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MFIN Medallion Financial

Participants
Andrew Murstein President
Larry Hall Chief Financial Officer
Alex Twerdahl Piper Sandler
Mike Grondahl Northland Capital
Scott Buck B. Riley
Call transcript
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Operator

Good morning, and welcome, everyone, to Medallion Financial’s 2019 Fourth Quarter and Year-End Earnings Call. By now, everyone should have access to the earnings announcement, which was released prior to this call and which also may be found on the company’s website at medallion.com.

Before we begin formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company’s actual results to differ materially from those projected in such forward-looking statements and projected financial information. These statements are not guarantees of future performance, and therefore undue reliance should not be placed upon them.

For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company’s filings with the Securities and Exchange Commission. projection on information as information date this and call during of statement of based is available call. forward-looking of made financial this the Each to us required update forward-looking to obligation any disclaim statements We unless by law. our

would of Financial. President Please Andrew Medallion like introduce, sir, I now Murstein, to proceed

Andrew Murstein

our morning, Good in and full and you thank quarter everyone, year participating for fourth earnings call.

our commercial year we Arzeno. and an call is that investment-grade to lending for segments. preferred Bank, our focus raising public Medallion we which Hall; on the shifted two segment and our we over in Murstein; placement XXXX more continued our CFO, To at Alex away at strategic offering as Relations, set a Alvin today’s Medallion Medallion lending of capital and Director markets, Chairman, on to Financial million. build and transition, Investor me to access we’re the the successful in again, rated private Joining $XX transactions, we future completing an our highly investment-grade initiatives was of executed consumer stock initial from out out Larry complement momentum rated laid perpetual and, on profitable

now reporting forward, company, As with a new public their the publicly bank earnings filing their moving quarterly will of report the conjunction in call reports.

into expand Next Medallion lines. business new entering activities was by our to Bank at

of take and Our a rapidly is technology to partnership advantage landscape the project with initial to on between companies. build evolving program partnerships banks strategic

potential look term. market partners. the forward We to are the We in regular conversations updating near with in

and me fourth let touch our stated, quarter With full year highlights. both that on

loans the X% days at million of at of which due bank which Year-over-year, Medallion of XXXX quarter, of XXXX million Medallion the end portfolio XX the from fourth the the to stood net dropped at reduced portfolio. just total total to of X% total and was or loan portfolio. at XXXX. Let’s XX% the represents was assets assets more at $X.X net the the Loans substantially company’s the the were their $XX.X $XXX begin is of XXXX, XX%. the receivable. portfolio of At loans end million, of with end of end XX% total the end portfolio XX% current. of of year-end, X% compared the At past

continue to on making and our current to efforts. actions borrowers bring progress We take recovery are

taken companies On traffic. congestion increased regulating and and been being the front, to we of and see cause legislative the constant the that continue the regulatory industry to initiatives have support the

news create borrowers. been Within last month, debt entities in there the distressed for private bit a medallion government loan and program a together to partners come to has of and purchase regard nonprofit to

these will come result of be monitoring carefully and a positive out We are will that the hopeful situation discussions.

and traffic, less Manhattan, take in result to to congestion allowing drivers. will turn This vehicles next taxis which pricing Street. a than a fares commercial year, and over rather driving the time City and cars profits of expect in more toll effect have will potentially charged XXth this enter for Manhattan taken to more to New to passenger cause will remain hopeful desire We below York increase ultimately the we as faster meter be

for the $XXX.X million the Medallion’s Consumer for originations $X.X consumer and year, the in Medallion segments from million $XXX.X income perform $XX.X the focus to commercial two and over turn Medallion well these let’s both growth. on segments million in were to commercial showing the as Capital Now consumer Net continued company. The segments. from up for million XXXX, totaled and and remains steady lending year. Bank quarter

loans home loans as net at percentage million the XXXX. at charge-offs recreation company’s our the a $XXX.X the rate ratios end loss net X.XX% for million portfolio our remain XX, The consumer consumer the of portfolio $XXX Year-over-year, December of for recorded XX%. to stood of continues to with As a and X.XX% consumer compared The grew X.XX%. company for average year improvement of loan low. blended of

