# MEDALLION FINANCIAL CORP (MFIN) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MEDALLION FINANCIAL CORP's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1000209/000095017022003603/mfin-20211231.htm
Accession: 0000950170-22-003603
Filing date: 2022-03-14
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MFIN/
All MD&A years: /company/MFIN/mda/
Next year: /company/MFIN/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OBJECTIVE

The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the years ended December 31, 2021, 2020, and 2019. 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 on page 17. Additionally, more information about our business activities can be found in “Business.”

GENERAL

We are a finance company whose focus and growth has been through Medallion Bank (a wholly-owned subsidiary), which originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and home improvements, and provides loan origination and other services to fintech partners.

Our focus is on growing our consumer finance and commercial lending portfolios. As of December 31, 2021, our consumer loans represented 94% of our gross loan portfolio, with commercial loans representing 5% and medallion loans representing 1%. Total assets under management, which includes assets serviced for third-party investors, were $1.9 billion as of December 31, 2021 and $1.7 billion as of December 31, 2020.

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, currently and historically, through a wide variety of interest-bearing sources, such as bank certificates of deposit issued to customers, debentures issued to and guaranteed by the SBA, privately placed notes, preferred securities, and bank term debt. Net interest income fluctuates with changes in the yield on our loan portfolio 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 also provide debt, mezzanine, and equity investment capital to companies in a variety of industries, consistent with our investment objectives. These investments may be venture capital style investments which may not be fully collateralized. Our investments are typically in the form of secured debt instruments with fixed interest rates accompanied by an equity stake or warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt instruments.

In 2019, the Bank started building a strategic partnership program to provide lending and other services to financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and began issuing its first loans, then entered into another strategic partnership in 2021, and continues to explore opportunities with additional fintech companies.

We have focused on growing our consumer lending segments and maintaining the profitability of our commercial lending segment. Since the beginning of 2020, we have taken various steps to pursue this strategy, including:

•
seeking to grow the Bank organically with a significant focusing on our consumer lending segments, and to a lesser extent by partnering with fintech companies in our strategic partnership program;

•
carrying-out cost-cutting measures, including reducing our employee headcount by more than 30% at our parent company Medallion Financial Corp. and closing satellite offices in Long Island City, New York; Chicago, Illinois; and Boston, Massachusetts; and

•
exiting non-core investments, including selling the assets of LAX Group, LLC on December 16, 2020, exiting our investments in RPAC on December 1, 2021, reducing balance sheet exposure to zero at Medallion Fine Art, Inc. during 2021, and selling approximately 80% of our investment in Upgrade, Inc. during 2021, resulting in net cash proceeds of $12.5 million and a gain of $11.3 million.

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 medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing

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Corp., or MSC. However, other than in connection with dispositions of existing medallion assets, the Bank has not originated any new medallion loans since 2014 (and Medallion Financial Corp. has not originated any new 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.

We are considering various alternatives for the Bank, which may include an initial public offering of its common stock, the sale of all or part of the Bank, a spin-off or other potential transaction. We do not have a deadline for its consideration of these alternatives, and there can be no assurance that this process will result in any transaction being announced or consummated.

COVID-19

The ongoing coronavirus, or COVID-19, pandemic, its broad impact and preventive measures taken to contain or mitigate the outbreak have had, and may continue to have, significant negative effects on the US and global economy, employment levels, employee productivity, and financial market conditions. This has had, and may continue to have negative effects on the ability of our borrowers to repay outstanding loans, the value of collateral securing loans, the demand for loans and other financial services products and consumer discretionary spending. As a result of these or other consequences, the outbreak has adversely and materially affected our business, results of operations and financial condition. Although we continue to see signs of recovery, it remains uncertain, and the effects of the outbreak on us could be exacerbated given that our business model is largely consumer and small business directed, which are more severely affected by COVID-19 and the preventative measures taken to contain or mitigate the outbreak, including its significant negative effects on consumer discretionary spending. The full extent to which the outbreak will continue to impact our operations will depend on future developments, including the impact of the Omicron and other potential variants, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the continued outbreak, the actions taken to contain or mitigate the outbreak and how long, and to what extent the economic recovery from its effects will take.

We have taken steps to operate through this crisis, including having had our workforce work remotely on a part-time basis in New York, though our employees outside of New York largely continue to work remotely. In addition, we implemented several cost-cutting measures, such as reducing employee headcount at our parent company, Medallion Financial Corp., and closing satellite offices in Long Island City, Chicago and Boston.

In March 2020, we adjusted the payment policies and procedures with our consumer and medallion businesses, and allowed borrowers to defer payments up to 180 days. As of December 31, 2021, minimal consumer loans remained on deferral and no medallion loans remained on deferral. For our consumer loan portfolios, although we believe that our deferral programs have been effective to date in mitigating the effect of COVID-19, the ultimate effects of COVID-19 on these portfolios remains to be seen. For our medallion portfolio, we determined that anticipated payment activity on our medallion portfolio was impossible to quantify upon the end of the deferral moratorium, and therefore all medallion loans were deemed impaired, placed on nonaccrual status, and written down to each market’s net collateral value in the 2020 third quarter, with additional write-offs taken during 2021. We will continue to monitor our medallion portfolio and related assets, which may result in additional write-downs, charge-offs or impairments, the impact of which could be material to our results of operations and financial condition.

Substantially all our medallion loans and related assets are concentrated in New York City. As a result of the COVID-19 pandemic, economic activity and taxi ridership decreased dramatically in New York City and despite the reopening of New York City, there has not been a substantial increase in ridership and gross meter fares. The extent to which the COVID-19 pandemic will continue to adversely affect taxi medallion owners and, by extension, our medallion loans and related assets, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, actions taken by governmental authorities, and the direct and indirect impact of the pandemic on taxi medallion owners and the behaviors of people who have historically taken taxis.

With regard to our commercial business, many of our mezzanine portfolio companies accessed the Paycheck Protection Program. This provided needed liquidity during a period of depressed market demands. Medallion Capital drew on its remaining unfunded commitments and has a commitment from the SBA for $16.5 million in debenture financing with a ten-year term, upon a capital infusion from Medallion Financial Corp. For the commercial portfolio, performance is slowly recovering although lingering impacts of COVID-19 continue to weigh on performance.

RPAC received $0.7 million under the Paycheck Protection Program in the 2020 second quarter, all of which has been forgiven and accordingly recorded as Other income during 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We follow financial accounting and reporting policies that are in accordance with GAAP. Some of these significant accounting policies require management to make difficult, subjective or complex judgments. The policies noted below, however, are deemed to be our “critical accounting policies” under the definition given to this term by the SEC. According to the SEC, “critical accounting policies” mean those policies that are most important to the presentation of a company’s financial condition and results of operations, and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

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The judgments used by management in applying the critical accounting policies may be affected by deterioration in the economic environment, which may result in changes to future financial results. Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes to the allowance for loan losses in future periods, and the inability to collect on outstanding loans could result in increased loan losses.

Allowance for Loan Losses

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a three-year look-back period for medallion loans and a one-year look-back period for recreation and home improvement loans, and uses historical loss experience and other projections for commercial loans. The allowance is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and size of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

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. Our qualitative loss factor rates increased 116 basis points and 21 basis points for recreation and home improvement loans, respectively, in 2021 compared to 2020 as a result of the adverse COVID-19 economic conditions. If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $4.7 million and $2.2million, respectively. Likewise, if our qualitative loss factor rates were to decrease 50 basis points, our recreation and home improvement general reserve would decrease by $4.7 million and $2.2 million, respectively. Performing loans are recorded at book value and the general reserve maintained to absorb expected losses consistent with GAAP.

All medallion loans that reach 90 days or more delinquent require a specific allowance for those loans, which is determined on an individual basis. We deem a loan impaired when, based on current information and events, it is probable that we will be unable to collect the amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. All impaired loans also require a specific allowance. We charge-off loans in the period that such loans are deemed uncollectible or when they reach 120 days delinquent regardless of whether the loan is a recreation, home improvement, or medallion loan.

The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is designed to be responsive to changes in portfolio credit quality and inherent credit losses. The changes are reflected in both the pooled formula reserve and in specific reserves as the collectability of larger classified loans is regularly recalculated with new information as it becomes available. Management is primarily responsible for the overall adequacy of the allowance.

Medallion Loan Collateral Valuation

The determination of taxi medallion collateral fair value is derived quarterly for each jurisdiction. For medallion loans, delinquent nonperforming loans are valued at collateral value for the most recent quarter. Collateral value for the medallion loans is generally determined utilizing factors deemed relevant under the circumstances of the market including but not limited to: actual transfers, pending transfers, median and average sales prices, discounted cash flows, market direction and sentiment, and general economic trends for the industry and economy. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

Goodwill and Intangible Assets

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 assessed annually for impairment by a third party expert and is reviewed by management quarterly. The annual goodwill assessment is focused on the Bank goodwill of $150.8 million and intangible assets of $23.5 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.

