UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-22140
META FINANCIAL GROUP, INC.®
(Exact name of registrant as specified in its charter)
Delaware | 42-1406262 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5501 South Broadband Lane, Sioux Falls, South Dakota 57108
(Address of principal executive offices and Zip Code)
(605) 782-1767
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company See the definitions of "large accelerated filer." "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer☒ | Accelerated filer☐ | Non-accelerated filer☐ | Smaller Reporting Company☐ |
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. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒ NO
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value | CASH | The NASDAQ Stock Market LLC |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class: | Outstanding at May 2, 2019: |
Common Stock, $.01 par value | 39,449,882 shares |
Nonvoting Common Stock, $.01 par value | 0 Nonvoting shares |
META FINANCIAL GROUP, INC.
FORM 10-Q
Table of Contents
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 6. | ||
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
META FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Dollars in Thousands, Except Share Data(1)) | (Unaudited) | ||||||
ASSETS | March 31, 2019 | September 30, 2018 | |||||
Cash and cash equivalents | $ | 156,461 | $ | 99,977 | |||
Investment securities available for sale, at fair value | 1,081,663 | 1,484,160 | |||||
Mortgage-backed securities available for sale, at fair value | 413,493 | 364,065 | |||||
Investment securities held to maturity, at cost | 146,992 | 163,893 | |||||
Mortgage-backed securities held to maturity, at cost | 7,606 | 7,850 | |||||
Loans held for sale | 59,745 | 15,606 | |||||
Loans and leases | 3,437,980 | 2,944,739 | |||||
Allowance for loan and lease losses | (48,672 | ) | (13,040 | ) | |||
Federal Home Loan Bank Stock, at cost | 7,436 | 23,400 | |||||
Accrued interest receivable | 20,281 | 22,016 | |||||
Premises, furniture, and equipment, net | 45,457 | 40,458 | |||||
Rental equipment, net | 140,087 | 107,290 | |||||
Bank-owned life insurance | 88,565 | 87,293 | |||||
Foreclosed real estate and repossessed assets | 29,548 | 31,638 | |||||
Goodwill | 307,464 | 303,270 | |||||
Intangible assets | 60,506 | 70,719 | |||||
Prepaid assets | 26,597 | 27,906 | |||||
Deferred taxes | 19,079 | 18,737 | |||||
Other assets | 49,754 | 35,090 | |||||
Total assets | $ | 6,050,042 | $ | 5,835,067 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
LIABILITIES | |||||||
Noninterest-bearing checking | $ | 3,034,428 | $ | 2,405,274 | |||
Interest-bearing checking | 183,492 | 111,587 | |||||
Savings deposits | 59,978 | 54,765 | |||||
Money market deposits | 56,563 | 51,995 | |||||
Time certificates of deposit | 154,401 | 276,180 | |||||
Wholesale deposits | 1,481,445 | 1,531,186 | |||||
Total deposits | 4,970,307 | 4,430,987 | |||||
Short-term debt | 11,583 | 425,759 | |||||
Long-term debt | 99,800 | 88,963 | |||||
Accrued interest payable | 9,239 | 7,794 | |||||
Accrued expenses and other liabilities | 135,404 | 133,838 | |||||
Total liabilities | 5,226,333 | 5,087,341 | |||||
STOCKHOLDERS’ EQUITY | |||||||
Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at March 31, 2019 and September 30, 2018, respectively | — | — | |||||
Common stock, $.01 par value; 90,000,000 and 90,000,000 shares authorized, 39,565,496 and 39,192,063 shares issued, 39,450,938 and 39,167,280 shares outstanding at March 31, 2019 and September 30, 2018, respectively | 395 | 393 | |||||
Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at March 31, 2019 and September 30, 2018, respectively | — | — | |||||
Additional paid-in capital | 576,406 | 565,811 | |||||
Retained earnings | 258,600 | 213,048 | |||||
Accumulated other comprehensive loss | (10,264 | ) | (33,111 | ) | |||
Treasury stock, at cost, 114,558 and 24,783 common shares at March 31, 2019 and September 30, 2018, respectively | (4,956 | ) | (1,989 | ) | |||
Total equity attributable to parent | 820,181 | 744,152 | |||||
Noncontrolling interest | 3,528 | 3,574 | |||||
Total stockholders’ equity | 823,709 | 747,726 | |||||
Total liabilities and stockholders’ equity | $ | 6,050,042 | $ | 5,835,067 | |||
See Notes to Condensed Consolidated Financial Statements.
(1)All share and per share data has been adjusted to reflect the 3-for-1 forward stock split effected by the Company on October 4, 2018.
