Document
false0000907471 0000907471 2020-01-29 2020-01-29


 
 
 
 
 

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): January 29, 2020

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:
 
 
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))

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 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 January 29, 2020, the Registrant issued a press release announcing its results of operations and financial condition as of and for the three months ended December 31, 2019. 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 first quarter of fiscal year 2020 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 January 29, 2020 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
 
 
 
 
Press Release of Meta Financial Group, Inc., dated January 29, 2020 regarding the results of operations and financial condition.
 
 
 
 
Investor Update slide presentation for the First Quarter of Fiscal Year 2020, dated January 29, 2020, 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: January 29, 2020
By:
/s/ Glen W. Herrick
 
 
Glen W. Herrick
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Exhibit
https://cdn.kscope.io/aaba9bea8a0664d1d8c595eeefe1bbb4-metalogoa19.jpg
META FINANCIAL GROUP, INC.® ANNOUNCES RESULTS FOR 2020 FISCAL FIRST QUARTER
- 2020 Fiscal First Quarter Net Income of $21.1 Million, or $0.56 Per Diluted Share -
- Sale of Community Bank Division Expected to be Completed in 2020 Fiscal Second Quarter -

Sioux Falls, S.D., January 29, 2020 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq: CASH) (“Meta” or the “Company”) reported net income of $21.1 million, or $0.56 per diluted share, for the three months ended December 31, 2019, compared to net income of $15.4 million, or $0.39 per diluted share, for the three months ended December 31, 2018.
“Our ongoing efforts to enhance our earning asset mix and increasingly leverage our core deposit base continues to drive strong earnings growth - as evidenced by the 37% increase in earnings for the first quarter of fiscal 2020 compared to the same period last year,” said President and CEO Brad Hanson. “During the quarter, we also announced an agreement to sell our Community Bank division to Central Bank. This transaction allows us to sharpen our focus on our national lending platforms, growing our deposits within our payments divisions and continued improvement of our operating efficiencies. At Meta, we are fortunate to have talented employees and business partners who revel in opportunities to provide socially beneficial financial products and services to businesses and consumers who are often overlooked by traditional banks, while generating real value for our shareholders.”
Highlights for the 2020 Fiscal First Quarter Ended December 31, 2019
Total gross loans and leases at December 31, 2019 increased $255.0 million, or 8%, to $3.58 billion, compared to December 31, 2018 and decreased $68.1 million, or 2% when compared to September 30, 2019. The decrease compared to September 30, 2019 was driven by the transfer of $251.9 million of Community Banking loans to held for sale during the first quarter of fiscal 2020.
Average deposits from the payments divisions increased nearly 12% to $2.78 billion when compared to the same period in fiscal 2019.
Total revenue for the fiscal 2020 first quarter was $102.1 million, compared to $98.0 million for the same quarter in fiscal 2019, representing a 4% increase.
Net interest income was $64.7 million, compared to $60.3 million in the comparable quarter in fiscal 2019.
Net interest margin ("NIM") increased to 4.94% for the fiscal 2020 first quarter from 4.60% over the same period of the prior fiscal year, while the tax-equivalent net interest margin ("NIM, TE") increased to 4.99% from 4.76% over that same period in fiscal 2019.
During the quarter ended December 31, 2019, the Company repurchased 899,371 of its shares, at an average price of $34.17. This exhausted the remaining 319,228 shares that were available for repurchase by the Company at the beginning of fiscal 2020 under the share repurchase program announced during the fiscal 2019 second quarter. In addition, the Company also announced on November 20, 2019, the authorization by its Board of Directors of a new share repurchase program to repurchase up to an additional 7,500,000 shares of the Company's outstanding common stock. The new authorization is effective from November 21, 2019 through December 31, 2022.


1


Community Bank Divestiture
On November 20, 2019, the Company announced that MetaBank entered into a definitive agreement with Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa, for the sale of the Community Bank division. The sale includes substantially all of the Community Bank's deposits, branch locations, fixed assets, employees, and a portion of the Community Bank’s loan portfolio. The final loan and deposit balances to be included in the transaction will depend on the outstanding balance of the Community Bank deposits at the time of closing. As of December 31, 2019, the Community Bank deposits were approximately $290 million. The final loan balances to be included in the transaction are expected to approximately match the final Community Bank deposit amount. The closing of the transaction is subject to the satisfaction or waiver of certain conditions, the receipt of third party and regulatory approval and satisfaction of customary closing conditions. The transaction is expected to close in the 2020 fiscal second quarter.
In connection with MetaBank's entry into the agreement with Central Bank, the Company reclassified the assets and liabilities to be sold to Central Bank as held for sale. In connection with the reclassification of the loans being sold in the Central Bank transaction to held for sale, the Company recorded a reduction to the provision for loan and lease losses within the community bank portfolio of $1.8 million during the fiscal first quarter. The remaining Community Bank loans not being sold to Central Bank will be retained by the Company under a servicing agreement with Central Bank. Also during the fiscal 2020 first quarter, the Company recognized the following pre-tax expenses related to the Community Bank transaction: $0.6 million in legal and consulting expense and $0.3 million in compensation and benefits expense and other miscellaneous income and expense.
During the quarter ended December 31, 2019, the Company also disposed of assets related to a previously disclosed Community Bank agricultural relationship that were held in other real estate owned (“OREO”), which represented 46 basis points of non-performing assets as of September 30, 2019. As part of this disposition, the Company recognized a $5.0 million loss from the sale of foreclosed property during the quarter ended December 31, 2019, which is included in the "(Loss) gain on sale of other" line on the Consolidated Statements of Operations. The Company also recognized $1.1 million in deferred rental income and $0.2 million in OREO expenses related to these foreclosed properties.
Net Interest Income
Net interest income for the fiscal 2020 first quarter was $64.7 million, an increase of 7%, from the same quarter in fiscal 2019. The increase was driven primarily by growth in loans and leases, mainly within the Company's commercial and warehouse finance portfolios.
During the first quarter of fiscal year 2020, loan and lease interest income grew by $8.2 million, when compared to the same quarter in fiscal 2019, offset in part by a decrease in investment interest income of $5.6 million, while interest expense decreased $1.7 million over that same period. The quarterly average outstanding balance of loans and leases as a percentage of interest-earning assets for the quarter ended December 31, 2019 increased to 72%, from 60% for the quarter ended December 31, 2018, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 26% from 39% over that same period. The Company’s average interest-earning assets for the fiscal 2020 first quarter grew by $10.0 million, to $5.20 billion from the comparable quarter in fiscal 2019.
NIM increased to 4.94% for the fiscal 2020 first quarter from 4.60% for the comparable quarter in fiscal 2019. The net effect of purchase accounting accretion contributed six basis points to NIM for the fiscal 2020 first quarter as compared to 25 basis points and 18 basis points for the quarters ended September 30, 2019 and December 31, 2018, respectively.
The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased by nine basis points to 5.98% for the fiscal 2020 first quarter compared to the fiscal 2019 first quarter, driven primarily by the Company's improved earning asset mix, which reflects higher balances for the national lending portfolio. The fiscal 2020 first quarter TEY on the securities portfolio was 2.65% compared to 3.13% for the same period of the prior fiscal year.

