Q1 2020 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the met a financial group fiscal year, 2021st quarter Investor Conference call.

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

Oh, the prepared remarks, we will conduct a question answer session.

As a reminder, just comfortable is being recorded.

I would now like to turn the conference calls over to Britney L. Susser director of Investor Relations. Please go ahead.

Thank you and welcome to matter conference call and webcast to discuss our financial results for the first quarter ended December 31st 2018 released earlier this afternoon.

No information, including the earnings release and Investor presentation may be found on our website at <unk> financial group Dot com.

And CEO , Brad Hansen, and executive Vice President and CFO , Glenn hearing, we'll be sharing some prepared remarks today before we open up the call for questions.

Today's call may contain forward looking statements, including statements related not an operating subsidiaries, which me generally be identified as describing the company's speak your plan objective. Our goal. We caution you not to place undue reliance on these forward looking statement, which are subject to risks and uncertainties that could cause actual.

Well results or outcomes to differ materially from those currently anticipated or that we otherwise discussed today.

These forward looking statements are made pursuant to the safe Harbor provision of a private Securities Litigation Reform Act of 1995 for further information about factors that could affect the metal did your result.

We see the company's most recent annual and quarterly report filed on Form 10-K , and 10-Q and other filings with the Securities and Exchange Commission.

Forward looking statements speak only of though the day on which they are mean minute firstly disclaims any intention or obligation to update any forward looking statements on behalf of the company Werent subsidiaries, whether as a result of new information changed circumstances, you drew Ben or for any other reason at this time I would like to turn.

On the call over to President and CEO , Brad Hansen.

Thank you Britney.

I'd like to welcome everyone to our fiscal 2021st quarter earnings call.

We're pleased to report fiscal 2021st quarter results, including earnings up $21.1 million or 56 cents per diluted share representing growth of 44% over the prior years first quarter area.

These results are reflective of our key strategic initiatives, increasing the percentage of balance sheet funding from core deposits.

Optimizing the interest, earning asset mix of the balance sheet and improving our operating efficiencies.

Executing on these initiatives is having a positive impact on the earnings power of the company and driving shareholder value.

In November we announced the Meadowbank entered into an agreement with Central Bank for the sale of our community Bank Division.

This transaction is a strategic value to both companies and will enable us to focus our attention on our national payments and lending platforms streamlining operations and serving key markets often overlooked by traditional banks the transaction with Central Bank is expected to close in the second.

Fiscal quarter of 2020.

As always credit quality remains a top priority for our company and we remain disciplined in our underwriting decisions, which Glenn will discuss further in his prepared remarks.

During the quarter, we dispose of the assets related to the previously disclosed agricultural relationship.

That were formally held and other real estate owned resolution of this matter resulted in marked improvement of our nonperforming asset ratios over previous quarters.

In November the board also authorized a new share repurchase program for up to 7.5 million shares have met as common stock.

During the quarter, we've bought back roughly 319000 shares completing the first program announced in June of 29 team and another 580000 shares utilizing the new program.

As previously stated we intend to use the expected pre tax gain on the pending sale of the community Bank division of approximately $18.5 million for share repurchases as well as other corporate purposes.

We will continue to consider repurchase activity within the context of balance capital management approach designed to support the company's growth prospects and maximize shareholder value.

Now, let me turn the call over to Glenn Harris, our CFO to provide more detail on our fiscal 2021st quarter financial results.

Thank you Brad and good afternoon, everyone for the first quarter fiscal 2020, we reported GAAP net income of $21.1 million or 56 cents per diluted share compared to $15.4 million or 39 cents per diluted share for the same.

Quarter of the prior year.

Earnings per share growth of 44% or their prior years first quarter, primarily reflected higher net interest income as a result of efforts.

Optimize our balance sheet.

During the first quarter fiscal 2020, we originated $17.9 million in solar leases with related tax investment credits further improving after tax income so the timing and impact of future investment tax credits are expected to vary from period to period.

We continue to expect the tax rate for fiscal year 2020 to settle in the low teens.

Per cent.

