosures from Regulation S-X or Regulation S-K become effective, with early adoption prohibited.

Previous wording

In November 2023, the FASB issued ASU 2023-07, Segment Reporting, or Topic 280: Improvements to Reportable Segment Disclosures. The main objective of this update is to provide transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for fiscal years beginning after December 15, 2023. We are assessing the impact of the update on the accompanying financial statements.

Current wording

In November 2023, the FASB issued ASU 2023-07, Segment Reporting, or Topic 280: Improvements to Reportable Segment Disclosures. The main objective of this update is to provide transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for fiscal years beginning after December 15, 2023 and to be included in interim periods beginning after December 15, 2024. We are assessing the impact of the update on the accompanying financial statements.

Previous wording

The following table shows our consolidated average balance sheet, interest income and expense, and the average interest earning/bearing assets and liabilities, and which reflects the average yield on assets and average costs on liabilities for the three months ended March 31, 2024 and 2023.

Current wording

The following table shows our consolidated average balance sheet, interest income and expense, and the average interest earning/bearing assets and liabilities, and which reflects the average yield on assets and average costs on liabilities for the six months ended June 30, 2024 and 2023.

Previous wording

For the three months ended March 31, 2024, our loans receivable yielded 11.84%, as compared to 11.48% for the three months ended March 31, 2023. The 36 basis point increase reflects a higher yield on our consumer loan portfolios, as we have increased the rates charged on new consumer originations over the past year as prevailing market interest rates have increased. We have used the higher interest rate environment as an opportunity to both increase the rates on newly issued recreation and home improvement loans, which is expected to continue to increase the yield on these portfolios over time, as well as increase the credit quality of our new issuances, particularly in our recreation segment, with the average FICO scores, measured at origination, of our recreation loans outstanding being 684 as of March 31, 2024 compared to 671 as of March 31, 2023. We use weighted average FICO scores as an indicator of portfolio risk.

Current wording

For the three months ended June 30, 2024, our loans receivable yielded 11.98%, as compared to 11.70% for the three months ended June 30, 2023. The 28 basis point increase reflects a higher yield on our consumer and commercial loan portfolios, as we have increased the rates charged on new originations over the past year as prevailing market interest rates have increased. Similarly, for the six months ended June 30, 2024, our loans receivable yielded 11.89%, as compared to 11.52% for the six months ended June 30, 2023. We have used the higher interest rate environment as an opportunity to both increase the rates on newly issued recreation and home improvement loans, which is expected to continue to increase the yield on these portfolios over time, as well as increase the credit quality of our new issuances, particularly in our recreation segment, with the average FICO scores, measured at origination, of our recreation loans outstanding being 685 as of June 30, 2024 compared to 681 as of June 30, 2023. We use weighted average FICO scores as an indicator of portfolio risk.

Previous wording

Our debt, with certificates of deposits being our largest source, funds our growing lending business. Our average interest cost for the three months ended March 31, 2024 of 3.67% increased 100 basis points from the three months ended March 31, 2023, attributable to the current higher interest rate environment, particularly the higher cost associated with our deposits. To the extent that prevailing market interest rates remain at current levels, we expect our cost of funds to continue to increase as we issue new certificates of deposit to replace maturing certificates of deposit and fund our growth. We have taken, and continue to take, steps to pass along a portion of the interest rate increases on newly originated loans, the process for which is slower than the pace of funding cost increases, thereby compressing our net interest margins.

Current wording

Our debt, with certificates of deposits being our largest source, funds our growing lending business. Our average interest cost for the three and six months ended June 30, 2024 of 3.82% and 3.75% increased 77 and 87 basis points from the three and six months ended June 30, 2023, attributable to the current higher interest rate environment, particularly the higher cost associated with our deposits. To the extent that prevailing market interest rates remain at current levels, we expect our cost of funds to continue to increase as we issue new certificates of deposit to replace maturing certificates of deposit and fund our growth. We have taken, and continue to take, steps to pass along a portion of the interest rate increases on newly originated loans, the process for which is slower than the pace of funding cost increases, thereby compressing our net interest margins.

