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

Jul 22 2020

- 2020 Fiscal Third Quarter Net Income of $18.2 Million, or $0.53 Per Diluted Share -

SIOUX FALLS, S.D., July 22, 2020 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq: CASH) (“Meta” or the “Company”) reported net income of $18.2 million, or $0.53 per diluted share, for the three months ended June 30, 2020, compared to net income of $29.3 million, or $0.75 per diluted share, for the three months ended June 30, 2019.

“I am proud of our performance to date during these unique and volatile times, both operationally and financially. While credit metrics remain sound, we have taken additional provision related to the uncertainty of the COVID-19 pandemic allowing us to build our allowance and strengthen our capital position,” said President and CEO Brad Hanson. “We are keeping the health and safety of our employees at the forefront as we continue serving customers, aligning for growth, and keeping our eyes on the long game, bringing sustainable value to shareholders.”

Business Developments

  • On May 15, 2020, MetaBank, National Association (the “Bank”), a wholly owned subsidiary of the Company entered into a letter of intent ("LOI") with Emerald Financial Services, LLC (“EFS”), a wholly owned indirect subsidiary of H&R Block, Inc. (“H&R Block”). Under the LOI and subject to the negotiation and execution of a multi-year program management agreement (“PMA”), Meta will offer selected financial products to H&R Block clients, and negotiate the transition of certain financial products under an existing program manager agreement between H&R Block and a third party.

  • On June 23, 2020, Brett Pharr was promoted to Co-President and Chief Operating Officer of MetaBank to better align business lines with Meta’s strategic initiatives. Brad Hanson remains Co-President and Chief Executive Officer of MetaBank and President and Chief Executive Officer of the Company.

  • During the fiscal 2020 third quarter, the Company extended its agreement with Blackhawk Network, Inc. ("BlackHawk") through 2040. Blackhawk is a leading prepaid and payments company, which supports the program management and distribution of gift cards, prepaid telecom products and financial service products in a number of different retail, digital and incentive channels.

  • The Company supported various COVID-19 relief efforts to include the Economic Impact Payment ("EIP") program and the Paycheck Protection Program ("PPP"), which are further described below.

Financial Highlights for the 2020 Fiscal Third Quarter Ended June 30, 2020 

  • Total gross loans and leases at June 30, 2020 decreased $129.3 million, or 4%, to $3.50 billion, compared to June 30, 2019 and decreased $114.1 million, or 3% when compared to March 31, 2020.

  • Average deposits from the payments divisions for the fiscal 2020 third quarter increased nearly 131% to $6.32 billion when compared to the same quarter in fiscal 2019. A significant portion of the year-over-year increase reflected the Company's participation in the EIP program, as described further below. Excluding the balances on the EIP cards, average payments deposits for the fiscal 2020 third quarter were approximately $3.99 billion, representing an increase of 46% compared to the same quarter in fiscal 2019.

  • Total revenue for the fiscal 2020 third quarter was $103.2 million, compared to $110.8 million for the same quarter in fiscal 2019.

  • Net interest income for the fiscal 2020 third quarter was $62.1 million, compared to $67.0 million in the comparable quarter in fiscal 2019.
     
  • Net interest margin ("NIM") decreased to 3.28% for the fiscal 2020 third quarter from 5.07% over the same period of the prior fiscal year, while the tax-equivalent net interest margin ("NIM, TE") decreased to 3.31% from 5.15% for that same period in fiscal 2019. The decrease in NIM during the fiscal 2020 third quarter was primarily driven by excess cash associated with the Company's participation in the Economic Impact Payment program, as described further below.

COVID-19 Business Update

The Company continues to focus on the well-being of its employees, partners and customers. Preventative health measures remain in place to protect employees and customers including mandating remote work options and social distancing measures where possible, restricting non-essential business travel and enhancing preventative cleaning services at all office locations. The Company's COVID-19 Crisis Command Center consisting of leadership and business continuity planning resources throughout the organization continues to effectively monitor possible interruptions related to the pandemic and to ensure business continuity.

The Company is participating in the PPP which is being administered by the Small Business Administration ("SBA"). As of June 30, 2020, the Company had 686 loans outstanding with a total of $215.5 million in loan balances that were originated as part of the program.

From a credit perspective, the Company continues to monitor each of its lending portfolios through these unprecedented times. Significant focus has been placed on the Company's hospitality loans and its small ticket equipment finance relationships. The credit management team has increased the monitoring of these relationships and has been in regular contact with these borrowers.

The Company's community bank hospitality loan balances increased to $169.0 million as of June 30, 2020 from $160.1 million as of March 31, 2020 and the average loan-to-value ratio on those loans improved to 60% at June 30, 2020 from 61% at March 31, 2020. 67% of the loan balances for these hotel relationships received PPP loans and 51% received some form of payment deferral modifications.

As of June 30, 2020, the Company had $245.9 million in small ticket equipment finance balances, of which $217.3 million were categorized within term lending and $28.6 million were categorized within lease financing. 27% of the balances on these small ticket equipment finance relationships received some form of payment deferral or other modifications.

