Q1 2024 Medallion Financial Corp Earnings Call
Operator: Good day, and welcome to the Medallion Financial Corporation First Quarter Earnings Conference Call. Today, all participants will be in a listen-only mode.
Good day and welcome to the Medallion Financial Corporation first quarter earnings Conference call all participants.
Speaker Change: Thinks will be in a listen only mode should you need assistance during todays call. He said no for a conference specialist by pressing the star key followed by zero.
Operator: Should you need assistance during today's call, please signal for a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Operator: To withdraw your question, please press star, then two. Please note that today's event is being recorded. I would now like to turn the conference over to Ken Cooper with Investor Relations. Please go ahead, sir.
Please note that today's event is being recorded.
I would now like to turn the conference over to you Ken Cooper with Investor Relations. Please go ahead Sir.
Ken Cooper: Thank you and good morning everyone. Welcome to Medallion Financial Corp.'s first quarter earnings call. Joining me today are Andrew Murstein, President and Chief Operating Officer, and Anthony Cutrone, Executive Vice President and 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 provisions of 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 those expressed.
Ken Cooper: Thank you and good morning, everyone welcome to medallion financial Corp's first quarter earnings call. Joining me today are Andrew Burstein, President and Chief operating Officer, and Anthony control Executive Vice President and 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 provisions of 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.
Ken Cooper: 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 first quarter supplement presentation on our website by visiting medallion.com and clicking Investor Relations. The presentation is near the top of the page. With that, I'll turn it over to Andrew Murstein, President. Thank you, Ken. Good morning, everyone.
Speaker Change: 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 <unk>.
Speaker Change: In addition to our earnings press release, you can find our first 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 <unk> President.
Andrew M. Murstein: Coming off a record-breaking 2023, we had a nice start to 2024, which included growing our loan portfolio on strong bottom-line performance. Our recreational lending segment had a standout quarter and is now at $1.4 billion. Originations were up 4% versus the prior year quarter. We continued to originate new loans at elevated interest rates as compared to prior years, and the segment's average interest rate was up 38 basis points to 14.80% at quarter end. The average loan size in our portfolio stayed at roughly $20,000.
Andrew M. Murstein: Thank you Ken good morning, everyone.
Andrew: Coming off a record breaking 2023, we had a nice start to 2024.
Andrew: This included growing our loan portfolio and strong bottom line performance.
Andrew: Recreational lending segment had a standout quarter and is now at $1.4 billion originations were up 4% versus the prior year quarter.
Andrew: We continued to originate new loans at elevated interest rates as compared to prior years and the segment's average interest rate was up 38 basis points to 14, eight zero percent at quarter end.
Andrew: The average loan size in our portfolio stayed at roughly $20000.
Andrew M. Murstein: Our allowance for credit loss level of 4.40% was up from 4.12% a year ago. Additionally, our other major consumer lending business, the Home Improvement Lending Segment, grew approximately 12% over the prior year quarter to $752 million. This growth rate came down from the last year or so as origination activity slowed due to credit tightening. This segment continues to be focused on super prime borrowers with credit scores in the mid to upper 700s, which keeps our delinquency and loss levels low.
Andrew: Allowance for credit loss level of 4.40% was up from 4.12% a year ago.
Andrew: Our other major consumer lending businesses, the home improvement lending segment grew approximately 12% over the prior year quarter the $752 million.
Andrew: This growth rate came down from the last year or so as origination activity slowed due to credit tightening.
Andrew: This segment continues to be a focus on super Prime borrowers with credit scores in the mid to upper seven hundreds, which keeps our delinquency and loss levels low.
Andrew M. Murstein: Our average interest rate for the Home Improvement Lending Segment was 9.60% at quarter end, with 77 basis points of increase from a year ago, reflecting our ability to pass on some of the Fed rate increases to our borrowers, just like we have done in the REC Lending Segment. Our allowance for credit loss level of 2.38% was up slightly from 2.19% a year ago. Our commercial lending segment had a strong quarter and included an equity investment exit, which resulted in a $4.2 million net gain.
Andrew: Our average interest rate for the home improvement lending segment was 926 zero percent at quarter end with a 77 basis points of increase from a year ago, reflecting our ability to pass on some of the fed rate increases to our borrowers just like we have done it in the rec lending segment.
Andrew: Our allowance for credit loss level of 2.38% was up slightly from the $2, one 9% a year ago.
Andrew: Our commercial lending segment had a strong quarter and included an equity investment exit which resulted in a $4.2 million net gain.
Andrew M. Murstein: The loan portfolio is up 12% to $106 million, and our average interest rate is 58 basis points to 13.0%. Our goal is to grow this segment prudently over time, and although exits can be unpredictable, they are key elements of the return on the business. The segment generated after-tax earnings of $3.6 million during the quarter.
Andrew: The loan portfolio was up 12% to $106 million with our average interest rate of 58 basis points to 13.0%.
Andrew: Our goal is to grow this segment prudently over time, although exits can be unpredictable. There are key elements of the return on the business.
Andrew: The segment generated an after tax earnings of $3 6 million during the quarter.
Andrew M. Murstein: Finally, our Taxi Medallion segment collected $3.1 million in the first quarter. As we indicated on our call last quarter, we expect a sizable slowdown in cash collections related to Taxi Medallion assets if our first quarter unfolded as expected. During the quarter, cash collections translated into $1.6 million of net benefits to the income statement, and the segment continued to be profitable, generating after-tax net income of approximately $600,000. Our strategy continues to be to increase net interest income through smart loan growth with pricing that is optimal given the markets and competitive pressures we face. We expect to maintain high credit standards and use pricing to our advantage.
