CASH - Earnings call transcript Q3 2019 | Pathward Financial, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Meta Financial Group Fiscal Year 2019 Third Quarter Investor Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to Brittany Elsasser, Director of Investor Relations. Please go ahead.

Brittany Elsasser

Thank you, and welcome to Meta's conference call and webcast to discuss our financial results for the third fiscal quarter ended June 30, 2019, released earlier this afternoon.

earnings website investor at the found may including our on metafinancialgroup.com. information, release presentation, and be Additional President and prepared CEO, questions. and we CFO, Brad up Hanson; and Herrick, open be Executive will sharing call some the remarks before Glen today for Vice President

call to the outcomes Reform risks including related safe the otherwise these company's are caution objectives those of Act or goals. and and results forward-looking uncertainties future statements that to generally be could you statements, which Litigation to we are subject to which currently We place harbor statements, on XXXX. operating cause actual plans, forward-looking subsidiaries, provisions that discuss or may forward-looking pursuant from contain today. undue not identified of These differ may Meta Today's statements the its as reliance materially to describing made Securities anticipated Private or

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

Forward-looking expressly statements of or its any reason. information, changed whether as or any speak to events on on for obligation disclaims statements any as other update forward-looking intent result the are made. company the of new which behalf date they only or a Meta subsidiaries, of circumstances, future

and CEO, time, like call Hanson. At to to Brad would I President the this turn over

Brad Hanson

Brittany. you, Thank

of fiscal diluted million per are XXXX, We or our report earnings for quarter pleased to $XX.X share. year third results including GAAP the of $X.XX

XXXX growth shareholder highlighted initiatives on progress will value. our drive at profitable to key and the During continued believe quarter, the of beginning we we we that make X

the of funding division fiscal from company specifically, percentage quarter same balance over include, the the fiscal More average during earning increasing initiatives from sheet third the mix increasing asset accelerated key sheet deposits our quarter, the Our improving payments in deposits, prior for efficiencies. and optimizing the core operating the balance XX.X% for of the average year.

pipeline a deposit of payments the and We business continue other and our for growth developing focus to areas on company.

a lower cost As division deposits funds. payments our from reminder, reflect generated

Our top that relationships our with for with payments generates have longevity. our us relationships point, and payments over trust, consistency X To on been and years. collaborative consultative XX average providers

our the combined Next, of asset with quarter. mix as our in XXXX, increasing in portfolio a our net quarter higher compared income with investment prior earning margin yielding balances in continues fiscal growth of third Consequently, loans. comparable strengthen a net to commercial generated interest X.XX% to for lower X.XX% growth interest to year we result the

finance We lending opportunities and to consumer our our a on evaluate for payments potential with business. also relationships space strategic cross-selling focusing in with primarily opportunities, continue are high

limiting consumer will previously mentioned, As sheet products of less than XX% exposure credit be we of we have to balance our earning assets.

significant priority intend revenue develop disciplined We further specific strategic which our drive within to operating an in ahead. operating efficiencies third growth, is Our believe more of leverage expense management to company, be emphasis year across business. that with area coupled will the the we

to company the business value most and the shareholders allocating We time. ensure to evaluate the that drive resources and our initiatives continue appropriate to to we over those are

shares capital announced under program. We to repurchase management. repurchased Turning opportunistically our recently share

share. management overall at on will context and and shares the capital approach to X.X have of of We sheet an a opportunistic average million shares repurchase activity an For we balance shareholder repurchased quarter, value. focused per our maximizing strong cost within maintained nearly consider $XX.XX the repurchasing

results. XXXX review quarter Now let financial third of our the CFO, me our to Herrick, a turn Glen to call fiscal over provide

Glen Herrick

and Brad, afternoon, you, Thank good everyone.

