mfin-10q_20210331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-37747

MEDALLION FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

04-3291176

(State of Incorporation)

(IRS Employer

Identification No.)

437 MADISON AVENUE, 38^th Floor

NEW YORK, New York 10022

(Address of Principal Executive Offices) (Zip Code)

(212) 328-2100

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbols

Name of each exchange

on which registered

Common Stock, par value $0.01 per share

MFIN

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of May 3, 2021 was 25,033,486.

MEDALLION FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION		3

ITEM 1. FINANCIAL STATEMENTS		3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		38

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		58

ITEM 4. CONTROLS AND PROCEDURES		58

PART II—OTHER INFORMATION		58

ITEM 1. LEGAL PROCEEDINGS		58

ITEM 1A. RISK FACTORS		58

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		58

ITEM 6. EXHIBITS		59

SIGNATURES		60

The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.

This report contains forward-looking statements relating to future events and future performance applicable to us within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language. In connection with certain forward-looking statements contained in this Form 10-Q and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-Q were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory, and other uncertainties and contingencies, all of which are difficult or impossible to predict, and many of which are beyond control of the Company. In particular, any forward-looking statements are subject to the risks and great uncertainties associated with the ongoing COVID-19 pandemic and the related impact on the US and global economies.

All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statements. The statements have not been audited by, examined by, compiled by, or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-Q should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-Q. The inclusion of the forward-looking statements contained in this Form 10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-Q will be achieved.

In light of the foregoing, readers of this Form 10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein. You should consider these risks and those described under Risk Factors in the Company’s Annual Report on Form 10-K and others that are detailed in the other reports that the Company files from time to time with the Securities and Exchange Commission.

Page 2 of 60

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASIS OF PREPARATION

We, Medallion Financial Corp., or the Company, are a finance company, organized as a Delaware corporation that includes Medallion Bank, our primary operating subsidiary. In recent years, our strategic growth has been through Medallion Bank, which originates consumer loans for the purchase of recreational vehicles, boats, and trailers and to finance home improvements. We historically have had a leading position in originating, acquiring, and servicing loans that finance taxi medallions and various types of commercial businesses.

Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16% (19% if there had been no loan sales during 2016, 2017, and 2018). In January 2017, we announced our plans to transform our overall strategy. We have transitioned away from medallion lending and have placed our strategic focus on our growing consumer finance portfolio. Total assets under management, which includes assets serviced for third-party investors, were $1.8 billion as of March 31, 2021 and December 31, 2020, and have grown at a compound annual growth rate of 9% from $215,000,000 at the end of 1996.

We conduct our business through various wholly-owned subsidiaries including:

•

Medallion Bank, or the Bank, an 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 Funding LLC, or Medallion Funding, a Small Business Investment Company, or SBIC, our primary taxi medallion lending company;

•

Medallion Capital, Inc., or Medallion Capital, an SBIC which conducts a mezzanine financing business;

•

Freshstart Venture Capital Corp., or Freshstart, an SBIC which originates and services taxi medallion and commercial loans; and

•

Medallion Servicing Corp., or MSC, which provides loan services to the Bank.

Our other consolidated subsidiaries are comprised of Medallion Fine Art, Inc., CDI-LP Holdings, Inc., Medallion Motorsports, LLC, and RPAC Racing LLC, or RPAC. In addition, we make both marketable and nonmarketable equity investments, primarily as a function of our mezzanine lending business.

Our consolidated balance sheet as of March 31, 2021, and the related consolidated statements of operations, consolidated statements of other comprehensive income/(loss), consolidated statements of stockholders’ equity and cash flows for the three months then ended included in Item 1 have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the US have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly our consolidated financial position and results of operations. The results of operations for the three months ended March 31, 2021 may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Page 3 of 60

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Dollars in thousands, except share and per share data)	March 31, 2021			December 31, 2020
Assets
Cash and cash equivalents⁽¹⁾	$	69,477		$	54,743
Federal funds sold		70,800			57,297
Investment securities		38,081			46,792
Equity investments		9,529			9,746
Loans		1,259,215			1,229,838
Allowance for loan losses		(57,809	)		(57,548	)
Net loans receivable		1,201,406			1,172,290
Accrued interest receivable		9,215			10,338
Income tax receivable		859			1,757
Property, equipment, and right-of-use lease asset, net		11,858			12,404
Loan collateral in process of foreclosure⁽²⁾		50,733			54,560
Goodwill		150,803			150,803
Intangible assets, net		50,729			51,090
Other assets		25,260			20,591
Total assets	$	1,688,750		$	1,642,411
Liabilities
Accounts payable and accrued expenses⁽³⁾	$	17,746		$	14,902
Accrued interest payable		4,762			4,673
Deposits⁽⁴⁾		1,084,074			1,065,398
Short-term borrowings		73,937			87,334
Deferred tax liabilities, net		3,528			807
Operating lease liabilities		10,464			11,018
Long-term debt⁽⁵⁾		182,225			153,718
Total liabilities		1,376,736			1,337,850
Commitments and contingencies⁽⁶⁾
Stockholders’ equity
Preferred stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding)	—				—
Common stock (50,000,000 shares of $0.01 par value stock authorized- 27,985,598 shares at March 31, 2021 and 27,828,871 shares at December 31, 2020 issued)		280			278
Additional paid in capital		278,035			277,539
Treasury stock (2,951,243 shares at March 31, 2021 and December 31, 2020)		(24,919	)		(24,919	)
Accumulated other comprehensive income		1,407			2,012
Retained earnings (accumulated deficit)		(15,071	)		(23,502	)
Total stockholders’ equity		239,732			231,408
Non-controlling interest in consolidated subsidiaries		72,282			73,153
Total equity		312,014			304,561
Total liabilities and equity	$	1,688,750		$	1,642,411
Number of shares outstanding		25,034,355			24,877,628
Book value per share	$	9.58		$	9.30

(1)	Includes restricted cash of $2,970 as of March 31, 2021 and December 31, 2020.

(2)	Includes financed sales of this collateral to third parties that are reported separately from the loan portfolio, and that are conducted by the Bank of $3,818 as of March 31, 2021 and $3,535 as of December 31, 2020.

(3)	Includes the short-term portion of lease liabilities of $2,048 and $2,004 as of March 31, 2021 and December 31, 2020. Refer to Note 6 for more details.

(4)	Includes $2,661 and $2,674 of deferred financing costs as of March 31, 2021 and December 31, 2020. Refer to Note 5 for more details.

(5)	Includes $3,862 and $3,131 of deferred financing costs as of March 31, 2021 and December 31, 2020. Refer to Note 5 for more details.

(6)	Refer to Note 10 for details.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 4 of 60

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended March 31,
(Dollars in thousands, except share and per share data)	2021			2020
Interest and fees on loans	$	36,855		$	35,019
Interest and dividends on investment securities		225			470
Medallion lease income		—			53
Total interest income⁽¹⁾		37,080			35,542
Interest on deposits		4,711			5,941
Interest on short-term borrowings		403			564
Interest on long-term debt		3,293			2,495
Total interest expense⁽²⁾		8,407			9,000
Net interest income		28,673			26,542
Provision for loan losses		3,019			16,541
Net interest income after provision for loan losses		25,654			10,001
Other income (loss)
Write-down of loan collateral in process of foreclosure		(2,785	)		(6,286	)
Sponsorship and race winnings, net		2,473			2,573
Gain on extinguishment of debt		1,767			—
Loss on equity investments		—			(3,510	)
Other income		482			243
Total other income (loss), net		1,937			(6,980	)
Other expenses
Salaries and employee benefits		5,685			6,933
Race team related expenses		2,122			2,130
Loan servicing fees		1,647			1,612
Collection costs		1,232			1,229
Professional fees		507			3,589
Rent expense		675			697
Regulatory fees		438			365
Amortization of intangible assets		361			361
Other expenses		1,975			2,355
Total other expenses		14,642			19,271
Income (loss) before income taxes		12,949			(16,250	)
Income tax (provision) benefit		(3,878	)		3,249
Net income (loss) after taxes		9,071			(13,001	)
Less: income attributable to the non-controlling interest		640			642
Total net income (loss) attributable to Medallion Financial Corp.	$	8,431		$	(13,643	)
Basic net income (loss) per share	$	0.34		$	(0.56	)
Diluted net income (loss) per share	$	0.34		$	(0.56	)
Distributions declared per share	$	—		$	—
Weighted average common shares outstanding
Basic		24,518,775			24,401,773
Diluted		24,895,108			24,401,773

(1)	Included in interest and investment income is $325 and $293 of paid-in-kind interest for the three months ended March 31, 2021 and 2020.

(2)	Average borrowings outstanding were $1,305,162 and $1,164,483, and the related average borrowing costs were 2.61% and 3.11%, for the three months ended March 31, 2021 and 2020.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 5 of 60

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)

	For the Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Net income (loss) after taxes	$	9,071		$	(13,001	)
Other comprehensive income (loss), net of tax		(605	)		147
Total comprehensive income (loss)		8,466			(12,854	)
Less comprehensive income attributable to the non-controlling interest		640			642
Total comprehensive income (loss) attributable to Medallion Financial Corp.	$	7,826		$	(13,496	)

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 6 of 60

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(Dollars in thousands)	Common Stock Shares			Common Stock		Preferred Stock		Capital in Excess of Par		Treasury Stock Shares			Treasury Stock			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Non- controlling Interest			Total Equity
Balance at December 31, 2020		27,828,871		$	278	$	-	$	277,539		(2,951,243	)	$	(24,919	)	$	(23,502	)	$	2,012		$	231,408		$	73,153		$	304,561
Net income (loss)		—			—		—		—		—			—			8,431			—			8,431			640			9,071
Distributions to non-controlling interest		—			—		—		—		—			—			—			—			—			(1,511	)		(1,511	)
Stock-based compensation expense		—			2		—		496		—			—			—			—			498			—			498
Issuance of restricted stock, net		163,561			—		—		—		—			—			—			—			—			—			—
Forfeiture of restricted stock, net		(7,602	)		—		—		—		—			—			—			—			—			—			—
Exercise of stock options		768			—		—		—		—			—			—			—			—			—			—
Net change in unrealized gains on investments, net of tax		—			—		—		—		—			—			—			(605	)		(605	)		—			(605	)
Balance at March 31, 2021		27,985,598		$	280	$	—	$	278,035		(2,951,243	)	$	(24,919	)	$	(15,071	)	$	1,407		$	239,732		$	72,282		$	312,014

(Dollars in thousands)	Common Stock Shares			Common Stock		Preferred Stock		Capital in Excess of Par		Treasury Stock Shares			Treasury Stock			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity			Non-controlling Interest			Total Equity
Balance at December 31, 2019		27,597,802		$	276		—	$	275,511		(2,951,243	)	$	(24,919	)	$	11,281		$	999	$	263,148		$	71,320		$	334,468
Net income (loss)		—			—		—		—		—			—			(13,643	)		—		(13,643	)		642			(13,001	)
Distributions to non-controlling interest		—			—		—		—		—			—			—			—		—			(1,507	)		(1,507	)
Stock-based compensation expense		—			2		—		464		—			—			—			—		466			—			466
Issuance of restricted stock, net		165,674			—		—		—		—			—			—			—		—			—			—
Forfeiture of restricted stock, net		(5,577	)		—		—		—		—			—			—			—		—			—			—
Net change in unrealized gains on investments, net of tax		—			—		—		—		—			—			—			147		147			—			147
Balance at March 31, 2020		27,757,899		$	278		—	$	275,975		(2,951,243	)	$	(24,919	)	$	(2,362	)	$	1,146	$	250,118		$	70,455		$	320,573

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 7 of 60

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Three Months Ended March 31,
(Dollars in thousands)	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	9,071		$	(13,001	)
Adjustments to reconcile net loss from operations to net cash provided by operating activities:
Provision for loan losses		3,019			16,541
Paid-in-kind interest		(325	)		(293	)
Depreciation and amortization		1,321			1,590
Increase (decrease) in deferred and other tax liabilities		3,620			(2,713	)
Amortization of origination fees, net		1,656			1,304
Net change in value of loan collateral in process of foreclosure		4,002			8,825
Net realized losses on investments		—			3,554
Stock-based compensation expense		498			466
Gain on extinguishment of debt		(1,767	)		—
Decrease in accrued interest receivable		1,123			125
(Increase) decrease in other assets		(2,228	)		205
Increase in accounts payable and accrued expenses		944			1,249
(Increase) decrease in accrued interest payable		126			(1,062	)
Net cash provided by operating activities		21,060			16,790
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated		(150,598	)		(107,149	)
Proceeds from principal receipts, sales, and maturities of loans		113,144			67,368
Purchases of investments		(2,000	)		(6,541	)
Proceeds from principal receipts, sales, and maturities of investments		8,280			7,692
Proceeds from the sale and principal payments on loan collateral in process of foreclosure		3,627			4,007
Net cash used for investing activities		(27,547	)		(34,623	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from time deposits and funds borrowed		181,179			114,418
Repayments of time deposits and funds borrowed		(144,944	)		(107,402	)
Distributions to non-controlling interests		(1,511	)		(1,507	)
Net cash provided by financing activities		34,724			5,509
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		28,237			(12,324	)
Cash, cash equivalents, and restricted cash, beginning of period⁽¹⁾		112,040			67,821
Cash, cash equivalents, and restricted cash, end of period⁽¹⁾	$	140,277		$	55,497
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	$	7,637		$	9,339
Cash paid during the period for income taxes		4			3
NON-CASH INVESTING
Loans transferred to loan collateral in process of foreclosure, net	$	3,802		$	6,938

(1)	Includes federal funds sold.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 8 of 60

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES

Medallion Financial Corp., or the Company, is a finance company organized as a Delaware corporation that reports as a bank holding company, but is not a bank holding company for regulatory purposes. The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, 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. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes examinations by those agencies. The Bank was initially formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxi medallions, 2) asset-based commercial loans, and 3) SBA 7(a) loans. Subsequent to its formation, the Bank began originating consumer loans to finance the purchases of recreational vehicles, or RVs, boats, and other related items, and to finance home improvements. The Company also conducts business through Medallion Funding LLC, or MFC, a Small Business Investment Company, or SBIC, which originates and services medallion and commercial loans.

The Company also conducts business through its subsidiaries Medallion Capital, Inc., or MCI, an SBIC which conducts a mezzanine financing business, and Freshstart Venture Capital Corp., or FSVC, an SBIC that originated and services medallion and commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated by the Small Business Administration, or SBA. MCI and FSVC are financed in part by the SBA.

The Company has a controlling ownership stake in Medallion Motorsports, LLC, the primary owner of RPAC Racing, LLC, or RPAC, a professional car racing team that competes in the Monster Energy NASCAR Cup Series, which is also consolidated with the Company.

The Company formed a wholly-owned subsidiary, Medallion Servicing Corporation, or MSC, to provide loan services to the Bank. The Company has assigned all of its loan servicing rights for the Bank, which consists of servicing medallion loans originated by the Bank, to MSC, which bills and collects the related service fee income from the Bank, and is allocated and charged by the Company for MSC’s share of these servicing costs.

In 2019, the Bank began the process to build out a strategic partnership program with financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and a second partnership in 2021, which will soon be active, and began issuing its first loans, while continuing to explore opportunities with additional fintech companies.

Taxi Medallion Loan Trust III, or Trust III, was established for the purpose of owning medallion loans originated by MFC or others. Trust III is a variable interest entity, or VIE, and MFC was the primary beneficiary until the 2018 fourth quarter. As a result, the Company consolidated Trust III in its financial results until consummation of a restructuring in the 2018 fourth quarter. For a discussion of the restructuring, see Note 15. Trust III is a separate legal and corporate entity with its own creditors which, in any liquidation of Trust III, will be entitled to be satisfied out of Trust III’s assets prior to any value in Trust III becoming available to Trust III’s equity holders. The assets of Trust III are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Trust III. Trust III’s loans are serviced by MFC.

The Company established a wholly-owned subsidiary, Medallion Financing Trust I, or Fin Trust, for the purpose of issuing unsecured preferred securities to investors. Fin Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of Fin Trust, will be entitled to be satisfied out of Fin Trust’s assets prior to any value in Fin Trust becoming available to Fin Trust’s equity holders. The assets of Fin Trust, aggregating $36,083,000 at March 31, 2021, are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Fin Trust.

