CASH - Earnings call transcript Q1 2019 | Pathward Financial, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Meta Financial Group’s Fiscal Year 2019 First Quarter Investor Conference Call.

During the presentation, all participants will be in a listen-only mode.

Following the prepared remarks, we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Brittany Elsasser, Director of Investor Relations. ahead. go Please

Brittany Elsasser

welcome discuss and quarter conference and afternoon. call December Thank financial to results to this earlier our XXXX fiscal for webcast XX, you released Meta’s the ended first

to earnings objectives information, reliance at that Vice could risks sharing website the plans, and or President to company’s outcomes Meta undue provisions We cause release Additional CFO, currently President we actual Today’s the and presentation, differ to including on Herrick we on before metafinancialgroup.com. results caution and maybe the today future as Hanson today. open its Brad to These some statements, or you Glen pursuant investor CEO, the or forward-looking call statements Act and our found otherwise place statements XXXX. of Executive be subject Safe contain and Reform including remarks not these Private uncertainties goals. call identified questions. up discuss that are which to prepared for materially subsidiaries, are statements, Litigation may forward-looking related of made those forward-looking Harbor anticipated be may will from Securities and operating the which generally describing

XX-Q Exchange factors its For recent and see and the on other future annual filed Securities further company’s filings the Commission. and information Meta’s and the affect that XX-K Forms most about with could results, please quarterly reports

its this the I any to expressly changed to behalf any Hanson. of of and on call as other subsidiaries any CEO, would forward-looking only speak circumstances, on or like whether obligation they the made. statements date update reason. company of future disclaims events Forward-looking new which turn result are intent or information, or as the Brad Meta President statements over to for time, At a

Brad Hanson

before highlighting everyone overview and Thank fiscal update provide am our our an I priorities. financial outlining will first quarter fiscal model year on business provide of going earnings an to earnings you, differentiated to I XXXX our our and want for XXXX. call. the Brittany. top to Glen guidance welcome quarter Today Afterwards increasingly performance

leverage margin point, yielding We earnings expanded a acquired loans representing our income of fund and fiscal the quarter. quarter, the points first share earnings in growth XXXX on funding year XXX% interest higher previous report quarter basis linked quarter finance and Bank, prior million of company low growth our interest net of base points Commercial including The pleased fully very tax our the $XX.X per commercial net year’s equivalent a Crestmark, as are over prior quarter the over on addition XX to which To basis leases. successful we to XXX basis a more cost National basis. is and enhancing strong the first by results

We further expect generate that multiple we remarks. have our this his discuss impact will in will lending to continued growth which expansion Glen a activities, as meaningful across

a a our had that past with three value Slide points team differentiated shareholders. plan important am key plan Today, board the we the on presentation, company. share for most the to opportunity Starting focus believe let’s and collectively engage the to I formulated we X will management our initiatives related feel of our months, emphasis. we and for and have have to investor are of to approach near-term few on Over Meta’s what priorities elements bring address top the excited to I

intend the we to X, balance funding core Slide increase on percentage shown from of sheet deposits. as First,

cost growth deposits left. pleased the and on in to bottom low Our see payments and division we client our on the been remains focused engagement shown partner as continued chart on have

flexible and deepen we are a customer addition pursuing relationships deposits, grow greater base. of and share In additional partner products to to relationship services to evaluate our continuing

expect We deposit service expansion a include of as products. banking this to

mix earnings balance turning sheet. to the intend of the optimize we Slide to X, Second, asset

have intend to meaningful of of the approximately We taken company’s of grow earnings end to finance asset commercial the above earning fiscal acquisition and segment from our we the a time stride assets the of total over quarter first XX% Crestmark forward as the of XX% with mix.

