Andrew Murstein - President Alvin Murstein - Chairman Larry Hall - Chief Financial Officer.

Mike Grondahl - Northland Securities.

Good morning and welcome to Medallion Financial’s First Quarter 2018 Earnings Call. By now everyone should have access to the earnings announcements which was released prior to this call and which may also be found on the company’s website at medallion.com.

Before the company begins its formal remarks, we need to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks 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 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 this date. We disclaim any obligation to update forward-looking statements unless required by law. I would now like to introduce Andrew Murstein, President of Medallion Financial..

Thank you and welcome everyone to Medallion Financial’s first quarter earnings call. We appreciate your continued support of Medallion. Joining me on today's call is our Chairman, Alvin Murstein; and our CFO, Larry Hall. The first quarter was fairly newsworthy for Medallion on a few fronts.

From the perspective of our results, our consumer and mezzanine segments continue to generate substantial profits and recorded another quarter of strong performance.

With respect to Medallion’s, we proactively took significant additional charge-off and reserves while writing down New York City Medallion values to a net of $183,500 and New York City wheelchair accessible medallion to $156,000. For the month of April the average Medallion transfer price in New York City as reported by the TLC was over $230,000.

Overall we recorded $62.7 million of combined net charge offs and reserves in the first quarter and recoded a sizable net realized loss in the quarter related to our Medallion segment.

Importantly we significantly lessened our Medallion lending exposure, reduced our carrying values on delinquent loans to their lower level compared to par and additionally to a level at the lower end of those financial institutions that publicly reported.

During the first quarter we received overwhelming shareholder approval to convert from a BDC into a non-investment company and we officially completed the process at the beginning of April.

We will be consolidating all of our wholly owned or controlled portfolio and investment subsidiaries, including Medallion Bank and moving forward we will reporting on our income statement and our balance sheet as one entity.

We expect reporting as one integrated entity, which will greatly one, increase our overall transparency; two, simplify the ability of our shareholders to understand our financial condition; and three, and it’s important to note, our ability to invest in the growth on Medallion Bank will no longer be limited due to BDC regulatory constrains.

We want to once again thank our shareholders for their support of this initiative. Let’s go through some brief highlights with respect to our main segments. First at the bank, our consumer lending segment once again led the way with the bank recording net investment income before taxes of $16 million.

As of March 31 our consumer portfolio stood at $717 million of net receivables, a sequential increase of $33 million led by solid increases in originations in our RV and home improvement loans.

Critically our team continues to underwrite these loans with prudence and at the end of the quarter 90 plus day delinquencies were only 0.4%, an improvement from 0.6% as of December 31. The consumer segments performance was offset by $22.6 million in additional unrealized depreciation and charge-offs within the Bank’s Medallion portfolio.

As I’ve noted before but want to reiterate, the significant earnings that we have from our consumer lending segment are cash earnings or the losses that we record from Medallion Lending are primarily attributed to non-cash charge-offs.

Thus the overall cash flow at our bank is extremely strong with over $100 million per year in interest income being generated. Our mezzanine segment continues to be a consistent producer for the company as we now have a $93.6 million portfolio with loans that typically generate a 12% annual yield.

For the quarter the mezzanine segment earned $2.3 million, an over 20% return on equity for this segment. We expect this segment will continue to generate solid results for the company over the long term. Importantly, our Medallion exposure, both the bank and the Medallion Financial continues to be reduced.

As of March 31 the company managed $319 million of Medallion loans, a $69 million reduction from December 31 and a $165 million reduction from one year ago. Our 90 plus day delinquencies as of March 31 were also the lowest levels since the end of 2015, primarily reflecting the charge-off taken.

In terms of our current Medallion portfolio compensation at Medallion Bank, Medallion loans now comprise only 17% of the Bank’s net investment portfolio, which as a percentage of investments is a historic low for the bank since its formation in 2003.

Finally, at the end of the quarter we recorded net unrealized depreciation and appreciation on several of our holdings. We have renewed interest from third parties with the expected purchase in a portion or all of Medallion Bank, as well as with potential partnership opportunities.

In addition, we are exploring other capital alternatives for the bank as well.