The Company has granted deferral payments on a total of $352.1 million of loan and lease balances through June 30, 2020 as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19. As of June 30, 2020, loans and lease totaling $292.2 million were still in their deferment period. In addition, the Company has made other COVID-19 related modifications on a total of $52.9 million, of which $34.6 million are still active as of June 30, 2020. The majority of the other modifications were related to adjusting the type or amount of the customer's payments.

The Company increased its allowance for loan and lease losses during the fiscal third quarter primarily as a result of the ongoing economic uncertainty related to COVID-19 pandemic. The Company will continue to diligently monitor the allowance for loan and lease losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

The Company's capital position remained strong as of June 30, 2020, even while absorbing the temporary impact from the EIP program, as described further below. As of June 30, 2020, the Bank's capital leverage ratio based on average assets was 6.89%. In addition, the Company has options available that can be used to effectively manage capital levels through these turbulent times, including a very strong and flexible balance sheet. The Company's capital leverage ratio was impacted by approximately 278 basis points due to the increase in total asset balances as a result of the EIP program.

Economic Impact Payment Program ("EIP") Update

On April 29, 2020, the Bank entered into an amendment of its existing agreement with the U.S. Department of the Treasury’s Bureau of the Fiscal Service (“Fiscal Service”) to provide debit card services to support the distribution of a segment of the Economic Impact Payments payable by the Internal Revenue Service under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

Under the EIP program, 3.6 million cards were delivered with total loads of $6.42 billion. As a result of the program, the Company saw a quick influx of deposits to its balance sheet in mid-May 2020 with limited visibility into the duration of those deposits. While this program's impact to earnings was negligible, it did have a significant impact on cash and deposit balances, leading to a net drag on the net interest margin along with pressuring the Company's leverage capital ratios.

The total balances remaining on the EIP cards as of June 30, 2020 were $2.68 billion and $2.08 billion as of July 19, 2020. The funds on these cards increased the Company's quarterly average noninterest deposit balances by $2.32 billion, leading to an overall improvement in cost of deposits. This short term influx of deposits also led to excess cash balances held at the Federal Reserve during the current period, which yielded approximately 10 basis points in interest income, and increased the quarterly average of interest-earning assets compared to previous periods. This increase of lower yielding cash balances resulted in a drag to the overall yield on total interest-earning assets during the current period. The net impact to NIM was approximately 140 basis points.

Net Interest Income
Net interest income for the fiscal 2020 third quarter was $62.1 million, a decrease of 7%, from the same quarter in fiscal 2019. The decrease was primarily driven by lower overall balances and yields realized on the loan and lease portfolios along with a decrease in investment securities balances, partially offset by a reduction in total interest expense.

During the third quarter of fiscal year 2020, loan and lease interest income decreased $9.8 million and investment securities interest income decreased $4.4 million, when compared to the same quarter in fiscal 2019, while interest expense decreased $9.4 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 June 30, 2020 decreased to 48%, from 68% for the quarter ended June 30, 2019, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 17% from 31% over that same period. These decreases were primarily due to the increase in interest-earning cash balances related to the EIP program. The Company’s average interest-earning assets for the fiscal 2020 third quarter increased by $2.31 billion, to $7.61 billion from the comparable quarter in fiscal 2019, primarily due to the effects of the EIP program.

NIM decreased to 3.28% for the fiscal 2020 third quarter from 5.07% for the comparable quarter in fiscal 2019, primarily due to the effects of the EIP program. The net effect of purchase accounting accretion contributed two basis points to NIM for the fiscal 2020 third quarter as compared to three basis points and 25 basis points for the quarters ended March 31, 2020 and June 30, 2019, respectively.

The overall reported tax-equivalent yield (“TEY”) on average earning asset yields decreased by 267 basis points to 3.59% for the fiscal 2020 third quarter compared to the fiscal 2019 third quarter, driven primarily by excess low-yielding cash held at the Federal Reserve, along with a lower interest rate environment. The fiscal 2020 third quarter TEY on the securities portfolio was 2.22% compared to 3.09% for the same period of the prior fiscal year.

The Company's cost of funds for all deposits and borrowings averaged 0.28% during the fiscal 2020 third quarter, compared to 1.14% for the fiscal 2019 third 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, mainly due to the EIP program noted above. The Company's overall cost of deposits was 0.17% in the fiscal third quarter of 2020, compared to 0.90% in the same quarter of fiscal 2019.

Noninterest Income
Fiscal 2020 third quarter noninterest income was $41.0 million, compared to $43.8 million for the same period of the prior year. This year-over-year decrease was primarily due to lower total tax product fee income and a reduction in gains on loan sales, partially offset by an increase in rental income.

Noninterest Expense
Noninterest expense decreased 2% to $71.2 million for the fiscal 2020 third quarter, from $72.5 million for the same quarter of fiscal 2019, primarily driven by lower compensation and benefits, intangible amortization, total tax product expense, and occupancy and equipment expenses, partially offset by higher card processing expenses and operating lease equipment depreciation.

