Document


 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 30, 2018

META FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware
0-22140
42-1406262
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)

5501 South Broadband Lane, Sioux Falls, South Dakota 57108
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (605) 782-1767

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[x] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b))
 
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 
 
 
 
 






Item 2.02    Results of Operations and Financial Condition.

On April 30, 2018, the Registrant issued a press release announcing its results of operations and financial condition as of and for the three and six months ended March 31, 2018. A copy of the press release is attached as Exhibit 99.1 to this report and is incorporated into this Item 2.02 by reference.

The information in this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities thereof, nor shall it be deemed to be incorporated by reference in any filing under the Exchange Act or under the Securities Act of 1933, as amended (the "Securities Act"), except to the extent specifically provided in any such filing.

Item 7.01    Regulation FD Disclosure.

Information is being furnished herein in Exhibit 99.2 with respect to the Investor Update slide presentation prepared for use with the press release. While most of the selected financial information furnished herein is derived from the Company’s consolidated financial statements and related notes prepared in accordance with generally accepted accounting principles ("GAAP") and management’s discussion and analysis of financial condition and results of operations included, or to be included, in the Company’s reports on Forms 10-K and 10-Q, this information includes selected financial and operational information through the second quarter of fiscal year 2018 and does not represent a complete set of financial statement and related notes prepared in conformity with GAAP. The Company’s annual financial statements are subject to independent audit. The Investor Update slide presentation is dated April 30, 2018 and the Company does not undertake to update the materials after that date.

The information in this Item 7.01, including Exhibit 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities thereof, nor shall it be deemed to be incorporated by reference in any filing under the Exchange Act or under the Securities Act, except to the extent specifically provided in any such filing.

Item 9.01    Financial Statements and Exhibits.

(d) Exhibits
Exhibit Number
 
Description of Exhibit
 
 
 
99.1

 
Press Release of Meta Financial Group, Inc., dated April 30, 2018 regarding the results of operations and financial condition.
 
 
 
99.2

 
Investor Update slide presentation for the Second Quarter of Fiscal Year 2018, dated April 30, 2018, prepared for use with the Press Release.










SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
META FINANCIAL GROUP, INC.
 
 
 
Date: April 30, 2018
By:
/s/ Glen W. Herrick
 
 
Glen W. Herrick
 
 
Executive Vice President, Chief Financial Officer
 
 
and Secretary
 
 
 
 
 
 
 
 
 
 
 
 





EXHIBIT INDEX

Exhibit No.
 
Description of Exhibit
 
 
 
 
Press Release of Meta Financial Group, Inc., dated April 30, 2018 regarding the results of operations and financial condition.
 
Investor Update slide presentation for the Second Quarter of Fiscal Year 2018, dated April 30, 2018, prepared for use with the Press Release.
                    
























Exhibit
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12215923&doc=20


Meta Financial Group, Inc.® Reports Net Income of $31.4 million for Second Quarter of Fiscal 2018

Continued expansion of direct-to-consumer lending relationships

Sioux Falls, S.D., April 30, 2018 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq: CASH) (“Meta” or the “Company”)

Highlights for the 2018 Fiscal Second Quarter Ended March 31, 2018
The Company recorded net income of $31.4 million, or $3.23 per diluted share, for the three months ended March 31, 2018, compared to net income of $32.1 million, or $3.42 per diluted share, for the three months ended March 31, 2017, a decrease of 2%. The 2018 fiscal second quarter pre-tax results included $2.2 million of merger and acquisition related expenses, $0.5 million payout of severance costs related to synergy efforts in the Company's tax divisions, and a $0.2 million loss on sale of investments. The 2018 fiscal second quarter pre-tax results also included $2.7 million in amortization of intangible assets and $1.3 million in non-cash stock-related compensation associated with executive officer employment agreements (see Select Quarterly Expenses table).
Net interest income was $27.4 million in the 2018 fiscal second quarter, an increase of $3.4 million, or 14%, compared to $24.0 million in the second quarter of fiscal 2017. This increase was largely driven by increased loan balances, primarily in the portfolios of community banking, purchased student loans, and commercial insurance premium finance loans. A rise in interest expense, largely due to an increase in short-term funding rates and an increase in wholesale funding balances due to retaining more tax services loans on the Company's balance sheet, partially offset the increase in interest income.
Card fee income increased $0.3 million, or 1%, to $26.9 million for the 2018 fiscal second quarter when compared to the same quarter in 2017. Card fee growth with respect to the 2018 fiscal second quarter compared to the same period of the prior year was negatively affected by a promotional campaign during the second quarter of fiscal 2017 that has since expired as expected. Excluding the year over year change for the promotional campaign's partner, card fee income would have been up $1.3 million, or 5%, when comparing the 2018 fiscal second quarter to the same period of the prior year. The Company expects fiscal year 2018 total card fee income to be between $95.0 million and $101.0 million and expects total card processing expense to be between $23.0 million and $27.0 million.
For the three months ended March 31, 2018, compared to the same period of the prior year, tax product fee income increased $4.0 million, or 6%, from $63.6 million to $67.6 million, tax product expense decreased $2.0 million, or 15%, from $13.3 million to $11.3 million and provision for loan losses related to tax services loans increased $10.2 million, or 130%, from $7.9 million to $18.1 million. The increase in tax product fee income and provision for loan losses was primarily due to retaining all tax advance loans originated during the 2018 tax season, as opposed to the previous year when a majority of these loans were sold. When comparing pre-tax income for the tax services business, the 2018 fiscal first quarter was higher than the same period of the prior year, while the 2018 fiscal second quarter was lower than the same period of the prior year. The Company expects 2018 fiscal third quarter pre-tax income to be higher than the same period of the prior year and now expects total fiscal 2018 pre-tax income for our tax services business to be approximately $1 million to $3 million lower than for total fiscal 2017.

