MEDALLION FINANCIAL CORP

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, 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 December 31, 2023, our consumer loans represented 95% of our gross loan portfolio and commercial loans represented 5%. Total assets were $2.6 billion as of December 31, 2023 and $2.3 billion as of December 31, 2022.

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 December 31, 2024, our consumer loans represented 95% of our gross loan portfolio, inclusive of loans held for sale, and commercial loans represented 4%. Total assets were $2.9 billion as of December 31, 2024 and $2.6 billion as of 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 are taking steps in the event of a potential economic downturn and in light of the current inflationary environment to moderate the pace of our recent 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 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, trust preferred securities, and preferred stock of the Bank. 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 are taking steps in the event of a potential economic downturn and in light of the current inflationary environment to moderate the pace of our recent growth.

Previous wording

Our methodology to calculate the general reserve portion of the allowance includes the use of quantitative and qualitative factors. We initially determine an allowance based on quantitative loss factors for loans evaluated collectively for impairment. The quantitative loss factors are based primarily on historical loss rates, after considering loan type, historical loss and delinquency experience. The quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Qualitative loss factors are used to modify the reserve determined by the quantitative factors and are designed to account for losses that may not be included in the quantitative calculation according to management’s best judgment. If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $6.7 million and $3.8 million, respectively. Likewise, if our qualitative loss factor rates were to decrease 50 basis points, our recreation and home improvement general reserve would decrease by $6.7 million and $3.8 million, respectively.

Current wording

Our methodology to calculate the general reserve portion of the allowance includes the use of quantitative and qualitative factors. We initially determine an allowance based on quantitative loss factors for loans evaluated collectively for impairment. The quantitative loss factors are based primarily on historical loss rates, after considering loan type, historical loss and delinquency experience. The quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Qualitative loss factors are used to modify the reserve determined by the quantitative factors and are designed to account for losses that may not be included in the quantitative calculation according to management’s best judgment. If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $7.1 million and $4.1 million, respectively. Likewise, if our qualitative loss factor rates were to decrease 50 basis points, our recreation and home improvement general reserve would decrease by $7.1 million and $4.1 million, respectively.

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 evaluation of the portfolios, the related credit characteristics, and macroeconomic factors affecting the portfolios. As of December 31, 2023 and 2022, the allowance totaled $84.2 million and $63.8 million, which represented 3.80% and 3.33% of total loans, respectively. The increase in the allowance for credit losses as of December 31, 2023 was primarily driven by the adoption of the CECL accounting standard, which resulted in a $13.7 million increase in our allowance for credit losses, and due to growth in our recreation and home improvement loan portfolios, as well as growth in the commercial loan portfolio, offset by a reduction in allowance specific to the taxi medallion portfolio as the taxi medallion loan portfolio continued to shrink through collections.

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 evaluation of the portfolios, the related credit characteristics, and macroeconomic factors affecting the portfolios. As of December 31, 2024 and 2023, the allowance totaled $97.4 million and $84.2 million, which represented 4.12% and 3.80% of total loans held for investment, respectively. The increase in the allowance for credit losses as of December 31, 2024 was primarily driven by the changes in qualitative factors which increased the necessary allowance for credit losses for recreation loans which were partially offset by the decrease in the necessary allowance for home improvement loans. Additionally, growth in our recreation and home improvement loan portfolios required additional allowance commensurate with portfolio growth.

Previous wording

Goodwill and intangible assets arose as a result of the excess of the fair value that was determined by an independent third party expert over the book value of several of our previously unconsolidated portfolio investment companies as of April 2, 2018. Goodwill is not amortized, but is subject to quarterly review by management to determine whether additional impairment testing is needed, and such testing is performed at least on an annual basis. The annual goodwill assessment is focused on the Bank goodwill of $150.8 million and intangible assets of $20.6 million, both of which utilized a step zero qualitative impairment analysis based on historical and projected financial data. The Bank-related intangible assets are amortized over their approximate useful life.

Current wording

Goodwill assets arose as a result of the excess of fair value over book value for several of our previously unconsolidated portfolio investment companies as of April 2, 2018. This fair value was brought forward under our new reporting and was subject to a purchase price accounting allocation process conducted by an independent third-party expert to arrive at the current categories and amounts. Goodwill is not amortized, but is subject to quarterly review by management to determine whether additional impairment testing is needed, and such testing is performed at least on an annual basis.

