Meta Financial Group, Inc.® Reports Results for 2017 Fiscal Fourth Quarter and Fiscal Year
Meta Announces Record-Breaking Earnings in Fiscal Year 2017
Net Income Grows 35% from Prior Year
Highlights for the 2017 Fiscal Fourth Quarter and Year Ended
- Net income for the fiscal year ended September 30, 2017 increased 35% to
$44.9 million, or $4.83per diluted share, from $33.2 million, or $3.91per diluted share, for the year ended September 30, 2016.
- The Company's fiscal 2017 fourth quarter net income was
$1.7 million, or $0.19per diluted share, versus $6.0 million, or $0.70per diluted share, in the fourth quarter of 2016. The 2017 fourth quarter pre-tax results included the previously announced $10.2 millionintangible impairment charge relating to the non-renewal of the H&R Blocktax advance relationship, $0.8 millionof executive severance costs, $0.8 millionof prepayment expense related to the early extinguishment of longer term FHLB debt, and a $0.8 milliongain on the sale of securities. The 2017 fourth quarter pre-tax results also included $2.3 millionin non-cash stock-related compensation expense associated with executive officer employment agreements and $1.9 millionin amortization of intangible assets (see Select Quarterly Expenses table below).
- Net interest income was
$24.5 millionin the 2017 fiscal fourth quarter, an increase of $4.6 million, or 23%, compared to $19.9 millionin the fourth quarter of 2016. The increase was primarily a result of high credit quality loan growth in both specialty finance and retail bank loan portfolios. Also contributing to the improvement were increased securities balances and yields, primarily due to purchases throughout the fiscal year of highly-rated tax-exempt municipal securities at relatively high tax equivalent yields and a continuing improvement in the overall interest-earning asset mix.
- Card fee income increased
$8.8 million, or 49%, for the 2017 fiscal fourth quarter when compared to the same quarter in 2016. This increase was largely driven by residual fees related to a wind-down of one of our non-strategic partners, and as such, we expect lower growth rates than 49% in fiscal year 2018. In addition, the increase was also due to continued strong growth from our core payments business and the Company's increasing emphasis on non-interest income.
- The Company's 2017 fiscal fourth quarter average assets grew to
$4.03 billion, compared to $3.23 billionin the 2016 fourth quarter, an increase of 25%, primarily driven by growth in loan and securities balances.
- Total loans receivable, net of allowance for loan losses, increased
$398.4 million, or 43%, at September 30, 2017, compared to September 30, 2016. This increase was primarily related to growth in commercial real estate loans of $162.6 million, or an increase of 38%, consumer loans of $125.9 million, or an increase of 339%, of which $123.7 millionis attributable to the student loan portfolio purchased in December 2016, and premium finance loans of $78.9 million, or an increase of 46%. Growth in residential mortgage loans at September 30, 2017 of $34.4 million, or an increase of 21%, and commercial operating loans of $4.5 million, or an increase of 14%, also contributed to the increase in loans receivable, compared to September 30, 2016. Retail bank loans at September 30, 2017were up $193.7 million, or 26%, compared to September 30, 2016. Excluding the student loan portfolio purchased in December 2016, total loans receivable, net of allowance for loan losses, at September 30, 2017were up $274.6 million, or 30%, compared to September 30, 2016.
- Payments division average deposits increased
$275.4 million, or 14%, for the 2017 fiscal fourth quarter when compared to the same quarter of 2016.
- Non-performing assets (“NPAs”) were 0.72% of total assets at September 30, 2017, compared to 0.03% at September 30, 2016. The increase in NPAs was primarily related to two large, well-collateralized agricultural relationships that became more than 90 days past due. These loans were still accruing in the fourth fiscal quarter and one is expected to be paid in full on
November 1, 2017(as discussed further below).
October 11, 2017, the Company completed the purchase of a $73 million, seasoned, floating rate, private student loan portfolio. All loans are indexed to one-month LIBOR. The portfolio is serviced by ReliaMax Lending Services LLCand insured by ReliaMax Surety Company. The Company expects to realize initial net yields of over 6%. This portfolio purchase builds on our existing successful student loan platform and will be easily integrated with minimal impact to the business.