Andrew: Finally, our taxi medallion segment collected $3 1 million in the first quarter.
Andrew: As we indicated on our call last quarter, we expect a sizable slowdown in cash collections related to taxi medallion assets on our first quarter unfolded as expected.
Andrew: During the quarter cash collection has translated into $1 6 million of net benefits to the income statement and the segment continues to be profitable generating after tax net income of approximately $600000.
Andrew: Our strategy continues to be to increase net interest income through smart loan growth with pricing that is optimal given the markets and competitive pressures we face.
Andrew: We expect to maintain high credit standards and use pricing to our advantage, we anticipate loan growth to continue to moderate similar to 2023 and the levels. We saw in 2022.
Andrew M. Murstein: We anticipate loan growth to continue to moderate, similar to 2023 from the levels we saw in 2022. Finally, during the first quarter, we used some of our excess cash to buy back $2.1 million of our common stock. Our authorized share buyback plan has $17.9 million remaining of the $40 million approved, and going forward, you should expect us to use it opportunistically rather than on any regular cadence. Our share buyback activity, together with our $0.10 per quarter dividend and net income performance, continues to deliver positive results for our shareholders. 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.
Andrew: Finally during the first quarter, we used some of our excess cash to buy back $2 $1 million of our common stock.
Andrew: Our authorized share buyback plan has $17 $9 million remaining of a $40 million of crude and <unk>.
Andrew: Forward, you should expect us to use it opportunistically rather than on any regular cadence our share buyback activity together with our 10 cents per quarter dividend and net income performance continues to deliver positive results for our shareholders.
Andrew: With that I will now turn the call over to Anthony who will provide some additional insight into our quarter.
Anthony N. Cutrone: For the quarter, net interest income grew 10% to $47.9 million from the prior year, driven by increased interest rates on new loan originations and growth in our loan portfolio during the past 12 months. Our net interest margin on gross loans was 8.1% for the quarter, down 32 basis points from the first quarter last year and down 10 basis points from the fourth quarter of 2023. Compression in our NIM continues to be attributable to the higher interest rate environment, with our average cost of funds increasing 100 basis points from last year, offset by a 56 basis point increase in our yield as we continue to pass along a portion of these higher rates on new originations.
Anthony: Thank you Andrew good morning, everyone.
Anthony: For the quarter net interest income grew 10% to $47 9 million from the prior year.
Anthony: Driven by increased interest rates on new loan originations and growth in our loan portfolio during the past 12 months.
Anthony: Our net interest margin on gross loans was eight 1% for the quarter down 32 basis points from the first quarter last year and down 10 basis points from the fourth quarter of 2023.
Anthony: Compression in our NIM continues to be attributable to the higher interest rate environment with our average cost of funds, increasing 100 basis points from last year.
Anthony: Offset by a 56 basis point increase in our yield as we continue to pass along a portion of these higher rates on new originations.
Anthony: Yeah.
Anthony N. Cutrone: During the quarter, we originated recreation loans at an average rate of 15.31 percent and home improvement loans at an average rate of 12.05 percent, both in excess of the current weighted average coupons on those portfolios at 14.8 and 9.6 percent.
Anthony: During the quarter, we originated recreation loans at an average rate of 15.31% and home improvement loans at an average rate of 12.05% both in excess of the current weighted average coupons on those portfolios at 14.8 and nine 6%.
Anthony N. Cutrone: As we've said in the past, and which still holds true today, given the fixed-rate nature of our loans, increasing the average coupon and yield is a slow process, slower than the rise in the cost of funds. That said, we do anticipate that our average coupon and yield will continue to increase well after our cost of funds plateaus, at which point the compression we've seen in our margin should reverse and begin to expand.
Anthony: As we've said in the past and which still holds true today, given the fixed rate nature of our loans, increasing the average coupon and yield is a slow process slower than the rise of cost of funds.
Anthony: That said, we do anticipate that our average coupon in yield will continue to increase well after all cost of funds Pal I chose at which point the compression we've seen in our margin should reverse and begin to expand.
Anthony N. Cutrone: Although we do still expect additional compression over the next several quarters, we believe that we are closer to the bottom than not, and despite further compression anticipated, we do believe that our level of NIM positions us well above industry norms. During the quarter, we originated $173 million in loans, with total loans outstanding increasing 12% to $2.2 billion from a year ago. And we saw our yield increase to 11.34% from 10.78% over the same period.
Anthony: Although we do still expect additional compression over the next several quarters. We believe that we are closer to the bottom than not despite further compression and anticipated we do believe that our level of NIM positions us well above industry norms.
Anthony: Yeah.
Anthony: During the quarter, we originated 173 million of loans with total loans outstanding increased 12% to $2 2 billion from a year ago, and we saw our yield increased to 11.34% from 10.78% over the same period.
Anthony N. Cutrone: We maintain tighter credit criteria, which is consistent with our view of ongoing uncertainty in the economy. Non-prime recreation loans were 36% of the portfolio, and non-prime originations during the quarter were 30% down from the 34% and 35% levels originated during the full 2023 and 2022 years. Our home improvement portfolio continues to be overwhelmingly prime and super prime credit, with only 1% of loans being non-prime. Our provision for credit loss was $17.2 million for the quarter, compared to $4.0 million in the prior year quarter.
Anthony: We maintained tighter credit criteria, which is consistent with our view of ongoing uncertainty in the economy.
