# MEDALLION FINANCIAL CORP (MFIN) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MEDALLION FINANCIAL CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1000209/000095017024027942/mfin-20231231.htm
Accession: 0000950170-24-027942
Filing date: 2024-03-07
Report date: 2023-12-31
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/
Previous year: /company/MFIN/mda/fy2022/ (FY 2022)
Next year: /company/MFIN/mda/fy2024/ (FY 2024)

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, 2023, 2022, and 2021. 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 19. Additionally, more information about our business activities can be found in “Business.”

COMPANY BACKGROUND

We are a specialty finance company whose focus and growth has been our consumer finance and commercial lending businesses operated by Medallion Bank, or the Bank, and Medallion Capital, Inc., or Medallion Capital. The Bank is a wholly-owned subsidiary that originates consumer loans for the purchase of recreational vehicles, boats, and home improvements, and provides loan origination and other services to fintech partners. Medallion Capital is a wholly-owned subsidiary that originates commercial loans through its mezzanine financing business. As of December 31, 2023, our consumer loans represented 95% of our gross loan portfolio and commercial loans represented 5%. Total assets were $2.6 billion as of December 31, 2023 and $2.3 billion as of December 31, 2022.

Our loan-related earnings depend primarily on our level of net interest income. Net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, including bank certificates of deposit issued to consumers, debentures issued to and guaranteed by the SBA, privately placed notes, and trust preferred securities. Net interest income fluctuates with changes in the yield on our loan portfolios and changes in the cost of borrowed funds, as well as changes in the amount of interest-earning assets and interest-bearing liabilities held by us. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the availability of funding to finance our lending activities. We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice, either due to inflation or other factors, on a different basis than our interest-bearing liabilities. We continue to monitor global supply chain disruptions, gas prices, labor shortages, unemployment, and other factors contributing to U.S. inflation and economic health, as well as other factors which contribute to competition and changes in the demand for our loan products. We are taking steps in the event of a potential economic downturn and in light of the current inflationary environment to moderate the pace of our recent growth.

We also provide debt, mezzanine, and equity investment capital to companies in a variety of commercial industries. 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.

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 taxi medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing Corp., or MSC. However, other than in connection with dispositions of existing taxi medallion assets, the Bank has not originated any new taxi medallion loans since 2014 (and Medallion Financial Corp. has not originated any new taxi 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.

In 2019, the Bank launched 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. The Bank continues to evaluate and launch additional partnership programs with fintech companies.

37

We continue to consider 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.

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.

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 credit losses in future periods, and the inability to collect on outstanding loans could result in increased credit losses.

Provision and Allowance for Credit Losses

The allowance for credit 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 credit losses, the Company uses historical delinquency and actual loss rates with a three-year look-back period for taxi 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. If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $6.7 million and $3.8 million, respectively. Likewise, if our qualitative loss factor rates were to decrease 50 basis points, our recreation and home improvement general reserve would decrease by $6.7 million and $3.8 million, respectively.

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

38

All taxi medallion loans are deemed impaired and have a specific allowance for each loan, such that the underlying net loan has a value no greater than collateral value. The determination of taxi medallion collateral fair value is derived quarterly for each jurisdiction. For taxi medallion loans, delinquent nonperforming loans are valued at collateral value for the most recent quarter. Collateral value for the taxi 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. 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. 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 taxi 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.

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 not amortized, but is subject to quarterly review by management to determine whether additional impairment testing is needed, and such testing is performed at least on an annual basis. The annual goodwill assessment is focused on the Bank goodwill of $150.8 million and intangible assets of $20.6 million, both of which utilized a step zero qualitative impairment analysis based on historical and projected financial data. The Bank-related intangible assets are amortized over their approximate useful life.

Deferred Taxes

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

39

AVERAGE BALANCES AND RATES

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["(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","","$","23,773","","","$","881","","","","3.71","%","","$","4,288","","","$","153","","","","3.57","%","","$","3,149","","","$","56","","","","1.78","%"],["Federal funds sold","","","70,021","","","","3,130","","","","4.47","","","","71,847","","","","956","","","","1.33","","","","45,096","","","","23","","","","0.05"],["Investment securities","","","52,065","","","","1,728","","","","3.32","","","","46,832","","","","1,176","","","","2.51","","","","45,195","","","","769","","","","1.70"],["Loans"],["Recreation","","","1,283,434","","","","167,765","","","","13.07","","","","1,085,211","","","","139,145","","","","12.82","","","","879,625","","","","118,305","","","","13.45"],["Home improvement","","","708,031","","","","62,703","","","","8.86","","","","526,377","","","","44,703","","","","8.49","","","","374,083","","","","34,204","","","","9.14"],["Commercial","","","99,394","","","","12,903","","","","12.98","","","","87,936","","","","9,705","","","","11.04","","","","66,874","","","","7,070","","","","10.57"],["Taxi medallion","","","5,924","","","","1,550","","","","26.16","","","","13,803","","","","627","","","","4.54","","","","21,266","","","","(1,483",")","","","(6.97",")"],["Strategic partnerships","","","1,387","","","","380","","","","27.40","","","","537","","","","156","","","","29.05","","","","70","","","","22","","","","31.43"],["Total loans","","","2,098,170","","","","245,301","","","","11.69","","","","1,713,864","","","","194,336","","","","11.34","","","","1,341,918","","","","158,118","","","","11.78"],["Total interest-earning assets, before allowance","","","2,244,029","","","","","","","11.19","","","","1,836,831","","","","","","","10.70","","","","1,435,358","","","","","","","11.08"],["Allowance for credit losses","","","(76,596",")","","","","","","","","","(56,866",")","","","","","","","","","(50,592",")"],["Total interest-earning assets, net of allowance","","","2,167,433","","","","251,040","","","","11.58","%","","","1,779,965","","","","196,621","","","","11.06","","","","1,384,766","","","","158,966","","","","11.51"],["Non-interest-earning assets"],["Cash","","","16,704","","","","","","","","","","39,535","","","","","","","","","","47,050"],["Equity investments","","","11,036","","","","","","","","","","10,570","","","","","","","","","","9,830"],["Loan collateral in process of foreclosure (1)","","","18,230","","","","","","","","","","28,823","","","","","","","","","","47,764"],["Goodwill and intangible assets","","","172,118","","","","","","","","","","173,563","","","","","","","","","","199,160"],["Other assets","","","52,680","","","","","","","","","","46,794","","","","","","","","","","44,129"],["Total non-interest-earning assets","","","270,768","","","","","","","","","","299,285","","","","","","","","","","347,933"],["Total assets","","$","2,438,201","","","","","","","","","$","2,079,250","","","","","","","","","$","1,732,699"],["Interest-bearing liabilities"],["Deposits","","$","1,764,262","","","$","47,784","","","","2.71","%","","$","1,440,328","","","$","22,666","","","","1.57","%","","$","1,134,531","","","$","17,543","","","","1.55","%"],["Retail and privately placed notes","","","123,808","","","","10,286","","","","8.31","","","","121,000","","","","10,008","","","","8.27","","","","120,704","","","","10,226","","","","8.47"],["SBA debentures and borrowings","","","68,519","","","","2,387","","","","3.48","","","","69,188","","","","2,228","","","","3.22","","","","64,733","","","","2,116","","","","3.27"],["Trust preferred securities","","","33,000","","","","2,489","","","","7.54","","","","33,000","","","","1,283","","","","3.89","","","","33,000","","","","981","","","","2.97"],["Notes payable to banks","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","10,960","","","","134","","","","1.22"],["Other borrowings","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","6,782","","","","140","","","","2.06"],["Total interest-bearing liabilities","","","1,989,589","","","","62,946","","","","3.16","","","","1,663,516","","","","36,185","","","","2.17","","","","1,370,710","","","","31,140","","","","2.28"],["Non-interest-bearing liabilities"],["Deferred tax liability","","","23,747","","","","","","","","","","22,187","","","","","","","","","","7,444"],["Other liabilities (2)","","","37,749","","","","","","","","","","30,574","","","","","","","","","","27,634"],["Total non-interest-bearing liabilities","","","61,496","","","","","","","","","","52,761","","","","","","","","","","35,078"],["Total liabilities","","","2,051,085","","","","","","","","","","1,716,277","","","","","","","","","","1,405,788"],["Non-controlling interest","","","69,253","","","","","","","","","","69,253","","","","","","","","","","72,162"],["Total stockholders\u2019 equity","","","317,863","","","","","","","","","","293,720","","","","","","","","","","254,749"],["Total liabilities and stockholders\u2019 equity","","$","2,438,201","","","","","","","","","$","2,079,250","","","","","","","","","$","1,732,699"],["Net interest income","","","","","$","188,094","","","","","","","","","$","160,436","","","","","","","","","$","127,826"],["Net interest margin, gross","","","","","","","","","8.38","","","","","","","","","","8.73","","","","","","","","","","8.91"],["Net interest margin, net of allowance","","","","","","","","","8.68","%","","","","","","","","","9.05","%","","","","","","","","","9.25","%"]]
[[/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 $6.2 million, $7.5 million, and $7.4 million as of December 31, 2023, 2022, and 2021.

