Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2022

Text Block [Abstract]

Loans and Allowance for Loan Losses

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at June 30, 2022 and December 31, 2021.

	June 30, 2022						December 31, 2021
(Dollars in thousands)	Amount			As a Percent of Gross Loans			Amount			As a Percent of Gross Loans
Recreation	$	1,096,670			63	%	$	961,320			65	%
Home improvement		526,278			30			436,772			29
Commercial		96,928			6			76,696			5
Medallion		14,152			1			14,046			1
Strategic partnership		593		*				90		*
Total gross loans		1,734,621			100	%		1,488,924			100	%
Allowance for loan losses		(59,152	)					(50,166	)
Total net loans	$	1,675,469					$	1,438,758

(*) Less than 1%

The following tables show the activity of the gross loans for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – March 31, 2022	$	1,004,091		$	473,408		$	77,867		$	13,849		$	226		$	1,569,441
Loan originations		170,207			105,172			19,272			472			9,830			304,953
Principal payments, sales, maturities, and recoveries		(73,114	)		(51,006	)		(386	)		(30	)		(9,463	)		(133,999	)
Charge-offs		(5,074	)		(1,108	)		—			—			—			(6,182	)
Transfer to loan collateral in process of foreclosure, net		(2,618	)		—			—			(139	)		—			(2,757	)
Amortization of origination costs		(2,931	)		380			—			—			—			(2,551	)
Amortization of loan premium		(60	)		(90	)		—			—			—			(150	)
FASB origination costs, net		6,169			(478	)		—			—			—			5,691
Paid-in-kind interest		—			—			175			—			—			175
Gross loans – June 30, 2022	$	1,096,670		$	526,278		$	96,928		$	14,152		$	593		$	1,734,621
Six Months Ended June 30, 2022 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – December 31, 2021	$	961,320		$	436,772		$	76,696		$	14,046		$	90		$	1,488,924
Loan originations		284,613			194,992			23,672			564			14,839			518,680
Principal payments, sales, maturities, and recoveries		(138,230	)		(103,170	)		(2,203	)		(115	)		(14,336	)		(258,054	)
Charge-offs		(10,141	)		(2,168	)		(1,584	)		(75	)		—			(13,968	)
Transfer to loan collateral in process of foreclosure, net		(5,529	)		—			—			(268	)		—			(5,797	)
Amortization of origination costs		(5,370	)		700			—			—			—			(4,670	)
Amortization of loan premium		(120	)		(180	)		—			—			—			(300	)
FASB origination costs, net		10,127			(668	)		—			—			—			9,459
Paid-in-kind interest		—			—			347			—			—			347
Gross loans – June 30, 2022	$	1,096,670		$	526,278		$	96,928		$	14,152		$	593		$	1,734,621

Three Months Ended June 30, 2021 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – March 31, 2021	$	822,932		$	342,121		$	58,854		$	35,250		$	58		$	1,259,215
Loan originations		134,467			62,992			11,059			—			2,426			210,944
Principal payments, sales, maturities, and recoveries		(67,084	)		(36,171	)		(564	)		(467	)		(2,414	)		(106,700	)
Charge-offs		(2,672	)		(786	)		—			(12,791	)		—			(16,249	)
Transfer to loan collateral in process of foreclosure, net		(2,980	)		—			—			(3,933	)		—			(6,913	)
Amortization of origination costs		(2,477	)		410			—			—			—			(2,067	)
Amortization of loan premium		(60	)		(90	)		—			(1,545	)		—			(1,695	)
FASB origination costs, net		4,080			(219	)		1			—			—			3,862
Paid-in-kind interest		—			—			170			—			—			170
Gross loans – June 30, 2021	$	886,206		$	368,257		$	69,520		$	16,514		$	70		$	1,340,567
Six Months Ended June 30, 2021 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – December 31, 2020	$	792,686		$	334,033		$	65,327		$	37,768		$	24		$	1,229,838
Loan originations		228,317			111,051			15,216			—			4,370			358,954
Principal payments, sales, maturities, and recoveries		(123,043	)		(75,807	)		(11,541	)		(1,102	)		(4,324	)		(215,817	)
Charge-offs		(7,725	)		(1,467	)		—			(13,905	)		—			(23,097	)
Transfer to loan collateral in process of foreclosure, net		(6,033	)		—			—			(4,630	)		—			(10,663	)
Amortization of origination costs		(4,639	)		907			11			(2	)		—			(3,723	)
Amortization of loan premium		(101	)		(166	)		—			(1,615	)		—			(1,882	)
FASB origination costs, net		6,744			(294	)		12			—			—			6,462
Paid-in-kind interest		—			—			495			—			—			495
Gross loans – June 30, 2021	$	886,206		$	368,257		$	69,520		$	16,514		$	70		$	1,340,567

The following table sets forth the activity in the allowance for loan losses for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Allowance for loan losses – beginning balance	$	50,686		$	57,809		$	50,166		$	57,548
Charge-offs
Recreation		(5,074	)		(2,672	)		(10,141	)		(7,725	)
Home improvement		(1,108	)		(786	)		(2,168	)		(1,467	)
Commercial		—			—			(1,584	)		—
Medallion		—			(12,791	)		(75	)		(13,905	)
Total charge-offs		(6,182	)		(16,249	)		(13,968	)		(23,097	)
Recoveries
Recreation		3,615			3,588			7,125			6,057
Home improvement		585			558			1,144			990
Commercial		13			—			47			—
Medallion		2,676			1,922			3,639			3,112
Total recoveries		6,889			6,068			11,955			10,159
Net recoveries (charge-offs) (1)		707			(10,181	)		(2,013	)		(12,938	)
Provision (benefit) for loan losses		7,759			(682	)		10,999			2,336
Allowance for loan losses – ending balance (2)	$	59,152		$	46,946		$	59,152		$	46,946

(1)As of June 30, 2022, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion loan portfolio were $252.1 million, some of which may represent collection opportunities for the Company.

(2)As of June 30, 2022 and June 30, 2021, there were no allowance for loan losses and net charge-offs related to the strategic partnership loans.

The following tables set forth the allowance for loan losses by type as of June 30, 2022 and December 31, 2021.

June 30, 2022 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category			Allowance as a Percent of Nonaccrual
Recreation	$	37,772		64	%		3.44	%		113.48	%
Home improvement		9,234		16			1.75			27.74
Commercial		2,720		4			2.81			8.17
Medallion		9,426		16			66.61			28.32
Total	$	59,152		100	%		3.41	%		177.71	%

December 31, 2021 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category			Allowance as a Percent of Nonaccrual
Recreation	$	32,435		64	%		3.37	%		91.18	%
Home improvement		7,356		15			1.68		20.68
Commercial		1,141		2			1.49			3.21
Medallion		9,234		19			65.74			25.96
Total	$	50,166		100	%		3.37	%		141.03	%

The following table presents total nonaccrual loans and foregone interest. The fluctuation in nonaccrual interest foregone is due to past due loans and market conditions.

(Dollars in thousands)	June 30, 2022			December 31, 2021
Total nonaccrual loans	$	33,285		$	35,571
Interest foregone quarter to date		536			466
Amount of foregone interest applied to principal in the quarter		104			114
Interest foregone year to date		1,224			1,620
Amount of foregone interest applied to principal for the year		216			432
Interest foregone life-to-date		2,877			3,623
Amount of foregone interest applied to principal life-to-date		1,110			942
Percentage of nonaccrual loans to gross loan portfolio		2	%		2	%
Percentage of allowance for loan losses to nonaccrual loans		178	%		141	%

The following tables present the performance status of loans as of June 30, 2022 and December 31, 2021.

June 30, 2022 (Dollars in thousands)	Performing		Nonperforming		Total		Percentage of Nonperforming to Total
Recreation	$	1,091,093	$	5,577	$	1,096,670		0.51	%
Home improvement		525,883		395		526,278		0.08
Commercial		83,411		13,517		96,928		13.95
Medallion		—		14,152		14,152		100.00
Strategic partnership		593		—		593		—
Total	$	1,700,980	$	33,641	$	1,734,621		1.94	%
December 31, 2021 (Dollars in thousands)	Performing		Nonperforming		Total		Percentage of Nonperforming to Total
Recreation	$	955,763	$	5,557	$	961,320		0.58	%
Home improvement		436,640		132		436,772		0.03
Commercial		60,366		16,330		76,696		21.29
Medallion		—		14,046		14,046		100.00
Strategic partnership		90		—		90		—
Total	$	1,452,859	$	36,065	$	1,488,924		2.42	%

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

The following tables provide additional information on attributes of the nonperforming loan portfolio as of June 30, 2022 and December 31, 2021, all of which had an allowance recorded against the principal balance.

	June 30, 2022						December 31, 2021
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With an allowance recorded
Recreation	$	5,577	$	5,577	$	192	$	5,557	$	5,557	$	188
Home improvement		395		395		7		132		132		2
Commercial		13,517		13,577		2,720		16,330		16,360		1,141
Medallion		14,152		15,202		9,426		14,046		14,958		8,837
Total nonperforming loans with an allowance	$	33,641	$	34,751	$	12,345	$	36,065	$	37,007	$	10,168

	Three Months Ended June 30,
	2022				2021
(Dollars in thousands)	Average Investment Recorded		Interest Income Recognized		Average Investment Recorded		Interest Income Recognized
With an allowance recorded
Recreation	$	5,197	$	119	$	4,799	$	180
Home improvement		396		—		74		—
Commercial		13,577		—		19,210		—
Medallion		16,095		—		18,517		—
Total nonperforming loans with an allowance	$	35,265	$	119	$	42,600	$	180
	Six Months Ended June 30,
	2022				2021
(Dollars in thousands)	Average Investment Recorded		Interest Income Recognized		Average Investment Recorded		Interest Income Recognized
With an allowance recorded
Recreation	$	5,265	$	223	$	4,912	$	323
Home improvement		388		—		75		—
Commercial		13,561		—		19,788		—
Medallion		16,798		—		18,568		—
Total nonperforming loans with an allowance	$	36,012	$	223	$	43,343	$	323

The following tables show the aging of all loans as of June 30, 2022 and December 31, 2021.

June 30, 2022	Days Past Due												Recorded Investment 90 Days and
(Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total (1)		Accruing
Recreation	$	19,813	$	7,453	$	3,810	$	31,076	$	1,031,497	$	1,062,573	$	—
Home improvement		1,725		546		396		2,667		525,918		528,585		—
Commercial		1,765		—		74		1,839		95,089		96,928		—
Medallion		—		—		—		—		14,152		14,152		—
Strategic partnership		—		—		—		—		593		593		—
Total	$	23,303	$	7,999	$	4,280	$	35,582	$	1,667,249	$	1,702,831	$	—

(1)Excludes loan premiums of $0.2 million and $31.6 million of capitalized loan origination costs.

December 31, 2021	Days Past Due												Recorded Investment 90 Days and
(Dollars in thousands)	30-59		60-89		90 +		Total		Current		Total (1)		Accruing
Recreation	$	20,037	$	6,569	$	3,818	$	30,424	$	901,435	$	931,859	$	—
Home improvement		1,517		479		132		2,128		436,803		438,931		—
Commercial		1,795		—		74		1,869		74,827		76,696		—
Medallion		215		7,125		—		7,340		6,706		14,046		—
Strategic partnership		—		—		—		—		90		90		—
Total	$	23,564	$	14,173	$	4,024	$	41,761	$	1,419,861	$	1,461,622	$	—

(1)Excludes loan premiums of $0.5 million and $26.8 million of capitalized loan origination costs.

The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 320% and 295% as of June 30, 2022 and December 31, 2021.

The following table shows the TDRs which the Company entered into during the three and six months ended June 30, 2022.

(Dollars in thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Three months ended June 30, 2022
Recreation loans		12	$	147	$	147
Medallion loans		—		—		—
Six months ended June 30, 2022
Recreation loans		22	$	276	$	276
Medallion loans		2		252		252

As of June 30, 2022, no medallion or commercial loans modified as TDRs in the previous 12 months were in default. As of June 30, 2022, 20 recreation loans modified as TDRs were in default and had an investment value of $0.2 million.

The following table shows the TDRs which the Company entered into during the three and six months ended June 30, 2021.

(Dollars in thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Three months ended June 30, 2021
Recreation loans		21	$	302	$	302
Medallion loans		2		256		256
Six months ended June 30, 2021
Recreation loans		39	$	474	$	468
Medallion loans		10		2,994		2,994

As of June 30, 2021, 43 medallion loans modified as TDRs in the previous 12 months were in default. As of June 30, 2021 37 recreation loans modified as TDRs in the previous 12 months were in default and had an investment value of $0.4 million.

The following tables show the activity of loan collateral in process of foreclosure, which relate only to the recreation and medallion loans, for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – March 31, 2022	$	1,369		$	32,465		$	33,834
Transfer from loans, net		2,618			139			2,757
Sales		(2,146	)		(1,999	)		(4,145	)
Cash payments received		—			(4,381	)		(4,381	)
Collateral valuation adjustments		(963	)		(128	)		(1,091	)
Loan collateral in process of foreclosure – June 30, 2022	$	878		$	26,096		$	26,974
Six Months Ended June 30, 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		5,529			268			5,797
Sales		(4,398	)		(2,115	)		(6,513	)
Cash payments received		—			(7,253	)		(7,253	)
Collateral valuation adjustments		(1,973	)		(514	)		(2,487	)
Loan collateral in process of foreclosure – June 30, 2022	$	878		$	26,096		$	26,974

Three Months Ended June 30, 2021 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – March 31, 2021	$	970		$	49,763		$	50,733
Transfer from loans, net		2,980			3,933			6,913
Sales		(1,989	)		(231	)		(2,220	)
Cash payments received		—			(3,146	)		(3,146	)
Collateral valuation adjustments		(1,079	)		(2,162	)		(3,241	)
Loan collateral in process of foreclosure – June 30, 2021	$	882		$	48,157		$	49,039
Six Months Ended June 30, 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		6,033			4,630			10,663
Sales		(4,288	)		(231	)		(4,519	)
Cash payments received		—			(4,423	)		(4,423	)
Collateral valuation adjustments		(2,295	)		(4,947	)		(7,242	)
Loan collateral in process of foreclosure – June 30, 2021	$	882		$	48,157		$	49,039

As of June 30, 2022, medallion loans in the process of foreclosure included 462 medallions in the New York City market, 335 medallions in the Chicago market, 61 medallions in the Newark market, and 47 medallions in other markets.