We know that the adjustments to fair value has been a requirement under our old BDC investment company structure, and moving forward we will no longer be fair value or majority owned or controlled non-investment company subsidiaries that were previously held as portfolio investments, but will assist these segments for impairment on a recurring basis.

That said, I’ve noted before the significant operating earnings potential of the bank outside of the Medallion portfolio, and no matter what direction we pursue in the quarters ahead, we will be focused on creating long term value through the bank for our shareholders.

So to sum it up, we took some significant steps in the quarter to simply the company’s reporting and remove additional overhang from our portfolio. We will continue to focus squarely on our consumer and mezzanine divisions, while further reducing our Medallion exposure over time in order to unlock long term value for our shareholders.

I’ll now turn the call over to Larry who will give some brief highlights regarding first quarter results..

Thank you, Andy and let me take you through some of our first quarter highlights.

In the first quarter Medallion financial recorded a net decrease in net assets resulting from operations of $14.9 million or a loss of $0.62 per share, compared to a net increase in net assets resulting from operations of $1.1 million or $0.05 per diluted share in the prior year period.

Our first quarter 2018 results included $34.7 million in charge-offs, the large majority related to Medallion loans, which was partially offset by $22.8 million in net unrealized appreciation both on a pretax basis.

At Medallion Bank we incurred a net loss of $9.1 million in the first quarter compared to a net gain of $4.3 million in the prior year period. The difference was primarily due to recording $28.5 million in reserves and charge-offs on non-performing loans and assets.

Net investment income before taxes was $16.1 million, a 6% reduction from $17.2 million in the prior year period. At the bank, our net consumer lending portfolio as of March 31 stood at $717 million, up from $684 million as of December 31, due primarily to new originations in RV and home improvement loans.

The portfolio's average interest rate was 14.86%, a slight increase from 14.79% in the prior year quarter. Over 90-plus day delinquencies on the consumer portfolio stood at 0.4%, an improvement from 0.57% in the prior quarter.

The bank's net medallion lending portfolio as of March 31 stood at $158 million, a 33% reduction from the prior year and a 12% reduction sequentially. Medallion loans represent just 17% of Medallion Bank's net investment portfolio, compared to 26% as of March 31, 2017.

The average interest rate improved to 4.34% from 3.82% in the prior quarter as we continue to be able to refinance existing loans at higher rates.

We wrote down $10.6 million of our repossessed inventory and took an additional $12 million of provision for bad debt as a result of mark in the collateral value of New York City Medallions to a net of $183,500, Boston Medallions to a net of $66,200, and Chicago Medallions to a net of $34,900.

At Medallion Financial and our other subsidiaries, the net Medallion lending portfolio as of March 31 stood at $161 million, a 36% decline from the prior year and a 23% decline sequentially as we took larger write downs than we have in past quarters to further reduce our exposure.

90-plus day delinquencies as of March 31 were $38.4 million versus $59.7 million in the prior quarter. On a managed basis with Medallion Bank, 90-plus day delinquencies were $53.2 million, down from $71.9 million in the prior quarter.

Combined, our total net managed Medallion loans as of March 31 were $319 million, 34% lower than $484 million as of a year ago. Our net commercial loan portfolio, which is primarily made up of our mezzanine lending portfolio stood at $94 million, a 27% increase from the prior year period as we saw an increase in mezzanine loans during the quarter.

The average interest rate on commercial loans was 12.07%, a reduction from 12.88% in the prior year quarter. The bank had $28 million in cash on its balance sheet as of March 31, and remains well capitalized. Medallion Financial had debt of $321 million as of March 31, a decline from $328 million as of December 31.

In March we renewed our DZ credit facility for an additional nine months. We believe we are in good terms with all of our warehouse lenders and appreciate their continuing support of Medallion. With that, I’ll now turn the call back to Andy. .

Thanks Larry. As we have on previous calls, we asked for emailed questions from the investment community and we’ll now answer your questions. .

Yes, the first question comes from Mike Grondahl of Northland Securities. .

What is your confidence level for future provisions from Medallion Loans?.

Hi Mike, thanks for the questions. We took pretty large reserves for the quarter. We hoped that they are not going to be as large in the coming quarters. In fact I think it’s a very positive sign that we saw an uptick in Medallion prices. So based upon what we’ve been seeing in April, we don’t think they will be anywhere near as large..

