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What changed in MEDALLION FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MEDALLION FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+454 added−404 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-10)

Top changes in MEDALLION FINANCIAL CORP's 2023 10-K

454 paragraphs added · 404 removed · 317 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

95 edited+19 added−13 removed120 unchanged
Biggest changeSBIC regulations preclude investment in the following types of businesses: (1) business whose primary business activity is as a relender or reinvestor (that is, directly or indirectly, providing funds to others, purchasing debt obligations, factoring, or long term leasing of equipment with no provision for maintenance or repair); (2) many kinds of real estate projects; (3) single purpose projects that are not continuing businesses; (4) companies located outside the US intending to use the proceeds of the investment outside of the US or companies that are located in the US that have more than 49% of their employees or tangible assets located outside of the US; (5) businesses that are passive and do not carry on an active trade or business; (6) businesses that use 50% or more of the funds to buy goods or services from an associated supplier; and (7) certain “sin businesses” such as gambling and the like. 15 Under current SBA regulations, the maximum rate of interest that Medallion Funding, Medallion Capital and Freshstart may charge may not exceed the higher of (i) 19% or (ii) the sum of (a) the higher of (i) that company’s weighted average cost of qualified borrowings, as determined under SBA regulations, or (ii) the current SBA debenture rate, plus (b) 11%, rounded to the next lower eighth of one percent.
Biggest changeSBIC regulations preclude investment in the following types of businesses: (1) business whose primary business activity is as a relender or reinvestor (that is, directly or indirectly, providing funds to others, purchasing debt obligations, factoring, or long term leasing of equipment with no provision for maintenance or repair); (2) many kinds of real estate projects; (3) single purpose projects that are not continuing businesses; (4) companies located outside the U.S. intending to use the proceeds of the investment outside of the U.S. or companies that are located in the U.S. that have more than 49% of their employees or tangible assets located outside of the US; (5) businesses that are passive and do not carry on an active trade or business; (6) businesses that use 50% or more of the funds to buy goods or services from an associated supplier; and (7) certain “sin businesses” such as gambling and the like.
In addition, we have recourse against the vast majority of the owners of the taxi medallions and related assets through personal guarantees. Other than in connection with dispositions of existing medallion assets, Medallion Financial Corp. has not originated a new medallion loan since 2015, and the Bank has not originated a new medallion loan since 2014.
In addition, we have recourse against the vast majority of the owners of the taxi medallions and related assets through personal guarantees. Other than in connection with dispositions of existing taxi medallion assets, Medallion Financial Corp. has not originated a new taxi medallion loan since 2015, and the Bank has not originated a new taxi medallion loan since 2014.
We have recorded an allowance for loan losses against the loans to mitigate potential future losses, and since 2020, the entire portfolio has remained on nonaccrual. Consistent with our established policy, once loans become 120 days past due, they are charged off down to collateral value and transferred to loan collateral in process of foreclosure.
We have recorded an allowance for credit losses against the loans to mitigate potential future losses, and since 2020, the entire portfolio has remained on nonaccrual. Consistent with our established policy, once loans become 120 days past due, they are charged off down to collateral value and transferred to loan collateral in process of foreclosure.
Under SBA regulations, without prior SBA approval, loans and other investments by licensees with outstanding SBA leverage to any single small business concern may not exceed 30% of an SBIC’s “regulatory capital.” SBICs may invest idle funds that are not being used to make loans or other long-term investments in certain short-term investments permitted under SBA regulations.
Under SBA regulations, without prior SBA approval, loans and other investments by licensees with outstanding SBA leverage to any single small business concern may not exceed 30% of an SBIC’s “regulatory capital.” 16 SBICs may invest idle funds that are not being used to make loans or other long-term investments in certain short-term investments permitted under SBA regulations.
The prompt corrective action framework, which generally applies to FDIC-insured depository institutions, including the Bank, also includes capital requirements the Bank must satisfy in order to, among other things, be able to accept brokered deposits without limitations. See “Prompt Corrective Action” and “Brokered Deposits” below. In addition to meeting the minimum capital requirements, under the U.S.
The prompt corrective action framework, which generally applies to FDIC-insured depository institutions, including the Bank, also includes capital requirements the Bank must satisfy to, among other things, be able to accept brokered deposits without limitations. See “Prompt Corrective Action” and “Brokered Deposits” below. In addition to meeting the minimum capital requirements, under the U.S.
These federal and state laws, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices and subject the Bank to substantial regulatory oversight.
These federal and state laws, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive practices and subject the Bank to substantial regulatory oversight.
The federal banking regulators have adopted a rule that is designed to simplify the capital treatment of those categories of assets for banking organizations, such as the Bank, that are not subject to the advanced approaches in the U.S. Basel III capital rules.
The federal banking regulators have adopted a rule that is designed to simplify the capital treatment of those categories of assets for banking organizations, such as the Bank, which are not subject to the advanced approaches in the U.S. Basel III capital rules.
In recent years, several states adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also implemented or modified their data breach notification and data privacy requirements.
In recent years, several states have adopted regulations requiring certain financial institutions to implement and maintain cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also implemented or modified their data breach notification and data privacy requirements.
The Valid-When-Made Rule does not address when a state-chartered bank is the “true lender” of a loan, and the ultimate effect of the FDIC rule remains uncertain in light of the overturning of the OCC's analogous rule pursuant to a Congressional Review Act resolution signed by President Biden, and other pending legal challenges to bank-fintech partnerships on the ground that the bank is not the “true lender.” On August 20, 2020, the state attorneys general of seven states and the District of Columbia filed suit against the FDIC, alleging that the Valid-When-Made Rule conflicts with the FDIA, exceeds the FDIC’s statutory authority, and violates the Administrative Procedure Act.
The Valid-When-Made Rule does not address when a state-chartered bank is the “true lender” of a loan, and the ultimate effect of the FDIC rule remains uncertain in light of the overturning of the OCC's analogous rule pursuant to a Congressional Review Act resolution signed by President Biden, and other pending legal challenges to bank-fintech partnerships on the ground that the bank is not the “true lender.” In 2020, the state attorneys general of seven states and the District of Columbia filed suit against the FDIC, alleging that the Valid-When-Made Rule conflicts with the FDIA, exceeds the FDIC’s statutory authority, and violates the Administrative Procedure Act.
In particular, the FDIA and the FDIC’s regulations prohibit an insured depository institution from accepting brokered deposits unless it is well-capitalized or is adequately capitalized and receives a waiver from the FDIC. Under FDIC regulations governing brokered deposit and interest rate restrictions.
In particular, the FDIA and the FDIC’s regulations prohibit an insured depository institution from accepting brokered deposits unless it is well-capitalized or is adequately capitalized and receives a waiver from the FDIC. Under FDIC regulations governing brokered deposits and interest rate restrictions.
Treasury. The PATRIOT Act, which includes the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, is intended to facilitate the detection and prosecution of terrorism and international money laundering. The PATRIOT Act establishes standards for verifying customer identification incidental to the opening of new accounts.
The PATRIOT Act, which includes the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, is intended to facilitate the detection and prosecution of terrorism and international money laundering. The PATRIOT Act establishes standards for verifying customer identification incidental to the opening of new accounts.
A business that meets the NAICS size standards also qualifies as a “smaller enterprise” for purposes of meeting SBA’s size standard regulations. Investments by SBICs must generally be in active, primarily domestic businesses.
A business that meets the NAICS size standards also qualifies as a “smaller enterprise” for purposes of meeting SBA’s size standard regulations. Investments by SBICs must generally be in active, domestic businesses.
Each commercial and medallion loan applicant is required to provide personal or corporate tax returns, premises leases, and/or property deeds. The Company’s senior management establishes loan origination criteria.
Each commercial and taxi medallion loan applicant is required to provide personal or corporate tax returns, premises leases, and/or property deeds. The Company’s senior management establishes loan origination criteria.
We have typically originated commercial loans in principal amounts generally ranging from $2.0 million to $5.0 million, and occasionally have originated loans under or in excess of those amounts.
We have typically originated commercial loans in principal amounts generally ranging from $2.5 million to $6.0 million, and occasionally have originated loans under or in excess of those amounts.
The percentage of new loan originations by the top ten contractor and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration. We offer home improvement loans with only fixed rates, with an average term at origination of 13.8 years.
The percentage of new loan originations by the top ten contractor and FSP relationships is a measure of concentration, which management uses to determine whether to undertake diversification efforts, and which provides investors with information about origination concentration. We offer home improvement loans with only fixed rates, with an average term at origination of 13.6 years.
Seek strategic acquisitions. In addition to increasing market share in existing lending markets and identifying new niches, we seek to acquire other financing businesses and related portfolios, and specialty finance companies that make secured loans to small businesses and consumers which have experienced historically low loan losses similar to our own.
Seek strategic acquisitions. In addition to increasing market share in existing lending markets and identifying new niches, we seek to acquire other financing businesses and related portfolios, and specialty finance companies that make secured loans to small businesses and consumers which have experienced historically low credit losses similar to our own.
We maintain relationships with approximately 3,100 dealers and financial service providers, or FSPs, not all of which are active at any one time. FSPs are entities that provide finance and insurance, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves.
We maintain relationships with approximately 3,200 dealers and financial service providers, or FSPs, not all of which are active at any one time. FSPs are entities that provide finance and insurance, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves.
We believe that our management team’s relationships with these dealers and brokers have provided and will continue to provide us with loan origination opportunities. In 2022, all of our consumer loans were generated by brokers, dealers, contractors, and FSPs. Focus on niche industries and our expertise in these niche fields.
We believe that our management team’s relationships with these dealers and brokers have provided and will continue to provide us with loan origination opportunities. In 2023, all of our consumer loans were generated by brokers, dealers, contractors, and FSPs. Focus on niche industries and our expertise in these niche fields.
We monitor our continued compliance with this exception, and were compliant with as of December 31, 2022. Regulation of Medallion Bank as an Industrial Bank In May 2002, we formed the Bank, which received approval from the FDIC for federal deposit insurance in October 2003.
We monitor our continued compliance with this exception and were compliant as of December 31, 2023. Regulation of Medallion Bank as an Industrial Bank In May 2002, we formed the Bank, which received approval from the FDIC for federal deposit insurance in October 2003.
The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2022, 2021, and 2020 were 758, 759, and 759. 5 Commercial Lending We originate both senior and subordinated loans nationwide to businesses to finance either the purchase of the equipment and related assets necessary to open a new business or the purchase or improvement of an existing business.
The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2023, 2022, and 2021 were 771, 758, and 759. 5 Commercial Lending We originate both senior and subordinated loans nationwide to businesses to finance either the purchase of the equipment and related assets necessary to open a new business or the purchase or improvement of an existing business.
As a condition to receipt of FDIC insurance, the Bank entered into the 2003 capital maintenance agreement with the FDIC requiring it to maintain a 15% leverage ratio (Tier 1 capital to average assets) and an adequate allowance for loan and lease losses and restricting the amount of medallion loans that the Bank may finance to three times the Bank’s Tier 1 capital. 11 Prompt Corrective Action The Bank is subject to FDIC regulations which apply to every FDIC-insured depository institution, setting out a system of mandatory and discretionary supervisory actions that generally become more severe as the capital levels of an individual institution decline.
As a condition to receipt of FDIC insurance, the Bank entered into a capital maintenance agreement with the FDIC, or the 2003 Capital Maintenance Agreement, requiring it to maintain a 15% leverage ratio (Tier 1 capital to average assets) and an adequate allowance for credit losses and restricting the amount of taxi medallion loans that the Bank may finance to three times the Bank’s Tier 1 capital. 11 Prompt Corrective Action The Bank is subject to FDIC regulations which apply to every FDIC-insured depository institution, setting out a system of mandatory and discretionary supervisory actions that generally become more severe as the capital levels of an individual institution decline.
Consumer loans are primarily sourced through relationships with RV and boat dealers, and home improvement contractors throughout our market area. Commercial loans are generally sourced through a network of private equity sponsors who we have long-standing relationships with, and are also referred by contacts with banks, attorneys, and accounting firms.
Consumer loans are primarily sourced through relationships with RV and boat dealers, and home improvement contractors throughout our market area. Commercial loans are generally sourced through a network of private equity sponsors who we have long-standing relationships with, and are also referred by contacts with banks.
On February 8, 2022, the United States District Court for the Northern District of California granted the FDIC's motion for summary judgement, holding that the FDIC had the power to issue the Valid-When-Made Rule and that its interpretation of the federal banking laws is entitled to judicial deference.
In February 2022, the United States District Court for the Northern District of California granted the FDIC's motion for summary judgement, holding that the FDIC had the power to issue the Valid-When-Made Rule and that its interpretation of the federal banking laws is entitled to judicial deference.
Federal law also makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means. State regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations.
Federal law also makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means. State regulators have been increasingly active in enacting or promulgating privacy and cybersecurity standards and regulations.
Our recreation loans are secured primarily by RVs, boats and other consumer recreational equipment with a small proportion of loans secured by other collateral such as autos, motorcycles and boat motors. These loans, which together make up our largest and most profitable loan portfolio, have a weighted average yield of 13.28% at December 31, 2022.
Our recreation loans are secured primarily by RVs, boats and other consumer recreational equipment with a small proportion of loans secured by other collateral such as autos, motorcycles and boat motors. These loans, which together make up our largest and most profitable loan portfolio, have a weighted average yield of 13.07% at December 31, 2023.
Basel III capital rules for smaller banking organizations, including the Bank, that maintain a “Community Bank Leverage Ratio” of at least 8% to 10%.
Basel III capital rules for smaller banking organizations, including the Bank, which maintain a “Community Bank Leverage Ratio” of at least 8% to 10%.
These permitted investments include direct obligations of, or obligations guaranteed as to principal and interest by, the government of the US with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC.
These permitted investments include direct obligations of, or obligations guaranteed as to principal and interest by, the government of the U.S. with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC.
The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable to us. We receive approximately half of our loan volume from dealers and the other half from FSPs. Our top ten dealer and FSP relationships were responsible for 48% of recreation lending’s new loan originations for the year ended December 31, 2022.
The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable to us. We receive approximately half of our loan volume from dealers and the other half from FSPs. Our top ten dealer and FSP relationships were responsible for 43% of recreation lending’s new loan originations for the year ended December 31, 2023.
In October 2022, the FDIC adopted a rule applicable to all FDIC-insured banks that will increase initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023.
In October 2022, the FDIC adopted a rule applicable to all FDIC-insured banks that increased initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023.
The minimum Tier 1 risk-based capital ratio requirement is 6%. • Total Risk-Based Capital Ratio , equal to the ratio of total capital, including CET1 capital, additional Tier 1 capital and Tier 2 capital, to risk-weighted assets. The Bank’s Tier 2 capital primarily includes allowance for loan and lease losses up to 1.25% of the Bank’s risk-weighted assets.
The minimum Tier 1 risk-based capital ratio requirement is 6%. • Total Risk-Based Capital Ratio , equal to the ratio of total capital, including CET1 capital, additional Tier 1 capital and Tier 2 capital, to risk-weighted assets. The Bank’s Tier 2 capital primarily includes allowance for credit losses up to 1.25% of the Bank’s risk-weighted assets.
ITEM 1. OUR BUSINESS We, Medallion Financial Corp., or the Company, are a specialty finance company organized as a Delaware corporation. Our strategic focus is growing our consumer finance and commercial lending businesses. Our total assets were $2.3 billion as of December 31, 2022 and $1.9 billion as of December 31, 2021.
ITEM 1. OUR BUSINESS We, Medallion Financial Corp., or the Company, are a specialty finance company organized as a Delaware corporation. Our strategic focus is growing our consumer finance and commercial lending businesses. Our total assets were $2.6 billion as of December 31, 2023 and $2.3 billion as of December 31, 2022.