(5) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows:

	Payments Due for the Twelve Months Ending June 30,
(Dollars in thousands)	2023		2024		2025		2026		2027		Thereafter		June 30, 2022(1)		December 31, 2021(1)		Interest Rate (2)
Deposits (3)	$	394,619	$	347,548	$	412,380	$	131,077	$	186,452	$	—	$	1,472,076	$	1,253,288		1.46	%
Privately placed notes		—		36,000		—		31,250		—		53,750		121,000		121,000		7.66
SBA debentures and borrowings		5,000		10,429		12,500		15,500		4,500		21,000		68,929		69,963		2.94
Preferred securities		—		—		—		—		—		33,000		33,000		33,000		3.75
Total	$	399,619	$	393,977	$	424,880	$	177,827	$	190,952	$	107,750	$	1,695,005	$	1,477,251		2.00	%

(1)Excludes deferred financing costs of $7.4 million and $7.1 million as of June 30, 2022 and December 31, 2021.

(2)Weighted average contractual rate as of June 30, 2022.

(3)Balance excludes $1.0 million and $0.8 million of strategic partner reserve deposits as of June 30, 2022 and December 31, 2021.

(A) DEPOSITS

Substantially all deposits are raised through the use of investment brokerage firms that package time deposits in denominations of less than $250,000 qualifying for FDIC insurance into larger pools that are sold to the Bank. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions. Additionally, a brokerage fee is paid, depending on the maturity of the deposits, which averages less than 0.15%. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually, or at maturity. The Bank did not have any uninsured deposits as of June 30, 2022 and December 31, 2021. In October 2020, the Bank began to originate time deposits through an internet listing service. These deposits are from other financial institutions and, as of June 30, 2022 and December 31, 2021, the Bank had $8.7 million in listing service deposit balances. The following table presents the maturity of the deposit pools, which excludes strategic partner reserve deposits, as of June 30, 2022.

(Dollars in thousands)	June 30, 2022
Three months or less	$	83,985
Over three months through six months		85,568
Over six months through one year		225,066
Over one year		1,077,457
Total deposits	$	1,472,076

(B) PRIVATELY PLACED NOTES

In February 2021, the Company completed a private placement to certain institutional investors of $25.0 million aggregate principal amount of 7.25% unsecured senior notes due February 2026, with interest payable semiannually. In March 2021, an additional $3.3 million principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $3.0 million principal amount of such notes was issued to certain institutional investors. The Company used the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

In December 2020, the Company completed a private placement to certain institutional investors of $33.6 million aggregate principal amount of 7.50% unsecured senior notes due December 2027, with interest payable semiannually. In February and March 2021, an additional $8.5 million principal amount of such notes was issued to certain institutional investors. Subsequently in April 2021, an additional $11.7 million principal amount of such notes was issued to certain institutional investors. The Company used the net proceeds from the offering for general corporate purposes, including repayment of outstanding debt.

In March 2019, the Company completed a private placement to certain institutional investors of $30.0 million aggregate principal amount of 8.25% unsecured senior notes due 2024, with interest payable semiannually. The Company used the net proceeds from the offering for general corporate purposes, including repaying certain borrowings under its notes payable to banks at a discount which led to a gain of $4.1 million in 2019. In August 2019, an additional $6.0 million principal amount of such notes was issued to certain institutional investors.

(C) SBA DEBENTURES AND BORROWINGS

Over the years, the SBA has approved commitments for MCI and FSVC, typically for a four and half year term and a 1% fee, which fee was paid. During 2017, the SBA restructured FSVC’s debentures with SBA totaling $33.5 million in principal into a new loan by the SBA to FSVC in the principal amount of $34.0 million, or the SBA Loan. In connection with the SBA Loan, FSVC executed a Note, or the SBA Note, with an effective date of March 1, 2017, in favor of SBA, in the principal amount of $34.0 million. The SBA Loan bears interest at a rate of 3.25% and all remaining unpaid principal and interest are due on April 30, 2024, the maturity date. As of June 30, 2022, there were $9.5 million commitments available, and $68.9 million was outstanding, including $7.9 million under the SBA Note.

On July 31, 2020, MCI accepted a commitment from the SBA for $25.0 million in debenture financing. As part of the acceptance, MCI paid the SBA a 1% commitment fee. The commitment expires September 24, 2024. As of June 30, 2022, $15.5 million of the commitment had been drawn, including $8.5 million to replace debentures which matured in 2021 and $9.5 million remains drawable.

(D) PREFERRED SECURITIES

In June 2007, the Company issued and sold $36.1 million aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35.0 million of preferred securities to Merrill Lynch International and issued 1,083 shares of common stock to the Company. The notes bear a variable rate of interest of 90 day LIBOR (2.29% at June 30, 2022) plus 2.13%. The notes mature in September 2037 and are prepayable at par. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially identical. In December 2007, $2.0 million of the preferred securities were repurchased from a third-party investor. As of June 30, 2022, $33.0 million was outstanding on the preferred securities.

(E) COVENANT COMPLIANCE

From time to time the Company may enter into debt agreements which may contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including minimum net worth. As of June 30, 2022, the Company did not have any borrowing agreements that contained any such restrictions.

(6) LEASES

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

The following table presents the operating lease costs and additional information for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Operating lease costs	$	590		$	572		$	1,179		$	1,144
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		435			590			1,080			1,265
Right-of-use asset obtained in exchange for lease liability		(40	)		(18	)		(85	)		(36	)

The following table presents the breakout of the operating leases as of June 30, 2022 and December 31, 2021.

(Dollars in thousands)	June 30, 2022			December 31, 2021
Operating lease right-of-use assets	$	10,156		$	10,045
Other current liabilities		2,103			2,159
Operating lease liabilities		9,078			9,053
Total operating lease liabilities		11,181			11,212
Weighted average remaining lease term	5.9 years			5.4 years
Weighted average discount rate		5.54	%		5.54	%

At June 30, 2022, maturities of the lease liabilities were as follows:

(Dollars in thousands)
Remainder of 2022	$	1,259
2023		2,506
2024		2,526
2025		2,505
2026		2,440
Thereafter		2,502
Total lease payments		13,738
Less imputed interest		2,557
Total operating lease liabilities	$	11,181

(7) INCOME TAXES

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

The following table sets forth the significant components of our deferred and other tax assets and liabilities as of June 30, 2022 and December 31, 2021.

(Dollars in thousands)	June 30, 2022			December 31, 2021
Goodwill and other intangibles	$	(43,637	)	$	(43,894	)
Provision for loan losses		11,065			11,057
Net operating loss carryforwards (1)		4,661			12,167
Accrued expenses, compensation, and other assets		2,961			2,579
Unrealized gains on other investments		3,197			2,176
Total deferred tax liability		(21,753	)		(15,915	)
Valuation allowance		(2,295	)		(2,295	)
Deferred tax liability, net	$	(24,048	)	$	(18,210	)

(1)As of June 30, 2022, the Company and its subsidiaries had an estimated $22.5 million of net operating loss carryforwards, $1.7 million of which expires at various dates between December 31, 2026 and December 31, 2035, which had a net carrying value of $2.4 million as of June 30, 2022.

The components of our tax provision for the three and six months ended June 30, 2022 and 2021 was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2022		2021		2022		2021
Current
Federal	$	984	$	795	$	1,488	$	795
State		447		100		769		270
Deferred
Federal		2,378		3,001		5,598		6,054
State		1,047		2,632		1,832		3,287
Net provision for income taxes	$	4,856	$	6,528	$	9,687	$	10,406

The following table presents a reconciliation of statutory federal income tax provision to consolidated actual income tax provision for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Statutory Federal income tax provision at 21%	$	4,130		$	3,805		$	7,529		$	6,524
State and local income taxes, net of federal income tax		808			743			1,473			1,275
Change in state income tax accruals		—			1,833			—			1,833
Change in effective state income tax rates and accrual		—			1,399			—			1,369
Income attributable to non-controlling interest		—			(47	)		—			(266	)
Non deductible expenses		362			(385	)		1,075			(213	)
Other		(444	)		(820	)		(390	)		(116	)
Total income tax provision	$	4,856		$	6,528		$	9,687		$	10,406

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible pursuant to ASC 740. The Company considers the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company’s evaluation of the realizability of deferred tax assets must consider both positive and negative evidence. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. Based upon these considerations, the Company determined the necessary valuation allowance as of June 30, 2022.

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

(8) STOCK OPTIONS AND RESTRICTED STOCK

The Company’s Board of Directors approved the 2018 Equity Incentive Plan, or the 2018 Plan, which was approved by the Company’s stockholders on June 15, 2018. The terms of 2018 Plan provide for grants of a variety of different type of stock awards to the Company’s employees and non-employee directors, including options, restricted stock, restricted stock units, and stock appreciation rights, etc. On April 22, 2020, the Company’s Board of Directors approved an amendment to the 2018 Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder, which was approved by the Company’s stockholders on June 19, 2020, and subsequently on April 26, 2022, the Company’s Board of Directors approved an additional amendment to the 2018 Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder, which was approved by the Company’s stockholders on June 14, 2022. A total of 5,710,968 shares of the Company’s common stock are issuable under the 2018 Plan, and 3,528,019 remained issuable as of June 30, 2022. Awards under the 2018 Plan are subject to certain limitations as set forth in the 2018 Plan, which will terminate when all shares of common stock authorized for delivery have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2018 Plan, whichever occurs first.

The Company’s Board of Directors approved the 2015 Employee Restricted Stock Plan, or the 2015 Restricted Stock Plan, on February 13, 2015, which was approved by the Company’s shareholders on June 5, 2015. The 2015 Restricted Stock Plan became

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

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

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

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

Additional shares are only available for future issuance under the 2018 Plan. At June 30, 2022, 1,081,609 options on the Company’s common stock were outstanding under the Company’s plans, of which 552,381 options were exercisable. Additionally, there were 744,687 unvested shares under the Company’s restricted common stock plan, 0 unvested restricted stock units, and 60,391 vested restricted stock units under the Company’s restricted stock plans.

The fair value of each restricted stock grant is determined on the date of grant by the closing market price of the Company’s common stock on the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair value of options granted was $3.50 per share for the six months ended June 30, 2022. The following assumption categories are used to determine the value of any option grants. There were no grants issued during the six months ended June 30, 2022.

	Six Months Ended June 30,
	2022		2021
Risk free interest rate		—		0.97	%
Expected dividend yield		—		—
Expected life of option in years (1)		—		6.25
Expected volatility (2)		—		53.98	%

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

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

The following table presents the activity for the stock option programs for the 2022 first and second quarters and the 2021 full year.

	Number of Options				Exercise Price Per Share			Weighted Average Exercise Price
Outstanding at December 31, 2020 (2)		951,669		$	2.14 - 12.55		$		6.41
Granted		317,398				6.79			6.79
Cancelled		(113,310	)		4.89 - 11.53				6.64
Exercised (1)		(44,070	)		5.21 - 7.25				5.58
Outstanding at December 31, 2021		1,111,687		$	2.14 - 12.55		$		6.41
Granted		—				—			—
Cancelled		(4,783	)		4.89 - 7.25				5.69
Exercised (1)		(23,192	)		4.89 - 7.25				6.53
Outstanding at March 31, 2022 (2)		1,083,712		$	2.14 - 12.55			$	6.53
Granted		—				—			—
Cancelled		(2,103	)		4.89 - 7.25				6.37
Exercised (1)		—				—			—
Outstanding at June 30, 2022 (2)		1,081,609		$	2.14 - 12.55			$	6.53
Options exercisable at:
December 31, 2021		320,922		$	2.14 - 12.55			$	6.53
June 30, 2022		552,381		$	2.14 - 12.55			$	6.54

(1)The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at the exercise date and the related exercise price of the underlying options, was $0 and less than $0.1 million for the three and six months ended June 30, 2022 and was $0.2 million for the year ended December 31, 2021.

(2)The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at June 30, 2022 and the related exercise price of the underlying options, was $0.2 million for outstanding options and $0.1 million for exercisable options as of June 30, 2022. The remaining contractual life was 7.5 years for outstanding options and 7.1 years for exercisable options at June 30, 2022.

The following table presents the activity for the restricted stock programs for the 2022 first and second quarters and the 2021 full year.