Second question; can you talk about serving opportunities for Medallion Loans as stated in your press release? Can you also give a range in regard to revenue potential and size of portfolios Medallion financial would look to service?.

Sure, you know just to be clear, we haven’t signed anything yet, we are just in talks. We are hopeful. But there is quite a large number of Medallion Loans that need to be serviced either by is or someone else.

It’s very possible, $500 million or more will need to be serviced in the immediate future and in the past, I mean there is no guarantees again we’ll get something like this, but in the past when we had been talking to private equity firms and others, we’ve been talking about two and 20 type project, which is as they work you know most of them are 2%.

Servicing fee and 20% are still at the upside. So that’s what our goal would be. .

The final question from Mike Grondahl, in regard to your consumer lending portfolio are things trending forward or above internal expectations? Were they inline for the quarter?.

Yes actually, they are trending pretty much in-line with our estimates. We remain very, very happy about this business. .

This next set of questions, come from Private Investors. The most important things someone should take away from this quarter, at least to me, was how far you cut Medallion buyers. It like you took them to levels below what most every other lender that publicly reported their prices were at? We applaud you for doing so.

The only concern was by taking this large loss, what would happen to your capital ratio at your bank? As long as it’s above 15%, this could be a turning point finally in the company’s stock price.

Can you address that please?.

Yes, I mean you are right. We weren’t sure what our capital ratio would be when we are taking hits this large. The good news though is that due from the continued strong results from our consumer business, the bank’s tier 1 leverage ratio was over 15% as of April 30.

The consumer business has really been incredibly profitably for us and in many ways has carried the company and we believe it’s going to continue to be a great business for us in the future..

Thank you.

The next question, can you touch on new Medallion prices and what are you seeing in the market?.

Well, the average transfer price is in April. New York City was actually about $230,000 slightly over. Prices have been all over the place, from $150,000 to $400,000 depending upon if they are financed or if they are all cash deals.

Many of the operators though have been reporting that they are doing well these days, which is very positive, and they are looking to actually buy Medallions and expand their fleets. .

Next question.

What is the new regulation the City Council is talking about?.

Well, they are talking about a lot of things. Many of things that they are looking at now, the Mayor and the City Council include capping the amount of UBER cars, that’s something that the Mayor tried to do several years ago. It’s something you may recall and was unsuccessful.

Many of the politicians have said that they should have done it in retrospect. So there is a good change something like could happen now. Increased licensing fees for hale companies, more handicap accessible cares for UBER and LYFT and the other e-held [ph] companies.

Having them not be able to charge less than what a taxi Medallion driver charges for a fair, so that the e-held [ph] drivers do not earn below minimum wage as many of them have been doing. So there is a lot on the table. There is no guarantees any of them will go through, but several of these things are game changers if they do go through. .

Let us ask, since they are in the news so much, but is President Trump’s lawyer Michael Cohen and one of his ex associates James Freedman borrowers of yours.

Sorry for asking this, but it’s on a lot of people’s minds?.

No problem. Actually no, either one of them are borrowers of the company. .

Thank you.

Turning to the next question from a Private Investor, what more can you tell us about the Cap 1 Medallion portfolio show?.

Well a lot of it is rumor just to be clear here too, but it’s true to me that that was a very positive sign that the sale went though. Basically for years private equity firms and hedge funds have been circling the industry ready to pounce when they felt the market hit bottom.

I personally met with many of these firms, probably 10 or so, and they are pretty sharp people and most of them have great track records too. So to see new capital flowing into this industry is a major shot in the arm.

It could be just the tip of the iceberg as they want to put a lot more to use and they are looking to buy more Medallions and more loans. So it’s a very positive sign..

Next question from a Private Investor. The consumer business continues to be one of if not the best lending business I have ever seen in my 20-plus years following financial stocks.

Is there any new competition or any credit concerns?.

You are right, you know it’s probably the best lending business I’ve seen in my 30 years of experience. The pretax ROE on this RV and marine lending segment we have is actually over 50%. So we are basically lending money at 15% rates and borrowing at 1.5%, so it’s a 10 fold markup. Thankfully we have not seen any new competition here..

You mentioned new fee income from servicing Medallion Loans in your press release.