(2)
Excludes deferred financing costs of $8.5 million, $7.0 million, and $7.1 million as of December 31, 2023, 2022, and 2021.

40

For the year ended December 31, 2023, our net loans receivable yielded 11.69% as compared to 11.34% for the year ended December 31, 2022. The 35 basis point increase reflects a higher yield on our loan portfolios, as we have increased the rates charged on new consumer originations over the past year as prevailing market interest rates have increased. We have used the higher interest rate environment as an opportunity to increase the rates on both newly issued recreation and home improvement loans, which is expected to continue to increase the yield on these portfolios over time, as well as increase the credit quality of our new issuances, particularly in our recreation segment, with the average FICO scores, measured at origination, of our recreation loans outstanding being 683 as of December 31, 2023 compared to 671 as of December 31, 2022. We use weighted average FICO scores as an indicator of portfolio risk.

Our debt, with certificates of deposits being our largest source, funds our growing lending business. Our average interest cost for the year ended December 31, 2023 of 3.16% increased 99 basis points from 2.17% for the year ended December 31, 2022, attributable to the current higher interest rate environment, particularly the higher cost associated with our deposits. To the extent that prevailing market interest rates remain at current levels, we expect our cost of funds to continue to increase as we issue new certificates of deposit to replace maturing certificates of deposit and fund our growth. We have taken, and continue to take, steps to pass along a portion of the interest rate increases on newly originated loans, the process for which is slower than the pace of funding cost increases, thereby compressing our net interest margins.

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, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["(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","","$","755","","","$","2,147","","","$","2,902","","","$","174","","","$","223","","","$","397","","","$","(31",")","","$","(55",")","","$","(86",")"],["Investment securities","","","174","","","","378","","","","552","","","","41","","","","366","","","","407","","","","(24",")","","","(205",")","","","(229",")"],["Loans"],["Recreation","","","25,911","","","","2,709","","","","28,620","","","","26,435","","","","(5,595",")","","","20,840","","","","14,749","","","","(7,150",")","","","7,599"],["Home improvement","","","16,087","","","","1,913","","","","18,000","","","","12,912","","","","(2,413",")","","","10,499","","","","7,961","","","","(1,030",")","","","6,931"],["Commercial","","","1,487","","","","1,711","","","","3,198","","","","2,382","","","","818","","","","3,200","","","","(287",")","","","23","","","","(264",")"],["Taxi medallion","","","(2,062",")","","","2,985","","","","923","","","","(526",")","","","2,704","","","","2,178","","","","11,994","","","","(11,959",")","","","35"],["Strategic partnerships","","","233","","","","(9",")","","","224","","","","136","","","","(2",")","","","134","","","","19","","","","(1",")","","","18"],["Total loans","","$","41,656","","","$","9,309","","","$","50,965","","","$","41,339","","","$","(4,488",")","","$","36,851","","","$","34,436","","","$","(20,117",")","","$","14,319"],["Total interest-earning assets","","$","42,585","","","$","11,834","","","$","54,419","","","$","41,554","","","$","(3,899",")","","$","37,655","","","$","34,381","","","$","(20,377",")","","$","14,004"],["Interest-bearing liabilities"],["Deposits","","$","8,774","","","$","16,344","","","$","25,118","","","$","4,812","","","$","311","","","$","5,123","","","$","1,302","","","$","(6,089",")","","$","(4,787",")"],["Retail and privately placed notes","","","233","","","","45","","","","278","","","","24","","","","(242",")","","","(218",")","","","4,263","","","","(850",")","","","3,413"],["SBA debentures and borrowings","","","(23",")","","","182","","","","159","","","","143","","","","(31",")","","","112","","","","(223",")","","","(294",")","","","(517",")"],["Trust preferred securities","","","\u2014","","","","1,206","","","","1,206","","","","\u2014","","","","302","","","","302","","","","\u2014","","","","14","","","","14"],["Notes payable to banks","","","\u2014","","","","\u2014","","","","\u2014","","","","(134",")","","","0","","","","(134",")","","","(261",")","","","(850",")","","","(1,111",")"],["Other borrowings","","","\u2014","","","","\u2014","","","","\u2014","","","","(140",")","","","0","","","","(140",")","","","(31",")","","","8","","","","(23",")"],["Total interest-bearing liabilities","","$","8,984","","","$","17,777","","","$","26,761","","","$","4,705","","","$","340","","","$","5,045","","","$","5,050","","","$","(8,061",")","","$","(3,011",")"],["Net","","$","33,601","","","$","(5,943",")","","$","27,658","","","$","36,849","","","$","(4,239",")","","$","32,610","","","$","29,331","","","$","(12,316",")","","$","17,015"]]
[[/GREPCENT_TABLE]]

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

Our interest expense is driven by the interest rates payable on our bank certificates of deposit, privately placed notes, fixed-rate, long-term debentures issued to the SBA, and trust preferred securities, and has historically included credit facilities with banks and other short-term notes payable. The Bank issues brokered time certificates of deposit, which are, on average, our lowest borrowing costs. The Bank is able to bid on these deposits at a variety of maturity options, which allows for more flexible interest rate management strategies. In September 2023, we issued and sold $39.0 million aggregate principal amount of 9.25% senior notes due in September 2028, and repurchased $33.0 million aggregate principal amount of our 8.25% senior notes due in March 2024. In December 2023, we issued and sold $12.5 million aggregate principal amount of 9.00% senior notes due in December 2033. The proceeds of both offerings were used for general corporate purposes and repayment of the senior notes maturing in March 2024.

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

41

We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The above table shows the average borrowings and related borrowing costs for the years ended December 31, 2023, 2022, and 2021. We expect our borrowing costs to further increase as prevailing interest rates continue at, or rise from, these levels.

We continue to seek SBA funding through Medallion Capital, to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the SBIA, and SBA regulations. In July 2023, we obtained a $20.0 million commitment from the SBA, $9.8 million of which has been utilized as of December 31, 2023, with $5.2 million currently drawable, and the balance of $5.5 million drawable upon the infusion of $2.4 million of capital. At December 31, 2023 and 2022, adjustable rate debt constituted less than 2% of total debt, and was comprised solely of our trust preferred securities borrowings.

LOANS

Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, which are amortized to interest income over the life of the loan. For the years ended December 31, 2023 and 2022, there was continued growth in the recreation and home improvement segments.