1


The Company's 2018 fiscal second quarter average assets grew to $4.70 billion, compared to $4.41 billion in the 2017 fiscal second quarter, an increase of 7%, primarily driven by growth in loan balances.
Total loans receivable, net of allowance for loan losses, increased $353.9 million, or 31%, at March 31, 2018, compared to March 31, 2017. This increase was primarily related to growth in commercial real estate loans, consumer loans, due to the purchased student loan portfolios and tax advance loans, and commercial insurance premium finance loans.
Payments division average deposits increased $190.9 million, or 8%, for the 2018 fiscal second quarter when compared to the same quarter of 2017.
Non-performing assets (“NPAs”) were 0.84% of total assets at March 31, 2018, compared to 0.12% at March 31, 2017. See Credit Quality section below for further detail.
Business Updates
On April 30, 2018, Meta announced an expanded, four-year agreement with AAA. Together, Meta and AAA anticipate bringing robust payments solutions to US-based AAA Clubs. Under this new agreement, MetaBank and AAA will expand distribution of the payments products, as well as enhancing them based on member feedback and consumer preference, adding features like mobile applications for card management and additional load capabilities.
On April 30, 2018, Meta announced an agreement with CURO Group Holdings Corp ("CURO"), a leader in providing short-term credit to underbanked consumers. Together, the organizations will launch a new line of credit product that the parties believe will be more flexible and transparent than others in the market, and well-suited for US-based underbanked consumers. CURO and Meta expect to unveil the new, joint brand and a timeline for the pilot launch later this year. In the first three years of the agreement with CURO, Meta expects to hold up to $350 million in product receivables on its balance sheet.
On April 3, 2018, Meta announced it entered into a three-year agreement with Health Credit Services ("HCS"), a technology-driven, patient financing company. MetaBank will approve and originate loans for elective procedures for select HCS provider offices throughout the country. During the three-year agreement, MetaBank expects to originate at least several hundred million dollars in personal loans.
On March 12, 2018, Meta announced a 10-year renewal of a relationship with Money Network Financial, LLC ("Money Network"), a wholly-owned subsidiary of First Data (NYSE: FDC). MetaBank supports a range of Money Network payments programs, most notably the Money Network® Electronic Payment Delivery Service, which large organizations use to provide employees the option of receiving wages electronically.
"We are excited to announce that we have delivered strong quarterly earnings of $31.4 million," said Chairman and CEO J. Tyler Haahr. “The production and results of the 2018 tax season and the effectiveness of our processing standards and partner relationships aided in our outstanding performance. Our tax season infrastructure has once again performed very well and we believe we are well positioned to continue to deliver positive results into the future.
"Adding to a very active quarter, we renewed multi-year agreements with two of our largest prepaid partners, Money Network Financial and AAA, and added relationships in our national consumer lending business. Meta will originate and provide consumer lending opportunities to the customers of Liberty Lending, LLC, Health Credit Services, and CURO. We expect that these renewed and new relationships will provide us continued momentum and allow us to further diversify our financing products.
"Work towards the integration of the anticipated Crestmark acquisition is continuing behind the scenes, and we expect the acquisition to be completed by June 30. While we are earnestly engaged with acquisition details, we are actively making investments in people and systems to build out our platforms for our consumer credit business and to enhance growth for Crestmark and our other current business initiatives.  We anticipate making significant investments in the next twelve months to lay the groundwork for what we believe will be good growth in fiscal 2019 and significantly more meaningful drivers for earnings performance in 2020 and beyond."

2



Financial Summary
Revenue
Total revenue for the fiscal 2018 second quarter was $124.8 million, compared to $116.1 million for the same quarter in 2017, an increase of $8.7 million, or 7%. This increase was primarily due to growth in interest income from community banking loans, as well as the purchased student loans and income from tax-exempt securities (included in other investment securities), and growth in tax product fee income.
Net Income    
The Company recorded net income of $31.4 million, or $3.23 per diluted share, for the three months ended March 31, 2018, compared to net income of $32.1 million, or $3.42 per diluted share, for the three months ended March 31, 2017. The decrease in net income was due to an increase of $9.7 million in provision for loan losses, primarily related to the Company holding all tax services loans on the balance sheet, and a $1.6 million increase in non-interest expense, partially offset by increases of $5.2 million in non-interest income and $3.4 million in net interest income along with a decrease in income tax expense of $1.9 million, primarily due to the adoption of the Tax Cuts and Jobs Act (the "Tax Act").
The 2018 fiscal second quarter pre-tax results included $2.7 million of amortization of intangible assets, $2.2 million of acquisition expenses, $0.5 million payout of severance costs related to ongoing synergy efforts in the Company's tax divisions, and a $0.2 million loss on sale of investments. In addition, pre-tax results included $1.3 million in non-cash stock-related compensation in connection with three executive officers signing long-term employment agreements in the first and second quarters of fiscal 2017. These stock awards vest over eight years but the associated expense is heavily front loaded (see Select Quarterly Expenses table).
Net Interest Income
Net interest income for the fiscal 2018 second quarter was $27.4 million, up $3.4 million, or 14%, from the same quarter in 2017, due to an enhanced interest-earning asset mix primarily due to increases in the community banking loan portfolio, the purchased student loan portfolios, and commercial insurance premium finance loans. Excluding the additional borrowing costs related to retaining all tax services loans, net interest income for the fiscal 2018 second quarter would have been approximately $28.4 million, or an increase of 18% compared to the fiscal 2017 second quarter. The quarterly average outstanding balance of loans from all sources as a percentage of interest-earning assets increased from 33% as of the end of the second fiscal quarter of 2017 to 44% as of the end of the second fiscal quarter of 2018. In addition, lower-yielding agency Mortgage-Backed Securities ("MBS") decreased from 19% of interest-earning assets in the fiscal second quarter of 2017 to 15% of interest-earning assets for the same quarter in 2018. Net interest income for the fiscal 2018 second quarter was up $1.2 million from the Company's fiscal 2018 first quarter, primarily due to a combination of increased loan balances and yields and higher investment yields on mortgage and asset backed securities, offset in part by higher short-term funding costs.
Net Interest Margin
Net interest margin, tax equivalent ("NIM") was 2.89% in the fiscal 2018 second quarter, a decrease of two basis points from 2.91% in the fiscal 2017 second quarter. The decrease was primarily related to the increase in non-interest bearing tax-related loans retained on the Company's balance sheet in the current year's tax quarter when compared to the previous year, as well as the change in the corporate tax rate. Had corporate tax rates remained at previous rates, excluding changes resulting from the adoption of the Tax Act, the reported NIM of 2.89% would have been 3.08%. If the average balance of tax services loans for the second quarter of fiscal 2018 had been at similar levels to the same period of fiscal 2017, NIM would have been another seven basis points higher.

