Q3 2023 Medallion Financial Corp Earnings Call

Ladies and gentlemen, good morning, and welcome to the medallion financial third quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star and Vito on the telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ken Coupal.

Please go ahead.

Thank you and good morning, everyone welcome to medallion financial Corp's third quarter earnings call. Joining me today are Andrew Burstein, President and Chief operating officer, and after the control Chief Financial Officer certain statements made during the call today constitute forward looking statements made pursuant to and within the meaning of the safe Harbor provision.

The private Securities Litigation Reform Act of 1995 as amended.

Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in our earnings press release issued yesterday and in our filings with the SEC. The forward looking statements made today are as of the date of this call and we do not undertake any obligation.

To update these forward looking statements. In addition to our earnings press release, you can find our third quarter supplement presentation on our website by visiting medallion dot com and clicking on Investor Relations. The presentation is near the top of the page with that I'll turn it over to Andrew Burstein President.

Thank you Ken and good morning, everyone medallion financial had a strong third quarter that culminated with our best earnings for the nine months ended September 30th in any year since our IPO over 27 years ago.

In the third quarter, we generated $11 2 million of net income of 48 cents of earnings per share.

Year to date, we were at 48 million of net income.

Dollar 77 of earnings per share.

These results have again been driven by higher than normal originations in our consumer lending solid results from our commercial lending.

Continued success in cash collections from our taxi medallion loans.

Successful effort to leverage our operating costs.

We've been clear for some time now that our strategy is to grow net interest income by offsetting rising cost to borrow.

Renewed growth in loan originations, we have done that for another quarter, even as origination activity started to normalize back to historical levels.

As we look to the future we will continue to take proactive steps to raise our credit standards and increased pricing.

With total assets of over $2 5 billion, we anticipate loan growth to moderate from the levels. We have seen over the past two years, which should enhance earnings with reduced credit allowances needed at origination.

It provides more flexibility and options for us to consider around capital allocation such as the 25% increase in the dividend our board authorized starting next month, which enhances shareholder return.

Moving to the update for each of our segments.

Our consumer lending business had another quarter of heightened activity of originations.

We believe this robust origination activity is due to our target customer they'll being active in purchasing total rvs small boats a single project home improvements.

These all have active markets today as compared to the higher end user arby's yachts, a multi project or whole house remodels.

Significantly higher cost and maybe more susceptible to a slowdown.

As a reminder, our average loan at origination is around a very manageable $25000 with a prime or near prime borrower or more focused on the payment levels down the rates.

In addition, we continue to see some industry players scaled back or exit these business lines, which helps us.

Dealers and contractors, who we work with those that we have great service levels.

Be here long term, which helps them refer business to us.

Our commercial business originated $9 million of loans in the quarter and ended the quarter with $100 million involves outstanding.

The segment generated after tax earnings of $2 million during the quarter, which included net after tax gains related to equity investments of $1 6 million.

Our bottom line benefited again from another good quarter of cash collections on taxi medallion assets.

This quarter, we collected $5 7 million, which translated into 10 cents of earnings per share.

Also of note shortly after the quarter ended we executed a structured settlement with one of our larger taxi medallion borrowers. They collected an additional 9.4 million, which will result in a pretax gain of approximately $8 million in the fourth quarter.

We continue to be delighted with our taxi medallion collection before but.

But I again stress that payment patterns are expected to fluctuate.

Finally, as I mentioned earlier, our board has authorized a 25% increase in our quarterly dividend from eight cents to <unk> 10 cents per share per quarter.

With that I will now turn the call over to Anthony who will provide some additional insight into our quarter.

Thank you Andrew good morning, everyone.

For the quarter net interest income grew 16% to $48 8 million from the prior year driven by increased interest rates on new originations coupled with the loan growth we've experienced since the prior year.

These two factors have been able to counteract the rising cost of funds would continue to experience.

Our net interest margin on gross loans was $8 three 5% for the quarter as compared to 8.48% in the second quarter and $8 six 3% in the prior year quarter.

The compression in net interest margin is related to two things first home improvement lending has been the fastest growing component of our consumer lending business with these planned credits, having a much lower interest rate and compared to a much larger recreation portfolio.

The second is the rising cost of funds, we are experiencing in tandem with the current interest rate environment.

Although we have been successful in increasing our own rates did not on a one to one basis.

Specific to originations. We are currently writing at an average rate of 11, and three quarters percent on home improvement loans up from approximately 9% a year ago and an average rate of approximately 16.25% on recreation loans up from 14, and three quarters percent a year ago.

In addition to passing along interest rate increases we continue to take proactive measures to tightened credit you know consumer lending.

At the end of 2018 subprime loans were 66% of the recreation portfolio today.

Today, subprime loans or 38% of that portfolio.

