Meta Financial Group, Inc.

Q4 2020 Earnings Conference Call


spk_0: ladies and gentlemen thank you for standing by moment to the met a financial group fourth quarter in fiscal year two thousand and twenty investor conference call during the presentation operatives the prince will be analyst and on the most following a pair remarks were conduct a question and answer session as a reminder this conference call is being recorded of intellect to on the coffers called over to brittany kelly else as director of investor relations please go away
spk_1: thank you and welcome to the medicine a group conference call a webcast or president and ceo bratty of this and executive vice president is the about glenn hear it will discuss the result of our fourth quarter and fiscal year and september thirtieth twenty twenty also participated in the call is brett farr called president in the l l
spk_2: of men have a
spk_1: additional information including the earnings relief and investor presentation may be found another website at met a financial group dotcom as a reminder er comments may include forward looking statements both statements are subject to risks and uncertainties that could cause actual in anticipated results to differ the company undertake no obligation to update any forward looking statements please refer to the cautionary language in the earnings early invest your presentation and in metal filings with the securities and exchange commission including our most recent filing for additional information covering factor that could cause actual results to differ materially from the forward looking statements additionally today we will be disgusting thirty non gaap financial measure of on a conference call references to non get measures are only provided to assist you in understanding that as a result and performances trend reconciliation for such non get measure are included within the appendix of the investor presentation now i will turn the call over to thing
spk_3: thank you and
spk_4: everyone i know is talking about what a crazy year twenty twenty of them so i want to start by recognizing the exemplary performance of my team during this difficult time and express my appreciation to are dedicated staff are continuing to serve our customers and shareholders from a remote working environment despite some of the challenges including substantial records and size of the loan loss provision we reported net income of one hundred and four point seven million dollars for fiscal year twenty twenty an increase of a percent compared to good twenty my team and earnings per share and crease eighteen percent to two dollars and ninety four cents over the same period while the sherpa prices down considerably from pre poll that nineteen levels are strong operating performance has afforded us the opportunity to start buying back shares that what we believe are favorable prices in september we reinstated are previously announced share repurchase program him bought back approximately eight hundred and ninety eight thousand shares through october twenty third and a weighted average of twenty one dollars and eighty cents per share during the past year we were able to close on the sale of our retail community bank just before implementing are pandemic plan and response to covert nineteen we founded two hundred and nineteen million dollars of ppp loans to six hundred and eighty nine borrowers and partnered with the us department of the treasury bureau of the fiscal service and pfizer to further support the government stimulus package by distributing six point four bill billion dollars of economic impact payments on three point six million prepaid cards at the same time we close several new relationships and extended existing relationships while maintaining focus on or three strategic initiatives increasing the percentage of funding from low cost core deposits in exchange for higher costs deposits optimizing our interests earning asset mess by replacing lower return ounces with higher higher return loans and improving our efficiency ratio by managing expenses and improving operating leverage in addition to this we have been working hard to solidify the foundations of our accompanied by further enhancing operating procedures governance programs organizational structure or talent pool and pay for performance programs we're getting faster safer
spk_5: and more efficient
spk_4: we're also focus on developing our aspirations culture corporate social responsibility programs and diversity and inclusion initiatives
spk_3: in the year ahead we expect to see progress in our messaging and communications
spk_6: our web sites
spk_3: and our technical capabilities as we strive to upgrade and enhance the competitive advantages of our plat that our platform gives us an enabling thin tech providers and scale answering new products segments and looking for ways to leverage the vast amounts of data accumulated over the years
spk_4: now let me turn the call over to breath far
spk_7: becky bread
spk_8: and the critical fourth quarter of twenty twenty we took a provision for alone and leaf losses of nine million dollars
spk_7: or allowance for lonely lace losses was fifty six point two million dollars as of september thirtieth a fifteen percent reduction compared to june thirtieth twenty twenty due in large part three anticipated season old charge of activity within our tax services business
spk_0: credit quality remains good with no material deterioration in past booze nonperforming loans and laces were zero point nine seven percent of total loans and laces a quarter and thirteen basis points lower than the previous quarter
spk_7: we are closely monitoring our small ticket equipment finance portfolio however modifications that portfolio or now just twenty one point eight million dollars and we believe reserves are adequate to cover any associated risk