"Meta achieved many new and exceptional accomplishments in 2017," said Chairman and CEO
Total revenue for the fiscal 2017 fourth quarter was
The Company recorded net income of
The 2017 fiscal fourth quarter pre-tax results included a
Our tax business is expected to continue to generate the vast majority of its revenues in the Company's fiscal second quarter, with some additional revenues in the third quarter, while most expenses are spread throughout the year with some elevated expenses in the quarters ending in December and March related to the Company's tax-related business.
Net Interest Income
Net interest income for the fiscal 2017 fourth quarter was
Net Interest Margin
Net Interest Margin, on a tax equivalent basis, ("NIM"), increased to 3.13% in the fiscal 2017 fourth quarter from 3.09% in the fourth quarter of 2016. When excluding the subordinated debt issued in the 2016 fourth fiscal quarter, NIM would have been 3.25%, or an additional 12 basis points, in the fiscal 2017 fourth quarter. When excluding only tax advance loans, NIM would have increased by an additional one basis point to 3.14% for the current quarter. NIM decreased from the fiscal 2017 third quarter to the fiscal 2017 fourth quarter by 12 basis points, as the Company continued to employ its leverage strategy to fully utilize its capital in the quarters outside of tax season and as the Company continues to build capital from higher earnings. While many of the Company's earning assets are floating-rate or have rates that reset on a periodic basis tied to the short end of the yield curve, some of the Company's earning assets are dependent on an increase in the longer end of the yield curve in order to realize enhanced yields. While the front of the yield curve has risen, the longer end, while volatile, has remained in a lower range and the overall yield curve has flattened. In concert with rising short-term rates, the Company's shorter term wholesale funding costs have also risen. Mindful of these impacts, throughout the quarter, the Company selectively and timely sold lower-yielding securities as loans continued to grow and where the leveraging strategy has decreased in value. The Company continues to monitor its excess capital levels, use of capital, and overall leverage position to best utilize this increased capital from increased earnings.
The overall reported tax equivalent yield (“TEY”) on average-earning asset yields increased by 28 basis points to 3.61% when comparing the fiscal 2017 fourth quarter to the 2016 fourth quarter, which was driven primarily by the Company's improved earning asset mix, with increased exposure to its high-quality premium finance, student, and retail bank loan portfolios. The increase in TEY continues to highlight the beneficial tailwind provided by this rotation. The Company expects earning asset yields to continue to increase due to the aforementioned newly purchased, higher-yielding student loan portfolio being included for nearly the full fiscal first quarter of 2018.
The Company seeks to remain diligent and disciplined when evaluating loan pool deal flow as it looks to optimize the deployment of its national, non-interest-bearing deposit base. We anticipate that many of these loan pools could add immediate earnings accretion with acceptable risk parameters, as we believe to be the case with the
The fiscal 2017 fourth quarter TEY on the securities portfolio increased by 26 basis points compared to the comparable prior year quarter, primarily due to overall enhanced yields attained and increased volume in the investment portfolio, with the majority of new investment volume in overall higher-yielding investment securities (primarily mortgage-related, tax-exempt municipal securities rather than traditional agency MBS).
The Company’s average interest-earning assets for the fiscal 2017 fourth quarter grew by
Overall, the cost of funds for all deposits and borrowings averaged 0.50% during the fiscal 2017 fourth quarter, compared to 0.26% for the prior-year fourth quarter. This increase was primarily due to a combination of the issuance of the Company's subordinated debt in the fourth quarter of fiscal year 2016, the addition of wholesale deposits, and an increase in the overnight borrowing rates and higher average overall funding balances due to the Company's full utilization of more of its capital during non-tax season with higher investment balances and funding. Notwithstanding this increase, the Company believes that its growing, low-cost deposit base gives it a distinct and significant competitive advantage over most banks, and even more so if interest rates continue to rise, because the Company anticipates that its cost of deposits will likely remain relatively low, increasing less than at many other banks. While the subordinated debt issuance in 2016 increased the cost of funds at the Company level,
Average earning assets for the year ended September 30, 2017 increased 28% from the prior-year period, while interest-bearing liabilities increased by 87%. The earning asset increase was primarily driven by loan growth and higher investment balances, while the increase in interest-bearing liabilities was primarily driven by wholesale deposits and borrowings. The TEY of MBS and other investments was 3.15% for the year ended September 30, 2017, and 2.95% for fiscal 2016, an improvement of 20 basis points.