2
META FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data(1)) | Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Interest and dividend income: | |||||||||||||||
Loans and leases, including fees | $ | 73,670 | $ | 17,844 | $ | 134,168 | $ | 34,287 | |||||||
Mortgage-backed securities | 2,861 | 4,047 | 5,559 | 7,805 | |||||||||||
Other investments | 11,763 | 11,480 | 23,543 | 22,136 | |||||||||||
88,294 | 33,371 | 163,270 | 64,228 | ||||||||||||
Interest expense: | |||||||||||||||
Deposits | 14,740 | 2,957 | 25,336 | 4,842 | |||||||||||
FHLB advances and other borrowings | 2,204 | 3,009 | 6,312 | 5,785 | |||||||||||
16,944 | 5,966 | 31,648 | 10,627 | ||||||||||||
Net interest income | 71,350 | 27,405 | 131,622 | 53,601 | |||||||||||
Provision for loan and lease losses | 33,318 | 18,343 | 42,417 | 19,411 | |||||||||||
Net interest income after provision for loan and lease losses | 38,032 | 9,062 | 89,205 | 34,190 | |||||||||||
Noninterest income: | |||||||||||||||
Refund transfer product fees | 31,601 | 33,803 | 31,862 | 33,995 | |||||||||||
Tax advance product fees | 33,038 | 33,838 | 34,723 | 35,785 | |||||||||||
Card fees | 23,052 | 26,856 | 42,403 | 52,103 | |||||||||||
Rental income | 9,890 | — | 20,780 | — | |||||||||||
Loan and lease fees | 925 | 1,042 | 2,173 | 2,334 | |||||||||||
Bank-owned life insurance | 631 | 650 | 1,273 | 1,319 | |||||||||||
Deposit fees | 2,093 | 982 | 4,031 | 1,830 | |||||||||||
Gain (loss) on sale of securities available-for-sale, net (Includes $231 and ($166) reclassified from accumulated other comprehensive income (loss) for net gains (losses) on available for sale securities for the three months ended March 31, 2019 and 2018, respectively and $209 and ($1,176) for the six months ended March 31, 2019 and 2018, respectively) | 231 | (166 | ) | 209 | (1,176 | ) | |||||||||
Gain on sale of loans and leases | 1,085 | — | 1,951 | — | |||||||||||
Loss on foreclosed real estate | (200 | ) | — | (185 | ) | (19 | ) | ||||||||
Other income | 2,679 | 414 | 3,556 | 516 | |||||||||||
Total noninterest income | 105,025 | 97,419 | 142,776 | 126,687 | |||||||||||
Noninterest expense: | |||||||||||||||
Compensation and benefits | 49,164 | 32,172 | 82,174 | 54,512 | |||||||||||
Refund transfer product expense | 7,181 | 9,871 | 7,191 | 9,972 | |||||||||||
Tax advance product expense | 2,225 | 1,474 | 2,677 | 1,754 | |||||||||||
Card processing | 6,971 | 7,190 | 14,056 | 13,730 | |||||||||||
Occupancy and equipment | 7,212 | 4,477 | 13,670 | 9,367 | |||||||||||
Operating lease equipment depreciation | 4,485 | — | 12,251 | — | |||||||||||
Legal and consulting | 4,308 | 3,239 | 8,277 | 5,655 | |||||||||||
Marketing | 585 | 668 | 1,124 | 1,221 | |||||||||||
Data processing | 321 | 243 | 758 | 657 | |||||||||||
Intangible amortization | 5,596 | 2,731 | 9,978 | 4,412 | |||||||||||
Impairment expense | 9,660 | — | 9,660 | — | |||||||||||
Other expense | 12,546 | 6,432 | 22,733 | 11,259 | |||||||||||
Total noninterest expense | 110,254 | 68,497 | 184,549 | 112,539 | |||||||||||
Income before income tax expense | 32,803 | 37,984 | 47,432 | 48,338 | |||||||||||
Income tax (benefit) expense (Includes $58 and ($46) reclassified from accumulated other comprehensive loss for the three months ended March 31, 2019 and 2018, respectively and $52 and ($329) for the six months ended March 31, 2019 and 2018, respectively) | (395 | ) | 6,548 | (2,086 | ) | 12,232 | |||||||||
Net income before noncontrolling interest | 33,198 | 31,436 | 49,518 | 36,106 | |||||||||||
Net income attributable to noncontrolling interest | 1,078 | — | 2,000 | — | |||||||||||
Net income attributable to parent | $ | 32,120 | $ | 31,436 | $ | 47,518 | $ | 36,106 | |||||||
Earnings per common share | |||||||||||||||
Basic | $ | 0.81 | $ | 1.08 | $ | 1.21 | $ | 1.24 | |||||||
Diluted | $ | 0.81 | $ | 1.08 | $ | 1.20 | $ | 1.24 | |||||||
See Notes to Condensed Consolidated Financial Statements.
(1)All share and per share data has been adjusted to reflect the 3-for-1 forward stock split effected by the Company on October 4, 2018.
3
META FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in Thousands) | Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income before noncontrolling interest | $ | 33,198 | $ | 31,436 | $ | 49,518 | $ | 36,106 | |||||||
Other comprehensive (loss) income: | |||||||||||||||
Change in net unrealized gain (loss) on debt securities | 25,089 | (35,993 | ) | 31,260 | (43,472 | ) | |||||||||
(Gain) loss realized in net income | (231 | ) | 166 | (209 | ) | 1,176 | |||||||||
24,858 | (35,827 | ) | 31,051 | (42,296 | ) | ||||||||||
Unrealized gain (loss) on currency translation | 116 | — | (245 | ) | — | ||||||||||
Deferred income tax effect | 6,051 | (8,879 | ) | 7,484 | (11,964 | ) | |||||||||
Total other comprehensive (loss) income | 18,923 | (26,948 | ) | 23,322 | (30,332 | ) | |||||||||
Total comprehensive income | 52,121 | 4,488 | 72,840 | 5,774 | |||||||||||
Total comprehensive income attributable to noncontrolling interest | 1,078 | — | 2,000 | — | |||||||||||
Comprehensive income attributable to parent | $ | 51,043 | $ | 4,488 | $ | 70,840 | $ | 5,774 | |||||||
See Notes to Condensed Consolidated Financial Statements.