2



The Company's cost of funds for all deposits and borrowings averaged 1.01% during the fiscal 2020 first quarter, compared to 1.14% for the fiscal 2019 first quarter. This decrease was primarily due to a decrease in overnight borrowings rates as well as an increase in the average balance of the Company's noninterest-bearing deposits. The Company's overall cost of deposits was 0.81% in the fiscal first quarter of 2020, compared to 0.92% in the same quarter of fiscal 2019.
Noninterest Income
Fiscal 2020 first quarter noninterest income was $37.5 million, compared to $37.8 million for the same period of the prior year. This decrease was primarily due to a $2.6 million loss on sale of other during the fiscal 2020 first quarter compared to a gain on sale of other of $1.3 million during the fiscal 2019 first quarter. The loss on sale of other during the current period was driven primarily by the loss on sale of OREO, as described in the Community Bank Divestiture section above, partially offset by gains on the sale of loans and leases. Additionally, increases in rental income, other income, payments card and deposit fees, and tax advance product fees partially offset the loss on sale of other when comparing the fiscal 2020 first quarter to the same period of the prior year.
Noninterest Expense
Noninterest expense increased 2% to $75.8 million for the fiscal 2020 first quarter, from $74.3 million for the same quarter of fiscal 2019. The increase in noninterest expense when comparing the fiscal 2020 first quarter to the same period of the prior year was driven by increases in compensation and benefits expense, other expense, legal and consulting expense, tax advance product expense and operating lease equipment depreciation, partially offset by decreases in intangible amortization and card processing expense.
Income Tax Expense
The Company recorded income tax expense of $0.7 million, or an effective tax rate of 2.97%, for the fiscal 2020 first quarter, compared to an income tax benefit of $1.7 million, or an effective tax rate of (11.56)%, for the fiscal 2019 first quarter. The recorded income tax expense during the current quarter was due to an increase in net income before tax, as well as less investment tax credits recognized ratably when compared to the prior year quarter.
The Company originated $17.9 million in solar leases during the fiscal 2020 first quarter, compared to $35.6 million in solar leases originated during the fiscal 2019 first quarter. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. The timing and impact of future solar tax credits are expected to vary from period to period, and Meta intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

3



Investments, Loans and Leases
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
Total investments
$
1,337,840


$
1,407,257


$
1,502,640


$
1,649,754


$
1,855,792

 
 
 
 
 
 
 
 
 
 
Loans held for sale
 
 
 
 
 
 
 
 
 
Consumer credit products

 
122,299

 
45,582

 
42,342

 
24,233

SBA/USDA
13,883

 
26,478

 
17,257

 
17,403

 
9,327

Community Bank(1)
250,383

 

 

 

 

Total loans held for sale
264,266

 
148,777

 
62,839

 
59,745

 
33,560

 
 
 
 
 
 
 
 
 
 
National Lending
 
 
 
 
 
 
 
 
 
Term lending(2)
695,347

 
645,978

 
565,883

 
510,506

 
492,496

Asset based lending(2)
250,633

 
250,465

 
229,573

 
230,557

 
207,981

Factoring
285,776

 
296,507

 
320,344

 
287,955

 
284,912

Lease financing(2)
223,715

 
173,679

 
161,810

 
152,561

 
144,484

Insurance premium finance
349,299

 
361,105

 
358,772

 
307,875

 
330,712

SBA/USDA
90,269

 
88,831

 
99,791

 
77,481

 
67,893

Other commercial finance
99,617

 
99,665

 
99,677

 
98,956

 
89,402

Commercial Finance
1,994,656

 
1,916,230

 
1,835,850

 
1,665,891

 
1,617,880

Consumer credit products
115,843

 
106,794

 
155,539

 
139,617

 
96,144

Other consumer finance
154,772

 
161,404

 
164,727

 
170,824

 
182,510

Consumer Finance
270,615

 
268,198

 
320,266

 
310,441

 
278,654

Tax Services
101,739

 
2,240

 
24,410

 
84,824

 
76,575

Warehouse Finance
272,522

 
262,924

 
250,003

 
186,697

 
176,134

Total National Lending loans and leases
2,639,532

 
2,449,592

 
2,430,529

 
2,247,853

 
2,149,243

Community Banking
 
 
 
 
 
 
 
 
 
Commercial real estate and operating
682,399

 
883,932

 
877,412

 
869,917

 
863,753

Consumer one-to-four family real estate and other
220,588

 
259,425

 
256,853

 
257,079

 
256,341

Agricultural real estate and operating
40,778

 
58,464

 
61,169

 
60,167

 
58,971

Total Community Banking loans
943,765

 
1,201,821

 
1,195,434

 
1,187,163

 
1,179,065

Total gross loans and leases
3,583,297

 
3,651,413

 
3,625,963

 
3,435,016

 
3,328,308

Allowance for loan and lease losses
(30,176
)
 
(29,149
)
 
(43,505
)
 
(48,672
)
 
(21,290
)
Net deferred loan and lease origination fees (costs)
7,177

 
7,434

 
5,068

 
2,964

 
1,190

Total loans and leases, net of allowance
$
3,560,298

 
$
3,629,698

 
$
3,587,526

 
$
3,389,308

 
$
3,308,208

(1) The December 31, 2019 balance included $197.5 million of commercial real estate and operating loans, $40.4 million of consumer one-to-four family real estate and other loans, and $12.7 million of agricultural real estate and operating loans.
(2) The Company has updated the presentation of its loan and lease table beginning in the fiscal 2020 first quarter. The new presentation includes a new category called term lending. Certain balances previously included in the asset based lending and lease financing categories have been reclassified into the new term lending category during the fiscal 2020 first quarter. Prior period balances have been conformed to the new presentation.
The Company continued to utilize cash flow from its amortizing securities portfolio to fund loan and lease growth. Investment securities totaled $1.34 billion at December 31, 2019, as compared to $1.86 billion at December 31, 2018.
On October 1, 2019, the Company sold $111.7 million in held for sale consumer credit product loan balances, reducing the outstanding balance to zero as of December 31, 2019. In addition, the Company reclassified certain Community Banking loans to held for sale during the fiscal 2020 first quarter, as discussed further in the Community Bank Divestiture section above.
Total gross loans and leases increased $255.0 million, or 8%, to $3.58 billion at December 31, 2019, from $3.33 billion at December 31, 2018, which was primarily attributable to growth in the commercial finance and warehouse finance portfolios.

4



At December 31, 2019, commercial finance loans, which comprised 56% of the Company's gross loan and lease portfolio, totaled $1.99 billion, reflecting growth of $78.4 million, or 4%, from September 30, 2019. Tax services loans totaled $101.7 million, increasing from $2.2 million at September 30, 2019, as the Company began originating taxpayer advances and ERO loans in preparation of the 2019 tax season during the fiscal 2020 first quarter.
Asset Quality
The Company’s allowance for loan and lease losses was $30.2 million at December 31, 2019, compared to $21.3 million at December 31, 2018, driven primarily by increases in the allowance of $10.2 million in commercial finance and $0.6 million in consumer lending, partially offset by a decrease of $2.1 million in the community banking portfolio.
(Unaudited)
Three Months Ended
Allowance for loan and lease loss activity
December 31, 2019
 
September 30, 2019
 
December 31, 2018
(Dollars in thousands)
 
 
 
 
 
Beginning balance
$
29,149

 
$
43,505

 
$
13,040

Provision - tax services loans
911

 
(9
)
 
