GOAL
The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the three months endedMarch 31, 2022 and the year endedDecember 31, 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 in our Annual Report on Form 10-K.
GENERAL
We are a finance company whose direction and growth has been primarily through Medallion Bank, or the Bank, (a wholly owned subsidiary), which issues consumer loans for the purchase of hobbies, boats, motorcycles, and home improvements, and provides origination loans and other services to fintech partners.
Our strategic focus is on growing our consumer finance and commercial lending portfolios operated by the Bank andMedallion Capital, Inc. , respectively. As ofMarch 31, 2022 , our consumer loans represented 94% of our gross loan portfolio, with commercial loans representing 5%. Total assets were$1.97 billion and 1.87 billion as ofMarch 31, 2022 andDecember 31, 2021 . 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 customers, debentures issued to and guaranteed by the SBA, privately placed notes, and preferred securities. Net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds, as well as changes in the amount of interest-earning assets and interest-bearing liabilities held by us. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the availability of funding to finance our lending activities. We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice, either due to inflation or other factors, on a different basis than our interest-bearing liabilities. We also provide debt, mezzanine, and equity investment capital to companies in a variety of 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. In 2019, the Bank started building a strategic partnership program to provide lending and other services to financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and began issuing its first loans, then entered into a second and third strategic partnership in 2021 and 2022. The Bank continues to explore opportunities with additional fintech companies. The Bank is an industrial bank regulated by theFDIC and theUtah Department of Financial Institutions that originates consumer loans, raises deposits, and conducts other banking activities. The Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit. To take advantage of this low cost of funds, historically we referred a portion of our medallion and commercial loans to the Bank, which originated these loans, and have since been serviced byMedallion Servicing Corp. , or MSC. However, other than in connection with dispositions of existing medallion assets, the Bank has not originated any new medallion loans since 2014 (andMedallion Financial Corp. has not originated any new medallion loans since 2015) and is working with MSC to service its remaining portfolio, as it winds down. MSC earns referral and servicing fees for these activities. We 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.
COVID-19[feminine]
The ongoing coronavirus, or COVID-19, pandemic, its broad impact and preventive
measures taken to contain or mitigate the outbreak have had, and may continue to
have, significant negative effects on the US and global economy, employment
levels, employee productivity, and financial market conditions. This has had,
and may continue to have negative effects on the ability of our borrowers to
repay outstanding loans, the value of collateral securing loans, the demand for
loans and other financial services products and consumer discretionary spending.
As a result of these or other consequences, the outbreak has adversely and
materially affected our business, results of operations and financial condition.
Although we continue to see signs of recovery, it remains uncertain, and the
effects of the outbreak on us could be exacerbated given that our business model
is largely consumer and small business directed, which are more severely
affected by COVID-19 and the preventative measures taken to contain or mitigate
the outbreak, including its significant negative effects on consumer
discretionary spending. The full extent to which the outbreak will continue to
impact our operations will depend on future developments, including the impact
of the Omicron and other potential variants, which are highly
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uncertain and cannot be predicted at this time, and include the duration,
severity and scope of the continued outbreak, the actions taken to contain or
mitigate the outbreak and how long, and to what extent the economic recovery
from its effects will take.
We have taken steps to operate through this crisis, including having had our
workforce work remotely on a part-time basis in New York , though our employees
outside of New York largely continue to work remotely. In addition, we
implemented several cost-cutting measures, such as reducing employee headcount
at our parent company, Medallion Financial Corp. , and closing satellite offices
in Long Island City , Chicago and Boston .
In March 2020 , we adjusted the payment policies and procedures with our consumer
and medallion businesses, and allowed borrowers to defer payments up to 180
days. As of March 31, 2022 , no consumer or medallion loans remained on deferral
related to COVID-19. For our medallion portfolio, we determined that anticipated
payment activity on our medallion portfolio was impossible to quantify upon the
end of the deferral moratorium, and therefore all medallion loans were deemed
impaired, placed on nonaccrual status, and written down to each market's net
collateral value in the 2020 third quarter, with additional write-offs taken
during 2021. We will continue to monitor our medallion portfolio and related
assets, which may result in additional write-downs, charge-offs or impairments,
the impact of which could be material to our results of operations and financial
condition.
Substantially all our medallion loans and related assets are concentrated in the
New York City metropolitan area. As a result of the COVID-19 pandemic, economic
activity and taxi ridership decreased dramatically in New York City and despite
the reopening of New York City , there has not been a substantial increase in
ridership and gross meter fares. The extent to which the COVID-19 pandemic will
continue to adversely affect taxi medallion owners and, by extension, our
medallion loans and related assets, will depend on future developments, which
are highly uncertain and cannot be predicted, including the scope and duration
of the pandemic, actions taken by governmental authorities, and the direct and
indirect impact of the pandemic on taxi medallion owners and the behaviors of
people who have historically taken taxis.
