Slide 1: Proxy Contest for Board Change at Medallion Financial Corp.
Proxy Contest for Board Change at Medallion Financial Corp. (NASDAQ:MFIN) https://www.restoretheshine.com/ May 20, 2024
Slide 2: Disclaimer
Disclaimer Important Information Stephen Hodges and his affiliates, ZimCal Asset Management, LLC, BIMIZCI Fund, LLC and Warnke Investments LLC (collectively, “ZimCal”), have nominated individuals to Medallion Financial Corp.’s board of directors and are soliciting votes for the election of their nom
Slide 3: About Medallion Financial Corp.
About Medallion Financial Corp. Medallion Financial Corp. (the “Company” or “MFIN”), primarily through its wholly-owned subsidiary Medallion Bank, is a finance company that originates and services Loan Portfolio at 3/31/24 consumer loans and loans in various commercial industries. The Recreation seg
Slide 4: About ZimCal Asset Management
About ZimCal Asset Management ZimCal Asset Management (“ZimCal” or “We”) is an ZimCal’s debt investment in MFIN is unsecured, deeply alternative investment firm focused on niche, illiquid and subordinated and long-dated and so is most aligned complex credit investment opportunities. with stockholder
Slide 5: Table of Contents
Table of Contents Why We Are Here 7 Our Nominees Have the Independence and Expertise to Provide Necessary Oversight 33 ZimCal Nominees Present A Better Choice than the Incumbent Nominees 42 Appendix 49 5
Slide 6: Executive Summary
Executive Summary • We are one of Medallion Financial Corp.’s LARGEST investors with $15.55 million in debt and equity exposure. • We are committed to the Company because we believe in the potential of its lending platform. • We feel that current valuations are low and there is significant room for
Slide 7: Why We Are Here
mM RESTORE THE SHINE Why We Are Here
Slide 8: The Ongoing SEC Investigation is a Significant Overhang
01 The Ongoing SEC Investigation is a Significant Overhang, Which The Incumbent Board Has Failed to Appropriately Address • In December 2017, Shareholders filed a complaint against the Medallion Financial Board and Officers for Breach of Fiduciary Duty, Unjust Enrichment, and Aiding and Abetting. •
Slide 9: The Ongoing SEC Investigation is a Significant Overhang
01 The Ongoing SEC Investigation is a Significant Overhang, Which The Incumbent Board Has Failed to Appropriately Address • The SEC charged Mr. Murstein with: o Along with MFIN, violating the antifraud, books and records, internal controls, and anti-touting provisions of federal securities law; and
Slide 10: Insufficient Director Independence and Lack of Diversity
02 Insufficient Director Independence and Lack of Diversity Have Rendered the Family-Led Board Incapable of Holding Management Accountable Key Characteristics ALVIN MURSTEIN Chairman and CEO Up for re-election in 2024 Father of Andrew Murstein Board Tenure: 28 Years Insiders/ Family 37.5% of board M
Slide 11: The Board Is A Family Affair
02 Insufficient Director Independence and Lack of Diversity Have Rendered the Family-Led Board Incapable of Holding Management Accountable The Board Is A Family Affair • Family ties permeate the Board as well as the broader enterprise. • Without the separation of Chairman and CEO roles (both held by
Slide 12: Our Concerns with Current Board Composition
02 Insufficient Director Independence and Lack of Diversity Have Rendered the Family-Led Board Incapable of Holding Management Accountable Our Concerns with Current Board Composition • The Board does not have adequate independent and diverse directors to hold the family-led management team accountab
Slide 13: The Board is Rewarding Management in Excess of Value Created
02 The Board is Rewarding Management in Excess of the Value Created for Stockholders – President’s Pay Comparisons are with Peer Executives Serving as CEO and/or President For the 6-year period 2018 – 2023, MFIN, a $2.6 billion For the same period, Synchrony Financial, a consistently consumer lender
Slide 14: Medallion Financial Corp.'s Executive Compensation is Excessive