Fiscal 2017 fourth quarter non-interest income of
Non-interest expense increased
The Company recorded an income tax benefit of
Total loans receivable, net of allowance for loan losses, increased
The Company recorded a recovery for loan losses of
MetaBank’s NPAs at September 30, 2017 were
Total investment securities and MBS increased by
Average TEY on the securities portfolio increased 26 basis points to 3.19% in the fourth quarter of fiscal 2017 from 2.93% in the same quarter of 2016. Yields improved on non-MBS investment securities by 24 basis points in the fourth quarter of 2017 over the same quarter of 2016. Yields increased within MBS by 23 basis points in the fourth quarter of 2017 from the same quarter of 2016. When comparing the fiscal fourth quarter of 2017 to the fiscal third quarter of 2017, average TEY on the securities portfolio decreased by one basis point, with MBS decreasing 10 basis points and other investments increasing two basis points due to volatile longer term rates and seasonal factors affecting prepayment rates and therefore yields on MBS during the fourth quarter of fiscal 2017.
With respect to the MBS portfolio, the Company continues to focus on minimizing prepayment speed volatility by selecting agency MBS with characteristics intended to make the Company’s agency MBS holdings less susceptible to increased prepayment speeds, while still allowing yields to increase if interest rates increase with controlled extension risk. The Company continues to purchase high-quality investments within certain sectors of the municipal market, at what it believes to be attractive yields. Many of these new purchases are tax-exempt and also backed, or collateralized, by
The Company continues to execute its investment strategy of primarily purchasing
Deposits, Other Borrowings and Other Liabilities
Total end-of-period deposits increased
Total average deposits for the fiscal 2017 fourth quarter increased by
The average balance of total deposits and interest-bearing liabilities was
The Company and the Bank remain above the federal regulatory minimum capital requirements to remain classified as well-capitalized institutions. Regulatory capital ratios at September 30, 2017 are stated in the table below.
The tables below also 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.
Regulatory Capital Data (1)
|Requirement to Be|
|Requirement For||Under Prompt|
|Capital Adequacy||Corrective Action|
|At September 30, 2017||Company||Bank||Purposes||Provisions|
|Tier 1 leverage ratio||7.64||%||9.64||%||4.00||%||5.00||%|
|Common equity Tier 1 capital ratio||13.97||%||18.22||%||4.50||%||6.50||%|
|Tier 1 capital ratio||14.46||%||18.22||%||6.00||%||8.00||%|
|Total qualifying capital ratio||18.41||%||18.59||%||8.00||%||10.00||%|
(1) Regulatory ratios are estimated.
The following table provides certain 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)|
|September 30, 2017|
|(Dollars in Thousands)|
|LESS: Goodwill, net of associated deferred tax liabilities||95,332|
|LESS: Certain other intangible assets||41,743|
|LESS: Net deferred tax assets from operating loss and tax credit carry-forwards||1,495|
|LESS: Net unrealized gains (losses) on available-for-sale securities||9,166|
|Common Equity Tier 1 (1)||286,760|
|Long-term debt and other instruments qualifying as Tier 1||10,310|
|LESS: Additional tier 1 capital deductions||374|
|Total Tier 1 capital||296,696|
|Allowance for loan losses||7,718|
|Subordinated Debentures (net of issuance costs)||73,347|
|Total qualifying capital||377,761|
(1) Capital ratios were determined using the Basel III capital rules that became effective on
The following table provides a reconciliation of tangible common equity used in calculating tangible book value data.
|September 30, 2017|
|(Dollars in Thousands)|
|Total Stockholders' Equity||$||434,496|
|Less: Intangible assets||52,178|
|Tangible common equity||283,595|
|Tangible common equity excluding AOCI||274,429|
Due to the predictable, quarterly cyclicality of MPS deposits in connection with tax season business activity, management believes that a six-month capital calculation is a useful metric to monitor the Company’s overall capital management process. As such, the Bank’s six-month average Tier 1 leverage ratio, Common equity Tier 1 capital ratio, Tier 1 capital ratio, and Total qualifying capital ratio as of September 30, 2017 were 9.70%, 18.99%, 18.99%, and 19.39%, respectively.
