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Edited Transcript of MFIN earnings conference call or presentation 28-Feb-19 2:00pm GMT

Q4 2018 Medallion Financial Corp Earnings Call

New York Mar 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Medallion Financial Corp earnings conference call or presentation Thursday, February 28, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew M. Murstein

Medallion Financial Corp. - President, COO & Non-Independent Director

* Larry D. Hall

Medallion Financial Corp. - Senior VP & CFO

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Conference Call Participants

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* Giuliano Jude Anderes-Bologna

BTIG, LLC, Research Division - VP for Investment Research

* Henry Joseph Coffey

Wedbush Securities Inc. - MD for Specialty Finance

* Jeffrey Scott Kitsis

Sandler O'Neill + Partners, L.P., Research Division - Associate

* Michael John Grondahl

Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst

* Scott Christian Buck

B. Riley FBR, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome, everyone, to Medallion Financial's 2018 Fourth Quarter and Full Year Earnings Call. By now, everyone should have access to the earnings announcement, which was released prior to this call and which may also be found on the company's website at medallion.com.

Before we begin formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements and projected financial information. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the Securities and Exchange Commission. Each forward-looking statement and projection of financial information made during this call is based on information available to us of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law.

I would now like to introduce Andrew Murstein President of Medallion Financial.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [2]

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Good morning, everyone, and thank you for participating in our fourth quarter and full year earnings call. Joining me on today's call is our Chairman, Alvin Murstein; our CFO, Larry Hall; and our Director of Investor Relations, Alex Arzeno.

This is the third quarter we've reported as a bank holding company consolidating our wholly owned or controlled subsidiaries, including Medallion Bank, providing our current and future shareholders with a more transparent picture of our financial condition and results of operations. Also, as a result of this change, we now present segment information in our quarterly filings. Additionally, we have noted certain financial metrics for the 9 months reflecting just the bank holding company accounting model.

2018 was a year in which we executed on the strategic initiatives we laid out as we continued our transition away from our medallion lending segment to focus on the more profitable, higher yielding consumer and commercial segments.

Over the last 2 quarters, we provided clarity in regard to our debt agreement with DZ Bank. As a result of these structural changes finalized in November, we were able to record a gain to earnings and tangible book value of $25.3 million before taxes and about $19.2 million after taxes in the fourth quarter, eliminated $63.2 million in medallion loans and loans in process of foreclosure from our balance sheet and removed $98.5 million of debt and payables that Trust III owed to its lender.

With that stated, let us first update everyone on the medallion portfolio. We ended the year with taxi medallion loans comprising 16% of our net loans compared to 28% at the end of 2017. Our net medallion portfolio stood at $156 million as of December 31, 2018, versus $388 million managed as of December 31, 2017. Quarter-over-quarter, the portfolio was reduced 34%, largely reflecting the deconsolidation of Trust III. The provision for loan losses was reduced as well, as we recorded $3.4 million in the fourth quarter, down from $13.3 million in the third quarter, $24.7 million in the second quarter and $62.7 million in the first quarter when combined with Medallion Bank and recorded as a noncash valuation adjustment and realized losses charge-offs. The provision for this quarter also reflects the reversal of $8.2 million of reserves as a result of the deconsolidation of Trust III as described above.

Once again, we want to reiterate that the losses that we record on the medallion portfolio are primarily attributed to noncash charge-offs and reserves. Our New York City medallion values have been consistent over the last 3 quarters as we once again valued our nonperforming New York City medallion collateral at $181,000 and wheelchair-accessible medallion collateral at $154,000. We saw stability in the Medallion marketplace in 2018. The TLC reported 810 total medallion transfers for the year, compared to 117 in 2017, demonstrating greater liquidity and confidence in the market.

We continue to manage our current portfolio and the recovery processes. We feel we are making progress and will diligently pursue personal guarantees when necessary, which we have on all of these loans. As stated last quarter, payments that are made on these charged off and reserve loans are typically applied to principal, including interest payments we receive on nonaccrual loans. When a loan is restructured or when collateral is sold and financed, we maintain the existing book value of the loan until a reasonable amount of payment history occurs or the loan is paid off. At which point principal recoveries and interest income can begin to be recorded. In total, we sort $12 million worth the principal payments of medallion loans during the fourth quarter.