spk_0: we have seen no measurable change a performance in our consumer lending portfolios due to go with i t
spk_7: our student loan portfolio has continued to pay down to one hundred fifteen million dollars a quarter and and now accounts for just three percent a total loans and loss movie theater and hospitality loans their legacy community bank portfolio are still concern accounting for roughly fifty percent of our total deferred balances movie theaters have been heavily impacted by the covert nineteen pandemic and we have approximately eighteen million dollars of exposure in this category while these credits are currently on three months the pearl principal and interest we have taken additional reserves against them to reflect the elevated level of risk
spk_8: hotel loans or training positive part far from fully recovered
spk_0: most are in the third round the pearls generally making interest only payments
spk_8: excluding ppp loans total deferments across all portfolios decrease the one hundred and ninety three point three million dollars in the quarter down from three hundred and twenty six point nine million dollars and now account for just six percent of total gross long as of september thirtieth twenty twenty we had six hundred and eighty nine loads outstanding totaling two hundred and nineteen million dollars in loans under the paycheck protection program and at recognize approximately one point eight million dollars in total fees from the i
spk_0: the remaining create or be advertise over the reigning lives alone
spk_7: the average spirit of approximately two and a half percent equates to approximately five point four million dollars in that fees on an average loan size of three hundred and eighteen thousand dollars
spk_0: we are closely following the development of the small business administration ppp forgiveness rules
spk_8: bellamy car the call over to glenn eric are cfl
spk_9: thank you brat and good afternoon everyone today we reported our results for the fourth fiscal quarter and for fiscal year two thousand and twenty on a gap basis regenerated net income of thirteen point two million dollars for the quarter or thirty eight cents per diluted share and one hundred and four point seven million dollars or two dollars and ninety four cents per diluted share for the year for your earnings per share growth of a ten percent included the one time gain on sale of the in a beta version a key strategic complishments along our path to optimize our balance sheet despite the current rate and loan demand environment we generated net interest income of two hundred and fifty nine liam dollars a decrease of only two percent compared to fiscal year two thousand and nineteen we believe that reinforces our focus on remix in our balance sheet united states treasury he ip stimulus part deposits continue to be a drag on that interest come in the quarter i'll be at a lower level than the prior quarter net interest margin was three point seven seven percent for the fiscal two thousand and twenty fourth quarter and improvement of forty nine basis points over the like quarter excluding the impact from he ip to pause his name was four point eight seven percent compared to four point nine five percent in the fiscal two thousand and nineteen fourth quarter while for launder man and lower yields will continue to pressure net interest income in the near term the ongoing shift in our early nasa max likely lead to higher net interest margins overtime our cost the font improved by ninety four basis points compared to the same quarter in a prior fiscal year largely as a result of that ip car deposits which reduced wholesale funding needs and an overall lower rate environment matter continue to generate above industry levels of non interest income and total non interest income for the fiscal year with two hundred and forty million dollars and a percent increase compared to the prior year influenced by the gain on sale of the community bank division non interest income now represent that's forty eight percent of total revenue in fiscal year two thousand and twenty for the fourth quarter knowledge or think i was forty one million dollars an increase of thirty percent compared to the same quarter in the prior year the entry of can be attributed to gain on sale of as be a long other income and an increase in payments fee and income for the fiscal year non interest expense was down for percent to three hundred and nineteen million dollars as a result of our ongoing efficiency initiatives including the sale of the community bank division non interest expense was eighty million dollars for the quarter of five percent increase compared to the prior year fourth quarter expensive included a one point seven million dollar prepayment penalty to establish long term that and employed separation related expenses of one point five million dollars turning to the balance sheet total assets that september thirty were six point one billion dollars reflecting a more normal life level as the ip card balances spent down and the remaining cash balances were used to pay down barley and and reduce wholesale funding total girl loans and laces held for investment decrease five percent on a lake quarter basis to three point three billion dollars at fiscal year and the decrease was primarily related to legacy community bank loans of were sold or refinanced away and loans that were classified as hell for sale which we expect to sell this court commercial finance laws which comprise seventy percent of the company's slow and least portfolio tunnel two point three billion dollars replicator out of one hundred and forty nine million dollars or seven percent from june thirty two thousand and twenty growth in the commercial finance portfolio is a result of summary bond of the man in the factory and elite same business line average payments deposits were five point eight million dollars for the quarter which were