CASH - Earnings call transcript Q2 2021 | Pathward Financial, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Meta Financial Group Second Quarter Fiscal Year 2021 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 over to Brittany Kelley Elsasser, Director of Investor Relations. ahead. go Please

Brittany Elsasser

Glen would XXXX. Financial I of and welcome to is quarter Co-President and everyone Brad of Pharr, the Thank second Brett participating our conference like in call MetaBank. Meta fiscal CFO, President Vice Group and March President COO will and the discuss Hanson; results XXst, you. ended Executive to Herrick, Also webcast, and CEO, call where this

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

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

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

will turn Hanson. I Now the call Brad over to

Bradley Hanson

same with year. the and XX% quarter compared quarter call. million the quarter MetaBank earnings share second up second income once to XXXX for good per you to fiscal Financial had results Meta last share per Thank in Group's joining up to earnings again $X.XX $XX net XX%

cards of to Department service means consumers as distributing our financial we for $XX.X be serve of total, This honored impact millions Treasury's of of are mission, were or agent was program issuer to core debit to distributed able for an payments, economic to fiscal funds mission work financial citizens. fellow by inclusion initiated serving U.S. and In funds quarter, able our a stimulus the of billion efficient XXXX. prepaid these the During have in EIP. April the is we we in Bureau of of the as to since to further this as the our

also an We for nearly assisted businesses. PPP, Paycheck pleased the over act and opportunity to jobs are for loans, Program, originator or helped we as Protection where XX,XXX save XXX

the demand in this through but overall in created is season. our XX two by over Refund in to federal XXXX CDFI, Our loans in We Community $XXX last stimulus on advance XX% connection compared payments believe came advance more states. quarter to the rounds product PPP million $X.X clear, consumer loans was billion Financial were one refund year coincided over mission and behalf tempered by Institution, Tax tax the our season. originations tax Development were in with of year this businesses expectations. The below the held was XX% of billion excess $X.X or for that and totaled than up businesses revenue zones. liquidity

our demand extension moving to start the XX. quarter. transfer should XXXX year, refund deadline late-season volume this result season the normal than higher seeing and tax in of May the delayed fiscal this are believe some to result a We the to filing which is We third of

income to last year. season be tax similar volumes to overall and expect refund We transfer fee associated

inclusion Inclusion People become a just and we ensure part develop the to ESG than during to as our that of quarter, Kia's Officer. of more is are diversity diversity Chief the efforts, and hiring our inclusion role soundbite. key A Kia Tang pleased to We announce continue and and

Kia's the skill programs, in history marks of D&I of very culture, fabric Chief for and and weaving company, combination an the a point and Officer role into it we for is who of MetaBank's set, become inclusion of part important expanded execution as Inclusion our financial goal mission Our People the support our to all. solutions. of are and The to

we front, under And the our and committee to inform materiality analysis completed will our Directors, the metrics established January, of advancing ESG ESG have ESG excited we us our a XXXX. On we that significant am leadership report of Board Meta. ESG continue are in fiscal well-positioned efforts made I goals. ESG during publishing the the at pleased the and of first have reach see progress milestone third with to quarter of

and more other turn me our will let information over some some of follow our call businesses, Glen with the results. on Brett lines specific to updates on Now to provide financial

Brett Pharr

Brad. Thanks,

March the company's XX, million quarter a finance made primarily financing in loans and X% from respectively. of was million, $X.XX and portfolio lease quarter were linked increases billion. XX% linked year-over-year. $X.XX due SBA/USDA and billion, from of gross loans the gross XX% leases a The up increase loans $XX.X and totaled lease finance As and increase the increase and $XX.X commercial loans loan in of Commercial to