Deferred Taxes

Deferred taxes reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax

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basis and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are recognized subject to management’s judgment that it is more like than not that it will be recognized. In addition, a valuation allowance is recorded when it is deemed that some or all of the deferred tax assets will not be realized due to the temporary differences.

Average Balances and Rates

The following table shows the Company’s 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, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["(Dollars in thousands)","","Average Balance","","","Interest","","","Average Yield/Cost","","","Average Balance","","","Interest","","","Average Yield/Cost","","","Average Balance","","","Interest","","","Average Yield/Cost"],["Interest-earning assets"],["Interest earning cash equivalents","","$","3,149","","","$","56","","","","1.78","%","","$","1,528","","","$","37","","","","2.42","%","","$","\u2014","","","$","\u2014","","","","\u2014"],["Federal funds sold","","","45,096","","","","23","","","","0.05","","","","65,783","","","","129","","","","0.20","","","","36,444","","","","574","","","","1.58"],["Investment securities","","","45,195","","","","769","","","","1.70","","","","46,691","","","","997","","","","2.14","","","","45,283","","","","1,285","","","","2.84"],["Loans"],["Recreation","","","848,956","","","","118,305","","","","13.94","","","","743,118","","","","110,706","","","","14.90","","","","646,425","","","","99,463","","","","15.39"],["Home improvement","","","367,808","","","","34,204","","","","9.30","","","","282,202","","","","27,273","","","","9.66","","","","209,842","","","","19,943","","","","9.50"],["Commercial","","","66,589","","","","7,070","","","","10.62","","","","69,293","","","","7,334","","","","10.58","","","","63,039","","","","7,632","","","","12.11"],["Medallion","","","7,903","","","","(1,483",")","","","(18.77",")","","","71,821","","","","(1,518",")","","","(2.11",")","","","127,109","","","","3,665","","","","2.88"],["Strategic partnerships","","","70","","","","22","","","","31.43","","","","9","","","","4","","","","44.44","","","","\u2014","","","","\u2014","","","","\u2014"],["Total loans","","","1,291,326","","","","158,118","","","","12.24","","","","1,166,443","","","","143,799","","","","12.33","","","","1,046,415","","","","130,703","","","","12.49"],["Total interest-earning assets","","","1,384,766","","","","158,966","","","","11.51","","","","1,280,445","","","","144,962","","","","11.32","","","","1,128,142","","","","132,562","","","","11.75"],["Non-interest-earning assets"],["Cash","","","47,050","","","","","","","","","","19,312","","","","","","","","","","30,494"],["Equity investments","","","9,830","","","","","","","","","","10,385","","","","","","","","","","9,560"],["Loan collateral in process of foreclosure(1)","","","47,764","","","","","","","","","","50,893","","","","","","","","","","51,924"],["Goodwill and intangible assets","","","199,160","","","","","","","","","","202,618","","","","","","","","","","204,063"],["Income tax receivable","","","(621",")","","","","","","","","","702","","","","","","","","","","771"],["Other assets","","","44,750","","","","","","","","","","47,488","","","","","","","","","","44,252"],["Total non-interest-earning assets","","","347,933","","","","","","","","","","331,398","","","","","","","","","","341,064"],["Total assets","","$","1,732,699","","","","","","","","","$","1,611,843","","","","","","","","","$","1,469,206"],["Interest-bearing liabilities"],["Deposits","","$","1,134,531","","","$","17,543","","","","1.55","%","","$","1,043,096","","","$","22,330","","","","2.14","%","","$","916,416","","","$","22,521","","","","2.46","%"],["Retail and privately placed notes","","","120,704","","","","10,226","","","","8.47","","","","70,384","","","","6,813","","","","9.68","","","","59,252","","","","5,789","","","","9.77"],["SBA debentures and borrowings","","","64,733","","","","2,116","","","","3.27","","","","71,490","","","","2,633","","","","3.68","","","","76,544","","","","2,985","","","","3.90"],["Preferred securities","","","33,000","","","","981","","","","2.97","","","","33,000","","","","966","","","","2.97","","","","33,000","","","","1,522","","","","4.61"],["Notes payable to banks","","","10,960","","","","134","","","","1.22","","","","32,246","","","","1,246","","","","3.86","","","","45,506","","","","2,069","","","","4.55"],["Other borrowings","","","6,782","","","","140","","","","2.06","","","","8,270","","","","163","","","","1.97","","","","8,028","","","","159","","","","1.98"],["Total interest-bearing liabilities","","","1,370,710","","","","31,140","","","","2.28","","","","1,258,486","","","","34,151","","","","2.71","","","","1,138,746","","","","35,045","","","","3.08"],["Non-interest-bearing liabilities"],["Deferred tax liability","","","7,444","","","","","","","","","","4,959","","","","","","","","","","7,602"],["Other liabilities (2)","","","27,634","","","","","","","","","","29,174","","","","","","","","","","28,331"],["Total non-interest-bearing liabilities","","","35,078","","","","","","","","","","34,133","","","","","","","","","","35,933"],["Total liabilities","","","1,405,788","","","","","","","","","","1,292,619","","","","","","","","","","1,174,679"],["Non-controlling interest","","","72,162","","","","","","","","","","71,904","","","","","","","","","","31,450"],["Total stockholders\u2019 equity","","","254,749","","","","","","","","","","247,320","","","","","","","","","","263,077"],["Total liabilities and stockholders\u2019 equity","","$","1,732,699","","","","","","","","","$","1,611,843","","","","","","","","","$","1,469,206"],["Net interest income","","","","","$","127,826","","","","","","","","","$","110,811","","","","","","","","","$","97,517"],["Net interest margin","","","","","","","","","9.25","%","","","","","","","","","8.65","%","","","","","","","","","8.64","%"]]
[[/GREPCENT_TABLE]]

(1)
Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by the Bank of $7.4 million, $3.5 million, and $8.2 million as of December 31, 2021, 2020, and 2019.

(2)
Excludes deferred financing costs of $7.1 million and $5.8 million as of December 31, 2021 and 2020.

For the year ended December 31, 2021, our net loans receivable yielded 12.24% (compared to 12.33% for the year ended December 31, 2020), mainly driven by growth in the home improvement portfolio, which has a lower yield than our recreation portfolio, along with the slight decline in the home improvement and recreation loan average yield. In addition, in 2021 there was a decline on the commercial loan yield as a result of an increase in average non-accrual loans throughout the year. Our debt, mainly certificates of deposit, help fund the growing consumer loan business and as market rates have decreased, so has the average cost of borrowing. In addition, we issued new privately placed notes since December 31, 2020, which were at lower rates compared to the prior issuances.

35

Rate/Volume Analysis

The following table presents the change in interest income and expense due to changes in the average balances (volume) and average rates, calculated for the years ended December 31, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["(Dollars in thousands)","","Increase (Decrease) In Volume","","","Increase (Decrease) In Rate","","","Net Change","","","Increase (Decrease) In Volume","","","Increase (Decrease) In Rate","","","Net Change","","","Increase (Decrease) In Volume","","","Increase (Decrease) In Rate","","","Net Change"],["Interest-earning assets"],["Interest earning cash and cash equivalents","","$","(31",")","","$","(55",")","","$","(86",")","","$","501","","","$","(910",")","","$","(409",")","","$","(294",")","","$","75","","","$","(219",")"],["Investment securities","","","(24",")","","","(205",")","","","(229",")","","","46","","","","(332",")","","","(286",")","","","3","","","","129","","","","132"],["Loans"],["Recreation","","","14,749","","","","(7,150",")","","","7,599","","","","15,078","","","","(3,832",")","","","11,246","","","","10,531","","","","(2,756",")","","","7,775"],["Home improvement","","","7,961","","","","(1,030",")","","","6,931","","","","6,933","","","","396","","","","7,329","","","","2,558","","","","487","","","","3,045"],["Commercial","","","(287",")","","","23","","","","(264",")","","","803","","","","(1,101",")","","","(298",")","","","(1,933",")","","","(850",")","","","(2,783",")"],["Medallion","","","11,994","","","","(11,959",")","","","35","","","","(1,734",")","","","(3,448",")","","","(5,182",")","","","(2,245",")","","","(972",")","","","(3,217",")"],["Strategic partnerships","","","19","","","","(1",")","","","18","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Total loans","","$","34,436","","","$","(20,117",")","","$","14,319","","","$","21,080","","","$","(7,985",")","","$","13,095","","","$","8,911","","","$","(4,091",")","","$","4,820"],["Total interest-earning assets","","$","34,381","","","$","(20,377",")","","$","14,004","","","$","21,627","","","$","(9,227",")","","$","12,400","","","$","8,620","","","$","(3,887",")","","$","4,733"],["Interest-bearing liabilities"],["Retail and privately placed notes","","$","4,263","","","$","(850",")","","$","3,413","","","$","1,093","","","$","(69",")","","$","1,024","","","$","2,464","","","$","(172",")","","$","2,292"],["Deposits","","","1,302","","","","(6,089",")","","","(4,787",")","","","3,213","","","","(3,402",")","","","(189",")","","","409","","","","2,913","","","","3,322"],["Notes payable to banks","","","(261",")","","","(850",")","","","(1,111",")","","","(515",")","","","(308",")","","","(823",")","","","(979",")","","","32","","","","(947",")"],["SBA debentures and borrowings","","","(223",")","","","(294",")","","","(517",")","","","(190",")","","","(162",")","","","(352",")","","","(130",")","","","32","","","","(98",")"],["Preferred securities","","","\u2014","","","","14","","","","14","","","","\u2014","","","","(557",")","","","(557",")","","","\u2014","","","","24","","","","24"],["DZ loan","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","(2,367",")","","","\u2014","","","","(2,367",")"],["Other borrowings","","","(31",")","","","8","","","","(23",")","","","1","","","","2","","","","3","","","","1","","","","(2",")","","","(1",")"],["Total interest-bearing liabilities","","$","5,050","","","$","(8,061",")","","$","(3,011",")","","$","3,602","","","$","(4,496",")","","$","(894",")","","$","(602",")","","$","2,827","","","$","2,225"],["Net","","$","29,331","","","$","(12,316",")","","$","17,015","","","$","18,025","","","$","(4,731",")","","$","13,294","","","$","9,222","","","$","(6,714",")","","$","2,508"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2021, interest income increased primarily due to the increased volume of our recreation and home improvement loan portfolios, even as the average rate decreased on the recreation and home improvement loan portfolio. Additionally, we continued to see a decline in our overall medallion portfolio as all loans had been placed on non-accrual, and they have continued to age 120 days or more past due and be charged-off to loan collateral in process of foreclosure. Interest expense decreased for 2021 primarily driven by the overall decrease in borrowing rates, mainly on the deposits.