3



The Company estimates, when adjusting for certain seasonal tax program related items as discussed below, a normalized NIM for the 2018 fiscal second quarter would have been between 3.30% and 3.33%, which also reflects the adjusted tax rate due to the adoption of the Tax Act. These adjustments include removing the impact of tax related lending, normalizing cash balances, and making borrowing adjustments by removing borrowing expense if cash balances were available. This Company estimate of normalized NIM would compare favorably to a similarly adjusted fiscal first quarter of 2018 NIM of 3.14%. The quarter to quarter estimated improvement primarily relates to improving earning asset yields and an increase in average non-interest bearing deposits in the current quarter.
The overall reported tax equivalent yield (“TEY”) on average earning asset yields increased by 16 basis points to 3.46% when comparing the fiscal 2018 second quarter to the 2017 second quarter, which was driven primarily by the Company's improved earning asset mix, with increased exposure to its high-quality commercial insurance premium finance, student, and community banking loan portfolios. The reported 3.46% TEY on earning assets reflects the lowered corporate prorated tax rate of the Company's tax-exempt securities portfolio. Had corporate tax rates remained at previous rates, excluding changes resulting from the adoption of the Tax Act, reported TEY on earning assets would have been 3.65%.
The fiscal 2018 second quarter TEY on the securities portfolio decreased by six basis points to 3.18% compared to the same period of the prior year TEY of 3.24%, primarily due to the adoption of the Tax Act, which lowered the TEY on tax-exempt securities. Had corporate tax rates not changed due to the Tax Act, reported securities portfolio TEY yield would have been increased to 3.52% due to new investments being made in higher-yielding investment securities and MBS.
The Company’s average interest-earning assets for the fiscal 2018 second quarter grew by $289.0 million, or 7%, to $4.25 billion, from the comparable quarter in 2017, primarily from growth in the loan portfolio of $552.4 million, of which $239.4 million was attributable to an increase in volume of tax services loans. This increase was partially offset by decreases in cash and fed funds sold and total investment securities of $170.5 million and $92.8 million, respectively. The Company's management believes it has the flexibility to reasonably manage total balance sheet growth moving forward, if needed.
Overall, the Company's cost of funds for all deposits and borrowings averaged 0.58% during the fiscal 2018 second quarter, compared to 0.39% for the 2017 second quarter. This increase was primarily due to an increase in short-term funding rates and higher average overall funding balances due to the Company's utilization of more of its capital during non-tax season with higher investment balances and funding, and in preparation to hold more tax loans on the Company's balance sheet. The Company's overall cost of deposits was 0.33% in the fiscal second quarter of 2018, compared to 0.24% in the same quarter of 2017. When excluding wholesale deposits, the Company's cost of deposits for the second quarter of fiscal 2018 would have been 0.06%.
Non-Interest Income
Fiscal 2018 second quarter non-interest income of $97.4 million increased $5.2 million, or 6%, from $92.2 million in the same quarter of 2017, largely due to an increase in tax product fee income of $4.0 million, or a 6% increase, when comparing the current quarter to the same period of the prior year. The increase in tax product fee income was primarily due to retaining all tax advance loans originated during the 2018 tax season, as opposed to the previous year when most of those loans were sold.

4



Non-Interest Expense
Non-interest expense increased $1.6 million, or 2%, to $68.5 million for the 2018 fiscal second quarter, compared to the same quarter in 2017. This increase was primarily caused by increases of $5.4 million in compensation expense and $1.7 million in legal and consulting expense, offset in part by decreases of $4.4 million in amortization expense and $2.0 million in total tax product expense. The increase in compensation expense was primarily due to increased staffing to support the Company's growing business initiatives in consumer credit, the business to be conducted following the proposed acquisition of Crestmark, and other business units, along with the aforementioned payout of severance costs. The integration of EPS Financial and Specialty Consumer Services allowed the Company to gain some scale and cost savings in the tax services divisions this year, and the Company expects to gain further efficiencies during fiscal 2018. During the fiscal 2018 second quarter, the Company had $2.2 million of merger and acquisition related expenses. The Company expects additional intangible amortization expense of between $6 million and $10 million for fiscal year 2019, attributable to the proposed Crestmark acquisition, which is subject to regulatory and shareholder approval. The Company will provide an update after further analysis and valuation is completed. See Select Quarterly Expenses table for a breakdown of current anticipated select expenses for future quarters.
Income tax expense for the fiscal 2018 second quarter was $6.5 million, resulting in an effective tax rate of 17.2%, compared to $8.4 million, or an effective tax rate of 20.7%, for the 2017 fiscal second quarter. Although net income before tax was $2.6 million lower in the second quarter of fiscal year 2018 than the second quarter of fiscal year 2017, the income tax expense and effective tax rate decreased primarily due to the provisions of the Tax Act, which lowered Meta’s statutory federal corporate tax rate from 35% in fiscal year 2017 to 24.53% in fiscal year 2018.
Loans
Total loans receivable, net of allowance for loan losses, increased $353.9 million, or 31%, from $1.14 billion at March 31, 2017, to $1.49 billion at March 31, 2018. Among lending categories, this included a $212.4 million, or 45%, increase in commercial real estate loans from $473.1 million at March 31, 2017, to $685.5 million at March 31, 2018. Also contributing to the loan growth was a $99.2 million, or 54%, increase in consumer loans, $53.1 million of which was attributable to the purchased student loan portfolios and $43.9 million of which was attributable to refund advance loans, an increase in commercial insurance premium finance loans of $53.6 million, or 29%, from $187.0 million at March 31, 2017, to $240.6 million at March 31, 2018, and an increase in residential mortgage loans of $27.7 million, or 16%, from $178.3 million at March 31, 2017, to $206.0 million at March 31, 2018. The growth in net loans receivable from March 31, 2017, to March 31, 2018, was partially offset by a decrease of $39.1 million, or 40%, from $97.9 million to $58.8 million in total agricultural loans, which made up only 1.37% of total assets at March 31, 2018. Excluding the purchased student loan portfolios and refund advance loans, total loans receivable, net of allowance for loan losses, at March 31, 2018, would have increased $267.3 million, or 27%, compared to March 31, 2017. Community banking loans increased $208.2 million, or 26%, from $802.0 million at March 31, 2017, to $1.01 billion at March 31, 2018, even with the reduction in total agricultural loans of $39.1 million.
The Company recorded a provision for loan losses of $18.3 million during the three months ended March 31, 2018, compared to a provision for loan losses of $8.6 million for the three months ended March 31, 2017. The provision was predominantly driven by an $18.1 million reserve related to tax services loans, which is higher than the previous year because the Company retained all tax advance loans originated during the 2018 tax season, as opposed to the previous year when most of those loans were sold.
The Company’s allowance for loan losses was $27.1 million, or 1.8% of total loans, at March 31, 2018, compared to an allowance of $14.6 million, or 1.3% of total loans, at March 31, 2017. This increase was primarily due to the additional provision expense related to tax services loans.