As back part guaranteed agreements Department provide our debt loan of by Agriculture United financing States via purchase values. programs. highly rated low with we to providers our public lending A permanent utility loan large of strategy, and majority are

small a as significant finance each credit paying quarter of theater to as lending finance renewable solar item, legacy continue million the in also ticket hospitality returns. relationships fiscal We our XXXX we line in commercial the division. We second during From the million compared the tax Community closely portfolios, to leases perspective, equipment movie from which to monitor benefit overall income our Bank's contributing and tax same quarter to in during flow energy, expense the attention higher well $XX.X year. $XX originated our last advantages through loans,

in we XX, million portfolio. losses for at of for last with primarily remained by XX, the credit the loan team these were charge-offs the ended percentage leases tax management similar credits. and loan the X.X% to in were flat losses and increased has the we credit relatively net portfolio small-ticket have and a loans company's diligently driven charge-offs XXXX, majority for $X.X December credit not collateral Our as quarter seen Net XXXX, place loans reserves we total regular allowance remained quarter-over-quarter, have XX, of been March The March and Allowance seasonal level leases deterioration at monitoring the remained contact previously. non-tax-related borrowers, discussed The from and these in quarter the of with for feel comfortable that and for categories on X.XX% equipment to XXXX. financing portfolio. quarter. Nonperforming further in services

upgraded watch. eight quarter, were pass from hospitality to the loans During

payment all now are one now, of schedules, their operating breakeven. several above but As have and contractual resumed

to our Community our in exposure We monitor Bank closely theater continue portfolio. legacy

rise outlook during hard-hit on is guardrails into strong, Venues and the structuring There favorably improve Act remainder This However, releases seen age and we economic small to no businesses, measurable Grant consumer change continue nonprofits, an reflects rates have due Venue more of as program beginning place. also law and is portfolios, Operators to performance XX, credit in December on of remains opportunity strength Hollywood XXXX. signed Shuttered further program of in from the for our relief XXXX. the vaccination the trend our and lending new In under the to COVID-XX.

to is we the consumers choice, marketplace. with the report a to a faster product desire financial don't of for that and product increase designed into line money pilot-launched direct-to-consumer credit opportunity quarter, during who pleased practical have and availability, are underwriting This product easy help will barriers it experience competency We extend challenging allow access gaining responsible guide people break make for insights partners. and to credit. while credit our that down access This to to better our to the Meta

division Walgreens Most account a issuing InComm in newly banking-as-a-service Our launched bank of continues recently, product and expanded partnership strong pipeline payments for with to partnerships of prospective our banking-as-a-service have we Payments Mastercard. bank roster becoming the by relationships.

Ventures, arm on $XX.X of financials. on With to in We've XX, Through with to on focused I'd Finally, XXXX, mission. are partners, date, call funds investments we million technology, ESG. of driven as our our capital. verticals committed an potential lead XX These Ventures. generation, financial capital or turn and aligned venture XX, Herrick Glen companies that, to related or we additional overview March strategically made over to that have provide provide in the strategy are to insight slide Meta inclusion investments our invest Meta we like

Glen Herrick

Thank you, Brett.

produced year. we prior $XXX of million, quarter, revenue the of X% For down the quarter same compared the to

fiscal in XXXX divestiture on the and revenue benefited $XX.X However, division. million gain Bank from the Community of

we product fees slightly to event, fees. generated by tax fee the year-over-year onetime in year, income, payments that XX%, XX% payments prior the which and Excluding product same compared and businesses. advanced our by refund grew quarter growth decrease was from of offset Revenue and a respectively, tax transfer promising supported revenue

last quarter third Brad driven balances, shift better normalized demand largely believe NIM X.XX% see would from Net of saw loan decreased some stimulus by inflated XXXX As have from stimulus been strong of interest deposits for in with absence programs. to believe revenue continue cash program. quarter reflect improvement year, extension we net. cash as be delay the fiscal result season. mix income of we excess continuing to benefited while in the temporarily the to in programs. reflective the consider We the reduced refund services income that company's impact trailing programs, in we the X.XX% We to the Fee drive for to the in the the of certain tax participation will which Absent products. fee a transfer-related for months, EIP XX% it more the income tax XX stimulus margin believe from represented payments second margins, we expect a related mentioned, associated X.XX%, inflow which

was mentioned, up Brad As product revenue XX%. tax

for While the the below believe promising, expectations stimulus liquidity impacted by the associated excess as with we was product our advance are the the this results refund payments. was negatively demand

in increased tax growth. return expenses, We quarter to X% support $XX and stimulus. compensation expense to the quarter primary XXXX further expect due million a accruals The the employees year. to season, to for increased for more to the to driver demand absent normalized additional the to compared prior which normalized was same return Non-interest levels incentive

