Medallion Financial's 9% Preferred Share: A High-Yield Opportunity Amid Credit and Interest Rate Risks

In the ever-shifting landscape of income investing, Medallion Financial's 9% Preferred Share (Series G, ticker: MBNKO) has emerged as a tantalizing proposition for yield-hungry investors. With a quarterly dividend of $0.5625 per share-equating to a 9% annualized yield-the security offers a compelling return in a low-interest-rate environment according to the bank's Q3 report. However, this high yield comes with a cocktail of risks, including leverage exposure, structural reset mechanics, and the looming shadow of interest rate volatility. Let's dissect the trade-offs.

The Allure of the 9% Yield

Medallion Bank's Series G preferred stock is structured as a Fixed-Rate Reset Non-Cumulative Perpetual Preferred Share. On October 23, 2025, the board declared a $0.5625 dividend per share, payable on January 2, 2026. For context, this yield dwarfs the average preferred share yield in the market, which typically hovers around 5-6%. The appeal is clear: investors seeking income in a post-quantitative easing world are drawn to such high returns.

But here's the catch: the yield is non-cumulative. If Medallion Financial faces financial stress, it can skip dividend payments without triggering a default. This is a critical distinction for risk assessment.

Leverage and the Fragility of Capital

Medallion Bank's leverage ratios paint a mixed picture. As of September 30, 2025, its Tier 1 leverage ratio stood at 17.5%. While this exceeds the 8% minimum for most banks, it's still a double-edged sword. High leverage amplifies returns in good times but magnifies losses in bad ones. For a lender like Medallion, which specializes in high-yield commercial real estate loans, a downturn in property values or a spike in defaults could strain its capital base.

Consider this: Medallion's total loan portfolio ballooned to $2.3 billion in Q3 2025. If even a fraction of these loans sour, the bank's ability to sustain its dividend-and its capital structure-could be tested.

The Reset Mechanism: A Double-Edged Sword

The Series G shares have a reset feature that could either protect or punish investors. If the shares are not called by July 2030, the dividend rate will reset to the 5-year Treasury rate plus 4.94%. This mechanism is designed to keep the shares competitive in a changing rate environment.

However, this reset introduces uncertainty. If the 5-year Treasury rate drops, the reset could lock in a lower yield for investors. Conversely, if rates rise, the reset could provide a tailwind. The key question is timing: will the reset occur in a rising or falling rate environment? Given the Federal Reserve's recent pivot toward rate cuts, the odds of a reset in a declining rate scenario seem elevated.

Credit Risk: A Missing Letter Grade

One glaring omission in the research is an explicit credit rating from S&P or Moody's for the Series G shares. While Medallion's management touts the shares as "ideal for income investors", the lack of a formal rating underscores the company's niche, high-risk profile. The bank's exposure to nonperforming loans and its reliance on a concentrated real estate portfolio are red flags.

Moreover, the recent leadership transition-Alvin Murstein stepping down after 30 years, to be replaced by his son Andrew-adds a layer of uncertainty according to The Bear Cave. While continuity is a strength, it also raises questions about the bank's ability to adapt to a rapidly evolving financial landscape.

The Bottom Line: A Calculated Gamble

Medallion's 9% Preferred Share is a high-stakes bet. The yield is seductive, but the leverage, reset mechanics, and credit risk require a disciplined investor. For those with a high risk tolerance and a long-term horizon, the shares could offer a compelling return. But for the faint of heart, this is a security that demands constant vigilance.

As always, the key is to balance the allure of yield with the reality of risk. Medallion's shares are not for the unprepared.