Turning now to our consumer and commercial lending segments. Medallion Bank had another great year as did Medallion Capital. Both subsidiaries continued to add value quarter-after-quarter. I am proud of the entire teams at both subsidiaries and commend them for the hard work put forth in 2018.

Net income before taxes for our consumer and commercial segments was $41 million for 9 months ending December 31 and $11.2 million for the fourth quarter. These segments continue to show steady growth and have been the earnings engine throughout the past several years. They continue to be the focus of the company's future.

We continue to explore initiatives to expand our commercial loan activity and believe the solid foundation that we have intact will also allow us to do so. As of December 31, 2018, our net consumer portfolio stood at $762 million. However, if you added back the 4 consumer loan sales over the last 3 years, our outstandings would have been over $1.2 billion, not factoring in any payments that might have been made on the sold loans.

I wanted to quickly highlight some key metrics on the 2 lending segments at Medallion Bank for the 9 months ended December 31. When looking at our rec lending segment, we recorded an ROA of 5.48% and an ROE of over 22.6% and at our home improvement segment, we recorded an ROA of 2.56% and an ROE of over 11.3%. Our strategy in both our home improvement and rec lending segments is to grow market share and focus on brand management, content creation and targeted marketing campaigns. We are confident in our focus of improving capabilities to support our initiatives in 2019 and beyond.

In closing, the bank recorded a Tier 1 capital leverage ratio to 15.85% at the end of 2018 compared to 14.50% at the end of 2017, demonstrating that the bank is well capitalized as it continues to progress forward.

I'll now turn the call over to Larry, who will give some brief highlights regarding the fourth quarter and year-end results.

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Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [3]

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Thank you, Andy. Let me take you through some of our fourth quarter highlights while touching on a few of our annual results.

Medallion Financial recorded net interest income of $23 million for the fourth quarter, while Medallion Bank recorded $98.2 million for the 2018 full year. We continue to be pleased with the strength of our net interest margin, which was 8.07% for the quarter compared to 7.94% last quarter. The strong net margin of 8.19% reported in the last 9 months of the year is a result of the increase in the share of earning assets for the consumer businesses. Net interest income for the last 9 months of the year was $72 million.

Net income was $9.2 million or $0.38 per share for the quarter compared to a net loss of $4.7 million or $0.19 per share in the third quarter. In the fourth quarter, the provision for medallion loan losses was $3.4 million, reflecting the reversal of $8.2 million of reserves as a result of the deconsolidation of Trust III. When looking at the 2018 provision for medallion loan losses, we continue to see a downward trend, as we recorded $13.3 million in the third quarter, $24.7 million in the second quarter and $62.7 million in the first quarter when combined with Medallion Bank and recorded as noncash valuation adjustments and realized losses charge-offs.

Our medallion loan portfolio decreased to a net $156 million as of December 31, a 34% decrease from the $236 million we recorded in the third quarter and a 60% decrease from the $388 million at the end of 2017, partially reflecting the deconsolidation of Trust III. The average interest rate was 4.43% for the fourth quarter, in line with the rates reported throughout 2018.

Loans 90 days or more delinquent as a percentage of the portfolio were $15.7 million or 8.9% of gross medallion loan compared to $71.9 million or 15.9% in the 2017 fourth quarter on a combined basis with Medallion Bank. Earnings after taxes from the consumer and commercial sides of the business were a positive $8.2 million for the quarter, while for the trailing 9 months, it was $30.3 million.

Quarter-after-quarter, we continue to report low loan delinquencies on the consumer side. Loans delinquent over 90 days past due were 0.55% in the fourth quarter compared to 0.46% in the third quarter, 0.32% in the second quarter and 0.40% in the first quarter. The consumer loans portfolios average interest rate continues to stay consistent. This quarter, the interest rate on the portfolio was 15.06%, a slight decrease from the 15.18% in the third quarter; however, up from 14.76% and 14.86% recorded in the second and first quarters of this year.

