Q2 2020 Medallion Financial Corp Earnings Call
Good morning, and welcome everyone to medallion financials, 2022nd quarter earnings call.
By now everyone should have access to the earnings announcement, which was released prior to this call, which also may be found on the company's lets say medallion dotcom before we begin formal remarks.
We need to remind everyone that matters discussed on this call including forward looking statements are projected financial information.
That involve risks and uncertainties that make lots of companies 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.
Or is that could impact the company.
And the statements and projections content.
Here in please refer to the company's filings with the Securities and Exchange Commission.
Each forward looking statement or projection of financial information made during this call is based on information available as of the de of this call. We disclaim any obligation to update any forward looking statement unless required by law I would not least introduced Andrew Mercy President medallion financial.
Good morning, everyone. Thank you for worth dissipating and or 2022nd quarter earnings call.
Joining me on today's call is there a CEO album, Murstein or CFO Lowery hole.
Director of Investor Relations Alix or Zeno.
Company executed strategy in the second quarter up growing profitable consumer and commercial lending segments, while reducing or total medallion related exposure, despite a rather challenging operating environment.
Let me start with providing an update on the medallion portfolio.
The Companys net medallion lending portfolio, excluding the loan collateral in the process of foreclosure or the end of the second quarter was 84.4 million <unk>, 20% reduction from the end of 2019, 30% reduction from the 2019 second quarter.
[noise] when looking at medallion bank on a standalone basis. Their total net medallion exposure was 7.4% of their total assets and that medallion loans rose, 8.7% well the bank's net loans receivable as of June thirtyth.
The medallion collateral value in New York Dark it dropped slightly from $130000 gross or 124500 and debt at the end of the first quarter, two 125000 gross or 119500.
At the end of the second quarter. It is still evident that the industry continues to be impacted by cope with 19 was a sharp reduction in overall kipp ridership.
Our focus is to get our medallion lending segments to a break even over the next few quarters, while focusing on the recovery I collections process.
Despite the economic uncertainty, resulting from Cobrand 19, or consumer lending segment had strong growth in application volumes during the quarter.
This was the result was a man we saw four products as consumer spending continues to shift away from traditional ascertainment that air travel to Staycations at leisure activities that provide less contact.
In addition, we have seen an upswing in demand for home improvements as our home approval portfolio grew 14% from the end of 2019.
Die Bank also tightened its credit criteria in pursuit of improving asset quality and there's been able to meet the loan demand. The C, which ultimately result did the consumer portfolio now, reaching an all time high of 1.4 billion. It Outstandings at June Thirtyth 20.
20.
Consumer originations were 150.9 billion the second quarter up from 136.2 million in the prior year period, and 100 of 3.1 billion the 2021st quarter.
We believe that the bank is well positioned to move forward that continue to grow.
The ended the second quarter Die Bank had 223 million capital a tier one leverage ratio of 16.96%.
Second quarter, the bank began originating loans for its first friends Tech partner.
Due to the pandemic originations have been slower than anticipated. However, we look to get back expected lending levels. This things normalize.
It seem to see a steady stream of potential partners a fit our criteria are still on target to have another partner signed up before the year is over.
We will continue to provide updates on the progress of our strategic partnership program during our quarterly earnings.
Companies that commercial lending portfolio was 68.1 million as of June Thirtyth 2020, compared to 66.4 million at the end of 2019.
60.4 million at the end of the 29 <unk> second quarter.
Credit quality has remained solid as only one little was put on non accrual in the first six months of the year.
As a result of this improved performance across the portfolio and the government loans to medallion capitals portfolio companies. There were no major concerns at this time.
The portfolio is diverse and we will continue to monitor it closely.
In addition, we were just approved for an additional $25 million of SPD leverage.
You all slowing demand has increased compared to prior quarters dying capital remains well capitalized to continue to grow. However, they will continue to do so on a very selective basis.
Net income for medallions consumer commercial lending segments totaled 9 billion of the second quarter.