4
META FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data(1))
Meta Financial Group, Inc. Stockholders' Equity | |||||||||||||||||||||||||||||||
Three Months Ended March 31, 2019 | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||
Balance, December 31, 2018 | $ | 394 | $ | 572,156 | $ | 228,453 | $ | (29,186 | ) | $ | (4,356 | ) | $ | 767,461 | $ | 3,267 | $ | 770,728 | |||||||||||||
Cash dividends declared on common stock ($0.05 per share) | — | — | (1,973 | ) | — | — | (1,973 | ) | — | (1,973 | ) | ||||||||||||||||||||
Issuance of common shares due to restricted stock | 1 | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||||
Shares repurchased for tax withholdings on stock compensation | — | — | — | — | (600 | ) | (600 | ) | — | (600 | ) | ||||||||||||||||||||
Stock compensation | — | 4,250 | — | — | — | 4,250 | — | 4,250 | |||||||||||||||||||||||
Total other comprehensive income | — | — | — | 18,922 | — | 18,922 | — | 18,922 | |||||||||||||||||||||||
Net income | — | — | 32,120 | — | — | 32,120 | 1,078 | 33,198 | |||||||||||||||||||||||
Net investment by (distribution to) noncontrolling interests | — | — | — | — | — | — | (817 | ) | (817 | ) | |||||||||||||||||||||
Balance, March 31, 2019 | $ | 395 | $ | 576,406 | $ | 258,600 | $ | (10,264 | ) | $ | (4,956 | ) | $ | 820,181 | $ | 3,528 | $ | 823,709 | |||||||||||||
Six Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||
Balance, September 30, 2018 | $ | 393 | $ | 565,811 | $ | 213,048 | $ | (33,111 | ) | $ | (1,989 | ) | $ | 744,152 | $ | 3,574 | $ | 747,726 | |||||||||||||
Adoption of Accounting Standards Update 2014-09, net of income taxes | — | — | 1,502 | — | — | 1,502 | — | 1,502 | |||||||||||||||||||||||
Adoption of Accounting Standards Update 2016-01 | — | — | 475 | (475 | ) | — | — | — | — | ||||||||||||||||||||||
Cash dividends declared on common stock ($0.10 per share) | — | — | (3,943 | ) | — | — | (3,943 | ) | — | (3,943 | ) | ||||||||||||||||||||
Issuance of common shares due to exercise of stock options | — | 54 | — | — | — | 54 | — | 54 | |||||||||||||||||||||||
Issuance of common shares due to restricted stock | 3 | — | — | — | — | 3 | — | 3 | |||||||||||||||||||||||
Issuance of common shares due to ESOP | — | 2,010 | — | — | — | 2,010 | — | 2,010 | |||||||||||||||||||||||
Shares repurchased for tax withholdings on stock compensation | (1 | ) | 1 | — | — | (2,967 | ) | (2,967 | ) | — | (2,967 | ) | |||||||||||||||||||
Stock compensation | — | 8,530 | — | — | — | 8,530 | — | 8,530 | |||||||||||||||||||||||
Total other comprehensive income | — | — | — | 23,322 | — | 23,322 | — | 23,322 | |||||||||||||||||||||||
Net income | — | — | 47,518 | — | — | 47,518 | 2,000 | 49,518 | |||||||||||||||||||||||
Net investment by (distribution to) noncontrolling interests | — | — | — | — | — | — | (2,046 | ) | (2,046 | ) | |||||||||||||||||||||
Balance, March 31, 2019 | $ | 395 | $ | 576,406 | $ | 258,600 | $ | (10,264 | ) | $ | (4,956 | ) | $ | 820,181 | $ | 3,528 | $ | 823,709 | |||||||||||||
5
Meta Financial Group, Inc. Stockholders' Equity | |||||||||||||||||||||||||||||||
Three Months Ended March 31, 2018 | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||
Balance, December 31, 2017 | $ | 290 | $ | 262,678 | $ | 170,578 | $ | 5,782 | $ | (1,623 | ) | $ | 437,705 | $ | — | $ | 437,705 | ||||||||||||||
Cash dividends declared on common stock ($0.04 per share) | — | — | (1,261 | ) | — | — | (1,261 | ) | — | (1,261 | ) | ||||||||||||||||||||
Issuance of common shares due to exercise of stock options | — | 147 | — | — | — | 147 | — | 147 | |||||||||||||||||||||||
Issuance of common shares due to restricted stock | 1 | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||||
Shares repurchased for tax withholdings on stock compensation | — | (412 | ) | — | — | (43 | ) | (455 | ) | — | (455 | ) | |||||||||||||||||||
Stock compensation | — | 3,078 | — | — | — | 3,078 | — | 3,078 | |||||||||||||||||||||||
Total other comprehensive (loss) | — | — | — | (26,948 | ) | — | (26,948 | ) | — | (26,948 | ) | ||||||||||||||||||||
Net income | — | — | 31,436 | — | — | 31,436 | — | 31,436 | |||||||||||||||||||||||
Balance, March 31, 2018 | $ | 291 | $ | 265,491 | $ | 200,753 | $ | (21,166 | ) | $ | (1,666 | ) | $ | 443,703 | $ | — | $ | 443,703 | |||||||||||||
Six Months Ended March 31, 2018 | |||||||||||||||||||||||||||||||
Balance, September 30, 2017 | $ | 288 | $ | 258,144 | $ | 167,164 | $ | 9,166 | $ | (266 | ) | $ | 434,496 | $ | — | $ | 434,496 | ||||||||||||||
Cash dividends declared on common stock ($0.08 per share) | — | — | (2,517 | ) | — | — | (2,517 | ) | — | (2,517 | ) | ||||||||||||||||||||
Issuance of common shares due to exercise of stock options | — | 147 | — | — | — | 147 | — | 147 | |||||||||||||||||||||||
Issuance of common shares due to restricted stock | 2 | — | — | — | — | 2 | — | 2 | |||||||||||||||||||||||