5



Credit Quality
MetaBank’s NPAs at March 31, 2018, were $36.1 million, representing 0.84% of total assets, compared to $5.0 million and 0.12% of total assets at March 31, 2017, and $37.9 million and 0.72% at September 30, 2017. The increase in NPAs from the comparable previous year period was primarily related to a large, well-collateralized agricultural loan relationship, with respect to which the Company took ownership of the properties serving as collateral upon execution of a deed in lieu of foreclosure and transferred the loans to foreclosed real estate and repossessed assets on January 2, 2018. If the properties are sold prior to the end of the agreed-upon receivership period set forth in the settlement agreement, as expected, the Company will be entitled to all principal, note interest, legal and other fees and expenses. After the receivership period ends, if the properties are not sold, the Company will be entitled to the fair value of the properties, which the Company believes to be significantly in excess of all principal, note interest, legal and other fees and expenses. The increase in NPAs as a percentage of total assets from September 30, 2017 to March 31, 2018 was primarily due to a decrease in total assets of $926.6 million, offset in part by the payment in full of a previously disclosed $7.0 million nonperforming agricultural loan relationship during the first quarter of fiscal 2018. The Payments segment had no NPAs at March 31, 2018, March 31, 2017, or September 30, 2017.
Investments
Investment securities and MBS decreased by $115.3 million, or 5%, to $2.31 billion at March 31, 2018, as compared to $2.42 billion at March 31, 2017. This included a decrease of $102.0 million in MBS and $13.3 million in investment securities.
Average TEY on the securities portfolio decreased six basis points to 3.18% in the second quarter of fiscal 2018 from 3.24% in the same quarter of 2017. Overall TEY of other investment securities decreased by 23 basis points from 3.65% to 3.42% in the second quarter of 2018 compared to the same period of 2017 primarily due to the effects of the Tax Act and a reduction of TEY due to the reduced overall tax rate. Average yields increased within MBS by 18 basis points to 2.56% in the second quarter of 2018 from 2.38% in the same quarter of 2017.
Average yields on asset backed securities increased to 4.41% in the second quarter of 2018 from 2.49% in the same quarter of 2017.
The TEY on the securities portfolio of 3.18% for the second fiscal quarter of 2018 reflects the lowered corporate prorated tax rate on the Company's tax-exempt municipal portfolio. Had corporate tax rates not changed due to the Tax Act, reported securities portfolio yield would have been 3.52%, and the TEY of investment securities would have been 3.90% at the previous corporate rate. The 3.42% overall TEY of other investment securities reflects the lowered corporate prorated tax rate.
When comparing the second quarter of fiscal 2018 to the first quarter of fiscal 2018, average TEY on the securities portfolio increased by 25 basis points to 3.18% from 2.93%, investment securities TEY increased 19 basis points to 3.42% from 3.23%, and MBS increased 35 basis points to 2.56% from 2.21%.
During the 2018 second fiscal quarter, the Company continued to execute its investment strategy of primarily purchasing U.S. Government-related securities and U.S. Government-related MBS, as well as AAA and AA rated non-bank qualified (NBQ) municipal bonds; however, the Company also continues to review opportunities to add other diverse, high-quality securities at attractive relative rates when opportunities arise. With the Company’s funding base being comprised of a large percentage of non-interest-bearing deposits, and even with the lower corporate tax rate, the TEY for these NBQ bonds is higher than a similar term investment in other investment categories of similar risk and higher than many other banks can realize on the same instruments due to the Company’s current cost of funds and its projected cost of funds if interest rates rise.


6



Deposits, Other Borrowings and Other Liabilities
Total end-of-period deposits increased $468.3 million, or 16%, to $3.34 billion at March 31, 2018, compared to $2.87 billion at March 31, 2017. The increase in end-of-period deposits was primarily a result of increases in non-interest-bearing deposits of $213.7 million, or 8%, wholesale deposits of $159.2 million, or 726%, interest-bearing checking of $79.1 million, or 179%, and certificates of deposits of $10.5 million, or 17%.
The increase in wholesale deposits at March 31, 2018 compared to the same period of the prior year was primarily due to the Company utilizing those funds at advantageous rates when compared to the overnight borrowing rates, thereby lowering funding costs. During the second quarter of fiscal 2017, wholesale deposits were primarily used to target strategic maturities related to our seasonal tax advance lending, and many of those deposits had matured by March 31, 2017.
Total average deposits for the fiscal 2018 second quarter decreased by $78.8 million, or 2%, compared to the same period in 2017. Average non-interest-bearing deposits for the 2018 fiscal second quarter were up $143.6 million, or 6%, compared to the same period in 2017.
The average balance of total deposits and interest-bearing liabilities was $4.17 billion for the three-month period ended March 31, 2018, compared to $3.92 billion for the same period in the prior year, representing an increase of 7%. This increase was primarily due to an increase in total borrowings of $335.9 million and an increase in non-interest-bearing deposits of $143.6 million, partially offset by a decrease in wholesale deposits of $301.9 million.
Capital Ratios
The Company and MetaBank remain above the federal regulatory minimum capital requirements to remain classified as well-capitalized institutions. Regulatory capital ratios at March 31, 2018 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)
 