1,496

Provision - all other loans and leases
2,496

 
4,130

 
7,603

Charge-offs - tax services loans

 
(15,426
)
 
(42
)
Charge-offs - all other loans and leases
(3,918
)
 
(3,351
)
 
(2,762
)
Recoveries - tax services loans
739

 
10

 
92

Recoveries - all other loans and leases
799

 
290

 
1,863

Ending balance
$
30,176

 
$
29,149

 
$
21,290

Provision for loan and lease losses was $3.4 million for the quarter ended December 31, 2019, compared to $9.1 million for the comparable period in the prior fiscal year. The decrease in provision was primarily within the consumer finance portfolio, as well as within the community bank portfolio, which was related to the transfer of loans to held for sale in connection with the pending sale of the Community Bank division. Net charge-offs were $2.4 million for the quarter ended December 31, 2019 compared to $0.8 million for the quarter ended December 31, 2018. The overall increase in total net charge-offs from the comparable quarter of the prior fiscal year was primarily within the commercial finance portfolio.
The Company's nonperforming assets at December 31, 2019, were $29.8 million, representing 0.48% of total assets, compared to $56.5 million, or 0.91% of total assets at September 30, 2019 and $45.4 million, or 0.73% of total assets at December 31, 2018. The decrease in nonperforming assets was primarily driven by a reduction in foreclosed and repossessed assets. While the levels of nonperforming assets and charge-offs often exhibit some degree of volatility, the Company continuously monitors its various loan and lease portfolios for trends of deterioration, and, as of December 31, 2019, the Company's management remained comfortable with the risk characteristic trends of such portfolios.
At December 31, 2019, foreclosed and repossessed assets were $1.3 million, representing 0.02% of total assets, compared to $29.5 million, or 0.48% of total assets, at September 30, 2019 and $31.5 million, or 0.51% of total assets at December 31, 2018. The decrease in the foreclosed and repossessed assets balance at December 31, 2019, compared to September 30, 2019 and December 31, 2018, was attributable to the Company disposing of assets during the fiscal 2020 first quarter, as discussed further in the Community Bank Divestiture section above.
Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2020 first quarter increased by $9.3 million to $4.61 billion compared to the same period in fiscal 2019. Average noninterest-bearing deposits grew by $242.9 million, or 10%, while average wholesale deposits decreased $225.7 million, or 13%, in each case, for the fiscal 2020 first quarter when compared to the same period in fiscal 2019. Average deposits from the payments divisions increased nearly 12% to $2.78 billion for the fiscal 2020 first quarter when compared to the same period in fiscal 2019.
The average balance of total deposits and interest-bearing liabilities was $5.13 billion for the three-month period ended December 31, 2019, compared to $5.10 billion for the same period in the prior fiscal year, representing an increase of 1%.

5



Total end-of-period deposits decreased 8% to $4.52 billion at December 31, 2019, compared to $4.94 billion at December 31, 2018. The decrease in end-of-period deposits was primarily a result of the transfer of $286.6 million of community bank deposits to held for sale during the first quarter of fiscal 2020.
Regulatory Capital
The Company and MetaBank remained above the federal regulatory minimum capital requirements at December 31, 2019 and continued to be classified as well-capitalized institutions. Regulatory capital ratios of the Company and the Bank are stated in the table below.
The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis.
As of the dates indicated
December 31,
2019
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
Company
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital ratio
8.28
%
 
8.33
%
 
8.05
%
 
7.45
%
 
7.90
%
Common equity Tier 1 capital ratio
10.10
%
 
10.35
%
 
10.19
%
 
10.94
%
 
10.10
%
Tier 1 capital ratio
10.46
%
 
10.71
%
 
10.55
%
 
11.31
%
 
10.47
%
Total capital ratio
12.74
%
 
13.01
%
 
13.22
%
 
14.20
%
 
12.69
%
MetaBank
 
 
 
 
 
 
 
 
 
Tier 1 leverage capital ratio
9.70
%
 
9.65
%
 
9.37
%
 
8.42
%
 
9.01
%
Common equity Tier 1 capital ratio
12.18
%
 
12.31
%
 
12.22
%
 
12.72
%
 
11.87
%
Tier 1 capital ratio
12.24
%
 
12.37
%
 
12.27
%
 
12.76
%
 
11.91
%
Total capital ratio
12.90
%
 
13.02
%
 
13.26
%
 
13.92
%
 
12.41
%


6



The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP:
Standardized Approach(1)
December 31,
2019
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
(Dollars in Thousands)
 
 
 
 
 
 
 
 
 
Total stockholders' equity
$
837,068

 
$
843,958

 
$
822,901

 
$
823,709

 
$
770,728

Adjustments:
 
 
 

 
 
 
 
 
 
LESS: Goodwill, net of associated deferred tax liabilities
304,020

 
304,020

 
302,850

 
302,768

 
299,037

LESS: Certain other intangible assets
47,855

 
50,501

 
53,249

 
56,456

 
61,317

LESS: Net deferred tax assets from operating loss and tax credit carry-forwards
16,876

 
15,569

 
13,858

 
7,381

 
4,720

LESS: Net unrealized gains (losses) on available-for-sale securities
3,897

 
6,458

 
2,329

 
(10,022
)
 
(28,829
)
LESS: Non-controlling interest
4,305

 
4,047

 
3,508

 
3,528

 
3,267

LESS: Unrealized currency gains (losses)

 

 

 
(242
)
 
(357
)
Common Equity Tier 1(1)
460,115

 
463,363

 
447,107

 
463,840

 
431,573

Long-term borrowings and other instruments qualifying as Tier 1
13,661

 
13,661

 
13,661

 
13,661

 
13,661

Tier 1 minority interest not included in common equity tier 1 capital
2,372

 
2,350

 
2,119

 
2,064

 
1,796

Total Tier 1 Capital
476,148

 
479,374

 
462,887

 
479,565

 
447,030

Allowance for loan and lease losses
30,239

 
29,272

 
43,641

 
48,812

 
21,422

Subordinated debentures (net of issuance costs)
73,684

 
73,644

 
73,605

 
73,566

 
73,528

Total qualifying capital
$
580,071

 
$
582,290

 
$
580,133

 
$
601,963

 
$
541,980

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

The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry.
 
December 31,
2019
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
(Dollars in Thousands)
 
 
 
 
 
 
 
 
 
Total Stockholders' Equity
$
837,068

 
$
843,958

 
$
822,901

 
$
823,709

 
$
770,728

Less: Goodwill
309,505

 
309,505

 
307,941

 
307,464

 
303,270

Less: Intangible assets
50,151

 
52,810

 
56,153

 
60,506

 
66,366

     Tangible common equity
477,412

 
481,643

 
458,807

 
455,739

 
401,092

Less: Accumulated other comprehensive income (loss) ("AOCI")
3,895

 
6,339

 
2,308

 
(10,264
)
 
(29,186
)
     Tangible common equity excluding AOCI
$
473,517

 
$
475,304

 
$
456,499

 
$
466,003

 
$
430,278



7



Future Outlook
The Company expects full-year fiscal 2020 GAAP earnings per common share to range between $3.58 to $3.78. When excluding an expected gain on sale of the Community Bank division and the net financial impact of the sale of foreclosed property, the Company expects full-year fiscal 2020 EPS to range between $3.30 and $3.50.
Conference Call
The Company will host a conference call and earnings webcast at 4:00 p.m. CST (5:00 p.m. EST) on Wednesday, January 29, 2020. The live webcast of the call can be accessed from Meta’s Investor Relations website at www.metafinancialgroup.com. Telephone participants may access the live conference call by dialing (844) 461-9934 beginning approximately 10 minutes prior to start time. Please ask to join the Meta Financial conference call, and provide conference ID 4678668 upon request. International callers should dial (636) 812-6634. A webcast replay will also be archived at www.metafinancialgroup.com for one year.
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will convene at 9:00 am, local time, on Tuesday, February 25, 2020. The meeting will be held at the MetaBank Corporate Services Building, 5501 South Broadband Lane, Sioux Falls, SD. Further information with regard to this meeting can be found in the proxy statement filed with the Securities and Exchange Commission (the "SEC") on January 15, 2020. Copies of the Company's Annual Report on Form 10-K for the year ended September 30, 2019 (excluding exhibits thereto) may be obtained from www.metafinancialgroup.com.