	Number of Shares				Grant Price Per Share		Weighted Average Grant Price
Outstanding at December 31, 2020		416,140		$	4.39 - 7.25		$	6.24
Granted		258,120			6.79 - 8.40			7.38
Cancelled		(21,940	)		4.89 - 7.25			5.98
Vested (1)		(158,994	)		4.39 - 7.25			6.16
Outstanding at December 31, 2021(2)		493,326		$	4.89 - 8.40		$	6.87
Granted		383,925				7.68		7.68
Cancelled		(5,747	)		4.89 - 8.40			7.33
Vested (1)		(126,234	)		4.89 - 7.25			6.55
Outstanding at March 31, 2022(2)		745,270		$	4.89 - 8.40		$	7.34
Granted		—				—		—
Cancelled		(583	)		4.89 - 8.40			7.58
Vested (1)		—				—		—
Outstanding at June 30, 2022(2)		744,687		$	4.89 - 8.40		$	7.34

(1)The aggregate fair value of the restricted stock vested was $0 and $1.0 million for the three and six months ended June 30, 2022 and was $0 and $0.8 million for the three and six months ended June 30, 2021.

(2)The aggregate fair value of the restricted stock was $4.8 million as of June 30, 2022. The remaining vesting period was 2.7 years at June 30, 2022.

During the three and six months ended June 30, 2022, the Company granted no restricted stock units (RSUs) and during the year ended December 31, 2021, granted 16,803 RSUs that vest on June 17, 2022 with a grant price of $8.87. For the RSUs granted in 2021, unitholders had the option of deferring settlement until a future date if the recipient makes a formal election under the guidelines of IRC Section 409A. As of June 30, 2022, there were 60,391 RSUs outstanding, all of which were vested.

The following table presents the activity for the unvested options outstanding under the plans for the 2022 first and second quarters.

	Number of Options				Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2021		790,765		$	4.89 - 7.25		$	6.52
Granted		—				—		—
Cancelled		(4,200	)		4.89 - 7.25			5.48
Vested		(256,972	)		4.89 - 7.25			6.55
Outstanding at March 31, 2022		529,593		$	4.89 - 7.25		$	6.52
Granted		—				—		—
Cancelled		(365	)		4.89 - 7.25			5.78
Vested		—				—		—
Outstanding at June 30, 2022		529,228		$	4.89 - 7.25		$	6.52

The intrinsic value of the options vested was $0 and $0.1 million for the three and six months ended June 30, 2022.

(9) SEGMENT REPORTING

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

The four lending segments reflect the main types of lending performed at the Company, which are recreation, home improvement, commercial, and medallion. The recreation and home improvement lending segments are operated by the Bank and include loans in all fifty states. The highest concentrations of recreation loans are in Texas and Florida at 16% and 10% of loans outstanding and with no other states over 10% as of June 30, 2022. The recreation lending segment is a consumer finance business that works with third-party dealers and financial service providers for the purpose of financing RVs, boats, and other consumer recreational equipment, of which RVs, boats, and trailers make up 59%, 20%, and 13% of the segment portfolio as of June 30, 2022. The home improvement lending segment works with contractors and financial service providers to finance residential home improvements concentrated in roofs, swimming pools, and windows at 36%, 25%, and 12% of total home improvement loans outstanding, and with no other product lines over 10% as of June 30, 2022. The highest concentrations of home improvement loans are in Texas and Florida at 11% and 10% of loans outstanding and with no other states over 10% as of June 30, 2022. The commercial lending segment focuses on enterprise wide industries, including manufacturing services, and various other industries, and 47% of these loans are made in the Midwest. The medallion lending segment arose in connection with the financing of taxi medallions, taxis, and related assets, substantially all of which are located in the New York City metropolitan area as of June 30, 2022.

Our corporate and other investments segment is a non-operating segment that includes items not allocated to our operating segments such as investment securities, equity investments, intercompany eliminations, and other corporate elements. Additionally, through December 1, 2021, the date of disposition, the Company had another non-operating segment, RPAC, a race car team.

As part of segment reporting, capital ratios for all operating segments have been normalized as a percentage of consolidated total equity divided by total assets, with the net adjustment applied to corporate and other investments. In addition, the commercial segment primarily represents the mezzanine lending business, with certain legacy commercial loans (immaterial to total) allocated to corporate and other investments.

The following tables present segment data as of and for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022	Consumer Lending
(Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			Corporate and Other Investments			Consolidated
Total interest income (loss)	$	33,514		$	10,587		$	2,278			$	231		$	501		$	47,111
Total interest expense		4,096			1,625			785				140			1,584			8,230
Net interest income (loss)		29,418			8,962			1,493				91			(1,083	)		38,881
Provision (recoveries) for loan losses		6,674			1,697			1,879				(2,675	)		184			7,759
Net interest income (loss) after loss provision		22,744			7,265			(386	)			2,766			(1,267	)		31,122
Other income (expense), net		(7,551	)		(3,210	)		3,263				(760	)		(3,197	)		(11,455	)
Net income (loss) before taxes		15,193			4,055			2,877				2,006			(4,464	)		19,667
Income tax (provision) benefit		(3,567	)		(975	)		(817	)			(541	)		1,044			(4,856	)
Net income (loss) after taxes	$	11,626		$	3,080		$	2,060			$	1,465		$	(3,420	)	$	14,811
Balance Sheet Data
Total loans, net	$	1,058,898		$	517,044		$	94,208			$	4,726		$	593		$	1,675,469
Total assets		1,072,356			521,931			103,643				31,258			382,943			2,112,131
Total funds borrowed		861,083			419,101			83,223				25,099			307,499			1,696,005
Selected Financial Ratios
Return on average assets		4.53	%		2.49	%		8.06	%			17.05	%		(3.56	)%		2.63	%
Return on average stockholders' equity		25.52			14.02			49.17				95.49			(20.01	)		18.11
Interest yield		13.27			8.65			10.60				19.61		N/A				11.00
Net interest margin		11.65			7.33			6.95				7.78		N/A				9.07
Reserve coverage		3.44			1.75			2.81		(1)		66.61		N/A				3.41
Delinquency status(2)		0.36			0.07			0.08		(1)		—		N/A				0.25
Charge-off (recovery) ratio(4)		0.43			0.58			(0.00	)	(3)		(232.80	)	N/A				(0.18	)

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

(2)Loans 90 days or more past due.

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

(4)Negative balances indicate net recoveries for the period.

Six Months Ended June 30, 2022	Consumer Lending
(Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			Corporate and Other Investments			Consolidated
Total interest income (loss)	$	64,650		$	20,288		$	4,208			$	377		$	891		$	90,414
Total interest expense		7,697			2,967			1,507				293			3,141			15,605
Net interest income (loss)		56,953			17,321			2,701				84			(2,250	)		74,809
Provision (recoveries) for loan losses		8,354			2,902			3,134				(3,544	)		153			10,999
Net interest income (loss) after loss provision		48,599			14,419			(433	)			3,628			(2,403	)		63,810
Other income (expense), net		(14,371	)		(6,106	)		1,932				(1,566	)		(7,847	)		(27,958	)
Net income (loss) before taxes		34,228			8,313			1,499				2,062			(10,250	)		35,852
Income tax (provision) benefit		(9,248	)		(2,246	)		(405	)			(557	)		2,769			(9,687	)
Net income (loss) after taxes	$	24,980		$	6,067		$	1,094			$	1,505		$	(7,481	)	$	26,165
Balance Sheet Data
Total loans, net	$	1,058,898		$	517,044		$	94,208			$	4,726		$	593		$	1,675,469
Total assets		1,072,356			521,931			103,643				31,258			382,943			2,112,131
Total funds borrowed		861,083			419,101			83,223				25,099			307,499			1,696,005
Selected Financial Ratios
Return on average assets		5.04	%		2.56	%		2.15	%			5.86	%		(4.24	)%		2.37	%
Return on average stockholders' equity		27.27			13.87			12.21				30.74			(24.85	)		15.93
Interest yield		13.29			8.72			10.28				16.07		N/A				11.04
Net interest margin		11.71			7.45			6.60				3.58		N/A				9.15
Reserve coverage		3.44			1.75			2.81		(1)		66.61		N/A				3.41
Delinquency status(2)		0.36			0.07			0.08		(1)		—		N/A				0.25
Charge-off (recovery) ratio(4)		0.44			0.62			3.75		(3)		(153.24	)	N/A				0.26

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

(2)Loans 90 days or more past due.

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

(4)Negative balances indicate net recoveries for the period.

Three Months Ended June 30, 2021	Consumer Lending
(Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			RPAC			Corporate and Other Investments			Consolidated
Total interest income (loss)	$	28,886		$	8,228		$	1,383			$	(1,475	)	$	—		$	353		$	37,375
Total interest expense		2,863			1,143			716				2,524			34			604			7,884
Net interest income (loss)		26,023			7,085			667				(3,999	)		(34	)		(251	)		29,491
Provision for loan losses		1,017			756			—				(2,943	)		—			488			(682	)
Net interest income (loss) after loss provision		25,006			6,329			667				(1,056	)		(34	)		(739	)		30,173
Sponsorship and race winnings		—			—			—				—			4,345			—			4,345
Race team related expenses		—			—			—				—			(2,674	)		—			(2,674	)
Other income (expense), net		(7,455	)		(2,638	)		(69	)			(1,157	)		(1,862	)		(543	)		(13,724	)
Net income (loss) before taxes		17,551			3,691			598				(2,213	)		(225	)		(1,282	)		18,120
Income tax (provision) benefit		(4,519	)		(951	)		(150	)			556			57			(1,521	)		(6,528	)
Net income (loss) after taxes	$	13,032		$	2,740		$	448			$	(1,657	)	$	(168	)	$	(2,803	)	$	11,592
Balance Sheet Data
Total loans net	$	855,900		$	362,370		$	66,236			$	5,764		$	—		$	3,351		$	1,293,621
Total assets		868,709			375,189			90,563				101,205			31,877			272,204			1,739,747
Total funds borrowed		712,777			295,887			72,450				80,959			8,016			212,020			1,382,109
Selected Financial Ratios
Return on average assets		6.24	%		3.04	%		2.36	%			(6.10	)%		(1.05	)%		(3.85	)%		2.43	%
Return on average equity		31.19			15.19			11.78				(30.51	)		(39.70	)		(1.95	)		12.90
Interest yield		14.03			9.48			9.16				(70.71	)	N/A			N/A				11.17
Net interest margin		12.64			8.16			4.42				(189.15	)	N/A			N/A				8.84
Reserve coverage		3.42			1.60			—		(1)		65.11		N/A			N/A				3.50
Delinquency status(2)		0.32			0.02			0.11		(1)		—		N/A			N/A				0.22
Charge-off (recovery) ratio(4)		(0.44	)		0.26			—		(3)		513.86		N/A			N/A				3.28

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

(2)Loans 90 days or more past due.

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

(4)Negative balances indicate net recoveries for the period.

Six Months Ended June 30, 2021	Consumer Lending
(Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			RPAC			Corporate and Other Investments			Consolidated
Total interest income (loss)	$	56,328		$	16,146		$	2,865			$	(1,544	)	$	—		$	660		$	74,455
Total interest expense		5,657			2,351			1,288				3,894			75			3,027			16,292
Net interest income (loss)		50,671			13,795			1,577				(5,438	)		(75	)		(2,367	)		58,163
Provision for loan losses		4,630			1,206			—				(3,987	)		—			487			2,336
Net interest income (loss) after loss provision		46,041			12,589			1,577				(1,451	)		(75	)		(2,854	)		55,827
Sponsorship and race winnings		—			—			—				—			6,818			—			6,818
Race team related expenses		—			—			—				—			(4,796	)		—			(4,796	)
Other income (expense), net		(12,918	)		(4,552	)		(529	)			(3,301	)		(3,623	)		(1,858	)		(26,781	)
Net income (loss) before taxes		33,123			8,037			1,048				(4,752	)		(1,676	)		(4,712	)		31,068
Income tax (provision) benefit		(8,529	)		(2,070	)		(263	)			1,193			421			(1,158	)		(10,406	)
Net income (loss) after taxes	$	24,594		$	5,967		$	785			$	(3,559	)	$	(1,255	)	$	(5,870	)	$	20,662
Balance Sheet Data
Total loans net	$	855,900		$	362,370		$	66,236			$	5,764		$	—		$	3,351		$	1,293,621
Total assets		868,709			375,189			90,563				101,205			31,877			272,204			1,739,747
Total funds borrowed		712,777			295,887			72,450				80,959			8,016			212,020			1,382,109
Selected Financial Ratios
Return on average assets		6.06	%		3.39	%		1.95	%			(6.29	)%		(7.72	)%		(4.08	)%		2.08	%
Return on average equity		30.32			16.96			9.77				(31.44	)		(244.87	)		(30.46	)		11.09
Interest yield		14.18			9.56			9.66				(30.90	)	N/A			N/A				11.50
Net interest margin		12.76			8.17			5.32				(108.84	)	N/A			N/A				9.01
Reserve coverage		3.42			1.60			—		(1)		65.11		N/A			N/A				3.50
Delinquency status(2)		0.32			0.02			0.11		(1)		—		N/A			N/A				0.22
Charge-off (recovery) ratio		0.12			0.99			—		(3)		216.01		N/A			N/A				2.15

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

(2)Loans 90 days or more past due.

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

(10) COMMITMENTS AND CONTINGENCIES

(A) EMPLOYMENT AGREEMENTS

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

Employment agreements expire at various dates through 2026, with future minimum payments under these agreements of approximately $13.9 million.

(B) OTHER COMMITMENTS

As of June 30, 2022, the Company had one commitment to extend credit of up to $1.8 million with an expiration date of January 1, 2025. Generally, any commitments would be on the same terms as loans to or investments in existing borrowers or investees, and generally have fixed expiration dates. Since some commitments would be expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

(C) SEC LITIGATION

On December 29, 2021, the SEC filed a civil complaint in the U.S. District Court for the Southern District of New York against the Company and its President and Chief Operating Officer alleging certain violations of the antifraud, books and records, internal controls and anti-touting provisions of the federal securities laws. The litigation relates to certain issues that occurred during the period 2015 to 2017, including (i) the Company’s retention of third parties in 2015 and 2016 concerning posting information about the Company on certain financial websites and (ii) the Company’s financial reporting and disclosures concerning certain assets, including Medallion Bank, in 2016 and 2017, a period when the Company had previously reported as a business development company (BDC) under the Investment Company Act of 1940. Since April 2018, the Company does not report as a BDC, and has not worked with such third parties

since 2016. The Company does not expect to change previously reported financial results. The 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.