 
 
 
 
 
 
Minimum
 
 
 
 
 
 
 
Requirement to Be
 
 
 
 
 
Minimum
 
Well Capitalized
 
 
 
 
 
Requirement For
 
Under Prompt
 
 
 
 
 
Capital Adequacy
 
Corrective Action
At March 31, 2018
Company
 
MetaBank
 
Purposes
 
Provisions
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
7.26
%
 
8.93
%
 
4.00
%
 
5.00
%
Common equity Tier 1 capital ratio
13.74

 
17.43

 
4.50

 
6.50

Tier 1 capital ratio
14.18

 
17.43

 
6.00

 
8.00

Total qualifying capital ratio
18.48

 
18.59

 
8.00

 
10.00

(1) Regulatory ratios are estimated.

7



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)
 
March 31, 2018
 
(Dollars in Thousands)
Total equity
$
443,703

Adjustments:
 
   LESS: Goodwill, net of associated deferred tax liabilities
95,262

   LESS: Certain other intangible assets
47,724

   LESS: Net deferred tax assets from operating loss and tax credit carry-forwards

   LESS: Net unrealized gains (losses) on available-for-sale securities
(21,166
)
Common Equity Tier 1 (1)
321,882

   Long-term debt and other instruments qualifying as Tier 1
10,310

   LESS: Additional Tier 1 capital deductions

Total Tier 1 capital
332,192

   Allowance for loan losses
27,285

   Subordinated debentures (net of issuance costs)
73,418

Total qualifying capital
432,896

(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 used in calculating tangible book value data.
 
March 31, 2018
 
(Dollars in Thousands)
Total Stockholders' Equity
$
443,703

Less: Goodwill
98,723

Less: Intangible assets
47,724

     Tangible common equity
297,256

Less: AOCI
(21,166
)
     Tangible common equity excluding AOCI
318,422

 
 
Due to the predictable, quarterly cyclicality of non-interest bearing 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, MetaBank’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 March 31, 2018, were 9.58%, 16.72%, 16.72%, and 17.84%, respectively. 


8



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 Securities and Exchange Commission (“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: statements regarding the potential benefits of, and other expectations for the combined company giving effect to, the proposed merger transaction with Crestmark; the anticipated timing for closing the proposed merger transaction with Crestmark; 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 MetaBank or MPS, a division of MetaBank; 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: the risk that the transaction with Crestmark may not occur on a timely basis or at all; the parties’ ability to obtain regulatory approvals and approval of their respective shareholders, and otherwise satisfy the other conditions to closing, on a timely basis or at all; the risk that the businesses of Meta and MetaBank, on the one hand, and Crestmark and Crestmark Bank, on the other hand, may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities, beneficial synergies and/or operating efficiencies from the proposed transaction may not be fully realized or may take longer to realize than expected; customer losses and business disruption following the announcement or consummation of the proposed transaction; potential litigation or regulatory actions relating to the proposed merger transaction; the risk that the Company may incur unanticipated or unknown losses or liabilities if it completes the proposed transaction with Crestmark and Crestmark Bank; additional changes in tax laws; maintaining our executive management team; 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 Treasury in conjunction with bank regulatory agencies to stimulate the economy and protect the financial system; inflation, interest rate, market, and monetary fluctuations; the timely development 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; 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, 2017, 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.



9



Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
ASSETS
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
Cash and cash equivalents
$
107,563

 
$
1,300,409

 
$
1,267,586

 
$
65,630

 
$
67,293

Investment securities available for sale
1,418,862

 
1,392,240

 
1,106,977

 
1,141,684

 
1,184,440

Mortgage-backed securities available for sale
654,890

 
600,112

 
586,454

 
666,424

 
642,833

Investment securities held to maturity
226,618

 
235,024

 
449,840

 
464,729

 
474,306

Mortgage-backed securities held to maturity
8,393

 
8,468

 
113,689

 
117,399

 
122,497

Loans receivable
1,517,616

 
1,509,140

 
1,325,371

 
1,224,359

 
1,151,192

Allowance for loan loss
(27,078
)
 
(8,862
)
 
(7,534
)
 
(14,968
)
 
(14,602
)
Federal Home Loan Bank Stock, at cost
17,846

 
57,443

 
61,123

 
16,323

 
25,043

Accrued interest receivable
17,604

 
21,089

 
19,380

 
21,831

 
20,902

Premises, furniture, and equipment, net
20,278

 
20,571

 
19,320

 
20,107

 
20,019

Bank-owned life insurance
86,021

 
85,371

 
84,702

 
84,035

 
58,378

Foreclosed real estate and repossessed assets
30,050

 
128

 
292

 
364

 

Goodwill
98,723

 
98,723

 
98,723

 
98,723

 
98,723

Intangible assets
47,724

 
50,521

 
52,178

 
64,798

 
66,633

Prepaid assets
26,342

 
29,758

 
28,392

 
31,265

 
34,596

Deferred taxes
20,939

 
5,379

 
9,101

 
6,858

 
10,589

Other assets
29,302

 
12,449

 
12,738

 
10,132

 
22,754

 
 
 
 
 
 
 
 
 
 
        Total assets
$
4,301,693

 
$
5,417,963

 
$
5,228,332

 
$
4,019,693

 
$
3,985,596

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 

 
 
 
 
