Q2 2024 Medallion Financial Corp Earnings Call

Ken Cooper: Thank you and good morning everyone. Welcome to Medallion Financial Corp.'s second 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.

Thank you and good morning, everyone welcome to medallion financial Corp's second quarter earnings call. Joining me today are <unk>, President and Chief operating Officer, and Anthony <unk> Executive Vice President and Chief Financial Officer certain statements made during the call today constitute forward looking statements made pursuant to and within the mean.

Speaker Change: <unk> 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. Those risks and uncertainties are described in our earnings press release issued yesterday and in our filings with the SEC.

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 second 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.

Speaker Change: 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 second 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.

Andrew M. Murstein: Thank you, Ken, and good morning. We were pleased with another solid quarter. We produced $7.1 million of net income and $0.30 of earnings per share. For the first half of the year, we have delivered $17.1 million of net income to our shareholders. This has been driven by the performance of our loan portfolio and the high yields we earn. Looking at our segments, retail lending, our largest segment, had another strong quarter. The highlight was originating more than $200 million in loans.

Andrew: Thank you Ken and good morning, we were pleased with another solid quarter, we produced seven $1 million of net income and 30 cents of earnings per share for the first half of the year. We have delivered 17 1 million of net income to our shareholders. This has been driven by the performance over a law.

One portfolio and the high yields we earn.

Andrew: Looking at our segments Rec lending our largest segment had another strong quarter.

Andrew: The highlight was originating more than $200 million of loans importantly, most of these loans came from high interest rates as we continue to have success passing through elevated market rates to borrowers are.

Andrew M. Murstein: Importantly, most of these loans came from high interest rates as we continue to have success passing through elevated market rates to borrowers. Our average interest rate as of June 30th was 14.8%, up 18 basis points from a year ago. In addition, we continue to originate loans to individuals with stronger credit profiles in the prime and near prime segments of the credit spectrum. Our home improvement lending segment grew 6% over the prior year quarter and now sits at $773 million.

Andrew: Our average interest rate as of June 30th was 14, 8% up 18 basis points from a year ago.

Andrew: In addition, we continue to originate loans to individuals with stronger credit profiles in the prime and near Prime segment of the credit spectrum.

Andrew: Our home improvement lending segment grew 6% over the prior year quarter and now sits at $773 million.

Andrew M. Murstein: This segment continues to be dominated by super prime borrowers with strong credit scores. Like the REC segment, we have passed on some of the Fed rate increases to our borrowers, and our current average rate of 9.71% is 50 basis points higher than a year ago. Our commercial lending segment had a steady quarter, generating $500,000 of earnings. The loan portfolio grew 19% from a year ago and is now at $110 million with an average interest rate of 13.05%. I'd like to briefly mention two other items.

Speaker Change: This segment continues to be dominated by Super Prime borrowers with strong credit scores like direct segment. We have passed on some of the fed rate increases to our borrowers and our current average rate of 97, 1% is 50 basis points higher than a year ago.

Speaker Change: Our commercial lending segment had a steady quarter generating $500000 of earnings.

Andrew: Our loan portfolio grew 19% from a year ago and is now at $110 million with an average interest rate of 13.15%.

Speaker Change: I'd like to briefly mention two other items one after an absence of about five years. We were pleased to again be included in the Russell 3000.

Andrew M. Murstein: One, after an absence of about five years, we were pleased to again be included in the Russell 3000. This is another testament to the continued growth and performance of our company. And two, we continue to effectively deploy capital for shareholders. During the quarter, we repurchased $1.5 million of our common stock, which left us with $16.4 million remaining on our authorized $40 million share buyback plan. We have now utilized nearly 60% of the current buyback plan authorized just two years ago.

Speaker Change: This is another testament to the continued growth and performance of our company.

Speaker Change: And two we continued to effectively deploy capital for shareholders during the quarter, we repurchased $1.5 million of our common stock, which left us with 16.4 million remaining on our authorized $40 million share buyback plan.

Speaker Change: We have now utilized nearly 60% of the current buyback plan authorized just two years ago.

Andrew M. Murstein: We expect to remain opportunistic on any future share repurchase or share buyback activity, together with our $0.10 per quarter dividend and net income performance, to continue 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.

Speaker Change: We expect to reap mean opportunistic on any future share repurchases.

Speaker Change: Our share buyback activity together with her a 10 cent per quarter dividend and net income performance continues to deliver positive results for our shareholders.

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

Anthony N. Cutrone: Thank you, Andrew. Good morning, everyone.

Anthony: Thank you Andrew good morning, everyone.

Anthony N. Cutrone: For the quarter, net interest income grew 7% to $49.9 million from the prior year and grew 4% from the first quarter. Growth in our net interest income is driven by loan portfolio growth along with the increased rates charged on our recent loan originations, offset by higher interest expense as a result of increased borrowing costs and larger amounts borrowed. Our net interest margin on gross loans was 8.12% for the quarter, down 36 basis points from the second quarter of last year and up 2 basis points from the first quarter.

Anthony: For the quarter net interest income grew 7% to $49 9 million from the prior year and grew 4% from the first quarter.

Anthony: Growth in our net interest income is driven by loan portfolio growth along with the increased rates charged on our recent loan originations offset by the higher interest expense as a result of increased borrowing costs and larger amounts borrowed.