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Average balances and rates
The following table sets out our average consolidated balance sheet, interest income and expense, and average interest-producing/interest-bearing assets and liabilities, which reflects the average return on assets and average cost of liabilities for the three months ended
Three Months Ended March 31,
2022 2021
Average Average Average Average
(Dollars in thousands) Balance Interest Yield/Cost Balance Interest Yield/Cost
Interest-earning assets
Interest earning cash
equivalents $ 4,276 $ 46 4.36 % $ 2,993 $ 18 2.44 %
Federal funds sold 63,606 15 0.10 44,873 5 0.05
Investment securities 44,434 219 2.00 42,046 202 1.95
Loans
Recreation 946,024 31,135 13.35 774,823 27,442 14.36
Home improvement 446,644 9,700 8.81 332,270 7,918 9.66
Commercial 77,318 2,028 10.64 61,244 1,560 10.33
Medallion 4,730 146 12.52 11,945 (69 ) (2.34 )
Strategic partnerships 180 14 31.54 27 4 60.08
Total loans 1,474,896 43,023 11.83 1,180,309 36,855 12.66
Total interest-earning assets 1,587,212 43,303 11.08 1,270,221 37,080 11.84
Non-interest-earning assets
Cash 56,823 61,370
Equity investments 10,063 9,583
Loan collateral in process of
foreclosure(1) 35,602
53,543
Goodwill and intangible assets 174,105 201,715 Other assets 44,275 46,220 Total non-interest-earning assets 320,868 372,431 Total assets$ 1,908,080 $ 1,642,652 Interest-bearing liabilities Deposits$ 1,279,429 $ 4,154 1.32 %$ 1,045,381 $ 4,711 1.83 % Retail and privately placed notes 121,000 2,498 8.37 125,372 2,632 8.51 SBA debentures and borrowings 69,840 523 3.04 65,080 572 3.56 Preferred securities 33,000 200 2.46 33,000 193 2.37 Notes payable to banks - - - 27,622 258 3.79 Other borrowings - - - 8,707 41 1.91 Total interest-bearing liabilities 1,503,269 7,375 1.99 1,305,162 8,407 2.61 Non-interest-bearing liabilities Deferred tax liability 18,875 1,304 Other liabilities (2) 25,491 27,788 Total non-interest-bearing liabilities 44,366 29,092 Total liabilities 1,547,635 1,334,254 Non-controlling interest 69,166 73,040 Total stockholders' equity 291,279 235,358 Total liabilities and stockholders' equity$ 1,908,080 $ 1,642,652 Net interest income$ 35,928 $ 28,673 Net interest margin 9.20 % 9.18 % (1) Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by Medallion Bank of$7.7 million and$3.8 million as ofMarch 31, 2022 and 2021. (2) Includes deferred financing costs of$7.2 million and$6.5 million as ofMarch 31, 2022 and 2021. Page 33 of 51 --------------------------------------------------------------------------------
Rate/volume analysis
During the quarter, our net loans receivable had a yield of 11.83% (compared to 12.66% in the prior year's first quarter), mainly driven by the growth in the home improvement portfolio which has a lower yield than our recreation portfolio, offset by contraction in the medallion portfolio, all of which is on non-accrual. The debt, mainly certificates of deposit, helps fund our growing consumer loan business and as market rates decreased through 2021, so has average cost of borrowings, despite recent increases in newly issued deposits in the 2022 first quarter. In addition, privately placed notes issued betweenDecember 2020 andApril 2021 were at lower rates compared to prior issuances. The following tables present the change in interest income and expense due to changes in the average balances (volume) and average yield/cost, calculated for the periods indicated. Three Months Ended March 31, 2022 2021 Increase Increase Increase Increase (Decrease) (Decrease) (Decrease) (Decrease)
(Dollars in thousands) In Volume In Rate Net Change In Volume In Rate Net Change Interest-earning assets Interest earning cash and cash equivalents $ 18 $ 20 $ 38 $ 27$ (112 ) $ (85 ) Investment securities 12 5 17 (35 ) (94 ) (129 ) Loans Recreation 5,634 (1,941 ) 3,693 2,494 (1,386 ) 1,108 Home improvement 2,484 (702 ) 1,782 1,951 80 2,031 Commercial 422 46 468 (187 ) (132 ) (320 ) Medallion (223 ) 438 215 (485 ) (586 ) (1,071 ) Strategic partnerships 12 (2 ) 10 4 - 4 Total loans$ 8,329 $ (2,161 ) $ 6,168 $ 3,776 $ (2,024 ) $ 1,752 Total interest-earning assets$ 8,359 $ (2,136 ) $
6,223
Interest-bearing debt Deposits
$ 760 $ (1,317 ) $ (557 ) $ 597 $ (1,827 ) $ (1,230 ) Retail and privately placed notes (90 ) (44 ) (134 ) 1,156 (206 ) 950 SBA debentures and borrowings 36 (85 ) (49 ) (62 ) (52 ) (114 ) Notes payable to banks - (258 ) (258 ) (55 ) (23 ) (78 ) Preferred securities - 7 7 - (121 ) (121 ) Other borrowings - (41 ) (41 ) 4 (3 ) 1 Total interest-bearing liabilities$ 706 $ (1,738 ) $ (1,032 ) $ 1,639 $ (2,232 ) $ (593 ) Net$ 7,653 $ (398 ) $ 7,255 $ 2,129 $ 2$ 2,131 During the three months endedMarch 31, 2022 , the increase in the interest earning assets was mainly driven by the increase in volume of consumer loans, even as the yield declined. The debt change similarly was driven by the increase in the borrowings, mainly driven by deposits, which are used to fund the consumer loans, along with new privately placed notes, offset by the repayment of retail notes. Our interest expense is driven by the interest rates payable on our bank certificates of deposit, short-term credit facilities with banks, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. The Bank issues brokered time certificates of deposit, which are our lowest borrowing costs. The Bank is able to bid on these deposits at a variety of maturity options, which allows for improved interest rate management strategies. Our cost of funds is primarily driven by the rates paid on our various debt instruments and their relative mix, and changes in the levels of average borrowings outstanding. See Note 5 to the consolidated financial statements for details on the terms of our outstanding debt. Our debentures issued to the SBA typically have terms of ten years. We 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 tables above show the average borrowings and related borrowing costs for the three months endedMarch 31, 2022 and 2021. We continue to seek SBA funding throughMedallion Capital, Inc. , to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the Small Business Investment Act of 1985, as amended, or the SBIA, and SBA regulations. InJuly 2020 , we obtained a$25,000,000 commitment from the SBA. We believe that financing operations primarily with short-term floating rate secured bank debt has generally decreased our interest expense, but has also increased our exposure to the risk of increases in market interest rates, which we mitigate with certain interest rate strategies. AtMarch 31, 2022 and 2021, adjustable rate debt constituted 2% and 3% of total debt. Page 34 of 51 --------------------------------------------------------------------------------