Previous wording

During the three months ended March 31, 2024, the increase in interest income was mainly driven by the increase in volume of consumer loans, as well as an increase in overall yield on interest-earning assets as we issue new loans at interest rates greater than the weighted average rates of our current portfolio. During the quarter, the increase in interest expense was driven by an increase in borrowing costs and interest rates, primarily due to the increases in deposits, as well as growth of total borrowings which fund our growing loan portfolio.

Current wording

During the three and six months ended June 30, 2024, the increase in interest income was mainly driven by the increase in volume of consumer loans, as well as an increase in overall yield on interest-earning assets as we issue new loans at interest rates greater than the weighted average rates of our current portfolio. For the same periods, the increase in interest expense was driven by an increase in borrowing costs and interest rates, primarily due to the increases in deposits, as well as growth of total borrowings which fund our growing loan portfolio.

Previous wording

Our interest expense is driven by the interest rates payable on our bank certificates of deposit, privately placed notes, fixed-rate, long-term debentures issued to the SBA, trust preferred securities, and has historically included credit facilities with banks and other short-term notes payable. The Bank issues brokered time certificates of deposit, which are, on average, our lowest borrowing costs. The Bank is able to bid on these deposits at a variety of maturity options, which allows for more flexible interest rate management strategies. As further described below, in September 2023, we issued and sold $39.0 million aggregate principal amount of 9.25% senior notes due in September 2028, and in December 2023, we issued $12.5 million aggregate principal amount of 9.00% senior notes due December 2033. The net proceeds from these offerings were used, in large part, to repurchase and settle, in full, $36.0 million aggregate principal amount of our 8.25% senior notes issued in 2019 and which matured in March 2024.

Current wording

Our interest expense is driven by the interest rates payable on our bank certificates of deposit, privately placed notes, fixed-rate, long-term debentures issued to the SBA, trust preferred securities, and has historically included credit facilities with banks and other short-term notes payable. The Bank issues brokered time certificates of deposit, which are, on average, our lowest borrowing costs. The Bank is able to bid on these deposits at a variety of maturity options, which allows for more flexible interest rate management strategies. As further described below, in September 2023, we issued and sold $39.0 million aggregate principal amount of 9.25% senior notes due in September 2028, and in June 2024, we amended our senior notes previously issued in December 2023, increasing the aggregate principal amount from $12.5 million to $17.5 million, reducing the interest rate to 8.875% from 9.0%, and extending the maturity date from December 2033 to June 2039. The net proceeds were used, in large part, to repurchase and settle, in full, $36.0 million aggregate principal amount of our 8.25% senior notes issued in 2019 and which matured in March 2024.

Previous wording

We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The above table shows the average borrowings and related borrowing costs for the three months ended March 31, 2024 and 2023. We expect our borrowing costs to further increase as we take deposits and borrow other funds at the currently higher prevailing rates.

Current wording

We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The above table shows the average borrowings and related borrowing costs for the three and six months ended June 30, 2024 and 2023. We expect our borrowing costs to further increase as we take deposits and borrow other funds at the currently higher prevailing rates.

Previous wording

Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to or received from loan originators, and which are amortized to interest income over the life of the loan. During the three months ended March 31, 2024, there was continued growth in the recreation segment, growing 2% from December 31, 2023, while home improvement loans decreased 1% from December 31, 2023.

Current wording

Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to or received from loan originators, and which are amortized to interest income over the life of the loan. During the three and six months ended June 30, 2024, there was continued growth in the recreation segment, growing 12% from December 31, 2023, while home improvement loans increased 2% from December 31, 2023.

