About Medallion Financial

Medallion Financial Corp. operates as a specialty finance company. The company’s strategic focus is growing its consumer finance and commercial lending businesses. The company conducts its business through various wholly-owned subsidiaries, including: Medallion Bank, or the bank, a Federal Deposit Insurance Corporation, or FDIC, insured industrial bank that originates consumer loans, raises deposits and conducts other banking activities and has a separate board of directors with a majority of independent directors; Medallion Capital, Inc., or Medallion Capital, a Small Business Investment Company, or SBIC, which conducts a mezzanine financing business; Medallion Funding LLC, or Medallion Funding, an SBIC, historically the company’s primary taxi medallion lending company; and Freshstart Venture Capital Corp., or Freshstart, an SBIC which historically originated and serviced taxi medallion and commercial loans. Market The company provides loans to individuals and small to mid-size businesses, through the company’s subsidiaries, under four operating segments: loans that finance consumer purchases of recreational vehicles, boats, and other consumer recreational equipment; loans that finance consumer home improvements; loans that finance commercial businesses; and historically, loans that finance taxi medallions. Recreation Lending Recreation lending is a high-growth business focused on originating prime and non-prime recreation loans. The segment is a significant source of income, accounting for 71% of the company’s interest income for the year ended December 31, 2022. All of the company’s recreation loans are serviced by a third-party loan servicer. The company maintains relationships with approximately 3,100 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 to the company. The company receives approximately half of its loan volume from dealers and the other half from FSPs. The loans are fixed rate with an average term at origination of 11.3 years. The weighted average maturity of the company’s loans outstanding is 9.6 years. The size, geographic dispersion, source and collateral variety of the loans reduces risk to the company. As of December 31, 2022, recreation loans were primarily secured by recreational vehicles, or RVs, which make up 58% of the portfolio, and boat loans, which make up 19% of the portfolio. Home Improvement Lending Working directly with contractors and FSPs, the company offers flexible customer financing for window, siding, and roof replacement, swimming pool installations, and other home improvement projects. The company’s core product is a standard installment loan, which features affordable monthly payments and competitive interest rates for prime credit customers at no cost to the contractor. The company also offers a variety of promotional loan options to help contractors close a challenging sale. Promotional loan options include same-as-cash, no interest, and deferred payment features, which allow borrowers to reduce the total cost of financing or start repayments when it is most convenient. Home improvement lending operates in a manner similar to recreation lending, with a few key differences. The company maintains a smaller number of relationships, with approximately 1,000 contractors and FSPs. Most of the company’s home improvement-financed sales take place in the borrower’s home instead of a store, with the contractor presenting the borrower with a bid that includes a financing option. A large proportion of the company’s 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. The company’s top ten contractors and FSP relationships were responsible for 62% of home improvement lending’s new loan originations for the year ended December 31, 2022. The company offers home improvement loans with only fixed rates, with an average term at origination of 13.8 years. The weighted average maturity of the company’s loans outstanding was 12.4 years as of December 31, 2022. As of December 31, 2022, home improvement loans were concentrated in roofs, swimming pools, and windows at 37%, 23%, and 12%. Commercial Lending The company originates both senior and subordinated loans nationwide to businesses to finance either the purchase of the equipment and related assets necessary to open a new business or the purchase or improvement of an existing business. The company has worked to increase its commercial loan activity, primarily because of the attractive higher yielding nature of most of this business. The company focuses its marketing efforts on the manufacturing, professional, scientific, and technical services, more than 47% of which are located in the Midwest region, with the rest scattered across the country. These commercial loans are primarily secured by a second position on all assets of the businesses. The company plans to continue expanding its commercial loan activities by developing a more diverse borrower base with a wider geographic area of coverage, and by expanding the targeted industries. Commercial loans are generally secured by equipment, accounts receivable, real estate, or other assets. Medallion Lending Medallion loans collateralized by New York City taxi medallions and related assets comprised 93% of the medallion loan portfolio as of December 31, 2022. The company’s medallion loans are secured by the taxi medallion and enhanced with personal guarantees of the owners, shareholders or equity members. When a borrower defaults on a loan, the company has the ability to restructure the underlying