MFC, through several wholly-owned subsidiaries, together, Medallion Chicago, purchased $8,689,000 of City of Chicago taxi medallions out of foreclosure, some of which are leased to fleet operators. The 159 taxi medallions are carried at a net realizable value of $2,298,000 in other assets on the Company’s consolidated balance sheet at March 31, 2021, compared to a net realizable value of $2,932,000 and $3,091,000 at December 31, 2020 and March 31, 2020.

Page 9 of 60

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US, or GAAP, requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions change, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of loans and loan collateral in process of foreclosure, goodwill and intangible assets, and investments, among other effects.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned and controlled subsidiaries. All significant intercompany transactions, balances, and profits (losses) have been eliminated in consolidation.

The consolidated financial statements have been prepared in accordance with GAAP. The Company consolidates all entities it controls through a majority voting interest, a controlling interest through other contractual rights, or as being identified as the primary beneficiary of VIEs. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party’s holding is recorded as non-controlling interest.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that exceed the federally insured limits. Cash includes $2,970,000 of an interest reserve associated with the private placements of debt in March and August 2019, which cannot be used for any other purpose until March 2022. Cash also includes $1,500,000 of interest-bearing funds deposited in other banks, that are mainly callable, with terms of 4 to 7 years.

Fair Value of Assets and Liabilities

The Company follows the Financial Accounting Standards Board, or FASB, FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, or FASB ASC 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as an exit price (i.e. a price that would be received to sell, as opposed to acquire, an asset or transfer a liability), and emphasizes that fair value is a market-based measurement. It establishes a fair value hierarchy that distinguishes between assumptions developed based on market data obtained from independent external sources and the reporting entity’s own assumptions. Further, it specifies that fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. See also Notes 12 and 13 to the consolidated financial statements.

Equity Investments

The Company follows FASB ASC Topic 321, Investments – Equity Securities, or ASC 321, which requires all applicable investments in equity securities with a readily determinable fair value to be valued as such, and those without a readily determinable fair value, are measured at cost, less any impairment plus or minus any observable price changes. Equity investments of $9,529,000 and $9,746,000 at March 31, 2021 and December 31, 2020, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost less any impairment plus or minus observable price changes. As of March 31, 2021 and December 31, 2020, the Company determined that there was no impairment or observable price change.

In the 2021 first quarter, the Company purchased $2,000,000 of equity securities with a readily determinable fair value. As a result, all unrealized gains and losses are included in earnings, and the fair value of these securities of $1,972,000 as of March 31, 2021 are included in other assets on the consolidated balance sheet.

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The table below presents the unrealized portion related to the equity securities held as of March 31, 2021.

(Dollars in thousands)	March 31, 2021
Net losses recognized during the period on equity securities	$	(28	)
Less: Net gains (losses) recognized during the period on equity securities sold during the period		—
Unrealized losses recognized during the reporting period on equity securities still held at the reporting date	$	(28	)

Investment Securities

The Company follows FASB ASC Topic 320, Investments – Debt Securities, or ASC 320, which requires that all applicable investments in debt securities be classified as trading securities, available-for-sale securities, or held-to-maturity securities. Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized on a level yield basis as an adjustment to the yield of the related investment. The net premium on investment securities totaled $235,000 at March 31, 2021 and $278,000 at December 31, 2020, and $43,000 and $55,000 was amortized to interest income for the three months ended March 31, 2021 and 2020. Refer to Note 3 for more details. ASC 320 further requires that held-to-maturity securities be reported at amortized cost and available-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings at the date of the consolidated financial statements, and reported in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity, net of the effect of income taxes, until they are sold. At the time of sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results and any amounts previously included in stockholders’ equity, which were recorded net of the income tax effect, will be reversed.

Loans

The Company’s loans are currently reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. Effective April 2, 2018, the Company withdrew its previous election to be regulated as a business development company under the Investment Company Act of 1940, and therefore changed the Company’s financial reporting from investment company accounting to bank holding company accounting. As a result, the existing loan balances were adjusted to fair value in connection with the change in reporting, and balances, net of reserves and fees, became the opening balances.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At March 31, 2021 and December 31, 2020, net loan origination costs were $21,618,000 and $20,684,000. Net amortization to income for the three months ended March 31, 2021 and 2020 was $1,656,000 and $1,304,000.

Interest income is recorded on the accrual basis. Medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. The consumer portfolio has different characteristics, typified by a larger number of lower dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is likely the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have not been charged-off, to be impaired. These loans are placed on nonaccrual when they become 90 days past due, or earlier if they enter bankruptcy, and are charged-off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated. For the recreation loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged-off. If the collateral is repossessed, a loss is recorded to write the collateral down to its fair value less selling costs, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off. Proceeds collected on charged-off accounts are recorded as a recovery. Total loans 90 days or more past due were $4,118,000 at March 31, 2021, or 0.33% of the total loan portfolio, compared to $6,878,000, or 0.57% at December 31, 2020.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants concessions to the borrower for other than an insignificant period of time that the Company would not otherwise consider, the related loan is classified as a troubled debt restructuring, or TDR. The Company strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before they reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize the economic loss to the Company and to avoid foreclosure or repossession of the collateral. For modifications where the Company forgives principal, the

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entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs are considered impaired loans. Beginning in the third quarter 2019, all consumer loans which are party to a Chapter 13 bankruptcy are immediately classified as TDRs. The Company’s policy with regard to bankrupt loans is to take an immediate 40% write down of the loan balance. As a result of the Consolidated Appropriations Act, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, relief period was extended to the later of January 1, 2022 or 60 days after the date which the coronavirus, or COVID-19, national emergency terminates. During the relief period, companies may elect to (a) suspend the requirements of GAAP for loan modifications related to COVID-19 that would otherwise be categorized as TDRs and (b) suspend any determination of a loan modified as a result of the effects of COVID-19 as a TDR, including impairment for accounting purposes. Any such suspension is applicable for the term of the loan modification, but solely with respect to any modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019, and shall not apply to any adverse impact on the credit of a borrower that is not related to COVID-19. As of March 31, 2021, there were no consumer or medallion loan modifications related to COVID-19 that would have otherwise been classified as a TDR, and therefore there was no need for the Company to elect this relief under the CARES Act during 2020 and 2021. However, we expect to have loan modifications related to COVID-19 that would apply under this provision of the CARES Act in the future.

Loan collateral in process of foreclosure primarily includes medallion loans that have reached 120 days past due and have been charged-down to their net realizable value, in addition to consumer repossessed collateral in the process of being sold. The medallion loan component reflects that the collection activities on the loans have transitioned from working with the borrower, to the liquidation of the collateral securing the loans.

The Company had $11,020,000 and $15,367,000 of net loans pledged as collateral under borrowing arrangements at March 31, 2021 and December 31, 2020.

The Company accounts for its sales of loans in accordance with FASB Accounting Standards Codification Topic 860, Transfers and Servicing, or FASB ASC 860, which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. In accordance with FASB ASC 860, the Company had elected the fair value measurement method for its servicing assets and liabilities. The principal portion of loans serviced for others by the Company and its affiliates was $106,325,000 at March 31, 2021 and $107,131,000 at December 31, 2020. The Company has evaluated the servicing aspect of its business in accordance with FASB ASC 860, which relates to servicing assets held by MFC (related to the remaining assets in Trust III) and the Bank, and determined that no material servicing asset or liability existed as of March 31, 2021 and December 31, 2020. The Company assigned its servicing rights of the Bank’s portfolio to MSC. The costs of servicing were allocated to MSC by the Company, and the servicing fee income was billed to and collected from the Bank by MSC.

Allowance for Loan Losses

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a one-year lookback period for consumer loans. For commercial loans deemed nonperforming, the historical loss experience and other projections are looked at. For medallion loans, delinquent nonperforming loans are valued at collateral value for the most recent quarter. Collateral value for the medallion loans is generally determined utilizing factors deemed relevant under the circumstances of the market including but not limited to: actual transfers, pending transfers, median and average sales prices, discounted cash flows, market direction and sentiment, and general economic trends for the industry and economy. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. As a result of COVID-19, there was an increase in the reserve percentages of 50 basis points on the recreation subprime loan business during 2020, of which there was an increase of 25-50 basis points for the three months ended March 31, 2020. In addition, the Company determined that anticipated payment activity on the medallion portfolio was impossible to quantify upon exit of the six-month deferral period with borrowers, and therefore deemed all such loans as impaired in the third quarter of 2020. As a result, all medallion loans were placed on nonaccrual and written down to collateral value, net of liquidation costs, of $79,500 for New York City medallions. The Company continues to monitor the impact of COVID-19 on the consumer, commercial, and medallion loans. Had there been no payment deferrals offered to borrowers under the CARES Act, potential loans 90 days or more past due would have resulted in increased reserves and/or charge-offs. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.

Goodwill and Intangible Assets

The Company’s goodwill and intangible assets arose as a result of the excess of fair value over book value for several of the Company’s previously unconsolidated portfolio investment companies as of April 2, 2018. This fair value was brought forward under the Company’s new reporting, and was subject to a purchase price accounting allocation process conducted by an independent third-party expert to arrive at the current categories and amounts. 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. Intangible assets are amortized over their useful life of approximately 20 years. As of March 31, 2021, December 31, 2020, and March 31, 2020, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $50,729,000, $51,090,000, and $52,175,000, and the Company recognized $361,000 of amortization expense on the intangible assets for the three months ended March 31, 2021 and 2020. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $2,530,000, $2,717,000, and $5,429,000 were outstanding at March 31, 2021, December 31, 2020, and March 31, 2020, and of which $187,000 and $329,000 were amortized to interest income for the three months ended March 31, 2021 and 2020. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2020, who concluded there was no impairment on the Bank and on the RPAC intangible asset. The Company reviewed the goodwill related to the Bank and the RPAC intangible assets, considered whether the current COVID-19 pandemic had any effect on such goodwill, and concluded that there was no additional impairment as of March 31, 2021.

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The table below shows the details of the intangible assets as of the dates presented.

(Dollars in thousands)	March 31, 2021		December 31, 2020
Brand-related intellectual property	$	18,699	$	18,974
Home improvement contractor relationships		5,865		5,951
Race organization		26,165		26,165
Total intangible assets, net	$	50,729	$	51,090

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $84,000 and $121,000 for the three months ended March 31, 2021 and 2020.

Deferred Costs

Deferred financing costs represent costs associated with obtaining the Company’s borrowing facilities, and are amortized on a straight line basis over the lives of the related financing agreements and life of the respective pool. Amortization expense was $645,000 and $723,000 for the three months ended March 31, 2021 and 2020. In addition, the Company capitalizes certain costs for transactions in the process of completion (other than business combinations), including those for potential investments, and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income over an appropriate period, or written off. The amount on the Company’s balance sheet for all of these purposes were $6,523,000, $5,805,000, and $4,674,000 as of March 31, 2021, December 31, 2020, and March 31, 2020.

Income Taxes

Income taxes are accounted for using the asset and liability approach in accordance with FASB ASC Topic 740, Income Taxes, or ASC 740. Deferred tax assets and liabilities 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 also recorded for net operating losses, capital losses and any tax credit carryforwards. A valuation allowance is provided against a deferred tax asset when it is more likely than not that some or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether a valuation allowance for deferred tax assets is needed. Items considered in determining the Company’s valuation allowance include expectations of future earnings of the appropriate tax character, recent historical financial results, tax planning strategies, the length of statutory carryforward periods and the expected timing of the reversal of temporary differences. The Company recognizes tax benefits of uncertain tax positions only when the position is more likely than not to be sustained assuming examination by tax authorities. The Company records income tax related interest and penalties, if applicable, within current income tax expense.

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Sponsorship and Race Winnings

The Company accounts for sponsorship and race winnings revenue under FASB ASC Topic 606, Revenue from Contracts with Customers. Sponsorship revenue is recognized when the Company’s performance obligations are completed in accordance with the contract terms of the sponsorship contract. Race winnings revenue is recognized after each race during the season based upon terms provided by NASCAR and the placement of the driver.

Earnings (Loss) Per Share (EPS)

Basic earnings (loss) per share are computed by dividing net income (loss) resulting from operations available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, or if restricted stock vests, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. The table below shows the calculation of basic and diluted EPS.

	Three Months Ended March 31,
(Dollars in thousands, except share and per share data)	2021		2020
Net income (loss) resulting from operations available to common stockholders	$	8,431	$	(13,643	)
Weighted average common shares outstanding applicable to basic EPS		24,518,775		24,401,773
Effect of dilutive stock options		21,168		—
Effect of restricted stock grants		355,165		—
Adjusted weighted average common shares outstanding applicable to diluted EPS		24,895,108		24,401,773
Basic income (loss) per share	$	0.34	$	(0.56	)
Diluted income (loss) per share		0.34		(0.56	)

Potentially dilutive common shares excluded from the above calculations aggregated 1,188,455 and 807,368 shares as of March 31, 2021 and 2020.

Stock Compensation

The Company follows FASB ASC Topic 718, or ASC 718, Compensation – Stock Compensation, for its equity incentive, stock option, and restricted stock plans, and accordingly, the Company recognizes the expense of these grants as required. Stock-based employee compensation costs pertaining to stock options are reflected in net income resulting from operations for any new grants using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Stock-based employee compensation costs pertaining to restricted stock are reflected in net income resulting from operations for any new grants using the grant date fair value of the shares granted, expensed over the vesting period of the underlying stock.

During the three months ended March 31, 2021 and 2020, the Company issued 163,561 and 165,674 restricted shares of stock-based compensation awards, issued 317,398 and 335,773 shares of other stock-based compensation awards, and issued no restricted stock units; and recognized $498,000 and $466,000, or $0.02 and $0.02 per share, for the three months ended March 31, 2021 and 2020, of non-cash stock-based compensation expense related to the grants. As of March 31, 2021, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $4,100,000, which is expected to be recognized over the next 16 quarters. See Note 8 for additional details.

Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the FDIC and the Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting

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practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.

FDIC-insured banks, including the Bank, are subject to certain federal laws, which impose various legal limitations on the extent to which banks may finance or otherwise supply funds to certain of their affiliates. In particular, the Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions with, such as certain purchases of assets, the Company or its affiliates.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting the Bank’s application for federal deposit insurance, the FDIC ordered that the Tier 1 leverage capital to total assets ratio, as defined, be not less than 15%, which could preclude its ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of March 31, 2021, the Bank’s Tier 1 leverage ratio was 18.03%. The Bank’s actual capital amounts and ratios, and the regulatory minimum ratios are presented in the following table.

	Regulatory
(Dollars in thousands)	Minimum			Well- Capitalized			March 31, 2021			December 31, 2020
Common equity Tier 1 capital		—			—		$	159,268		$	148,507
Tier 1 capital		—			—			228,056			217,295
Total capital		—			—			244,623			233,460
Average assets		—			—			1,265,004			1,283,664
Risk-weighted assets		—			—			1,276,656			1,243,783
Leverage ratio⁽¹⁾		4.0	%		5.0	%		18.0	%		16.9	%
Common equity Tier 1 capital ratio⁽²⁾		7.0			6.5			12.5			11.9
Tier 1 capital ratio⁽³⁾		8.5			8.0			17.9			17.5
Total capital ratio⁽³⁾		10.5			10.0			19.2			18.8

(1)	Calculated by dividing Tier 1 capital by average assets.

(2)	Calculated by subtracting preferred stock or non-controlling interest from Tier 1 capital and dividing by risk-weighted assets.

(3)	Calculated by dividing Tier 1 or total capital by risk-weighted assets.

In the table above, the minimum risk-based ratios as of March 31, 2021 and December 31, 2020 reflect the capital conservation buffer of 2.5%. The minimum regulatory requirements, inclusive of the capital conservation buffer, were the binding requirements for the risk-based requirements, and the “well-capitalized” requirements were the binding requirements for Tier 1 leverage capital as of both March 31, 2021 and December 31, 2020.

Recently Issued Accounting Standards

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

Reclassifications

Certain reclassifications have been made to prior year balances to conform with the current year presentation. These reclassifications have no effect on the previously reported results of operations.