Our interest expense is driven by the interest rates payable on our bank certificates of deposit, fixed-rate, long-term private notes, fixed-rate, long-term debentures issued to the SBA, and have historically included short-term credit facilities with banks and other short-term notes payable. The Bank issues brokered bank certificates of deposit, which are our lowest borrowing costs. The Bank is able to bid on these deposits at a wide variety of maturity levels which allows for improved interest rate management strategies.

Our cost of funds is primarily driven by the rates paid on our various debt instruments and their relative mix, 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.

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 2020, we obtained a $25.0 million commitment from the SBA. As of December 31, 2021 and 2020, adjustable rate debt constituted 2% of total debt.

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Loans

The gross loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. For the years ended December 31, 2021 and 2020, there was continued growth in the consumer lending segments, which was slightly offset by the continued shrinkage of the medallion portfolio as loans have continued to age over 120 days and be transferred to loan collateral in the process of foreclosure and payments received from borrowers. In addition, as a result of the COVID-19 pandemic, there was an increase in charge-offs and loans transferred for the medallion segment.

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2021 (Dollars in thousands)","","Recreation","","","Home Improvement","","","Commercial","","","Medallion","","","Strategic Partnership","","","Total"],["Gross loans \u2013 December 31, 2020","","$","792,686","","","$","334,033","","","$","65,327","","","$","37,768","","","$","24","","","$","1,229,838"],["Loan originations","","","441,921","","","","258,038","","","","36,415","","","","\u2014","","","","10,997","","","","747,371"],["Principal payments, sales, and maturities","","","(264,424",")","","","(155,442",")","","","(25,873",")","","","(7,778",")","","","(10,931",")","","","(464,448",")"],["Charge-offs, net","","","(2,581",")","","","(551",")","","","\u2014","","","","(8,872",")","","","\u2014","","","","(12,004",")"],["Transfer to loan collateral in process of foreclosure, net","","","(10,431",")","","","\u2014","","","","\u2014","","","","(5,457",")","","","\u2014","","","","(15,888",")"],["Amortization of origination costs","","","(9,678",")","","","1,671","","","","13","","","","(2",")","","","\u2014","","","","(7,996",")"],["Amortization of loan premium","","","(221",")","","","(346",")","","","\u2014","","","","(1,615",")","","","\u2014","","","","(2,182",")"],["FASB origination costs, net","","","14,048","","","","(631",")","","","\u2014","","","","2","","","","\u2014","","","","13,419"],["Paid-in-kind interest","","","\u2014","","","","\u2014","","","","814","","","","\u2014","","","","\u2014","","","","814"],["Gross loans \u2013 December 31, 2021","","$","961,320","","","$","436,772","","","$","76,696","","","$","14,046","","","$","90","","","$","1,488,924"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2020 (Dollars in thousands)","","Recreation","","","Home Improvement","","","Commercial","","","Medallion","","","Strategic Partnership","","","Total"],["Gross loans \u2013 December 31, 2019","","$","713,332","","","$","247,324","","","$","69,767","","","$","130,432","","","$","\u2014","","","$","1,160,855"],["Loan originations","","","294,885","","","","193,098","","","","7,575","","","","\u2014","","","","1,663","","","","497,221"],["Principal payments, sales, and maturities","","","(187,989",")","","","(105,813",")","","","(13,183",")","","","(13,207",")","","","(1,639",")","","","(321,831",")"],["Charge-offs, net","","","(14,457",")","","","(1,229",")","","","(28",")","","","(42,648",")","","","\u2014","","","","(58,362",")"],["Transfer to loan collateral in process of foreclosure, net","","","(14,871",")","","","\u2014","","","","\u2014","","","","(32,383",")","","","\u2014","","","","(47,254",")"],["Amortization of origination costs","","","(7,809",")","","","1,910","","","","8","","","","(131",")","","","\u2014","","","","(6,022",")"],["Amortization of loan premium","","","(191",")","","","(320",")","","","\u2014","","","","(2,531",")","","","\u2014","","","","(3,042",")"],["FASB origination costs, net","","","9,786","","","","(937",")","","","\u2014","","","","36","","","","\u2014","","","","8,885"],["Paid-in-kind interest","","","\u2014","","","","\u2014","","","","1,188","","","","\u2014","","","","\u2014","","","","1,188"],["Transfer to other foreclosed property","","","\u2014","","","","\u2014","","","","\u2014","","","","(1,800",")","","","\u2014","","","","(1,800",")"],["Gross loans \u2013 December 31, 2020","","$","792,686","","","$","334,033","","","$","65,327","","","$","37,768","","","$","24","","","$","1,229,838"]]
[[/GREPCENT_TABLE]]

The following table presents the approximate maturities and sensitivity to change in interest rates for our loans as of December 31, 2021.

[[GREPCENT_TABLE]]
[["","","Loan Maturity"],["(Dollars in thousands)","","Within 1 year","","","After 1 to 5 years","","","After 5 to 15 years","","","After 15 years","","","Total"],["Fixed-rate","","$","39,966","","","$","169,397","","","$","1,160,589","","","$","82,515","","","$","1,452,467"],["Recreation","","","2,198","","","","89,844","","","","827,167","","","","6,544","","","","925,753"],["Home improvement","","","25,572","","","","23,756","","","","313,632","","","","75,971","","","","438,931"],["Commercial","","","9,300","","","","45,840","","","","19,790","","","","\u2014","","","","74,930"],["Medallion","","","2,896","","","","9,957","","","","\u2014","","","","\u2014","","","","12,853"],["Adjustable-rate","","$","7,104","","","$","1,961","","","$","\u2014","","","$","\u2014","","","$","9,065"],["Recreation","","","4,145","","","","1,961","","","","\u2014","","","","\u2014","","","","6,106"],["Commercial","","","1,766","","","","\u2014","","","","\u2014","","","","\u2014","","","","1,766"],["Medallion","","","1,193","","","","\u2014","","","","\u2014","","","","\u2014","","","","1,193"],["Total loans(1)(2)","","$","47,070","","","$","171,358","","","$","1,160,589","","","$","82,515","","","$","1,461,532"]]
[[/GREPCENT_TABLE]]

(1)
Excludes strategic partnership loans.

(2)
As of December 31, 2021, there were no floating-rate loans.

Provision and Allowance for Loan Loss

During the year ended December 31, 2021, the New York City taxi medallion values remained constant at a net realizable value of $79,500, even as other markets slightly decreased, whereas for the year ended December 31, 2020 the New York City taxi medallion values had decreased to a net realizable value of $79,500 from $167,000 at December 31, 2019. In addition, the consumer recreation loan allowance percentages declined slightly for the year ended December 31, 2021, whereas, for the year ended December 31, 2020 due to the change in economic factors due to COVID-19, we increased the reserve percentages for the consumer loan portfolio between 25 to 100 basis points.

37

Activity in the allowance for loan losses for the years ended December 31, 2021 and 2020 follows:

[[GREPCENT_TABLE]]
[["","","December 31,"],["(Dollars in thousands)","","2021","","","2020"],["Allowance for loan losses \u2013 beginning balance","","$","57,548","","","$","46,093"],["Charge-offs"],["Recreation","","","(14,712",")","","","(23,543",")"],["Home improvement","","","(2,949",")","","","(2,909",")"],["Commercial","","","\u2014","","","","(31",")"],["Medallion","","","(15,287",")","","","(49,361",")"],["Total charge-offs","","","(32,948",")","","","(75,844",")"],["Recoveries"],["Recreation","","","12,131","","","","9,086"],["Home improvement","","","2,398","","","","1,680"],["Commercial","","","\u2014","","","","3"],["Medallion","","","6,415","","","","6,713"],["Total recoveries","","","20,944","","","","17,482"],["Net charge-offs (1)","","","(12,004",")","","","(58,362",")"],["Provision for loan losses","","","4,622","","","","69,817"],["Allowance for loan losses \u2013 ending balance (2)","","$","50,166","","","$","57,548"]]
[[/GREPCENT_TABLE]]

(1)
As of December 31, 2021, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion portfolio were $258.3 million, some of which may represent collection opportunities for us.