Our home improvement loans are secured by the personal property installed on real property, and the security interest for some of these loans is perfected with a UCC fixture filing. As of December 31, 2022, these loans had a weighted average yield of 8.64%. Commercial Loans.
Our home improvement loans are secured by the personal property installed on real property, and the security interest for some of these loans is perfected with a UCC fixture filing. As of December 31, 2023, these loans had a weighted average yield of 8.86%. Commercial Loans.
Under the SBIA and the regulations promulgated by the SBA thereunder, a “small business concern” is a business that is independently owned and operated, which is not dominant in its field of operation, and which (i) has a tangible net worth, together with any affiliates, of $19.5 million or less and average annual net income after US federal income taxes for the preceding two fiscal years of $6.5 million or less (average annual net income is computed without the benefit of any carryover loss), or (ii) satisfies alternative criteria under the Federal government’s North American Industry Classification System, or the NAICS, that assigns codes to the industry in which a small business is engaged and provides a small business size standard based either on the number of persons employed by the business or its gross revenues.
Under the SBIA and the regulations promulgated by the SBA thereunder, a “small business concern” is a business that is independently owned and operated, which is not dominant in its field of operation, and which (i) has a tangible net worth, together with any affiliates, of $24.0 million or less and average annual net income after U.S. federal income taxes for the preceding two fiscal years of $8.0 million or less (average annual net income is computed without the benefit of any carryover loss), or (ii) satisfies alternative criteria under the Federal government’s North American Industry Classification System, or the NAICS, that assigns codes to the industry in which a small business is engaged and provides a small business size standard based either on the number of persons employed by the business or its gross revenues.
The segment is a significant source of income, accounting for 71% of our interest income for the year ended December 31, 2022. All of our recreation loans are serviced by a third-party loan servicer that we have used since the business’s inception.
The segment is a significant source of income, accounting for 67% of our interest income for the year ended December 31, 2023. All of our recreation loans are serviced by a third-party loan servicer that we have used since the business’s inception.
Commercial loans are generally secured by equipment, accounts receivable, real estate, or other assets, and have interest rates averaging 473 basis points over the prevailing prime rate at the end of 2022, compared to 912 basis points over the prime rate at the end of 2021.
Commercial loans are generally secured by equipment, accounts receivable, real estate, or other assets, and have interest rates averaging 437 basis points over the prevailing prime rate at the end of 2023, compared to 473 basis points over the prime rate at the end of 2022.
The size, geographic dispersion, source and collateral variety of the loans reduces risk to the Company. As of December 31, 2022, recreation loans were primarily secured by recreational vehicles, or RVs, which make up 58% of the portfolio, and boat loans, which make up 19% of the portfolio.
The size, geographic dispersion, source and collateral variety of the loans reduces risk to the Company. As of December 31, 2023, recreation loans were primarily secured by recreational vehicles, or RVs, which make up 54% of the portfolio, and boat loans, which make up 19% of the portfolio.
These ratios do not factor in the reserve on these loans of $9.5 million and $9.2 million as of December 31, 2022 and 2021 and also do not include loan collateral in process of foreclosure, held at the lower of amortized cost or collateral value.
These ratios do not factor in the reserve on these loans of $1.5 million and $9.5 million as of December 31, 2023 and 2022 and also do not include loan collateral in process of foreclosure, held at the lower of amortized cost or collateral value.
As reported by the TLC, taxi medallions sold for a wide variety of prices during 2022 supporting our estimated value of $79,500, net of liquidation costs, as of December 31, 2022. A prospective taxi medallion owner must qualify under the taxi medallion ownership standards set and enforced by the TLC.
As reported by the Taxi and Limousine Commission, or TLC, taxi medallions sold for a wide variety of prices during 2023 supporting our estimated value of $79,500, net of liquidation costs, as of December 31, 2023. A prospective taxi medallion owner must qualify under the taxi medallion ownership standards set and enforced by the TLC.
Capital Standards The Bank is subject to risk-based and leverage-based capital ratio requirements under the US Basel III capital rules adopted by the federal banking regulators.
Capital Standards The Bank is subject to risk-based and leverage-based capital ratio requirements under the U.S. Basel III capital rules adopted by the federal banking regulators.
The weighted average maturity of our loans outstanding is 12.4 years as of December 31, 2022. The average size of the loans in our home improvement portfolio at December 31, 2022 is approximately $20,000. The geographic dispersion of the home improvement loan portfolio supplements credit quality in reducing risk to the Company.
The weighted average maturity of our loans outstanding is 12.3 years as of December 31, 2023. The average size of the loans in our home improvement portfolio at December 31, 2023 was approximately $20,000. The geographic dispersion of the home improvement loan portfolio supplements credit quality in reducing risk to the Company.
Also, the terms of such extensions of credit may not involve more than the normal risk of non-repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons individually and in the aggregate. Certain extensions of credit also require the approval of the Bank’s board of directors.
Also, the terms of such extensions of credit may not involve more than the normal risk of non-repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons individually and in the aggregate.
Revenues are derived primarily from contracted program fees paid to us by our partners, and interest income earned while the loans or receivables are on our books, offset by transaction fees paid to our partners for processing loan applications. Our partners are non-banks offering loans and other financial services to their customers.
Revenues are derived primarily from contracted program fees paid to us by our partners, and interest income earned while the loans or receivables are on our books, offset by transaction fees paid to our partners for processing loan applications. Our partners are non-banks offering loans and other financial services to their customers. We continue to evaluate and launch additional partnerships.
From the inception of the commercial loan business, we have originated more than $1.0 billion in commercial loans. Commercial loans of $92.9 million comprised 5% of our loans receivable as of December 31, 2022. We have worked to increase our commercial loan activity, primarily because of the attractive higher yielding nature of most of this business.
From the inception of the commercial loan business, we have originated more than $1.0 billion in commercial loans. Commercial loans of $114.8 million comprised 5% of our loans receivable as of December 31, 2023. We have worked to increase our commercial loan activity, primarily because of the attractive higher yielding nature of most of this business.
We plan to continue expanding our commercial loan activities by developing a more diverse borrower base with a wider geographic area of coverage, and by expanding the targeted industries.
We seek to expand our commercial loan activities by developing a more diverse borrower base with a wider geographic area of coverage, and by expanding the targeted industries.
Among other things, extensions of credit to such insiders are required to be made on terms that follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with non-insiders.
Among other things, extensions of credit to such insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with non-insiders.
Since the inception of the Bank, substantially all of the Bank’s borrowings have been provided by FDIC insured brokered certificates of deposit. 8 The table below summarizes our sources of available funds and amounts outstanding under credit facilities, exclusive of deferred financing costs of $7.0 million, and their respective end of period weighted average interest rates at December 31, 2022.
Since the inception of the Bank, substantially all of the Bank’s borrowings have been provided by FDIC insured brokered certificates of deposit. The table below summarizes our sources of available funds and amounts outstanding under credit facilities, exclusive of deferred financing costs of $8.5 million, and their weighted average interest rates at December 31, 2023.
We originated $49.5 million and $11.0 million of strategic partnership loans for the years ended December 31, 2022 and 2021. We held $0.6 million and $0.1 million of strategic partnership loans as of December 31, 2022 and 2021. Our Strategy Our core philosophy has been to identify markets that are profitable and where we can obtain defensible market positions.
We originated $118.3 million and $49.5 million of strategic partnership loans for the years ended December 31, 2023 and 2022. We held $0.6 million of strategic partnership loans as of both December 31, 2023 and 2022. 6 Our Strategy Our core philosophy has been to identify markets that are profitable and where we can obtain defensible market positions.
We conduct our business through various wholly-owned subsidiaries, including: • Medallion Bank, or the Bank, a Federal Deposit Insurance Corporation, or FDIC, insured industrial bank that originates consumer loans, raises deposits and conducts other banking activities and has a separate board of directors with a majority of independent directors; • Medallion Capital, Inc., or Medallion Capital, a Small Business Investment Company, or SBIC, which conducts a mezzanine financing business; • Medallion Funding LLC, or Medallion Funding, an SBIC, historically our primary taxi medallion lending company; and • Freshstart Venture Capital Corp., or Freshstart, an SBIC which historically originated and serviced taxi medallion and commercial loans.
We conduct our business through various wholly-owned subsidiaries, including: • Medallion Bank, or the Bank, a Federal Deposit Insurance Corporation, or FDIC, insured industrial bank that originates consumer loans, raises deposits and conducts other banking activities; • Medallion Capital, Inc., or Medallion Capital, a Small Business Investment Company, or SBIC, which conducts a mezzanine financing business; • Medallion Funding LLC, or Medallion Funding, an SBIC, historically our primary taxi medallion lending company; and • Freshstart Venture Capital Corp., or Freshstart, which historically originated and serviced taxi medallion and commercial loans and was an SBIC through 2023.
Our top ten contractors and FSP relationships were responsible for 62% of home improvement lending’s new loan originations for the year ended December 31, 2022.
Our top ten contractors and FSP relationships were responsible for 57% of home improvement lending’s new loan originations for the year ended December 31, 2023.
In general, the Bank has established relationships with dealers, FSPs, and contractors, which are the sources for consumer loan volumes. The loans are made up of recreation loans and home improvement loans which were 65% and 35% of total consumer loans at December 31, 2022.
In general, the Bank has established relationships with dealers, FSPs, and contractors, which are the sources for consumer loan volumes. The loans are made up of recreation loans and home improvement loans which were 64% and 36% of total consumer loans at December 31, 2023.
We continue to evaluate and launch additional partnerships. 7 Loan Characteristics Consumer Loans. Consumer loans generally require equal monthly payments covering accrued interest and amortization of principal over a negotiated term, generally around eleven to fourteen years. Interest rates offered are fixed. Borrowers may prepay consumer loans without any prepayment penalty.
Loan Characteristics Consumer Loans. Consumer loans generally require equal monthly payments covering accrued interest and amortization of principal over a negotiated term, generally around eleven to fourteen years. Interest rates offered are fixed. Borrowers may prepay consumer loans without any prepayment penalty.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms. Among other things, these standards revise the Basel Committee’s standardized approach for credit risk and provide a new standardized approach for operational risk capital. The Basel Committee’s standards will generally be effective on January 1, 2023.
In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms. Among other things, these standards revise the Basel Committee’s standardized approach for credit risk and provide a new standardized approach for operational risk capital.
The federal banking regulators and the SEC proposed revised rules in 2016, which have not been finalized. 17 Valid When Made and True Lender The FDIC has adopted a rule clarifying that a loan made by a state-chartered bank is considered “valid when made” pursuant to the preemptive authority in Section 27 of the FDIA, and therefore the loan’s original terms, including, among others, its interest rate, are valid and enforceable by any subsequent assignee, transferee, or buyer, regardless of the usury laws of other states, or the “Valid-When-Made Rule”.
Valid When Made and True Lender The FDIC has adopted a rule clarifying that a loan made by a state-chartered bank is considered “valid when made” pursuant to the preemptive authority in Section 27 of the FDIA, and therefore the loan’s original terms, including, among others, its interest rate, are valid and enforceable by any subsequent assignee, transferee, or buyer, regardless of the usury laws of other states, or the “Valid-When-Made Rule”.
The following table shows the details of our loans receivable as of December 31, 2022.
The following table shows our loans receivable as of December 31, 2023.
Among other things, the AMLA codifies a risk-based approach to AML compliance for financial institutions; requires the US Department of the Treasury to promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards by the Treasury Department for testing technology and internal processes for BSA compliance; expands enforcement- and investigations - related authority, including a significant expansion in the available sanctions for certain BSA violations and expands BSA whistleblower incentives and protections.
Department of the Treasury to periodically promulgate priorities for anti-money laundering and countering the financing of terrorism policy; requires the development of standards by the Treasury Department for testing technology and internal processes for BSA compliance; expands enforcement- and investigations-related authority, including a significant expansion in the available sanctions for certain BSA violations and expands BSA whistleblower incentives and protections.
These loans are generally retained and typically have maturities ranging from three to ten years and require monthly payments ranging from full amortization over the loan term to fully deferred interest and principal at maturity, with multiple payment options in between.
These loans are generally retained and typically have maturities ranging from three to ten years and require monthly payments ranging from full amortization over the loan term to fully deferred interest and principal at maturity, with multiple payment options in between. All loans may be prepaid, and in the first five years, a prepayment fee may be owed to us.
The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $18,000 as of December 31, 2022. The loans are fixed rate with an average term at origination of 11.3 years. The weighted average maturity of our loans outstanding is 9.6 years.
The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of December 31, 2023. The loans are fixed rate with an average term at origination of 12.9 years. The weighted average maturity of our loans outstanding is 10.0 years.
Medallion loan collateral in process of foreclosure was $20.4 million as of December 31, 2022, with 82% located in the New York City Market. New York City Market . A New York City taxi medallion is the only permitted license to operate a taxi and accept street hails in New York City.
Taxi medallion loan collateral in process of foreclosure was $10.0 million as of December 31, 2023, with 100% located in the New York City metropolitan area. New York City Market . A New York City taxi medallion is the only permitted license to operate a taxi and accept street hails in New York City.
Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer CET1 risk-based capital ratio 7.0% Tier 1 risk-based capital ratio 8.5% Total risk-based capital ratio 10.5% For purposes of calculating the denominator of the three risk-based capital ratios, the assets of covered banking organizations are given risk weights that, under the US Basel III capital rules, range from 0% to 1,250%, depending on the nature of the asset.
Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer CET1 risk-based capital ratio 7.0% Tier 1 risk-based capital ratio 8.5% Total risk-based capital ratio 10.5% For purposes of calculating the denominator of the three risk-based capital ratios, the assets of covered banking organizations are given risk weights that, under the U.S.
The Bank entered into an initial partnership in 2020 and began issuing its first loans. The associated activities are currently limited to originating loans or other receivables facilitated by our strategic partners and selling those loans or receivables to our strategic partners or other third parties without recourse within a specified time after origination, such as three business days.
The associated activities are currently limited to originating loans or other receivables facilitated by our strategic partners and selling those loans or receivables to our strategic partners or other third parties without recourse within a specified time after origination, such as three business days.
As of December 31, 2022, 2021, and 2020, the weighted average FICO scores of our home improvement loans outstanding were 753, 754, and 758.
As of December 31, 2023, 2022, and 2021, the weighted average FICO scores, measured at origination, of our home improvement loans outstanding were 764, 753, and 754.
Future Legislation Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
We believe the impact to the Bank of the Valid-When-Made Rule will be minimal. Future Legislation Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
The increased assessment is intended to improve the likelihood that the DIF reserve ratio would reach the required minimum by the statutory deadline of September 30, 2028. 12 Payment of Dividends The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions that limit the amount available for such distribution, depending upon earnings, financial condition and cash needs of the institution, as well as general business conditions.
Payment of Dividends The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions that limit the amount available for such distribution, depending upon earnings, financial condition and cash needs of the institution, as well as general business conditions.
In addition, pursuant to requirements applicable to FDIC-supervised banking organizations, such as us, we are required to notify the FDIC within 36 hours of incidents that have materially disrupted, or degraded, or are reasonably likely to materially disrupt or degrade the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or pose a threat to the financial stability of the United States. 14 Anti-Money Laundering and the USA PATRIOT Act The Bank is subject to the anti-money laundering (AML) provisions of the Bank Secrecy Act, or the BSA, as amended by the USA PATRIOT Act, or the PATRIOT Act, and implementing regulations issued by the FDIC and the U.S.
In addition, pursuant to requirements applicable to FDIC-supervised banking organizations, such as us, we are required to notify the FDIC within 36 hours of incidents that have materially disrupted, degraded, or are reasonably likely to materially disrupt or degrade the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or pose a threat to the financial stability of the United States.