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(3) INVESTMENT SECURITIES

Fixed maturity securities available for sale at March 31, 2021 and December 31, 2020 consisted of the following:

March 31, 2021 (Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	29,365	$	1,005	$	(219	)	$	30,151
State and municipalities		7,919		92		(81	)		7,930
Total	$	37,284	$	1,097	$	(300	)	$	38,081

December 31, 2020 (Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	34,929	$	1,495	$	(45	)	$	36,379
State and municipalities		10,226		189		(2	)		10,413
Total	$	45,155	$	1,684	$	(47	)	$	46,792

The amortized cost and estimated market value of investment securities at March 31, 2021 by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	20	$	20
Due after one year through five years		8,678		8,977
Due after five years through ten years		14,006		14,344
Due after ten years		14,580		14,740
Total	$	37,284	$	38,081

The following tables show information pertaining to securities with gross unrealized losses at March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position.

	Less than Twelve Months					Twelve Months and Over
March 31, 2021 (Dollars in thousands)	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses				Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	(219	)	$	5,577	$	—		-	$	—
State and municipalities		(78	)		3,935		(3	)			127
Total	$	(297	)	$	9,512	$	(3	)		$	127

	Less than Twelve Months					Twelve Months and Over
December 31, 2020 (Dollars in thousands)	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	(45	)	$	4,028	$	—		$	—
State and municipalities		—			—		(2	)		196
Total	$	(45	)	$	4,028	$	(2	)	$	196

Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.

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(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at March 31, 2021 and December 31, 2020.

	March 31, 2021						December 31, 2020
(Dollars in thousands)	Amount			As a Percent of Gross Loans			Amount			As a Percent of Gross Loans
Recreation	$	822,932			65	%	$	792,686			65	%
Home improvement		342,121			27			334,033			27
Commercial		58,854			5			65,327			5
Medallion		35,250			3			37,768			3
Strategic partnership		58			—			24			—
Total gross loans		1,259,215			100	%		1,229,838			100	%
Allowance for loan losses		(57,809	)					(57,548	)
Total net loans	$	1,201,406					$	1,172,290

The following tables show the activity of the gross loans for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31, 2021 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic 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, and maturities		(58,427	)		(40,069	)		(10,965	)		(1,825	)		(1,910	)		(113,196	)
Charge-offs, net		(2,584	)		(249	)					75			—			(2,758	)
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		2,663			(74	)		—			—			—			2,589
Paid-in-kind interest		—			—			325			—			—			325
Gross loans – March 31, 2021	$	822,932		$	342,121		$	58,854		$	35,250		$	58		$	1,259,215

Three Months Ended March 31, 2020 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Total
Gross loans – December 31, 2019	$	713,332		$	247,324		$	69,767		$	130,432		$	1,160,855
Loan originations		69,643			33,465			2,175		—				105,283
Principal payments, sales and maturities		(37,070	)		(24,225	)		(3,999	)		(2,075	)		(67,369	)
Charge-offs, net		(6,382	)		(636	)		—			(1,559	)		(8,577	)
Transfer to loan collateral in process of foreclosure, net		(4,779	)	—				—			(2,159	)		(6,938	)
Amortization of origination costs		(1,728	)		441			2			(19	)		(1,304	)
Amortization of loan premium		(52	)		(86	)	—				(191	)		(329	)
FASB origination costs		2,211			(384	)		19			19			1,865
Paid-in-kind interest	—			—				293		—				293
Gross loans – March 31, 2020	$	735,175		$	255,899		$	68,257		$	124,448		$	1,183,779

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The following table sets forth the activity in the allowance for loan losses for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Allowance for loan losses – beginning balance	$	57,548		$	46,093
Charge-offs
Recreation		(5,053	)		(8,244	)
Home improvement		(681	)		(1,011	)
Commercial		—			—
Medallion		(1,114	)		(1,924	)
Total charge-offs		(6,848	)		(11,179	)
Recoveries
Recreation		2,469			1,862
Home improvement		432			375
Commercial		—			—
Medallion		1,189			365
Total recoveries		4,090			2,602
Net charge-offs⁽¹⁾		(2,758	)		(8,577	)
Provision for loan losses		3,019			16,541
Allowance for loan losses – ending balance^{(2) (3)}	$	57,809		$	54,057

(1)	As of March 31, 2021, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion loan portfolio were $282,450, some of which represent collection opportunities for the Company.

(2)	As of September 30, 2020, the general reserves previously recorded for the Company’s medallion loan portfolio had been reversed as all loans had been deemed impaired and written down to collateral value.

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

The following tables set forth the allowance for loan losses by type as of March 31, 2021 and December 31, 2020.

March 31, 2021 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category			Allowance as a Percent of Nonaccrual
Recreation	$	28,378		49	%		3.45	%		561.61	%
Home improvement		5,358		9			1.57		NM
Commercial		—		—		—				—
Medallion		24,073		42			68.29			70.05
Total	$	57,809		100	%		4.59	%		101.61	%

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

Page 18 of 60

The following table presents total nonaccrual loans and foregone interest, substantially all of which is in the medallion portfolio. The fluctuation in nonaccrual interest foregone is due to past due loans and market conditions.

(Dollars in thousands)	March 31, 2021			December 31, 2020			March 31, 2020
Total nonaccrual loans	$	56,893		$	61,767		$	61,635
Interest foregone quarter to date		578			2,306			623
Amount of foregone interest applied to principal in the quarter		169			595			52
Interest foregone life to date		5,086			5,252			3,358
Amount of foregone interest applied to principal life to date		905			792			494
Percentage of nonaccrual loans to gross loan portfolio		5	%		5	%		5	%
Percentage of allowance for loan losses to nonaccrual loans		102			93			88

The following tables present the performance status of loans as of March 31, 2021 and December 31, 2020.

March 31, 2021 (Dollars in thousands)	Performing		Nonperforming			Total		Percentage of Nonperforming to Total
Recreation	$	817,490	$	5,442		$	822,932		0.66	%
Home improvement		341,971		150			342,121		0.04
Commercial		42,414		16,440			58,854		27.93
Medallion		—		35,250	⁽¹⁾		35,250		100.00
Strategic partnership		58		—			58		—
Total	$	1,201,933	$	57,282		$	1,259,215		4.55	%

December 31, 2020 (Dollars in thousands)	Performing		Nonperforming			Total		Percentage of Nonperforming to Total
Recreation	$	785,047	$	7,639		$	792,686		0.96	%
Home improvement		333,862		171			334,033		0.05
Commercial		48,731		16,596			65,327		25.40
Medallion		—		37,768	⁽¹⁾		37,768		100.00
Strategic partnership		24		—			24		—
Total	$	1,167,664	$	62,174		$	1,229,838		5.06	%

(1)

Includes medallion loan premiums of $1,545and $1,615 at March 31, 2021 and December 31, 2020.

For those loans aged under 90 days past due, there is a possibility that their delinquency status will continue to deteriorate and they will subsequently be placed on nonaccrual status and be reserved for, and as such, deemed nonperforming.

The following tables provide additional information on attributes of the nonperforming loan portfolio as of March 31, 2021 and 2020, and December 31, 2020, all of which had an allowance recorded against the principal balance.

	March 31, 2021						December 31, 2020						March 31, 2020
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With an allowance recorded
Recreation	$	5,442	$	5,442	$	188	$	7,639	$	7,639	$	264	$	7,328	$	7,328	$	318
Home improvement		150		150		2		171		171		3		222		222		4
Commercial		16,440		16,447		—		16,596		16,600		—		11,862		11,867		—
Medallion		35,250		35,990		24,073		37,768		38,368		25,043		42,592		43,081		20,011
Total nonperforming loans with an allowance	$	57,282	$	58,029	$	24,263	$	62,174	$	62,778	$	25,310	$	62,004	$	62,498	$	20,333

Page 19 of 60

	For the Three Months Ended March 31,
	2021				2020
(Dollars in thousands)	Average Investment Recorded		Interest Income Recognized		Average Investment Recorded		Interest Income Recognized
With an allowance recorded
Recreation	$	5,617	$	184	$	7,456	$	161
Home improvement		150		—		222		—
Commercial		17,358		—		11,976		1
Medallion		35,535		—		45,105		415
Total nonperforming loans with an allowance	$	58,660	$	184	$	64,759	$	577

The following tables show the aging of all loans as of March 31, 2021 and December 31, 2020.

	Days Past Due
March 31, 2021 (Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total ⁽¹⁾		Recorded Investment 90 Days and Accruing
Recreation	$	13,371	$	3,908	$	3,152	$	20,431	$	776,728	$	797,159	$	—
Home improvement		509		193		149		851		343,776		344,627		—
Commercial		—		—		75		75		58,781		58,856		—
Medallion		1,710		17,048		742		19,500		14,205		33,705		—
Strategic partnership		—		—		—		—		58		58		—
Total	$	15,590	$	21,149	$	4,118	$	40,857	$	1,193,548	$	1,234,405	$	—

(1)	Excludes loan premiums of $2,530 resulting from purchase price accounting and $22,280 of capitalized loan origination costs.

	Days Past Due
December 31, 2020 (Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total ⁽¹⁾		Recorded Investment 90 Days and Accruing
Recreation	$	22,058	$	7,582	$	5,343	$	34,983	$	732,391	$	767,374	$	—
Home improvement		813		218		170		1,201		335,684		336,885		—
Commercial		—		—		75		75		65,265		65,340		—
Medallion		2,019		973		1,290		4,282		31,871		36,153		—
Strategic partnership		—		—		—		—		24		24		—
Total	$	24,890	$	8,773	$	6,878	$	40,541	$	1,165,235	$	1,205,776	$	—

(1)	Excludes loan premiums of $2,717 resulting from purchase price accounting and $21,345 of capitalized loan origination costs.

The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 362%, 327%, and 244% as of March 31, 2021, December 31, 2020, and March 31, 2020.

The following table shows the TDRs which the Company entered into during the three months ended March 31, 2021.

(Dollars in thousands)

Number of

Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Recreation

172

166

Medallion

2,738

During the twelve months ended March 31, 2021, 35 medallion loans modified as TDRs were in default and had an investment value of $20,567,000 as of March 31, 2021, net of a $16,113,000 allowance for loan losses, 36 recreation loans modified as TDRs

Page 20 of 60

were in default and had an investment value of $355,000 as of March 31, 2021, net of a $12,000 allowance for loan losses, and no commercial loans modified as TDRs were in default.

The following table shows the TDRs which the Company entered into during the three months ended March 31, 2020.

(Dollars in thousands)

Number of

Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Recreation

502

434

Medallion

1,121

During the twelve months ended March 31, 2020, 28 medallion loans modified as TDRs were in default and had an investment value of $13,113,000 as of March 31, 2020, net of a $6,868,000 allowance for loan losses, and 106 recreation loans modified as TDRs were in default and had an investment value of $1,115,000 as of March 31, 2020, net of a $48,000 allowance for loan losses.

The following tables show the activity of loan collateral in process of foreclosure, which relate only to the recreation and medallion loans, for the three months ended March 31, 2021 and 2020.

Three Months Ended March 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

Three Months Ended March 31, 2020 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – December 31, 2019	$	1,476		$	51,235		$	52,711
Transfer from loans, net		4,779			2,159			6,938
Sales		(1,999	)		(300	)		(2,299	)
Cash payments received		—			(1,708	)		(1,708	)
Collateral valuation adjustments		(2,539	)		(6,286	)		(8,825	)
Loan collateral in process of foreclosure – March 31, 2020	$	1,717		$	45,100		$	46,817

(5) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows:

	Payments Due for the Twelve Months Ending March 31,
(Dollars in thousands)	2022		2023		2024		2025		2026		Thereafter		March 31, 2021⁽¹⁾		December 31, 2020⁽¹⁾		Interest Rate ⁽²⁾
Deposits⁽³⁾	$	398,096	$	244,883	$	193,105	$	116,117	$	134,284	$	—	$	1,086,485	$	1,067,822		1.61	%
Retail and privately placed notes		33,625	—			36,000		—		28,250		42,100		139,975		103,225		8.00	%
SBA debentures and borrowings		14,008		5,000		2,500		12,500		15,500		10,000		59,508		68,008		3.12	%
Preferred securities		—		—		—		—		—		33,000		33,000		33,000		2.30	%
Notes payable to banks		18,325		280		210		—		—		—		18,815		31,261		3.72	%
Other borrowings		7,979		—		—		—		747		—		8,726		8,689		1.91	%
Total	$	472,033	$	250,163	$	231,815	$	128,617	$	178,781	$	85,100	$	1,346,509	$	1,312,005		2.43	%

Page 21 of 60

(1)	Excludes deferred financing costs of $6,523 and $5,805 as of March 31, 2021 and December 31, 2020.

(2)	Weighted average contractual rate as of March 31, 2021.

(3)	Balance excludes $250 of strategic partner reserve deposits as of March 31, 2021 and December 31, 2020.

(A) DEPOSITS

Deposits are raised through the use of investment brokerage firms that package time deposits in denominations of less than $250,000 qualifying for FDIC insurance into larger pools that are sold to the Bank. The rates paid on the deposits are competitive with market rates paid by other financial institutions. Additionally, a brokerage fee is paid, depending on the maturity of the deposits, which averages less than 0.15%. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually, or at maturity. The Bank did not have any individual time deposits greater than $100,000 as of March 31, 2021. In October 2020, the Bank began to originate time deposits through an internet listing service. These deposits are from other financial institutions, which as of March 31, 2021, totaled $4,036,000 in listing service deposits. The following table presents the maturity of the broker pools, excluding strategic partner reserve deposits, as of March 31, 2021.

(Dollars in thousands)	March 31, 2021
Three months or less	$	137,602
Over three months through six months		108,194
Over six months through one year		152,300
Over one year		688,389
Total deposits	$	1,086,485

(B) RETAIL AND PRIVATELY PLACED NOTES

In February 2021, the Company completed a private placement to certain institutional investors of $25,000,000 aggregate principal amount of 7.25% unsecured senior notes due February 2026, with interest payable semiannually. In March 2021, an additional $3,250,000 principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $3,000,000 principal amount of such notes was issued to certain institutional investors. The Company will use the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

In December 2020, the Company completed a private placement to certain institutional investors of $33,600,000 aggregate principal amount of 7.50% unsecured senior notes due December 2027, with interest payable semiannually. In February and March 2021, an additional $8,500,000 principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $11,650,000 principal amount of such notes was issued to certain institutional investors. The Company will use the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

In March 2019, the Company completed a private placement to certain institutional investors of $30,000,000 aggregate principal amount of 8.25% unsecured senior notes due 2024, with interest payable semiannually. The Company used the net proceeds from the offering for general corporate purposes, including repaying certain borrowings under its notes payable to banks at a discount which led to a gain of $4,145,000 in the 2019 first quarter. In August 2019, an additional $6,000,000 principal amount of such notes was issued to certain institutional investors.

In April 2016, the Company issued a total of $33,625,000 aggregate principal amount of 9.00% unsecured notes due 2021, with interest payable quarterly in arrears. The Company used the net proceeds from the offering of approximately $31,786,000 to make loans and other investments in portfolio companies and for general corporate purposes, including repaying borrowings under its DZ loan in the ordinary course of business. These notes were repaid at maturity on April 15, 2021.

Over the years, the SBA has approved commitments for MCI and FSVC, typically for a four and half year term and a 1% fee, which was paid. During 2017, the SBA restructured FSVC’s debentures with SBA totaling $33,485,000 in principal into a new loan by the SBA to FSVC in the principal amount of $34,024,756, or the SBA Loan. In connection with the SBA Loan, FSVC executed a Note, or the SBA Note, with an effective date of March 1, 2017, in favor of SBA, in the principal amount of $34,024,756. The SBA Loan bears interest at a rate of 3.25% and all remaining unpaid principal and interest are due on April 30, 2024, the maturity date. As of March 31, 2021, $175,485,000 of commitments had been fully utilized, there were $25,000,000 commitments available, and $59,508,000 was outstanding, including $14,008,000 under the SBA Note.

Page 22 of 60

On July 31, 2020, MCI accepted a commitment from the SBA for $25,000,000 in debenture financing. As part of the acceptance, MCI paid the SBA a $250,000 commitment fee. The commitment is valid for approximately five years and expires September 24, 2024. $8,500,000 of the commitments has been reserved to replace debentures which matured in 2021. The remaining balance of $16,500,000 is drawable upon the infusion of $8,250,000 of capital from either the capitalization of retained earnings or capital infusion from the Company. As of March 31, 2021, none of the commitments had been drawn.

