CASH - Earnings call transcript Q3 2021 | Pathward Financial, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Meta Financial Group Third 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, the conference call is being recorded. to of call Investor like Kelley to now Director Elsasser, Relations. would turn over the Brittany I Please go ahead.

Brittany Kelley Elsasser

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

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

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

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

the will turn call over to I Now, Hanson. Brad

Brad Hanson

year, interest provisioning. performance net programs, third Net card Various call diluted primarily tax net government $X.XX along lower Good by drove additional prior the from with per $XX.X additional fee for was million, increase and card in or income the the per to afternoon, compared year-over-year. year. reduced compared stimulus timing from season today. provision quarter $XXX.X generated income income share, million and stimulus and XX% a was income fee share driven last including you our joining million delays, the diluted for Year-to-date, to the items $XX.X or thank income programs enhanced quarter $X.XX government

to empower customers mission empower is providers, We to navigate rewards is choice financial charter offer company offer expanding a our fintech accepted ways how organizations inclusion instantly individuals point and benefit of fairness opportunity. MetaBank risk Coinbase spend use example in purchase. these to Meta of partnership quality, a mission to to for and for embedded and emerging the results increase what sponsorship their helping across how consumer our a Coinbase of a people. that sponsorship all availability build that working financial variety our and to manage Coinbase is customers, Marqeta issued produce their This crypto the visa with any number and with of our each or monitor to security ensure our Partnering all is economy. The Coinbase, in financial helps asset products. we shareholders. debit vision of products Our access at relationships and in for spend card visa we by and consumers portfolio empower as-a-service employees economic opportunity locations demonstrate and convert allows card our them -- with value One networks, social earning we to bank Meta’s and creating assets. of by to and stakeholders, financial activities third-party call banking fintechs We national availability, for compliance,

pillars, governance, publishing our ESG ambitions have efforts efforts. the outlining social purpose ESG and critical and Our our in and we quarter employees, the during ESG culture. report and strategy future inaugural our governance drives our the customers, is environmental aligning the by our our and embedded our advanced business undertaken activities environment. also mission with across We community highlighting five efforts

As which Community can Impact are volunteering turning we the matching up determine future With that our the that the Program to publish call our employees the that, offs engage. for important completed paid a also non-profits reports program to Also we I stakeholders. ways to the establishment topics to process goals and assessment to some in in companies and includes launched additional our thoughts. to our partnerships part which strategy, our our with we in of share quarter gifts, communities we of This help time most further guide quantitative materiality ESG support show during our in including employees and develop over This Brett ESG the am our exploring reporting serve. assessment will use efforts.

Brett Pharr

like to I signed solutions our regulatory Meta needs. we and to Years fintechs, compliance, that user-friendly tax best sponsorship Ventures. experience Meta for that Over time, have XXXX achieved provide and Meta developed we banking-as-a-service and along Today that compliance investment the has partner with third-parties financial work scale which substantial people third-party that infrastructure banking-as-a-service payments, prepaid infrastructure encompasses well business consumer of in business finance and overview including of other lines, would Brad. activities, at their business significant providers. our when first positioned third Thanks to to providing and choose services the an mission services our with agreement. of offering allows along the with since solutions parties numerous forefront our supporting been

acquiring expanded include the Faster enablement. and payments all issuing solutions ecosystem facets to Payments of also from our to in ACH We

payment X,XXX have networks, We XX with have debit and XX program launched managers and more relationships service with processors we debit XX and providers. than over card programs over prepaid and and credit

speed, tax bring thousands and services along in of of of the millions with savings. cost the tax unbanked small to services by these tax instead with including refunds products companies works the and they deposit preparation enabled provide safety consumers division Our receive These for independent and advanced to check. We direct refund preparers to provide consumers services country, hardworking to ability financial with loans serve. companies the people benefits largest significant filers with by necessary

better help their empowered access with consumer’s Our options parties consumer with finance reliable control division funds. and to works to finances third spending

and serve consumer us and segments. social share make activities histories in complements capabilities are We credit which products to that direct towards commitment pathways will mobility piloting that select line our establishing partners. core new or of payments we by We our existing hope of banking-as-a-service mission and to the funds banking-as-a-service to Ventures credit options offered enhance creating currently add building key scores. responsible investments our credit Meta direct fintechs the believe our ecosystem and credit, many to key are upward allowing the

services our partner been banking-as-a-service more financial review to a can attractive at we $XX XX fintechs value Greenwood, a partners During that serving made in to opportunities that compliance black we communities. complement our oversight. partner results. select for for Ventures you create banking quarter’s we the and mobile quarter investment and businesses regulatory fortunate a and believe has and to also a to mission The over seeking minority provide investing have to Glen, committed platform outlook Meta the our more activities third us and able million financial to than is aimed are robust consumers. make and Latino