related in the net the fiscal of prior million, more same period $XX.X income we interest addition an earnings from share. net diluted in reach than Earnings of in net quarter the of increase of increase commercial ongoing loan to quarter of growth as an asset our the prior the XXXX, finance $X.XX third reflects in largely year, year growth GAAP per Xx share optimizing progress portfolio. sheet by of the the balance income the led For per mix reported income

for the remain in also to future credits. the income impact during We are low in expected investment tax tax single originated enhanced million through $XX.X of vary, the expect solar quarter, the tax investment, which leases our credits net XXXX and rate to digits. Though we timing

and $XXX March XX, to million billion from XX, X% loans increased gross leases Total up XXXX. $X.X at June

than more acquisition. lending result with the finance asset-based premium a factoring, loans. XX%, portfolio $XXX or portfolio strong million, business, growth commercial and the of USDA as lines sequential various Our by quarter overall insurance quadrupled finance, including basis, year-over-year, Crestmark of across primarily SBA and lending national a On grew

a of which business million, and an of Our by consists consumer small credit. or highly line of receivable warehouse consumer by secured finance portfolio, warehouse addition receivables XX%, driven grew $XX

the by and quarter, This $XX million on of loans for or were million X%, held $XXX loan to the consumer grew million, consumer sale balance company's held-for-investment $XX portfolio there sheet.

remain As strategic on can consumer Brad relationships lending opportunities that for our platform. provide mentioned, focused payments we

solutions factoring, size commercial risk-adjusted to offer. us product at don't banks breadth attractive provides which portfolio. add provided Bancorp financing, I'd our to year, financing, acquisition The we national Bank. or commercial acquisition some our a loans includes most and on on leasing finance and with offerings, suite industrial to platform and of brief government-guaranteed us Crestmark overview Crestmark insurance Around The of provide of can't this significantly time premium and time yields. our allowed like sheet our ABL, a lending closed balance finance take of commercial that last a

investor company's On deck, of provided this certain into of aspects we quarter's Slide some commercial additional XX detail finance portfolio. the

we diverse industries distribution aid and trade in of active developing Our range teams which customers with a industry company associations, serve nationwide, in the sources. are

specialty and experience Our finance banking backgrounds in across economic cycles. extensive in credit various staff leverages and of years

underlying overview platform. on provide finance relates Additionally, to of our as it philosophy commercial our Slide XX, we credit an

Year-over-year, During our basis X% reducing average yielding the we average balance deposits selectively on our and by compared XX%. quarter, sheet a by by average of in were higher replaced further linked-quarter the represent mix third enhance sold and the total XX.X% over yielding with them the payments investment quarter earning fiscal same holdings continued and to securities, investment grew XX% average to down Conversely, deposits. now securities fiscal asset loans. lower prior on year

interest income $XX fiscal compared increase net the in XXXX. third quarter, quarter fiscal XXX% million earned of We the third of XXXX an of to

points comparable quarter X.XX% XXXX the of fiscal was margin the XXX XXXX. third fiscal interest net Our for basis quarter, up from

in points X.XX% over the have asset want the nature this sheet, margin on that terms to earning the to continued While and course portfolio contributed in third loan the tailwinds of accretion minimal out the and and the loans we NIM in balance the quarter interest Crestmark XX fiscal This basis point remix contribution to is its accounting have net run will year XXXX, result of of of the lease time we to interest-bearing in purchase will contribution yields of March and XX loan basis approximately XX loans fiscal the XXXX. NIM compared cause seasoning Loan yields to of accounting seasonal which purchase do of loaded. and for fiscal quarter to accretion the the X.XX% points quarter the year. second be third the the previous quarterly front-end quarter, and the for and of loan were third X.XX% for purchase accounting leases, for accretion to points basis in yield Also quarter. note, prior XX the points to the contributed tax basis much Purchase added quarter. quarter

and loan the quarter the $X.X prior was lease for losses third quarter the year. fiscal million for compared third fiscal XXXX provision Meta's million $X.X to for of

our finance which tax expense driven to charge-offs million the portfolio as provision growth appropriate by $X.X included $XX.X was related The maintain allowance season provision well levels. million commercial for were quarter, Total in higher loans. primarily overall to net as