(D) PREFERRED SECURITIES

In June 2007, the Company issued and sold $36,083,000 aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35,000,000 of preferred securities to Merrill Lynch International and issued 1,083 shares of common stock to the Company. The notes bear a variable rate of interest of 90 day LIBOR (0.19% at March 31, 2021) plus 2.13%. The notes mature in September 2037 and are prepayable at par. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially identical. In December 2007, $2,000,000 of the preferred securities were repurchased from a third-party investor. At March 31, 2021, $33,000,000 was outstanding on the preferred securities.

(E) NOTES PAYABLE TO BANKS

The Company and its subsidiaries have entered into note agreements with a variety of local and regional banking institutions over the years. The notes are typically secured by various assets of the underlying borrower.

The table below summarizes the key attributes of the Company’s various borrowing arrangements with these lenders as of March 31, 2021.

Borrower

(Dollars in thousands)

# of Lenders/Notes

Note Dates

Maturity Dates

Type

Note Amounts

Balance Outstanding at March 31, 2021

Payment

Average Interest Rate at March 31, 2021

Interest Rate Index⁽¹⁾

Medallion Financial

Corp.

3/3

4/11 - 8/14

8/21-12/21

Term loans

and demand

notes secured

by pledged

loans⁽²⁾

9,172

⁽²⁾

9,172

Interest

only⁽³⁾

3.91

Various⁽³⁾

Medallion Chicago

2/23

11/11 - 12/11

4/21-12/21

Term loans

secured by

owned

Chicago

medallions⁽⁴⁾

18,449

8,873

$134 of

principal &

interest

paid

monthly

3.50

N/A

Medallion Funding

1/1

11/18

12/23

1,400

770

$70

principal &

interest

paid

quarterly

4.00

N/A

29,021

18,815

(1)	At March 31, 2021, 30-day LIBOR was 0.11%, 360-day LIBOR was 0.28%, and the prime rate was 3.25%.

(2)	One note has an interest rate of Prime, one note has an interest rate of Prime plus 0.50%, one note has a fixed interest rate of 3.75%, one note has an interest rate of LIBOR plus 3.75%, and the other interest rates on these borrowings are LIBOR plus 2%.

(3)	Various agreements call for remittance of all principal received on pledged loans subject to minimum monthly payments ranging up to or from $12 to $85.

(4)	Guaranteed by the Company.

In April 2021, the Company used some of the proceeds of the privately placed notes to pay off fourteen of its notes payable to banks aggregating $6,703,000 principal amount, due in April 2021, resulting in a gain on debt extinguishment of $2,316,000.

Page 23 of 60

In March 2021, the Company used some of the proceeds of the privately placed notes to pay off two of its notes payable to banks aggregating $5,207,000 principal amount, one with a maturity of April 15, 2021 and one with a maturity of September 1, 2021, resulting in a gain on debt extinguishment of $1,767,000.

In November 2018, MFC entered into a note to the benefit of DZ Bank for $1,400,000 at a 4.00% interest rate due December 2023, as part of the restructuring of the DZ loan. See Note 15 for more information.

(F) OTHER BORROWINGS

In November and December 2017, RPAC amended the terms of various promissory notes with affiliate Richard Petty. (Refer to Note 11 for more details.) At March 31, 2021, the total outstanding on these notes was $7,479,000 at a 2.00% annual interest rate compounded monthly and due March 31, 2022. Additionally, RPAC has a short term promissory note to an unrelated party for $500,000 due on December 31, 2021.

On June 17, 2020, RPAC was approved for and received a Paycheck Protection Program, or PPP, loan under the CARES Act. As of March 31, 2021, the total outstanding balance of such loan was $747,000 at a 1.00% annual interest rate due in five years. Under the terms of the note, RPAC could be granted forgiveness for all or a portion of the balance if the loan proceeds are used in accordance with the requirements set forth in the PPP. As of March 31, 2021, RPAC had not applied for forgiveness of this loan.

(G) COVENANT COMPLIANCE

Certain of the Company’s debt agreements contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including debt to equity and minimum net worth. The Company was in compliance with such restrictions as of March 31, 2021.

(6) LEASES

The Company has leased premises that expire at various dates through November 30, 2027 subject to various operating leases. The Company has implemented ASC Topic 842 under a modified retrospective approach in which no adjustments have been made to the prior year balances.

The following table presents the operating lease costs and additional information for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Operating lease costs	$	572		$	596
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		675			692
Right-of-use asset obtained in exchange for lease liability		(18	)		(14	)

The following table presents the breakout of the operating leases as of March 31, 2021 and December 31, 2020.

(Dollars in thousands)	March 31, 2021			December 31, 2020
Operating lease right-of-use assets	$	11,244		$	11,737
Other current liabilities		2,048			2,004
Operating lease liabilities		10,464			11,018
Total operating lease liabilities		12,512			13,022
Weighted average remaining lease term	6.1 years			6.4 years
Weighted average discount rate		5.54	%		5.54	%

Page 24 of 60

At March 31, 2021, maturities of the lease liabilities were as follows:

(Dollars in thousands)
Remainder of 2021	$	1,849
2022		2,406
2023		2,356
2024		2,373
2025		2,390
Thereafter		3,521
Total lease payments	$	14,895
Less imputed interest		2,383
Total operating lease liabilities	$	12,512

(7) INCOME TAXES

The Company is subject to federal and applicable state corporate income taxes on its taxable ordinary income and capital gains. As a corporation taxed under Subchapter C of the Internal Revenue Code, the Company is able, and intends, to file a consolidated federal income tax return with corporate subsidiaries, in which it holds 80% or more of the outstanding equity interest measured by both vote and fair value.

The following table sets forth the significant components of our deferred and other tax assets and liabilities as of March 31, 2021 and December 31, 2020.

(Dollars in thousands)	March 31, 2021			December 31, 2020
Goodwill and other intangibles	$	(44,662	)	$	(44,799	)
Provision for loan losses		19,275			19,556
Net operating loss carryforwards⁽¹⁾		27,847			30,493
Accrued expenses, compensation, and other assets		717			1,174
Unrealized gains on other investments		(6,243	)		(6,769	)
Total deferred tax liability		(3,066	)		(345	)
Valuation allowance		(462	)		(462	)
Deferred tax liability, net		(3,528	)		(807	)
Taxes receivable		859			1,757
Net deferred and other tax assets (liabilities)	$	(2,669	)	$	950

(1)	As of March 31, 2021, the Company and its subsidiaries had an estimated $113,613 of net operating loss carryforwards, $1,712 of which expires at various dates between December 31, 2026 and December 31, 2035, which had a net carrying value of $27,385 as of March 31, 2021.

The components of our tax (provision) benefit for the three months ended March 31, 2021 and 2020 were as follows:

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Current
Federal	$	—		$	—
State		(170	)		(86	)
Deferred
Federal		(3,053	)		2,525
State		(655	)		810
Net (provision) benefit for income taxes	$	(3,878	)	$	3,249

Page 25 of 60

The following table presents a reconciliation of statutory federal income tax (provision) benefit to consolidated actual income tax (provision) benefit for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Statutory Federal income tax (provision) benefit at 21%	$	(2,719	)	$	3,412
State and local income taxes, net of federal income tax benefit		(532	)		638
Change in state income tax accruals		(170	)		(46	)
Change in effective state income tax rate		200			(378	)
Income attributable to non-controlling interest		219			(216	)
Non deductible expenses		(172	)		(214	)
Other		(704	)		53
Total income tax (provision) benefit	$	(3,878	)	$	3,249

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible pursuant to ASC 740. The Company considers the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company’s evaluation of the realizability of deferred tax assets must consider both positive and negative evidence. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. Based upon these considerations, the Company determined the necessary valuation allowance as of March 31, 2021.

The Company has filed tax returns in many states. Federal, New York State, New York City, and Utah state tax filings of the Company for the tax years 2018 through the present are the more significant filings that are open for examination.

(8) STOCK OPTIONS AND RESTRICTED STOCK

The Company’s Board of Directors approved the 2018 Equity Incentive Plan, or the 2018 Plan, which was approved by the Company’s stockholders on June 15, 2018. The terms of 2018 Plan provide for grants of a variety of different type of stock awards to the Company’s employees and non-employee directors, including options, restricted stock, restricted stock units, and stock appreciation rights, etc. On April 22, 2020, the Company’s Board of Directors approved an amendment to the 2018 Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder, which was approved by the Company’s stockholders on June 19, 2020. A total of 2,210,968 shares of the Company’s common stock are issuable under the 2018 Plan, and 392,746 remained issuable as of March 31, 2021. Awards under the 2018 Plan are subject to certain limitations as set forth in the 2018 Plan, which will terminate when all shares of common stock authorized for delivery have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2018 Plan, whichever occurs first.

The Company’s Board of Directors approved the 2015 Employee Restricted Stock Plan, or the 2015 Restricted Stock Plan, on February 13, 2015, which was approved by the Company’s shareholders on June 5, 2015. The 2015 Restricted Stock Plan became effective upon the Company’s receipt of exemptive relief from the SEC on March 1, 2016. The terms of 2015 Restricted Stock Plan provided for grants of restricted stock awards to the Company’s employees. A grant of restricted stock is a grant of shares of the Company’s common stock which, at the time of issuance, is subject to certain forfeiture provisions, and thus is restricted as to transferability until such forfeiture restrictions have lapsed. A total of 700,000 shares of the Company’s common stock were issuable under the 2015 Restricted Stock Plan, and 241,919 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Awards under the 2015 Restricted Stock Plan are subject to certain limitations as set forth in the 2015 Restricted Stock Plan. The 2015 Restricted Stock Plan will terminate when all shares of common stock authorized for delivery under the 2015 Restricted Stock Plan have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2015 Restricted Stock Plan, whichever occurs first.

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The Company had a stock option plan, or the 2006 Stock Option Plan, available to grant both incentive and nonqualified stock options to employees. The 2006 Stock Option Plan, which was approved by the Board of Directors on February 15, 2006 and shareholders on June 16, 2006, provided for the issuance of a maximum of 800,000 shares of common stock of the Company. No additional shares are available for issuance under the 2006 Stock Option Plan. The 2006 Stock Option Plan was administered by the Compensation Committee of the Board of Directors. The option price per share could not be less than the current market value of the Company’s common stock on the date the option was granted. The term and vesting periods of the options were determined by the Compensation Committee, provided that the maximum term of an option could not exceed a period of ten years.

The Company’s Board of Directors approved the 2015 Non-Employee Director Stock Option Plan, or the 2015 Director Plan, on March 12, 2015, which was approved by the Company’s shareholders on June 5, 2015, and on which exemptive relief to implement the 2015 Director Plan was received from the SEC on February 29, 2016. A total of 300,000 shares of the Company’s common stock were issuable under the 2015 Director Plan, and 258,334 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Under the 2015 Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the 2015 Director Plan, the Company granted options to purchase 12,000 shares of the Company’s common stock to a non-employee director upon election to the Board of Directors, with an adjustment for directors who were elected to serve less than a full term. The option price per share could not be less than the current market value of the Company’s common stock on the date the option was granted. Options granted under the 2015 Director Plan are exercisable annually, as defined in the 2015 Director Plan. The term of the options could not exceed ten years.

The Company’s Board of Directors approved the First Amended and Restated 2006 Director Plan, or the Amended Director Plan, on April 16, 2009, which was approved by the Company’s shareholders on June 5, 2009, and on which exemptive relief to implement the Amended Director Plan was received from the SEC on July 17, 2012. A total of 200,000 shares of the Company’s common stock were issuable under the Amended Director Plan. No additional shares are available for issuance under the Amended Director Plan. Under the Amended Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the Amended Director Plan, the Company would grant options to purchase 9,000 shares of the Company’s common stock to an Eligible Director upon election to the Board of Directors, with an adjustment for directors who were elected to serve less than a full term. The option price per share could not be less than the current market value of the Company’s common stock on the date the option was granted. Options granted under the Amended Director Plan are exercisable annually, as defined in the Amended Director Plan. The term of the options could not exceed ten years.

Additional shares are only available for future issuance under the 2018 Plan. At March 31, 2021, 1,264,315 options on the Company’s common stock were outstanding under the Company’s plans, of which 361,363 options were exercisable. Additionally there were 452,522 unvested shares of the Company’s common stock outstanding and 62,780 unvested restricted share units under the Company’s restricted stock plans.

The fair value of each restricted stock grant is determined on the date of grant by the closing market price of the Company’s common stock on the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair value of options granted was $3.24 per share and $3.30 per share for the three months ended March 31, 2021 and 2020. The following assumption categories are used to determine the value of any option grants.

	Three Months Ended March 31,
	2021			2020
Risk free interest rate		0.97	%		1.46	%
Expected dividend yield		—			—
Expected life of option in years⁽¹⁾		6.25			6.25
Expected volatility⁽²⁾		53.98			50.18

(1)	Expected life is calculated using the simplified method.

(2)	We determine our expected volatility based on our historical volatility.

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The following table presents the activity for the stock option programs for the 2021 first quarter and the 2020 full year.

	Number of Options				Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2019		550,040		$	2.14-13.53		$	6.58
Granted		444,557			4.89-6.68			6.24
Cancelled		(42,928	)		2.22-13.53			6.91
Exercised⁽¹⁾		—				—		—
Outstanding at December 31, 2020		951,669			2.14-12.55			6.41
Granted		317,398				6.79		6.79
Cancelled		(3,984	)		6.55-7.25			6.89
Exercised⁽¹⁾		(768	)		6.55-7.25			6.79
Outstanding at March 31, 2021		1,264,315			2.14-12.55			6.50
Options exercisable at March 31, 2021⁽²⁾		361,363			2.14-15.55			6.50

(1)	The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at the exercise date and the related exercise price of the underlying options, was $1,000 and $0 for the three months ended March 31, 2021 and 2020.

(2)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at March 31, 2021 and the related exercise price of the underlying options, was $789,000 for outstanding options and $282,000 for exercisable options as of March 31, 2021. The remaining contractual life was 8.75 years for outstanding options and 7.73 years for exercisable options at March 31, 2021.

The following table presents the activity for the restricted stock programs for the 2021 first quarter and the 2020 full year.

	Number of Shares				Grant Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2019		284,879		$	3.95-7.25		$	6.01
Granted		229,408			4.89-6.68			6.21
Cancelled		(8,755	)		3.95-7.25			6.93
Vested⁽¹⁾		(89,392	)		3.95-6.55			5.37
Outstanding at December 31, 2020		416,140			4.39-7.25			6.24
Granted		163,561				6.79		6.79
Cancelled		(7,602	)		4.89-7.25			5.96
Vested⁽¹⁾		(119,577	)		4.39-7.25			6.09
Outstanding at March 31, 2021		452,522			4.80-7.25			6.48

(1)	The aggregate fair value of the restricted stock vested was $813,000 and $553,000 for the three months ended March 31, 2021 and 2020.

(2)	The aggregate fair value of the restricted stock was $3,190,000 as of March 31, 2021. The remaining vesting period was 3.56 years at March 31, 2021.

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During the three months ended March 31, 2021, the Company granted no restricted stock units, or RSUs, and during the year ended December 31, 2020, granted 47,156 RSUs that vest on June 19, 2021 with a grant price of $3.16. For the RSUs granted in 2019, unitholders have the option of deferring settlement until a future date if the recipient makes a formal election under the guidelines of IRC Section 409A, which was done for 15,624 units. The remaining 10,416 units vested and were settled.

The following table presents the activity for the unvested options outstanding under the plans for the 2021 first quarter.

	Number of Options				Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2020		773,362		$	4.89-7.25		$	6.42
Granted		317,398				6.79		6.79
Cancelled		(2,530	)		6.55-7.25			6.96
Vested		(185,278	)		6.55-7.25			6.67
Outstanding at March 31, 2021		902,952			4.89-7.25			6.50

The intrinsic value of the options vested was $48,000 for the three months ended March 31, 2021.

(9) SEGMENT REPORTING

The Company has six business segments, which include four lending and two non-operating segments, which are reflective of how Company management makes decisions about its business and operations.

The four lending segments reflect the main types of lending performed at the Company, which are recreation, home improvement, commercial, and medallion. The recreation and home improvement lending segments are conducted by the Bank and include loans in all fifty states, with the highest concentrations in Texas, Florida, and California at 15%, 10%, and 9% of loans outstanding and with no other states over 9% as of March 31, 2021. The recreation lending segment is a consumer finance business that works with third-party dealers and financial service providers for the purpose of financing RVs, boats, and other consumer recreational equipment, of which RVs, boats, and trailers make up 60%, 19%, and 11% of the segment portfolio as of March 31, 2021. The home improvement lending segment works with contractors and financial service providers to finance residential home improvements concentrated in roofs, swimming pools, windows, and solar panels, at 25%, 25%, 13%, and 7% of total home improvement loans outstanding, and with no other product lines over 7% as of March 31, 2021. The commercial lending segment focuses on enterprise wide industries, including manufacturing services, and various other industries, in which 68% of these loans are made in the Midwest. The medallion lending segment arose in connection with the financing of taxi medallions, taxis, and related assets, of which 91% were in New York City as of March 31, 2021.

