CASH - Earnings call transcript Q4 2019 | Pathward Financial, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Meta Financial Group Fourth Quarter and Fiscal Year 2019 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 fourth quarter and fiscal year ended September 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 goals those of Act or objectives. 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

business. incurred announced and fiscal several expense tax organizational the $X.XX initiatives of quarter impact and year. accomplishments severance $X.XX the per the fiscal fiscal the executive diluted For made GAAP reported of $X.XX previously power in after earnings reflect second having part optimize efficiency of the expenses diluted income share diluted of fourth are after includes the million XXXX, our company our Meta key transition improve resources the key tax ratios. per of This per results $XX to in net initiative share one These the share on quarter of as incurred or during and

over of making I earning to increasing a account detailed our our it the we improving core efficiency are bit key improving financial turn I'd Before to deposits, to initiatives, asset mix results, for take more progress time on talk like Glen about the and ratio. our

increasing we rewarded do accelerate relationships existing streamlining developing to several while First, making growth to for work new efforts positive easier our business renewal We us. and by division by within also of with extension payments it development strategic the relationships. were our and the processes partners business

deposits same for During merchant of fee from we grew and acquiring, payments origination XX% fiscal XXXX. XXXX, average income over areas our time, At year fiscal such the to ourselves take average positioning faster ACH initiatives. payments our in are division as advantage opportunities the the

Second, we interest with our maintaining securities, mix higher replacing yielding earning profile. loans are investment a loans by strong improving credit asset and lower commercial while yielding

up loans compared of our investments end September from of September Slide X XXXX, XX% XXXX for earning assets XXXX, of September our made XX% to earning investor just of September at assets quarterly as total shown XX% year. accounted finance while on commercial of average As of the XX, XX% up as XX, presentation, our of at last XX,

XX income the fourth in X.XX% As XXXX, compared in quarter net basis the and to fiscal expanded net interest prior year of a result, for generated we margin X.XX% our quarter. points growth comparable interest to

our across in organization. Finally, we made efficiencies improving operating meaningful strides

efforts, comprehensive these As included strategic organizational our of plan part analysis of our structure infrastructure. a and

of part review, decision Following the made our recently our infrastructure. we outsource to IT

of so and grow, IT the do our to partners needs continues customers, employees. business our As

priorities remain for our development including More house. We quicker proprietary in and will an and align strategic non-proprietary efficient functions, functions firm. more certain better resources a determined needs IT transitioning manner growth those strategic in commoditized focused meet that we external with need to to IT our

We with operating changes also quarter strategic made significant continuing organizational resources our positions in improve efficiencies. to while objectives aligning the to fourth begin and

remain into head strong further developing on optimizing we a fiscal focused As XXXX, our and we growth. for organization foundation

will areas on our allocating to the over the time. We company shareholders continue maximize appropriate focus for value to resources that and

X.X of the support share back bought we to a under repurchase consider Turning growth and repurchases existing authorization, will to value. shareholder fiscal opportunistically for capital company's the approach during fiscal bringing management capital maximize opportunistic and the year. balanced our repurchase XXX,XXX to designed within the We shares approximately management, context quarter million approximately shares total remain fourth activity prospects

is XXXX of fiscal there mark allow opportunities in while progress, as believe customers, key employees furtherance we for come to to our will the year of much execute our we plan, change our tailored for in the on key While providing year our the continue strategic us more shareholders. pillars significant in growth initiatives significant deliver more ahead. believe to for services earnings execution and And we driving value of

Glen fiscal XXXX it financial results. Herrick, a and to review quarter me provide our of fiscal over to CFO let Now, turn our fourth

