Medallion Financial Corp.

Good morning, and welcome everyone to Medallion Financial's 2021 First Quarter 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 risk 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 as 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 Mr. Andrew Mercy, President of Medallion Financial. Thank you, sir. You may begin.

Good morning, everyone. Thank you for participating in our 2021 first quarter earnings call. Joining me on today's call is our CEO, Alvin Merstein, and our CFO, Larry Hall. As the results show, we are pleased that we continued the momentum from a strong fourth quarter to the first quarter of 2021. Let's quickly touch upon the Medallion segment, then I will give you some highlights on the consumer and commercial segments before turning the call over to Larry Hall. As a result of several factors, including New York City slowly beginning to open up, we have begun experiencing an uptick in demand for medallions in New York City. The company left New York City medallion values unchanged from the prior quarter while slightly adjusting some smaller taxing market values downward. These non-cash valuation adjustments of several million dollars, along with increased net interest loss, partially led to a $1.9 million loss for the medallion lending segment this quarter, which was significantly lower than the $10.4 million loss in the year-ago quarter. Additionally, losses for the quarter were partly mitigated by a $1.8 million gain on extinguishment of Medallion-related debt, resulting from more successful debt private placements in December 2020 and the 2021 first quarter. Our efforts will continue to be on recovering as much as possible while we remain hopeful ridership will increase in the second half of the year. When looking at our consumer portfolio, Medallion Bank once again posted a strong quarter as we head into our busier months given the seasonal volume increases we typically see in the second and third quarters. COVID-related payment deferrals were largely resolved last quarter. Loan volume continues to remain robust, resulting in the recreational and home improvement in net loan portfolios growing 11% and 33%, from March 31, 2020, while consumer originations were up 37% from the first quarter of last year. The consumer portfolio now represents 93% of total gross loan receivables as of March 31, 2021. In March of this year, the bank executed a non-binding term sheet with another potential fintech partner, which should be active in the next 30 days. We remain optimistic the program at Medallion Bank will grow this year, and we will see an increase in volume from where two partners of the economy begins to stabilize. On the commercial side, liquidity remains strong, and many of our mezzanine portfolio companies were able to access the Paycheck Protection Program last year, providing needed liquidity. The mezzanine portfolio performance is slowly recovering. to full recovery by the end of the year, and deal flow is as strong as we have seen in the 20-plus years that we have been in this business. Let me quickly touch upon some additional first quarter highlights. Net income from the company's consumer and commercial lending segments increased to $15.1 million in 2021 compared to $4.3 million a year ago, which was lower in part due to provisions we took as a result of COVID-19. Medallion Bank closed the first quarter with an 18.03% Tier 1 leverage ratio and $228.6 million of total capital. Including loan collateral in the process of foreclosure and owned Chicago Medallion assets, total Medallion exposure comprised 4% of our total assets as of March 31, 2021, compared to 9% at March 31, 2020. So with that, I will now turn the call over to Larry, who will provide additional highlights on the first quarter.

Thank you, Andrew. Net income was $8.4 million, or 34 cents per share, compared to a net loss of $13.6 million, or 56 cents per share, in the prior year quarter. Net interest income was $28.7 million in the quarter, primarily reflecting the contribution of the consumer lending segments compared to $26.5 million in the 2020 quarter. This is our second profitable quarter in a row, as we hope that the medallion issues are behind us. Our net interest margin has been consistent in our reporting. We ended the first quarter with a strong net interest margin of 9.18%. This is well above average when compared to other financial institutions. Net cash provided by operating activities increased 25% quarter over quarter, to $21.1 million from $16.8 million in the 2020 first quarter. As Andrew previously discussed, New York City Medallion values stayed the same from last quarter and stand at $79,500 net. The company's net Medallion lending portfolio, exclusive of loan collateral in the process of foreclosure, was $11.2 million as of March 31st, 2021, compared to $96.2 million at March 31st, 2020, an 88% decrease. Total provision for loan losses was $3 million in the 2021 first quarter, compared to a provision for loan losses of $16.5 million in the prior year quarter. We booked a $1 million provision for loan loss benefit in the medallion lending segment, while recording a $3.6 million provision for recreation and a $450,000 provision for home improvement. As the consumer portfolio continues to grow, we expect provisioning to be in line with our growth expectations. Consumer loans still in a state of deferral were immaterial as a percentage of the portfolio. The consumer loan portfolio's average interest rate was 13.44% this quarter, down from the 14.42% we recorded in the 2020 quarter, as we remain cautious and more selective on the loans we chose to underwrite, as well as experienced faster growth in our home improvement lending business, which has lower yields than recreation lending, but lower losses as well. All of our consumer lending lines are showing growth and low charge-offs and delinquencies, which we are hopeful will continue throughout the year. Net income from the company's consumer and commercial lending segments increased to $15.1 million in 2021, compared to $4.3 million a year ago, while net interest income for the 2021 first quarter was $31.4 million compared to $27.4 million in the 2020 first quarter, a 15% increase. Our commercial lending segment recorded a net income of $337,000 in the first quarter and $155,000 in the same period last year. The net commercial lending portfolio was $58.9 million at the end of the first quarter, compared to $68.3 million in the same period last year, reflecting the early payoff of several large relationships. That said, the pipeline of future bookings is at a very high level, and we anticipate meaningful growth over the rest of the year. The average interest yield was 12.65% compared to 13.05% a year ago. With that, I'll now turn the call back to Andrew.