Filing summary
Entity and period: The supplied filing is Meta Financial Group, Inc. (NASDAQ: CASH), not a filing under the “Pathward Financial, Inc.” name in the request metadata. It reports the fiscal second quarter and six months ended March 31, 2020; balance-sheet comparisons are with September 30, 2019. Amounts are U.S. dollars.
Financial performance and condition
| Metric | Quarter ended March 31, 2020 | Six months ended March 31, 2020 |
|---|---|---|
| Total revenue | $188.3 million, up 7% year over year | $290.4 million, up 6% |
| Net interest income | $67.7 million, down 5% | $132.4 million, up slightly from $131.6 million |
| Provision for loan and lease losses | $37.3 million, versus $33.3 million | $40.7 million, versus $42.4 million |
| Net income attributable to parent | $52.3 million; diluted EPS $1.45 | $73.4 million; diluted EPS $2.00 |
| Net interest margin | 4.78%, down 28 basis points year over year; tax-equivalent 4.82% | 4.86%, up 2 basis points; tax-equivalent 4.90% |
| Cash flow from operations | Not presented separately for the quarter | $265.0 million, versus $128.1 million |
Quarterly net income benefited from a $19.3 million pretax gain on the Community Bank sale and lower noninterest expense. The sale also involved about $1.0 million of one-time expenses. Noninterest expense was $91.7 million, down 17% year over year.
At March 31, total assets were $5.84 billion, down from $6.18 billion at September 30. Gross loans and leases were $3.62 billion; the allowance was $65.4 million, or 1.81% of loans and leases, compared with $29.1 million, or 0.80%, at September 30. Deposits were $3.96 billion, down 9%; total borrowings were $928.4 million, up from $861.9 million. Cash and cash equivalents were $108.7 million. Stockholders’ equity was $805.1 million.
Six-month investing cash outflow was $146.7 million and financing cash outflow was $135.6 million. Cash declined $17.8 million from the fiscal year start to $108.7 million.
The Bank’s March 31 regulatory ratios included an 8.52% Tier 1 leverage ratio, 12.39% common equity Tier 1 ratio, 12.44% Tier 1 ratio and 13.69% total capital ratio. Management said the Bank remained well-capitalized; the leverage ratio was seasonally low due to tax-services-driven asset levels.
Changes versus comparable periods
- Quarterly net income rose from $32.1 million to $52.3 million, while diluted EPS increased from $0.81 to $1.45. The divestiture gain was a material contributor, so reported growth does not solely reflect recurring operations.
- Quarterly net interest income fell from $71.4 million to $67.7 million, and NIM narrowed from 5.06% to 4.78%, primarily reflecting lower rates and reduced investment yields, partly offset by lower funding costs.
- Quarterly noninterest income rose to $120.5 million from $105.0 million, mainly due to the Community Bank divestiture gain. Noninterest expense fell to $91.7 million from $110.3 million.
- Gross loans and leases declined 1% from September 30, reflecting the Community Bank sale, partly offset by growth in National Lending. Deposits declined 9%, with lower wholesale funding partly offset by higher noninterest-bearing deposits.
- Nonperforming assets declined to $39.4 million, or 0.67% of assets, from $56.5 million, or 0.91%, primarily due to the sale of foreclosed agricultural property. Nonperforming loans and leases, however, increased to $31.5 million from $26.5 million.
Outlook, risks and unusual items
- COVID-19 and credit: The company recorded $15.8 million of additional provision in the quarter based on its initial estimate of pandemic-related probable incurred losses. It warned that further deterioration could require additional provisions and that reduced loan demand or future credit losses could affect interest income. As of May 4, it reported $267.9 million of short-term payment deferrals and $71.9 million of other COVID-related modifications; these figures are subsequent to quarter-end. It had authorized 673 PPP loan applications totaling $215.4 million by that date.
- Tax services: Fiscal 2020 tax-season refund advances were $1.33 billion versus $1.49 billion in the prior season; expected refund-transfer processing was about 2.1 million versus more than 2.4 million. Management attributed the decline primarily to exiting non-strategic partners. Tax-services product revenue, including interest income, fell 11% in the quarter.
- Community Bank divestiture: Closed February 29, 2020, generating a $19.3 million pretax gain. The retained Community Banking loan portfolio was $896.2 million at March 31 and is serviced by Central Bank.
- Capital allocation and governance: The company repurchased 3.50 million shares during the six months, spending $113.5 million, and suspended repurchases in March. Management cited uncertainty about the pandemic’s duration and impact.
- Subsequent developments: On April 1, the Bank converted to a national bank charter and the holding company to a bank holding company that elected financial holding company status. On April 29, the Bank amended an agreement to provide debit-card services for a segment of CARES Act Economic Impact Payments.
- Controls: Management concluded disclosure controls were not effective at March 31 because of an unremediated material weakness in Crestmark IT access, change-management and loan-account review controls. Remediation was ongoing.
- Other risks: The filing identifies pandemic-related economic, borrower, collateral, operational and cyber risks; dependence on third-party servicing and payment partners; potential PPP litigation; and interest-rate sensitivity. One disclosed legal matter asserted a $4.0 million claim against the Bank, with the loss range not estimable at this stage; another matter with Ohio Valley Bank was settled and dismissed. Management reported no significant COVID-related impairment of goodwill, intangibles or securities as of March 31.
- Guidance: The filing does not provide a specific earnings or revenue forecast. Management said it could not reliably project the pandemic’s eventual financial impact and expected to revise credit-loss estimates as information developed.
Investor verification points
- Confirm the issuer identity and period: the filing names Meta Financial Group, Inc. and covers the quarter ended March 31, 2020.
- Separate the $19.3 million divestiture gain and related costs from recurring earnings when assessing the reported profit increase.
- Track subsequent-period credit performance, allowance adequacy, payment deferrals and PPP exposure, including actual funding and forgiveness outcomes.
- Review deposit stability and concentration, wholesale funding levels, liquidity needs and capital ratios as pandemic conditions evolve.
- Monitor progress in remediating the Crestmark material weakness and the effects of the April charter and holding-company conversions.