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MFIN Medallion Financial

Participants
Andrew Murstein President & Chief Operating Officer
Larry Hall Chief Financial Officer
Steve Moss B. Riley Securities
Alex Twerdahl Piper Sandler
Mike Grondahl Northland Securities
Call transcript
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Operator

Thank you for standing by. This is the conference operator. Welcome to the Medallion Financial Second Quarter 2021 Earnings Conference Call.

As a reminder, all participants are in a listen-only mode and the conference is being recorded. After presentation, there will be an opportunity to ask questions. now [ph] turn with would to conference I Cooper Ken Investor Instructions] like the to over [Operator Relations. Please go ahead.

Unidentified Company Representative

Thank to Medallion morning, everyone. quarter good call. you, earnings Financial's and second Welcome

both results are our and with The today forward-looking of the Chief actual risks in earnings Chief Andrew Officer. made forward-looking call Those today statements press statements provisions of statements. the the the Certain the statements made any Private me release to statements Joining me to Murstein, the to Act made call Financial update SEC. do today Operating that, we Safe and and to forward-looking pursuant are over from date Larry differ are filings Officer; Reform to Andrew. turn obligation forward-looking and let Hall, issued not statements. Such Harbor call cause such constitute during President our and described of and and With and XXXX undertake of uncertainties risks are amended. these meaning Litigation the as could earlier materially unknown in as uncertainties of known this subject Securities Andrew? that within

Andrew Murstein

everyone. Thank Good you, Ken. morning,

bottom-line subsidiary believe top Medallion driven strong third by several we for namely, last strong with several This Medallion truly recreational lending. are We performance. quarter our largest as starting net bottom-line Bank. our company straight our quarterly and stride to by evidenced record-breaking by income transformed strong just Financial and the we performance a the hit Over of quarters, in resulted segments very have into profitable business home improvement

to gross X% the XX% of loan remained and business well achievements credit $X.X XX% nearly active $XX.X low. in grew deliver million improvement on margin loan growth to investing very to had us. billion. strong Net when home income million. kept consumer was our in a X.XX%. based of market strategy We $XX.X during year-over-year included income We This a grew for compared interest our interest continues that Net peers. number and our growth losses our net consumer portfolio to high We robust. our above This our as standards loan of quality quarter. Our segment is

Our lows. loan was provision loss at historic

is grow Our of growth three growth businesses; consumer our reaccelerate and strategy initiatives; commercial three, business; lending with leaner straightforward a main one, two, become focused our organization. more lending

and Those do to volumes ROE first Salt helped we job consistent are for relates Loan in As growing to execute. deliver XX% Bank managed strong the stayed subsidiary businesses, Lake quarter. continued our it City lending our there over with businesses delivering team the growth rates origination continues quarter. our Medallion of consumer an to great and at a

portfolio grew nearly XX% loan improvement over loans. home recreational billion Our biggest and portfolio over net our $X.X XX% to for continue. The represents XX%. consumer our trend total driver XX% net grew Combined our of consumer the roofs. industries pool can consolidated this swimming believe believe We now be serve net improvement grew similar siding portfolio in home still to businesses strength the windows installations, improvement spots home the and and sweet this significant new where demand is We we that today. is within driving replacement continue and there see market,

know don't taking time. a continued one quarter we last, for prospects good are it these growth how but the will long of are this down All road. We at

discuss We payment the point prior recoveries this I of solid losses home this earlier, business the low losses. Larry of increased indicated past will attribute in out activity historically like have been to consumer One loan levels I is segment. to fastest-growing borrower the would our As loan lending more is over improvement shortly. quarter. item and business

originations. in has our our on really change commercial have The recently up receiving more commercial to is initiative our small from running. virtually of model helping business timely for levels. as positive is how and within proven. businesses number default what we and process borrowers; we are commercial growth The new of business second saw evaluation in commercial since; have million credit had principal lending we existing The loan $XX we our We seen business good importantly Our a, our lending had focus the bump in payments quarter is shown no get is B, business. two a

three is number growth a initiative become Our more focused organization. to and leaner

on this attacking two are fronts. We

front. the P&L The is first on

look costs. to continue operating at We reducing

a help is strategy redeploy our end, this transactions, in we do potential to assets. us advise some assets with bank individually. to other sensitive shareholder to strategic the alternatives and investment nature with any discuss noncore aligns front an for assist transaction divest the to Due of manner these of intend not and value. noncore retaining by we quarter advanced in The which this that cash To

we course the we transactions, As you who turn the provide financial over Larry I additional now on highlights that complete quarter. will of updated. will keep With to will call