Speaker Change: Our net interest margin on gross loans was 8.12% for the quarter down 36 basis points from the second quarter of last year and up two basis points from the first quarter.

Anthony N. Cutrone: During the quarter, we originated recreation loans at an average rate of 14.94% and home improvement loans at an average rate of 11.67%, both in excess of current weighted average coupons in these portfolios. Current average origination rates in July are above 16% for recreation loans and around 11% for home improvement loans. For the past several quarters, we have been focused on increasing the average coupon and yield on our loan portfolio and will continue to do so with originations being at rates above that of our current portfolio. This is a slower process than we experienced with the rise in our cost of funds.

Speaker Change: During the quarter, we originated recreation loans at an average rate of 14 point, 94% and home improvement loans at an average rate of 11.67% both in excess of current weighted average coupons in these portfolios.

Speaker Change: Current average origination rates in July or at above 16% for recreation loans and around 11% for home improvement loans.

Speaker Change: For the past several quarters, we have been focused on increasing the average coupon in yield on our loan portfolio and we'll continue to do so with originations being at rates above that of our current portfolio.

Speaker Change: This is a slower process than we experienced with the rising cost of funds, we anticipate that our average coupons in yield will continue to increase well after our cost of funds plateaus at which point, we will experience expansion in our net interest margin.

Anthony N. Cutrone: We anticipate that our average coupon and yield will continue to increase well after our cost of funds plateaus, at which point we will experience an expansion in our net interest margin. During the quarter, we originated $309 million in loans, including $210 million of recreation loans and $68 million of home improvement loans. Total loans outstanding increased 11% from a year ago to $2.4 billion, with the corresponding yield during the quarter increasing to 11.52%. We maintained our tightened credit criteria, which we believe has and will continue to help us constrain losses long term.

Speaker Change: During the quarter, we originated $309 million of loans, including $210 million of recreation loans, and 68 million of home improvement loans.

Speaker Change: Total loans outstanding increased 11% from a year ago to $2 4 billion with a corresponding yield during the quarter increasing to 11.52%.

Speaker Change: We maintained our tightened credit criteria, which we believe has and will continue to help us constrained losses long term.

Anthony N. Cutrone: During the quarter, prime originations in our recreation portfolio were 68% of total originations, and as of June 30th, 65% of our recreation portfolio were prime credits. Consumer loans more than 90 days past due were $7.2 million or 0.33% of the total loan portfolio as compared to $6.1 million or 0.3% a year ago. Our provision for credit losses was $18.6 million for the quarter, an increase from $17.2 million in the first quarter and $10.1 million in the prior year quarter.

Speaker Change: During the quarter Prime originations in our recreation portfolio or 68% of total originations and as of June 30th 65% of our recreation portfolio, where prime credits.

Speaker Change: Consumer loans more than 90 days past due were $7 2 million or three 3% of the total loan portfolio as compared to $6 1 million or 3% a year ago.

Speaker Change: Our provision for credit loss was $18 6 million for the quarter, an increase from $17 2 million in the first quarter and $10 1 million in the prior year quarter.

Anthony N. Cutrone: Both the current and prior quarter included a net benefit related to taxing Medallion loans of roughly $1 million, and the prior year quarter included a benefit of $5.3 million. $4.2 million of the current quarter's credit provision is specifically related to the growth in our consumer portfolio, particularly recreation loans. As our portfolio continues to grow, we'll continue to experience this growth penalty, which causes an immediate reduction in current earnings. The seasonality of our business, with the second quarter typically having higher origination levels than other quarters, exacerbates this growth penalty.

Speaker Change: Both the current and prior quarter included a net benefit related to taxi medallion loans of roughly $1 million and in the prior year quarter included a benefit of $5 3 million.

Speaker Change: $4 2 million of the current quarter's credit provision is specifically related to the growth in our consumer portfolio, particularly recreation loans.

Speaker Change: Our portfolio continues to grow we will continue to experience this growth penalty, which causes an immediate reduction in current earnings the seasonality in our business with the second quarter, typically having stronger origination levels than other quarters exacerbates this growth penalty.

Anthony N. Cutrone: However, looking ahead, a larger portfolio at our current origination rates, coupled with the credit criteria we require, should enhance our earnings long term. Operating expenses were $20 million during the quarter, up from $18.2 million in the first quarter and up from $19 million in the second quarter of 2023. Current quarter operating expenses were higher primarily due to elevated legal and professional fees associated with the company's successful defense against an activist's proxy campaign.

Speaker Change: However, looking ahead, a larger portfolio at our current origination rates coupled with the credit criteria, we require should enhance our earnings long term.

Speaker Change: Operating expenses were $20 million during the quarter up from $18 2 million in the first quarter and up from $19 million in the second quarter of 2023. The current quarter operating expenses were higher primarily due to elevated legal and professional fees associated with the company's successful defense against an activist proxy campaign.

Anthony N. Cutrone: We continue to believe that the growth in our net interest income will outpace any increase in our operating costs as we continue to scale our lending businesses. For the quarter, net income attributable to our shareholders was $7.1 million, with $0.30 per diluted share, which included approximately $0.12 per share related to additional credit allowances tied to consumer loan growth, as well as approximately $0.04 per share related to the elevated legal and professional fees.

Speaker Change: We continue to believe that the growth in our net interest income well outpaced any increase in our operating cost as we continue to scale our lending businesses.