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. 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. Nevertheless, depending on the outcome of the litigation, the Company could incur a loss and other penalties that could be material to the Company, its results of operations and/or financial condition, as well as a bar against its President and Chief Operating Officer. 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.

(D) OTHER LITIGATION AND REGULATORY MATTERS

The Company and its subsidiaries are subject to inquiries from certain regulators and are currently involved in various legal proceedings incident to the normal course of business, including collection matters with respect to certain loans. We intend to vigorously defend any outstanding claims and pursue our legal rights. In the opinion of management, based on the advice of legal counsel, except for the pending SEC litigation, as described above, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision could result in a material adverse impact on the financial condition or results of operations of the Company.

(11) RELATED PARTY TRANSACTIONS

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

Jeffrey Rudnick, the son of one of the Company’s directors, serves as the Company’s Senior Vice President at a salary of $239,000 per year, an increase from $195,000 per year in 2021. Mr. Rudnick received an annual cash bonus of $75,000 and $32,500 as well as an equity bonus in the amount of $45,019 and $30,000, during the six months ended June 30, 2022 and 2021.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 825, “Financial Instruments,” requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, or off-balance-sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instrument. Fair value estimates that were derived from broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

(a) Cash—Book value equals fair value.

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

(c) Investment securities—The Company’s investments are recorded at the estimated fair value of such investments.

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

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

(f) Commitments to extend credit—The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, considering the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At June 30, 2022 and December 31, 2021, the estimated fair value of these off-balance-sheet instruments was not material.

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

	June 30, 2022				December 31, 2021
(Dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash, cash equivalents, and federal funds sold (1)	$	126,330	$	126,330	$	124,484	$	124,484
Equity investments		10,942		10,942		9,726		9,726
Investment securities		50,358		50,358		44,772		44,772
Loans receivable		1,675,469		1,675,469		1,438,758		1,438,758
Accrued interest receivable (2)		11,534		11,534		10,621		10,621
Equity securities(3)		1,796		1,796		1,950		1,950
Financial liabilities
Funds borrowed		1,696,005		1,696,005		1,478,001		1,478,001
Accrued interest payable (2)		3,548		3,548		3,395		3,395

(1)Categorized as level 1 within the fair value hierarchy, excluding $1.3 million in interest bearing deposits categorized as level 2 as of June 30, 2022 and December 31, 2021. See Note 13.

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

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

(13) FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

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

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

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

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

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

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

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

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

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

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021.

June 30, 2022 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Interest-bearing deposits	$	—	$	1,250	$	—	$	1,250
Available for sale investment securities		—		50,358		—		50,358
Equity securities		1,796		—		—		1,796
Total(1)	$	1,796	$	51,608	$	—	$	53,404

(1)Total unrealized losses of $1.4 million and $3.1 million, net of tax, was included in accumulated other comprehensive loss for the three and six months ended June 30, 2022 related to these assets.

December 31, 2021 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Interest-bearing deposits	$	—	$	1,250	$	—	$	1,250
Available for sale investment securities		—		44,772		—		44,772
Equity securities		1,950		—		—		1,950
Total(1)	$	1,950	$	46,022	$	—	$	47,972

(1)Total unrealized losses of $1.0 million, net of tax, was included in accumulated other comprehensive income (loss) for the year ended December 31, 2021 related to these assets.

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2022 and December 31, 2021.

June 30, 2022 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Equity investments	$	—	$	—	$	10,942	$	10,942
Impaired loans		—		—		33,285		33,285
Loan collateral in process of foreclosure		—		—		26,974		26,974
Total	$	—	$	—	$	71,201	$	71,201

December 31, 2021 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Equity investments	$	—	$	—	$	9,726	$	9,726
Impaired loans		—		—		35,571		35,571
Loan collateral in process of foreclosure		—		—		37,430		37,430
Total	$	—	$	—	$	82,727	$	82,727

Significant Unobservable Inputs

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

The valuation techniques and significant unobservable inputs used in non-recurring level 3 fair value measurements of assets and liabilities as of June 30, 2022 and December 31, 2021.

(Dollars in thousands)	Fair Value at June 30, 2022		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Equity investments	$	10,669	Investee financial analysis	Financial condition and operating performance of the borrower (1)	N/A
				Collateral support	N/A
		273	Precedent market transaction	Offering price	$8.73 / share
Impaired loans		33,285	Market approach	Historical and actual loss experience	0.00% - 5.52%
					60% of balance
				Transfer prices (2)	$0.0 - 79.5
				Collateral value	N/A
Loan collateral in process of foreclosure		26,974	Market approach	Transfer prices (2)	$0.0 - 79.5
				Collateral value (3)	$1.8 - 34.2

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

(2)Represents amount net of liquidation costs.

(3)Relates to the recreation portfolio.

(Dollars in thousands)	Fair Value at December 31, 2021		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Equity investments	$	9,453	Investee financial analysis	Financial condition and operating performance of the borrower (1)	N/A
				Collateral support	N/A
		273	Precedent market transaction	Offering price	$8.73 / share
Impaired loans		35,571	Market approach	Historical and actual loss experience	1.50% - 6.00%
					60% of balance
				Transfer prices (2)	$0.0 - 79.5
				Collateral value	N/A
Loan collateral in process of foreclosure		37,430	Market approach	Transfer prices (2)	$0.0 - 79.5
				Collateral value (3)	$3.6 - 49.8

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

(2)Represents amount net of liquidation costs.

(3)Relates to the recreation portfolio.

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

On December 17, 2019, the Bank closed an initial public offering of 1,840,000 shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, with a $46.0 million aggregate liquidation amount, yielding net proceeds of $42.5 million, which were recorded in the Bank’s shareholders’ equity. Dividends are payable quarterly from the date of issuance to, but excluding April 1, 2025, at a rate of 8% per annum, and from and including April 1, 2025, at a floating rate equal to a benchmark rate (which is expected to be three-month Secured Overnight Financing Rate, or SOFR) plus a spread of 6.46% per annum.

On July 21, 2011, the Bank issued, and the U.S. Treasury purchased, 26,303 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series E, or Series E, for an aggregate purchase price of $26.3 million under the Small Business Lending Fund Program, or SBLF, with a liquidation amount of $1,000 per share. The SBLF is a voluntary program intended to encourage small business lending by providing capital to qualified smaller banks at favorable rates. The Bank pays a dividend rate of 9% on the Series E.

(15) SUBSEQUENT EVENTS

The Company has evaluated the effects of events that have occurred subsequent to June 30, 2022 through the date of financial statement issuance. As of such date, there were no subsequent events that required disclosure.

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

The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto for the three and six months ended June 30, 2022 and the year ended December 31, 2021. This section is intended to provide management’s perspective of our financial condition and results of operations. In addition, this section contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the Risk Factors in our Annual Report on Form 10-K.

COMPANY BACKGROUND

We are a specialty finance company whose focus and growth has been our consumer finance and commercial lending businesses operated by Medallion Bank, or the Bank, and Medallion Capital, Inc., or Medallion Capital. The Bank is a wholly-owned subsidiary, that originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and home improvements, and provides loan origination and other services to fintech partners. Medallion Capital is a wholly-owned subsidiary that originates commercial loans through its mezzanine financing business. As of June 30, 2022, our consumer loans represented 94% of our gross loan portfolio, and commercial loans represented 6%. Total assets were $2.1 billion and $1.9 billion as of June 30, 2022 and December 31, 2021.

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

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

The Bank is an industrial bank regulated by the FDIC and the Utah Department of Financial Institutions that originates consumer loans, raises deposits, and conducts other banking activities. The Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit. To take advantage of this low cost of funds, historically we referred a portion of our medallion and commercial loans to the Bank, which originated these loans, and have since been serviced by Medallion Servicing Corp., or MSC. However, other than in connection with dispositions of existing 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. In 2019, the Bank started building a strategic partnership program to provide lending and other services to financial technology, or fintech, companies. The Bank entered into an initial partnership in 2020 and began issuing its first loans, then entered into a second and third strategic partnership in 2021 and 2022. The Bank continues to explore opportunities with additional fintech companies.

We continue to consider various alternatives for the Bank, which may include an initial public offering of its common stock, the sale of all or part of the Bank, a spin-off or other potential transaction. We do not have a deadline for its consideration of these alternatives, and there can be no assurance that this process will result in any transaction being announced or consummated.

CRITICAL ACCOUNTING POLICIES

Our accounting policies are fundamental to understanding management's discussion and analysis of its financial condition and results of operations. At June 30, 2022, we identified our policies on the allowance for loan loss, goodwill and intangible assets, and deferred taxes, to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Our critical accounting policies are described in detail in Part I, Item 7 in Medallion Financial Corp.'s Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no material changes in such policies and estimates since the date of such report.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements, or Topic 205: Depository and Lending, or Topic 942: and Financial Services – Investment Companies, or Topic 946: Measurement of Credit Losses on Financial Instruments, or ASU 2021-06. This new standard amends certain SEC paragraphs from the Codification in response to the issuance of SEC Final Rule No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses and SEC Rule No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. We have assessed the impact the update and determined it does not have a material impact on our financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses, or Topic 326: Troubled Debt Restructurings and Vintage Disclosures, or ASU 2022-02. The main objective of this new standard is to amend ASU 2016-13 in response to feedback received from the post-implementation review process. The amendments update ASU 2016-13 to require that an entity measure and record the lifetime expected credit losses on an asset upon origination or acquisition, and, as a result, credit losses from loans modified as troubled debt restructurings (TDRs) have been incorporated into the allowance for credit losses. The amendments also require the disclosure of current period gross write-offs, by year of origination, for financing receivables. ASU 2022-02 is effective upon the adoption of ASU 2016-13. We are assessing the impact the update will have on our financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement, or Topic 820: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, or ASU 2016-13. This new standard clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. We have assessed the impact the update and determined it does not have a material impact on our financial statements.

CONTROL STATUTES

Because the Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act and we are a “financial institution holding company” within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of us and, indirectly, the Bank, without, in most cases, prior written approval of the FDIC or the Commissioner of Utah Department of Financial Institutions, as applicable. Under the Change in Bank Control Act, control is conclusively presumed if, among other things, a person or company acquires 25% or more of any class of our voting stock. A rebuttable presumption of control arises if a person or company acquires 10% or more of any class of voting stock and is subject to a number of specified “control factors” as set forth in the applicable regulations. Although the Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act, your investment in the Company is not insured or guaranteed by the FDIC, or any other agency, and is subject to loss. Under the Utah Financial Institutions Act, control is defined as the power directly or indirectly or through or in concert with one or more persons to (1) direct or exercise a controlling influence over the management or policies of us or the election of a majority of the directors of us, or (2) to vote 20% or more of any class of our voting securities by an individual or to vote more than 10% of any class of our voting securities by a person other than an individual. If any holder of any series of the Bank’s preferred stock is or becomes entitled to vote for the election of the Bank’s directors, such series will be deemed a class of voting stock, and any other person will be required to obtain the non-objection of the FDIC under the Change in Bank Control Act to acquire or maintain 10% or more of that series. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our common stock in excess of the amount which can be acquired without regulatory approval.

In addition to the regulations detailed above, our operations are subject to supervision and regulation by other federal, state, and local laws and regulations. Additionally, our operations may be subject to various laws and judicial and administrative decisions. This oversight may serve to:

•regulate credit granting activities, including establishing licensing requirements, if any, in various jurisdictions;

•establish maximum interest rates, finance charges and other charges;

•require disclosures to customers;

•govern secured transactions;

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

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

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

Changes to laws of states in which we do business could affect the operating environment in substantial and unpredictable ways. We cannot predict whether such changes will occur or, if they occur, the ultimate effect they would have upon our financial condition or results of operations.

COVID-19

In March 2020, in response to the COVID-19 pandemic, we adjusted the payment policies and procedures with our consumer and medallion businesses, and allowed borrowers to defer payments up to 180 days. As of June 30, 2022, no consumer or medallion loans remained on deferral related to COVID-19. For our medallion portfolio, we determined that anticipated payment activity on our medallion portfolio was impossible to quantify upon the end of the deferral moratorium, and therefore all medallion loans were deemed impaired, placed on nonaccrual status, and written down to each market’s net collateral value in the 2020 third quarter, with additional write-offs taken during 2021. We will continue to monitor our medallion portfolio and related assets, which may result in additional write-downs, charge-offs or impairments.

In addition to modifying payment policies, we have taken steps to accommodate remote work and implemented several cost-cutting measures, such as reducing employee headcount at our parent company, Medallion Financial Corp., and closing satellite offices in Long Island City, New York; Chicago, Illinois; and Boston, Massachusetts.

With COVID-19 continuing and new variants emerging, the potential future effects of COVID-19 on our consumer loan portfolio and consumer businesses remain uncertain, and we could suffer potential losses on our consumer loan portfolios as a result of the effects on the ability of our borrowers to repay their loans as well as on the economy and on demand for our loans.