Commercial finance loan portfolio totaled $1.99 billion that December 31, and increase of 4% on a link quarter basis, and a 23% increase year over year driven by growth.

In the term landing asset base landing and government guaranteed loan portfolio.

Turning to the liability side of the balance sheet average payments deposits were $2.78 billion for the quarter rising nearly 12% versus the average or the same quarter in the prior fiscal year and represented 60% of total average deposit.

As a result of our continued balance sheet optimization efforts, we generated $64.7 million of net interest income in the fiscal 2021st quarter up 7% compared to the first quarter of fiscal 2019.

Arnett interests margin expanded by 34 basis points.

Over here to 4.94% for the fiscal 2021st quarter.

Loan yields were 7.32% for the quarter compared to 7.51% for the previous quarter and 7.69 per cent.

For the first quarter of the prior fiscal year, reflecting the impact of a lower rate environment.

Purchase accounting accretion at at eight basis points alone yields and the first fiscal 2020 quarter versus 20 basis points in the prior Carter and 31 basis points in the first fiscal 2019 corridor.

Nonperforming assets at December 31, 2019.

Represented 48 basis points of total assets compared to 91 basis points of total assets at September 32019.

As Brad mentioned during the quarter, we disposed of assets related to a previously disclosed.

Community Bank agricultural relationship that were held in other real estate on which represented 46 basis points of nonperforming assets as September 32019.

The company recognized a pre tax net loss of $4.1 million.

Way to to the sale of the foreclosed property during the quarter.

While the levels of nonperforming assets in charge offs, often exhibit some degree of volatility.

Company continuously monitors its various loan and least portfolios for trends of deterioration and as of December 31 management remained comfortable with the trends in the rest characteristics of our loan portfolio.

Not interest income was $37.5 million for the fiscal first quarter, a decrease of less than 1% from the same quarter of fiscal 2019.

Due primarily by the previously mentioned loss on sale Foreclose real estate.

Excluding the loss on sale nine interest income benefited from higher rental income.

Jane on sale of loans and leases other income and tax product fee income.

Nine interest expense increased by 2% to 75.8.

$8 million for the fiscal first quarter compared to the same quarter of fiscal 2019.

Looking ahead, we remain committed to allocating capital and resources to businesses with the most attractive growth and profitability profiles.

While improving our overall efficiency ratio.

Finally, let me discuss our earnings per share Alec we are reiterating our fiscal 2020 gap earnings per share guidance range of $3.58 to $3. In 78 cents were also reiterating our fiscal 2020 E.P.F. guidance range of $3.

30 cents to $3.50.

Excluding the expected gain on branch sale and the cure loss of foreclosed property previously discussed.

With that altering the conversation back to Brad for closing comment.

Thank you Glenn to recap we are pleased with our results for the first quarter of fiscal year 2020. The progress we've made thus far towards our three key strategic initiatives and the opportunities ahead in 2020.

That completes they're prepared remarks, while last Glenda join me for Q.N.A. operator, Please open up the line for any questions.

My dad to ask a question you only depressed star one on your telephone toys.

<unk> please stand by while we compiled the <unk>.

And our first question comes from the line of Steve mosques from the F.B.I. airline is now fan.

Oh good afternoon.

Good afternoon, Steve.

I guess start off on just the overall loan trends here, just curious as to what you're seeing for the womb pipeline and your expectations for a course plenty until you're doing forward.

Yeah, Hi, Steve it's going on.

Were seen a lot of opportunity and and quite frankly, a fair amount of customer competence, especially with a a lot of the small market businesses that that we serve today.

And so when we think about loan growth for 2020, you know still thinking like a mid mid teens type of number perhaps yeah.

Yeah.

Okay.

Then in terms of just a loan you'll teared, obviously, a lot less purchases accounting <unk> I think that I was looking for just kind of wondering you know one is where are lonely old headed here given lowering environment I'm, some a little bit lower to go. But then also does purchase kind of Christian come back a little bit as weak and the next couple of course.

No no given given the nature of the portfolio a purchase accounting really goes away. After this quarter and so you know a drop a basis points.

On the link quarter basis.

Our name was down one basis point.

And so.