loan or repossess the taxi medallion collateralizing that loan and sell it in the market or through a foreclosure auction and pursue the personal guarantees, all of which the company has done. Strategic Partnerships In 2019, the bank launched a strategic partnership program to provide lending and other services to financial technology, or fintech, companies to offer loans and other financial services to customers. The bank entered into an initial partnership in 2020 and began issuing its first loans. The associated activities are limited to originating loans or other receivables facilitated by the company’s strategic partners and selling those loans or receivables to the company’s strategic partners or other third parties without recourse within a specified time after origination, such as three business days. Strategy The key elements of the company’s strategy to grow its consumer lending (recreation and home improvement) and commercial lending businesses and increase their profitability include establishing, building, and maintaining relationships with the company’s brokers and dealers; focusing on niche industries and the company’s expertise in these niche fields; employing disciplined underwriting policies and maintaining rigorous portfolio monitoring; leveraging the skills of the company’s experienced management team; seeking strategic acquisitions; and expanding the company’s strategic partnership program. Loan Characteristics Consumer Loans: The bank has established relationships with dealers, FSPs, and contractors, which are the sources for consumer loan volumes. The company’s recreation loans are secured primarily by RVs, boats and other consumer recreational equipment with a small proportion of loans secured by other collateral, such as autos, motorcycles and boat motors. The company’s home improvement loans are secured by the personal property installed on real property, and the security interest for some of these loans is perfected with a UCC fixture filing. Commercial Loans: The company’s commercial loans are generally retained and typically have maturities ranging from three to ten years. Medallion Loans: The company’s medallion loan portfolio consists of mostly fixed-rate loans, collateralized by first security interests in taxi medallions and related assets. Investment Securities As of December 31, 2022, the company’s securities were mortgage-backed securities, principally obligations of U.S. federal agencies; and state and municipalities. Supervision and Regulation As a state-charted non-member bank with FDIC-insured deposits, the bank is examined, supervised and regulated by the FDIC and the Utah Department of Financial Institutions, or the Utah DFI. The bank is subject to FDIC regulations which apply to every FDIC-insured depository institution, setting out a system of mandatory and discretionary supervisory actions that generally become more severe as the capital levels of an individual institution decline. The bank’s deposits have the benefit of FDIC insurance up to the applicable limits. The FDIC’s Deposit Insurance Fund, or DIF, is funded by assessments on insured depository institutions, such as the company. The bank is subject to a number of federal and state consumer protection laws that extensively govern the bank’s consumer lending businesses. These laws include, but are not limited to, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Electronic Fund Transfer Act and these laws’ respective state-law counterparts, as well as laws regarding unfair and deceptive acts and practices. The bank is subject to certain requirements and reporting obligations under the Community Reinvestment Act, or CRA. The bank is subject to certain federal laws that restrict and control the company’s ability to extend credit and provide to or receive services from its affiliates under Sections 23A and 23B of the Federal Reserve Act and Regulation W promulgated thereunder. The bank is subject to the anti-money laundering (AML) provisions of the bank Secrecy Act, or the BSA, as amended by the USA PATRIOT Act, or the PATRIOT Act, and implementing regulations issued by the FDIC and the U.S. Treasury. Medallion Funding, Medallion Capital, and Freshstart are each licensed by the Small Business Administration (SBA) to operate as SBICs, under the Small Business Investment Act of 1958, as amended, or the SBIA. The company is typically examined by the SBA for compliance with applicable SBA regulations. Because the bank is an ‘insured depository institution’ within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act, as well as Medallion Financial Corp. being a ‘financial institution holding company’ within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of the bank or Medallion Financial Corp., without, in most cases, prior written approval of the FDIC or the Commission of the Utah DFI, as applicable. The company must undergo regular on-site examinations by the FDIC and the Utah DFI, which examine for adherence to a range of legal and regulatory compliance responsibilities. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the federal banking regulators and the Securities and Exchange Commission, or the SEC, to establish joint regulations or guidelines at specified regulated entities having at least $1 billion in total assets, such as the company, prohibiting incentive-based payment arrangements that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. History Medallion Financial Corp. was founded in 1995. The company was incorporated in 1995.