Larry Hall

strong you and topics. Thank experienced generation. our Andy. risk improved key maintained balance solid on strong growth. quarter to to delivered and you, several a I'd income, net We top continued We line We update cash profile. sheet like had and strong EPS another very manage

mentioned, start recoveries settlement provision was of coming the quarter items our losses as in of bank the the expense This toward benefit to driven will $X-million the a our believe we debt loan XXXX the be portfolios in ultimately borrowings included This in quarter. and losses net rates. of will as loan loan in quarter. to compared interest We provision of on rise with efforts income. continued the was by of typical solid by loss low several losses normalize of recovery had will cause nonrecurring the which a to of loan first loan This activity several Andy We back to reductions and had million. growth for quarters provision First, our $XXX,XXX in partially loss segments. a offset as Ideally lending in was consumer related another gain normalization loss Total $X.X the lenders. extinguishment well.

We approximately also XX% gain of $X.X in FinTech Upgrade a the investment company small that Upgrade the of an million. our in. made FinTech of after-tax is $XXX,XXX had called sale investment company on we a

We explore also companies will the similar in investments making similar in future.

specifically that investments. we Lastly, tax noncore within $X.X-million is valuation our recorded to of a one our allowance provision related

Moving highlights. to other financial some

related by operating year-to-date. strength the to Net performance incentive XX% million million provided first million increased income quarter. $X.X quarter-over-quarter Salaries the margin. nearly million net accruing and We $XX.X cash sequentially the net by primarily second $XX.X to increased This XXXX continued to driven show compensation $X.X in quarter quarter. and in interest from from interest benefits our second in activities was to in

We Medallion continued to primarily flow generate Bank. at strong cash

The was second income $XX.X compared primarily increase. This of growth rate The is of virtually growth second consumer segment at compared has to in quarter. of from to or $X to to commercial Net average quarter. losses loan and XX.XX% commercial loan the net the year our average are market $XX.X consumer strong particularly lending interest of growth showing and reasons rate a reflects remain company's XXXX million XX.XX% why million write-offs of and million initiative end second interest increased low quarter was review our was quarter, The XXXX in the compared a segment million a in The and a delinquencies. This lending. ago. portfolio compared our a base. in lending by for ago. XX.XX% when in a to efforts quarter This XX% XX.XX% investing from larger to the outpaced loan decline for second charge-offs key the the lending strong million Both $XX.X this no growth are combined million segment latter end some yield portfolio's quarter the a interest producing of again driven is improvement originations. competitive segments. yield the was was growth a us. to of at $XX.X Moving compared segments the second which much with year to this last year's quarter home lending first quarter $XX.X income growth and Net the recreation recreation the

update on lending segment. Lastly our a Medallion quick

collateral. During to low the below-market sales million in quarter, we a values collected by triggered $X.X We $X.X million related saw principal $X.X-million payments of which Chicago, and resulted write-down. Medallion in

Andrew. lending million that, of In addition, loan we call I'll as back loan write-off a foreclosure. company's million. XX, was of of now process Medallion Medallion portfolio collateral net million $X.X of $X.X to in plus $XX.X had the With the had we June The turn premium of

Andrew Murstein

items Thanks to Larry. A of mention. more couple

fee the loan within high loan we within origination partnerships receive plus origination revenue between the strategic With the with are for year, to lending and the healthcare programs we Bank FinTechs This is is us. sold, Select two margin five two launched is which have a days. subsidiary. Within Medallion of relationships operating generally ultimately date These origination interest this type, incremental date loan past niches. our

term. to continue to moment good We partners, the and members, team take I very and all shareholders. a a that believe business thank banking want our this segment vendors of over will long be

performance efforts be of would the record not of you. without each possible Our

profitable are work off over Larry going. growth seeing we and your strive are happy are pay our our We of excited now hard the to results keep to questions. many take to years I and

Operator

from the We’ll Please first go B. Instructions] Riley session. ahead. comes question-and-answer Steve The [Operator question Securities. from now begin Moss

Steve Moss

Good morning.

