Footnotes/Citations

1. Source: MFIN 2022 and 2023 DEF14A. S&P Capital IQ.
Compensation comparisons were made against MFIN’s provided Compensation peer groups from 2022 and 2023 DEF14A which included 21 other companies in a variety of industries most not comparable to MFIN’s consumer lending focus or subject to FDIC regulation.  Companies that were no longer publicly traded were excluded (ELVT). MFIN was also compared to the top performing $50BN - $100BN asset banks with the strongest leverage ratio, highest ROAs (leverage ratio>9.50%,ROA>0.75%, Charge-offs (net) <0.50%) - this included Webster Financial, First Horizon and Synchrony Financial was included because of its consumer focus. All the small and large banks were profitable every year over at least the preceding 6 years. MFIN was also compared to 3 of the top 10 performing $2BN - $5BN asset FDIC-insured banks (leverage ratio >13%, ROA>1% and Charge-offs(net) <0.10%) as of the analysis date - this included RBB Bancorp, Parke Bancorp and Baycom Bancorp.  MFIN’s top executive compensation was compared to the equivalent at each comp.  MFIN ranked poorly on several metrics when compared to the COMP peer group alone at FYE22 (which was when the latest compensation data was provided by MFIN) including Market Cap (MFIN was 5th smallest), Leverage Ratio (8th worst), Compensation/Total Operating Expenses (2nd highest paid), and Cumulative Compensation/Total Net Profit (last 5 years) (highest paid/worst).  MFIN ranked even worse against top performing large banks ($50BN to $100BN in assets) and top performing small, $2BN-$5BN banks as you can see from the Figures 1, 3 and 4 above.
Cash pay/non-cash pay ratio averaged 75% and 87% for the 2 highest paid executives at MFIN.  This has averaged 86% going back to 2015.  A higher proportion of stock-based or contingent compensation is typically associated with a better alignment with long-term shareholder interests.
Companies in the compensation peer group were in industries including: B2B equipment rentals; securitization; marketplace lending; unsecured revolving credit card lending; charge-off collections; or sub-prime focused only.
We believe that FDIC-insured institutions provide the best comparison to MFIN since the regulatory restrictions govern both the way it runs its business, its capital levels and dividend choices. Like MFIN, other FDIC-regulated banks also keep their loans on balance sheet.

2. Source: MFIN 10K/10Q
There are an abundance of metrics that show the rapid downward trend in the core consumer portfolios, we will show the most glaring.
Asset Quality:
MFIN’s Recreation loan annualized charge-offs (net) increased 8.0x to 4.30% (4Q23) from 0.53% (FYE21).  This is well above the previous cyclical high of 3.80% (4Q19) and could trend toward the GFC high of 5.99% (Annual 2009) but we hope not towards the Annualized quarterly high of 8.27% (1Q10).
Home Improvement loans annualized charge-offs (net) increased 5.7x to 1.71% (4Q23) from 0.30% (FYE21).  This is more than double the previous cyclical high of 0.83% (4Q19).
We expect increases and decreases quarter to quarter (much like MFIN showed during the GFC) but the yearly trend we expect to get worse.
Period recoveries are also trending down as a % of charge-offs which could indicate a softening secondary market for Recreation collateral.
Capital Ratios:
MFIN’s consolidated leverage ratio declined to 13.3% at FYE23.  It was 15.3% at FYE21.
Tangible leverage ratio only improved 0.6% to 6.6% at FYE23 from 6.0% at FYE21.  This is despite record net income in 2022 and 2023.  Such a thin tangible capital ratio leaves little room for error and MFIN has not focused on improving it.
Total (expensive) Holding Company indebtedness has increased to $172 million (FYE23) from $154 million (FYE21) DESPITE record earnings.
Earnings:
Yields on Recreation and Home Improvement loans have only gone up 50bps and 70bps respectively since FYE21, despite 2yr and 5yr treasuries up 368bps and 279bps respectively.  MFIN has been unable to pass on rate increases, even as its funding costs (mostly CDs) have ALSO increased over 165bps resulting in a Net Interest squeeze which will continue to weigh on earnings during FYE24 and possibly FYE25.
Reported Net Income was $55 million (FYE23) but was skewed by non-recurring, non-core Taxi Medallion asset recoveries – mostly loss provision reversals.  These boosted net income by 67%. 
Net income at FYE23 (without the impact of the taxi medallion assets) was $33.4 million.
As a result, quarterly ROAA was reported at 2.2% (4Q23) but after adjusting for the Taxi Medallion impact, it fell to 0.9%.  This is the true ROAA on MFIN’s core business lines which is down from 4.8% at 4Q21.
On these, and several other ratios, the trends have been downward and concerning.