Anthony: Non prime recreation loans with 36% of the portfolio and non prime originations during the quarter was 30% down from the 34% and 35% levels originated during the full 2023 and 2022 years.
Anthony: Our home improvement portfolio continues to be overwhelmingly prime and Super Prime credits with only 1% of loans being non prime.
Anthony: Our provision for credit loss was $17 2 million for the quarter can catch a 4.1 million in the prior year quarter.
Anthony N. Cutrone: The provision included a net benefit related to tax and Medallion loan recoveries of $900,000 in the current quarter, compared to a net benefit of $7.1 million in the prior year quarter. Higher charge-off activity in both consumer products, partly attributable to seasonality, the lower taxing Medallion recoveries and benefits, along with increases in credit loss allowance related to growth in the recreation portfolio, were the key drivers related to our change in provision from a year ago. Operating expense was $18.2 million during the quarter, which was down sequentially from $19.1 million in the fourth quarter and down slightly from $18.4 million in the first quarter of 2023.
Anthony: Provision included a net benefit related to taxi medallion loan recoveries of 900000 in the current quarter compared to a net benefit of $7 1 million in the prior year quarter.
Anthony: Higher charge off activity in both consumer products.
Anthony: Partly attributable to seasonality the lower taxi medallion recoveries and benefits along with increases in credit loss allowance related to growth in our recreation portfolio were the key drivers related to our change in provision from a year ago.
Anthony: Operating expense was $18 2 million during the quarter.
Anthony: Which was down sequentially from $19 1 million in the fourth quarter and down slightly from $18 4 million in the first quarter of 2023.
Anthony N. Cutrone: A quarterly supplement on our website shows how, over the past several years and continuing into the current quarter, operating expense as a function of net interest income has migrated lower. Quarter to quarter, this may fluctuate, but you can see that over time, the growth in our net interest income has well outpaced any growth in operating costs as we continue to grow and scale our lending businesses. For the quarter, net income attributed to Medallion Financial shareholders was $10 million.
Anthony: Our quarterly supplement on our website shows how over the past several years and continuing into the current quarter. How operating expense is a function of net interest income has migrated lower.
Anthony: Quarter to quarter. This may fluctuate, but you can see that over time the growth in our net interest income has well outpaced any growth in operating costs as we continue to grow and scale our lending businesses.
Anthony: For the quarter net income attributable to medallion financial shareholders was $10 million.
Anthony N. Cutrone: Forty-two cents per diluted share. That covers our first quarter results. Andrew and I are now happy to take your questions. Thank you. We will now begin the question and answer session. As a reminder, to ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
Anthony: 42 cents per diluted share.
Speaker Change: That covers our first quarter results, Andrew and I are now happy to take your questions.
Speaker Change: Okay.
Speaker Change: Yeah.
Anthony: Okay.
Anthony: Yeah.
Operator: To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Christopher Nolan on behalf of Leidenberg-Solomon. Please proceed. Hey guys, um, let's see, um... Anthony, do you know what the non-performing loan volumes are for the quarter? Seasonally, you know, those numbers are higher throughout the first quarter as we come out of our slow period and work down. But if you know, we'd look at the end of the. You looking for delinquencies? Yeah, 90 day plus to link.
Speaker Change: Thank you we will now begin the question and answer session. As a reminder to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: And today's first question comes from Christopher Nolan with Ladenburg Thalmann. Please proceed.
Christopher Whitbread Patrick Nolan: Hey, guys, let's see.
Christopher Whitbread Patrick Nolan: Anthony have you got do you know what the nonperforming loan volumes were in the quarter.
Christopher Whitbread Patrick Nolan: Seasonally.
Christopher Whitbread Patrick Nolan: Those numbers are higher throughout.
Anthony: Throughout the first quarter as we come out of our slow period and work down.
Anthony: You know, we'd look at the end of them.
Anthony: You're looking for delinquencies.
Anthony: Yeah, 90 day plus delinquencies.
Anthony: Yeah.
Christopher Whitbread Patrick Nolan: Yeah. We're just pulling it together. On the rec, it's 6.4 million, 1.4 in home improvement. Okay, so it's down a quarter of a quarter. Last quarter was 13, yeah, and it's typical what we see, you know, seasonally, is... November, December, January, things are slower, especially in the wreck side of the business. People aren't towing their trailers, and they're not getting on their boats, but that starts to improve as the weather starts to improve.
Anthony: We're just pulling it up okay.
Anthony: On the rack, it's $6 4 million.
Anthony: 1.4 and home improvement.
Anthony: Yeah.
Anthony: Gotcha.
Anthony: Okay. So it's down quarter over quarter last quarter was $13 8 million so.
Anthony: A fair assessment.
Speaker Change: Yeah, and it's a it's typical what we see you know seasonally as you know.
Speaker Change: November December January you know things are slower, especially in the rec side of the business.
Speaker Change: People aren't telling their trailers and then getting on their boats, but ER, but that starts to improve whether it starts to improve.
Christopher Whitbread Patrick Nolan: All right, and then have you guys sort of heard any flexibility from regulators in terms of reserve requirements? You know, in the past, regulators have sort of come down in terms of not having the reserves sort of be like an earnings piggy bank. And see whether or not there's more flexibility for financial services companies like yours to boost reserves. It's our reserve and our allowance model isn't predicated upon necessarily what the regulators want. It's the models that we've put together, particularly with the implementation of CECL.
Speaker Change: Alright, and then have you guys sort of heard any flexibility from regulators in terms of reserving you know in the past regular sort of come down in terms of not having the reserves where it'd be like earnings piggyback.