(2)
As of December 31, 2021, there was no allowance for loan loss and net charge-offs related to the strategic partnership loans.

Allowance for loan losses by type as of December 31, 2021 and 2020 follows:

[[GREPCENT_TABLE]]
[["December 31, 2021 (Dollars in thousands)","","Amount","","","Percentage of Allowance","","","Allowance as a Percent of Loan Category","","","Allowance as a Percent of Nonaccrual"],["Recreation","","$","32,435","","","","64","%","","","3.37","%","","","91.18","%"],["Home improvement","","","7,356","","","","15","","","","1.68","","","","20.68"],["Commercial","","","1,141","","","","2","","","","1","","","","3.21"],["Medallion","","","9,234","","","","19","","","","65.74","","","","25.96"],["Total","","$","50,166","","","","100","%","","","3.37","%","","","141.03","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["December 31, 2020 (Dollars in thousands)","","Amount","","","Percentage of Allowance","","","Allowance as a Percent of Loan Category","","","Allowance as a Percent of Nonaccrual"],["Recreation","","$","27,348","","","","48","%","","","3.45","%","","","378.20","%"],["Home improvement","","","5,157","","","","9","","","","1.54","","","NM"],["Commercial","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Medallion","","","25,043","","","","43","","","","66.31","","","","68.01"],["Total","","$","57,548","","","","100","%","","","4.68","%","","","93.17","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2021, the overall allowance for loan losses decreased from December 31, 2020, mainly due to the mix of the loan portfolio, specifically the decrease in medallion loans, which have a higher allowance as a percentage of loan balance, and an increase in consumer loans, which have a lower allowance as a percentage of loan balance. For recreation and home improvement loans, as of December 31, 2021 the presented allowances exclude $4.2 million and $0.5 million of loan loss allowances which have been netted within loans as a result of the consolidation of Medallion Bank.

For the consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged-off to realized losses. If the collateral is repossessed, a realized loss is recorded to write the collateral down to its net realizable value, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off as a realized loss, and any excess proceeds are recorded as a recovery. Proceeds collected on charged-off accounts are recorded as recoveries. All collection, repossession, and recovery efforts are handled on behalf of the Bank by the servicer.

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["(Dollars in thousands)","","Amount","","","% (1)","","","Amount","","","% (1)","","","Amount","","","% (1)"],["Recreation","","$","3,818","","","","0.3","%","","$","5,343","","","","0.5","%","","$","5,800","","","","0.5","%"],["Home improvement","","","132","","","","0","","","","170","","","","0.0","","","","184","","","","0.0"],["Commercial","","","74","","","","0","","","","75","","","","0.0","","","","107","","","","0.0"],["Medallion","","","\u2014","","","","\u2014","","","","1,290","","","","0.1","","","","2,572","","","","0.2"],["Total loans 90 days or more past due","","$","4,024","","","","0.3","%","","$","6,878","","","","0.6","%","","$","8,663","","","","0.7","%"]]
[[/GREPCENT_TABLE]]

(1)
Percentages are calculated against the total or managed loan portfolio, as appropriate.

We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 295%, 327%, and 190%, for the years ended December 31, 2021, 2020, and 2019.

38

For recreation loans, the process to repossess the collateral is generally started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off. If the collateral is repossessed, a loss is recorded by writing the collateral down to its fair value less selling costs, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off. 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 table shows the activity of loan collateral in process of foreclosure for the twelve months ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2021 (Dollars in thousands)","","Recreation","","","Medallion","","","Total"],["Loan collateral in process of foreclosure \u2013 December 31, 2020","","$","1,432","","","$","53,128","","","$","54,560"],["Transfer from loans, net","","","10,431","","","","5,457","","","","15,888"],["Sales","","","(6,951",")","","","(2,928",")","","","(9,879",")"],["Cash payments received","","","\u2014","","","","(14,173",")","","","(14,173",")"],["Collateral valuation adjustments","","","(3,192",")","","","(5,774",")","","","(8,966",")"],["Loan collateral in process of foreclosure \u2013 December 31, 2021","","$","1,720","","","$","35,710","","","$","37,430"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2020 (Dollars in thousands)","","Recreation","","","Medallion","","","Total"],["Loan collateral in process of foreclosure \u2013 December 31, 2019","","$","1,476","","","$","51,235","","","$","52,711"],["Transfer from loans, net","","","14,871","","","","32,403","","","","47,274"],["Sales","","","(7,512",")","","","(300",")","","","(7,812",")"],["Cash payments received","","","\u2014","","","","(5,687",")","","","(5,687",")"],["Collateral valuation adjustments","","","(7,403",")","","","(24,523",")","","","(31,926",")"],["Loan collateral in process of foreclosure \u2013 December 31, 2020","","$","1,432","","","$","53,128","","","$","54,560"]]
[[/GREPCENT_TABLE]]

SEGMENT RESULTS

We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and medallion lending. We also show results for two non-operating segments; RPAC and corporate and other investments. As mentioned earlier, the Company disposed of its investment in RPAC on December 1, 2021 and, as a result, all presented segment results are through such date. All results are for the years ended December 31, 2021, 2020, and 2019.

Recreation Lending

The recreation lending segment is a high-growth prime and non-prime consumer finance business which is a significant source of income for us, accounting for 74%, 74%, and 75% of our interest income for the years ended December 31, 2021, 2020, and 2019. The loans are secured primarily by RVs, boats, and other consumer recreational equipment, with RV loans making up 60% of the portfolio, boat loans making up 19% of the portfolio, and trailer loans 9% as of December 31, 2021, compared to 60%, 19% and 9% as of December 31, 2020. Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, California, and Florida, at 16%, 10%, and 9% of loans outstanding, compared to 17%, 10%, and 9% as of December 31, 2020, with no other states over 5%.

During the year ended December 31, 2021, the recreation portfolio continued to grow compared to the prior year, with the interest yield in both periods decreasing as a result of the change in portfolio mix as the portfolio continues to grow. Additionally, reserve rates decreased slightly as delinquencies and charge-offs improved, whereas in the prior period there had been an increase due to the uncertainty regarding the COVID-19 pandemic.

39

The following table presents selected financial data and ratios as of and for the years ended December 31, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2021","","","2020","","","2019"],["Selected Earnings Data"],["Total interest income","","$","118,305","","","$","110,706","","","$","99,463"],["Total interest expense","","","9,993","","","","13,013","","","","13,304"],["Net interest income","","","108,312","","","","97,693","","","","86,159"],["Provision for loan losses","","","7,671","","","","23,736","","","","28,638"],["Net interest income after loss provision","","","100,641","","","","73,957","","","","57,521"],["Total other income (expense), net","","","(30,156",")","","","(27,341",")","","","(23,490",")"],["Net income before taxes","","","70,485","","","","46,616","","","","34,031"],["Income tax provision","","","(18,699",")","","","(12,004",")","","","(8,813",")"],["Net income after taxes","","$","51,786","","","$","34,612","","","$","25,218"],["Balance Sheet Data"],["Total loans, gross","","$","961,320","","","$","792,686","","","$","713,332"],["Total loan allowance","","","32,435","","","","27,348","","","","18,075"],["Total loans, net","","","928,885","","","","765,338","","","","695,257"],["Total assets","","","896,223","","","","777,605","","","","707,377"],["Total borrowings","","","710,616","","","","621,735","","","","563,805"],["Selected Financial Ratios"],["Return on average assets","","","6.00","%","","","4.59","%","","","3.84","%"],["Return on average equity","","","30.01","","","","22.93","","","","17.19"],["Interest yield","","","13.94","","","","14.90","","","","15.39"],["Net interest margin","","","12.76","","","","13.15","","","","13.33"],["Reserve coverage","","","3.37","","","","3.45","","","","2.53"],["Delinquency status (1)","","","0.41","","","","0.70","","","","0.84"],["Charge-off%","","","0.30","","","","1.95","","","","2.69"]]
[[/GREPCENT_TABLE]]

(1)
Loans 90 days or more past due.

Home Improvement Lending

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 30%, 26%, and 13% of total loans outstanding as of December 31, 2021, as compared to 27%, 24%, and 13% as of December 31, 2020, with no other collateral types over 8%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations in Florida, Texas, and Ohio at 10%, 10%, and 8% of loans outstanding December 31, 2021, compared to 11%, 11%, and 9% as of December 31, 2020, with no other states over 6%.