02 Medallion Financial Corp.’s Executive Compensation is Excessive Since MFIN’s regulated bank subsidiary is 87% of MFIN’s assets and 94% of its revenues (FYE23) which relies on gathering FDIC-insured deposits and making loans, MFIN’s compensation should be judged and compared to other FDIC-regulate
Slide 15: Compensation Does Not Reflect a Pay-for-Performance Approach
02 Compensation Does Not Reflect a Pay-for-Performance Approach Highest Paid Executive Cash Compensation Highest Paid Executive Total Compensation ($000’s) FYE23 vs. Top Performing Banks as % Net Income FYE23 vs. Top Performing Banks • Andrew Murstein is the President/COO and is the highest paid exe
Slide 16: Compensation Does Not Reflect a Pay-for-Performance Approach
02 Compensation Does Not Reflect a Pay-for-Performance Approach Highest Paid Executive Cash Compensation Highest Paid Executive Total Compensation (000’s) FYE23 vs. FDIC-Insured Proxy Peers as % Net Income FYE23 vs. FDIC-Insured Proxy Peers • While this compares only FDIC-insured lenders in MFIN's s
Slide 17: FDIC-Insured Proxy Peer Comparisons: Annual Pay and 5-Year Cumulative
02 FDIC-Insured Proxy Peer Comparisons: Annual Pay and 5-Year Cumulative Total Pay and Cash vs. Equity/Contingent pay • Andrew Murstein is the highest Total Compensation vs. FDIC-Insured Proxy Peers ($M) Cumulative 5-Year paid executive at Medallion, but $6.5 Pay ($M) he is not the CEO. $22.3 • Yet
Slide 18: Weak Board Oversight Is Responsible for Long-Term Shareholder Value Destruction
03 We Believe That Weak Board Oversight Is Responsible for Long-Term Shareholder Value Destruction 10-Year Total Shareholder Return Medallion Financial Corp. KBW Nasdaq Regional Banking Russell 2000 NASDAQ Composite 450 440.57 400 350 300 250 206.19 200 150 125.94 100 80.10 50 0 '14 '15 '16 '17 '18
Slide 19: Extreme Share Price Volatility
03 … And Extreme Share Price Volatility. High Volatility and Low Trading Volume, Renders 1-, 3-, and 5-Year TSR Comparison Less Meaningful Source: Factset, Data as of April 10, 2024. 19
Slide 20: The Board's Failure to Manage The Taxi Medallion Implosion
04 The Board’s Failure to Manage The Taxi Medallion Implosion Is a Key Reason for Long-Term Value Destruction – The Board Ignored Warning Signs Source: https://seekingalpha.com/article/2306865-medallion-financial-and-the-threat-of-uber; https://hvmcapital.com/taxi-medallions/; https://www.bloomberg.
Slide 21: MFIN Was Either Not Transparent about Taxi Medallion Loans or Didn't Know
04 MFIN Was Either Not Transparent about the Issues in its Taxi Medallion Loans or Didn’t Know How Bad They Were – Either Situation is Concerning Andrew Murstein, President of Medallion Financial, on Earnings Calls Only 55 days after 3Q 2016 8K, 4Q 1Q 2016 8K (May 10, 2016): 3Q 2016 8K (Nov. 7, 2016
Slide 22: Failure to Manage Taxi Medallion Segment Resulted in Value Destruction
04 Failure to Appropriately Manage Taxi Medallion Segment Resulted in Massive Shareholder Value Destruction, and Loss of Management and Long-Tenured Directors’ Credibility $270 million of 88% decline in Shareholder cumulative Taxi share price lawsuits and Medallion charge- between 2014 ongoing SEC o
Slide 23: MFIN's Current Valuation Discount and Lack of Confidence
04 MFIN’s Current Valuation Discount Is Almost Certainly Being Impacted By A Lack of Confidence in the Current Board and Management Price/Book Value (per share) All Proxy Peers FDIC-Insured Proxy Peers 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 TREE ML MG
Slide 24: MFIN Is At A Critical Juncture: Deterioration in Key Operating Metrics
05 We Believe, MFIN Is At A Critical Juncture. Rapid Deterioration in Key Operating Metrics Poses Significant Risk To Shareholders, If Not Appropriately Managed Quarterly charge-offs (% of Gross Loans) for core consumer loans – Recreation and Home Improvement which are 95% of Total Loans - have exce
Slide 25: Current Charge-offs Are The Highest in Over a Decade
05 As MFIN’s Latest Investor Presentation Shows, The Current Level of Charge-offs Are The Highest in Over a Decade Source: 1Q 2024 MFIN Earnings Presentation 25
Slide 26: Recent Earnings Boosted By Non-Recurring Taxi Medallion Recoveries
