CASH - Earnings call transcript Q2 2020 | 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 2020 Second Quarter Investor Conference Call.

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

Following the prepared remarks, we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded.

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

Brittany Kelley Elsasser

this welcome and and the Meta Group released Financial fiscal Thank to to discuss call earlier XXXX, XX, webcast ended for our conference quarter you, March the afternoon. financial second results

Additional be at on may investor found the information our earnings including and presentation release metafinancialgroup.com. website

cautionary Meta's language any results actual include obligation recent factors and our differ. including statements. in and the actual statements covering earnings and release, statements. cause forward-looking results most filings Exchange statements. to to are to investor presentation differ our that filings subject in the information As could Securities a forward-looking uncertainties for cause reminder to materially additional with company could from no the undertakes The that update comments forward-looking may Commission the to refer Those risks and Please anticipated

be results investor financial References to Additionally, certain the Meta's understanding to today, the trends. are appendix non-GAAP included of measures within measures on call. assist are non-GAAP discussing we only provided Reconciliations for and this in conference such presentation. will non-GAAP performance you measures

President in Head and are President and Vice President and Governance CEO, of Participating Pharr. CFO Glen today's Compliance, and Executive Hanson; Brett Executive Risk Herrick; Brad call Vice and

in call remotely the different difficulties for any locations that to this over, potential turn I working apologize during Before technical we as we want we in are advance may time. encounter

President over Now, CEO, would I to Hanson. and to call the turn Brad like

Brad Hanson

call. Thank to fiscal Brittany. our XXXX second you, like quarter earnings to I'd everyone welcome

on I addressing how to our this an Before update opportunity COVID-XX. results, quarterly take are to address we want we provide

access the through difficult employees need services the and financial are health of to priorities and make ensuring customers times. our have to Our it these they safety

mandating business of implemented we our program. business travel, continuity minimal put part nonessential all locations. acted our for employees early among office by preventative In customers and remote is and other certain disruption things, distancing to implementing measures our swiftly at Pandemic to business with and health place by protect employees measures and Pharr, We led social which work Brett in Plan banning options March, cleaning enhanced

those and crisis. as high a continue customers impact. remains our positive and have engagement the to evident our this employee planning with of and early believe is productivity serve business We we The manage actions fallout effectively while dealing had from our effect

to various business expect lines our in We disruption. this trickle-down the from declines our partners and customers effect as see feel economic

recovery. are believe and this well-positioned However, capture weather I storm during we'll opportunities to the we new

our business, the our an part moving. to we the support money keep protect are do integrity As system, essential financial to programs striving of nation's stimulus financial and

like reaching assess options We repayment small XXX the Paycheck options established the their aware by lending where million business by situations, administered of offer the them financial out to are applications, assistance appropriate April Program totaling credit Protection emergency business flexible SBA. small Act. program Cares customers authorized Through make we for and this proactively to XXth, $XXX

businesses all to clients. just our accepting proud are We from small be applications not

safety and the high quality Glen of servicing our portfolios. company for lending disciplined approach in reinforcing prepared high-risk priority standards limiting will remain quality have and In his underwriting underwriting remarks. asset soundness our Credit and protect loan a discuss addition, certain our and always bank appropriate taken industries. we is in the to we steps by to to our

focus remains capital strategic strong levels key company. Maintaining for a also the

the XXst, ratio As bank's X.XX%. of March was capital leverage XXXX,

of by dampened the the it's assets important to tax However, temporarily ratio was seasonality the high related understand business services. the to

our we anticipated XXst based going believe was reflects Our X.XX% quarter levels end as bank better forward. March capital leverage asset sheet on balance which ratio of

ensure under our stock uncertainties, that X.X we price we while of visibility To During and a further our until duration capital our economic strong $XX.XX have we maintain weighted to a approximately repurchase at shares we these have use the share million suspended strong repurchase March current average position. repurchased per facing flexible quarter, authorization. we position in we with these capital better and economic balance into many the impact program sheet, actions share levers a the pandemic. effectively can associated Along manage with

