Meta Financial Group Inc (CASH) Q1 2021 Earnings Call Transcript

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Meta Financial Group Inc (CASH 1.03%)
Q1 2021 Earnings Call
Jan 27, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen thank you for standing by and welcome to the Meta Financial Group First Quarter Fiscal Year 2021 Investor Conference Call. [Operator Instructions]

I would now like to turn the conference over to Brittany Kelley Elsasser Director of Investor Relations. Please go ahead.

Brittany Kelley Elsasser -- Director of Investor Relations

Thank you and welcome to the Meta Financial Group Conference Call and Webcast where President and CEO Brad Hanson; and Executive Vice President and CFO Glen Herrick will discuss the results of our first fiscal quarter ended December 31 2020. Also participating in the call is Brett Pharr Co-President and COO of MetaBank. Additional information including the earnings release and investor presentation may be found on our website at metafinancialgroup.com. As a reminder our comments may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to update any forward-looking statements.

Please refer to the cautionary language in the earnings release investor presentation and in Meta's filings with the Securities and Exchange Commission including our most recent filings for additional information covering factors that could cause actual results to differ materially from forward-looking statements. Additionally today we will be discussing certain non-GAAP financial measures on this conference call. References to non-GAAP measures are only provided to assist you in understanding Meta's results and performance trends. Reconciliations for such non-GAAP measures are included within the appendix of the investor presentation.

Now I will turn the call over to Brad Hanson.

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Thanks Brittany. Thank you all for joining Meta Financial's First Fiscal Quarter Year 2021 Earnings Call. It is my pleasure to discuss our strong results achieved in the first fiscal quarter. I want to start by acknowledging our excellent team and thank our employees for generating these results while dealing with the challenges of the pandemic and serving our customers remotely. Compared to the same quarter last year revenue was up 9% to $111 million net income was up 33% to $28 million and earnings per share was up 50% to $0.84 per share. Our focus on improving our efficiency ratio resulted in an improvement of six percentage points to 62.2% over last year which was achieved without any COVID-related layoffs or salary reductions. Our loan portfolios continue to perform well. Nonperforming loans and leases as a percentage of loans and leases for commercial finance were 86 basis points the lowest level in over 1.5 year.

As Brett will discuss we remain focused on the hospitality and movie theater loans in our legacy Community Bank portfolio as well as our small ticket leasing and finance relationships in our commercial finance division and we stay in regular contact with those borrowers. Due to our conservative approach to ramping up provision during the early days of the pandemic we believe that current reserves are adequate to withstand projected losses in the existing portfolio. The effects of government stimulus programs have had a significant impact on our balance sheet. These programs include the Paycheck Protection Program loans economic impact payments or EIP and enhanced unemployment benefits that flow through to existing card programs. Total average payments divisions deposits including stimulus funds associated with EIP programs were up 83% year-over-year.

While it's not possible to determine the exact amount of the deposit growth associated with government stimulus programs our analysis of our deposit base including several large programs that we moved over from other banks during the year lead us to believe a more realistic run rate would be somewhere in the mid-teens excluding any stimulus related impact. Card and deposit fee income for our payment's division is up 5% over the first fiscal quarter of last year to $22.6 million. This was quite an accomplishment given the lower card volumes as our especially in our loyalty awards and promotions or rebate card area and our gift card promotions programs that were caused by COVID-related shutdowns during the latter half of the fiscal year. Some of this volume especially in gift cards rebounded nicely in the fiscal first quarter of 2021. In addition fee income was negatively impacted from the previous year by the closure of two program managers who are forced to cease operations due to the pandemic.

Fortunately increased activity on other card programs and our new transaction-related payments initiatives like faster payments and acquiring more than made up for these reductions. Overall fee income plays an important role in our financial performance accounting for 49% of total revenue for the last 12 months. We expect our fee income-related programs to be an even bigger part of our story going forward. As previously mentioned MetaBank is a financial agent of the U.S. Department of the Treasury's Bureau of the Fiscal Service and was passed with issuing prepaid debit cards for disbursement of economic impact payments to consumers under the Cares Act during fiscal year 2020. We recently reported that we were again tasked to distribute prepaid debit cards to individuals as part of the second round of the EIP program. To accommodate this program we have partnered with Fiserv and Visa to distribute approximately 11.6 million cards totaling $13.5 billion in stimulus funds for the two programs combined. Obviously a program of this size has significant impact on our balance sheet and performance metrics.

