Meta Financial Group, Inc.® Announces Results for 2020 Fiscal First Quarter

Jan 29 2020

- 2020 Fiscal First Quarter Net Income of $21.1 Million, or $0.56 Per Diluted Share -

- Sale of Community Bank Division Expected to be Completed in 2020 Fiscal Second Quarter -

SIOUX FALLS, S.D., Jan. 29, 2020 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq: CASH) (“Meta” or the “Company”) reported net income of $21.1 million, or $0.56 per diluted share, for the three months ended December 31, 2019, compared to net income of $15.4 million, or $0.39 per diluted share, for the three months ended December 31, 2018.

“Our ongoing efforts to enhance our earning asset mix and increasingly leverage our core deposit base continues to drive strong earnings growth - as evidenced by the 37% increase in earnings for the first quarter of fiscal 2020 compared to the same period last year,” said President and CEO Brad Hanson. “During the quarter, we also announced an agreement to sell our Community Bank division to Central Bank. This transaction allows us to sharpen our focus on our national lending platforms, growing our deposits within our payments divisions and continued improvement of our operating efficiencies. At Meta, we are fortunate to have talented employees and business partners who revel in opportunities to provide socially beneficial financial products and services to businesses and consumers who are often overlooked by traditional banks, while generating real value for our shareholders.”

Highlights for the 2020 Fiscal First Quarter Ended December 31, 2019

  • Total gross loans and leases at December 31, 2019 increased $255.0 million, or 8%, to $3.58 billion, compared to December 31, 2018 and decreased $68.1 million, or 2% when compared to September 30, 2019. The decrease compared to September 30, 2019 was driven by the transfer of $251.9 million of Community Banking loans to held for sale during the first quarter of fiscal 2020.
  • Average deposits from the payments divisions increased nearly 12% to $2.78 billion when compared to the same period in fiscal 2019.
  • Total revenue for the fiscal 2020 first quarter was $102.1 million, compared to $98.0 million for the same quarter in fiscal 2019, representing a 4% increase.
  • Net interest income was $64.7 million, compared to $60.3 million in the comparable quarter in fiscal 2019.
  • Net interest margin ("NIM") increased to 4.94% for the fiscal 2020 first quarter from 4.60% over the same period of the prior fiscal year, while the tax-equivalent net interest margin ("NIM, TE") increased to 4.99% from 4.76% over that same period in fiscal 2019.
  • During the quarter ended December 31, 2019, the Company repurchased 899,371 of its shares, at an average price of $34.17. This exhausted the remaining 319,228 shares that were available for repurchase by the Company at the beginning of fiscal 2020 under the share repurchase program announced during the fiscal 2019 second quarter. In addition, the Company also announced on November 20, 2019, the authorization by its Board of Directors of a new share repurchase program to repurchase up to an additional 7,500,000 shares of the Company's outstanding common stock. The new authorization is effective from November 21, 2019 through December 31, 2022.

Community Bank Divestiture

On November 20, 2019, the Company announced that MetaBank entered into a definitive agreement with Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa, for the sale of the Community Bank division. The sale includes substantially all of the Community Bank's deposits, branch locations, fixed assets, employees, and a portion of the Community Bank’s loan portfolio. The final loan and deposit balances to be included in the transaction will depend on the outstanding balance of the Community Bank deposits at the time of closing. As of December 31, 2019, the Community Bank deposits were approximately $290 million. The final loan balances to be included in the transaction are expected to approximately match the final Community Bank deposit amount. The closing of the transaction is subject to the satisfaction or waiver of certain conditions, the receipt of third party and regulatory approval and satisfaction of customary closing conditions. The transaction is expected to close in the 2020 fiscal second quarter.

In connection with MetaBank's entry into the agreement with Central Bank, the Company reclassified the assets and liabilities to be sold to Central Bank as held for sale. In connection with the reclassification of the loans being sold in the Central Bank transaction to held for sale, the Company recorded a reduction to the provision for loan and lease losses within the community bank portfolio of $1.8 million during the fiscal first quarter. The remaining Community Bank loans not being sold to Central Bank will be retained by the Company under a servicing agreement with Central Bank. Also during the fiscal 2020 first quarter, the Company recognized the following pre-tax expenses related to the Community Bank transaction: $0.6 million in legal and consulting expense and $0.3 million in compensation and benefits expense and other miscellaneous income and expense.