Our provision for credit loss was $14 5 million for the quarter compared to $10 million in the prior year quarter. The increase provision is primarily the result of one the continued normalization of loss experience in our consumer portfolio up from the unprecedented lows experienced during the pandemic and to the group.

Both of our overall portfolio.

Provision is inclusive of a $1.8 million benefit related to recoveries on taxi medallion loans during the quarter.

Operating expenses were $19 1 million during the quarter down from $19 4 million in the prior year quarter. The drop was primarily the result of lower legal and professional fees in the current period offset by higher salary and benefit costs and higher servicing costs associated with a larger book of loans.

For the quarter net income attributable to our shareholders was $11 2 million and our diluted earnings per share was 48 cents.

Just a quick final comment on the balance sheet on September 29th we closed a $39 million private placement of 9.25% notes a large portion of which has been used to settle $33 million of the 8.25% notes, which mature in March 2024, with the remaining $3 million of those notes anticipated to be.

Okay to maturity, it's important to note that this new issuance priced at a rate 75 basis points above prime as compared to our previous notes issuance in 2021, which priced at 400 basis points above prime.

Our ability to price the instruments at a lowest spreads decline.

From just a few years ago speaks to our underlying business as a whole and the progress that we've made in transforming the company.

At the end of the quarter the company had $160 million of debt at the parent company, which continues to fund the investments in our operating subsidiaries with dead that being less than 50% of our equity.

That covers our third quarter financial results.

Andrew and I are now happy to take your questions.

[laughter].

Thank you.

Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question. Please press star and one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

All participants using speaker equipment, it may be necessary to pick up your handset before pressing the stocky.

Ladies and gentlemen, we will wait for a moment, while we poll for questions.

Our first question comes from the line of Mike Grondahl with Northland Securities. Please go ahead.

Hey, guys. Thanks, a lot.

Two questions maybe to start off with could you kind of give us a sense of your margin outlook.

Going forward.

And then Anthony.

I think we typically get net charge offs kind of by category.

In dollars and percent.

Could you also provide those.

Sure.

So with regards to the margin.

We still believe is as we've said for a couple of quarters that there's going to continue to be compression, but we think we bought them out at around eight.

Net interest margin.

We still have a ways to go in terms of what our cost of funds.

Rising, but I think what's important to note is that we've passed the law on a long, especially in our in the most recent year.

A large number of increased rates on new originations.

We think you know as we get closer to the top of the credit cycle, you know there'll be a little bit more compression, but then as we've increased the rates on you know in our our book matures in terms of a higher average interest rate that should add that should help us long term.

Yeah.

Got it got it so a couple more quarters of compression until you hit about 8% is that the did I hear that right.

Yeah, I think that's fair and obviously you know.

What the fed decides to do is gonna be a you know a catalyst for a lot of things, but that's that's how we're seeing it in two.

Your other question about charge offs for the quarter charge offs and rack and home improvement were 9 million and 3 million.

Commercial was zero and we had $1.7 million of recoveries on taxes.

Yeah.

Got it.

And then on your Cds.

No it wouldn't be.

Average rate.

You're paying at the end of three Q kind of compared to market.

Yeah.

Probably about 150 to 175 basis points below what our current three year C D would be.

So we think you know, we we creep up and again that goes back to what we were just talking about you know we.

Our cost of funds is going to increase you know towards that.

475 ish 500 level over the next several quarters, but again our top line is going to continue to increase as we've seen it do for the past several quarters now.

You've done a good job of raising yields that that's for sure.

And then Andy two questions for you.

One how are you thinking about the 160 million of debt.

At the holding company.

As you get these taxicab medallion.

Collections and then secondly, how are you thinking about 'twenty 'twenty four.

So let me just also touch on the net interest margin the NIM.

Interest income we expect of course, the increase just to be clear there. So the margin is Anthony has been saying accurately for several quarters now should go down to about that 8%, but as the portfolio grows the margins continue to shrink, but the net interest income continues to increase.

Because of the volume of the portfolio the originations are the debt amount.

Think as conservative Oh.

That level, we're not really leveraged to too much. We've always operated as you know Mike you've known us for many many years. So for about 30 years, we were a regulated investment company B D. C. So we were limited to.

One to one debt to equity.

So we've always kind of operated at a low leverage ratio. So we refinance that debt as you know that was nice to put behind US we have debt coming due in March 2024, which we refinanced as we announced on September 30th. So we don't anticipate adding significant new dead if any of that at all.

So the next a year or so.

In terms of the outlook for 'twenty 'twenty four I'd say overall, we're pretty optimistic as the numbers continue to show in the results continue to show.

We've had strong loan demand in RV and marine home improvement a mezzanine.

He used to be very strong until this is probably one of the highest deal flow we've seen from that division in the 25 years that we've owned them so across the board continued growth.