AVERAGE BALANCES AND RATES

The following table shows our consolidated average balance sheet, interest income and expense, and the average interest earning/bearing assets and liabilities, and which reflects the average yield on assets and average costs on liabilities for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,
	2022							2021
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest			Average Yield/Cost
Interest-earning assets
Interest earning cash equivalents	$	4,278	$	40		3.75	%	$	2,993	$	14			1.88	%
Federal funds sold		74,285		88		0.48			48,557		4			0.03
Investment securities		47,705		281		2.36			44,119		225			2.05
Loans
Recreation		1,013,037		33,515		13.27			825,695		28,877			14.03
Home improvement		490,662		10,588		8.66			348,066		8,228			9.48
Commercial		86,455		2,338		10.85			63,855		1,516			9.52
Medallion		4,633		232		20.09			8,480		(1,495	)		(70.71	)
Strategic partnerships		373		29		31.18			60		6			40.11
Total loans		1,595,160		46,702		11.74			1,246,156		37,132			11.95
Total interest-earning assets		1,721,428		47,111		11.00			1,341,825		37,375			11.17
Non-interest-earning assets
Cash		41,820							45,257
Equity investments		10,762							9,714
Loan collateral in process of foreclosure(1)		30,806							50,678
Goodwill and intangible assets		173,744							201,354
Other assets		45,899							45,846
Total non-interest-earning assets		303,031							352,849
Total assets	$	2,024,459						$	1,694,674
Interest-bearing liabilities
Deposits	$	1,386,967	$	4,912		1.42	%	$	1,104,935	$	4,465			1.62	%
Retail and privately placed notes		121,000		2,507		8.31			125,744		2,592			8.27
SBA debentures and borrowings		69,407		561		3.24			60,763		509			3.36
Preferred securities		33,000		250		3.04			33,000		191			2.32
Notes payable to banks		—		—		—			9,570		94			3.94
Other borrowings		—		—		—			8,558		33			1.55
Total interest-bearing liabilities		1,610,374		8,230		2.05			1,342,570		7,884			2.36
Non-interest-bearing liabilities
Deferred tax liability		21,648							5,835
Other liabilities (2)		28,748							26,982
Total non-interest-bearing liabilities		50,396							32,817
Total liabilities		1,660,770							1,375,387
Non-controlling interest		69,166							72,489
Total stockholders’ equity		294,523							246,798
Total liabilities and stockholders’ equity	$	2,024,459						$	1,694,674
Net interest income			$	38,881						$	29,491
Net interest margin						9.07	%							8.84	%

(1)Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by Medallion Bank of $7.7 million and $9.3 million as of June 30, 2022 and 2021.

(2)Includes deferred financing costs of $7.4 million and $7.1 million as of June 30, 2022 and 2021.

	Six Months Ended June 30,
	2022							2021
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest			Average Yield/Cost
Interest-earning assets
Interest earning cash equivalents	$	4,277	$	86		4.05	%	$	3,198	$	32			2.02	%
Federal funds sold		67,103		103		0.31			43,274		9			4.19
Investment securities		45,926		500		2.20			43,797		427			1.97
Loans
Recreation		980,673		64,650		13.29			801,074		56,319			14.18
Home improvement		469,125		20,288		8.72			340,655		16,146			9.56
Commercial		82,581		4,366		10.66			63,078		3,076			9.83
Medallion		4,690		378		16.25			10,075		(1,564	)		31.30
Strategic partnerships		283		43		30.64			41		10			49.18
Total loans		1,537,352		89,725		11.77			1,214,923		73,987			12.28
Total interest-earning assets		1,654,658		90,414		11.04			1,305,192		74,455			11.50
Non-interest-earning assets
Cash		48,842							51,219
Equity investments		10,461							9,666
Loan collateral in process of foreclosure(1)		33,114							52,307
Goodwill and intangible assets		173,925							201,534
Other assets		45,219							45,642
Total non-interest-earning assets		311,561							360,368
Total assets	$	1,966,219						$	1,665,560
Interest-bearing liabilities
Deposits	$	1,332,971	$	9,066		1.37	%	$	1,077,260	$	9,176			1.72	%
Retail and privately placed notes		121,000		5,005		8.34			120,450		5,224			8.75
SBA debentures and borrowings		69,604		1,084		3.14			62,654		1,081			3.48
Preferred securities		33,000		450		2.75			33,000		356			3.91
Notes payable to banks		—		—		—			18,378		380			2.32
Other borrowings		—		—		—			8,619		75			1.75
Total interest-bearing liabilities		1,556,575		15,605		2.02			1,320,361		16,292			2.49
Non-interest-bearing liabilities
Deferred tax liability		20,052							3,575
Other liabilities (2)		27,521							27,521
Total non-interest-bearing liabilities		47,573							31,096
Total liabilities		1,604,148							1,351,457
Non-controlling interest		69,220							72,833
Total stockholders’ equity		292,851							241,270
Total liabilities and stockholders’ equity	$	1,966,219						$	1,665,560
Net interest income			$	74,809						$	58,163
Net interest margin						9.15	%							9.01	%

(1)Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by Medallion Bank of $7.7 million and $9.3 million as of June 30, 2022 and 2021.

(2)Includes deferred financing costs of $7.4 million and $7.1 million as of June 30, 2022 and 2021.

RATE/VOLUME ANALYSIS

During the quarter, our net loans receivable had a yield of 11.74% (compared to 11.95% in the prior year’s second quarter), with the yield driven by our recreation, home improvement and commercial loans. The 21 basis point decrease from the prior year’s second quarter is attributable to our changing mix of loans, mainly driven by the growth in the home improvement loans, which have a lower coupon than our recreation and commercial loans. Our debt, a significant component being certificates of deposit, funds our growing lending businesses. Despite the current year increase in interest rates, our average interest cost during the quarter of 2.05% decreased 21 basis points from the prior year second quarter, primarily reflecting the decreasing rates for certificate of deposits issued during 2021 compared to maturing older deposits which bore a higher cost. During the year to date period, our net loans receivable had a yield of 11.77% (compared to 12.28% in the prior year’s second quarter), the decrease similarly driven by the changing mix of our loans, mainly driven by the growth in the home improvement loan portfolio. Similar to the quarter, despite the current year increase in interest rates, our average interest cost during the year to date period of 2.02% decreased 47 basis points from the prior year period, primarily reflecting the decreasing rates for certificate of deposits issued during 2021 compared to maturing older deposits which bore a higher cost, and to a lesser extent the repayment of retail notes in the prior year, which carried a higher rate of interest when compared to privately placed notes issued in the prior year.

The following tables present the change in interest income and expense due to changes in the average balances (volume) and average yield/cost, calculated for the periods indicated.

	Three Months Ended June 30,
	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
Interest-earning assets
Interest earning cash and cash equivalents	$	44		$	66		$	110		$	(443	)	$	450		$	7
Investment securities		21			35			56			(15	)		(11	)		(26	)
Loans
Recreation		6,198			(1,560	)		4,638			3,264			(1,616	)		1,648
Home improvement		3,077			(717	)		2,360			2,019			(117	)		1,902
Commercial		611			211			822			(157	)		(105	)		(262	)
Medallion		(193	)		1,920			1,727			14,903			(16,391	)		(1,488	)
Strategic partnerships		24			(1	)		23			5			1			6
Total loans	$	9,717		$	(147	)	$	9,570		$	20,034		$	(18,228	)	$	1,806
Total interest-earning assets	$	9,782		$	(46	)	$	9,736		$	19,576		$	(17,789	)	$	1,787
Interest-bearing liabilities
Deposits	$	999		$	(552	)	$	447		$	124		$	(1,579	)	$	(1,455	)
Retail and privately placed notes		(98	)		13			(85	)		(96	)		(51	)		(147	)
SBA debentures and borrowings		70			(18	)		52			(221	)		27			(194	)
Notes payable to banks		—			(94	)		(94	)		1,162			(254	)		908
Preferred securities		—			59			59			1			(57	)		(56	)
Other borrowings		—			(33	)		(33	)		3			(10	)		(7	)
Total interest-bearing liabilities	$	971		$	(625	)	$	346		$	973		$	(1,924	)	$	(951	)
Net	$	8,811		$	579		$	9,390		$	18,603		$	(15,865	)	$	2,738

	Six Months Ended June 30,
	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
Interest-earning assets
Interest earning cash and cash equivalents	$	66		$	82		$	148		$	26		$	(104	)	$	(78	)
Investment securities		23			50			73			46			(201	)		(155	)
Loans
Recreation		11,840			(3,509	)		8,331			5,898			(3,142	)		2,756
Home improvement		5,556			(1,414	)		4,142			3,903			30			3,933
Commercial		1,031			259			1,290			(149	)		(433	)		(582	)
Medallion		(434	)		2,376			1,942			15,363			(17,922	)		(2,559	)
Strategic partnerships		37			(4	)		33			10			—			10
Total loans	$	18,030		$	(2,292	)	$	15,738		$	25,025		$	(21,467	)	$	3,558
Total interest-earning assets	$	18,119		$	(2,160	)	$	15,959		$	25,097		$	(21,772	)	$	3,325
Interest-bearing liabilities
Deposits	$	1,739		$	(1,849	)	$	(110	)	$	1,328		$	(4,013	)	$	(2,685	)
Retail and privately placed notes		23			(242	)		(219	)		(127	)		(135	)		(262	)
SBA debentures and borrowings		108			(105	)		3			(243	)		(25	)		(268	)
Notes payable to banks		—			(356	)		(356	)		2,195			(337	)		1,858
Preferred securities		—			70			70			65			(246	)		(181	)
Other borrowings		—			(75	)		(75	)		7			(12	)		(5	)
Total interest-bearing liabilities	$	1,870		$	(2,557	)	$	(687	)	$	3,225		$	(4,768	)	$	(1,543	)
Net	$	16,249		$	397		$	16,646		$	21,872		$	(17,004	)	$	4,868

During the three and six months ended June 30, 2022, the increase in the interest earning assets was mainly driven by the increase in volume of consumer loans, even as the yield on these loans declined. The increase in debt similarly was driven by the increase in the borrowings, mainly driven by deposits, which are used to fund our growing loan portfolio.

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 have, in the past, included credit facilities with banks and other short-term notes payable. The Bank issues brokered time certificates of deposit, which are our lowest borrowing costs. The Bank is able to bid on these deposits at a variety of maturity options, which allows for improved interest rate management strategies.

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

We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The tables above show the average borrowings and related borrowing costs for the three and six months ended June 30, 2022 and 2021.

We continue to seek SBA funding through Medallion Capital, Inc., to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the Small Business Investment Act of 1985, as amended, or the SBIA, and SBA regulations. In July 2020, we obtained a $25.0 million commitment from the SBA. At June 30, 2022 and 2021, adjustable rate debt constituted just 2% and 3% of total debt.

LOANS

Loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which are amortized to interest income over the life of the loan. During the three and six months ended June 30, 2022, there was continued growth in the consumer lending segments along with recoveries in the medallion segment, which was partly offset by consumer and medallion charge-offs during the period, the continuing of loans aged over 120 days transferred to loan collateral in process of foreclosure and payments received from borrowers.

Three Months Ended June 30, 2022 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – March 31, 2022	$	1,004,091		$	473,408		$	77,867		$	13,849		$	226		$	1,569,441
Loan originations		170,207			105,172			19,272			472			9,830			304,953
Principal payments, sales, maturities, and recoveries		(73,114	)		(51,006	)		(386	)		(30	)		(9,463	)		(133,999	)
Charge-offs		(5,074	)		(1,108	)		—			—			—			(6,182	)
Transfer to loan collateral in process of foreclosure, net		(2,618	)		—			—			(139	)		—			(2,757	)
Amortization of origination costs		(2,931	)		380			—			—			—			(2,551	)
Amortization of loan premium		(60	)		(90	)		—			—			—			(150	)
FASB origination costs, net		6,169			(478	)		—			—			—			5,691
Paid-in-kind interest		—			—			175			—			—			175
Gross loans – June 30, 2022	$	1,096,670		$	526,278		$	96,928		$	14,152		$	593		$	1,734,621
Six Months Ended June 30, 2022 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – December 31, 2021	$	961,320		$	436,772		$	76,696		$	14,046		$	90		$	1,488,924
Loan originations		284,613			194,992			23,672			564			14,839			518,680
Principal payments, sales, maturities, and recoveries		(138,230	)		(103,170	)		(2,203	)		(115	)		(14,336	)		(258,054	)
Charge-offs		(10,141	)		(2,168	)		(1,584	)		(75	)		—			(13,968	)
Transfer to loan collateral in process of foreclosure, net		(5,529	)		—			—			(268	)		—			(5,797	)
Amortization of origination costs		(5,370	)		700			—			—			—			(4,670	)
Amortization of loan premium		(120	)		(180	)		—			—			—			(300	)
FASB origination costs, net		10,127			(668	)		—			—			—			9,459
Paid-in-kind interest		—			—			347			—			—			347
Gross loans – June 30, 2022	$	1,096,670		$	526,278		$	96,928		$	14,152		$	593		$	1,734,621

Three Months Ended June 30, 2021 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – March 31, 2021	$	822,932		$	342,121		$	58,854		$	35,250		$	58		$	1,259,215
Loan originations		134,467			62,992			11,059			—			2,426			210,944
Principal payments, sales, maturities, and recoveries		(67,084	)		(36,171	)		(564	)		(467	)		(2,414	)		(106,700	)
Charge-offs		(2,672	)		(786	)		—			(12,791	)		—			(16,249	)
Transfer to loan collateral in process of foreclosure, net		(2,980	)		—			—			(3,933	)		—			(6,913	)
Amortization of origination costs		(2,477	)		410			—			—			—			(2,067	)
Amortization of loan premium		(60	)		(90	)		—			(1,545	)		—			(1,695	)
FASB origination costs, net		4,080			(219	)		1			—			—			3,862
Paid-in-kind interest		—			—			170			—			—			170
Gross loans – June 30, 2021	$	886,206		$	368,257		$	69,520		$	16,514		$	70		$	1,340,567
Six Months Ended June 30, 2021 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Strategic Partnership			Total
Gross loans – December 31, 2020	$	792,686		$	334,033		$	65,327		$	37,768		$	24		$	1,229,838
Loan originations		228,317			111,051			15,216			—			4,370			358,954
Principal payments, sales, maturities, and recoveries		(123,043	)		(75,807	)		(11,541	)		(1,102	)		(4,324	)		(215,817	)
Charge-offs		(7,725	)		(1,467	)		—			(13,905	)		—			(23,097	)
Transfer to loan collateral in process of foreclosure, net		(6,033	)		—			—			(4,630	)		—			(10,663	)
Amortization of origination costs		(4,639	)		907			11			(2	)		—			(3,723	)
Amortization of loan premium		(101	)		(166	)		—			(1,615	)		—			(1,882	)
FASB origination costs, net		6,744			(294	)		12			—			—			6,462
Paid-in-kind interest		—			—			495			—			—			495
Gross loans – June 30, 2021	$	886,206		$	368,257		$	69,520		$	16,514		$	70		$	1,340,567

The following table presents the approximate maturities and sensitivity to changes in interest rates for our loans as of June 30, 2022.