Loans
Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which are amortized to interest income over the life of the loan. During the three months endedMarch 31, 2022 , there was continued growth in the consumer lending segments along with recoveries in the medallion segment, which was partly offset by consumer and medallion charge-offs during the period, the continuing of loans aged over 120 days transferred to loan collateral in process of foreclosure and payments received from borrowers. Three Months Ended March 31, 2022 Home Strategic (Dollars in thousands) Recreation Improvement Commercial Medallion Partnership Total Gross loans - December 31, 2021$ 961,320 $ 436,772 $ 76,696 $ 14,046 $ 90$ 1,488,924 Loan originations 114,406 89,820 4,400 92 5,009 213,727 Principal payments, sales, maturities, and recoveries (65,116 ) (52,164 ) (1,817 ) (85 ) (4,873 ) (124,055 ) Charge-offs (5,067 ) (1,060 ) (1,584 ) (75 ) - (7,786 ) Transfer to loan collateral in process of foreclosure, net (2,911 ) - - (129 ) - (3,040 ) Amortization of origination costs (2,439 ) 320 - - - (2,119 ) Amortization of loan premium (60 ) (90 ) - - - (150 ) FASB origination costs, net 3,958 (190 ) - - - 3,768 Paid-in-kind interest - - 172 - - 172 Gross loans - March 31, 2022$ 1,004,091 $ 473,408 $ 77,867 $ 13,849 $ 226$ 1,569,441 Three Months Ended December 31, 2021 Home Strategic (Dollars in thousands) Recreation Improvement Commercial Medallion Partnership Total Gross loans - December 31, 2020$ 792,686 $ 334,033 $ 65,327 $ 37,768 $ 24$ 1,229,838 Loan originations 93,850 48,059 4,156 - 1,944 148,009 Principal payments, sales, maturities, and recoveries (55,958 ) (39,637 ) (10,965 ) (636 ) (1,910 ) (109,106 ) Charge-offs (5,053 ) (681 ) - (1,114 ) - (6,848 ) Transfer to loan collateral in process of foreclosure, net (3,053 ) - - (696 ) - (3,749 ) Amortization of origination costs (2,162 ) 497 11 (2 ) - (1,656 ) Amortization of loan premium (41 ) (76 ) - (70 ) - (187 ) FASB origination costs, net 2,663 (74 ) - - - 2,589 Paid-in-kind interest - - 325 - - 325
Gross loans –
The following table shows the approximate maturities and sensitivity to changes in interest rates of our loans to
Loan Maturity
After 1 to After 5 to After 15
(Dollars in thousands) Within 1 year 5 years 15 years years Total
Fixed-rate $ 33,648 $ 183,894 $ 1,200,524 $ 114,152 $ 1,532,218
Recreation 2,262 95,408 861,575 8,759 968,004
Home improvement 20,960 24,307 324,867 105,393 475,527
Commercial 7,324 54,681 14,082 - 76,087
Medallion 3,102 9,498 - - 12,600
Adjustable-rate $ 6,755 $ 1,443 $ - $ - $ 8,198
Recreation 3,725 1,443 - - 5,168
Commercial 1,780 - - - 1,780
Medallion 1,250 - - - 1,250
Total loans(1) $ 40,403 $ 185,337 $ 1,200,524 $ 114,152 $ 1,540,416
(1)
Excludes strategic partnership loans.
Allowance and provision for loan loss
During the three months endedMarch 31, 2022 , we continued to utilize a value of$79,500 forNew York City taxi medallion values, despite reported transfer prices exceeding that level at various points during the period, as we continue to deem the entire medallion portfolio as impaired. In addition, the consumer loan allowance percentages remained relatively stable for the three months endedMarch 31, 2022 , decreasing 13 basis points for recreation and increasing 2 basis points for home improvement. Page 35 of 51 --------------------------------------------------------------------------------
The following table shows the loan loss provision activity for the three months ended
Three Months Ended March 31 ,
(Dollars in thousands) 2022
2021
Allowance for loan losses – opening balance
57,548 Charge-offs Recreation (5,067 ) (5,053 ) Home improvement (1,060 ) (681 ) Commercial (1,584 ) - Medallion (75 ) (1,114 ) Total charge-offs (7,786 ) (6,848 ) Recoveries Recreation 3,510 2,469 Home improvement 559 432 Commercial 34 - Medallion 963 1,189 Total recoveries 5,066 4,090 Net charge-offs (1) (2,720 ) (2,758 ) Provision for loan losses 3,240 3,019
Allowance for loan losses – closing balance (2)
57,809
(1)
As ofMarch 31, 2022 , cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion portfolio were$257.0 million , some of which may represent collection opportunities for us. (2) As ofMarch 31, 2022 , there was no allowance for loan loss and net charge-offs related to the strategic partnership loans.
The following tables present the allowance for loan losses by type as at
Allowance as Allowance as a
March 31, 2022 Percentage a Percent of Percent of
(Dollars in thousands) Amount of Allowance Loan Category Nonaccrual
Recreation $ 32,558 64 % 3.24 % 98.99 %
Home improvement 8,059 16 1.70 24.50
Commercial 828 2 1.06 2.52
Medallion 9,241 18 66.73 28.10
Total $ 50,686 100 % 3.23 % 154.10 %
Allowance as Allowance as a
December 31, 2021 Percentage a Percent of Percent of
(Dollars in thousands) Amount of Allowance Loan Category Nonaccrual
Recreation $ 32,435 64 % 3.37 % 91.18 %
Home improvement 7,356 15 1.68 20.68
Commercial 1,141 2 1.49 3.21
Medallion 9,234 19 65.74 25.96
Total $ 50,166 100 % 3.37 % 141.03 %
As of March 31, 2022 , the allowance for loan losses had remained relatively in
line with December 31, 2021 . For recreation and home improvement loans, as of
March 31, 2022 the allowances exclude $3.1 million and $0.4 million of loan loss
allowances which have been netted within loans as a result of the consolidation
of Medallion Bank.
For the recreation loan portfolio, the process to repossess the collateral is
generally started at 60 days past due. If the collateral is not located and the
account reaches 120 days delinquent, the account is charged-off in full. If the
collateral is repossessed, a loss is recorded to write the collateral down to
its net realizable value, and the collateral is sent to auction. When the
collateral is sold, the net auction proceeds are applied to the account, and any
remaining balance is written off as a realized loss, and any excess proceeds are
recorded as a recovery. Proceeds collected on charged off accounts are recorded
as recoveries. All collection, repossession, and recovery efforts are handled on
behalf of the Bank by the contracted servicer.
The following table shows the trend in loans 90 days or more past due as of the
dates indicated.
March 31, 2021 December 31, 2021
(Dollars in thousands) Amount % (1) Amount % (1)
Recreation $ 3,802 0.2 % $ 3,818 0.3 %
Home improvement 297 0.0 132 0.0
Commercial 74 0.0 74 0.0
Medallion - - - -
Total loans past due 90 days or more
0.3%
(1)
Percentages are calculated relative to the total loan portfolio.