Hopefully more collections from the medallion portfolio, we've done a great job collecting on a lot of loans. There. We still are owed about $200 million and we'll do whatever we can to collect as much of that do you have congestion pricing hitting in New York City. Soon so that could be a boost for medallion prices when they tried to keep concern.

Of cars out of the city more people ideally will be taking taxes as well as rumors.

And we increased the dividend so as everybody can kind of sit back and watch the growth in 'twenty 'twenty four there'll be able to receive a 40 cent per share dividend. So overall I'd say, we're bullish on the year ahead.

Great Hey, Thanks again.

Thank you.

Okay.

Yeah.

Thank you.

Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Hi entered did I hear you say that there was a $200 million in medallions upsetting.

That's what we're owed correct and as you know they were written down to a much lower number.

It's less than 1% of our assets today, but that's how much illegally we're owed.

The collections can come through by either foreclosing on the medallions are which are worth it.

About 150, or so now in New York City, we're carrying them as you know at a lower number but all of these and we've been saying this for many many years all the loans have personal guarantees attached to them. So thankfully, we're seeing a lot of settlements. This year I don't know if the borrowers are bullish on the congestion pricing plan, we're just business in general.

But they're coming in and settling with them with us So hopefully that continues.

Gotcha for the.

$9 4 million dollar medallion recovery in the fourth quarter.

Why is that or the gain should there be a recovery.

So C. I know it is a recovery, it's going to be a benefit in our provision. So this these assets had been written down to a book value of a 1.4 million. So it's the it's the.

As you know the cash collected and and and the asset that goes away that's the $8 million.

Okay. So that's simply just we could potentially have a lower <unk>.

Loan loss provision than normal right right, yeah, so that $8 million should all flow through was a benefit in the loan loss provision that's correct.

And then where are you thinking of taking the reserve ratio.

So currently you know where.

For around $4 20 on rack and.

Yeah.

Just about 220.

Or so on on home improvement.

We think those we think those are good numbers. So you know.

In connection with the adoption of sea Salt on January one we've got a.

We do a lot more quantitative forecasting and we look at future expected losses.

You know if if the economy were to take a you know a sudden downturn.

Yeah.

We've been expecting that.

You know those those rates could step up but if I. If we continue with the pace, where we are we think those are good numbers and that's wish the allowances should remain.

Yeah.

Okay and then given final question given your comments in terms of loan growth to moderate.

Should we expect relatively what's what does moderate mean.

What sort of growth rate, you're looking at so I think in the nine months, we you know.

Tumor loans grew around 16%.

And we've been experiencing you know, 20% to 30% growth year over year and those two are those two categories.

And that was good and you know we intentionally did that and made those you know took the opportunity to take these recoveries in this capital that we generated from these medallion collections and you know reinvested in the business I think going forward, we would expect somewhere in the ballpark of 8% to 12% growth.

You know with the ability to increase that or decrease it as necessary I think you know growing it.

Growing at 20%.

Is different when you've got $100 million billion dollar balance sheet as opposed to growing at 20% when you've got a two and a half billion dollar balance sheet.

Okay. That's it for me thank you.

Thank you.

Our next question comes from the line of Matt Howlett with B Riley <unk> Securities. Please go ahead.

Okay. Thanks, guys. Thanks for taking my question another fine quarter and there just seems to be this disconnect between how you guys are performing with the market views you that and I wanted to get to that but the first question is.

As you know the with the moderation in loan growth.

Excess capital I mean, you just raised the dividend we.

We have the high class, probably a lot of capital you're above I think 50, well above 15% and it looks like it'll generate more capital you got that game coming into the third quarters here already is that sort of 25 cents in the bank already my question to you.

Ken Cooper: Ladies and gentlemen, good morning and welcome to the Medallion financial third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Could you know what what do you think about in terms of excess capital could you get more aggressive buying another platform buying back shares just talk to me about how you know what you've been running at this breakneck speed and loan growth is going to slow it could free up a lot of capital you've got great earnings anything we should think about them.

Operator: If anyone should require operate assistance during the conference, please press star and zero on the telephone keypad. As a reminder, this conference is being recorded.

Ken Cooper: It is now my pleasure to introduce your host, Ken Cooper. Please go ahead. Thank you and good morning, everyone.

That's helpful.

Well I think what we're always looking at new businesses and acquisitions.

It's really not a good time to go off base in and go into new lines of business that all of our businesses are doing so well. So we're going to continue to focus on them.

Andrew Murstein: Welcome to Medallion financial corpse third quarter earnings call.

Andrew Murstein: During me today are Andrew Murstein, president and chief operating officer and Anthony Cutrone, chief financial officer. Certain statements made during the call today constitute for the statements made pursuant to and within the meaning of the safe harbor provisions of the private security litigation reform act of 1995 as amended. Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.

Andrew Murstein: Those risks and uncertainties are described in our earnings press release issued yesterday and in our filings with the SEC. The forward looking statements made today are as of the day of this call and we do not undertake any obligation to update these forward looking statements.