Issuance of common shares due to ESOP | 1 | 1,605 | — | — | — | 1,606 | — | 1,606 | |||||||||||||||||||||||
Shares repurchased for tax withholdings on stock compensation | — | (726 | ) | — | — | (1,400 | ) | (2,126 | ) | — | (2,126 | ) | |||||||||||||||||||
Stock compensation | — | 6,321 | — | — | — | 6,321 | — | 6,321 | |||||||||||||||||||||||
Total other comprehensive (loss) | — | — | — | (30,332 | ) | — | (30,332 | ) | — | (30,332 | ) | ||||||||||||||||||||
Net income | — | — | 36,106 | — | — | 36,106 | — | 36,106 | |||||||||||||||||||||||
Balance, March 31, 2018 | $ | 291 | $ | 265,491 | $ | 200,753 | $ | (21,166 | ) | $ | (1,666 | ) | $ | 443,703 | $ | — | $ | 443,703 | |||||||||||||
See Notes to Condensed Consolidated Financial Statements.
(1)All share and per share data has been adjusted to reflect the 3-for-1 forward stock split effected by the Company on October 4, 2018.
6
META FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, | |||||||
(Dollars in Thousands) | 2019 | 2018 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 49,518 | $ | 36,106 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
Depreciation, amortization and accretion, net | 28,933 | 19,183 | |||||
Stock compensation | 8,530 | 6,321 | |||||
Provision (recovery): | |||||||
Loan and lease losses | 42,417 | 19,411 | |||||
Deferred taxes | (7,811 | ) | 126 | ||||
Loans held for sale: | |||||||
Originations | (42,961 | ) | — | ||||
Purchases | (5,940 | ) | — | ||||
Proceeds from sales | 36,461 | — | |||||
Net change | 8,760 | — | |||||
Fair value adjustment of foreclosed real estate | — | 23 | |||||
Net realized (gain) loss: | |||||||
Other assets | (46 | ) | (15 | ) | |||
Foreclosed real estate or other assets | 185 | 19 | |||||
Available for sale securities, net | (209 | ) | 1,176 | ||||
Loans held for sale | (1,650 | ) | — | ||||
Leases receivable and rental equipment | (1,985 | ) | — | ||||
Net change: | |||||||
Other assets | (16,226 | ) | (14,472 | ) | |||
Accrued interest payable | 1,445 | (965 | ) | ||||
Accrued expenses and other liabilities | 21,951 | 36,779 | |||||
Accrued interest receivable | 1,735 | 1,776 | |||||
Change in bank-owned life insurance value | (1,272 | ) | (1,319 | ) | |||
Impairment on rental equipment | 6,194 | — | |||||
Impairment of intangibles | 111 | — | |||||
Net cash provided by operating activities | 128,140 | 104,149 | |||||
Cash flows from investing activities: | |||||||
Available for sale securities: | |||||||
Purchases | (222,436 | ) | (323,995 | ) | |||
Proceeds from sales | 534,779 | 126,373 | |||||
Proceeds from maturities and principal repayments | 66,417 | 71,652 | |||||
Held to maturity: | |||||||
Proceeds from maturities and principal repayments | 16,225 | 19,863 | |||||
Loans and leases: | |||||||
Purchases | (144,104 | ) | (88,986 | ) | |||
Proceeds from sales | 10,857 | 9,582 | |||||
Net change | (399,380 | ) | (143,766 | ) | |||
Proceeds from sales of foreclosed real estate or other assets | 1,905 | 122 | |||||
Federal Home Loan Bank stock: | |||||||
Purchases | (358,516 | ) | (477,604 | ) | |||
Redemption | 374,480 | 520,880 | |||||
Rental equipment: | |||||||
Purchases | (58,968 | ) | — | ||||
Proceeds from sales | 4,962 | — | |||||
Net change | 674 | — | |||||
Premises and equipment: | |||||||
Purchases | (8,815 | ) | (3,689 | ) | |||
Proceeds from sales | 101 | — | |||||
Net cash (used in) investing activities | (181,819 | ) | (289,568 | ) | |||
Cash flows from financing activities: | |||||||
Net change: | |||||||
Checking, savings, and money market deposits | 712,896 | 464,084 | |||||
Time deposits | (121,887 | ) | (51,925 | ) | |||
Wholesale deposits | (49,777 | ) | (295,086 | ) | |||
FHLB and other borrowings | — | (385,000 | ) | ||||
Federal funds | (422,000 | ) | (703,000 | ) | |||
Securities sold under agreements to repurchase | (890 | ) | (758 | ) | |||
7
Net investment by (distribution to) noncontrolling interests | (2,046 | ) | — | ||||
Proceeds from other liabilities | 5,027 | — | |||||
Principal payments: | |||||||
Other liabilities | (6,032 | ) | — | ||||
Capital lease obligations | (40 | ) | (31 | ) | |||
Cash dividends paid | (3,943 | ) | (2,517 | ) | |||
Purchase of shares by ESOP | 2,010 | 1,606 | |||||
Issuance of restricted stock | 3 | 2 | |||||
Proceeds from exercise of stock options & issuance of common stock | 54 | 147 | |||||
Shares repurchased for tax withholdings on stock compensation | (2,967 | ) | (2,126 | ) | |||
Net cash provided by (used in) financing activities | 110,408 | (974,604 | ) | ||||
Effect of exchange rate changes on cash | (245 | ) | — | ||||
Net change in cash and cash equivalents | 56,484 | (1,160,023 | ) | ||||
Cash and cash equivalents at beginning of year | 99,977 | 1,267,586 | |||||
Cash and cash equivalents at end of year | $ | 156,461 | $ | 107,563 | |||
META FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Con't.)
