Meta Financial Group, Inc.® Announces Results for Fourth Quarter and Fiscal Year 2021

·19 min read

- Fiscal 2021 Fourth Quarter Net Income of $15.9 million, or $0.50 Per Diluted Share -

- Fiscal 2021 Net Income of $141.7 million, or $4.38 Per Diluted Share -

- Fiscal 2021 Earnings Per Share up 49% Versus Fiscal 2020 -

SIOUX FALLS, S.D., October 27, 2021--(BUSINESS WIRE)--Meta Financial Group, Inc.® (Nasdaq: CASH) ("Meta" or the "Company") reported net income of $15.9 million, or $0.50 per share, for the three months ended September 30, 2021, compared to net income of $13.2 million, or $0.38 per share, for the three months ended September 30, 2020. The Company reported record net income of $141.7 million, or $4.38 per share, for the fiscal year ended September 30, 2021, compared to net income of $104.7 million, or $2.94 per diluted share for the fiscal year ended September 30, 2020.

"MetaBank ended fiscal year 2021 on a strong note, as we made significant progress against our three key strategic initiatives, positioning the firm for continued improvement," said CEO Brett Pharr. "As we start the new fiscal year, our Banking-as-a-Service pipeline has never been stronger and we will continue to advance our mission of financial inclusion for all®."

"I also want to thank our previous CEO Brad Hanson for his contributions over nearly 20 years. His efforts, together with those of our team, built the leadership position that Meta enjoys today," Pharr added.

"We achieved record earnings this past fiscal year that generated excess capital for our shareholders, as reflected in the Board’s confidence in authorizing the new share repurchase program we announced last month," said Executive Vice President and CFO Glen Herrick. "We have a balanced approach to capital deployment and will continue to evaluate strategies that create shareholder value."

Business Development Highlights for the 2021 Fiscal Fourth Quarter and Full Fiscal Year 2021

  • Named the Visa card issuer, in conjunction with Blackhawk Network, for the Excluded Workers Fund, a New York State Department of Labor program that provides one-time payments to certain New Yorkers who lost income due to COVID-19.

  • Recognized a net unrealized gain of $4.1 million on a prior investment in MoneyLion Inc. ("MoneyLion") following the completion of its de-SPAC'ing process and listing on the New York Stock Exchange on September 22, 2021.

  • Expanded our renewable energy financing, originating $101.1 million for the fiscal year 2021, resulting in $26.5 million in total net investment tax credits.

  • Announced a new share repurchase program and during the 2021 fiscal fourth quarter repurchased 234,297 shares, at an average price of $51.18, reflecting the momentum of the business and confidence in the Company's strategy and growth trajectory. An additional 636,100 shares were purchased in October 2021 through October 22, 2021.

  • Bradley C. Hanson, President and Chief Executive Officer of the Company retired from his positions at Meta Financial and MetaBank. He will remain on the Company’s Board until the next annual stockholders’ meeting, expected to take place in February 2022. He also will serve as a Strategic Advisor to Meta on industry and partner relations until the end of 2022. The Board appointed Brett L. Pharr as Chief Executive Officer and Anthony M. Sharett as President of Meta Financial Group and MetaBank effective October 1, 2021. For additional information, please see the associated press release from September 7, 2021.

  • Subsequent to September 30, 2021, MetaBank sold $30.2 million in community banking loans to Central Bank and has agreements in place to sell another approximately $161.0 million. Following the sale, the legacy community bank loan portfolio will be less than $8 million. The Company expects community bank balances to be at $0 at the end of the first fiscal quarter of 2022. Included in the sales, are approximately $108.0 million of substandard and doubtful loans, of which $14.9 million are nonaccrual loans, as of September 30, 2021, representing 39% of MetaBank's substandard and doubtful loan and lease balances and 44% of our nonaccrual balances.