During the quarter ended December 31, 2019, the Company also disposed of assets related to a previously disclosed Community Bank agricultural relationship that were held in other real estate owned (“OREO”), which represented 46 basis points of non-performing assets as of September 30, 2019. As part of this disposition, the Company recognized a $5.0 million loss from the sale of foreclosed property during the quarter ended December 31, 2019, which is included in the "(Loss) gain on sale of other" line on the Consolidated Statements of Operations. The Company also recognized $1.1 million in deferred rental income and $0.2 million in OREO expenses related to these foreclosed properties.

Net Interest Income
Net interest income for the fiscal 2020 first quarter was $64.7 million, an increase of 7%, from the same quarter in fiscal 2019. The increase was driven primarily by growth in loans and leases, mainly within the Company's commercial and warehouse finance portfolios.

During the first quarter of fiscal year 2020, loan and lease interest income grew by $8.2 million, when compared to the same quarter in fiscal 2019, offset in part by a decrease in investment interest income of $5.6 million, while interest expense decreased $1.7 million over that same period. The quarterly average outstanding balance of loans and leases as a percentage of interest-earning assets for the quarter ended December 31, 2019 increased to 72%, from 60% for the quarter ended December 31, 2018, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 26% from 39% over that same period. The Company’s average interest-earning assets for the fiscal 2020 first quarter grew by $10.0 million, to $5.20 billion from the comparable quarter in fiscal 2019.

NIM increased to 4.94% for the fiscal 2020 first quarter from 4.60% for the comparable quarter in fiscal 2019. The net effect of purchase accounting accretion contributed six basis points to NIM for the fiscal 2020 first quarter as compared to 25 basis points and 18 basis points for the quarters ended September 30, 2019 and December 31, 2018, respectively.

The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased by nine basis points to 5.98% for the fiscal 2020 first quarter compared to the fiscal 2019 first quarter, driven primarily by the Company's improved earning asset mix, which reflects higher balances for the national lending portfolio. The fiscal 2020 first quarter TEY on the securities portfolio was 2.65% compared to 3.13% for the same period of the prior fiscal year.

The Company's cost of funds for all deposits and borrowings averaged 1.01% during the fiscal 2020 first quarter, compared to 1.14% for the fiscal 2019 first quarter. This decrease was primarily due to a decrease in overnight borrowings rates as well as an increase in the average balance of the Company's noninterest-bearing deposits. The Company's overall cost of deposits was 0.81% in the fiscal first quarter of 2020, compared to 0.92% in the same quarter of fiscal 2019.

Noninterest Income
Fiscal 2020 first quarter noninterest income was $37.5 million, compared to $37.8 million for the same period of the prior year. This decrease was primarily due to a $2.6 million loss on sale of other during the fiscal 2020 first quarter compared to a gain on sale of other of $1.3 million during the fiscal 2019 first quarter. The loss on sale of other during the current period was driven primarily by the loss on sale of OREO, as described in the Community Bank Divestiture section above, partially offset by gains on the sale of loans and leases. Additionally, increases in rental income, other income, payments card and deposit fees, and tax advance product fees partially offset the loss on sale of other when comparing the fiscal 2020 first quarter to the same period of the prior year.

Noninterest Expense
Noninterest expense increased 2% to $75.8 million for the fiscal 2020 first quarter, from $74.3 million for the same quarter of fiscal 2019. The increase in noninterest expense when comparing the fiscal 2020 first quarter to the same period of the prior year was driven by increases in compensation and benefits expense, other expense, legal and consulting expense, tax advance product expense and operating lease equipment depreciation, partially offset by decreases in intangible amortization and card processing expense.

Income Tax Expense
The Company recorded income tax expense of $0.7 million, or an effective tax rate of 2.97%, for the fiscal 2020 first quarter, compared to an income tax benefit of $1.7 million, or an effective tax rate of (11.56)%, for the fiscal 2019 first quarter. The recorded income tax expense during the current quarter was due to an increase in net income before tax, as well as less investment tax credits recognized ratably when compared to the prior year quarter.

The Company originated $17.9 million in solar leases during the fiscal 2020 first quarter, compared to $35.6 million in solar leases originated during the fiscal 2019 first 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

  December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
Total investments $ 1,337,840     $ 1,407,257     $ 1,502,640     $ 1,649,754     $ 1,855,792  
                   
Loans held for sale                  
Consumer credit products     122,299     45,582     42,342     24,233  
SBA/USDA 13,883     26,478     17,257     17,403     9,327  
Community Bank(1) 250,383                  
Total loans held for sale 264,266     148,777     62,839     59,745     33,560  
                   