Six Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for: | |||||||
Interest | $ | 18,389 | $ | 9,662 | |||
Income taxes | 1,218 | 3,966 | |||||
Franchise taxes | 73 | 66 | |||||
Other taxes | 465 | 153 | |||||
Supplemental schedule of non-cash investing activities: | |||||||
Transfers | |||||||
Loans and leases to foreclosed real estate or other assets | — | (29,922 | ) | ||||
Loans transferred to held for sale | 39,452 | — | |||||
Purchases/Sales of investment securities accrued, not settled | |||||||
Purchases - Available for sale | — | — | |||||
Securities transferred from held-to-maturity to available-for-sale | — | (306,000 | ) | ||||
Short and long term debt transferred from other liabilities | 20,026 | — | |||||
See Notes to Condensed Consolidated Financial Statements.
8
NOTE 1. BASIS OF PRESENTATION
The interim unaudited Condensed Consolidated Financial Statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended September 30, 2018 included in Meta Financial Group, Inc.’s (“Meta” or the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 29, 2018. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted.
The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the three and six month periods ended March 31, 2019 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2019.
All share and per share data reported in this Form 10-Q has been adjusted to reflect the 3-for-1 forward stock split of the Company's common stock effected by the Company on October 4, 2018.
Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.
Certain amounts in the Recorded Investment table presented in Note 4 to the consolidated financial statements have been restated from what was previously reported as of September 30, 2018 on Form 10-K.
Loan and lease tables have been conformed to be consistent with the Company's updated presentation of its lending portfolio. The new presentation includes expanding the commercial and consumer finance portfolio to present the lending categories that are included in each, presenting the warehouse finance portfolio as its own category, and condensing the community bank loan categories. Warehouse finance loans were previously included in the consumer finance portfolio. All current and prior period numbers are reflective of this new presentation and total loan and lease balances remained unchanged.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")
Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, 2018 remain substantially unchanged with the exception of the policies impacted by the adoption of noted ASUs below.
Adopted ASUs
Revenue Recognition - The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), subsequent related Updates (collectively, ASU 2014-09), and ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage of Certain Prepaid Stored-Value Products on October 1, 2018. ASU 2014-09 modifies the guidance used to recognize revenue from contracts with customers for transfers of goods or services and transfers of non-financial assets, unless those contracts are within the scope of other guidance. Upon adoption, the Company recorded a cumulative-effect adjustment of $1.5 million to retained earnings, net of tax, due to changes in timing of revenue recognition from breakage of unregistered, unused prepaid cards in the Company’s Meta Payment Systems (MPS) division. Refer to Note 12. Revenue from Contracts with Customers for additional information.
9
Financial Instruments - The Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities and related Updates (collectively, ASU 2016-01) on October 1, 2018. ASU 2016-01 makes several revisions to Subtopic 825-10, including that ASU 2016-01: (1) requires equity investments to be measured at fair value with changes in fair value recognized in net income, (2) simplifies impairment assessment of equity investments without readily determinable fair value, (3) eliminates requirement to disclose methods and significant assumptions used to estimate fair value of financial instruments measured at amortized cost, (4) requires the use of an exit price notion when measuring fair value of financial instruments for disclosure purposes, and (5) requires separate presentation of financial assets and liabilities by measurement category and form of financial asset on the balance sheet and accompanying notes. Upon adoption, the Company recorded a cumulative-effect adjustment that reclassed $0.5 million, net of tax, from accumulated other comprehensive income to retained earnings, due to the Company’s cumulative change in fair value of equity securities with readily determinable fair value. Refer to Note 6. Securities for additional information.
The Company also adopted the following ASUs on October 1, 2018, none of which had a material impact on the Company’s consolidated financial statements.
– | ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments |
– | ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash |
– | ASU 2017-01, Clarifying the Definition of a Business |
– | ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment |
– | ASU 2017-05, Other Income - Gains and Losses from Derecognition of Non-Financial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and accounting for Partial Sales of Non-Financial Assets |
– | ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting |
ASUs to be Adopted
Leases - ASU 2016-02, Leases (Topic 842), and related Updates (collectively Topic 842) will become effective for the Company on October 1, 2019. For lessees, Topic 842 establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with such classification affecting the pattern and classification of expense recognition in the income statement. For lessors, the guidance with Topic 842 is largely unchanged from current guidance.