We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 295% at
Page 36 of 51 -------------------------------------------------------------------------------- Recreation and 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 three months endedMarch 31, 2022 and 2021. Three Months EndedMarch 31, 2022 (Dollars in thousands) Recreation Medallion
Total
Loan collateral in process of foreclosure - December 31, 2021$ 1,720 $ 35,710 $ 37,430 Transfer from loans, net 2,911 129 3,040 Sales (2,252 ) (116 ) (2,368 ) Cash payments received - (2,872 ) (2,872 ) Collateral valuation adjustments (1,010 ) (386 ) (1,396 ) Loan collateral in process of foreclosure - March 31, 2022$ 1,369 $ 32,465 $ 33,834 Three Months EndedMarch 31, 2021 (Dollars in thousands) Recreation Medallion
Total
Loan collateral in process of foreclosure - December 31, 2020$ 1,432 $ 53,128 $ 54,560 Transfer from loans, net 3,053 749 3,802 Sales (2,298 ) - (2,298 ) Cash payments received - (1,329 ) (1,329 ) Collateral valuation adjustments (1,217 ) (2,785 ) (4,002 ) Loan collateral in process of foreclosure - March 31, 2021 $ 970$ 49,763 $ 50,733 SEGMENT RESULTS We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and medallion lending. We also show results for two non-operating segments; RPAC and corporate and other investments. As mentioned earlier, the Company disposed of its investment in RPAC onDecember 1, 2021 and, as a result, all presented segment results are through such date. All results are for the three months endedMarch 31, 2022 and 2021. Recreation Lending The recreation lending segment is a high-growth prime and non-prime consumer finance business which is a significant source of income for us, accounting for 72% of our interest income for the three months endedMarch 31, 2022 , and 74% for the three months endedMarch 31, 2021 . The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 59% of the portfolio, boat loans making up 19% of the portfolio, and trailer loans 8% as ofMarch 31, 2022 , compared to 60%, 19% and 19% as ofMarch 31, 2021 . Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations inTexas ,Florida , andCalifornia at 16%, 10%, and 10% of loans outstanding, compared to 17%, 10%, and 10% as ofMarch 31, 2021 , and with no other states over 10%. During the three months endedMarch 31, 2022 , the recreation portfolio grew, with the interest yield in both the current and prior periods decreasing as a result of the change in portfolio mix toward higher credit quality but lower yielding assets. Additionally, reserve rates decreased 21 basis points fromMarch 31, 2021 as we continue to see delinquencies and net charge-offs at near historic lows. Page 37 of 51
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The following table presents certain financial data and ratios as at and for the three months ended
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Selected Earnings Data
Total interest income $ 31,135 $ 27,442
Total interest expense 3,601 2,794
Net interest income 27,534 24,648
Provision for loan losses 1,680 3,613
Net interest income after loss provision 25,854
21,035
Total other income (expense), net (6,820 ) (5,463 ) Net income before taxes 19,034 15,572 Income tax provision (5,681 ) (4,010 ) Net income after taxes $ 13,353$ 11,562 Balance Sheet Data Total loans, gross$ 1,004,091 $ 822,932 Total loan allowance 32,558 28,378 Total loans, net 971,533 794,554 Total assets 984,535 807,244 Total borrowings 780,621 641,993 Selected Financial Ratios Return on average assets 5.62 % 5.92 % Return on average equity 29.27 29.59 Interest yield 13.30 14.36 Net interest margin 11.76 12.90 Reserve coverage 3.24 3.45 Delinquency status (1) 0.39 0.40 Charge-off% 0.67 1.35 (1)
Loans past due 90 days or more.
Home Improvement Loans
The home improvement lending segment is a consumer finance business that works with contractors and financial service providers to finance home improvements and is concentrated in roofs, swimming pools, and windows at 33%, 26%, and 12% of total loans outstanding as ofMarch 31, 2022 , as compared to 25%, 25%, and 13% as ofMarch 31, 2021 , with no other collateral types over 10%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations inFlorida ,Texas , andOhio at 16%, 10%, and 10% of loans outstandingMarch 31, 2022 , compared to 11%, 11%, and 9% as ofMarch 31, 2021 , and with no other states over 6%. During the three months endedMarch 31, 2022 , the home improvement lending segment grew substantially with the net portfolio increasing 38% from the prior year. Reserve rates increased 13 basis points from a year ago. The interest yield decreased slightly from the prior year period, while net interest margins decreased, reflecting lower rates on borrowings and CD's issued in the current year as compared to the prior year. Page 38 of 51 --------------------------------------------------------------------------------
The following table presents certain financial data and ratios as at and for the three months ended
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Selected Earnings Data
Total interest income $ 9,700 $ 7,918
Total interest expense 1,341 1,208
Net interest income 8,359 6,710
Provision for loan losses 1,204 450
Net interest income after loss provision 7,155 6,260
Other income (expense), net (2,896 ) (1,914 )
Net income before taxes 4,259 4,346
Income tax provision (1,271 ) (1,119 )
Net income after taxes $ 2,988 $ 3,227
Balance Sheet Data
Total loans, gross $ 473,408 $ 342,121
Total loan allowance 8,059 5,358
Total loans, net 465,349 336,763
Total assets 469,886 348,456
Total borrowings 372,565 277,672
Selected Financial Ratios
Return on average assets 2.66 % 3.80 %
Return on average equity 13.85 19.00
Interest yield 8.71 9.66
Net interest margin 7.50 8.19
Reserve coverage 1.70 1.57
Delinquency status (1) 0.06 0.04
Charge-off% 0.46 0.30
(1)
Loans past due 90 days or more.
Commercial loans
We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 49% of which are located in the Midwest region, with the rest scattered across the country. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from$2,000,000 to$5,000,000 at origination, and typically include an equity component as part of the financing. The commercial lending business has concentrations in manufacturing, wholesale trade, administrative and support services, and construction making up 40%, 14%, 13%, and 12% of the loans outstanding as ofMarch 31, 2022 .
In the three months ended
Page 39 of 51 -------------------------------------------------------------------------------- The following table presents certain financial data and ratios as of and for the three months endedMarch 31, 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. The commercial segment increased in the current year as originations exceeded repayments. Net income decreased to a$1.0 million loss due to exits of two aged investments. Three Months Ended March 31, (Dollars in thousands) 2022 2021 Selected Earnings Data Total interest income $ 1,930$ 1,482 Total interest expense 722 572 Net interest income 1,208 910 Provision for loan losses 1,255 - Net interest (expense) income after loss provision (47 ) 910 Other expense, net (1,330 ) (460 ) Net income (loss) before taxes (1,377 ) 450 Income tax (provision) benefit 411 (113 ) Net (loss) income after taxes $ (966 ) $ 337 Balance Sheet Data Total loans, gross$ 77,615 $ 55,567 Total loan allowance 828 - Total loans, net 76,787 55,567 Total assets 86,461 71,922 Total borrowings 68,553 59,533 Selected Financial Ratios Return on average assets (3.83 )% 1.79 % Return on average equity (12.33 ) 8.96 Interest yield 10.12 10.37 Net interest margin 6.34 6.37 Reserve coverage(1) 1.06 0.00 Delinquency status (1) (2) 0.10 0.13 Charge-off% (3) 8.13 0.00 (1) Ratio is based off of total commercial balances, and relates solely to the legacy commercial loan balances. (2) Loans 90 days or more past due. (3) Ratio is based on total commercial lending balances, and relates to the total loan business. Three Months Ended March 31, 2022 2021 Total Gross % of Total Gross % of Geographic Concentrations Loans Market Loans Market Illinois$ 13,109 17 %$ 11,146 20 % California 10,072 13 - - Minnesota 9,583 13 8,208 15 Michigan 6,300 8 10,502 19 North Carolina 5,850 8 5,849 11 Texas 5,570 7 5,569 10 New Hampshire 5,517 7 - - New Jersey 4,164 5 4,164 7 Kansas 4,107 5 4,107 7 Other (1) 13,595 17 6,022 11 Total$ 77,867 100 %$ 55,567 100 % (1)
Includes four other states, all of which were below 5% at
Page 40 of 51 --------------------------------------------------------------------------------
Loan of medallions
The medallion lending segment operates mainly in theNew York City ,Newark , andChicago markets. We have a long history of owning, managing, and financing taxi fleets, taxi medallions, and corporate car services. During the three months endedMarch 31, 2022 , taxi medallion values remained consistent in theNew York City market even as other markets saw declines. We continue to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020, and 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.