Non-interest-bearing checking
$
2,850,886

 
$
2,779,645

 
$
2,454,057

 
$
2,481,673

 
$
2,637,167

Interest-bearing checking
123,397

 
84,390

 
67,294

 
40,928

 
44,264

Savings deposits
65,345

 
53,535

 
53,505

 
55,292

 
65,367

Money market deposits
48,070

 
47,451

 
48,758

 
46,709

 
42,340

Time certificates of deposit
71,712

 
128,220

 
123,637

 
83,760

 
61,170

Wholesale deposits
181,087

 
420,404

 
476,173

 
444,857

 
21,923

        Total deposits
3,340,497

 
3,513,645

 
3,223,424

 
3,153,219

 
2,872,231

Short-term debt
315,777

 
1,313,401

 
1,404,534

 
277,166

 
494,919

Long-term debt
85,572

 
85,552

 
85,533

 
92,514

 
92,497

Accrued interest payable
1,315

 
4,065

 
2,280

 
2,463

 
722

Accrued expenses and other liabilities
114,829

 
63,595

 
78,065

 
64,118

 
113,479

          Total liabilities
3,857,990

 
4,980,258

 
4,793,836

 
3,589,480

 
3,573,848

 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS’ EQUITY
 

 
 

 
 

 
 
 
 
Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017.

 

 

 

 

Common stock, $.01 par value; 15,000,000 shares authorized, 9,699,591, 9,664,846, and 9,622,595 shares outstanding and 9,720,536, 9,685,398, and 9,626,431 shares issued at March 31, 2018, December 31, 2017, and September 30, 2017. 9,349,989, and 9,349,989 shares issued and outstanding at June 30, 2017 and March 31, 2017, respectively.
97

 
96

 
96

 
94

 
94

Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at March 31, 2018, December 31, 2017, September 30, 2016, June 30, 2017, and March 31, 2017.

 

 

 

 

Additional paid-in capital
265,685

 
262,872

 
258,336

 
256,088

 
253,473

Retained earnings
200,753

 
170,578

 
167,164

 
166,634

 
158,167

Accumulated other comprehensive (loss) income
(21,166
)
 
5,782

 
9,166

 
7,397

 
14

Treasury stock, at cost, 20,945, 20,552, and 3,836 common shares at March 31, 2018, December 31, 2017, and September 30, 2017, none at June 30, 2017 and March 31, 2017.
(1,666
)
 
(1,623
)
 
(266
)
 

 

         Total stockholders’ equity
443,703

 
437,705

 
434,496

 
430,213

 
411,748

 
 
 
 
 
 
 
 
 
 
         Total liabilities and stockholders’ equity
$
4,301,693

 
$
5,417,963

 
$
5,228,332

 
$
4,019,693

 
$
3,985,596




10



Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
 
Three Months Ended
 
Six Months Ended
 
3/31/2018
 
12/31/2017
 
3/31/2017
 
3/31/2018
 
3/31/2017
Interest and dividend income:
 
 
 
 
 
 
 
 
 
Loans receivable, including fees
$
17,844

 
$
16,443

 
$
12,773

 
$
34,287

 
$
23,451

Mortgage-backed securities
4,047

 
3,758

 
4,481

 
7,805

 
7,801

Other investments
11,480

 
10,656

 
10,464

 
22,136

 
19,041

 
33,371

 
30,857

 
27,718

 
64,228

 
50,293

Interest expense:
 

 
 
 
 
 
 

 
 
Deposits
2,957

 
1,885

 
2,184

 
4,842

 
3,122

FHLB advances and other borrowings
3,009

 
2,776

 
1,568

 
5,785

 
3,372

 
5,966

 
4,661

 
3,752

 
10,627

 
6,494

 
 
 
 
 
 
 
 
 
 
Net interest income
27,405

 
26,196

 
23,966

 
53,601

 
43,799

 
 
 
 
 
 
 
 
 
 
Provision for loan losses
18,343

 
1,068

 
8,649

 
19,411

 
9,492

 
 
 
 
 
 
 
 
 
 
Net interest income after provision for loan losses
9,062

 
25,128

 
15,317

 
34,190

 
34,307

 
 
 
 
 
 
 
 
 
 
Non-interest income:
 

 
 
 
 

 
 

 
 

Refund transfer product fees
33,803

 
192

 
32,487

 
33,995

 
32,663

Tax advance product fees
33,838

 
1,947

 
31,119

 
35,785

 
31,568

Card fees
26,856

 
25,247

 
26,547

 
52,103

 
44,961

Loan fees
1,042

 
1,292

 
1,182

 
2,334

 
2,052

Bank-owned life insurance
650

 
669

 
444

 
1,319

 
892

Deposit fees
982

 
848

 
168

 
1,830

 
318

Loss on sale of securities
(166
)
 
(1,010
)
 
(144
)
 
(1,176
)
 
(1,378
)
Gain (loss) on foreclosed real estate

 
(19
)
 
7

 
(19
)
 
7

Other income
414

 
102

 
360

 
516

 
436

Total non-interest income
97,419

 
29,268

 
92,170

 
126,687

 
111,519

 
 
 
 
 
 
 
 
 
 
Non-interest expense:
 

 
 
 
 

 
 

 
 

Compensation and benefits
32,172

 
22,340

 
26,766

 
54,512

 
44,616

Refund transfer product expense
9,871

 
101

 
10,178

 
9,972

 
9,969

Tax advance product expense
1,474

 
280

 
3,140

 
1,754

 
3,427

Card processing
7,190

 
6,540

 
7,043

 
13,730

 
12,622

Occupancy and equipment
4,477

 
4,890

 
4,191

 
9,367

 
8,168

Legal and consulting
3,239

 
2,416

 
1,505

 
5,655

 
4,228

Marketing
668

 
553

 
610

 
1,221

 
1,080

Data processing
243

 
414

 
392

 
657

 
755

Intangible amortization expense
2,731

 
1,681

 
7,082

 
4,412

 
8,607

Other expense
6,432

 
4,827

 
6,039

 
11,259

 
10,227

Total non-interest expense
68,497

 
44,042

 
66,946

 
112,539

 
103,699

 
 
 
 
 
 
 
 
 
 
Income before income tax expense
37,984

 
10,354

 
40,541

 
48,338

 
42,127

 
 
 
 
 
 
 
 
 
 
Income tax expense
6,548

 
5,684

 
8,399

 
12,232

 
8,741

 
 