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 SEC, the Company’s reports to stockholders, and in other communications by the Company and MetaBank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; customer retention; loan and other product demand; important components of the Company's statements of financial condition and operations; growth and expansion; expectations concerning the Company's acquisitions and divestitures, including potential benefits of, and other expectations for the Company in connection with, such transactions; new products and services, such as those offered by MetaBank or the Company's Payments divisions (which include Meta Payment Systems, Refund Advantage, EPS Financial and Specialty Consumer Services); credit quality and adequacy of reserves; technology; and the Company's employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the risk that the transaction with Central Bank may not occur on a timely basis or at all; the parties ability to obtain third party and regulatory approvals, and otherwise satisfy the other conditions to closing the transaction with Central Bank, on a timely basis or at all; factors relating to the Company’s share repurchase program; actual changes in interest rates and the Fed Funds rate; additional changes in tax laws; the strength of the United States' economy, in general, and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), as well as efforts of the United States Congress and the United States Treasury in conjunction with bank regulatory agencies to stimulate the economy and protect the financial system; inflation, market, and monetary fluctuations; the timely and efficient development of, and acceptance of, new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the risks of dealing with or utilizing third parties, including, in connection with the Company’s refund advance business, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or acceptance of usage of Meta’s strategic partners’ refund advance products; any actions which may be initiated by our regulators in the future; the impact of changes in financial services laws and regulations, including, but not limited to, laws and regulations relating to the tax refund industry and the insurance premium finance industry; our relationship with our primary regulators, the Office of the Comptroller of the Currency and the Federal Reserve, as well as the Federal Deposit Insurance Corporation, which insures MetaBank’s deposit accounts up to applicable limits; technological changes, including, but not limited to, the protection of electronic files or databases; acquisitions; litigation risk, in general, including, but not limited to, those risks involving MetaBank's divisions; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by MetaBank of its status as a well-capitalized institution, particularly in light of our growing deposit base, a portion of which has been characterized as “brokered;” changes in consumer spending and saving habits; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.
The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2019, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.


9



Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share Data)
ASSETS
December 31, 2019
 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
152,189

 
$
126,545

 
$
100,732

 
$
156,461

 
$
164,169

Investment securities available for sale, at fair value
852,603

 
889,947

 
961,897

 
1,081,663

 
1,340,870

Mortgage-backed securities available for sale, at fair value
362,120

 
382,546

 
395,201

 
413,493

 
354,186

Investment securities held to maturity, at cost
116,313

 
127,582

 
138,128

 
146,992

 
153,075

Mortgage-backed securities held to maturity, at cost
6,804

 
7,182

 
7,414

 
7,606

 
7,661

Loans held for sale
264,266

 
148,777

 
62,839

 
59,745

 
33,560

Loans and leases
3,590,474

 
3,658,847

 
3,631,031

 
3,437,980

 
3,329,498

Allowance for loan and lease losses
(30,176
)
 
(29,149
)
 
(43,505
)
 
(48,672
)
 
(21,290
)
Federal Home Loan Bank Stock, at cost
13,796

 
30,916

 
17,236

 
7,436

 
15,600

Accrued interest receivable
18,687

 
20,400

 
19,722

 
20,281

 
22,076

Premises, furniture, and equipment, net
38,671

 
45,932

 
46,360

 
45,457

 
44,299

Rental equipment, net
211,673

 
208,537

 
184,732

 
140,087

 
146,815

Bank-owned life insurance
90,458

 
89,827

 
89,193

 
88,565

 
87,934

Foreclosed real estate and repossessed assets
1,328

 
29,494

 
29,514

 
29,548

 
31,548

Goodwill
309,505

 
309,505

 
307,941

 
307,464

 
303,270

Intangible assets
50,151

 
52,810

 
56,153

 
60,506

 
66,366

Prepaid assets
14,813

 
9,476

 
22,023

 
26,597

 
31,483

Deferred taxes
19,752

 
18,884

 
21,630

 
19,079

 
23,607

Other assets
97,499

 
54,832

 
52,831

 
49,754

 
48,038

 
 
 
 
 
 
 
 
 
 
Total assets
$
6,180,926

 
6,182,890

 
$
6,101,072

 
$
6,050,042

 
$
6,182,765

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
Deposits held for sale
$
288,975

 
$

 
$

 
$

 
$

Deposits:
 
 
 
 
 
 
 
 
 
Noninterest-bearing checking
2,927,967

 
2,358,010

 
2,751,931

 
3,034,428

 
2,739,757

Interest-bearing checking
67,642

 
185,768

 
157,802

 
183,492

 
128,662

Savings deposits
17,436

 
49,773

 
52,179

 
59,978

 
52,229

Money market deposits
42,286

 
76,911

 
68,604

 
56,563

 
54,559

Time certificates of deposit
23,454

 
109,275

 
116,698

 
154,401

 
170,629

Wholesale deposits
1,438,820

 
1,557,268

 
1,628,000

 
1,481,445

 
1,790,611

Total deposits
4,517,605

 
4,337,005

 
4,775,214

 
4,970,307

 
4,936,447

Short-term borrowings
194,000

 
646,019

 
146,613

 
11,583

 
231,293

Long-term borrowings
213,070

 
215,838

 
209,765

 
99,800

 
88,983

Accrued interest payable
6,620

 
9,414

 
12,350

 
9,239

 
11,280

Accrued expenses and other liabilities
123,588

 
130,656

 
134,229

 
135,404

 
144,034

Total liabilities
5,343,858

 
5,338,932

 
5,278,171

 
5,226,333

 
5,412,037

 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS’ EQUITY
 

 
 
 
 
 
 
 
 
Preferred stock

 

 

 

 

Common stock, $.01 par value
372

 
378

 
379

 
395

 
394

Common stock, Nonvoting, $.01 par value

 

 

 

 

Additional paid-in capital
587,678

 
580,826

 
578,715

 
576,406

 
572,156

Retained earnings
244,005

 
252,813

 
238,004

 
258,600

 
228,453

Accumulated other comprehensive income (loss)
3,895

 
6,339

 
2,308

 
(10,264
)
 
(29,186
)
Treasury stock, at cost
(3,187
)
 
(445
)
 
(13
)
 
(4,956
)
 
(4,356
)
Total equity attributable to parent
832,763

 
839,911

 
819,393

 
820,181

 
767,461

Noncontrolling interest
4,305

 
4,047

 
3,508

 
3,528

 
3,267

Total stockholders’ equity
837,068

 
843,958

 
822,901

 
823,709

 
770,728

 
 
