Welcome everyone to the Summer 2024 Investor Summit. We have here joining us today, Andrew Murstein, President and Chief Operating Officer from Medallion Financial Corp. We're thrilled to host them. We will hold a Q&A session towards the end of the webcast. You can ask a question at any point during the presentation. Your mics are muted, so it is necessary to type your questions into the Ask Question box on the left side of your screen and type in your question for the team to address. Take it away.
Thank you for joining us this morning, everybody. So I'm gonna jump to page two, the Safe Harbor information. Just encourage you to read that on your own. On slide three, you can see the company highlights. So what's not on this slide is actually when I started the company back in 1990, so prior to this time chart here. So I've been at the company for 34 years or so. My goals were threefold. One was to take the company public, second was to diversify the company, and third was to start a bank. And, thankfully, we've done all three very successfully. So when we went public in 1996, that was our first step in our journey. 1998, right out of the gate, we kind of started diversifying.
We bought Medallion Capital, which was our mezzanine lending division, and we'll get to them a little bit later, but that's been a big success for us. That helped, again, diversify us. Two thousand and three, we set up the bank. The bank is a Utah Industrial Loan Bank, which I believe is the best bank charter in the country. There's not that many of them. They've only issued, I think, two or so in the last seven years. It lets us do everything a normal bank can do in terms of taking in FDIC-insured deposits. So we have a low-cost, dependable funding source, but we're not a bank holding company, and we're not regulated by the Federal Reserve. Two thousand and four really accelerated our diversification plans when we bought an RV and marine portfolio.
That was only $84 million at the time, and you'll see shortly how well we've grown that. 2012, we started a home improvement lending division. 2015, we stopped originating taxi medallion loans. 2016, for the first time, our consumer portfolio exceeded the medallion portfolio. So even though many people still think of us as a taxi lender, which is really incorrect, the diversification started many, many years, even before 2016, before we stopped, 2015, before we stopped lending in the medallion area. Taxi medallion loans is now only 0.5% or less of our total assets. In 2018, we de-RIC'd. We used to be a business development company, regulated investment company. We paid out our earnings to our shareholders like a REIT.
But the bank was doing so well for us, and the bank was considered a bad asset for RIC purposes, and we wanted to keep investing capital in it. So we felt what was best for shareholders was to de-RIC and retain earnings in the bank for future growth. And in 2020, we put the portfolio, the medallion portfolio on nonaccrual. So since that point in 2020, you can see on the lower right how well we've done. The last three and a half years, we've made $250 million pretax. Once we put the medallion portfolio, so to speak, in our rearview mirror, I've put it behind us. But it's really been a function of the bank on the lower right here.
You can see the bank maintains a 15% Tier 1 leverage ratio, so it's extremely well capitalized. In fact, a well-capitalized bank is defined as only 6%, so this is double or triple that amount. And the bank has been profitable in every single year since it started, which is extremely rare for companies. Almost all companies, whether it's a tech or a bank, have losses in the early years. Again, right out of the gate, we were successful and made money and have since every year since 2003. I'm gonna flip now to slide four, and you'll see the snapshot of the portfolio today. So on the upper left, the consumer lending is $1.5 billion of loans. We had a very strong quarter. We originated $209.6 million.
The yields are great, 14.8%, and the average FICO score is 685. So over time, we've been raising that for a better and better quality portfolio. The consumer lending on the section on the left again is the home improvement lending area, which we have $773 million of loans, $68 million of originations in the quarter, a yield of 9.71%, and really strong FICO scores of 764. So that's A-plus quality paper. The middle section, commercial lending, is a small but very steady portfolio. Very profitable for us, too. $110 million of loans, 13% rate. So here we're doing kind of secured mezzanine lending with warrants or equity kickers. If you look at medallioncapital.com, it'll list all of their portfolio companies.
Roughly, the average loan is about $3 million-$6 million, and we've got about 25-30 loans in our portfolio. With these equity components, the returns kick in to about 15%-17% per year. Since we started this business, again, actually bought it in 1998, it's probably produced about 15% average annual return for us. Two other points on this page, other business, the Strategic Partnership Program on the lower left. Whenever we start a business, we always think defense first, what can go wrong? This is a business where if you do it right, almost nothing can go wrong.
A fintech will send us their loan, we'll fund it, we'll charge them a fee for it, they'll buy it back two days later, so we'll earn a nice, steady fee income flow and have no credit risk since they're buying the loans back from us. And then lastly, on this page, in the middle of the page, the taxi medallion lending area. Again, that was our legacy business. As I stated before, it's only about $10 million, less than 0.5% of our portfolio. In this quarter, the last quarter, we collected about $2.3 million, but we've written off over $100 million of loans that we have the ability to try to collect here. So many of them have, not all of them, have personal guarantees, and there's other assets behind these, just not the taxi medallion loan itself.