Previous wording

The following table shows our consolidated average balance sheets, interest income and expense, and the average interest earning/bearing assets and liabilities, and which reflect the average yield on assets and average costs on liabilities as of and for the years ended December 31, 2023, 2022, and 2021.

Current wording

The following table presents our consolidated average balance sheets, interest income and expense, and the average interest earning/bearing assets and liabilities, and which reflect the average yield on assets and average costs on liabilities as of and for the years ended December 31, 2024, 2023, and 2022.

Previous wording

For the year ended December 31, 2023, our net loans receivable yielded 11.69% as compared to 11.34% for the year ended December 31, 2022. The 35 basis point increase reflects a higher yield on our 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 increase the rates on both 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 683 as of December 31, 2023 compared to 671 as of December 31, 2022. We use weighted average FICO scores as an indicator of portfolio risk.

Current wording

For the year ended December 31, 2024, our total loans yielded 12.01% as compared to 11.69% for the year ended December 31, 2023. The 32 basis point increase reflects a higher yield on our loan portfolios, as we have increased the rates charged on new consumer originations over the past year as prevailing market interest rates have remained high. We have used the higher interest rate environment as an opportunity to increase the rates on both 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 total recreation loans outstanding being 685 and 683 as of December 31, 2024 and 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 year ended December 31, 2023 of 3.16% increased 99 basis points from 2.17% for the year ended December 31, 2022, 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 year ended December 31, 2024 of 3.93% increased 77 basis points from 3.16% for the year ended December 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. During the year ended December 31, 2024, we issued deposits for three-month certificates at rates as high as 4.89% for both 36 month and 60 month certificates, with the most recent 36 month and 60 month issuances in 2024 at rates of 4.19%. and 4.13%. 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

For the year ended December 31, 2023, the increase in interest income was mainly driven by the increase in volume of consumer loans, with a large portion of that increase occurring in the first half of the year, as well as an increase in overall yield on interest-earning assets as we issue new loans at interest rates higher than the weighted average rates of our then current portfolio. The increase in interest expense was driven by an increase in borrowing costs, primarily the increases in deposits as older deposits mature and are replaced at current market rates, as well as an overall increase in borrowings.

Current wording

For the year ended December 31, 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. The increase in interest expense was driven by an increase in borrowing costs, primarily due to the increases in deposits as older deposits mature and are replaced at current market rates, as well as an overall increase in borrowings.

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, and 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. In September 2023, we issued and sold $39.0 million aggregate principal amount of 9.25% senior notes due in September 2028, and repurchased $33.0 million aggregate principal amount of our 8.25% senior notes due in March 2024. In December 2023, we issued and sold $12.5 million aggregate principal amount of 9.00% senior notes due in December 2033. The proceeds of both offerings were used for general corporate purposes and repayment of the senior notes maturing 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

Our cost of funds is primarily driven by the rates paid on our various borrowings and changes in the levels of average borrowings outstanding. See Note 5 to the consolidated financial statements regarding the terms of our outstanding debt. Our debentures issued to the SBA typically have terms of ten years.

Current wording

Our cost of funds is primarily driven by the rates paid on our various borrowings and changes in the levels of average borrowings outstanding. See Note 5 to the consolidated financial statements for details on the terms of our outstanding debt. Our debentures issued to the SBA typically have terms of ten years.

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 years ended December 31, 2023, 2022, and 2021. We expect our borrowing costs to further increase as prevailing interest rates continue at, or rise from, these levels.

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 years ended December 31, 2024, 2023, and 2022. 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 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 December 31, 2023, with $5.2 million currently drawable, and the balance of $5.5 million drawable upon the infusion of $2.4 million of capital. At December 31, 2023 and 2022, adjustable rate debt constituted less than 2% of total debt, and was comprised solely of our trust preferred securities borrowings.

Current wording

We continue to seek SBA funding through Medallion Capital to the extent it offers attractive rates. SBA financing subjects recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under 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 December 31, 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 loan originators, which are amortized to interest income over the life of the loan. For the years ended December 31, 2023 and 2022, there was continued growth in the recreation and home improvement segments.