3. Source: MFIN DEF14A 2023, S&P Capital IQ
All 10 year returns computed 03/28/14 through 03/28/24. In its DEF14A 2023, MFIN disclosed the peer group used in its Compensation calculations.  Presumably this gives the Board some guidance on reasonable compensation and structure.  This group changed over 2022 and 2023, so ZimCal used ALL companies listed as of 2021 and 2022 which came to 21 companies, of which 1 is no longer public as of this analysis and so was excluded from comparisons.  Only 15 of the 21 peer companies were publicly traded at 03/28/14 and 03/28/24.  The stock price change in that period was calculated for each company and the average return was used.We believe the Peer comparisons are cherry-picked and inadequate since the companies bear little resemblance to MFIN. However, we included them here for comparison. Reasonable comparisons should consider:
a) Since the Company is at its core a lender dependent almost entirely on spread income rather than fee income, benchmarks should also be primarily lending institutions rather than fee generating business models (e.g. not origination to securitization/sale, or B2B equipment rentals, marketplace platforms, or pawn shop lenders);
b) Since the company has considerable prime exposure in its dominant portfolio and business segments, benchmarks should also have the same prime/sub-prime composition with loans secured by consumer discretionary/real assets (e.g. not unsecured credit cards, or charge-off collections, or only sub-prime focused);
c) Since the Company’s main and only profitable subsidiary is an Utah DFI/FDIC-insured bank with regulators setting strict rules against excessive leverage, limiting up-streamed dividends to the HoldCo and who can approve/disapprove of new business lines, benchmarks institutions should also be mostly FDIC-insured.
d) Benchmarks should be comparable in size (market cap, revenues etc.) to the Company and employ similar leverage with similar risk profiles and earnings volatility.
We believe that FDIC-insured institutions provide the best comparison to MFIN since the regulatory restrictions govern both the way it runs its business, its capital levels and dividend choices. Like MFIN, other FDIC-regulated banks also keep their loans on balance sheet.

4. Source: S&P Capital IQ
All 10 year stock price changes computed 03/28/14 through 03/28/24. ZimCal selected the 196 publicly traded bank stocks with $1 billion to $5 billion in assets as of FYE23. 

5. MFIN 10K/Q, ZimCal estimates, experience and industry research.
As do all consumer lenders, given the higher for longer interest rates and reversion to historical charge-offs.  MFIN specifically is facing a confluence of headwinds, including higher for longer rates pressuring borrowers, large Recreation sub-prime exposure (20% of total assets), demand cyclicality in the Company’s 2 main lines of business (Recreation and Home Improvement lending), and more expensive funding costs. These are just a few of the near-term material risks that could result in lowered profits or losses for MFIN.

6. Source: S&P Capital IQ, MFIN DEF14A
Comparison banks were those with $50BN-$100BN in assets that were best capitalized with the highest leverage ratio (>9.5%), an ROE > 0.75% (closest to MFIN’s ratios) but with a much lower charge-off ratio than MFIN (<0.50%).  We reasoned that because they were the top performing, large banks with consistent returns and outperforming MFIN, their top executive compensation would be significantly higher than the compensation of Andrew Murstein.  We were very, very wrong. 

7. Source: S&P Capital IQ, MFIN MFIN DEF14A
This excludes non-cash compensation which is often in stock or options with or without restrictions.  Stock-based compensation is typically thought to better align the incentives of employees or management with shareholders. Adding in the value of non-cash compensation makes this number even worse.  It increases to $1.57.