I'd total approximately efficiency March XX. XX of time of on has XX.X% cards, outstanding Our trailing participation million a to bank our XXXX, our in as five provide some billion, target $XX.X still the prepaid stimulus XX, billion $XX.X take less an totaling quarters. March and is XX% was XX, the Through been to on of like of $XX.X issued months now below for the for has the which last XXXX, than program. update March EIP ratio

deposits have relieve with with the partnered sheet an impact off-balance these the deposits temporary the of in substantial of other to We associated influx transfer effort program. banks to EIP

sheet on result, end. balance $XXX remained at Meta's million As quarter a

impact return sheet reduction also stimulus from EIP of of net ratios. balance experienced large We partner have in second to but the in a due cards. balances deposit related program influx of on a significant fiscal interest company's resulting increase cash margin, leverage the stimulus large quarter, capital was and significant temporary assets, deposits on the The in to

until We will continue by customers. see to spent impacts funds these are

these the impacts risk-based be will and However, key strong. sustained our slides the were expect our ratios we balances ratios. presentation, conditions do and over EIP-related unaffected of and capital XX term, provide our of XX the on not long investor we On

to Turning capital.

suspended we share from During stimulus until the strong nearly ensure while and XXX,XXX average previously on position stock deposits capital $XX.XX normalize. we announced that further EIP a at we the program. indirect balances an repurchased To deposit funds, repurchase direct under repurchase the quarter, program price shares taking our our of maintain

management the organic priorities. growth deployment board continues include dividends. or to evaluate and These initiatives, priorities and capital repurchases, additional However,

context That future for management. of the overall our continue against remarks. generation will within open evaluate concludes capital excess of Operator, the line capital please activity We our to up prepared questions. and

Operator

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

Frank Schiraldi

are How doing? Yes. you

Bradley Hanson

Frank. Hi,

Frank Schiraldi

term in start seasonality or any and that to of with, on on payments relationship line. increase there? trend any card the impact Just in year-over-year big where or kind the either was from fee give deposit wanted a Can the And maybe what Glen, could basis? near you linked-quarter the color on color Block the H&R

Glen Herrick

Yes.

in the on income stimulus So factor, from is, fee with out, additional other Block payments income couple participation contributing had fee we going called One that the we And our was clearly, have we things H&R didn't a as programs. ago. of a the line. year

and offsetting And temporary a for think so loan. is is is refund of some demand what lower that certain we advance

of stimulus. some that a year likely, continuing away from And so will absent go now,

Frank Schiraldi

that and And seasonal continue look Block, the changes… it Okay. also is because quite of H&R at we so some should apply it to year-over-year

Glen Herrick

our with payments expect should you income relationship have card - in fee yes, seasonality. our payments quarter be - of income March that will there - because to with Yes, now to Block higher

Frank Schiraldi

and about you lastly, benefits continue moving off-balance a just balances? then reducing agreements is How Meta deposits those look little if the the just than as talk you And sort could like? And the them bit EIP - about sheet? and I of what And future optimizing them and template balance wondered sheet. moving then Okay. helpful a that to other maybe for think that

Glen Herrick

Yes.

think our capabilities now partnerships distribution also with some financial I Demonstrates develop have larger balance to put but that and other of had observation. a to in channels, sheet good our that's place with strategic also we manage not only or institutions.

Bradley Hanson

order regulators to to work counsel this. and And in solution in closely achieve with outside our a we Frank, order develop

Frank Schiraldi

these do we to agreements? something Okay. I provide some the it related income? fee - mean, it margin get through is does Or

Bradley Hanson

in balance management At time, a sheet just tool. point this it's

Frank Schiraldi

you. Got

Okay.

Thanks, guys. Okay.

Bradley Hanson

Frank. Thanks,

Operator

comes Riley next Steve with Our Moss question Securities. from B.