40

During the year ended December 31, 2021, the home improvement lending segment continued to grow with the net portfolio increasing 31% from the prior year. Reserve rates increased 14 basis points from a year ago. The interest yield decreased slightly from the prior year period, while net interest margins increased, reflecting lower rates on borrowings and CDs issued in the current year as compared to the prior year.

The following table presents selected financial data and ratios as of and for the years ended December 31, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2021","","","2020","","","2019"],["Selected Earnings Data"],["Total interest income","","$","34,204","","","$","27,273","","","$","19,943"],["Total interest expense","","","4,153","","","","5,699","","","","4,757"],["Net interest income","","","30,051","","","","21,574","","","","15,186"],["Provision for loan losses","","","2,750","","","","3,778","","","","1,598"],["Net interest income after loss provision","","","27,301","","","","17,796","","","","13,588"],["Other income (expense), net","","","(11,640",")","","","(9,611",")","","","(7,520",")"],["Net income before taxes","","","15,661","","","","8,185","","","","6,068"],["Income tax provision","","","(4,155",")","","","(2,108",")","","","(1,572",")"],["Net income after taxes","","$","11,506","","","$","6,077","","","$","4,496"],["Balance Sheet Data"],["Total loans, gross","","$","436,772","","","$","334,033","","","$","247,324"],["Total loan allowance","","","7,356","","","","5,157","","","","2,608"],["Total loans, net","","","429,416","","","","328,876","","","","244,716"],["Total assets","","","371,781","","","","340,494","","","","252,704"],["Total borrowings","","","294,786","","","","272,284","","","","201,605"],["Selected Financial Ratios"],["Return on average assets","","","3.01","%","","","2.07","%","","","2.20","%"],["Return on average equity","","","15.04","","","","10.35","","","","10.22"],["Interest yield","","","9.30","","","","9.66","","","","9.50"],["Net interest margin","","","8.17","","","","7.62","","","","7.24"],["Reserve coverage","","","1.68","","","","1.54","","","","1.05"],["Delinquency status (1)","","","0.03","","","","0.05","","","","0.07"],["Charge-off%","","","0.15","","","","0.44","","","","0.37"]]
[[/GREPCENT_TABLE]]

(1)
Loans 90 days or more past due.

Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 53% of which are located in the Midwest region, with the rest scattered across the country. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2.0 million to $5.0 million at origination, and typically include an equity component as part of the financing. The commercial lending business has concentrations in manufacturing and administrative, wholesale trade and support services, making up 40% and 14%, and 13% of the loans outstanding as of December 31, 2021, compared to 63%, 0%, and 13% as of December 31, 2020.

During the year ended December 31, 2021, the commercial portfolio continued to grow. Additionally, reserve rates increased, reflecting specific reserves on aged investments.

41

The following table presents selected financial data and ratios as of and for the years ended December 31, 2021, 2020, and 2019. The commercial segment encompasses the mezzanine lending business, and the other legacy commercial loans (immaterial to total) have been allocated to corporate and other investments.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2021","","","2020","","","2019"],["Selected Earnings Data"],["Total interest income","","$","6,592","","","$","6,926","","","$","7,183"],["Total interest expense","","","2,720","","","","2,538","","","","2,833"],["Net interest income","","","3,872","","","","4,388","","","","4,350"],["Provision for loan losses","","","\u2014","","","","\u2014","","","","364"],["Net interest income after loss provision","","","3,872","","","","4,388","","","","3,986"],["Other income (expense), net","","","3,101","","","","(3,196",")","","","(1,149",")"],["Net income before taxes","","","6,973","","","","1,192","","","","2,837"],["Income tax provision","","","(1,850",")","","","(299",")","","","(684",")"],["Net income after taxes","","$","5,123","","","$","893","","","$","2,153"],["Balance Sheet Data"],["Total loans, gross","","$","74,854","","","$","62,037","","","$","66,405"],["Total loan allowance","","","1,141","","","","\u2014","","","","\u2014"],["Total loans, net","","","73,713","","","","62,037","","","","66,405"],["Total assets","","","103,631","","","","80,622","","","","84,924"],["Total borrowings","","","82,169","","","","65,924","","","","68,666"],["Selected Financial Ratios"],["Return on average assets","","","5.85","%","","","1.07","%","","","2.44","%"],["Return on average equity","","","29.23","","","","5.17","","","","12.21"],["Interest yield","","","10.41","","","","10.51","","","","11.39"],["Net interest margin","","","6.12","","","","6.66","","","","6.90"],["Reserve coverage(1)","","","1.49","","","","0.00","","","","0.00"],["Delinquency status (1) (2)","","","0.10","","","","0.11","","","","0.15"],["Charge-off% (3)","","","\u2014","","","","0.04","","","","1.30"]]
[[/GREPCENT_TABLE]]

(1)
Ratio is based off of total commercial balances, and relates solely to the legacy commercial loans balances.

(2)
Loans 90 days or more past due.

(3)
Ratio is based on total commercial lending business, and relates to the total loan business.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2021","","","2020"],["Geographic Concentrations","","Total Gross Loans","","","% of Market","","","Total Gross Loans","","","% of Market"],["Illinois","","$","11,667","","","","16","%","","$","9,473","","","","15","%"],["California","","","10,034","","","","13","","","","5,000","","","","8"],["Minnesota","","","9,916","","","","13","","","","5,679","","","","9"],["North Carolina","","","7,264","","","","10","","","","6,836","","","","11"],["Michigan","","","6,269","","","","8","","","","10,461","","","","17"],["Texas","","","5,570","","","","7","","","","5,559","","","","9"],["New Hampshire","","","5,503","","","","7","","","","\u2014","","","","\u2014"],["New Jersey","","","4,164","","","","6","","","","4,072","","","","7"],["Kansas","","","4,107","","","","5","","","","4,107","","","","7"],["Florida","","","\u2014","","","","\u2014","","","","3,978","","","","6"],["North Dakota","","","2,805","","","","4","","","","3,259","","","","5"],["Other (1)","","","7,555","","","","11","","","","3,613","","","","6"],["Total","","$","74,854","","","","100","%","","$","62,037","","","","100","%"]]
[[/GREPCENT_TABLE]]

(1)
Includes seven other states, which were all under 5% as of December 31, 2021, and nine other states, which were all under 7% as of December 31, 2020.

Medallion Lending

The medallion lending segment operates mainly in the New York City, Newark, and Chicago markets. We have a long history of owning, managing, and financing taxi fleets, taxi medallions, and corporate car services. During the year ended December 31, 2021, taxi medallion values remained consistent in the New York City market even as other markets saw declines. We continue to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020, and 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.

42

The following table presents selected financial data and ratios as of and for the years ended December 31, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2021","","","2020","","","2019"],["Selected Earnings Data"],["Total interest income (loss)","","$","(1,483",")","","$","(1,518",")","","$","3,665"],["Total interest expense","","","5,914","","","","3,610","","","","7,962"],["Net interest loss","","","(7,397",")","","","(5,128",")","","","(4,297",")"],["(Benefit) provision for loan losses","","","(7,752",")","","","42,276","","","","16,331"],["Net interest income (loss) after loss provision","","","355","","","","(47,404",")","","","(20,628",")"],["Other income (expense), net","","","(1,991",")","","","(30,366",")","","","(10,493",")"],["Net loss before taxes","","","(1,636",")","","","(77,770",")","","","(31,121",")"],["Income tax benefit","","","433","","","","19,520","","","","7,596"],["Net loss after taxes","","$","(1,203",")","","$","(58,250",")","","$","(23,525",")"],["Balance Sheet Data"],["Total loans, gross","","$","14,046","","","$","37,768","","","$","123,097"],["Total loan allowance","","","9,234","","","","25,043","","","","18,075"],["Total loans, net","","","4,812","","","","12,725","","","","105,022"],["Total assets","","","42,011","","","","124,554","","","","217,483"],["Total borrowings","","","69,221","","","","98,636","","","","176,825"],["Selected Financial Ratios"],["Return on average assets","","","(1.15",")%","","","(33.21",")%","","","(9.73",")%"],["Return on average equity","","","(5.75",")","","","(165.21",")","","","(48.49",")"],["Interest yield","","","(18.77",")","","","(2.11",")","","","2.88"],["Net interest margin","","","(93.60",")","","","(7.14",")","","","(3.38",")"],["Reserve coverage","","","65.74","","","","66.31","","","","19.48"],["Delinquency status (1)","","","\u2014","","","","3.57","","","","2.04"],["Charge-off%","","","95.40","","","","59.38","","","","14.68"]]
[[/GREPCENT_TABLE]]

(1)
Loans 90 days or more past due.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2021","","","2020"],["Geographic Concentration","","Total Gross Loans","","","% of Market","","","Total Gross Loans","","","% of Market"],["New York City","","$","12,514","","","","89","%","","$","33,657","","","","89","%"],["Newark","","","1,486","","","","11","","","","3,811","","","","10"],["All Other","","","46","","","","0","","(1)","","300","","","","1"],["Total","","$","14,046","","","","0","%","","$","37,768","","","","100","%"]]
[[/GREPCENT_TABLE]]

(1)
Less than 1%.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2021","","","2020"],["Geographic Concentration","","Total Loan Collateral in Process of Foreclosure","","","% of Market","","","Total Loan Collateral in Process of Foreclosure","","","% of Market"],["New York City","","$","29,303","","","","82","%","","$","38,738","","","","73","%"],["Newark","","","4,247","","","","12","","","","7,994","","","","15"],["Chicago","","","1,952","","","","5","","","","6,057","","","","11"],["All Other","","","208","","","","1","","","","339","","","","1"],["Total","","$","35,710","","","","0","%","","$","53,128","","","","100","%"]]
[[/GREPCENT_TABLE]]

RPAC

Until December 1, 2021, we were the majority owner and managing member of RPAC Racing, LLC, a performance and marketing company for NASCAR. Revenues were mainly earned through sponsorships and race winning activity over the ten month race season (February through November) during the year. As a result of COVID-19, the prior year race season was suspended from March 15, 2020 through May 17, 2020.