Additionally, the SBA may appoint a receiver for the SBIC and for its liquidation in the event of a default on payment of a SBIC’s debentures or for serious regulatory violations. 16 Other Change in Control Because the Bank is an “insured depository institution” within the meaning of the FDIA and the Change in Bank Control Act as well as Medallion Financial Corp. being a “financial institution holding company” within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of the Bank or Medallion Financial Corp., without, in most cases, prior written approval of the FDIC or the Commission of the Utah DFI, as applicable.
Other Change in Control Because the Bank is an “insured depository institution” within the meaning of the FDIA and the Change in Bank Control Act as well as Medallion Financial Corp. being a “financial institution holding company” within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of the Bank or Medallion Financial Corp., without, in most cases, prior written approval of the FDIC or the Commissioner of the Utah DFI, as applicable.
Most of the Bank’s loans are assigned a 100% risk weight, with loans that are 90 days or more past due or on nonaccrual assigned a 150% risk weight. In addition, direct obligations of the U.S. Department of the Treasury (U.S.
Basel III capital rules, range from 0% to 1,250%, depending on the nature of the asset. Most of the Bank’s loans are assigned a 100% risk weight, with loans that are 90 days or more past due or on nonaccrual assigned a 150% risk weight. In addition, direct obligations of the U.S. Department of the Treasury (U.S.
As of December 31, 2022, home improvement loans were concentrated in roofs, swimming pools, and windows at 37%, 23%, and 12%. Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Texas, Florida, and Ohio at 10%, 10%, and 8% of loans outstanding as of December 31, 2022 and with no other states over 6%.
As of December 31, 2023, home improvement loans were concentrated in roofs, swimming pools, and windows at 41%, 20%, and 13%. Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida both at 10% of loans outstanding as of December 31, 2023, and with no other states at or above 10%.
Among other things, in addition to the restrictions on brokered deposits discussed above, the FDIA limits the interest rates paid on deposits by undercapitalized institutions and limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest.
Among other things, in addition to the restrictions on brokered deposits discussed above, the FDIA limits the interest rates paid on deposits by undercapitalized institutions and limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest. 13 Consumer Financial Protection The Bank is subject to a number of federal and state consumer protection laws that extensively govern the Bank’s consumer lending businesses.
Federal banking regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, and civil money penalties.
Federal banking regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, and civil money penalties. Failure to comply with consumer protection requirements may also result in substantial reputational harm that could adversely affect our business.
A bank regulator conducting an examination has complete access to the books and records of the examined institution. The results of the examination are confidential, with the exception of the CRA examination discussed above. The cost of examinations may be assessed against the examined institution as the agency deems necessary or appropriate.
A bank regulator conducting an examination has complete access to the books and records of the examined institution. The results of the examination are confidential, with the exception of the CRA examination discussed above.
Incentive Compensation The FDIC has issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk taking.
The cost of examinations may be assessed against the examined institution as the agency deems necessary or appropriate. 17 Incentive Compensation The FDIC has issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk taking.
As of December 31, 2022, the maximum rate of interest permitted on loans originated by Medallion Funding, Medallion Capital, and Freshstart was 19%. As of December 31, 2022, our outstanding medallion loans had a weighted average rate of interest of 2.09%, and our outstanding commercial loans had a weighted average rate of interest of 12.23%.
As of December 31, 2023, the maximum rate of interest permitted on loans originated by our SBICs was 19%. As of December 31, 2023, our outstanding taxi medallion loans had a weighted average rate of interest of 4.89%, and our outstanding commercial loans had a weighted average rate of interest of 12.87%.
A large proportion of our home improvement-financed sales are facilitated by contractor salespeople with limited financing backgrounds rather than by contractor employees who provide F&I services.
Most of our home improvement-financed sales take place in the borrower’s home instead of a store, with the contractor presenting the borrower with a bid that includes a financing option. A large proportion of our home improvement-financed sales are facilitated by contractor salespeople with limited financing backgrounds rather than by contractor employees who provide F&I services.
Financial Privacy and Cybersecurity Federal and state law contains extensive consumer privacy protection provisions. The Gramm-Leach-Bliley Act requires financial institutions to periodically disclose their privacy policies and practices relating to sharing such information and enables retail customers to opt out of institutions’ ability to share information with unaffiliated third parties under certain circumstances.
The Gramm-Leach-Bliley Act requires financial institutions to periodically disclose their privacy policies and practices relating to their collection, sharing and protection of nonpublic personal information and enables retail customers to opt out of their information being shared by financial institutions with unaffiliated third parties under certain circumstances.
In June 2021, FinCEN issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA. The priorities include: corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking and proliferation financing.
In June 2021, FinCEN issued the priorities for anti-money laundering and countering the financing of terrorism policy required under the AMLA.
Regulation by the SBA Medallion Funding, Medallion Capital, and Freshstart are each licensed by the SBA to operate as SBICs, under the Small Business Investment Act of 1958, as amended, or the SBIA. The SBIA authorizes the licensing of privately-held investment vehicles as SBICs in order to provide long term financing to small business concerns.
Freshstart, through 2023, was licensed by the SBA to operate as an SBIC. The SBIA authorizes the licensing of privately held investment vehicles as SBICs in order to provide long term financing to small business concerns.
Recreation loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida, at 16% and 11% of loans outstanding as of December 31, 2022 with no other states over 10%. As of December 31, 2022, 2021, and 2020, the weighted average FICO scores of our recreation loans outstanding were 671, 668, and 658.
Recreation loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida, at 15% and 10% of loans outstanding as of December 31, 2023 with no other states at or above 10%.
Under SBA regulations, the maximum rate of interest permitted on loans originated by us is 19%; however, terms and interest rates are subject to market competition for all loans. Medallion Loans. Our medallion loan portfolio consists of mostly fixed-rate loans, collateralized by first security interests in taxi medallions and related assets.
The term of, and interest rate charged on, certain of our outstanding loans are subject to the regulations of the Small Business Administration, or the SBA. Under SBA regulations, the maximum rate of interest permitted on loans originated by us is 19%; however, terms and interest rates are subject to market competition for all loans. 7 Taxi Medallion Loans.
We seek to manage our exposure to increases in market rates of interest to an acceptable level by incurring fixed-rate debt. Nevertheless, we accept varying degrees of interest rate risk depending on market conditions. For additional discussion of our funding sources and asset liability management strategy, see Asset/Liability Management on page 48.
The mismatch between maturities and interest-rate sensitivities of these balance sheet items results in interest rate risk. We seek to manage our exposure to increases in market rates of interest to an acceptable level by incurring fixed-rate debt. Nevertheless, we accept varying degrees of interest rate risk depending on market conditions.
The FDIC may take compliance with the CRA into account when regulating and supervising our other activities. The CRA also requires the agencies to take into account banks’ records of meeting community credit needs when evaluating applications for, among other things, new branches or mergers.
The CRA also requires the agencies to take into account banks’ records of meeting community credit needs when evaluating applications for, among other things, new branches or mergers. We have elected to be evaluated for the Bank's compliance with CRA requirements based on a strategic plan we adopted with public involvement and regulatory approval.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

92 edited+45 added−22 removed153 unchanged
Biggest changeThe Company filed a motion to dismiss the complaint on March 22, 2022, the SEC filed an amended complaint on April 26, 2022 and the Company filed a motion to dismiss the amended complaint on August 5, 2022. 23 The SEC is seeking injunctive relief, disgorgement plus pre-judgment interest and civil penalties in amounts unspecified, as well as an officer and director bar against the Company’s President and Chief Operating Officer.
Biggest changeThe SEC is seeking injunctive relief, disgorgement plus pre-judgment interest and civil penalties in amounts unspecified, as well as an officer and director bar against the Company’s President and Chief Operating Officer. The Company and its President and Chief Operating Officer intend to defend themselves vigorously and believe that the SEC will not prevail on its claims.
In recent years, increased competition has reduced the overall market for taxi services, income generated from operating medallions, and the value of taxi medallions. If these trends continue, there will be further negative impacts to our medallion loans and related assets.
In recent years, increased competition has reduced the overall market for taxi services, income generated from operating taxi medallions, and the value of taxi medallions. If these trends continue, there will be further negative impacts to our taxi medallion loans and related assets.
Every city in which we have originated medallion loans, and most other major cities in the United States, limits the supply of taxi medallions, which results in supply restrictions that support the value of taxi medallions.
Every city in which we have originated taxi medallion loans, and most other major cities in the United States, limits the supply of taxi medallions, which results in supply restrictions that support the value of taxi medallions.
The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds, and the banking system as a whole, not for the protection of security holders. We are subject to regulation and supervision by the FDIC and the Utah DFI.
The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds, and the banking system as a whole, and not for the protection of security holders. We are subject to regulation and supervision by the FDIC and the Utah DFI.
Despite our security and business continuity measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions or vulnerable to other disruptions as a result of systems failures, operational events, employee error, or incidents affecting our third-party service providers (or providers to those third-party service providers).
Despite our security and business continuity measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, or malfeasance, or other disruptions as a result of systems failures, operational events, employee error, or incidents affecting our third-party service providers (or providers to those third-party service providers).
The weakening of our underwriting guidelines for any reason, such as in response to the competitive environment, in an effort to originate higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans or our inability to adequately adapt policies and procedures to changes in economic or other conditions, may result in loan defaults and charge-offs that may necessitate increases to our allowance for loan losses, each of which could adversely affect our net income and financial condition.
The weakening of our underwriting guidelines for any reason, such as in response to the competitive environment, in an effort to originate higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans or our inability to adequately adapt policies and procedures to changes in economic or other conditions, may result in loan defaults and charge-offs that may necessitate increases to our allowance for credit losses, each of which could adversely affect our net income and financial condition.
The failure to receive financial statements, credit reports or other financial or business information related to our customers on a timely basis, or the inadvertent reliance by us on inaccurate, incomplete, fraudulent or misleading forms of any of the foregoing information, could result in loan losses, reputational damage or other effects that could have a material adverse effect on our business, financial condition or results of operations.
The failure to receive financial statements, credit reports or other financial or business information related to our customers on a timely basis, or the inadvertent reliance by us on inaccurate, incomplete, fraudulent or misleading forms of any of the foregoing information, could result in credit losses, reputational damage or other effects that could have a material adverse effect on our business, financial condition or results of operations.
As a result, we are subject to the risk that a Medallion Capital portfolio company in which we invest may make business decisions with which we disagree, and the management of such company may take risks or otherwise act in ways that do not serve our interests as debt investors. 31 We may not realize gains from our equity investments.
As a result, we are subject to the risk that a Medallion Capital portfolio company in which we invest may make business decisions with which we disagree, and the management of such company may take risks or otherwise act in ways that do not serve our interests as debt investors. We may not realize gains from our equity investments.
ITEM 1A. RI SK FACTORS Risks Related to Our Loan Portfolios and Business Our business is heavily concentrated in consumer lending, which carries a high risk of loss that is different from and typically higher than the risk of loss associated with commercial lending and which could be adversely affected by an economic downturn and inflation.
ITEM 1A. RI SK FACTORS Risks Related to Our Loan Portfolios and Business Our business is heavily concentrated in consumer lending, which carries a high risk of loss that is different from and typically higher than the risk of loss associated with commercial lending, and which could be adversely affected by an economic downturn.
As a result, we have incurred and will continue to incur capital and operating expenditures and other costs to comply with these requirements and laws and regulations. The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations.
As a result, we have incurred and will continue to incur capital and operating expenditures and other costs to comply with these requirements and laws and regulations. 24 The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations.
We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization, or public offering, which would allow us to sell the underlying equity interests. ITEM 1B. UNRESOLVE D STAFF COMMENTS None.
We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization, or public offering, which would allow us to sell the underlying equity interests. 33 ITEM 1B. UNRESOLVE D STAFF COMMENTS None.
Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the current global economic and political environment, our work-from home arrangements, the outsourcing of some of our business operations, the ongoing shortage of qualified cybersecurity professionals, and the interconnectivity and interdependence of third parties to our systems.
Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the current global economic and political environment, our work-from home arrangements, the outsourcing of some of our business operations, the ongoing shortage of qualified cybersecurity professionals, and the interdependence of third parties to our systems.
An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition, or results of operations. 22 Medallion Bank’s use of brokered deposits for its deposit-gathering activities may not be available when needed.
An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition, or results of operations. Medallion Bank’s use of brokered deposits for its deposit-gathering activities may not be available when needed.
Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties, or damage to our reputation, all of which could have a material adverse effect our business, financial condition or results of operations.
Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties, or damage to our reputation, all of which could have a material adverse effect on our business, financial condition or results of operations.
If we are required to liquidate all or a portion of our medallion loans quickly, we would realize less than the value at which we had previously recorded such medallions. Uncertainty relating to the reporting of collateral values for our loans may adversely affect the value of our portfolio.
If we are required to liquidate all or a portion of our taxi medallion loans quickly, we would realize less than the value at which we had previously recorded such taxi medallions. Uncertainty relating to the reporting of collateral values for our taxi medallion loans may adversely affect the value of our portfolio.
The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the quality of our assets. Our financial condition, liquidity and results of operations depend on the credit performance of our loans.
The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the quality of our assets. 19 Our financial condition, liquidity and results of operations depend on the credit performance of our loans.
A portion of our investments, such as medallion loans, will have fixed interest rates, while a portion of our borrowings may have floating interest rates. As a result, a significant change in market interest rates could have a material adverse effect on our net investment income.
A portion of our investments, such as taxi medallion loans, will have fixed interest rates, while a portion of our borrowings may have floating interest rates. As a result, a significant change in market interest rates could have a material adverse effect on our net investment income.
In addition, the Company has and expects to further incur significant legal fees and expenses in defending such charges by the SEC and the Company may be subject to shareholder litigation relating to these SEC matters.
In addition, the Company has and expects to further incur significant legal fees and expenses in defending against such charges by the SEC and the Company may be subject to shareholder litigation relating to these SEC matters.
For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing safeguards appropriate based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches.
For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing physical, technical, and administrative safeguards appropriate based on our size and complexity, the nature and scope of our activities, and the sensitivity of the customer information we process, as well as plans for responding to data security breaches.
Compliance with current or future privacy, data protection, and information security laws (including those regarding security breach notification) could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations.
Compliance with current or future privacy, data protection, and information security laws (including those regarding security breach notification) could result in higher compliance technology, and other operational costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations.
Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates. 30 Sales of loans could have an adverse effect on the credit or other characteristics of the loans and portfolios we retain.
Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates. 31 Sales of loans could have an adverse effect on the credit or other characteristics of the loans and portfolios we retain.
Additionally, if our prime loan losses are higher than expected then we may also be at risk with regard to our forecasted losses, which could impact our loss reserves and results of operations. Our allowance for loan losses may prove to be insufficient to cover losses on our loans.
Additionally, if our prime credit losses are higher than expected then we may also be at risk with regard to our forecasted losses, which could impact our loss reserves and results of operations. Our allowance for credit losses may prove to be insufficient to cover losses on our loans.
We may not control many of Medallion Capital’s portfolio companies. We may not control many of Medallion Capital’s portfolio companies, even though we may have board representation or board observation rights.
We may not control many of Medallion Capital’s portfolio companies. We do not control Medallion Capital’s portfolio companies, even though we may have board representation or board observation rights.
We continue to review and evaluate our methodology, models and the underlying assumptions, estimates, and assessments we use and we will implement further enhancements or changes to them, as needed. We cannot provide assurance that our loan loss reserves will be sufficient to cover actual losses.
We continue to review and evaluate our methodology, models and the underlying assumptions, estimates and assessments we use and we will implement further enhancements or changes to them, as needed. We cannot provide assurance that our credit loss reserves will be sufficient to cover actual losses.