<unk>, we would expect excluding attacks loans.

That are NIMH would move north from here It will cross over 5% in a 2020.

Okay, and then where are you guys seen a loan you'll it's for the commercial finance portfolio. These days.

But yeah, there's a lot of different portfolios, but you know that.

Plus or minus the 9% is it just kind of a good weighted average rate today.

Okay. That's helpful.

And then in terms of just.

You know not just bearing deposit grow your looks like pretty good increase on the average year over year.

<unk> is it still consistent to expect you know more or less high single digits load up the digits for the <unk> <unk> growth.

Going forward here, yet [noise] I.

I think that's a fair assumption.

Okay. Good.

And then I guess, one more thing on expenses here.

<unk> any color around expensive excuse me a little bit of domestic quarrel, perhaps with the bank.

Sure, but maybe we'll call around expenses X. tax for various second and third quarter.

Yeah, right <unk> you know we had a few divestiture related expenses.

Quarter, we'll have some next quarter and obviously, a fair amount of increased and expenses related to the tax business that's variable.

But if you look at our absolute expenses of roughly 76 nine interest expense of 76 million for this corridor I would hope that would be a pretty good base for us outside of tax expense.

Okay.

<unk>.

Right and then I guess with this with the filter bank can we back off a little bit.

Perhaps to like <unk>, the low to mid seventies or.

Like a well from the June quarter.

Yeah, well <unk>, so there'll be some mixed shifting there we we'll still have a 900 million dollar portfolio that we'll be paying.

Servicing fees on so or you could see some geography shifting.

And the in the expense line from from top to servicing fees are processing as well as.

We've talked about we expect to continue to grow our other loan portfolios, especially commercial finance and you know staffing or variable cost to go with that.

Okay.

That's helpful.

Thank you very much.

You bet.

Thank you now our next question comes from a line of Michael Perito from K.B.W. airline is now fan.

Hey, good afternoon everybody.

Yeah afternoon, Mike.

I wanted it when I was wondering if you can maybe to spend a minute to kind of walk walk us through how you're kind of thinking about what would I kind of look at operating a quarter earnings number for the fiscal first quarter was it was obviously, there's a few moving pieces and it looked like in fees and expenses and the provision which regard to the <unk> and I was just yeah I was trying to piece altogether.

I thought maybe it's just easier to see how you guys you're thinking about it given you know those those moving parts I just mentioned.

[noise] sure.

I I look at it as it.

The non core related to the.

Is really all around the community bank divestiture and so we look at the.

Disposal of that Oreo that had been hanging out there.

The expenses, the though we highlighted the 900000 of expenses.

<unk> in the in the first quarter as well as than offset by the provision recapture.

Positive provision recapture when we moved that portfolio to held for sale.

Colors that does that get you to like.

Oh, roughly 59 or 60 cent type of U.P.S. figure for the fiscal first quarter rich as as you guys adjust for all but those tax affected.

I, Yes, I I think that's a good good adjustment.

Okay, basically confirming that and then bread on on all the repurchases you know you mentioned the utilizing the gain into the next quarter here to to put towards repurchases. Another general corporate purposes, but she was curious if maybe you could just comment.

More broadly about what the boards appetite is here for the purposes, I mean, clearly that that the authorization you guys put out is is is a large figure I imagine that the you know that the reason for that as you intend to use quite a bit of it but I was just curious if you could maybe comment more specifically just about what the appetite is that we should expect going slower.

Well just remember that the authorization is pretty long term. It has several years remaining on it. So we're going to be opportunistic with that we think you know at these prices that that it's a a good investment for us with based on the capital we're bringing in here, but we monitor various factors and.

The other opportunities that may arise along the way that may affect how much we repurchase over the course of the authorization itself.

Okay helpful and they just one last one I wanted to ask just on the deposit growth in in the quarter or.

You know as we try it over these next couple of quarters I I know, there's quite a bit of seasonality in your deposit portfolio between the holidays and then tax season. So I was just curious if you can maybe give us an update of kind of the core growth that you're seeing underneath kind of some of the seasonal implosion outflows both in in the the current quarter, but also kind of as you look out.