recorded With undue a XX, show million from As bank’s and remains XX.XX%. regarded be beyond. Tier The X is capabilities that confident part XX% segments, December below XXXX their and The we XXXX, continues without in that and continued a were positioned of the for well their leverage of growth XXXX, growth able They lending is bank of disciplined than their strategy to bank optimal XXXX foundation, risk. well ratio to, for ratio generally the will proven initiatives success. as asset solid built which equity them $XXX target taking the consumer and efficiency of the again, ratio. are with bank focus keep performance more and bank has on consistent significant

grow as industries. Medallion growth experienced base, to their The to their continue expand a commercial portfolio well remain and greater million Capital at expanding profitability. portfolio and segment They XXXX. work grew they We net to growth and been increased eventually its XX% able deal $X.X in capitalized asset income have have hard for portfolio reported as their remains lead flow again result, client targeted of XXXX. anticipate year-over-year to in net which will

points year-end. call to and the quarter some give Larry, the will additional both fourth I’ll now on over who turn

Larry Hall

Thank Andrew. you,

The was commercial stand-alone quarter XXXX. of of most the million formed me and full for over as income income the per the or year. million million consumer share and and income a income million Let year. recorded the months for Net segments some quarter compared million net since you take net $X.X profitable legal in $XX.X $X.X the net fourth the was bank the the totaled or quarter quarter was entity straight million more for second $XX in $X six of in in bank This to $X.X for the $X.XX quarter. prior current $X.XX our of share through and per $X.X lending Net year million income highlights.

a result, XXXX. X.XX% the on assets return was compared to for X.XX% XXXX As for

well as to do We capitalized these so. lending growth continued remain in expect both in segments of they XXXX

remained Our quarter, Medallion fourth of quarter strong to for at the reflection in performance segments a lower-yielding net margin in XXXX. outweigh the any of X.XX% continuing XXXX the the the This highest is segment. interest higher-yielding

the the in fourth quarter this in quarter, million to second the $X.X losses In year. compared million $X.X provision loan third a benefit quarter for of million Medallion quarter, $X.X of the of and in first million $X.X was provisions the

remained Medallion Loans more XX first and to year. and consumer were the this compared second in past X.XX% for quarter decreased the Our throughout days As from of quarters. portfolio fourth the quarter, X.XX% XX% $XXX Loan low million due decrease XXXX. net in first the or third XX, of on the loan both side a to XXXX, X.XX% December quarter delinquencies

our Once constant again, the consumer remains rate portfolio’s in reporting. loan a average interest

rate slightly we quarter, three average XX.XX%, This this than on portfolio year. in was interest reported first the the higher the what quarters of

year. segment third to net the in recorded activities to quarter, $X.X The Our and $XX.X $XX.X was full below $XX.X XXXX The $XXX,XXX and million Net million in of quarter fourth million million interest we million in year. was compared slightly average December second what the reported commercial XX.XX% in the by quarter fourth million $XX.X in quarter had this quarter. in in million cash quarter, the the portfolio, first of operating yield $XX.X $XX.X compared for XXXX. was last income XX, of lending XXXX, the provided as

the in Lastly, the and change directly the assets tax to deferred company’s a charge or income and $X.XX attributable on to intangible goodwill state share provision Medallion the fourth Bank. per income rate tax quarter associated tax included with million related of the impact liability $X.X its effective

back With to that, the I’ll turn now call Andrew.

Andrew Murstein

of call. begin can the Q&A we Operator, the Larry. portion Thanks, now

Operator

Our Instructions] Sandler. Piper your from with comes with first question [Operator proceed Please question. Twerdahl Alex

Alex Twerdahl

Hi, good morning guys.