While the credit adverse an due we reduce COVID-XX liquidity, actions plan manage earnings pandemic. to we and to continue preserve to on anticipate to take effect risks, costs,

once get reaccelerating their and consumers rebuild However, back each work, we the pandemic expect financing to to businesses of in demand businesses operations. our seek subsides,

$XX.X diluted second of the spite In quarter quarter representing XXXX year's million per of prior of strong fiscal including $X.XX share. growth second over reported earnings results share, the earnings or per we pandemic, XX%

to Herrick let our Glen detail over CFO turn on me results. the more provide quarter to fiscal financial our XXXX call second Now,

Glen Herrick

Brad and you, everyone. afternoon Thank good

the quarter year. the income diluted diluted GAAP per same and the of or $X.XX to For share million second $XX.X of million we for XXXX, $X.XX per reported prior fiscal quarter net of $XX.X share compared

signs the growing early and the second volatility see did fiscal during of quarter. We uncertainty

As loan with on increased growth gross billion growth from XX, March X% linked-quarter to XX. increasing leases basis a year-over-year and at X% total loan XXXX. a $X.XX result, March slowed loans That said,

do assist including We which the pandemic of the through partially by by Act. small CARES enacted be our to the programs businesses expect government the lines in fiscal COVID-XX quarter business could third resulting recently many impacts during offset from

loans XXX Paycheck applications mentioned, million as XXth. the Brad April Program totaling XXX funded authorized of Protection $XXX we million in loan totaling for $XX and As requests

the expect fund week. the authorized majority applications of coming We the in to remaining

prior the to the The second rate current X.XX% well. Loan quarter X.XX% of quarter environment interest fiscal for as compared and yields the year. impacted the for X.XX% for previous quarter were yields

loan quarter versus points accretion XXXX the XXXX eight points fiscal second accounting basis prior in basis four second yields added Purchase points the the in fiscal quarter. XX quarter in to basis and

fiscal in points, and of Turning to for deposits. same the sheet, prior year XX% the of a deposits result XX represents environment the side XX% $X.XX payments year. the billion rising the current average balance to were the liability now improved Cost quarter, as compared compared quarter fiscal mostly total in the rate quarter the average same of of to basis by funds prior

Net interest margin XXXX for tax and the Adjusting basis fiscal impact loans funding, quarter. points interest down our margin XX for refund the the advance first net to decreased X.XX%. seasonal related fiscal second XXXX from from X.XX% was quarter,

priority As company. Brad remains mentioned, credit performance for a the

the losses additional XXXX quarter, related for and related associated the we During pandemic tax potential $XX.X million, which million took COVID-XX losses allowance to a loan lease and was provision $XX.X our of with loans. $XX.X to season million. for

have credit what early to this it recognized At too the will and of asset impact deterioration not significant is we gauge to COVID-XX date. ultimate have time, on

small company to being leasing you mitigate certain However, is industries, potential hotels, and on steps in including the to see can taking entertainment slides as investor prudent and and losses retail higher-risk XX deck. XX our equipment, ticket related of transportation,

or total for finance from XXX and The XXXX. points XXX loans basis from on $XX.X company's allowance losses at lease XXXX increased March the and a points of basis December million linked-quarter XX basis coverage increased coverage from ratio X.XX% to our allowance points. leases, XX, and and basis an increase XX, Bank X.XX% ratio was loan March At XX commercial to total Community X.XX% points basis at XX,

we see anticipating dues relationships. recover in in are we a charge-offs non-performing periods, X:X able as upward collateral-based in on increase are an assets expect past corresponding and certain do subsequent trend to While to we not

