Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Medallion Financial Corp (MFIN, Financial) reported a net income of $8.6 million and $0.37 earnings per share for the third quarter.
- The company experienced a strong performance in its recreation lending segment with $139 million in new loan originations, marking a 50% increase from the previous year.
- Medallion Financial Corp (MFIN) increased its quarterly dividend by 10% to $0.11, reflecting confidence in its future and commitment to shareholder value.
- The company's net interest income grew by 8% year-over-year to $52.7 million, driven by a larger loan portfolio and increased yield on new originations.
- The home improvement lending segment grew by 8% over the prior year, with an average interest rate increase of 38 basis points from a year ago.
Negative Points
- The provision for credit loss increased to $20.2 million, up from $18.6 million in the second quarter and $14.5 million in the prior year quarter.
- Net charge-offs during the quarter were $13.4 million or 2.18% of the average portfolio, compared to $10.4 million or 1.88% in the prior year.
- Consumer loans more than 90 days past due increased to $9 million or 0.39% of total consumer loans, compared to $6.9 million or 0.34% a year ago.
- The net interest margin on gross loans decreased by 1 basis point from the prior quarter and 24 basis points from a year ago.
- Operating expenses were $19 million during the quarter, slightly down from the prior quarter but still a significant cost factor.
Q & A Highlights
Q: Were there any non-recurring items in the quarter?
A: No, the quarter was fairly clean. Taxi medallion recoveries were slightly elevated at $4.1 million, which increased EPS slightly, but nothing significant beyond that. - Anthony Cutrone, CFO
Q: Is your reserve ratio a function of CECL, and does Fed easing affect it?
A: Yes, our reserve ratio is based on CECL, which considers historical losses to project future loss experience. Fed easing doesn't directly affect it, but lower rates could help reduce delinquencies. - Anthony Cutrone, CFO
Q: Should we expect lower loan yields as you target higher-quality clients?
A: No, we maintain high origination levels, particularly in recreation loans, and continue to see increases in average coupon rates. We focus on loans with better credit responses, even if they yield slightly less initially. - Anthony Cutrone, CFO
Q: What is the outlook for loan originations, especially in the recreation segment?
A: Q3 was strong, but we expect Q4 to be flat or slightly contract. The portfolio may shrink by about 1% before ramping up again in Q1 next year. - Anthony Cutrone, CFO
Q: Can you explain the economics of the $40 million fintech volume in Q3?
A: Fintechs send us loans, we fund them, and they buy them back within a few days, minimizing credit risk. We earn a fee, typically around 50 basis points, and interest on the float for a couple of days. - Andrew Murstein, President & COO
Q: What are your plans for capital return, including dividends and share repurchases?
A: We aim to reward shareholders through dividends and share repurchases. While we don't commit to a specific annual dividend increase, we focus on maximizing shareholder returns. - Anthony Cutrone, CFO
Q: What is the current tangible book value, and how does it compare to previous quarters?
A: Adjusted tangible book value is $10.17, up from $9.75 last quarter. We believe book value is the best measure of our company's value. - Anthony Cutrone, CFO
Q: How do you view the potential for margin expansion given current conditions?
A: We are nearing the bottom of our net interest margin and expect it to expand as our cost of funds plateaus. New originations are at higher rates, which should help increase the yield. - Anthony Cutrone, CFO
Q: What is your strategy for expanding fintech partnerships?
A: We plan to add one new fintech partner every six months, focusing on compliance and maintaining strong regulator relationships. We are selective and aim for steady growth in this area. - Andrew Murstein, President & COO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