Glen Herrick

or year. full Brad per good diluted to a GAAP generated per share for fiscal and we net year $XX.X million fiscal $XX the and million are Today of fourth you, our quarter the quarter the afternoon diluted or Thank pleased $X.XX everyone. basis, XXXX. for share for report we results income and On $X.XX

mix balance earnings the growth prior interest of of efforts year of XX% Full Crestmark result net over as a reflected primarily our optimize and sheet. income share higher acquisition the year per to the

finance year, commercial mix. past and funding continued our out improving our work build toward Over portfolio the we to

after investment $XXX related teens. low leases to tax with income. in investment impact to credits XXXX originated we higher million expect from the of the fiscal solar driving tax year rate year tax the vary and settle in tax we expected timing are Though during Furthermore, credits period, for period the to future

on asset mix earning remain interest balance sheet basis, efforts of assets average growth. relatively enhancing flat sheet, to earning linked-quarter a balance the to our on instead Turning focus reflecting

linked-quarter the lower and portfolio. basis selectively investment yielding quarter, higher During them loans, on finance fourth with average within XX% replace reducing commercial we our primarily a holdings sold our securities, yielding by

gross related September of on leases XX, our help and and XX% X.XX and the certain off flat despite XX, up loans September tax at again, seasonal products relatively run linked-quarter XXXX. a Total to a loans billion were loan basis, transfer consumer of sale from

a $X.XX forecast the and time billion merger. September finance initial an basis of for increase X% at linked-quarter Our year-over-year, at of meaningfully the XX% on outperforming commercial XX% our portfolio growth was loan XX,

our we more commercial On on Slide color portfolio. provide components X, finance the of

portfolio over yield average was approximately $XXX,XXX the approximate size X.XX% past and years. quarter was for off asset the our lending charge average XX based example, three points the net loan rate basis was For and

XX% to fiscal in balance the represented the year side and deposits. payments the liability total to sheet, deposits average same quarter Turning XX% prior grew average of by the of compared

result for quarter, remix, income fourth XX% interest fourth As of to while the basis XX interest quarter. XXXX up we year-over-year fiscal net compared the points in our of fiscal by to XXXX XXXX, sheet a of margin million the fourth balance the generated X.XX% expanded $XX.X net quarter fiscal

the of related minimal to lease contribution to we as Crestmark and quarter down. wind XXXX, Purchase basis third of accounting basis purchase adjustments fiscal points decrease in portfolio quarter expected points to in XXXX fiscal XX accretion expect interest the the the net a XX contributed to loan margin from from fourth and are

added versus accounting X.XX% quarter, prior accretion of quarter points Loan fiscal to in were to and yields for Purchase the quarter basis X.XX% for yields XX for year. previous quarter points the in loan X.XX% XX quarter. fourth the compared third the the the fourth basis

within provision fourth compared quarter year. X.X million the fiscal The as of tax for well as for in was the services consumer portfolio, bank the decrease loan loan the in driven lease was losses Meta's for by community the and prior in and loan fourth million lower portfolios. decline provision XXXX quarter, a the primarily to provision $X.X fiscal balances

offs the loans. to off $XX.X were tax the for million balances majority of service $XX.X included which million Net of remaining quarter, related charging the charge

our metrics X the remain levels, risk on tolerance credit depicted deck. investor as within Our of Slide

total assets which estate have foreclosed Nonperforming assets company's relationship September of points that the at of assets represented September basis Of nonperforming related to the we repossessed balance previously is basis real company's primarily XXXX, XX, XX note at assets XX and agricultural represented nonperforming discussed. points XX. a

primarily continue where occasional for are nonperforming attributable being of to increase was liquidation actively a to the to finance common. the it fluctuations We options evaluate nonperforming relationship commercial is couple The in Ag portfolio, relationships marketed linked-quarter assets the compared sale. as in for

Noninterest $XX of million XX.X fourth fiscal fiscal was million up for from quarter same the the quarter, XXXX. income

income, of of XX% and and $XX and total The by income largely gain totaled noninterest of from For XXXX in gain increases the loans securities, $XXX up income. increase on year-over-year driven sale other on represented fiscal rental sale million million, revenues. leases year, was

noninterest mentioned, growth to Brad the expense, maximize focused forward. Turning on as profitable positioning going remain to we company previously

As drive changes, a operating organizational primarily growth severance during quarter support to result, $X.X enhanced to we of incurred related expense the million and better leverage.

drivers the profitability included primarily and committed lease occupancy operating and and perspective, growth allocating a From depreciation, with and are the to lease profiles. Other loan to noninterest ups equipment and equipment fiscal expense and attractive capital cost related expenses of year-over-year businesses to resources efficiency step merger. Crestmark compensation, we in most