In addition, as a condition to receipt of FDIC insurance, Medallion Bank entered into a capital maintenance agreement with the FDIC requiring it to maintain a 15% Tier 1 leverage ratio (Tier 1 capital to average assets). As of December 31, 2022, Medallion Bank’s Tier 1 leverage ratio was 16.2%.
In addition, as a condition to receipt of FDIC insurance, Medallion Bank entered into a capital maintenance agreement with the FDIC requiring it to maintain a 15% Tier 1 leverage ratio (Tier 1 capital to average assets). As of December 31, 2023, Medallion Bank’s Tier 1 leverage ratio was 16.2%.
The demand for the products we offer may be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences or financial conditions, macroeconomic conditions, regulatory restrictions that decrease customer access to particular products or the availability of competing products.
The demand for the products we offer may be reduced due to a variety of factors, such as demographic patterns, changes in 20 customer preferences or financial conditions, regulatory restrictions that decrease customer access to particular products or the availability of competing products.
Changes in the Presidential Administration or control of Congress also increases the likelihood of further changes to laws, regulations and supervisory practices affecting financial institutions, which could include more stringent requirements and greater scrutiny from regulatory authorities.
Changes in the Presidential Administration or control of Congress also increase the likelihood of further changes to laws, regulations and supervisory practices affecting financial institutions, which could include more stringent requirements and greater scrutiny from regulatory authorities.
During periods of economic slowdown, delinquencies, defaults, repossessions, and losses generally increase, and consumers may reduce their discretionary spending in areas such as recreation and home improvement, which constitute a significant majority of our business.
During periods of economic slowdown, delinquencies, defaults, repossessions, and losses generally increase, and consumers may reduce their discretionary spending in areas such as recreation and home improvement, which constitute the significant majority of our business.
The Dodd-Frank Act significantly changed federal financial services regulation and affects, among other things, the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. In addition to the statutory requirements under the Dodd-Frank Act, the legislation also delegated authority to US banking, securities, and derivatives regulators to impose additional restrictions through required rulemaking.
The Dodd-Frank Act significantly changed federal financial services regulation and affects, among other things, the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. In addition to the statutory requirements under the Dodd-Frank Act, the legislation also delegated authority to U.S. banking, securities, and derivatives regulators to impose additional restrictions through required rulemaking.
Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach.
Various state and federal banking regulators and state legislatures have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory and/or law enforcement notification requirements in certain circumstances in the event of a security breach.
Such attacks or natural disasters in the US or elsewhere may impact the businesses in which we directly or indirectly invest by undermining economic conditions in the United States. In addition, a portion of our business is focused on the New York City metropolitan area, which suffered a terrorist attack in 2001 and has faced continued threats.
Such attacks or natural disasters in the U.S. or elsewhere may impact the businesses in which we directly or indirectly invest by undermining economic conditions in the United States. In addition, a portion of our business is focused on the New York City metropolitan area, which suffered a terrorist attack in 2001 and has faced continued threats.
Our regulators, based on their judgment, may conclude that we should modify our methodology, models or the underlying assumptions, estimates and assessments, increase our allowance for loan losses, and/or recognize further losses.
Our regulators, based on their judgment, may conclude that we should modify our methodology, models or the underlying assumptions, estimates and assessments, increase our allowance for credit losses, and/or recognize further losses.
Moreover, our regulators, as part of their supervisory function, periodically review the methodology, models and the underlying assumptions, estimates and assessments we use for calculating, and the adequacy of, our allowance for loan losses.
Moreover, our regulators, as part of their supervisory function, periodically review the methodology, models and the underlying assumptions, estimates and assessments we use for calculating, and the adequacy of, our allowance for credit losses.
These rules require financial institutions to establish procedures for identifying and verifying the identity of customers and beneficial owners of certain legal entity customers seeking to open new financial accounts. Federal and state bank regulators also have focused on compliance with Bank Secrecy Act and anti-money laundering regulations.
These rules require financial institutions to establish procedures for identifying and verifying the identity of customers and beneficial owners of certain legal entity customers seeking to open new financial accounts. Federal and state bank regulators also have focused on compliance with BSA and anti-money laundering regulations.
We periodically review and update our methodology, models and the underlying assumptions, estimates and assessments we use to establish our allowance for loan losses to reflect our view of current conditions.
We periodically review and update our methodology, models and the underlying assumptions, estimates and assessments we use to establish our allowance for credit losses to reflect our view of current conditions.
Terrorist attacks and natural disasters may harm our results of operations and your investment. We cannot assure you that there will not be further terrorist attacks against the US or US businesses or major natural disasters hitting the United States.
Terrorist attacks and natural disasters may harm our results of operations and your investment. We cannot assure you that there will not be further terrorist attacks against the U.S. or U.S. businesses or major natural disasters hitting the United States.
Additionally, higher gasoline prices, inflation, volatile real estate values and market conditions, reset of adjustable rate mortgages to higher interest rates, general availability of consumer credit, or other factors that impact consumer confidence or disposable income could increase loss frequency and decrease consumer demand for RVs, boats, consumer recreational equipment and other consumer products (including in connection with home improvement projects), as well as weaken collateral values on certain types of consumer products.
Additionally, higher gasoline prices, volatile real estate values and market conditions, resets of adjustable rate mortgages to higher interest rates, increases in inflation, general availability of consumer credit, or other factors that impact consumer confidence or disposable income, could increase loss frequency and decrease consumer demand for RVs, boats, trailers and other consumer products (including in connection with home improvement projects), as well as weaken collateral values on certain types of consumer products.
Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of December 31, 2022 by $1.2 million on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been a reduction in net income by $1.4 million at December 31, 2022.
Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of December 31, 2023 by $1.6 million on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been a reduction in net income by $1.9 million at December 31, 2023.
In addition, a large proportion of our new loan originations are concentrated in our top ten relationships (62% in our home improvement portfolio and 48% in our recreation portfolio), the loss of a significant relationship could have a negative effect on demand for our products and our new loan originations.
In addition, a large proportion of our new loan originations are concentrated in our top ten relationships (57% in our home improvement portfolio and 43% in our recreation portfolio), and the loss of a significant relationship could have a negative effect on demand for our products and our new loan originations.
As of December 31, 2022, 44% of our recreation loans were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history.
As of December 31, 2023, 38% of our recreation loans were non-prime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, adverse credit history.
We maintain an allowance for loan losses (a reserve established through a provision for losses that decreases our earnings and that, accordingly, affects our financial condition) that we believe is appropriate to provide for incurred losses in our loan portfolio.
We maintain an allowance for credit losses (a reserve established through a provision for losses that decreases our earnings and that, accordingly, affects our financial condition) that we believe is appropriate to provide for current expected losses in our loan portfolio.
Changes in economic conditions affecting borrowers, such as inflation and the risk of recession, growth in our loan portfolio, changes in the credit characteristics of our loan portfolio, new information regarding our loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses.
Changes in economic conditions affecting borrowers, growth in our loan portfolio, changes in the credit characteristics of our loan portfolio, new information regarding our loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses.
The process for establishing an allowance for loan losses is critical to our results of operations and financial condition, and requires complex models and judgments, including forecasts of economic conditions.
The process for establishing an allowance for credit losses is critical to our results of operations and financial condition, and requires complex models and judgments, including forecasts of economic conditions and other assumptions.
Other than in connection with dispositions of existing medallion assets, we stopped originating new medallion loans in July 2015, and the Bank has not originated new medallion loans since 2014. Our net medallion loans and related assets represent less than 1% of our total assets at December 31, 2022.
Other than in connection with dispositions of existing taxi medallion assets, or refinancings of maturing loans, we stopped originating new taxi medallion loans in July 2015, and the Bank has not originated new taxi medallion loans since 2014. Our net taxi medallion loans and related assets represent less than 1% of our total assets at December 31, 2023.
Any such access, disclosure, destruction or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties, disrupt our operations and damage our reputation, which could adversely affect our business.
Any such access, disclosure, destruction or other impact to the confidentiality, integrity or availability of such information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties, disrupt our operations and damage our reputation, which could adversely affect our business.
The USA PATRIOT Act of 2001 and the Bank Secrecy Act, or the BSA, require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with FinCEN.
The Patriot Act and the BSA require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with FinCEN.
In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our net interest income. 19 Furthermore, our business is significantly affected by monetary and regulatory policies of the US Federal Government and its agencies.
In addition, during an economic slow-down or recession, our servicing costs may increase without a corresponding increase in our net interest income. Furthermore, our business is significantly affected by monetary and regulatory policies of the U.S. Federal Government and its agencies.
These developments, along with United States government credit, debt ceiling and deficit concerns, global economic uncertainties and market volatility and the ongoing impacts of COVID-19, have caused and could continue to cause interest rates to be volatile.
These developments, along with United States government credit, debt ceiling and deficit concerns, global economic uncertainties and market volatility, have caused and could continue to cause interest rates to be volatile.
Any future changes in federal and state law and regulations, as well as the interpretations and implementations, or modifications or repeals, of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations. 24 Our inability to remain in compliance with regulatory requirements could have a material adverse effect on our operations in that market and on our reputation generally.
Any future changes in federal and state law and regulations, as well as the interpretations and implementations, or modifications or repeals, of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations.
Such a decline could reduce the amount available for distribution payments. As of December 31, 2022, we had $1.8 billion of outstanding indebtedness with a weighted average borrowing cost of 2.43%. Approximately $513.2 million of our borrowing relationships have maturity dates during 2023, a vast majority of which are brokered certificates of deposit.
Such a decline could reduce the amount available for distribution payments. As of December 31, 2023, we had $2.1 billion of outstanding indebtedness with a weighted average borrowing cost of 3.50%. 30 Approximately $0.7 billion of our borrowing relationships have maturity dates during 2024, a vast majority of which are brokered certificates of deposit.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations. Increases in FDIC insurance premiums may adversely affect our earnings.
In addition, our increasing interconnectivity with service providers, dealerships, contractors and FSPs, including through application programming interfaces, increases the risk that a security breach or other disruption affecting a third party materially affects our ability to conduct business. We are dependent upon our key investment personnel for our future success.
In addition, our increasing interconnectivity with service providers, dealerships, contractors and FSPs, including through application programming interfaces, increases the risk that a security breach or other disruption affecting a third party materially affects our ability to conduct business.
As interest rates change, our gross interest rate spread on originations either increases or decreases because the rates charged on the loans originated are limited by market and competitive conditions, restricting our ability to pass on increased interest costs to the consumer.
Our profitability has and may further be directly affected by interest rate levels and fluctuations in interest rates. As interest rates change, our gross interest rate spread on originations either increases or decreases because the rates charged on the loans originated are limited by market and competitive conditions, restricting our ability to pass on increased interest costs to the consumer.
We have experienced a significant downward movement in medallion collateral values which has caused and may continue to cause a negative impact on our valuation analysis and could further significantly lower the fair market value measurements of our portfolio. We require an objective benchmark in determining the value of our portfolio.
We have experienced a significant downward movement in taxi medallion collateral values, which caused and may again cause a negative impact on our valuation analysis and could further significantly lower the fair market value measurements of our portfolio.
Although the net interest margins are intended to be higher to compensate us for this increased risk, an economic downturn could result in higher loss rates and lower returns than expected, and could affect the profitability of our consumer loan portfolios.
Although the net interest margins are intended to be higher to compensate us for this increased risk, an economic downturn could result in higher loss rates and lower returns than expected and could affect the profitability of our consumer loan portfolios. For example, in 2023 our net interest margin on gross loans decreased to 8.38% from 8.73%.
Our business is particularly sensitive to macroeconomic conditions that affect the US economy, consumer spending and consumer credit, including for example, the impacts of inflation, which has had and could continue to have an adverse effect on consumer spending, a rising interest rate environment and the ongoing effects of the COVID-19 pandemic, as well as the impact that geopolitical responses to Russia’s invasion of Ukraine have had on gasoline prices in the United States.
Our business is particularly sensitive to macroeconomic conditions that affect the U.S. economy, consumer spending and consumer credit, including for example, the impacts of inflation, which has had and could continue to have an adverse effect on consumer spending, a rising interest rate environment, as well as the impact that geopolitical responses to international and regional wars have had on gasoline prices and the economic environment generally in the United States.
During 2022, we saw an increase in the cost of certificates of deposit and we expect this increase to continue in 2023.
During 2023, we saw an increase in the cost of certificates of deposit, our largest funding source, and we expect this increase to continue in 2024.
As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third-party vendors or other ongoing third-party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect our business, financial condition or results of operations. 25 If any of the various dealerships, contractors or FSPs through which we originate loans fails to fulfill their obligations to consumers or comply with applicable law, we may incur remediation costs.
As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third-party vendors or other ongoing third-party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect our business, financial condition or results of operations.
A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition or results of operations.
A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition or results of operations. 28 Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
Moreover, legislators and regulators are increasingly adopting or revising privacy, information security, and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection, and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities.
Moreover, legislators and regulators are increasingly adopting, revising or enforcing privacy, information security, and data protection laws or requirements – including privacy-related regulatory activity at the federal level (e.g., by the Federal Trade Commission) and the state level – that potentially could have a significant impact on our current and planned privacy, data protection, and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities.
In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization, or bankruptcy of the relevant portfolio company.
In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization, or bankruptcy of the relevant portfolio company. 32 There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
Additionally, although a significant percentage of our borrowers are non-prime and are not highly sensitive to interest rate movement, increases in interest rates may reduce the volume of loans we originate.
For example, in 2023, as interest rates increased, our net interest margin decreased by 64 basis points. Additionally, although a significant percentage of our borrowers are non-prime and are not highly sensitive to interest rate movement, increases in interest rates may reduce the volume of loans we originate.
Future increases in the allowance for loan losses or recognized losses (as a result of any review, update, regulatory guidance, changes in accounting standards or otherwise) will result in a decrease in net earnings and capital and could have a material adverse effect on our business, results of operations, and financial condition. 20 Our business, financial condition and results of operations could be negatively impacted if we are unsuccessful in developing and maintaining relationships with dealerships, contractors, and FSPs.
Future increases in the allowance for credit losses or recognized losses (as a result of any review, update, regulatory guidance, changes in accounting standards or otherwise) will result in a decrease in net earnings and capital and could have a material adverse effect on our business, results of operations, and financial condition.
If taxi medallion values continue to decline, there is likely to be an increase in medallion loan delinquencies, foreclosures and borrower bankruptcies. Our ability to recover on defaulted medallion loans by foreclosing on and selling the taxi medallion collateral would be diminished, which would result in future losses on defaulted medallion loans that could have an effect on our business.
Our ability to recover on defaulted taxi medallion loans by foreclosing on and selling the taxi medallion collateral would be diminished, which would result in future losses on defaulted taxi medallion loans that could have an effect on our business.
See Note 6 of our consolidated financial statements for a discussion of the current and new lending arrangements to date. 29 Additional Risks Relating to Our Loan Portfolios and Investments Lending to small businesses involves a high degree of risk and is highly speculative.
We currently have $33.0 million of indebtedness of which the interest rate is SOFR-based. See Note 5 of our consolidated financial statements for a discussion of the current and new lending arrangements to date. Additional Risks Relating to Our Loan Portfolios and Investments Lending to small businesses involves a high degree of risk and is highly speculative.
Legal and Regulatory Risks We are subject to pending litigation with the SEC for certain violations of the federal securities laws, which could result in material fines and/or other sanctions and accordingly have a material adverse effect on our business, reputation, financial condition, results of operations and/or stock price, as well as a bar against our President and Chief Operating Officer.