Andrew Murstein

Steve. morning, Good

Steve Moss

little and perhaps of probably think from items, third with starting just expenses a quarter? and Maybe one-time morning, the how of drivers curious Good like Andrew. expense just sounds elevated quarter kind last bit to some that the about the dynamics this it's quarter, the into there's it

Larry Hall

ago. legal though that was with pretty choppiness think level. expense if look overall that the salaries, even to number, expense you at remain what ought some year-to-date it's the year and roughly things a like comparable And it load probably $XX-million at I was to there

Steve Moss

Okay.

of the And very it -- helpful. it in looks was quarter. for that's terms loan just growth the here, Okay then, strong

just it bit you weighted back-end if guys quarter sound and Just wondering little trends. optimistic timing, very was just the third on about a

color thinking a more little you're as Just to about how that.

Andrew Murstein

good accelerated growth due people to loan We're continue. probably hotels. very been It's and airplanes pandemic in the think less less, traveling We niches. should with growth

that whether an or we self-quarantine really like home obviously people finance, are units it's these many home. RV boat a improvement staying little lending, So

right at the So, time. at it looks right we're now, place like the right

Steve Moss

very Well, Okay. all you Thank All for that’s right. me. much.

Andrew Murstein

you. Thank

Operator

The Piper go from next ahead. question Alex comes from Twerdahl Sandler. Please

Alex Twerdahl

Good morning, guys. Hey.

Andrew Murstein

Good morning.

Larry Hall

Good morning.

Alex Twerdahl

that alternatives First non-core loans? for, to referred is for you're and the referring Medallions assets to that that you Medallion me, exclusively exploring question strategic

Andrew Murstein

on return of and at where rec proceeds couple The really that continue and to the use to the over really a equity and our We're grow. so are put lending our on of it's last years focus in money bank an XX%, efforts to looking is effort more so into area everything. great returns We've made more high. our

ones and what's non-core Medallion to divest best to largest our NASCAR really time. loans shareholders sell, both of both So, isn't right. price the and going for them over the really left things are right; assets only We're looking of time the at potentially we not want and investment, do those so it we're the if left to

comes really we'll it's When part. our on pull the the along So trigger. for proposal right either, opportunistic

Alex Twerdahl

the or the Are on the over this that could that about are balance fintech sheet quarter? more that still in be quarters investments you that next potentially Right. gain the unlocked years? had like couple What there

Andrew Murstein

mezzanine XX% they're have a to bank We about very lending and It share, companies. sending fee us that off That's been looking hope then move times hard takes book something very $X.XX on come we we've portfolio system been first the them $X back, to pay or rates them. we cautiously it's months companies, with of we our so, come Medallion but been good in sold But successful home a great to about the $X.XX when hopefully us And partnership group. feeder predict win fintech companies so and kind look. choppy; you're they've at or their in them in our million hit us Capital about their and XX a past about and a very our successful But run. us. by six buy a about portfolio program taking strategic model obviously. so. warrants due for with of we for the And then to has $X.XX going a that's bit invested all and next XX because do companies a been They in options time. at over bank in the to some have recently share, $X.XX at they or through. and loans with was We That diligence not these investment, will the stock and us big income

come want Upgrade? going these when to to next And invest we do. with and in into to question enter find a natural So these us partnerships us we companies them? we us is Can be hopefully they the should strategic for

Alex Twerdahl

that just on And theme when earnings? the that to relationships keeping the the Great. see of can terms partnerships, you you are we in in translate strategic have two think far then these to something so do P&L going of

Andrew Murstein

going still we're volume of there. be continue then dollars but that valuation, years operating Unlike profitable It's to a in at building. area. billions is It's already The on take at already companies to build, profitable most valued fintech we're and light. to get this profit

partnerships now or we hope next the to a two in right signed is third place. up so. The three have So within get months

Alex Twerdahl

And a little process ability types Medallion you can Bank But pretty it. in of flows, these that what's Got the bit seem kind What rewarding. of loans? of it? goes the the then I the the of sort certainly, economics into for terms mean, talk to capacity? about has capacity