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2023 (Dollars in thousands)","","Recreation","","","Home Improvement","","","Commercial","","","Taxi Medallion","","","Strategic Partnership","","","Total"],["Gross loans \u2013 December 31, 2022","","$","1,183,512","","","$","626,399","","","$","92,899","","","$","13,571","","","$","572","","","$","1,916,953"],["Loan originations","","","447,039","","","","357,394","","","","34,850","","","","2,426","","","","118,338","","","","960,047"],["Principal payments, sales, maturities, and recoveries","","","(231,158",")","","","(209,894",")","","","(13,389",")","","","(6,859",")","","","(118,357",")","","","(579,657",")"],["Charge-offs","","","(50,512",")","","","(12,308",")","","","(1,019",")","","","(3,829",")","","","\u2014","","","","(67,668",")"],["Transfer to loan collateral in process of foreclosure, net","","","(18,875",")","","","\u2014","","","","\u2014","","","","(2,306",")","","","\u2014","","","","(21,181",")"],["Amortization of origination costs","","","(12,270",")","","","2,668","","","","14","","","","\u2014","","","","\u2014","","","","(9,588",")"],["FASB origination costs, net","","","18,490","","","","(3,642",")","","","(164",")","","","660","","","","\u2014","","","","15,344"],["Paid-in-kind interest","","","\u2014","","","","\u2014","","","","1,636","","","","\u2014","","","","\u2014","","","","1,636"],["Gross loans \u2013 December 31, 2023","","$","1,336,226","","","$","760,617","","","$","114,827","","","$","3,663","","","$","553","","","$","2,215,886"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2022 (Dollars in thousands)","","Recreation","","","Home Improvement","","","Commercial","","","Taxi Medallion","","","Strategic Partnership","","","Total"],["Gross loans \u2013 December 31, 2021","","$","961,320","","","$","436,772","","","$","76,696","","","$","14,046","","","$","90","","","$","1,488,924"],["Loan originations","","","513,062","","","","392,543","","","","28,172","","","","605","","","","49,526","","","","983,908"],["Principal payments, sales, maturities, and recoveries","","","(259,326",")","","","(196,203",")","","","(6,610",")","","","(419",")","","","(49,044",")","","","(511,602",")"],["Charge-offs","","","(27,055",")","","","(6,393",")","","","(6,083",")","","","(314",")","","","\u2014","","","","(39,845",")"],["Transfer to loan collateral in process of foreclosure, net","","","(12,444",")","","","\u2014","","","","\u2014","","","","(347",")","","","\u2014","","","","(12,791",")"],["Amortization of origination costs","","","(10,470",")","","","1,763","","","","\u2014","","","","\u2014","","","","\u2014","","","","(8,707",")"],["Amortization of loan premium","","","(213",")","","","(322",")","","","\u2014","","","","\u2014","","","","\u2014","","","","(535",")"],["FASB origination costs, net","","","18,638","","","","(1,761",")","","","\u2014","","","","\u2014","","","","\u2014","","","","16,877"],["Paid-in-kind interest","","","\u2014","","","","\u2014","","","","724","","","","\u2014","","","","\u2014","","","","724"],["Gross loans \u2013 December 31, 2022","","$","1,183,512","","","$","626,399","","","$","92,899","","","$","13,571","","","$","572","","","$","1,916,953"]]
[[/GREPCENT_TABLE]]

42

The following table presents the approximate maturities and sensitivity to change in interest rates for our loans as of December 31, 2023.

[[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","","$","21,076","","","$","252,085","","","$","1,753,773","","","$","147,289","","","$","2,174,223"],["Recreation","","","1,874","","","","128,397","","","","1,131,052","","","","29,632","","","","1,290,955"],["Home improvement","","","8,940","","","","33,024","","","","604,448","","","","117,657","","","","764,069"],["Commercial","","","7,636","","","","89,074","","","","18,273","","","","\u2014","","","","114,983"],["Strategic partnerships","","","553","","","","\u2014","","","","\u2014","","","","\u2014","","","","553"],["Taxi medallion","","","2,073","","","","1,590","","","","\u2014","","","","\u2014","","","","3,663"],["Adjustable-rate","","$","500","","","$","1,136","","","$","\u2014","","","$","\u2014","","","$","1,636"],["Recreation","","","500","","","","1,136","","","","\u2014","","","","\u2014","","","","1,636"],["Commercial","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Taxi medallion","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014"],["Total loans(1)(2)(3)","","$","21,576","","","$","253,221","","","$","1,753,773","","","$","147,289","","","$","2,175,859"]]
[[/GREPCENT_TABLE]]

(1)
Excludes strategic partnership loans.

(2)
Excludes deferred costs.

(3)
As of December 31, 2023, there were no floating-rate loans.

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

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

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

[[GREPCENT_TABLE]]
[["","","December 31,"],["(Dollars in thousands)","","2023","","","2022"],["Allowance for credit losses \u2013 beginning balance (1)","","$","63,845","","","$","50,166"],["CECL transition amount upon ASU 2016-13 adoption","","","13,712","","","","\u2014"],["Charge-offs"],["Recreation","","","(50,512",")","","","(27,055",")"],["Home improvement","","","(12,308",")","","","(6,393",")"],["Commercial","","","(1,019",")","","","(6,083",")"],["Taxi medallion","","","(3,829",")","","","(314",")"],["Total charge-offs","","","(67,668",")","","","(39,845",")"],["Recoveries"],["Recreation","","","11,449","","","","13,785"],["Home improvement","","","2,886","","","","2,761"],["Commercial","","","10","","","","47"],["Taxi medallion","","","22,191","","","","6,872"],["Total recoveries","","","36,536","","","","23,465"],["Net charge-offs (2)","","","(31,132",")","","","(16,380",")"],["Provision for credit losses","","","37,810","","","","30,059"],["Allowance for credit losses \u2013 ending balance (3)","","$","84,235","","","$","63,845"]]
[[/GREPCENT_TABLE]]

(1)
Represents allowance prior to the adoption of ASU 2016-13.

(2)
As of December 31, 2023, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the taxi medallion portfolio were $176.8 million, including $107.9 million related to loans secured by New York taxi medallions, some of which may represent collection opportunities for us.

(3)
As of December 31, 2023, there was no allowance for credit loss and net charge-offs related to the strategic partnership loans.

With the adoption of ASC 326, we also adopted ASU 2022-02, Financial Instruments – Credit Losses, or Topic 326: Troubled Debt Restructurings and Vintage Disclosures. Under this standard, we are required to disclose current period gross write-offs, by year of origination, for financing receivables.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","2023","","","2022","","","2021","","","2020","","","2019","","","Prior","","","Total"],["Recreation","","$","3,136","","","$","18,836","","","$","10,857","","","$","5,115","","","$","5,001","","","$","7,567","","","$","50,512"],["Home improvement","","","2,196","","","","5,686","","","","2,662","","","","702","","","","435","","","","627","","","","12,308"],["Commercial","","","\u2014","","","","\u2014","","","","119","","","","\u2014","","","","900","","","","\u2014","","","","1,019"],["Taxi medallion","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","3,829","","","","3,829"],["Total","","$","5,332","","","$","24,522","","","$","13,638","","","$","5,817","","","$","6,336","","","$","12,023","","","$","67,668"]]
[[/GREPCENT_TABLE]]

43

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

[[GREPCENT_TABLE]]
[["December 31, 2023 (Dollars in thousands)","","Amount","","","Percentage of Allowance","","","Allowance as a Percent of Loan Category","","","Allowance as a Percent of Nonaccrual"],["Recreation","","$","57,532","","","","68","%","","","4.31","%","","","221.50","%"],["Home improvement","","","21,019","","","","25","","","","2.76","","","","80.92"],["Commercial","","","4,148","","","","5","","","","3.61","","","","15.97"],["Taxi medallion","","","1,536","","","","2","","","","41.93","","","","5.91"],["Total","","$","84,235","","","","100","%","","","3.80","%","","","324.31","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["December 31, 2022 (Dollars in thousands)","","Amount","","","Percentage of Allowance","","","Allowance as a Percent of Loan Category","","","Allowance as a Percent of Nonaccrual"],["Recreation","","$","41,966","","","","66","%","","","3.55","%","","","130.60","%"],["Home improvement","","","11,340","","","","18","","","","1.81","","","","35.29"],["Commercial","","","1,049","","","","1","","","","1.13","","","","3.26"],["Taxi medallion","","","9,490","","","","15","","","","69.93","","","","29.53"],["Total","","$","63,845","","","","100","%","","","3.33","%","","","198.69","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023, the total allowance rate for credit losses increased 47 basis points from December 31, 2022, due to the adoption of CECL and rising loss rates which resulted in higher allowances for recreation, home improvement, and commercial loans, offset by a reduction in the allowance for taxi medallion loans due to recoveries and structured settlements entered into during the year.

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,"],["","","2023","","","2022","","","2021"],["(Dollars in thousands)","","Amount","","","% (1)","","","Amount","","","% (1)","","","Amount","","","% (1)"],["Recreation","","$","9,095","","","","0.4","%","","$","7,365","","","","0.4","%","","$","3,818","","","","0.3","%"],["Home improvement","","","1,502","","","","0.1","%","","","579","","","*","","","","132","","","*"],["Commercial","","","6,240","","","","0.3","%","","","74","","","*","","","","74","","","*"],["Taxi medallion","","","\u2014","","","*","","","","885","","","*","","","","\u2014","","","*"],["Total loans 90 days or more past due","","$","16,837","","","","0.8","%","","$","8,903","","","","0.5","%","","$","6,878","","","","0.6","%"]]
[[/GREPCENT_TABLE]]

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

(*) Less than 0.1%.