Appeared to 7.7 billion, but 29 team second quarter, a 17% increase.
I'll now turn the call over to Larry who will provide additional highlights of the second quarter.
Thank you Andy.
Net loss was $4 million or 16 cents per share compared to a net loss of $7.5 million or 31 cents per share in the prior year quarter and the lots of $13.6 million.
Six cents per share into 2021st quarter.
Given the current environment, along with the uncertainty at the long term impact that cobot 19, I'm not consumer and medallion lending segments. The company increased as loan loss provisions by an additional $6.8 million in the second quarter.
Our net interest margin remained strong at 8.23% in the 2022nd quarter down from 8.80% last quarter and 8.46% in the 2019 second quarter.
The decrease is reflected the impact of our increased liquidity as we took in additional broker deposits as an abundance of caution in this environment and reserves established for potential coded related deferred interest it may not be collectible.
Overtime, our higher yielding consumer and commercial segments will continue to outweigh the lower yielding medallions segment as the former continues to grow in the latter reduces quarter after quarter.
Total provision for loan losses was $16.9 million into second quarter.
Compared to $16.5 million in the prior quarter and $15.2 million into 2019 second quarter.
Excluding <unk> loan collateral in the process a foreclosure our net medallion loan portfolio decreased to $84.4 million at the end of the second quarter, a 20% decrease from year end and a 30% decrease from the 2019 second quarter.
When including loan collateral in the process the foreclosure the company's net medallion assets were $130.5 million or 8% of total assets as of June 30, 2020, compared to $172.7 million or 12% year ago.
Loan delinquencies on them to die inside were lower this quarter as a result of the coal that 19 deferrals, however, medallion loans deferred and that we're in the state of deferral were $99.2 million were 82% of total gross loans, which we will continue to monitor.
Difference reflects the loans that have come off the deferral program and whose current payment history, it's too soon to be German any meaningful trends.
The total amount of payments deferred was $1.4 million.
Medallion loan delinquencies 90 days or more pass due were $12 million were 10.3%. The total gross loans at the end of the second quarter compared to $2.8 million or 2% at year end and $3.7 million or 2.7% a year ago.
The impact of the Kogan related deferrals on actual or future delinquency trend is unknown at this time, but certainly resulted in lower percentages for this quarter.
Loan delinquencies on the consumer side, but lower this quarter as a result of the cold 19 deferrals.
However, consumer loans in the state of the World, We're only $35.1 million were 3.3%. The total gross loans, which we will continue to monitor.
The total amount of deferred loans were 94.6 million were 5077 loans, which is 8.9% of the gross loan consumer portfolio.
The difference reflects wells that have come off of the deferral program in whose current payment history, it's too soon to determine any meaningful trends.
Consumer loan delinquencies 90 days or more past due were $3.5 million or 0.33% of total gross loans at the end of the second quarter.
Compared to $6 million, 4.64% at year end and $3.8 million <unk>, 0.44% a year ago.
The impact of the coping related deferrals on an actual the future delinquency trend is unknown at this time, but certainly resulted in lower percentages for this quarter.
The consumer loan portfolios average interest rate remained stable this quarter the average interest rate on the portfolio was 14.14%.
Paired to 14.54% at the end of 2019 and 14.82% in the same period last year.
Our commercial lending segment recorded net income of $394000 in the second quarter.
The net commercial lending portfolio was $68.1 million at the end of the second quarter compared to $66.4 million at the end of 2019 and $60.4 million in the same period last year.
The average interest yield was 13.38%.
From 10.4% in the first quarter and in line with a 13.75% a year ago with that I'll now turn the call back to Andrew.
Thanks, Larry operator, we can now begin to Q when a portion of the call.
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Our first question is from Alex.
<unk>.
Alex Twerdahl with paper Sandler. Please proceed.
It's like no Alex.
Okay, Alex either.
I'm here can you hear me, yes, we got you know.
Okay. Thank you for first question for me.
I you know, obviously huge quarter for the consumer business in the second quarter. It can you just comment a little bit on has that demand continued into the third quarter.