Speaker Change: And see whether or not there's more flexibility for.
Speaker Change: Financial services companies like yours, too boost reserves more than.
Speaker Change: You know our reserving in our allowance model is predicated upon you know necessarily what the regulators want. It's you know it's the models that we've put together, particularly with the inflammation that implementation of seasonal so we look at the historic losses, We look at you know economic factors.
Christopher Whitbread Patrick Nolan: So we look at historic losses, we look at economic factors, but there's really no flexibility there as it pertains to the regulators' desires. And then, on that note, given that you don't have flexibility on the reserve... Yeah, I mean, at the end of the quarter, we're at 16.4. So, you know, we need to maintain at least 15% based upon our capital maintenance. Medallion Bank.
Speaker Change: But theres really no flexibility there you know as it pertains to the regulators desires.
Speaker Change: Okay, and then on that note given that you don't have flexibility on the reserving any plans to boost.
Speaker Change: Capital ratios at all or are you going to continue to run into similar capital ratios.
Speaker Change: At the end of the quarter were $16. Four so you know, we we need to maintain at least a 15% based upon our capital maintenance.
Christopher Whitbread Patrick Nolan: So we're comfortable that we stay above that number. Final question, tax rate, it went up in the quarter. See the link in the description below. It's seasonal, non-deductible expenses, different aspects of the code get picked up in the first quarter. That should smooth out to a lower rate as we go through the year. Thanks, Chris.
Speaker Change: Wyman at medallion bank. So we're comfortable that we stay above that number.
Speaker Change: Alright final question tax rate it went up in the quarter shall we expect a higher tax rate in 2024 or is it just sort of a seasonal thing yeah. Its seasonal you know nondeductible expenses, you know different aspects of the code you know get picked up in the in the first quarter that should smooth out to you know a lower rate as we go through the year.
Speaker Change: Okay. That's it for me thank you.
Speaker Change: Thanks, Chris.
Speaker Change: Yeah.
Operator: The next question comes from Michael Grondahl with Northland Capital Markets. Please proceed. Hey guys, this is Luke on behalf of Mike.
Speaker Change: The next question comes from Mike Grondahl with Northland Capital markets. Please proceed.
Speaker Change: Hey, guys. This is Luke on for Mike.
Michael John Grondahl: Just looking at the P&L, so this was the first quarter in a while where net interest income dropped sequentially, I think down just over a million from 4Q. So, wondering if you guys could just talk a little bit about what drove this and then how you're sort of thinking about this line item as we progress into 2Q and into the back half of the year. I'm sorry, could you just rephrase that question real quick?
Luke: Just looking at the P&L. So this was the first quarter in a while where net interest income dropped sequentially I think down just over a million from for Q. So wondering if you guys could just talk a little bit about what drove this and then how you're sort of thinking about this line item as we progress into two Q end and into the back half of the year.
Speaker Change: I'm sorry could you just.
Speaker Change: Just to rephrase that question real quick.
Michael John Grondahl: The net interest income dropping sequentially by a little over a million, I'm just wondering about what drove that in the quarter since it's sequentially gone up the past several quarters. Yeah, so we, you know, it's a function of our volume. So, as you know, our home improvement book stayed pretty stagnant from December. We did grow our REC portfolio a little bit, but total loans only grew about a half percent in the three months. So that's what's going to drive it.
Speaker Change: Net interest income dropping sequentially.
Speaker Change: By a little over a million.
Speaker Change: So just wondering about what drove that in the quarters since it's sequentially gone up for the past several quarters yeah. So we.
Speaker Change: It's a function of our volume so as you.
Speaker Change: You know our home improvement book stayed.
Speaker Change: Pretty pretty stagnant from December we did grow our rec portfolio, a little bit, but you know total loans only grew less you know about a half a percent you know in the three months so.
Speaker Change: So that's going to that's going to drive it we've seen an increase in our cost of funds you know we've been transparent about that we've seen that.
Anthony N. Cutrone: We've seen an increase in our cost of funds. We've been transparent about that.
Anthony N. Cutrone: I think looking ahead, we don't anticipate that to be a trend that continues. Um, you know... April, our volumes were quite strong. We originated about $100 million in loans, 80% of those in REC. And just given where those rates are right now, we expect net interest income to start increasing, beginning with Q2. Got it. That's helpful.
Speaker Change: I think I think looking ahead, we don't anticipate that to be a trend that continues.
Speaker Change: You know <unk>.
Speaker Change: April our volumes were quite strong we originated about $100 million in loans, 80% of those in and rack and just given where those rates are right. Now we expect our net interest income to you now start stop.
Speaker Change: Start increasing you know beginning with Q2.
Speaker Change: Okay.
Speaker Change: Got it that's helpful.
Speaker Change: And then just looking at the E. P. S. The 42 cents and then you back out the four cent.
Speaker Change: Medallion collection benefit and then as far as that 4.2 million equity gain in the quarter. If we kind of back that out more of a core EPS number for the quarter be like at 25 cents.
Michael John Grondahl: And then just looking at the EPS, the $0.42, and then if you back out the $0.04 Medallion Collection Benefit, and then as far as that $4.2 million equity gain in the quarter, if we kind of back that out, should more of a core EPS number for the quarter be like a $0.25? Yeah, we don't, um, you know, they do. Regarding that $4.2 million game, that's tied to our So we don't view that as a non-core item.
Speaker Change: We don't.
Speaker Change: Okay.