I'd say that we probably have a lot of good options. Since we don't plan on going into new businesses that could be buying back more stock last year I think we bought about 10% of the company back in 2022.

The buyback is another $20 million to go but let's just raised the dividend as you state.

We're now paying <unk> 40 cents a share so we raised it to 25%. So we can put more money into the bank if need be if if we're surprised and loan growth is stronger and we're able to really pass on a lot of the increases in prices to our borrowers and charge more of that that's always a good option for us to.

Andrew Murstein: In addition to our earnings press release, you can find our third quarter supplement presentation on our website by visiting medallion.com and clicking investor relations. The presentation is near the top of the page.

You know, it's nice to have options and I think the one thing that I'd add to that is that you know you know we we do have a you know a large amount of capital regulatory capital at the bank, but we also have a high minimum that we've got to maintain a 15% capital maintenance ratio that you know as you're aware so.

Andrew Murstein: With that, I'll turn it over to Andrew Murstein, president. Thank you, Ken. Good morning, everyone.

Andrew Murstein: Medallion financial had a strong third quarter that culminated with our best earnings for the nine months and its December 30 in any year since our IPO over 27 years ago. In the third quarter, we generated 11.2 million of net income and 48 cents of earnings per share. Year to date, we are at 40.8 million of net income of $1.77 of earnings per share. These results have again been driven by higher than normal originations and our consumer lending, solid results from our commercial lending, continued success in cash collections from our taxing to die in loans and a successful effort to leverage our operating costs.

So given the size of book that we have now you know a slight deviation.

Cause of T cell and what we need to record an allowance could have a meaningful impact on that ratio. So if we need to stay at 15% staying just above 15% at the size. We are doesn't actually it doesn't work for us. So we need a larger buffer to account for that variability, which we haven't yet experienced in the nine months since we.

If adopted T. So, but if I if the economy does take a downturn.

We might and I think that's why we want to make sure that we've got ample capital cushion as well as to what Andrew said, you know increasing the dividend and providing other shareholder returns that we can yeah.

Andrew Murstein: We have been clear for some time now that our strategies to grow net interest income by offsetting rising costs to borrow with continued growth in loan originations. We have done that for another quarter even as origination activity has started to normalize back to historical levels. As we look to the future, we will continue to take proactive steps to raise our credit standards and increase pricing. With total assets of over 2.5 billion, we anticipate loan growth to moderate from the levels we have seen over the past two years, which should enhance earnings with reduced credit and allowances needed at origination.

Yeah look it's a hard it's a high class problem to have and it looks like your capital generation is only going to increase so when I look at slide 11.

I think most of the banks have been out there saying.

Charge offs on their credit card.

Where auto is going to be kind of pre pandemic levels. In you know by early next year is that you've got here a little bit you guys are almost you guys were not quite there, but you're almost there and charges, but I look at that chart, though given them moving up in credit.

The cycle the more home improvement you have I mean.

And what you kind of show a 6% charge off in 2009, but it doesn't seem like you're ever get ever closer to that you know even if we go into a major recession.

Yeah, you know, we we hope not.

What I said earlier was it.

As important.

No.

Just in 2018, two thirds of our recreation portfolio with subprime.

Subprime that's the regulatory definition 660 FICO today, that's a third so we've we've drastically changed at the credit quality of this portfolio over a number of years and we hope that that as well as you know in the past year stepping up the rates that we're getting on new originations. So we think that all of those things are you know good steps in <unk>.

Should help us.

Undoubtedly when we hit the next downturn.

Yeah, and I think and then yeah.

The question is for both you and you know, especially now and he's been obviously running the company a long time, but what's the disconnect here between the numbers, you're putting out there that you know 20 plus Roe.

The significant discount to book and what's the disconnect between your performance in the market people just looking at prior cycles or looking at the banks are they not appreciating your underwriting you're moving up in credit you know all your pricing, but what's can you just maybe just go over that for me. Thank you very much.

That's a tough one to answer it's a great question, though you know years ago, you're right. We've been at this a long time in the late nineties and they were making a dollar a share the stock was at 30, we're treating a 30 times earnings.

Now where it is as you pointed out in your note. This morning, Matt I don't know three and a half times or any kind of a shockingly low so I really hope we just can get in front of more buyers more institutional buyers are you know it doesn't take much to move the needle if we can get some good institutional support and the stock in.

A large volume of stock being bought that will surely drive up the price and we're doing more conferences are getting more eyeballs getting more phone calls. These days. So I just think if we continue to produce it there's going to be hard for the market through ignores for much longer.

Yeah looking at the taxi medallions now.

A tailwind for you you'll get them, but you already had $8 million in pre <unk> and pre tax.

And I come away with that did I read that correctly.