The following table presents certain financial data and ratios as at and for the three months ended
Three Months Ended March 31,
(Dollars in thousands) 2022 2021
Selected Earnings Data
Total interest income (loss) $ 146 $ (69 )
Total interest expense 153 1,370
Net interest loss (7 ) (1,439 )
(Benefit) provision for loan losses (869 ) (1,044 )
Net interest income (loss) after loss provision 862 (395 )
Other expense, net (806 ) (2,144 )
Net income (loss) before taxes 56 (2,539 )
Income tax (provision) benefit (17 )
637
Net income (loss) after taxes $ 39$ (1,902 ) Balance Sheet Data Total loans, gross$ 13,849 $ 35,250 Total loan allowance 9,241 24,073 Total loans, net 4,608 11,177 Total assets 37,752 116,639 Total borrowings 29,933 92,469 Selected Financial Ratios Return on average assets 0.25 % (6.40 )% Return on average equity 1.30 (31.98 ) Interest yield 12.49 (2.34 ) Net interest margin (0.67 ) (48.86 ) Reserve coverage 66.73 68.29 Delinquency status (1) - 2.20 Charge-off Recovery% (76.13 ) (2.55 ) (1)
Loans past due 90 days or more.
Three Months Ended March 31,
2022 2021
Total Gross % of Total Gross % of
Geographic Concentration Loans Market Loans Market
New York City $ 12,540 91 % $ 32,037 91 %
Newark 1,265 9 2,939 8
All Other 44 0 (1) 274 1
Total $ 13,849 - % $ 35,250 100 %
(1)
Less than 1%.
Three Months Ended March 31,
2022 2021
Total Loan Total Loan
Collateral in Collateral in
Process of % of Process of % of
Geographic Concentration Foreclosure Market Foreclosure Market
New York City $ 26,902 83 % $ 38,383 77 %
Newark 3,959 12 6,267 13
Chicago 1,411 4 4,824 10
All Other 193 1 289 1
Total $ 32,465 100 % $ 49,763 100 %
Page 41 of 51
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CCPR
UntilDecember 1, 2021 , when we disposed of our entire investment, we were the majority owner and managing member ofRPAC Racing, LLC , a performance and marketing company forNASCAR . Revenues were mainly earned through sponsorships and race winning activity over the ten month race season (February through November) during the year.
The following table presents selected financial data and ratios as at and for the three months ended
Three Months Ended
(Dollars in thousands) March 31, 2021
Selected Earnings Data
Sponsorship, race winnings, and other income $ 2,473
Race and other expenses 3,883
Interest expense 41
Total expenses 3,924
Net loss before taxes (1,451 )
Income tax benefit 364
Net loss after taxes $ (1,087 )
Balance Sheet Data
Total assets $ 32,724
Total borrowings 8,726
Selected Financial Ratios
Return on average assets (13.27 )%
Return on average equity (378.20 )
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, both interest and operating, 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 currently included within this segment. Strategic partnerships represent$0.2 million in net loans as ofMarch 31, 2022 , compared to less than$0.1 million as ofMarch 31, 2021 , having originations of$5.0 million and$1.9 million during the three months endedMarch 31, 2022 and 2021. This segment also reflects the elimination of all intercompany activity among the consolidated entities, as well as the gains (losses) on the dispositions of certain non-core assets.
The following table presents certain financial data and ratios as at and for the three months ended
(Dollars in thousands) Three Months Ended March 31,
2022 2021
Selected Earnings Data
Total interest income $ 392 $ 307
Total interest expense 1,558 2,422
Net interest loss (1,166 ) (2,115 )
Total interest expense (30 ) -
Net interest loss (1,136 ) (2,115 )
Other expense, net (4,652 ) (1,314 )
Net loss before taxes (5,788 ) (3,429 )
Income tax benefit 1,727 363
Net loss after taxes $ (4,061 ) $ (3,066 )
Balance Sheet Data
Total loans, gross $ 478 $ 3,345
Total loan allowance - -
Total loans, net $ 478 3,345
Total assets 387,991 311,765
Total borrowings 307,632 266,366
Selected Financial Ratios
Return on average assets (4.80 )% (4.16 )%
Return on average equity (28.30 ) (30.80 )
Page 42 of 51
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Summary of consolidated financial data
The table below presents our selected financial data for the three months endedMarch 31, 2022 and 2021. Three Months EndedMarch 31 , (Dollars in thousands, Except per share data) 2022
2021
Return on average assets (ROA) 2.41 % 2.08 % Return on average stockholders' equity (ROE) 13.70 11.09 Dividend payout ratio 20.77 - Net interest margin 9.20 9.18 Other income ratio (1) 0.39 0.62 Total expense ratio (2) 7.73 8.60 Equity to assets (3) 18.41 18.48 Debt to equity (4) 4.3x 4.3x Loans receivable to assets 77 % 71 % Net charge-offs 2,720 2,758 Net charge-offs as a % of average loans receivable 0.75 % 0.95 % Allowance coverage ratio 3.23 4.59 (1) Other income ratio represents other income divided by average interest earning assets. (2) Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average interest earning assets. (3) Includes$68.8 million and$72.3 million related to non-controlling interests in consolidated subsidiaries as ofMarch 31, 2022 and 2021. (4) Excludes deferred financing costs of$7.2 million and$6.5 million as ofMarch 31, 2022 and 2021.