A modified retrospective transition approach is required. An entity may choose to use either (1) the standard’s effective date or (2) the beginning of the earliest comparative period presented in the financial statements, as the date of initial application. The Company expects to adopt Topic 842 using the effective date, October 1, 2019, as the date of initial application. Consequently, financial information will not be updated and disclosures required under Topic 842 will not be provided for dates and periods before October 1, 2019.
FASB has released several updates to Topic 842 through subsequent ASUs, many of which allow for practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements, with the latter not being applicable to the Company. The new standard also provides practical expedients for a lessee’s and lessor’s ongoing accounting. The Company expects to elect the short-term lease recognition exemption for all leases that qualify. The Company (as a lessee and lessor) also expects to elect the practical expedient to not separate lease and non-lease components for all of its leases that qualify.
As a lessee, the Company expects Topic 842 to have a material effect on its financial statements. While the Company continues to assess the effects of adoption, the Company believes the significant effects will relate to (1) recognition of ROU assets and lease liabilities on the balance sheet for the Company’s office and equipment operating leases; (2) recognition of ROU assets and lease liabilities on the balance sheet for the Company’s service contracts that meet the revised definition of a lease under Topic 842; and (3) providing significant new disclosures about the Company’s leasing activities. The Company is currently implementing a methodology and process to estimate and account for the ROU assets and lease liabilities.
As a lessor, the Company continues to assess the effects of adoption, however the Company believes the significant effects will relate to (1) earlier recognition of expense due to a narrower definition of initial direct costs; (2) gross presentation of costs excluded from contract consideration that are reimbursed by the lessee as revenue and expenses on the income statement; and (3) presentation of leasing activities on the Company’s financial statements. The Company is currently in the process of implementing a new lease accounting system, processes and procedures to reflect the new standard.
Other Upcoming ASUs - Refer to the Company’s most recently audited consolidated financial statements for the year ended September 30, 2018 for the latest update on ASUs relevant to the Company and not yet adopted as of March 31, 2019.
NOTE 3. ACQUISITIONS
The Company acquired Crestmark Bancorp, Inc. ("Crestmark") and its bank subsidiary, Crestmark Bank, on August 1, 2018 for a purchase price of $295.8 million paid by issuance of 9,919,512 shares of Meta common stock. The initial accounting for certain liabilities and goodwill were incomplete and the amounts recorded were considered provisional. The Company recognized certain measurement period adjustments as disclosed below during the three months ended March 31, 2019. The amount of goodwill recorded remains provisional, as well as the other assets and liabilities noted in the table below, as more information becomes available related to DC Solar. The measurement period remains open for the Crestmark acquisition until August 1, 2019. The following table summarizes the allocation of the purchase price to net assets of Crestmark as of the August 1, 2018 acquisition date.
(Dollars in Thousands) | Estimated fair value as previously reported(a) | Measurement period adjustments | Fair value as adjusted | ||||||||
Rental Equipment | $ | 98,977 | $ | (3,355 | ) | $ | 95,622 | ||||
Intangible assets | 28,253 | (117 | ) | 28,136 | |||||||
Goodwill | 204,547 | 4,194 | 208,742 | ||||||||
Accrued expenses and other liabilities | 88,301 | 723 | 89,024 | ||||||||
Net other assets | 55,464 | — | 55,464 | ||||||||
Noncontrolling interest | 3,167 | — | 3,167 | ||||||||
Purchase price | 295,773 | — | 295,773 | ||||||||
(a) As previously reported in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018
Measurement Period Adjustments and Impairment - DC Solar
The Company previously purchased a portfolio of mobile solar generators ("MSGs") from DC Solar Solutions, Inc. and certain of its affiliates, a relationship in the Company's solar leasing business, and, in turn, leased the MSGs to DC Solar Distribution, Inc., an affiliate of DC Solar Solutions. During the second fiscal quarter of 2019, the Company became aware that the DC Solar entities and their affiliates filed for bankruptcy and the entities, including their principals, are subjects of ongoing federal investigations involving allegations of fraudulent misconduct. The Company had three separate operating leases with DC Solar - two of the transactions were included in the acquired Crestmark balances on August 1, 2018. The third transaction was originated in August 2018 after the Crestmark acquisition date. The Company considered the bankruptcy filing and fraud allegations as new facts and circumstances and concluded the alleged fraud existed at the acquisition date for the acquired DC Solar transactions. As a result, the identified impairment for the acquired DC Solar transactions and other related adjustments were recorded as measurement period adjustments to the acquired assets and liability amounts recognized and were offset through provisional goodwill. The impairment and related adjustments for the DC Solar transaction originated post-acquisition are reflected in current earnings.
The Company continues to gather information about the situation and, as of the date of this filing, has identified and located 175 of 176 of the underlying assets, however the timing and extent to which the Company will be able to recover and re-lease the underlying assets remains uncertain, due in part to claims by third parties as to their potential interests in the underlying assets. The adjustments to goodwill and impairment recognized for the DC Solar events reflect the Company's best estimate of the potential loss incurred, based on the Company's present understanding of the relevant facts. Assumptions utilized in the estimate included recoverability of the MSGs and the Company's ability to re-lease them, contractual rents, and residual values. As new facts and circumstances become available, the Company will assess any remaining exposure with respect to these DC Solar matters to determine whether additional adjustments to goodwill and/or impairment loss is necessary. As long as the required criteria under GAAP are met, the Company will continue to account for adjustments to the acquired DC Solar transactions as adjustments to goodwill until the measurement period closes, which will not extend beyond August 1, 2019.
