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 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.

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 nine months ended September 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 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.

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 cars, 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 September 30, 2024, our consumer loans represented 95% of our gross loan portfolio, and commercial loans represented 4%. Total assets were $2.9 billion and $2.6 billion as of September 30, 2024 and December 31, 2023.

Previous wording

Our loan-related earnings depend primarily on our level of net interest income. Net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, including bank certificates of deposit issued to consumers, debentures issued to and guaranteed by the SBA, privately placed notes, and trust preferred securities. Net interest income fluctuates with changes in the yield on our loan portfolios and changes in the cost of borrowed funds, as well as changes in the amount of interest-earning assets and interest-bearing liabilities held by us. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the availability of funding to finance our lending activities. We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice, either due to inflation or other factors, on a different basis than our interest-bearing liabilities. We continue to monitor global supply chain disruptions, gas prices, labor shortages, unemployment, and other factors contributing to U.S. inflation and economic health, as well as other factors which contribute to competition and changes in the demand for our loan products. We have taken, and are taking further, steps in light of a potential economic downturn and the current inflationary environment to moderate the pace of our growth.

Current wording

Our loan-related earnings depend primarily on our level of net interest income. Net interest income is the difference between the total yield on our loan portfolio and the cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, including bank certificates of deposit issued to consumers, debentures issued to and guaranteed by the SBA, privately placed notes, trust preferred securities, and Federal Reserve discount window and other borrowing arrangements. Net interest income fluctuates with changes in the yield on our loan portfolios and changes in the cost of borrowed funds, as well as changes in the amount of interest-earning assets and interest-bearing liabilities held by us. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the availability of funding to finance our lending activities. We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice, either due to inflation or other factors, on a different basis than our interest-bearing liabilities. We continue to monitor global supply chain disruptions, gas prices, labor shortages, unemployment, as well as other factors which contribute to competition and changes in the demand for our loan products. We have taken, and are taking further, steps in light of a potential economic downturn and the current inflationary environment to moderate the pace of our growth.

Previous wording

The Bank is an industrial bank regulated by the FDIC and the Utah Department of Financial Institutions that originates consumer loans, raises deposits, and conducts other banking activities. The Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit. To take advantage of this low cost of funds, historically we referred a portion of our taxi medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing Corp., or MSC. However, other than in connection with dispositions of existing taxi medallion and related assets, the Bank has not originated any new taxi medallion loans since 2014 (and Medallion Financial Corp. has not originated any new taxi medallion loans since 2015) and is working with MSC to service its remaining portfolio as it winds down. MSC earns referral and servicing fees for these activities.

Current wording

The Bank is an industrial bank regulated by the FDIC and the Utah Department of Financial Institutions that originates consumer loans, raises deposits, and conducts other banking activities. The Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit. To take advantage of this low cost of funds, historically we referred a portion of our taxi medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing Corp., or MSC. However, other than in connection with dispositions of existing taxi medallion and related assets, the Bank has not originated any new taxi medallion loans since 2014 (and Medallion Financial Corp. has not originated any new taxi medallion loans since 2015) and is working with MSC to service its remaining portfolio as it winds down.

Previous wording

We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after December 15, 2022 are presented under ASC 326. The transition to the CECL methodology on January 1, 2023 resulted in an increase of $13.7 million to our allowance for credit losses on loans, or ACL, and a net-of-tax cumulative-effect adjustment of $9.9 million to the beginning balance of retained earnings. The CECL methodology transition effects on the allowance for credit losses are shown in the following table:

Current wording

We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after December 15, 2022 are presented under ASC 326. The transition to the CECL methodology on January 1, 2023 resulted in an increase of $13.7 million to our allowance for credit losses on loans, or ACL, and a net-of-tax cumulative-effect adjustment of $9.9 million to the beginning balance of retained earnings. The CECL methodology transition effects on the allowance for credit losses are presented in the following table:

Previous wording

In December 2023, the FASB issued ASU 2023-09, Income Taxes, or Topic 740: Improvements to Income Tax Disclosures. The main objective of this update is to improve financial reporting disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in this update are effective for the annual periods beginning after December 15, 2024. 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 improve financial reporting disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. 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

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.