 
 
 
 
 
 
 
 
Net income
$
31,436

 
4,670

 
$
32,142

 
$
36,106

 
$
33,386

 
 
 
 
 
 
 
 
 
 
Earnings per common share
 

 
 
 
 
 
 

 
 
Basic
$
3.25

 
0.48

 
$
3.44

 
$
3.73

 
$
3.65

Diluted
$
3.23

 
0.48

 
$
3.42

 
$
3.72

 
$
3.63

 
 
 
 
 
 
 
 
 
 
Shares used in computing earnings per share
 
 
 
 
 
 
 
 
 
Basic
9,687,060

 
9,656,778

 
9,345,277

 
9,671,792

 
9,138,692

Diluted
9,726,712

 
9,712,841

 
9,399,951

 
9,710,138

 
9,192,482



11



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 March 31,
2018
 
2017
(Dollars in Thousands)
 
Average
Outstanding
Balance
 
Interest
Earned /
Paid
 
Yield /
Rate
(1)
 
Average
Outstanding
Balance
 
Interest
Earned /
Paid
 
Yield /
Rate
(2)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash & fed funds sold
$
132,355

 
$
722

 
2.21
%
 
$
302,890

 
$
593

 
0.79
%
    Mortgage-backed securities
642,164

 
4,047

 
2.56
%
 
764,742

 
4,480

 
2.38
%
    Tax exempt investment securities
1,431,974

 
9,001

 
3.38
%
 
1,349,034

 
8,325

 
3.85
%
    Asset-backed securities
112,301

 
1,220

 
4.41
%
 
117,940

 
723

 
2.49
%
    Other investment securities
78,272

 
537

 
2.78
%
 
125,792

 
824

 
2.66
%
Total investments
2,264,711

 
14,805

 
3.18
%
 
2,357,508

 
14,352

 
3.24
%
    Community banking loans(3)
998,336

 
10,747

 
4.37
%
 
798,125

 
8,287

 
4.21
%
    Tax services loans
416,625

 
833

 
0.81
%
 
177,193

 
11

 
0.02
%
        Commercial insurance premium finance loans
242,305

 
2,913

 
4.88
%
 
191,282

 
2,286

 
4.85
%
        Student loans and other
196,902

 
3,351

 
6.90
%
 
135,213

 
2,189

 
6.57
%
    National lending loans(4)
439,207

 
6,264

 
5.78
%
 
326,495

 
4,475

 
5.56
%
Total loans
1,854,168

 
17,844

 
3.90
%
 
1,301,813

 
12,773

 
3.98
%
Total interest-earning assets
$
4,251,234

 
$
33,371

 
3.46
%
 
$
3,962,211

 
$
27,718

 
3.30
%
Non-interest-earning assets
451,568

 
 
 
 
 
451,508

 
 
 
 
Total assets
$
4,702,802

 
 
 
 
 
$
4,413,719

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
    Interest-bearing checking
$
100,804

 
$
51

 
0.20
%
 
$
42,515

 
$
42

 
0.40
%
    Savings
59,634

 
9

 
0.06
%
 
58,718

 
8

 
0.06
%
    Money markets
48,812

 
27

 
0.22
%
 
45,913

 
20

 
0.17
%
    Time deposits
118,933

 
344

 
1.17
%
 
101,546

 
172

 
0.69
%
    Wholesale deposits
685,025

 
2,526

 
1.50
%
 
986,908

 
1,942

 
0.80
%
Total interest-bearing deposits
1,013,208

 
2,957

 
1.18
%
 
1,235,600

 
2,184

 
0.72
%
    Overnight fed funds purchased
407,789

 
1,679

 
1.67
%
 
73,033

 
168

 
0.93
%
    FHLB advances
2,333

 
9

 
1.56
%
 
7,000

 
122

 
7.08
%
    Subordinated debentures
73,395

 
1,114

 
6.15
%
 
73,256

 
1,112

 
6.16
%
    Other borrowings
19,602

 
207

 
4.29
%
 
13,930

 
166

 
4.84
%
Total borrowings
503,119

 
3,009

 
2.43
%
 
167,219

 
1,568

 
3.80
%
Total interest-bearing liabilities
1,516,327

 
5,966

 
1.60
%
 
1,402,819

 
3,752

 
1.08
%
    Non-interest bearing deposits
2,656,516

 

 
0.00
%
 
2,512,934

 

 
0.00
%
Total deposits and interest-bearing liabilities
$
4,172,843

 
$
5,966

 
0.58
%
 
$
3,915,753

 
$
3,752

 
0.39
%
Other non-interest-bearing liabilities
86,675

 
 
 
 
 
106,700

 
 
 
 
Total liabilities
4,259,518

 
 
 
 
 
4,022,453

 
 
 
 
Shareholders' equity
443,284

 
 
 
 
 
391,266

 
 
 
 
Total liabilities and shareholders' equity
$
4,702,802

 
 
 
 
 
$
4,413,719

 
 
 
 
Net interest income and net interest rate spread including non-interest-bearing deposits
 
 
$
27,405

 
2.88
%
 
 
 
$
23,966

 
2.91
%
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
 
 
 
2.61
%
 
 
 
 
 
2.45
%
Tax equivalent effect
 
 
 
 
0.28
%
 
 
 
 
 
0.46
%
Net interest margin, tax equivalent(5)
 
 
 
 
2.89
%
 
 
 
 
 
2.91
%

12



(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2018 was 24.53%
(2) Tax rate used to arrive at the TEY for the three months ended March 31, 2017 was 35%
(3) Previously stated Retail Bank loans have been renamed as Community Banking Loans
(4) Previously stated Specialty Finance Loans have been renamed as National Lending Loans
(5) 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. We believe that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis, and accordingly believe the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

The following table presents, for the periods indicated, allowance for loan loss activity.
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
(Unaudited)
Three Months Ended
 
Six Months Ended
Allowance for loan loss activity
March 31, 2018
 
December 31, 2017
 
March 31, 2017
 
March 31, 2018
 
March 31, 2017
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
8,862

 
$
7,534

 
$
6,415

 
$
7,534

 
$
5,635

Provision - tax services loans
18,129

 
1,017

 
7,883

 
19,146

 
8,214

Provision - all other loans
214

 
51

 
765

 
265

 
1,278

Charge-offs
(339
)
 
