Business context and reporting period
The supplied filing is Meta Financial Group, Inc.’s unaudited Form 10-Q for the fiscal quarter and six months ended March 31, 2021, filed May 6, 2021. This does not match the requested company name, Pathward Financial, Inc.; investors should confirm that this is the intended filing. Amounts below are in millions of dollars unless otherwise noted.
Financial performance and position
| Metric | Three months ended March 31, 2021 | Comparable 2020 period | Six months ended March 31, 2021 | Comparable 2020 period |
|---|---|---|---|---|
| Total revenue | $187.3 | $188.3 | $298.8 | $290.4 |
| Net interest income | $73.9 | $67.7 | $139.8 | $132.4 |
| Provision for credit losses | $30.3 | $37.3 | $36.4 | $40.7 |
| Net income attributable to parent | $59.1 | $52.3 | $87.1 | $73.4 |
| Diluted earnings per share | $1.84 | $1.45 | $2.65 | $2.00 |
- Quarterly net interest margin was 3.07%, down from 4.78%; six-month margin was 3.65%, down from 4.86%. Management attributed the pressure chiefly to low-yielding excess cash from Economic Impact Payment (EIP) deposits and the lower-rate environment.
- Quarterly noninterest income was $113.5 million, down from $120.5 million; prior-year results included a $19.3 million Community Bank divestiture gain. Quarterly noninterest expense rose 5% to $96.0 million, primarily reflecting compensation and staffing.
- At March 31, total assets were $9.79 billion, deposits $8.64 billion, loans and leases $3.66 billion, and long-term borrowings $95.3 million. Cash and equivalents were $3.72 billion. Deposits rose 74% from September 30, 2020, largely due to temporary EIP-related balances.
- For the six months, operating cash flow was $385.9 million, investing cash flow was negative $660.6 million, and financing cash flow was positive $3.57 billion. Cash increased by $3.30 billion to $3.72 billion, primarily from EIP-related deposits.
- The allowance for credit losses was $98.9 million, or 2.71% of loans and leases, versus $56.2 million and 1.70% at September 30, 2020. The increase reflected adoption of CECL and the seasonal tax-services portfolio.
- Total stockholders’ equity was $835.3 million. The Company and Bank remained above regulatory minimum capital requirements and were classified as well-capitalized. The Bank’s Tier 1 leverage ratio was 5.47%, common equity Tier 1 ratio 13.39%, Tier 1 capital ratio 13.40%, and total capital ratio 14.66%.
Material changes versus comparable periods
- Quarterly net income rose about 13%, while revenue was slightly lower; the comparison is affected by the prior-year divestiture gain. Six-month net income increased to $87.1 million from $73.4 million.
- Net interest income increased as interest expense fell, but net interest margin contracted substantially as EIP-related cash expanded average earning assets at very low yields.
- Tax advance product fees rose to $44.6 million for the quarter from $29.5 million; refund transfer fees fell to $22.7 million from $28.9 million. Payment card and deposit fees increased to $29.9 million from $23.2 million.
- Loans and leases increased 10% from September 2020, driven by commercial finance and seasonal tax-services lending; Community Banking loans declined 28%, partly due to portfolio sales and paydowns.
- Nonperforming loans and leases increased to $43.5 million, or 1.17% of loans and leases, from $34.0 million, or 0.97%, at September 30, 2020.
Outlook, risks, contingencies, and unusual items
- No quantified earnings or financial guidance is provided. Management expected tax-season refund-transfer volumes and revenue to be similar to the prior year, while stating tax-advance demand was affected by consumers’ access to stimulus payments and anticipating more normalized results from H&R Block and Jackson Hewitt relationships in the 2022 tax season and beyond.
- The Bank distributed about $24.15 billion through three EIP card rounds; $11.64 billion remained outstanding at March 31, of which $869.2 million remained on Meta’s balance sheet. Management expected a slightly positive earnings impact and no material risk-based capital impact, but said the conditions were not expected to persist long term.
- COVID-19-related loan modifications still in deferral totaled $66.5 million, down from $85.3 million at December 31, 2020. PPP loans outstanding totaled $208.6 million across 576 loans. Management cautioned that pandemic effects on borrowers and credit losses remained difficult to predict.
- CECL adoption on October 1, 2020 increased the allowance by $12.8 million versus legacy accounting and reduced retained earnings by $8.4 million after tax, with $2.5 million attributable to noncontrolling interests. The Company elected the five-year regulatory-capital transition.
- Quarterly share repurchases were 734,984 shares at an average price of $40.78; 1,550,173 shares remained authorized for repurchase. The six-month cash-flow statement reports $87.0 million of repurchases.
- Unfunded loan commitments were approximately $1.28 billion. The filing describes ordinary-course legal proceedings; a separate $1.6 million premium-financing recovery action against insurance underwriters and brokers had a trial-court summary judgment in the Bank’s favor, subject to appeal. Management stated it did not expect current proceedings to materially affect results, while noting litigation uncertainty.
- After quarter-end, the Bank announced a payments-team reorganization; its Executive Vice President and Head of Payments was to leave the role effective May 7, 2021.
- Principal stated risks include interest-rate sensitivity, EIP deposit runoff, credit quality and allowance estimates, tax-product demand, regulatory change, cyber and fraud risks, and dependence on third parties and partners.
Most important facts for investors to verify
- Confirm the registrant identity: the supplied filing names Meta Financial Group, Inc., not Pathward Financial, Inc.
- Assess how temporary EIP deposits and their potential runoff affect liquidity, asset mix, earnings, and net interest margin.
- Review credit trends, especially nonperforming loans, the tax-services allowance build, COVID-related deferrals, and the adequacy of the $98.9 million allowance.
- Separate recurring revenue and earnings from the prior-year divestiture gain and evaluate whether tax-services performance meets management’s stated expectations.
- Check current regulatory capital and liquidity disclosures, since the capital figures here are dated March 31, 2021 and include a temporary OCC exemption related to EIP card distribution.