the also time. over portfolio below investments are securities we trend Importantly, the mix targeting to XX% of

our securities over high We higher year expect to lower leases while last we includes than products replace enable the we balance and I consumer clear activities, us consumer will want to intend loans earning to that on less also of XX% assets. introduced have the with which be credit credit yielding this shift quality. limit finance yielding sheet maintaining to

lending to our potential with partnerships a relationships particularly cross-selling strategic business. will focus for payments those high our exhibit that consumer We opportunities,

exposure. as integrate we And acquisitions. X, Slide component As our lending improve third, we operating be on plan we on optimize market noted including as efficiencies. needed, likely or this sheet use balance recent sales as intend the on This of impactful activities and the grows, to utilizing limit our participations will to secondary increasingly of

a revenue and and we lead to team focus company further we positive have expense drive this growth. productivity deep and will as sustainable leverage and forward on technology utilize We generating earnings experienced automate in to through operating management place and enhancements

which we offer returns and we clients our built platforms, business for M&A, believe operating or the have to high shareholders. acquired Turning

model pause value We our shareholders. will from material As such, on turn priorities intend merger our value increasingly from efforts acquisition on and the maximizing we that concentrate long-term these platforms. playbook activity in for we existing our and three to Meta the believe differentiate enhance and take business a will

builds are and we to as the in less an more as And excess that on reflecting take a asset shown earnings we than exceeds hold. ratio ROA generate mix. capital highlighted expect potent our today we XX% X% efficiency longer X, initiatives an earnings the term, Slide As increasingly power targeting

to the deliver value significant our remains Given Meta in shareholders poised our platform ahead. talented and believe team strong for I years

provide Glen to our XXXX CFO to of quarter fiscal turn Now an our Herrick, first financials. it overview I will over

Glen Herrick

Thank reported ratably prior $XX.X everyone. net increase share we to for of XX than the good quarter over net commercial period vary in of solar to fiscal tax quarter was fiscal share income million throughout to of per the related Starting afternoon in per same Earnings expansion income impact XXXX, Brad year. you, from growth as on related benefit the period the in net driven of $XX.X more income the earnings from recognized an on and income as pre-tax the they the doubled quarter $X.XX million the those. growth and quarter the also initiative Slide year income in from prior diluted first benefits portfolio. reflected finance the will leasing originations by The largely interest tax the based year. Net are

our remainder rate the XXXX, and determining used settle we fiscal in digits. tax our specifically, outlook to for of single outlook. in anticipate EPS effective we built into the the rate For further company’s to continue anticipate tax year fiscal More credits, tax which EPS the are the

$X.X Turning Slide an to XX% of XX, increased at first to leases the and during increase $XXX quarter. billion gross XX, December loans million

XXX% acquisition of generated portfolios our growth by led Crestmark. lending year-over-year national Our

of into to as the there increase seasonal up the in based million, typically quarter Asset lesser season. prior a an factoring previous experienced extent XX is build ended a grew slowdown, from Christmas lending quarter. XX% December lending portfolio the asset-based In a

December down industry January. early In essentially addition, shuts the into automotive in and

We areas second the regain quarter. expect to momentum activity in those in fiscal

quarter. our We million saw warehouse we’re from also and opportunities preceding $XXX in portfolio by to the portfolio able solid lending grow the

participated as Meta quarter, credit. participant two a warehouse the During asset-based highly in first secured lines of out

of December XX, loss It example supported consumer is quarter lines to XX. have credit. from during portfolio which consumer we allowance what $XX our designated in that expected be as subordination. hold Slide consumer programs different. would loan rates our with position cumulative as loans our for important significant like, losses is looks held $XX up sale of were that of at new million as flow note senior provided warehouse for a of On finance insufficient. render commercial reserve two cash the of waterfall to consumer the is is we and well required a we programs each an made senior Our position, asset The and originations base credit There million of

have to an we to lapses flow agreed additional time level our to Once once a receive net that to our cumulative reserve the the and principal portion servicing be the receive loss we a range the XX% company. losses However, remaining fees. before receives interest Meta and a for December are extensive for of for principal fees attributes funds target provided program have example. shows the covered, XX% look that program into X% prime payment partner XX After account and and then escrow collection insufficient. put program or testing, at agreed the key owned the from and then the company stress build in and and we The released waterfall structuring XX% is upon XX% between programs concluded when and loan protection are the its non-prime partner a The payment and we consumer losses. period program consumer credit upon would rates of between for marketing we account, to example our interest