For example our capital leverage ratio net interest margin and return on assets will be skewed much lower since the associated deposits are held in cash. Risk-based capital ratios remain largely unchanged and we should see a slightly positive impact on earnings overall. Additionally we are working closely with our regulators the OCC and the Federal Reserve. The OCC has granted us an exemption from meeting capital leverage ratios due to the significant but temporary increase in deposits associated with the EIP program. We remain in good standing with regulatory agencies will not be deemed undercapitalized and will not be under any regulatory restrictions due to our participation in this program. Now I'd like to spend a few minutes to talk about our mission and some of the important enhancements we made to our environmental social and governance programs during the quarter.

Our long-term mission is providing financial inclusion for all. Meta is a financial enablement company that works with Fintech and Finserv innovators to increase financial availability choice and opportunity for all. Banking as a Service has always been a core feature of our business model and I like to say that we offered Banking as a Service since before it was cool. Our national bank charter coordination with regulators and deep understanding of risk mitigation and compliance allows us to guide and support our partners to deliver financial products to those who need the most and contribute to the social benefit of communities we serve. MetaBank is the fiduciary who issues the accounts holds the funds and manages the money moving billions of dollars each day. Our years of experience and proprietary techniques for actively monitoring collateral and mitigating risk allows us to enter markets and serve customers that traditional financial institutions often shy away from. We go where others won't because we're willing to do the hard work that others don't.

Our mission and ESG efforts are strongly aligned within and embedded in our strategy so that our priorities stay fixed on helping our communities to move toward prosperity and success. ESG along with diversity equity and inclusion are critical to the long-term success of our company and our commitment to them is reflected in our hiring of a Vice President of ESG and Community Impact who is responsible for advancing and sustaining a measurable ESG strategy and community outreach effort. This initiative will be overseen by a newly formed ESG committee of our Board of Directors. MetaBank is committed to expanding who and how the financial industry helps and we strongly believe that financial enablement and economic mobility are fundamental to our cause. These key ESG enhancements are met to ensure that we stay true to our mission helping those at the heart of the real economy by providing pathways toward prosperity and success as we endeavor to bring financial inclusion to all.

Now let me turn the call over to Brett to provide some updates on our lines of business.

Brett Pharr -- Co-President and Chief Operating Officer of MetaBank

Thank you Brad. Today I'll share some updates on a few of our business lines not yet covered starting with commercial finance. At December 31 commercial finance loans made up 70% of the company's gross loan and lease portfolio and totaled $2.42 billion a 5% increase from the linked quarter. We saw solid growth in term lending primarily related to our solar lending business and strong asset-based lending originations. During the quarter our solar credits balance increased 29% from last quarter to $323.9 million. While we have a strong pipeline we expect that we could see a slowdown in asset-based lending and factoring as a result of the second round of PPP loans reducing temporary demand for funding. From a credit perspective we continue to closely monitor each of our lending portfolios paying significant attention to our legacy community bank hospitality and movie theater loans as well as our small ticket equipment finance relationships in the Crestmark division. Our credit management team has remained in regular contact with these borrowers and we feel comfortable with the level of reserves and collateral in place on these credits.

Our legacy community bank portfolio balances continue to decline as the portfolio winds down. The portfolio is performing well and we have not experienced any further deterioration as such. We believe our credit metrics demonstrate the company's ability to weather the worst of the pandemic. Movie theater and hospitality loans in our legacy community bank portfolio continued to account for most of our total deferral balances. Our current level of reserves reflects the elevated level of risk in these portfolios but we are pleased that we are starting to see some positive developments in these relationships. For example most of the hospitality loans that were on deferral are now back to making P&I payments. In our consumer lending portfolios credit remains strong and we have seen no measurable change in performance due to COVID-19. This reinforces the strength of our program structuring and guardrails in place. Nonperforming assets increased slightly during the quarter primarily related to an increase in legacy community banking nonperforming loans.

The increase in nonaccrual balances was driven by one community bank relationship operating in the movie theater industry that moved to nonaccrual status in the fiscal 2021 first quarter. As a reminder this relationship is roughly 50% reserved for. We believe this to be isolated and not a representation of our overall loan and lease portfolio. Finally I would like to highlight our MoneyLion relationship as it is a great example of Banking as a Service and how we are leveraging our balance sheet to create relationships that advance our capabilities and create future revenue generating opportunities. Through our eventual capital arm Meta Ventures we were a strategic investor in MoneyLion before we helped power their checking account product called RoarMoney. Meta Ventures is focused on investing in early stage companies that are on the cutting-edge of payments and likely to be future users of our platform. By investing in and partnering with fintechs like MoneyLion we continue to stay on the forefront of payments industry innovation.