 
 
 
 
 
 
 
 
Total liabilities and stockholders’ equity
$
6,180,926

 
$
6,182,890

 
$
6,101,072

 
$
6,050,042

 
$
6,182,765


10



Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
 
Three Months Ended
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
Interest and dividend income:
 
 
 
 
 
Loans and leases, including fees
$
68,702

 
$
70,628

 
$
60,498

Mortgage-backed securities
2,389

 
2,768

 
2,698

Other investments
6,534

 
7,432

 
11,780

 
77,625

 
80,828

 
74,976

Interest expense:
 

 
 
 
 
Deposits
9,340

 
10,917

 
10,596

FHLB advances and other borrowings
3,634

 
4,294

 
4,108

 
12,974

 
15,211

 
14,704

 
 
 
 
 
 
Net interest income
64,651

 
65,617

 
60,272

 
 
 
 
 
 
Provision for loan for lease losses
3,407

 
4,121

 
9,099

 
 
 
 
 
 
Net interest income after provision for loan and lease losses
61,244

 
61,496

 
51,173

 
 
 
 
 
 
Noninterest income:
 

 
 
 
 

Refund transfer product fees
192

 
639

 
261

Tax advance product fees
2,276

 
(70
)
 
1,685

Payments card and deposit fees
21,499

 
20,276

 
20,807

Other bank and deposit fees
487

 
492

 
482

Rental income
12,351

 
10,886

 
10,890

Gain (loss) on sale of securities available-for-sale, net

 
80

 
(22
)
(Loss) gain on sale of other
(2,568
)
 
1,715

 
1,266

Other income
3,246

 
1,962

 
2,382

Total noninterest income
37,483

 
35,980

 
37,751

 
 
 
 
 
 
Noninterest expense:
 

 
 
 
 

Compensation and benefits
34,268

 
38,461

 
33,010

Refund transfer product expense
173

 
48

 
10

Tax advance product expense
1,132

 
1

 
452

Card processing
5,607

 
5,008

 
7,085

Occupancy and equipment expense
6,655

 
7,265

 
6,458

Operating lease equipment depreciation
8,280

 
7,901

 
7,765

Legal and consulting
4,674

 
4,968

 
3,969

Intangible amortization
2,676

 
3,358

 
4,383

Impairment expense
242

 

 

Other expense
12,091

 
9,133

 
11,163

Total noninterest expense
75,798

 
76,143

 
74,295

 
 
 
 
 
 
Income before income tax expense
22,929

 
21,333

 
14,629

 
 
 
 
 
 
Income tax expense (benefit)
680

 
(130
)
 
(1,691
)
 
 
 
 
 
 
Net income before noncontrolling interest
22,249

 
21,463

 
16,320

Net income attributable to noncontrolling interest
1,181

 
1,268

 
922

Net income attributable to parent
$
21,068

 
$
20,195

 
$
15,398

 
 
 
 
 
 
Earnings per common share
 

 
 
 
 
Basic
$
0.56

 
$
0.53

 
$
0.39

Diluted
$
0.56

 
$
0.53

 
$
0.39

Shares used in computing earnings per share
 
 
 
 
 
Basic
37,431,788

 
37,868,788

 
39,335,054

Diluted
37,465,878

 
37,912,616

 
39,406,507


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 reflects tax-equivalent adjustments. Non-accruing loans and leases have been included in the table as loans carrying a zero yield.
Three Months Ended December 31,
2019
 
2018
(Dollars in Thousands)
Average
Outstanding
Balance
 
Interest
Earned /
Paid
 
Yield /
Rate
(1)
 
Average
Outstanding
Balance
 
Interest
Earned /
Paid
 
Yield /
Rate
(1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and fed funds sold
$
99,597

 
$
412

 
1.65
%
 
$
45,383

 
$
555

 
4.85
%
Mortgage-backed securities
376,358

 
2,389

 
2.53
%
 
381,285

 
2,698

 
2.81
%
Tax exempt investment securities
490,982

 
2,339

 
2.40
%
 
1,237,198

 
7,803

 
3.17
%
Asset-backed securities
303,885

 
2,354

 
3.08
%
 
298,445

 
2,712

 
3.61
%
Other investment securities
197,513

 
1,429

 
2.88
%
 
110,879

 
710

 
2.54
%
Total investments
1,368,738

 
8,511

 
2.65
%
 
2,027,807

 
13,923

 
3.13
%
Commercial finance loans and leases
1,980,509

 
44,781

 
9.00
%
 
1,562,054

 
39,281

 
9.98
%
Consumer finance loans
270,612

 
5,790

 
8.51
%
 
291,421

 
6,230

 
8.48
%
Tax services loans
24,429

 
33

 
0.54
%
 
11,009

 
2

 
0.07
%
Warehouse finance loans
265,564

 
4,174

 
6.25
%
 
99,818

 
1,632

 
6.49
%
National lending loans and leases
2,541,114

 
54,778

 
8.58
%
 
1,964,302

 
47,145

 
9.52
%
Community banking loans
1,194,082

 
13,924

 
4.64
%
 
1,156,072

 
13,353

 
4.58
%
Total loans and leases
3,735,196

 
68,702

 
7.32
%
 
3,120,374

 
60,498

 
7.69
%
Total interest-earning assets
$
5,203,531

 
$
77,625

 
5.98
%
 
$
5,193,564

 
$
74,976

 
5.89
%
Non-interest-earning assets
918,973

 
 
 
 
 
787,973

 
 
 
 
Total assets
$
6,122,504

 
 
 
 
 
$
5,981,537

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking
$
163,693

 
$
153

 
0.37
%
 
$
102,880

 
$
58

 
0.23
%
Savings
48,776

 
9

 
0.08
%
 
53,661

 
10

 
0.07
%
Money markets
80,528

 
205

 
1.01
%
 
54,288

 
64

 
0.47
%
Time deposits
114,924

 
595

 
2.06
%
 
205,049

 
881

 
1.71
%
Wholesale deposits
1,472,820

 
8,378

 
2.26
%
 
1,698,492

 
9,583

 
2.24
%
Total interest-bearing deposits
1,880,741

 
9,340

 
1.98
%
 
2,114,370

 
10,596

 
1.99
%
Overnight fed funds purchased
302,804

 
1,450

 
1.91
%
 
393,315

 
2,481

 
2.50
%
FHLB advances
110,000

 
678

 
2.45
%
 

 

 
%
Subordinated debentures
73,658

 
1,160

 
6.26
%
 
73,504

 
1,161

 
6.27
%
Other borrowings
33,589

 
346

 
4.10
%
 
30,058

 
466

 
6.15
%
Total borrowings
520,051

 
3,634

 
2.78
%
 
496,877

 
4,108

 
3.28
%
Total interest-bearing liabilities
2,400,792

 
12,974

 
2.15
%

2,611,247

 
14,704

 
2.23
%
Noninterest-bearing deposits
2,732,062

 

 
%
 
2,489,148

 

 
%
Total deposits and interest-bearing liabilities
$
5,132,854

 
$
12,974

 
1.01
%
 
$
5,100,395

 
$
14,704

 
1.14
%
Other noninterest-bearing liabilities
150,319

 
 
 
 
 
128,900

 
 
 
 
Total liabilities
5,283,173

 
 
 
 
