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Pathward Financial(CASH) - 2021 Q4 - Earnings Call Transcript
CASHPathward Financial(CASH)2021-10-28 02:09
Financials
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Financial Data and Key Metrics - Meta Financial Group generated revenue of 550millionandnetincomeof550 million and net income of 141.7 million, or 4.38pershare,forfiscalyear2021,representinga494.38 per share, for fiscal year 2021, representing a 49% increase in EPS compared to fiscal year 2020 [12] - The company achieved a return on average assets of 1.74% and a return on average equity of 16.84% [12] - Net interest income grew by 20 million to 279million,an8279 million, an 8% year-over-year increase, driven by balance sheet optimization and higher loan balances [23] - Non-interest income increased to 50 million for the quarter, with strong payments fee income and a 4milliongainonanequityinvestment[23]−Non−interestexpensegrewby4 million gain on an equity investment [23] - Non-interest expense grew by 25 million to 344millioninfiscal2021,withanimprovedefficiencyratioof62.5344 million in fiscal 2021, with an improved efficiency ratio of 62.5% [26] Business Line Performance - The banking-as-a-service pipeline is strong, with Meta serving as the backbone for fintech companies and supporting established partners [13] - The commercial finance portfolio showed growth, particularly in asset-based lending and factoring, driven by increased customer demand for working capital [27] - The company sold 30 million of legacy community banking loans and has agreements to sell an additional 161million,reducingthelegacyportfoliotolessthan161 million, reducing the legacy portfolio to less than 8 million [16][17] Market Performance - Meta's payments fee income grew by 23% in fiscal 2021, aided by government stimulus programs [24] - The company expects community bank loan balances to be zero by the end of the first fiscal quarter of 2022, marking the successful conclusion of the first phase of capital deployment into higher-return assets [17] Strategy and Industry Competition - Meta's strategy focuses on optimizing earning assets, maintaining low-cost core deposits, and improving operational efficiency [11] - The company is well-positioned to continue generating value for stakeholders through its banking-as-a-service offerings and ESG initiatives [13] - Meta faces limited competition in the banking-as-a-service space due to regulatory requirements and operational expertise, with only a few capable competitors like Bancorp [54][55] Management Commentary on Operating Environment and Future Outlook - Management highlighted the strong pipeline in both payments and commercial finance, with expectations of double-digit EPS growth over the next three to five years [34] - The company is prepared for growth in the banking-as-a-service sector, with investments in technology and product stack to support future opportunities [26][32] - Meta remains well-capitalized, with a regulatory leverage ratio increasing to 8.7% from 7.8% in the prior quarter [28] Other Important Information - Meta completed a leadership transition, with Brett Pharr taking over as CEO and Anthony Sharett as President, while maintaining the company's corporate strategy and mission [10][11] - The company incurred 9millioninone−timeexpensesrelatedtotechnologyinvestmentsandCEOtransitioncosts,withexpensesexpectedtoreturntothelow9 million in one-time expenses related to technology investments and CEO transition costs, with expenses expected to return to the low 80 million range in the first quarter of fiscal 2022 [26][31] Q&A Session Summary Question: Details on the 9millionone−timeexpense−Theexpenseincludedlegalandconsultingfees,contractorcosts,andstaffaugmentationtoprepareforgrowthopportunitiesinbanking−as−a−service[30][31]−TheinvestmentwasmadetohandleadditionalvolumeandwasnotrelatedtotheCEOtransition[32]Question:Growthexpectationsforfiscal2022−Managementexpectsdouble−digitEPSgrowthoverthenextthreetofiveyears,drivenbyastrongpipelineinpaymentsandcommercialfinance[34]−Paymentsfeeincomegrowthmaybedepressedyear−over−yearunlessadditionalgovernmentstimulusprogramsareintroduced[35]Question:Loangrowthandsupplychainimpact−Thecompanyanticipatesdouble−digitloangrowthinfiscal2022,withnosignificantsupplychaindisruptionsaffectingitscustomers[38]Question:Provisioningandcharge−offs−Provisioningisexpectedtomatchcharge−offs,withloweroverallprovisioningnumbersduetoseasonalfactorsandloangrowth[39]Question:Buybackstrategy−Metaplanstocontinuesharerepurchases,reflectingconfidenceinthecompany′sgrowthtrajectoryandexcesscapitalgeneration[51]Question:Competitivelandscapeinbanking−as−a−service−Metafaceslimitedcompetitionduetoregulatoryandoperationalbarriers,withfewcompetitorscapableofmatchingitsexpertise[54][55]Question:EIPdepositsandoptimalassetsize−MostEIPdepositshavebeenmovedoffthebalancesheet,withthecompanytargetinganoptimalassetsizeofaround9 million one-time expense - The expense included legal and consulting fees, contractor costs, and staff augmentation to prepare for growth opportunities in banking-as-a-service [30][31] - The investment was made to handle additional volume and was not related to the CEO transition [32] Question: Growth expectations for fiscal 2022 - Management expects double-digit EPS growth over the next three to five years, driven by a strong pipeline in payments and commercial finance [34] - Payments fee income growth may be depressed year-over-year unless additional government stimulus programs are introduced [35] Question: Loan growth and supply chain impact - The company anticipates double-digit loan growth in fiscal 2022, with no significant supply chain disruptions affecting its customers [38] Question: Provisioning and charge-offs - Provisioning is expected to match charge-offs, with lower overall provisioning numbers due to seasonal factors and loan growth [39] Question: Buyback strategy - Meta plans to continue share repurchases, reflecting confidence in the company's growth trajectory and excess capital generation [51] Question: Competitive landscape in banking-as-a-service - Meta faces limited competition due to regulatory and operational barriers, with few competitors capable of matching its expertise [54][55] Question: EIP deposits and optimal asset size - Most EIP deposits have been moved off the balance sheet, with the company targeting an optimal asset size of around 6.5 billion [58] Question: Insurance recovery - The company received an insurance recovery related to a student loan portfolio, with one final claim expected before the state closes the case [60]