Steve Moss

afternoon. Good

Bradley Hanson

Steve. Hi,

Steve Moss

just - loans here. on quarter regard with loan guess to for growth. I starting maybe Good

Just on side terms how seeing commercial of kind go? in you can of guys where the are wondering things pricing, things and financing pipeline,

Brett Pharr

Yes. jump there. The I'll improving, I This think. Brett. pipeline in is is

factoring, we've as have loan of types lending dramatic, some and they in based look time, difficult and go they and through it's people get at a look movement you seen end statements alternative to whereas not While their been financial for of financing. covenants, year asset

you that's not the depending of some are tremendous transactions, So might for but where product those be we're The them seeing we're on much seeing as type, under pricing, anticipated, I have some on growth. can probably as pressure. and allowing

equipment much not pricing companies, heavy, whereas factoring, experiencing. leasing there, so the that our pricing in heavy nearly asset pressure the to XXXX And lending certainly, Fortune type pressure we're in and as based

Steve Moss

That's to of in just here. Okay. card back maybe helpful. And going fees terms then

couple a and of the good pipeline. announced a guys in You quarter partnerships

just income how noise should could about next fee about over IP have [indiscernible] to there. Just sure we that just think kind as of and given And growth not any how about we think trend that don't months? depository, income I'm XX color I fee growth. where - maybe the But the to

Glen Herrick

Yes.

those to larger take programs ramp time up. So some

you the - partners, will we over so with And work it those year. as our see next ramping up

Steve Moss

Okay. credit, just the Kind of even reserve right. in reserve to out All still pretty then me, - releases healthy or reserve thoughts terms of one last what I one for potential the when any And as and r in terms tax. around back for is that. of curious

Glen Herrick

allowance all at portfolios. We we across Yes. feel what see portfolio given for going very comfortable we to the various loan feel levels well with reserve But this appropriate continue And forward. our that the reserved we're our current we'll in monitor time.

Steve Moss

right. much. All you very Thank

Glen Herrick

Steve. Thanks,

Operator

next question KBW. Michael Our Instructions] comes [Operator with from Perito

Michael Perito

taking Hey. Good my afternoon, for questions. Thanks guys.

Glen Herrick

Hi, Mike.

Michael Perito

backing exactly was The Was were answered, out? just adjustments again really questions go X.XX% any things. excess couple my Glen, Or few asked just been wondering, margin there was the kind you're making through that… cash? other on Can of what of clarification just you just you I a of and have adjusted. a that

Glen Herrick

Yes. Correct.

as balance Just that backed out the placeholder, cash we is sheet. our a sitting directional on

few to EIP that's hard these Is likely or so And indirect can tell weekly program we still at their - still funds you fungible. a but some But points that's from it those it their $XXX stimulus deposits, from basis paycheck can because something carry what's It's - see inflow, as are high it's probably partners. deposits from to the our the quarter-to-quarter, that cash. do remaining. is reconcile we at especially we'd

Michael Perito

this industry, billion question excess mean, kind minus? don't as what system. sense I guess average whole Or any kind the obviously, additional of or near I like is going in wrestling of I we $X.X provide about liquidity guys plus or on And of the kind you But context with any of that the of to I forward. the can look that? want be mean, expect Right. number here? right, like billion term think forecast run next $X thoughts here. it might And you with kind that's cash of

Glen Herrick

remainder nice a $X will could of the think In it our year bit billion. We - June 'XX, will it we're be - today. from at down off. by ramp that where it little fiscal Yes. be of of We'll end the But a certainly year expect run there to certainly. fiscal do cash, deploy we

Michael Perito

Okay.

Just of might I provide the tax the rate. thoughts ones a rest additional that any that couple quick me. rate? can where can you just tax sense the on fiscal year the One, investments move more here? of the of of pipeline other Or on any impact for solar and kind over mean

Glen Herrick

No, a Brad, strong highlight you Yes. pipeline. there? anything we to have want

Bradley Hanson

Yes.

all the we term, the that current niche business can to I and longer think pipeline, to even for plenty in There's expect we to the we to do serve some be time. good try in a want do. we considering continue administration,

Michael Perito

term to should think modest burden going pretty be pipeline forward based near the today? tax fair see you on the So

Glen Herrick

Yes.

Michael Perito

and thoughts point are there? to And Okay. willing anything trailing mean, below guys forward here you time XX.X% any a Block else efficiency. prior Glenn, mentioned then Brad around have, decent lastly, ratio on avenues of moving some now I target. quarters, the where the or share I thoughts, other the think, With just of you willing at H&R five some updated you the to you're on now you're Obviously, or maybe growth efficiency amount provide a the

Glen Herrick

business. a higher credit before, improving would we've to earning also don't operating lines, months the typical or we've would on last provisioning mix to these positive work asset business high leverage, six with And efficiency all efficiency have every note industry, levels the money, business you have some is at ratio as I that say because I What Yes. But that lines of is, across stimulus the as depends, our we efficiency risk. had on non-credit it tend talked very payments continue said, revenue.