Financial Highlights for the 2021 Fiscal Fourth Quarter

  • Total revenue for the fourth quarter was $120.2 million, an increase of $14.9 million compared to the same quarter in fiscal 2020 primarily driven by higher net interest income, payments fee income and $4.1 million in other income related to the MoneyLion valuation.

  • Operating efficiency ratio improved 146 basis points to 62.5% at September 30, 2021 compared to 64.0% at September 30, 2020. See non-GAAP reconciliation table below.

  • Net interest income for the fourth quarter was $70.7 million, an increase of $6.2 million compared to $64.5 million in the fourth quarter last year.

  • Net interest margin ("NIM") improved to 4.35% for the fourth quarter from 3.77% during the same period of last year, chiefly due to the decrease in cash associated with the Company's participation in the Economic Impact Program ("EIP") program, as well as an increase in commercial and warehouse finance loans and leases.

  • Total gross loans and leases at September 30, 2021 increased $293.7 million, to $3.61 billion, or 9%, compared to September 30, 2020 and increased $112.6 million, or 3%, when compared to June 30, 2021. The increase was primarily driven by growth in commercial finance, warehouse finance and consumer finance loans partially offset by a decrease in community bank loans, which was driven by a loan sale of $75.1 million during the quarter.

Net Interest Income

Net interest income for the fourth quarter of fiscal 2021 was $70.7 million, an increase of 10% from the same quarter in fiscal 2020. The increase was mainly attributable to the continued optimization of our earning asset and liability mix, along with increased loan balances.

The fourth quarter average outstanding balance of loans and leases increased $109.3 million compared to the prior year quarter, primarily due to increases in the commercial finance, warehouse finance and consumer finance loan and lease portfolios, partially offset by a decrease in the retained community bank portfolio. The Company’s average interest-earning assets for the fourth quarter decreased by $367.8 million to $6.44 billion compared with the same quarter in fiscal 2020, primarily due to the decrease in cash and fed funds sold, partially offset by growth in total investments and total loans and leases.

Fiscal 2021 fourth quarter NIM increased to 4.35% from 3.77% in the fourth quarter of last year. The overall reported tax-equivalent yield ("TEY") on average earning asset yields increased 43 basis points to 4.45% compared to the prior year quarter, primarily driven by a reduction in low-yielding cash held at the Federal Reserve. The TEY on the securities portfolio was 1.50% compared to 1.78% for the comparable period last year.

The Company's cost of funds for all deposits and borrowings averaged 0.09% during the fiscal 2021 fourth quarter, compared to 0.23% during the prior year quarter, primarily driven by a reduction in wholesale deposit balances. The Company's overall cost of deposits was 0.01% in the fiscal fourth quarter of 2021, compared to 0.12% in the same quarter last year.

Noninterest Income

Fiscal 2021 fourth quarter noninterest income increased to $49.5 million, compared to $40.8 million for the same period of the prior year. The significant increase was primarily driven by payments fee income, a net unrealized gain of $4.1 million in the MoneyLion investment and $1.5 million of other income on a student loan insurance recovery, which were partially offset by a net loss on a sale of community bank loans in the quarter of $1.8 million. The payments fee income was aided by an increase in activity related to government stimulus programs.

Noninterest Expense

Noninterest expense increased 17% to $93.6 million for the fiscal 2021 fourth quarter, from $80.3 million for the same quarter last year. The increase in expense was primarily driven by $9.0 million in one-time technology and product investments. CEO transition expenses of $1.3 million related to accelerated vesting of CEO shares and associated professional expenses also contributed to the year-over-year increase.

Income Tax Expense

The Company recorded income tax expense of $1.1 million, representing an effective tax rate of 6.2%, for the fiscal 2021 fourth quarter, compared to $1.8 million, representing an effective tax rate of 11.2%, for the fourth quarter last year.