05 Recent Earnings (2021-2023) Have Been Boosted By Taxi Medallion Recoveries That Are Non-Core and Non-Recurring Annual Quarterly • Net profits were 60 boosted by 43% in 50 2022 and 2023 - $99 million reported vs. 40 $69 million adjusted Millions 30 for Taxi Medallion 20 impact. • Core earnings 10
Slide 27: Core ROAA is Actually Trending Down
05 Non-Core Taxi Medallion Recoveries Have Provided A Non- Recurring Boost to ROAA. Core ROAA is Actually Trending Down Annual Quarterly • Core ROAA is under pressure. This has declined YoY (2021 to 2023) and the discrepancy between actual (consolidated) and core earnings has been driven by non-recu
Slide 28: Core Delinquencies, NPLs and Charge-offs as % of Gross Loans
Total CORE DPD, NPLs, C/O (Ex. Taxi Total DPD, NPLs, C/O (Unadjusted) Medallion) as % Gross Loans as % Gross Loans Cyclical PEAK core C/O (net) 2.8% (4Q19) Cyclical PEAK C/O (net) 2.7% (4Q19) Recreation Charge-offs and Recoveries Home Improvement Charge-offs and Recoveries 7.0% 3.0% 15 Year PEAK Rec
Slide 29: Decade High Charge-offs Accompanied by Contracting Net Interest Margins
05 Decade High Charge-offs Are Accompanied by Contracting Net Interest Margins (NIM) Annual Quarterly 13% • NIM is under 12% 11.8% 11.3% 11.5% 11.1% 11.6% 11.6% 11.7% 11.9% 11.8% pressure. This is 11.1% 11.0% 11.0% 11.3% 11.2% 11% driven by raising 10% funding costs and an inability to pass 9% 9.2%
Slide 30: MFIN's Claims of Recent Record Earnings Are Misleading
05 MFIN’s Claims of Recent “Record” Earnings, TSR, and Cost Efficiency Are Misleading MFIN Claims Reality • 2023 earnings were boosted by $22 million (after tax) from Taxi In 2023, the Company achieved the highest annual total Medallion recoveries/gains. Core earnings declined YoY. Taxi earnings [$5
Slide 31: Higher Charge-offs and Contracting NIM Risk Dividends
05 Looking Ahead, Higher Charge-offs Combined With Contracting NIM, Could Pose a Real Risk To MFIN’s Ability to Maintain Dividends Dividends Paid (per share) $1.20 • MFIN suspended 0.96 1.00 $1.00 dividends when faced 0.90 with Medallion 0.85 related loses from 0.74 $0.80 2017 to 2020. 0.67 • We bel
Slide 32: FDIC Data Shows Consumer Loan Charge-offs Trending Worse
05 FDIC Data Shows Consumer Loan Charge-offs (a Proxy for MFIN’s Consumer Exposure) Are Trending Worse and Exceeded Pre-Pandemic Levels Reached at 4Q19 Annual Quarterly 5.0% 4.2% 4.0% 3.7% 3.5% 3.6% 3.1% 3.0% 2.5% 2.0% 2.0% 2.0% 1.8% 1.3% 1.0% 1.0% 1.0% 0.8% 0.9% 1.0% 1.2% 0.6% 1.1% 0.9% 0.4% 0.4% 1
Slide 33: Our Nominees Have the Independence and Expertise To Provide Necessary Oversight
Our Nominees Have the Independence and Expertise To Provide Necessary Oversight
Slide 34: Our Nominees: Stephen Hodges and Judd Deppisch
Our Nominees Would Ensure that The Board Has the Requisite Experience and Independence to Resolve the SEC Investigation and Avoid a Repeat of Medallion Related Implosion Stephen Hodges Judd Deppisch • Stephen Hodges is the founder of ZimCal Asset Management LLC; ZimCal is the • Judd Deppisch is the
Slide 35: The Road to Excellence Involves Incremental Improvements with Risk Mitigation
We Believe that the Road to Excellence Involves Incremental (but Cumulatively Material) Improvements Combined with Risk Mitigation Being a good consumer lender is not complicated, but it is not easy. There are a few key things we believe every consumer lender, and investors in consumer lenders, shou
Slide 36: Our 5-Step Plan
Our 5-Step Plan MFIN is facing serious headwinds. But we believe that it has tremendous potential, which can be reached through 5 simple steps we refer to as the “5 Steps to Improvement” Add new Directors with relevant experience that overlaps with the Company’s core strategy, 1. Enhance the Board w
Slide 37: Enhance the Board
01 Enhance the Board Add new Directors with relevant experience that overlaps with the Company’s core strategy, who will answer to shareholders and hold management accountable • The Board needs fresh ideas and directors that are unafraid to challenge the status quo. • The Board needs directors with
Slide 38: Resolve the SEC complaint