In addition, our non-operating segments include RPAC, which is a race car team, and our corporate and other investments segment which includes items not allocated to our operating segments such as investment securities, equity investments, intercompany eliminations, and other corporate elements. As a result of COVID-19, the prior year race season had been suspended from March 15, 2020 through May 17, 2020. As states reopened, NASCAR resumed races and completed all races scheduled in 2020. Commencing in the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is currently included within the corporate and other investment segment due to its small size.

As part of segment reporting, capital ratios for all operating segments have been normalized at 20%, which approximates the percentage of consolidated total equity divided by total assets, with the net adjustment applied to corporate and other investments. In addition, the commercial segment exclusively represents the mezzanine lending business, and the legacy commercial loan business (immaterial to total) has been allocated to corporate and other investments.

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The following tables present segment data as of and for the three months ended March 31, 2021 and 2020.

	Consumer Lending																Corp.
Three Months Ended March 31, 2021 (Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			RPAC			and Other Investments			Consolidated
Total interest income	$	27,442		$	7,918		$	1,482			$	(69	)	$	—		$	307		$	37,080
Total interest expense		2,794			1,208			572				1,370			41			2,422			8,407
Net interest income (loss)		24,648			6,710			910				(1,439	)		(41	)		(2,115	)		28,673
Provision for loan losses (benefit)		3,613			450			—				(1,044	)		—			—			3,019
Net interest income (loss) after loss provision		21,035			6,260			910				(395	)		(41	)		(2,115	)		25,654
Sponsorship and race winnings		—			—			—				—			2,473			—			2,473
Race team related expenses		—			—			—				—			(2,122	)		—			(2,122	)
Other income (expense), net		(5,463	)		(1,914	)		(460	)			(2,144	)		(1,761	)		(1,314	)		(13,056	)
Net income (loss) before taxes		15,572			4,346			450				(2,539	)		(1,451	)		(3,429	)		12,949
Income tax (provision) benefit		(4,010	)		(1,119	)		(113	)			637			364			363			(3,878	)
Net income (loss)	$	11,562		$	3,227		$	337			$	(1,902	)	$	(1,087	)	$	(3,066	)	$	9,071
Balance Sheet Data
Total loans, net	$	794,554		$	336,763		$	55,567			$	11,177		$	—		$	3,345		$	1,201,406
Total assets		807,244			348,456			71,922				116,639			32,724			311,765			1,688,750
Total funds borrowed		641,993			277,672			59,533				92,469			8,726			266,366			1,346,759
Selected Financial Ratios
Return on average assets		5.92	%		3.80	%		1.79	%			(6.40	)%		(13.27	)%		(4.16	)%		2.08	%
Return on average equity		29.59			19.00			8.96				(31.98	)		(378.20	)		(30.80	)		11.09
Interest yield		14.36			9.66			10.37				(2.34	)	N/A			N/A				11.84
Net interest margin		12.90			8.19			6.37				(48.86	)	N/A			N/A				9.18
Reserve coverage		3.45			1.57			0.00		⁽¹⁾		68.29		N/A			N/A				4.59
Delinquency status⁽²⁾		0.40			0.04			0.13		⁽¹⁾		2.20		N/A			N/A				0.33
Charge-off ratio		1.35			0.30			0.00		⁽³⁾		(2.55	)	N/A			N/A				0.95

(1)	Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business.

(2)	Loans 90 days or more past due.

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

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	Consumer Lending																Corp.
Three Months Ended March 31, 2020 (Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			RPAC			and Other Investments			Consolidated
Total interest income	$	26,334		$	5,887		$	1,758			$	1,002		$	—		$	561		$	35,542
Total interest expense		3,566			1,287			657				1,849			40			1,601			9,000
Net interest income (loss)		22,768			4,600			1,101				(847	)		(40	)		(1,040	)		26,542
Provision for loan losses		10,601			1,536			—				4,404			—			—			16,541
Net interest income (loss) after loss provision		12,167			3,064			1,101				(5,251	)		(40	)		(1,040	)		10,001
Sponsorship and race winning		—			—			—				—			2,573			—			2,573
Race team related expenses		—			—			—				—			(2,130	)		—			(2,130	)
Other income (expense), net		(7,372	)		(2,340	)		(895	)			(8,573	)		(1,845	)		(5,669	)		(26,694	)
Net income (loss) before taxes		4,795			724			206				(13,824	)		(1,442	)		(6,709	)		(16,250	)
Income tax (provision) benefit		(1,226	)		(185	)		(51	)			3,445			359			907			3,249
Net income (loss)	$	3,569		$	539		$	155			$	(10,379	)	$	(1,083	)	$	(5,802	)	$	(13,001	)
Balance Sheet Data as of March 31, 2020
Total loans, net	$	712,881		$	252,392		$	64,911			$	96,192		$	—		$	3,346		$	1,129,722
Total assets		725,337			261,743			83,864				201,959			30,171			231,321			1,534,395
Total funds borrowed		577,715			208,519			68,469				160,812			7,830			153,300			1,176,645
Balance Sheet Data as of December 31, 2020
Total loans, net	$	765,338		$	328,876		$	62,037			$	12,725		$	—		$	3,314		$	1,172,290
Total assets		777,605			340,494			80,622				124,554			33,711			285,425			1,642,411
Total funds borrowed		621,735			272,284			65,924				98,636			8,689			244,987			1,312,255
Selected Financial Ratios as of March 31, 2020
Return on average assets		2.00	%		0.84	%		0.74	%			(19.90	)%		(14.12	)%		(9.74	)%		(3.57	)%
Return on average equity		10.02			4.20			3.69				(98.50	)	NM				(29.89	)		(16.56	)
Interest yield		15.08			9.53			10.40				3.93		N/A			N/A				11.82
Net interest margin		13.04			7.43			6.51				(3.32	)	N/A			N/A				8.80
Reserve coverage		3.03			1.37			0.00		⁽¹⁾		22.71		N/A			N/A				4.57
Delinquency status⁽²⁾		0.73			0.08			0.16		⁽¹⁾		1.21		N/A			N/A				0.60
Charge-off ratio		3.65			1.03			0.00		⁽³⁾		6.11		N/A			N/A				3.08

(1)	Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business.

(2)	Loans 90 days or more past due.

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

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(10) COMMITMENTS AND CONTINGENCIES

(A) EMPLOYMENT AGREEMENTS

The Company has employment agreements with certain key officers for either a one-, two- or five-year term. Annually, the contracts with a five-year term will generally renew for new five-year terms unless prior to the end of the first year of each five-year term, either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current five-year term. Typically, the contracts with a one- or two-year term will renew for new one- or two-year terms unless prior to the term either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current one or two-year terms; however, there is currently one agreement that renews after two years for additional one- year terms. In the event of a change in control, as defined, during the employment period, the agreements provide for severance compensation to the executive in an amount equal to the balance of the salary, bonus, and value of fringe benefits which the executive would be entitled to receive for the remainder of the employment period.

Employment agreements expire at various dates through 2025, with future minimum payments under these agreements of approximately $10,720,000.

(B) OTHER COMMITMENTS

The Company had no commitments to extend credit or make investments outstanding at March 31, 2021. Generally, any commitments would be on the same terms as loans to or investments in existing borrowers or investees, and generally have fixed expiration dates. Since some commitments would be expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management, based on the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision could result in a material adverse impact on the financial condition or results of operations of the Company.

(D) REGULATORY

In the ordinary course of business, the Company and its subsidiaries are subject to inquiries from certain regulators. During 2014, FSVC was examined by the SBA. The foregoing regulatory examination was resolved in January 2017 as a result of FSVC’s transfer to liquidation status and the restructure of the FSVC loan described in Note 5.

(11) RELATED PARTY TRANSACTIONS

Certain directors, officers and stockholders of the Company are also directors and officers of its main consolidated subsidiaries, MFC, MCI, FSVC, and the Bank, as well as other subsidiaries. Officer salaries are set by the Board of Directors of the Company.

Jeffrey Rudnick, the son of one of the Company’s directors, was an officer of LAX Group, LLC (LAX), one of the Company’s equity investments that sold its assets on December 16, 2020. In January 2020, Mr. Rudnick received a salary from LAX of $178,000 per year, which was reduced to $133,000 in the 2020 second quarter, and certain equity from LAX consisting of 10% ownership in LAX Class B stock, vesting at 3.34% per year; 5% of any new equity raised from outside investors at a valuation of $1,500,000 or higher; and 10% of LAX’s profits as a year-end bonus. In addition, Mr. Rudnick provided consulting services to the Company directly for a monthly retainer of $4,200. Effective March 1, 2021, Mr. Rudnick serves as the Company’s Senior Vice President at a salary of $195,000 per year and is no longer providing consulting services to the Company.

The Company’s subsidiary RPAC, has an agreement with minority shareholder Richard Petty, in which it makes an annual payment of $700,000 per year for services provided to the entity. In addition, RPAC has a note payable to a trust controlled by Mr. Petty of $7,479,000 that earns interest at an annual rate of 2% through March 31, 2021, none of which has been paid to date.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 825, “Financial Instruments,” requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, or off-balance-sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instrument. Fair value estimates that were derived from broker quotes

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cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

(a) Cash—Book value equals fair value.

(b) Equity investments and securities—The Company’s equity securities are recorded at cost less any impairment plus or minus observable price changes.

(d) Loans receivable—The Company’s loans are recorded at book value which approximated fair value.

(e) Floating rate borrowings—Due to the short-term nature of these instruments, the carrying amount approximated fair value.

(f) Commitments to extend credit—The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At March 31, 2021 and December 31, 2020, the estimated fair value of these off-balance-sheet instruments was not material.

(g) Fixed rate borrowings—The fair value of the debentures payable to the SBA is estimated based on current market interest rates for similar debt.

	March 31, 2021				December 31, 2020
(Dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash, cash equivalents and federal funds sold⁽¹⁾	$	140,277	$	140,277	$	112,040	$	112,040
Equity investments		9,529		9,529		9,746		9,746
Investment securities		38,081		38,081		46,792		46,792
Loans receivable		1,201,406		1,201,406		1,172,290		1,172,290
Accrued interest receivable⁽²⁾		9,215		9,215		10,338		10,338
Equity securities⁽³⁾		1,972		1,972		—		—
Financial liabilities
Funds borrowed⁽⁴⁾		1,346,759		1,346,772		1,312,255		1,312,591
Accrued interest payable⁽²⁾		4,762		4,762		4,673		4,673

(1)	Categorized as level 1 within the fair value hierarchy, excluding $1,500 in interest bearing deposits categorized as level 2 as of March 31, 2021 and December 31, 2020. See Note 13.

(2)	Categorized as level 3 within the fair value hierarchy. See Note 13.

(3)	Included within other assets on the balance sheet.

(4)	As of March 31, 2021 and December 31, 2020, publicly traded retail notes traded at a premium to par of $13 and $336.

(13) FAIR VALUE OF ASSETS AND LIABILITIES

The Company follows the provisions of FASB ASC 820, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements.

In accordance with FASB ASC 820, the Company has categorized its assets and liabilities measured at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). Our assessment and classification of an investment within a level can change over time based upon maturity or liquidity of the investment and would be reflected at the beginning of the quarter in which the change occurred.

As required by FASB ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a level 3 fair value measurement may include inputs that are observable (levels 1 and 2) and unobservable (level 3). Therefore gains and losses for such assets and liabilities categorized within the level 3 table below may include changes in fair value that are attributable to both observable inputs (levels 1 and 2) and unobservable inputs (level 3).

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Assets and liabilities measured at fair value, recorded on the consolidated balance sheets, are categorized based on the inputs to the valuation techniques as follows:

Level 1. Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, most US Government and agency securities, and certain other sovereign government obligations).

Level 2. Assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

Quoted prices for similar assets or liabilities in active markets (for example, restricted stock);

Quoted price for identical or similar assets or liabilities in non-active markets (for example, corporate and municipal bonds, which trade infrequently);

Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and

Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage-related assets, including loans, securities, and derivatives).

Level 3. Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the assets or liability (examples include certain private equity investments, and certain residential and commercial mortgage-related assets, including loans, securities, and derivatives).

A review of fair value hierarchy classification is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain assets or liabilities. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in/out of the level 3 category as of the beginning of the quarter in which the reclassifications occur.

Equity investments were recorded at cost less impairment plus or minus observable price changes. Commencing in 2020, the Company elected to measure equity investments at fair value on a non-recurring basis, which have been adjusted for all periods presented.

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.

March 31, 2021 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Interest-bearing deposits	$	—	$	1,500	$	—	$	1,500
Available for sale investment securities		—		38,081		—		38,081
Equity securities		1,972		—		—		1,972
Total⁽¹⁾	$	1,972	$	39,581	$	—	$	41,553

(1)	Total unrealized loss of $605, net of tax, was included in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 related to these assets.

December 31, 2020 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Interest-bearing deposits	$	—	$	1,500	$	—	$	1,500
Available for sale investment securities⁽¹⁾		—		46,792		—		46,792
Total	$	—	$	48,292	$	—	$	48,292

(1)	Total unrealized loss of $1,013, net of tax, was included in accumulated other comprehensive income (loss) for the year ended December 31, 2020 related to these assets.

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The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2021 and December 31, 2020.

March 31, 2021 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Equity investments	$	—	$	—	$	9,529	$	9,529
Impaired loans		—		—		57,282		57,282
Loan collateral in process of foreclosure		—		—		50,733		50,733
Total	$	—	$	—	$	117,544	$	117,544

December 31, 2020 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Equity investments	$	—	$	—	$	9,746	$	9,746
Impaired loans		—		—		62,174		62,174
Loan collateral in process of foreclosure		—		—		54,560		54,560
Total	$	—	$	—	$	126,480	$	126,480

Significant Unobservable Inputs

ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as level 3 within the fair value hierarchy. The tables below are not intended to be all-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

The valuation techniques and significant unobservable inputs used in non-recurring level 3 fair value measurements of assets and liabilities as of March 31, 2021 and December 31, 2020.

(Dollars in thousands)	Fair Value at 3/31/21			Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Equity investments	$	8,074		Investee financial analysis	Financial condition and operating performance of the borrower ⁽¹⁾	N/A
					Collateral support	N/A
		1,455	⁽⁴⁾	Precedent market transaction	Offering price	$8.73 / share
Impaired loans		57,282		Market approach	Historical and actual loss experience	1.50% - 6.00%
						60% of balance
					Transfer prices ⁽²⁾	$0.0 - 79.5
					Collateral value	N/A
Loan collateral in process of foreclosure		50,733		Market approach	Transfer prices ⁽²⁾	$0.0 - 79.5
					Collateral value ⁽³⁾	$0.7 - 31.1

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(Dollars in thousands)	Fair Value at 12/31/20		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Equity investments	$	8,291	Investee financial analysis	Financial condition and operating performance of the borrower ⁽¹⁾	N/A
				Collateral support	N/A
		1,455	Precedent market transaction	Offering price	$8.73 / share
Impaired loans		62,174	Market approach	Historical and actual loss experience	1.50% - 6.00%
					60% of balance
				Transfer prices ⁽²⁾	$0.6 - 108.7
				Collateral value	N/A
Loan collateral in process of foreclosure		53,128	Market approach	Transfer prices ⁽²⁾	$0.6 - 108.7
		1,432		Collateral value ⁽³⁾	$0.7 - 32.3

(1)

Includes projections based on revenue, EBITDA, leverage, and liquidation amounts. These assumptions are based on a variety of factors, including economic conditions, industry, and market developments, market valuations of comparable companies, and company-specific developments, including exit strategies and realization opportunities.

(2)

Represents amount net of liquidation costs.

(3)

Relates to the recreation portfolio.

(4)

Subsequent to quarter end, the Company sold 25% of the equity investment for a gain of approximately $1,527,000.