8. Source: MFIN 10K/Qs 2014 through 2023 
Taxi Medallion charge-offs (net) were calculated by adding all Taxi Medallion loan “net realized losses” (in BDC accounting terms) held at the Holding Company with all Taxi Medallion loan charge-offs (net) at the Medallion Bank subsidiary through 1Q18 when MFIN converted to Holding Company accounting from BDC accounting. At the BDC to Holding Company conversion at 1Q18, unrealized losses in the entire loan book were converted to realized losses, as the NET loan balance was reflected in the 2Q18 financial statements. As a result, ZimCal estimated 2018 charge-offs by combining realized losses and “unrealized depreciation balance” at 1Q18 with charge-offs (net) at 1Q18 (at the Bank only), and added these to charge-offs (net) on a consolidated basis from 2Q18 through FYE18. This totaled $72 million for the year. Taxi Medallion net realized losses totaled $146.9 million through 1Q18 and $125 million from 2Q18 through 4Q23 for $272 million in total charge-offs (net). Cumulative charge-offs are net of any recoveries.

9. Source: MFIN DEF 14A, MFIN 10K/Qs 2018-2022, S&P Capital IQ
Most recent year of compensation data available for all comparable companies is FYE22. However, MFIN has disclosed FYE23 compensation. We have calculated annual and cumulative total cash and non-cash (non-cash, deferred or contingent) compensation of the top 5 highest paid executives (including Andrew Murstein) for the respective period. The data show that relative to net earnings generated for shareholders, management pay over the last 6 years has been in excess of earnings to shareholders particularly in the context of company performance relative to peers and absolutely.
Cash pay/non-cash pay ratio averaged 72% and 87% for the 2 highest paid executives.  This has averaged 86% going back to 2015.  A higher proportion of stock-based or contingent compensation is typically associated with a better alignment with long-term shareholder interests.
When compared to much larger, top performing institutions $50 billion to $100 billion in assets, and top performing peer banks with $2 billion to $5 billion in assets, the Compensation peer group AND given the downward trending performance metrics noted above, we simply cannot understand how cash and total compensation were at their highest levels ever and higher both relatively and absolutely compared to the reference groups cited above. See Footnote 1. above for more details.

10. Core performance is the most critical metric to track for any company.  Core performance refers to MFIN’s primary revenue generating and ongoing core businesses which does NOT include Taxi Medallion assets.  Core business lines are business lines and associated services which represent material and recurring sources of revenue, profit or franchise value for an institution or for a group of which an institution forms part.  These future cash flows are what will determine the value placed on the enterprise by investors. ZimCal elected to remove Taxi Medallion assets from core performance when they dropped to less than 5% (net) of total assets, which occurred at FYE20.
Taxi medallion adjustments consist of taking net income then subtracting Taxi Medallion specific provision reversals, adding repossessed Taxi Medallion collateral write-downs, subtracting gains on sales of foreclosed Taxi Medallions and adding (reversing) the tax impact of the adjustments.  At the pre-tax operating income level, the impact of taxes is not relevant.  MFIN includes $7.3 million in expenses in its Medallion Segment results ostensibly for managing the remaining $13.7 million in gross Taxi Medallion assets. We believe that expense is ludicrous and inaccurate, especially given that total servicing costs for the $2.1 billion consumer portfolio were $9.5 million (FYE23).  Therefore, we do not add those Taxi Medallion expenses back when computing income excluding the Taxi Medallion impact.

11. Source: FDIC Quarterly Banking Report 4Q23.
Trends were tracked in consumer individual loans, consumer credit cards and consumer auto loans. Consumer charge-offs (net) exceeded the pre-pandemic high at 4Q19 for the first time for credit cards (4.15% at 4Q23 vs. 3.75% at 4Q19), loans to individuals (1.31% vs. 1.01%) while auto was exceeded in 3Q23 (0.98% vs 0.94%). These trends track $2.13 trillion in loans outstanding so the data is representative.

12. Source: MFIN 10K/Qs.
Professional fees contain the SEC-related legal fees and these totaled $18.9 million in 2022 and 2023.  These are significantly above historical averages, and we attributed $7 million of the excess to the SEC affair.  ZimCal has asked MFIN repeatedly for a breakdown of legal fees as well as the extend of Directors and Officers insurance coverage but has been denied.