Previous wording

The allowance is maintained at a level estimated by management to absorb probable credit losses inherent in the loan portfolios based on management’s quarterly evaluation of the portfolios, the related credit characteristics, and macroeconomic factors affecting the portfolios. As of March 31, 2024 and December 31, 2023, the allowance totaled $83.8 million and $84.2 million, which represented 3.76% and 3.80% of total loans, respectively. The provision for credit losses were $17.2 million for the three months ended March 31, 2024, compared to $4.0 million in the three months ended March 31, 2023 as a result of lower taxi medallion recoveries, higher charge off activity, partly attributable to seasonality, and increased provisioning necessary with the growth in our recreation loans.

Current wording

The allowance is maintained at a level estimated by management to absorb probable credit losses inherent in the loan portfolios based on management’s quarterly evaluation of the portfolios, the related credit characteristics, and macroeconomic factors affecting the portfolios. As of June 30, 2024 and December 31, 2023, the allowance totaled $89.8 million and $84.2 million, which represented 3.76% and 3.80% of total loans, respectively. The provision for credit losses was $18.6 million and $35.8 million for the three and six months ended June 30, 2024 compared to $8.5 million and $12.5 million for the three and six months ended June 30, 2023 as a result of lower taxi medallion recoveries, higher charge off activity, and increased provisions necessary with the growth in our recreation loans, as well as the credit loss allowance required due to the impact fluctuating delinquencies have on our credit loss model.

Previous wording

The following table sets forth the activity in the allowance for credit losses for the three months ended March 31, 2024 and 2023.

Current wording

The following table sets forth the activity in the allowance for credit losses for the three and six months ended June 30, 2024 and 2023.

Previous wording

As of March 31, 2024, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the taxi medallion portfolio were $173.7 million, including $105.5 million related to loans secured by New York City taxi medallions, some of which may represent collection opportunities for the Company.

Current wording

As of June 30, 2024, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the taxi medallion portfolio were $173.3 million, including $106.0 million related to loans secured by New York City taxi medallions, some of which may represent collection opportunities for the Company.

Previous wording

The following table sets forth the gross charge-offs for the three months ended March 31, 2024, by the year of origination:

Current wording

The following table sets forth the gross charge-offs for the three and six months ended June 30, 2024, by the year of origination:

Previous wording

The following tables show the activity of loan collateral in process of foreclosure for the three months ended March 31, 2024 and 2023.

Current wording

The following tables show the activity of loan collateral in process of foreclosure for the three and six months ended June 30, 2024.

Previous wording

As of March 31, 2024, taxi medallion loans in the process of foreclosure included 329 taxi medallions in the New York City market, 193 taxi medallions in the Chicago market, 25 taxi medallions in the Newark market, and 31 taxi medallions in other markets.

Current wording

As of June 30, 2024, taxi medallion loans in the process of foreclosure included 326 taxi medallions in the New York City market, 188 taxi medallions in the Chicago market, 23 taxi medallions in the Newark market, and 31 taxi medallions in other markets.

Previous wording

Recreation lending is a growth business focused on originating prime and non-prime recreation loans which is a significant source of income for us, accounting for 65% of our interest income for the three months ended March 31, 2024 and 68% for the three months ended March 31, 2023.

Current wording

Recreation lending is a growth business focused on originating prime and non-prime recreation loans which is a significant source of income for us, accounting for 67% and 66% of our interest income for the three and six months ended June 30, 2024 and 67% for both the three and six months ended June 30, 2023.

Previous wording

We maintain 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 services to small dealers that do not have the desire or ability to provide such services themselves. The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable. We receive approximately half of our loan volume from dealers and the other half from FSPs. Our top ten dealer and FSP relationships were responsible for 45% of recreation lending’s new loan originations for the three months ended March 31, 2024. The percentage of new loan originations by the top ten dealer and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration.

Current wording

We maintain 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 services to small dealers that do not have the desire or ability to provide such services themselves. The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable. We receive approximately half of our loan volume from dealers and the other half from FSPs. Our top ten dealer and FSP relationships were responsible for 41% of recreation lending’s new loan originations for the six months ended June 30, 2024 and 2023. The percentage of new loan originations by the top ten dealer and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration.