(14) MEDALLION BANK PREFERRED STOCK (Non-controlling interest)

On December 17, 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 $46,000,000 aggregate liquidation amount, yielding net proceeds of $42,485,000, 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 expected to be three-month Secured Overnight Financing Rate, or SOFR) plus a spread of 6.46% per annum.

On July 21, 2011, the Bank issued, and the US Treasury purchased 26,303 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series E, or Series E, for an aggregate purchase price of $26,303,000 under the Small Business Lending Fund Program, or SBLF, with a liquidation amount of $1,000 per share. The SBLF is a voluntary program intended to encourage small business lending by providing capital to qualified smaller banks at favorable rates. The Bank pays a dividend rate of 9% on the Series E.

(15) VARIABLE INTEREST ENTITIES

During the 2018 third quarter, the Company determined that Trust III was a VIE. Trust III had been consolidated as a subsidiary of MFC historically, although it should have been consolidated under the variable interest model, since MFC was its primary beneficiary until October 31, 2018. Trust III is a VIE since the key decision-making authority rests in the servicing agreement (where MFC is the servicer for Trust III) rather than in the voting rights of the equity interests and as a result the decision-making rights are considered a variable interest. This conclusion is supported by a qualitative assessment that Trust III does not have sufficient equity at risk. Since the inception of Trust III, MFC had also been party to a limited guaranty which was considered a variable interest because, pursuant to the guaranty, MFC absorbed variability as a result of the on-going performance of the loans in Trust III. As of October 31, 2018, the Company determined that MFC was no longer the primary beneficiary of Trust III and accordingly deconsolidated the VIE, leading to a net gain of $25,325,000 recorded as well as a new promissory note payable by MFC of $1,400,000 issued in settlement of the limited guaranty. See Note 5 for more details. The Company’s interest in Trust III is accounted for as an equity investment and has a value of $0 as of March 31, 2021 and December 31, 2020. In addition, the Company remains the servicer of the assets of Trust III for a fee.

In December 2008, Trust III entered into the DZ loan agreement with DZ Bank, to provide up to $200,000,000 of financing through a commercial paper conduit to acquire medallion loans from MFC, or the DZ loan. The loan, which has an outstanding balance of $86,750,000, currently terminates on May 15, 2021. Borrowings under the DZ loan are collateralized by Trust III’s assets.

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(16) SUBSEQUENT EVENTS

The Company evaluated the effects of events that have occurred subsequent to March 31, 2021, through the date of financial statement issuance.

One of the notes payable to banks with an outstanding amount of $528,000 with a maturity date of August 31, 2021 was extended until December 31, 2021.

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ITEM 2. 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 quarter ended March 31, 2021 and the year ended December 31, 2020. 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 the Company’s Annual Report on Form 10-K.

GENERAL

We are a finance company whose strategic focus and growth in recent years has been through Medallion Bank (a wholly-owned subsidiary), which originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and trailers, and to finance home improvements. Historically we have had a leading position in originating, acquiring, and servicing loans that finance taxi medallions and various types of commercial businesses.

Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16% (19% if there had been no loan sales during 2016, 2017, and 2018). We have transitioned away from medallion lending and have placed our strategic focus on our growing consumer finance portfolio. As a result of our change in strategy, as of March 31, 2021, our consumer loans represented 92% of our loan portfolio, with commercial loans representing 5% and medallion loans representing 3%. Total assets under management, which includes assets serviced for third-party investors, were $1.8 billion as of March 31, 2021 and December 31, 2020 and $1.6 billion as of March 31, 2020, and have grown at a compound annual growth rate of 9% from $215,000,000 at the end of 1996.

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, such as bank certificates of deposit issued to customers, debentures issued to and guaranteed by the SBA, privately placed notes, and bank term debt. Net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed funds, as well as changes in the amount of interest-bearing 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 on a different basis than our interest-bearing liabilities.

We also provide debt, mezzanine, and equity investment capital to companies in a variety of industries, consistent with our investment objectives. These investments may be venture capital style investments which may not be fully collateralized. Our investments are typically in the form of secured debt instruments with fixed interest rates accompanied by an equity stake or warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt instruments.

In 2019, Medallion Bank began the process to build-out a strategic partnership program with financial technology, or fintech, companies. Medallion Bank entered into an initial partnership in 2020 and began issuing its first loans and entered into another strategic partnership in 2021, which will soon be active, while continuing to explore opportunities with additional fintech companies.

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

•

carrying-out cost-cutting measures, such as reducing our employee headcount by 21% at our parent company Medallion Financial Corp. and closing satellite offices in Long Island City, Chicago, and Boston;

•

exiting non-core investments, such as selling the assets of LAX Group, LLC on December 16, 2020, and expecting to sell, when practicable to maximize our proceeds, other non-core investments like our remaining art investments of less than $1,000,000 in Medallion Fine Art, Inc.;

•

strengthening our initiative to grow the Bank by partnering with two fintech companies in our strategic partnership program; and

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Our wholly-owned subsidiary, Medallion Bank, or the Bank, is a 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 have referred a portion of our medallion and commercial loans to the Bank, which originated these loans, and have been serviced by Medallion Servicing Corp., or MSC. However, at this time the Bank is not originating any new medallion loans and is working with MSC to service its existing portfolio. MSC earns referral and servicing fees for these activities.

COVID-19

The ongoing coronavirus, or COVID-19, pandemic, its broad impact and preventive measures taken to contain or mitigate the outbreak have had, and are likely to 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 increasingly 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 are seeing early 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, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the continued outbreak, the actions taken to contain or mitigate the outbreak and how long, and to what extent the economic recovery from its effects will take.

We have taken steps to operate through this crisis, including having our workforce work remotely on a part-time basis in New York, though our employees outside of New York largely continue to work remotely. Despite elevated risks associated with a remote workforce, we implemented additional mitigating controls to help reduce such risks. In addition, we implemented a number of cost-cutting measures, such as reducing employee headcount by 21% 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, 2021, minimal consumer loans remained on deferral and no medallion loans remained on deferral. For our consumer loan portfolios, although we believe that our deferral programs have been effective to date in mitigating the effect of COVID-19, the ultimate effects of COVID-19 on these portfolios remains to be seen. For our medallion portfolio, we determined that anticipated payment activity on our medallion portfolio was impossible to quantify upon exit of the deferral moratorium, and therefore deemed all such loans as impaired. As a result, all medallion loans were placed on nonaccrual status and written down to net collateral value of $79,500 at December 31, 2020 and remained at that level as of March 31, 2021 for New York City taxi medallions. We will continue to monitor our medallion portfolio and related assets, which may result in additional write-downs, charge-offs or impairments, the impact of which could be material to our results of operations and financial condition.

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

In regards to our commercial business, many of our mezzanine portfolio companies were able to access the Paycheck Protection Program, providing needed liquidity during a period of depressed market demands. MCI drew on its remaining unfunded commitments and received a commitment from the SBA for $25,000,000 in debenture financing with a ten-year term, upon a capital infusion from Medallion Financial Corp. For the commercial portfolio, performance is slowly recovering although lingering impacts of COVID-19 continue to weigh on performance.

RPAC received $747,000 under the Paycheck Protection Program in the 2020 second quarter, and has not yet applied for forgiveness, but expects to.

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Average Balances and Rates

The following table shows the Company’s consolidated average balance sheet, interest income and expense, and the average interest earning/bearing assets and liabilities, and which reflects the average yield on assets and average costs on liabilities for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
	2021								2020
(Dollars in thousands)	Average Balance		Interest			Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Interest-earning assets
Interest-earning cash and cash equivalents	$	2,993	$	18			2.44	%	$	—	$	—		0.00	%
Federal funds sold		44,873		5			0.05			41,402		108		1.05
Investment securities		42,046		202			1.95			47,031		331		2.83
Loans
Recreation		774,823		27,442			14.36			702,380		26,334		15.08
Home improvement		332,270		7,918			9.66			248,355		5,887		9.53
Commercial		61,244		1,560			10.33			68,003		1,880		11.12
Medallion		11,945		(69	)		(2.34	)		102,574		1,002		3.93
Strategic partnership		27		4			60.08			—		—		—
Total loans		1,180,309		36,855			12.66			1,121,312		35,103		12.59
Total interest-earning assets		1,270,221		37,080			11.84			1,209,745		35,542		11.82
Non-interest-earning assets
Cash		61,370								17,567
Equity investments		9,583								10,687
Income tax receivable		518								500
Loan collateral in process of foreclosure⁽¹⁾		53,543								51,090
Goodwill and intangible assets		201,715								203,160
Other assets		45,702								41,400
Total non-interest-earning assets		372,431								324,404
Total assets	$	1,642,652							$	1,534,149
Interest-bearing liabilities
Deposits	$	1,045,381	$	4,711			1.83	%	$	949,262	$	5,941		2.52	%
Retail and privately placed notes		125,372		2,632			8.51			69,625		1,683		9.72
SBA debentures and borrowings		65,080		572			3.56			71,525		686		3.86
Preferred securities		33,000		193			2.37			33,000		314		3.83
Notes payable to banks		27,622		258			3.79			33,259		336		4.06
Other borrowings		8,707		41			1.91			7,812		40		2.06
Total interest-bearing liabilities		1,305,162		8,407			2.61			1,164,483		9,000		3.11
Non-interest-bearing liabilities
Deferred tax liability		1,304								8,265
Other liabilities⁽²⁾		27,788								30,066
Total non-interest-bearing liabilities		29,092								38,331
Total liabilities		1,334,254								1,202,814
Non-controlling interest		73,040								70,855
Total stockholders’ equity		235,358								260,480
Total liabilities and stockholders' equity	$	1,642,652							$	1,534,149
Net interest income			$	28,673							$	26,542
Net interest margin							9.18	%						8.80	%

(1)	Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by Medallion Bank of $3,818 and $9,157 as of March 31, 2021 and 2020.

(2)	Includes deferred financing costs of $6,523 and $4,674 as of March 31, 2021 and 2020.

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During the quarter, our net loans receivable had a yield of 11.84% (compared to 11.82% in the prior year’s first quarter), mainly driven by the increased yield in the home improvement portfolio as well as the new strategic partnership loans and other interest earning cash and cash equivalents, which was largely offset by the decline in yield for the recreation portfolio due to the increased reserves percentages as a result of COVID-19 as well as the decline in both commercial and the medallion portfolios as a result of the non-accruals. The debt, mainly certificates of deposit, helps fund our growing consumer loan business and as market rates have decreased, so has the average cost of borrowings. In addition, we issued new privately placed notes since December 31, 2020, which were at lower rates compared to the prior issuances.

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 period indicated.

	Three Months Ended March 31,
	2021									2020
(Dollars in thousands)	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	$	18		$	-		$	18		$	—		$	—		$	—
Federal funds sold		9			(112	)		(103	)		35			(72	)		(37	)
Investment securities		(35	)		(94	)		(129	)		20			25			45
Loans
Recreation		2,493			(1,386	)		1,107			4,467			(613	)		3,854
Home improvement		1,951			80			2,031			1,511			51			1,562
Commercial		(187	)		(132	)		(319	)		310			(397	)		(87	)
Medallion		(485	)		(586	)		(1,071	)		(421	)		582			161
Strategic partnerships		4			—			4			—			—			—
Total loans		3,776			(2,024	)		1,752			5,867			(377	)		5,490
Total interest-earning assets		3,768			(2,230	)		1,538			5,922			(424	)		5,498
Interest-bearing liabilities
Deposits	$	597		$	(1,828	)	$	(1,231	)	$	656		$	362		$	1,018
Retail and privately placed notes		1,156			(206	)		950			804			(57	)		747
SBA debentures and borrowings		(62	)		(52	)		(114	)		(74	)		(4	)		(78	)
Notes payable to banks		(55	)		(23	)		(78	)		(255	)		(74	)		(329	)
Preferred securities		—			(121	)		(121	)		—			(84	)		(84	)
Other borrowings		4			(3	)		1			1			3			4
Total interest-bearing liabilities		1,640			(2,233	)		(593	)		1,132			146			1,278
Net	$	2,128		$	3		$	2,131		$	4,790		$	(570	)	$	4,220

During the three months ended March 31, 2021, the increase in the interest earning assets was mainly driven by the increase in volume of consumer loans, even as the rates declined. The debt change similarly was driven by the increase in the borrowings, mainly driven by the deposits, which are used to fund the consumer loans, along with new privately placed 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 bank certificates of deposit, which are our lowest borrowing costs. The Bank is able to bid on these deposits at a wide variety of maturity levels, which allows for improved interest rate management strategies.

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

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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 ended March 31, 2021 and 2020.

We continue to seek SBA funding through Medallion Capital, Inc., or Medallion Capital, to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the Small Business Investment Act of 1985, as amended, or the SBIA, and SBA regulations. In July 2020, we obtained a $25,000,000 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. At March 31, 2021 and 2020, short-term adjustable rate debt constituted 3% and 4% of total debt.

Loans

Gross loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which are amortized to interest income over the life of the loan. During the three months ended March 31, 2021, there was continued growth in the consumer lending segments along with recoveries on 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, 2021 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic 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, and maturities		(58,427	)		(40,069	)		(10,965	)		(1,825	)		(1,910	)		(113,196	)
Charge-offs, net		(2,584	)		(249	)		—			75			—			(2,758	)
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		2,663			(74	)		—			—			—			2,589
Paid-in-kind interest		—			—			325			—			—			325
Gross loans – March 31, 2021	$	822,932		$	342,121		$	58,854		$	35,250		$	58		$	1,259,215

Three Months Ended March 31, 2020 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Total
Gross loans – December 31, 2019	$	713,332		$	247,324		$	69,767		$	130,432		$	1,160,855
Loan originations		69,643			33,465			2,175			—			105,283
Principal payments, sales, and maturities		(37,070	)		(24,225	)		(3,999	)		(2,075	)		(67,369	)
Charge-offs, net		(6,382	)		(636	)		—			(1,559	)		(8,577	)
Transfer to loan collateral in process of foreclosure, net		(4,779	)		—			—			(2,159	)		(6,938	)
Amortization of origination costs		(1,728	)		441			2			(19	)		(1,304	)
Amortization of loan premium		(52	)		(86	)	—				(191	)		(329	)
FASB origination costs		2,211			(384	)		19			19			1,865
Paid-in-kind interest	—			—				293		—				293
Gross loans – March 31, 2020	$	735,175		$	255,899		$	68,257		$	124,448		$	1,183,779

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

Page 42 of 60

	Loan Maturity
(Dollars in thousands)	Within 1 year		After 1 to 5 years		After 5 to 15 years		After 15 years		Total
Fixed-rate	$	30,381	$	160,621	$	975,023	$	55,763	$	1,221,788
Recreation		1,640		75,649		708,451		1,885		787,625
Home improvement		12,468		17,558		260,723		53,878		344,627
Commercial		7,591		43,626		5,849		—		57,066
Medallion		8,682		23,788		—		—		32,470
Adjustable-rate	$	5,919	$	6,600	$	40	$	—	$	12,559
Recreation		4,684		4,810		40		—		9,534
Home improvement		—		—		—		—		—
Commercial		—		1,790		—		—		1,790
Medallion		1,235		—		—		—		1,235
Total⁽¹⁾⁽²⁾	$	36,300	$	167,221	$	975,063	$	55,763	$	1,234,347

(1)

Excludes strategic partnership loans.

(2)

As of March 31, 2021, there were no floating rate loans.

Provision and Allowance for Loan Loss

During the three months ended March 31, 2021, New York City taxi medallion values remained constant at a net realizable value of $79,500, even as other markets slightly declined, whereas for the three months ended March 31 2020 as a result of the initial impact of COVID-19, the New York City taxi medallion values had decreased from $167,000 to $124,500. In addition, the consumer and recreation loan allowance percentages had remained relatively in line for the three months ended March 31, 2021, whereas for the three months ended March 31, 2020, due to the change in economic factors due to COVID-19, the Company increased the reserve percentages for the consumer loan portfolio between 25 to 50 basis points.

The following table set forth the activity in the allowance for loan losses for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Allowance for loan losses – beginning balance	$	57,548		$	46,093
Charge-offs
Recreation		(5,053	)		(8,244	)
Home improvement		(681	)		(1,011	)
Commercial		—			—
Medallion		(1,114	)		(1,924	)
Total charge-offs		(6,848	)		(11,179	)
Recoveries
Recreation		2,469			1,862
Home improvement		432			375
Commercial		—			—
Medallion		1,189			365
Total recoveries		4,090			2,602
Net charge-offs⁽¹⁾		(2,758	)		(8,577	)
Provision for loan losses		3,019			16,541
Allowance for loan losses – ending balance^{(2) (3)}	$	57,809		$	54,057

(1)	As of March 31, 2021, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion portfolio were $282,450, some of which represents collection opportunities for the Company.