Income Tax Expense
The Company recorded an income tax benefit of $2.4 million, representing an effective tax rate of (14.4%), for the fiscal 2020 third quarter, compared to an income tax benefit of $1.2 million, representing an effective tax rate of (4.0)%, for the fiscal 2019 third quarter. The recorded income tax benefit during the current quarter was primarily due to ratably recognized investment tax credits and lower forecast earnings due to COVID-19.

The Company originated $1.3 million in solar leases during the fiscal 2020 third quarter, compared to $49.1 million during the fiscal 2019 third 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

  June 30, 2020   March 31, 2020   December 31, 2019   September 30, 2019   June 30, 2019
Total investments $ 1,268,416     $ 1,310,476     $ 1,337,840     $ 1,407,257     $ 1,502,640  
                   
Loans held for sale                  
Consumer credit products 391             122,299     45,582  
SBA/USDA 31,438     13,610     13,883     26,478     17,257  
Community Bank(1) 48,076         250,383          
Total loans held for sale 79,905     13,610     264,266     148,777     62,839  
                   
National Lending                  
Term lending(2) 738,454     725,581     695,347     641,742     562,557  
Asset based lending(2) 181,130     250,211     250,633     250,465     229,573  
Factoring 206,361     285,495     285,776     296,507     320,344  
Lease financing(2) 264,988     238,788     223,715     177,915     165,136  
Insurance premium finance 359,147     332,800     349,299     361,105     358,772  
SBA/USDA 308,611     92,000     90,269     88,831     99,791  
Other commercial finance 100,214     101,472     99,617     99,665     99,677  
Commercial Finance 2,158,905     2,026,347     1,994,656     1,916,230     1,835,850  
Consumer credit products 102,808     113,544     115,843     106,794     155,539  
Other consumer finance 138,777     144,895     154,772     161,404     164,727  
Consumer Finance 241,585     258,439     270,615     268,198     320,266  
Tax Services 19,168     95,936     101,739     2,240     24,410  
Warehouse Finance 277,614     333,829     272,522     262,924     250,003  
Total National Lending loans and leases 2,697,272     2,714,551     2,639,532     2,449,592     2,430,529  
Community Banking                  
Commercial real estate and operating 608,303     654,429     682,399     883,932     877,412  
Consumer one-to-four family real estate and other 166,479     205,046     220,588     259,425     256,853  
Agricultural real estate and operating 24,655     36,759     40,778     58,464     61,169  
Total Community Banking loans 799,437     896,234     943,765     1,201,821     1,195,434  
Total gross loans and leases 3,496,709     3,610,785     3,583,297     3,651,413     3,625,963  
Allowance for loan and lease losses (65,747 )   (65,355 )   (30,176 )   (29,149 )   (43,505 )
Net deferred loan and lease origination fees 5,937     8,139     7,177     7,434     5,068  
Total loans and leases, net of allowance(3) $ 3,436,899     $ 3,553,569     $ 3,560,298     $ 3,629,698     $ 3,587,526  

(1) The June 30, 2020 balance included approximately $28.7 million of commercial real estate and operating loans, $11.3 million of consumer one-to-four family real estate and other loans, and $8.1 million of agricultural real estate and operating loans. The December 31, 2019 balance included approximately $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 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 were reclassified into the new term lending category during the fiscal 2020 first quarter. Prior period balances have been conformed to the new presentation.

(3) As of June 30, 2020, the remaining balance of acquired loans and leases from the acquisition of Crestmark Bancorp, Inc. ("Crestmark") and its bank subsidiary, Crestmark Bank (the "Crestmark Acquisition") was $188.3 million and the remaining balances of the credit and interest rate mark discounts related to the acquired loans and leases held for investment were $3.4 million and $2.9 million, respectively. On August 1, 2018, the Company acquired loans and leases from the Crestmark Acquisition totaling $1.06 billion and recorded related credit and interest rate mark discounts of $12.3 million and $6.0 million, respectively.

The Company's investment security balances continued to decline at June 30, 2020 to a total of $1.27 billion, as compared to $1.50 billion at June 30, 2019.

Total gross loans and leases decreased $129.3 million, or 4%, to $3.50 billion at June 30, 2020, from $3.63 billion at June 30, 2019, with most of the decline attributable to the sale of community bank loan balances during the second quarter of fiscal 2020 along with a decrease in the consumer finance portfolio, partially offset by growth in the commercial finance portfolio.

At June 30, 2020, commercial finance loans, which comprised 62% of the Company's gross loan and lease portfolio, totaled $2.16 billion, reflecting growth of $132.6 million, or 7%, from March 31, 2020. SBA/USDA loans at June 30, 2020 increased by $216.6 million compared to March 31, 2020, with $215.5 million of the sequential increase related to PPP loans. Warehouse finance loans totaled $277.6 million at June 30, 2020, a 17% decrease from March 31, 2020.

Community bank loans totaled $799.4 million as of June 30, 2020, as compared to $896.2 million at March 31, 2020 and $1.20 billion at June 30, 2019. As of June 30, 2020, the Company had $48.1 million of community bank loans classified as held for sale and expects to sell those loans during the fourth quarter of fiscal 2020.