Now I'd like to turn it over to Glen Herrick.

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Thank you Brett and good afternoon everyone. Total revenue for the fiscal 2021 first quarter was $111 million an increase of 9% compared to the same quarter last year. The increase in revenue benefited from the previously disclosed $5 million loss from the sale of foreclosed property during the last year's first fiscal quarter related to a legacy community bank agricultural relationship. Revenue also benefited from the receipt of $3.5 million from a portion of the company's liquidation insurance claims of unearned premiums on the ReliaMax estate related to our student loan portfolio. In June 2018 we announced that we received written notification of the ReliaMax insolvency and that we expected to recover a portion of the unearned premiums. We generated net interest income of $66 million an increase of 2% for the first fiscal quarter of 2021 compared to the same quarter of fiscal 2020. Net interest income benefited from a reduction in total interest expense related to lower deposit and funding costs. Cost of funds for the first quarter of 2021 averaged just 15 basis points. Fee income represented 49% of total revenue for the 12 months ended December 31 an improvement from 45% for the prior year 12-month period.

We continue to see a robust pipeline of fee income opportunities within our payments division and our expanding Banking as a Service capabilities. We expect fee income to continue to be a greater percentage of revenue over time. Noninterest expense was $72.6 million for the first fiscal quarter of 2021 a decrease of 4% compared to the prior year. We remain disciplined on expense management as is evidenced by our efficiency ratio of 62.2% for the last 12 months ended December 31 an improvement of over 600 basis points compared to the prior year. We continue to focus on achieving our key long-term efficiency goals by driving optimization and utilization of existing business platforms and leveraging technology to help drive future efficiencies. Overall net income for the quarter was $28 million or $0.84 per share an increase of 33% and 50% respectively compared to last year's first quarter. Total assets at December 31 were $7.26 billion an increase of 18% year-over-year and 19% compared to the linked quarter. The increase is due to the higher level of cash on the balance sheet related to a seasonal increase in deposits as well as unspent funds from the first and second round of economic impact payments. Deposits in the first quarter also benefited from the $150 million in deposits from the Emerald Prepaid Mastercard program which were moved to MetaBank as a component of the broader H&R Block relationship that began in the first quarter.

As Brad mentioned we were selected again to disperse a portion of the EIP payments to eligible recipients via bank issued prepaid debit cards as part of the second round of stimulus with initial payments having begun in early January. While the EIP program is anticipated to have a slightly positive impact on earnings the balance sheet impact will be significant due to the large amount of cash on deposit balances during our fiscal second quarter resulting in a significant but temporary reduction of net interest income return on average assets and the company's leverage capital ratios until funds are spent by consumers. We do not expect these conditions will be sustained long-term and do not expect any material impact on our risk-based capital ratios. As a result of participating in this program we expect to remain in good standing with regulatory agencies and will not be deemed as undercapitalized and will not be under any regulatory restrictions. As you may recall we reinstated our share repurchase program last quarter. During the quarter we repurchased just over 1.8 million shares at an average price of $29.46. Since quarter end through January 20 we purchased an additional 300000 shares.

Under our authorized share repurchase program which is scheduled to expire on December 31 2022 we have approximately two million shares remaining. We will continue to consider further share repurchase activity within the context of our overall capital deployment strategies including funding growth initiatives and returning excess capital to shareholders. Finally we adopted CECL effective October 1 2020 and its day one entry to increase the allowance for credit losses was $12.8 million in line with expectations. Allowance for credit losses was $72.4 million at December 31. The increase in the allowance when compared to linked quarter was largely due to the adoption of the CECL accounting standard.

That concludes our prepared remarks. Operator please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Steve Moss with B. Riley Securities.

Steve Moss -- B. Riley Securities -- Analyst

Hi, good afternoon. Just want to start off maybe on [Indecipherable] Hey Brad. I just want to start maybe on the loan yields here. Pretty steady loan yields for commercial finance business. Kind of curious how the pricing environment is there and just the activity you're seeing?

Brett Pharr -- Co-President and Chief Operating Officer of MetaBank

Yes. This is Brett. I'll jump in here. Obviously rates are moving down and our assets have a fairly short duration. So, we're feeling some price pressure. But just remember the kind of assets that we go after tend to have a higher yield. So, yes there's some price pressure. There's a lot of liquidity in the market. We're not chasing a down market but we're still holding our own pretty well.