We received dividends from Medallion Bank of $20.0 million for each of the years ended December 31, 2023 and 2022 and received dividends from Medallion Capital of $4.8 million and $5.1 million for the years ended December 31, 2023 and 2022, all of which was reinvested in Medallion Capital. 23 Legal and Regulatory Risks We are subject to pending litigation with the SEC for certain violations of the federal securities laws, which could result in material fines and/or other sanctions and accordingly have a material adverse effect on our business, reputation, financial condition, results of operations and/or stock price, as well as a bar against our President and Chief Operating Officer.
Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition, and results of operations.
Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition, and results of operations. Also, we will have to rely on our counterparties to perform their obligations under such hedges.
Additionally, because we borrow to fund our loans and investments, a portion of our income is dependent upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds.
Additionally, because we borrow to fund our loans and investments, a portion of our income is dependent upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds. For example, in 2023 our net interest margin on gross loans decreased to 8.38% from 8.73%.
Also, we will have to rely on our counterparties to perform their obligations under such hedges. 21 Decreases in the value of our medallion loan collateral, including the impact on loans in process of foreclosure, had and may continue to have, a material adverse effect on our business.
Decreases in the value of our taxi medallion loan collateral, including the impact on loans in process of foreclosure, had and may continue to have, a material adverse effect on our business.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control and could have a material adverse effect on us, including current higher interest rates, costs of compliance with increased regulation, and other factors.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control and could have a material adverse effect on us, through interest rate changes, costs of compliance with increased regulation, and other factors. For example, the Federal Reserve raised the Federal Funds Rate several times in 2022 and 2023.
Loosening restrictions that result in the issuance of additional taxi medallions could decrease the value of taxi medallions in that market and in turn, adversely affect the value of the collateral securing our then outstanding medallion loans in that market. We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 339% as of December 31, 2022.
Loosening restrictions that result in the issuance of additional taxi medallions could decrease the value of taxi medallions in that market and in turn, adversely affect the value of the collateral securing our then outstanding taxi medallion loans in that market.
The consumer lending market is very competitive and is served by a variety of entities, including banks, savings and loan associations, credit unions, independent finance companies, and financial technology companies.
Risk Relating to Our Growth and Operations Competition with other lenders could adversely affect us. The consumer lending market is very competitive and is served by a variety of entities, including banks, savings and loan associations, credit unions, independent finance companies, and financial technology companies.
In order to grow, we will need to hire, train, supervise, and manage new employees. However, we cannot assure you that any such employees will contribute to the success of our business.
In order to grow, we will need to hire, train, supervise, and manage new employees. However, we cannot assure you that any such employees will contribute to the success of our business. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition, and results of operations.
The SBA also places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries. Compliance with SBA requirements may cause the SBIC subsidiaries to forego attractive investment opportunities that are not permitted under SBA regulations.
The SBA also places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries.
Many of our competitors have substantially greater resources to invest in technological improvements than we do. We may not be able to effectively implement new, technology-driven products and services or be successful in marketing these products and services to our customers.
We may not be able to effectively implement new, technology-driven products and services or be successful in marketing these products and services to our customers.
Our privately placed notes contain certain provisions that require us to meet certain tests in order to raise additional debt. We cannot guarantee that we will continue to meet such tests in the future.
Failure to raise additional capital in the future could have a material adverse effect on our results of operations and financial position. Our privately placed notes contain certain provisions that require us to meet certain tests in order to raise additional debt. We cannot guarantee that we will continue to meet such tests in the future.
Although we have relationships with various dealerships, contractors, and FSPs, none of relationships are exclusive and each may be terminated at any time.
As a result, our ability to originate consumer loans depends on relationships with a limited number of dealerships, contractors, and FSPs. Although we have relationships with various dealerships, contractors, and FSPs, none of relationships are exclusive and each may be terminated at any time.
Further, SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBA regulations.
Compliance with SBA requirements may cause the SBIC subsidiaries to forego attractive investment opportunities that are not permitted under SBA regulations. 26 Further, SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBA regulations.
In addition, we may need to raise additional capital in the future to have sufficient capital resources and liquidity to meet our commitments, including the terms of the 2003 capital maintenance agreement, and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly.
The availability of credit facilities depends, in part, on factors outside of our control, including regulatory capital treatment for unfunded bank lines of credit, the financial strength and strategic objectives of the banks that participate in credit facilities and the availability of bank liquidity in general. 22 In addition, we may need to raise additional capital in the future to have sufficient capital resources and liquidity to meet our commitments, including the terms of the 2003 Capital Maintenance Agreement, and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly.
The effective use of technology increases efficiency and enables financial institutions to serve customers better. Our future success depends, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.
Our future success depends, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we do.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease office space for loan origination offices and subsidiary operations in Newark, New Jersey, which, along with our New York City office, handles our medallion loan segment, and in Excelsior, Minnesota, which handles our commercial lending segment.
Biggest changeWe also lease office space for loan origination offices and subsidiary operations in Newark, New Jersey, which, along with our New York City office, handles our taxi medallion loan segment, and in Excelsior, Minnesota, which handles our commercial lending segment.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 10 “Commitments and Contingencies” subsections (c) and (d) to the consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for details of the Company’s legal proceedings, including the pending SEC litigation. ITEM 4. MINE SAFE TY DISCLOSURES Not applicable. 32 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 10 “Commitments and Contingencies” subsections (c) and (d) to the consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for details of the Company’s legal proceedings, including the pending SEC litigation. ITEM 4. MINE SAFE TY DISCLOSURES Not applicable. 35 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+2 added−2 removed4 unchanged
Biggest changeBeginning in March 2022, the Board of Directors reinstated our quarterly dividend, with dividends of $0.08 per share paid in March 2022, May 2022, August 2022, and November 2022. We may, however, re-evaluate the new dividend policy in the future depending on market conditions.
Biggest changeA dividend of $0.08 per share was paid in March, May, and August 2023. On October 24, 2023, the Company’s board of directors authorized and increased the quarterly dividend to $0.10 per share, and a dividend of $0.10 per share was paid in November 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES STOCK PERFORMANCE GRAPH The following graph commences as of December 31, 2017 and compares the Company’s common stock with the cumulative total return for the NASDAQ Composite Index and the Russell 2000 Index.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES STOCK PERFORMANCE GRAPH The following graph commences as of December 31, 2018 and compares the Company’s common stock with the cumulative total return for the NASDAQ Composite Index and the Russell 2000 Index.
Furthermore, the following graph assumes the investment of $100 on December 31, 2017 in each of the Company’s common stock, the stocks comprising the NASDAQ Composite Index and the Russell 2000 Index and assumes dividends are reinvested.
Furthermore, the following graph assumes the investment of $100 on December 31, 2018 in each of the Company’s common stock, the stocks comprising the NASDAQ Composite Index and the Russell 2000 Index and assumes dividends are reinvested.
Cumulative Total Return Based on Initial Investment of $100 on December 31, 2017 with dividends reinvested Our common stock is quoted on NASDAQ under the symbol “MFIN.” Our common stock commenced trading on May 23, 1996. As of March 9, 2023, there were approximately 180 holders of record of our common stock.
Cumulative Total Return Based on Initial Investment of $100 on December 31, 2018, with dividends reinvested Our common stock is quoted on NASDAQ under the symbol “MFIN.” Our common stock commenced trading on May 23, 1996. As of March 6, 2024, there were approximately 172 holders of record of our common stock.
Stockholders may obtain additional information about the dividend reinvestment plan by contacting the American Stock Transfer & Trust Company, LLC at 6201 15th Avenue, Brooklyn, NY, 11219. 33 PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS On April 29, 2022, our board of directors authorized a new stock repurchase program, pursuant to which we were authorized to repurchase up to $35 million of our shares, which was increased to $40 million on August 10, 2022.
Stockholders may obtain additional information about the dividend reinvestment plan by contacting Equiniti Trust Company, LLC at PO Box 10027, Newark, NJ, 07101. 36 PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS On April 29, 2022, our board of directors authorized a new stock repurchase program with no expiration date, pursuant to which we were authorized to repurchase up to $35 million of our shares, which was increased to $40 million on August 10, 2022, also with no expiration date.
There can be no assurance that we will continue to pay any cash distributions, as we may retain our earnings to facilitate the growth of our business, to finance our investments, to provide liquidity, or for other corporate purposes We have adopted a dividend reinvestment plan pursuant to which stockholders may elect to have distributions reinvested in additional shares of common stock.
There can be no assurance that we will continue to pay any cash distributions, as we may retain our earnings to facilitate the growth of our business, to finance our investments, to provide liquidity, or for other corporate purposes.
On March 9, 2023, the last reported sale price of our common stock was $8.29 per share. We are subject to federal and applicable state corporate income taxes on our taxable ordinary income and capital gains.
On March 6, 2024, the last reported sale price of our common stock was $8.37 per share. We are subject to federal and applicable state corporate income taxes on our taxable ordinary income and capital gains. Beginning in March 2022, the Company's board of directors reinstated our quarterly dividend.
Such new repurchase program replaced the previous one, which was terminated. During the year ended December 31, 2022 we repurchased 2,650,911 shares of our common stock at an aggregate cost of $20,618,843. Accordingly, as of December 31, 2022, up to $19,998,012 of shares remain authorized for repurchase under our stock repurchase program.
Such new repurchase program replaced the previous one, which was terminated. As of December 31, 2023, up to $19,998,012 of shares remain authorized for repurchase under our stock repurchase program. The Company did not repurchase shares of common stock during the quarter ended December 31, 2023. ITEM 6. [ Reserved]
Removed
There were no purchases during the years ended December 31, 2021 and 2020. The following table presents our purchases for the year ended December 31, 2022.
Added
The Company currently expects to continue to pay quarterly dividends at the current rate for the foreseeable future. We may, however, re-evaluate the dividend policy in the future depending on market conditions.
Removed
Total Shares of Common Stock Repurchased Average Price Paid per Share Total Amount Paid Maximum Value of Shares Yet to Be Purchased January 1 - January 31 — $ — $ — $ 22,874,509 February 1 - February 28 — — — 22,874,509 March 1 - March 31 67,660 9.12 616,855 22,257,654 April 1 - April 30 — — — 22,257,654 May 1 - May 31 1,056,933 7.87 8,316,012 26,683,988 June 1 - June 30 215,217 7.71 1,658,542 25,025,447 July 1 - July 31 — — — 25,025,447 August 1 - August 31 734,547 7.93 5,822,227 24,203,219 September 1 - September 30 319,323 7.54 2,408,673 21,794,546 October 1 - October 31 257,231 6.98 1,796,534 19,998,012 November 1 - November 30 — — — 19,998,012 December 1 - December 31 — — — 19,998,012 Total 2,650,911 $ 7.78 20,618,843 $ 19,998,012 ITEM 6. [ Reserved] 34
Added
We have adopted a dividend reinvestment plan pursuant to which stockholders may elect to have distributions reinvested in additional shares of common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, 2022 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 Increase (Decrease) In Volume Increase (Decrease) In Rate Net Change Interest-earning assets Interest earning cash and cash equivalents $ 174 $ 223 $ 397 $ (31 ) $ (55 ) $ (86 ) $ 501 $ (910 ) $ (409 ) Investment securities 41 366 407 (24 ) (205 ) (229 ) 46 (332 ) (286 ) Loans Recreation 26,435 (5,595 ) 20,840 14,749 (7,150 ) 7,599 15,078 (3,832 ) 11,246 Home improvement 12,912 (2,413 ) 10,499 7,961 (1,030 ) 6,931 6,933 396 7,329 Commercial 2,382 818 3,200 (287 ) 23 (264 ) 803 (1,101 ) (298 ) Medallion (526 ) 2,704 2,178 11,994 (11,959 ) 35 (1,734 ) (3,448 ) (5,182 ) Strategic partnerships 136 (2 ) 134 19 (1 ) 18 — — — Total loans $ 41,339 $ (4,488 ) $ 36,851 $ 34,436 $ (20,117 ) $ 14,319 $ 21,080 $ (7,985 ) $ 13,095 Total interest-earning assets $ 41,554 $ (3,899 ) $ 37,655 $ 34,381 $ (20,377 ) $ 14,004 $ 21,627 $ (9,227 ) $ 12,400 Interest-bearing liabilities Retail and privately placed notes $ 24 $ (242 ) $ (218 ) $ 4,263 $ (850 ) $ 3,413 $ 1,093 $ (69 ) $ 1,024 Deposits 4,812 311 5,123 1,302 (6,089 ) (4,787 ) 3,213 (3,402 ) (189 ) Notes payable to banks (134 ) — (134 ) (261 ) (850 ) (1,111 ) (515 ) (308 ) (823 ) SBA debentures and borrowings 143 (31 ) 112 (223 ) (294 ) (517 ) (190 ) (162 ) (352 ) Preferred securities — 302 302 — 14 14 — (557 ) (557 ) Other borrowings (140 ) — (140 ) (31 ) 8 (23 ) 1 2 3 Total interest-bearing liabilities $ 4,705 $ 340 $ 5,045 $ 5,050 $ (8,061 ) $ (3,011 ) $ 3,602 $ (4,496 ) $ (894 ) Net $ 36,849 $ (4,239 ) $ 32,610 $ 29,331 $ (12,316 ) $ 17,015 $ 18,025 $ (4,731 ) $ 13,294 For the year ended December 31, 2022, interest income increased primarily due to the increased volume of our recreation and home improvement loan portfolios, even as the average yield decreased on these portfolios.
Biggest changeYear Ended December 31, 2023 2022 2021 (Dollars in thousands) Increase (Decrease) In Volume Increase (Decrease) In Rate Net Change Increase (Decrease) In Volume Increase (Decrease) In Rate Net Change Increase (Decrease) In Volume Increase (Decrease) In Rate Net Change Interest-earning assets Interest earning cash and cash equivalents $ 755 $ 2,147 $ 2,902 $ 174 $ 223 $ 397 $ (31 ) $ (55 ) $ (86 ) Investment securities 174 378 552 41 366 407 (24 ) (205 ) (229 ) Loans Recreation 25,911 2,709 28,620 26,435 (5,595 ) 20,840 14,749 (7,150 ) 7,599 Home improvement 16,087 1,913 18,000 12,912 (2,413 ) 10,499 7,961 (1,030 ) 6,931 Commercial 1,487 1,711 3,198 2,382 818 3,200 (287 ) 23 (264 ) Taxi medallion (2,062 ) 2,985 923 (526 ) 2,704 2,178 11,994 (11,959 ) 35 Strategic partnerships 233 (9 ) 224 136 (2 ) 134 19 (1 ) 18 Total loans $ 41,656 $ 9,309 $ 50,965 $ 41,339 $ (4,488 ) $ 36,851 $ 34,436 $ (20,117 ) $ 14,319 Total interest-earning assets $ 42,585 $ 11,834 $ 54,419 $ 41,554 $ (3,899 ) $ 37,655 $ 34,381 $ (20,377 ) $ 14,004 Interest-bearing liabilities Deposits $ 8,774 $ 16,344 $ 25,118 $ 4,812 $ 311 $ 5,123 $ 1,302 $ (6,089 ) $ (4,787 ) Retail and privately placed notes 233 45 278 24 (242 ) (218 ) 4,263 (850 ) 3,413 SBA debentures and borrowings (23 ) 182 159 143 (31 ) 112 (223 ) (294 ) (517 ) Trust preferred securities — 1,206 1,206 — 302 302 — 14 14 Notes payable to banks — — — (134 ) 0 (134 ) (261 ) (850 ) (1,111 ) Other borrowings — — — (140 ) 0 (140 ) (31 ) 8 (23 ) Total interest-bearing liabilities $ 8,984 $ 17,777 $ 26,761 $ 4,705 $ 340 $ 5,045 $ 5,050 $ (8,061 ) $ (3,011 ) Net $ 33,601 $ (5,943 ) $ 27,658 $ 36,849 $ (4,239 ) $ 32,610 $ 29,331 $ (12,316 ) $ 17,015 For the year ended December 31, 2023, the increase in interest income was mainly driven by the increase in volume of consumer loans, with a large portion of that increase occurring in the first half of the year, as well as an increase in overall yield on interest-earning assets as we issue new loans at interest rates higher than the weighted average rates of our then current portfolio.