Our commercial lending segment continues to perform for the company as we recorded net interest income of $1.8 million for the 2018 fourth quarter compared to $2 million in the third quarter and $1.6 million in the second quarter. The portfolio as of December 31 was $64.1 million compared to $82.5 million in the previous quarter. The large decrease was due to the payoff of several large investments in the fourth quarter, which also included some gains on the redemption of the related equity stake.

The average interest rate was 13.6%, in line with the rates we have reported throughout 2018. The commercial lending segment is primarily made up of our mezzanine lending portfolio which has delivered solid profits for the company.

To conclude and as stated in our press release, we continue to reduce our liabilities and are making great progress in strengthening our balance sheet. We have reduced our bank-provided, medallion-related debt from $252 million at the end of 2015 to $60 million at year-end.

With that, I'll now turn the call back to Andy.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [4]

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Thank you, Larry. Operator, we can now begin the Q&A portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Mike Grondahl with Northland Capital Markets.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [2]

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Could you talk a little bit about the utilization rate you're seeing in your medallion portfolio? And how you're thinking about some of these New York City regulations or proposals that look like they'd be positive for the Medallion industry?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [3]

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Sure. Thanks, Mike. So in terms of utilization rates, meaning the fleet operators, how many cars they're getting out, business continues to be solid. They're getting on most of their cars. There's a lot of competition, obviously, from the e-hail companies, but the cabs, I'd say, are more than holding their own. The occupancy rates are over 90% for most of the fleet. So they're doing well. And the evidence there is, they're buying medallions. Medallion transfers went up substantially in 2018. I think it was something about 100 medallions being sold in 2017 to 800 or so in 2018. In terms of the New York City regs, you're correct. There's a lot of talk and proposals out there to help the industry. The politicians are standing up for the business. The mayor and governor are both trying to help as much as they can. Some of the new proposals, there's a city councilman, I think it's Rubén Díaz, who proposed a bailout fund for medallion owners, much like the government did after the recession for banks back in 2008 or so. So that would be extremely helpful. I don't know if it'll pass. There's no guarantees any of these things pass. But it shows that they're obviously making an effort to help. Governor Cuomo also just proposed congestion pricing for consumer cars and commercial cars, which would take effect in 2020, and that also would be extremely helpful if that passes. Less cars on the road mean that the taxis, as well as the black cars, can move around quicker. So it's good for both taxis and black cars. The meters -- they make more money when the meters turnover quicker so when they're not stuck in traffic. So every single proposal that's out there now is very beneficial to the industry.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [4]

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Got it. And then, from the press releases, it read that you had $9.6 million of recovery. I think that's a big step up from prior quarters. Is that the beginning of a new trend? Or could you kind of just speak to that $9.6 million and kind of your outlook?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [5]

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It is hard to tell if it's a trend. I think directionally, yes. Obviously, we're going to have recoveries. I don't think they'll be that high next quarter, but it's spotty. The good news is that a lot of delinquent customers are coming to the table. They don't want to lose their medallions. They don't want us to go up to their personal guarantees. So they're coming up with payments to make their loans current or they're giving us extra collateral. They're paying their loans down. And when we litigate, every time so far we've won. So these guys technically owe us the money both corporately and personally, and we're on the right side of the law there. So when pushed, we go to the mat and we get the recovery. The hope is to work out fair deals with all the borrowers and get them current. And I think you'll see some more recoveries coming down later this year. But again, it'll be choppy. It's very hard to predict the exact amounts.

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Operator [6]

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Our next question comes from Alex Twerdahl with Sandler O'Neill. Please go ahead.

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Jeffrey Scott Kitsis, Sandler O'Neill + Partners, L.P., Research Division - Associate [7]

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This is actually Jeff Kitsis on for Alex this morning. I was wondering, could you tell us how should we think about seasonality in sponsorship and race winnings?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [8]

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That also was kind of choppy. I mean, usually, the race season is from February to November. So you'll see a lot in Q2 and Q3 primarily, then it slows down. The race team is operating at a break even though. So even though the revenues do spike up from time to time, expenses usually go hand in hand with that. So -- but for the most part, it's on a quarter-by-quarter basis at a breakeven level.