National Lending                  
Term lending(2) 695,347     645,978     565,883     510,506     492,496  
Asset based lending(2) 250,633     250,465     229,573     230,557     207,981  
Factoring 285,776     296,507     320,344     287,955     284,912  
Lease financing(2) 223,715     173,679     161,810     152,561     144,484  
Insurance premium finance 349,299     361,105     358,772     307,875     330,712  
SBA/USDA 90,269     88,831     99,791     77,481     67,893  
Other commercial finance 99,617     99,665     99,677     98,956     89,402  
Commercial Finance 1,994,656     1,916,230     1,835,850     1,665,891     1,617,880  
Consumer credit products 115,843     106,794     155,539     139,617     96,144  
Other consumer finance 154,772     161,404     164,727     170,824     182,510  
Consumer Finance 270,615     268,198     320,266     310,441     278,654  
Tax Services 101,739     2,240     24,410     84,824     76,575  
Warehouse Finance 272,522     262,924     250,003     186,697     176,134  
Total National Lending loans and leases 2,639,532     2,449,592     2,430,529     2,247,853     2,149,243  
Community Banking                  
Commercial real estate and operating 682,399     883,932     877,412     869,917     863,753  
Consumer one-to-four family real estate and other 220,588     259,425     256,853     257,079     256,341  
Agricultural real estate and operating 40,778     58,464     61,169     60,167     58,971  
Total Community Banking loans 943,765     1,201,821     1,195,434     1,187,163     1,179,065  
Total gross loans and leases 3,583,297     3,651,413     3,625,963     3,435,016     3,328,308  
Allowance for loan and lease losses (30,176 )   (29,149 )   (43,505 )   (48,672 )   (21,290 )
Net deferred loan and lease origination fees (costs) 7,177     7,434     5,068     2,964     1,190  
Total loans and leases, net of allowance $ 3,560,298     $ 3,629,698     $ 3,587,526     $ 3,389,308     $ 3,308,208  

(1) The December 31, 2019 balance included $197.5 million of commercial real estate and operating loans, $40.4 million of consumer one-to-four family real estate and other loans, and $12.7 million of agricultural real estate and operating loans.
(2) The Company has updated the presentation of its loan and lease table beginning in the fiscal 2020 first quarter. The new presentation includes a new category called term lending. Certain balances previously included in the asset based lending and lease financing categories have been reclassified into the new term lending category during the fiscal 2020 first quarter. Prior period balances have been conformed to the new presentation.

The Company continued to utilize cash flow from its amortizing securities portfolio to fund loan and lease growth. Investment securities totaled $1.34 billion at December 31, 2019, as compared to $1.86 billion at December 31, 2018.

On October 1, 2019, the Company sold $111.7 million in held for sale consumer credit product loan balances, reducing the outstanding balance to zero as of December 31, 2019. In addition, the Company reclassified certain Community Banking loans to held for sale during the fiscal 2020 first quarter, as discussed further in the Community Bank Divestiture section above.

Total gross loans and leases increased $255.0 million, or 8%, to $3.58 billion at December 31, 2019, from $3.33 billion at December 31, 2018, which was primarily attributable to growth in the commercial finance and warehouse finance portfolios.

At December 31, 2019, commercial finance loans, which comprised 56% of the Company's gross loan and lease portfolio, totaled $1.99 billion, reflecting growth of $78.4 million, or 4%, from September 30, 2019. Tax services loans totaled $101.7 million, increasing from $2.2 million at September 30, 2019, as the Company began originating taxpayer advances and ERO loans in preparation of the 2019 tax season during the fiscal 2020 first quarter.

Asset Quality
The Company’s allowance for loan and lease losses was $30.2 million at December 31, 2019, compared to $21.3 million at December 31, 2018, driven primarily by increases in the allowance of $10.2 million in commercial finance and $0.6 million in consumer lending, partially offset by a decrease of $2.1 million in the community banking portfolio.

(Unaudited) Three Months Ended
Allowance for loan and lease loss activity December 31, 2019   September 30, 2019   December 31, 2018
(Dollars in thousands)          
Beginning balance $ 29,149     $ 43,505     $ 13,040  
Provision - tax services loans 911     (9 )   1,496  
Provision - all other loans and leases 2,496     4,130     7,603  
Charge-offs - tax services loans     (15,426 )   (42 )
Charge-offs - all other loans and leases (3,918 )   (3,351 )   (2,762 )
Recoveries - tax services loans 739     10     92  
Recoveries - all other loans and leases 799     290     1,863  
Ending balance $ 30,176     $ 29,149     $ 21,290  

Provision for loan and lease losses was $3.4 million for the quarter ended December 31, 2019, compared to $9.1 million for the comparable period in the prior fiscal year. The decrease in provision was primarily within the consumer finance portfolio, as well as within the community bank portfolio, which was related to the transfer of loans to held for sale in connection with the pending sale of the Community Bank division. Net charge-offs were $2.4 million for the quarter ended December 31, 2019 compared to $0.8 million for the quarter ended December 31, 2018. The overall increase in total net charge-offs from the comparable quarter of the prior fiscal year was primarily within the commercial finance portfolio.