Asset Quality
The Company’s allowance for loan and lease losses was $65.7 million at June 30, 2020, compared to $43.5 million at June 30, 2019, driven primarily by increases in the allowance of $17.1 million in commercial finance and $12.0 million in the community banking portfolio, partially offset by decreases in the tax services and consumer lending portfolios of $4.0 million and $2.9 million, respectively.

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

  As of the Period Ended
(Unaudited) June 30, 2020   March 31, 2020 June 30, 2019
         
Commercial finance 1.36 %   1.28 % 0.67 %
Consumer finance 1.75 %   1.74 % 2.22 %
Tax services 59.67 %   22.22 % 63.19 %
Warehouse finance 0.10 %   0.10 % 0.10 %
National Lending 1.68 %   1.92 % 1.44 %
Community Bank 2.55 %   1.49 % 0.70 %
Total loans and leases 1.88 %   1.81 % 1.20 %

The Company continued to assess each of its loan and lease portfolios during the fiscal third quarter and increased its allowance for loan and lease losses as a percentage of total loans and leases in the community bank and commercial finance portfolios primarily as a result of the on-going COVID-19 pandemic. Tax services coverage rates were driven by typical seasonal activity and have not been materially impacted by COVID-19 as the tax-lending season is now complete. Warehouse finance remained largely unchanged due to the structure of the credit protections in place. The Company expects to continue to diligently monitor the allowance for loan and lease losses and adjust as necessary in future periods to maintain an appropriate and supportable level. When adding the $3.4 million balance of the credit mark to the allowance for loan and lease losses, the commercial finance coverage ratio increases to 1.52% and the total loans and leases coverage ratio increases to 1.98%, as of June 30, 2020. Within commercial finance, the coverage ratio on Crestmark division loans and leases was 1.52% at June 30, 2020, as compared to 1.41% at March 31, 2020 and 0.77% at June 30, 2019, and the coverage ratio on the insurance premium finance portfolio over those same periods were 0.66%,  0.64%, and 0.28%, respectively.

Activity in the allowance for loan and lease losses for the periods presented were as follows.

(Unaudited) Three Months Ended   Nine Months Ended
  June 30, 2020   March 31, 2020   June 30, 2019   June 30, 2020   June 30, 2019
(Dollars in thousands)                  
Beginning balance $ 65,355     $ 30,176     $ 48,672     $ 29,149     $ 13,040  
Provision - tax services loans (100 )   19,596     914     20,407     24,883  
Provision - all other loans and leases 15,193     17,700     8,198     35,390     26,646  
Charge-offs - tax services loans (9,797 )       (9,627 )   (9,797 )   (9,670 )
Charge-offs - all other loans and leases (5,808 )   (3,187 )   (5,124 )   (12,912 )   (14,407 )
Recoveries - tax services loans 15     74     36     827     212  
Recoveries - all other loans and leases 889     996     436     2,684     2,801  
Ending balance $ 65,747     $ 65,355     $ 43,505     $ 65,747     $ 43,505  

Provision for loan and lease losses was $15.1 million for the quarter ended June 30, 2020, compared to $9.1 million for the comparable period in the prior fiscal year. The increase in provision was primarily within the remaining community banking and commercial finance portfolios, partially offset by decreases in the consumer finance and tax services portfolios. Provision increases in the community banking and commercial finance portfolios was primarily attributable to the increased stress that the hospitality loans and its small ticket equipment finance relationships have experienced stemming from the ongoing economic uncertainty related to the COVID-19 pandemic. Loans and leases that received short-term payment deferrals were also analyzed and additional provision was applied as appropriate. Management believes that given the structure of the credit protections put in place for the consumer and warehouse finance lending lines, the coverage ratio for those loan portfolios was adequate as of June 30, 2020. Net charge-offs were $14.7 million for the quarter ended June 30, 2020 compared to $14.3 million for the quarter ended June 30, 2019. Total net charge-offs for the quarter ended June 30, 2020 consisted primarily of seasonal net charge-offs of $9.8 million in the tax services loan portfolio. The overall increase in total net charge-offs from the comparable quarter of the prior fiscal year was primarily within the commercial finance portfolio, offset partially by a decrease in the consumer finance portfolio.

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

As of June 30, 2020 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 $ 13,865     $ 16,005     $ 27,150     $ 57,020     $ 2,101,885     $ 2,158,905     $ 8,635     $ 22,285     $ 30,920  
Consumer finance 650     623     909     2,182     239,403     241,585     909         909  
Tax services     19,168         19,168         19,168              
Warehouse finance                 277,614     277,614              
Total National Lending 14,515     35,796     28,059     78,370     2,618,902     2,697,272     9,544     22,285     31,829  
Total Community Banking 4,910     625     6,885     12,420     787,017     799,437     4,995     2,470     7,465  
Total loans and leases held for investment $ 19,425     $ 36,421     $ 34,944     $ 90,790     $ 3,405,919     $ 3,496,709     $ 14,539     $ 24,755     $ 39,294  