Previous wording

The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of March 31, 2024. The loans are fixed rate with an average term at origination of 14.1 years. The weighted average maturity of our loans outstanding as of March 31, 2024 is 10.2 years.

Current wording

The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $21,000 as of June 30, 2024. The loans are fixed rate with an average term at origination of 14 years. The weighted average maturity of our loans outstanding as of June 30, 2024 is 11 years.

Previous wording

The loans are secured primarily by RVs, boats, collector automobiles, and trailers, with RV loans making up 54% of the portfolio, boat loans making up 19%, and collector automobiles making up 10% of the portfolio as of March 31, 2024, compared to 58%, 19% and 9% as of March 31, 2023. Recreation loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida at 16% and 10% of loans outstanding, compared to 15% and 10% as of March 31, 2023, and with no other states at or above 10%. As of March 31, 2024 and 2023, the weighted average FICO scores, measured at origination, of our recreation loans outstanding were 684 and 671. The weighted average FICO scores at the time of origination for the loans funded in three months ended March 31, 2024 and 2023 were 692 and 677.

Current wording

The loans are secured primarily by RVs, boats, collector automobiles, and trailers, with RV loans making up 54% of the portfolio, boat loans making up 21%, and collector automobiles making up 11% of the portfolio as of June 30, 2024, compared to 59%, 19%, and 9% as of June 30, 2023. Recreation loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida at 16% and 10% of loans outstanding, compared to 15% and 10% as of June 30, 2023, and with no other states at or above 10%. As of June 30, 2024 and 2023, the weighted average FICO scores, measured at origination, of our recreation loans outstanding were 685 and 681. The weighted average FICO scores at the time of origination for the loans funded in six months ended June 30, 2024 and 2023 were 689 and 678.

Previous wording

During the three months ended March 31, 2024, the recreation loan portfolio grew 12.5% to $1.4 billion, with the average interest rate increasing 38 basis points to 14.8% from a year ago. Additionally, reserve rates increased 28 basis points from March 31, 2023, reflecting higher delinquency and potential loss.

Current wording

Seasonally, the second quarter typically has the greatest demand for our recreation loan products and results in higher originations. During the six months ended June 30, 2024, the recreation loan portfolio grew 12% to $1.5 billion, with the average interest rate increasing 18 basis points to 14.80% from a year ago. Additionally, reserve rates increased 28 basis points to 4.35% from June 30, 2023, reflecting higher delinquency and potential loss.

Previous wording

During the three months ended March 31, 2024, we originated $105.8 million in recreation loans, compared to $101.7 million in the prior year period. Originations increased despite more restrictive underwriting standards and management's efforts to mitigate concentration risks. The following table presents quarterly originations for 2024, 2023, and 2022.

Current wording

During the six months ended June 30, 2024, we originated $315.3 million in recreation loans, compared to $291.7 million in the prior year period. Originations increased despite more restrictive underwriting standards and management's efforts to mitigate concentration risks. The following table presents quarterly originations for 2024, 2023, and 2022.

Previous wording

As of March 31, 2024, 36% of the recreation loan portfolio were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history. The following table presents non-prime originations in comparison to total originations for the three months ended March 31, 2024 and years ended December 31, 2023 and 2022.

Current wording

As of June 30, 2024, 35.1% of the recreation loan portfolio were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history. The following table presents non-prime originations in comparison to total originations for the six months ended June 30, 2024 and years ended December 31, 2023 and 2022.

Previous wording

The home improvement lending segment works with contractors and FSPs to finance home improvements and is concentrated in roofs, swimming pools, and windows at 40%, 20%, and 13% of total loans outstanding as of March 31, 2024, as compared to 40%, 21%, and 13% as of March 31, 2023, with no other collateral types over 10%. Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida, each representing 10% of loans outstanding as of March 31, 2024 and consistent with concentrations as of March 31, 2023, with no other states at or above 10%. As of March 31, 2024 and 2023, the weighted average FICO scores of our home improvement loans outstanding, measured at origination, were 764 and 753. The weighted average FICO scores at the time of origination for the loans funded in the three months ended March 31, 2024 and 2023 were 776 and 766.