And maybe what the pipeline looks like a as we head into the third quarter for the consumer business.
You know, what we're really very nice businesses right now it's nice reached a change.
Hi, Andrew Bynum these businesses for 15 plus years, but they're really starting to show how.
How profitable they arent didn't seem to be so the bones and the RV loans.
It's very strong demand in the quarter, continuing a lot of people or not.
Trips that I'm going to a hotels airplanes.
Proven loans are also surging.
By homeowners all across the country, we're spending a lot more time at home obviously.
Fixing their houses pools are roofing or solar panels <unk> systems. So we think the walking.
Very healthy rates have been drove about 16% in New York.
Space from last year and about 35%.
Oh, the home improvement lending front, so we see them and strong demand continues.
That's great to hear.
And then switching gears to the medallion can you just talk a little bit about how medallion owners could have benefited from some of the provisions of the carries act to get through this crisis.
Yes, they're all small business owners. So there were all eligible or most of them or most of them took a P.P.P. money or other types of cures Act money I'm. You know is it's a little bit of a bandaid for them frankly, though it's helping as it is for many Americans just temporarily.
This is still tough out there, but a this at least got them through a couple of months and some other plans that are you talked about away from the federal plans the city mistaken.
So in this industry and try to help it. So our hope is that something will come through to help a lot of these small business owners.
Okay, well continue to monitor that and then the 6.8 million dollar adjustment to the reserve due to co bed can you just talk a little bit Larry maybe about how you came to that number what percentages medallion what percentage is consumer what percentage is commercial.
I mean, you know it was a pretty judgmental area, it's nobody knows what the real impact of the cold, but it's going to be but you don't be obviously felt that using standard methodology.
Just a in the past maybe didn't make sense this quarters since.
The uncertainties and impacts are likely to be sitting here. So we need our best estimate about.
The increase that we needed above and beyond that.
He's a it was probably split or more for the medallion side and the consumer side, but you know both sides, we did a nice impact.
Okay, and then <unk> with the huge consumer growth he had during the quarter of I would've expected to see net interest income increased more meaningfully from the first quarter and yet it really didn't where there's some reversals of net interest income from the medallion portfolio that offset that in the second quarter that we should be aware of the potentially take out in future quarters.
Larry you want to touch on it.
Yeah, we took the kind of conservative posture on the amount of the interest of hurdles that actually occurred during the second quarter and the reserve roughly 50% that amount.
The other thing though.
Liberal.
Right and the other thing that we did was we took a lot of extra brokered Cds one.
Coal that started to hit in March or so a lot of banks like us really just.
We're very cautious.
The liquidity situation in the CE mark or to be so we took it a lot of Cds, which kinda sat on our books, but now that money is being put out so.
And your books, obviously, the net interest margin comes down a little but now that most of its being put up.
<unk> an expansion of net interest margin.
Okay, and then final question for me I'm seeing some headlines recently personally sponsorship deals for your driver and not in our pack will some of those sponsorships make their way through the medallion TNL in coming quarters are they already in there or are they personal sponsorships that just don't impact it doesn't.
No they should be meaningful to us for those that are pack is Richard pretty motor sports, which is an escort legacy investment that we had years ago sports back that we did actually in about 2010 sports specs are continuing to be very.
Much.
As these days so we own a team the majority ownership of the team and or driver.
Only black driver in escrow and about 50 years.
He's been at the forefront of social change in America. He's done a great job really talking about black lives matter and social change and has had a tremendous amount of interest from sponsors. So one is to catch up which is owned by square, which is Jack Dorsey. His company. That's on the multimillion dollar deal with us about a month ago, so that you'll see this year.
And next year and then there were several other groups I don't know if though.
Pull the trigger like cash up did but several other fortune 500 companies are really talking about getting involved with this movement and supporting the team and thankfully will be the beneficiary of those things happen.
Great. Thank you for taking my questions.
Yes.
Our next question is from Scott Buck with B. Riley FBR. Please proceed.
