Medical Financial (NASDAQ: MFIN) reported Q2 EPS of $0.19, $0.06 worse than the analyst estimate of $0.25.

Medallion Bank has elected to retain all of its earnings in this quarter, instead of declaring a dividend to the Company. This is due in part to stronger than anticipated loan demand at the Bank. The Company feels that the retention of earnings at the Medallion Bank level to support this strong loan demand and pre-tax return on equity of over 50% is in the best interests of the Company and its shareholders. Due to the foregoing and the below business development company (BDC) and regulated investment company (RIC) considerations, Medallion Financial announced a distribution of $0.05 per share for the 2016 second quarter. This brings the total distributions declared over the last four quarters to $0.80, and equates to a yield of approximately 10% based on the closing price of the Company’s stock on August 1, 2016. The current distribution will be paid on August 31, 2016 to shareholders of record on August 24, 2016. Since the Company’s initial public offering in 1996, the Company has paid or declared in excess of $261,000,000 or $14.61 per share in distributions.

The Company further announced that its Board of Directors authorized management to take steps to analyze and determine whether its current structure as a BDC and RIC is still a viable vehicle for Medallion given its increasing focus on the growth and profitability of Medallion Bank, a tax-paying, non-investment company, wholly-owned subsidiary. If the Company elects to convert from a BDC to a non-investment company and to drop its RIC election, it would not be required to pay out 90% or more of its taxable income and could invest that income in the Bank’s higher earning products. In addition to that benefit, the Company may also realize tax efficiencies, accretive to income, by filing a consolidated tax return with all of its corporate tax paying operating subsidiaries, the largest being Medallion Bank, and potentially offsetting some of Medallion Bank’s taxable income against taxable losses in other smaller subsidiaries. The primary benefit of being a RIC is not paying a corporate level income tax. However, with almost all of the Company’s earnings coming from Medallion Bank, which is already paying taxes, that benefit no longer exists, although it had been a benefit in the past. Furthermore, BDCs have not been permitted to be in certain stock indexes. Medallion previously was included in some of those indexes years ago before BDCs were removed. Thus, if the Company changes its structure from a BDC this year, it could be eligible to be part of those indexes in the future, which could lead to potential new purchases of the stock, and potential increases in liquidity and the stock price.

For earnings history and earnings-related data on Medical Financial (MFIN) click here.