Good day and welcome to the Medallion Financial Corp Q2 2026 Earnings Conference Call. All the participants will be in listen-only mode. If you do need assistance, please signal a conference specialist by pressing star and zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would like now to turn the conference over to Ken Cooper, Investor Relations. Please go ahead.
Thank you and good morning. Welcome to Medallion Financial Corp's second quarter 2026 earnings call. Joining me today are Andrew Merstein, President and Chief Executive Officer, Anthony Catrone, Executive Vice President and Chief Financial Officer, and Justin Haley, President and CEO of Medallion Bank. Certain statements made during the call today constitute forward-looking statements. 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 second 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. Our second quarter results further demonstrated the strength, stability, and growth potential of our lending platform. The highlights included our home improvement originations were up over twofold where they were last second quarter. As a matter of fact, the $128.6 million of originations was the highest origination quarter in our history for home improvement lending. We are doing this with stable credit quality, and this level of origination has continued through July. Equally as impressive was our origination activity in recreation, where originations were up 60% from a year ago to $228.5 million. Like home improvement, this was a record high for originations and a quarter for this segment. Here again, we are achieving this with stable credit quality, and we are seeing this level of activity continue through July. Our origination activity led to outstanding total loan growth for the quarter. We are now at $2.79 billion in loans, a 12% increase year-over-year, an impressive seven quarter ago. Our companies have passed an important milestone during this quarter as we exceeded $3 billion in assetization, and we are very pleased with where we are today and where we intend on going in the future. In many ways, the second quarter marked the continuation of our performance across our operating segments and many of our key performance indicators. For the second quarter, the $57.2 million of net interest income is a new quarterly record, which was particularly satisfying as we maintained our net interest margin of the approximate. Our strategic partnership program continues to gain traction. We ended a fifth partner in the quarter, which contributed to We are originating $247.1 million of loans and over $1.1 million in fee income in the quarter. We continue to work on our growing pipeline of new partner processes in the past for a significant size. A very methodical approach to growth to ensure we satisfy the needs of all stakeholders, including our borrowers. As I said, we are very pleased with the progress. We were being committed to our share in the quarter, a board-and-the-quarter dividend of $0.14 per share, representing a 16.7% increase from last quarter and a 75% increase since we reinstated the dividend in the second quarter of 2022. We also bought back nearly 780,000 shares, which we were able to do at a discount to both. The commercial lending business grew 5% during the quarter, with two new loans originated for a total of $7.1 million. It's at $126 million, with the weighted average coupon being 14.37%. Our company is well-positioned for future growth. We have a clear track record of growing assets, net interest income, and we have proven to be able to do this profitably and believe we will continue to do so. Our founding, our net income and earnings per share may be choppy quarter to quarter due to timing related to several unique drivers of our business, but all air shareholder value long term. We recently completed our relocation to our new New York office, a move that is expected to reduce our annual occupancy costs and further enhance shareholder value through ongoing expense. Anthony, who will provide some additional insight.
Andrew, good morning, everyone. For the quarter, net interest income grew 7% to $57.2 million from $53.4 million in the prior year quarter. The increase was driven by growth in our loan portfolio, generating higher interest income, outpacing interest expense, which was higher due to an increase in both borrowings and average borrowing costs. Our net interest margin was 7.94% during the quarter, down 15 basis points from a year ago, and down 6 basis points from the first quarter. Our interest yield on loans of 12.28% increased one basis point from a year ago, and our average cost of borrowings in the quarter was 4.32% compared to 4.20% a year ago. During the quarter, our average cost of deposits at Medallion Bank was 3.96% compared to 3.84% in the prior year quarter. As of June 30th, the weighted average coupon of recreation loans was 15.06% and was 9.69% for home improvement loans. During the quarter, we originated loans at rates averaging around 14.7% for recreation loans and 9.25% for home improvement loans. During July, we have continued to originate both recreation and home improvement loans at similar rates. The credit loss was $22.3 million for the quarter, a slight decrease from $22.5 million for the first quarter, and a slight increase from $21.6 million in the prior year quarter. Current quarter provision included approximately $6.5 million of day one provisioning, the allowance for credit loss we book when a loan is originated, in comparison to approximately $2.5 million in the prior quarter, and an approximate $400,000 benefit in the prior year quarter. As we continue to grow our consumer loan portfolios, particularly recreation loans, there is a steep penalty that presents itself on the income statement on the date of growth in terms of increased provisions. This $6.5 million of additional provisions translates into roughly $0.18 per share of reduced earnings in the quarter. If we chose to keep our loan book size static, excluding the impact of portfolio mix, we would not have those additional costs. However, we don't believe that to be in the best interest of our company or net charge-offs in the recreation portfolio during the quarter were $13.3 million or 3.14% compared to 3.11% in the 2025 quarter and were $2.9 million or 1.37% of the average home improvement portfolio compared to 1.87% in the 2025 quarter. Turning to expenses, operating costs totaled $25 million in the second quarter, which were up from $21.5 million in the prior year quarter, with the increase tied to both higher employee costs as well as higher servicing expenses, both of which are associated with our growing loan portfolio. Additionally, our professional fee costs were elevated in the quarter related to this year's As we continue to expand our platform and focus on growth, we anticipate higher operating costs. As we've stated previously, long-term, we expect the growth in our net interest income to outpace any growth in operating costs. For the quarter, net income attributable to our shareholders was $7.4 million, or $0.31 per diluted share, compared to $11.1 million, or $0.46 per share. in the prior year quarter. With the prior year quarter including $5.9 million of higher gains on equity investments compared to the current quarter, and the current quarter including a significant amount of additional credit loss provisions tied to the growth we experienced when compared to a year ago, as we just previously discussed. Our net book value per share as of June 30th was $17.62 from $17.66 a year ago, and our tangible book value per share, which excludes the value of goodwill, intangible assets, and the correlated deferred tax liability associated with both, was $12.17 at the end of the quarter, up from $11.32 a year ago.
Reconciliation of our book value per share, the tangible book value per share, is available on our website. that covers our second quarter results we are now happy to answer any questions you may have we will now begin the question and answer session to ask a question you may press star then one on your touchstone phone if you're using a speakerphone please pick up your handset pressing the key if at any time your question has been addressed and you would like to withdraw your question please press star then two at this time we will pause momentarily to assemble our roster
first question is from ken coat raymond james please go ahead hey uh good morning guys thanks for taking my questions maybe uh start yeah hi good morning uh starting out with loans um i know you guys have been pretty optimistic with uh loan growth and balance sheet growth going forward but But this level, this quarter, was really impressive. I'm just trying to get a sense to how sustainable this level is going forward.
Yeah, no, we were quite happy with the loan origination volumes this quarter, and we do think that they're sustainable. You know, we would expect there to be, you know, continued seasonality like we've seen it. You know, Q2 and Q3 are going to be our stronger origination months. But, you know, particularly with home improvement, there's just a huge ecosystem of loans to be done. And we're a growing but still a small player in that space. So we feel really good about that.
Maybe sticking with home improvement, as you know, is really strong growth. I'm just wondering if the recent Enerbank and region hires that you guys made kind of contributed to that outsized growth and if they're gaining traction.
Yes, they have. We really brought over a great person from Enerbank. As you know, Interbank sold to Regions, and I think they sold for 2.5 or 3 times book value. That often happens with mergers and acquisitions that the smaller bank usually allow their people leave after the deal is done. The atmosphere is different. The culture is different. They want more of a growing, smaller, more energetic company perhaps, and that's what we found. These people have done a great job for us. We're actually bringing over some more of them in the coming weeks.
That's good to know. And maybe if I could sneak one more in. It looks like you guys recognize some gains on the sale of recreation loans. Just wondering if you can provide maybe a little bit of color there. What was the balance of the loan sold? You know, what drove the decision to sell? Maybe pricing and demand from the buyers? That'd be great, thanks.
So Justin, Medallion Bank's CEO, is on the call. Justin, you want to jump in on that?
Sure. Hi, Ken. About $50 million sold, and we're seeing plenty of demand for that. Good economics on it. We would anticipate, as we're growing at the pace we're growing in order to manage our capital effectively, that we'll have periodic sales. We'd like it to be consistent.
And I would just say that despite that portfolio sale, we still grew in the quarter 5% recreation loan, so this didn't hinder our ability to grow, and we see this as a good outlet, not just to generate more recurring earnings, but also an outlet for these originations that we seem to be lucky to have.