Meta commercial the majority A grow to is real $XX X% our XX% occurring deposit During which loans for with quarter, banking growth community base, grew the currently million deposits. focus total or in of the represents estate. non-interest-bearing renewed of

equivalent in of year average cost cost first X.XX% quarter was the margin XX our of first when compared points XX quarter basis from fiscal same points, fourth quarter an on basis Meta’s excluding XXXX average deposits points of the X% increase points the quarter year. the quarter, basis compared deposits, quarter. improving an basis just increase the was for seven a the deposits over during basis basis prior grew year XXXX XXXX. fiscal wholesale non-interest-bearing prior to the prior was fiscal the the tax fiscal by XX we net quarter to Overall, and for of our points, interest by XX of For deposits

full driven As expected, we loan provision first the accounting lease and to quarter’s XX first by was commercial points in Net well for higher $XXX,XXX interest $X.X Crestmark’s margin provision purchase low for of loss. losses primarily from basis net for contributed growth were contribution XXXX. advance and the our was fiscal benefited in finance The quarter loan to yields. million from just lease tax portfolios Meta’s Net loan maintain the expense as XXXX provision fiscal accretion in and charge-offs a the quarter. net as allowance for increase quarter.

quarter advance We seasonality expect our of the business. higher in refund to related the fiscal see provision a second to tax

tax assets X basis of past XX pleased averaged at points and XX of culture we during the estate conservative years, rental over to the was million strong basis sale to that performance recognizing discussed $X.X management the foreclosed million. basis note outstanding team increasing for partners within $XX credit consistently gain when year-over-year reflecting charge-off residual transition related payment’s the fees tolerance quarter deposits with and down time which the of that quarter asset-based their to real a in to compared across and and and deposit that our fee I to credit quarter. was quarter with and by team the fiscal Crestmark continued consisted expected fiscal product XX, lending discussed. sale. Crestmark note Higher Card the and Non-performing second remain represented consists loan and of loans fee as wind million the Slide the risk a strong basis card $XX.X and points on actively full The for metrics, well loan Crestmark income being prior the previously income two a declined overall the net increase income linked experienced Of credit, primarily wanted at prior and a relationships from year reduction income, year fees points up by as our a factoring. XX the third of the wind driven repossessed a charge-offs The rate income to XXXX. The basis land previous to of historical the lease division. regard the company’s points just assets first quarters non-strategic XX evidenced was levels. certain is are to primarily previously on commercial portfolio, related XX, and discount which higher were to net to just of of we’ve recent Crestmark fiscal great total XXX compared continue Turning over recession follows from December In through assets of flat was Non-interest primarily loans marketed cycles. down an the of quarter fourth by remain we’ve non-performing company’s finance balance relationship year fee our agricultural income XXXX. is effects

year-over-year employees XXXX support expenses, other and loan benefits the and lending fiscal of depreciation, included and as Crestmark related primarily non-interest initiatives. of to step-ups and expense business the division compensation to increase operating leased expenses Turning national addition in expense occupancy and Crestmark quarter-over-quarter hires cost non-interest lease of for as acquisition. Other in year-over-year the drivers and reflects equipment Meta’s equipment, well in

accelerate to greater incremental from initiatives enhancing in across fiscal one previously operating include productivity integrating areas fully more mentioned, automation on the focus existing optimizing platforms, XXXX Related and our XXXX. improving in recent a to acquisitions, and value leverage Brad the of As fiscal focus an extracting efficiencies degree is company. and and our operating of

Let previously me discuss disclosed earnings for fiscal share XXXX. outlook per our

year the it we to the per the in to back expected Brad be cost in to anticipate to to that closing expect currently earnings questions. we to agreement the QX, $X.X fiscal of With open which to ending GAAP XXXX. agreement incur of company transition costs we share in We pre-tax, to quarter earnings full now XXXX, $X.XX for before XX, This in $X.XX executive I’ll per to share be million range up excluding turn comments is conversation effects year the range $X.XX. For executive March share. related for reduce estimate $X.XX transition the to be per XXXX continue

Brad Hanson

Thanks, Glen.