Our remain the XX of basis XX, Nonperforming of our metrics tolerance depicted investor deck. assets at assets the Slide points total credit XXXX. risk company's represented on X levels as within June

same from gain $XX.X sale loans fiscal deposit XXXX. of largely by income commercial million $XX.X from rental division, quarter, the and the was was income the on and increase million driven Noninterest of in fees. increases fiscal other for leases, income up finance quarter third The

noninterest noninterest to expense of continues as to cost increase result and compensation reflect year-over-year equipment year-over-year merger operating expenses subsequent step-ups Other and related activity. The a and to higher in drivers primarily merger. included lease loan expense. of the Crestmark and Turning lease the equipment occupancy Crestmark depreciation,

share our discuss earnings me let previously per outlook. disclosed Finally,

of $X.XX franchise For fiscal share $X.XX and between per reinforcing earnings the following This diluted power XXXX, earnings adjusted earnings our share for to guidance are combined fiscal year merger. XXXX, per Crestmark $X.XX. the to the of compares raising we

charge after-tax executive nonrecurring of the $X.XX quarter's and to last excludes related Solar agreement guidance EPS noncash $X.XX earnings. DC to adjusted our Importantly, transition cost net

range $X.XX to fiscal diluted We expect share per $X.XX of earnings the XXXX per share. GAAP be for to in

With turn conversation that, comments. for the to back closing Brad I'll

Brad Hanson

Thanks, fiscal pleased the believe far our deposit value efficiencies. continue time. made core operating our profitable towards X and results drive of the recap, quarter growing Glen. for to over strategic we growth base, strategies these with key thus and third are interest our improving will We our To progress mix we've and and optimizing earning sustainable initiatives shareholder asset

prepared our completes remarks. That

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

Operator

O'Neill. [Operator Schiraldi Instructions] Sandler And our first Frank question is from with

Frank Schiraldi

know I sheet, talked of to call balance sort the So the see other the sheet guys has. want asset the Just then, you remain the with mix should sheet see in you months? does shrink flattish, forward, on next, XX, going for it to past balance balance core side we guess, strategy. the just and with And it deposits? shift plan as I'm this be about again, wondering, mix slowly continue that just the start fact replace that And the I and the on of the shift just it, wholesale XX side. you basically,

Glen Herrick

Frank, Glen. this is

overall quarters. have so quarter-to-quarter, we off. portfolio indicated we'll the loans decrease movements next earning we per that grow, Depending XX% to loans, we'll finance run of to commercial -- replace expect earlier, let and securities still sheet and not the we that the the assets X some strategy, those to as portfolio down with X there our say, to commercial the let's large grow near securities could a As in that balance finance so primarily XX% significantly term, would from but be

Frank Schiraldi

just to the just I that, the comes but growth with as was rate innings obviously, late I'm others slow, of -- sort strong getting finance, how as finance, to maybe of normalizes, a it does even it, maybe Crestmark that that just trying and would into about better of down about would could the see imagine look And you business cycle, all to to would commercial think that. commercial quite the or finance that expect in the accelerate? simple quarter. has does as think exit follow-up mousetrap, commercial we we

BradHanson

the downturns We're Well, we the for way finance of with that have with division. believe their we're commercial And practices comfortable underwriting opportunities operating is standards. today. and division some historically, their that created pleased these

at So environment. it positioned we for economic any that look we're very optimistically well

Frank Schiraldi

Okay. future is rate couple think there would norm the I closed think quarters what mean, -- that you I last like is was the say a or would over growth that on you quarters, seen ratchet I'm up -- if future guys just it of mean, not you of sure for based deal, you XX%. quarters I we've not? when