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

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2023 (Dollars in thousands)","","Recreation","","","Taxi Medallion (1)","","","Total"],["Loan collateral in process of foreclosure \u2013 December 31, 2022","","$","1,376","","","$","20,443","","","$","21,819"],["Transfer from loans, net","","","18,875","","","","2,306","","","","21,181"],["Sales","","","(7,890",")","","","(700",")","","","(8,590",")"],["Cash payments received","","","(730",")","","","(11,311",")","","","(12,041",")"],["Collateral valuation adjustments","","","(9,852",")","","","(745",")","","","(10,597",")"],["Loan collateral in process of foreclosure \u2013 December 31, 2023","","$","1,779","","","$","9,993","","","$","11,772"]]
[[/GREPCENT_TABLE]]

(1)
As of December 31, 2023, taxi medallion loans in the process of foreclosure included 333 taxi medallions in the New York market, 206 taxi medallions in the Chicago market, 31 taxi medallions in the Newark market, and 31 taxi medallions in various other markets.

[[GREPCENT_TABLE]]
[["Year Ended December 31, 2022 (Dollars in thousands)","","Recreation","","","Taxi Medallion (1)","","","Total"],["Loan collateral in process of foreclosure \u2013 December 31, 2021","","$","1,720","","","$","35,710","","","$","37,430"],["Transfer from loans, net","","","12,444","","","","347","","","","12,791"],["Sales","","","(7,707",")","","","(2,668",")","","","(10,375",")"],["Cash payments received","","","\u2014","","","","(12,289",")","","","(12,289",")"],["Collateral valuation adjustments","","","(5,081",")","","","(657",")","","","(5,738",")"],["Loan collateral in process of foreclosure \u2013 December 31, 2022","","$","1,376","","","$","20,443","","","$","21,819"]]
[[/GREPCENT_TABLE]]

(1)
As of December 31, 2022, taxi medallion loans in the process of foreclosure included 452 taxi medallions in the New York market, 335 taxi medallions in the Chicago market, 54 taxi medallions in the Newark market, and 39 taxi medallions in various other markets.

44

SEGMENT RESULTS

We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and taxi medallion lending. We also show results for a non-operating segment, corporate and other investments.

Recreation Lending

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

We maintain relationships with approximately 3,200 dealers and financial service providers, or FSPs, not all of which are active at any one time. FSPs are entities that provide finance and insurance, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves. The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable. We receive approximately half of our loan volume from dealers and the other half from FSPs. Our top ten dealer and FSP relationships were responsible for 43% of recreation lending’s new loan originations for the year ended December 31, 2023. The percentage of new loan originations by the top ten dealer and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration.

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

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

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

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2023","","","2022","","","2021"],["First Quarter","","$","101,681","","","$","114,406","","","$","93,850"],["Second Quarter","","","190,007","","","","170,207","","","","134,467"],["Third Quarter","","","92,603","","","","149,151","","","","118,407"],["Fourth Quarter","","","62,748","","","","79,298","","","","95,197"],["Year Ended","","$","447,039","","","$","513,062","","","$","441,921"]]
[[/GREPCENT_TABLE]]

45

As of December 31, 2023, 38% of the recreation loan portfolio were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history. The following table presents non-prime originations in comparison to total originations for the years ended December 31, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Total Originations","","","Non-prime Originations","","","Non-prime Originations (%)"],["2023","","$","447,039","","","$","152,045","","","","34","%"],["2022","","$","513,062","","","$","180,697","","","","35","%"],["2021","","$","441,921","","","$","130,296","","","","29","%"]]
[[/GREPCENT_TABLE]]

The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2023","","","2022","","","2021"],["Selected Earnings Data"],["Total interest income","","$","167,765","","","$","139,145","","","$","118,305"],["Total interest expense","","","31,436","","","","17,932","","","","9,993"],["Net interest income","","","136,329","","","","121,213","","","","108,312"],["Provision for credit losses","","","44,592","","","","22,802","","","","7,671"],["Net interest income after loss provision","","","91,737","","","","98,411","","","","100,641"],["Other income","","","376","","","","\u2014","","","","\u2014"],["Other expenses","","","(32,601",")","","","(30,463",")","","","(30,156",")"],["Net income before taxes","","","59,512","","","","67,948","","","","70,485"],["Income tax provision","","","(17,231",")","","","(17,989",")","","","(18,699",")"],["Net income after taxes","","$","42,281","","","$","49,959","","","$","51,786"],["Balance Sheet Data"],["Total loans, gross","","$","1,336,222","","","$","1,183,512","","","$","961,320"],["Total credit allowance","","","57,532","","","","41,966","","","","32,435"],["Total loans, net","","","1,278,690","","","","1,141,546","","","","928,885"],["Total assets","","","1,297,870","","","","1,154,680","","","","943,753"],["Total borrowings","","","1,062,584","","","","936,789","","","","744,701"],["Selected Financial Ratios"],["Return on average assets","","","3.36","%","","","4.38","%","","","5.93","%"],["Return on average equity","","","21.24","","","","26.66","","","","29.66"],["Interest yield","","","13.07","","","","12.82","","","","13.45"],["Net interest margin, gross","","","10.62","","","","11.17","","","","12.31"],["Net interest margin, net of allowance","","","11.09","","","","11.57","","","","12.76"],["Reserve coverage","","","4.31","","","","3.55","","","","3.37"],["Delinquency status (1)","","","0.70","","","","0.64","","","","0.41"],["Charge-off ratio","","","3.04","","","","1.22","","","","0.29"]]
[[/GREPCENT_TABLE]]

(1)
Loans 90 days or more past due.

46

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

A large proportion of our home improvement-financed sales are facilitated by contractor salespeople with limited financing backgrounds rather than by contractor employees who provide F&I services. The result is contractor demand for financing services that facilitate an in-home transaction (e.g., digital tools, including mobile applications for phone or tablet, support for E-SIGN compliant electronic signatures, and extended operating hours), and additional resources for the salesperson throughout the financing process. We currently maintain relationships with approximately 800 contractors and FSPs. Our top ten contractors and FSP relationships were responsible for over 50% of home improvement lending’s new loan originations for the years ended December 31, 2023 and 2022. The percentage of new loan originations by the top ten contractor and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration.

The home improvement loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of December 31, 2023. The loans are fixed rate with an average term at origination of 13.6 years. The weighted average maturity of our loans outstanding as of December 31, 2023 is 12.3 years.

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

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2023","","","2022","","","2021"],["First Quarter","","$","94,981","","","$","89,820","","","$","48,059"],["Second Quarter","","","117,035","","","","105,172","","","","62,992"],["Third Quarter","","","79,333","","","","100,451","","","","68,692"],["Fourth Quarter","","","66,045","","","","97,100","","","","78,295"],["Year Ended","","$","357,394","","","$","392,543","","","$","258,038"]]
[[/GREPCENT_TABLE]]

47

As of December 31, 2023, 1% of the home improvement loan portfolio were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history. The following table presents non-prime originations in comparison to total originations for the years ended December 31, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Total Originations","","","Non-prime Originations","","","Non-prime Originations (%)"],["2023","","$","357,394","","","$","3,094","","","","1","%"],["2022","","$","392,543","","","$","5,068","","","","1","%"],["2021","","$","258,038","","","$","4,034","","","","2","%"]]
[[/GREPCENT_TABLE]]

The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2023","","","2022","","","2021"],["Selected Earnings Data"],["Total interest income","","$","62,703","","","$","44,703","","","$","34,204"],["Total interest expense","","","18,137","","","","7,697","","","","4,153"],["Net interest income","","","44,566","","","","37,006","","","","30,051"],["Provision for credit losses","","","17,583","","","","7,616","","","","2,750"],["Net interest income after loss provision","","","26,983","","","","29,390","","","","27,301"],["Other income","","","6","","","","14","","","","63"],["Other expenses","","","(16,752",")","","","(13,514",")","","","(11,703",")"],["Net income before taxes","","","10,237","","","","15,890","","","","15,661"],["Income tax provision","","","(2,964",")","","","(4,207",")","","","(4,155",")"],["Net income after taxes","","$","7,273","","","$","11,683","","","$","11,506"],["Balance Sheet Data"],["Total loans, gross","","$","760,621","","","$","626,399","","","$","436,772"],["Total credit allowance","","","21,019","","","","11,340","","","","7,356"],["Total loans, net","","","739,602","","","","615,059","","","","429,416"],["Total assets","","","744,904","","","","618,923","","","","442,503"],["Total borrowings","","","609,863","","","","502,131","","","","349,172"],["Selected Financial Ratios"],["Return on average assets","","","1.04","%","","","1.95","%","","","2.90","%"],["Return on average equity","","","6.60","","","","12.08","","","","14.49"],["Interest yield","","","8.86","","","","8.49","","","","9.14"],["Net interest margin, gross","","","6.29","","","","7.03","","","","8.03"],["Net interest margin, net of allowance","","","6.45","","","","7.16","","","","8.17"],["Reserve coverage","","","2.76","","","","1.81","","","","1.68"],["Delinquency status (1)","","","0.20","","","","0.09","","","","0.03"],["Charge-off ratio","","","1.33","","","","0.69","","","","0.15"]]
[[/GREPCENT_TABLE]]

(1)
Loans 90 days or more past due.

