Medallion Financial (MFIN) Q3 2025: Strategic Partnership Originations Triple, Diversifying Fee Streams
Medallion Financial delivered disciplined loan growth and margin expansion in Q3, with strategic partnership program originations nearly tripling year-over-year and ongoing focus on prime-quality consumer lending. Capital redeployment and technology investments position MFIN for accelerated lending and diversified income, as leadership signals a more aggressive growth stance into 2026.
Summary
- Strategic Partnership Surge: Fee-based originations from outside core lending lines have nearly tripled, broadening revenue sources.
- Margin Expansion Amid Elevated Credit Standards: Net interest margin improved, even as originations in key segments remained disciplined.
- Leadership Transition Signals Growth Acceleration: Incoming CEO and talent additions set the stage for faster loan growth and new product initiatives.
Performance Analysis
Medallion Financial’s Q3 results reflect a blend of disciplined credit risk management and targeted portfolio growth, with net interest income rising 6% year-over-year to $55.7 million and net interest margin expanding to 8.21%. The company’s consumer lending segment, anchored by recreational and home improvement loans, continues to deliver the majority of interest income, with recreational loans now comprising 63% of the total loan book and home improvement at 31%.
Originations in recreational lending were flat year-over-year, a direct result of tightened credit standards and capital conservation ahead of a successful capital raise. This conservative approach provided flexibility to maintain prime and super-prime credit quality, with average FICO scores for new originations at 688 for recreational and 779 for home improvement. The strategic partnership program stands out as the fastest-growing segment, with originations reaching a record $208.4 million, up nearly threefold from a year ago, and now providing a meaningful, recurring fee stream.
- Loan Book Growth: Total loans reached $2.59 billion, with commercial loans and strategic partnership loans representing a growing share of the mix.
- Credit Quality Maintained: Delinquencies in core segments remain low, with 90-plus day delinquencies at just 0.57% for recreational and 0.16% for home improvement.
- Fee Diversification: Strategic partnership program now contributes $1.5 million in quarterly fee and interest income, signaling effective diversification beyond traditional lending.
Operating expenses rose $1.7 million year-over-year, driven by technology investments and talent acquisition, but were offset by margin gains and improved capital structure following the Series F preferred stock redemption.
Executive Commentary
"We are pleased with the strong performance we delivered in the third quarter of 2025. As compared to the third quarter of last year, our net income was $7.8 million, $11.3 million when excluding a non-recurring $3.5 million charge related to the redemption of preferred stock at Medallion Bank, supported by a 6% increase in net interest income to $55.7 million, and continued momentum across our core lending verticals."
Andrew Merstein, President and Chief Operating Officer
"Our net interest margin was 8.21%, up 10 basis points from a year ago. Our total interest yield increased 17 basis points from a year ago to 11.92%, and the average interest rate on our deposits was 3.82% at the end of September, up just one basis point from the prior quarter."
Anthony Catrone, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Consumer Lending as Anchor
Consumer lending remains the foundation of MFIN’s business model, with the recreational loan book at $1.603 billion and home improvement at $804 million. Both segments maintain high credit quality and attractive yields, with new originations focused on super-prime and near-prime borrowers. The company’s risk discipline has preserved portfolio performance even as originations in home improvement softened this quarter.
2. Strategic Partnership Program Scaling
The strategic partnership program, which enables MFIN to originate loans for third parties and collect fees plus short-term interest, has become a material growth engine. With quarterly originations now exceeding $200 million and plans to add new partners, this program is set to further diversify revenue and reduce balance sheet risk while building recurring fee income.
3. Capital Optimization and Cost of Funds
Redemption of the Series F preferred stock, though generating a one-time charge, lowers ongoing cost of capital and improves future net income potential. The company’s deposit base remains stable, with deposit costs rising just one basis point sequentially, and management expects future Fed rate cuts to drive further margin expansion.
4. Technology-Driven Efficiency
Investments in digital servicing platforms and analytics tools have increased near-term operating costs but are expected to yield greater operational flexibility, self-service capabilities, and underwriting precision, supporting both customer experience and risk management as loan volumes scale.
5. Leadership and Talent Infusion
The announced CEO transition and addition of a seasoned home improvement lending team signal a more aggressive growth posture for 2026. Leadership is explicitly targeting accelerated loan growth and new product expansion, leveraging both fresh capital and expanded origination teams.
Key Considerations
Medallion’s Q3 results mark a pivotal transition from capital preservation to measured growth, with operational and strategic levers in place for 2026.
Key Considerations:
- Loan Mix Evolution: Commercial and strategic partnership originations are rising as a share of new business, reducing dependence on core consumer segments.
- Credit Risk Management: Tightened underwriting and high FICO averages insulate the portfolio, but macroeconomic shifts could pressure delinquencies in future quarters.
- Fee Income Diversification: Strategic partnership program is now a meaningful contributor, with management signaling further partner additions and volume growth.
- Operational Leverage from Technology: Near-term tech investment raises costs but is designed to unlock scale and efficiency as lending volumes grow.
- Capital Allocation Flexibility: With $14.4 million remaining on the buyback and a steady dividend, capital returns remain a lever, though management is prioritizing organic loan growth.
Risks
Medallion faces potential risks from economic downturns, which could elevate credit losses despite current prime-quality underwriting. Rising operating costs from technology and talent investments must be offset by revenue gains to preserve margins. Fee-based revenue from strategic partnerships depends on continued partner growth and stable loan demand, while interest rate volatility remains a key external risk to both cost of funds and loan yields.
Forward Outlook
For Q4 2025, Medallion Financial expects:
- Continued net interest margin expansion as new loan yields outpace deposit costs
- Loan growth acceleration in both recreational and home improvement segments, aided by new capital and expanded origination teams
For full-year 2025, management reiterated its focus on:
- Sustained earnings growth and ongoing capital returns via dividend and opportunistic buybacks
Management highlighted several factors that will shape the next quarters:
- Execution on new strategic partnership agreements to drive fee income
- Ramp-up of home improvement lending from newly added team, with a potential press release to follow
Takeaways
Medallion Financial is pivoting toward a more growth-oriented model, leveraging fee-based partnerships, disciplined credit, and technology investment to drive shareholder returns.
- Loan Growth and Margin Expansion: Flat originations in key segments were a function of intentional credit discipline, but capital redeployment and new teams set the stage for acceleration.
- Diversification and Fee Income: The strategic partnership program is now a scalable, recurring fee generator, reducing reliance on balance sheet lending.
- 2026 Watchpoint: Investors should monitor execution on new partner additions, home improvement team ramp, and the impact of margin expansion as deposit costs stabilize.
Conclusion
Medallion Financial’s Q3 marks a turning point, as the company shifts from cautious capital management to targeted loan growth and diversification. Strategic partnership momentum, technology-driven efficiency, and a refreshed leadership team position MFIN to capitalize on a broader set of lending and fee opportunities in 2026.
Industry Read-Through
Medallion’s results reinforce a broader industry trend toward fee-based lending models and technology-driven underwriting, as banks and specialty lenders seek to diversify revenue and manage risk in a volatile rate environment. Competitors in consumer and commercial finance face similar pressures to maintain credit quality while pursuing growth, and the scaling of partnership programs signals a shift away from pure balance sheet lending. Investments in digital servicing and analytics are now table stakes for lenders aiming to scale efficiently and manage risk, with talent acquisition emerging as a key differentiator for segment expansion.