currently our of brief on we difficult filing processing and we is bit at that times. provide to time. XXXX As news, impact potential season is This marked seen to conclude effects a upon the IRS predict impact update remarks, returns, have uncertainty the on to season us. to the prepared process this I’d the Meta the shutdown the government the a unknown Even IRS to by intends all it though, tax of based like

worked as fiscal our developments, guidance. be are know we’ve and affect what are However, any mentioned, hard on we impact we tax to preparing immaterial may monitoring overall we any which Based business. today, closely and Glen service earnings our reiterating expect year

Let competitive shown advantages what Slide I sustainable Meta for by growth positioned four me believe recapping conclude future that our on as XX.

platforms that increasingly First, structures factor our diversification across remains differentiating payments and banking key intend to fee leverage. and we businesses, a

and Second, our the deposit deposits. more shifting low-cost payments of on platform in favor core mix delivers focused funding we are

given retention lending our across completes set client low-cost cross-selling accelerating business platforms funding. fourth, benefits. ample financial for Third, related profitable and drives acquisition growth scalable are with stepped-up remarks. prepared lines And our That

lines to open any Glen ask the I’ll for please Q&A. So join Operator, questions. for me

Operator

B. Steve Riley the of Moss Thank sir. first Instructions] of FBR. question you, from comes [Operator Our line

line Your is open.

Steve Moss

Good afternoon.

Brad Hanson

Hi, Steve.

Steve Moss

about color shift hi, wondering – do can loan kind is in Brad, just little your remarks, fund mentioned, earning broker was next more how and a expected that think around go that over we the to months, securities about of growth? that or if wondering talk give – more you to the pay I does asset us XX deposits down just you just the – opening run-down mix was the I in

Glen Herrick

Hi, is Steve. This Glen.

of finance out at, the We commercial yielding some for and really loans, replacement, replace be grow that swapping be lower essence in loans consumer higher deck, with depend in securities our put the goals. loan primarily we we will loans growth securities So on pace the we’ll yielding, primarily and in loans. our will some a if it we’ll look fast aspirational commercial how volumes

Steve Moss

Okay.

increasing And about just assets to next modestly so is total think as XX the way things? about a we over think months fair probably

Glen Herrick

That is correct.

Steve Moss

number. sub-XX guess, I regard and And, believe just target, the I was Okay. expenses with the ratio like efficiency to

Just it’s that kind a XXXX fiscal type target? like of aspirational, wondering, your I – is probably hear

Glen Herrick

is some Yes. obviously target, That time. near-term will a not take that

goal So – years have. our over several of the the that’s we we planning next

Brad Hanson

expect set. where will goal the we’ve at And ROA against goals provide to continue our company. that against would is goal continue an and improved that those progress progress set on we we updates Steve today both we’ve to make is from What we’re longer-term for that

Steve Moss

much. very you Thank Okay.

Brad Hanson

Thanks, Steve.

Operator

Thank you.

comes question the KBW. next Michael from Our line Perito of of

Your line is open.

Michael Perito

Hey, good afternoon, guys.

Brad Hanson

Good afternoon.

Michael Perito

margin this So to that questions. loans a more kind ranging larger income of I Glen, bit kind us of about was NII. see interest bump. little net everything and those I how I of more couple And surprised guess to, the can the size a didn’t impacted guess of give the detail where provision two the a you given from a bit little quarter went just

curious, was I I details additional helpful? anymore were So around of that in kind loans would booked the quarter later be mean, those

Glen Herrick

Yes. Which warehouse two loans finance are the you talking about facilities, Mike?

Michael Perito

Facilities, correct. sorry. I’m yes, Yes,

Glen Herrick

Yes.

were booked our were And to in they positive, So yields quarter. forward. late net the going those net positive would net be – those

Michael Perito

quarter, the they mean, the about of right the second benefit speak fiscal from in, has I since obviously booked the is came once so the future it – yield but or a – quarter, impact? full way lot to provisional the quarter will and a in in of X-month first think first it – – NII So beyond in that kind late were to

Glen Herrick

Correct.

and the You will quarter see we the origination December structuring of March as in costs full that – in the full quarter quarter quarter. incurred – here. The well a a clean upfront