Andrew Murstein

It's very compliance-driven.

to you bank hired which is in good is the compliance in have each build they've place. immediately at need new then you Lake. done. right deal And department, really do They've what because great procedures Salt So accretive, a people the really

infrastructure, of already easily. can from profitable. the five six over are grow and if players go with we contact that already into years again, to couple But come invested quickly in we've can us. So very right We the or next two

Alex Twerdahl

of there agreement that -- to Would a would agree with take amount that generation or flow percentage, their actually how a a those arrangement certain on loan -- they partners basically the you partnership or be work? actually would

Andrew Murstein

their all of You production. usually get

rates we but numbers, So doing cautious a about fintech rates basis been these is would rates, anything we're as that us company loans. are of book fee. we've not. at We the not then it. And would generating XXX-plus It with a charge XX a $XXX million the above not too. percent let's would to doing say, are Other so but We're here or interest points deals year XX%. very banks come

getting paper, not the the we're now right of So holding any fee income. so we're just

basis in case is so. buying it points -- or and it buying you're bank that two So two bank the back is from XX the later getting days to partner days the our fintech back

So you the start of partner. with feel holding we two comfortable certainly if for the paper the we have some flow But could days.

to large want not possible a like XX% So all it they're that say we it's if quality and to us in, sell paper we very quickly of coming and back build or here hold credit to the XX% the them. sending portfolio

Alex Twerdahl

in the and at me. was Did $XX in million drove then presume the loans. or or -- there charge-offs think about from second so those you look I looks dispositions like When it And this of some else mostly a quarter, final I Interesting. valuation something question level was charge-offs, that the Medallion of? actually should or to we loan related change have quarter it

Larry Hall

to related we a much with pretty was the settlement all of had. the large There Medallion one institutional that borrowers And charge-offs yes actually of lending.

Alex Twerdahl

questions. for Great. taking Thanks my

Larry Hall

Thanks, Alex.

Operator

Northland Your next Securities. Mike Grondahl Please from question from comes go ahead.

Mike Grondahl

so Could of can give net those? the have by guys. kind you category Hi, Thanks. charge-offs us just we

Larry Hall

home improvement $XXX,XXX about of area. a the For it was for was the Medallion's million recovery and recreation in net $XXX,XXX quarter $XX.X it for position

Mike Grondahl

remarks, just a great. mentioned bit in Larry, that bit you into in Larry. just bit you're seeing were go what you little Could That's I competitively? yields of environment consumer think a competitive kind little Thanks And That's RV the prepared the down space detail more hey, your great. there. a little

Andrew Murstein

that, say I'd new competition there. there's not

for The about improvement scores example, I home think over time. standards raising we've just lending at FICO we're our XXX. been of

yet scores. yields at ago FICO the the that A-plus-quality getting we've In so; is which at paper probably rec, of raising We're credit we or that's we're XXX really probably or were wonderful about X% quality. years been XXX. So given so,

of better much kind elected choose so go we're in have because getting the meantime. getting really and we're we're volume So for funded credits able coming credits to just our to in; best the

Larry Hall

Which are at slightly lower rates.

Andrew Murstein

Correct. Yes.

Mike Grondahl

it. Got you had How And settlement Got it. gain. much actually then that debt was debt settled?

Andrew Murstein

I year. the $XX think we about over first of six months the had million

XX. bank since So we our paid December of debt off all

Larry Hall

Substantially all. There's $XXX,XXX. still

Mike Grondahl

Got all it. Hey Got it. from Thanks guys. that’s me.

Larry Hall

Thanks, Mike.

Operator

turn to for This over closing remarks. would concludes back I Murstein conference session. the Andrew to like any question-and-answer the

Andrew Murstein

this to morning's Medallion. thank an attending It's time exciting want everyone for call. for I certainly

As to a XXX-XXX-XXXX Relations department or questions great needs contact additional and at everybody. day Thanks have via our or e-mail have hesitate you not investorrelations@medallion.com. always, please if do at Investor

Operator

call. This concludes today's conference

You for a your have you pleasant Thank may disconnect lines. participating and day.