48

Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, with California, Minnesota, and Wisconsin having 27%, 12%, and 10% of the segment portfolio, and no other states having a concentration at or above 10%. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2.5 million to $6.0 million at origination, and typically include an equity component as part of the financing. The commercial lending business has concentrations in manufacturing, construction, and wholesale trade that make up 53%, 13%, and 11% of total loans outstanding as of December 31, 2023, as compared to 50%, 11%, and 14% as of December 31, 2022. During the year ended December 31, 2023, we originated $34.9 million of loans, compared to $28.2 million in originations in 2022. As of December 31, 2023, commercial loans totaled $114.8 million.

The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021. 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)","","2023","","","2022","","","2021"],["Selected Earnings Data"],["Total interest income","","$","12,719","","","$","9,348","","","$","6,592"],["Total interest expense","","","3,597","","","","3,040","","","","2,720"],["Net interest income","","","9,122","","","","6,308","","","","3,872"],["Provision for credit losses","","","1,988","","","","5,963","","","","\u2014"],["Net interest income after loss provision","","","7,134","","","","345","","","","3,872"],["Other income","","","5,971","","","","3,306","","","","6,542"],["Other expenses","","","(3,547",")","","","(4,910",")","","","(3,441",")"],["Net income (loss) before taxes","","","9,558","","","","(1,259",")","","","6,973"],["Income tax (provision) benefit","","","(2,767",")","","","333","","","","(1,850",")"],["Net income (loss) after taxes","","$","6,791","","","$","(926",")","","$","5,123"],["Balance Sheet Data"],["Total loans, gross","","$","114,827","","","$","92,899","","","$","76,696"],["Total credit allowance","","","4,148","","","","1,049","","","","1,141"],["Total loans, net","","","110,679","","","","91,850","","","","75,555"],["Total assets","","","110,850","","","","101,447","","","","102,711"],["Total borrowings","","","90,754","","","","82,304","","","","81,048"],["Selected Financial Ratios"],["Return on average assets","","","6.65","%","","","(0.91",")%","","","6.12","%"],["Return on average equity","","","41.51","","","","(5.50",")","","","30.61"],["Interest yield","","","12.80","","","","10.63","","","","9.86"],["Net interest margin, gross","","","9.18","","","","7.17","","","","5.79"],["Net interest margin, net of allowance","","","9.45","","","","7.28","","","","5.81"],["Reserve coverage","","","3.61","","","","1.13","","","","1.49"],["Delinquency status (1)","","","5.40","","","","0.08","","","","0.10"],["Charge-off ratio","","","1.02","","","","6.86","","","","0.00"]]
[[/GREPCENT_TABLE]]

(1)
Loans 90 days or more past due.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2023","","","2022"],["Geographic Concentrations (Dollars in thousands)","","Total Gross Loans","","","% of Market","","","Total Gross Loans","","","% of Market"],["California","","$","31,225","","","","27","%","","$","21,585","","","","23","%"],["Minnesota","","","13,879","","","","12","","","","12,048","","","","13"],["Wisconsin","","","11,393","","","","10","","","","5,054","","","","5"],["Texas","","","10,725","","","","9","","","","9,853","","","","11"],["Illinois","","","8,474","","","","7","","","","12,873","","","","14"],["Other (1)","","","39,131","","","","35","","","","30,690","","","","34"],["Total","","$","114,827","","","","100","%","","$","92,103","","","","100","%"]]
[[/GREPCENT_TABLE]]

(1)
Includes 13 other states, which were all under 10% as of December 31, 2023 and 9 other states, which were all under 10% as of December 31, 2022.

49

Taxi Medallion Lending

The taxi medallion lending segment operates in the New York City metropolitan area. During the year ended December 31, 2023, taxi medallion values remained consistent in the New York City and Newark markets with all other markets being valued at $0 at the end of the year. We continued to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020 (except for settled loans with interest being paid in excess of the loan balance), and by transferring underperforming loans from the portfolio to loan collateral in process of foreclosure with charge-offs to collateral value, once loans become more than 120 days past due. All the loans are secured by taxi medallions and enhanced by personal guarantees of the shareholders and owners.

During the year ended December 31, 2023, we collected $45.2 million related to taxi medallion and related assets, which resulted in net recoveries and gains of $29.6 million. The amount of cash collected as well as recoveries recorded vary greatly from period to period due to a wide variety of circumstances surrounding each of the underlying assets, and while we continue to focus on collection and recovery efforts, it is unlikely that there will be future collections at the levels experienced in the current year.

The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2023","","","2022","","","2021"],["Selected Earnings Data"],["Total interest income (loss)","","$","1,596","","","$","632","","","$","(1,483",")"],["Total interest expense","","","72","","","","508","","","","5,914"],["Net interest income","","","1,524","","","","124","","","","(7,397",")"],["Benefit for credit losses","","","(26,318",")","","","(6,474",")","","","(7,752",")"],["Net interest income after loss provision","","","27,842","","","","6,598","","","","355"],["Other income (loss)","","","3,358","","","","4,341","","","","(641",")"],["Other expenses","","","(7,256",")","","","(10,520",")","","","(1,350",")"],["Net income (loss) before taxes","","","23,944","","","","419","","","","(1,636",")"],["Income tax (provision) benefit","","","(6,933",")","","","(111",")","","","433"],["Net income (loss) after taxes","","$","17,011","","","$","308","","","$","(1,203",")"],["Balance Sheet Data"],["Total loans, gross","","$","3,663","","","$","13,571","","","$","14,046"],["Total credit allowance","","","1,536","","","","9,490","","","","9,234"],["Total loans, net","","","2,127","","","","4,081","","","","4,812"],["Total assets","","","12,247","","","","25,496","","","","86,526"],["Total borrowings","","","10,027","","","","20,685","","","","68,276"],["Selected Financial Ratios"],["Return on average assets","","","91.25","%","","","1.18","%","","","(0.13",")%"],["Return on average equity","","","574.86","","","","6.97","","","","(0.64",")"],["Interest yield","","","26.94","","","","4.58","","","","(6.97",")"],["Net interest margin, gross","","","25.73","","","","0.90","","","","(34.78",")"],["Net interest margin, net of allowance","","","61.60","","","","2.76","","","","(93.60",")"],["Reserve coverage","","","41.93","","","","69.93","","","","65.74"],["Delinquency status (1)","","","\u2014","","","","6.52","","","","0.00"],["Charge-off ratio","","","(309.96",")","","","(47.51",")","","","41.72"]]
[[/GREPCENT_TABLE]]

(1)
Loans 90 days or more past due.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2023","","","2022"],["Geographic Concentration (Dollars in thousands)","","Total Gross Loans","","","% of Market","","","Total Gross Loans","","","% of Market"],["New York City","","$","3,436","","","","94","%","","$","12,626","","","","93","%"],["Newark","","","227","","","","6","","","","916","","","","7"],["All Other","","","\u2014","","","","\u2014","","","","29","","","*"],["Total","","$","3,663","","","","100","%","","$","13,571","","","","100","%"]]
[[/GREPCENT_TABLE]]

(*) Less than 1%.