Management believes March lines of warehouse our was the structure across finance adequate the of and XXXX. credit consumer protections as lending XX,

the closely pandemic We monitor we'll the our by allowance partners future and accordingly appropriate. in closely COVID-XX are working continue and periods with and to adjust impacted we'll customers as

represented of agricultural Bank leases, basis relationships The to XXXX, the portfolio. at total in increase legacy an to and and X.XX% was during primarily quarter loans XX, XXXX. the March two XX, points of lending term compared loans from an XX our related increase Community portfolio Non-performing December increase

net on mentioned, income net we we a X% and as result As decreased interest previously interest margin saw year-over-year. pressure

it is and too in impacts slower interest demand COVID-XX, do While expect the the of will to pressure early near the financial loan yields income we lower fully term. from potential scope understand still net

quarter, Community increase gain division. fiscal million the quarter of $XXX.X by from the for primarily divestiture driven XXXX, Bank XX% Non-interest the income fiscal same the second was on of of an

non-interest offset total from income, and and Excluding other were revenue higher income income. benefited sale, by income of lower partially payments the represented fee XX% on and which rental gain product tax

million March season $X.XX a to breakout the we XX, $XXX investor refund billion of which in represented product reduction, of largely represented of our Slide income. originations further originated For contains partner XXXX. net a through loans, tax tax decline XX% the in due season, to advance XXXX XXXX deck which compared XX a tax

the result quarter business decreased to XXXX. same peak of of any material impact expect Non-interest the for don't season. second are as mostly tax we compared million past quarter we pandemic, forward, by line the COVID-XX the as to a the tax Going fiscal of XX% $XX.X fiscal expense services to

As Brad non-essential put to safety in mentioned, place temporarily the which response COVID-XX pandemic, costs. banning in health travel, reduced in including measures and resulted we

include We the foreseeable hires non-essential reduction to initiatives limiting for expense also implemented future.

compensation resulted such expenses, entertainment. travel other initiatives have These and in and and meals, savings as

XX-month ratio. As in on rolling XX.X% we March XX.X% XXXX as our XX, basis a XXXX. initiative, our to ratio a as result improvements efficiency March efficiency of of of our from Year-over-year XX, improved saw reduction significant expense

me outlook. let discuss our Finally

per COVID-XX the the are Given the pandemic, uncertainty the fiscal business suspending earnings emergence deteriorating around share guidance. of economic environment and following XXXX we impacts

We to the and monitor will provide continue and as situation updates evaluate necessary.

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

Brad Hanson

and of regulatory want more first capital and financial We high-functioning processes business regarding while and quality, our credit a stakeholders monitoring putting forecasting support still we have ensure are we stability. all operations. From instilled maintaining Glen. even people financial Thanks, diligent perspective, to that

be the uncertain. had While business resulting possible pandemic. and backdrop macro second strong as COVID-XX as quarter, intend the we transparent effects from We the to our regarding remains a

join That completes for Glen line open Operator, Q&A. remarks, me the ask our I'll to any questions. for Brett prepared and please so

Operator

from question first Riley with our And you. Steve B. FBR. Moss comes Thank

open. now line is Your

Steve Moss

afternoon. Good

Glen Herrick

Hi, Steve.

Steve Moss

non-performance Just -- due you off the to increase increase around I was drove I you any here want related if think with the that wondering -- XX-XX in this was past give what color quarter? ag. starting Glen, in mentioned could the

Glen Herrick

Yes relationships past those just just a couple dates. tripped larger

have to in move both that continue typically out banking various We collateralized community buckets. finance ones legacy will and portfolio we see and and in of the commercial

Steve Moss

here deferred of were -- call of types tell the given and And Okay. wondering, industries? you kind with the regard just borrowers us then if color X% give us COVID-XX, -- about of it on loans could to

Brad Hanson

Brett, you that? on to want do comment

Brett Pharr

Brett. is This Yes.

areas things of can was see One and of things what the in identified the economic various that getting at on package looked the to from you concern. are are investor listed stratified were. see, we through and need were to and we or those other to need primarily the those that We've they those We program on got focused assistance scenarios they that. happen that there did PPP those them portfolio based assist the

to process the kind up So that's the portfolio. went dividing we of

of Some the of concern. portfolio of course are no areas

Steve Moss

Okay. -- like them the whether And energy I is there in a saw believe. industries any it's particular, that of the I deck, are retail I listed couple in it's or guess so