Steve Moss -- B. Riley Securities -- Analyst

Okay. And then with regard to expenses here for the upcoming quarter obviously a big quarter for tax. Just kind of curious as to how we think about total expenses in the upcoming quarter?

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Hey Steve, this is Glen. Yes, as always, our fiscal second quarter and the March quarter is our highest expenses. Part A lot of those expenses all above our run rate are variable in nature. So it depends on the volume of tax season as well. But, so they could go to $95 million $100 million but where it settles in will also correlate with revenues.

Steve Moss -- B. Riley Securities -- Analyst

Okay. That's helpful. And just one last question for me here. On fee income you guys talked about it becoming a greater percentage of revenue as the year goes on. Just wondering if you could expand on that and how you're thinking about that percentage growing throughout the year?

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Well we have announced several times about our faster payments initiatives and our acquiring business that we entered into during the last year which is starting to ramp up as well. So, we have a number of those kinds of transaction-related businesses that we've gotten into that we'll be ramping up over the next couple of years and that will be increasing our fee income. Now if interest, interest rates go up again and interest income goes up along with it those ratios could be more or less depending on those factors. But if interest rates stay the same and our portfolio kind of hangs in where it is then I think you'll see an ever-increasing percentage of fee income over time.

Steve Moss -- B. Riley Securities -- Analyst

Okay. Thank you very much. Have a good quarter.

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

All right, Steve.

Operator

Our next question comes from Michael Perito with KBW.

Michael Perito -- KBW -- Analyst

Hey. Good afternoon guys. Thanks for taking my question.

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Hey Mike.

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

You bet.

Michael Perito -- KBW -- Analyst

I have kind of a conceptual question. Brad, you mentioned some of the ESG and financial inclusion themes that are kind of driving the Meta strategy and frankly have been for years right but formalizing some of those processes and whatnot. But, I guess as we think about the prepaid card business it's hard to not look at some of the other you put in the slide deck the neobanks or digital challenger banks or things of that nature kind of going after the same part of the pie here. And I'm curious if you have any kind of longer-term views about the growth rate and viability of the prepaid business as there's more digital disruption from banking alternatives elsewhere. And I guess as we think about specifically to Meta I mean is it fair to think that with your representation on both sides that you don't really expect much of an overall impact to kind of how your business grows? Or do you think there's room for growth rates to kind of shift as time evolves?

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Well the neobanks generally don't have a banking charter and they partner with other banks in order to implement those programs. That's really what we do is support those guys. Brett highlighted MoneyLion and the RoarMoney product which is a checking account product. So, that's an example of us facilitating those kinds of opportunities in addition to prepaid. So I don't think we're just pigeonholed in prepaid first of all. Secondly I think prepaid is a broad category. There are a lot of niche applications of prepaid. And if you think about the rebate cards, the loyalty and promotion cards, the gift cards, how it's used for certain other categories like FSA products and benefits and things like that there are a lot of niche categories that will continue to grow in prepaid.

And then finally, even within some of the prepaid reloadable categories they are still very operating very strong. And we're seeing growth in a number of those programs but also of the payroll card programs which are beneficial to employers. So, there are lots of opportunities within prepaid. There's lots of opportunity for us with the neobanks and the fintechs that are out there for us to support their programs and partner with them. And I think the industry and the category is very broad so I have no concerns about competitive pressures at this time.

Michael Perito -- KBW -- Analyst

That's very helpful. And I think last I checked there's maybe a couple dozen of banks that one way or another are kind of in this embedded finance or Banking as a Service arena. I mean have you noticed any change in the competitive landscape as far as kind of the amount of other banks looking at deals you're looking at? Or has it been relatively steady for you guys? And I know you've been doing it for a long time. But just curious if that competition has really noticeably changed at all over the last 12 to 24 months?

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

I'm not seeing any competition noticeably changed in the last 12 to 24 months. In fact I've seen opportunities increasing in all categories.

Michael Perito -- KBW -- Analyst

Great. I also wanted to talk about the capital. I saw in the release that you guys are getting some temporary relief because of the EIP and the impact on capital. I was just curious if you could comment if at all if any there's an impact on kind of your appetite near-term for share repurchases? And is it fair to think that either way coming into tax season here when the balance sheet is typically a bit more levered that buybacks are likely not going to be quite as robust near term but longer term we should still view them as a piece of your capital deployment strategy?