Current wording

Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, which are amortized to interest income over the life of the loan. For the years ended December 31, 2024 and 2023, there was continued growth in the recreation and home improvement segments. The tables below present the activity of the total loan portfolio, inclusive of loans held for sale and loans held for investment.

Previous wording

The following table sets forth the activity in the allowance for credit losses for December 31, 2023 and 2022.

Current wording

The following table presents the activity in the allowance for credit losses for December 31, 2024 and 2023.

Previous wording

As of December 31, 2023, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the taxi medallion portfolio were $176.8 million, including $107.9 million related to loans secured by New York taxi medallions, some of which may represent collection opportunities for us.

Current wording

As of December 31, 2024, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the taxi medallion portfolio were $165.3 million, including $98.6 million related to loans secured by New York taxi medallions, some of which may represent collection opportunities for us.

Previous wording

The following tables set forth the allowance for credit losses, by type, as of December 31, 2023 and 2022 follows:

Current wording

The following tables present the allowance for credit losses for loans held for investment, by type, as of December 31, 2024 and 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

Percentages are calculated against the total or managed loan portfolio, as appropriate.

Current wording

Percentages are calculated against the total loan portfolio.

Previous wording

Recreation and taxi medallion loans that reach 120 days past due are charged down to collateral value and reclassified to loan collateral in process of foreclosure. The following tables show the activity of loan collateral in process of foreclosure for the December 31, 2023 and 2022.

Current wording

The following tables present the activity of loan collateral in process of foreclosure for the December 31, 2024 and 2023.

Previous wording

Recreation lending is a growth oriented business focused on originating prime and non-prime recreation loans which is a significant source of income for us, accounting for 67%, 71%, and 74% of our interest income for the years ended December 31, 2023, 2022, and 2021.

Current wording

Recreation lending is a return-oriented business focused on originating prime and non-prime recreation loans which is a significant source of income for us, accounting for 67%, 67%, and 71% of our interest income for the years ended December 31, 2024, 2023, and 2022.

Previous wording

We maintain relationships with approximately 3,200 dealers and financial service providers, or FSPs, not all of which are active at any one time. FSPs are entities that provide finance and insurance, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves. The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable. 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 43% of recreation lending’s new loan originations for the year ended December 31, 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, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves. The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable. 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 38% of recreation lending’s new loan originations for the year ended December 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.

Previous wording

The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of December 31, 2023. The loans are fixed rate with an average term at origination of 12.9 years. The weighted average maturity of our loans outstanding as of December 31, 2023 is 10.0 years.

Current wording

The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of December 31, 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 December 31, 2024 is 11 years.

Previous wording

The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 54% of the portfolio and boat loans making up 19% of the portfolio as of December 31, 2023, compared to 58% and 19% as of December 31, 2022. Recreation loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida, at 15% and 10% of loans outstanding with no other states at or above 10%. As of December 31, 2023, 2022, and 2021, the weighted average FICO, measured at origination, scores of our recreation loans outstanding were 683, 671, and 668. The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2023, 2022, and 2021 were 686, 676, and 684.

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 December 31, 2024, compared to 54%, 19%, and 10% as of December 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 with no other states at or above 10%. As of December 31, 2024, 2023, and 2022, the weighted average FICO, measured at origination, scores of all recreation loans outstanding were 685 (683 exclusive of loans held for sale), 683, and 671. The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2024, 2023, and 2022 were 685, 686, and 676.

Previous wording

During the year ended December 31, 2023, the recreation portfolio grew 13% from $1.2 billion to $1.3 billion, with the average interest rate increasing 51 basis points to 14.79% from a year ago. Additionally, during the year ended December 31, 2023, allowance for credit losses increased 76 basis points from December 31, 2022, reflecting an increase in reserves due to the adoption of CECL, rising loss rates and various economic factors.

Current wording

During the year ended December 31, 2024, the recreation portfolio grew 15% from $1.3 billion to $1.5 billion, with the average interest rate increasing 28 basis points to 15.07% from a year ago. Additionally, during the year ended December 31, 2024, the allowance for credit losses increased 24% from December 31, 2023, with the increase reflecting the 15% growth in the portfolio we experienced as well as rising loss rates and various economic factors.