Glen Herrick

income as XXX%, of a respectively. Brett. share, representing was Brett XXX% year-over-year you, quarter the and net or per noted, GAAP $XX.X And increase Thank for $X.XX million

XXXX Our a part fee same quarter and benefited in to Card transfer activity compared transfer programs. last to compared strong the quarter in included government stimulus related year, quarter year. to in income second from card last growth refund fiscal delays due revenue fees this fee fees season. higher generation volume because increased to the filing income tax was from the in shift of Refund

by XX% that results, stimulus the with programs pre-tax we refund This reduced investor was largely demand with breakout next slide quarterly tax from are to our year. up compared found year. the last product. net detailed As new H&R tax generated given Block income to be tax from can tax we be of product government wrap even especially business up XX we A advance was net season, overall of business and contribution Year-to-date, deck. further expect our on pleased our the for earnings income up relationship

loan to on net year-over-year. increasing lending The a strong year growth. fiscal portfolio efforts margin due and grow within along XX% assets. loan remix insurance to XX% to improvement These the capital the XX% loan return support and commercial also sheet see continued finance lower The supported the premium to growth, includes additional continue compared to incentive basis XX% our levels higher year, are accrual momentum more interest in and grew which linked-quarter driven asset return return assets quarter of demand year-over-year. factoring. rebound based We by to our experienced normalized prior balance working with starting during and portfolio, portfolio to increases the with Expenses replace employees of in increased This compensation a our highlights XXXX, year-over-year.

We result a delayed to saw to of transfer filing expenses the into quarter year as volume this refund also due the the compared prior third quarter the higher fiscal IRS date. shift

success. plan to position technology for upcoming and stack further our the year start we to improving our future priorities, strategic for we As us are investments and focusing

sheet. are to stimulus bank off to utilize cash to related us assets dollars allowing their as we starting our expected consumers and relationships levels deposits We reduce total spend see stimulus balance to holdings returning third-party move

related quarter, to payments Going indirect what XXXX the saw we three into likely the the within onto advance being of payments. impact deposits we child cards, of the see previous loaded rounds credit elevated economic partner fourth similar to tax will impact

take is will review align completing You national of Meta XXXX. loan will credit fiscal now during process administration of expect a its place earnings release the OCC its better and to portfolio guidance banks, for we in half that revising with see our second policies a

in of credits these on have expect revisions an downgrade credit and will impact ratings several categories. resulting our the in We lease policy risk loan certain

Further, in do new it one-time portfolio setting increase expect result we in in any in expect for process expected do these reflect adjustments or not baseline metrics but this periods increase an and ratings. credit changes does forward, risk will performance. indicate a We not risk future of not as deterioration losses portfolio a a past going these to for result administrative

minimal impact and if practices is economic last through in over loan have XX our and collateral financial managing losses the proven effective management expected provision cycles any Our allowance years. including impact. position The to the

to you this or As adjustments no allowance can quarter. made were provision see,

these in linked release March the decrease show XX, for the We from on credit that totaled million remained Overall quarter based the Allowance losses changes our $XX.X have a included from two XXXX, quarter. tables stable. earnings revised metrics credit policies. our at June credit

positive June to payments current. grants all million they theater Thank development, service and the the in allowance prior our loan lower of July of in you support prepared CECL to open sufficient over expense operating received $X fiscal the joining. borrower emerging the adoption the all for a line with the outlook the during COVID-XX theater to in remarks. compared year-over-year part the have used compared optimistic. funds, as driven shuttered XX% quarter which due venue up was expenses increase bring debt response large pandemic operators performance. cautiously is prior questions. to our attendance year along strong to part up and in the pandemic, credit Since Provision impacts our from they However, all third further reported and Operator, concludes year for by to please of company’s XXXX, In growth. That

Operator

the Instructions] line with [Operator from Steve Your comes Riley sir. B. first Sure, of question Securities. Moss

Your open. now line is

Steve Moss

Hi. Good guys. afternoon

Brad Hanson

Steve. Hi,

Steve Moss

loan Maybe going what as have and to how finance your am you here just in I demand shaking the the are commercial forward of kind improvements seen pipeline out with growth. there? in curious thoughts pipeline, starting loan