Speaker Change: Regarding that $4 $2 million game, that's that's tied to our commercial lending business.
Speaker Change: So we don't we don't view that as a non core item its not a one off investment that's part and parcel with that business and what we do there.
Anthony N. Cutrone: It's not a one-off investment. That's part and parcel with that business and what we do there. The equity investments are probably 10% of the overall commercial assets, so we wouldn't back that out. Unfortunately, those don't model out well.
Speaker Change: Equity investments are probably 10% of the overall commercial assets.
Speaker Change: So we wouldn't back that out.
Speaker Change: Unfortunately, those those don't model out well you know that their equity investments and you know P. And you know you know sponsors backed companies.
Anthony N. Cutrone: Their equity investments and PE and sponsors back companies. So we never know when these things will exit, but they do, and we've shown a track record of them doing it. But, yeah, we wouldn't back that out. The four cents, you know? We quantify that because, you know, that's what we did all through 2023, just given the sizable amount of recoveries we had. We wanted to make sure that, you know, the readers and the shareholders understood what was going on. We collected $3 million in cash.
Speaker Change: So we never know when these things do exit, but what they do and we've shown a track record of them doing it so but yeah, we wouldn't back that out the four cents, we quantify that because that's what we've done all through 2023, just given the sizeable amount of recoveries. We had we wanted to make sure that you know the.
Speaker Change: The readers and your shareholders understood what was going on.
Speaker Change: We collected $3 million of cash you know, we've got $10 million of exposure.
Michael John Grondahl: We've got $10 million of exposure. On a run rate basis, we think that we could collect anywhere between 1.5 and 2.25 going forward, based upon where our portfolio is positioned. It's going to generate, you know, the bottom line, quarter in, quarter out. As Andrew said, after tax, we did about $600,000 in that segment. And again, you could back it out, but I don't necessarily, we wouldn't. Okay, yeah, no, that makes sense.
Speaker Change: You know on a on a run rate, we think that we collect anywhere between one and a half and two a quarter going forward based upon where our portfolio is positioned.
Speaker Change: It's going to generate you know bottom line you know you know quarter in quarter out as Andrew said, we after tax we did about $600000 in that segment. So.
Speaker Change: Again, you can you can back it out, but I don't necessarily we wouldn't.
Anthony N. Cutrone: And then, just lastly here, can you guys just touch on the month of April as far as originations and credit are concerned and any sort of trends you saw in the month of April? Yeah, so the volumes were good. I think we just said we originated, I think when we closed the month yesterday, we originated about $100 million in loans, 80 million of them in RECs. And just to give you an idea, in Q1, the rates we were getting on these originations averaged, Just over 12% in home improvement, 15.3% in REC, you know, and that's consistent with what we saw in April. So, you know, we're happy with that volume.
Speaker Change: Okay, Yeah, no that makes sense and then just lastly here can you guys just touch on the month of April as far as originations and credit and any sort of trends you saw in in the month of April Yeah. So volumes were good you know I think I would just.
Speaker Change: We originated.
Speaker Change: I think when we closed the month yesterday.
Speaker Change: We originated about $100 million in loans 80 million of them in Iraq, and just to give you an idea you know in Q1, you know the rates we were getting on these originations averaged.
Speaker Change: Just over 12% and home improvement 15, 3% in rack.
Speaker Change: And Thats consistent what we saw in a in April so I see.
Speaker Change: So you know where we're happy with that volume, we think those trends continue through Q2.
Anthony N. Cutrone: We think, you know, those trends will continue through Q2. And just as a point of reference, the $100 million was probably compared to about $80 million or so in April 2023, so it's up about 25%. Okay.
Speaker Change: And just as a point of reference the $100 million was probably compared to about $80 million or so in April 2023 so it's up about 25%.
Michael John Grondahl: Well, thanks for taking the time today, guys, and congrats on the quarter. Thank you. The next question is from Matthew Howlett with Nomura.
Speaker Change: Okay got it well thanks for taking the time today guys and congrats on the quarter. Thank you. Thank you.
Speaker Change: The next question is from Matthew Howlett with Nomura. Please proceed.
Operator: Please proceed. Oh, hey, guys. I would be Riley.
Matthew Philip Howlett: But hey, first, I got to congratulate you on the buyback. Both my congratulations to you for buying because you bought almost a quarter million shares. My question to you, Andrew, is with these, you know, you said that you'd be opportunistic with the buyback as you get these cash collections in from the medallions. I mean, how should we look at how much and how much do you want to execute on that? $17 million left in the authorization. Your stock is at a 30% discount. Clearly, it looks secretive to put Boney to work. See you later, bye-bye.
Matthew Philip Howlett: Oh, Hey, guys with B, Riley, but hey, I've got to congratulate you on the on the buyback.
Matthew Philip Howlett: My congratulations to you for buying it because it almost a quarter of million shares.
Matthew Philip Howlett: My question to you Andrew is with these.
Matthew Philip Howlett: You said that youll be opportunistic with the buyback as you get these cash collections income.
Matthew Philip Howlett: How should we view how much hum.
Matthew Philip Howlett: How much do you want to execute on that $17 million left on the authorization your stocks at a 30% discount to what I call. How I calculate tangible book do you do in the mid teens Roe.
Matthew Philip Howlett: Currently it looks accretive to put money to work.
Matthew Philip Howlett: The buyback.