Previous wording

During the year ended December 31, 2023, we originated $447.0 million recreation loans, a decrease of $66.0 million compared to $513.1 million from a year ago. The decrease was driven by more restrictive underwriting standards in 2023 compared to 2022 and management's efforts to mitigate concentration risk by moderating portfolio growth, as well as lower demand than what was experienced in the years following the COVID-19 pandemic. The following table presents quarterly originations for the years ended December 31, 2023, 2022, and 2021.

Current wording

During the year ended December 31, 2024, we originated $526.6 million recreation loans, an increase of $79.6 million compared to the $447.0 million originated in 2023. Originations increased despite more restrictive underwriting standards and management's efforts to mitigate concentration risks. The following table presents quarterly originations for the years ended December 31, 2024, 2023, and 2022.

Previous wording

As of December 31, 2023, 38% 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 years ended December 31, 2023, 2022, and 2021.

Current wording

As of December 31, 2024, 37% 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 years ended December 31, 2024, 2023, and 2022.

Previous wording

The home improvement lending segment works with contractors and financial service providers to finance home improvements and is concentrated in roofs, swimming pools, and windows at 41%, 20%, and 13% of total loans outstanding as of December 31, 2023, as compared to 37%, 23%, and 12% as of December 31, 2022, with no other collateral types at or above 10%. Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida each at 10% of loans outstanding December 31, 2023, with no other states at or above 10%. As of December 31, 2023, 2022, and 2021, the weighted average FICO scores, measured at origination, of our home improvement loans outstanding were 764, 753, and 754. The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2023, 2022, and 2021 were 771, 758, and 759.

Current wording

The home improvement lending segment works with contractors and financial service providers to finance home improvements and is concentrated in roofs, swimming pools, and windows at 36%, 27%, and 13% of total loans outstanding as of December 31, 2024, as compared to 41%, 20%, and 13% as of December 31, 2023, with no other collateral types at or above 10%. Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Florida and Texas at 12% and 11% of loans outstanding December 31, 2024, with no other states at or above 10%. As of December 31, 2024, 2023, and 2022, the weighted average FICO scores, measured at origination, of our home improvement loans outstanding were 767, 764, and 753. The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2024, 2023, and 2022 were 781, 771, and 758.

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 F&I services. The result is contractor demand for financing services that facilitate an in-home transaction (e.g., digital tools, including mobile applications for phone or tablet, support for E-SIGN compliant electronic signatures, and extended operating hours), and additional resources for the salesperson throughout the financing process. We currently maintain relationships with approximately 800 contractors and FSPs. Our top ten contractors and FSP relationships were responsible for over 50% of home improvement lending’s new loan originations for the years ended December 31, 2023 and 2022. 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 F&I services. The result is contractor demand for financing services that facilitate an in-home transaction (e.g., digital tools, including mobile applications for phone or tablet, support for E-SIGN compliant electronic signatures, and extended operating hours), and additional resources for the salesperson throughout the financing process. We currently maintain relationships with approximately 900 contractors and FSPs. Our top ten contractors and FSP relationships were responsible for 48% of home improvement lending’s new loan originations for the years ended December 31, 2024 and 2023. 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 December 31, 2023. 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 December 31, 2023 is 12.3 years.

Current wording

The home improvement loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of December 31, 2024. The loans are fixed rate with an average term at origination of 15 years. The weighted average maturity of our loans outstanding as of December 31, 2024 is 13 years.

Previous wording

During the year ended December 31, 2023, the home improvement portfolio grew 21% from $626.4 million to $760.6 million, with allowance for credit losses increasing 95 basis points from a year ago reflecting an increase in reserves due to the adoption of CECL and rising loss rates. The average interest rate increased 86 basis points to 9.51% from the prior year.

Current wording

During the year ended December 31, 2024, the home improvement portfolio grew 9% from $760.6 million to $827.2 million, with the allowance for credit losses increasing 10% from a year ago reflecting the growth in our portfolio, offset by improvement in credit performance and various other economic factors. The average interest rate charged on our loans increased 30 basis points to 9.81% from the prior year.

Previous wording

During the year ended December 31, 2023, we originated $357.4 million home improvement loans, compared to $392.5 million in the prior year. The decrease was driven by more restrictive underwriting standards in 2023 compared to 2022 and management's efforts to mitigate concentration risks. The following table presents quarterly originations for the years ended December 31, 2023, 2022, and 2021.