(2) Cash resides in the applicable SBIC and is generally not available for corporate use. (3) Balance includes $1.3 million of strategic partner reserve deposits and $8.7 million related to listing services. Loan amortization, prepayments, and sales also provide a source of funding for us.
(2) Cash resides in the applicable SBIC and is generally not available for corporate use. (3) Balance includes $1.5 million of strategic partner reserve deposits and $8.7 million related to listing services. Loan amortization, prepayments, and sales also provide a source of funding for us.
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.
Collateral value for the taxi medallion loans is generally determined utilizing factors deemed relevant under the circumstances of the market including but not limited to: actual transfers, pending transfers, median and average sales prices, discounted cash flows, market direction and sentiment, and general economic trends for the industry and economy.
These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2.0 million to $5.0 million at origination, and typically include an equity component as part of the financing.
These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2.5 million to $6.0 million at origination, and typically include an equity component as part of the financing.
To take advantage of this low cost of funds, historically we referred a portion of our medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing Corp., or MSC.
To take advantage of this low cost of funds, historically we referred a portion of our taxi medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing Corp., or MSC.
Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes to the allowance for loan losses in future periods, and the inability to collect on outstanding loans could result in increased loan losses.
Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes to the allowance for credit losses in future periods, and the inability to collect on outstanding loans could result in increased credit losses.
We charge-off loans in the period that such loans are deemed uncollectible or when they reach 120 days delinquent regardless of whether the loan is a recreation, home improvement, or medallion loan.
We charge-off loans in the period that such loans are deemed uncollectible or when they reach 120 days delinquent regardless of whether the loan is a recreation, home improvement, or taxi medallion loan.
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.
Provision and Allowance for Credit Losses The allowance for credit losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks.
We maintain relationships with approximately 3,100 dealers and financial service providers, or FSPs, not all of which are active at any one time. FSPs are entities that provide finance and insurance, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves.
We maintain relationships with approximately 3,200 dealers and financial service providers, or FSPs, not all of which are active at any one time. FSPs are entities that provide finance and insurance, or F&I, services to small dealers that do not have the desire or ability to provide F&I services themselves.
Additionally, more information about our business activities can be found in “Business.” GENERAL We are a specialty finance company whose focus and growth has been our consumer finance and commercial lending businesses operated by Medallion Bank, or the Bank, and Medallion Capital, Inc., or Medallion Capital.
Additionally, more information about our business activities can be found in “Business.” COMPANY BACKGROUND We are a specialty finance company whose focus and growth has been our consumer finance and commercial lending businesses operated by Medallion Bank, or the Bank, and Medallion Capital, Inc., or Medallion Capital.
Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition.
Prepayments on loans are influenced significantly by general interest rates, taxi medallion loan market values, economic conditions, and competition.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OBJECTIVE The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the years ended December 31, 2022, 2021, and 2020.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OBJECTIVE The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the years ended December 31, 2023, 2022, and 2021.
Net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, including bank certificates of deposit issued to customers, debentures issued to and guaranteed by the SBA, privately placed notes, and preferred securities.
Net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, including bank certificates of deposit issued to consumers, debentures issued to and guaranteed by the SBA, privately placed notes, and trust preferred securities.
These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth. 50 The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at December 31, 2022.
These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth. The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at December 31, 2023.
Rate/Volume Analysis The following table presents the change in interest income and expense due to changes in the average balances (volume) and average rates, calculated for the years ended December 31, 2022, 2021, and 2020.
RATE/VOLUME ANALYSIS The following table presents the change in interest income and expense due to changes in the average balances (volume) and average rates, calculated for the years ended December 31, 2023, 2022, and 2021.
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020 For a comparison of the Company’s results of operations for the year ended December 31, 2021 to the year ended December 31, 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 14, 2022.
For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 For a comparison of the Company’s results of operations for the year ended December 31, 2022 to the year ended December 31, 2021, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 10, 2023.
In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We actively seek additional sources of liquidity; however, given market conditions, there can be no assurance that we will be able to secure additional liquidity on terms favorable to us or at all.
In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We regularly seek additional sources of liquidity; however, given current market conditions, there can be no assurance that we will be able to secure additional liquidity on terms favorable to us or at all.
Liquidity and Capital Resources Our sources of liquidity include brokered certificates of deposit, 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, issuances of preferred securities at our subsidiaries, and the disposition of our other assets.
Liquidity and Capital Resources Our sources of liquidity include brokered certificates of deposit and other borrowings at the Bank, unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private and public issuances of debt securities, participations or sales of loans to third parties, issuances of preferred securities at our subsidiaries, and the disposition of our other assets.
We actively monitor the level of exposure with the goal that movements in interest rates not adversely and unexpectedly negatively affect future earnings. We use net interest income sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our loan and investment securities portfolios. LIBOR is set to terminate on June 30, 2023.
We actively monitor the level of exposure with the goal that movements in interest rates not adversely and unexpectedly negatively affect future earnings. We use net interest income sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our loan and investment securities portfolios. LIBOR terminated on June 30, 2023.
In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a three-year look-back period for medallion loans and a one-year look-back period for recreation and home improvement loans and uses historical loss experience and other projections for commercial loans.
In analyzing the adequacy of the allowance for credit losses, the Company uses historical delinquency and actual loss rates with a three-year look-back period for taxi medallion loans and a one-year look-back period for recreation and home improvement loans and uses historical loss experience and other projections for commercial loans.
The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable. We receive approximately half of our loan volume from dealers and the other half from FSPs. Our top ten dealer and FSP relationships were responsible for 48% of recreation lending’s new loan originations for the year ended December 31, 2022.
The ability of FSPs to aggregate the financing and relationship management for many small dealers makes them valuable. We receive approximately half of our loan volume from dealers and the other half from FSPs. Our top ten dealer and FSP relationships were responsible for 43% of recreation lending’s new loan originations for the year ended December 31, 2023.
The annual goodwill assessment is focused on the Bank goodwill of $150.8 million and intangible assets of $22.0 million, both of which utilized a step zero qualitative impairment analysis based on historical and projected financial data. The Bank-related intangible assets are amortized over their approximate useful life.
The annual goodwill assessment is focused on the Bank goodwill of $150.8 million and intangible assets of $20.6 million, both of which utilized a step zero qualitative impairment analysis based on historical and projected financial data. The Bank-related intangible assets are amortized over their approximate useful life.
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. 48 The following table presents our interest rate sensitivity gap at December 31, 2022.
A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets. 53 The following table presents our interest rate sensitivity gap at December 31, 2023.
Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of December 31, 2022 by $1.2 million on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been a reduction in net income by $1.4 million at December 31, 2022.
Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of December 31, 2023 by $1.6 million on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been a reduction in net income by $1.9 million at December 31, 2023.
We also show results for a non-operating segment, corporate and other investments. Recreation Lending Recreation lending is a high-growth business focused on originating prime and non-prime recreation loans which is a significant source of income for us, accounting for 71%, 74%, and 76% of our interest income for the years ended December 31, 2022, 2021, and 2020.
We also show results for a non-operating segment, corporate and other investments. Recreation Lending Recreation lending is a growth oriented business focused on originating prime and non-prime recreation loans which is a significant source of income for us, accounting for 67%, 71%, and 74% of our interest income for the years ended December 31, 2023, 2022, and 2021.
(2) Balance includes $1.3 million of strategic partner reserve deposits as of December 31, 2022. Our contractual obligations expire on or mature at various dates through September 2037. The following table shows all contractual obligations at December 31, 2022.
(2) Balance includes $1.5 million of strategic partner reserve deposits as of December 31, 2023. Our contractual obligations expire on or mature at various dates through September 2037. The following table shows our contractual obligations at December 31, 2023.
Loans before allowance for loan losses were $1.9 billion as of December 31, 2022, comprised of recreation ($1.2 billion), home improvement ($0.6 billion), commercial ($92.9 million), medallion ($13.6 million), and strategic partnership (less than $0.6 million) loans.
As of December 31, 2022, loans before allowance for credit losses were $1.9 billion, comprised of recreation ($1.2 billion), home improvement ($0.6 billion), commercial ($92.9 million), taxi medallion ($13.6 million), and strategic partnership ($0.6 million) loans.
Our interest expense is driven by the interest rates payable on our bank certificates of deposit, fixed-rate, long-term private notes, fixed-rate, long-term debentures issued to the SBA, preferred securities, and have historically included short-term credit facilities with banks and other short-term notes payable. The Bank issues brokered bank certificates of deposit, which are our lowest borrowing costs.
Our interest expense is driven by the interest rates payable on our bank certificates of deposit, privately placed notes, fixed-rate, long-term debentures issued to the SBA, and trust preferred securities, and has historically included credit facilities with banks and other short-term notes payable. The Bank issues brokered time certificates of deposit, which are, on average, our lowest borrowing costs.
Average debt outstanding was $1.7 billion for the year ended December 31, 2022, up from $1.4 billion for the year ended December 31, 2021, as we issued additional certificates of deposit fund our loan growth. See page 37 for tables that show average balances and cost of funds for our funding sources.
Average debt outstanding was $2.0 billion for the year ended December 31, 2023, up from $1.7 billion for the year ended December 31, 2022, as we issued additional certificates of deposit to fund our loan growth. See page 40 for tables that show average balances and cost of funds for our funding sources.
However, other than in connection with dispositions of existing medallion assets, the Bank has not originated any new medallion loans since 2014 (and Medallion Financial Corp. has not originated any new medallion loans since 2015) and is working with MSC to service its remaining portfolio, as it winds down. MSC earns referral and servicing fees for these activities.
However, other than in connection with dispositions of existing taxi medallion assets, the Bank has not originated any new taxi medallion loans since 2014 (and Medallion Financial Corp. has not originated any new taxi medallion loans since 2015) and is working with MSC to service its remaining portfolio, as it winds down.
We continue to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020, and transferring underperforming loans from the portfolio to loan collateral in process of foreclosure with charge-offs to collateral value once loans become more than 120 days past due.
We continued to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020 (except for settled loans with interest being paid in excess of the loan balance), and by transferring underperforming loans from the portfolio to loan collateral in process of foreclosure with charge-offs to collateral value, once loans become more than 120 days past due.
ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity We, like other financial institutions, are subject to interest rate risk to the extent that our interest-earning assets (consisting of consumer, commercial, and medallion loans, and investment securities) reprice on a different basis over time in comparison to our interest-bearing liabilities (consisting primarily of bank certificates of deposit, privately placed notes, SBA debentures and borrowings, and preferred securities).
ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity We, like other financial institutions, are subject to interest rate risk to the extent that our interest-earning assets (consisting of consumer, commercial, and taxi medallion loans, and investment securities) reprice on a different basis over time in comparison to our interest-bearing liabilities (consisting primarily of bank certificates of deposit, SBA debentures and borrowings, historically credit facilities, and borrowings from banks and other lenders).
As of December 31, 2022, our consumer loans represented 94% of our gross loan portfolio and commercial loans represented 5%. Total assets were $2.3 billion as of December 31, 2022 and $1.9 billion as of December 31, 2021. Our loan-related earnings depend primarily on our level of net interest income.
As of December 31, 2023, our consumer loans represented 95% of our gross loan portfolio and commercial loans represented 5%. Total assets were $2.6 billion as of December 31, 2023 and $2.3 billion as of December 31, 2022. Our loan-related earnings depend primarily on our level of net interest income.
Total interest income was $196.6 million for the year ended December 31, 2022, compared to $159.0 million for the year ended December 31, 2021. The increase in interest income reflects continued growth in the recreation and home improvement lending segments, and to a lesser extent, growth in our commercial lending segment.
Total interest income was $251.0 million for the year ended December 31, 2023, compared to $196.6 million for the year ended December 31, 2022. The increase in interest income reflects continued growth in the recreation and home improvement lending segments, and to a lesser extent, growth in our commercial lending segment, as well as higher interest rates.
The result is contractor demand for financing services that facilitate an in-home transaction (e.g., digital tools, including mobile applications for phone or tablet, support for E-SIGN compliant electronic signatures, and extended operating hours), and additional resources for the salesperson throughout the financing process.
The result is contractor demand for financing services that facilitate an in-home transaction (e.g., digital tools, including mobile applications for phone or tablet, support for E-SIGN compliant electronic signatures, and extended operating hours), and additional resources for the salesperson throughout the financing process. We currently maintain relationships with approximately 800 contractors and FSPs.
If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $5.9 million and $3.1 million, respectively. Likewise, if our qualitative loss factor rates were to decrease 50 basis points, our recreation and home improvement general reserve would decrease by $5.9 million and $3.1 million, respectively.
If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $6.7 million and $3.8 million, respectively. Likewise, if our qualitative loss factor rates were to decrease 50 basis points, our recreation and home improvement general reserve would decrease by $6.7 million and $3.8 million, respectively.
We also generate liquidity through deposits generated at the Bank, through the issuance of SBA debentures, the issuance of privately placed notes, and historically through borrowing arrangements with other banks, preferred equity securities at our subsidiaries, as well as from cash flow from operations.
We also generate liquidity through deposits generated at the Bank, the offering of privately placed notes, through the issuance of SBA debentures, through our trust preferred securities, and through preferred securities at our subsidiaries and have utilized borrowing arrangements with other banks in the past, as well as from cash flow from operations.
(4) Excludes deferred financing costs of $7.0 million, $7.1 million, and $5.8 million as of December 31, 2022, 2021, and 2020. 46 Consolidated Results of Operations For the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Net income attributable to shareholders was $43.8 million, or $1.83 per share, for the year ended December 31, 2022, compared to $54.1 million, or $2.17 per share, for the year ended December 31, 2021.
(2) Excludes deferred financing costs of $8.5 million, $7.0 million, and $7.1 million as of December 31, 2023, 2022, and 2021. 51 CONSOLIDATED RESULTS OF OPERATIONS For the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Net income attributable to shareholders was $55.1 million, or $2.37 per share, for the year ended December 31, 2023, compared to $43.8 million, or $1.83 per share, for the year ended December 31, 2022.
The changes are reflected in both the pooled formula reserve and in specific reserves as the collectability of larger classified loans is regularly recalculated with new information as it becomes available.
The changes are reflected in both the pooled formula reserve and in specific reserves as the collectability of larger classified loans is regularly recalculated with new information as it becomes available. Management is primarily responsible for the overall adequacy of the allowance.
Our top ten contractors and FSP relationships were responsible for 62% of home improvement lending’s new loan originations for the year ended December 31, 2022.
Our top ten contractors and FSP relationships were responsible for over 50% of home improvement lending’s new loan originations for the years ended December 31, 2023 and 2022.
The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 58% of the portfolio, boat loans making up 19% of the portfolio, and trailer loans 14% as of December 31, 2022, compared to 60%, 19% and 9% as of December 31, 2021.
The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 54% of the portfolio and boat loans making up 19% of the portfolio as of December 31, 2023, compared to 58% and 19% as of December 31, 2022.
The following table sets forth the activity in the allowance for loan losses for December 31, 2022 and 2021.
The following table sets forth the activity in the allowance for credit losses for December 31, 2023 and 2022.