Current wording

The home improvement lending segment works with contractors and FSPs to finance home improvements and is concentrated in roofs, swimming pools, and windows at 40%, 21%, and 13% of total loans outstanding as of June 30, 2024, as compared to 41%, 19%, and 13% as of June 30, 2023, with no other collateral types over 10%. Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida, each representing 10% of loans outstanding as of June 30, 2024 and consistent with concentrations as of June 30, 2023, with no other states at or above 10%. As of June 30, 2024 and 2023, the weighted average FICO scores of our home improvement loans outstanding, measured at origination, were 764 and 755. The weighted average FICO scores at the time of origination for the loans funded in the six months ended June 30, 2024 and 2023 were 778 and 770.

Previous wording

A large proportion of our home improvement-financed sales are facilitated by contractor salespeople with limited financing backgrounds rather than by contractor employees who provide financing 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. We currently maintain relationships with approximately 800 contractors and FSPs. Our top ten contractors and FSP relationships were responsible for 54% of home improvement lending’s new loan originations for the three months ended March 31, 2024. The percentage of new loan originations by the top ten contractor and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration.

Current wording

A large proportion of our home improvement-financed sales are facilitated by contractor salespeople with limited financing backgrounds rather than by contractor employees who provide financing 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. We currently maintain relationships with approximately 800 contractors and FSPs. Our top ten contractors and FSP relationships were responsible for 55% of home improvement lending’s new loan originations for the three and six months ended June 30, 2024. The percentage of new loan originations by the top ten contractor and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration.

Previous wording

The home improvement loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of March 31, 2024. The loans are fixed rate with an average term at origination of 13.6 years. The weighted average maturity of our loans outstanding as of March 31, 2024 is 12.2 years.

Current wording

The home improvement loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $21,000 as of June 30, 2024. The loans are fixed rate with an average term at origination of 14 years. The weighted average maturity of our loans outstanding as of June 30, 2024 is 12 years.

Previous wording

During the three months ended March 31, 2024, the home improvement portfolio decreased 1% from $760.6 million to $752.3 million, with reserve coverage rates increasing 19 basis points from a year ago reflecting higher delinquency and potential losses. The average interest rate increased 77 basis points to 9.60% from the prior period.

Current wording

During the six months ended June 30, 2024, the home improvement portfolio increased 2% to $773.2 million, with reserve coverage rates increasing 12 basis points from a year ago reflecting higher delinquency and potential losses. The average interest rate increased 50 basis points to 9.71% at June 30, 2024.

Previous wording

During the three months ended March 31, 2024, we originated $51.6 million in home improvement loans, compared to $95.0 million in the prior period. The decrease was driven by ongoing restrictive underwriting standards in 2024 and management's efforts to mitigate concentration risks. The following table presents quarterly originations for 2024, 2023, and 2022.

Current wording

During the six months ended June 30, 2024, we originated $119.6 million in home improvement loans, compared to $212.0 million in the prior period. The decrease was driven by ongoing restrictive underwriting standards in 2024 and management's efforts to mitigate concentration risks. The following table presents quarterly originations for 2024, 2023, and 2022.

Previous wording

As of March 31, 2024, 1% of the home improvement loan portfolio were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history. The following table presents non-prime originations in comparison to total originations for the three months ended March 31, 2024 and years ended December 31, 2023 and 2022.

Current wording

As of June 30, 2024, 1.0% of the home improvement loan portfolio were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history. The following table presents non-prime originations in comparison to total originations for the six months ended June 30, 2024 and years ended December 31, 2023 and 2022.