 
5,229,295

 
 
 
 
Shareholders' equity
839,331

 
 
 
 
 
752,242

 
 
 
 
Total liabilities and shareholders' equity
$
6,122,504

 
 
 
 
 
$
5,981,537

 
 
 
 
Net interest income and net interest rate spread including noninterest-bearing deposits
 
 
$
64,651

 
4.97
%
 
 
 
$
60,272

 
4.75
%
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
 
 
 
4.94
%
 
 
 
 
 
4.60
%
Tax-equivalent effect
 
 
 
 
0.05
%
 
 
 
 
 
0.16
%
Net interest margin, tax-equivalent(2)
 
 
 
 
4.99
%
 
 
 
 
 
4.76
%
(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2019 and 2018 was 21%.
(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

12



Selected Financial Information
As of and For the Three Months Ended
December 31,
2019
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
Equity to total assets
13.54
%
 
13.65
%
 
13.49
%
 
13.61
%
 
12.47
%
Book value per common share outstanding
$
22.52

 
$
22.32

 
$
21.72

 
$
20.88

 
$
19.56

Tangible book value per common share outstanding
$
12.84

 
$
12.74

 
$
12.11

 
$
11.55

 
$
10.18

Tangible book value per common share outstanding excluding AOCI
$
12.74

 
$
12.57

 
$
12.05

 
$
11.81

 
$
10.92

Common shares outstanding
37,172,081

 
37,807,064

 
37,878,205

 
39,450,938

 
39,405,508

Non-performing assets to total assets
0.48
%
 
0.91
%
 
0.84
%
 
0.68
%
 
0.73
%
Non-performing loans and leases to total loans and leases
0.62
%
 
0.70
%
 
0.57
%
 
0.28
%
 
0.42
%
Net interest margin
4.94
%
 
4.95
%
 
5.07
%
 
5.06
%
 
4.60
%
Net interest margin, tax-equivalent
4.99
%
 
5.00
%
 
5.15
%
 
5.18
%
 
4.76
%
Return on average assets
1.38
%
 
1.32
%
 
1.91
%
 
1.89
%
 
1.03
%
Return on average equity
10.04
%
 
9.69
%
 
14.17
%
 
16.18
%
 
8.19
%
Full-time equivalent employees
1,088

 
1,186

 
1,218

 
1,231

 
1,229


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

$
3,393

$
2,625

$
2,270

$
2,009

$
2,753

$
2,009

$
1,757

$
1,484

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

About Meta Financial Group®
Meta Financial Group, Inc.® (Nasdaq: CASH) is the holding company for the financial services company MetaBank® (“Meta”). Meta is a leader in providing innovative financial solutions to consumers and businesses in under-served niche markets, and believes in financial inclusion for all. Meta’s commercial lending division works with high-value niche industries, rapid-growth companies and technology adopters to grow their businesses and build more profitable customer relationships. Meta is one of the largest issuers of prepaid cards in the U.S., having issued more than a billion cards in partnership with banks, program managers, payments providers and other businesses, and offers a total payments services solution that includes ACH origination, wire transfers, and more. Meta has a national presence and over 1,000 employees, with corporate headquarters in Sioux Falls, S.D. For more information, visit the Meta Financial Group website.
Investor Relations and Media Contact:
 
Brittany Kelley Elsasser
 
Director of Investor Relations
 
605-362-2423
 
bkelley@metabank.com
 

13
cashinvestordeck1qfy20fi
Quarterly Investor Update First Quarter Fiscal Year 2020