Brett Pharr

have don't much, worry about Yes, half the that's course, of you attention to. sector, And well. term self-liquidating, in we of those as as In the energy you hotels it's but pay right. close there so

Steve Moss

you're regard you Okay. builds too? just of method. forward, the pandemic to color about of kind can would maybe kind pretty on any color just CECL any helpful Obviously, that wondering of think That's helpful. with going just around the just healthy we wondering And inputs. for then And perhaps the how card provisioning give you here kind still gave reserve be

Glen Herrick

Sure.

earnings us. basically You to and levels is we'll have there the trying get stay out government as will to on took of be some run There's -- Certainly, not $XX we're being on what, normal to would an additional rate we knew two. those due efforts the programs for depend the have certainly know for in on solely success and allowance to a That what March said, certainly top to right lot that we strong these take But out. built XX, made million we allowance see provision a front -- if it, build next pandemic do roll over how our at in our extraordinary surprised, have. the the quarter of based tried it quarter and or

for CECL that. given adopter our path around would we're expect additional fiscal prepared the color CECL to and year, we'll and impacts be an we X, guidance to be providing coming be October on quarters. And in to

Steve Moss

appreciate Thank Okay. all very you the much. color. I

Glen Herrick

Steve. Thanks, Yes.

Operator

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

open. Your line is now

Michael Perito

is everyone Hope guys. doing my afternoon, well question. good given Thanks Hey, on. taking everything for going

Brad Hanson

Yes. Thanks, Mike.

Michael Perito

that credit commercial balance previously. it start color you kind that Bank Community controlling brought Steve estate and within the underwriting assume hotel still up wanted are more that? portion Bank, is by -- you that from around but The to specifically leading and And serviced I sheet. the the any Central real the being the CRE of it's around portfolio? exposure thoughts any portfolio Is nature your to on topics can on guys follow-up correct of of the provide

Glen Herrick

Yes, certainly and been but Yes. legacy our leading defer stepped the to employees efforts underwriting. runoff We're to Central. efforts They're Brett He operations six the continue here weeks. are building his that on servicing team, the The with the we're really a team in off up ago. of throughout very closely month and team working very we our our their And portfolio year, have really controlling were the last manage credit. closely. so folks that I'll

Brett Pharr

every reasons be mean, they conversations impact might people those have the some we or about occupancy. personnel Others moment. of which catastrophic medical they're some I at variety Yes. have the contacted to reserve national of of one are certainly a for having direct

time obviously, wait And for Central. to period. to how we did it's this back. comes from get now, So if modifications fast and a PPP received applied and game through it for them support back comes it see, They those

Michael Perito

portfolios? your sure in gone obviously looked the granular Obviously the topic, some when consumer of customers And they're like in some talk out there's real see the lot a of I'm that think portfolio, granular the stuff commercial portfolio are a get then to to. what touch about estate guys kind need the they bigger customer you But more more in terms kind of on more there Okay. Bank you kind about maybe reach in and maybe trying like that? of on can Crestmark outreach kind Community what customers you have what there. with on How people lot shape and of book of to about

Brett Pharr

literally we every In the customer. portfolio, finance commercial talked to have

might Others, applied and me. I'm we conversations had through we some they on. about worry fine out, in Now that through obviously cases other PPP don't then source Move found modifications. us about for appropriate some be, or if where

HerrickX Glen - A

XXXX leadership its And their all if Crestmark, you here think was I recession. about would through add -- Mike, in the team XXXX, the entirety in almost

clients cause and servicing you're while same out period. lot So different a on pulling this the focused them with of really playbook development them helping existing instead of through working on business

Michael Perito

And on the consumer side?