(2)	As of September 30, 2020, the general reserves previously recorded for the Company’s medallion loan portfolio had been reversed as all loans had been deemed impaired and written down to collateral value.

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

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The following tables set forth the allowance for loan losses by type as of March 31, 2021 and December 31, 2020.

March 31, 2021 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category			Allowance as a Percent of Nonaccrual
Recreation	$	28,378		49	%		3.45	%		561.61	%
Home improvement		5,358		9			1.57		NM
Commercial		—		—		—				—
Medallion		24,073		42			68.29			70.05
Total	$	57,809		100	%		4.59	%		1.02	%

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

As of March 31, 2021, the allowance for loan losses had remained relatively in line with December 31, 2020, mainly driven by the New York City medallion collateral value remaining consistent due to the economy slowly re-opening and recovering from the COVID-19 pandemic as well as the consumer rates remaining consistent.

We generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. A loan is considered to be delinquent if the borrower fails to make a payment on time; however, during the course of discussion on delinquent status, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in accordance with the original loan agreement. For loan modifications, the loan will only be returned to accrual status if all past due interest and principal payments are brought fully current. For credit that is collateral based, we evaluate the anticipated net residual value we would receive upon foreclosure of such collateral, if necessary. There can be no assurance, however, that the collateral securing these loans will be adequate in the event of foreclosure. For credit that is cash flow-based, we assess our collateral position, and evaluate most of these relationships as ongoing businesses, expecting to locate and install a new operator to run the business and reduce the debt. We cannot predict the ultimate impact that the ongoing COVID-19 pandemic will have on the loan portfolios due to the greater than typical uncertainty surrounding COVID-19 and its related significant negative effects on the economy and financial markets.

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

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

	March 31, 2021					December 31, 2020					March 31, 2020
(Dollars in thousands)	Amount		%⁽¹⁾			Amount		%⁽¹⁾			Amount		%⁽¹⁾
Recreation	$	3,152		0.2	%	$	5,343		0.5	%	$	5,225		0.5	%
Home improvement		149		0.0			170		0.0			220		0.0
Commercial		75		0.0			75		0.0			107		0.0
Medallion		742		0.1			1,290		0.1			1,462		0.1
Total loans 90 days or more past due	$	4,118		0.3	%	$	6,878		0.6	%	$	7,014		0.6	%

(1)	Percentages are calculated against the total loan portfolio.

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We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 362%, 327%, and 244% as of March 31, 2021, December 31, 2020, and March 31, 2020.

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 ended March 31, 2021 and 2020.

Three Months Ended March 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

Three Months Ended March 31, 2020 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – December 31, 2019	$	1,476		$	51,235		$	52,711
Transfer from loans, net		4,779			2,159			6,938
Sales		(1,999	)		(300	)		(2,299	)
Cash payments received		—			(1,708	)		(1,708	)
Collateral valuation adjustments		(2,539	)		(6,286	)		(8,825	)
Loan collateral in process of foreclosure – March 31, 2020	$	1,717		$	45,100		$	46,817

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. All results are for the three months ended March 31, 2021 and 2020.

Recreation Lending

The recreation lending segment is a high-growth prime and non-prime consumer finance business which is a significant source of income for us, accounting for 74% of our interest income for the three months ended March 31, 2021 and 2020. The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 60% of the portfolio, boat loans making up 19% of the portfolio, and trailer loans 11% as of March 31, 2021, compared to 61%, 18% and 13% as of March 31, 2020. Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, California, and Florida, at 17%, 10%, and 10% of loans outstanding, compared to 18%, 10%, and 10% as of March 31, 2020, and with no other states over 10%.

During the three months ended March 31, 2021, the recreation portfolio continued its growth compared to the three months ended March 31, 2020. Additionally, reserves were strengthened while the delinquencies and charge-offs improved. Also, the allowance percentages remained in line whereas in the prior period there had been an increase due to the uncertainty regarding the COVID-19 pandemic.

Page 45 of 60

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Selected Earnings Data
Total interest income	$	27,442		$	26,334
Total interest expense		2,794			3,566
Net interest income		24,648			22,768
Provision for loan losses		3,613			10,601
Net interest income after loss provision		21,035			12,167
Other income (expense), net		(5,463	)		(7,372	)
Net income before taxes		15,572			4,795
Income tax provision		(4,010	)		(1,226	)
Net income after taxes	$	11,562		$	3,569
Balance Sheet Data
Total loans, gross	$	822,932		$	735,175
Total loan allowance		28,378			22,294
Total loans, net		794,554			712,881
Total assets		807,244			725,337
Total borrowings		641,993			577,715
Selected Financial Ratios
Return on average assets		5.92	%		2.00	%
Return on average equity		29.59			10.02
Interest yield		14.36			15.08
Net interest margin		12.90			13.04
Reserve coverage		3.45			3.03
Delinquency status⁽¹⁾		0.40			0.73
Charge-off %		1.35			3.65

(1)	Loans 90 days or more past due.

Home Improvement Lending

The home improvement lending segment works with contractors and financial service providers to finance residential home improvements and is concentrated in roofs, swimming pools, windows, and solar panels at 25%, 25%, 13%, and 7% of total loans outstanding as of March 31, 2021, as compared to 22%, 22%, 14%, and 12% as of March 31, 2020, with no other collateral types over 7%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations in Florida, Texas, and Ohio at 11%, 11%, and 9% of loans outstanding March 31, 2021, compared to 10%, 11%, and 11% as of March 31, 2020, and with no other states over 9%.

For the three months ended March 31, 2021, the home improvement loan portfolio continued to grow rapidly, leading to an increase in interest income and overall net income, while maintaining its high net interest margin. Additionally, loan loss reserves were strengthened while charge-offs and delinquencies improved.

Page 46 of 60

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Selected Earnings Data
Total interest income	$	7,918		$	5,887
Total interest expense		1,208			1,287
Net interest income		6,710			4,600
Provision for loan losses		450			1,536
Net interest income after loss provision		6,260			3,064
Other income (expense), net		(1,914	)		(2,340	)
Net income before taxes		4,346			724
Income tax provision		(1,119	)		(185	)
Net income after taxes	$	3,227		$	539
Balance Sheet Data
Total loans, gross	$	342,121		$	255,899
Total loan allowance		5,358			3,507
Total loans, net		336,763			252,392
Total assets		348,456			261,743
Total borrowings		277,672			208,519
Selected Financial Ratios
Return on average assets		3.80	%		0.84	%
Return on average equity		19.00			4.20
Interest yield		9.66			9.53
Net interest margin		8.19			7.43
Reserve coverage		1.57			1.37
Delinquency status⁽¹⁾		0.04			0.08
Charge-off %		0.30			1.03

(1)	Loans 90 days or more past due.

Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 68% 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 and professional, scientific, and technical services, making up 56% and 15% of the loans outstanding as of March 31, 2021, compared to 58% and 14% as of March 31, 2020.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020. 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 decreased as early payoffs exceeded new loans recorded during the quarter. Net income improved as expenses decreased and credit quality remained solid.

Page 47 of 60

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Selected Earnings Data
Total interest income	$	1,482		$	1,758
Total interest expense		572			657
Net interest income		910			1,101
Provision for loan losses		—			—
Net interest income after loss provision		910			1,101
Other income (expense), net		(460	)		(895	)
Net income before taxes		450			206
Income tax provision		(113	)		(51	)
Net income after taxes	$	337		$	155
Balance Sheet Data
Total loans, gross	$	55,567		$	64,911
Total loan allowance		—			—
Total loans, net		55,567			64,911
Total assets		71,922			83,864
Total borrowings		59,533			68,469
Selected Financial Ratios
Return on average assets		1.79	%		0.74	%
Return on average equity		8.96			3.69
Interest yield		10.37			10.40
Net interest margin		6.37			6.51
Reserve coverage⁽¹⁾		0.00			0.00
Delinquency status^{(1) (2)}		0.13			0.16
Charge-off %⁽³⁾		0.00			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.

	March 31, 2021					March 31, 2020
Geographic Concentrations (Dollars in thousands)	Total Gross Loans		% of Market			Total Gross Loans		% of Market
Illinois	$	11,146		20	%	$	9,239		14	%
Michigan		10,502		19			10,357		16
Minnesota		8,208		15			5,710		9
North Carolina		5,849		11			5,250		8
Texas		5,569		10			5,555		9
New Jersey		4,164		7			4,981		8
Kansas		4,107		7			4,107		6
Other⁽¹⁾		6,022		11			19,712		30
Total	$	55,567		100	%	$	64,911		100	%

(1)	Includes four other states, which were all under 6% as of March 31, 2021, and eight other states, all under 8% as of March 31, 2020.

Medallion Lending

The medallion lending segment operates mainly in the New York City, Newark, and Chicago markets. We have a long history of owning, managing, and financing taxi fleets, taxi medallions, and corporate car services. During the three months ended March 31, 2021, taxi medallion values remained consistent in the New York City market even as other markets saw declines. We continue to experience a decline in interest income due to all loans being placed on nonaccrual as of September 30, 2020, and by removing underperforming loans from the portfolio by transferring them to loan collateral in process of foreclosure with charge-offs to collateral value. All the loans are secured by taxi medallions and enhanced by personal guarantees of the shareholders and owners.

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The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Selected Earnings Data
Total interest income	$	(69	)	$	1,002
Total interest expense		1,370			1,849
Net interest loss		(1,439	)		(847	)
Provision for loan losses		(1,044	)		4,404
Net interest loss after loss provision		(395	)		(5,251	)
Other income (expense), net		(2,144	)		(8,573	)
Net loss before taxes		(2,539	)		(13,824	)
Income tax benefit		637			3,445
Net loss after taxes	$	(1,902	)	$	(10,379	)
Balance Sheet Data
Total loans, gross	$	35,250		$	124,448
Total loan allowance		24,073			28,256
Total loans, net		11,177			96,192
Total assets		116,639			201,959
Total borrowings		92,469			160,812
Selected Financial Ratios
Return on average assets		(6.40	)%		(19.90	)%
Return on average equity		(31.98	)		(98.50	)
Interest yield		(2.34	)		3.93
Net interest margin		(48.86	)		(3.32	)
Reserve coverage		68.29			22.71
Delinquency status⁽¹⁾		2.20			1.21
Charge-off %		(2.55	)		6.11

(1)	Loans 90 days or more past due.

	March 31, 2021					March 31, 2020
Geographic Concentration (Dollars in thousands)	Total Gross Loans		% of Market			Total Gross Loans		% of Market
New York City	$	32,037		91	%	$	111,696		90	%
Newark		2,939		8			12,013		10
All Other		274		1			739		—
Total	$	35,250		100	%	$	124,448		100	%

	March 31, 2021					March 31, 2020
Geographic Concentration (Dollars in thousands)	Total Loan Collateral in Process of Foreclosure Loans		% of Market			Total Loan Collateral in Process of Foreclosure Loans		% of Market
New York City	$	38,383		77	%	$	34,294		76	%
Newark		6,267		13			3,415		8
Chicago		4,824		10			6,378		14
All Other		289		—			1,013		2
Total	$	49,763		100	%	$	45,100		100	%

RPAC

We are the majority owner and managing member of RPAC Racing, LLC, a performance and marketing company for NASCAR. Revenues are mainly earned through sponsorships and race winning activity over the ten month race season (February through November) during the year. As a result of COVID-19, the prior year race season had been suspended from March 15, 2020 through May 17, 2020. As states began to reopen, NASCAR began racing and completed all races on a revised schedule.

Page 49 of 60

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Selected Earnings Data
Sponsorship, race winnings, and other income	$	2,473		$	2,573
Race team and other expenses		3,883			3,975
Interest expense		41			40
Total expenses		3,924			4,015
Net income (loss) before taxes		(1,451	)		(1,442	)
Income tax (provision)		364			359
Net income (loss) after taxes	$	(1,087	)	$	(1,083	)
Balance Sheet Data
Total assets	$	32,724		$	30,171
Total borrowings		8,726			7,830
Selected Financial Ratios
Return on average assets		(13.27	)%		(14.12	)%
Return on average equity		(378.20	)	NM

Corporate and Other Investments

This non-operating segment relates to our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses not allocated to the operating segments. Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is currently included within this segment, for a total of $58,000 in net loans as of March 31, 2021. This segment also reflects the elimination of all intercompany activity among the consolidated entities.

The following table presents certain financial data and ratios as of and for the three months ended March 31, 2021 and 2020.

	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Selected Earnings Data
Total interest income	$	307		$	561
Total interest expense		2,422			1,601
Net interest loss		(2,115	)		(1,040	)
Provision for loan losses		—			—
Net interest loss after loss provision		(2,115	)		(1,040	)
Other income (expense), net		(1,314	)		(5,669	)
Net loss before taxes		(3,429	)		(6,709	)
Income tax benefit		363			907
Net loss after taxes	$	(3,066	)	$	(5,802	)
Balance Sheet Data
Total loans, gross	$	3,345		$	3,346
Total loan allowance		—			—
Total loans, net		3,345			3,346
Total assets		311,765			231,321
Total borrowings		266,366			153,300
Selected Financial Ratios
Return on average assets		(4.16	)%		(9.74	)%
Return on average equity		(30.80	)		(29.89	)

Page 50 of 60

Summary Consolidated Financial Data

The table below presents selected financial data for the Company for the three months ended March 31, 2021 and 2020.

(Dollars in thousands, except per share data)	For the Three Months Ended March 31, 2021			For the Three Months Ended March 31, 2020
Selected financial ratios
Return on average assets (ROA)		2.08	%		(3.57	)%
Return on average equity (ROE)		11.09			(16.56	)
Dividend payout ratio		-			—
Net interest margin		9.18			8.80
Other income ratio⁽³⁾		0.62			(2.32	)
Total expense ratio⁽⁴⁾		8.60			8.32
Equity to assets⁽²⁾		18.48			20.89
Debt to equity ⁽¹⁾	4.3x			3.7x
Loans receivable to assets		71	%		69	%
Net charge-offs		(2,758	)		(8,577	)
Net charge-offs as a % of average loans receivable		0.95	%		3.08	%
Allowance coverage ratio		4.59			4.57

(1)	Excludes the $6,523 and $4,674 related to deferred financing costs as of March 31, 2021 and 2020.

(2)	Includes $72,282 and $70,455 related to non-controlling interests in consolidated subsidiaries as of March 31, 2021 and 2020.

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

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

Consolidated Results of Operations

Three Months Ended Mach 31, 2021 compared to the Three Months Ended March 31, 2020

Net income attributable to shareholders was $8,431,000, or $0.34 per share, for the three months ended March 31, 2021, compared to the net loss attributable to shareholders of $13,643,000, or $0.56 per share, for the three months ended March 31, 2020.

Total interest income was $37,080,000 for the three months ended March 31, 2021, compared to $35,542,000 for the three months ended March 31, 2020. The increase in interest income reflected the continued growth in the consumer lending segments, which was partially offset by contraction in the medallion lending segment, driven by both a decline in overall medallion loans along with all loans being placed on nonaccrual. The yield on interest earning assets was 11.84% for three months ended March 31, 2021, compared to 11.82% for three months ended March 31, 2020. Average interest earning assets were $1,270,221,000 for the three months ended March 31, 2021, an increase from $1,209,745,000 for the three months ended March 31, 2020.

Loans before the allowance for loan losses were $1,259,215,000 as of March 31, 2021, comprised of recreation ($822,932,000), home improvement ($342,121,000), commercial ($58,854,000), medallion ($35,250,000), and strategic partnership ($58,000) loans. The Company had an allowance for loan losses as of March 31, 2021 of $57,809,000, which was attributable to the recreation (49%), medallion (42%), and home improvement (9%) loan portfolios. As of December 31, 2020, loans before allowance for loan losses were $1,229,838,000 as of December 31, 2020, comprised of recreation ($792,686,000), home improvement ($334,033,000), commercial ($65,327,000), medallion ($37,768,000), and strategic partnership ($24,000) loans. The Company had an allowance for loan losses as of December 31, 2020 of $57,548,000, which was attributable to the recreation (48%), medallion (43%), and home improvement (9%) loan portfolios.