The table below reflects the net impact of the foregoing DC Solar matters, based upon the Company's present understanding of the relevant facts and circumstances, to the Company's financial statements at March 31, 2019 and for the three months ended March 31, 2019.
Increase (Decrease) | ||||
Balance Sheet: | (Dollars in Thousands) | |||
Operating lease equipment | $ | (12,589 | ) | |
Goodwill | 1,968 | |||
Other assets | (394 | ) | ||
Liabilities | (4,461 | ) | ||
Total balance sheet impact | $ | (6,554 | ) | |
Regulatory capital impact | $ | (8,522 | ) | |
Income (Expense) | ||||
Income Statement: | ||||
Rental income | $ | 1,633 | ||
Other income | 315 | |||
Impairment | (9,549 | ) | ||
Income tax benefit | 1,047 | |||
Impact to net income | $ | (6,554 | ) | |
Measurement Period Adjustments - Other
The Company recorded additional measurement period adjustments in the second fiscal quarter of 2019 for provisional tax and compensation liabilities assumed through the Crestmark acquisition. The Company obtained additional information about facts and circumstances existing at the Crestmark acquisition date that resulted in an increase to liabilities and goodwill recognized of $2.2 million.
NOTE 4. LOANS AND LEASES, NET
Loan and lease tables have been conformed to be consistent with the Company's updated categorization of its lending portfolio between National Lending and Community Banking.
Loans and leases at March 31, 2019 and September 30, 2018 were as follows:
March 31, 2019 | September 30, 2018 | ||||||
National Lending | (Dollars in Thousands) | ||||||
Asset based lending | $ | 572,210 | $ | 477,917 | |||
Factoring | 287,955 | 284,221 | |||||
Lease financing | 321,414 | 265,315 | |||||
Insurance premium finance | 307,875 | 337,877 | |||||
SBA/USDA | 77,481 | 59,374 | |||||
Other commercial finance | 98,956 | 85,145 | |||||
Commercial finance | 1,665,891 | 1,509,849 | |||||
Consumer credit products | 139,617 | 80,605 | |||||
Other consumer finance | 170,824 | 189,756 | |||||
Consumer finance(1) | 310,441 | 270,361 | |||||
Tax services | 84,824 | 1,073 | |||||
Warehouse finance(1) | 186,697 | 65,000 | |||||
Total National Lending | 2,247,853 | 1,846,283 | |||||
Community Banking | |||||||
Commercial real estate and operating | 869,917 | 790,890 | |||||
Consumer one-to-four family real estate and other | 257,079 | 247,318 | |||||
Agricultural real estate and operating | 60,167 | 60,498 | |||||
Total Community Banking | 1,187,163 | 1,098,706 | |||||
Total gross loans and leases | 3,435,016 | 2,944,989 | |||||
Allowance for loan and lease losses | (48,672 | ) | (13,040 | ) | |||
Net deferred loan origination fees (costs) | 2,964 | (250 | ) | ||||
Total loans and leases, net(2) | $ | 3,389,308 | $ | 2,931,699 | |||
(1) Warehouse finance loans are presented in their own line. Previously these balances were included with consumer finance loans. Prior period balances have also been adjusted to reflect this change.
(2) As of March 31, 2019, the remaining balance of acquired loans and leases from the Crestmark acquisition was $591.1 million and the remaining balances of the credit and interest rate mark discounts related to the acquired loans and leases held for investment were $8.7 million and $4.5 million, respectively, while the remaining balance of the interest rate mark premium related to the acquired loans held for sale was $0.8 million. 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.
During the six months ended March 31, 2019, the Company transferred $39.5 million of consumer credit product loans to held for sale and originated $43.0 million of SBA/USDA and consumer credit product loans as held for sale. The Company sold held for sale loans resulting in proceeds of $36.5 million and gains on sale of $1.7 million during the six months ended March 31, 2019. During the six months ended March 31, 2018, the Company did not designate any loans as held for sale or sell any held for sale loans.
13
Loans purchased and sold by portfolio segment, including participation interests, for the three and six months ended March 31, 2019 and 2018 were as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | ||||||||||||
Loans Purchased | (Dollars in Thousands) | ||||||||||||||
Loans held for sale | $ | 5,940 | $ | — | $ | 5,940 | $ | — | |||||||
Loans held for investment: | |||||||||||||||
Total National Lending | 10,621 | — | 125,591 | 72,751 | |||||||||||
Total Community Banking | 7,432 | 13,823 | 18,513 | 16,235 | |||||||||||
Total purchases | 23,933 | 13,823 | 150,044 | 88,986 | |||||||||||
Loans Sold | |||||||||||||||
Loans held for sale | 28,051 | — | 34,904 | — | |||||||||||
Loans held for investment: | |||||||||||||||
Total Community Banking | 10,479 | 3,666 | 10,857 | 9,582 | |||||||||||
Total sales | $ | 38,530 | $ | 3,666 | $ | 45,761 | $ | 9,582 | |||||||
The net investment in direct financing and sales-type leases is comprised of the following as of March 31, 2019 and September 30, 2018.