Andrew M. Murstein: I think we'll get to the full amount eventually. It's just hard to predict the timing, and I would like to do what we say. So, the $40 million that was approved by the board, as you pointed out, we're more than halfway through. I'm a fan of buybacks. I think they're a good use of our capital at the appropriate times. So, it's just hard to predict. Sometimes, as Anthony just said, the volume looked great in April.
Speaker Change: I think we will get to the full amount eventually it's just hard to predict the timing and I relate to do what we say so the $40 million that was approved by the board as you pointed out we're more than halfway through I'm I'm a fan of buybacks I think there's a good use of our capital at the appropriate time.
Matthew Philip Howlett: It's just hard to predict sometimes it's Anthony just said the volume looked great in April so you.
Andrew M. Murstein: So, you know, we'll put more money to use there where the ROEs are so high for us in that REC portfolio. So it'll be sporadically with the stock drops when we have extra capital available. I think it's a good time to jump into the market and pick up cheap stocks. Yeah, I'd echo what Andrew just said.
Matthew Philip Howlett: We'll put more money to use there where the roe's are so high for us in that red portfolio.
Matthew Philip Howlett: So it would be sporadically and with the stock drops where we havent.
Matthew Philip Howlett: Extra capital available I think it's a good time to jump in the market and pick up cheap stock.
Speaker Change: Andrew just said and you know and just to.
Anthony N. Cutrone: And, you know, just to add to that, you know, again, our loan book grew half a percent in the quarter, and originations look really strong in April; we would expect that growth to be much higher in Q2. So to the extent that, you know, we didn't have to deploy capital for growth in Q1, we did have that availability of capital to give back to the shareholders. Gotcha. Just remind me again where the ending share count is currently. We'll get the exact number; it's 23 and change. 20 20, 23-377-564.
Andrew M. Murstein: To add to that you know again.
Speaker Change: One bucket grew half a percent in the quarter.
Matthew Philip Howlett: <unk> looked really strong in April we would expect that growth to be much higher in Q2, so to the extent that we.
Matthew Philip Howlett: We didn't have to deploy it in growth in Q1, we did have that availability of capital to give back to the shareholders.
Speaker Change: Got you and just remind me again, where the ending share count is it.
Matthew Philip Howlett: Currently.
Speaker Change: We'll get the exact number it's 23 and change.
Speaker Change: Well 20.
Speaker Change: 23 to $3 77 to $5 64.
Matthew Philip Howlett: Okay, good. Look, you can really work that down, and certainly that's going to be creative in any buybacks you do to our EPS, so congratulate yourself on that, and certainly appreciate the loan growth, but the buyback makes a lot of sense here at these valuations. Next question on... You know, on CDs and deposits, where do you stand, how far out are you going? I mean, people, I think generally agree it's higher for longer. I mean, how far are you going on the CDs?
Speaker Change: Okay, but.
Speaker Change: But you can really worked that down it and it certainly that's going to be accretive to any any any buybacks you due to our EPS so congratulate on that.
Speaker Change: I appreciate the loan growth, but the buyback it makes a lot of sense here.
Speaker Change: These regulations.
Speaker Change: Next question on.
Speaker Change: No.
Speaker Change: C DS in deposits when or where do you how far out are you going.
Speaker Change: I mean, it's hire people I think are generally agree it's higher for longer them, how how sorry already going on the C. DS I mean, how do you think about.
Matthew Philip Howlett: I mean, how do you think about, you know, the rate cycle here if we start to get some easing next year or late this year? Yeah, right, you know, three, four months ago was a different conversation than today, you know, we were looking at three rate cuts, maybe we get one now, I don't know, I'm not an economist, but, you know, typically we match fund, we're not, you know, to, you know, the expected life of our loans, we're not seeing a significant change, you know, maybe a few months have been tacked on to that average life that hovers, you know, between the two consumer products around 36 months, a little higher and a little lower depending upon the product, but, you know, we go out, you know, match funded, you know, we're still issuing, you know, three and five year CDs, some shorter term, but, um, but nothing drastic. Has CD pricing changed at all recently with the moving rates?
Speaker Change: The rate cycle here, if we start to get some easing next year or late this year.
Speaker Change: Yeah right.
Speaker Change: You know three or four months ago, it was a different conversation than today.
Speaker Change: We're looking at three rate cuts, maybe we get one now I don't know I'm not an economist.
Speaker Change: But typically we match fund we're not you know to the expected life of our loans, we're not seeing a significant change you know maybe a few months have been tacked onto that average life that hovers.
Speaker Change: Between the two consumer products around 36 months, a little little higher and a little lower depending upon the product, but we'd go out match funded you know we're still issuing you know three and five year Cds, some shorter term, but but nothing drastic.
Speaker Change: The CD pricing changed at all.
Speaker Change: You know, where you stand with the move in rates and I'm sure, it's probably up a little bit yeah. It it's up a little bit it's going to fluctuate.
Anthony N. Cutrone: I'm sure it's probably up a little bit. Yeah, it's up a little bit. You know, it's going to fluctuate. But we think we're closer to the top than not, so that's going to translate into higher interest expense as we go through the quarter, a little bit more compression in them, but I think we're positioned well, just given where we're at. It's like a pendulum, right?
Speaker Change: But it.
Speaker Change: We think we're closer to the top then there not now that's going to translate into you know higher interest expense as we go through that as the quarter, you know a little bit more compression in NIM, but but I think we're but I think we're positioned well just given where we're at.
Speaker Change: It's like a pendulum Raymond.