Speaker Change: For the quarter net income attributable to our shareholders was $7 1 million with 30 cents per diluted share, which included approximately <unk> 12 per share related to additional credit allowances tied to consumer loan growth.

Speaker Change: As well as approximately four cents per share related to the elevated legal and professional fees.

Anthony N. Cutrone: Our net book value as of June 30th was $15.25 per share, up from $13.66 a year ago. That covers our second quarter results. Andrew and I are now happy to take your questions.

Speaker Change: Our net book value as of June 30th was 15.25.

Speaker Change: <unk> per share up from 13.66, a year ago.

Speaker Change: That covers our second quarter results, Andrew and I are now happy to take your questions.

Operator: We now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone telephone. If you're using a speakerphone, please pick up your answer before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star, then 2. The first question is from Michael Grondahl with Northland Securities. Please go ahead.

Andrew: We know what they do you can now begin the question and answer session.

Speaker Change: A question you May Press Star then one of your Touchtone telephone.

Speaker Change: You said, you're using a speakerphone please pick up your answer before pressing the keys.

Speaker Change: Anytime you have a question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: The first question is from Mike Grondahl with Tau Northland Securities. Please go ahead.

Michael John Grondahl: Hey guys, um, could you talk a little bit about your outlook for RV and boat sales and also home improvement, just, you know, growth, margin, credit, kind of, how are you thinking about the second half in those two big areas?

Speaker Change: Hey, guys could you talk a little bit about your outlook for RV and boat.

Speaker Change: And also home improvement just you know gross margin credit kind of how are you thinking about the second half in those two big areas.

Andrew M. Murstein: Sure. How are you doing, Mike?

Speaker Change: Sure how are you doing Mike.

Speaker Change: Thank you.

Speaker Change: So as you know as it relates to RV you know, we we grew 10% in Q2 Q2 is typically are our largest origination quarter, we'll see those originations peak.

Andrew M. Murstein: Good to speak to you. You know, so as relates to RV, you know, we grew 10% in Q2. Q2 is typically our largest origination quarter. We'll see those originations peak. [inaudible] Q3 to look, you know, somewhere between the originations in Q1 and Q2, a blend of those two.

Speaker Change: In terms of the levels in July and then try and begin to settle in August and September and then and then Q4 is.

Speaker Change: Somewhat quiet.

Speaker Change: So we would expect Q2.

Speaker Change: Q3 to look you know somewhere between the originations in Q1 and Q2, a blend of the dose too.

Andrew M. Murstein: We'll probably end the year around, you know, a billion and a half, a little more than a billion and a half, so a little bit higher from where we are. I think we'll end the year with about 15% growth in revenue. And on the home improvement front, Q3 is typically the larger origination quarter for home improvement. That's really where that space hits its stride. There's a three to four month lag between when a loan gets approved and when it actually gets funded, just because of the time it takes to actually make these improvements, so we should see some bigger growth in Q3.

Speaker Change: We'll probably end the year around.

Speaker Change: Around.

Speaker Change: 1 billion and a half a little more than 1 billion and a half so a little bit higher from where we are I think we end the year with about 15% growth in Iraq.

Speaker Change: And on the home improvement Q3 is typically the the larger origination quarter for home improvement, that's really where we're that that space hits its stride.

Speaker Change: There's a three to four month lag between you know went alone gets approved and when it actually gets funding just because of the you know the the time it takes to actually fulfill these improvements.

Speaker Change: So we should see you know some some bigger growth in Q3.

Andrew M. Murstein: Got it. And then kind of two follow-ups on that, you know, is home improvement getting more competitive? Is that down year over year because of less demand? Or do you guys tighten credit more, and then just kind of a credit outlook for each one. Yeah, I.

Speaker Change: Got it and then kind of two follow ups on that you know is home improvement.

Speaker Change: And more competitive is is that down year over year because of less demand or you guys tightened credit credit more and then just kind of a credit outlook for each one.

Andrew M. Murstein: Yeah, I wouldn't say that it's gotten more competitive. Home Improvement's always been, you know, competitive, you know, with the super prime FICO's there. You know, I think we've held it back a little bit.

Speaker Change: I wouldn't say that it's gotten more competitive home improvement has always been competitive in the Super Prime FICO is there.

Speaker Change: I think we've held it back a little bit.

Andrew M. Murstein: You know, as we look to grow, we're looking to make sure that we're deploying in the right space. Obviously, we're looking at credit, you know, from a credit perspective. Everyone knows how good the credits are in Home Improvement. Two-thirds of our originations on the REC side are now prime credits, and 65% of the total portfolio is prime. So I think we're focusing on that to make sure that we're cognizant of where our margin is and where we want our yield to be, and we're making decisions there. But we do expect that to pick up in Q3, like I said.

Speaker Change: As we look to grow you know, where we're looking to make sure that we're deploying in the REIT space. Obviously, we're looking at credit you know.

Speaker Change: From a credit perspective.

Speaker Change: Everyone knows how good the credits are in home improvement.

Speaker Change: Two thirds of our originations on the Rec side are now prime credits and 65% of the total portfolio is prime so I think.

Speaker Change: We're focusing on that to make sure that you know we're you know we're cognizant of where our margin is and where we want our yield to be and we'll make some decisions there, but we do expect that to pick up in Q3 like I said.

Speaker Change: Got it.

Andrew M. Murstein: Just credit overall.