[[GREPCENT_TABLE]]
[["","","As of December 31,"],["","","2023","","","2022"],["Geographic Concentration (Dollars in thousands)","","Total Loan Collateral in Process of Foreclosure","","","% of Market","","","Total Loan Collateral in Process of Foreclosure","","","% of Market"],["New York City","","$","8,863","","","","89","%","","$","16,720","","","","82","%"],["Newark","","","1,130","","","","11","","","","2,965","","","","14"],["Chicago","","","\u2014","","","","\u2014","","","","732","","","","4"],["All Other","","","\u2014","","","","\u2014","","","","26","","","*"],["Total","","$","9,993","","","","100","%","","$","20,443","","","","100","%"]]
[[/GREPCENT_TABLE]]

(*) Less than 1%.

50

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, which are not specifically allocated to the operating segments. Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is included within this segment. The associated activities of the strategic partnership business are currently limited to originating loans or other receivables facilitated by our strategic partners and selling those loans or receivables to our strategic partners or other third parties, without recourse, within a specified time after origination, such as three business days. Strategic partnerships represent $0.6 million in net loans as of both December 31, 2023 and December 31, 2022, with originations of $118.3 million during the year ended December 31, 2023. This segment also reflects the gains (losses) on the dispositions of certain non-core assets.

The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["Selected Earnings Data"],["Total interest income","","$","6,257","","","$","2,793","","","$","1,348"],["Total interest expense","","","9,704","","","","7,008","","","","7,814"],["Net interest expense","","","(3,447",")","","","(4,215",")","","","(6,466",")"],["Provision (benefit) for credit losses","","","(35",")","","","152","","","","1,953"],["Net interest expense after loss provision","","","(3,412",")","","","(4,367",")","","","(8,419",")"],["Other income","","","1,609","","","","1,865","","","","12,319"],["Other expenses","","","(15,412",")","","","(12,646",")","","","(10,866",")"],["Net loss before taxes","","","(17,215",")","","","(15,148",")","","","(6,966",")"],["Income tax benefit","","","4,985","","","","4,011","","","","1,552"],["Net loss after taxes","","$","(12,230",")","","$","(11,137",")","","$","(5,414",")"],["Balance Sheet Data"],["Total loans, gross","","$","553","","","$","572","","","$","90"],["Total credit allowance","","","\u2014","","","","\u2014","","","","\u2014"],["Total loans, net","","","553","","","","572","","","","90"],["Total assets","","","421,956","","","","359,333","","","","297,564"],["Total borrowings","","","345,462","","","","291,526","","","","234,804"],["Selected Financial Ratios"],["Return on average assets","","","(3.13",")%","","","(3.02",")%","","","(2.01",")%"],["Return on average equity","","","(19.78",")","","","(18.40",")","","","(14.49",")"]]
[[/GREPCENT_TABLE]]

Summary Consolidated Financial Ratios

The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2023","","","2022","","","2021"],["Return on average assets","","","2.51","%","","","2.40","%","","","3.33","%"],["Return on average stockholder's equity","","","17.33","","","","14.92","","","","21.24"],["Return on average equity","","","15.79","","","","13.74","","","","17.64"],["Net interest margin, gross","","","8.38","","","","8.73","","","","8.91"],["Equity to assets (1)","","","15.91","","","","16.40","","","","19.00"],["Debt to equity (2)","","5.1x","","","4.9x","","","4.2x"],["Net loans receivable to assets","","","82","%","","","82","%","","","77","%"],["Net charge-offs","","","31,132","","","","16,380","","","","12,004"],["Net charge-offs as a % of average loans receivable","","","1.48","%","","","0.99","%","","","0.93","%"],["Reserve coverage","","","3.80","","","","3.33","","","","3.37"]]
[[/GREPCENT_TABLE]]

(1)
Includes $68.8 million, related to non-controlling interests in consolidated subsidiaries as of December 31, 2023, 2022, and 2021.

(2)
Excludes deferred financing costs of $8.5 million, $7.0 million, and $7.1 million as of December 31, 2023, 2022, and 2021.

51

CONSOLIDATED RESULTS OF OPERATIONS

For the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

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

Total interest income was $251.0 million for the year ended December 31, 2023, compared to $196.6 million for the year ended December 31, 2022. The increase in interest income reflects continued growth in the recreation and home improvement lending segments, and to a lesser extent, growth in our commercial lending segment, as well as higher interest rates. The yield on interest earning assets was 11.19% for the year ended December 31, 2023, compared to 10.70% for the year ended December 31, 2022, reflecting new originations being priced at higher rates given the current interest rate environment. Average interest earning assets were $2.2 billion for the year ended December 31, 2023, an increase from $1.8 billion for the year ended December 31, 2022, due to continued growth of both recreation and home improvement loans, largely in the first half of 2023. In 2023, loan originations were $960.1 million, down from $983.9 million in 2022, with $447.0 million and $357.4 million of the 2023 originations attributable to the recreation and home improvement loans. In 2023, we raised credit standards and increased rates charged on new originations for both of our consumer loan products. This, along with lower demand than what was experienced in the years following the COVID-19 pandemic, resulted in somewhat lower originations.

Loans before allowance for credit losses were $2.2 billion as of December 31, 2023, comprised of recreation ($1.3 billion), home improvement ($0.8 billion), commercial ($114.8 million), taxi medallion ($3.7 million), and strategic partnership (less than $0.6 million) loans. We had an allowance for credit losses as of December 31, 2023 of $84.2 million, which was attributable to the recreation (68%), home improvement (25%), commercial (5%), and taxi medallion (2%) loan portfolios. As of December 31, 2022, loans before allowance for credit losses were $1.9 billion, comprised of recreation ($1.2 billion), home improvement ($0.6 billion), commercial ($92.9 million), taxi medallion ($13.6 million), and strategic partnership ($0.6 million) loans. We had an allowance for credit losses as of December 31, 2022 of $63.8 million, which was attributable to recreation (66%), home improvement (18%), and taxi medallion (15%) loans. The allowance for credit losses increased during the year, as a result of the adoption of CECL on January 1, 2023, which required provision for lifetime losses in our portfolio, as well as a result of the loan portfolio growth during the year.

Loans increased $0.3 billion, or 16%, to $2.2 billion as of December 31, 2023 from $1.9 billion as of December 31, 2022. The growth resulted primarily due to nearly $1.0 billion of loan originations outpacing the rate of repayments on existing loans, offset, to a lesser extent, by charge-offs and transfers to loan collateral in process of foreclosure. The provision for credit losses was $37.8 million for the year ended December 31, 2023, compared to $30.1 million for the year ended December 31, 2022. The current year provision included a net benefit of $26.3 million associated with taxi medallion loan recoveries, compared to a net benefit of $6.2 million associated with these loans in the prior year. While we continue to focus on collection and recovery efforts on our taxi medallion loans, it is unlikely that there will be future collections at the levels in the current period. The increase in the provision, in large part, related to higher charge-offs in both the recreation and home improvement loan portfolios from the prior year, as charge-offs continued to trend higher to levels more comparable with our pre-pandemic historical norms. Additionally, the increased charge-off experience resulted in the need for a higher allowance for credit losses, as we are now required to reserve for lifetime expected losses under CECL. As of December 31, 2023 the allowance for credit loss was 4.31% and 2.76% for recreation and home improvement loans, compared to 3.55% and 1.81% a year ago and 4.39% and 2.05% at January 1, 2023 after the adoption of CECL. See Note 4 of the accompanying consolidated financial statements for additional information on loans and allowance for credit losses.

Interest expense was $62.9 million for the year ended December 31, 2023, compared to $36.2 million for the year ended December 31, 2022. The increase from the prior year is attributable to both an increase in cost of borrowings, with our average cost up 99 basis points from a year ago, as well as an overall increase in our borrowings, primarily certificates of deposit. The average cost of borrowed funds was 3.16% for the year ended December 31, 2023, compared to 2.17% for the year ended December 31, 2022. The average cost of the certificates of deposit was 2.71% during the current year, 114 basis points higher than the 1.57% average cost in the prior year, reflecting a higher rate on newly issued deposits when compared to the maturing deposits which were issued at lower rates in previous years. We expect our average cost of funds to increase from these levels in this current inflationary environment as we continue to rely upon the issuance of new certificates of deposit to fund our growing lending business. Average debt outstanding was $2.0 billion for the year ended December 31, 2023, up from $1.7 billion for the year ended December 31, 2022, as we issued additional certificates of deposit to fund our loan growth. See page 40 for tables that show average balances and cost of funds for our funding sources.