So for us, it's icing on the cake. Well, about two years ago, we collected $45 million for the year. We're not expecting that much going forward, but all these collections kind of fall to the bottom line whenever we're successful in collecting them. So with that, I'll now turn the presentation over to Anthony.
Thanks, Andrew. Good morning, everyone. So, you know, just to reiterate some of the things that Andy said, you know, we really are a specialty lender, operating primarily as a consumer lender and also having a niche commercial mezzanine lending business. We've got $2.4 billion of loans, and it's really the consumer loans, the recreation and home improvement loans, that are the economic driver of our company, contributing most of the net interest income. You know, when we look at the composition of our loans, 95% of our loans are consumer loans. Two-thirds of those are recreation loans. When we think of recreation loans, these are $20,000 ticket items.
That's our average loan size, towable RVs that you'd hitch up to the back of your truck, boats, a small book of collectible car loans, things of that nature, no large ticket items, and a third of the consumer portfolio are home improvement loans. These are, you know, loans for replacement roofs, replacement windows, and pools, and again, you know, as Andy mentioned, a small but quite profitable segment of our business is commercial lending. A $110 million portfolio, it's 5% of our loan book. These are typical mezzanine loans to middle market companies. As Andy mentioned, the size range is anywhere of an individual investment, from $2-$6 million, and the average coupon's 13%.
You know, the companies we invest in are typically PE-backed companies, and we usually take a minority equity stake when we make the investment, which enhances and boosts our overall results and return to yield. As a consumer lender, one of the things that we're quite focused on is credit. We've been in this space for 20 years or so now. One of the misconceptions of our business is that we're a subprime lender, and that's just not the case. Although the type of credit we originate now widely varies from what we originated 20 years ago. As you can see on slide 7, you know, our current book of loans, consumer loans, we've got the home improvement loans, which are super prime, 764 FICO on average. And our rec portfolio at 685.
I mean, this is a vast difference from what it was just six years ago at 642. And even going back, you know, 10 and 15 years, we were much lower in the 600s range. So this really is a, you know, a near-prime and prime portfolio, this rec portfolio. To put it into context, in the first half of 2024, more than two-thirds of the originations were to prime credits, with non-prime originations being only 32% of the origination. And just to show you how this portfolio and the consumer portfolio has performed since our inception. You know, we began consumer lending roughly 20 years ago. You know, initially, the average FICO in the rec segment was much lower, you know, as compared to where it is today.
Net charge-offs peaked in our history at just above 6% during the Great Recession. Then in 2012, we added the home improvement lending segment, which again, that's our super prime paper. And you can see where net charge-offs have migrated over time. You know, as we look at this chart, the outliers, you know, if you take the Great Recession aside, the outlier really is the two or three years that surrounded the COVID-19 pandemic, where our charge-off experience was abnormally low. You know, while we were going through that period, we knew that those charge-off levels were not indicative of overall portfolio. You know, and we knew that they would rise, which they have over the past two years.
But as you can see, you know, in the most recent quarter, our charge-off experience was 247 basis points, which is around where it was, you know, pre-pandemic levels. You know, some of our financial highlights for Q2, and I won't read all of these. They're on the screen. Andrew mentioned some of these, but, you know, we've got net interest margins of 8.12%. Net income was $7.1 million, and we generated $0.30 per diluted share. On slide ten, what we like to do here is show, you know, where our business has been over the past two and a half years, three and a half years, and what we've done in that time period.
So since 2020, we've grown our loan portfolio 94%, you know, at a compound rate of 21% per year. You know, overwhelmingly, this has been concentrated in recreation and home improvement lending. Our ability to grow, in many ways, is a function of capital available to us, both, you know, at Medallion Financial and at Medallion Bank. The 21% growth that we've been able to do over the past three years, you know, that's easy to attain when you're starting at a much lower loan book. So, you know, Q1 2021, we had $1.3 billion in loans. Today, we're at $2.4 billion. So we don't anticipate growing at 21% going forward, but we do target, you know, our growth to be in the high single digits realm.
You know, and again, you know, net interest income is something that's really important to us as a specialty lender. And being able to grow that over time is key to our business and our performance. You know, particularly with the interest rate environment that we've been experiencing for the past two years, our ability to grow net interest income has been an important focus, with our cost of funds having, you know, gone from approximately 2% in the beginning of twenty twenty-two to around 3.8% in the current period. But we've taken those rate increases that everyone's experienced, and we've passed them along in new origination during that period. And we've been able to consistently grow our net interest income.