Speaker Change: Credit overall.

Andrew M. Murstein: I think the term we used is cautiously optimistic. The average FICO in the REC portfolio was $6.85, 2024 originations; the average originations for the six months were $6.89, so this is a different portfolio than we had five and ten years ago.

Speaker Change: I think.

Speaker Change: I think the term we use is cautiously optimistic.

Speaker Change: The average FICO and the rack portfolio of 685 two.

Speaker Change: 2024 originations the average originations for the six months 689. So this is a this is a different portfolio than we had you know five and 10 years ago.

Andrew M. Murstein: And as you know, Mike, we did a new debt offering last week, I think of June or so, so very recently, and that had an A-investment grade rating as well.

Speaker Change: And as you know, Mike we did a new debt offering last week I think of June ourselves. So very recently and that had a and AA minus investment grade rating as well.

Michael John Grondahl: Got it, got it. Hey, I'll jump back in the queue, guys. Thanks.

Michael John Grondahl: Got it got it I'll jump back in the queue. Thanks.

Christopher Whitbread Patrick Nolan: The next question is from Christopher Nolan with Ludenburg-Talman. Please go ahead.

Speaker Change: The next question is from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Anthony N. Cutrone: Hey guys, congratulations on the quarter, congratulations on the Russell inclusion. I guess the first question is going to be professional fees. Should we expect operating expenses to decrease in the coming quarters? Any guidance on that?

Christopher Whitbread Patrick Nolan: Hey, guys congratulations on the quarter and congratulations on the inclusion in the Russell.

Christopher Whitbread Patrick Nolan: I guess first question is gonna be professional fees shall we expect operating expenses decrease in coming quarters guidance on that.

Anthony N. Cutrone: Yeah, so they you know, the legal and professional fees were elevated in Q2 because of the proxy season. It's probably about a million, a little over a million million, two million four, somewhere in that range. I think our EPS was affected by about four cents to the downside because of that, so we wouldn't expect that to recur in Q3.

Christopher Whitbread Patrick Nolan: Yes.

Speaker Change: The legal and professional fees were elevated in Q2 with the with the proxy season.

Speaker Change: It was probably about a million a little over a million.

Speaker Change: Million 2 million four somewhere in that range.

Speaker Change: I think our EPS was affected by about four cents to the downside because of that so we wouldn't expect that to recur in Q3.

Anthony N. Cutrone: Great. And then the net charge drops in the quarter. I didn't see it in the press release. Do you guys have a hard number you could provide?

Speaker Change: Great.

Speaker Change: Then net charge offs in the quarter I didn't see it in the press release do you guys have a hard number you can provide.

Anthony N. Cutrone: Yeah, we have it in the supplement on our website. But yeah, net charge-offs for the quarter. $12.6 million. That's a 10.7 in Rec, 2.8 in Home Improvement, and then a $900,000 benefit in taxes.

Speaker Change: We have it in the.

Speaker Change: We haven't in the supplement on our website.

Speaker Change: But yes net charge offs.

Speaker Change: For the quarter.

Speaker Change: $12 6 million.

Speaker Change: That's a 10.7 in Iraq to 0.8 in home improvement and then you know.

Speaker Change: 900000 benefit in a taxi.

Anthony N. Cutrone: Great. Final question. Do you guys have any breakdown in terms of employment by your borrowers? I mean, what percentage of those work for the government, and which percentage work for private industry?

Speaker Change: Great final question.

Speaker Change: Do you guys have any breakdown in terms of employment by your borrowers I mean, what percentage of those work for the government, which percentage work for private industry things like that.

Anthony N. Cutrone: I don't know that we disclosed that, and it's not a metric that we look at particularly as to, you know, the type of employment. You know, all of our borrowers are employed, and we do typically lend to borrowers, even though their credit might not be A-plus on the credit side, they usually have a higher wage than you would typically see in near-prime lending.

Speaker Change:

Speaker Change: I don't know that we disclosed that and it's not a it's not a metric that we look at particularly as to the <unk>.

Speaker Change: Type of employment.

Speaker Change: Got.

Speaker Change: All of our borrowers are employed.

Speaker Change: And we do we do typically lend to borrowers even though the their credit might not be a plus on the rec side. They usually have a higher wage than you would typically see in near prime lending.

Anthony N. Cutrone: Okay, the reason I ask is there's a large amount of government debt that has to be refinanced, federal government debt, at much higher rates. And given that we're in an election year, things can go in a lot of different directions in terms of government employment. And I want to see whether or not you guys have any particularly heavy exposure to government employees.

Speaker Change: Okay. The reason I ask is there's a large amount of government debt, which has to be refinanced got federal government debt at much higher rates and given that we're in an election year.

Speaker Change: Now things could go in a lot of different directions in terms of government employment and.

Speaker Change: Well see whether or not you guys had a particularly heavy exposure to government employees.

Anthony N. Cutrone: I don't believe we do. I'm just thinking through loan applications that we've looked at recently, and very few would have fit that category.

Speaker Change: Alright, I don't believe we do I'm just thinking through loan applications that we've looked at recently and very few would have fit that category.

Christopher Whitbread Patrick Nolan: Great, thank you very much for taking my question.

Christopher Whitbread Patrick Nolan: Great. Thank you.

Speaker Change: Great. Thank you very much for taking my questions.

Chris: Thanks, Chris.

