CASH - Earnings call transcript Q3 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 Third 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 Elsasser

welcome and and Meta Group Financial Thank to call webcast. conference you, the

and and and of Our and Brad is XXXX. CEO, President Hanson; the in MetaBank. Herrick quarter June call discuss Also fiscal participating CFO, Pharr, Executive will the of third results Co-President our Brett ended XX, COO Glen President Vice

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

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

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

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

Brad the to call Hanson. turn will over I Now

Bradley Hanson

various have and pride likely more and need part loss business serve our for Thank contemplate my the on cuts, interest of social interest disciplined and our help country. to balances, our as earn year remain the decline flexible lower program, share economy This work of will an $X.XX saying compared implemented Bank a times, high ongoing people recent additional the Through staff third per productivity continue given our as Engagement working result allow while and them you, prior awareness rate effectively us activities grow. sale work $XX.X as income home. watched protecting partially COVID-XX of basis include mostly lower schedules our to margin hard for continuity loan lower plan of as and last reflected as a division, It back Brittany. card tax partners psyche into scenarios in goes reduce decline provision Community to higher safely rate and for during office. with to we office remote impact the staff for by The The our successfully we quarter to our million without to I compensation the from allowing continue enabling net costs. lease that offset to continue product a loan and $X.XX and tax or team space pandemic fee various quarter. reduced of adapting and customers in EPS these expense, and and scheduling diluted revenue in distancing quarter

While credit is conservative we initial conditions outperformed prudent macroeconomic expectations, it remain to trends as our evolve. continue believe have to

allowance. the of the pandemic taken us to uncertainty provisions build to We COVID additional allowing have related our

should strong time. the members position. I recognize to unfold. us repurchase hold believe I our focused well stock remain Our strengthening position we this effort any of our balance capital program events during sheet remains unforeseen on and our on that as outstanding allowance team want

Paycheck hope this assistance assist. their appreciate their efforts we We Business that programs them service servicing manage existing immediately such same We with Small worked thank took contact legacy come lending every and will or relationships their businesses the heard them Bank Administration, going commercial new these for efforts Protection from unable access many have to become many Central customers they They customers appreciation stories borrower Bank of own, alongside closely help to their institution team deferral existing steps desperately programs to portfolio portfolio. our forward. and modifications for looking Community to high-quality ensuring loan as coordinate moving tirelessly of providing also I in customers to have PPP. numerous long-term loan our of when as or for Program, want was providing PPP loans to Our financial expect. appropriate our to government us

to the call Our centers small partners forced customer volumes. increased program who They struggled payments help adequately around to discontinue adapt to to coordinated managers were successfully also as were due ensure world handle various the support call and down pandemic. to two team addressed operations issues wind worked with

was beginning During time, in same the the H&R the with fiscal At selected which government’s in intent announced the XXXX. height our pandemic, for cards Economic this the of earnings and closely Visa, Block, to important manner. timely worked a the year MetaBank Payments package. to contributor worked as Fiserv, expected teams of of of secure part the as letter to issuer be Impact significant with previously IRS Treasury U.S. program the a We execute is prepaid stimulus to

to of made like some areas enhancements in several management. I'd highlight Finally, the of

and of even Chief Officer. and as on us of forward. to Corporate leadership, Pharr greater for Kathi we Co-President well are to company bring addition as execution, well been People of we as strong Sharett MetaBank. Brett as to promoted Secretary, and leaving and look Ingram realigning the their current to Legal Under prepared We levels business as COO Officer, growth and Compliance bench Chief leaders, Anthony Officer Chief fortunate Charles In our Winter we've Information achieving

over response Now to turn for the credit our and portfolios Brett call let more to detail me on COVID-XX. overall

Brett Pharr

to to navigate excited start and team opportunity with saying by the Thank times. you, Brad. these the am as would I I for like work honored we unprecedented

of will to and on focus amount focused significant and time efficiencies last teams improving the and businesses. and in our collaboration resources, XX streamlining Over and a effort continue we has across optimizing months, infrastructure management

of understand likely a credit pandemics deferrals each monitor quality to remains we impact the company, placed until our modifications perspective, portfolios unprecedented which priority relationships, continue A a X% total these lending fully mentioned, and their Bank been as Asset for From COVID-related hospitality in of on run Brad the through has course. on won't equipment legacy and we the Community loans ticket finance our focus times. significant and small portfolio represent assets.