I know you mentioned that the non interest bearing overall expectations for the year. These question previously but is that kind of taken into account some of the seasonal factors that as well.

Yeah, Yeah. So that's why we specifically called the 12% out year over year quarter.

To to account for the the seasonality, we really look at that as as the core deposit grow so it's.

Continuing to ratchet up as as as we had hoped you know as Brad as mentioned before some of these can be a little lumpy some of the payments relationships, but.

But we look at 12% core deposit growth year over year, and and would hope that that trend would continue.

Alright, and then I'll just starting to sneak one morin quickly just on the the 2.5 million to charge offs I think it mentioned in the press release. It was mostly commercial financial aid to can you just give us a little bit more color about what the drivers were there. Thanks for taking my questions that.

You know just just a couple relationships that.

That that went to charge off you know from a <unk>.

Absolute dollar standpoint <unk>.

You certainly could expect our charge offs and commercial finance to grow.

On a dollar basis, just because of the growth in that portfolio.

But.

But we're we're happy with the credit metrics and and believe that.

You know looking forward that they're going to stay with it within the range that that we expect and model.

Helpful. Appreciate guys. Thanks. Thanks.

<unk>.

Thank you as a reminder to ask a question you any depressed star one on your telephone to withdraw your question press the pound key.

And our next question comes from the line of Frank <unk> from Piper Sandler airline is now fan.

Hey, guys good afternoon.

<unk>.

Just.

Ask Glen on on the card fee a line item the 21.5 million I know in the past you've had some programs winding down that is boosted that number is this a pretty good runway runrate here for the first <unk> you know for the fourth.

Fiscal quarter.

Yeah. So this is very clean Frank.

Okay, and then you mentioned a 12% growth in payments related deposits I'm, assuming it's still reasonable to take to think about you over your growth in card fees, and then maybe assume a little bit lower rate of growth.

What you're getting on the deposit. So is it is it reasonable from here just to think about you know maybe amid a single digit a rate of growth in that card fee income line year over year.

Yeah Yeah.

Okay.

Yep.

That before we would expect you know every programs a little different different economics, but collectively we would expect pause core deposit growth.

In the payments division to grow at a faster raid then the fee income side of it.

Right Okay.

Then just on the tax rate.

In my model at least the rate came in a lot lower.

Than I'd expected and just curious are you guys were you surprised I mean was this a lot lower than than your budgeted number as well or is there something seasonal with the solar tax credits you know the December quarter was always going to be a much lower than than the rest of the year.

Well, we're I'd say related to our budget, we're happy with with the production in this corner. There are some step downs in the investment tax credits and so a couple of folks certainly developers are pushed to get deals done prior to your.

And to maximize the tax credit.

Okay, and when you talked about the low teens I think tax rate was that from here for the last three for the.

For the next few quarters or <unk> was full year Yep full fiscal year for 12 months fiscal year.

Okay.

Great and then.

I guess it seemed to me like a pretty good run rate versus what a lotta people were expecting in in this quarter.

In the first fiscal quarter so.

Just curious I mean, you know seems like credits a bit better than you guys, even even you guys anticipated.

Someplace else you know in terms of the geography. The income statement, where you guys are behind schedule. Just kinda curious why you know obviously you guys reiterated or your number for the full year versus you know what I thought it was a pretty good strong run rate for the first quarter. So.

Yeah, I I think that kind of stands on the statement there Frank where we're certainly happy with the quarter, we're happy with the progress against our strategic initiatives.

And we're comfortable reiterating that that guy.

Okay, but there isn't it doesn't sound like there's something that you. You know you you guys are behind schedule on it was just a strong strong start to the year and your reiterating guy and stuff there.

That's correct.

Okay.

Oh, alright, great. That's oh, thank you.

Thank you.

Thank you now at this time lime shelling no further questions I would like to trying to call back over to see <unk>, Brad Hanson for closing remarks.

Thank you I'd like to close by thinking everybody for participating in met as quarterly Investor call. We truly appreciate your support and thank you for taking time to listen in today have a great evening.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may not disconnect.

Yeah.

Oh.