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Jeffrey Scott Kitsis, Sandler O'Neill + Partners, L.P., Research Division - Associate [9]

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And pushing to collection costs, what's the outlook for those? And will those continue to ramp up in the near term?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [10]

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For which costs? Collection costs? I don't think they'll ramp up as much as they did in this last quarter. They were a little bit higher than typical. Again, the good news is when we're spending the money we're collecting and recovering and winning judgments. So it probably will not be as high the next several quarters.

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Jeffrey Scott Kitsis, Sandler O'Neill + Partners, L.P., Research Division - Associate [11]

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Okay, and how do you weigh uses of capital at Medallion Bank? So when considering growth at the bank versus dividend and capital up to the holdco?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [12]

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Right now the plan is to continue to hold it at the bank level. Their ROEs, as we see in the release, are extremely high. They're earning about -- over 30% pretax, 20-something percent after tax in their RV and marine business. So right now the bank feels that that's their best use of capital. There's a lot of runway still. They're growing at over 20% per year. So with those ROEs and that type of growth, I think that's the best way for us to use the capital in the meantime is to hold it in the bank and continue to grow those divisions.

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Jeffrey Scott Kitsis, Sandler O'Neill + Partners, L.P., Research Division - Associate [13]

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Okay, and last question for me. What's the reserve for the medallion portfolio, both general and specific?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [14]

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So there's no specific reserves. The way that we handle that is we're writing down the medallions to -- the loans to the medallion values. So that's about $181,000 per medallion. In Chicago, I think we're down to, I don't know, about 28,000 or so per medallion.

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Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [15]

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$28,000.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [16]

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So we're at pretty conservative numbers there. On top of that, there are general reserves, but that varies. In the past, it's been about 15% or so. So right now, Larry's just pulling up some information.

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Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [17]

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The reserves in medallion loans at the end of the year was approximately $27.7 million.

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Operator [18]

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Our next question comes from Scott Buck with B. Riley.

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Scott Christian Buck, B. Riley FBR, Inc., Research Division - Research Analyst [19]

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Now that you have the Trust restructuring behind you, I'm curious if there are any additional opportunities to expedite the wind down of the medallion loan portfolio? Or at this point if we're just waiting on just the typical roll-off schedule?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [20]

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There's opportunities. I mean long term, we've made a lot of progress here, as you can see. The medallion loans, it's really impressive. We went from $641 million 3 years ago down to $156 million. So in the last 3 years we've decreased our exposure there by 76%. There are other entities that we have like Freshstart, which are potential deconsolidation candidates like the Trust. There's no parent company guarantees there, and we've already written off all of our equity. So directionally, we're making a lot of very good progress there.

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Scott Christian Buck, B. Riley FBR, Inc., Research Division - Research Analyst [21]

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Great, that's helpful. And on the consumer lending side, it looks like the Tier 1 leverage ratio gives you a little bit of runaway here. I mean, how are you thinking about growth in that business in 2019? And what's demand been like generally?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [22]

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We expect to grow at the same levels, if not more than last year probably on balance sheet, a lot more than last year in 2019 versus '18 because as you know we sold off loans. We don't plan on selling the loans off because to your point at the capital level is -- well-capitalized banks, I think, are at 6% or 8%. We're double that. So we're one of the best-capitalized banks probably in the top few percent in the country in terms of capital level. So we don't think we'll sell off any loans in 2019. If we get aggressive offers, obviously, we'll look at it, if it's selling for big premiums. But the plan would be to keep it on balance sheet. Volume wise, it will be similar to where it was in 2018. But on balance sheet, it will be well above 2018 since we'll be holding those loans and not selling them.

