Medallion Financial (MFIN) risk factors, FY2024 10-K

Risks Related to Our Loan Portfolios and Business

1. 01Our business is heavily concentrated in consumer lending, which carries a risk of loss that is different from and typically higher than the risk of loss associated with commercial lending and which could be adversely affected by an economic downturn
2. 02Our financial condition, liquidity and results of operations depend on the credit performance of our loans
3. 03We maintain an allowance for credit losses (a reserve established through a provision for losses that decreases our earnings and that, accordingly, affects our financial condition) that we believe is appropriate to provide for current expected losses in our loan portfolio
4. 04Our business, financial condition and results of operations could be negatively impacted if we are unsuccessful in developing and maintaining relationships with dealers, contractors, and FSPs
5. 05A reduction in demand for our products and failure by us to adapt to such reduction could adversely affect our business, financial condition and results of operations
6. 06Decreases or increases in prevailing interest rates could adversely affect our business, our cost of capital and our net interest income
7. 07We are subject to certain financial covenants and other restrictions under debt arrangements, which could affect our ability to finance future operations or capital needs or to engage in other business activities
8. 08Failure to raise additional capital in the future could have a material adverse effect on our results of operations and financial position
9. 09Medallion Bank’s use of brokered deposits for its deposit-gathering activities may not be available when needed. The inability to accept and renew brokered deposits would have a material adverse effect on our business, financial condition, liquidity, and results of operations
10. 10We depend on cash flow from our subsidiaries to make payments on our indebtedness and fund operations

Legal and Regulatory Risks

1. 11We operate in a highly regulated environment, and if we are found to be in violation of any of the federal, state, or local laws or regulations applicable to us, our business could suffer
2. 12The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations
3. 13Increases in FDIC insurance premiums may adversely affect our earnings
4. 14Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities
5. 15Our use of third-party vendors and our other ongoing third-party business relationships are subject to regulatory requirements and scrutiny
6. 16Our SBIC subsidiaries are licensed by the SBA and are therefore subject to SBA regulations
7. 17The SBA restricts the ability of SBICs to lend money to any of their officers, directors, and employees, or invest in any affiliates thereof
8. 18Federal and state law may discourage certain acquisitions of our common stock which could have a material adverse effect on our stockholders

Risk Relating to Our Growth and Operations

1. 19Competition with other lenders could adversely affect us
2. 20We have in the past and may in the future pursue new strategies and lines of business, such as our Strategic Partnership Program, and we may face enhanced risks as a result of these changes in strategy, including from transacting with a broader array of customers and exposure to new assets, activities and markets
3. 21Our ability to achieve our loan and investment objective will depend on our ability to grow, which will depend, in turn, on our management team’s ability to identify, evaluate, and monitor, and our ability to finance and invest in, companies that meet our investment criteria
4. 22Our business depends on our ability to adapt to rapid technological change
5. 23Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer
6. 24We are dependent upon our senior management team for our future success
7. 25The development and use of Artificial Intelligence, or AI, present risks and challenges that may adversely impact our business
8. 26Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation, public perception of our business, or the effectiveness of our security measures
9. 27Acts of violence or war, natural disasters, and terrorist attacks may affect any market for our securities, impact the businesses in which we invest, and harm our operations and profitability
10. 28Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations
11. 29Misconduct by current or former employees could expose us to significant legal liability and reputational harm
12. 30We borrow money, which magnifies the potential for gain or loss on amounts invested, and increases the risk of investing in us
13. 31As of December 31, 2024, we had $2.4 billion of outstanding indebtedness with a weighted average borrowing cost of 4.03%
14. 32Lending to small businesses involves a high degree of risk and is highly speculative
15. 33Our portfolio is and may continue to be concentrated in a limited number of portfolio companies, industries and sectors, which will subject us to a risk of significant loss if any of these companies default on its obligations to us or by a downturn in the particular industry or sector
16. 34The lack of liquidity in our investments may adversely affect our business
17. 35We depend on the accuracy and completeness of information about customers
18. 36Climate change could disrupt our business and new regulations or guidance relating to climate change may affect whether and on what terms and conditions we engage in certain activities or offer certain products
19. 37Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
20. 38There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
21. 39We are subject to a variety of risks in connection with any sales of loans we may conduct
22. 40We may not control many of Medallion Capital’s portfolio companies
23. 41We may not realize gains from our equity investments