	Loan Maturity
(Dollars in thousands)	Within 1 year		After 1 to 5 years		After 5 to 15 years		After 15 years		Total
Fixed-rate	$	34,927	$	207,242	$	1,321,917	$	133,685	$	1,697,771
Recreation		2,302		104,962		937,422		13,419		1,058,105
Home improvement		17,209		26,932		364,179		120,266		528,586
Commercial		12,498		64,114		20,316		—		96,928
Medallion		2,918		11,234		—		—		14,152
Adjustable-rate	$	3,436	$	1,032	$	—	$	—	$	4,468
Recreation		3,436		1,032		—		—		4,468
Home improvement		—		—		—		—		—
Commercial		—		—		—		—		—
Medallion		—		—		—		—		—
Total loans(1)	$	38,363	$	208,274	$	1,321,917	$	133,685	$	1,702,239

(1)Excludes strategic partnership loans.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

Our methodology to calculate the general reserve portion of the allowance includes the use of quantitative and qualitative factors. We initially determine an allowance based on quantitative loss factors for loans evaluated collectively for impairment. The quantitative loss factors are based primarily on historical loss rates, after considering loan type, historical loss and delinquency experience. The quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Qualitative loss factors are used to modify the reserve determined by the quantitative factors and are designed to account for losses that may not be included in the quantitative calculation according to management’s best judgment. If our qualitative loss factor rates were to increase 50 basis points, our recreation and home improvement general reserve would increase by $5.3 million and $2.6 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 $5.3 million and $2.6 million, respectively. Performing loans are recorded at book value and the general reserve maintained to absorb expected losses consistent with GAAP.

For medallion loans, during the three and six months ended June 30, 2022, we continued to utilize a value of $79,500 for New York City taxi medallions in determining loan loss allowances, despite reported transfer prices exceeding that level at various points during the period, as we continue to deem the entire medallion portfolio as impaired.

The following table sets forth the activity in the allowance for loan losses for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Allowance for loan losses – beginning balance	$	50,686		$	57,809		$	50,166		$	57,548
Charge-offs
Recreation		(5,074	)		(2,672	)		(10,141	)		(7,725	)
Home improvement		(1,108	)		(786	)		(2,168	)		(1,467	)
Commercial		—			—			(1,584	)		—
Medallion		—			(12,791	)		(75	)		(13,905	)
Total charge-offs		(6,182	)		(16,249	)		(13,968	)		(23,097	)
Recoveries
Recreation		3,615			3,588			7,125			6,057
Home improvement		585			558			1,144			990
Commercial		13			—			47			—
Medallion		2,676			1,922			3,639			3,112
Total recoveries		6,889			6,068			11,955			10,159
Net charge-offs (recoveries) (1)		707			(10,181	)		(2,013	)		(12,938	)
Provision for loan losses		7,759			(682	)		10,999			2,336
Allowance for loan losses – ending balance (2)	$	59,152		$	46,946		$	59,152		$	46,946

(1)As of June 30, 2022, cumulative net charge-offs of loans and loan collateral in process of foreclosure in the medallion portfolio were $252.1 million, some of which may represent collection opportunities for us.

(2)As of June 30, 2022, there was no allowance for loan loss and net charge-offs related to the strategic partnership loans.

The following tables set forth the allowance for loan losses by type as of June 30, 2022 and December 31, 2021.

June 30, 2022 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category			Allowance as a Percent of Nonaccrual
Recreation	$	37,772		64	%		3.44	%		113.48	%
Home improvement		9,234		16			1.75			27.74
Commercial		2,720		4			2.81			8.17
Medallion		9,426		16			66.61			28.32
Total	$	59,152		100	%		3.41	%		177.71	%

December 31, 2021 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category			Allowance as a Percent of Nonaccrual
Recreation	$	32,435		64	%		3.37	%		91.18	%
Home improvement		7,356		15			1.68			20.68
Commercial		1,141		2			1.49			3.21
Medallion		9,234		19			65.74			25.96
Total	$	50,166		100	%		3.37	%		141.03	%

As of June 30, 2022, the total allowance rate for loan losses increased 4 basis points from December 31, 2021, with the actual allowance increasing 18%, reflecting the overall increase in size of the loan portfolio. For recreation and home improvement loans, as of June 30, 2022 the allowances exclude $2.1 million and $0.2 million of loan loss allowances which have been netted within loans as a result of the consolidation of Medallion Bank.

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

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

	June 30, 2022					December 31, 2021
(Dollars in thousands)	Amount		% (1)			Amount		% (1)
Recreation	$	3,810		0.2	%	$	3,818		0.3	%
Home improvement		396	*				132	*
Commercial		74	*				74	*
Total loans 90 days or more past due	$	4,280		0.3	%	$	4,024		0.3	%

(*) Less than 0.1%

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

We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 320% and 295% as of June 30, 2022 and December 31, 2021.

Recreation and medallion loans that reach 120 days past due are charged down to collateral value and reclassified to loan collateral in process of foreclosure. The following tables show the activity of loan collateral in process of foreclosure for the three months ended June 30, 2022 and 2021.

Three Months Ended June 30, 2022 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – March 31, 2022	$	1,369		$	32,465		$	33,834
Transfer from loans, net		2,618			139			2,757
Sales		(2,146	)		(1,999	)		(4,145	)
Cash payments received		—			(4,381	)		(4,381	)
Collateral valuation adjustments		(963	)		(128	)		(1,091	)
Loan collateral in process of foreclosure – June 30, 2022	$	878		$	26,096		$	26,974
Six Months Ended June 30, 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		5,529			268			5,797
Sales		(4,398	)		(2,115	)		(6,513	)
Cash payments received		—			(7,253	)		(7,253	)
Collateral valuation adjustments		(1,973	)		(514	)		(2,487	)
Loan collateral in process of foreclosure – June 30, 2022	$	878		$	26,096		$	26,974

Three Months Ended June 30, 2021 (Dollars in thousands)	Recreation			Medallion			Total
Loan collateral in process of foreclosure – March 31, 2021	$	970		$	49,763		$	50,733
Transfer from loans, net		2,980			3,933			6,913
Sales		(1,989	)		(231	)		(2,220	)
Cash payments received		—			(3,146	)		(3,146	)
Collateral valuation adjustments		(1,079	)		(2,162	)		(3,241	)
Loan collateral in process of foreclosure – June 30, 2021	$	882		$	48,157		$	49,039
Six Months Ended June 30, 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		6,033			4,630			10,663
Sales		(4,288	)		(231	)		(4,519	)
Cash payments received		—			(4,423	)		(4,423	)
Collateral valuation adjustments		(2,295	)		(4,947	)		(7,242	)
Loan collateral in process of foreclosure – June 30, 2021	$	882		$	48,157		$	49,039

As of June 30, 2022, medallion loans in the process of foreclosure included 462 medallions in the New York City market, 335 medallions in the Chicago market, 61 medallions in the Newark market, and 47 medallions in other markets.

SEGMENT RESULTS

We manage our financial results under four operating segments; recreation lending, home improvement lending, commercial lending, and medallion lending. We also show results for non-operating segments; RPAC and corporate and other investments. As mentioned earlier, the Company disposed of its investment in RPAC on December 1, 2021 and, as a result, all presented segment results are through such date. For information related to RPAC, refer to our 2021 Form 10-K. All results are for the three and six months ended June 30, 2022 and 2021.

Recreation Lending

The recreation lending segment is a high-growth prime and non-prime consumer finance business which is a significant source of income for us, accounting for 71% and 72% of our interest income for the three and six months ended June 30, 2022, and 77% for the three and six months ended June 30, 2021. The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 59% of the portfolio, boat loans making up 20% of the portfolio, and trailer loans 13% as of June 30, 2022, compared to 60%, 20% and 10% as of June 30, 2021. Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, Florida, and California at 16%, 10%, and 9% of loans outstanding, compared to 16%, 9%, and 10% as of June 30, 2021, and with no other states over 10%.

During the three and six months ended June 30, 2022, the recreation portfolio grew, with the interest yield in both periods decreasing from the prior year periods as a result of the change in portfolio mix toward higher credit quality but lower yielding assets. Additionally, reserve rates increased 2 basis points from June 30, 2021, an insignificant change as we continue to see delinquencies and net charge-offs at near historic lows.

The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Selected Earnings Data
Total interest income	$	33,514		$	28,886		$	64,650		$	56,328
Total interest expense		4,096			2,863			7,697			5,657
Net interest income		29,418			26,023			56,953			50,671
Provision for loan losses		6,674			1,017			8,354			4,630
Net interest income after loss provision		22,744			25,006			48,599			46,041
Total other expense, net		(7,551	)		(7,455	)		(14,371	)		(12,918	)
Net income before taxes		15,193			17,551			34,228			33,123
Income tax provision		(3,567	)		(4,519	)		(9,248	)		(8,529	)
Net income after taxes	$	11,626		$	13,032		$	24,980		$	24,594
Balance Sheet Data
Total loans, gross							$	1,096,670		$	886,206
Total loan allowance								37,772			30,306
Total loans, net								1,058,898			855,900
Total assets								1,072,356			868,709
Total borrowings								861,083			712,777
Selected Financial Ratios
Return on average assets		4.53	%		6.24	%		5.04	%		6.06	%
Return on average equity		25.52			31.19			27.27			30.32
Interest yield		13.27			14.03			13.29			14.18
Net interest margin		11.65			12.64			11.71			12.76
Reserve coverage		3.44			3.42			3.44			3.42
Delinquency status (1)		0.36			0.32			0.36			0.32
Charge-off (recovery) ratio(2)		0.43			(0.44	)		0.44			0.12

(1)Loans 90 days or more past due.

Home Improvement Lending

The home improvement lending segment is a consumer finance business that works with contractors and financial service providers to finance home improvements and is concentrated in roofs, swimming pools, and windows at 36%, 25%, and 12% of total loans outstanding as of June 30, 2022, as compared to 29%, 27%, and 12% as of June 30, 2021, with no other collateral types over 10%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas and Florida at 11% and 10% of loans outstanding June 30, 2022, compared to 11% and 10% as of June 30, 2021, with no other states over 10%.

During the three and six months ended June 30, 2022, the home improvement lending segment grew substantially with loans increasing 42% from the prior year. Reserve rates increased 15 basis points from a year ago. The interest yield was 8.65% and 8.72% for the three and six months ended June 30, 2022, compared to 9.48% and 9.56% for the three and six months ended June 30, 2021.

The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Selected Earnings Data
Total interest income	$	10,587		$	8,228		$	20,288		$	16,146
Total interest expense		1,625			1,143			2,967			2,351
Net interest income		8,962			7,085			17,321			13,795
Provision for loan losses		1,697			756			2,902			1,206
Net interest income after loss provision		7,265			6,329			14,419			12,589
Other income (expense), net		(3,210	)		(2,638	)		(6,106	)		(4,552	)
Net income before taxes		4,055			3,691			8,313			8,037
Income tax provision		(975	)		(951	)		(2,246	)		(2,070	)
Net income after taxes	$	3,080		$	2,740		$	6,067		$	5,967
Balance Sheet Data
Total loans, gross							$	526,278		$	368,257
Total loan allowance								9,234			5,887
Total loans, net								517,044			362,370
Total assets								521,931			375,189
Total borrowings								419,101			295,887
Selected Financial Ratios
Return on average assets		2.49	%		3.04	%		2.56	%		3.39	%
Return on average equity		14.02			15.19			13.87			16.96
Interest yield		8.65			9.48			8.72			9.56
Net interest margin		7.33			8.16			7.45			8.17
Reserve coverage		1.75			1.60			1.75			1.60
Delinquency status (1)		0.07			0.02			0.07			0.02
Charge-off (recovery) ratio		0.58			0.26			0.62			0.99

(1)Loans 90 days or more past due.

Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 47% of which are located in the Midwest region, with the rest scattered across the country. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2,000,000 to $5,000,000 at origination, and typically include an equity component as part of the financing. The commercial lending business has concentrations in manufacturing, wholesale trade, administrative and support services, and construction making up 53%, 11%, 11%, and 10% of the loans outstanding as of June 30, 2022.

During 2022, the commercial portfolio continued to grow, with $19.3 million of new originations in the quarter and $23.7 million of new originations in the six months. Additionally, reserve rates reflected specific reserves on aged investments.