Glen Herrick

and see The rate have will be larger of that a just expect part of right. it of denominator growth, se. we down, per you're come think being where becomes would don't larger, sustainable we the as the the growth long we rate the to I numbers, don't at, term goal volume market's Well,

sheet big return be. level We have balance need the we is it -- goals. we as And to as

would commercial And market on also them some different a do finance portfolio platform, the overall as the products that's how we and so I counter that well. depending have it. number within of will to note cyclicality

high maybe SBA you it's growth next now factoring, quarter more see growth. right perhaps in So

businesses. have a serve to small customers we of So these tools number and

Frank Schiraldi

for the deposit I you the if move if pretty of point, that significant what margin, cost but note. to finally do then, could a lot And deposits think I Not you lower, just I think Okay. XX balances. room on basis you have of is wholesale wholesale, still exclude

the I -- certainly So mix continues. shift understand

cost equal a Just else down Fed margin? point wondering sort all what move of rate thoughts your the in XX on in on, funds all basis would you

Glen Herrick

Yes.

we are So XX-Q were today that at March to less from of the slightly X/XX, I'd sensitive sensitive than asset our note and of at point we and we March. quarter, you March, there the the are end asset you end

interest as the of our material the securities impact with week, well into levers Our so incorporated we curve a filed note portfolio XX-Q a rate I risk forward next not to as would manage And today. be middle have of would sizable guidance number range. and our was rate current

Operator

And question from Michael our Perito comes next KBW. with

Michael Perito

number expense sense guess, fiscal operational could and -- Glen, last I has of and it quarter you kind The was think the down, from more -- which accruals XX% efficiency the also where I have better specifically on I trend know any on down better I the of insight? side. of but like start insight expenses to a expense here? Any from last was it term not, than number, guys as but the what head want million, target, near quarter. just have that seasonal into year some first obviously, fiscal $XX.X know quarter, the significantly I first you looks

Glen Herrick

saw Sure. quarter, would We're us. level in happy this I than a overall in rate in quarters, third expense discipline coming efficiency. progress increase revenue but here that in a we're growth. of pace in is historically the I quarter June very making at absolute with absolute quarter. the say to the low the spending and slower the increase for the quarter The management with happy run expense really expense you And expect would

Michael Perito

Okay.

three on focus side expect strategic generating forward, have operating quarterly be the a the leverage to So objectives? guys moving basically basis efficiency consistently you with with on pretty the you positive

Glen Herrick

correct. that's Yes,

Michael Perito

overall, then if of the demand -- mean marketplace consumer -- what if Or just capability XX% consumer kind of side, that do the in to alter, any confines of And to I just parameters was differences sheet you does with the within for recently? still sales you've curious in that the I limitation Okay. keep kind balance on that production seen you you and have mean, as I mix? limit set kind on also of

BradHanson

I'm seen part sales? Mike demand was we've first your for sorry, the of have question in change

Michael Perito

the consumer guys from on production, you time-to-time correct? of you Yes, some that selling side, considered are --

Brad Hanson

actively have we not production point. this Yes, selling been at

really managing don't within to sales. have that we're operating any making on those demand We've well been comment on those for and forward. sure the and growth I those capabilities improved efficiencies positioned appropriately manage on really and the So focused disciplined portfolios going

probably year how because took make we growth has So really ago, a very step back led a manage but business. a our and been to approach it's slower to we took on and grow than wanted really that we we sure disciplined that

haven't the to have though production production as be. slow selling. many based we market So levers We triggers really may on case or do been in numerous stop the

us feel we coming and our leading comfortable the quarters. So very programs with where current they're into

Michael Perito

still it forward, And there mean, Helpful. is just not then continue I in like fair to buyback, this maybe the quarter, appetite lastly to think assume still going close it on I quite today you the given the level sounds the an the price but is that average fairly the shares in or for that purchase second quarter? to market price is you of guys the fiscal to disclosed are

Glen Herrick

the have publicly share these million finally but more strong We to any prudent growth. plan focus sheet we and had also we than and and almost we're said with quarterly returns we've authorization, purchased going that said plan. to under to two on levels capital But releases capital we've be we plan to balance the X.X do provide market. updates million levels, on calls We

to and efficiently to are aspirations going our counts. all our manage excess if share clearly have that look ROA, and happens, at levels if that X% over so, options we'll and capital when to generate And capital is