Net interest income was $188.1 million for the year ended December 31, 2023, compared to $160.4 million for the year ended December 31, 2022. Net interest margin, excluding the impact of allowance for credit loss, was 8.38% for the year ended December 31, 2023, compared to 8.73%, for the year ended December 31, 2022, reflecting the above. We expect our net interest margin to continue to tighten in 2024, as we expect our cost of funds to increase at a rate somewhat lower than the rate of increase on the average coupon on our loan portfolios.

52

Net other income, which is comprised primarily of net gains related to equity investments, net gains associated with the disposition of taxi medallion assets, prepayment fees, servicing fee income, late charges, and write-downs of loan collateral, was $11.3 million for the year ended December 31, 2023, compared to $9.5 million for the year ended December 31, 2022. The increase was mainly attributable to $2.4 million of higher gains on the exit of equity investments.

Operating expenses were $75.6 million for the year ended December 31, 2023, up from $72.1 million for the year ended December 31, 2022. Salaries and benefits were $37.6 million for the year ended December 31, 2023, up from $31.1 million for the year ended December 31, 2022, with the increase attributable to a higher head count, annual cost of living increases, and higher performance based compensation. Professional fees were $5.9 million for the year ended December 31, 2023, down from $13.1 million for the year ended December 31, 2022, reflecting lower legal and professional costs during the current year for a variety of corporate matters, with costs in the prior year being elevated due to the SEC litigation. These elevated costs incurred in 2022 gave rise to an approximate $6.5 million liability as a result of the collection of insurance coverage with respect to those costs. The Company anticipates recognizing the benefit of this liability, offsetting future costs, through the remainder of this SEC matter. Other operating costs increased over the prior year consistent with the growth that we have experienced in our businesses and lending segments.

Total income tax expense was $24.9 million for the year ended December 31, 2023, compared to $18.0 million for the year ended December 31, 2022. Income tax expense for 2023 included $1.6 million 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 $11.8 million at December 31, 2023, a decline from $21.8 million at December 31, 2022 with the decrease largely related to a drop in taxi medallion assets, due to the higher levels of cash payments and structured settlements received during the year.

For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

For a comparison of the Company’s results of operations for the year ended December 31, 2022 to the year ended December 31, 2021, 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, 2022, which was filed with the Securities and Exchange Commission on March 10, 2023.

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 taxi 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, SBA debentures and borrowings, historically credit facilities, and borrowings from banks and other lenders).

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 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.

53

The following table presents our interest rate sensitivity gap at December 31, 2023. 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 do not reflect any prepayment assumptions in preparing the analysis, despite historical average life experience being significantly shorter than contractual terms.

[[GREPCENT_TABLE]]
[["December 31, 2023 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","","$","20,524","","","$","26,244","","","$","47,623","","","$","96,001","","","$","82,217","","","$","78,902","","","$","1,822,160","","","$","2,173,671"],["Adjustable rate","","","500","","","","846","","","","263","","","","\u2014","","","","28","","","","\u2014","","","","\u2014","","","","1,637"],["Investment securities","","","18,455","","","","3,444","","","","1,954","","","","4,750","","","","1,833","","","","4,849","","","","38,722","","","","74,007"],["Cash","","","148,595","","","","500","","","","750","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","149,845"],["Total earning assets","","$","188,074","","","$","31,034","","","$","50,590","","","$","100,751","","","$","84,078","","","$","83,751","","","$","1,860,882","","","$","2,399,160"],["Interest bearing liabilities"],["Deposits","","$","678,846","","","$","533,405","","","$","325,498","","","$","184,458","","","$","147,232","","","$","\u2014","","","$","\u2014","","","$","1,869,439"],["Retail and privately placed notes","","","3,000","","","","\u2014","","","","31,250","","","","53,750","","","","39,000","","","","\u2014","","","","12,500","","","","139,500"],["SBA debentures and borrowings","","","5,000","","","","14,000","","","","14,000","","","","2,000","","","","1,250","","","","\u2014","","","","39,000","","","","75,250"],["Trust preferred securities","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","33,000","","","","33,000"],["Total liabilities","","$","686,846","","","$","547,405","","","$","370,748","","","$","240,208","","","$","187,482","","","$","\u2014","","","$","84,500","","","$","2,117,189"],["Interest rate gap","","$","(498,772",")","","$","(516,371",")","","$","(320,158",")","","$","(139,457",")","","$","(103,404",")","","$","83,751","","","$","1,776,382","","","$","281,971"],["Cumulative interest rate gap","","$","(498,772",")","","$","(1,015,143",")","","$","(1,335,301",")","","$","(1,474,758",")","","$","(1,578,162",")","","$","(1,494,411",")","","$","281,971","","","$","\u2014"],["December 31, 2022 (2)","","$","(367,803",")","","$","(807,687",")","","$","(1,158,706",")","","$","(1,283,654",")","","$","(1,372,105",")","","$","(1,314,604",")","","$","222,536","","","$","\u2014"],["December 31, 2021 (2)","","$","(230,601",")","","$","(455,807",")","","$","(770,239",")","","$","(891,489",")","","$","(1,007,810",")","","$","(940,350",")","","$","153,539","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

(1)
The ratio of the cumulative one-year gap to total interest rate sensitive assets was (21%), (18%), and (14%) as of December 31, 2023, 2022, and 2021.

(2)
Excludes federal funds sold and investment securities.

Our interest rate sensitive assets were $2.4 billion and interest rate sensitive liabilities were $2.1 billion at December 31, 2023. The one-year cumulative interest rate gap was a negative $0.5 billion or 21% of interest rate sensitive assets. We actively monitor the level of exposure with the goal that movements in interest rates not adversely and unexpectedly negatively affect future earnings. We use net interest income sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our loan and investment securities portfolios.

LIBOR terminated on June 30, 2023. We did not have any loans tied to LIBOR. Our trust preferred securities bore a variable rate of interest of 90 day LIBOR plus 2.13% until June 30, 2023. For these borrowings, the 90-day Secured Overnight Financing Rate (SOFR) adjusted by a relevant spread adjustment of approximately 26 basis points has replaced the previous LIBOR-based rate.

Liquidity and Capital Resources

Our sources of liquidity include brokered certificates of deposit and other borrowings at the Bank, unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private and public issuances of debt securities, participations or sales of loans to third parties, issuances of preferred securities at our subsidiaries, and the disposition of our other assets.

In December 2023, we completed a private placement to certain institutional investors of $12.5 million aggregate principal amount of 9.00% unsecured senior notes due December 2033, with interest payable semiannually.

In September 2023, we completed a private placement to certain institutional investors of $39.0 million aggregate principal amount of 9.25% unsecured senior notes due September 2028, with interest payable semiannually.

In April 2023, the Bank began to originate retail savings deposits through a third-party service provider and, as of December 31, 2023, the Bank had $18.0 million in retail savings deposit balances.

In March 2023, the Bank established a discount window line of credit at the Federal Reserve. As of December 31, 2023, the Bank had approximately $38.0 million in investment securities pledged as collateral to the Federal Reserve. The current advance rate on the pledged securities is 100% of fair value, for a total of approximately $38.0 million in secured borrowing capacity, of which none was utilized as of December 31, 2023.

The Bank has borrowing arrangements with several commercial banks. These agreements are accommodations that can be terminated at any time, for any reason and allow the Bank to borrow up to $75.0 million. As of December 31, 2023, nothing was outstanding on these lines.

54

In addition, on February 28, 2024, Medallion Capital accepted a commitment from the SBA for $18.5 million in debenture financing with a ten-year term. Medallion Capital can draw funds under the commitment, in whole or in part, until September 30, 2028. In connection with the commitment, Medallion Capital paid the SBA a leverage fee of $0.2 million, with the remaining $0.4 million of the fee to be paid pro rata as Medallion Capital draws under the commitment.

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.

In December 2019, the Bank closed an initial public offering of 1,840,000 shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, with a $46.0 million aggregate liquidation amount, yielding net proceeds of $42.5 million, which were recorded in the Bank’s shareholders’ equity. 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 based on the Secured Overnight Financing Rate, or SOFR, and is expected to be three-month Term SOFR) plus a spread of 6.46% per annum.

The net proceeds from the December 2020, February 2021, March 2021, April 2021, September 2023, and December 2023 private placements were used for general corporate purposes, 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, and to repurchase and cancel $33.0 million of our 8.25% notes due in March 2024.