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Glen you want to take that?

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Yes. Again we talked about keeping our balance sheet outside of the temporary EIP impact keeping the balance sheet in that $6 billion $6.5 billion range for quite some period of time. And the returns we expect to generate we're going to generate a lot of excess capital. And we'll look at all those options. But certainly share repurchases will be a part of that.

Michael Perito -- KBW -- Analyst

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

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Yup. Thank you.

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Thanks, Mike.

Operator

[Operator Instructions] Our next question comes from the line of Frank Schiraldi with Piper Sandler.

Frank Schiraldi -- Piper Sandler -- Analyst

Hey, guys. Good afternoon. Just wondered if you could give any color on or thoughts on the tax season so far, especially given just how unique the environment is and things like greater flexibility in an earned income tax credit in terms of filers using either 2019 or 2020 income. And I would imagine overall that would increase payout and more potential for refund advances. But any thoughts there that you could offer?

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Brett, do you want to start with that?

Brett Pharr -- Co-President and Chief Operating Officer of MetaBank

Yes. So we enter every tax season with a set of very experienced people. We are probably more prepared for this season than we ever have. And just as you go through it it seems like every season has its unique attributes. So, I don't know that we can predict in any way but we're well prepared for it whatever it's going to entail.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. So, no change to thinking on or previous guidance on expectations on that front at this point?

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

I think the industry overall actually thinks that there'll be some delay the IRS deferred the start of the tax season and the processing. So, I think we'll see some delay. But I think the industry overall thinks it will be pretty consistent yet. That's to be seen. We won't know until we get into the season and start to see how people are reacting to all these changes.

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Hey Frank, it's Glen. I wouldn't necessarily classify it as a lower risk stuff. All the loans have been sold to central bank thus far or refi-ed away. And, so central banks working through the relationships that they want to prioritize long-term as they have capacity on their balance sheet. Now clearly they're being very cautious about the hospitality and the theater loans we have. But it's not that we're not necessarily beyond that left with an adverse selection. And yes that portfolio eventually gets to zero, one way or the other. But right now we feel good about the loans that we do have on our balance sheet. And those that we're watching closely we feel good about the reserve levels that we have against them.

Frank Schiraldi -- Piper Sandler -- Analyst

Yes. On reserves, I know you talked about the specific reserve against this, the movie theater relationship that went into nonaccrual. And I know you gave the reserves the total community banking book. Do you give the reserves against the movie theater and hotel book in total? I don't know if I missed that in really.

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Well, we, the theaters are reserved at approximately 50%. And I don't know, we haven't provided the hospitality allowance.

Frank Schiraldi -- Piper Sandler -- Analyst

Got you. Okay. And if I could just sneak in one final one. In terms of the strength of the solar business any expectation or change to expectation on the tax rate for the year?

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Yes. The solar pipeline is strong. Our, we also believe our taxable earnings pipeline is strong. And low double-digit tax rate is what we're thinking today. As Brad mentioned a lot of our annual results including amount of taxable income will depend on how well tax season goes.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. Thank you.

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Thanks, Frank.

Operator

Thank you. Our next question comes from William Wallace with Raymond James.

William Wallace -- Raymond James -- Analyst

Good evening. Thanks for taking my call. I was wondering if you could just kind of help us think about how you might think your reserve to loan ratio might move under CECL as the year progresses under the expectation that we start to get greater visibility into an economic recovery and not we don't start to turn the other way?

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Sure, sure. Yes. So, we assuming the economy improves or doesn't get worse from here plateaus and/or starts improving later in the year then we would expect our allowance to come down.

William Wallace -- Raymond James -- Analyst

Okay. Okay.

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Now as a percentage as a qualitative allowance as we reshift our balance sheet our earning assets into more loans and fewer securities the absolute allowance will depend on the mix of loans versus securities. But on a qualitative basis we would expect if there's an improved economy and we're past the health crisis by the end of the year we would expect lower along with ratios.

William Wallace -- Raymond James -- Analyst

Okay. All right. Thank you. If I look at some of the niche commercial lending businesses. A couple of them have seen some nice bounce back in growth here in the last quarter or two. Just wondering if you could talk a little bit about what you're seeing in the commercial lending business? And what your expectations for growth might be at this point?