Glen Herrick

side, we significantly consumer more have protections. The

a And we contacts would have modifications and And… whether warehouse our with on up start forbearance direct rolling recall appropriate or you dues, senior you servicers working to that you consumer things out. start would past provide partners it's lenders earlier lending, are stepped and position where we so typical our expect to if our in consumer And support there. and the

Michael Perito

where get can that you loss be Yes, guys need the rates to book looks for really like in maybe remind in like, you that that disclosed us of, kind to something today? would what not past the you I revisit whole. made have Is think or guys

Glen Herrick

Yes.

a where a that think you if partner in the protection deck for protections if I lot XX% yet rate and is we a where is, credit. yield consumer coming warehouse -- X% you XX a from. then again If that's our out the and would rough say over-collateralization look of to And interest we're of the stated it's pages with waterfall there see you in pointed XX, and give we've feel the on the have.

Michael Perito

with us with of can going more that be to guys lastly, what nonstrategic tell the the the is partners season you bit And Okay. the And production of then the exited new tax a business? this partnerships XXXX better kind will way the about exit now in is little think tax those as forward? you follow-up -- just a about

Brad Hanson

Yes, efficient to We and as much smoother much that us overhead It effective think operations. years were to better able I'll of. a this our some indicative and to operation. strategic I for was of more year build were us and more year we manage take shed as future not -- as The off relationships much or is for that. valuable have

were So, year how pleased results -- the overall with this the we year. from

Michael Perito

Got it.

while So and feel well going be more forward credit expenses partnerships. than and aspects will efficient dynamic that those guys you be of and about good the the volume lower revenue all and XXXX, as exit forward those might with the moving the

Brad Hanson

Yes.

about volume we decrease. had the You'll and of those increase about represented had we about XX% XX% -- notice --

can core even a a overall well pretty did as our you business business bit. whole So though that see our down was

Michael Perito

the but were and any that impact dates? of are base in deadlines majority as And year delays that typically was some targeting more reason would know there quarters I tax guys the little the But customer business be quarters don't drag of the think -- a from is I there other in extension there seasonally normal? revenues to you a the in the there. not believe drag might given bit other filing typical that than

Brad Hanson

I go ahead Glen. --

Glen Herrick

might the They're our first no. are quarter forward into No, the done. we now, where actually some January. six pulled pulled customers year a This forward the year activity to getting Brad. fiscal through But got flips our was have that is quarter of it been this year refunds. Sorry ago December. in materially Really saw months

going not So XX to file taxes. their to they're wait for July

Michael Perito

Appreciate guys the my color. Thank that's do And helpful. taking questions. for you you. Thank added Excellent. And Yes. all well.

Glen Herrick

Mike. Thanks,

Brad Hanson

Thank you.

Operator

Schiraldi with Frank next Piper Instructions] [Operator question you. from Sandler. comes Thank Our

Your open. line is now

Frank Schiraldi

Wanted -- after end the deferrals came in the the afternoon. that ask guys. the on quarter. of through Hi, Good to

everybody at Brett portfolio the you've talked you point. -- that to In I this think mentioned in terms of

Just the Do the even little deferrals wondering accelerating, of say with the change quarter, trend to would significantly continue grow is you outlook? in expect end that here following to the decelerating? that you to

Brett Pharr

It's going while entire our to of primary bank with tell and Frank really a on lot clearly loans may of lines are drawing match those. customers And have but finance now customers their commercial lot our soon operating our that out a too portfolio, a doesn't our bank. PPP the community are volume their

down know And we the also they're drawing PPP so loans.

are. stimulus again, successful have how these we'll So see to efforts government

Frank Schiraldi

that of that the the assume sort so of significant terms of would XX came XQ in concern basically provision that of would concerned. more a be you the in deferrals March sort provisioning would I guess, of just I provisioning, know quarter drives the end what after as as additional far be

Brett Pharr

I our not, that we're wasn't it was provision done while and on But one we're mean, based may tracking well, at looking or May certainly -- at. many metrics yes, of dimensions build March We be it mods amount solely of wasn't volume we expected XX, had a XX. of in that at fully based or on significant deferrals we April. March loan the would seeing

of some was in. there all clearly built it, but be in. not there's some that of May may So or built

Frank Schiraldi

you. wanted -- hotel have credit. Bank book? and the on if Wondered of CRE you the guys book, one available LTV quick a portfolio Got in just do average on And just that in the Community

Brad Hanson

have disclosed Brett, that We have do not that. you handy?