Current wording

In December 2023, the FASB issued ASU 2023-09, Income Taxes, or Topic 740: Improvements to Income Tax 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 the annual periods beginning after December 15, 2024. We are assessing the impact of the update on the accompanying financial statements.

Previous wording

Thefollowing 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 June 30, 2024 and 2023.

Current wording

Thefollowing table presents 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 September 30, 2024 and 2023.

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 six months ended June 30, 2024 and 2023.

Current wording

The following table presents 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 nine months ended September 30, 2024 and 2023.

Previous 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.

Current wording

For the three months ended September 30, 2024, our loans receivable yielded 12.12%, as compared to 11.73% for the three months ended September 30, 2023. The 39 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 remained high. Similarly, for the nine months ended September 30, 2024, our loans receivable yielded 12.02%, as compared to 11.62% for the nine months ended September 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. Additionally, we have used the higher interest rate environment as an opportunity to increase the credit quality of our new issuances all while receiving a yield higher than what would typically be attainable in a lower interest rate environment. This is particularly the case in our recreation segment, with the average FICO scores, measured at origination, of our recreation loans outstanding being 685 as of September 30, 2024 compared to 682 as of September 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 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.

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 nine months ended September 30, 2024 of 4.05% and 3.86% increased 77 and 84 basis points from the three and nine months ended September 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. During the three months ended September 30, 2024, we issued deposits for three-month certificates at rates as high as 4.95%, 4.65% for 36 month certificates, and 4.25% for 60 month certificates, with the most recent 36 month and 60 month issuances being at rates of 3.80%. As described above, 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 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.

Current wording

During the three and nine months ended September 30, 2024, the increase in interest income was mainly driven by the increase in the size of the consumer loan portfolios, 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, primarily due to the increases in deposits and growth of our total borrowings which fund our growing loan portfolio, and in interest rates.

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 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.

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, 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, and in August 2024, we issued and sold $5.0 million aggregate principal amount of 8.625% senior notes due in August 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, as well as for general corporate purposes.

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 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.

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 presents the average borrowings and related borrowing costs for the three and nine months ended September 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

We continue to seek SBA funding through Medallion Capital to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the Small Business Investment Act of 1985, as amended, or the SBIA, and SBA regulations. In July 2023, we obtained a $20.0 million commitment from the SBA, $9.8 million of which has been utilized as of June 30, 2024, with $8.0 million currently drawable, and the balance of $2.2 million drawable upon the infusion of $1.1 million of capital. In February 2024, we obtained an $18.5 million commitment from the SBA, with the entire amount drawable upon the infusion of $9.3 million of capital.

Current wording

We continue to seek SBA funding through Medallion Capital to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the Small Business Investment Act of 1985, as amended, or the SBIA, and SBA regulations. In July 2023, we obtained a $20.0 million commitment from the SBA, $9.8 million of which has been utilized as of September 30, 2024, with $10.2 million currently drawable. In February 2024, we obtained an $18.5 million commitment from the SBA, with $0.3 million currently drawable, and the balance of $18.2 million drawable upon the infusion of $9.1 million of capital.

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 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.

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 nine months ended September 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 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.

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 September 30, 2024 and December 31, 2023, the allowance totaled $96.5 million and $84.2 million, which represented 3.88% and 3.80% of total loans, respectively. The provision for credit losses was $20.2 million and $55.9 million for the three and nine months ended September 30, 2024 compared to $14.5 million and $27.0 million for the three and nine months ended September 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 and, to a lesser extent, in our home improvement 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 and six months ended June 30, 2024 and 2023.

Current wording

The following table presents the activity in the allowance for credit losses for the three and nine months ended September 30, 2024 and 2023.

Previous 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.

Current wording

As of September 30, 2024, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the taxi medallion portfolio were $166.2 million, including $99.2 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 and six months ended June 30, 2024, by the year of origination:

Current wording

The following tables present the gross charge-offs for the three and nine months ended September 30, 2024, by the year of origination:

Previous wording

The following table sets forth the gross charge-offs for the three and six months ended June 30, 2023, by the year of origination:

Current wording

The following tables present the gross charge-offs for the three and nine months ended September 30, 2023, by the year of origination:

Previous wording

The following tables set forth the allowance for credit losses by type as of June 30, 2024 and December 31, 2023.