Chris: Okay.

Matthew Philip Howlett: The next question is from Matthew Howlett with B. Reilly. Please go ahead.

Chris: Next question is from Matthew Howlett with B Riley. Please go ahead.

Matthew Philip Howlett: Good morning, Andrew and Anthony. Thanks for taking my question.

Matthew Philip Howlett: Hey, good morning, Andrew and Anthony Thanks for taking my question sure Matt Good morning.

Andrew M. Murstein: Sure, Matt. Good morning.

Anthony N. Cutrone: First on the margin here, you know, look, a little bit of net performance in the quarter. I think Anthony said last quarter it could go, it could tick down. The Fed is 100% certain we're going to start getting cuts by September. What's the outlook? Where are CD rates now, five-year CD rates? Where could they go if federal funds go down 200 basis points from here next year? And when will you begin lowering the kind of your coupons?

Matthew Philip Howlett: Yeah first on the margin here, you know look a little bit of an outperformance in the quarter I think Anthony you said last quarter, it ticked down to <unk>.

Speaker Change: Might've said well here, we're going to hear from the fed this afternoon and really take it to 100% sure. We're gonna striking getting cuts by September one.

Speaker Change: What's the outlook I mean, it's where our CD rates now let me a five year CD rates.

Speaker Change: Where could that go with.

Speaker Change: Federal funds go down 200 basis points from here, our next year end.

Speaker Change: And when will you begin lowering kind of your coupons I mean at some point. It just just give me the outlook here you guys have done a great job defending the NIM you won't get one of the highest in the banking sector you've raised coupons.

Anthony N. Cutrone: I mean, at some point, just give me the outlook here. You guys have done a great job defending them. You have one of the highest in the banking sector. You've raised coupons. Well, we're probably going to be changing the cycle here, and I want to see, you know, how this is going to impact your strategy. Yeah, so, um...

Speaker Change: Here, we're going to probably change in the cycle here.

Speaker Change: You know how this is going to impact what your strategies.

Anthony N. Cutrone: So as of yesterday, short duration CDs, 3-6 months, they're hovering around 5%. If you go out to 3 years, we've got 4.5, and then 5 years, new issuances are 4.3. So hopefully you're right, we do get the rate cut in September, and we should start seeing those come in. You know, our overall, you know, the overall... CD cost is three and a half percent. So, again, you know, I don't think anything's changed. We did see a benefit, you know, the two basis points increase from Q1. You know, we're definitely closer to the bottom of that NIM compression we've been talking about for a while than not.

Speaker Change: Yeah. So.

Speaker Change: As of yesterday short duration Cds.

Speaker Change: Three six months they are hovering around 5%. If you go out to three years, we got four and a half and then five years, new issuances or 4.3 so.

Speaker Change: Hopefully you're right, we do get a rate cut in September and.

Speaker Change: And we should start seeing those come in.

Speaker Change: Our overall.

Speaker Change: The overall.

Speaker Change: C D cost is three 5%.

Speaker Change: So so again I don't think anything's changed we did see a benefit.

Speaker Change: Two basis point increase from Q1.

Speaker Change: We're definitely closer to the bottom of that NIM compression, we've been talking about for a while then they're not they're not.

Speaker Change: Yeah.

Anthony N. Cutrone: I'm sorry, what was the last part again? You're closer to the bottom than what?

Speaker Change: I'm sorry, what was the last part then closer to the bottom then what yes, we definitely feel that we're closer to the bottom of the NIM compression that we've been talking about there not being there.

Anthony N. Cutrone: Yeah, we definitely feel that we're closer to the bottom of the NIM compression that we've been talking about than not being there. And just in terms of yields, we don't have any discussions right now about, you know, lowering the rates that we're originating on. You know, I think we're comfortable where we are. But, obviously, the market will dictate to a certain extent where we land.

Speaker Change: And just in terms of yields you know we don't have any discussions right now about you know lowering the rates that we're originating on you know I think we're comfortable where we are but obviously the market will dictate to a certain extent you know where we landed at what rates.

Matthew Philip Howlett: Great job with raising rates and offsetting. It's been a tightening cycle here. We look forward to the next cycle here.

Speaker Change: Yeah look I mean, great job with raising rates and offsetting what's been a tightening cycle here and we look forward to.

Speaker Change: The next cycle here.

Andrew M. Murstein: Some of the things we hear quite often: can you go any higher on the REC portfolio? Can you get another 200, 300 basis points? and we've looked into this, and I think that the short answer is we can, uh... the longer answer is we don't want to because of adverse selection, so you know, with the coupled with the you know that the credit that we're getting now, we would get loans that we typically don't want to be funded Absolutely. No, I hear you.

Speaker Change: Okay.

Speaker Change: Some of the things we get.

Speaker Change: Hear quite often you know can you go any higher on the rack portfolio can you get another 200 300 basis points.

Speaker Change: And we've looked into this and I think the short answer is we can the longer answer is we don't want it because of adverse selection.

Speaker Change: So you know with the coupled with the credit that we're getting now we would get you know loans that we typically don't want to be funding.

Speaker Change: Absolutely no I hear I hear you.

Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional in both the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts held by National Financial Services, LLC. Member NYSE, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com or at his website, www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA.

Speaker Change: On the growth penalty on the rack on the on the reserve penalty.