Can you comment further on that?.

Sure, they are currently and probably continue to be several new investors in the market who are buying Medallions and Medallion Loans, many of them have no experience in this sector and nor do they want to service these investments or portfolios; it’s a lot of hard work. The truth is that there is no better servicer in this industry than us.

We’ve been doing it after all for over 50 years. There is also current lenders who just don’t want to service their loans any more or have workouts and they want to hand them over to us, so many of these groups have approached us for help. You know it has the potential to be a real win-win scenario. They kind need more expertise to help them.

We don’t have to take anymore balance sheet risk or tie up any more capital in the industry. So we could charge service and workout fees, which will mainly fall through our bottom line since we already have the infrastructure and people in place to handled this. So, hopefully we could work something out in the near future. .

Next question is from a Private Investor. Why would you even consider selling the bank when the investment community is valuing MFIN. .

I don’t know if everyone heard it. It was a little muffle. But the question was, why would we consider selling the bank or a piece of the bank? As we noted in the release and in my remarks, there has been renewed interest from third parties about purchasing a portion or all of the bank, as well as we expect to have partnership opportunities.

These came in unsolicited to us recently. We firmly believe that the bank alone is worth a multiple of our market cap. We are not actively pursuing the sale. We’d be remiss though if we didn’t atleast explore whether the interest is bonafide and if there is an opportunity to create significant value for shareholders that’s what we would like to do. .

The next question, is there potential to be see a divided come back in 2019. .

We are hopeful. Regarding the dividend, our board reviews our divided policy quarterly and if the divided is reinstated we’d announce it in due course. That said, the capital allocation priority has really continued to be deleveraging the company and growing our consumer business with those high ROEs, but again we’d be hopeful for that in 2019. .

Thank you. Next question from a Private Investor.

Does the performance or the RV loan portfolio for Medallion Bank track the performance of the broader non-prime auto lending market back to delinquency trends?.

Actually the – sorry, was that the full question. .

I just want to finish also, the second part is, if it does, is there a concern about increasing delinquency rates in that segment, especially as the bank and parent company are trying to weather the beating that Medallions and Medallion Loans have taken?.

No, the RevPar is very different demographics than a subprime auto buyer. We looked at the sub price business auto many times and have elected not to go into that business. Direct product is a luxury product and the auto buyer is really buying for need. So historically they perform very, very differently. .

Thank you.

Next question from a Private Investor; what is the basis of the Medallion Bank being worth $331 million versus $302 million last year? Is it in the book value of the bank?.

Actually you know we are carrying the bank at about $274 million when netted with the differed tax liability attributed to our investments. So it’s less than what most people think.

But as we’ve noted in the remarks, the bank has required to be adjusted for fair value at the end of the quarter under our old structure, but we are not going to be doing that anymore going forward.

The bank is becoming more valuable in my view for many reasons, including but not limited to the shrinking Medallion portfolio at the bank which has been hurting the strong consumer earnings. The banks Medallion portfolio is the lowest level it’s ever been at since we started the bank in 2003.

So for example in the Medallion portfolio, if one day it is out the bank entirely, it’s clearly worth a lot more than to us and to others than it will be in the bank and the third party has realized how low its becoming and how valuable the bank is becoming.

So the third party valuation firm looked at that, they looked at the projections, they looked at many other factors and determined the value that we are carrying it at. .

Thank you and the final question, what improvements would you like to see for MFIN shareholders by the end of 2018?.

Well, I guess the short answer is a higher stock price, but I sincerely think we are going to get there collectively. Eventually the Medallion business will stabilize. We know that’s going to happen. The strong earnings for the rest of the company will definitely shine through brightly.

I know it’s taking more time than some people would like, but without question we are doing our best and I’m highly confident that we are on the right path. .

Mr. Murstein, that’s the final question. With that I’m going to turn the call back to you for closing remarks..

Well, thank you. Thanks Brad. I want to thank everyone for attending this morning's call. We look forward to updating you on further progress in the future. We tried to get in as many questions in as we could. We realize there are others and we’re happy to follow-up if your question wasn’t answered.

To that end, please contact investor relations at 212-328-2176 or by email at investorrelations@medallion.com.

Thanks very much and have a great day!.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..