March 31, 2019 | September 30, 2018 | ||||||
(Dollars in Thousands) | |||||||
Minimum lease payments receivable | $ | 366,361 | $ | 301,835 | |||
Estimated residual value of leased equipment | 11,328 | 12,406 | |||||
Unamortized initial direct costs | 4,190 | 1,806 | |||||
Premium on acquired leases | 9 | 26 | |||||
Unearned income | (56,266 | ) | (48,949 | ) | |||
Net investment in direct financing and sales-type leases | $ | 325,622 | $ | 267,124 | |||
Future minimum lease payments receivable on noncancelable direct financing and sales-type leases were as follows as of March 31, 2019.
As of March 31, 2019 | |||
(Dollars in thousands) | |||
Remaining in 2019 | $ | 69,316 | |
2020 | 115,307 | ||
2021 | 90,333 | ||
2022 | 55,328 | ||
2023 | 29,147 | ||
2024 and thereafter | 6,930 | ||
Total | $ | 366,361 | |
The Company did not record any contingent rental income from sales-type and direct financing leases in the six months ended March 31, 2019.
14
Activity in the allowance for loan and lease losses and balances of loans and leases by portfolio segment for each of the three and six months ended March 31, 2019 and 2018 was as follows:
Allowance for loan and lease losses: | Beginning balance | Provision (recovery) for loan and lease losses | Charge-offs | Recoveries | Ending balance | ||||||||||||||
Three Months Ended March 31, 2019 | (Dollars in Thousands) | ||||||||||||||||||
National Lending | |||||||||||||||||||
Asset based lending | $ | 2,065 | $ | 1,365 | $ | — | $ | 69 | $ | 3,499 | |||||||||
Factoring | 1,062 | 1,799 | (1,125 | ) | 25 | 1,761 | |||||||||||||
Lease financing | 1,084 | 1,671 | (1,044 | ) | 254 | 1,965 | |||||||||||||
Insurance premium finance | 972 | 1,797 | (1,877 | ) | 27 | 919 | |||||||||||||
SBA/USDA | 253 | 221 | — | — | 474 | ||||||||||||||
Other commercial finance | 291 | 234 | — | — | 525 | ||||||||||||||
Commercial finance | 5,727 | 7,087 | (4,046 | ) | 375 | 9,143 | |||||||||||||
Consumer credit products | 1,151 | 163 | — | — | 1,314 | ||||||||||||||
Other consumer finance | 4,222 | 3,336 | (2,456 | ) | 28 | 5,130 | |||||||||||||
Consumer finance | 5,373 | 3,499 | (2,456 | ) | 28 | 6,444 | |||||||||||||
Tax services | 1,546 | 22,473 | (1 | ) | 84 | 24,102 | |||||||||||||
Warehouse finance | 176 | 9 | — | — | 185 | ||||||||||||||
Total National Lending | 12,822 | 33,068 | (6,503 | ) | 487 | 39,874 | |||||||||||||
Community Banking | |||||||||||||||||||
Commercial real estate and operating | 6,570 | 103 | — | — | 6,673 | ||||||||||||||
Consumer one-to-four family real estate and other | 719 | 259 | (20 | ) | — | 958 | |||||||||||||
Agricultural real estate and operating | 1,179 | (112 | ) | — | 100 | 1,167 | |||||||||||||
Total Community Banking | 8,468 | 250 | (20 | ) | 100 | 8,798 | |||||||||||||
Total | $ | 21,290 | $ | 33,318 | $ | (6,523 | ) | $ | 587 | $ | 48,672 | ||||||||
15
Allowance for loan and lease losses: | Beginning balance | Provision (recovery) for loan and lease losses | Charge-offs | Recoveries | Ending balance | ||||||||||||||
Six Months Ended March 31, 2019 | (Dollars in Thousands) | ||||||||||||||||||
National Lending | |||||||||||||||||||
Asset based lending | $ | 107 | $ | 3,528 | $ | (262 | ) | $ | 126 | $ | 3,499 | ||||||||
Factoring | 64 | 3,022 | (1,375 | ) | 50 | 1,761 | |||||||||||||
Lease financing | 59 | 1,542 | (1,462 | ) | 1,826 | 1,965 | |||||||||||||
Insurance premium finance | 1,031 | 1,890 | (2,085 | ) | 83 | 919 | |||||||||||||
SBA/USDA | 13 | 461 | — | — | 474 | ||||||||||||||
Other commercial finance | 28 | 497 | — | — | 525 | ||||||||||||||
Commercial finance | 1,302 | 10,940 | (5,184 | ) | 2,085 | 9,143 | |||||||||||||
Consumer credit products | 785 | 529 | — | — | 1,314 | ||||||||||||||
Other consumer finance | 2,820 | 6,359 | (4,079 | ) | 30 | 5,130 | |||||||||||||
Consumer finance | 3,605 | 6,888 | (4,079 | ) | 30 | 6,444 | |||||||||||||
Tax services | — | 23,969 | (43 | ) | 176 | 24,102 | |||||||||||||
Warehouse finance | 65 | 120 | — | — | 185 | ||||||||||||||
Total National Lending | 4,972 | 41,917 | (9,306 | ) | 2,291 | 39,874 | |||||||||||||
Community Banking | |||||||||||||||||||
Commercial real estate and operating | 6,220 | 453 | — | — | 6,673 | ||||||||||||||
Consumer one-to-four family real estate and other | 632 | 346 | (20 | ) | — | 958 | |||||||||||||
Agricultural real estate and operating | 1,216 | (299 | ) | ||||||||||||||||