Current wording

The following tables present the allowance for credit losses by type as of September 30, 2024 and December 31, 2023.

Previous wording

As of June 30, 2024, the total allowance for credit losses as a percent of loans decreased 4 basis points from December 31, 2023.

Current wording

As of September 30, 2024, the total allowance for credit losses as a percent of loans decreased 8 basis points from December 31, 2023.

Previous wording

The following table shows the trend in loans 90 days or more past due as of the dates indicated.

Current wording

The following table presents the trend in loans 90 days or more past due as of the dates indicated.

Previous wording

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

Current wording

The following tables present the activity of loan collateral in process of foreclosure for the three and nine months ended September 30, 2024.

Previous wording

The following tables show the activity of loan collateral in process of foreclosure for the three and six months ended June 30, 2023.

Current wording

The following tables present the activity of loan collateral in process of foreclosure for the three and nine months ended September 30, 2023.

Previous 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.

Current wording

As of September 30, 2024, taxi medallion loans in the process of foreclosure included 315 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

We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and taxi medallion lending. We also show results for a non-operating segment, corporate and other investments.

Current wording

We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and taxi medallion lending. We also present results for a non-operating segment, corporate and other investments.

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 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.

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% of our interest income for both the three and nine months ended September 30, 2024 and the three and nine months ended September 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 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.

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 39% of recreation lending’s new loan originations for the nine months ended September 30, 2024 and 41% for the nine months ended September 30, 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 $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.

Current wording

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

Current wording

The loans are secured primarily by RVs, boats, collector cars, and trailers, with RV loans making up 55% of the portfolio, boat loans making up 20%, and collector cars making up 11% of the portfolio as of September 30, 2024, compared to 58%, 20%, and 9% as of September 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 September 30, 2023, and with no other states at or above 10%. As of September 30, 2024 and 2023, the weighted average FICO scores, measured at origination, of our recreation loans outstanding were 685 and 682. The weighted average FICO scores at the time of origination for the loans funded in the nine months ended September 30, 2024 and 2023 were 686 and 682.

Previous 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.

Current wording

During the nine months ended September 30, 2024, the recreation loan portfolio grew 16% to $1.6 billion, with the average interest rate increasing 19 basis points to 14.92% from a year ago. Additionally, reserve rates increased 29 basis points to 4.53% from September 30, 2023, reflecting higher delinquency and potential loss.

Previous 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.

Current wording

During the nine months ended September 30, 2024, we originated $454.4 million in recreation loans, compared to $384.3 million in the prior year period. Originations increased despite 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 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.

Current wording

As of September 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 nine months ended September 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%, 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.

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 38%, 24%, and 13% of total loans outstanding as of September 30, 2024, as compared to 40%, 19%, and 13% as of September 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 11% of loans outstanding as of September 30, 2024 and with each state representing 10% as of September 30, 2023, with no other states at or above 10%. As of September 30, 2024 and 2023, the weighted average FICO scores of our home improvement loans outstanding, measured at origination, were 766 and 763. The weighted average FICO scores at the time of origination for the loans funded in the nine months ended September 30, 2024 and 2023 were 781 and 755.

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 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.

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 900 contractors and FSPs. Our top ten contractors and FSP relationships were responsible for 35% of home improvement lending’s new loan originations during the nine months ended September 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 $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.

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 September 30, 2024. The loans are fixed rate with an average term at origination, for loans originated in the current year of approximately 15 years. The weighted average maturity of our loans outstanding as of September 30, 2024 is approximately 12 years.

Previous 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.

Current wording

During the nine months ended September 30, 2024, the home improvement portfolio increased 7% to $814.1 million, with reserve coverage rates increasing 12 basis points to 2.42% from a year ago reflecting higher delinquency and potential losses. The average interest rate increased 38 basis points to 9.76% at September 30, 2024 from a year ago.

Previous 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.

Current wording

During the nine months ended September 30, 2024, we originated $216.1 million in home improvement loans, compared to $291.3 million in the prior year period. The decrease was driven in part 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.