Previous wording

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, with California, Wisconsin, and Texas each having 30%, 11%, and 10% of the segment portfolio of the segment portfolio, and no other states having a concentration at or above 10%. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2.5 million to $6.0 million at origination, and typically include an equity component as part of the financing. These equity components, although a small portion of the overall financing, have the potential to generate significant yield enhancement if and when the underlying portfolio company enters into a capital transaction. During the three months ended March 31, 2024, net gains of $4.2 million were recognized with respect to these equity investments, with no gains being recognized in the 2023 period. The commercial lending business has concentrations in manufacturing, construction, and wholesale trade making up 53%, 14%, and 12%, of the loans outstanding as of March 31, 2024. During the three months ended March 31, 2024, we originated no loans, compared to $3.0 million in originations in the 2023 period.

Current wording

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, with California, Wisconsin, and Texas each having 30%, 10%, and 10% of the segment portfolio of the segment portfolio, and no other states having a concentration at or above 10%. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2.5 million to $6.0 million at origination, and typically include an equity component as part of the financing. These equity components, although a small portion of the overall financing, have the potential to generate significant yield enhancement when the underlying portfolio company enters a capital transaction. During the six months ended June 30, 2024, net gains of $3.7 million were recognized with respect to these equity investments. The commercial lending business has concentrations in manufacturing, construction, and wholesale trade making up 55%, 14%, and 11%, of the loans outstanding as of June 30, 2024. During the six months ended June 30, 2024, we originated $7.0 million in new commercial loans, compared to $7.8 million in 2023.

Previous wording

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2024 and 2023. The commercial segment encompasses the mezzanine lending business, and the other legacy commercial loans (immaterial to total) have been allocated to corporate and other investments.

Current wording

The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2024 and 2023. The commercial segment encompasses the mezzanine lending business, and the other legacy commercial loans (immaterial to total) have been allocated to corporate and other investments.

Previous wording

The taxi medallion lending segment operates in the New York City metropolitan area. During the three months ended March 31, 2024, taxi medallion values remained consistent in the New York City and Newark markets with all other markets being valued at $0 at the end of the year. We continued to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020 (except for settled loans with interest being paid in excess of the loan balance), and by transferring underperforming loans from the portfolio to loan collateral in process of foreclosure with charge-offs to collateral value, once loans become more than 120 days past due. All the loans are secured by taxi medallions and enhanced by personal guarantees of the shareholders and owners.

Current wording

The taxi medallion lending segment operates in the New York City metropolitan area. During the three and six months ended June 30, 2024, taxi medallion values remained consistent in the New York City and Newark markets with all other markets being valued at $0 at the end of the year. We continued to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020 (except for settled loans with interest being paid in excess of the loan balance), and by transferring underperforming loans from the portfolio to loan collateral in process of foreclosure with charge-offs to collateral value, once loans become more than 120 days past due. All the loans are secured by taxi medallions and enhanced by personal guarantees of the shareholders and owners.

Previous wording

During the three months ended March 31, 2024, we collected $3.1 million related to taxi medallion and related assets, which resulted in net recoveries and gains of $1.6 million. The amount of cash collected as well as recoveries recorded vary greatly from period to period due to a wide variety of circumstances surrounding each of the underlying assets, and while we continue to focus on collection and recovery efforts, it is unlikely that there will be future collections at the higher levels experienced in the prior year.

Current wording

During the three and six months ended June 30, 2024, we collected $2.3 million and $5.3 million related to taxi medallion and related assets, which resulted in net recoveries and gains of $1.3 million and $2.9 million in those periods. The amount of cash collected as well as recoveries recorded vary greatly from period to period due to a wide variety of circumstances surrounding each of the underlying assets, and while we continue to focus on collection and recovery efforts, it is unlikely that there will be future collections at the higher levels experienced in the prior year.

Previous wording

This non-operating segment includes our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses, including goodwill and intangible assets, which are not specifically allocated to the operating segments and are not used in evaluating performance of the operating segments. Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is included within this segment. The associated activities of the strategic partnership business are currently limited to originating loans or other receivables facilitated by our strategic partners and selling those loans or receivables to our strategic partners or other third parties, without recourse, within a specified time after origination, such as three business days. Strategic partnerships represent $0.9 million in net loans as of March 31, 2024, compared to $1.8 million as of March 31, 2023, with originations of $15.7 million during the three months ended March 31, 2024 and $27.0 million during the three months ended March 31, 2023.