steps in to We potential and work customers with to are monitor prudent taking losses. reduce those order

has June ratio $XXX As Meta's XX% XXXX, assets loans X% XX% were of hospitality balances or The loan compared to those tracking XX, million management in of of with with total relationships, of March Community credit metrics, legacy including occupancy breakeven on remains such at XX. these borrowers. these focused average RevPAR contact team loan-to-value and real and on key Bank regular an been time as

their of June pandemic $XXX million, June XXXX, modifications seeing April. Since rebound COVID-XX of payment lows of the XX, granted relationships lease in of to the beginning loans period received majority on PPP as some received are of still XX, were rates and start through we which these outstanding in deferment balances deferral short-term million form deferral off of We A hotel modifications. of short-term loan XXXX. occupancy $XXX and XX% payment

to modifications are $XX granted adjusting or $XX of the that $XX ticket The COVID-XX-related the the industry still addition, $XX million were loans type and were other related Of In small customer's the a amount the majority were in were of total million other finance relationships. active. in payments. total modifications, we granted, to million modifications of of hospitality which million equipment

for allowance quarter. As emerging increased and during a losses fiscal COVID-XX result of we our the the loan also lease pandemic, third

of or and X.XX% an losses tax loans, our increase of June $XX.X X.XX% March million XXXX. reserves our on As services loans excluding and XX, for was from at allowance loan XX, lease seasonal leases,

adjust allowance We lease to supportable loan maintain necessary future continue for to and periods and the an diligently appropriate as in will level. and monitor losses

an cumulative During of COVID-XX the losses the potential we of million, of was million took in on related the XXXX, loan portfolios. provided Through loans Paycheck $X.X the to cycle associated small leases the compared virtually relationships represented worked a loan the deck, we look equates management, lease Non-performing $X.X increase provision rate historical had during with XX, allowances pandemic. totaling deterioration June a experienced $XX.X loans of million On Program. of million additional investor points credit equipment ticket under $XXX.X losses outstanding, and June X.X% primarily which and Protection in for Slide term workouts. the loans the X in perspective, back team XX approximately XX, quarter, XXXX, total all on of for X.X% management size leases, credit very increase lending basis and finance at The through to our an and leadership net The average prior of fees and leasing in loans are to to charge-offs a quarter fee we approximately restructuring related was $XXX,XXX. cycle. last and XX. debt XXX of average during From March net Crestmark

life those We expect adjustment be we over most receive we them a of loan. loans of fees amortizing the over will yield them to be the life the until be deferring assessment also forgiven. would There and of those those as

cards, we the Under X.X in the billion program, Brad EIP representing we for card. were million As the issuer funding. issued mentioned, $X.XX

in balances the of activated remained been cards XX% billion over XX, July outstanding. of X.XX had and As

a into with of saw visibility quick our the result limited influx duration. sheet As program, deposits the a onto of we balance come

our While our impact increased which program artificially depressed margin. and ratio this interest significantly it immaterial net total our earnings, had an assets, leverage

analysis cards more deck We and the of appendix earnings of in-depth our in the the investor a release. have of provided effects in the EIP

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

Glen Herrick

Thank Brett, and afternoon, good everyone. you,

of compared sale year. card the the $XX.X EIP third and the yields. margin For income. per per a current reported in XXX primarily $XX.X loan non-interest pressured we were The $X.XX $X.XX environment; division of the of to result net product diluted for stimulus economic NIM decrease for diluted to, tax or share net lower as quarter one, interest decreased net to The Two, of points. in Bank of income The share prior or quarter that provisioning year-over-year balances the mostly interest quarter. fiscal related related related cash balances lower million and fee million same held by third basis X.XX% income GAAP in and income the XXXX was COVID-XX XXXX, fiscal Community card higher lower was a decline related loan to to three, the

the third quarter. net Excluding the in impact interest fiscal from compared those X.XX% margin to was deposits, XXXX X.XX%

and on margin As income balances previously with X% by net we net year-over-year. loan mentioned, saw interest interest we pressure decreasing

quarter in income leads interest of time. demand by and transition net largely near-term, loan asset the environment. likely continue slower the to net year, fiscal interest funds prior a mix Cost While EIP yields lower to earning over likely card XX improved points our deposits the the lower improve basis ongoing to and rate pressure in of the of the as same result margin compared