Hi, Good morning, guys I was hoping you might be able to walk us through where at least remind us of a the mechanics of the loan deferrals since I think that's the first quarter Weve.
Seeing them in a in a really.
Larry.
I mean basically out of the onwards, the unit request to have some forbearance on the payments that they oh and pretty much across the board you know weve accommodated both yeah, the consumer hours and the medallion our words with 60 to 90 day deferrals or some of them.
Back as those different live expired and asked for.
An additional deferral and you know we're looking at those particularly in the downside morna case by case kind of basis.
The consumer side most of the rules happened you know degree beginning this process and as each month went on there have been asking where you were requested and they were not just starting to see.
What happens and that some of these borrowers deferral period, then it and a you know what do you mean histories and looks like going forward, but as we said before it's too early in that process really draw any conclusions.
That's a that's helpful.
When do you think you'll have some some real color, especially on the medallion side with the deferrals and in terms of.
You know who comes back in and you know starts paying a again.
Making regular payments versus you know, which loans kind of fall into delinquency at that time.
I would think probably September so you know this can't militaries, usually pretty slow anyway.
In July and August so it all depends upon how quickly the city we opens.
I think september's usually.
For the industry, so things start coming back I don't think <unk> your normal, but if they're slightly as normal at that time, but things that'll be very helpful to the industry and just to put some parameters on it.
The consumer portfolio is a billion dollar portfolio no. It's all time high.
Building about 14.5% so just using the math there you're talking about a $145 million of income coming in on those loans the cap.
Portfolio is now down to just 84.
So at a 4% rate even if nobody paid you only talking about three and a half a million dollars a spillover income loss. So it's overwhelmingly.
Consumer area with that high rate that we have in the size of that portfolio. So the medallion portfolio again, even though most of his into for all really should not have big impact.
The company going forward.
Great I I think that perspectives helpful. I last one from me a it sounds like you have a new fintech partnership in the work.
Is there any color you can provide there in terms of.
What kind of contribution that you know that partnership could could have on results once a completely scaled up.
That should be very strong business for us I don't think you were going to see it honestly, though this year.
Still ramping up but the strategic partnership businesses.
Much.
The income business, where we're getting about 5200 basis points on the loans when they come in so if we get to the point, where we're doing as much as $500 million year, you could have $25 million fee income.
Cost associated with that so that's not the profit at all but it shouldn't be a very high volume business and profitable, but probably you're talking about a year from now I think the first customer that was signed up isn't the health care in the Street just work cosmetic work same thing for the second will be in the medical cosmetic.
Street.
There's a lot of demand from partners to partner with Youtube banks, there's probably a dozen or so names that were talking to do so we've been very selective.
It would be very cautious in this business, especially in this environment, but eventually we hope this is going to be very profitable business rose.
Great appreciate it helped us thank you.
Our next question is from Mike Grondahl with Northland Securities. Please proceed.
Hi, guys. This is on record in for Mike. This morning, I'm I said, a question regarding deferrals and barbarians on the consumer book are the customers now paying.
Thank you just talked about that but yes, that's more light on it sure in the medallion area. No I'm you know that business still is struggling the streets. If you look in new Yorkers still.
Pretty much empty, but as I pointed out before it's only a couple of million dollars of lost income per year versus 45.
Revenue that's coming in.
Consumer front, yes, I think you probably have about 8%.
That is currently delinquent so the history was most people asked for deferrals back in April.
It was the peak period for US and then May was down in June was down in July it was down thing.
Trends or go into right direction.
All those that asked deferrals only 8% for 30 days or more.
Yeah, we'd said, they're very acuity session I would like to turn it back to Andrew for closing remarks.
So we wanted to thank everybody again for the call. Thank you Sherry for hosting was for US if anyone has any follow up questions. Please feel free protocols that anytime a 2123 to eight to 176 or at email investor relations at medallion Dot com.
It's very much and.
He has a great day. Thank you.
Thank you you does include today's conference you may disconnect. Your lines at this time and have a pleasant day.
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