Year Ended December 31, 2022 2021 2020 (Dollars in thousands) Amount % (1) Amount % (1) Amount % (1) Recreation $ 7,365 0.4 % $ 3,818 0.3 % $ 5,343 0.5 % Home improvement 579 * 132 * 170 * Commercial 74 * 74 * 75 * Medallion 885 * — — 1,290 0.1 Total loans 90 days or more past due $ 8,903 0.5 % $ 4,024 0.3 % $ 6,878 0.6 % (1) Percentages are calculated against the total or managed loan portfolio, as appropriate.
Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Amount % (1) Amount % (1) Amount % (1) Recreation $ 9,095 0.4 % $ 7,365 0.4 % $ 3,818 0.3 % Home improvement 1,502 0.1 % 579 * 132 * Commercial 6,240 0.3 % 74 * 74 * Taxi medallion — * 885 * — * Total loans 90 days or more past due $ 16,837 0.8 % $ 8,903 0.5 % $ 6,878 0.6 % (1) Percentages are calculated against the total or managed loan portfolio, as appropriate.
We had an allowance for loan losses as of December 31, 2022 of $63.8 million, which was attributable to the recreation (66%), home improvement (18%), medallion (15%), and commercial (1%) loan portfolios.
We had an allowance for credit losses as of December 31, 2022 of $63.8 million, which was attributable to recreation (66%), home improvement (18%), and taxi medallion (15%) loans.
The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $18,000 as of December 31, 2022. The loans are fixed rate with an average term at origination of 11.3 years. The weighted average maturity of our loans outstanding as of December 31, 2022 is 9.6 years.
The recreation loan portfolio consists of thousands of geographically distributed loans with an average loan size of approximately $20,000 as of December 31, 2023. The loans are fixed rate with an average term at origination of 12.9 years. The weighted average maturity of our loans outstanding as of December 31, 2023 is 10.0 years.
Recreation loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida, at 16% and 11% of loans outstanding with no other states over 10%. As of December 31, 2022, 2021, and 2020, the weighted average FICO scores of our recreation loans outstanding were 671, 668, and 658.
Recreation loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida, at 15% and 10% of loans outstanding with no other states at or above 10%. As of December 31, 2023, 2022, and 2021, the weighted average FICO, measured at origination, scores of our recreation loans outstanding were 683, 671, and 668.
(2) Excludes federal funds sold and investment securities. Our interest rate sensitive assets were $2.1 billion and interest rate sensitive liabilities were $1.8 billion at December 31, 2022. The one-year cumulative interest rate gap was a negative $367.8 million or 18% of interest rate sensitive assets.
(2) Excludes federal funds sold and investment securities. Our interest rate sensitive assets were $2.4 billion and interest rate sensitive liabilities were $2.1 billion at December 31, 2023. The one-year cumulative interest rate gap was a negative $0.5 billion or 21% of interest rate sensitive assets.
The net proceeds from the December 2020, February 2021, March 2021 and April 2021 private placements were used for general corporate purposes, including repayment of outstanding debts, including repayment of our 9.00% retail notes at maturity in April 2021 and to pay down other borrowings, including some borrowings at a discount.
The net proceeds from the December 2020, February 2021, March 2021, April 2021, September 2023, and December 2023 private placements were used for general corporate purposes, including repayment of our 9.00% retail notes at maturity in April 2021 and to pay down other borrowings, including some borrowings at a discount, and to repurchase and cancel $33.0 million of our 8.25% notes due in March 2024.
(2) Balance excludes $1.3 million of strategic partner reserve deposits as of December 31, 2022 . Approximately $977 million of our borrowings have maturity dates during the next two years, a vast majority of which are brokered certificates of deposit.
(2) Balance excludes $1.5 million of strategic partner reserve deposits as of December 31, 2023 . Approximately $1.2 billion of our borrowings have maturity dates during the next two years, a vast majority of which are brokered certificates of deposit that have no right of voluntary withdrawal.
(2) Excludes deferred financing costs of $7.0 million and $7.1 million as of December 31, 2022 and 2021. 37 For the year ended December 31, 2022, our net loans receivable yielded 11.77% (compared to 12.24% for the year ended December 31, 2021).
(2) Excludes deferred financing costs of $8.5 million, $7.0 million, and $7.1 million as of December 31, 2023, 2022, and 2021. 40 For the year ended December 31, 2023, our net loans receivable yielded 11.69% as compared to 11.34% for the year ended December 31, 2022.
Average interest earning assets were $1.8 billion for the year ended December 31, 2022, an increase from $1.4 billion for the year ended December 31, 2021, due to continued demand for both recreation and home improvement loans in 2022.
Average interest earning assets were $2.2 billion for the year ended December 31, 2023, an increase from $1.8 billion for the year ended December 31, 2022, due to continued growth of both recreation and home improvement loans, largely in the first half of 2023.
We continue to consider various alternatives for the Bank, which may include an initial public offering of its common stock, the sale of all or part of the Bank, a spin-off or other potential transaction.
The Bank continues to evaluate and launch additional partnership programs with fintech companies. 37 We continue to consider various alternatives for the Bank, which may include an initial public offering of its common stock, the sale of all or part of the Bank, a spin-off or other potential transaction.
We do not have a deadline for its consideration of these alternatives, and there can be no assurance that this process will result in any transaction being announced or consummated.
We do not have a deadline for its consideration of these alternatives, and there can be no assurance that this process will result in any transaction being announced or consummated. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We follow financial accounting and reporting policies that are in accordance with GAAP.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES We follow financial accounting and reporting policies that are in accordance with GAAP. Some of these significant accounting policies require management to make difficult, subjective or complex judgments. The policies noted below, however, are deemed to be our “critical accounting policies” under the definition given to this term by the SEC.
Some of these significant accounting policies require management to make difficult, subjective or complex judgments. The policies noted below, however, are deemed to be our “critical accounting policies” under the definition given to this term by the SEC.
As of December 31, 2022 2021 Geographic Concentration Total Loan Collateral in Process of Foreclosure % of Market Total Loan Collateral in Process of Foreclosure % of Market New York City $ 16,720 82 % $ 29,303 82 % Newark 2,965 14 4,247 12 Chicago 732 4 1,952 6 All Other 26 * 208 * Total $ 20,443 100 % $ 35,710 100 % (*) Less than 1%. 45 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.
As of December 31, 2023 2022 Geographic Concentration (Dollars in thousands) Total Loan Collateral in Process of Foreclosure % of Market Total Loan Collateral in Process of Foreclosure % of Market New York City $ 8,863 89 % $ 16,720 82 % Newark 1,130 11 2,965 14 Chicago — — 732 4 All Other — — 26 * Total $ 9,993 100 % $ 20,443 100 % (*) Less than 1%. 50 Corporate and Other Investments This non-operating segment relates to our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses, which are not specifically allocated to the operating segments.
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.
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 2019, the Bank launched a strategic partnership program to provide lending and other services to financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and began issuing its first loans. The Bank continues to evaluate and launch additional partnership programs with fintech companies.
MSC earns referral and servicing fees for these activities. In 2019, the Bank launched a strategic partnership program to provide lending and other services to financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and began issuing its first loans.
We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice, either due to inflation or other factors, on a different basis than our interest-bearing liabilities. We continue to monitor global supply chain disruptions, gas prices, labor shortages, unemployment, and other factors contributing to U.S. inflation.
We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice, either due to inflation or other factors, on a different basis than our interest-bearing liabilities.
The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2022, 2021, and 2020 were 676, 684, and 680. The following table presents selected financial data and ratios as of and for the years ended December 31, 2022, 2021, and 2020.
The weighted average FICO scores at the time of origination for the loans funded in the years ended December 31, 2023, 2022, and 2021 were 686, 676, and 684.
Year Ended December 31, (Dollars in thousands) 2022 2021 2020 Selected Earnings Data Total interest income $ 139,145 $ 118,305 $ 110,706 Total interest expense 17,932 9,993 13,013 Net interest income 121,213 108,312 97,693 Provision for loan losses 22,802 7,671 23,736 Net interest income after loss provision 98,411 100,641 73,957 Other expense, net (30,463 ) (30,156 ) (27,341 ) Net income before taxes 67,948 70,485 46,616 Income tax provision (17,989 ) (18,699 ) (12,004 ) Net income after taxes $ 49,959 $ 51,786 $ 34,612 Balance Sheet Data Total loans, gross $ 1,183,512 $ 961,320 $ 792,686 Total loan allowance 41,966 32,435 27,348 Total loans, net 1,141,546 928,885 765,338 Total assets 1,154,680 896,223 777,605 Total borrowings 936,789 710,616 621,735 Selected Financial Ratios Return on average assets 4.71 % 6.00 % 4.59 % Return on average equity 26.83 30.01 22.93 Interest yield 13.28 13.94 14.90 Net interest margin 11.57 12.76 13.15 Reserve coverage 3.55 3.37 3.45 Delinquency status (1) 0.64 0.41 0.70 Charge-off% 1.27 0.30 1.95 (1) Loans 90 days or more past due. 42 Home Improvement Lending The home improvement lending segment works with contractors and financial service providers to finance home improvements and is concentrated in roofs, swimming pools, and windows at 37%, 23%, and 12% of total loans outstanding as of December 31, 2022, as compared to 30%, 26%, and 13% as of December 31, 2021, with no other collateral types over 10%.
Year Ended December 31, (Dollars in thousands) 2023 2022 2021 Selected Earnings Data Total interest income $ 167,765 $ 139,145 $ 118,305 Total interest expense 31,436 17,932 9,993 Net interest income 136,329 121,213 108,312 Provision for credit losses 44,592 22,802 7,671 Net interest income after loss provision 91,737 98,411 100,641 Other income 376 — — Other expenses (32,601 ) (30,463 ) (30,156 ) Net income before taxes 59,512 67,948 70,485 Income tax provision (17,231 ) (17,989 ) (18,699 ) Net income after taxes $ 42,281 $ 49,959 $ 51,786 Balance Sheet Data Total loans, gross $ 1,336,222 $ 1,183,512 $ 961,320 Total credit allowance 57,532 41,966 32,435 Total loans, net 1,278,690 1,141,546 928,885 Total assets 1,297,870 1,154,680 943,753 Total borrowings 1,062,584 936,789 744,701 Selected Financial Ratios Return on average assets 3.36 % 4.38 % 5.93 % Return on average equity 21.24 26.66 29.66 Interest yield 13.07 12.82 13.45 Net interest margin, gross 10.62 11.17 12.31 Net interest margin, net of allowance 11.09 11.57 12.76 Reserve coverage 4.31 3.55 3.37 Delinquency status (1) 0.70 0.64 0.41 Charge-off ratio 3.04 1.22 0.29 (1) Loans 90 days or more past due. 46 Home Improvement Lending The home improvement lending segment works with contractors and financial service providers to finance home improvements and is concentrated in roofs, swimming pools, and windows at 41%, 20%, and 13% of total loans outstanding as of December 31, 2023, as compared to 37%, 23%, and 12% as of December 31, 2022, with no other collateral types at or above 10%.
Year Ended December 31, 2022 (Dollars in thousands) Recreation Medallion Total Loan collateral in process of foreclosure – December 31, 2021 $ 1,720 $ 35,710 $ 37,430 Transfer from loans, net 12,444 347 12,791 Sales (7,707 ) (2,668 ) (10,375 ) Cash payments received — (12,289 ) (12,289 ) Collateral valuation adjustments (5,081 ) (657 ) (5,738 ) Loan collateral in process of foreclosure – December 31, 2022 $ 1,376 $ 20,443 $ 21,819 Year Ended December 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 10,431 5,457 15,888 Sales (6,951 ) (2,928 ) (9,879 ) Cash payments received — (14,173 ) (14,173 ) Collateral valuation adjustments (3,192 ) (5,774 ) (8,966 ) Loan collateral in process of foreclosure – December 31, 2021 $ 1,720 $ 35,710 $ 37,430 41 SEGMENT RESULTS We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and medallion lending.
Year Ended December 31, 2022 (Dollars in thousands) Recreation Taxi Medallion (1) Total Loan collateral in process of foreclosure – December 31, 2021 $ 1,720 $ 35,710 $ 37,430 Transfer from loans, net 12,444 347 12,791 Sales (7,707 ) (2,668 ) (10,375 ) Cash payments received — (12,289 ) (12,289 ) Collateral valuation adjustments (5,081 ) (657 ) (5,738 ) Loan collateral in process of foreclosure – December 31, 2022 $ 1,376 $ 20,443 $ 21,819 (1) As of December 31, 2022, taxi medallion loans in the process of foreclosure included 452 taxi medallions in the New York market, 335 taxi medallions in the Chicago market, 54 taxi medallions in the Newark market, and 39 taxi medallions in various other markets. 44 SEGMENT RESULTS We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and taxi medallion lending.
As of December 31, 2022 2021 Geographic Concentration Total Gross Loans % of Market Total Gross Loans % of Market New York City $ 12,626 93 % $ 12,514 89 % Newark 916 7 1,486 11 All Other 29 * 46 * Total $ 13,571 100 % $ 14,046 100 % (*) Less than 1%.
As of December 31, 2023 2022 Geographic Concentration (Dollars in thousands) Total Gross Loans % of Market Total Gross Loans % of Market New York City $ 3,436 94 % $ 12,626 93 % Newark 227 6 916 7 All Other — — 29 * Total $ 3,663 100 % $ 13,571 100 % (*) Less than 1%.
We also provide debt, mezzanine, and equity investment capital to companies in a variety of commercial industries. These investments may be venture capital style investments which may not be fully collateralized.
We are taking steps in the event of a potential economic downturn and in light of the current inflationary environment to moderate the pace of our recent growth. We also provide debt, mezzanine, and equity investment capital to companies in a variety of commercial industries. These investments may be venture capital style investments which may not be fully collateralized.
For medallion loans, delinquent nonperforming loans are valued at collateral value for the most recent quarter.
The determination of taxi medallion collateral fair value is derived quarterly for each jurisdiction. For taxi medallion loans, delinquent nonperforming loans are valued at collateral value for the most recent quarter.
SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the Small Business Investment Act of 1985, as amended, or the SBIA, and SBA regulations. In July 2020, we obtained a $25.0 million commitment from the SBA.
SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the SBIA, and SBA regulations.
Loan collateral in process of foreclosure was $21.8 million at December 31, 2022, a decline from $37.4 million at December 31, 2021. The decrease primarily reflects cash payments received and structured settlements during the year.
Loan collateral in process of foreclosure was $11.8 million at December 31, 2023, a decline from $21.8 million at December 31, 2022 with the decrease largely related to a drop in taxi medallion assets, due to the higher levels of cash payments and structured settlements received during the year.
Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is currently included within this segment. Strategic partnership loans were $0.6 million in net loans as of December 31, 2022, compared to $0.1 million as of December 31, 2021.
Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is included within this segment.
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. 49 In March 2019, we completed a private placement to certain institutional investors of $30.0 million aggregate principal amount of 8.25% unsecured notes due 2024, with interest payable semiannually.
Dividends are payable quarterly from the date of issuance to, but excluding April 1, 2025, at a rate of 8% per annum, and from and including April 1, 2025, at a floating rate equal to a benchmark rate (which is based on the Secured Overnight Financing Rate, or SOFR, and is expected to be three-month Term SOFR) plus a spread of 6.46% per annum.
Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida at 10% and 10% of loans outstanding December 31, 2022, with no other states over 10%. As of December 31, 2022, 2021, and 2020, the weighted average FICO scores of our home improvement loans outstanding were 753, 754, and 758.
Home improvement loans are made to borrowers residing nationwide, with the highest concentrations in Texas and Florida each at 10% of loans outstanding December 31, 2023, with no other states at or above 10%.
Loans increased $0.4 billion, or 29%, from $1.5 billion as of December 31, 2021 to $1.9 billion as of December 31, 2022 as a result of $1.0 billion of loan originations, offset primarily by principal payments, and to a lesser extent charge-offs and transfers to loan collateral in process of foreclosure.