Great. Thanks for taking my questions.
The next question from Mike Grondo, Northland Securities. Please go ahead.
Hey, morning, guys. This is Logan on for Mike. Thanks for taking our question. First one from us. Hey, guys. Can you just dig in a little bit about how you are feeling about current credit trends and your outlook for credit in the second half of 2026?
Sure. You know, I think we're feeling, you know, positive about credit, particularly home improvement. I mean, it's come in, you know, charge-offs have come in sizably and, you know, and performed much better than they have, you know, maybe a year ago. So we're optimistic about that. REC is still elevated, but it's not ticking up, and it did come in, you know, as expected from Q1. So I think we look good. You know, the economy is going to dictate to a larger extent, you know, where we end up. But I think the changes we made in terms of pricing that we spoke about last quarter on recreation loans should, over time and in the coming quarters, you know, produce a better charge-off ratio, which for us is going to, you know, produce a better charge-off-adjusted NIMP.
Originations were pretty robust across rec and home improvement. Granted, 2Q is seasonally a strong quarter, but can you guys just go a little deeper talking about the underlying drivers of this growth for each segment?
Jump in again.
Yeah. Hi, Logan. So it's two different stories in the recreation business. If you think of our recreation business, it's got a couple of components to it. The one we talk about most is our non-prime business, which is near-prime and sub-prime originations for RV and marine buyers. And in that business, as Anthony mentioned, we took a look at where we fell in the waterfall. And, you know, as a second-look lender, we're not going to be at the top of the waterfall. But where we fall in the waterfall comes down to how competitive we are. And we chose to be a little more competitive, and you're seeing the result of that in volume in the year. We also have what we call prime niche businesses. So they're small market businesses that allow us to originate some volume. And we met with and engaged with some of our larger relationships there and modified the programs not by modifying credit, but by modifying delivery and how we price in order to ensure that we met their needs and we could win more often. That's RAC. And home improvement, as mentioned before, we have new talent in the team. You'll see this quarter we went from 700 contractors to 800 active contractors. Our marketing engine has stood up. We do expect to have better contractor acquisition going forward and to continue that growth. But for the volume today, it's like RAC. We're leaning into our existing relationships and asking them how we can win. They're telling us and then we're making the modifications to win. We do think this is all sustainable.
Thank you. Yeah, that was very helpful. Impressive numbers in 2Q. One last one from us. We have been calling out 2026 as the year of investing in the business. Can you guys provide an update on how those investments are going so far and what still needs to be done?
I'll jump into this one as well. Yeah, you're doing a good job, Justin. Keep going.
Thank you. so the investments thus far have we made some technology investments in 2025 and in 2026 right now we're focused a lot on bringing talent in the bank because we have the platform in place we just need more talent to be able to leverage it effectively so mentioned marketing already we brought in some technology talent we're adding analytics talent to both data analytics and credit analytics we're also bringing folks into our collection and recovery area not because we're intending to replace our long-term service or SST, but because we want to supplement them or we can do better. Looking forward, the next big shift will be a replacement of our loan origination system, which is anticipated to be done in Q1-2027 before our busy season. Once that happens, that unlocks the ability for us to roll out new credit scoring models, including the addition of some alternative data into our credit underwriting. And the whole purpose of that is to ensure that we're underwriting with the level of sophistication that befits a $3, $4, $5 billion bank.
Got it. Thank you, guys, and congrats on the quarter.
Next question from Manuel Navis. Piper Sendler, please go ahead.
I appreciate a lot of the commentary on expenses. Just wondering, could you quantify the benefit from the headquarter move? Also, you just talked about these investments. Just how does that all fit in with the forward trajectory of expense growth?
I'd say from the headquarters, we moved to about half the space that we had. A lot of our old space was pricey and was for the medallion business, and that's down to virtually zero today. So we're probably saving about, I don't know, $500,000 or so a year. We reduced our cost by about 30%. So over the life of the new deal, you're probably talking about $5 million of savings. So we're definitely happy with that, and Anthony could touch base on the other point.
Yeah, so, you know, in terms of operating costs, you know, as we continue to grow, obviously our costs are going to grow with that. And as Justin mentioned, you know, we're committed to, you know, developing and bringing in the right talent that's going to come at a cost that's going to allow us to grow, but grow prudently, grow with loans that we want to hold that are going to perform, you know, better in different cycles.