Matthew Philip Howlett: I mean, you'll start to move the other way when the Fed, you know, when the Fed stops or the Fed starts easing, and your rates, I guess the coupons coming down are gonna be slower than probably than you just on the liability side. In other words, do I think about the margin moving back to 9% over time to normalization or not? How do you sort of think about the margin in the next, oh, 24 months? Maybe it drops a little bit more. I don't think there's any substantial legs down.
Speaker Change: You start to move the other way with that said you know when the fed stops and.
Speaker Change: It starts easing in your you know your rate I guess, you use the coupons coming down or could it be slower than probably then you just on the liability side in other words do I think about the margin moving back to 9% over time for normalization or.
Speaker Change: How does this sort of thing with the margin the next 24 months.
Speaker Change: Yeah.
Speaker Change: Maybe it drops a little bit more I don't know.
Speaker Change: Theres any substantial legs down.
Speaker Change: But but then you know once.
Anthony N. Cutrone: Once our costs stop rising, you know, we've done a really good job of increasing the yield on our current book. And with new originations, you know, that's just going to continue. As the older, lower yielding loans, you know, roll off, the newer loans become more of a, you know, more prominent. You know, I think, I think it's that pendulum, right?
Speaker Change: Once our costs stop rising we've we've done a really good job of increasing the yield on our current book and with new originations. That's just going to continue to you know as the older lower yielding loans, you know roll off the newer loans become more of a you know more prominent.
Speaker Change: I think it's that pendulum right.
Matthew Philip Howlett: You know, we were swinging one way, but eventually, we're going to start expanding that. Yeah, an 8% margin is terrific just by itself. Any improvement that is just terrific. OK, look, we'll we can do the modeling on that last question. Try being mean.
Speaker Change: We're swinging one way, but eventually we're going to start expanding that NIM.
Speaker Change: Yes, 8% margins terrific just by itself.
Speaker Change: Any improvement that is just that is just terrific.
Speaker Change: Okay.
Speaker Change: We can do the modeling on that last question try beam.
Matthew Philip Howlett: Talk a little bit about the partnership. What could we put in our, how do we think about modeling it? I mean, I'm assuming this is capital light. You're really putting up no capital. You're getting some origination fee or success fee. And how many more of these could you do?
Speaker Change: Talk a little bit about the partnership.
Speaker Change: What can we put in or how do we think about modeling. It I mean I'm. Assuming this is capital light you really putting up no capital you're getting some origination fee or success C and how many more of these could you do.
Anthony N. Cutrone: So I think, you know, I don't think Andy would disagree with this; he'll tell me if he does. You know, I think, you know, the strategic partnership, you know, operations have been somewhat disappointing. We just haven't found the right partner that could generate the type of, you know, volumes that make this, you know, a viable business. We think we might have found that with this new partner. You know, they're backed by some strong companies and, you know, it's in a space that we understand really well. Primarily, you know, solar installations, so we know the business. It's a home improvement, and there's a lot of potential for significant volumes. It is a capital light.
Speaker Change: Yeah, So I think.
Speaker Change: I don't think Andy would disagree with this.
Speaker Change: He'll tell me if he does.
Speaker Change: You know I think you know.
Speaker Change: The strategic partnership you know operations have been somewhat disappointing. We just haven't found that right partner that could generate the type of you know volumes that make this a viable business. We think we might have that with this new partner.
Speaker Change: They're backed by some strong companies and and you know it's in a space that we understand really well. They do primarily you know solar installations. So so we know the business it's home improvement.
Speaker Change: And.
Speaker Change: And there's a lot of potential for significant volumes. It is capital light, maybe we look down the line to holding some of the paper longer term than than what we had initially well, but but you know where.
Anthony N. Cutrone: You know, maybe we look down the line to holding some of the paper longer term than we initially will, but you know, we're optimistic that this is going to be what makes this segment profitable. And again, full year, if it generates the type of returns we're expecting, we could think about adding another $1 or $2 million to the bottom line. Obviously, it's never going to eclipse the rec business. This is after the attack, something like..., five to ten cents or something a year. I think it could. It's hard to back up other people's projections.
Speaker Change: We're optimistic that this is going to be what makes this segment profitable and again.
Speaker Change: You know you know.
Speaker Change: Full year, if it if it generates the type of returns we're expecting you know, we could think about adding another one or $2 million to the bottom line.
Speaker Change: Obviously, it's never going to eclipse the rec business.
Speaker Change: So this is after tax something like.
Speaker Change: Five to 10 cents or something like this.
Andrew M. Murstein: As Anthony said, you see a lot of hockey stick projections in the fintech industry. This group, though, I think is heads and shoulders above many of the others that we've passed on through the years. It easily could add a million to two million dollars of earnings if they are coming through on the projection models that they gave us. So far, it looks pretty solid.
Speaker Change: I think it could you know, it's it's hard to back up other people's projections as Anthony say.
Speaker Change: So.
Speaker Change: You see a lot of hockey stick projections in the Fintech industry. So this group, though I think is heads and shoulders above many of the others that we've passed on through the years. So yeah. It easily if you there are millions of $2 million of earnings if they are coming through on the projection models that they gave us and so far.
Speaker Change: It looks pretty solid.
Andrew M. Murstein: No, look, that would be absolutely terrific, especially given you're really taking on no credit risk. You said maybe, over time, you could add some of these loans to the book, but now this is just, what, an origination fee, and that's it? Yeah, we'll probably hold the paper for anywhere from 30 to 90 days, a little bit of paper, and they're all 760-type FICO scores, so, you know, A-quality paper. Going forward, do you think, I know you said you had some misses on the FinTech side, but what do you think in terms of doing more deals like this?
