Good morning. Welcome to the Medallion Financial Corp Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. For today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ken Cooper, Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Medallion Financial Corp Fourth quarter and full year 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 such statements. 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 fourth 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.

Thank you, Ken, and good morning, everyone. We appreciate you spending some time with us to hear our business update. We ended the year well with nice contributions coming from each business. Our fourth quarter net income was our highest quarter of net income in 2024, which topped off another successful year for our company. For the fourth quarter, we delivered $10.1 million of net income and $0.43 of earnings per share for our shareholders. For the full year, we delivered $35.9 million of net income and $1.52 of earnings per share. Helping drive these results were several important achievements. Towards the top of the list was generating over $1 billion of loan originations for the year for the first time in our history. What was especially pleasing about this milestone is that we accomplished this while continuing with our high credit standards and the related credit quality of our borrowers. The vast majority of our total loan portfolio is to Super Prime, Prime, and near-prime borrowers, which we believe insulates us from significant volatility and strengthens our risk profile. We continue to target an enhanced borrower base and to improve the credit quality of our portfolio. We are now originating loans to borrowers with an average FICO score of 686 for recreational and an even stronger 781 for home improvement. We have done a wonderful job further improving the overall credit of this segment in just a few short years. Another achievement in the fourth quarter was the exit of a portfolio investment in our Medallion Capital segment, which resulted in net gains of $3.8 million. For the year, we had $6.9 million of net gains driven by two highly successful exits. This transaction is reflective of the type of equity kicker we get within our commercial lending group.…

Thank you, Andrew. Good morning, everyone. For the quarter, net interest income grew 6% to $52 million from a year ago and was down 1% from the prior quarter. For the year, net interest income increased 8% to $202.5 million from $188.1 million in 2023. Our net interest margin on gross loans was 7.84% for the quarter, down 27 basis points from the prior quarter, and down 36 basis points from a year ago. In addition to a 7 basis point rise in our cost of funds, during the quarter, we placed two commercial loans on non-accrual and reversed $427,000 of interest income, which pressured our yield. This reduced our net interest margin by approximately 13 basis points during the quarter. For the year, our net interest margin was 8.05% on gross loans, compared to 8.38% in 2023. During the fourth quarter, we originated recreation loans at an average rate of 16.02% and home improvement loans at an average rate of 10.94%. We continue to originate both consumer loan products at rates above the current weighted average coupon in these portfolios. Importantly, the average rates charged on new originations in January were above 16% for recreation loans, and above 11% for home improvement loans. We anticipate that our average coupon and yield will continue to increase well after our cost of funds plateaus. Our average cost of funds was 4.12% during the quarter, up 60 basis points from a year ago and was 3.93% for the full year, up 77 basis points from the year ago. The average interest rate on our deposits was 3.71% as of the end of December. Total loans outstanding were $2.5 billion, increasing 12% from a year ago and included both loans held for investment and those held for sale. This is comprised of $1.5…

We will now begin the question and answer session. To ask a question, you may press star then one. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, thank you. At this time, we will pause momentarily to assemble our roster. And the first question will come from Mike Grondahl with Northland Capital Markets. Please go ahead.

Hey, guys. This is Logan on for Mike. First off, just congrats on the quarter. And we kinda wanna dig into can you provide some color around why you are selling the $121 million of the rec loans? And when you expect that to close? Thank you.

Hi, Logan. Thanks for the question. We are selling it because the volume was stronger than anticipated during the year. We continue to grow both those lines very well, the RV, marine, and home improvement. And it just gives us another good funding option. It's good to have a lot of options at our disposal. So if we continue to have better than expected growth in 2025, then we could always revisit that again. In terms of when it could close, my guess, it would be sometime in the next thirty to sixty days.

Perfect. Yeah. Thank you for the color. Then one last one from us. Can you talk about how you guys are feeling about credit quality going forward and delinquency levels and any sense that they are peaking currently?

