Medallion Financial Corp. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Achievements: Generated over $1 billion of loan originations in 2024 for the first time, maintaining high credit standards. Exited a portfolio investment in Medallion Capital segment in Q4 with net gains of $3.8 million, totaling $6.9 million for the year. Dividend increased by 10% to $0.11 starting with the fourth quarter dividend. Repurchased over 570,000 shares of common stock in 2024.
• Financials: Fourth quarter net income was $10.1 million ($0.43 EPS); full year net income was $35.9 million ($1.52 EPS). Net interest income Q4 grew 6% to $52 million (vs year ago) but was down 1% QoQ. Full year net interest income increased 8% to $202.5 million. Net interest margin Q4 was 7.84% (down 27bps QoQ, 36bps YoY). Total loans outstanding $2.5 billion (up 12% YoY). Consumer delinquencies: >90 days past due loans $11.4 million (4.49% of total consumer loans). Provision for credit loss $20.6 million in Q4. Operating expenses $17.2 million in Q4 (down from prior quarters). Net book value per share $16 as of Dec 31, up from prior periods. Adjusted tangible book value per share $10.50 as of Dec 31, up from prior periods.

Segment Performance

• Rec lending: Fourth quarter new loan originations were $72 million (compared to $63 million in 2023 Q4). Total outstanding rec loans were $1.5 billion, down $11 million from the prior quarter and up $207 million from a year ago. Average interest rate as of year-end was 15.07%, up 28 basis points from a year ago and 15 basis points from the previous quarter.
• Home improvement lending: Originated $83 million of loans during the quarter, with the loan book up 9% from a year ago to $827 million. Current average interest rate is 9.81%, 30 basis points higher than a year ago and 5 basis points above the most recent prior quarter.
• Commercial lending: Ended the year with $111 million of loans, just below the年初 loan balance. Average interest rate was 12.97%, up 10 basis points.
• Tax and medallion business: Collected $2.6 million of cash in the fourth quarter and $12.1 million for the full year of 2024. Strategic partnership program saw loan volumes jump from $40 million in Q3 to $124 million in Q4.

Guidance

• Anticipate 2025 loan portfolio growth in the mid to high single digits. Expect operating expenses to increase, likely around $21-$21.5 million per quarter, but covered by income growth. Continue prudent growth of lending businesses and maintain current credit standards.

Risks

• Uncertainties related to SEC matters: Booked a $3 million charge in Q4 related to SEC settlement agreement in principle, and recognized $5.5 million benefit from insurance coverage for legal costs. Impact of Fed decisions on cost of funds. Seasonality affecting delinquencies and charge-offs, with Q4 typically seeing seasonal highs in delinquencies and charge-offs.

Question and Answer

• Q: Can you provide color around why you are selling the $121 million of rec loans and when you expect it to close?

A: We are selling it because volume was stronger than anticipated, giving another funding option; likely to close in 30-60 days.

• Q: Talk about credit quality going forward and if delinquency levels are peaking currently?

A: Q4 is seasonal high for delinquencies and charge-offs, starting to settle in; more recent vintages are performing better, tracking with tightened credit standards mid-2023.

• Q: How do you see margins bottoming and if it will happen in 2025?

A: Cost of borrowings somewhat decoupled from Fed decisions; originated loans in Q4 and Jan/Feb above average coupon, counteracting cost of funds increases.

• Q: Loan growth in 2025 and current growth?

A: Seeing demand for both products, expect 2025 growth in mid to high single digits, appropriate given earnings and capital deployment.

• Q: Operating expense going forward?

A: Likely close to $21-$21.5 million per quarter, increasing as we grow and undertake initiatives, but covered by income growth.