The Company's nonperforming assets at December 31, 2019, were $29.8 million, representing 0.48% of total assets, compared to $56.5 million, or 0.91% of total assets at September 30, 2019 and $45.4 million, or 0.73% of total assets at December 31, 2018. The decrease in nonperforming assets was primarily driven by a reduction in foreclosed and repossessed assets. While the levels of nonperforming assets and charge-offs often exhibit some degree of volatility, the Company continuously monitors its various loan and lease portfolios for trends of deterioration, and, as of December 31, 2019, the Company's management remained comfortable with the risk characteristic trends of such portfolios.

At December 31, 2019, foreclosed and repossessed assets were $1.3 million, representing 0.02% of total assets, compared to $29.5 million, or 0.48% of total assets, at September 30, 2019 and $31.5 million, or 0.51% of total assets at December 31, 2018. The decrease in the foreclosed and repossessed assets balance at December 31, 2019, compared to September 30, 2019 and December 31, 2018, was attributable to the Company disposing of assets during the fiscal 2020 first quarter, as discussed further in the Community Bank Divestiture section above.

Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2020 first quarter increased by $9.3 million to $4.61 billion compared to the same period in fiscal 2019. Average noninterest-bearing deposits grew by $242.9 million, or 10%, while average wholesale deposits decreased $225.7 million, or 13%, in each case, for the fiscal 2020 first quarter when compared to the same period in fiscal 2019. Average deposits from the payments divisions increased nearly 12% to $2.78 billion for the fiscal 2020 first quarter when compared to the same period in fiscal 2019.

The average balance of total deposits and interest-bearing liabilities was $5.13 billion for the three-month period ended December 31, 2019, compared to $5.10 billion for the same period in the prior fiscal year, representing an increase of 1%.

Total end-of-period deposits decreased 8% to $4.52 billion at December 31, 2019, compared to $4.94 billion at December 31, 2018. The decrease in end-of-period deposits was primarily a result of the transfer of $286.6 million of community bank deposits to held for sale during the first quarter of fiscal 2020.

Regulatory Capital
The Company and MetaBank remained above the federal regulatory minimum capital requirements at December 31, 2019 and continued to be classified as well-capitalized institutions. Regulatory capital ratios of the Company and the Bank are stated in the table below.

The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis.

As of the dates indicated December 31,
 2019
  September 30,
 2019
  June 30,
 2019
  March 31,
 2019
  December 31,
2018
Company                  
Tier 1 leverage capital ratio 8.28 %   8.33 %   8.05 %   7.45 %   7.90 %
Common equity Tier 1 capital ratio 10.10 %   10.35 %   10.19 %   10.94 %   10.10 %
Tier 1 capital ratio 10.46 %   10.71 %   10.55 %   11.31 %   10.47 %
Total capital ratio 12.74 %   13.01 %   13.22 %   14.20 %   12.69 %
MetaBank                  
Tier 1 leverage capital ratio 9.70 %   9.65 %   9.37 %   8.42 %   9.01 %
Common equity Tier 1 capital ratio 12.18 %   12.31 %   12.22 %   12.72 %   11.87 %
Tier 1 capital ratio 12.24 %   12.37 %   12.27 %   12.76 %   11.91 %
Total capital ratio 12.90 %   13.02 %   13.26 %   13.92 %   12.41 %

The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP:

Standardized Approach(1) December 31,
 2019
  September 30,
 2019
  June 30,
 2019
  March 31,
 2019
  December 31,
2018
(Dollars in Thousands)                  
Total stockholders' equity $ 837,068     $ 843,958     $ 822,901     $ 823,709     $ 770,728  
Adjustments:                  
LESS: Goodwill, net of associated deferred tax liabilities 304,020     304,020     302,850     302,768     299,037  
LESS: Certain other intangible assets 47,855     50,501     53,249     56,456     61,317  
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 16,876     15,569     13,858     7,381     4,720  
LESS: Net unrealized gains (losses) on available-for-sale securities 3,897     6,458     2,329     (10,022 )   (28,829 )
LESS: Non-controlling interest 4,305     4,047     3,508     3,528     3,267  
LESS: Unrealized currency gains (losses)             (242 )   (357 )
Common Equity Tier 1(1) 460,115     463,363     447,107     463,840     431,573  
Long-term borrowings and other instruments qualifying as Tier 1 13,661     13,661     13,661     13,661     13,661  
Tier 1 minority interest not included in common equity tier 1 capital 2,372     2,350     2,119     2,064     1,796  
Total Tier 1 Capital 476,148     479,374     462,887     479,565     447,030  
Allowance for loan and lease losses 30,239     29,272     43,641     48,812     21,422  
Subordinated debentures (net of issuance costs) 73,684     73,644     73,605     73,566     73,528  
Total qualifying capital $ 580,071     $ 582,290     $ 580,133     $ 601,963     $ 541,980  