Speaker Change: Yeah.
Speaker Change: No that was I would hope that that would be absolutely driven, especially given you're really taking on no credit risk and he said maybe over time you could add some of these loans to the book right. Now. This is just what an origination fee that's it yeah.
Speaker Change: We will probably hold the paper for anywhere from 30 to 90 days a little bit of paper.
Speaker Change: Yeah, they're all 760 type FICO scores, so a quality paper.
Speaker Change: Yes.
Speaker Change: <unk> do you think I know.
Speaker Change: You said you had some misses on the Fintech side, but what do you think in terms of doing more deals like this and it seems like.
Andrew M. Murstein: It seems like, you know, with the bank and, you know, some of these FinTech companies out there, is there room for other asset classes? Are you talking to other people? Anything exciting? And, you know, the misses aren't strikeouts.
Speaker Change: With the bank.
Speaker Change: Some of these fintech companies out there is is there room to do other asset classes are you talking to other people anything exciting.
Anthony N. Cutrone: They're just kind of, you're taking the pitch, meaning that you're not losing money, but it's not adding anything to the bottom line. So, exactly as you said, Matt, it's a fee business, so there's very little downside here. And the ROEs, if you look at the other banks that are public and that are in this sector, they're north of, well north of 20-25%. So, if done right, it's a very profitable business. Yes, the hope would be to add another player like this next year or so.
Speaker Change: And you know the misses are and.
Speaker Change: Strikeouts, they're just.
Speaker Change: Kind of taken the pitch, meaning that you're not losing money, but it's not adding anything to the bottom line. So as exactly as you said, Matt is a fee business. So there's very little downside here.
Speaker Change: And then the Roe's if you look at the other banks that are public and that are in this sector, they're north of well north of 20, 25%. So if done right. It's a very profitable business yes.
Speaker Change: Yes, the hope would be to add on another player like this next year or so.
Andrew M. Murstein: As good as this business is, you can't grow too fast because you have compliance risk here. So the bank, our bank, has an exceptional reputation with regulators. They do a great job for us, and you don't want to kind of stumble just for the sake of growth by adding volume. So they've been doing it very prudently, and I think we've been in it for three or so years now, so it's kind of matured to the point where, potentially, it could start to take off.
Speaker Change: As good as this business is you can grow too fast because you have compliance riskier, so the bank or bank has an exceptional.
Speaker Change: Reputation with regulators they do a great job for us and you don't want to kind of stumble just for the sake of growth by adding on volume. So they've been they've been doing it very prudently and I think we've been in it for three or so years now so it's kind of mature to the point, where potentially you could start to take off yeah. I think the compliance is key for us.
Andrew M. Murstein: Yeah, I think, you know, compliance is key for us, and there's a cost associated with that. So where other players in this space might be able to just originate massive amounts of volumes and operate on a margin of, you know, five to ten basis points, that model just doesn't work for us.
Speaker Change: And there's a cost associated with that so where other where other players in this space might be able to just originated massive massive amounts of volumes and operate on a margin of five to 10 basis points.
Speaker Change: That model just doesn't work for US you know, we're not we're not willing to jeopardize our franchise.
Anthony N. Cutrone: You know, we're not willing to jeopardize our franchise to operate on that thin of a margin, you know, so we're, client is, the key issue here, and you know, if this works and we can get more partners just like it, we're open to that, and that's what we're going to look to do. Look, I got to commend you. I mean, the ROE is clearly moving in the right direction with growth, the buyback, things like this really just go to improve an already pretty industry-leading ROE.
Speaker Change: To to operate on that sort of a margin.
Speaker Change: So were you know.
Speaker Change: Compliance is the key issue here and and you know if we if this works and we can get more partners just like it.
Speaker Change: We're open to that and that's what we're going to look to do.
Matthew Philip Howlett: So I have got to congratulate you guys and keep up the good work. Thank you. At this time, we are showing no further questioners in the queue, and this does conclude our question and answer session. I would now like to turn the conference back over to Andrew Murstein for any closing remarks. Thank you again for joining us this morning. We're off to a great start of the year, as you just heard. Each of our business segments has been part of this performance and has helped us navigate the current environment very well. Our teams are doing an excellent job of balancing growth in our loan portfolio and net interest income while maintaining high credit standards.
Speaker Change: Look I got to commend you mean, the ROE is clearly moving in the right direction, but with the growth of buyback things like this really just go to improve our already pretty industry, leading ROE. So I got to congratulate you guys and keep up the good work. Thank you I appreciate it.
Speaker Change: Yeah.
Speaker Change: At this time, we are showing no further questioners in the queue. This does conclude our question and answer session I would now like to turn the conference back over to Andrew Mercy for any closing remarks.
Andrew M. Murstein: We remain focused on delivering shareholder value, including earnings or dividends and periodic repurchases of our common stock. 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 in the IR section of our website. Thank you again and have a great rest of your day. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
Andrew M. Murstein: Thank you again for joining us. This morning, we're off to a great start of the year as you just heard each of our business segments has been part of this performance and have helped us navigate the current environment very well our teams are doing an excellent job of balancing growth of our loan portfolio and net interest income while maintaining high credit standards.
Andrew M. Murstein: We remain focused on delivering shareholder value, including earnings or dividends and periodic repurchases of our common stock as always if you have any questions. Please feel free to contact our investor relations team.
Speaker Change: The contact information is on the last page of our earnings supplement as well as the IR section of our website.
Speaker Change: Thank you again and have a great rest of your day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation and you may now.
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