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Scott Christian Buck, B. Riley FBR, Inc., Research Division - Research Analyst [23]

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Great, and then last one quickly. On deposit costs, what are you kind of seeing there in terms of any pressure? And what's the ability to pass any kind of rate hike onto consumers?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [24]

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We should keep the margins similar. But overall, the margins will be improving. Similar, meaning that -- I think we expect 1 or 2 rate hikes in 2019, and we'll be able to charge a little bit more to the customers. But the net interest margins will be increasing for us because the medallion portfolio has been a drag. It's yielding 4.5%. We've got these other wonderful businesses yielding 15%. So as more of the medallion loans burn off, as they will, the consumer business continues to grow as it has been. The net interest margin should increase in 2019. They're already at an extremely high level obviously, again, probably double or triple where most banks are at. But even at the current levels, I think they're going to increase in 2019.

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Operator [25]

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Our next question comes from Giuliano Bologna with BTIG. Please go ahead.

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Giuliano Jude Anderes-Bologna, BTIG, LLC, Research Division - VP for Investment Research [26]

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I guess following up on a common theme here. On the medallion side of the portfolio, just trying to go through and look at the recoveries and the potential on the recovery side. And the main reason why I bring that up is as I go through a lot of court dockets, it looks like medallion has won judgments of over $9 million so far in 2019, granted that doesn't have a perfect correlation to getting recoveries in that period or the person's ability to pay those judgments. But how should we think about that and kind of the trend going forward?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [27]

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Yes, you've done a lot of good work and diligence on looking up what's public on the company. So that's helpful. Yes, we're winning a lot of judgments. Again, the borrowers owe the money. A lot of them start off a little difficult, and then we have to get judgments against them and then they end up settling. So we've written off over $300 million of loans. And our goal is to get as much of that as possible, even if you're talking about a fraction of that, it's immensely profitable, obviously. It all falls to the bottom line when we get recoveries for loans that have been written off. So it won't be as high as it was this last quarter. But I think long term, it's going to be more than it was this last quarter. Again we've got hundreds of millions of dollars of judgments to go after. And so far we've been very successful. So we hope to continue those trends.

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Giuliano Jude Anderes-Bologna, BTIG, LLC, Research Division - VP for Investment Research [28]

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That makes sense. And then thinking about the remaining portfolio on the balance sheet, is there any sense of the percentage or the dollar amount of loans where you've -- or included in the $156 million that you've already entered into some sort of a restructuring agreement or reduced principal on?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [29]

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Yes, so the way that the accounting works is, when a borrower is delinquent and it goes over 120 days, we write it down to the value on the medallions. So let's say you have a $500,000 loan, and we write it down because it's over 120 days delinquent to $181,000 or so. So we take a used reserve and write it off. If the borrower then comes in after we get -- have a judgment and he starts making his loan current, we don't increase the value. We still hold it at that $181,000. And in fact, the recovery doesn't come in until the loan gets paid off in 2 or 3 years, whatever the settlement terms were. So a lot of the judgments that you see us entering into and loans being made current are not even being reflected yet in our income statement per GAAP. So they will, as soon as those loans get paid off, but they're probably 2020 and '21 events.

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Giuliano Jude Anderes-Bologna, BTIG, LLC, Research Division - VP for Investment Research [30]

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That's great. And then just a quick one on the commercial side. Did you guys disclose the amount of the gain on the commercial side?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [31]

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We didn't really have any gains this quarter from -- are you talking about from the Mezzanine lending?

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Giuliano Jude Anderes-Bologna, BTIG, LLC, Research Division - VP for Investment Research [32]

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Yes, on that side, yes.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [33]

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Okay, yes Larry was there. So we did.

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Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [34]

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Yes, about half of the income for the quarter was from gains from the sale of the equity stakes related to some of the investments that were sold off.

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Operator [35]

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Our next question comes from Henry Coffey with Wedbush.