Anthony N. Cutrone: How would you recommend we look at it? By backing out all the 12 cents and saying you'll make up for that over the life of a loan, you're just getting penalized by what was exceptional growth. And what I'm assuming is you're probably using very harsh, you know, forward loss assumptions, really booking these at, you know, 4 or 5% charge-off rates. And it's just something that we're trying to get more, you know, used to. I just want to hear from you again on the growth penalty.

Speaker Change: And how do you how would you recommend us look at it by backing out all the 12.

Speaker Change: You'll you'll make up for that you'll have a life of loan and you're just getting penalized by but with exceptional growth.

Speaker Change: And what I'm, assuming you're using probably very harsh you know a forward loss assumptions really booking these ads.

Speaker Change: Yes, I'm talking about four or 5% charge off rate and it's just something that we're trying to get more you know.

Houston: Houston I just want to hear from you again on the growth I don't think yeah. So it was it was $4 2 million and that's.

Anthony N. Cutrone: Yeah, so it was $4.2 million, and that's the put-on cost for booking a new loan. So it's the allowance we've got to spend as we grow our portfolio. We're not going to grow by 10% each quarter. So I think, like I said earlier, I think year-to-date, we're probably around 15. So if you come up with an average of where you think a traditional quarter's growth is, that's probably, you know, the ad back.

Speaker Change: That's the it's the put on costs for booking of new loans. So.

Speaker Change: It's the allowance we've got a book as we grow our portfolio.

Speaker Change:

Speaker Change: At 10.

Speaker Change: 10%, we're not going to grow 10% each.

Speaker Change: Each each quarter.

Speaker Change: So I think like I said earlier, you know I think year to date, we're probably around 15, so if you come up with.

Speaker Change: On average of where do you think.

Speaker Change: Where do you think a traditional quarters growth is that's probably you know the add back right gotcha.

Matthew Philip Howlett: Right, gotcha. No, look, we appreciate the conservatism and it's certainly something that's impacting earnings and artificially weighing down results, but I think to the benefit of all shareholders. Next question, just two more on the solar deal you did. Andy, any update on just how that's going?

Speaker Change: Great that conservatism.

Speaker Change: It's certainly something that's impacting earnings and artificially weighing down results, so, but I think to the benefit of all shareholders.

Speaker Change: Next question just two more on the the solar deal you did and any update on just how that's going.

Andrew M. Murstein: It's going well. I think this is the strategic partnership area where, as many of you know, Fintechs are sending us loans. We're funding them. We're charging a fee for that. We get the flow for a couple of days, and then they buy the loans back. So, um...

Speaker Change: It's going well I think this is the strategic partnership area, where as many of you know, we fintech or sending us loans, we're funding them.

Speaker Change: Charging a fee for that we're getting the flow for a couple of days and then they buy the loans back.

Speaker Change: So.

Andrew M. Murstein: I'd say it's probably out of the gate, it's a little bit slower than we thought, but I think, long term, it has a lot of potential. Usually, when you start new programs, there's a lot of tire kicking we like to do. It's a great business; you just have to make sure you're strong on compliance, which we are here. We've got a great group in Utah. So usually, they like to dot the i's and cross the t's, and then once the program is underway for a quarter or so, then the volume should really pick up.

Speaker Change: I'd say its probably its out of the gate, it's a little bit slower than we thought but I think that long term. It has a lot of potential usually when you start new programs is a lot of tire kicking we like to do it's a great business you just have to make sure.

Speaker Change: Strong noncompliance, which we are here, we've got a great group in Utah.

Speaker Change: So usually they like the dot the I's and cross the TS and then once the program is underway for a quarter or so then the volume should really pick up.

Andrew M. Murstein: What type of yields do you get? You probably get about a mid-teens yield for a little bit, and they get probably a success fee or an origination fee? Is that that's how it works?

Speaker Change: What type of yields that you get the you got probably about a mid teens yield for a little bit and they get probably wasn't a success fee or an origination fees that that's how it works, yes origination fees can range from 15 basis points to 50 basis points upfront on the loan.

Andrew M. Murstein: Yes, origination fees can range from 15 basis points to 50 basis points upfront on the loan. And then you'll have the float for a couple of days.

Speaker Change: And.

Speaker Change: Then you'll have the flowed for a couple of days the paper it could be across the board from 12% up to 24% or so.

Andrew M. Murstein: The paper could be across the board, from 12% up to 24% or so. We're talking to some new partners now. Again, compliance is very key here. So some of the other banks in this space have gotten consent orders over the last year or two because they grew too quickly. We don't want to make that mistake. But that's also an opportunity for us now because many fintechs are not going to them because the regulators are telling them basically to slow down. And therefore, we're seeing those opportunities for ourselves now for the first time.

Speaker Change: We're talking to some new partners now again compliance is very key here. So some of the other banks in this space has gotten consent orders over the last year or two because they grew too quickly we don't want to make that mistake, but that's also an opportunity for us because many of the fin techs are not going to them because the regulators are.

Speaker Change: And then basically the slowdown.

Speaker Change: And therefore, we're seeing those opportunities ourselves now for the first time.

Andrew M. Murstein: I would just add, you know, we're selective about the type of partner we want. A lot of other players in this space, they operate on razor-thin margins and just do a whole lot of volume. You know, to what Andrew said, you know, with the compliance that's key to this, there's a lot of opportunity for foot fault if you're not careful. So that's where we are.