Consolidated operating results
Three months completed
Net income attributable to shareholders was$9.8 million , or$0.39 per share for the three months endedMarch 31, 2022 , compared to$8.4 million , or$0.34 per share for the three months endedMarch 31, 2021 . Total interest income was$43.3 million for the three months endedMarch 31, 2022 compared to$37.1 million for the three months endedMarch 31, 2021 . The increase in interest income reflected the continued growth in the recreation and home improvement lending segments partially offset by lower margins associated with these loans. The yield on interest earning assets was 11.48% for the three months endedMarch 31, 2022 , compared to 11.84% for the three months endedMarch 31, 2021 . Average interest earning assets were$1.6 billion for the three months endedMarch 31, 2022 , an increase from$1.3 billion for the three months endedMarch 31, 2021 . Loans before allowance for loan losses were$1,569.4 million as ofMarch 31, 2022 , comprised of recreation ($1,004.1 million ), home improvement ($473.4 million ), commercial ($77.9 million ), medallion ($13.8 million ), and strategic partnership ($0.2 million ) loans. We had an allowance for loan losses as ofMarch 31, 2022 of$50.7 million , which was attributable to the recreation (64%), medallion (18%), home improvement (16%), and commercial (2%) loan portfolios. Loans increased$80.5 million , or 5%, fromDecember 31, 2021 as a result of$213.7 million of loan originations, offset by principal payments, and to a lesser extent transfers to loan collateral in process of foreclosure and net charge-offs. The provision for loan losses was$3.2 million for the three months endedMarch 31, 2022 , compared to$3.0 million for the three months endedMarch 31, 2021 . The charge-off ratios on the loan portfolios was 0.75% for the three months endedMarch 31, 2022 compared to 0.95% for the three months endedMarch 31, 2021 . Interest expense was$7.4 million for the three months endedMarch 31, 2022 , a decrease from$8.4 million for the three months endedMarch 31, 2021 , due to lower average cost of borrowed funds, even as average borrowings have increased. The average cost of borrowed funds was 1.99% for the three months endedMarch 31, 2022 , compared to 2.61% for the three months endedMarch 31, 2021 , mainly driven by the decline in market rates for deposits throughout 2021, the repayment of retail notes, offset to a lesser extent with the replacement of notes payable to banks with higher fixed rate private notes. Cost of funds decreased compared to the prior year quarter, despite increased costs in deposits issued in the current quarter. We expect an increase in the cost of funds throughout the remainder of 2022 as older deposits mature and newer deposits are issued both to replace maturing deposits and to facilitate our growth in our lending. Average debt outstanding was$1.5 billion for the three months endedMarch 31, 2022 , up from$1.3 billion for the three months endedMarch 31, 2021 , as we issued additional certificates of deposits to increase our liquidity and loan growth. See page 33 for tables that show average balances and cost of funds for our funding sources. Net interest income was$35.9 million for the three months endedMarch 31, 2022 , compared to$28.7 million for the three months endedMarch 31, 2021 . The net interest margin was 9.20% for the three months endedMarch 31, 2022 , compared to 9.18%, for the three months endedMarch 31, 2021 , reflecting the above. Net other income, which is comprised of net recoveries of loan collateral, a majority of which relate to recoveries in the Medallion segment, prepayment fees, servicing fee income, late charges, write-downs of loan collateral, impairment of equity investments, and other miscellaneous income was$1.5 million for the three months endedMarch 31, 2022 , compared to$1.9 million for the three months endedMarch 31, 2021 . The decrease was primarily due to the absence of race team related revenue. Page 43 of 51 -------------------------------------------------------------------------------- Operating expenses were$18.0 million for the three months endedMarch 31, 2022 , compared to$14.6 million for the three months endedMarch 31, 2021 . Salaries and benefits were$7.6 million for the three months endedMarch 31, 2022 , compared to$5.7 million for the three months endedMarch 31, 2021 , with the increase primarily reflective of reduced bonus expense in the prior year. Professional fees were$4.0 million for the three months endedMarch 31, 2022 , compared to$0.5 million for the three months endedMarch 31, 2021 , primarily reflecting higher legal and professional costs for a variety of corporate matters inclusive of theSEC litigation.
The total income tax charge was
The loan guarantee being seized has been
ASSET/LIABILITY MANAGEMENT
Sensitivity to interest rates
We, like other financial institutions, are subject to interest rate risk to the
extent that our interest-earning assets (consisting of consumer, commercial, and
medallion loans, and investment securities) reprice on a different basis over
time in comparison to our interest-bearing liabilities (consisting primarily of
bank certificates of deposit, credit facilities and borrowings from banks and
other lenders, and SBA debentures and borrowings).
Having interest-bearing liabilities that mature or reprice more frequently on
average than assets may be beneficial in times of declining interest rates,
although such an asset/liability structure may result in declining net earnings
during periods of rising interest rates. Abrupt increases in market rates of
interest may have an adverse impact on our earnings until we are able to
originate new loans at the higher prevailing interest rates. Conversely, having
interest-earning assets that mature or reprice more frequently on average than
liabilities may be beneficial in times of rising interest rates, although this
asset/liability structure may result in declining net earnings during periods of
falling interest rates. This mismatch between maturities and interest rate
sensitivities of our interest-earning assets and interest-bearing liabilities
results in interest rate risk.
The effect of changes in interest rates is mitigated by regular turnover of the
portfolio. We believe that the average life of our loan portfolio 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.
Page 44 of 51
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The following table presents our interest rate sensitivity gap at March 31,
2022 . The principal amounts of interest earning assets are assigned to the time
frames in which such principal amounts are contractually obligated to be
repriced. We have not reflected an assumed annual prepayment rate for such
assets in this table.