The Company originated $29.1 million in solar leases during the fiscal 2021 fourth quarter, compared to $41.1 million in last year's fourth quarter. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. The timing and impact of future solar tax credits are expected to vary from period to period, and Meta intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Investments, Loans and Leases

September 30,
2021

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

Total investments

$

1,921,568

$

1,981,852

$

1,552,892

$

1,309,452

$

1,360,712

Loans held for sale

Consumer credit products

23,111

12,582

6,233

234

962

SBA/USDA

33,083

57,208

61,402

32,983

52,542

Community Bank

18,115

100,442

130,073

Total loans held for sale

56,194

87,905

67,635

133,659

183,577

Term lending

961,019

920,279

891,414

881,306

805,323

Asset based lending

300,225

263,237

248,735

242,298

182,419

Factoring

363,670

320,629

277,612

275,650

281,173

Lease financing

266,050

282,940

308,169

283,722

281,084

Insurance premium finance

428,867

417,652

344,841

338,227

337,940

SBA/USDA

247,756

263,709

331,917

300,707

318,387

Other commercial finance

157,908

118,081

103,234

101,209

101,658

Commercial Finance

2,725,495

2,586,527

2,505,922

2,423,119

2,307,984

Consumer credit products

129,251

105,440

104,842

88,595

89,809

Other consumer finance

123,606

122,316

130,822

162,423

134,342

Consumer Finance

252,857

227,756

235,664

251,018

224,151

Tax Services

10,405

41,268

225,921

92,548

3,066

Warehouse Finance

419,926

335,704

332,456

318,937

293,375

Community Banking

199,132

303,984

348,065

353,942

485,564

Total gross loans and leases

3,607,815

3,495,239

3,648,028

3,439,564

3,314,140

Allowance for credit losses

(68,281

)

(91,208

)

(98,892

)

(72,389

)

(56,188

)

Net deferred loan and lease origination fees

1,748

1,431

9,503

9,111

8,625

Total loans and leases, net of allowance

$

3,541,282

$

3,405,462

$

3,558,639

$

3,376,286

$

3,266,577

The Company's investment security balances at September 30, 2021 totaled $1.92 billion, as compared to $1.98 billion at June 30, 2021 and $1.36 billion at September 30, 2020.

Total gross loans and leases totaled $3.61 billion at September 30, 2021, as compared to $3.50 billion at June 30, 2021 and $3.31 billion and as compared to September 30, 2020. The primary drivers for the increase on a prior quarter basis were commercial finance, consumer credit, and warehouse finance loans, partially offset by the decrease in community bank and tax service loans.

At September 30, 2021, commercial finance loans, which comprised 76% of the Company's gross loan and lease portfolio, totaled $2.73 billion, reflecting growth of $139.0 million, or 5%, from June 30, 2021.

As of September 30, 2021, the Company had 370 loans outstanding with total loan balances of $96.0 million originated as part of the Paycheck Protection Program ("PPP"), compared with 458 loans outstanding with total loan balances of $143.3 million for the quarter ended June 30, 2021. In total, 69% of the PPP loan balances were forgiven through September 30, 2021.

Community bank loans held for investment totaled $199.1 million as of September 30, 2021, decreasing as compared to $304.0 million at June 30, 2021 and $485.6 million at September 30, 2020. The Company sold additional loans from the retained Community Bank portfolio in the amount of $75.1 million during the fiscal 2021 fourth quarter, which resulted in a net loss on sale of $1.8 million for the quarter.

Asset Quality

The Company’s allowance for credit losses ("ACL") totaled $68.3 million at September 30, 2021, a decrease compared to $91.2 million at June 30, 2021 and an increase compared to $56.2 million at September 30, 2020. The decrease in the ACL at September 30, 2021, when compared to June 30, 2021, was primarily due to a $24.3 million decrease in the allowance for seasonal tax services loan portfolio as we recorded season-end charge-downs, a $1.3 million decrease in consumer lending and a $1.0 million decrease in the retained community banking portfolio, partially offset by a $4.3 million increase in commercial finance and $0.1 million increase in warehouse finance.