Brett Pharr

Well, this Brett. is

dramatic of First, lot available noted, makes need of been which asset back and half sense, that’s pull that the increase there’s lending to a about as as you capital. were had ramps if economy the because think dropping We where our base balances in we the up ago a factoring, situations lines. in working for a year

abnormal. more up balances are of coming lines, which available the XX%, back XX% Now is to

lot have had as pipelines there seeing So there, we well. coming in of new growth a deal

good deals, term the of having still are rates the there. doing highly lower close but and so Some that obviously we are those, it’s are competitive, we

say, would strong a some areas I moderate in in So it’s others. and

Steve Moss

days origination Okay. are yields our speaking? these generally where And

Brett Pharr

a the class. think that’s I questions Well, differently each asset answered by --

X%, are yields XX% high. factoring In way pretty to all so XX%, the or X%

can deals of range. Some X.X%, our the five-year lease equipment X% larger be in

Steve Moss

how fees Okay. the do forward? and kind we to of were And much just on if -- then related growth just guys stimulus here, have the that just card in card of the of going terms just think quantify curious how you fees about

Brad Hanson

on and was or stimulus spend it’s are go that a cash cards to stimulus so funds fungible the driven we really Yeah. many Hi, these such it Steve. It’s partner as hard were especially quantify or Block, that spending, as loaded seeing is of up. net to -- some difficult the other H&R that’s by balances our fact the differentiate

there’s are holding does income So growth generate deposits, -- not us. for there which fee

the wish don’t exact know what answer But -- that’s where we knew So just we there. at.

Steve Moss

quarter? just then, And Okay. in how squeeze about that kind tax third fully quarter expenses think curious just terms here, just behind I we if us kind expectations, is now I of last of of could one just in one the think versus first for expenses

Glen Herrick

Yeah.

million good tax outside this I a was for minus think, run plus us, quarter $XX season. of rate So, or

in which compensation But biggest normal we have compensation. variable increase more to pandemic’s in change we haircuts the this year were support was pretty to You team accruing taking was year, accruals will at Yeah, members, where for are is our increase our incentive we and significant growth. year-over-year employees, due incentive accruals ones, in see last levels. added biggest the the

Steve Moss

quarter. Thank much Okay. for right. all I very will step back. that. Nice All you

Brad Hanson

Steve. Thanks,

Brett Pharr

Thanks.

Operator

Perito Your with comes the next Michael from question of line KBW.

Your line’s now open.

Michael Perito

Thank afternoon, Good you. guys.

Brad Hanson

are doing? How you Hey.

Michael Perito

minute Good. I slide here. a on spend wanted to XX

that or to around payments the couple is of you as amongst how the You diversifies? legacy I concentration checking, just out continue prepaid partners you pull on maybe fair think mean maybe growth it trend the going trended prepaid, could putting And type is expand relationships? am curious BaaS less expect revenue, some kind accelerating that’s XX% I dispersion but XX% guys services. last that improving, is banking over of years. in the that improving a kind of X% not forward of if your to

Brett Pharr

Yeah.

I think so…

Brad Hanson

Brett?

Brett Pharr

then arise here, like are more our products evolving I kind money. faster seeing think are as also in banking things of we checking and core that the opportunities with, and in

talked have those. about We

you when you seeing at So banking are looking are revenues services increased.

as should well. think that continue I

think you it I calling So are right.

Brad Hanson

Yeah. to over absolute services of them checking banking faster. and would to I expect time, but an we expect the would say, on grow We would level. the all that’s segments grow

Brett Pharr

especially good heavily. banking a as from are out. a perspective banking services this that’s fee oriented most so are concentrating well, And services, and heavily right? the And revenue of also So, call is pretty the we there

Michael Perito

And then like it, maybe like but I partner. it’s your new, selling consumer is that’s sounds the to kind something fintech not are it finance, it’s the on lending which focused new mean of sounds way inclusion. financial that you sounds in necessarily it like

it correct another historically referral that than partnership, going think just of where rate stronger is I most kind wrong? maybe could your the I forward area lending through consumer So what was me growth am if look was where

Brad Hanson

into and doing lending have a We consumer an have ramp-up period do lending that that’s opportunity past fill and have our in develop over continue products think to them those pipeline longer to partnership that’s we time I or but as other been those the going well. we a of as there we think channels. I

may lending see we time some little growth. are into we I see will channels be But still about consumer the So of you other take think develop. to talking bit a still