inflated by one point six billion on he ip stimulus cards issued by medibank as of october twenty third eight hundred and twenty nine million dollars and he ip balances remained outstanding excluding the impact from he ip cards average payments deposits increase six sixty percent compared to the same quarter in the prior fiscal year a large component of the increase was driven by stimulus payments that ended up on various program partner cards and lower overall consumer spending a lot as brad mentioned during the quarter we reinstated our share repurchase program since restarting our share repurchase program in september we have repurchased eight hundred ninety eight thousand four hundred and sixteen shares through october twenty third and a weighted average price of twenty one dollars and eighty cents or share the company has approximately three point five million shares romania under it's author i share repurchase program that is scheduled to expire on december thirty one two thousand and twenty two we will consider further share repurchase activity within the context of our overall capital deployments strategies including funding growth initiative and returning access capital to shareholders finally we have adopted see full effect of october one two thousand and twenty and expect our day one entry to increase the allowance for credit losses by approximately thirteen point five million dollars as a relate to regulatory capital that they want to just met will not impact our regulatory capital ratios in the short term as we have elected the two year delay in the five year toggle transition period to minimize the impact we intend to disclose further detail of fee for adoption in our town okay with that i will turn the conversation back to brad for closing comment
spk_10: thanks glenn
spk_4: i'd like to thank our employees are partners and our shareholders for all their hard work and support during the past year despite missing a few prieto the targets we made significant progress on multiple fronts and delivered solid results for the year we're looking forward to the new year and all the opportunities that lie ahead with that i'll have the operator open up the line for any questions
spk_8: thank you add reminders out the question you'll need to rest are than one on your touched other phone to with joy question from the queue please press the pound key leave limit yourself to one question him on follow up question before rejoining the que
spk_11: and bible we compile the q and a roster first question comes from michael prunella kbw airline it now and
spk_12: hey good after you guys thanks for taking the questions
spk_13: and my name
spk_12: i'm i want to spend a minute on kind of did the earnings outlook for for twenty twenty one ah i guess conductive a long wouldn't question here but if it as if we think about kind of core earnings power of of fiscal twenty twenty i think plus or minus i hadn't like that that ninety three to ninety six million dollar range of and i guess you think about how that transitions into twenty twenty one is it's i guess is there still is still correct assume that that the fifteen to twenty million of annual i i believe it was income from the hr block partnership what will be added to that that core fiscal twenty twenty run rate and then that there would be young additional growth opportunities on the core business as well as you guys continue to move forward is that kind of affair we'll end and outputs to specific numbers around a fairway i think about what how the already profile
spk_14: look next year and is is there any other kind of thoughts or or items that you would point is to as as we can't think about where that the trend is is having
spk_9: i might as as bland of take a shot at that so yes i h r block will be additive in twenty one and it as it relates to or other businesses we we will certainly expect organic growth in a number of i'm would also point we have some run off portfolios though primarily in the community bank and also the still loan portfolio that term year over year well will be a drag on absolute dollar earnings and dumb
spk_15: what we've also talked about his
spk_9: remix in our balance sheet and we think that whoa driver he is increase without increasing the overall size of our balance sheet
spk_16: remember that gave me that the
spk_4: we'll have a full year company in in september why we and six months of her earnings that and a hiring freeze read them him when he won a and one of a full year of the impact of the reduction interest rates and twenty one
spk_17: right over
spk_18: hum
spk_14: that that's very helpful thanks and then and then for my follow up bob brown
spk_12: maybe comment on your dick the i'm sure someone i also ask about can't mark and pipelines but the other cops good balance best to collect fees in the payments side of the business here ya what what are the kind of no one or two or or or your biggest growth opportunities that you see on the her i
spk_0: as for twenty twenty one that you think could be the most impactful for for met at this point
spk_19: well as we said we're we signed new deals hr block or certainly have an impact on our phones while since he took over the birth of their business which includes their current programs in addition to their attacks loans and in business on so that will have an impact on
spk_20: a portfolio as well
spk_4: we also have started to see ah the genesis of the passive payments business taking hold on i think that's a key and complain for us and we have several programs launching in an ill ill be a ramp up period from some the stars so are we will satisfy the end of twenty mining see an impact from more so than him twenty two beyond his that continues to grow as a lot of interesting in in the marketplace so we alba a high hopes for then the teacher that of business lines while they also answered some the other business lines in acquiring and