You know, we anticipate, both with continued origination growth, to grow our net interest income and, you know, into the future. Currently, our net interest margin sits at 8.12%. And although we've seen some compression over the past years, we believe much of that's behind us. As interest rates settle from the levels we've seen during the first half of the year, and as we continue to originate new consumer loans at levels above our average coupon, we should begin to see margin expansion as opposed to the compression which we've seen for 12-18 months. You know, currently, we're originating recreation loans at 16%, well above the 14.8% weighted average rate that Andrew mentioned earlier.
Home improvement originations are near 11%, again, above the 9.7% where the books sit today. You know, just as we saw a few slides ago, you know, our net charge-off experience is higher than it was the past two years, but again, you know, when we look back at you know, the past two years and you know, that time period surrounding the COVID-19 pandemic, we believe that was the outlier, that was the anomaly, and what we're experiencing now, although you know, elevated from those levels, isn't cause for alarm, particularly when you factor in the higher yields we get on our loans, and lastly, you know, one of the things that we hear from shareholders and investors all the time is about costs.
You know, we're quite mindful of our efficiencies and cost containment. But we're also, you know, we're also realistic. As we've scaled our business and our loan portfolio, you know, that, that comes at additional cost. You know, as a function of our net revenues, you know, let's call it net interest income, you know, our costs have decreased over the past several years. This is a trend that we had anticipated, and it is a trend that we expect to continue as we continue to scale our business and grow. With that, I'll turn it back over to Andrew.
Thank you, Anthony. So just on the last two slides before we open up the Q&A, the experienced management team. We've really built a very deep bench, and one that has a lot of experience in their respective fields. So the average person, you can see on page fifteen, that runs their division, has thirty years experience in their field. So I've been doing this, again, thirty-four years. The person who runs our bank, Don Poulton, has been handling banks for forty years or more. Steve Lewis, who's the president, of our mezzanine group, has been doing it for thirty years or so. So we've really developed a great network for deal referrals, for brokers, for relationships, for lawyers, accountants.... Seeing very strong deal flow.
People know we're in this business for the long run, and we like to think we're the market leaders in all of our niches. Then on the last page, you just see the board of directors. We've added three independent directors in the last four years or so, for a total of eight now. The three new board members, Brent Hatch, became our lead independent director several years ago. Brent's from Utah. His father was Orrin Hatch, who was the second longest Republican running senator in the history of the United States. Orrin Hatch was a senator in Utah for forty-two years, I believe. Then Cynthia, who had a background as a former CFO of Citigroup's Treasury Department. Bob Meyer, who ran a bank. So these three board members really complement each other well.
And, they replaced three legendary board members that we had for many, many years, over twenty years. Mario Cuomo, the former governor of New York, Lowell Weicker, the former governor and senator from Connecticut, and Hank Aaron, the true home run champion and Presidential Medal of Freedom recipient. All three legendary board members. Unfortunately, all three passed away, and these three took their places and are helping to carry the mantle, forward for us. So with that, I'd like to now open it up, in the few remaining minutes we have, to any questions that anybody may have.
Yeah, well, while we gather any additional questions, one of the common questions we get, particularly, you know, recently, surrounding our net interest margin and our cost of funds is the outlook for Fed rate cuts and how that will impact our business. And, we're optimistic with the. We were expecting, you know, a year ago, I think there was a lot more rate cuts expected in 2024. That seems to have been hampered during the first half. But now, we, with an expectation that there'll be something in September. I think these are all good signs for Medallion, our company, our bank, and our net interest margins.
You know, again, you know, our cost of funds average about 3.8%. You know, just in the last week alone, we saw a you know a 50-plus basis point drop in new CDs being issued in terms of the rates of 3- and 5-year CDs. So we expect we’ve got no intentions right now to reduce rates on new originations. We’re going to keep them at the level where they are. But as rates you know begin to fall, we should we should get a benefit and see that start trickling into our NIM and our net interest income over the next you know couple of quarters.
I don't see any questions, but should anybody have any or think of them in the future, please feel free to call us anytime at 212-328-2100 or tell Anthony or I directly. We're happy to have one-on-ones and answer any questions in the coming days or whenever it may be.
If in general, questions and inquiries can go to investorrelations@medallion.com.
Thank you, operator.
Ladies and gentlemen, that does conclude the Medallion Financial Corp presentation. You may now disconnect. The next session will begin shortly. Please confirm.