the expect of While third to our same continued expenses differentiated we savings from expense in $XX quarter place the model. compared business such non-interest represent second reduction fiscal to Non-interest of put was travel of by continue the income X% XXXX. other the Non-interest quarter as of total quarter XXXX. did and down and the income compensation fiscal quarter meals, initiatives to same entertainment, fiscal through for fiscal decreased reinforcing million fiscal XX% $XX.X Expense the million quarter XXXX. generate of and fiscal X% which remainder for third to in revenue

on reduction ratio XXXX. and of improved XX.X% result efficiencies expense XXXX focus as improving as efficiency initiatives, our a XX-month to June XX, As XX.X% of rolling June from of XX, our

X% XX. Turning loans June Total decreased lease from of we billion reflecting company's which classified $XXX $X.XX certain to finance portfolio, held basis of legacy related this sell billion, loan gross Community to decrease XX% leases linked our comprised to on $X.X March was which and a The as and loans XX, primarily to million for quarter balance the XXXX. sale, Bank sheet. growth totaled loans, expect gross or quarter. X% at Commercial

issued basis impact Excluding result finance offset our factoring by and the lines. Average PPP asset were deposits were Average lower higher the $X.XX billion X% $X.XX for to of originations quarter. cards the by payments quarter deposits in portfolio our loans, commercial a linked EIP by balances based a business related were inflated that MetaBank. decreased of the billion as leasing on lending payments

increase fiscal lower same from the up prior driven in A year. levels. compared partner overall consumer of payments Excluding by spending on the payments as the EIP cards impact stimulus large rose program component average well card, deposits deposits as various the that to XX% quarter in the ended payments were

prepare in our XXXX, as we refine CECL Finally, X, are incorporated. near-term were continue and expected process adopt as have allowance parallel levels October higher be levels the factors of to running to however, credit Pre and to estimates. CECL and impact we we in been as expect our provisioning COVID-XX certainly CECL methodology under marginally higher, provisioning COVID-XX

credit to back regulatory in closing two-year delay the relates to of the five-year we to ratios. to our total on I'll our capital, Brad it expect losses that, capital transition minimize elect the allowance impact and period conversation As for the increase With comments. the turn for

Bradley Hanson

to maintaining high a and still financial the of we completes line and Operator, a Glen have and more processes financial few all Thanks, people quality, social perspective, From not forecasting, our stability. equity prepared Glen. stakeholders have for ask and to want capital join remarks, From services. operations. any by fortunate to open Q&A. I'll continue our regarding instilled credit that our and even put a questions. regulatory for so to while we've business perspective, financial strived promote products That we please everyone, diligent functioning financial that me to first, We ensuring a monitoring Brett quality just access ensure

Operator

Instructions] with question KBW. from Thank Our [Operator you. Michael first Perito comes

now Your open. line is

Michael Perito

Hey. Thank taking my you Good afternoon, for everyone. questions.

Bradley Hanson

Mike. Hey,

Michael Perito

liquidity of the get extra just it I kind treasury expect there slowed? time? quite sense some like of there to of to quite appreciate any I seems liquidity that big kind of consumer wanted a realistic the there kind if will it ask mean, carryover color elevated I assume was And a this But I was you at just Obviously, of to has the to drop. all a is be wanted for of year for could of deployment of cadence liquidity. that the here. be out duration program it – remainder point? on bit some right the the that do gates,

Glen Herrick

is to us Mike. on interesting least, fair consumers there ramp is We a in assume is, the of we quite Glen. season hanging so thus, might correct. little fast. But haven't the with still it occurs see well are funds those, slowdown on as This bit. spending a closer The tax funds that Hi, been there that been expect That that what's didn't what amount we surprised been little although these that lower and down a of on are cards far, as activated. at amount have to as still some be

communicating some of we're and sure over so United expect But with to make properly. that working that those said, from to liquidity Treasury we have yes, to Fiserv And States we're increased help couple next do consumers the program quarters.