Andrew Murstein

morning. Good

Larry Hall

morning. Good

Alex Twerdahl

Larry, tax first Just anything would fourth and call than towards from we the other you is that quarter? the the to of that of there consider noncore adjustment the the nonrecurring in line items there, end off, any be cited

Larry Hall

really. not No,

Andrew Murstein

investment, have probably two loss about quarter, for $X.X of the main that had a charge for think, the those items. RPM are way, do million. I that a million for could of QX be in a We But that, viewed profit the NASCAR $X.X versus which about

Alex Twerdahl

RPM? a just Or was Was from that a write-down loss? Okay. that

Andrew Murstein

a It thing. was timing just

ends booked they season or – think some the of November so. in kind I

So September, of they kind had the October. ended season income got booked that before the just

Larry Hall

reversal was a it the quarter, There sponsorship quarter bit of revenue only was was because a third of in previously. of quarter the in There full recorded little of revenue that a also quarter. is fourth partial season end. a sponsorship And

Alex Twerdahl

since the the where then DTL And mentioned at happen year. that to you goodwill Bank, you at Understood. the Medallion associated of with end the have Larry? the – do stands Okay.

Larry Hall

the The goodwill for bank?

Alex Twerdahl

third goodwill million Bank, the the was with quarter? at for of associated end the No, think it DTL the I $XX.X Medallion

Larry Hall

That K, be be which the should will Right. in shortly. filed

Alex Twerdahl

benefit, of led that Medallion kind a loans? bit benefit? cited to the Can change just was I Was you you provision about Medallion specifically resolution talk Okay, benefit? portfolio. the that a that it the drove of of portfolio Or you’re Medallion? understood. seeing think the what And some then trends little in benefit of to $X.X carrying Or specific in the that the for the that a of value million

Larry Hall

formulaic previously And And to over thing of or as arena, trending the result, meaningfully. reduced performance general have were largely down of reverse as some we was result, those Medallion for have the biggest improved reserve charge-offs the like calculations a we year provisions. things general use that the lower in The been some a so. provided last reserve able

Alex Twerdahl

– – of fair additional just year wouldn’t for is next it just the coming And on a Understood. releases quarters. said, what you an type of or that annual Or end thing? cleanup that expect something to like provision is be an benefits based or the

Larry Hall

formula based results. gets quarter actual tweaked Well, the on historical every

So bulk again. could this catch-up possible But probably was it a reversal. different of be it’s that the

Alex Twerdahl

to be a that the with just some third data looked anything in forward? do sort to trending. maybe Great. being attribute Would consumer the potential charge-offs you seasonality call kind the end a think Or should into consumer the the quarter quarter? of there’s or And to report of then lighter bit of changing the you the and net they’ve respect issues from that fourth going year, the up loss book relative trends Okay. we with timing some about it of been thinking charge-offs range net business kicked that on that bit the of in terms above little little slightly the

Andrew Murstein

it’s think I mainly seasonality.

I business usually the that’s and fall End perform to behind continues alarming. customers but year little payments, could bit a think things, bolts nothing of on very the well. RVs,

Alex Twerdahl

kind has to has business change any Okay. the And that or pipelines now, then in need right order been to of credit underwriting generate the there standards?

Andrew Murstein

consistent. pretty been they’ve No,

Alex Twerdahl

you that that the should somewhere bank amount expect in pretty raised fact of the on same the at we significant range based business now, grow bank we to guys capital at just have then that a And in capital consumer XXXX? saw and the obviously at right

Andrew Murstein

Yes.

I years or the XX think don’t about We’ve at XX% optimistic. so. been probably growing last, know, per I year or for five we’re

the opportunity lending We strong improvement have a enhance lot our seen growth. We’ve flow there. to of possibly deal home

hope increase have that high is at the to So a level.

Alex Twerdahl

Fantastic. Thanks for taking my questions.

Andrew Murstein

Alex. you, Thank

Operator

Mike comes question Capital. Grondahl with Please from proceed with next Our question. Northland

Mike Grondahl

Hey, guys.

a of today? like? year-end about is talk follow-up kind Medallion bit utilization what reserve valued you stuff. And the on the just First, at What where looks a couple you of general and little Medallion can

Larry Hall

net. XXX,

Andrew Murstein

down now. we’ve of the which XXX. Basically, The consistent days years the if many about very it’s to Medallion, Medallions Medallion methodology delinquent the more reserves writing value with been – we XX is are for or for

unchanged That’s top through that, on from reserve the looking general a performing that’s of we now. On about... quarter. So all the loans. prior Larry numbers is have

Larry Hall

$X.X million.