The Company and the Bank 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
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; new products and services, such as those offered by the Bank or MPS, a division of the Bank; 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; the strength of
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
|Condensed Consolidated Statements of Operations (Unaudited)|
|(Dollars in Thousands, Except Share and per Share Data)|
|ASSETS||September 30, 2017||June 30, 2017||March 31, 2017||December 31, 2016||September 30, 2016|
|Cash and cash equivalents||$||1,267,586||$||65,630||$||67,293||$||695,731||$||773,830|
|Investment securities available for sale||1,106,977||1,141,684||1,184,440||936,832||910,309|
|Mortgage-backed securities available for sale||586,454||666,424||642,833||534,939||558,940|
|Investment securities held to maturity||449,840||464,729||474,306||478,611||486,095|
|Mortgage-backed securities held to maturity||113,689||117,399||122,497||126,365||133,758|
|Loans held for sale||—||—||—||1,223||—|
|Allowance for loan loss||(7,534||)||(14,968||)||(14,602||)||(6,415||)||(5,635||)|
|Federal Home Loan Bank Stock, at cost||61,123||16,323||25,043||3,832||47,512|
|Accrued interest receivable||19,380||21,831||20,902||21,375||17,199|
|Premises, furniture, and equipment, net||19,320||20,107||20,019||20,093||18,626|
|Bank-owned life insurance||84,702||84,035||58,378||57,934||57,486|
|Foreclosed real estate and repossessed assets||292||364||—||76||76|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Money market deposits||48,758||46,709||42,340||46,856||47,749|
|Time certificates of deposit||123,637||83,760||61,170||122,334||125,992|
|Accrued interest payable||2,280||2,463||722||2,255||875|
|Accrued expenses and other liabilities||78,065||64,118||113,479||79,815||48,309|
|Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016.||—||—||—||—||—|
|Common stock, $.01 par value; 15,000,000 shares authorized, 9,622,595 and 9,626,431 shares outstanding and issued at September 30, 2017. 9,349,989, 9,349,989, 9,305,079 and 8,523,641 shares outstanding and issued at June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016, respectively.||96||94||94||93||85|
|Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016.||—||—||—||—||—|
|Additional paid-in capital||258,336||256,088||253,473||249,476||184,780|
|Accumulated other comprehensive income (loss)||9,166||7,397||14||(5,022||)||22,920|
|Treasury stock, at cost, 3,836 common shares at September 30, 2017, none at June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016.||(266||)||—||—||—||—|
|Total stockholders’ equity||434,496||430,213||411,748||371,786||334,975|
|Total liabilities and stockholders’ equity||$||5,228,332||$||4,019,693||$||3,985,596||$||4,213,329||$||4,006,419|
|Condensed Consolidated Statements of Operations (Unaudited)|
|Three Months Ended||Year Ended|
|(Dollars in Thousands, Except Share and Per Share Data)||9/30/2017||6/30/2017||9/30/2016||9/30/2017||9/30/2016|
|Interest and dividend income:|
|Loans receivable, including fees||$||14,577||$||14,089||$||10,040||$||52,117||$||36,187|
|FHLB advances and other borrowings||2,571||2,879||1,656||8,822||3,477|
|Net interest income||24,488||24,943||19,893||93,230||77,305|
|Provision (recovery) for loan losses||(144||)||1,240||548||10,589||4,605|
|Net interest income after provision for loan losses||24,632||23,703||19,345||82,641||72,700|
|Refund transfer product fees||508||5,785||285||38,956||23,347|
|Tax advance product fees||453||(108||)||—||31,913||1,575|
|Bank-owned life insurance||668||656||448||2,216||1,656|
|Gain (loss) on sale of securities available-for-sale||838||47||(274||)||(493||)||(326||)|
|Loss on foreclosed real estate||(13||)||—||—||(6||)||—|
|Other income (loss)||(391||)||216||(120||)||261||8|
|Total non-interest income||29,833||30,820||19,228||172,172||100,770|
|Compensation and benefits||21,919||22,193||14,536||88,728||61,675|
|Refund transfer product expense||292||1,623||32||11,885||8,648|
|Tax advance product expense||(257||)||72||—||3,241||—|
|Occupancy and equipment||4,263||4,034||3,548||16,465||13,999|
|Legal and consulting||2,781||1,375||1,613||8,384||4,824|
|Total non-interest expense||53,746||42,219||31,223||199,663||134,648|
|Income before income tax expense||719||12,304||7,350||55,150||38,822|
|Income tax expense (benefit)||(1,025||)||2,517||1,344||10,233||5,602|
|Earnings per common share(1)|
|Shares used in computing earnings per share|
(1) As of
Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Only the yield/rate has tax-equivalent adjustments. Non-Accruing loans have been included in the table as loans carrying a zero yield.