Hey, Logan. Yeah. So annually, Q4 is when we see delinquencies and charge-offs, you know, hit that seasonal high. And then they start to settle in, towards the end of Q1, you know, ramping up to, you know, our lower seasons in Q2 and Q3. So I think it's hard to say, you know, we're not quite sure how everything plays out with what's going on in DC right now. But we do see and we have been seeing better performance in our more recent vintages. So those loans that we've issued over the past, you know, twelve to twenty-four months, those seem to be performing better. And that tracks with when we actually started tightening and increasing our credit standards, you know, halfway through 2023.

Thank you, guys. Congrats on the quarter, and I'll hop back in the queue.

Thanks, Logan.

With no further questions, this concludes our question and answer session. I'd like to turn the conference back over to Andrew Murstein for any closing remarks.

I think Logan may have had some additional questions. Perhaps, maybe we could revert to him for a second. If you had anything else?

Just one moment. Logan, if you have any questions, please hop in the queue. You can press star then one. We'll have another question from Mike Grondahl again.

Could you guys, sorry about that. Can you provide some additional color about margins and how you guys see those bottoming? And if you see those bottoming in 2025?

Sure. You know, I think for a while now, we've been hesitant to call a bottom. And I think what we're seeing with our cost of borrowings is that it's somewhat decoupled from, you know, Fed decisions, you know, the cost of our CDs, currently are at rates, you know, near or above what we were seeing, you know, six months ago. So I think until we see further clarity on where the Fed goes with, you know, additional interest rate cuts, not sure exactly where we end. We don't think we get significantly lower from where we are now. But we will bounce around a little. I will say that, you know, in Q4, we originated loans. As I said before, we originated loans at levels higher than our average coupon. And in January and February, we're originating loans at levels above that. So our loan book is fixed, the rates, but, you know, we do have the option of and the ability to increase rates on new originations, and that's what we're doing. So we think that counteracts any additional cost of funds increase we experience.

Perfect. Okay. Thank you. Then can you provide some additional color about loan growth that you're seeing currently and then throughout 2025?

Sure. Yeah. I mean, we're seeing, you know, a fair amount of demand for both products, the home improvement and the recreation loans. We haven't loosened credit. We have no intentions of loosening credit anytime soon. But there's still a fair amount of, you know, volume to be had out there. In terms of, you know, growth of the portfolio, we probably see, you know, 2025 growing anywhere from, you know, mid to, you know, high single digits. Which is a little bit lower than what we've done in past years. But, you know, with a $1.5 billion loan book, we think it's appropriate given, you know, where earnings are, and, you know, where we're deploying capital.

Perfect. Yep. Then one final modeling question from us. Should we think about operating expense going forward? Is $20 million kinda the right number to sit around, or just any insight there?

I think it's probably close to $21 or $21.5 a quarter. You know, it's which is higher than what we've experienced. Putting Q4 aside, it's a little bit higher. You know, as we grow, we, you know, and as an insured deposit institution, you know, we've gotta make sure that we've got the right people and the right staffing levels to handle our growth and, you know, so there's additional cost there. Additionally, we've got a fair amount of, you know, initiatives that we've been undertaking related to our loan system, analytics departments, you know, within the bank specifically, that, you know, are gonna require, you know, capital. So we expect, you know, cost to increase. But, again, you know, these increases in costs, you know, are gonna be covered by the increases in income that we expect to generate.

Perfect. Thank you. Those are all the questions I have for now. I appreciate you guys letting me ask the additional ones. Thank you.

Thanks, Logan.

Pause momentarily to assemble our roster. And again, with no further questions, I think this will conclude our question and answer session. I would like to turn the conference back over to Andrew Murstein for any closing remarks.

Thank you. For 2025, we expect to continue executing a similar strategy as we have for the past several years. That being prudent growth of our lending businesses, we anticipate keeping our credit standards at the current levels which have served our businesses so well. Over the past several years, we've strengthened, optimized, and transformed our company into a highly efficient business that generates strong profitability and cash flow. Our commitment to our shareholders remains as strong as ever, evidenced by our growth, dividend, and opportunistic buybacks, and we eagerly anticipate maintaining the path we have established. Thank you again for your investment and interest in Medallion Financial Corp. Have a great rest of your day.

The conference is now concluded. Thank you for attending today's presentation. May know.