 
Forward-Looking Statements The Company and MetaBank may from time to time make written or oral “forward-looking statements,” including statements contained in this investor update, 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: future operating results; customer retention; loan and other product demand; important components of the Company's statements of financial condition and operations; growth and expansion; expectations concerning the Company's acquisitions and divestitures, including potential benefits of, and other expectations for the Company in connection with, such transactions; new products and services, such as those offered by MetaBank or the Company's Payments divisions (which include Meta Payment Systems, Refund Advantage, EPS Financial and Specialty Consumer Services); credit quality and adequacy of reserves; technology; and the Company's employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the risk that the transaction with Central Bank may not occur on a timely basis or at all; the parties ability to obtain third party and regulatory approvals, and otherwise satisfy the other conditions to closing the transaction with Central Bank, on a timely basis or at all; factors relating to the Company’s share repurchase program; actual changes in interest rates and the Fed Funds rate; additional changes in tax laws; the strength of the United States' economy, in general, and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), as well as efforts of the United States Congress and the United States Treasury in conjunction with bank regulatory agencies to stimulate the economy and protect the financial system; inflation, market, and monetary fluctuations; the timely and efficient development of, and acceptance of, new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the risks of dealing with or utilizing third parties, including, in connection with the Company’s refund advance business, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or acceptance of usage of Meta’s strategic partners’ refund advance products; any actions which may be initiated by our regulators in the future; the impact of changes in financial services laws and regulations, including, but not limited to, laws and regulations relating to the tax refund industry and the insurance premium finance industry; our relationship with our primary regulators, the Office of the Comptroller of the Currency and the Federal Reserve, as well as the Federal Deposit Insurance Corporation, which insures MetaBank’s deposit accounts up to applicable limits; technological changes, including, but not limited to, the protection of electronic files or databases; acquisitions; litigation risk, in general, including, but not limited to, those risks involving MetaBank's divisions; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by MetaBank of its status as a well-capitalized institution, particularly in light of our growing deposit base, a portion of which has been characterized as “brokered;” changes in consumer spending and saving habits; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included herein speak only as of the date of this investor update. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this cautionary note. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company's fiscal year ended September 30, 2019 and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances or future events or for any other reason. 2 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Business Developments First Quarter Ended December 31, 2019 • On November 20, 2019, entered into a definitive agreement with Central Bank for the sale of the Community Bank division. – Sale includes all Community Bank deposits, branch locations, fixed assets and employees and a portion of the Community Bank’s loan portfolio. – The transaction is expected to close in the second fiscal quarter of 2020, subject to the satisfaction or waiver of certain conditions, the receipt of third party and regulatory approval and satisfaction of customary closing conditions. • Disposed of assets related to a previously disclosed Community Bank agricultural relationship that were held in other real estate owned, which represented 46 basis points of non-performing assets as of September 30, 2019. – The Company recognized a $5.0 million loss from the sale of foreclosed property, $1.1 million in deferred rental income and $0.2 million in other real estate owned expenses related to these foreclosed properties for a net loss of $4.1 million. • Joined KBW Nasdaq Financial Technology Index (Index Ticker: KFTX) effective after-market close on Friday, December 20, 2019 3 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Differentiated Business Reduces Risk and Provides Growth Opportunities in Various Economic Environments Payments Loans Commercial Finance 7.32% • Tailored solutions enable Yield on Loans • Provide customized business payments providers to grow capital solutions for small-and their businesses and build medium-sized businesses with more profitable customer innovative financial solutions to relationships by creating and niche markets nationwide. delivering payment solutions Generate nationwide. margin expansion • Target niche commercial and • Generates stable funding consumer industries to provide source to deploy into lending opportunities for growth. business lines. • Fee income generation from payments and tax services 0.81% business lines. Cost of Deposits Deposits Higher-yielding, risk adjusted, lending businesses generate margin expansion when funded by payments deposits 4 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Financial Highlights First Quarter Ended December 31, 2019 INCOME STATEMENT ($ in thousands, except per share data) 1Q20 4Q19 1Q19 Net Interest Income 64,651 65,617 60,272 Provision for Loan and Lease Loss 3,407 4,121 9,099 • Net income of $21.1 million, or $0.56 per diluted share, for the quarter. Payments Card & Deposit Fees 21,499 20,276 20,807 Total noninterest income 37,483 35,980 37,751 Total noninterest expense 75,798 76,143 74,295 • Net interest margin ("NIM") increased to 4.94% for the fiscal Net Income Before Taxes 22,929 21,333 14,629 2020 first quarter, up 34 basis points from the fiscal 2019 Income Tax Expense (Benefit) 680 (130) (1,691) first quarter. Net Income before non-controlling interest 22,249 21,463 16,320 Net Income attributable to non-controlling interest 1,181 1,268 922 Net Income attributable to parent $ 21,068 $ 20,195 $ 15,398 • During the quarter, repurchased 899,371 shares, at an Earnings Per Share, Diluted $ 0.56 $ 0.53 $ 0.39 average price per share of $34.17. Average Diluted Shares 37,465,878 37,912,616 39,406,507 BALANCE SHEET ($ in thousands) 1Q20 4Q19 1Q19 Loans and Leases 3,590,474 3,658,847 3,329,498 • Total loans and leases increased by $261.0 million, or 8%, Allowance for loan and lease loss (30,176) (29,149) (21,290) compared to fiscal 2019 first quarter ended December 31, Total Assets $ 6,180,926 $ 6,182,890 $ 6,182,765 2018. Noninterest-bearing checking 2,927,967 2,358,010 2,739,757 Total deposits 4,517,605 4,337,005 4,936,447 Total liabilities 5,343,858 5,338,932 5,412,037 • Average payments deposits grew $295.3 million, or 12%, Total stockholders' equity 837,068 843,958 770,728 compared to the prior fiscal year first quarter average. Total liabilities and stockholders equity $ 6,180,926 $ 6,182,890 $ 6,182,765 Average loans and leases 3,735,196 3,729,545 3,120,374 Average assets 6,122,504 6,130,286 5,981,537 Average payments deposits 2,778,280 2,709,066 2,482,943 5 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Compelling Asset Mix Driving Differentiated NIM Expansion 1 Earning Asset Mix Yields Aspirational Selected Quarterly Average December 2018 September 2019 December 2019 December 2019 Earning Asset Mix Commercial Finance 30% 36% 38% 9.00% >55% Consumer & Warehouse Finance 8% 12% 10% 7.45% <15% Community Bank2 22% 23% 23% 4.64% 0% Investments 39% 28% 26% 2.65% <20% 1 Quarterly average, excludes Tax Services Loans and Cash & Fed Funds Sold ² The Company announced on November 20, 2019 that MetaBank entered into an agreement with Central Bank, an Iowa state-chartered bank headquartered in Storm Lake, Iowa, for the sale of MetaBank’s Community Bank division. Balance sheet well-positioned for a flat rate environment with emphasis on growing core deposits and replacing lower-yielding assets with higher-yielding assets. Loan Yields and Net Interest Margin Quarterly Trend Closed Crestmark Acquisition August 1, 2018 Yield on Loans Net Interest Margin SNL U.S. Banks $2B-$10B1 Net Interest Margin 1 SNL U.S. Bank $2-10B; includes all Banks in SNL's coverage universe with $2B to $10B in Assets. Q1 2020 (December 31, 2019) SNL data not yet available. 6 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Diversified Loan Portfolio At the Quarter Ended Highlights December 31, 2019 September 30, 2019 December 31, 2018 1Q20 % Change From ($ in thousands) 1Q20 4Q19 1Q19 4Q19 1Q19 • Certain balances previously Commercial Finance 1,994,656 1,916,230 1,617,880 4% 23% included in asset-based lending and Term lending 695,347 645,978 492,496 8% 41% lease financing have been reclassified to a new term lending Asset-based lending 250,633 250,465 207,981 —% 21% category that better represents the Factoring 285,776 296,507 284,912 (4)% —% appropriate loan type. Lease financing 223,715 173,679 144,484 29% 55% Insurance premium finance 349,299 361,105 330,712 (3)% 6% SBA/USDA 90,269 88,831 67,893 2% 33% Other commercial finance 99,617 99,665 89,402 —% 11% • Decrease in Community Banking Consumer Finance 270,615 268,198 278,654 1% (3)% portfolio a result of the transfer of $251.9 million loans to held for Consumer credit programs 115,843 106,794 96,144 8% 20% sale related to the pending Other consumer finance 154,772 161,404 182,510 (4)% (15)% community bank division sale. Tax Services 101,739 2,240 76,575 NM 33% Warehouse Finance 272,522 262,924 176,134 4% 55% National Lending 2,639,532 2,449,592 2,149,243 8% 23% Community Banking 943,765 1,201,821 1,179,065 (21)% (20)% Total Gross Loans & Leases 3,583,297 3,651,413 3,328,308 (2)% 8% 7 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Commercial Finance Growth Engine Other SBA/USDA $99.6M Term Lending. Originate a variety of collateralized conventional term loans 7.11% $90.3M and notes receivable, with terms ranging from three to 25 years, generally 6.57% secured by equipment, recurring revenue streams, as well as real estate. Average loan size approximately $200 thousand. Insurance Asset-Based Lending. Provide asset-based loans secured by assets such as Premium Finance Term Lending $349.3M $695.3M inventory, accounts receivable, machinery & equipment, work-in-process and 6.42% $1.99 billion 9.72% other assets. Average loan size approximately $1.75 million. Commercial Finance Portfolio as of December 31, 2019 Factoring. Provide factoring services where clients provide detailed inventory, accounts receivable, and work-in-process reports for lending arrangements. 9.00% Average loan size approximately $300 thousand. Lease 1Q20 Quarterly Yield Financing % in chart represents $223.7M Lease Financing. Provide flexible leasing solutions for technology, capital 5.54% current quarter yield equipment and select transportation assets like tractors, trailers and construction equipment. Average lease size approximately $200 thousand. Asset-Based Lending Factoring $250.6M $285.8M 11.73% Insurance Premium Finance. Provide short-term, primarily collateralized 13.56% financing to facilitate the commercial customers’ purchase of insurance for various forms of risk. Average loan size approximately $30 thousand. Top three industry concentrations1 by % SBA/USDA. Originate loans through programs partially guaranteed by the 1. Manufacturing: 21% SBA or USDA. Average loan size approximately $550 thousand. 2. Utilities: 16% 3. Transportation & Warehousing: 11% Other Commercial Finance. Includes healthcare receivables loan portfolio Top three geographic concentrations1 by % primarily comprised of loans to individuals for medical services received. 1. Midwest: 26% Majority of these loans are guaranteed by the hospital. 2. Southeast: 22% 3. West: 22% 1 Excludes joint ventures and insurance premium finance portfolios; percentages calculated based on aggregate principal amount of loans 8 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Disciplined Credit Culture Drives Strong Asset Quality 1 Excludes Tax Services NCOs and Related Seasonal Average Loans Tax Services NCOs and related seasonal average loans are excluded to adjust for the cyclicality of activity related to the overall economics of the tax services business line. Chart presents both Crestmark Bank's historical information and information concerning the Crestmark division (post-Crestmark acquisition). Source: S&P Global Market Intelligence for data prior to acquisition on August 1, 2018. Demonstrated ability to continue strong performance over various economic cycles through revenue and loan growth. 1 Non-GAAP measures, see appendix for reconciliations. 9 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Earnings Power from Payments Payments Card and Deposit Fee Income Breakout • Primary deposit source derived from Payments business line which generates stable, core deposits, including prepaid and demand deposit 9% solutions 12% • Payments deposits represented 60% of total average deposits for the fiscal 2020 first quarter. • Growth strategy includes gaining greater share of deposits from existing relationships and adding new strategic relationships. 79% • Generated $21.5 million in payments card and deposit fee income in first fiscal quarter 2020. Prepaid Deposit Banking Services • Fee income opportunities in areas such as merchant acquiring, ACH origination, and our Faster Payments initiatives. Banking Services includes ATM, ACH/Faster Payments, Merchant Acquiring Continued Growth in Average Payments Payments Card and Deposit Fee Income Deposits Generation ($ in billions) ($ in millions) Percent of Total Revenue 10% CAGR $2.78 2017 - 2019 $2.71 21% 14% 19% 20% 21% $2.48 $2.45 $2.25 $24.7 $20.8 $21.4 $20.3 $21.5 2017 2018 2019 1Q19 1Q20 1Q19 2Q19 3Q19 4Q19 1Q20 Fiscal Year Average Quarter Average 10 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Interest Rate Risk Management as of December 31, 2019 12-Month Interest Rate Sensitivity from Base Net Interest Income 11% 9% Net Interest Income modeled under an instantaneous, 7% parallel rate shock and a gradual parallel ramp. 5% 3% Management also employs rigorous modeling techniques 1% under a variety of yield curve shapes, twists and ramps. -2% -4% -100 +100 +200 +300 Parallel Shock Ramp Earning Asset Pricing Attributes1 Asset/Liability Gap Analysis $3,000 $2,500 12% $2,000 29% $1,500 $1,000 $500 Volume ($MM) Volume 60% $- $(500) Month 1-12 Month 13-36 Month 37-60 Month 61-180 Fixed Rate < 1 Year Fixed Rate > 1 Year Floating or Variable Period Variance Total Assets Total Liabilities 1 Fixed rate securities, loans and leases are shown for contractual periods less than 12 months and greater than 12 months. 11 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Regulatory Capital as of December 31, 2019 Strong capital remains above "well-capitalized" Capital Ratio Trends At December 31, 2019 Meta Financial Group, Inc. MetaBank Tier 1 Leverage 8.28% 9.70% Common Equity Tier 1 10.10% 12.18% Tier 1 Capital 10.46% 12.24% Total Capital 12.74% 12.90% Capital Deployment Priorities 1. Growth initiatives 2. Share repurchases1 3. Dividend payout Meta Financial Group, Inc. MetaBank Minimum Requirement to be Well-Capitalized under Prompt Corrective Action Provisions 1 During the quarter ended December 31, 2019, the Company repurchased 899,371 of its shares, at an average price per share of $34.17. This exhausted the remaining 319,228 shares that were available for repurchase by the Company at the beginning of fiscal 2020 under the share repurchase program announced during the fiscal 2019 second quarter. In addition, the Company also announced on November 20, 2019, the authorization by its Board of Directors of a new share repurchase program to repurchase up to an additional 7.5 million shares of the Company's outstanding common stock. The new authorization is effective from November 21, 2019 through December 31, 2022. 12 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Strategy Update 13 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Strategy to Drive Shareholder Value 1 2 3 KEY Increase Percentage of Optimize Interest-Earning Improve Operating Funding from Core Asset Mix Efficiencies INITIATIVES Deposits Expense discipline by improving collaboration Leverage payments division growth Replace lower-yielding loans and securities with and productivity between business lines opportunities higher-yielding and higher-return loans STRATEGY Concentrated focus on optimization and utilization of existing business platforms Explore and develop new niche deposit Expand net interest margin with focus on the opportunities commercial finance line of business Pause on material mergers and acquisitions Gain greater share of deposits from existing relationships Driving 2x operating leverage in each business Continue to enhance interest-earning asset mix Develop additional products and services to line (i.e., growing revenue two times the rate of FOCUS with focus on commercial finance business lines deepen relationships expense growth) Add new strategic relationships Announced agreement to sell community bank division and transferred $251.9 million of lower- Average deposits from payments divisions For the last twelve months ended December 31, return assets to held for sale in the first quarter increased nearly 12% in first quarter fiscal 2020 2019, improved efficiency ratio to 68.2%, of fiscal 2020 PROGRESS when compared to the same period of fiscal compared to 72.3% in the same period as of 2019 December 31, 2018 Remaining community bank loans not included in the pending sale will run-off over time 14 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Long-Term Value Drivers Differentiated Model • Target niche commercial and consumer industries to provide opportunities for growth Lower Cost Funding Advantage • National payments business drives stable, lower cost deposits • Re-focus on increasing percentage of funding from core deposits Scalable Lending Platforms • Crestmark acquisition provides scalable commercial finance platform, leveraged to optimize earning asset mix Cross-Selling Opportunities • Cross-selling expected to further enhance efficiencies with lower cost of customer acquisition by utilizing current product distribution channels Positioning in a shifting rate environment • Balance sheet well-positioned for a flat rate environment with emphasis of growing core deposits and replacing lower-yielding assets with higher-yielding assets. Aspirational Target Qualitative Metrics • ROA > 2.0% • Efficiency ratio < 65% 15 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Appendix 16 First Quarter Fiscal Year 2020 | Nasdaq: CASH