(1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes are being fully phased in through the end of 2021.

The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry.

  December 31,
 2019
  September 30,
 2019
  June 30,
 2019
  March 31,
 2019
  December 31,
2018
(Dollars in Thousands)                  
Total Stockholders' Equity $ 837,068     $ 843,958     $ 822,901     $ 823,709     $ 770,728  
Less: Goodwill 309,505     309,505     307,941     307,464     303,270  
Less: Intangible assets 50,151     52,810     56,153     60,506     66,366  
Tangible common equity 477,412     481,643     458,807     455,739     401,092  
Less: Accumulated other comprehensive income (loss) ("AOCI") 3,895     6,339     2,308     (10,264 )   (29,186 )
Tangible common equity excluding AOCI $ 473,517     $ 475,304     $ 456,499     $ 466,003     $ 430,278  

Future Outlook
The Company expects full-year fiscal 2020 GAAP earnings per common share to range between $3.58 to $3.78. When excluding an expected gain on sale of the Community Bank division and the net financial impact of the sale of foreclosed property, the Company expects full-year fiscal 2020 EPS to range between $3.30 and $3.50.

Conference Call
The Company will host a conference call and earnings webcast at 4:00 p.m. CST (5:00 p.m. EST) on Wednesday, January 29, 2020. The live webcast of the call can be accessed from Meta’s Investor Relations website at www.metafinancialgroup.com. Telephone participants may access the live conference call by dialing (844) 461-9934 beginning approximately 10 minutes prior to start time. Please ask to join the Meta Financial conference call, and provide conference ID 4678668 upon request. International callers should dial (636) 812-6634. A webcast replay will also be archived at www.metafinancialgroup.com for one year.

Annual Meeting of Shareholders
The Annual Meeting of Shareholders will convene at 9:00 am, local time, on Tuesday, February 25, 2020. The meeting will be held at the MetaBank Corporate Services Building, 5501 South Broadband Lane, Sioux Falls, SD. Further information with regard to this meeting can be found in the proxy statement filed with the Securities and Exchange Commission (the "SEC") on January 15, 2020. Copies of the Company's Annual Report on Form 10-K for the year ended September 30, 2019 (excluding exhibits thereto) may be obtained from www.metafinancialgroup.com.

Forward-Looking Statements
The Company and MetaBank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the SEC, the Company’s reports to stockholders, and in other communications by the Company and MetaBank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; customer retention; loan and other product demand; important components of the Company's statements of financial condition and operations; growth and expansion; expectations concerning the Company's acquisitions and divestitures, including potential benefits of, and other expectations for the Company in connection with, such transactions; new products and services, such as those offered by MetaBank or the Company's Payments divisions (which include Meta Payment Systems, Refund Advantage, EPS Financial and Specialty Consumer Services); credit quality and adequacy of reserves; technology; and the Company's employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the risk that the transaction with Central Bank may not occur on a timely basis or at all; the parties ability to obtain third party and regulatory approvals, and otherwise satisfy the other conditions to closing the transaction with Central Bank, on a timely basis or at all; factors relating to the Company’s share repurchase program; actual changes in interest rates and the Fed Funds rate; additional changes in tax laws; the strength of the United States' economy, in general, and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), as well as efforts of the United States Congress and the United States Treasury in conjunction with bank regulatory agencies to stimulate the economy and protect the financial system; inflation, market, and monetary fluctuations; the timely and efficient development of, and acceptance of, new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the risks of dealing with or utilizing third parties, including, in connection with the Company’s refund advance business, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or acceptance of usage of Meta’s strategic partners’ refund advance products; any actions which may be initiated by our regulators in the future; the impact of changes in financial services laws and regulations, including, but not limited to, laws and regulations relating to the tax refund industry and the insurance premium finance industry; our relationship with our primary regulators, the Office of the Comptroller of the Currency and the Federal Reserve, as well as the Federal Deposit Insurance Corporation, which insures MetaBank’s deposit accounts up to applicable limits; technological changes, including, but not limited to, the protection of electronic files or databases; acquisitions; litigation risk, in general, including, but not limited to, those risks involving MetaBank's divisions; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by MetaBank of its status as a well-capitalized institution, particularly in light of our growing deposit base, a portion of which has been characterized as “brokered;” changes in consumer spending and saving habits; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2019, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.


Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share Data)

ASSETS December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
Cash and cash equivalents $ 152,189     $ 126,545     $ 100,732     $ 156,461     $ 164,169  
Investment securities available for sale, at fair value 852,603     889,947     961,897     1,081,663     1,340,870  
Mortgage-backed securities available for sale, at fair value 362,120     382,546     395,201     413,493     354,186  
Investment securities held to maturity, at cost 116,313     127,582     138,128     146,992     153,075  
Mortgage-backed securities held to maturity, at cost 6,804     7,182     7,414     7,606     7,661  
Loans held for sale 264,266     148,777     62,839     59,745     33,560  
Loans and leases 3,590,474     3,658,847     3,631,031     3,437,980     3,329,498  
Allowance for loan and lease losses (30,176 )   (29,149 )   (43,505 )   (48,672 )   (21,290 )
Federal Home Loan Bank Stock, at cost 13,796     30,916     17,236     7,436     15,600  
Accrued interest receivable 18,687     20,400     19,722     20,281     22,076  
Premises, furniture, and equipment, net 38,671     45,932     46,360     45,457     44,299  
Rental equipment, net 211,673     208,537     184,732     140,087     146,815  
Bank-owned life insurance 90,458     89,827     89,193     88,565     87,934  
Foreclosed real estate and repossessed assets 1,328     29,494     29,514     29,548     31,548  
Goodwill 309,505     309,505     307,941     307,464     303,270  
Intangible assets 50,151     52,810     56,153     60,506     66,366  
Prepaid assets 14,813     9,476     22,023     26,597     31,483  
Deferred taxes 19,752     18,884     21,630     19,079     23,607  
Other assets 97,499     54,832     52,831     49,754     48,038  
                   
Total assets $ 6,180,926     6,182,890     $ 6,101,072     $ 6,050,042     $ 6,182,765  
                   
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
                   
LIABILITIES                  
Deposits held for sale $ 288,975     $     $     $     $  
Deposits:                  
Noninterest-bearing checking 2,927,967     2,358,010     2,751,931     3,034,428     2,739,757  
Interest-bearing checking 67,642     185,768     157,802     183,492     128,662  
Savings deposits 17,436     49,773     52,179     59,978     52,229  
Money market deposits 42,286     76,911     68,604     56,563     54,559  
Time certificates of deposit 23,454     109,275     116,698     154,401     170,629  
Wholesale deposits 1,438,820     1,557,268     1,628,000     1,481,445     1,790,611  
Total deposits 4,517,605     4,337,005     4,775,214     4,970,307     4,936,447  
Short-term borrowings 194,000     646,019     146,613     11,583     231,293  
Long-term borrowings 213,070     215,838     209,765     99,800     88,983  
Accrued interest payable 6,620     9,414     12,350     9,239     11,280  
Accrued expenses and other liabilities 123,588     130,656     134,229     135,404     144,034  
Total liabilities 5,343,858     5,338,932     5,278,171     5,226,333     5,412,037  
                   
STOCKHOLDERS’ EQUITY                  
Preferred stock                  
Common stock, $.01 par value 372     378     379     395     394  
Common stock, Nonvoting, $.01 par value                  
Additional paid-in capital 587,678     580,826     578,715     576,406     572,156  
Retained earnings 244,005     252,813     238,004     258,600     228,453  
Accumulated other comprehensive income (loss) 3,895     6,339     2,308     (10,264 )   (29,186 )
Treasury stock, at cost (3,187 )   (445 )   (13 )   (4,956 )   (4,356 )
Total equity attributable to parent 832,763     839,911     819,393     820,181     767,461  
Noncontrolling interest 4,305     4,047     3,508     3,528     3,267  
Total stockholders’ equity 837,068     843,958     822,901     823,709     770,728  
                   
Total liabilities and stockholders’ equity $ 6,180,926     $ 6,182,890     $ 6,101,072     $ 6,050,042     $ 6,182,765  


Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)