Andrew Murstein

$X.X The is reserve percent. about XX-something million. general

Larry Hall

reserve for The overall $XX million. Medallion, yes,

Andrew Murstein

a general XX% is XX It the – little reserve. about is over

Mike Grondahl

Got how is utilization? it. Got And it.

Andrew Murstein

are whole drivers business has upturn okay. it’s say wouldn’t an I doing for yet. pretty the been Our stable year. The

get I going the a think much that is there’s of stronger. business lot hope to

the lot mentioned talk fund this regulators You of industry. from continue back standpoint taxi about help There’s could want regulatory on which to from of There’s bailout get things like now. and to a a year the a lot be happening a where its have it feet congestion industry pricing, focus to improve.

those items nothing of hope guaranteed. the some is but is through, come So

the of company through consumer the commercial The and had thankfully. will we’re pretty the still through So we’ve issues much growth. most future of be the that years,

Mike Grondahl

off? Andy, Got in tied the you’ve the Medallion quarter written fourth collections it. any And to stuff

Andrew Murstein

don’t been now. promise in That’s bit if than I numbers showing a more it. through handy know we Larry past. going little have to the is look right quarters

Larry Hall

$X.X million.

Andrew Murstein

going on know I was lot of other million quarter. borrowers. fourth $X.X in with the about there’s So collected negotiations a

the direction. continue in So hope is those a trends positive

Mike Grondahl

overall, made another But company then And bank $X.X Okay. question. did million. million. the The $X.X

million of drags million say, kind you the are bank are offsets? still the us at dealing you you’re from Like what What can with? $X.X $X the just what and bridge overall? only then So the

Andrew Murstein

quarter, I’d in main there’s say, this four elements.

consistently be Hopefully, there. some are will just Some one-offs.

So raises so the the from and or company the is the of debt no in public debt money has company parent of gets the equity, example, the sometimes interest this benefit markets the obligation parent so debt but bank equity, as payments, for its paying into drops service. cost, the if banks the bank

the are company’s parent the earnings bank’s than So that’s earnings. higher partially why

quarter and Petty And third at and corporate bank. this and [ph]. parent, then million Second RPAC, was one-offs. That’s in before, of Richard $X.X the million overhead is the that Motorsports, oversees of Management lot of put had which again opposed two quarter profit mentioned incomes which balance tax be loss at Larry overhead. a our statements a loan not as for items, bank RPM, about servicing that’s New then the NASCAR quarter on could $X.X investment, had that to $X.X corporate that the of the the other York the other the million a there, the and

Mike Grondahl

it. Got about you those do you those in are How going think to do forward? think going XXXX, converge? And

Andrew Murstein

have corporate they of the overhead first payments. is Well, some hope always you’ll converge two, the But more. component debt and do the the

quarter. and Last year $X probably $XX XXXX, before million may or Capital had the they made so they For example, or made Medallion million $XX million. have okay an year,

were there $X-and-change only think for year. about I million this

about So you that optimistic in strong as very got the flow. know, based near we’re group. very Mike, That’s They’ve you group deal is Minnesota. that,

So seeing very they’re demand now. very, strong loan

our to continues to that So the bottom additive to and line. hope grow be is continues

Mike Grondahl

Got it.

half bank. grow announcement the we What’s we in looking fintech that watch should to next things or partners, you’ve mean, for of that some Is the Lastly, I been some something – assets first an there is for listen XXXX? for?

Andrew Murstein

Their area the July about been first The about year. to north high as days XX XX%, our of of the are talking that numbers company. first many taxes hope public all ROEs we’re of we so. are optimistic or that next banks June since is in our FDIC’s or now, this this space in well their within are We’ve And of the Yes, did announce after website. last hire XX%. some on as partnership the about

continues profit has announced was with So banks have a in in who’s believe, bank, Radius. I it banks. extremely There deal Club buying high the margins. week, And the an buying a and sector Lending last to fintech investing interest within

bank. XX but and at trailing to paid looked anything our has do with for they probably their we valuation numbers, And that not at all, bank times this earnings, that earnings

and in next any business the So to between line us XX again, ours this gets started lot draw is interest is a sector, of parallels want for I days. two. completely within different hope we don’t the But there than this that.