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

For $X.XX and The interest our an represents $X.XX meaningfully XX%. earnings per fiscal back revenue since in expense XXXX. light growth to GAAP are This and annual of tightening to XX% per rate between earnings September backdrop, better year share per visibility range XXXX, range for particularly from provided a we initially share. we be fiscal in XXXX, guidance range into a trajectories, outlet tighter reflects of different share

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

Brad Hanson

and for Thank far pleased XXXX. progress and year our three initiatives To quarter you, we've XXXX. thus in the made of are we The our fourth results the Glen. toward opportunities key with fiscal recap,

our completes remarks. That prepared

for I'll join So Operator? Glen me ask to Q&A.

Operator

first from Our O'Neill. with Instructions] Frank comes Schiraldi question Sandler [Operator you. Thank

is now line Your open.

Frank Schiraldi

afternoon. Good

first – Is just severance IT little wanted this Can mentioned is this coming you I talk from Brad, is is sort on about, sort Just of just a outsourcing severance. of about to infrastructure. positions. this where your bit you or ask across well, the mentioned you that

Brad Hanson

sure by eliminated needs all that We with were were and going were or aligned, had company we that that make people positions necessary our aligned and the the positions there positions we an process. several impacted or of strategic found to where that positions forward. at And look not certain plan gaps initiative in the were

in far outsourcing the by As company. that later. that a IT happen were bit our be people IT will The absorbed as will goes, little the transition department

the severance. to the So most for us, they be not will by but with they continue working impacted part, were here

Frank Schiraldi

any And you there as transition income statement? to impact make give on is that the detail can you

Brad Hanson

Well, transition for we impact parts commodity based is are positive primarily infrastructure a looking and IT period that a the of the business. occur is time. There over in will

Frank Schiraldi

and on sale, for help Okay, consumer then balances, linked-quarter. for just fell investment loan you mentioned balances the obviously transferred the some you

look it stable that from business, Just but like looking slide keep that or didn't at to wondering these you levels? shrink deemphasizing it further your are portfolio you're that

Brad Hanson

portfolios develop business part and infrastructure appropriately, into of to approach No, going lending be especially That's our consumer cycle we're as make this taking to our the capacity and programs going forward, we've that mentioned, credit earning them still assets. our XX% as very measured we very we plan manage plan those sound. is a within of sure to but the manage to

Frank Schiraldi

back Okay, the later – one here. just the getting and obviously, terms talk queue. But economic go just of and in cycle in we're to about I'll more, then people

those could sort is business I'm like the at Some assume factoring and things – that's asset-backed on players here. anticipated the just you any back color lending wondering that tend can or Crestmark maybe times. for to Crestmark, give of not growth more if creating for believe or pull you plan from opportunity has you in from rate and expected or I just created maybe

Brad Hanson

and people then times that their and We've competition to in opportunities – structure as been try that time for compromise pricing, performance as the to sound will and remain Crestmark we during prior over create of we up we at us. as stretching performances cycles believe saying very in downturns that areas over years it on disciplined looked as well consistent we the see in

Frank Schiraldi

decent growth do mean, to or double guess? continue business expect to I in digits the a I grow you what's that rate,

Glen Herrick

could as denominator levers This would but Hi, come growth Yeah. larger, we some becomes are different there. from slowing to and expecting Frank. it is expect Glen. the year-over-year of see double Certainly digit we growth,

our the serve the on while in than to are comments the point products about to not the asset-based bank a range. all credit of our And factory – also set color Also higher cost, cost products broad that the portfolios they're that we cycle. or quality customers. just add I a ABL are lending to and have certainly equal you return created not have the We little to Brad's community credit are an factoring portfolios would also type in lower high higher traditional portfolios, some

Frank Schiraldi

sorry. I'm Okay.