Andrew Murstein: This provides more flexibility and options for us to consider around capital allocation, such as a 25% increase in the dividend of board authorized starting next month, which enhances shareholder returns.

Yes exactly.

Yeah, that's been there.

On the cake for us the last more [laughter] pretty big cake, I guess, because we're collecting a lot of money there.

Andrew Murstein: Moving to the update for each of our segments. Our consumer lending business had another quarter of heightened activity of originations. We believe this robust origination activity is due to our target customer still being active and purchasing total RVs, small boats, and single project home improvements. These all have active markets today as compared to the higher end cruiser RVs, yachts, a multi-project or whole house remodels, which has significantly higher cost and may be more susceptible to a slowdown.

So.

We'll continue to do so I hope I'm again, the business is picking up the medallion business.

Andrew Murstein: As a reminder, our average loan at origination is around the very manageable $25,000 with a prime or near prime bar or more focused on the payment level than the rate. In addition, we continue to see some industry players scale back or exit these business lines, which helps us. The dealers and contractors who we work with know that we have great service levels and will be here long-term, which helps them refer business to us.

Andrew Murstein: Our commercial business originated $9 million of loans in the quarter and ended the quarter with $100 million of loans outstanding. The segment generated after-tax earnings of $2 million during the quarter, which included net after-tax gains related to equity investments of $1.6 million. Our bottom line benefited again from another good quarter of cash collections on taxing the diet assets. This quarter, we collected $5.7 million, which translated into ten cents of earnings per share.

Bottomed out at about 79000 of medallion its been picking up ever since the last few years and I would just add that this is consistent what we're experiencing in the medallion.

Andrew Murstein: Also of note, shortly after the quarter ended, we executed a structured settlement with one of our larger taxing medallion borrowers and collected an additional $9.4 million, which will result in a pre-tax gain of approximately $8 million in the fourth quarter. We continued to be delighted with our taxing medallion collection performance, but I again stressed that payment patterns are expected to fluctuate.

Right now, it's consistent with what Andrew and management here has been saying all along if you go back a number of years. When we were in the height of the of the issues that are the taxi medallion space was encountering a we always knew when we were transparent about it that eventually we get to a point, where the prices aren't going to go down any further.

Andrew Murstein: Finally, as I mentioned earlier, our board has authorized a 25% increase in our quarterly dividend from 8 cents to 10 cents per share per quarter.

And at that point, then than we would do no benefit.

As we had already taken the pain. So I think that's what we've experienced are not just the past nine months, but also last year as well.

Well, they're just looks like there's significant off balance sheet the value and the tax season is obviously, a huge tail tailwind to your earnings going forward and on top of really great performance in and hopefully they'll see people will see D. The performance versus what we're seeing from the banks what the problems are experiencing in some of your your performance. So congratulations thanks, Anthony Thanks, Andy Thanks, a lot.

Maggie.

Yeah.

Thank you.

As there are no further questions I would now hand, the conference over to Andrew <unk> President for any closing comments.

Thank you again for joining us. This morning, our company is doing well and we have a lot to be proud of we're working hard and seeing great results that position us well to continue to deliver shareholder value as always if you have any questions. Please feel free to contact our investor relations team. The contact information is on the last page of our earnings supplement as well as the IR.

Section of our website.

Again and have a great rest of your day.

Thank you the conference or at Medallion financial has now concluded. Thank you for your participation you may now disconnect your lines.

[music].

Yeah.

[music].

Anthony Cutrone: With that, I will now turn the call over to Anthony, who will provide some additional insight into our quarter. Thank you, Andrew.

Anthony Cutrone: Good morning, everyone. For the quarter, net interest income grew 16% to $48.8 million from the prior year, driven by increased interest rates on new originations, coupled with the loan growth we've experienced since the prior year. These two factors have been able to counteract the rising cost of funds with continued experience. Now net interest margin on gross loans was 8.35% to the quarter, as compared to 8.48% in the second quarter and 8.63% in the prior year quarter.

Anthony Cutrone: The compression and net interest margins is related to two things. First, home improvement lending has been the fastest growing component of our consumer lending business, with these pawn credits having a much lower interest rate and compared to our much larger recreation portfolio. The second is the rising cost of funds we are experiencing in tandem with the current interest rate environment. Although we have been successful in increasing our own rates, there is not a one-to-one basis.

Anthony Cutrone: Specific to originations, we are currently writing in an average rate of 11 and three quarters percent on home improvement loans, up from approximately 9 percent a year ago, and an average rate of approximately 16 and a quarter percent on recreation loans, up from 14 and three quarters percent a year ago. In addition to passing along interest rate increases we continue to take proactive measures to tighten credit in our consumer lending.

Anthony Cutrone: At the end of 2018 some prime loans were 66 percent of the recreation portfolio. Today some prime loans are 38 percent of that portfolio. Our provision for credit loss was 14.5 million for the quarter compared to 10 million in the prior year quarter. The increased provision is primarily a result of one the continued normalization of loss experience in our consumer portfolio, up from the unprecedented lows experienced during the pandemic and to the growth of our overall portfolio.