02 Resolve the SEC complaint Remove the biggest obstacle to regaining credibility with investors and give shareholders the ability to quantify the financial impact of the lawsuit on their investment • Unless the SEC complaint is resolved with appropriate accountability, investors will remain skeptic
Slide 39: Improve Management
03 Improve Management Ensure MFIN has an optimized, professional management team that has credibility with investors and can guide the company to long-term success • A lack of trust by investors in MFIN’s leadership will cap MFIN’s stock valuation and will not maximize returns to shareholders and st
Slide 40: Reduce Unnecessary Expenses and Improve Operational Efficiency
Reduce Unnecessary Expenses and Improve Operational 04 Efficiency Reduce unnecessary expenses to increase profits to shareholders and to be better prepared for a possible economic slowdown and/or lower consumer demand • Reduce executive compensation to appropriate levels by matching the size of the
Slide 41: Go on Offense by Positioning MFIN for the Future
05 Go on Offense by Positioning MFIN for the Future Get rid of distractions, focus on the core consumer lending business and invest in technology so that MFIN can better compete in an ultra-competitive consumer lending environment • Invest in technology to boost productivity, analyze underwriting me
Slide 42: ZimCal Nominees Present A Better Choice Than The Incumbent Nominees
ZimCal Nominees Present A Better Choice Than The Incumbent Nominees
Slide 43: The Choice is Obvious
The Choice is Obvious The ZimCal Asset Management slate will deliver a new sense of accountability to a board run by incumbents who have failed in their management oversight duties and lack the requisite leadership skills to foster good governance Incumbents ZimCal Asset Management Nominees Nominees
Slide 44: The Choice is Obvious
The Choice is Obvious The ZimCal Asset Management slate will deliver a new sense of accountability to a board run by incumbents who have failed in their management oversight duties and lack the requisite leadership skills to foster good governance ZimCal Asset Management Incumbents Nominees Competin
Slide 45: The Incumbent Slate should be Rejected
The Incumbent Slate should be Rejected The incumbent slate will not deliver the necessary change for Medallion stockholders. David L. Rudnick Robert M. Meyer • President of Rudco Properties, Inc. • Audit Committee of Medallion Bank • MFIN Board tenure: 28 yrs • MFIN Board tenure: ~3 yrs. Bank Tenure
Slide 46: Our Nominees Can Deliver Change: Stephen Hodges
Our Nominees Can Deliver Change: Stephen Hodges • Stephen Hodges is the founder of ZimCal Asset Management LLC; ZimCal is the manager and co-founder of BIMIZCI Fund LLC and Warnke Investments LLC. • Mr. Hodges has over 19 years of experience as both a lender and debt investor. • Mr. Hodges has exten
Slide 47: Our Nominees Can Deliver Change: Judd Deppisch
Our Nominees Can Deliver Change: Judd Deppisch • Judd Deppisch is the Chief Investment Officer for Nelnet Financial Services, the asset management/capital allocation division of Nelnet. • Mr. Deppisch joined Nelnet Financial Services in April, 2023 and is responsible with capital deployment across f
Slide 48: Vote the WHITE proxy card
Vote the WHITE proxy card Conclusion • We are here because we believe that Medallion Financial has tremendous potential. • We think that under the current Board, the issues MFIN faces will not go away, and the Board's, and management’s, credibility is unlikely to be restored. • We think that there i
Slide 49: Appendix
mM RESTORE THE SHINE Appendix
Slide 50: Share Price Volatility Has Been Accompanied By Low Trading Volumes
Share Price Volatility Has Been Accompanied By Low Trading Volumes 50
Slide 51: Legal Woes Began With Shareholder Litigation
Legal Woes Began With Shareholder Litigation Summary of 2017 Shareholders Suit • In December of 2017, Shareholders filed a complaint against the Medallion Financial Board and Officers for Breach of Fiduciary Duty, Unjust Enrichment, and Aiding and Abetting • Inside directors and executive officers A