they're terms So lower in factoring. of

Glen Herrick

credit inherent if XX% Yeah, serving. other reflection of a XX% were yields for and risk they're credit XX%. players that or they credit do customers as portfolio the the that's be to so we go quality, are those charging down of in quality the a ABL – in usually you factoring have X.X% And that there and to or may

lot the finance So of of commercial flavors business. a there's different

Frank Schiraldi

I it. appreciate Thanks. alright. Okay,

Operator

next Thank with you. Perito And Michael KBW. from our question comes

now open. is line Your

Michael Perito

good everybody. Hey, afternoon,

Brad Hanson

Mike. Hi,

Michael Perito

ask recently I the obviously but in motivated obviously, the to question the Well, today. slowed wondering slower of that you the your curious more capital for picture on have how capital here. billion, you term, mean, Obviously, multiple sheet in this well obviously kind shareholders, no wouldn't guys a And shares guys about sustainable your somewhat the quite fourth I capital say rate, stronger capital as business forward. done big think isn't becomes repurchases anyway. and just XX your third are seem look I are with confines done just a your dynamic up, level maybe the would the balance matures the wanted anything longer major, growth in because how percentage can return you thinking you after quarter a quarter you healthy to buybacks around under keep and I'm your with profitable bit I you here. are in like guys putting of levels of evolve need rush as limit to you've do sheet growth but which level the about balance

Brad Hanson

board stated, overall XXXX of Well, in capital repurchase consider will within to generate activity and we context and And we the reviews as expect we capital management certainly our management we beyond. access options. the as

Michael Perito

At does point play that the or come any dividend into is really –

Brad Hanson

levers that again, company of it's certainly of one It's the will certainly Yeah, one consider. levers. the the

Michael Perito

was line quite you growth, can think item is as additional fee think near some or on price expected we term As or there. you forward what line card about is know lower out bit than something there focus, we thoughts the scenario but for curious time it's there I thoughts side the move now, pipeline and just or is been fee that of a that any is if just volatility other a for there realistic, expectations more guys any

Glen Herrick

Yeah.

fiscal year comparison So we're time's this 'XX, 'XX because going of fiscal FY that to be clean one comparisons tough forward. of comparing from 'XX year off that coming kind the will

So and A customized up to point our fee priced. a in will leg number that programs from low we expect large we income here. card this of are be quarter last would

customers economics some So drives of for as depending on of There's so stable fee where how some threshold. may fall be your deposits, may our cross the larger more are, the and the tiered all income. how seasonal they they that and pricing card characteristics they

to the than revenue would expect So expect to payments card for deposit growth I I to fee slightly at driver a slightly from I here. a us. is slower grow it grow overall from it business. important expect of grow income But at pace – it overall,

Brad Hanson

the has transferred into of And some you the note fee line. card fee might deposit income that

to then more payments account products. and mentioned will initiatives our in new the you well. involved based business have into my that lines, remarks, we several I income as which evolve as take So need are be our faster finally, to merchant and And we origination in which ACH all starting acquiring been past fee of areas

to next over year the the more and after impact. of those meaningful course the have will So year a start

Michael Perito

think just has card and well. about Helpful lastly in prepaid really guys obviously you have the issue done space and done we the as then

program competitors' not bank our couple You for in like like nature. priority ability white flesh I'm to see expect but a your some they're for of kind prepaid to that little can see like issue, head's just of thanks things it because next companies the branch really front card started of that on terms in you the forward. of seems at label your managers of non are we to where services one of like if expanding banking moving years, curious to kind kind your Chime out big partner expect out like kind and a us and could of we which that what card what bit can

Brad Hanson

some type fee income fee And new the you're card that's why seen of partners of products exact involved those and income are line relationships with of several you because discussing. our the move fee into deposit

in So we those products. of of support are kinds

Michael Perito

guess Okay, tuned. to so more comment stay and I

Glen Herrick

XX%, percentage the that involved it would know certainly relationships stay would evolve revenues income partner find we're would actually hope XX% be in we Yeah, we roughly Mike, our payments level in them, as fee at represents and and or with I of total XXXX. – overall, overall where higher a strong

Michael Perito

the well, you, helpful. Great, appreciate it. color all Thank I guys, for

Operator

Our Instructions] from Thank B. you. Steve question [Operator with Moss comes next Riley FBR.