43

The following table presents selected financial data and ratios as of and for the years ended December 31, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2021 (1)","","","2020","","","2019"],["Selected Earnings Data"],["Sponsorship, race winnings, and other income","","$","12,567","","","$","20,042","","","$","18,742"],["Race and other expenses","","","14,667","","","","16,339","","","","15,938"],["Interest expense","","","546","","","","163","","","","159"],["Total expenses","","","15,213","","","","16,502","","","","16,097"],["Net income (loss) before taxes","","","(2,646",")","","","3,540","","","","2,645"],["Income tax (provision) benefit","","","(1,498",")","","","(889",")","","","(329",")"],["Net income (loss) after taxes","","$","(4,144",")","","$","2,651","","","$","2,316"],["Balance Sheet Data"],["Total assets","","$","\u2014","","","$","33,711","","","$","31,538"],["Total borrowings","","","\u2014","","","","8,689","","","","7,794"],["Selected Financial Ratios"],["Return on average assets","","NM","","","","7.98","%","","","7.28","%"],["Return on average equity","","NM","","","NM","","","","(96.37",")"]]
[[/GREPCENT_TABLE]]

(1)
The Company sold its interest in RPAC in December 2021. Selected earnings data are applicable through the date of sale.

Corporate and Other Investments

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 not 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 currently included within this segment. Strategic partnerships represent $0.1 million in net loans as of December 31, 2021, compared to less than $0.1 million as of December 31, 2020. This segment also reflects the elimination of all intercompany activity among the consolidated entities, as well as the gains (losses) on the dispositions of certain non-core assets.

The following table presents selected financial data and ratios as of and for the years ended December 31, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Year Ended December 31,"],["","","2021","","","2020","","","2019"],["Selected Earnings Data"],["Total interest income","","$","1,348","","","$","1,575","","","$","2,308"],["Total interest expense","","","7,814","","","","9,128","","","","6,030"],["Net interest loss","","","(6,466",")","","","(7,553",")","","","(3,722",")"],["Total interest expense","","","1,953","","","","27","","","","455"],["Net interest loss","","","(8,419",")","","","(7,580",")","","","(4,177",")"],["Other income (expense), net","","","1,455","","","","(11,164",")","","","(7,946",")"],["Net loss before taxes","","","(6,964",")","","","(18,744",")","","","(12,123",")"],["Income tax benefit","","","1,552","","","","5,854","","","","3,461"],["Net loss after taxes","","$","(5,412",")","","$","(12,890",")","","$","(8,662",")"],["Balance Sheet Data"],["Total loans, gross","","$","1,933","","","$","3,314","","","$","3,362"],["Total loan allowance","","","\u2014","","","","\u2014","","","","\u2014"],["Total loans, net","","$","1,933","","","","3,314","","","","3,362"],["Total assets","","","459,411","","","","285,425","","","","247,641"],["Total borrowings","","","328,358","","","","244,987","","","","150,898"],["Selected Financial Ratios"],["Return on average assets","","","(1.89",")%","","","(5.06",")%","","","(3.71",")%"],["Return on average equity","","","(13.62",")","","","(23.29",")","","","(14.26",")"]]
[[/GREPCENT_TABLE]]

44

Summary Consolidated Financial Ratios

The following table presents selected financial data and ratios as of and for the years ended December 31, 2021, 2020, and 2019.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands, Except per share data)","","2021","","","2020","","","2019"],["Return on average assets (ROA)","","","3.12","%","","","(2.16",")%","","","(0.12",")%"],["Return on average equity (ROE)","","","21.24","","","","(10.90",")","","","(0.59",")"],["Net interest margin","","","9.25","","","","8.65","","","","8.64"],["Other income ratio (1)","","","2.28","","","","(0.46",")","","","1.81"],["Total expense ratio (2)","","","9.26","","","","7.51","","","","9.18"],["Equity to assets (3)","","","19.00","","","","18.54","","","","21.70"],["Debt to equity (4)","","4.2x","","","4.3x","","","3.5x"],["Loans receivable to assets","","","77","%","","","71","%","","","72","%"],["Net charge-offs","","","12,004","","","","58,362","","","","37,688"],["Net charge-offs (recoveries) as a % of average loans receivable","","","0.93","%","","","5.00","%","","","3.60","%"],["Allowance coverage ratio","","","3.37","","","","4.68","","","","3.97"]]
[[/GREPCENT_TABLE]]

(1)
Other income ratio represents other income divided by average interest earning assets.

(2)
Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average interest earning assets.

(3)
Includes $68.8 million, $73.2 million, and $71.3 million related to non-controlling interests in consolidated subsidiaries as of December 31, 2021, 2020, and 2019.

(4)
Excludes deferred financing costs of $7.1 million, $5.8 million, and $5.1 million as of December 31, 2021, 2020, and 2019.

Consolidated Results of Operations

For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Net income attributable to shareholders was $54.1 million, or $2.17 per share for the year ended December 31, 2021, compared to net loss attributable to shareholders of $34.8 million, or $1.42 per share, for the year ended December 31, 2020.

Total interest income was $159.0 million for the year ended December 31, 2021, compared to $145.0 million for the year ended December 31, 2020. The increase in interest income is reflective of the continued growth in the consumer lending segments, offset by contraction in the medallion lending segment, all loans of which are on nonaccrual status beginning in third quarter 2020, and a reduction in interest rates. The yield on interest earning assets was 11.51% for the year ended December 31, 2021, compared to 11.32% for the year ended December 31, 2020. Average interest earning assets were $1,384.8 million for the year ended December 31, 2021, an increase from $1,280.4 million for the year ended December 31, 2020.

Loans before allowance for loan losses were $1,488.9 million as of December 31, 2021, comprised of recreation ($961.3 million), home improvement ($436.8 million), commercial ($76.7 million), medallion ($14.0 million), and strategic partnership (less than $0.1 million) loans. We had an allowance for loan losses as of December 31, 2021 of $50.2 million, which was attributable to the recreation (64%), home improvement (15%), medallion (19%), and commercial (2%) loan portfolios. As of December 31, 2020, loans before allowance for loan losses were $1,229.8 million, comprised of recreation ($792.7 million), home improvement ($334.0 million), commercial ($65.3 million), medallion ($37.8 million), and strategic partnership ($24.0 million) loans. We had an allowance for loan losses as of December 31, 2020 of $57.5 million, which was attributable to recreation (48%), medallion (43%), and home improvement (9%) loans.

Loans increased $259.1 million, or 21%, from $1,229.8 million as of December 31, 2020 to $1,488.9 million as of December 31, 2021 as a result of $747.4 million of loan originations, offset by principal payments, and to a lesser extent transfers to loan collateral in process of foreclosure and net charge-offs. The provision for loan losses was $4.6 million for the year ended December 31, 2021, compared to a $69.8 million for the year ended December 31, 2020. The improvement over the prior year is attributable to the entire medallion loan portfolio being placed on non-accrual status and reserved down to collateral value in 2020, along with increases in reserve rates between 50 and 100 basis points on the recreation subprime loan business, as well as lower net charge-offs in the consumer, primarily recreation, loan portfolio in the current year. The charge-off ratios on the loan portfolios was 0.93% for the year ended December 31, 2021 compared to 5.00% for the year ended December 31, 2020, primarily reflective of higher recoveries and lower charge-offs in the current year within the consumer loan portfolio. See Note 4 of the accompanying consolidated financial statements for additional information on loans and allowance for loan losses.

Interest expense was $31.1 million for the year ended December 31, 2021, compared to $34.2 million for the year ended December 31, 2020. The decrease is from the prior year is attributable to lower costs associated with new deposits issued during the year, despite the overall increase in outstanding deposits, due to lower interest rates, offset slightly by higher priced longer-term private notes replacing lower cost short term bank borrowings. The average cost of borrowed funds was 2.28% for the year ended December 31, 2021, compared to 2.71% for the year ended December 31, 2020, the decrease mainly driven by the decline in market rates for deposits, the repayment of retail notes, offset to a lesser extent with the replacement of notes payable to banks with higher fixed rate private notes. Average debt outstanding was $1,370.7 million for the year ended December 31, 2021, up from $1,258.5 million for the year ended December 31, 2020, as we issued additional certificates of deposits to increase our liquidity, along with the new issuance of privately placed notes, offset by the repayment of publicly traded retail notes and other bank borrowings. We expect

45

interest expense to increase as certificates of deposit mature and get replaced with certificates of deposit with higher rates. See page 35 for tables that show average balances and cost of funds for our funding sources.