As of March 31, 2020 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 $ 35,810     $ 7,487     $ 18,721     $ 62,018     $ 1,964,329     $ 2,026,347     $ 9,372     $ 16,024     $ 25,396  
Consumer finance 1,781     1,078     1,345     4,204     254,235     258,439     1,345         1,345  
Tax services 668             668     95,268     95,936              
Warehouse finance                 333,829     333,829              
Total National Lending 38,259     8,565     20,066     66,890     2,647,661     2,714,551     10,717     16,024     26,741  
Total Community Banking 1,012     2,735     4,723     8,470     887,764     896,234     2,905     1,818     4,723  
Total loans and leases held for investment $ 39,271     $ 11,300     $ 24,789     $ 75,360     $ 3,535,425     $ 3,610,785     $ 13,622     $ 17,842     $ 31,464  

The Company's nonperforming assets at June 30, 2020, were $56.1 million, representing 0.64% of total assets, compared to $39.4 million, or 0.67% of total assets at March 31, 2020 and $51.0 million, or 0.84% of total assets at June 30, 2019. The increase in nonperforming assets on a linked quarter basis was primarily driven by an increase in commercial finance and community banking nonperforming loans and leases, as well as an increase in nonperforming operating leases. The year-over-year increase in nonperforming assets was primarily driven by an increase in commercial finance nonperforming loans and leases and an increase in nonperforming operating leases, mostly offset by a reduction in foreclosed and repossessed assets. The decrease in nonperforming assets as a percentage of total assets was primarily due to higher period-end assets at June 30, 2020 related to excess cash held at the Federal Reserve stemming from the additional EIP deposit balances.

The Company's nonperforming loans and leases at June 30, 2020, were $39.3 million, representing 1.10% of total gross loans and leases, compared to $31.5 million, or 0.87% of total gross loans and leases at March 31, 2020 and $20.8 million, or 0.57% of total gross loans and leases at June 30, 2019.

Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2020 third quarter increased by $2.61 billion to $7.22 billion compared to the same period in fiscal 2019, primarily due to the effects of the EIP program. Average noninterest-bearing deposits increased $3.35 billion, or 123%, for the fiscal 2020 third quarter when compared to the same period in fiscal 2019, while average wholesale deposits decreased $704.2 million, or 46%. Average deposits from the payments divisions increased 131% to $6.32 billion for the fiscal 2020 third quarter when compared to the same period in fiscal 2019. Excluding the balances on the EIP cards, average payments deposits for the fiscal 2020 third quarter were $3.99 billion, representing an increase of 46% compared to the same period of the prior year, which was largely driven by various stimulus payments loaded on partner cards along with lower levels of consumer spending.

The average balance of total deposits and interest-bearing liabilities was $7.49 billion for the three-month period ended June 30, 2020, compared to $5.14 billion for the same period in the prior fiscal year, representing an increase of 46%.

Total end-of-period deposits increased 59% to $7.59 billion at June 30, 2020, compared to $4.78 billion at June 30, 2019. The increase in end-of-period deposits was primarily driven by an increase in noninterest bearing deposits of  $4.18 billion, of which $2.68 billion was attributable to the balances on the EIP cards. The increase in total end-of-period deposits was partially offset by a decrease of $884.2 million in wholesale deposits, as well as the sale of $290.5 million of community bank deposits during the second quarter of fiscal 2020.

Regulatory Capital
The Company and MetaBank, remained above the federal regulatory minimum capital requirements at June 30, 2020 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 June 30,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
Company                  
Tier 1 leverage capital ratio 5.91 %   7.28 %   8.28 %   8.33 %   8.05 %
Common equity Tier 1 capital ratio 11.51 %   10.27 %   10.10 %   10.35 %   10.19 %
Tier 1 capital ratio 11.90 %   10.63 %   10.46 %   10.71 %   10.55 %
Total capital ratio 14.99 %   13.61 %   12.74 %   13.01 %   13.22 %
MetaBank                  
Tier 1 leverage capital ratio 6.89 %   8.52 %   9.70 %   9.65 %   9.37 %
Common equity Tier 1 capital ratio 13.82 %   12.39 %   12.18 %   12.31 %   12.22 %
Tier 1 capital ratio 13.86 %   12.44 %   12.24 %   12.37 %   12.27 %
Total capital ratio 15.12 %   13.69 %   12.90 %   13.02 %   13.26 %

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) June 30,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
(Dollars in Thousands)                  
Total stockholders' equity $ 829,909     $ 805,074     $ 837,068     $ 843,958     $ 822,901  
Adjustments:                  
LESS: Goodwill, net of associated deferred tax liabilities 302,814     303,625     304,020     304,020     302,850  
LESS: Certain other intangible assets 42,865     44,909     47,855     50,501     53,249  
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 10,360     11,589     16,876     15,569     13,858  
LESS: Net unrealized gains (losses) on available-for-sale securities 8,382     2,337     3,897     6,458     2,329  
LESS: Non-controlling interest 3,787     3,762     4,305     4,047     3,508  
Common Equity Tier 1(1) 461,701     438,852     460,115     463,363     447,107  
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 1,894     2,036     2,372     2,350     2,119  
Total Tier 1 Capital 477,256     454,549     476,148     479,374     462,887  
Allowance for loan and lease losses 50,338     53,580     30,239     29,272     43,641  
Subordinated debentures (net of issuance costs) 73,765     73,724     73,684     73,644     73,605  
Total qualifying capital $ 601,359     $ 581,853     $ 580,071     $ 582,290     $ 580,133  

(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 accumulated other comprehensive income ("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.

