• Net Income: $7.1 million for the quarter.

• Earnings Per Share (EPS): $0.3 per diluted share.

• Net Interest Income: Grew 7% to $49.9 million from the prior year.

• Net Interest Margin: 8.12% for the quarter.

• Loan Originations: $309 million total, including $210 million in recreation loans and $68 million in home improvement loans.

• Total Loans Outstanding: Increased 11% from a year ago to $2.4 billion.

• Provision for Credit Loss: $18.6 million for the quarter.

• Operating Expenses: $20 million for the quarter.

• Net Book Value: $15.25 per share as of June 30.

• Share Buyback: $1.5 million repurchased during the quarter.

• Warning! GuruFocus has detected 1 Warning Sign with MFIN.

Release Date: July 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Medallion Financial Corp (NASDAQ:MFIN) reported a solid quarter with $7.1 million in net income and $0.3 earnings per share.

• The company successfully originated over $200 million in loans in its Rec Lending segment, with an average interest rate of 14.8%.

• Home improvement lending grew by 6% year-over-year, with a strong focus on super-prime borrowers.

• The commercial lending segment saw a 19% growth in its loan portfolio, reaching $110 million with an average interest rate of 13.05%.

• Medallion Financial Corp (NASDAQ:MFIN) was re-included in the Russell 3,000 index, highlighting its growth and performance.

Negative Points

• Net interest margin on gross loans decreased by 36 basis points from the previous year, indicating some pressure on profitability.

• Operating expenses increased to $20 million, partly due to elevated legal and professional fees from defending against an activist proxy campaign.

• The provision for credit loss rose to $18.6 million, reflecting increased allowances tied to consumer loan growth.

• Consumer loans more than 90 days past due increased to $7.2 million, up from $6.1 million a year ago.

• The company faces a 'growth penalty' due to the immediate reduction in current earnings from booking new loans.

Q & A Highlights

Q: Can you discuss your outlook for RV, boat, and home improvement segments for the second half of the year? A: Anthony Cutrone, CFO, explained that RV originations typically peak in Q2 and settle in Q3, with expected year-end growth around 15%. Home improvement sees larger origination in Q3 due to a lag between loan approval and funding. The segment is expected to pick up in Q3.

Q: Has the home improvement segment become more competitive, and how is the credit outlook for RV and home improvement? A: Anthony Cutrone noted that home improvement remains competitive, focusing on super-prime borrowers. The company is cautious about credit, with 65% of the recreation portfolio being prime credits. They are cautiously optimistic about credit quality.

Q: Should we expect operating expenses to decrease in coming quarters after elevated professional fees in Q2? A: Anthony Cutrone stated that legal and professional fees were elevated due to proxy season, impacting EPS by about $0.04. These costs are not expected to recur in Q3.

Q: What is the outlook for net interest margin (NIM) given potential rate cuts by the Fed? A: Anthony Cutrone mentioned that short-duration CD rates are around 5%, and they expect NIM compression to be near its bottom. They are not planning to lower origination rates currently, but market conditions will dictate future actions.

Q: How is the solar deal progressing, and what are the expected yields? A: Andrew Murstein noted that the solar deal is progressing well, though slower than expected initially. They expect origination fees between 15 to 50 basis points, with paper yields ranging from 12% to 24%. Compliance is a key focus.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.