The $12.1 million year-over-year increase in the ACL was primarily driven by an $18.3 million increase within the commercial finance portfolio and a $3.7 million increase in the consumer lending portfolio. These increases were driven by the year-over-year loan growth and the adoption of the current expected credit losses ("CECL") accounting standard, which required a day one entry to increase the allowance for credit losses in the amount of $12.8 million effective October 1, 2020. The increases noted above were partially offset by a $10.0 million reduction within the retained community banking portfolio, which decreased year-over-year.

The following table presents the Company's allowance for credit losses as a percentage of its total loans and leases.

As of the Period Ended

(Unaudited)

September 30,
2021

June 30,
2021

March 31,
2021

December 31,
2020

October 1,
2020(1)

September 30,
2020

Commercial finance

1.77

%

1.73

%

1.77

%

1.88

%

1.85

%

1.30

%

Consumer finance

2.91

%

3.80

%

4.70

%

4.39

%

4.31

%

1.64

%

Tax services

0.02

%

58.99

%

12.90

%

1.53

%

0.06

%

0.06

%

Warehouse finance

0.10

%

0.10

%

0.10

%

0.10

%

0.10

%

0.10

%

Community bank

6.16

%

4.36

%

4.03

%

4.01

%

3.37

%

4.59

%

Total loans and leases

1.89

%

2.61

%

2.71

%

2.10

%

2.08

%

1.70

%

(1) Represents the Company's ACL coverage ratio upon the adoption of the Accounting Standards Update 2016-13 using September 30, 2020 loan and lease and allowance balances plus the CECL allowance adjustment.

The Company's ACL as a percentage of total loans and leases decreased to 1.89% at September 30, 2021 from 2.61% at June 30, 2021. The decrease in the total loans and leases coverage ratio reflected a seasonal reduction in the allowance for the tax services loan portfolios along with a reduction in specific reserves. When excluding the seasonal tax services loans, the ACL as a percentage of total loans and leases decreased to 1.90% at September 30, 2021 from 1.94% at June 30, 2021. The coverage ratio for the commercial finance loan category remained relatively similar to the June 30, 2021 quarter. The consumer finance coverage decreased primarily due to an improved overall macroeconomic outlook and the community bank coverage ratio increased as the majority of the remaining loans are in pandemic stressed industries, such as hospitality and movie theaters. The Company expects to continue to diligently monitor the allowance for credit losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

Activity in the allowance for credit losses for the periods presented was as follows.

(Unaudited)

Three Months Ended

Year Ended

September 30, 2021

June 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

(Dollars in thousands)

Beginning balance

$

91,208

$

98,892

$

65,747

$

56,188

$

29,149

Adoption of CECL accounting standard

12,773

Provision - tax services loans

457

4,685

1,599

33,276

22,006

Provision - all other loans and leases

8,368

(36

)

7,381

16,663

42,770

Charge-offs - tax services loans

(24,849

)

(9,505

)

(13,037

)

(34,354

)

(22,834

)

Charge-offs - all other loans and leases

(7,635

)

(5,360

)

(6,015

)

(22,920

)

(18,927

)

Recoveries - tax services loans

51

17

3

1,078

830

Recoveries - all other loans and leases

681

2,515

510

5,577

3,194

Ending balance

$

68,281

$

91,208

$

56,188

$

68,281

$

56,188

Provision for credit losses was $8.8 million for the quarter ended September 30, 2021, compared to $9.0 million for the comparable period in the prior fiscal year. Provision for credit losses was $49.8 million for fiscal year ended September 30, 2021, compared to $64.8 million for the comparable period in the prior fiscal year. The fiscal year-over-year decrease in provision was largely attributable to the ACL build in the prior year stemming from the COVID-19 pandemic. Net charge-offs were $31.8 million for the quarter ended September 30, 2021, compared to $18.5 million for the quarter ended September 30, 2020. The majority of the net charge-offs for the quarter were attributable to seasonal tax-related loan products.

The Company's past due loans and leases were as follows for the periods presented.