The table below presents the components of our debt were as of December 31, 2023, exclusive of deferred financing costs of $8.5 million. See Note 5 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)","","$","1,869,439","","","","88","%","","","3.07","%"],["Retail and privately placed notes","","","139,500","","","","7","","","","8.08"],["SBA debentures and borrowings","","","75,250","","","","3","","","","3.69"],["Trust preferred securities","","","33,000","","","","2","","","","7.75"],["Total outstanding debt","","$","2,117,189","","","","100","%","","","3.50","%"]]
[[/GREPCENT_TABLE]]

(1)
Weighted average contractual rate as of December 31, 2023.

(2)
Balance includes $1.5 million of strategic partner reserve deposits as of December 31, 2023.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows our contractual obligations at December 31, 2023.

[[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)","","$","678,846","","","$","533,405","","","$","325,498","","","$","184,458","","","$","147,232","","","$","\u2014","","","$","1,869,439"],["Retail and privately placed notes","","","3,000","","","","\u2014","","","","31,250","","","","53,750","","","","39,000","","","","12,500","","","","139,500"],["SBA debentures and borrowings","","","5,000","","","","14,000","","","","14,000","","","","2,000","","","","1,250","","","","39,000","","","","75,250"],["Trust preferred securities","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","33,000","","","","33,000"],["Total outstanding borrowings","","","686,846","","","","547,405","","","","370,748","","","","240,208","","","","187,482","","","","84,500","","","","2,117,189"],["Operating lease obligations","","","2,536","","","","2,546","","","","2,567","","","","1,342","","","","573","","","","1,139","","","","10,703"],["Total contractual obligations","","$","689,382","","","$","549,951","","","$","373,315","","","$","241,550","","","$","188,055","","","$","85,639","","","$","2,127,892"]]
[[/GREPCENT_TABLE]]

(1)
Total debt is exclusive of deferred financing costs of $8.5 million.

(2)
Balance excludes $1.5 million of strategic partner reserve deposits as of December 31, 2023.

Approximately $1.2 billion of our borrowings have maturity dates during the next two years, a vast majority of which are brokered certificates of deposit that have no right of voluntary withdrawal.

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.

55

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 loans and 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, 2023 by $1.6 million on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been a reduction in net income by $1.9 million at December 31, 2023. 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.

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, 2023. 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","","","December 31, 2023","","","December 31, 2022"],["Cash, cash equivalents and federal funds sold","","$","30,946","","","$","242","","","$","6,057","","(2)","$","2,557","","(2)","$","110,043","","","$","149,845","","","$","105,598"],["Trust preferred securities","","","33,000","","","","","","","","","","","","","","","","33,000","","","","33,000"],["Average interest rate","","","7.75","%","","","","","","","","","","","","","","","7.75","%","","","6.86","%"],["Maturity","","9/37","","","","","","","","","","","","","","","9/37","","","9/37"],["Retail notes and privately placed borrowings","","","139,500","","","","","","","","","","","","","","","","139,500","","","","121,000"],["Average interest rate","","","8.08","%","","","","","","","","","","","","","","","8.08","%","","","7.66","%"],["Maturity","","3/24 - 12/33","","","","","","","","","","","","","","","3/24 - 12/33","","","3/24-12/27"],["SBA debentures & borrowings"],["Amounts available","","","","","","","","","10,250","","","","","","","","","","10,250","","","","4,750"],["Amounts outstanding","","","","","","","","","75,250","","","","","","","","","","75,250","","","","68,512"],["Average interest rate","","","","","","","","","3.69","%","","","","","","","","","3.69","%","","","3.08","%"],["Maturity","","","","","","","","3/24 - 3/34","","","","","","","","","3/24 - 3/34","","","3/23 - 3/33"],["Brokered CDs","","","","","","","","","","","","","","","1,870,939","","(3)","","1,870,939","","","","1,610,922"],["Average interest rate","","","","","","","","","","","","","","","3.07","%","","","3.07","%","","","1.91","%"],["Maturity","","","","","","","","","","","","","","1/24 - 12/28","","","1/24 - 12/28","","","1/23-12/27"],["Total cash","","$","30,946","","","$","242","","","$","6,057","","","$","2,557","","","$","110,043","","","$","149,845","","","$","105,598"],["Total debt outstanding (1)","","$","172,500","","","$","\u2014","","","$","75,250","","","$","\u2014","","","$","1,870,939","","","$","2,118,689","","","$","1,833,434"]]
[[/GREPCENT_TABLE]]

(1)
Excludes deferred financing costs of $8.5 million and $7.0 million as of December 31, 2023 and 2022.

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

(3)
Balance includes $1.5 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, taxi medallion loan market values, economic conditions, and competition.

We also generate liquidity through deposits generated at the Bank, the offering of privately placed notes, through the issuance of SBA debentures, through our trust preferred securities, and through preferred securities at our subsidiaries and have utilized borrowing arrangements with other banks in the past, 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 regularly seek additional sources of liquidity; however, given current 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.

56

Recently Issued Accounting Standards

On January 1, 2023, we adopted Accounting Standards Update 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", or ASC 326, which replaced the incurred loss methodology that delayed recognition until it was probable a loss had been incurred with a lifetime expected loss methodology using "reasonable and supportable" expectations about the future, referred to as the current expected credit loss, or CECL, methodology. For consumer loans, we use historical delinquency and actual loss rates modified by quantitative adjustments based on macroeconomic factors over a twelve-month reasonable and supportable forecast period. For commercial loans, we assess the historical impact that macroeconomic indicators have had on the loan portfolio, to determine an approximate allowance for credit loss. Unlike consumer loans, where loans may have similar performing characteristics, each commercial loan is unique. We evaluate each commercial loan for specific impairment with additional allowance for credit losses recognized as necessary. For taxi medallion loans, we maintain specific reserves adjusting the carrying amount of loans down to net collateral value. The allowance is evaluated on a quarterly basis by management based on the collectability of the loans in light of historical experience, the nature and size of the loan portfolio, adverse situations that may affect the borrowers' 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, including those based on changes in economic conditions, that are susceptible to significant revision as more information becomes available. Credit losses are deducted from the allowance, and subsequent recoveries are added back to the allowance.

We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after December 15, 2022 are presented under ASC 326. The transition to the CECL methodology on January 1, 2023 resulted in an increase of $13.7 million to our allowance for credit losses on loans (“ACL”) and a net-of-tax cumulative-effect adjustment of $9.9 million to the beginning balance of retained earnings. The CECL methodology transition effects on the allowance for credit losses are shown in the following table:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","December 31, 2022 Pre-Topic 326 Adoption","","","Effect of ASC 326 Adoption (Transition Amounts)","","","January 1, 2023 Post-ASC 326 Adoption"],["Assets:"],["Loans:"],["Recreation","","$","41,966","","","$","10,037","","","$","52,003"],["Home improvement","","","11,340","","","","1,518","","","","12,858"],["Commercial","","","1,049","","","","2,157","","","","3,206"],["Taxi medallion","","","9,490","","","","\u2014","","","","9,490"],["Strategic partnership","","","\u2014","","","","\u2014","","","","\u2014"],["Allowance for credit losses on loans","","$","63,845","","","$","13,712","","","$","77,557"]]
[[/GREPCENT_TABLE]]

Prior to January 1, 2023, we used historical delinquency and actual loss rates with a three-year look-back period for taxi medallion loans and a one-year look-back period for recreation and home improvement loans and used historical loss experience and other projections for commercial loans. The allowance was evaluated on a quarterly basis by management based on the collectability of the loans in light of historical experience, the nature and size of the loan portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. This evaluation was inherently subjective, as it required estimates that were susceptible to significant revision as more information became available.

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures, or Topic 323: Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The main objective of this new standard is to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. The amendments in this update are effective for fiscal years beginning after December 15, 2023. We are assessing the impact of the update on the accompanying financial statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements. The amendments in this update seek to clarify or improve disclosure and presentation requirements. We are assessing the impact of the update on the accompanying financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting, or Topic 280: Improvements to Reportable Segment Disclosures. The main objective of this update is to provide transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for fiscal years beginning after December 15, 2023. We are assessing the impact of the update on the accompanying financial statements.

57

In December 2023, the FASB issued ASU 2023-09, Income Taxes, or Topic 740: Improvements to Income Tax Disclosures. The main objective of this update is to improve financial reporting disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in this update are effective for the annual periods beginning after December 15, 2024. We are assessing the impact of the update on the accompanying financial statements.