Current wording

This non-operating segment includes our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses, including goodwill and intangible assets, which are not specifically allocated to the operating segments and are not used in evaluating performance of the operating segments. Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is included within this segment. The associated activities of the strategic partnership business are currently limited to originating loans or other receivables facilitated by our strategic partners and selling those loans or receivables to our strategic partners or other third parties, without recourse, within a specified time after origination, such as three business days. Strategic partnerships loans were $1.3 million as of both June 30, 2024 and June 30, 2023, with originations of $24.3 million and $40.0 million during the three and six months ended June 30, 2024 and $33.2 million and $60.2 million during the three and six months ended June 30, 2023.

Previous wording

The table below presents our selected financial data for the three months ended March 31, 2024 and 2023.

Current wording

The table below presents our selected financial data for the three and six months ended June 30, 2024 and 2023.

Previous wording

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Current wording

Three and Six Months Ended June 30, 2024 Compared to the Three and Six Months Ended June 30, 2023

Previous wording

Net income attributable to shareholders was $10.0 million, or $0.42 per diluted share, for the three months ended March 31, 2024, compared to $15.4 million, or $0.67 per diluted share, for the three months ended March 31, 2023.

Current wording

Net income attributable to shareholders was $7.1 million and $17.1 million, or $0.30 and $0.73 per diluted share, for the three and six months ended June 30, 2024, compared to $14.2 million and $29.5 million, or $0.62 and $1.29 per diluted share, for the three and six months ended June 30, 2023.

Previous wording

Total interest income was $67.1 million for the three months ended March 31, 2024 compared to $55.8 million for the three months ended March 31, 2023. The increase in interest income reflects the continued growth in our recreation and home improvement lending segments and an increased weighted average interest rate on the loan portfolio. The yield on interest earning assets was 11.34% for the three months ended March 31, 2024, compared to 10.78% for the three months ended March 31, 2023. The increase reflects higher interest rates on new originations in our recreation, home improvement and commercial lending segments, with the yield anticipated to continue to increase as older loans with lower rates amortize and newer originations at the higher current rates become a larger portion of our portfolio.

Current wording

Total interest income was $70.7 million and $137.8 million for the three and six months ended June 30, 2024 compared to $61.7 million and $117.6 million for the three and six months ended June 30, 2023. The increase in interest income reflects the continued growth in our recreation, home improvement, and commercial lending segments and an increased weighted average interest rate on the loan portfolio. The yield on interest earning assets was 11.52% and 11.42% for the three and six months ended June 30, 2024, compared to 11.21% and 11.01% for the three and six months ended June 30, 2023. The increase reflects higher interest rates on new originations in our recreation and home improvement lending segments, with the yield anticipated to continue to increase as older loans with lower rates amortize and newer originations at the higher current rates become a larger portion of our portfolio.

Previous wording

Loans before allowance for credit losses were $2.2 billion as of March 31, 2024, comprised of recreation ($1.4 billion), home improvement ($752.3 million), commercial ($106.6 million), taxi medallion ($3.6 million), and strategic partnership ($0.9 million) loans. We had an allowance for credit losses as of March 31, 2024 of $83.8 million, which was attributable to recreation (72%), home improvement (21%), commercial (5%), and taxi medallion (2%) loans.

Current wording

Loans before allowance for credit losses were $2.4 billion as of June 30, 2024, comprised of recreation ($1.5 billion), home improvement ($773.2 million), commercial ($110.2 million), taxi medallion ($3.5 million), and strategic partnership ($1.3 million) loans. We had an allowance for credit losses as of June 30, 2024 of $89.8 million, which was attributable to recreation (73%), home improvement (20%), commercial (5%), and taxi medallion (2%) loans.