March 31, 2022 Cumulative Rate Gap (1)
More More More More More
Than Than 2 Than 3 Than 4 Than
Less 1 and Less and Less and Less and Less 5 and Less
Than Than 2 Than 3 Than 4 Than 5 Than 6
(Dollars in thousands) 1 Year Years Years Years Years Years Thereafter Total
Earning assets
Fixed-rate $ 33,872 $ 20,961 $ 30,093 $ 45,994 $ 86,846 $ 57,796 $ 1,256,880 $ 1,532,442
Adjustable rate 6,755 576 845 - 22 - - 8,198
Investment securities 3,126 317 3,590 3,422 84 5,493 31,043 47,075
Cash 137,544 - - 500 750 - - 138,794
Total earning assets $ 181,297 $ 21,854 $ 34,528 $ 49,916 $ 87,702 $ 63,289 $ 1,287,923 $ 1,726,509
Interest bearing liabilities
Deposits $ 405,783 $ 254,340 $ 343,449
Notes placed in private
- 36,000 - 31,250 - - 53,750
121,000
SBA debentures and borrowings 5,000 2,500 21,264 15,500 4,500 - 21,000 69,764 Preferred securities - - - - - - 33,000 33,000 Total liabilities$ 410,783 $ 292,840 $ 364,713 $ 217,715 $ 164,752 $ -$ 107,750 $ 1,558,553 Interest rate gap$ (229,486 ) $ (270,986 ) $ (330,185
)
Accumulated interest rate differential
–
December 31, 2021 (2)$ (230,601 ) $ (455,807 ) $ (770,239
)
- December 31, 2020 (2)$ (366,801 ) $ (570,449 ) $ (719,385 ) $ (827,236 ) $ (907,295 ) $ (860,941 ) $ 52,347 $ - (1) The ratio of the cumulative one year gap to total interest rate sensitive assets was (13%) as ofMarch 31, 2022 , and was (14%) as ofDecember 31, 2021 (2) Excludes federal funds sold and investment securities. Our interest rate sensitive assets were$1,726.5 million and interest rate sensitive liabilities were$1,558.6 million atMarch 31, 2022 . The one-year cumulative interest rate gap was a negative$229.5 million or (13%) of interest rate sensitive assets. We seek to manage interest rate risk by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, by originating adjustable-rate loans, and by other options consistent with managing interest rate risk. We are currently reviewing the impact on our loans and borrowings with the cessation of LIBOR at the end of 2021. We do not have lendings tied to LIBOR and do not expect a significant impact on our loans. We have trust preferred securities that bear a variable rate of interest of 90 day LIBOR (0.96% atMarch 31, 2022 ) plus 2.13%. We expect to rely on our lenders to adjust and communicate rate adjustments; however, we do not expect a material impact on our borrowings.
Cash and capital resources
Our sources of liquidity include unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private issuances of debt securities, participations or sales of loans to third parties, the disposition of our other assets, and dividends fromMedallion Capital and the Bank, and are subject to compliance with regulatory ratios. As ofMarch 31, 2022 , we had unfunded commitments from the SBA of$9.5 million , all of which required the infusion of$4.8 million of capital from either the capitalization of retained earnings or a capital infusion from the Company. Additionally, the Bank has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. The Bank has up to$45.0 million available under Fed Funds lines with several commercial banks. InFebruary 2021 , we completed a private placement to certain institutional investors of$25.0 million aggregate principal amount of 7.25% unsecured senior notes dueFebruary 2026 , with interest payable semiannually. Follow-on offerings of these notes in March andApril 2021 raised an additional$3.3 million and$3.0 million . InDecember 2020 , we completed a private placement to certain institutional investors of$33.6 million aggregate principal amount of 7.50% unsecured senior notes dueDecember 2027 , with interest payable semiannually. Follow-on offerings of these notes in February andMarch 2021 raised an additional$8.5 million . InApril 2021 , we raised an additional$11.7 million in a follow-on offering, and repaid substantially all of our remaining bank borrowings. The net proceeds from theDecember 2020 ,February 2021 ,March 2021 andApril 2021 private placements have been used for general corporate purposes, including repayment of outstanding debt, including repayment of our 9.00% retail notes at maturity inApril 2021 and to pay down other borrowings, including some borrowings at a discount. InDecember 2019 , the Bank closed an initial public offering of$46.0 million aggregate liquidation amount, yielding net proceeds of$42.5 million , of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F. Dividends are payable quarterly from the date of issuance to, but excludingApril 1, 2025 , at a rate of 8% per annum, and from and includingApril 1, 2025 , at a floating rate equal to a benchmark rate (which is expected to be three-month Secured Overnight Financing Rate, or SOFR) plus a spread of 6.46% per annum. Page 45 of 51 --------------------------------------------------------------------------------
In
The table below presents the components of our debt were as ofMarch 31, 2022 , exclusive of deferred financing costs ofMarch 31, 2022 . See Note 4 to the consolidated financial statements for details of the contractual terms of our borrowings. (Dollars in thousands) Balance Percentage Rate (1) Deposits (2)$ 1,334,790 86 % 1 % Privately placed notes 121,000 8 8 SBA debentures and borrowings 69,764 4 3 Preferred securities 33,000 2 3 Total outstanding debt$ 1,558,554 100 % 2 % (1) Weighted average contractual rate as ofMarch 31, 2022 . (2) Balance includes$0.8 million of strategic partner reserve deposits as ofMarch 31, 2022 . Our contractual obligations expire on or mature at various dates throughSeptember 2037 . The following table shows all contractual obligations atMarch 31, 2022 . Payments due by period Less than 1 - 2 2 - 3 3 - 4 4 - 5 More than (Dollars in thousands) 1 year years years years years 5 years Total (1) Borrowings Deposits (2)$ 405,783 $ 254,340 $ 343,449 $ 170,965 $ 160,252 $ -$ 1,334,789 Privately placed notes - 36,000 - 31,250 - 53,750 121,000
SBA bonds and loans 5,000 2,500 21,264
15,500 4,500 21,000 69,764 Preferred securities
- - - - - 33,000 33,000
Total outstanding borrowings 410,783 292,840 364,713
217,715 164,752 107,750 1,558 553 Operating lease obligations 1,823 2,356 2,373
2,390 2,408 1,164 12,514 Total contractual obligations
(1)
Total debt is exclusive of deferred financing costs of$7.2 million as ofMarch 31, 2022 . (2) Balance excludes$0.8 million of strategic partner reserve deposits as ofMarch 31, 2022 .