spk_21: yeah that that should ramp up a little bit of and i think also lie that starting from scratch so young you know they'll be alone longer ramp up period before that's truly material that that will see some more business from that if you compounding those new opportunities i think that they start have an impact i
spk_4: an aggregator even earlier
spk_12: you have any a follow up rather because it
spk_4: or back and you guys think that that will be similar seminary or broader initiatives that will be on display at a record reward fiscal your kind of financials cathartic as those in it and there's also you know other business we sign and are continuing to sign so i there's money lion launching which me with announced that the l a sad to see that ramp of them were excited about the prospects of that business so there's a number of a new initiatives i think that have come on
spk_12: recently as well that will start to have an impact as the your progress
spk_22: great thank you i her for taking my questions i pressure
spk_11: that's right
spk_23: thank you are next question cousin a lot that the rally securities guy at now open
spk_24: i get a new guys
spk_0: little standing with the of with just can't like lonely old their up nicely overcome quarter over quarter and debris seen a i remix in one into portfolio or this quarter especially on a yuppie basis just kind of curious on your had hired figure out lonely old egg going forward air just
spk_9: just into the fourth quarter to like it that are didn't like up
spk_0: yep said sorry savior your last part cut out on you there and just seems like it for alone yadda that far into into the december quarter
spk_9: seems like i could be help me out and others as another step up and long your chair for the upcoming quarter given the the lp remix yeah yeah it's it when we would agree with that is some that
spk_4: you know
spk_15: in
spk_24: certain portfolios or in our gonna come in higher than others are lower given the right environment but as we continue the shift that max the community bag as lower yields those run off we do more commercial finance
spk_25: so we run our securities portfolio and clearly bag
spk_4: i'd just as swaps well help the overall yields
spk_9: okay and then just go on the business for just kind curious as to what your seen on for much sparing deposit growth i'm from your car business i at the vip of it's kind of obscure our what's going on there yeah it's friday take out the the i paid these we we still have some girls that is current year over year last couple years and would expect that continued to go were in that business were seeking that business and will be picking more up the he ip bubble disturb heightened little bit yeah he went with what's hard though steve is so it is in a we have the very discreet card that those stimulus card so we're loaded on our cards or were issued from treasury so that those are the numbers we've been calling out
spk_19: at that we've also called our we seen of above normal growth and overall deposits to fall little bit slower consumer spending we believe but also folks that are getting stimulus money and then taken it and putting it on one of our partner gbr cards
spk_24: and and so if it's hard to tell exactly it's a money is fungible where that came from but that's pretty consistent with what you know talking to our peers across the industry and everyone as at
spk_26: elevated levels of deposit so in absolute terms probably car deposits will come down year over year
spk_4: he try to back out our core business we would still continues expect some growth there and now the new programs by the stuff they cannot block money lion another so young some of those like a and r block is converting portfolio so we'll see fun impact from laugh business and learn the others know no or around would be growing over the years while so we should we still expect to see strengthen an opportunity and rather than our payments business over the coming years okay
spk_24: and then and i'm not sure that this was answered just on the commercial mats portfolio you had yeah good quarter quicker than a guy called it a to yell more normalization it answered portfolios but how that pipeline looking and you know how are you thinking about longer growth you tend to see pretty good growth at it
spk_27: in the december quarter
spk_8: yeah i mean i i thank god we're seeing more transactions to take a look at in the and the pure a commercial finance are you talk about your as a based lending ah
spk_28: and your factoring on some of the other things because of yield
spk_0: the markets are coming down and are some cases where we're choosing not to play as the yield is too low so that you're gonna have some makes and that but if you think naturally through the economic cycle this is the time that commercial finance starts to build and shy okay thank you very much appreciate that
spk_29: and thanks dave
spk_4: thank you internet question cause price raw the when i prefer my your life now open
spk_15: hey guys palm trees come the air on the to curls are
spk_4: where they were at the end of the quarter is there any expectation and already colleague can give you know based on your conversations arm
spk_19: lift some bar worries of of what percentage and a what piece of that six percent harm may need further attention at the end of the deferral period
spk_11: well so obviously the biggest piece of that com is the hotel motel portfolio that we have in the residual community bank ah me and you know when we are seeing improvement particularly with the type of properties that we have ah but certainly there