Michael Perito

to have quite terms given reserves bit nature. commercial it curious, Okay. I a as imagine obviously, anything I haven't seems the it is credit of of quite a been just cash that's curious we as Glen. was a liquidity, side, of your in And a I’m the mean, specific has might also intervention or pre-pandemic. finance outreach of the government quite that any – especially but to bucket, of what today. that on not this then I was stimulus lot strong I the customers, flow lot like, your but ticket there there's of still viewpoint lot be remarks, industry-wide bit seen a imagine really the small customers. just really, much to prepared on in point, Thanks, And based of

push kind I of show? either is the on front? – guys could those we to to come the simply is things, track you credit of just the it think in up? Or when maybe more terms clarity movement some that see comes than when direction deferral start it complex does when As more really

Brett Pharr

least at that, take I'll Brett. is This initially.

I are have come as might these caution been abundance even they clearly and to were is to trends getting any which what And cases, have we're watch taken jury modifications to the decrease into the not go would how and We've way completely to and may reserves, credit thought have see. or or is outperformed this just needed. going the and of the we we other not. our watch in measured an et see, We're modifications approach information up going enough by what call to in going go. back cases, fast have going on a some business don't allowance. out. really We're not they it's have to these – watched needed. to have have Really, they taken We But happen. borrower, actually In initially to were cetera, insights

Bradley Hanson

I to Mike, by far in we provision how front extend And of get taking a for in ahead the this we can of out measured how losses cycle provision to our trying been say, would allowance loan approach we've our here. – much can

as is like, sheet allowance of So well that it balance for with with we're our earlier, that stated falls we positioned however that strength we where feel out. our the and

Michael Perito

like a migrate have on forward going Okay. in the good mean, specific you've with that with in plus quarters provision Is the with credit direction? this you'll actual either to – here, that it have reserve the needs to you the kind bill more opportunity of pretty fair the point last of what had feel at the to looks terms CECL I in couple like adoption environmentally, first you probably starting and handle what be say costs reserve

Glen Herrick

environment. today. very And close levels borrowers and it's good Mike, a it's our our tell. a soon too I this. to to still feel staying portfolio on fluid very dynamic reserve It's about think we're We

Bradley Hanson

Yes.

respect at. what still further could waiting else stimulus any see we're we're with to looking the impact much as does I as anything government and things to that that think

think get trying So things to start can be how as and prudent proceed. we we more I we about just until those clarity, we're to evolve as

Michael Perito

I time Great. in well. and guys. will you, the Thank queue. back stay Appreciate the jump

Bradley Hanson

Yes.

Operator

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

Your line is now open.

Stephen Moss

afternoon. Good

Bradley Hanson

Good afternoon.

Stephen Moss

with Kind start what high-impact those business seeing Let's here. for to the the you're activity as perhaps for of curious borrowers. industries –

in hotels, give of there rate? the those And different If what's occupancy for portfolios? example, the of you're And what's can buckets? level any you within the seeing color for kind reopening

Brett Pharr

on few fact the Yes. and disparate things side based limited likely full been highlight in A of I not of trade. a hotels that that impact or service, service you these those the are and particularly that hospitality, one would on understand the you're we're right in which there's

exactly I'd disclosed revenue they some the geographies also on on climbing we things. per sitting. seeing occupancy materials not climbing, rates, where we're some we've So are have encouraging room is but available and reference

The So And mean, of we're In we theater little that it an are, one. they pretty hit closely closely bit shall been locations awful obviously, have in places working retail, depends obviously, very where a understand lot of And retail pretty subset been I relationship, can they're on you through we're in and that's get challenging cases, and still in. that enterprises not others in precisely that are retail hard. with imagine, are then we which that's watching one say they the working again, our impacted. have they're and do of that small. to see borrower. our which we not if many less hit hard. We're – where business, are see some

bulk of So that's the it.

Stephen Moss

activity, pipeline finance curious kind And other seeing terms how for way, That's – that on looks like you perhaps you're commercial you in of as if kind will? Okay. what the to of helpful. what of opportunities, of kind business then

Brett Pharr

factoring self-liquidating. balances, of because the declining ABL about that’s commercial think pure you in especially sales, client see understand declining can the you if so and are numbers finance, Well, as our existing and simply some you

So our more much exposure limited. in that is

the We're deals business next that. the are we If early in very that past, industry in the are being see XX in consistent, early said, upfront. stages could from as to of are careful We very meaningful very, And signs selective this selective popping we've have development of and XX we obviously history in I up. to some very be very starting and cautious months, is the as but see to that, for that. some very seen you

Stephen Moss

and on have to come that the continue just ABL point? liquidate those with liquidating bottoming And Or to does on out factoring closer is this to as we balances? here,

Brett Pharr

are I If coming you think seeing pattern. balances cetera, trends we're volumes, a that are to similar our back say of kind seeing economic and about transaction and it's public that the safe think some et that things

Stephen Moss

Thank you much. Okay. very

Bradley Hanson

Thanks, Steve.

