Medallion Financial (US:MFIN)2023-10-31 15:38Financial Data and Key Metrics Changes - In Q3 2023, the company generated $11.2 million in net income and $0.48 in earnings per share, with year-to-date figures at $40.8 million and $1.77 respectively, driven by higher originations in consumer lending and solid commercial lending results [2][76] - The net interest margin on gross loans was 8.35% for the quarter, down from 8.48% in Q2 and 8.63% in the same quarter last year, attributed to the growth in home improvement lending and rising cost of funds [4][49] - Net interest income grew 16% to $48.8 million from the prior year, supported by increased interest rates on new originations and loan growth [76] Business Line Data and Key Metrics Changes - The Commercial business originated $9 million in loans during the quarter, ending with $100 million in loans outstanding, generating after-tax earnings of $2 million [3] - The Consumer Lending business experienced heightened origination activity, focusing on towable RVs, small boats, and home improvements, with an average loan at origination around $25,000 [45] Market Data and Key Metrics Changes - The provision for credit loss was $14.5 million for the quarter, up from $10 million in the prior year, primarily due to normalization of loss experience and portfolio growth [23] - Charge-offs in the recreational and home improvement segments were $9 million and $3 million respectively, with commercial charge-offs at zero [26] Company Strategy and Development Direction - The company anticipates loan growth to moderate, enhancing earnings with reduced credit allowances needed at origination, allowing for more flexible capital allocation [21] - A 25% increase in the quarterly dividend from $0.08 to $0.10 per share has been authorized, enhancing shareholder returns [53] Management Comments on Operating Environment and Future Outlook - Management expressed optimism for 2024, citing strong loan demand across various segments and potential benefits from upcoming congestion pricing in New York City [81] - The company is focused on maintaining a strong capital cushion and is not planning to take on significant new debt in the near future [27][67] Other Important Information - A structured settlement with a larger taxi medallion borrower resulted in an additional $9.4 million collection, expected to yield a pre-tax gain of approximately $8 million in Q4 [53] - The company has significantly improved the credit quality of its recreational portfolio, with sub-prime loans decreasing from 66% in 2018 to 38% today [23][88] Q&A Session Summary Question: What is the outlook for net interest margin? - Management expects net interest margin to compress to around 8% but anticipates net interest income to increase due to portfolio growth [27][49] Question: How is the company planning to utilize excess capital? - The company is considering options such as share buybacks and further dividend increases, given the strong capital generation [86] Question: What is the disconnect between performance and market valuation? - Management noted that the market may not fully appreciate the company's improved underwriting and credit quality, leading to a significant discount to book value [89]