Brett Pharr -- Co-President and Chief Operating Officer of MetaBank

Yes, this is Brett. So we've kind of talked about this before during a time of economic stress some of the commercial borrowers are either run out of or have too much trouble with their traditional lenders. And they move to more of a working capital line arrangement. So, we've been the beneficiary of some growth and some nice transactions in asset-based lending and factoring that has come back. Also I mean if you just kind of look at the pure numbers when COVID hit and also with the PPP payments that occurred for our clients many of the same client borrowings dropped earlier. So some of that has come back quite a bit. So, that's really where you're seeing some good growth in those arenas. And we would expect that as we look forward and as I mentioned in my comments depending on how many of our clients get the second round of PPP loans we may see some softness there for a short period of time. But as the economy comes back and we have a pretty good pipeline we should be able to build those asset classes more.

William Wallace -- Raymond James -- Analyst

Okay. All right. And that's actually a good segue to another question I had which was regarding the second on PPP with the portal now open, just about a week. Where are you in applications so far? And maybe what are your expectations for what the volume might end up just go around?

Brett Pharr -- Co-President and Chief Operating Officer of MetaBank

Yes. Team have to help me if we'd actually disclose anything. But what I would tell you is is that there are some tests to get into the second round the most material of which is a 25% drop in revenue over linked quarter. And many of our clients are not able to meet that test. So that's sort of good news, bad news. But I would say that at this point the volume would be off from what it was the first round.

William Wallace -- Raymond James -- Analyst

Okay. Not willing to maybe quantify that. It seems like from a lot of the banks that have been reporting some have suggested maybe as much as 50% but others have thought that it could come in closer to 20% 30%. Do you have a sense to maybe within that range or it's not?

Brett Pharr -- Co-President and Chief Operating Officer of MetaBank

I'd say that 50% is a directionally correct number to kind of work with.

William Wallace -- Raymond James -- Analyst

Okay. Okay. Thanks. And then just a housekeeping question as it relates to PPP. Can you give us the net interest income impact or the net interest margin impact from the program in the first quarter?

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

It's just a couple of basis points from PPP. It's really our impact on net interest margin is far outweighed by the impacts of these EIP deposits.

William Wallace -- Raymond James -- Analyst

Yes. Yes. And so that's actually that I'm looking at my model and thinking that trying to forecast that net interest margin might be a meaningless exercise with all of the noise. Maybe...

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

It's going, yes NIM is going to be noisy throughout the rest of 2021. And so a cleaner ways just probably to start with the loan balances and where those go and the securities balances and build from there we're going to hold a big chunk of the EIP direct stimulus in cash. So that's going to be sitting there just earning ten basis points.

William Wallace -- Raymond James -- Analyst

And I'm wondering now the rate of decline in the first round of EIP has slowed pretty dramatically here in the last, it looks like three to six months. And what's the decision matrix as to whether or not it makes sense to take some of that cash and move it into the bond portfolio maybe later it or keep it all short and pick up a few extra dollars in net interest income if you have to keep it how are you thinking about that?

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Yes. A number of factors in there Wally. So, a lot of the lot of deposits that you see hanging around from the first stimulus last spring are still cards that have been unactivated. And so we continue discussions with our partners on that program. And when the plan was rushed out I don't think Congress ever anticipated that folks wouldn't actually take the money and use it. So, those discussions continue and as well as some of our regulatory waivers on leverage ratios call for us to keep that in cash which is why our risk-based ratios aren't moving. So, that said we do have excess liquidity. We're looking at options in securities and other ways to use that powder. That being said we also don't want to lock in too much interest rate risk but we'll deploy some of it.

William Wallace -- Raymond James -- Analyst

Okay.

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

And I would just state that the unactivated cards are still activating from last May's release of cards. So we're still seeing some activations on a daily basis albeit small. And at some point if that slows down or stops all together one of the considerations is that money if it never does get accepted we don't get it. We have to give it back to the government. So, we don't want to tie that up too long term.

William Wallace -- Raymond James -- Analyst

Understood. Thank you. That's all I have. I appreciate your time. Thank you.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Brittany Kelley Elsasser -- Director of Investor Relations

Brad Hanson -- President and Chief Executive Officer of Meta Financial Group and Co-President and Chief Executive

Brett Pharr -- Co-President and Chief Operating Officer of MetaBank

Glen Herrick -- Executive Vice President and Chief Financial Officer of Meta Financial Group, Inc. and MetaBank

Steve Moss -- B. Riley Securities -- Analyst

Michael Perito -- KBW -- Analyst

Frank Schiraldi -- Piper Sandler -- Analyst

William Wallace -- Raymond James -- Analyst

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