DEFC14A: ZimCal Launches Proxy Fight to Shake Up Medallion Financial Corp. Board

ZimCal Asset Management is seeking to elect two independent director nominees to Medallion Financial Corp.'s board to address concerns about management accountability and long-term value creation.

Summary

• ZimCal Asset Management is soliciting proxies to elect Stephen Hodges and Judd Deppisch to Medallion Financial Corp.'s Board of Directors at the upcoming annual meeting on June 11, 2024.
• ZimCal believes the current board has prioritized management and excessive compensation over stockholder interests, leading to a decline in share price.
• They propose a five-step plan to enhance the board, resolve the SEC complaint, improve the management team, cut expenses, and focus on the core consumer lending business.
• ZimCal is also recommending stockholders vote against the non-binding advisory resolution to approve the 2023 executive compensation and vote for 'Every Year' on the frequency of future advisory votes on executive compensation.
• ZimCal currently has a $15.4 million investment exposure to Medallion, comprised of $15 million in par value Trust Preferred Securities and 70,010 shares of the company.

Sentiment

Score: 3

Explanation: The document expresses significant concerns about the company's governance, management, and financial performance, indicating a negative sentiment.

Positives

• ZimCal believes Medallion Bank could be a strong business under the right leadership.
• The bank's access to FDIC-insured deposits provides a funding cost advantage over competitors.
• ZimCal's nominees have a combined 40 years of financial experience in areas that directly overlap with the Company's core business strategy.
• ZimCal has been an investor in the Company for over 3 years.

Negatives

• ZimCal believes the board prioritizes management over stockholders.
• The company's stock price is down 40% over 10 years.
• Profits were artificially boosted by non-recurring Taxi Medallion asset recoveries.
• Executive compensation is considered excessive and not aligned with stockholder interests.
• The SEC complaint against Andrew Murstein is a serious concern.

Risks

• Higher for longer rates pressuring borrowers.
• Large Company sub-prime exposure (20% of total assets).
• Cyclicality in the Company's 2 main lines of business (Recreation and Home Improvement lending).
• More expensive funding.
• The SEC complaint against Andrew Murstein.

Future Outlook

ZimCal believes that Medallion Bank could be a strong business under the right leadership and with a focus on controlling costs, originating good loans, and regaining the trust of the investment community.

Management Comments

• ZimCal believes that the Board prioritizes management over stockholders.
• ZimCal believes that the Company is being run like a family business with 3 current Board members in the Murstein family, and there has been no accountability for Andrew Murstein, the COO & President of the Company.

Industry Context

The document highlights the increasing competition and changing dynamics in the consumer lending environment, emphasizing the need for technological advancements and data-driven strategies.

Comparison to Industry Standards

• The document compares Andrew Murstein's compensation to CEOs of banks over 30x times larger with high capital ratios and consistent returns.
• It also compares his compensation to the majority of the Company's compensation peer group (relative to ROAA, last 5 years profitability and % of Total SG&A Expenses) and more than the highest capitalized, top performing $2BN to $5BN banks in the country.

Legal Proceedings

• The SEC seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against Mr. Murstein.
• In addition, the SEC seeks an officer-and-director bar against Murstein.

Stakeholder Impact

• ZimCal believes that all stakeholders, including the Company's employees and debt holders, will be impacted by how well they fulfill their roles.
• ZimCal believes that the compensation of executives at the Company is very high and deeply unfair to both stockholders as well as lower-level employees.

Next Steps

• Stockholders are urged to vote on the WHITE universal proxy card.
• ZimCal will provide a series of public releases with updates and details on their plan to Restore the Shine to the Company.

Key Dates

Keywords

proxy, directors, Medallion Financial, ZimCal, board, compensation, governance, stockholders