The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021. The commercial segment encompasses the mezzanine lending business, and the other legacy commercial loans (immaterial to total) have been allocated to corporate and other investments. The commercial segment increased in the current year as originations exceeded repayments.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Selected Earnings Data
Total interest income	$	2,278		$	1,383		$	4,208		$	2,865
Total interest expense		785			716			1,507			1,288
Net interest income		1,493			667			2,701			1,577
Provision for loan losses		1,879			—			3,134			—
Net interest (expense) income after loss provision		(386	)		667			(433	)		1,577
Other income (expense), net		3,263			(69	)		1,932			(529	)
Net income (loss) before taxes		2,877			598			1,499			1,048
Income tax (provision) benefit		(817	)		(150	)		(405	)		(263	)
Net (loss) income after taxes	$	2,060		$	448		$	1,094		$	785
Balance Sheet Data
Total loans, gross							$	96,928		$	66,236
Total loan allowance								2,720			—
Total loans, net								94,208			66,236
Total assets								103,643			90,563
Total borrowings								83,223			72,450
Selected Financial Ratios
Return on average assets		8.06	%		2.36	%		2.15	%		1.95	%
Return on average equity		49.17			11.78			12.21			9.77
Interest yield		10.60			9.16			10.28			9.66
Net interest margin		6.95			4.42			6.60			5.32
Reserve coverage(1)		2.81			—			2.81			—
Delinquency status (1) (2)		0.08			0.11			0.08			0.11
Charge-off (recovery) ratio(3)		(0.00	)		—			3.75			—

(1)Ratio is based off of total commercial balances, and relates solely to the legacy commercial loan balances.

(2)Loans 90 days or more past due.

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

	As of June 30,
	2022					2021
Geographic Concentrations	Total Gross Loans		% of Market			Total Gross Loans		% of Market
California		15,110		16	%		5,008		8	%
Illinois		12,857		13			16,689		25
Minnesota		12,356		13			8,086		12
Michigan		6,332		7			10,794		16
Other (1)		50,273		51			25,659		39
Total	$	96,928		100	%	$	66,236		100	%

(1)Includes four other states, which were all under 5% as of June 30, 2022, and four other states, all under 10% as of June 30, 2021.

Medallion Lending

The medallion lending segment operates primarily in New York City, and to a lesser extent in Newark, Chicago and other markets. During the three and six months ended June 30, 2022, taxi medallion values remained consistent in the New York City market. We continue to not recognize interest income with all loans being placed on nonaccrual as of the third quarter 2020, and by transferring underperforming loans from the portfolio to loan collateral in process of foreclosure with charge-offs to collateral value, once loans become more than 120 days past due. All the loans are secured by taxi medallions and enhanced by personal guarantees of the shareholders and owners.

The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Selected Earnings Data
Total interest income (loss)	$	231		$	(1,475	)	$	377		$	(1,544	)
Total interest expense		140			2,524			293			3,894
Net interest loss		91			(3,999	)		84			(5,438	)
(Benefit) provision for loan losses		(2,675	)		(2,943	)		(3,544	)		(3,987	)
Net interest income (loss) after loss provision		2,766			(1,056	)		3,628			(1,451	)
Other expense, net		(760	)		(1,157	)		(1,566	)		(3,301	)
Net income (loss) before taxes		2,006			(2,213	)		2,062			(4,752	)
Income tax (provision) benefit		(541	)		556			(557	)		1,193
Net income (loss) after taxes	$	1,465		$	(1,657	)	$	1,505		$	(3,559	)
Balance Sheet Data
Total loans, gross							$	14,152		$	16,514
Total loan allowance								9,426			10,750
Total loans, net								4,726			5,764
Total assets								31,258			101,205
Total borrowings								25,099			80,959
Selected Financial Ratios
Return on average assets		17.05	%		(6.10	)%		5.86	%		(6.29	)%
Return on average equity		95.49			(30.51	)		30.74			(31.44	)
Interest yield		19.61			(70.71	)		16.07			(30.90	)
Net interest margin		7.78			(189.15	)		3.58			(108.84	)
Reserve coverage		66.61			65.11			66.61			65.11
Delinquency status (1)		—			—			—			—
Charge-off (recovery) ratio		(232.80	)		513.86			(153.24	)		216.01

(1)Loans 90 days or more past due.

	As of June 30,
	2022					2021
Geographic Concentration	Total Gross Loans		% of Market			Total Gross Loans		% of Market
New York City	$	13,035		92	%	$	14,056		85	%
Newark		1,079		8			2,393		15
All Other		38	*				65	*
Total	$	14,152		—	%	$	16,514		100	%

(*) Less than 1%

	As of June 30,
	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	$	21,327		82	%	$	32,411		67	%
Newark		3,664		14			6,009		12
Chicago		987		4			2,689		6
All Other		118	*				7,048		15
Total	$	26,096		100	%	$	48,157		100	%

(*) Less than 1%

Corporate and Other Investments

This non-operating segment relates to our equity and investment securities as well as our legacy commercial business, and other assets, liabilities, revenues, and expenses, which are not specifically allocated to the operating segments. Commencing with the 2020 second quarter, the Bank began issuing loans related to the new strategic partnership business, which is currently included within this segment. The associated activities of the strategic partnership business are currently limited to originating loans or other receivables facilitated by our strategic partners and selling those loans or receivables to our strategic partners or other third parties, without recourse, within a specified time after origination, such as three business days. Strategic partnerships represent $0.6 million in net loans as of June 30, 2022, compared to less than $0.1 million as of June 30, 2021, having originations of $9.8 million and $14.8 million during the three and six months ended June 30, 2022 and $2.4 million and $4.4 million during the three and six months ended June 30, 2021.

The following table presents certain financial data and ratios as of and for the three and six months ended June 30, 2022 and 2021.

(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Selected Earnings Data
Total interest income	$	501		$	353		$	891		$	660
Total interest expense		1,584			604			3,141			3,027
Net interest loss		(1,083	)		(251	)		(2,250	)		(2,367	)
Total interest expense		184			488			153			487
Net interest loss		(1,267	)		(739	)		(2,403	)		(2,854	)
Other expense, net		(3,197	)		(543	)		(7,847	)		(1,858	)
Net loss before taxes		(4,464	)		(1,282	)		(10,250	)		(4,712	)
Income tax benefit (provision)		1,044			(1,521	)		2,769			(1,158	)
Net loss after taxes	$	(3,420	)	$	(2,803	)	$	(7,481	)	$	(5,870	)
Balance Sheet Data
Total loans, gross							$	593		$	3,351
Total loan allowance								—			—
Total loans, net							$	593			3,351
Total assets								382,943			272,204
Total borrowings								307,499			212,020
Selected Financial Ratios
Return on average assets		(3.56	)%		(3.85	)%		(4.24	)%		(4.08	)%
Return on average equity		(20.01	)		(1.95	)		(24.85	)		(30.46	)

SUMMARY CONSOLIDATED FINANCIAL DATA

The table below presents our selected financial data for the three and six months ended June 30, 2022 and 2021.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, Except per share data)	2022			2021			2022			2021
Return on average assets (ROA)		2.63	%		2.43	%		2.37	%		2.26	%
Return on average stockholders' equity (ROE)		18.11			16.69			15.93			15.63
Dividend payout ratio		14.40			—			17.11			—
Net interest margin		9.07			8.84			9.50			9.01
Other income ratio (1)		1.71			2.32			1.08			1.50
Total expense ratio (2)		5.17			10.23			5.21			9.45
Equity to assets (3)		17.18			18.56			17.18			18.56
Debt to equity (4)	4.3x			4.2x			4.3x			4.2x
Loans receivable to assets		79	%		74	%		79	%		74	%
Net (recoveries) charge-offs		(707	)		10,181			2,013			12,938
Net (recoveries) charge-offs as a % of average loans receivable		(0.18	)%		3.36	%		0.26	%		2.15	%
Allowance coverage ratio		3.41			3.50			3.41			3.50

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

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

(3)Includes $68.8 million and $72.1 million related to non-controlling interests in consolidated subsidiaries as of June 30, 2022 and 2021.

(4)Excludes deferred financing costs of $7.4 million and $6.5 million as of June 30, 2022 and 2021.

CONSOLIDATED RESULTS OF OPERATIONS

Three and Six Months Ended June 30, 2022 compared to the Three and Six Months Ended June 30, 2021

Net income attributable to shareholders was $13.3 million and $23.1 million, or $0.54 and $0.93 per share, for the three and six months ended June 30, 2022, compared to $10.3 million and $18.7 million, or $0.41 and $0.75 per share, for the three and six months ended June 30, 2021.

Total interest income was $47.1 million and $90.4 million for the three and six months ended June 30, 2022 compared to $37.4 million and $74.5 million for the three and six months ended June 30, 2021. The increase in interest income reflected the continued growth in our loan portfolio, despite slightly lower average margins reflected in our recreation, home improvement and commercial loans. The yield on interest earning assets was 11.00% and 11.04% for the three and six months ended June 30, 2022, compared to 11.17% and 11.50% for the three and six months ended June 30, 2021. Average interest earning assets were $1.7 billion for the three and six months ended June 30, 2022, an increase from $1.3 billion for the three and six months ended June 30, 2021. We began increasing rates on new home improvement loans in the 2022 second quarter and anticipate increasing rates on new recreation loans during the second half of 2022 as a response to rising interest rates which effect our cost of funds.

Loans before allowance for loan losses were $1.7 billion as of June 30, 2022, comprised of recreation ($1.1 billion), home improvement ($526.3 million), commercial ($96.9 million), medallion ($14.2 million), and strategic partnership loans ($0.6 million). We had an allowance for loan losses as of June 30, 2022 of $59 million, which was attributable to the recreation (64%), medallion (16%), home improvement (16%), and commercial (4%) loans. We experienced significant growth in our consumer and commercial loan business during the three and six months ended June 30, 2022, and do expect continued growth as we look ahead, however we don’t expect origination growth to continue at this pace long term.

Loans increased $246 million, or 16.5%, from December 31, 2021 as a result of $519 million of loan originations, partially offset by principal payments, and to a lesser extent transfers to loan collateral in process of foreclosure and net charge-offs. The provision for loan losses was $7.8 million and $11.0 million for the three and six months ended June 30, 2022, compared to a $0.7 million benefit and $2.3 million provision for the three and six months ended June 30, 2021. The net charge-off (recovery) ratios on the loan portfolios were (0.18)% and 0.26% for the three and six months ended June 30, 2022 compared to 3.36% and 2.15% for the three and six months ended June 30, 2021. Net charge-offs in the current year quarter and year to date period included recoveries of $6.9 million and $12.0 million, inclusive of $2.7 million and $3.7 million of medallion loan recoveries for the three and six months ended June 30, 2022. Charge-offs in our consumer businesses continue to be below historic levels. Although we are not seeing any current indications that charge-offs will return to normal levels in the near term, we do expect a return to normal experience in the future.

Interest expense was $8.2 million and $15.6 million for the three and six months ended June 30, 2022, as compared to $7.9 million and $16.3 million for the three and six months ended June 30, 2021, reflective of higher average borrowings, even as average borrowing costs decreased. The average cost of borrowed funds was 2.05% and 2.02% for the three and six months ended June 30, 2022, compared to 2.36% and 2.49% for the three and six months ended June 30, 2021, mainly driven by the decline in market rates for deposits throughout 2021, and which generally carry a lower cost of funds than other forms of borrowings, and the repayment of our retail notes, offset to a lesser extent with the replacement of notes payable to banks with higher fixed rate private notes. We expect an increase in the cost of funds throughout the remainder of 2022 as older deposits mature and newer deposits are issued both to replace maturing deposits and to facilitate our growth in our lending. Average debt outstanding was $1.6 billion for the three and six months ended June 30, 2022, up from $1.3 billion for the three and six months ended June 30, 2021, as we issued additional certificates of deposits to increase our liquidity and fund our loan growth. See page 33 for tables that show average balances and cost of funds for our funding sources.

Net interest income was $38.9 million and $74.8 million for the three and six months ended June 30, 2022, compared to $29.5 million and $58.2 million for the three and six months ended June 30, 2021. The net interest margin was 9.07% and 9.15% for the three and six months ended June 30, 2022, compared to 8.84% and 9.01%, for the three and six months ended June 30, 2021, reflecting the above.

Net other income, which is comprised of net recoveries of loan collateral, a majority of which relate to recoveries in the Medallion segment, prepayment fees, servicing fee income, late charges, write-downs of loan collateral, impairment of equity investments, and other miscellaneous income was $7.4 million and $8.9 million for the three and six months ended June 30, 2022, compared to $7.8 million and $9.7 million for the three and six months ended June 30, 2021. The current year periods included a $4.2 million gain associated with the exit of an equity investment tied to our commercial lending business, as well as $2.7 million and $4.5 million of gains related to the disposition of medallion assets during the three and six month periods. The decrease from the prior year was primarily due to the absence of race team related revenue, as well as the absence of gains on the extinguishment of debt which occurred in the prior year.

Operating expenses were $18.8 million and $36.8 million for the three and six months ended June 30, 2022, compared to $19.8 million and $34.5 million for the three and six months ended June 30, 2021. Salaries and benefits were $7.7 million and $15.3 million for the three and six months ended June 30, 2022, compared to $7.9 million and $13.6 million for the three and six months ended June 30, 2021, with the increase primarily reflective of reduced bonus expense in the prior year. Professional fees were $4.4 million and $8.4 million for the three and six months ended June 30, 2022, compared to $2.2 million and $2.7 million for the three and six months ended June 30, 2021, primarily reflecting higher legal and professional costs for a variety of corporate matters inclusive of the SEC litigation.