Anthony Cutrone: The provision is inclusive of a $1.8 million benefit related to recoveries on taxing medallion loans during the quarter. Operating expenses were 19.1 million during the quarter, down from 19.4 million in the prior year quarter. The drop was primarily the result of lower legal and professional fees in the current period offset by higher salary and benefit costs and higher servicing costs associated with a larger book of loans.

Anthony Cutrone: For the quarter net income attributable to our shareholders was 11.2 million and our diluted earnings per share was 48 cents. Just a quick final comment on the balance on September 29th we closed the $39 million private placement of nine and a quarter percent notes, a large portion of which has been used to settle $33 million of the eight and a quarter percent notes which mature in March 2024 with the remaining $3 million of those notes anticipated to be recated maturity.

Anthony Cutrone: It's important to note that this new issuance price at a rate 75 basis points above prime has compared to our previous notes issuance in 2021 which priced at 400 basis points above prime. Our ability to price the instruments at a lower spread to prime from just a few years ago speak to our underlying business as a whole and the progress that we've made in transforming the company. At the end of the quarter the company had 160 million of debt at the parent company which continues to fund the investments in our operating subsidiaries with debt being less than 50% of our equity.

Anthony Cutrone: That covers our third quarter financial results.

Operator: Andrew and I are now happy to take your questions. Thank you ladies and gentlemen we will now be conducting a question and answer session. If you would like to ask a question please press star and one on a telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star. Ladies and gentlemen, we will wait for a moment while we poll for questions.

Michael Grondahl: Our first question comes from the line of Mike Grondahl with Notland Securities. Please go ahead. Hey guys, thanks a lot. Two questions maybe to start off with. Could you kind of give us a sense of your margin outlook going forward in an Anthony? I think we typically get net charge offs kind of by category in dollars and percents. Could you also provide those? Sure. So with regards to the margin, we still believe as we've said for a couple of quarters that there's going to continue to be compression, but we think we bought them out at around eight.

Michael Grondahl: Net interest margin. We still have a ways to go in terms of our cost of funds rising. But I think what's important to note is that we've passed along, especially in the most recent year, a large number of increased rates on new originations. So we think as we get closer to the top of the credit cycle, there'll be a little bit more compression. But then as we've increased the rates on, in our book, matures in terms of a higher average interest rate, that should help us long term.

Michael Grondahl: Got it. So a couple more quarters of compression until you hit about eight percent. Did I hear that right? Yeah, I think that's fair. And obviously, you know, what the Fed decides to do is going to be a catalyst for a lot of things. But that's how we're seeing it. And to your other question about charge offs for the quarter, charge offs in rec and home improvement were nine million and three million.

Michael Grondahl: Commercial was zero and we had 1.7 million of our coverings and taxis. Got it. And then on your CDs, what was the average rate you're paying at the end of three Q kind of compared to market? We're probably about 150 to 175 basis points below what a current three year CD would be. So we think, you know, we creep up and again, that goes back to what we were just talking about.

Michael Grondahl: You know, we, our cost of funds is going to increase, you know, towards that 475-ish 500 level over the next several quarters. But again, our top line is going to continue to increase as we've seen it do for the past several quarters now. Yeah, you've done a good job of raising yield. That's for sure.

Michael Grondahl: And then Andy, two questions for you. One, how are you thinking about the 160 million debt at the holding company? As you get these taxi cab, medallion, you know, collections, and then secondly, how are you thinking about 2024?

Andrew Murstein: So, let me just also touch on the net interest margin. The net interest income, we expect of course to increase just to be clear. There's on the margin, as Anthony's been saying accurately for several quarters now, should go down to about that 8%. But as the portfolio grows, the margins continue to shrink, but the net interest income continues to increase because of the volume of the portfolio, the originations. The net amount, we think, is conservative at that level, when I really leveraged too much.

Andrew Murstein: We've always operated, you know, Mike's, you've known us for many, many years. So for about 30 years, we were a regulated investment company, BDC, so we were limited to about one to one debt to equity. So we've always kind of operated at a low leverage ratio. So we re-financed that debt, as you know, that was nice to put behind us. We have debt coming due in March 2024, which we re-financed as we announced on September 30th. So we don't anticipate adding significant new debt if any debt at all for the next year or so.

Andrew Murstein: In terms of the outlook for 2024, I'd say overall, we're pretty optimistic as the numbers continue to show when the results continue to show. We've had strong loan demand in RV marine, home improvement, mezzanine continues to be very strong too. This is probably one of the highest deal flow we've seen from that division in the 25 years that we've owned them. So across the board, continued growth. Hopefully, more collections from the Middion portfolio.