|Three Months Ended September 30,||2017||2016|
|(Dollars in Thousands)
|Specialty Finance Loans*||$||384,882||$||5,056||5.21||%||$||170,597||$||2,145||5.00||%|
|Tax Advance Loans||5,198||—||—||%||994||—||—||%|
|Retail Bank Loans||885,993||9,521||4.26||%||734,764||7,895||4.27||%|
|Tax-Exempt Investment Securities||1,346,915||8,388||3.80||%||1,142,918||6,823||3.60||%|
|Other Investment Securities||118,241||788||2.64||%||100,179||620||2.46||%|
|Cash & Fed Funds Sold||73,189||171||0.93||%||71,720||198||1.45||%|
|Total interest-earning assets||3,675,013||$||28,949||3.61||%||3,016,873||$||21,729||3.33||%|
|Overnight fed funds purchased||179,750||619||1.37||%||444,380||606||0.54||%|
|Total interest-bearing liabilities||1,246,834||4,461||1.42||%||841,277||1,836||0.87||%|
|Total deposits and interest-bearing liabilities||3,533,464||$||4,461||0.50||%||2,846,990||$||1,836||0.26||%|
|Other non-interest-bearing liabilities||64,065||53,444|
|Total liabilities and shareholders' equity||$||4,034,451||$||3,234,976|
|Net interest income and net interest rate spread including non-interest-bearing deposits||$||24,488||3.11||%||$||19,893||3.07||%|
|Net interest margin, tax equivalent||3.13||%||3.09||%|
|Selected Financial Information|
|At Period Ended:||September 30,
|Equity to total assets||8.31||%||10.70||%||10.33||%||8.82||%||8.36||%|
|Book value per common share outstanding||$||45.15||$||46.01||$||44.04||$||39.96||$||39.30|
|Tangible book value per common share outstanding||$||29.47||$||28.52||$||26.35||$||21.43||$||31.57|
|Tangible book value per common share outstanding excluding AOCI||$||28.52||$||27.73||$||26.35||$||21.97||$||28.89|
|Common shares outstanding||9,622,595||9,349,989||9,349,989||9,305,079||8,523,641|
|Non-performing assets to total assets||0.72||%||1.17||%||0.12||%||0.05||%||0.03||%|
|For the Year Ended:||September 30,
|Net interest margin, tax equivalent||3.05||%||3.19||%|
|Return on average assets||1.13||%||1.10||%|
|Return on average equity||11.20||%||10.80||%|
|Select Quarterly Expenses|
|(Dollars in Thousands)||Actual||Anticipated|
|For the Three Months Ended||Sep 30,
|Amortization of Intangibles (1)||$||1,868||$||1,680||$||2,732||$||1,663||$||1,632||$||1,488||$||2,706||$||1,488||$||1,468|
|Executive Officer Stock Compensation (2)||$||2,284||$||1,268||$||1,268||$||1,268||$||1,268||$||899||$||899||$||899||$||899|
(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.
(2) These amounts are based upon the employment agreements signed in the first and second quarters of fiscal 2017 by the Company’s three highest paid executives. This table makes no assumption for expenses related to any additional future agreements.
About Meta Financial Group®
|Media Contact:||Investor Relations Contact:|
|Katie LeBrun||Brittany Kelley Elsasser|
|Corporate Communications Director||Director of Investor Relations|