Current wording

During the year ended December 31, 2024, we originated $298.6 million home improvement loans, compared to $357.4 million in the prior year. The decrease was driven in part by ongoing restrictive underwriting standards and management's continued efforts to mitigate concentration risks. The following table presents quarterly originations for the years ended December 31, 2024, 2023, and 2022.

Previous wording

As of December 31, 2023, 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 years ended December 31, 2023, 2022, and 2021.

Current wording

As of December 31, 2024, less than 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 years ended December 31, 2024, 2023, and 2022.

Previous wording

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, with California, Minnesota, and Wisconsin having 27%, 12%, and 10% 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. The commercial lending business has concentrations in manufacturing, construction, and wholesale trade that make up 53%, 13%, and 11% of total loans outstanding as of December 31, 2023, as compared to 50%, 11%, and 14% as of December 31, 2022. During the year ended December 31, 2023, we originated $34.9 million of loans, compared to $28.2 million in originations in 2022. As of December 31, 2023, commercial loans totaled $114.8 million.

Current wording

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, with California, Wisconsin, and Texas having 28%, 10%, and 10% 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 year ended December 31, 2024, net gains of $6.9 million were recognized with respect to these equity investments. The commercial lending business has concentrations in manufacturing, construction, and wholesale trade that make up 57%, 12%, and 12% of total loans outstanding as of December 31, 2024, as compared to 53%, 13%, and 11% as of December 31, 2023. During the year ended December 31, 2024, we originated $14.3 million of loans, compared to $34.9 million in originations in 2023. As of December 31, 2024, commercial loans totaled $111.3 million.

Previous wording

Includes 13 other states, which were all under 10% as of December 31, 2023 and 9 other states, which were all under 10% as of December 31, 2022.

Current wording

Includes 11 other states, which were all under 10% as of December 31, 2024 and 13 other states, which were all under 10% as of December 31, 2023.

Previous wording

The taxi medallion lending segment operates in the New York City metropolitan area. During the year ended December 31, 2023, 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 year ended December 31, 2024, we continued to utilize a taxi medallion value of $79,500 in the New York City and Newark markets with all other markets being valued at $0 at the end of the year, despite fluctuating transfer prices that have exceeded that value. 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.

Previous wording

During the year ended December 31, 2023, we collected $45.2 million related to taxi medallion and related assets, which resulted in net recoveries and gains of $29.6 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 levels experienced in the current year.

Current wording

During the year ended December 31, 2024, we collected $12.1 million related to taxi medallion assets, which resulted in net recoveries and gains of $6.9 million and collected $45.2 million related to taxi medallion assets in the prior year, which resulted in net recoveries and gains of $29.6 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, future collections will be less than in the prior year.

Previous wording

This non-operating segment relates to our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses, which are not specifically allocated to 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 $0.6 million in net loans as of both December 31, 2023 and December 31, 2022, with originations of $118.3 million during the year ended December 31, 2023. This segment also reflects the gains (losses) on the dispositions of certain non-core assets.

Current wording

This non-operating segment relates to our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses, which are not specifically allocated to the operating segments. Additionally, we historically and continue to account for goodwill in this non-operating segment. All goodwill relates to the Bank, specifically the recreation and home improvement 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 partnership loans were $7.4 million and $0.6 million in net loans as of December 31, 2024 and December 31, 2023, with originations of $203.6 million and $118.3 million during the years ended December 31, 2024 and December 31, 2023.

Previous wording

Excludes deferred financing costs of $8.5 million and $7.0 million as of December 31, 2023 and 2022.

Current wording

Excludes deferred financing costs of $8.2 million, $8.5 million, and $7.0 million as of December 31, 2024, 2023, and 2022.

Previous wording

Net income attributable to shareholders was $55.1 million, or $2.37 per share, for the year ended December 31, 2023, compared to $43.8 million, or $1.83 per share, for the year ended December 31, 2022.

Current wording

Net income attributable to shareholders was $35.9 million, or $1.52 per share, for the year ended December 31, 2024, compared to $55.1 million, or $2.37 per share, for the year ended December 31, 2023.