  June 30,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
(Dollars in Thousands)                  
Total Stockholders' Equity $ 829,909     $ 805,074     $ 837,068     $ 843,958     $ 822,901  
Less: Goodwill 309,505     309,505     309,505     309,505     307,941  
Less: Intangible assets 43,974     46,766     50,151     52,810     56,153  
Tangible common equity 476,430     448,803     477,412     481,643     458,807  
Less: Accumulated other comprehensive income (loss) ("AOCI") 7,995     1,654     3,895     6,339     2,308  
Tangible common equity excluding AOCI $ 468,435     $ 447,149     $ 473,517     $ 475,304     $ 456,499  

Conference Call
The Company will host a conference call and earnings webcast at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, July 22, 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 8468707 upon request. International callers should dial (636) 812-6634. A webcast replay will also be archived at www.metafinancialgroup.com for one year.

Forward-Looking Statements
The Company and MetaBank, N.A. ("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; expectations in connection with the impact of the ongoing COVID-19 pandemic and related government actions on our business, our industry and the capital markets; customer retention; loan and other product demand; expectations concerning the acquisitions and divestitures; new products and services, including those offered by Meta Payment Systems, Refund Advantage, EPS Financial and Specialty Consumer Services divisions; 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 potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto, or other unusual and infrequently occurring events; 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; 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”); 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 Company's ability to finalize a definitive program management agreement with H&R Block and the terms thereof; 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 usage of Meta’s strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; 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 and recent and potential changes in response to the COVID-19 pandemic such as the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and the rules and regulations that may be promulgated thereunder; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; 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 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 June 30, 2020   March 31, 2020   December 31, 2019   September 30, 2019   June 30, 2019
Cash and cash equivalents $ 3,108,141     $ 108,733     $ 152,189     $ 126,545     $ 100,732  
Investment securities available for sale, at fair value 825,579     840,525     852,603     889,947     961,897  
Mortgage-backed securities available for sale, at fair value 338,250     355,094     362,120     382,546     395,201  
Investment securities held to maturity, at cost 98,205     108,105     116,313     127,582     138,128  
Mortgage-backed securities held to maturity, at cost 6,382     6,752     6,804     7,182     7,414  
Loans held for sale 79,905     13,610     264,266     148,777     62,839  
Loans and leases 3,502,646     3,618,924     3,590,474     3,658,847     3,631,031  
Allowance for loan and lease losses (65,747 )   (65,355 )   (30,176 )   (29,149 )   (43,505 )
Federal Reserve Bank and Federal Home Loan Bank stocks, at cost 31,836     29,944     13,796     30,916     17,236  
Accrued interest receivable 17,545     16,958     18,687     20,400     19,722  
Premises, furniture, and equipment, net 40,361     38,871     38,671     45,932     46,360  
Rental equipment, net 216,336     200,837     211,673     208,537     184,732  
Bank-owned life insurance 91,697     91,081     90,458     89,827     89,193  
Foreclosed real estate and repossessed assets 6,784     7,249     1,328     29,494     29,514  
Goodwill 309,505     309,505     309,505     309,505     307,941  
Intangible assets 43,974     46,766     50,151     52,810     56,153  
Prepaid assets 6,806     9,727     14,813     9,476     22,023  
Deferred taxes 15,944     20,887     19,752     18,884     21,630  
Other assets 104,877     85,652     97,499     54,832     52,831  
                   
Total assets $ 8,779,026     $ 5,843,865     $ 6,180,926     6,182,890     $ 6,101,072  
                   
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
                   
LIABILITIES                  
Deposits held for sale $     $     $ 288,975     $     $  
Deposits:                  
Noninterest-bearing checking 6,537,809     2,900,484     2,927,967     2,358,010     2,751,931  
Interest-bearing checking 187,003     152,504     67,642     185,768     157,802  
Savings deposits 55,896     37,615     17,436     49,773     52,179  
Money market deposits 40,811     37,266     42,286     76,911     68,604  
Time certificates of deposit 25,000     25,492     23,454     109,275     116,698  
Wholesale deposits 743,806     809,043     1,438,820     1,557,268     1,628,000  
Total deposits 7,590,325     3,962,404     4,517,605     4,337,005     4,775,214  
Short-term borrowings     717,000     194,000     646,019     146,613  
Long-term borrowings 209,781     211,353     213,070     215,838     209,765  
Accrued interest payable 4,332     3,607     6,620     9,414     12,350  
Accrued expenses and other liabilities 144,679     144,427     123,588     130,656     134,229  
Total liabilities 7,949,117     5,038,791     5,343,858     5,338,932     5,278,171  
                   