I appreciate that. I hear you on this quarter being a really strong origination quarter. You've talked about mid-teens, loan growth. Is there any shift for the full year, given how strong this quarter was?
No, I think that's still what we're targeting. Obviously, when we get to the latter part of Q3, things will start to slow to some extent, particularly in REC. But no, I think what we were expecting is still what we're expecting.
I know that gains on equity investments is pretty lumpy. Is there any sight line to anything in the back half of the year, or is it too soon to tell?
It's too soon to tell. We're not aware of anything. There's one or two portfolio companies where there's talk of them exiting, but we don't count those chips until it's paid out. There's just too much volatility in that space surrounding these exits. So we continue to hold these at cost and then less impairment if there is some. And then when there's an exit and we get real cash, then we recognize the game.
And just my last one here, buyback pace was quite impressive. What's the appetite to continue? What's the capacity to continue? Where does it fit in with your capital deployment priorities?
We're a fan of buybacks, especially when you can buy a company back below book value and a very low price to earnings as well. So they're obviously very creative when we do that. We announced a $40 million buyback several years ago. I think we're down to about $6 million left. The hope depends what happens to the share price, but I'd expect us to probably finish that within the next six months.
And then reload?
Yes, I think we'd reload and put a new plan in place. the, we look at growth, dividends, and buybacks, and we're actually in a very good position these days. We're able to do all three very effectively, so I don't think one has to come at the expense of the other. I think we could do all three.
Yeah, and I think, you know, just those three that Andy mentioned, you know, growth, dividends, buybacks, you know, we look at all of them as shareholder return, you know, and growth, just, you know, our type of business, the way we view our business, we think that's just as important, if not more important, than dividends and buyback. So, you know, allocating to that and then opportunistically being in the market when, you know, we're not getting the valuation we know exists is also important.
Thank you for the commentary.
I think we had a couple of questions came in from Christopher Nolan of Ladenburg-Calman. that he's on the call, but he's having some issues with his microphone, so we just wanted to go through those. He asked if there were any non-recurring items affecting the second quarter earnings. I don't, you know, professional fees were slightly elevated because of this year's proxy. That was probably a penny or two, you know, when it hit the bottom line. Other than that, we don't view anything in this quarter as significant non-recurring. A year ago, we had pretty sizable equity gains. We had a small amount of equity gains, which is, you know, that's all part and partial to our business, but, you know, we don't see that as, you know, being, you know, outliers. And the gain on the recreation loans was about a million three. Again, we expect to have more of those on a recurring basis, maybe not every quarter, but on a more frequent basis, just given our origination platforms and where that's going. So, you know, from our perspective, this was a fairly clean quarter. You know, the one thing that, you know, we talk about internally and we think is important and spoke about it, you know, just a few minutes ago is that, you know, with growth comes a significant amount of penalty in terms of that day one provision on the REC portfolio. So that was six and a half million dollars of additional provision because of the growth. You know, it's in our best interest to grow. It's in the shareholders' best interest for us to grow. So, we'll continue to have those penalties to the extent we grow, but that translates into real earnings down the line. One other question from Chris Nolan was asking about the buybacks and what the impact was to EPS. The buybacks occurred throughout the quarter, and the way dilution works is, you know, it's a way weighted average, you know, outstanding shares throughout the quarter. So we had about a penny benefit. That benefit will be higher in Q3 when we get the full benefit of the weighted average, you know, reduced share count.
So we are happy about that.
As a reminder, if you wish to register for questions, please press star and one on your telephone. But no more questions registered.
This concludes our Q&A session. I would like to turn the conference back over to Andrew Mernstein for any closing remarks.
Thank you. In closing, I just want to highlight what a strong growth quarter this was. We delivered one of our highest loan volume quarters on record, reflecting exceptional demand for our products and the success of our team's origination efforts. We're excited about the underlying business momentum and confident the strong volume positions as well for solid returns ahead. We are very pleased with our performance and where things stand halfway through the year, and we have a very bright future in front of us. We're always accessible, so please don't hesitate to reach out with any questions or thoughts. Thank you all for your continued support. We look forward to updating you on our progress next quarter, and I hope you have a great rest of your day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.