 
Financial Measure Reconciliations Efficiency Ratio For the last twelve months ended ($ in thousands) Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Dec 31, 2018 Noninterest Expense - GAAP 334,663 333,160 323,657 300,242 258,485 Net Interest Income 268,586 264,207 247,127 208,570 164,625 Noninterest Income 222,278 222,545 211,179 200,614 193,008 Total Revenue: GAAP 490,864 486,752 458,306 409,184 357,633 Efficiency Ratio, LTM 68.18% 68.45% 70.62% 73.38% 72.28% Non-GAAP Reconciliation Adjusted Annualized NCOs and Adjusted Average Loans and Leases For the quarter ended ($ in thousands) Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Dec 31, 2018 Net Charge-offs 2,380 18,476 14,279 5,936 848 Less: Tax services net charge-offs (739) 15,416 9,592 (83) (50) Adjusted Net Charge-offs $ 3,119 $ 3,060 $ 4,687 $ 6,019 $ 898 Quarterly Average Loans and Leases 3,735,196 3,729,545 3,599,138 3,709,820 3,120,374 Less: Quarterly Average Tax Services Loans 24,429 21,445 45,142 369,331 11,009 Adjusted Quarterly Loans and Leases $ 3,710,767 $ 3,708,100 $ 3,553,996 $ 3,340,489 $ 3,109,365 Annualized NCOs/Average Loans and Leases 0.25% 1.98% 1.59% 0.65% 0.11% Adjusted Annualized NCOs/Adjusted Average Loans and Leases1 0.34% 0.33% 0.53% 0.73% 0.11% 1 Tax Services NCOs and average loans are excluded to adjust for the cyclicality of activity related to the overall economics of the Company's tax services business line. 17 First Quarter Fiscal Year 2020 | Nasdaq: CASH