STOCKHOLDERS’ EQUITY                  
Preferred stock                  
Common stock, $.01 par value 346     346     372     378     379  
Common stock, Nonvoting, $.01 par value                  
Additional paid-in capital 592,693     590,682     587,678     580,826     578,715  
Retained earnings 228,500     212,027     244,005     252,813     238,004  
Accumulated other comprehensive income 7,995     1,654     3,895     6,339     2,308  
Treasury stock, at cost (3,412 )   (3,397 )   (3,187 )   (445 )   (13 )
Total equity attributable to parent 826,122     801,312     832,763     839,911     819,393  
Noncontrolling interest 3,787     3,762     4,305     4,047     3,508  
Total stockholders’ equity 829,909     805,074     837,068     843,958     822,901  
                   
Total liabilities and stockholders’ equity $ 8,779,026     $ 5,843,865     $ 6,180,926     $ 6,182,890     $ 6,101,072  

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

  Three Months Ended   Nine Months Ended
  June 30, 2020   March 31, 2020   June 30, 2019   June 30,
2020
  June 30,
2019
Interest and dividend income:                  
Loans and leases, including fees $ 59,911     $ 70,493     $ 69,732     $ 199,107     $ 203,900  
Mortgage-backed securities 2,269     2,493     3,063     7,151     8,622  
Other investments 5,226     6,417     8,837     18,176     32,380  
  67,406     79,403     81,632     224,434     244,902  
Interest expense:                  
Deposits 3,130     8,242     10,395     20,712     35,731  
FHLB advances and other borrowings 2,139     3,424     4,269     9,197     10,581  
  5,269     11,666     14,664     29,909     46,312  
                   
Net interest income 62,137     67,737     66,968     194,525     198,590  
                   
Provision for loan for lease losses 15,093     37,296     9,112     55,796     51,529  
                   
Net interest income after provision for loan and lease losses 47,044     30,441     57,856     138,729     147,061  
                   
Noninterest income:                  
Refund transfer product fees 4,595     28,939     6,697     33,726     38,559  
Tax advance product fees 28     29,536     34     31,840     34,757  
Payments card and deposit fees 21,302     23,156     21,377     65,957     66,855  
Other bank and deposit fees 214     381     495     1,083     1,449  
Rental income 11,231     11,100     9,386     34,682     30,167  
Gain on sale of securities available-for-sale, net         440         649  
Gain on divestitures     19,275         19,275      
Gain (loss) on sale of other 1,214     2,325     2,620     969     6,117  
Other income 2,464     5,801     2,741     11,512     8,012  
Total noninterest income 41,048     120,513     43,790     199,044     186,565  
                   
Noninterest expense:                  
Compensation and benefits 32,102     34,260     35,176     100,631     117,350  
Refund transfer product expense (139 )   7,449     287     7,482     7,478  
Tax advance product expense (11 )   1,698     425     2,820     3,101  
Card processing 7,128     6,696     4,613     19,432     18,670  
Occupancy and equipment expense 6,502     7,013     7,136     20,169     20,806  
Operating lease equipment depreciation 8,536     8,421     6,029     25,237     18,280  
Legal and consulting 4,660     5,909     4,065     15,242     12,341  
Intangible amortization 2,636     3,402     4,374     8,714     14,352  
Impairment expense     507         750     9,660  
Other expense 9,827     16,374     10,363     38,291     34,978  
Total noninterest expense 71,241     91,729     72,468     238,768     257,016  
                   
Income before income tax expense 16,851     59,225     29,178     99,005     76,610  
                   
Income tax expense (benefit) (2,426 )   5,617     (1,158 )   3,870     (3,244 )
                   
Net income before noncontrolling interest 19,277     53,608     30,336     95,135     79,854  
Net income attributable to noncontrolling interest 1,087     1,304     1,045     3,573     3,045  
Net income attributable to parent $ 18,190     $ 52,304     $ 29,291     $ 91,562     $ 76,809  
                   
Earnings per common share                  
Basic $ 0.53     $ 1.45     $ 0.75     $ 2.54     $ 1.96  
Diluted $ 0.53     $ 1.45     $ 0.75     $ 2.54     $ 1.95  
Shares used in computing earnings per share                  
Basic 34,616,038     35,948,799     38,903,266     36,004,877     39,220,793  
Diluted 34,623,114     35,970,296     38,977,690     36,016,037     39,289,011  