  Three Months Ended
  December 31, 2019   September 30, 2019   December 31, 2018
Interest and dividend income:          
Loans and leases, including fees $ 68,702     $ 70,628     $ 60,498  
Mortgage-backed securities 2,389     2,768     2,698  
Other investments 6,534     7,432     11,780  
  77,625     80,828     74,976  
Interest expense:          
Deposits 9,340     10,917     10,596  
FHLB advances and other borrowings 3,634     4,294     4,108  
  12,974     15,211     14,704  
           
Net interest income 64,651     65,617     60,272  
           
Provision for loan for lease losses 3,407     4,121     9,099  
           
Net interest income after provision for loan and lease losses 61,244     61,496     51,173  
           
Noninterest income:          
Refund transfer product fees 192     639     261  
Tax advance product fees 2,276     (70 )   1,685  
Payments card and deposit fees 21,499     20,276     20,807  
Other bank and deposit fees 487     492     482  
Rental income 12,351     10,886     10,890  
Gain (loss) on sale of securities available-for-sale, net     80     (22 )
(Loss) gain on sale of other (2,568 )   1,715     1,266  
Other income 3,246     1,962     2,382  
Total noninterest income 37,483     35,980     37,751  
           
Noninterest expense:          
Compensation and benefits 34,268     38,461     33,010  
Refund transfer product expense 173     48     10  
Tax advance product expense 1,132     1     452  
Card processing 5,607     5,008     7,085  
Occupancy and equipment expense 6,655     7,265     6,458  
Operating lease equipment depreciation 8,280     7,901     7,765  
Legal and consulting 4,674     4,968     3,969  
Intangible amortization 2,676     3,358     4,383  
Impairment expense 242          
Other expense 12,091     9,133     11,163  
Total noninterest expense 75,798     76,143     74,295  
           
Income before income tax expense 22,929     21,333     14,629  
           
Income tax expense (benefit) 680     (130 )   (1,691 )
           
Net income before noncontrolling interest 22,249     21,463     16,320  
Net income attributable to noncontrolling interest 1,181     1,268     922  
Net income attributable to parent $ 21,068     $ 20,195     $ 15,398  
           
Earnings per common share          
Basic $ 0.56     $ 0.53     $ 0.39  
Diluted $ 0.56     $ 0.53     $ 0.39  
Shares used in computing earnings per share          
Basic 37,431,788     37,868,788     39,335,054  
Diluted 37,465,878     37,912,616     39,406,507  


Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Only the yield/rate reflects tax-equivalent adjustments. Non-accruing loans and leases have been included in the table as loans carrying a zero yield.

Three Months Ended December 31, 2019   2018
(Dollars in Thousands) Average
Outstanding
Balance
  Interest
Earned /
Paid
  Yield /
Rate(1)
  Average
Outstanding
Balance
  Interest
Earned /
Paid
  Yield /
Rate(1)
Interest-earning assets:                      
Cash and fed funds sold $ 99,597     $ 412     1.65 %   $ 45,383     $ 555     4.85 %
Mortgage-backed securities 376,358     2,389     2.53 %   381,285     2,698     2.81 %
Tax exempt investment securities 490,982     2,339     2.40 %   1,237,198     7,803     3.17 %
Asset-backed securities 303,885     2,354     3.08 %   298,445     2,712     3.61 %
Other investment securities 197,513     1,429     2.88 %   110,879     710     2.54 %
Total investments 1,368,738     8,511     2.65 %   2,027,807     13,923     3.13 %
Commercial finance loans and leases 1,980,509     44,781     9.00 %   1,562,054     39,281     9.98 %
Consumer finance loans 270,612     5,790     8.51 %   291,421     6,230     8.48 %
Tax services loans 24,429     33     0.54 %   11,009     2     0.07 %
Warehouse finance loans 265,564     4,174     6.25 %   99,818     1,632     6.49 %
National lending loans and leases 2,541,114     54,778     8.58 %   1,964,302     47,145     9.52 %
Community banking loans 1,194,082     13,924     4.64 %   1,156,072     13,353     4.58 %
Total loans and leases 3,735,196     68,702     7.32 %   3,120,374     60,498     7.69 %
Total interest-earning assets $ 5,203,531     $ 77,625     5.98 %   $ 5,193,564     $ 74,976     5.89 %
Non-interest-earning assets 918,973             787,973          
Total assets $ 6,122,504             $ 5,981,537          
                       