Speaker Change: I would just add you know what.

Speaker Change: Selective about the type of partner we won.

Speaker Change: A lot of other players in this space they operate on razor thin margins and just do a whole lot of volume and units.

Speaker Change: What Andrew said.

Andrew: With the compliance that's key to this there's a lot of a lot of opportunity for Footfault, if if youre not careful so that's where we are.

Matthew Philip Howlett: Thanks for that. We look forward to the update and possibly new announcements on new partnerships. Last one for me, buybacks and tangible book. Where did tangible book come in this quarter? And congratulations on buying back stock. I think it was 823.

Speaker Change: Uh huh.

Speaker Change: Thanks for that and look forward to the update.

Speaker Change: Possibly new announcements on new partnerships last one from me.

Speaker Change: Buybacks intangible book, well, where did tangible book come in this quarter and congratulations on buying back stock I think it was 823 and I just wanted to look at how you use it and you think about the dynamic of buybacks intangible book and so forth.

Anthony N. Cutrone: And I just want to see what you think about the dynamic of buybacks and tangible books and so forth.

Anthony N. Cutrone: Yeah, so the book value is $1,525. You know, I think we've spoken about this in the past.

Speaker Change: And so our book value was $15 25.

Speaker Change #100: I think we've spoken about in the past tangible book isn't something that we view as a meaningful metric.

Anthony N. Cutrone: Tangible book isn't something that, you know, we view as a meaningful metric just because it doesn't show the whole story of what went on here and how we came about with our goodwill. So when we calculate, we calculate an adjusted tangible book of $974 a share. And what we do, it's the traditional tangible book calculation. We back out from equity or common equity. The goodwill, and the intangible assets. We also add back a $43 million tax liability that relates specifically to that goodwill and intangible assets. So when you go through that calculation, you come up with $974.

Speaker Change: Just because it it doesn't show the whole story of what went on here and how we came about with our goodwill.

Speaker Change: When we calculate we calculated adjusted tangible book of 974, a share and what we do it's the traditional tangible book calculation, we back out from equity or common equity.

Speaker Change: The goodwill the intangible assets, we also add back of $43 million tax liability that relate specifically to that goodwill and intangible assets. So when you. When you go through that calculation, we'd come up with 974.

Matthew Philip Howlett: Okay, so you're still buying back stock below, well below Gap Book and still below Tangible Book? Correct. Yes.

Speaker Change #101: Okay, So you're still buying back stock below.

Speaker Change: Well below GAAP book in Poland, and still below tangible book correct.

Speaker Change: Yes.

Speaker Change #102: Anything I mean would you like to continue just to do buybacks, Andrew a man that you've got a great dividend I mean, how do you look at the dynamic between raising the dividend doing more buybacks or.

Andrew M. Murstein: Would you like to continue just to do buybacks, Andrew? I mean, you've got a great dividend. How do you look at the dynamic between raising the dividend and doing more buybacks or allocating more capital for growth? I mean, you've got a lot of great opportunities out there. I'm assuming you probably look at book value more. You look at your NEV being closer to 15 than 974.

Andrew: Allocating more capital for growth and you got a lot of great opportunities out there I'm, assuming you probably look at book value.

Speaker Change: You look at your NAV being closer to the 15 then at 974.

Andrew M. Murstein: Yes, correct. You know, they're all very good options for the shareholders. I think a combination of both is the goal in terms of maintaining and raising a dividend eventually and buying back stock. It's been very strong growth, as you know, 10% from one quarter to the next. It won't be this much, but that's an annualized 40% basis. As Anthony said, it's probably 15% accretive growth through the year.

Andrew: Yes, correct.

Speaker Change: They are all very good options for the shareholders I think a combination of both is the goal in terms of.

Speaker Change: Maintaining and raising a dividend eventually and buying back stock.

Anthony: It's been a very strong growth as you know 10% from one quarter to the next is not it won't be this much but that's an annualized 40% basis as Anthony said, it's probably 15% rent growth through the year. So it's all good problems to have we have to juggle do we put more money.

Andrew M. Murstein: So it's, you know, all good problems to have. We have to juggle. Do we spend more money? [inaudible]

Anthony: Bank and let that continue to grow at 15% or more per year with euro user Super high.

Speaker Change: We increased the dividend, which that would be our goal again to do that where do you buy back stock and thankfully we've been able to do all three so we try to do a blend of the three depending upon the timing and the opportunity at that time.

Matthew Philip Howlett: Yeah, look, I mean, you've been really a great allocator of capital. I mean, and, you know, that share count keeps on getting knocked down. And I think people are.

Speaker Change: Yes look I mean, you've been really a great allocator of capital.

Speaker Change #106: And you know that share count keeps on getting knocked down and I think people are missing.

Speaker Change #107: Listen that you bought back a lot of stock over the last several years. So certainly keep up the good work and I look.

Speaker Change: Look forward to our next.

Speaker Change #108: Next quarter.

Matthew Philip Howlett: Thanks very much, Matt.

Matt: Thanks, very much Matt.

Operator: We have a follow-up question from Mike Grondahl with Norland Securities. Please go ahead.

Matt: I have a follow up question from Mike Grondahl with Northland Securities. Please go ahead.

Michael John Grondahl: Hey guys,

Michael John Grondahl: Hey, guys just two follow up questions quick.

Michael John Grondahl: Thanks for watching. Peace.