Michael Perito

Okay.

here that fourth just to kind base get rate. I quarterly way willing to to just it question at bit that the indications, that down it’s But than a rate more third fee are of mean to kind for. any to if lower know not guide I run it a Just I assume mean, if are the looking [ph] case But a of to quarter fair was a was of hard sense is. here. the run of and that for I quite I what just you quick step what where conservative go two I ask rate through that? trying it -- the could is of mean it the long-term third trying one, card rating mean me comment. ahead we to make growth should quarter? in is

Glen Herrick

Yeah. Yeah. Yeah.

fair, a fee but do don’t would likely stimulus million. have our income ago here, I Mike, around that’s think of XX% double Steve -- fee range. if that’s outside was we I somewhere We but business exact digits. we but that believe income think year A it core numbers, core we XX%, or to increase grew $XX still listening don’t in that. card was perhaps, million $XX our on to don’t and know

Michael Perito

here be not quickly or But pretty capital balance you should sheet a think still. Brad, Got you it. how tremendous fee of are but sure relieved -- approaching, it And on, you position, with approaching will obviously, go happen, shouldn’t I treasury, the back see end normalized partner growing the are guys like to a off. I maybe me, But of balance quickly. balance normal mean, then last mean more just levels approach for ratio what a wondering, your if if I can have, really and calendar capital to by year No. I you that north just just pretty ROE very deployment? kind again That’s a guys two we the could the XX%. more mean, and lastly was ton sheet out update be the leverage generation I excellent. opportunity quarter the That’s once X.X%, is us be seems am helpful. mean, and we are quarter capital accumulating does capital about you sheet of it and

there? thoughts your if Just of us be kind willing wondering you would on refresh was to

Brad Hanson

excess we is do you to off Yeah. returning and I set of and normal more over levels time. same we capital are a the lot mean, capital looking things are at

to use those we definitely how deploy we in have So, looking at will and similar we are past. methods the probably

Michael Perito

So, I part would that be mean, a definitely of buybacks some equation?

Brad Hanson

That’s a possibility. good

Michael Perito

taking it. you, guys, questions. Okay. for I Excellent. much appreciate Thank my very

Glen Herrick

Mike. Thanks,

Brad Hanson

You bet.

Operator

comes Piper next Your question Sandler. from of Schiraldi the with Frank line

Your line’s now open.

Frank Schiraldi

Hey, guys.

wanted Just to ask...

Brad Hanson

Hi, Frank.

Frank Schiraldi

of payments-related I already, get terms $XX were And at noted I’d million the or you to inked ago. income and to a It’s also fee been have year guys you last have run rate asked big fee that double-digit ex-stimulus XX but the over mentioned big it’s and and months maybe a some in tough assume XX%. …trying a tell. sense, you partnerships know the you But income deals, pretty you that some so. got

on wanted, XX%, back half should we have calendar so the of I And year? to given just core expect signed the your into guys thoughts rate run is that the whatever you sort XX%, guys that partnerships accelerate of what

Glen Herrick

year sure Calendar not time distribution XXXX. am get partnerships so little a larger there. out I up These the ramp take to yet. to

We interfaces the at fast efficient have also very they well. pipes their to their been on side it build but partners, building how on as the it’s

So us with acceptance pipeline, market. headway fast we that’s market some robust and how of and do they the pleased the bring get making have the start in really a pipe new that these really partners and quality distribution

Brad Hanson

start this on do ramp are ramp that start they final I and other to coincide growth into once they continue next will you to have fiscal each once still -- recently to the start throughout the up. we of things some think going And compounding as have But you potential can announced year of a up, implementation imagine ramp rate. going those and and increase through good deals the upside stages fiscal next year, on

Frank Schiraldi

updated rate to then, there? or And welcome. or expectations in higher bps would call would are, you what know expect XX guys any given just thoughts it rates move, XXX be bps, updated on very a wondered, thoughts Any get Okay. you I I

Glen Herrick

anywhere the us. better is for Higher curve on

Frank Schiraldi

Yeah.

Glen Herrick

would Is say. what I

at We loans Our our liability distribution broke we new of virtually and side fixed still as price is add out the our zero. for resets ones.

helpful, And rate haven’t so guided curve on but a anywhere is we the scenario. across specific no,

Frank Schiraldi

if in I of obviously, some terms weighting the, point reflect that, I of And and doesn’t -- re-risk of out that does Okay. any just you guess, the lastly recognize any it as loans, then for loan appetites FDIC just certain changes But any other portfolio. change in any risk to operations, any such deterioration the in impact is there like and categories wondering things to assessments?