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Henry Joseph Coffey, Wedbush Securities Inc. - MD for Specialty Finance [36]

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Maybe you could explain to me the dynamic between the bank and the holding company right now. And I know people asked if you'd be in the position to dividend capital to the holding company. Is there any advantage to doing that? Or how do you -- when you think about your capital structure, normally we look at companies and think about them as 1 consolidated entity, but obviously there's a different dynamic here?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [37]

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Right, well, I think the relationship is one of a father and a son, where the son is grown up and is now doing extremely well and mature and throwing off more cash than the father is. So the bank is doing great. We started back in 2003 and went into the consumer business doing RV, marine and home improvement lending. It has its own independent Board of Directors. And it's based, as you know, in Salt Lake. So they look at everything independently of us. And they pay dividends when they think it's fit. We could ask them for it, but they obviously -- their own independent decisions to make and so far it's been to retain it and that's been the right decision to retain it. So no short-term dividend expectations from them, and I think eventually, we'll start paying the dividend again. In the past, they paid probably as much as $20 million a year up to the parent company. So right now they're just trying to capture market share, trying to keep competitors out of the business as best as possible and try to grow that impressive ROE of north of 25%.

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Henry Joseph Coffey, Wedbush Securities Inc. - MD for Specialty Finance [38]

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But would there be any advantages to getting a more sort of regular dividend from the bank to the holding company? Would that help with your financing? Do you need the money at the holding company? Is there something you could do outside of the bank to grow the combined earnings?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [39]

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Yes, I think it's probably still best used in the bank. I mean, if our parent company went out and raised capital, my recommendation would be to put more money into the bank with those ROEs. So there's no immediate cash needs at the parent company. The parent company has nice revenue sources from Medallion Capital. Medallion Capital is -- as was just brought up Giuliano, who was -- is our Mezzanine group where the dividend ending up, I don't know, $3 million to $5 million a year or so. So there's -- we've got a good source of income there. The parent company does charge the bank servicing fees of about $4 million to $5 million per year to service the loan portfolio. So we've got nice revenue sources coming up from several areas. But if we had more capital, I would suggest to go into the bank to continue to grow.

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Henry Joseph Coffey, Wedbush Securities Inc. - MD for Specialty Finance [40]

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And then the other thing we've talked about recent and you sort of alluded to it already. There is obviously some sort of economic value to a medallion. And I think anybody who goes to the airport can realize that when it takes 20 minutes to get a cab and god only knows how long to get a hail car. So there's obviously some real economic value to the medallion, and you're seeing some more interest into buying. Is that coming from institutional capital or just old seasoned well-to-do cab operators that see an opportunity? Or what does the economic transaction look like there?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [41]

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Yes, that's a good point. So yes, it is definitely -- there will always be a need for a medallion, right, no matter how good technology is. You're on the street, it rains, you could go on your phone and call for an Uber in 5 minutes or you can look to the sidewalk and -- onto the street and get one in 3 seconds. So -- and then when you go to the airports, a lot of the airports are now set up where the cab lines feed right into the terminals and the holding areas for the black cars are literally 11 minute walks away at some points at LaGuardia. So you'll always have a combination of street hails and airport business. And a lot of investors and very smart investors see that and are now coming into the business of buying medallions at very distressed levels. So medallion prices went from $1.3 million several years ago down to $185,000 or so today. So it's been a huge drop. But the revenues and the earnings have not dropped by nearly as much as that. So the evidence of that is the amount of transfers. In 2017, you had 100 medallions sold. In 2018, it went up by eightfold up to 800. And that's coming from both existing fleet operators who want to expand. So they're proving our point that business is solid so they can expand and buy more cars and put more cars on the road. As well as hedge funds and private equity firms who've been out buying medallions as well. So there's a lot of demand for them right now.

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Henry Joseph Coffey, Wedbush Securities Inc. - MD for Specialty Finance [42]

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And then is there an opportunity in terms of cleaning up your own book of business to sort of in essence sell-off that entity, including maybe the recoveries where you just -- it's kind of a 1 and -- probably economically working through this loan-by-loan, client-by-client is going to create the greatest return? But a one-and-done transaction would really transform the business.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [43]

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Yes, we're open about both. Almost every single medallion that we've foreclosed on, we've lined up buyers for. So all of them are kind of spoken for. The preference would be all cash, if somebody came in and paid north of $200,000 per medallion, I think you sell it that way. We're selling them though for $225,000 in that range. So good numbers even though again, we're carrying them about $181,000. All-cash deals are getting preference if someone comes in at a lower number. So if we have to keep dribbling them out and selling them off one by one, we will. If there's a large buyer that comes in and wants to get an all-cash price we're open to that as well.