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 in 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 June 30, 2020   2019
(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 $ 2,692,270     $ 783     0.12 %   $ 80,100     $ 521     2.61 %
Mortgage-backed securities 342,174     2,269     2.67 %   421,725     3,063     2.91 %
Tax exempt investment securities 417,042     1,658     2.02 %   690,732     4,058     2.98 %
Asset-backed securities 336,562     1,770     2.11 %   307,581     2,701     3.52 %
Other investment securities 197,643     1,014     2.06 %   199,681     1,557     3.13 %
Total investments 1,293,420     6,711     2.22 %   1,619,719     11,379     3.09 %
Commercial finance loans and leases 2,160,175     40,375     7.52 %   1,775,905     44,332     10.01 %
Consumer finance loans 247,824     4,635     7.52 %   364,633     8,178     9.00 %
Tax services loans 39,845         %   45,142         %
Warehouse finance loans 304,839     4,582     6.05 %   223,546     3,491     6.26 %
National lending loans and leases 2,752,683     49,592     7.25 %   2,409,226     56,001     9.32 %
Community banking loans 870,245     10,319     4.77 %   1,189,912     13,731     4.63 %
Total loans and leases 3,622,928     59,911     6.65 %   3,599,138     69,732     7.77 %
Total interest-earning assets $ 7,608,618     $ 67,406     3.59 %   $ 5,298,957     $ 81,632     6.26 %
Non-interest-earning assets 830,589             820,474          
Total assets $ 8,439,206             $ 6,119,431          
                       
Interest-bearing liabilities:                      
Interest-bearing checking(2) $ 226,382     $     %   $ 137,950     $ 85     0.25 %
Savings 55,572     1     0.01 %   54,247     9     0.07 %
Money markets 40,091     33     0.33 %   58,782     107     0.73 %
Time deposits 25,392     113     1.78 %   128,165     633     1.98 %
Wholesale deposits 817,414     2,983     1.47 %   1,521,594     9,561     2.52 %
Total interest-bearing deposits 1,164,852     3,130     1.08 %   1,900,738     10,395     2.19 %
Overnight fed funds purchased 59,055     48     0.33 %   363,857     2,368     2.61 %
FHLB advances 110,000     670     2.45 %   54,341     324     2.39 %
Subordinated debentures 73,738     1,153     6.29 %   73,583     1,163     6.34 %
Other borrowings 27,032     268     3.98 %   40,653     414     4.08 %
Total borrowings 269,825     2,139     3.19 %   532,434     4,269     3.22 %
Total interest-bearing liabilities 1,434,677     5,269     1.48 %   2,443,172     14,664     2.42 %
Noninterest-bearing deposits 6,057,314         %   2,710,288         %
Total deposits and interest-bearing liabilities $ 7,491,991     $ 5,269     0.28 %   $ 5,143,460     $ 14,664     1.14 %
Other noninterest-bearing liabilities 122,940             149,207          
Total liabilities 7,614,931             5,292,667          
Shareholders' equity 824,276             826,764          
Total liabilities and shareholders' equity $ 8,439,206             $ 6,119,431          
Net interest income and net interest rate spread including noninterest-bearing deposits     $ 62,137     3.30 %       $ 66,968     5.12 %
                       
Net interest margin         3.28 %           5.07 %
Tax-equivalent effect         0.02 %           0.08 %
Net interest margin, tax-equivalent(3)         3.31 %           5.15 %

(1) Tax rate used to arrive at the TEY for the three months ended June 30, 2020 and 2019 was 21%.
(2) Of the total balance, $226.1 million are interest-bearing deposits where interest expense is paid by a third party and not by the Company.
(3) 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 June 30,
2020
  March 31,
2020
  December 31,
2019
  September 30,
2019
  June 30,
2019
Equity to total assets 9.45 %   13.78 %   13.54 %   13.65 %   13.49 %
Book value per common share outstanding $ 23.96     $ 23.26     $ 22.52     $ 22.32     $ 21.72  
Tangible book value per common share outstanding $ 13.76     $ 12.97     $ 12.84     $ 12.74     $ 12.11  
Tangible book value per common share outstanding excluding AOCI $ 13.53     $ 12.92     $ 12.74     $ 12.57     $ 12.05  
Common shares outstanding 34,631,160     34,607,962     37,172,081     37,807,064     37,878,205  
Non-performing assets to total assets 0.64 %   0.67 %   0.48 %   0.91 %   0.84 %
Non-performing loans and leases to total loans and leases 1.10 %   0.87 %   0.62 %   0.70 %   0.57 %
Net interest margin 3.28 %   4.78 %   4.94 %   4.95 %   5.07 %
Net interest margin, tax-equivalent 3.31 %   4.82 %   4.99 %   5.00 %   5.15 %
Return on average assets 0.86 %   3.16 %   1.38 %   1.32 %   1.91 %
Return on average equity 8.83 %   25.15 %   10.04 %   9.69 %   14.17 %
Full-time equivalent employees 999     992     1,088     1,186     1,218  

Quarterly Amortization of Intangibles Expense

(Dollars in Thousands) Actual Anticipated
For the Three Months Ended Jun 30,
2020
Sep 30,
2020
Dec 31,
2020
Mar 31,
2021
Jun 30,
2021
Sep 30,
2021
Dec 31,
2021
Mar 31,
2022
Jun 30,
2022
                   
Amortization of intangibles(1) $ 2,636   $ 2,265   $ 2,013   $ 2,757   $ 2,013   $ 1,761   $ 1,488   $ 2,170   $ 1,176  

(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 a South Dakota-based financial holding company. Meta Financial Group’s banking subsidiary, MetaBank®, N.A., (“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 nationwide. 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. For more information, visit the Meta Financial Group website.

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

Meta Financial Group Logo.jpg