Loans increased $29,116,000, or 3%, from December 31, 2020 to $1.2 billion as of March 31, 2021 as a result of $150,598,000 of loan originations, partially offset by principal payments, net charge-offs (mainly on consumer loans), and transfers to loan collateral in process of foreclosure. The provision for loan losses was $3,019,000 for the three months ended March 31, 2021, compared to $16,541,000 for the three months ended March 31, 2020. The improvement was mainly due to the increase of reserve percentages ranging from 25 to 50 basis points on the recreation subprime loan business, related to the uncertainty about the potential impact on the business as a result of COVID-19 in the prior year quarter, along with continued recoveries on the medallion loan

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portfolio in the current quarter. The charge-off ratios on the loan portfolios decreased to 0.95% for the three months ended March 31, 2021 compared to 3.08% for the three months ended March 31, 2020, mostly due to the medallion segment. See Note 4 for additional information on loans and the allowance for loan losses.

Interest expense was $8,407,000 for the three months ended March 31, 2021, compared to $9,000,000 for the three months ended March 31, 2020. The average cost of borrowed funds was 2.61% for the three months ended March 31, 2021, compared to 3.11% for the three months ended March 31, 2020, mainly driven by the decline in market rates for deposits as well as the new issuances of privately placed notes at a lower rates. Average debt outstanding was $1,305,162,000 for the three months ended March 31, 2021, compared to $1,164,483,000 for the three months ended March 31, 2020. This increase was driven by the issuance of additional certificates of deposits to increase our liquidity and help fund the growing consumer segment along with the new issuance of privately placed notes. See page 40 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $28,673,000 for the three months ended March 31, 2021, compared to $26,542,000 for the three months ended March 31, 2020. The net interest margin was 9.18%, compared to 8.80% for the three months ended March 31, 2020, reflecting the above.

Net other income (loss), which is comprised of sponsorship and race winnings, prepayment fees, servicing fee income, late charges, write-downs of loan collateral, impairment of equity investments, and other miscellaneous income, was $1,937,000 for the three months ended March 31, 2021, compared to a loss of $6,980,000 for the three months ended March 31, 2020. The improvement was mainly due to lower reductions in collateral values for the Newark and Chicago taxi medallion markets, along with a $1,767,000 gain on debt extinguishment in the 2021 first quarter, and a $3,510,000 charge in connection with the writeoff of a non-core sports-related investment in the 2020 first quarter. We expect to realize a gain on debt extinguishment of $2,316,000 in the 2021 second quarter due to the repayment of certain bank notes.

Operating expenses were $14,642,000 for the three months ended March 31, 2021, compared to $19,271,000 for the three months ended March 31, 2020. Salaries and benefits were $5,685,000 for the three months ended March 31, 2021, a decrease from $6,933,000 for three months ended March 31, 2020, which was mainly attributable a decrease in bonuses for most of the Company. Race team costs were $2,122,000 for the three months ended March 31, 2021, which was mainly in line with the $2,130,000 for the three months ended March 31, 2020. Professional fees were $507,000 for the three months ended March 31, 2021, a decrease from the $3,589,000 for the three months ended March 31, 2020, which was primarily related to legal costs for a variety of corporate matters. Loan servicing costs were $1,647,000 for the three months ended March 31, 2021, up from $1,612,000 for the three months ended March 31, 2020, primarily reflecting the increased costs of servicing the growing recreation and home improvement consumer loans, which grew 18% from March 31, 2020. Loan collection costs remained relatively in line from $1,229,000 for the three months ended March 31, 2020, to $1,232,000 the three months ended March 31, 2021. Occupancy and other operating expenses were $3,449,000 for the three months ended March 31, 2021, which decreased $329,000, or 9%, compared to the three months ended March 31, 2020, due to lower race-related other costs, lower computer expenses and lower travel, meals and entertainment expenses as a result of the continued shut-downs related to COVID-19.

Income tax provision was $3,878,000 for the three months ended March 31, 2021, compared to an income tax benefit of $3,249,000 for the three months ended March 31, 2020. The current provision and prior benefit is due to the above. See Note 7 for more information.

Loan collateral in process of foreclosure was $50,733,000 at March 31, 2021, a decrease from $54,560,000 at December 31, 2020. The decrease primarily reflects the continued decline in collateral values on the medallion portfolio and payments received, partly offset by additional loans having reached 120 days past due and being charged down to their collateral value and reclassified to loan collateral in process of foreclosure.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

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

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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.

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

March 31, 2021 Cumulative Rate Gap⁽¹⁾
(Dollars in thousands)	Less Than 1 Year			More Than 1 and Less Than 2 Years			More Than 2 and Less Than 3 Years			More Than 3 and Less Than 4 Years			More Than 4 and Less Than 5 Years			More Than 5 and Less Than 6 Years			Thereafter		Total
Earning assets
Floating-rate	$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Adjustable rate		5,919			5,229			1,340			31			—			25			15		12,559
Fixed-rate		30,381			24,339			32,629			54,145			49,509			55,452			975,334		1,221,789
Cash, cash equivalents, and federal funds sold		138,777			—			—			250			500			750			—		140,277
Investment securities		2,607			4,771			2,147			7,358			3,641			2,060			15,497		38,081
Total earning assets	$	177,684		$	34,339		$	36,116		$	61,784		$	53,650		$	58,287		$	990,846	$	1,412,706
Interest bearing liabilities
Deposits	$	398,096		$	244,883		$	193,105		$	116,117		$	134,284		$	—		$	—	$	1,086,485
Retail and privately placed notes		33,625			—			36,000			—			28,250			—			42,100		139,975
SBA debentures and borrowings		14,008			5,000			2,500			12,500			15,500			4,500			5,500		59,508
Preferred securities		33,000			—			—			—			—			—			—		33,000
Notes payable to banks		18,325			280			210			—			—			—			—		18,815
Other borrowings		7,979			—			—			—			747			—			—		8,726
Total liabilities	$	505,033		$	250,163		$	231,815		$	128,617		$	178,781		$	4,500		$	47,600	$	1,346,509
Interest rate gap	$	(327,349	)	$	(215,824	)	$	(195,699	)	$	(66,833	)	$	(125,131	)	$	53,787		$	943,246	$	66,197
Cumulative interest rate gap	$	(327,349	)	$	(543,173	)	$	(738,872	)	$	(805,705	)	$	(930,836	)	$	(877,049	)	$	66,197	$	—
December 31, 2020⁽²⁾	$	(366,801	)	$	(570,449	)	$	(719,385	)	$	(827,236	)	$	(907,295	)	$	(860,941	)	$	52,347	$	—
December 31, 2019⁽²⁾	$	(260,323	)	$	(500,953	)	$	(651,546	)	$	(689,819	)	$	(748,187	)	$	(706,935	)	$	83,402	$	—

(1)	The ratio of the cumulative one year gap to total interest rate sensitive assets was (23%) as of March 31, 2021, and was (27%) as of December 31, 2020 and was (21%) as of December 31, 2019.

(2)	Excludes federal funds sold and investment securities.

Our interest rate sensitive assets were $1,412,706,000 and interest rate sensitive liabilities were $1,346,509,000 at March 31, 2021. The one-year cumulative interest rate gap was a negative $327,349,000 or 23% of interest rate sensitive assets. We seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, and by other options consistent with managing interest rate risk.

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With the cessation of LIBOR at the end of 2021, we are currently reviewing the impact on our loans and borrowings. We do not have lendings tied to LIBOR and do not expect a significant impact on our loans. We expect to rely on our lenders to adjust and communicate rate adjustments; however, we do not expect a material impact on our borrowings.

Liquidity and Capital Resources

Our sources of liquidity are with a variety of local and regional banking institutions, 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 other assets of the Company, and dividends from Medallion Capital and the Bank, and are subject to compliance with regulatory ratios. As of March 31, 2021, we had unfunded commitments from the SBA of $25,000,000.

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 $45,000,000 available under Fed Funds lines with several commercial banks. In addition, the Bank can retain earnings in its business to fund future growth.

In February 2021, we completed a private placement to certain institutional investors of $25,000,000 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 $3,250,000 and $3,000,000.

In December 2020, we completed a private placement to certain institutional investors of $33,600,000 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 $8,500,000. An additional follow-on offering of these notes in April 2021 raised an additional $11,650,000.

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

In December 2019, the Bank closed an initial public offering of $46,000,000 aggregate liquidation amount, yielding net proceeds of $42,485,000, of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F. Dividends are payable quarterly from the date of issuance to, but excluding April 1, 2025, at a rate of 8% per annum, and from and including April 1, 2025, at a floating rate equal to a benchmark rate (which is expected to be three-month Secured Overnight Financing Rate, or SOFR) plus a spread of 6.46% per annum.

In March 2019, we completed a private placement to certain institutional investors of $30,000,000 aggregate principal amount of 8.25% unsecured notes due 2024, with interest payable semiannually. A follow-on offering of these notes in the 2019 third quarter raised an additional $6,000,000.

The table below presents the components of our debt at March 31, 2021, exclusive of deferred financing costs of $6,523,000. See Note 5 to the consolidated financial statements for details of the contractual terms of our borrowings.

(Dollars in thousands)	Balance		Percentage			Rate ⁽¹⁾
Deposits⁽²⁾	$	1,086,735		81	%		1.61	%
Retail and privately placed notes		139,975		10			8.00
SBA debentures and borrowings		59,508		4			3.12
Preferred securities		33,000		2			2.30
Notes payable to banks		18,815		2			3.72
Other borrowings		8,726		1			1.91
Total outstanding debt	$	1,346,759		100	%		2.43

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

(2)	Balance includes $250 of strategic partner reserve deposits as of March 31, 2021.

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

	Payments due by period
(Dollars in thousands)	Less than 1 year		1 – 2 years		2 – 3 years		3 – 4 years		4 – 5 years		More than 5 years		Total⁽¹⁾
Deposits⁽²⁾	$	398,096	$	244,883	$	193,105	$	116,117	$	134,284	$	—	$	1,086,485
Retail and privately placed notes		33,625		—		36,000		—		28,250		42,100		139,975
SBA debentures and borrowings		14,008		5,000		2,500		12,500		15,500		10,000		59,508
Preferred securities		—		—		—		—		—		33,000		33,000
Notes payable to banks		18,325		280		210		—		—		—		18,815
Other borrowings		7,979		—		—		—		747		—		8,726
Operating lease obligations		2,454		2,389		2,360		2,377		2,395		2,918		14,893
Total	$	474,487	$	252,552	$	234,175	$	130,994	$	181,176	$	88,018	$	1,361,402

(1)	Total debt is exclusive of deferred financing costs of $6,523.

(2)	Balance excludes $250 of strategic partner reserve deposits as of March 31, 2021.

Approximately $722,000,000 of our borrowing relationships have maturity dates during the next two years, including almost $643,000,000 of brokered CDs. Additionally, on April 15, 2021, we paid off the $33,625,000 aggregate principal amount of our retail notes. We have arranged for changes to the terms of the notes, and payment and borrowing base calculations which we anticipate will facilitate our operations for the foreseeable future.

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 investing activities. Our long-term fixed-rate investments are financed primarily with short-term floating-rate debt, and to a lesser extent by term 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 March 31, 2021 by $1,429,000 on an annualized basis, and the impact of such an immediate increase of 1% over an one year period would have been ($1,541,000) at March 31, 2021. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net income from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

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We continue to work with investment banking firms and other financial intermediaries to investigate the viability of a number of 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 March 31, 2021. See Note 5 to the consolidated financial statements for additional information about each credit facility.

(Dollars in thousands)	Medallion Financial Corp.				MB			MFC			MCI			FSVC			RPAC and Other			March 31, 2021⁽¹⁾			December 31, 2020⁽¹⁾
Cash and cash equivalents	$	54,962		⁽²⁾	$	72,352		$	1,044		$	8,528		$	216		$	3,175		$	140,277		$	112,040
Brokered CDs & other funds borrowed		—				1,086,735			—			—			—			—			1,086,735			1,068,072
Average interest rate		—				1.61	%		—			—			—			—			1.61	%		1.71	%
Maturity		—			4/21-3/26				—			—			—			—		4/21-3/26			1/21-12/25
Retail and privately placed notes		139,975				—			—			—			—			—			139,975			103,225
Average interest rate		8.00	%			—			—			—			—			—			8.00	%		8.25	%
Maturity	4/21-12/27					—			—			—			—			—		4/21-12/27			4/21-12/27
SBA debentures and borrowings		—				—			—			70,500			14,008			—			84,508			93,008
Amounts undisbursed		—				—			—			25,000			—			—			25,000			25,000
Amounts outstanding		—				—			—			45,500			14,008			—			59,508			68,008
Average interest rate		—				—			—			3.08	%		3.25	%		—			3.12	%		3.36	%
Maturity		—				—			—		3/23- 9/30			4/15/2021				—		4/21- 9/30			3/21-9/30
Bank loans		9,172				—			9,643			—			—			—			18,815			31,261
Average interest rate		3.88	%			—			3.54	%		—			—			—			3.72	%		3.67	%
Maturity	8/21-12/21					—		12/21-12/23				—			—			—		8/21-12/23			2/21-12/23
Preferred securities		33,000				—			—			—			—			—			33,000			33,000
Average interest rate		2.30	%			—			—			—			—			—			2.30	%		2.35	%
Maturity	9/37					—			—			—			—			—		9/37			9/37
Other borrowings		—				—			—			—			—			8,726			8,726			8,689
Average interest rate		—				—			—			—			—			1.91	%		1.91	%		1.91	%
Maturity		—				—			—			—			—		12/21 - 6/25			12/21 - 6/25			12/21-6/25
Total cash	$	54,962			$	72,352		$	1,044		$	8,528		$	216		$	3,175		$	140,277		$	112,040
Total debt outstanding	$	182,147			$	1,086,735		$	9,643		$	45,500		$	14,008		$	8,726		$	1,346,759		$	1,312,255

(1)	Total debt is exclusive of deferred financing costs of $6,523 and $5,805 as of March 31, 2021 and December 31, 2020.

(2)	Includes $2,970 of an interest reserve associated with the 2019 private placement, which can be used for no other purpose for three years.

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 are actively seeking 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.

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Recently Issued Accounting Standards

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

Dividends

We have not paid dividends on our common stock since 2016 and do not currently anticipate paying dividends. We may, however, re-evaluate paying dividends in the future depending on market conditions.

Control Statutes

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 the Utah Financial Institutions Act, federal and Utah 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 the FDIC or the Commissioner of Utah 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 the FDIC, 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 the FDIC 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, if any, in various jurisdictions;

•

establish maximum interest rates, finance charges and other charges;

•

require disclosures to customers;

•

govern secured transactions;

•

set collection, foreclosure, repossession, and claims handling procedures and other trade practices;

•

prohibit discrimination in the extension of credit and administration of loans; and

•

regulate the use and reporting of information related to a borrower’s credit experience and other data collection.

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in disclosure regarding quantitative and qualitative disclosures about market risk since we filed our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a—15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, and have concluded that they are effective as of March 31, 2021 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated our internal control over financial reporting to determine whether any changes occurred during the 2021 first quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, and have concluded that there have been no changes that occurred during the 2021 first quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently involved in various legal proceedings incident to the ordinary course of our business, including collection matters with respect to certain loans. We intend to vigorously defend any outstanding claims and pursue our legal rights. In the opinion of our management and based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision could result in a material adverse effect on our results of operations or financial condition.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the Securities and Exchange Commission on March 16, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not repurchase any of our shares during the three months ended March 31, 2021. Accordingly, under our Stock Repurchase Program previously authorized by our Board of Directors, up to $22,874,509 of shares remain authorized for repurchase under the program.

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ITEM 6. EXHIBITS

EXHIBITS

Number		Description

4.1		Form of Note Purchase Agreement, including the form of Note attached thereto. Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on March 1, 2021 (File No. 001-37747) and incorporated by reference herein.

31.1		Certification of Alvin Murstein pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2		Certification of Larry D. Hall pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32.1		Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32.2		Certification of Larry D. Hall pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MEDALLION FINANCIAL CORP.


Date:	May 5, 2021

By:	/s/ Alvin Murstein
	Alvin Murstein
	Chairman and Chief Executive Officer

By:	/s/ Larry D. Hall
	Larry D. Hall

	Senior Vice President and
	Chief Financial Officer

	Signing on behalf of the registrant as principal financial and accounting officer.

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