As of September 30, 2021

Accruing and Nonaccruing Loans and Leases

Nonperforming Loans and Leases

(Dollars in Thousands)

30-59
Days
Past Due

60-89
Days
Past Due

> 89 Days
Past Due

Total
Past
Due

Current

Total Loans
and Leases
Receivable

> 89 Days
Past Due
and
Accruing

Non-accrual
balance

Total

Commercial finance

$

18,269

$

7,388

$

15,439

$

41,096

$

2,684,399

$

2,725,495

$

12,489

$

19,330

$

31,819

Consumer finance

1,676

812

1,236

3,724

249,133

252,857

1,160

1,160

Tax services

7,962

7,962

2,443

10,405

7,962

7,962

Warehouse finance

419,926

419,926

Community banking

199,132

199,132

14,915

14,915

Total loans and leases held for investment

19,945

8,200

24,637

52,782

3,555,033

3,607,815

21,611

34,245

55,856

As of June 30, 2021

Accruing and Nonaccruing Loans and Leases

Nonperforming Loans and Leases

(Dollars in Thousands)

30-59
Days

Past Due

60-89
Days
Past Due

> 89 Days

Past Due

Total
Past
Due

Current

Total Loans
and Leases
Receivable

> 89 Days
Past Due
and
Accruing

Non-accrual
balance

Total

Commercial finance

$

22,117

$

10,650

$

8,844

$

41,611

$

2,544,916

$

2,586,527

$

4,350

$

17,315

$

21,665

Consumer finance

843

1,009

525

2,377

225,379

227,756

469

469

Tax services

40,958

40,958

310

41,268

Warehouse finance

335,704

335,704

Community banking

62

1,769

1,831

302,153

303,984

19,773

19,773

Total loans and leases held for investment

23,022

52,617

11,138

86,777

3,408,462

3,495,239

4,819

37,088

41,907

The Company's nonperforming assets at September 30, 2021 were $61.8 million, representing 0.92% of total assets, compared to $45.1 million, or 0.64% of total assets at June 30, 2021 and $48.0 million, or 0.79% of total assets at September 30, 2020. The changes in the nonperforming assets as a percentage of total assets at September 30, 2021 were driven in large part by a $10.2 million increase in nonperforming assets in the commercial finance portfolio which is primarily due to an administrative timing item that management believes is not a credit concern, and an increase related to the seasonal tax services portfolio that is also timing and not credit-related, partially offset by a decrease in nonperforming assets in the community bank portfolio when compared to both the linked-quarter and the prior year.

The Company's nonperforming loans and leases at September 30, 2021, were $55.9 million, representing 1.52% of total gross loans and leases, compared to $41.9 million, or 1.17% of total gross loans and leases at June 30, 2021 and $34.0 million, or 0.97% of total gross loans and leases at September 30, 2020. The increases are related to the aforementioned non-credit related increases in nonperforming assets in the commercial finance and tax services portfolios.

Loan and lease balances that were within their active deferment period decreased to $39.1 million at September 30, 2021 from $41.5 million at June 30, 2021.

Meta has revised its credit administration policies and reviewed its loan portfolio to better align with OCC guidance for national banks, a process that began during the quarter ending June 30, 2021 and was substantially completed as of September 30, 2021. These credit policy revisions had an impact on our loan and lease risk ratings, resulting in downgrades of certain credits in several categories. Our loan and collateral management practices have proven effective in managing losses during previous economic cycles; and while we expect this process will result in setting a new baseline for portfolio metrics going forward, it does not indicate a deterioration in our portfolio's expected performance. Further, these changes do not reflect an increase in credit risk for past or future periods and thus we do not anticipate any increase in losses as a result of these one-time administrative adjustments to these credits' risk ratings.

The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented.

Asset Classification

Pass

Watch

Special Mention

Substandard

Doubtful

Total

As of September 30, 2021

(Dollars in Thousands)

Commercial finance

$

2,039,324

$

364,713

$

170,527

$

144,414

$

...

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