spk_28: gonna need continued assistance through the winter months and then will come out in the spring kind see what happens in are they getting closer than normal levels where they can resume traditional the an i payments that so that that's the the big thing on you know we we mentioned in their the theater our relationship relatively small that you have that ah and then there's some things that are in the a small tickets finance again not very large at all and all that depends on what's going on in particular marketplace geography
spk_4: there's a lot of variability around the country on who's open and who's not and where there's ah you know those there are still shut down to a bad they're they're going to struggle to appear to time yet so we'll see what happened to those and i think of the born and the do i understand that a lot of the hotels as well or are from interest payments yet not yet it's not full principal and interest me and the clippers though they are making some contribution
spk_29: okay
spk_9: and then yeah yeah also talked about and we look at where cracks mark sort of the at match articular met charge offs in the last downturn in the great recession
spk_4: i'm at in i think of he a pupil that two and a half percent and i'm
spk_14: is there any you know as we sit here today i do look out and and and and i it's a lot of uncertainty stone that on the credit side but i'm to you in our do expect that that am is likely to be lower this time around higher it's just too early to say or any any thoughts on a map
spk_7: from
spk_28: one of the things that's a good indicator of how that's gonna go is that the a pure commercial finance i'm talking about has a nice lending and factory
spk_9: you'll notice the balances have gone down considerably which means that those products are working exactly as design which as the by him comes down to collect the receivables you pay down the debt and that's why you have even in a downturn environment as such a low loss rate so if that the balances help you that gives you some indicator of where we thank god that headed ah a out what work again a white sham delinquencies in that space or other than the areas that i called out there there's no specific thing that's happening you're not seeing much of a change at all so while we feel pretty good about where that portfolio is today
spk_30: over our crystal ball isn't a better than yours is frank so are you know we continue to monitor them the portfolios very closely and the in our will react to or to that their performances a as is required
spk_9: okay i'm in then that finally am i wondered if for you could provide out and he helped them with our run rate on the on the expense side
spk_28: and i'll particularly adding not is a week break out of other expense and and were that might trend going forward
spk_4: yeah we you know we call out a couple one time items we we prepaid hundred and ten million dollars of why term debt that we don't need anymore
spk_9: there borrowings and down and then there was some and employ severance costs
spk_31: it and some other year and type type of expenses as we prepared to to and vast for two thousand and twenty one i'm i would expect outside of the march quarter
spk_11: that are
spk_32: it expenses and the other three quarters was in twenty one would be last and they were in this court so i'm certainly under eighty million dollars i'm outside to tax quarter
spk_14: okay i'm i'm sorry did i am i met by you broke out of the other expense line but that more i'm in our nine ten million dollars as opposed to fifteen sixteen million go forward or did you break out our one time item out of that not well well well we called out for it again and earnings release
spk_9: and in the script was was one point seven prepayment penalties for pain down a longterm dad at the flab and then ah one and a half million dollars of severance costs or can i thank you thank you and an expression got some way and wallet with raymond james july of now of and thanks getting us arm maybe yeah just trying to think about some of the moving parts on an interest margin first kid you want just break out what the parts that can increasing was in the quarter like the expense savings will be from the fhlb pre k and then it looks like i'm a the hundred and ten basis points to pressure from the i t deposits it looks like at stance at october twenty thirty pie going to get about half of that back with the bounces sitting at about eight twenty nine right now do you think that that those deposits did they go to zero or to you do they did a level out somewhere and and you
spk_33: start to deploy that liquidity elsewhere on the balance sheet
spk_9: that a while i this is bland the the latter
spk_7: with a the final tail a they'll pay down another lag this quarter but the final tailed bears people are you them for a savings account or certain folks are and so we expect to have some level of those deposits throughout the school you're twenty one in and will deploy
spk_34: hi them as we have opportunities with earning assets
spk_9: a purchase purchase accretion as as
spk_32: the you know that that's run itself off so we're not getting any more benefit from that think of that
spk_14: in a the crest mark portfolios primarily short term and nature
spk_35: so might be a basis point left
spk_36: in in that's about it from there
spk_4: i'm
spk_9: what love was a third party or question that we shall be that the athletes of the expense yeah so so so it's it's about a ten month pay back so
spk_35: we will will benefit all things being equal
spk_37: save about two million dollars of interest expense texture
spk_11: and ten
spk_4: and then must follow up question i'm on the by back on you he said i believe that your appetite would be governed by your cat your internal capital constraints any any arm thomas or you could provide around our what capital levels a he had would would make a buyback unlikely
spk_11: the or however you could frame that the capital conversation and then also are there any constraints of the holding companies are late said his cash on hand

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