Total income tax expense was $4.9 million and $9.7 million for the three and six months ended June 30, 2022, compared to $6.5 and $10.4 for the three and six months ended June 30, 2021.

Loan collateral in process of foreclosure was $27.0 million at June 30, 2022, a decline from $37.4 million at December 31, 2021. The decrease was primarily reflective of cash payments received and structured settlements during the period. See page 37 for a table that shows the changes during the quarter.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

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

Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at the higher prevailing interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk.

The effect of changes in interest rates is mitigated by regular turnover of the portfolio. We believe that the average life of our loan portfolio varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment because the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. However, borrowers may prepay for a variety of other reasons, such as to monetize increases in the underlying collateral values. In addition, we manage our exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals on certificates of deposit, for terms of up to five years.

A relative measure of interest rate risk can be derived from our interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.

The following table presents our interest rate sensitivity gap at June 30, 2022. The principal amounts of interest earning assets are assigned to the time frames in which such principal amounts are contractually obligated to be repriced. We do not reflect any prepayment assumptions in preparing the analysis, despite historical average life experience being significantly shorter than contractual terms.

June 30, 2022 Cumulative Rate Gap (1)
(Dollars in thousands)	Less Than 1 Year			More Than 1 and Less Than 2 Years			More Than 2 and Less Than 3 Years			More Than 3 and Less Than 4 Years			More Than 4 and Less Than 5 Years			More Than 5 and Less Than 6 Years			Thereafter		Total
Earning assets
Fixed-rate	$	34,925		$	17,612		$	40,625		$	45,492		$	103,512		$	64,683		$	1,390,920	$	1,697,769
Adjustable rate		3,436			898			113			21			—			—			—		4,468
Investment securities		6,074			283			3,493			5,151			288			4,655			37,789		57,733
Cash		125,080			—			—			500			750			—			—		126,330
Total earning assets	$	169,515		$	18,793		$	44,231		$	51,164		$	104,550		$	69,338		$	1,428,709	$	1,886,300
Interest bearing liabilities
Deposits	$	394,619		$	347,548		$	412,380		$	131,077		$	186,452		$	—		$	—	$	1,472,076
Privately placed notes		—			36,000			—			31,250			—			—			53,750		121,000
SBA debentures and borrowings		5,000			10,429			12,500			15,500			4,500			—			21,000		68,929
Preferred securities		—			—			—			—			—			—			33,000		33,000
Total liabilities	$	399,619		$	393,977		$	424,880		$	177,827		$	190,952		$	—		$	107,750	$	1,695,005
Interest rate gap	$	(230,104	)	$	(375,184	)	$	(380,649	)	$	(126,663	)	$	(86,402	)	$	69,338		$	1,320,959	$	191,295
Cumulative interest rate gap	$	(230,104	)	$	(605,288	)	$	(985,937	)	$	(1,112,600	)	$	(1,199,002	)	$	(1,129,664	)	$	191,295	$	—
December 31, 2021 (2)	$	(230,601	)	$	(455,807	)	$	(770,239	)	$	(891,489	)	$	(1,007,810	)	$	(940,350	)	$	153,539	$	—
December 31, 2020 (2)	$	(366,801	)	$	(570,449	)	$	(719,385	)	$	(827,236	)	$	(907,295	)	$	(860,941	)	$	52,347	$	—

(1)The ratio of the cumulative one-year gap to total interest rate sensitive assets was (12%) as of June 30, 2022, and was (14%) as of December 31, 2021

(2)Excludes federal funds sold and investment securities.

Our interest rate sensitive assets were $1.9 billion and interest rate sensitive liabilities were $1.7 billion at June 30, 2022. The one-year cumulative interest rate gap was a negative $230.1 million or 12% of interest rate sensitive assets. We seek to manage interest rate risk by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, by originating adjustable-rate loans, and by other options consistent with managing interest rate risk.

With the cessation of LIBOR in 2023, we are currently reviewing the impact on our loans and borrowings. We do not have lendings tied to LIBOR and do not expect a significant impact on our loans. We have trust preferred securities that bear a variable rate of interest of 90 day LIBOR (2.29% at June 30, 2022) plus 2.13%. We expect to rely on our lenders to adjust and communicate rate adjustments; however, we do not expect a material impact on our borrowings.

Liquidity and Capital Resources

Our sources of liquidity include unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private issuances of debt securities, participations or sales of loans to third parties, the disposition of our other assets, and dividends from Medallion Capital and the Bank, and are subject to compliance with regulatory ratios. As of June 30, 2022, we had unfunded commitments from the SBA of $9.5 million.

Additionally, the Bank has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. The Bank has up to $45.0 million available under Fed Funds lines with several commercial banks.

In February 2021, we completed a private placement to certain institutional investors of $25.0 million aggregate principal amount of 7.25% unsecured senior notes due February 2026, with interest payable semiannually. Follow-on offerings of these notes in March and April 2021 raised an additional $3.3 million and $3.0 million.

In December 2020, we completed a private placement to certain institutional investors of $33.6 million aggregate principal amount of 7.50% unsecured senior notes due December 2027, with interest payable semiannually. Follow-on offerings of these notes in February and March 2021 raised an additional $8.5 million. In April 2021, we raised an additional $11.7 million in a follow-on offering, and repaid substantially all of our remaining bank borrowings.

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 debt, 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.

In December 2019, the Bank closed an initial public offering of $46.0 million aggregate liquidation amount, yielding net proceeds of $42.5 million, of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F. Dividends are payable quarterly from the date of issuance to, but excluding April 1, 2025, at a rate of 8% per annum, and from and including April 1, 2025, at a floating

rate equal to a benchmark rate (which is expected to be three-month Secured Overnight Financing Rate, or SOFR) plus a spread of 6.46% per annum.

In March 2019, we completed a private placement to certain institutional investors of $30.0 million aggregate principal amount of 8.25% unsecured notes due 2024, with interest payable semiannually. A follow-on offering of these notes in the 2019 third quarter raised an additional $6.0 million.

The table below presents the components of our debt were as of June 30, 2022, exclusive of deferred financing costs of June 30, 2022. See Note 4 to the consolidated financial statements for details of the contractual terms of our borrowings.

(Dollars in thousands)	Balance		Percentage			Rate (1)
Deposits (2)	$	1,472,077		87	%		1.46	%
Privately placed notes		121,000		7			7.66
SBA debentures and borrowings		68,929		4			2.94
Preferred securities		33,000		2			3.75
Total outstanding debt	$	1,695,006		100	%		2.00	%

(1)Weighted average contractual rate as of June 30, 2022.

(2)Balance includes $1.0 million of strategic partner reserve deposits as of June 30, 2022.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows all contractual obligations at June 30, 2022.

	Payments due by period
(Dollars in thousands)	Less than 1 year		1 – 2 years		2 – 3 years		3 – 4 years		4 – 5 years		More than 5 years		Total (1)
Borrowings
Deposits (2)	$	394,619	$	347,548	$	412,380	$	131,077	$	186,452	$	—	$	1,472,076
Privately placed notes		—		36,000		—		31,250		—		53,750		121,000
SBA debentures and borrowings		5,000		10,429		12,500		15,500		4,500		21,000		68,929
Preferred securities		—		—		—		—		—		33,000		33,000
Total outstanding borrowings		399,619		393,977		424,880		177,827		190,952		107,750		1,695,005
Operating lease obligations		2,512		2,516		2,516		2,473		2,471		1,251		13,738
Total contractual obligations	$	402,131	$	396,493	$	427,396	$	180,300	$	193,423	$	109,001	$	1,708,743

(1)Total debt is exclusive of deferred financing costs of $7.4 million as of June 30, 2022.

(2)Balance excludes $1.0 million of strategic partner reserve deposits as of June 30, 2022.

Approximately $794 million of our borrowings have maturity dates during the next two years, a vast majority of which are brokered CDs.

In addition, the illiquidity of portions of our loan portfolio and investments may adversely affect our ability to dispose of them at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of our portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net interest income.

We use a combination of long-term and short-term borrowings and equity capital to finance our lending and investing activities. Our long-term fixed-rate investments are financed primarily with fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of June 30, 2022 by $1.3 million on an annualized basis, and the impact of such an immediate increase of 1% over an one year period would have been a reduction in net income by $0.3 million at June 30, 2022. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net income from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

From time to time, we work with investment banking firms and other financial intermediaries to investigate the viability of several other financing options which include, among others, the sale or spinoff of certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.

The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at June 30, 2022. See Note 5 to the consolidated financial statements for additional information about each credit facility.

(Dollars in thousands)	Medallion Financial Corp.			MFC		MCI				FSVC				MB				All Other		June 30, 2022			December 31, 2021
Cash, cash equivalents and federal funds sold	$	27,719		$	511	$	3,955		(1)	$	274		(1)	$	93,846			$	25	$	126,330		$	124,484
Preferred Securities		33,000																			33,000			33,000
Average interest rate		3.75	%																		3.75	%		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																					78,429			79,463
Amounts available							9,500														9,500			9,500
Amounts outstanding							61,000				7,929										68,929			69,963
Average interest rate							2.90	%			3.25	%									2.94	%		2.72	%
Maturity						3/23 - 3/32				4/30/24										3/23- 3/32			3/23- 3/32
Brokered CD's & other funds borrowed															1,473,076		(2)				1,473,076			1,254,038
Average interest rate															1.46	%					1.46	%		1.20	%
Maturity														7/22 - 6/27						7/22 - 6/27			1/22-12/26
Total Cash	$	27,719		$	511	$	3,955			$	274			$	93,846			$	25	$	126,330		$	124,484
Total debt outstanding	$	154,000		$	—	$	61,000			$	7,929			$	1,473,076			$	—	$	1,696,005		$	1,478,001

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

(2)Includes deposits of $1.0 million related to the strategic partnership business and $8.7 million related to listing services.

Loan amortization, prepayments, and sales also provide a source of funding for us. Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition.

We also generate liquidity through deposits generated at the Bank, the offering of privately placed notes, through the issuance of SBA debentures, and through our preferred securities, and have utilized borrowing arrangements with other banks in the past, as well as from cash flow from operations. In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We regularly seek additional sources of liquidity; however, given current market conditions, there can be no assurance that we will be able to secure additional liquidity on terms favorable to us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to conserve capital until credit conditions in the market become more favorable; or we may be required to dispose of assets when we would not otherwise do so, and at prices which may be below the net book value of such assets in order for us to repay indebtedness on a timely basis.

Dividends and Stock Repurchases

Beginning March 2022, the Company's board of directors reinstated our quarterly dividend, with dividends of $0.08 per share, paid in March 2022 and May 2022. We may, however, re-evaluate this new dividend policy in the future depending on market conditions. There can be no assurance that we will continue to pay any cash distributions, as we may retain our earnings to facilitate the growth of our business, to finance our investments, to provide liquidity, or for other corporate purposes.

On May 1, 2022, the Company's board of directors authorized a new stock repurchase program, pursuant to which the Company is authorized to repurchase up to $35 million of its shares. Such new repurchase program replaced the existing one, which was terminated. During the six months ended June 30, 2022 we repurchased 1,272,150 shares of our common stock at an aggregate cost of $9,974,553. Accordingly, as of June 30, 2022, up to $25,025,447 of shares remain authorized for repurchase under our stock repurchase program.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in disclosure regarding quantitative and qualitative disclosures about market risk since we filed our Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a—15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, and have concluded that they are effective as of June 30, 2022 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated our internal control over financial reporting to determine whether any changes occurred during the 2022 second quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, and have concluded that there have been no changes that occurred during the 2022 second quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 10 “Commitments and Contingencies” subsections (c) and (d) to the consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for details of the Company’s legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 14, 2022.

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

On May 1, 2022 the Company's board of directors authorized a new stock repurchase program, pursuant to which the Company is authorized to repurchase up to $35 million of its shares. Such new repurchase program replaces the existing one, which was terminated. During the six months ended June 30, 2022 we repurchased 1,272,150 shares of our common stock at an aggregate cost of $9,974,553. Accordingly, as of June 30, 2022, up to $25,025,447 of shares remain authorized for repurchase under our stock repurchase program.

	Total Shares of Common Stock Repurchased		Average Price Paid per Share		Total Amount Paid		Maximum Value of Shares Yet to Be Purchased
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
Total		1,272,150	$	7.84	$	9,974,553	$	25,025,447

ITEM 6. EXHIBITS

EXHIBITS

Number	Description
10.1	Amendment No. 2 to Medallion Financial Corp. 2018 Equity Incentive Plan. Filed as Annex A to our definitive proxy statement for our 2022 Annual Meeting of Shareholders filed on May 2, 2022 (File No. 001-37747) and incorporated by reference herein.
10.2	Medallion Financial Corp. Annual Short Term Incentive Plan, adopted by the Board of Directors on June 1, 2022. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 7, 2022 (File No. 001-37747) and incorporated by reference herein.
10.3	Amended and Restated Employment Agreement, dated June 13, 2022, by and between Anthony N. Cutrone and Medallion Financial Corp. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 15, 2022 (File No. 001-37747) and incorporated by reference herein.
31.1	Certification of Alvin Murstein pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2	Certification of Antony N. Cutrone pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1	Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2	Certification of Anthony N. Cutrone pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

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

MEDALLION FINANCIAL CORP.
Date:	August 8, 2022
By:	/s/ Alvin Murstein
	Alvin Murstein
	Chairman and Chief Executive Officer
By:	/s/ Anthony N. Cutrone
	Anthony N. Cutrone
	Executive Vice President and Chief Financial Officer
	Signing on behalf of the registrant as principal financial and accounting officer.