(160
)
 
(490
)
 
(499
)
 
(609
)
Recoveries
212

 
420

 
29

 
632

 
84

Ending balance
$
27,078

 
$
8,862

 
$
14,602

 
$
27,078

 
$
14,602

 
 
 
 
 
 
 
 
 
 


Selected Financial Information
 
 
 
 
 
 
 
 
 
 
 
At Period Ended:
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
 
March 31,
2017
 
 
 
 
 
 
 
 
 
 
 
     Equity to total assets
 
10.31
%
 
8.08
%
 
8.31
%
 
10.70
%
 
10.33
%
Book value per common share outstanding
 
$
45.74

 
$
45.29

 
$
45.15

 
$
46.01

 
$
44.04

Tangible book value per common share outstanding
 
$
30.65

 
$
29.85

 
$
29.47

 
$
28.52

 
$
26.35

Tangible book value per common share outstanding excluding AOCI
 
$
32.83

 
$
29.25

 
$
28.52

 
$
27.73

 
$
26.35

     Common shares outstanding
 
9,699,591

 
9,664,846

 
9,622,595

 
9,349,989

 
9,349,989

     Non-performing assets to total assets
 
0.84
%
 
0.61
%
 
0.72
%
 
1.17
%
 
0.12
%
     Full-time equivalent employees (FTEs)
 
916

 
878

 
827

 
808

 
782

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended:
 
March 31, 2018
 
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Net interest margin, tax equivalent
 
2.97
%
 
2.91
%
 
 
 
 
 
 
     Return on average assets
 
1.64
%
 
1.69
%
 
 
 
 
 
 
     Return on average equity
 
16.46
%
 
17.98
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


13



Select Quarterly Expenses
(Dollars in Thousands)
Actual
Anticipated
For the Three Months Ended
Mar 31,
2018
Jun 30,
2018
Sep 30,
2018
Dec 31,
2018
Mar 31,
2019
Jun 30,
2019
Sep 30,
2019
Dec 31,
2019
Mar 31,
2020
 
 
 
 
 
 
 
 
 
 
Amortization of Intangibles (1) (2)
$
2,731

$
1,664

$
1,633

$
1,488

$
2,707

$
1,488

$
1,468

$
1,283

$
2,008

 
 
 
 
 
 
 
 
 
 
Executive Officer Stock Compensation (3)
$
1,309

$
1,324

$
1,338

$
941

$
917

$
927

$
937

$
679

$
669

 
 
 
 
 
 
 
 
 
 
(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) The Company expects additional intangible amortization expense of between $6 million and $10 million for fiscal year 2019, attributable to the proposed Crestmark acquisition, which is subject to regulatory and shareholder approval. The Company will provide an update after further analysis and valuation is completed.
(3) These amounts are based upon the long-term 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.

Conference Call
The Company will host a conference call and earnings webcast at 4:00 p.m. CDT (5:00 p.m. EDT) on Monday, April 30, 2018. 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 approximately 10 minutes prior to start time. Please ask to join the Meta Financial conference call, and provide conference ID 9166897 upon request. International callers should dial (636) 812-6634. A webcast replay will also be archived at www.metafinancialgroup.com for one year.

Additional Information About the Proposed Crestmark Transaction
In connection with the proposed merger transaction, Meta has filed a registration statement on Form S-4 (file no. 333-223769) with the SEC, which includes a joint proxy statement of Meta and Crestmark, which also constitutes a prospectus of Meta, that Meta and Crestmark will send to their respective shareholders. Before making any voting or investment decision, investors and security holders of Meta and Crestmark are urged to carefully read the entire registration statement and proxy statement/prospectus as well as any amendments or supplements to these documents and any other relevant materials because they contain important information about the proposed transaction. Investors and security holders are able to obtain the registration statement and the proxy statement/prospectus free of charge from the SEC’s website at www.sec.gov or from Meta by sending a request to Meta Financial Group, Inc., 5501 S. Broadband Lane, Sioux Falls, SD 57108; Attention: Investor Relations. In addition, copies of the proxy statement/prospectus will be provided free of charge by Meta to its stockholders.
This communication and the information contained herein does not and shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities in connection with the proposed merger shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.


14



Participants in the Transaction
Meta, Crestmark and certain of their respective directors and executive officers may be deemed under the rules of the SEC to be participants in the solicitation of proxies from the respective shareholders of Meta and Crestmark in connection with the proposed merger transaction. Certain information regarding the interests of these participants and a description of their direct and indirect interests, by security holdings or otherwise, are included in the joint proxy statement/prospectus regarding the proposed transaction. Additional information about Meta and its directors and officers may be found in the definitive proxy statement of Meta relating to its 2018 Annual Meeting of Stockholders filed with the SEC on December 4, 2017 and Meta’s annual report on Form 10-K for the year ended September 30, 2017 filed with the SEC on November 29, 2017. The definitive proxy statement and annual report on Form 10-K can be obtained free of charge from the SEC’s website at www.sec.gov.

About Meta Financial Group®
Meta Financial Group, Inc. ("Meta") is the holding company for MetaBank®, a federally chartered savings bank. Meta shares of common stock are traded on the NASDAQ Global Select Market® under the symbol CASH. Headquartered in Sioux Falls, S.D., MetaBank operates in both the Banking and Payments industries through: MetaBank, its community banking operation; Meta Payment Systems, its electronic payments division; AFS/IBEX, its commercial insurance premium financing division; and Refund Advantage, EPS Financial and Specialty Consumer Services, its tax-related financial solutions divisions. More information is available at metafinancialgroup.com.
Media Contact:
 
Investor Relations Contact:
 
Katie LeBrun
 
Brittany Kelley Elsasser
 
Corporate Communications Director
 
Director of Investor Relations
 
605-362-5140
 
605-362-2423
 
klebrun@metabank.com
 
bkelley@metabank.com
 

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