Michael Perito

bullet launched the mean just here maybe kind to wondering, where you of the have to I waterfall And give color, sure do – you had And kind loss I’m credit is perspective mean, that XX% this and with look losses And if rates, the Okay, the I net where this is, bit question last little to when to, to reserve I the then I on more on kind they a have cumulative see platform helpful. question I get where us if you. to helpful inadequate. be more of I the is they’d could – guys provide a of Thank inadequate. is, you guess, range you my be for on guys slide guess rates scenario. I know if of I the don’t at consumer had I you but products simply or XX% gone. sense, those makes if where have in is that reserve for it more on stressed similar historical I type loss going have relevant to reclarify have was

Glen Herrick

stressed Those multiple Yes. were expected at times, rates. loss loss actually the rates

would we those So reaching planning not be levels. on those

Brad Hanson

a to expected from see or be it rate our and it XX% stress our think rate could but position today. the about maybe go normal position into senior comfortable we the increase don’t given expected is environment position of feel goes going getting our from to pretty the X% We XX% we in XX%, – waterfall,

Michael Perito

here Helpful, Thank both it. Got [ph]. you.

Brad Hanson

Thanks Mike.

Operator

question Schiraldi O’Neill. Frank Instructions] of of [Operator Sandler Our you. comes Thank line from the next

open. is line Your

Frank Schiraldi

guys. Hey

whole Just quarter big commercial business you finance the saw how get a to that on the the percentage growth of expectations just in pie. of given as the the and expect you

or or expectations annual in a quarterly have sort Just terms you growth wondering think what what you basis commercial here? there by finance could on grow that business of of opportunities

Glen Herrick

is this Glen. Frank, Hi,

the felt We announcement roughly business. and comfortable behind merger commercial the were finance from very thesis growth. the we with lines XX% recall of annualized the merger, You estimating

the forward. X X certainly We XX% next we in with confident first very and these X have feel the going or for quarters plus exceeded level that quarters,

Frank Schiraldi

slow there of is December an to the rate what I the us to plus? would in believe be annual growth to that in – quarter closer anything here going XX% would that mean, is seasonal first lead

Glen Herrick

it’s quite near ability business saw those [ph] breakdown timing limits to December the those No, we piece it wouldn’t What loan XX% to higher could the plus, slow few the the improved of come could through see with and quarter. quarter. there tax of some harder have funding slow the a And we was or in that demand in slightly having pent-up to cost. credits,

Frank Schiraldi

you about… talked then And

Glen Herrick

change commercial business. the It between will lines change mix – of the will various finance

Frank Schiraldi

against then sort And you the business about if reserves, what average the remind generally reserve could consumer of talked – you putting on you us, the are loans? commercial X% finance for

Glen Herrick

book purchase expect smart, to the our purchase that’s but off. you X%, smart that as is should that’s of Roughly allowance that build than why towards less it portfolio because trades

Frank Schiraldi

sure consumer And why just $XX quickly to understand on you credit it that, million have not follow-up am I in the totally held-for-sale? products, is what I

Glen Herrick

Sure.

the agreements And those of our we to partner. loans those, So that from share there programs, per and purchase some us partners, factor those as program are the with loans some some be they our by relationships in right of essence have our economics. a in held-for-sale structured will the of so that in we takeout marked are that the our and knowing

Frank Schiraldi

is do And a decided on up how the basis or that how of level quarter that is of a number, million? that $XX – with you per sort come

Glen Herrick

the in These negotiated. the in have contracts. been Individually upfront

So, know time take – how partner ahead volume that based on well the much with to other facilities levels, have. out they of committed intends committed we

Frank Schiraldi

Okay, you. thank

Glen Herrick

of loans. manage sheet one And exposure that consumer to balance ways you the we more see will our in the on of future. will It’s

Frank Schiraldi

Okay.

Operator

the concludes That turn now I back you. session. will Hanson. the Thank CEO, call question-and-answer Brad to

Brad Hanson

you would Have support in a I all appreciate to time great today. Meta’s quarterly We to like for of taking your thank close thanking listen and in you. participating investor call. truly Thank evening. by for you

Operator

and day. have program. for Ladies your and conclude Thank that wonderful gentlemen, your participation does you a

may this disconnect at lines time. your You

Pathward Financial (CASH) 28 Jan 192019 Q1 Earnings call transcript