Net interest income was $127.8 million for the year ended December 31, 2021, compared to $110.8 million for the year ended December 31, 2020. Net interest margin was 9.25% for the year ended December 31, 2021, compared to 8.65%, for the year ended December 31, 2020, reflecting the continued growth and performance of the higher yielding consumer loans, as well as the trends in interest rates.

Net other income (loss), which is comprised of sponsorship and race winnings, prepayment fees, servicing fee income, late charges, write-downs of loan collateral, impairment of equity investments, and other miscellaneous income was $31.6 million for the year ended December 31, 2021, compared to a loss of $5.9 million for the year ended December 31, 2020. The increase was mainly due to gains recorded on the extinguishment of debt, gains on the disposal of equity investments in the current year, $11.3 million resulting from the sale of shares in Upgrade, as well as lower write-downs of the loan collateral in process of foreclosure as compared to the prior year. We will not earn additional sponsorship and race winnings as a result of the sale of RPAC in December 2021.

Operating expenses were $72.9 million for year ended December 31, 2021, compared to $72.0 million for year ended December 31, 2020. Salaries and benefits were $31.6 million for the year ended December 31, 2021, up from $28.2 million for the year ended December 31, 2020, with the increase mainly attributable to both the growth in our loan portfolio as well as increased compensation in connection with current year performance. Professional fees were $5.3 million for the year ended December 31, 2021, compared to $8.0 million for the year ended December 31, 2020, primarily reflective of lower legal costs for a variety of corporate matters. Race team costs were $9.6 million for the year ended December 31, 2021, compared to $8.4 million for the year ended December 31, 2020, reflective of a full race team in 2021 as compared to the shortened 2020 season due to the COVID-19 pandemic. Due to the sale of RPAC in December 2021, we do not expect to continue to incur race team costs. Loan servicing costs were $7.0 million for the year ended December 31, 2021, down slightly from the year ended December 31, 2020. Occupancy and other operating expenses were $19.4 million for the year ended December 31, 2021 compared to $20.7 million for the year ended December 31, 2020.

Total income tax expense was $24.2 million for the year ended December 31, 2021, compared to a benefit of $10.1 million for the year ended December 31, 2020. The 2021 year included $1.8 million of tax expense related to a valuation allowance with respect to certain tax assets which we believe will not be realized.

Loan collateral in process of foreclosure was $37.4 million at December 31, 2021, a decline from $54.6 million at December 31, 2020. The decrease was primarily reflective of cash payments received, sales, and to a lesser extent, the decline in collateral values offset by the additional loans having reached 120 days past due being charged-down to their collateral value and reclassified to loan collateral in process of foreclosure.

For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

For a comparison of the Company’s results of operations for the year ended December 31, 2020 to the year ended December 31, 2019, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on March 16, 2021.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

We, like other financial institutions, are subject to interest rate risk to the extent that our interest-earning assets (consisting of consumer, commercial, and medallion loans, and investment securities) reprice on a different basis over time in comparison to our interest-bearing liabilities (consisting primarily of bank certificates of deposit, privately placed notes, and SBA debentures and borrowings).

Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at the higher prevailing interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk.

The effect of changes in interest rates is mitigated by regular turnover of the portfolios. We believe that the average life of our loan portfolios varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment because the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. However, borrowers may prepay for a variety of other reasons, such as to monetize increases in the underlying collateral values. In addition, we manage our exposure to

46

increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals on certificates of deposit, for terms of up to five years.

A relative measure of interest rate risk can be derived from our interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.

The following table presents our interest rate sensitivity gap at December 31, 2021. The principal amounts of interest earning assets are assigned to the time frames in which such principal amounts are contractually obligated to be repriced. We have not reflected an assumed annual prepayment rate for such assets in this table.

[[GREPCENT_TABLE]]
[["December 31, 2021 Cumulative Rate Gap (1)"],["(Dollars in thousands)","","Less Than 1 Year","","","More Than 1 and Less Than 2 Years","","","More Than 2 and Less Than 3 Years","","","More Than 3 and Less Than 4 Years","","","More Than 4 and Less Than 5 Years","","","More Than 5 and Less Than 6 Years","","","Thereafter","","","Total"],["Earning assets"],["Fixed-rate","","$","39,966","","","$","19,984","","","$","19,572","","","$","54,025","","","$","75,816","","","$","65,613","","","$","1,177,492","","","$","1,452,468"],["Adjustable rate","","","7,104","","","","688","","","","1,250","","","","\u2014","","","","23","","","","\u2014","","","","\u2014","","","","9,065"],["Investment securities","","","4,406","","","","2,087","","","","4,394","","","","4,023","","","","1,869","","","","1,847","","","","26,147","","","","44,773"],["Cash","","","123,234","","","","\u2014","","","","\u2014","","","","500","","","","750","","","","\u2014","","","","\u2014","","","","124,484"],["Total earning assets","","$","174,710","","","$","22,759","","","$","25,216","","","$","58,548","","","$","78,458","","","$","67,460","","","$","1,203,639","","","$","1,630,790"],["Interest bearing liabilities"],["Deposits","","$","405,311","","","$","242,965","","","$","289,685","","","$","165,798","","","$","149,529","","","$","\u2014","","","$","\u2014","","","$","1,253,288"],["Retail and privately placed notes","","","\u2014","","","","\u2014","","","","36,000","","","","\u2014","","","","31,250","","","","\u2014","","","","53,750","","","","121,000"],["SBA debentures and borrowings","","","\u2014","","","","5,000","","","","13,963","","","","14,000","","","","14,000","","","","\u2014","","","","23,000","","","","69,963"],["Preferred securities","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","33,000","","","","33,000"],["Total liabilities","","$","405,311","","","$","247,965","","","$","339,648","","","$","179,798","","","$","194,779","","","$","\u2014","","","$","109,750","","","$","1,477,251"],["Interest rate gap","","$","(230,601",")","","$","(225,206",")","","$","(314,432",")","","$","(121,250",")","","$","(116,321",")","","$","67,460","","","$","1,093,889","","","$","153,539"],["Cumulative interest rate gap","","$","(230,601",")","","$","(455,807",")","","$","(770,239",")","","$","(891,489",")","","$","(1,007,810",")","","$","(940,350",")","","$","153,539","","","$","\u2014"],["December 31, 2020 (2)","","$","(366,801",")","","$","(570,449",")","","$","(719,385",")","","$","(827,236",")","","$","(907,295",")","","$","(860,941",")","","$","52,347","","","$","\u2014"],["December 31, 2019 (2)","","$","(260,024",")","","$","(500,953",")","","$","(651,546",")","","$","(689,819",")","","$","(748,187",")","","$","(706,935",")","","$","83,402","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

(1)
The ratio of the cumulative one year gap to total interest rate sensitive assets was (14%), (27%), and (21%) as of December 31, 2021, 2020, and 2019.

(2)
Excludes federal funds sold and investment securities.

Our interest rate sensitive assets were $1,630.8 million and interest rate sensitive liabilities were $1,477.3 million at December 31, 2021. The one-year cumulative interest rate gap was a negative $230.6 million or (14%) of interest rate sensitive assets. We seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, and by other options consistent with managing interest rate risk.

With the cessation of LIBOR in 2023, we are currently reviewing the impact on our loans and borrowings. We do not have lendings tied to LIBOR and do not expect a significant impact on our loans. We have trust preferred securities that bear a variable rate of interest of 90 day LIBOR (0.21% at December 31, 2021) plus 2.13%. We expect to rely on our lenders to adjust and communicate rate adjustments; however, we do not expect a material impact on our borrowings.

Liquidity and Capital Resources

Our sources of liquidity include unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private issuances of debt securities, participations or sales of loans to third parties, the disposition of our other assets, and dividends from Medallion Capital and the Bank, and are subject to compliance with regulatory ratios. As of December 31, 2021, we had unfunded commitments from the SBA of $9.5 million, all of which required the infusion of $4.8 million of capital from either the capitalization of retained earnings or a capital infusion from the Company.

Additionally, the Bank has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. The Bank has up to $45.0 million available under Fed Funds lines with several commercial banks.

In February 2021, we completed a private placement to certain institutional investors of $25.0 million aggregate principal amount of 7.25% unsecured senior notes due February 2026, with interest payable semiannually. Follow-on offerings of these notes in March and April 2021 raised an additional $3.3 million and $3.0 million.

In December 2020, we completed a private placement to certain institutional investors of $33.6 million aggregate principal amount of 7.50% unsecured senior notes due December 2027, with interest payable semiannually. Follow-on offerings of these notes in February and March 2021 raised an additional $8.5 million. In April 2021, we raised an additional $11.7 million in a follow-on offering, and repaid substantially all of our remaining bank borrowings.