Interest-bearing liabilities:                      
Interest-bearing checking $ 163,693     $ 153     0.37 %   $ 102,880     $ 58     0.23 %
Savings 48,776     9     0.08 %   53,661     10     0.07 %
Money markets 80,528     205     1.01 %   54,288     64     0.47 %
Time deposits 114,924     595     2.06 %   205,049     881     1.71 %
Wholesale deposits 1,472,820     8,378     2.26 %   1,698,492     9,583     2.24 %
Total interest-bearing deposits 1,880,741     9,340     1.98 %   2,114,370     10,596     1.99 %
Overnight fed funds purchased 302,804     1,450     1.91 %   393,315     2,481     2.50 %
FHLB advances 110,000     678     2.45 %           %
Subordinated debentures 73,658     1,160     6.26 %   73,504     1,161     6.27 %
Other borrowings 33,589     346     4.10 %   30,058     466     6.15 %
Total borrowings 520,051     3,634     2.78 %   496,877     4,108     3.28 %
Total interest-bearing liabilities 2,400,792     12,974     2.15 %   2,611,247     14,704     2.23 %
Noninterest-bearing deposits 2,732,062         %   2,489,148         %
Total deposits and interest-bearing liabilities $ 5,132,854     $ 12,974     1.01 %   $ 5,100,395     $ 14,704     1.14 %
Other noninterest-bearing liabilities 150,319             128,900          
Total liabilities 5,283,173             5,229,295          
Shareholders' equity 839,331             752,242          
Total liabilities and shareholders' equity $ 6,122,504             $ 5,981,537          
Net interest income and net interest rate spread including noninterest-bearing deposits     $ 64,651     4.97 %       $ 60,272     4.75 %
                       
Net interest margin         4.94 %           4.60 %
Tax-equivalent effect         0.05 %           0.16 %
Net interest margin, tax-equivalent(2)         4.99 %           4.76 %

(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2019 and 2018 was 21%.
(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.


Selected Financial Information
 
As of and For the Three Months Ended December 31,
2019
  September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
Equity to total assets 13.54 %   13.65 %   13.49 %   13.61 %   12.47 %
Book value per common share outstanding $ 22.52     $ 22.32     $ 21.72     $ 20.88     $ 19.56  
Tangible book value per common share outstanding $ 12.84     $ 12.74     $ 12.11     $ 11.55     $ 10.18  
Tangible book value per common share outstanding excluding AOCI $ 12.74     $ 12.57     $ 12.05     $ 11.81     $ 10.92  
Common shares outstanding 37,172,081     37,807,064     37,878,205     39,450,938     39,405,508  
Non-performing assets to total assets 0.48 %   0.91 %   0.84 %   0.68 %   0.73 %
Non-performing loans and leases to total loans and leases 0.62 %   0.70 %   0.57 %   0.28 %   0.42 %
Net interest margin 4.94 %   4.95 %   5.07 %   5.06 %   4.60 %
Net interest margin, tax-equivalent 4.99 %   5.00 %   5.15 %   5.18 %   4.76 %
Return on average assets 1.38 %   1.32 %   1.91 %   1.89 %   1.03 %
Return on average equity 10.04 %   9.69 %   14.17 %   16.18 %   8.19 %
Full-time equivalent employees 1,088     1,186     1,218     1,231     1,229  


Quarterly Amortization of Intangibles Expense
 
(Dollars in Thousands) Actual Anticipated
     
For the Three Months Ended Dec 31,
 2019
Mar 31,
 2020
Jun 30,
 2020
Sep 30,
 2020
Dec 31,
 2020
Mar 31,
 2021
Jun 30,
 2021
Sep 30,
 2021
Dec 31,
 2021
                   
Amortization of intangibles(1) $ 2,676   $ 3,393   $ 2,625   $ 2,270   $ 2,009   $ 2,753   $ 2,009   $ 1,757   $ 1,484  

(1) These amounts are based upon the current reporting period’s intangible assets only. This table makes no assumption for expenses related to future acquired intangible assets.

About Meta Financial Group®

Meta Financial Group, Inc.® (Nasdaq: CASH) is the holding company for the financial services company MetaBank® (“Meta”). Meta is a leader in providing innovative financial solutions to consumers and businesses in under-served niche markets, and believes in financial inclusion for all. Meta’s commercial lending division works with high-value niche industries, rapid-growth companies and technology adopters to grow their businesses and build more profitable customer relationships. Meta is one of the largest issuers of prepaid cards in the U.S., having issued more than a billion cards in partnership with banks, program managers, payments providers and other businesses, and offers a total payments services solution that includes ACH origination, wire transfers, and more. Meta has a national presence and over 1,000 employees, with corporate headquarters in Sioux Falls, S.D. For more information, visit the Meta Financial Group website.

Investor Relations and Media Contact:  
Brittany Kelley Elsasser  
Director of Investor Relations  
605-362-2423  
bkelley@metabank.com  

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Source: MetaBank