open. is line now Your

Steve Moss

guys. afternoon, Good

Brad Hanson

Good Steve. afternoon

Steve Moss

start wondering underlying dynamics or should down for want there about about how quarter yields. and XX just the the so going on the we think were They're basis forward. I finance what points to commercial that quarter-over-quarter,

Glen Herrick

There the – mixture – mix in to somewhat that faster then others. of in accretion fair down leg And amount that. variable just a of and which portfolio. rate growing some We products of portfolios had it's commercial finance a we than purchase had are loan a contributed

Steve Moss

within In terms the idea know premium the for example, what rate, that an portfolio. variable finances, of is variable I of roughly percentages but?

Glen Herrick

It minus, is XX%, roughly yeah. or plus

Steve Moss

we in as pick about margin to up think [ph] the quarter. then going banks growth in going here assume I would you're And the that forward, commercial upcoming

Just lower funding kind the about probably will getting do benefits. great. thinking be obviously should color Any of you you be drivers, margin the rates, on some but have different

Glen Herrick

down had a this step quarter we in Yeah, accretion.

step be will quarter down final our big in Next accretion.

will shift that The I a accretion expect offset increase run little would So to off. margin the mix bit. help will

basis And then so up XXXX. flat be up and to rest start next lagging through the should points a quarter we of few

Steve Moss

Okay, that's helpful. circle were to back what cleaner on wanted then is the And rate going that, with just here? disclosed expenses, to the costage run wondering forward that

Glen Herrick

specifically, season Yeah. as I up fair that first March, tax in question we April. but then you runs and here in a through of rates, have run seasonality December get primarily to know, part your our amount of kicks

of So onetime a today, expense we're always is expenses. certainly variable September expenses. March although did the the we a lower typically lot quarter Where is quarter quarter quarter us expense a at higher have the for

– a build are with there some quarter. that I it's fair amount variable are the that Again base think grow there would I expenses, September to perhaps said, will a So the so it. as from grows, good of business ones variable

growth September building from quarter So think and with starting a there. I the then

Steve Moss

of the probably allowance leg run off around your on quarters have Okay you tax. think with assume just for thoughts underlying the here reserve I ratio would up it looks costs one like last credit the normalizes? credit this I kind to here, quarter, accretion build that upcoming lastly and x just

Glen Herrick

in today. good mentioned, our Yeah, we – we allowance as Brad position feel feel our about

or actually mix again, it'll that around our mix up or depending we'll assets. I little a you higher assume of can level. we'll allowance, But XXX basis that blended end on provision maintain comes think points and so the from to build where probably depend the

Steve Moss

right, thank All you very much.

Glen Herrick

Steve. Thanks,

Operator

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

line is Your now open.

Daniel Cardenas

Hey, good afternoon, guys.

Glen Herrick

Good Dan. afternoon

Daniel Cardenas

of quarter. classified say follow performance in versus any couple assets, up before Just of your the the you provide can previous credit the a the side, color quarter terms questions on

Glen Herrick

'XX progress might the we feel a have Oreo to our gets hope of our out we're the remainder here we actually well, represents and credit position when position, about commercial Yeah, age, good that there very portfolio, good make loans half in we that finance The still a early depending assets. their on especially like one on today. lumpy nonperforming but about pretty collateral marketing fiscal that year overall, feel certain that's little just actively

Daniel Cardenas

look about list how how watch trends the those in does quarter? And

Brad Hanson

strong. now. All We of our right credit – concerns are don't we commercial feel trends any have the and in very there positive

Daniel Cardenas

Okay, were other and all questions think then asked. I my

guys. So I'll step Thank back. you,

Brad Hanson

you. Thank

Operator

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

Brad Hanson

We Thanks. evening. support. time today. call. I'd close your participating for taking And everybody Meta's Have appreciate listen investor a like to to you truly by for thanking thank great quarterly to us

Operator

this for gentlemen, and today's Ladies conference call. participating. concludes you Thank

may You disconnect. now

Pathward Financial (CASH) 24 Oct 192019 Q4 Earnings call transcript