47

The net proceeds from the December 2020, February 2021, March 2021 and April 2021 private placements have been used for general corporate purposes, including repayment of outstanding debts, including repayment of our 9.00% retail notes at maturity in April 2021 and to pay down other borrowings, including some borrowings at a discount.

In December 2019, the Bank closed an initial public offering of $46.0 million aggregate liquidation amount, yielding net proceeds of $42.5 million, of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F. Dividends are payable quarterly from the date of issuance to, but excluding April 1, 2025, at a rate of 8% per annum, and from and including April 1, 2025, at a floating rate equal to a benchmark rate (which is expected to be three-month Secured Overnight Financing Rate, or SOFR) plus a spread of 6.46% per annum.

In March 2019, we completed a private placement to certain institutional investors of $30.0 million aggregate principal amount of 8.25% unsecured notes due 2024, with interest payable semiannually. A follow-on offering of these notes in the 2019 third quarter raised an additional $6.0 million.

The table below presents the components of our debt were as of December 31, 2021, exclusive of deferred financing costs of $7.1 million. See Note 4 to the consolidated financial statements for details of the contractual terms of our borrowings.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Balance","","","Percentage","","","Rate (1)"],["Deposits (2)","","$","1,254,038","","","","85","%","","","1.20","%"],["Retail and privately placed notes","","","121,000","","","","8","","","","7.66"],["SBA debentures and borrowings","","","69,963","","","","5","","","","2.72"],["Preferred securities","","","33,000","","","","2","","","","2.31"],["Total outstanding debt","","$","1,478,001","","","","100","%","","","1.82","%"]]
[[/GREPCENT_TABLE]]

(1)
Weighted average contractual rate as of December 31, 2021.

(2)
Balance includes $0.8 million of strategic partner reserve deposits as of December 31, 2021.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows all contractual obligations at December 31, 2021.

[[GREPCENT_TABLE]]
[["","","Payments due by period"],["(Dollars in thousands)","","Less than 1 year","","","1 \u2013 2 years","","","2 \u2013 3 years","","","3 \u2013 4 years","","","4 \u2013 5 years","","","More than 5 years","","","Total (1)"],["Borrowings"],["Deposits (2)","","$","405,311","","","$","242,965","","","$","289,685","","","$","165,798","","","$","149,529","","","$","\u2014","","","$","1,253,288"],["Retail and privately placed notes","","","\u2014","","","","\u2014","","","","36,000","","","","\u2014","","","","31,250","","","","53,750","","","","121,000"],["SBA debentures and borrowings","","","\u2014","","","","5,000","","","","13,963","","","","14,000","","","","14,000","","","","23,000","","","","69,963"],["Preferred securities","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","33,000","","","","33,000"],["Total outstanding borrowings","","","405,311","","","","247,965","","","","339,648","","","","179,798","","","","194,779","","","","109,750","","","","1,477,251"],["Operating lease obligations","","","2,439","","","","2,356","","","","2,373","","","","2,390","","","","2,408","","","","1,164","","","","13,130"],["Total contractual obligations","","$","407,750","","","$","250,321","","","$","342,021","","","$","182,188","","","$","197,187","","","$","110,914","","","$","1,490,381"]]
[[/GREPCENT_TABLE]]

(1)
Total debt is exclusive of deferred financing costs of $7.1 million.

(2)
Balance excludes $0.8 million of strategic partner reserve deposits as of December 31, 2021.

Approximately $653.3 million of our borrowings have maturity dates during the next two years, a vast majority of which are brokered CDs.

In addition, the illiquidity of portions of our loan portfolio and investments may adversely affect our ability to dispose of them at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of our portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net interest income.

We use a combination of long-term and short-term borrowings and equity capital to finance our lending and investing activities. Our long-term fixed-rate investments are financed primarily with fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of December 31, 2021 by $1.3 million on an annualized basis, and the impact of such an immediate increase of 1% over an one year period would have been a reduction in net income by $0.8 million at December 31, 2021. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net income from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

48

From time to time, we work with investment banking firms and other financial intermediaries to investigate the viability of several other financing options which include, among others, the sale or spinoff of certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.

The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at December 31, 2021. See Note 5 to the consolidated financial statements for additional information about each credit facility.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Medallion Financial Corp.","","","MFC","","","MCI","","","FSVC","","","MB","","","All Other","","","December 31, 2021(1)","","","December 31, 2020(1)"],["Cash, cash equivalents and federal funds sold","","$","40,540","","(1)","$","258","","","$","22,124","","(2)","$","226","","(2)","$","61,302","","","$","34","","","$","124,484","","","$","112,040"],["Bank Loans","","","","","","","","","","","","","","","","","","","","","\u2014","","","","31,261"],["Average interest rate","","","","","","","","","","","","","","","","","","","","NA","","","","3.67","%"],["Maturity","","","","","","","","","","","","","","","","","","","","NA","","","2/21-12/23"],["Preferred Securities","","","33,000","","","","","","","","","","","","","","","","","","","33,000","","","","33,000"],["Average interest rate","","","2.31","%","","","","","","","","","","","","","","","","","","2.31","%","","","2.35","%"],["Maturity","","9/37","","","","","","","","","","","","","","","","","","9/37","","","","9/37"],["Retailed notes and privately placed borrowings","","","121,000","","","","","","","","","","","","","","","","","","","121,000","","","","103,225"],["Average interest rate","","","7.66","%","","","","","","","","","","","","","","","","","","7.66","%","","","8.25","%"],["Maturity","","3/24-12/27","","","","","","","","","","","","","","","","","","3/24-12/27","","","4/21-12/27"],["SBA debentures & borrowings","","","","","","","","","70,500","","","","8,963","","","","","","","","","","79,463","","","","93,008"],["Amounts available","","","","","","","","","9,500","","","","","","","","","","","","","9,500","","","","25,000"],["Amounts outstanding","","","","","","","","","61,000","","","","8,963","","","","","","","","","","69,963","","","","68,008"],["Average interest rate","","","","","","","","","2.64","%","","","3.25","%","","","","","","","","","2.72","%","","","3.36","%"],["Maturity","","","","","","","","3/23- 3/32","","","","45,412","","","","","","","","","3/23- 3/32","","","3/21-9/30"],["Brokered CD's & other funds borrowed","","","","","","","","","","","","","","","1,254,038","","(3)","","","","","1,254,038","","","","1,068,072"],["Average interest rate","","","","","","","","","","","","","","","1.20","%","","","","","","1.20","%","","","1.71","%"],["Maturity","","","","","","","","","","","","","","1/22-12/26","","","","","","1/22-12/26","","","1/21-12/25"],["Other borrowings","","","","","","","","","","","","","","","","","","","","","\u2014","","","","8,689"],["Average interest rate","","","","","","","","","","","","","","","","","","","","NA","","","","1.91","%"],["Maturity","","","","","","","","","","","","","","","","","","","","NA","","","12/21-6/25"],["Total Cash","","$","40,540","","","$","258","","","$","22,124","","","$","226","","","$","61,302","","","$","34","","","$","124,484","","","$","112,040"],["Total debt outstanding","","$","154,000","","","$","-","","","$","61,000","","","$","8,963","","","$","1,254,038","","","$","-","","","$","1,478,001","","","$","1,312,255"]]
[[/GREPCENT_TABLE]]

(1)
Excludes deferred financing costs of $7.1 million and $5.8 million as of December 31, 2021 and 2020.

(2)
Cash resides in the applicable SBIC and is generally not available for corporate use.

(3)
Balance includes $0.8 million of strategic partner reserve deposits and $8.7 million related to listing services.

Loan amortization, prepayments, and sales also provide a source of funding for us. Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition.

We also generate liquidity through deposits generated at the Bank, through the issuance of SBA debentures, the issuance of privately placed notes and historically through borrowing arrangements with other banks, as well as from cash flow from operations. In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We actively seek additional sources of liquidity; however, given market conditions, there can be no assurance that we will be able to secure additional liquidity on terms favorable to us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to conserve capital until credit conditions in the market become more favorable; or we may be required to dispose of assets when we would not otherwise do so, and at prices which may be below the net book value of such assets in order for us to repay indebtedness on a timely basis.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, or Topic 326: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. Under the FASB’s new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing “probable” and “incurred” loss recognition threshold is removed. Loss estimates are based upon lifetime “expected” credit losses. The use of past and current events must now be supplemented with “reasonable and supportable” expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model. ASU 2016-13 applies to all entities and is effective for fiscal years beginning after December 15, 2019 for public entities, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10 to defer implementation of the standard for smaller reporting companies, such us, to fiscal years beginning after December 15, 2022. We are assessing the impact the update will have on our financial statements, and expect the update to have a material impact on our accounting for estimated credit losses on our loans.

49

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements, or Topic 205: Depository and Lending, or Topic 942: and Financial Services – Investment Companies, or Topic 946: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. This new standard amends certain SEC paragraphs from the Codification in response to the issuance of SEC Final Rule No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses and SEC Rule No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. We have assessed the impact of the update and determined it does not have a material impact on the accompanying financial statements.