Operator

our question Piper Sandler. Thank you. next from comes Schiraldi And Frank with

Your line is now open.

Frank Schiraldi

that's keeping some road the direct income down just I wanted making significant cash I of get just the fees a the – It outside ask just off down. are to balances, guys. it that's growth, of those I on as in much you'll seems afternoon, point, spent in at money stimulus. terms obviously, those just Good like, treasury not sitting mean been but pushed of guess piece

is wondering way just your are a it? in growth fee So about to here in that expectations near-term? the And think card what fair

Glen Herrick

outside of growth That's correct, cards of the I your program that seeing Yes. funds question, that some some we deposits, of EIP first nice were loaded in the our saw – so direct guess are issued. partners part Frank.

or So GPR normal programs that's stimulus on spending fees are a us something yes, observation. a a growth just But point. program partner. would partner lower higher card that's an up loaded expect a where or on as should card That those help some are certainly card to if deposit those and split accurate else, rate. We pick income. you're it and well relationship, and unemployment some fee as got between a the at since Again, little at where here depending saving or a gift folks or folks went that at seeing rate

Bradley Hanson

our don't program. much to from we impact On to we prepared the waived that of EIP are payments, a remarks, there, be financial those – really are us as and in there expect said some being fees

Frank Schiraldi

these another are this in And Understood. if just a EIP, sand a the treasury money the cards there to spent or where down, and on is point takes back line activated then not is find at reduces EIP there all the at in this tries Sure. does decided? you where Has does that balances point, you given have just ratios, And than anyway that it leverage too? given flexibility where been more that way? anticipated the limit

Bradley Hanson

There on you are terms can deposits the government I'll imagine will handled. let to with Glen how the ratio. And those leverage as respond be

Glen Herrick

Yes.

really the they treasury's So pull call might on when it's back funds.

So we it don't now, right It's want have more don't Yes, we expect that We to it's less speak certainly today. obviously. still at than to than to number. $X can don't seeing for stay determine. them that this liquidity or probably at billion They're we hour try now. We this progresses. how use a –

thing, do to so it expect have back wholesale into to more which allow lower we manageable get And us a funding.

longer So the term we're leverage these in of artificially concerned impact about the depressed, short-term, ratios temporarily deposits. depressed, of not but our – certainly are

Frank Schiraldi

Okay. on if just And then one last I credit. could, one

increase NPA I in balances, lease equipment the the On in was mentioned it portfolio. think Brad

to to non-performing part, would that the deferrals would your current kind remain, as curious, Just to wouldn’t the deferral that up – those into take guess, falling I just for would that six of opposed I of most and categories. months think period given books on continue

go into you classified NPAs? you criticized, some of talk more bit the and are about And So I falling as loans along the these wonder with how just here, a you're if little deferrals. dealing could

Brett Pharr

Yes.

equipment, not whether inform on value have Crestmark When of you a portfolio, carefully where it some is values. fairly leasing the point, a at very could the question. equipment a around a Understanding could equipment, dealing equipment the modifications. history have relatively the that And, has you're to with regular particularly basis life. call life a kind shortfall it short on So of course, depending long to helping monitoring got lengthy and have or and you've

they like many division, Fortune to and costs Now, going these stresses. what in having cases, liquidity are to and the of abundance preserve they companies, the frankly, not they're didn't of equipment In XXXX took happen. was more commercial modifications and know because finance most just everybody, liquid,

the the the experts say at make got a we've driver monitoring values equipment in the equipment key would are team to is I of So decisions, that. view that and

Frank Schiraldi

Thank Great. you. right. All Okay.

Glen Herrick

Thanks, Frank.

Operator

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

Bradley Hanson

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

Operator

Ladies and This participation your thank you gentlemen, for does your conference. on program. today's conclude

may disconnect. now You

Pathward Financial (CASH) 22 Jul 202020 Q3 Earnings call transcript