Andrew Murstein: We've done a great job collecting on a lot of loans there. We still are owed about $200 million and we'll do whatever we can to collect as much of that. You have congestion pricing hitting New York City soon. So that could be a boost for the Middion prices when they try to keep consumer cars out of the city. More people ideally will be taking taxis as well as rubers.

Michael Grondahl: And we increased the dividend. So as everybody can sit back and watch the growth in 2024, they'll be able to receive a $0.40 per share dividend. So overall, I'd say we're bullish on the year ahead. Great. Hey, thanks again. Thank you.

Christopher Nolan: Our next question comes from the line of Christopher Nolan with Leidenboke Talman. Peace the head. I entered. Does I hear you say there was $200 million in the Dallions outstanding? That's what we're owed. Correct. As you know, they're written down to a much lower number. It's less than 1% of our assets today, but that's how much legally we're owed. The collections can come through by either foreclosing on the Middions, which are worth about about 150 or so.

Christopher Nolan: Now in New York City, we're carrying them, as you know, at a lower number, but all these, and we've been seeing this for many, many years, all the loans have personal guarantees attached to them. So thankfully, we're seeing a lot of settlement this year. I don't know if the borrowers are bullish on the congestion pricing plan, which is business in general, but they're coming in and settling with us. So hopefully that continues, for the $9.4 million Medallion recovery in the fourth quarter.

Christopher Nolan: Why is that a gain? Shouldn't that be a recovery? So I know it is a recovery. It's going to be a benefit and a provision. So these assets had been written down to a book value of $1.4 million. So it's the difference between you know, the cash collected in the asset that goes away. That's the $8 million. Okay, so that's simply just, we couldn't potentially have a lower loan loss provision than normal, right? Right. Yes. So that $8 million should all flow through as a benefit in the loan loss provision. That's correct.

Christopher Nolan: And then were you thinking of taking the reserve ratio? You know, so currently, you know, we're around $4.20 on REC and just about $2.20 or so on home improvement. We think those, we think those are good numbers. So, you know, in connection with the adoption of CSO on January 1, we do a lot more quantitative forecasting and we look at future expected losses. You know, if the economy were to take a sudden downturn, which we've been expecting, that, you know, those rates could step up. But if we continue with the pace where we are, we think those are good numbers and that's where the allowances should remain.

Christopher Nolan: Okay, and then given final question, given your comments in terms of loan growth to moderate, should we expect relatively, what does moderate mean? I mean, what's work for you looking? So, I think in the nine months, we, you know, consumer loans grew around 16%. And we've been experiencing, you know, 20 to 30% growth year over year in those two categories. And that was good. And, you know, we intentionally did that and made those, you know, took the opportunity to take these recoveries in this capital that we generated from these medallion collections and, you know, reinvested in the business.

Christopher Nolan: I think going forward, we would expect somewhere in the ballpark of 8 to 12% growth, you know, with the ability to increase that or decrease it as necessary. I think, you know, growing at, growing at 20% is different when you've got a hundred million, a billion dollar balance sheet as opposed to growing at 20% when you've got a two and a half billion dollar balance sheet.

Christopher Nolan: Okay, so for me, thank you. Thank you.

Matthew Howlett: Our next question comes from the line of math, howlet with B-riby securities. Please go ahead. Oh, hey, thanks. Thanks for taking my question. Another fine quarter. And there just seems to be disconnect between, you guys are performing with the market to use you at. And I want to get to that. But the first question is, you know, the, with the moderation alone growth, the excess capital, you just raised the dividend. You have a high class problem, you have a lot of capital, you're above, I think, 50, well, about 50%. And it looks like you'll generate more capital. You've got that gain coming into the third quarter, so you're already got sort of 25 cents in the bank already.

Matthew Howlett: My question to you, is exit, could you, you know, what do you think about terms of excess capital, could you get more aggressive buying another platform, buying back shares, just talk to me about, you know, what you've been running at this breakback speed and long growth, it's good to slow, it's good to free up a lot of capital, you've got great earnings. Anything we should think about in terms of that capital.

Matthew Howlett: I think while we're always looking at new businesses and acquisitions, it's really not a good time to go off base and go into new lines of business. All of our businesses are doing so well, so we're going to continue to focus on them. I'd say that we probably have a lot of good options since we don't plan on going into new businesses. That could be buying back more stock. Last year, I think we bought about 10% of the company back in 2022.

Matthew Howlett: The buy back is another $20 million to go. Let's just raise the dividend as you state. We're now paying $0.40 a share, so we raised to 25%. So we can put more money into the bank if need be. If we're surprised and loan growth is stronger and we're able to really pass on a lot of the increases and prices to our borrowers and charge more, that's always a good option for us to, but it's nice to have options.