Anthony N. Cutrone: With the EPS, you called out $0.04 of pressure from professional fees and $0.12 from portfolio growth. But did you say how much, was it a benefit, the $2.3 million at Taxi Medallion Collections? Could you quantify that?

Michael John Grondahl: With with the EPS you called out like four cents of pressure from professional fees and 12 cents from the portfolio growth.

Speaker Change #115: But did you say how much was it a benefit of $2 3 million of taxi.

Speaker Change: <unk> collections.

Speaker Change: Could you quantify that Anthony yeah. So.

Anthony N. Cutrone: Yes, so it's, you know, the 2.3 net attacks come out to about four cents. But you know, we wouldn't view that, you know, the 2.3 is probably a fair estimate of what we're going to collect ongoing. And I think what's hitting the income statement in Q2 and, similarly, in Q1 is going to be recurring. It's a function of where these assets are marked on our balance sheet and the cash that's coming in.

Anthony: The 2.3 net of tax it comes out to about <unk>, but.

Speaker Change #103: We wouldn't view that the $2 three is probably a fair estimate of what we're going to collect ongoing and I think what's hitting the income statement.

Anthony: In Q2, and similarly in Q1.

Speaker Change: He is going to be recurring.

Speaker Change: It's just a it's a function of where these assets are marked.

Speaker Change: On our balance sheet and the cash that's coming in so I wouldn't say, that's an add back I think that's just the run rate now.

Anthony N. Cutrone: So I wouldn't say that's an add back. I think that's just the run rate now. I got it. Fair enough. It's fair enough. Yeah, I think I think it was fair. Last year, you know, we quantified the numbers, and they were significantly higher. And, you know, we're sure you can understand the head back. But at these levels, this is this is, you know, where we expect to be. And we, you know, we don't see anything changing.

Speaker Change: Got it fair enough fair enough.

Speaker Change: Yes, I think I think it was fair last year, we quantified those numbers were significantly higher than we were.

Speaker Change: Sure you can understand the add back but at these levels. This is this is where we expect to be and we don't see anything changing.

Michael John Grondahl: Got it. And, you know, for both of you, maybe anything 3Q, 4Q, 25, just looking ahead, anything you want to call out as you guys are driving this business? Any trends you're seeing or, you know, is, I don't know, roughly $0.35, $0.40, kind of the right core earnings level to kind of grow off of. I don't know, just anything in the business you're seeing that you want to talk about. I'd say, you know, the goal has been with

Speaker Change: Got it.

Speaker Change #119: You know for both of you maybe.

Speaker Change #118: Things three Q4, Q25, just looking ahead.

Speaker Change #114: Anything you want to call out is as you guys are driving this business.

Speaker Change #105: The trends youre seeing or is.

Speaker Change #104: Is I don't know roughly.

Speaker Change #109: 35, 40 cents kind of the right core earnings level to kind of grow off of.

Speaker Change #112: Just anything in your business, you've seen that you want to talk about.

Andrew M. Murstein: I'd say, you know, the goal has been, which we've been doing very successfully, just increasing the size of this portfolio. It generates an enormous amount of cash. $2 billion plus of loans thrown off, hundreds of millions of dollars a year, so the key for all of us, I think, is to continue that but don't get carried away and maintain strong credit quality, which we believe we have and the rating agencies believe that we have.

Speaker Change #110: I'd say.

Speaker Change #117: The goal has been which we've been doing very successfully just increasing the size of this portfolio is throws off an enormous amount of cash we have.

Speaker Change #104: $2 billion plus of loans throwing off hundreds of millions of dollars a year or so.

Speaker Change: The key for all of US I think is continue that but don't get carried away and maintain strong credit quality.

Anthony: Which we believe we have and the rating agencies believe that we have.

Andrew M. Murstein: And then the rate cuts will kick in shortly, you know, maybe September, where no one knows when and how many. But once that starts to happen, the wind is going to be on our backs. We're going to have this large portfolio with an enormous spread already of 800 plus basis points that should only get larger over time.

Anthony: Then.

Anthony: The rate cuts will kick in shortly.

Anthony: September where no one no one knows when and how many but once that starts to happen that the wind is going to be at our back we're going to have this large portfolio with the <unk>.

Anthony: Warmus spread already of 800 plus basis points that should only get larger over time.

Speaker Change: Got it.

Speaker Change #113: Hey, Thanks, guys.

Speaker Change #116: Thank you Mike.

Operator: This concludes our question and answer session. I would like to turn the conference back over to the management for any closing remarks.

Speaker Change #120: This concludes our question and answer session I would like to turn the conference back over to the management for any closing remarks.

Andrew M. Murstein: Just wanted to thank everyone again for joining us this morning. As I mentioned, we are pleased with the performance halfway through the year. As we move to the second half, we're going to remain focused on delivering shareholder value by driving our businesses to our high standards and delivering smart capital allocation. 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.

Speaker Change #111: Just wanted to thank everyone again for joining us. This morning as I mentioned, we are pleased with the performance halfway through the year.

Operator: Thank you again and have a great rest of your day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Goodbye.

Operator: [inaudible]

Operator: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

Speaker Change: We move to the second half, we're going to remain focused on delivering shareholder value by driving our businesses to our high standards in delivering smart capital allocation.

Speaker Change: 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. 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. You may now disconnect your lines Goodbye.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].