Brett Pharr

standard followed a don't it I number criteria, We don't but have I have handy. handy. underwriting

Brad Hanson

Yes.

Frank Schiraldi

on to given the -- a It but still just Okay. of to as to that then of think a past into kind that the due, the non-COVID-XX-related? can fall term the bucket. me two that at sell-in you environment. like that Was in status curious lending and lending. then might you all? loans the non-performing And deferral sort like just non-performing looked And falling the here accruing increase to opposed the speak on just reflected I'm mentioned Or term ag I increase to quarter, this would something

Brett Pharr

Yes. as This is And you That transaction well. COVID-related. these are Brett. know was things collateralized not as heavily

Frank Schiraldi

Okay.

in that -- you a that to significant lending say anticipate you fair at can don't least guess I non-performing increase So is it term loss there? on

Brett Pharr

That's correct.

Frank Schiraldi

at What or decent-sized And loan nature And transportation commercial growth to underwriting given tighter book actually is the these anticipate at term saw your there which up holding then in related point gears short-term thoughts the the mean, given you a overall the strategy any piece the I the to near are you we in then this And drive growth Okay. in of Brad, shifting of here? standards. of well commercial mentioned book the to I contraction is reduce then, just elsewhere? just book. some change and you finance consumer finance loans, consumer reserves the least? book. should mentioned

So thoughts in thereof And on just the curious are term, near commercial change then strategy? growth the the in in any finance or book? what lack

Brad Hanson

some So be we not contraction. surprised to we what see would may see,

receivables Just if factored. you stuff, -- that get have selling don't you're to not need be

upstream as that about talked pull they could. we finance go back so past through and they pull experiences there's And creates more come to lines little business this very in as past in banks Crestmark's also well said, we've all back -- as commercial opportunities the actually bit. That the of from into it, a it traditional rush

change, it's of we to so a quarters out opportunities expect not see few simultaneous would this. coming down type And of some but

Frank Schiraldi

Great.

last I sorry just And one could. one if

of consumers' through stimulus? of been or from cards that the of talk read deposit Can in have would at additional the all expectation checks prepaid would refunds. suggested terms to attached some stimulus that citizens. tax you be could Just U.S. about My terms your thought has from come there that IRS these stuff and the to I've the balances program direct to in

Glen Herrick

going direct and for had people form going going some longer lost no their of for portfolio. is that on and deposit programs more Well there's where the -- some other are payments the benefits it's insurance those there of cards Also, reloadable volume -- so there But is in portfolios, the on offset receive onto jobs type their are in balances maybe by that example. of deposit depending of different on card benefits. forms those onto are less additional on some prepaid

So bag. bit mixed a little a it's of

looking others the are -- over Some still portfolios announced. we're depressed. at are and this programs are whether But so and the of increased stimulus monitoring additional slightly duration areas and

Frank Schiraldi

Okay.

terms haven't versus trend or you what you in or of any of in card factors up expect just otherwise? some in might -- given seen So deposit down these flows clear, offsetting I guess usage

Glen Herrick

we trends a prepaid portfolio significant and at point, and diverse No very ups have of offset products And this downs. some some some others.

I -- point. seen would wouldn't dramatic So say we we've not I call necessarily trend nothing this and movement, a at but

Frank Schiraldi

Okay. All right. you. Thank

Operator

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

Brad Hanson

All right. Well thank today. call. you. please safe. I'd we and like in to thank appreciate quarterly time support evening, to and our your everybody you truly great taking Have for thank investor for everybody participating stay listen We a

Operator

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

disconnect. now may You

Pathward Financial (CASH) 22 Apr 202020 Q2 Earnings call transcript