Brett Pharr

Yeah.

Brett. So this is

think solid will it So no there’s and approaches on monitor of kind key how procedure the here had charge. here. some is, no already the in underwriting. Administratively point an above. I impact of basis none underwriting doesn’t our there’s We ongoing changes we And an any change FDIC on

get want I this administrative portfolio. regulators our So with aligned us loan applying to these is an -- where truly change looking of sort at to and our standards more

Frank Schiraldi

Okay.

Glen Herrick

-- would is Frank, thanks, Brett. add this yeah, And I Glen,

see If on will down dues you look a actually you basis. in our past and release earnings our linked-quarter are

We so this expectation provisions. the doesn’t And We the for take our portfolio. change didn’t didn’t allowance. increase additional

all our have outlook at been we This So have underwriting. structurally same it changed the that is doesn’t change nor doing. we underwriting our

Frank Schiraldi

Thank right. All you. Okay.

Glen Herrick

their on to And to as commercial fully our for trying we there program with how manage Brett portfolios and these says, portfolios aligned are process just guidance loan this is make OCC sure and manage guidance. is that

Frank Schiraldi

Thanks.

Operator

Your Raymond of from Wallace next the question with William comes James. line

is line now Your open.

William Wallace

new rating reserve of with Most shifts five models risk you rating. to levels been I the function but a would the follow have in questions just in some the up risk the the my go Thanks. would plugging line the of that of fast to up? into had answered, of the last seen as curious anticipated your questioning. I am just have have

Brad Hanson

rating allowance comfortable looked Well one -- level reviewed and risk are there’s all that with and are at, And yeah. Hi, for at again more Will. the than expectations levels have your on each fits It’s that. today. all what we size depends we no was

William Wallace

the Okay. decision? And what kind this was of of genesis

Glen Herrick

are sure making lending management practices. just practices OCC’s aligned the I guidance we Well, commercial I portfolio think, and for with mentioned. It’s

borrower. flow where our an cap with we closely. performance manage approach very we their guidance, look collateral I just and the at mean, their -- we thing, our sure are so guidance doing are take collateral like And and in that our cash and analysis things the focuses trying make here’s of primarily We -- to financial aligned on

-- that you underlying a years when loss time payments going so fall on on And lease commercial on lease. going of and categories. missed specific the of analysis, more, -- has using have they forward making be typical and for to off was methodology That’s could even we measuring than expect that it that are start have is financially don’t a other will we guess, been lending be example, we stressed never of take fall do you we to different that. these. all That payment, But at to mean then company those the could because it’s these a though for along. increase I base into an any But end to I an the line underlying bit, greater loss that don’t out that, increased set chance why a there in new other we company one doesn’t little say to expect several

William Wallace

that. for you Thank Great. right. All Okay.

the revenue, interest this, cards is I really to the the mentioned is do horse, a balances spend partner’s increasing that, payments in the I are and the Okay. do with could lot September in, on say, driving the or that quarters? that base line you two to or decline decline to is one of the it but higher. beating to hate the be next you of quarter assume dead or is a fees safe the increasing, happen which going mean, gradual whatever anticipate that the

Glen Herrick

credits the cards. are now The I tax not credits -- child we out would child be and months, been year to those those tax on were issued there it for XXXX, are had that issued these authorized debit calendar our expect -- six gradual. none of are

our their main credits. checking child partners them as have they our and GPR programs However, same issue, the use card account, tax that getting are consumers

does And will so Congress to feds we continue year are through for rest see the what this see we XXXX for calendar do then there. going -- the from of to tailwinds what

William Wallace

Okay.

if press there This about right. probably into a answer, to am kind All curious written question And some the about current you to these can looking does to accounts. was esoteric of CFPB be on impact this them. have matrix closure recently Meta, this yeah, but around, of and Chime’s any letter the an [ph]? not the the able decision Okay. of you accounts could have to the is looking about at or talk I any impact close -- kind decisions

Brad Hanson

any looking are But issue information what are all of regulations are specific believe or against that. portfolio they how at that we into compliance required activities We are. -- that we their did have our make monitor not managing and we do all don’t with Chime they in and kinds and those sure we

William Wallace

Thank you very much.

Operator

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

Pathward Financial (CASH) 29 Jul 212021 Q3 Earnings call transcript