If points well. high efficiency ratio lot you Fed, at earning think for - really and basis sitting cash those of the XX that's a of as that a earnings

Michael Perito

mean the Helpful. there be mean, environment, I mean, mean, the change I on to to XX%, it's term just mean, short positive there you mean upside I I - I nothing else think, or though, should would rate is rate the a there there I that in range. to certainly, if anything seem be think some we directionally of. offset no little I Or - be were that obviously, could guess to about? some would environment, be fair consistent? current thinking is

Glen Herrick

will positive. Yes, rates be Yes. higher

Michael Perito

Yes.

Okay. appreciate guys. Thank it. Excellent. you, I

Glen Herrick

Thanks, Mike.

Operator

question next with Our Raymond William comes from Wallace James.

William Wallace

question. taking business. to about Hi. wanted ask Thanks for my I the tax

Your product into revenue the commentary to right? that, the expect quarter some fiscal believe I transfer talking fee third we're was quarter, see shift about from the line, specifically second you

Bradley Hanson

Correct. That’s true.

William Wallace

- second third that if near second anticipate on And third and where and you fiscal quarter, that fiscal Okay. quarters combine so were be you an last I your all-in… would

Glen Herrick

correct. Yes,

William Wallace

- Or that you is meaningfully that anticipating stimulus then year-over-year. to XX% been as maybe think be be that those much fees, have look Was think fees higher would possible impacting have there might do it it could higher? product as that were that advanced up Okay. was product was were well? that at And transfer the on relates you tax so I the if anything going - behavior that that you

Bradley Hanson

for our relationship. liquidity time came would at consumers the addition year be we stimulus Block We higher same the believe, payments products. they the that expected fees to the advance the normally that tempered all from relationship, those actually with but of refunds, is that Wally, Block this get demand to

Absent we stimulus, think than we normalized normalize expect expect it year. So on would we was as lower mentioned, we year. that to next again actually additional a

William Wallace

from advantage Okay. the product much transfer And that's H&R so the fees product - so fees, benefit didn't Block? as

Glen Herrick

business. in correct. and that's Different structure Yes, economics that

William Wallace

Okay.

said who questioning circle Am I I these that worked period fair? you the time transfer of relationships. Okay, you you institutions by were to financial cash previous said, found help future you out? back in This manage a an about line indicative to of if short periods. think sweeping isn't could the to Is in regulators with the you of correctly some in that interpreting, cash thanks. And that then ability basically, I willing council, sheet what that of outside when balance of much

Bradley Hanson

can I - question. sure understood say ask again? not it your you Did I'm you

William Wallace

Yes.

So are beneficial could now be manage sheet setting that you looking up to as balance the periods? relationships you're future in

Bradley Hanson

Yes.

William Wallace

balance to the temporary the sheet? this out short off of in cash you you help cash all that a just for took period? was Sweeping Or arrangements

Bradley Hanson

of little a developed structure is order in process both. We bit accomplish and that. There the to

specific we us We as some help that identified would EIP us with relationships also - will issues we relationships future. were the program having, into as that hopefully, think short some the longer term well term help

William Wallace

and Okay. the Thank then circle very regarding back other much. one questions levels. you on reserve the model And the

the I continue it the to think from it's likely to might to reserves hard wanting forecasts true? say a you're do that adequately the key you be economic a lot on factors? going Or amount keep an put as have now room model right probably to to Is of back. greater reserved of be CECL understate improve,

Glen Herrick

No. No.

you're will some I loan not. trying to on, you're depend whether it I fair. yes, will Wally. figure if Obviously, growth spot But think as be well on that's releases think, new or out it of otherwise, reserve

William Wallace

Okay.

Okay, thank it. I taking for you, call. my appreciate guys,

Glen Herrick

you. Thank

Operator

you. year And Meta you. Financial that concludes Thank the quarter Thank investor second XXXX call. fiscal Group

Pathward Financial (CASH) 28 Apr 212021 Q2 Earnings call transcript