Matthew Howlett: I think the one thing that I'd add to that is we do have a large amount of capital, regulatory capital at the bank, but we also have a high minimum that we've got to maintain a 15% capital maintenance ratio as you're aware. So given the size of book that we have now, a slight deviation because of CSOL in what we need to record as an allowance, could have a meaningful impact on that ratio.

Matthew Howlett: So if we need to stay at 15%, staying just about 15%, at the size we are doesn't actually, it doesn't work for us. So we need a larger buffer to account for that variability, which we haven't yet experienced in the nine months since we've adopted CSOL, but if the economy does take a downturn, you know, we might. And I think that's why we want to make sure that we've got ample capital cushion as well as what Andrew said, you know, increasing the dividend and providing other sharehold of returns that we can.

Matthew Howlett: Yeah, look at the high class problem having. It looks like your capital generation is only going to increase. So when I look at 5.11, the charges, and most of the banks have been out there saying, you know, charge up on their credit card, or auto is going to be kind of pre-pandemic levels in, you know, five early next years. You guys are a little over, you guys are almost, you guys are not quite there, but you're almost your charges.

Matthew Howlett: When I look at that chart, though, given the moving up in credit, the, you know, the cycle, the more home improvement you have, I mean, you kind of show a 6% charge up in 2009, but it doesn't seem like you're ever get, ever close to that, you know, even if we go into a major recession. Yeah, I, you know, we hope not. You know, I think what I said earlier was, you know, is important.

Matthew Howlett: You know, just, just in 2018, two thirds of our recreation of portfolio was subprime. You know, we can subprime. That's the regulatory definition, 665L. Today, that's a third. So we've, we've drastically changed the, the credit quality of this portfolio over a number of years, and we hope that that, as well as, you know, in the past year, stepping up the rate that we're getting a new origination.

Matthew Howlett: So we think that all of those things are, you know, good steps and should help us, you know, Dowdably when we hit the next downturn.

Matthew Howlett: My final question is for both of you, and especially Andy, you've been obviously running the company a long time ago.

Matthew Howlett: What's the disconnect between the numbers you're putting out, the 20 plus ROEs, the significant discount to book? What's the disconnect between your performance and the market? Are people just looking at prior cycles or looking at the banks? They're not appreciating, you're underwriting, you're moving up in credit, you know, all your pricing. What can you just maybe just go over that for me?

Andrew Murstein: Thank you very much. Yeah, that's a definite answer. It's a great question, though. You know, years ago, you're right, we've been at this a long time, in the late 90s and then we were making a dollar a share, the stock was at 30, we were trading at 30 times earnings. Now we're at this, you point out in your note this morning, Matt, I don't know, three and a half times earnings, it's kind of shockingly low.

Andrew Murstein: So I really hope we just can get in front of more buyers, more institutional buyers, you know, doesn't take much to move the needle if we can get some good institutional support in the stock and a large volume of stock being bought that will surely drive up the price. And we're doing more conferences, getting more eyeballs, getting more phone calls these days. So I just think if we continue to produce, it's going to be hard for the market to ignore us for much longer.

Andrew Murstein: Yeah, looking at the tax and medallions now at tailwind for you, you know, given we already have 8 million in pre-tax again, and I can't wait, did I read that correctly? Yes, exactly. Yeah, that's been, you know, icing on the cake for us to less, we're a pretty big cake, I guess, because we're collecting a lot of money there. So we'll continue to do so, I hope, again, the business is picking out the medallion business.

Andrew Murstein: It bought them down at about 79,000, a medallion, it's been picking up ever since the last few years. Yeah, and I would just say that this is consistent, what we're experiencing in the medallion space right now, it's consistent with what Andrew and management here has been saying all along, if you go back a number of years when we were in the height of the issue that the tax and medallion space was encountering, we always knew when we were transparent about it that eventually we get to a point where the prices aren't going to go down any further.

Andrew Murstein: And at that point, then we would benefit as we had already taken the pain. So I think that's what we've experienced, not just the past nine months, but also last year as well. Well, that just looks like there's significant off-balance value in those taxes. It's obviously a huge challenge here, Ernie's going forward on top of really great performance in it. And hopefully we'll see people will see the performance first, what we're seeing from the banks, what the problem is they're experiencing in some of your performance.

Matthew Howlett: So congratulations, thanks Anthony, thanks Anthony, thanks a lot. Thank you, Matt.

Operator: Thank you.

Andrew Murstein: As there are no further questions, I would now hand the conference over to Andrew Murfstein, President for any closing comments. Thank you again for joining us this morning. Our company is doing well and we have a lot to be proud of. We're working hard and seeing great results, a position as well to continue to deliver shareholder value. As always, if you have any questions, please feel free to contact our Investor Relations team. The contact information is on the last page of our earnings supplement as well as the IR section of our website.

Operator: Thanks again and have a great rest of your day. Thank you.

Operator: The Conference of Medallion Financial has now concluded. Thank you for your participation. You may now disconnect your lines.