Slide 52: Shareholder Litigation Led to an SEC Investigation
Shareholder Litigation Led to an SEC Investigation Outcome of 2017 Shareholders Suit • The lawsuit was ultimately dismissed with prejudice in December of 2018 as it was not proven that the entire Board was party to the allegations of touting • It was also not proven with ‘particularity’ the actions
Slide 53: Summary of the SEC Complaint
Summary of the SEC Complaint • The 2018 subpoena stemming from the 2018 shareholder suit regarding touting, resulted in charges brought by the SEC against Andrew Murstein and Medallion Financial Corp on December 29, 2021 & • The SEC charged Medallion Financial Corp and its President and Chief Andrew
Slide 54: What We Have Learned from the SEC Investigation
What We Have Learned from the SEC Investigation SEC Takeaways 1. Andrew Murstein had (and still has) tremendous influence at MFIN and unilaterally acted in ways that were reckless at best, or according to the SEC claims, illegal at worst, and continue to negatively impact the value of your stock. Hi
Slide 55: Resolving the SEC Matter is Paramount
Resolving the SEC Matter is Paramount • The legal and financial implications of the SEC suit are severe • If the SEC wins, MFIN could face material financial penalties due to the alleged behavior of one person: Andrew Murstein • Since the SEC is looking to permanently ban Andrew Murstein from holdin
Slide 56: Structural Governance Concerns
Structural Governance Concerns Issue Concern Notes and Data • Staggered Board’s limits shareholder rights • Cynthia Hallenbeck is the Chair of the Nominating and and is considered a problematic practice by Governance Committee most institutional investors and proxy • She has served on the Committee
Slide 57: Other Governance Concerns
Other Governance Concerns Issue Concern Notes and Data • Since 2019, Average Director support continues to Average Director Withholds Concerning wane 25.9% • In 2020, 2021, and 2023, shareholder WITHHOLDs Trends for 14.7% 16.9% exceeded 10% at 14.7%, 25.9%, and 16.9%, Director respectively 9.4% Supp
Slide 58: Why Are More Investors Not Outraged By Medallion's Compensation Structure?
Why Are More Investors Not Outraged By Medallion’s Compensation Structure? • As a smaller reporting company, Medallion Financial does not receive the same level of scrutiny by proxy advisors as other larger companies • The highest paid executive is not the CEO, but the CEO’s son and COO, Andrew Murs
Slide 59: Short-Term TSR Continues to be a Misleading Indicator of Performance
Short-Term TSR Continues to be a Misleading Indicator of Performance – 10-Year Comparative Returns Reset to FYE 2013 Provides a More Accurate Performance Picture 10-Year Total Shareholder Return 700 Medallion Financial Corp. KBW Nasdaq Regional Banking Russell 2000 NASDAQ Composite 600 556.93 500 40
Slide 60: Metrics Evolution Over Time?
Metrics Evolution Over Time? MFIN Claims Reality In 2018, the Company implemented a scorecard approach to incentive compensation to promote better accountability and transparency, relying on the following metrics: The Compensation Committee chose to evaluate performance measures in a holistic manner
Slide 61: Reconciliation of Net Income To Core Net Income (ex. Taxi Medallion)
Reconciliation of Net Income To Core Net Income (ex. Taxi Medallion) 61
Slide 62: Compensation Data
Compensation Data Reported Annual Pay Cumulative 5- Company Ticker Executive 2019 2020 2021 2022 2023 Year Pay Medallion Financial Group MFIN Alvin Murstein (CEO) 1,513,301 1,470,845 1,831,597 2,525,860 3,038,040 10,379,643 MFIN Andrew M. Murstein (COO) 3,128,299 3,137,119 4,735,605 4,770,396 6,488,
Slide 63: Compensation Data
Compensation Data Reported Total Cash Compensation Cumulative 5-Year Cash/Equity % 2019 2020 2021 2022 2023 Company Ticker Executive Cash Equity Cash Equity Cash Equity Cash Equity Cash Equity Cash Equity Medallion Financial Group MFIN Alvin Murstein (CEO) 1,303,301 210,000 1,225,867 244,978 1,611,1
Slide 64: Our Nominees Can Deliver Change
Our Nominees Can Deliver Change 64