Operator

from next B. question our FBR. And with Moss comes Riley Steve

Steve Moss

the efficiency to want the expenses ratio. follow I in up on here, particular, just

here this a below You the especially be looks full a into XX% basis. growth your like the that finance -- -- and have guys really so could fiscal sub- commercial next on trends consumer well in on far target XX% you It side year. year year, given the

going you forward? about should Just updating or think we how be wondering, that will target that

Glen Herrick

did couple set of Sure. those. goals. aspirational put a deadline a We've We not to

for plan to expect on you ball provide fiscal provide continue an next be those the updates quarter a Our at we a on timing there. goals year where on our we're an and position to that, would to in as we would be to update at perhaps and put outlook

BradHanson

we're trying disciplined investments have some we're to the support to we in to oh a it's order areas. sorry. to them, Steve, of the make We're we're able and trying growth changed needed bank to willing we to Mike, make make very or sure make -- expense approach our management; where properly necessary however, sure in oh, these managing god,

I best Glen management. earlier So said the is about expense like coming that probably think the in the to quarter think way leverage about operating

Steve Moss

Okay commercial quarter, and you're just yields pipeline here of Is XX%. around size are kind like the good another ticket short what's mostly term? that it that's around any clear. finance seeing, the And give the small still wondering then on generally in the the you looks side, obviously, color average

Glen Herrick

one Yes, mid-couple-hundred-thousand portfolios, we ticket, we merger obviously, any dramatically book that smaller, haven't some range but at disclosed specific since Crestmark overall the are finance mix changed with hasn't company. was average commercial are some came larger, in dollar together but as loan

Steve Moss

Okay. my And then question. last

about wondering how about XXXX, we the that? rate Just fiscal should tax more think for

Glen Herrick

that's fiscal tax down -- There our fiscal on be current 'XX. or investment in credits slight tax we tax of for investment we double 'XX. We're do. credits year step in to the what that the year the digits based today, rate And know majority expect our Sure. we would low expectation a is

Operator

Raymond question from comes with Cardenas James. our next And Daniel

Daniel Cardenas

quick the So question margin. follow-up on a just

the yield you be this through essentially then and year, of of in accretion disappear kind quarter think remainder expect I correct? I your guess, to worked you next said XXXX,

Glen Herrick

Correct.

Daniel Cardenas

right. All

guess, kind QX? So in expect can what's -- contribution what of we left to I of for potentially accretion terms What see?

Glen Herrick

Yes, it'll quarter. continue down trend to each

provided specific we'll accretion guidance couple -- improve. primarily, balance the mix have that but haven't The piece -- sheet our will We're the couple We and with our continue decline geography. a to next moving pieces. will quarters -- comfortable of X over next to

half 'XX, minus we're additional get off I accretive today the could of then little plus So has a in improve half that we where in would fiscal think some of when NIMs year tailwinds after then the at and have that we -- fiscal think or they're second NIMs portfolio stay comfortable to that 'XX. to bit further we into second run

Daniel Cardenas

Okay. quick question on up linked-quarter jumped nonperformers basis. on your Excellent. maybe that And about million then quality just $XX credit a notice a

I think to maybe that that's of drove increase? still manageable, bit kind little a what but of color as

Glen Herrick

A to nonperforming. Sure. finance there. not kind unusual, in relationships move portfolio of and moved commercial It's couple out of

all are which the You as large collateralized more points about will those related previously recall XX discussed that Again, we and you OREO credit currently overall of agricultural relationships, we don't -- is well we're to have half overall, and recall, quality. that concern any basis the really, than XX marketing.

Daniel Cardenas

Okay. OREO? on any And us ag large you can give update that

Glen Herrick

actively point, Not we're marketing at beyond this today. it

Operator

now Brad the call that I session. question-and-answer Hanson. And to back turn concludes CEO, the will

Brad Hanson

for everybody We evening. Investor like Thank really in thank you. our all I'd quarterly and Call. a hope your great have support you appreciate to participating

Operator

we and the program. ladies gentlemen, that, with And conclude

great disconnect. now You day. a Have may

Pathward Financial (CASH) 1 Aug 192019 Q3 Earnings call transcript