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Operator [44]

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Our next question comes from Mike Grondahl with Northland Capital Markets.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [45]

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Yes, guys. What's the size of the Freshstart Trust that you could possibly deconsolidate? And kind of what are the odds there or the timing?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [46]

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I think it's about $30 million in change. Larry's going to pull up the number. I just do that, Mike, as a potential. There's nothing definite happening there. But it's another area that we're going to turn to and look at. Larry's confirming. Yes, it's about $30 million or so.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [47]

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Got it. And what would your best guess be? The $156 million at year-end '18, what do you think that is the year in '19?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [48]

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Which number?

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Larry D. Hall, Medallion Financial Corp. - Senior VP & CFO [49]

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The $156 million.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [50]

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The $156 million of medallion loans.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [51]

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Right, what would it be end of '19?

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [52]

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Yes.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [53]

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I think the goal would be to keep the rates going, the decreases gong which I think have been probably about 20% per year of decreases. And again from $641 million down to $156 million is probably 25% per year. So somewhere in that area would be our goal.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [54]

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Got it. And a couple of quarters ago, you talked a little bit about the third-party medallion servicing opportunities. Any of those in the market place?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [55]

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There are nothing imminent. We get calls all the time from firms, private equity firms and hedge funds who want to buy portfolios whether it be from us or from others. And there's no natural servicer out there for them but us. There's no other company that has the expertise in this area like we do. So there's a lot of talk, and we're always the first choice of potential buyers of servicing deals. But so far, nothing has stuck, which is okay. Our focus is really just to work out our own portfolio, and these other things fall into your lap and its incremental income, it's still a positive. But our goal is just to reduce our exposure in the meantime.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [56]

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Got it. In -- at the bank, could you maybe just comment on any interest from the third parties or any potential partnerships with third parties, the online lenders?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [57]

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Yes. We continue to feel that the Utah Industrial Loan Bank charter is the preeminent banking charter in the country. There's very few of them. They haven't issued any new ones since 2008, since Walmart, I think applied for one. There's been a lot of talk about interest in the charters whether through acquisitions or through de novo applications from companies like Lending Club and Kabbage and OnDeck and SoFi and Square. None of these entities have their own bank charter so a lot of the partner with Utah Industrial Loan Banks. So our goal is to expand our product line. I don't think anything will happen short term, but there's always interest from a lot of these FinTech companies to partner with us. And we are talking to a couple, but again nothing imminent.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [58]

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Got it. And maybe just lastly, credit quality in consumer has continued to be really robust. I think delinquencies were even down year-over-year. Is it just good underwriting? Good economy? What would you kind of call out on this?

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [59]

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Yes, I'd say good management and underwriting and it's not us. I'd like to take some credit for it, but the Utah team just keeps knocking the cover off the ball. They've been doing this for 25 years, even before we -- they used to work for Leucadia in their consumer area. Then we were fortunate enough to bring them on board about 15 years ago. They learn as they go, as we all do. They started doing great for us in 2003, and we were a little bit nervous come 2007. What's going to happen when a recession hits. And they laid out their plan and showed us what they expected the losses and reserves to go to and they were spot on, on that. And since that point, as you pointed out, the losses and delinquencies have been extremely low. And in fact the next recession we were even better positioned than the last one for several reasons. Back in 2007 or so, the FICO scores were higher than where they are today. I think they were about 620 back then and now they're averaging about 680 or so. Plus on top of that, we added home improvement lending, which has an average FICO of 765. So you're talking about A-quality -- A-plus quality paper. So they've done a great job and we're positioned for any future recessions as well.

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Operator [60]

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This concludes the question-and-answer session. I would like to turn the conference back over to Andrew Murstein, President, for any closing remarks.

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Andrew M. Murstein, Medallion Financial Corp. - President, COO & Non-Independent Director [61]

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Great. So I just wanted to thank everyone for attending this morning's call. We're happy to follow up if your question was not answered. To that end, please contact Investor Relations at (212) 328-2176 or via email at investorrelations@medallion.com. Thanks, everybody, and have a great day.

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Operator [62]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.