Approximately
In addition, the illiquidity of portions of our loan portfolio and investments may adversely affect our ability to dispose of them at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of our portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net interest income. We use a combination of long-term and short-term borrowings and equity capital to finance our lending and investing activities. Our long-term fixed-rate investments are financed primarily with fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as ofMarch 31, 2022 by$1.4 million on an annualized basis, and the impact of such an immediate increase of 1% over an one year period would have been a reduction in net income by$0.7 million atMarch 31, 2022 . Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net income from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates. Page 46 of 51 -------------------------------------------------------------------------------- From time to time, we work with investment banking firms and other financial intermediaries to investigate the viability of several other financing options which include, among others, the sale or spinoff of certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth. The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates atMarch 31, 2022 . See Note 5 to the consolidated financial statements for additional information about each credit facility. Medallion (Dollars in Financial March 31, December 31, thousands) Corp. MFC MCI FSVC MB All Other 2022 2021 Cash, cash (1) (1) equivalents and federal funds sold$ 36,221 $ 210 $ 18,877 $ 315 $ 83,148 $ 23 $ 138,794 $ 124,484 Preferred Securities 33,000 33,000 33,000 Average interest rate 2.71 % 2.71 % 2.31 % Maturity 9/37 9/37 9/37 Retailed notes and privately placed borrowings 121,000 121,000 121,000 Average interest rate 7.66 % 7.66 % 7.66 % Maturity 3/24-12/27 3/24-12/27 3/24-12/27 SBA debentures & borrowings - 79,463 Amounts available 9,500 - 9,500 Amounts outstanding 61,000 8,764 69,764 69,963 Average interest rate 2.90 % 3.25 % 2.95 % 2.72 % Maturity 3/23- 3/32 45,412 3/23- 3/32 3/23- 3/32 Brokered CD's & other (2) funds borrowed 1,335,539 1,335,539 1,254,038 Average interest rate 1.24 % 1.24 % 1.20 % Maturity 4/22-3/27 4/22-3/27
1/22-12/26 Total Cash$ 36,221 $ 210 $ 18,877 $ 315 $ 83,148 $ 23 $ 138,794 $ 124,484 Total debt outstanding$ 154,000 $ -$ 61,000 $
8,764$ 1,335,539 $ -$ 1,559,303 $ 1,478,001 (1) Cash resides in the applicable SBIC and is generally not available for corporate use. (2) Includes deposits of$0.8 million related to the strategic partnership business and$8.7 million related to listing services. Loan amortization, prepayments, and sales also provide a source of funding for us. Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition. We also generate liquidity through deposits generated at the Bank, borrowing arrangements with other banks, and through the issuance of SBA debentures, 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.
Recently issued accounting standards
InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, or Topic 326: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. Under the new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing "probable" and "incurred" loss recognition threshold is removed. Loss estimates are based upon lifetime "expected" credit losses. The use of past and current events must now be supplemented with "reasonable and supportable" expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model. ASU 2016-13 applies to all entities and is effective for fiscal years beginning afterDecember 15, 2019 for public entities, with early adoption permitted. InNovember 2019 , the FASB issued ASU 2019-10 to defer implementation of the standard for smaller reporting companies, such as us, to fiscal years beginning afterDecember 15, 2022 . We are assessing the impact the update will have on our financial statements, and expect the update to have a material impact on our accounting for estimated credit losses on our loans. InAugust 2021 , the FASB issued ASU 2021-06, Presentation of Financial Statements, or Topic 205: Depository and Lending, or Topic 942: and Financial Services - Investment Companies, or Topic 946: Measurement of Credit Losses on Financial Instruments, or ASU 2021-06. This new standard amends certainSEC paragraphs from the Codification in response to the issuance of SEC Final Rule No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses and SEC Rule No. 33-10835, Update Page 47 of 51 -------------------------------------------------------------------------------- of Statistical Disclosures for Bank and Savings and Loan Registrants. We have assessed the impact the update and determined it does not have a material impact on the accompanying financial statements. InMarch 2022 , the FASB issued ASU 2022-02, Financial Instruments - Credit Losses, or Topic 326: Troubled Debt Restructurings and Vintage Disclosures, or ASU 2022-02. The main objective of this new standard is to amend ASU 2016-13 in response to feedback received from the post-implementation review process. The amendments update ASU 2016-13 to require that an entity measure and record the lifetime expected credit losses on an asset upon origination or acquisition, and, as a result, credit losses from loans modified as troubled debt restructurings (TDRs) have been incorporated into the allowance for credit losses. The amendments also require the disclosure of current period gross write-offs, by year of origination, for financing receivables. We are assessing the impact the update will have on our financial statements.
Dividends
The Board of Directors has reinstated our quarterly dividend, with a dividend of$0.08 per share, paid inMarch 2022 . We may, however, re-evaluate this new dividend policy in the future depending on market conditions. There can be no assurance that we will continue to pay any cash distributions, as we may retain our earnings to facilitate the growth of our business, to finance our investments, to provide liquidity, or for other corporate purposes
Control statuses
Because the Bank is an "insured depository institution" within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act and we are a "financial institution holding company" within the meaning of theUtah Financial Institutions Act, federal andUtah law and regulations prohibit any person or company from acquiring control of us and, indirectly, the Bank, without, in most cases, prior written approval of theFDIC or the Commissioner ofUtah Department of Financial Institutions , as applicable. Under the Change in Bank Control Act, control is conclusively presumed if, among other things, a person or company acquires 25% or more of any class of our voting stock. A rebuttable presumption of control arises if a person or company acquires 10% or more of any class of voting stock and is subject to a number of specified "control factors" as set forth in the applicable regulations. Although the Bank is an "insured depository institution" within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act, your investment in the Company is not insured or guaranteed by theFDIC , or any other agency, and is subject to loss. Under the Utah Financial Institutions Act, control is defined as the power directly or indirectly or through or in concert with one or more persons to (1) direct or exercise a controlling influence over the management or policies of us or the election of a majority of the directors of us, or (2) to vote 20% or more of any class of our voting securities by an individual or to vote more than 10% of any class of our voting securities by a person other than an individual. If any holder of any series of the Bank's preferred stock is or becomes entitled to vote for the election of the Bank's directors, such series will be deemed a class of voting stock, and any other person will be required to obtain the non-objection of theFDIC under the Change in Bank Control Act to acquire or maintain 10% or more of that series. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our common stock in excess of the amount which can be acquired without regulatory approval. In addition to the regulations detailed above, our operations are subject to supervision and regulation by other federal, state, and local laws and regulations. Additionally, our operations may be subject to various laws and judicial and administrative decisions. This oversight may serve to:
•
regulate credit granting activities, including establishing licensing requirements, where applicable, in various jurisdictions;
•
establish maximum interest rates, finance charges and other charges;
•
require disclosures to customers;
•
govern secure transactions;
•
establish collection, foreclosure, repossession and claims handling procedures and other business practices;
•
prohibit discrimination in the granting of credit and the administration of loans; and
•
regulate the use and disclosure of information relating to a borrower’s credit experience and the collection of other data.
Changes to laws of states in which we do business could affect the operating
environment in substantial and unpredictable ways. We cannot predict whether
such changes will occur or, if they occur, the ultimate effect they would have
upon our financial condition or results of operations.
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