Medical Financial (NASDAQ: MFIN) reported Q4 EPS of $0.38, $0.37 better than the analyst estimate of $0.01. Revenue for the quarter came in at $27.63 million versus the consensus estimate of $24.31 million.

• Net income was $9.2 million, or $0.38 per share, compared to a net loss of $4.7 million, or $0.19 per share, in the third quarter, highest quarterly profit since September 2004
• Total assets were $1.38 billion as of December 31, 2018
• Medallion Bank’s Tier 1 leverage ratio at quarter-end improved to 15.85%
• Net interest income before the provision for loan losses was $23.0 million, reflecting primarily the contributions of the consumer lending segments
• Net income from Medallion’s commercial segment was $1.6 million for the fourth quarter
• Net interest margin was 8.07% in the 2018 fourth quarter, compared to 7.41% in the prior year period on a combined basis with Medallion Bank
• 90 day plus medallion loan delinquencies were $15.7 million or 8.9% of gross medallion loans, down from $71.9 million or 15.9% in the 2017 fourth quarter when combined with Medallion Bank
• The provision for medallion loan losses was $3.4 million in the 2018 fourth quarter, reflecting the reversal of $8.2 million of reserves as a result of the deconsolidation of Trust III, compared to $13.3 million in the third quarter, $24.7 million in the second quarter, and $62.7 million in the first quarter (when combined with Medallion Bank), recorded as non-cash valuation adjustments and realized losses/charge-offs
• In November, the Company successfully deconsolidated the Trust III facility, which resulted in a recorded gain to earnings and tangible book value of approximately $19.2 million after taxes and eliminated $63.2 million of medallion loans and loans in process of foreclosure from the Company’s balance sheet, along with $98.5 million of debt and payables that Trust III owed to its lender while remaining as a fee based servicer of the loans in Trust III

Andrew Murstein, President of Medallion, stated, “We ended 2018 with a strong fourth quarter and positive year end results and continued to successfully navigate the headwinds on the medallion side throughout the year. We are pleased we were able to deliver on our three main objectives laid out in our 2018 strategy: reduce the Company’s medallion exposure, grow our consumer segments and deconsolidate the Trust III facility. In addition, the Company successfully withdrew its BDC election and now operates as a non-investment company, consolidating all wholly-owned or controlled subsidiaries, including Medallion Bank, providing a more transparent financial presentation. Taking a step back and looking at what the Company has accomplished over the last three years, we reduced our net medallion portfolio 76% from $641 million at the end of 2015 to $156 million at the end 2018. In addition, we have greatly reduced our bank medallion-related debt also by 76% from $252 million at the end of 2015 to $60 million at year end, positioning ourselves for a bright future.

The consumer and commercial lending segments continue to prosper. These divisions had an exceptional year as income before taxes from our mezzanine, home improvement and recreation lending divisions totaled $41.0 million for the nine months ended December 31. The Company recorded $23.0 million of net interest income in the fourth quarter and $72.5 million of net interest/investment income for the full year. We also recorded a net interest margin of 8.1% in the fourth quarter, and we look forward to building on this momentum.”

Mr. Murstein continued: “We also had some higher than typical expenses in the quarter as we recorded impairment charges against the intangible assets related to our sports holdings, and increased our collection expenses by 116% from the third quarter as we ramped up our collection efforts for delinquent medallion borrowers. When looking at the medallion portfolio, quarter after quarter, we continue to lower our loan exposure. At the end of 2018, taxi medallion loans comprised 16% of our net loans, compared to 28% at the end of 2017. We are confident we took the appropriate measures throughout the year to reduce the Company’s exposure while continuing our recovery efforts. We also had a few current borrowers who have elected to pay us off. For example, we received $9.6 million in payoffs in the fourth quarter from several borrowers who were able to leverage other personal assets as collateral. We charge off loans that are 120 days past due down to their medallion collateral value. If payments then come in at 121 days for instance, it is applied to reduce the principal balance of the loan. We aren’t recognizing any income until the loan is disposed of, or reduced to zero, or until a meaningful period of performance has occurred. In terms of the valuation of medallion collateral, we are optimistic that the marketplace continues to stabilize. We continue to monitor the legislative proposals and regulations proposed by the TLC, and once again, commend them for their continued efforts to support the hard-working taxi medallion owners and drivers. One recent proposal was by a NYC Council Member to bail-out individual medallion owners by calling for the Council to take immediate action to provide financial assistance to taxi and livery drivers. In addition, the latest proposed regulation that came out this week from both Mayor De Blasio and Governor Cuomo implementing congestion pricing is another positive for both the City and State of New York. It potentially also benefits the medallion industry, as it could lead to increased taxi usage as personal and commercial vehicles may no longer overwhelm the regulated zone. Taximeters may turn over more quickly, with less time being stuck in traffic. While there can be no guarantee that any of these proposals will pass, it’s a positive sign that City and State officials continue to try to take measures that could meaningfully help.”

For earnings history and earnings-related data on Medical Financial (MFIN) click here.