Loans increased $0.3 billion, or 16%, to $2.2 billion as of December 31, 2023 from $1.9 billion as of December 31, 2022. The growth resulted primarily due to nearly $1.0 billion of loan originations outpacing the rate of repayments on existing loans, offset, to a lesser extent, by charge-offs and transfers to loan collateral in process of foreclosure.
Year Ended December 31, 2022 2021 2020 (Dollars in thousands) Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost Interest-earning assets Interest earning cash equivalents $ 4,288 $ 172 4.01 % $ 3,149 $ 56 1.78 % $ 1,528 $ 37 2.42 % Federal funds sold 71,847 304 0.42 45,096 23 0.05 65,783 129 0.20 Investment securities 46,832 1,176 2.51 45,195 769 1.70 46,691 997 2.14 Loans Recreation 1,048,068 139,145 13.28 848,956 118,305 13.94 743,118 110,706 14.90 Home improvement 517,192 44,703 8.64 367,808 34,204 9.30 282,202 27,273 9.66 Commercial 86,702 10,270 11.85 66,589 7,070 10.62 69,293 7,334 10.58 Medallion 4,499 695 15.45 7,903 (1,483 ) (18.77 ) 71,821 (1,518 ) (2.11 ) Strategic partnerships 537 156 29.05 70 22 31.43 9 4 44.44 Total loans 1,656,998 194,969 11.77 1,291,326 158,118 12.24 1,166,443 143,799 12.33 Total interest-earning assets 1,779,965 196,621 11.06 1,384,766 158,966 11.51 1,280,445 144,962 11.32 Non-interest-earning assets Cash 39,535 47,050 19,312 Equity investments 10,570 9,830 10,385 Loan collateral in process of foreclosure (1) 28,823 47,764 50,893 Goodwill and intangible assets 173,563 199,160 202,618 Other assets 46,794 44,129 48,190 Total non-interest-earning assets 299,285 347,933 331,398 Total assets $ 2,079,250 $ 1,732,699 $ 1,611,843 Interest-bearing liabilities Deposits $ 1,440,328 $ 22,666 1.57 % $ 1,134,531 $ 17,543 1.55 % $ 1,043,096 $ 22,330 2.14 % Retail and privately placed notes 121,000 10,008 8.27 120,704 10,226 8.47 70,384 6,813 9.68 SBA debentures and borrowings 69,188 2,228 3.22 64,733 2,116 3.27 71,490 2,633 3.68 Preferred securities 33,000 1,283 3.89 33,000 981 2.97 33,000 966 2.97 Notes payable to banks — — — 10,960 134 1.22 32,246 1,246 3.86 Other borrowings — — — 6,782 140 2.06 8,270 163 1.97 Total interest-bearing liabilities 1,663,516 36,185 2.17 1,370,710 31,140 2.28 1,258,486 34,151 2.71 Non-interest-bearing liabilities Deferred tax liability 22,187 7,444 4,959 Other liabilities (2) 30,574 27,634 29,174 Total non-interest-bearing liabilities 52,761 35,078 34,133 Total liabilities 1,716,277 1,405,788 1,292,619 Non-controlling interest 69,253 72,162 71,904 Total stockholders’ equity 293,720 254,749 247,320 Total liabilities and stockholders’ equity $ 2,079,250 $ 1,732,699 $ 1,611,843 Net interest income $ 160,436 $ 127,826 $ 110,811 Net interest margin 9.05 % 9.25 % 8.65 % (1) Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by the Bank of $7.5 million, $7.4 million, and $3.5 million as of December 31, 2022, 2021, and 2020.
Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost Interest-earning assets Interest earning cash equivalents $ 23,773 $ 881 3.71 % $ 4,288 $ 153 3.57 % $ 3,149 $ 56 1.78 % Federal funds sold 70,021 3,130 4.47 71,847 956 1.33 45,096 23 0.05 Investment securities 52,065 1,728 3.32 46,832 1,176 2.51 45,195 769 1.70 Loans Recreation 1,283,434 167,765 13.07 1,085,211 139,145 12.82 879,625 118,305 13.45 Home improvement 708,031 62,703 8.86 526,377 44,703 8.49 374,083 34,204 9.14 Commercial 99,394 12,903 12.98 87,936 9,705 11.04 66,874 7,070 10.57 Taxi medallion 5,924 1,550 26.16 13,803 627 4.54 21,266 (1,483 ) (6.97 ) Strategic partnerships 1,387 380 27.40 537 156 29.05 70 22 31.43 Total loans 2,098,170 245,301 11.69 1,713,864 194,336 11.34 1,341,918 158,118 11.78 Total interest-earning assets, before allowance 2,244,029 11.19 1,836,831 10.70 1,435,358 11.08 Allowance for credit losses (76,596 ) (56,866 ) (50,592 ) Total interest-earning assets, net of allowance 2,167,433 251,040 11.58 % 1,779,965 196,621 11.06 1,384,766 158,966 11.51 Non-interest-earning assets Cash 16,704 39,535 47,050 Equity investments 11,036 10,570 9,830 Loan collateral in process of foreclosure (1) 18,230 28,823 47,764 Goodwill and intangible assets 172,118 173,563 199,160 Other assets 52,680 46,794 44,129 Total non-interest-earning assets 270,768 299,285 347,933 Total assets $ 2,438,201 $ 2,079,250 $ 1,732,699 Interest-bearing liabilities Deposits $ 1,764,262 $ 47,784 2.71 % $ 1,440,328 $ 22,666 1.57 % $ 1,134,531 $ 17,543 1.55 % Retail and privately placed notes 123,808 10,286 8.31 121,000 10,008 8.27 120,704 10,226 8.47 SBA debentures and borrowings 68,519 2,387 3.48 69,188 2,228 3.22 64,733 2,116 3.27 Trust preferred securities 33,000 2,489 7.54 33,000 1,283 3.89 33,000 981 2.97 Notes payable to banks — — — — — — 10,960 134 1.22 Other borrowings — — — — — — 6,782 140 2.06 Total interest-bearing liabilities 1,989,589 62,946 3.16 1,663,516 36,185 2.17 1,370,710 31,140 2.28 Non-interest-bearing liabilities Deferred tax liability 23,747 22,187 7,444 Other liabilities (2) 37,749 30,574 27,634 Total non-interest-bearing liabilities 61,496 52,761 35,078 Total liabilities 2,051,085 1,716,277 1,405,788 Non-controlling interest 69,253 69,253 72,162 Total stockholders’ equity 317,863 293,720 254,749 Total liabilities and stockholders’ equity $ 2,438,201 $ 2,079,250 $ 1,732,699 Net interest income $ 188,094 $ 160,436 $ 127,826 Net interest margin, gross 8.38 8.73 8.91 Net interest margin, net of allowance 8.68 % 9.05 % 9.25 % (1) Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by the Bank of $6.2 million, $7.5 million, and $7.4 million as of December 31, 2023, 2022, and 2021.
We had an allowance for loan losses as of December 31, 2021 of $50.2 million, which was attributable to recreation (64%), medallion (19%), and home improvement (15%) loans.
We had an allowance for credit losses as of December 31, 2023 of $84.2 million, which was attributable to the recreation (68%), home improvement (25%), commercial (5%), and taxi medallion (2%) loan portfolios.
MFC MCI FSVC MB December 31, 2022 December 31, 2021 Cash, cash equivalents and federal funds sold $ 20,679 $ 208 $ 10,559 (2) $ 176 (2) $ 73,976 $ 105,598 $ 124,484 Preferred securities 33,000 33,000 33,000 Average interest rate 6.86 % 6.86 % 2.31 % Maturity 9/37 9/37 9/37 Retailed notes and privately placed borrowings 121,000 121,000 121,000 Average interest rate 7.66 % 7.66 % 7.66 % Maturity 3/24 - 12/27 3/24 - 12/27 3/24-12/27 SBA debentures & borrowings Amounts available 4,750 4,750 9,500 Amounts outstanding 65,750 2,762 68,512 69,963 Average interest rate 3.07 % 3.25 % 3.08 % 2.72 % Maturity 3/23 - 3/33 4/24 3/23 - 3/33 3/23- 3/32 Brokered CD's & other funds borrowed 1,610,922 (3) 1,610,922 1,254,038 Average interest rate 1.91 % 1.91 % 1.20 % Maturity 1/23 - 12/27 1/23 - 12/27 1/22-12/26 Total Cash $ 20,679 $ 208 $ 10,559 $ 176 $ 73,976 $ 105,598 $ 124,484 Total debt outstanding (1) $ 154,000 $ - $ 65,750 $ 2,762 $ 1,610,922 $ 1,833,434 $ 1,478,001 (1) Excludes deferred financing costs of $7.0 million and $7.1 million as of December 31, 2022 and 2021.
MFC MCI FSVC MB December 31, 2023 December 31, 2022 Cash, cash equivalents and federal funds sold $ 30,946 $ 242 $ 6,057 (2) $ 2,557 (2) $ 110,043 $ 149,845 $ 105,598 Trust preferred securities 33,000 33,000 33,000 Average interest rate 7.75 % 7.75 % 6.86 % Maturity 9/37 9/37 9/37 Retail notes and privately placed borrowings 139,500 139,500 121,000 Average interest rate 8.08 % 8.08 % 7.66 % Maturity 3/24 - 12/33 3/24 - 12/33 3/24-12/27 SBA debentures & borrowings Amounts available 10,250 10,250 4,750 Amounts outstanding 75,250 75,250 68,512 Average interest rate 3.69 % 3.69 % 3.08 % Maturity 3/24 - 3/34 3/24 - 3/34 3/23 - 3/33 Brokered CDs 1,870,939 (3) 1,870,939 1,610,922 Average interest rate 3.07 % 3.07 % 1.91 % Maturity 1/24 - 12/28 1/24 - 12/28 1/23-12/27 Total cash $ 30,946 $ 242 $ 6,057 $ 2,557 $ 110,043 $ 149,845 $ 105,598 Total debt outstanding (1) $ 172,500 $ — $ 75,250 $ — $ 1,870,939 $ 2,118,689 $ 1,833,434 (1) Excludes deferred financing costs of $8.5 million and $7.0 million as of December 31, 2023 and 2022.
As of December 31, 2022 and 2021, adjustable rate debt constituted 2% of total debt. 38 Loans Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, which are amortized to interest income over the life of the loan.
LOANS Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, which are amortized to interest income over the life of the loan. For the years ended December 31, 2023 and 2022, there was continued growth in the recreation and home improvement segments.
A follow-on offering of these notes in the 2019 third quarter raised an additional $6.0 million. The table below presents the components of our debt were as of December 31, 2022, exclusive of deferred financing costs of $7.0 million. See Note 4 to the consolidated financial statements for details of the contractual terms of our borrowings.
The table below presents the components of our debt were as of December 31, 2023, exclusive of deferred financing costs of $8.5 million. See Note 5 to the consolidated financial statements for details of the contractual terms of our borrowings.
(Dollars in thousands) Balance Percentage Rate (1) Deposits (2) $ 1,609,673 88 % 1.91 % Retail and privately placed notes 121,000 7 7.66 SBA debentures and borrowings 68,512 3 3.08 Preferred securities 33,000 2 6.86 Total outstanding debt $ 1,832,185 100 % 2.43 % (1) Weighted average contractual rate as of December 31, 2022.
(Dollars in thousands) Balance Percentage Rate (1) Deposits (2) $ 1,869,439 88 % 3.07 % Retail and privately placed notes 139,500 7 8.08 SBA debentures and borrowings 75,250 3 3.69 Trust preferred securities 33,000 2 7.75 Total outstanding debt $ 2,117,189 100 % 3.50 % (1) Weighted average contractual rate as of December 31, 2023.
We use a combination of long-term and short-term borrowings and equity capital to finance our lending and investing activities. Our long-term fixed-rate loans and investments are financed primarily with fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations.
In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net interest income. 55 We use a combination of long-term and short-term borrowings and equity capital to finance our lending and investing activities. Our long-term fixed-rate loans and investments are financed primarily with fixed-rate debt.
Year Ended December 31, (Dollars in thousands) 2022 2021 2020 Selected Earnings Data Total interest income $ 44,703 $ 34,204 $ 27,273 Total interest expense 7,697 4,153 5,699 Net interest income 37,006 30,051 21,574 Provision for loan losses 7,616 2,750 3,778 Net interest income after loss provision 29,390 27,301 17,796 Other expense, net (13,500 ) (11,640 ) (9,611 ) Net income before taxes 15,890 15,661 8,185 Income tax provision (4,207 ) (4,155 ) (2,108 ) Net income after taxes $ 11,683 $ 11,506 $ 6,077 Balance Sheet Data Total loans, gross $ 626,399 $ 436,772 $ 334,033 Total loan allowance 11,340 7,356 5,157 Total loans, net 615,059 429,416 328,876 Total assets 618,923 371,781 340,494 Total borrowings 502,131 294,786 272,284 Selected Financial Ratios Return on average assets 2.23 % 3.01 % 2.07 % Return on average equity 12.72 15.04 10.35 Interest yield 8.64 9.30 9.66 Net interest margin 7.16 8.17 7.62 Reserve coverage 1.81 1.68 1.54 Delinquency status (1) 0.09 0.03 0.05 Charge-off% 0.70 0.15 0.44 (1) Loans 90 days or more past due. 43 Commercial Lending We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 44% of which are located in the Midwest region, with the rest scattered across the country.
Year Ended December 31, (Dollars in thousands) 2023 2022 2021 Selected Earnings Data Total interest income $ 62,703 $ 44,703 $ 34,204 Total interest expense 18,137 7,697 4,153 Net interest income 44,566 37,006 30,051 Provision for credit losses 17,583 7,616 2,750 Net interest income after loss provision 26,983 29,390 27,301 Other income 6 14 63 Other expenses (16,752 ) (13,514 ) (11,703 ) Net income before taxes 10,237 15,890 15,661 Income tax provision (2,964 ) (4,207 ) (4,155 ) Net income after taxes $ 7,273 $ 11,683 $ 11,506 Balance Sheet Data Total loans, gross $ 760,621 $ 626,399 $ 436,772 Total credit allowance 21,019 11,340 7,356 Total loans, net 739,602 615,059 429,416 Total assets 744,904 618,923 442,503 Total borrowings 609,863 502,131 349,172 Selected Financial Ratios Return on average assets 1.04 % 1.95 % 2.90 % Return on average equity 6.60 12.08 14.49 Interest yield 8.86 8.49 9.14 Net interest margin, gross 6.29 7.03 8.03 Net interest margin, net of allowance 6.45 7.16 8.17 Reserve coverage 2.76 1.81 1.68 Delinquency status (1) 0.20 0.09 0.03 Charge-off ratio 1.33 0.69 0.15 (1) Loans 90 days or more past due. 48 Commercial Lending We originate both senior and subordinated loans nationwide to businesses in a variety of industries, with California, Minnesota, and Wisconsin having 27%, 12%, and 10% of the segment portfolio, and no other states having a concentration at or above 10%.
All the loans are secured by taxi medallions and enhanced by personal guarantees of the shareholders and owners. The following table presents selected financial data and ratios as of and for the years ended December 31, 2022, 2021, and 2020.
The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021.
This segment also reflects the gains (losses) on the dispositions of certain non-core assets. The following table presents selected financial data and ratios as of and for the years ended December 31, 2022, 2021, and 2020.
The following table presents selected financial data and ratios as of and for the years ended December 31, 2023, 2022, and 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAssuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of December 31, 2022 by $1.2 million on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been a reduction in net income of $1.4 million at December 31, 2022.
Biggest changeAssuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of December 31, 2023 by $1.6 million on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been a reduction in net income by $1.9 million at December 31, 2023.

Other MBNKO 10-K year-over-year comparisons