Mike Grondahl

helpful. That’s it. you. Got Thank

Operator

question Please comes from B. proceed Scott your Our question. with Riley. next with Buck

Scott Buck

Yes, good morning guys.

can that loan of the understanding of Andrew, give of you of just for a XXXX, now what still loans So overall you Medallion see industry? little terms are in the XX% XXXX, bit there outlook the us color book,

Andrew Murstein

Medallion everybody the in think direction of industry about is the I space. optimistic the

quarters $XX million, to come of losses last million, I dropped substantially down to couple clearly as the million. couple have as Our years. ago, $XX then losses over A high then of the dropped were think $XX

drivers, again, all They’re help regulators help think, improvements the that of nest feel industry. the the lot they by a us, trying lost for a of to all that bad to who making really and of lot I the space, politicians with in we’re owner the efforts egg. So their

is the will hope unregulated a companies of raising And the them. Ubers as through Lyft and in years. the to they’ve they’ve that doing, and the just try to frankly, been industry being starting the rates the improve. cities lot result companies start as But business eventually continue to away and those e-tail regulate of the it’s cab of several But profitability get cities taken and those a

signs So that industry crossed improve, our and I all that keeping it show the fingers should does. think certainly we’re

Scott Buck

Great.

On have pipeline on more what a little side, may the remind give capacity there? color kind the commercial us you can you and of

Andrew Murstein

So at with rate think a I they’re to They’re of about, up could check, at double million loan assets. kickers. is equity Larry business $X million but Their probably typical $XX-something a there $XX about million now. XX% model

of either terms grants money I So rate. we at that we is SBA the X.X%, there, us The current or the invest every think, upon X:X dollar in about leverage that. of depending X:X could XX-year equity

hope really close group grows So the is very the at we know, that but that give is looks XX% this group these guarantees they you of it they hope bottom least our be some will. again, year. forecasts There’s or deals. – as And no strong. to the if pipeline that line very But don’t estimates, could additive

Scott Buck

Great.

of some should maybe simplifying to like businesses mean, business terms about going these divesting it, selling given mean, call or In think how RPAC, the nonstrategic these of consideration I have further forward? assets? you we any and I the,

Andrew Murstein

we days. our a company, of it’s legacy from It’s us. a company kind regulated noncore for investment Yes, holding realize business investment business development

the sports so. or last been value So in have dramatic franchises years the XX

not you’re play lots Most is appreciation typical that So we’re and say a thankful I lose investment the time. teams thankful. nice over sports sports but breaks very breakeven, even. to it’s to mean it’s money of

So we sold eventually. should think be this

a not of part our business. core it’s Again,

sport the It’s We’re only sponsorship XX get new There’s lot driver trying interest. African-American a team. the in years. of to in the into

time keeping the definitely we’re sell our we is if if but to do that it, increasing probably to but there’s offer start our sponsorships that now it, So on right comes team no along. the right sell eye – open line hope the we

Scott Buck

more question. for logistics a And of Great. last one me,

will your you look bank, to guys own of to get just forward, Going consistency? little bit or a own align move reporting with reporting your the

Larry Hall

file out press of the Yes. Over at that time, be is that days quarter, our at we we’ll we of well, couple typically next call advance XX-Ks and the which releases roughly get about going XX-Qs, they synonymous their to the the continue them probably file does, And same to end quarters. reports. with of they’ll time expect get although sort little that then for XX after of to bit the the bank expect as in time the a the

Scott Buck

Thank guys. Perfect. you

Andrew Murstein

you. Thank

Operator

I this At the would back like closing for turn call to time, remarks. to over Mr.

Andrew Murstein

I to thank for wanted morning’s call. everyone attending this just

follow-up XXX-XXX-XXXX. happy We’re answered. at your were to contact To end, Relations Investor please if department not questions our that

free always You’re well, all, and as me a XXX-XXX-XXXX you e-mail to or investorrelations@medallion.com. Thank directly great have contact day.

Operator

Thank does This teleconference. you. today’s conclude

day. your You at may have time, great lines disconnect a and this