Meta Financial Group Announces Results for 2019 Fiscal Second Quarter


- Revenue Rises 41% -

- Generates Net Income of $32.1 Million and Delivers Earnings Per Diluted Share of $0.81 -

SIOUX FALLS, S.D., April 25, 2019 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq: CASH) (“Meta” or the “Company”) reported net income of $32.1 million, or $0.81 per diluted share, for the three months ended March 31, 2019, compared to net income of $31.4 million, or $1.08 per diluted share, for the three months ended March 31, 2018. Notably, GAAP earnings for the quarter were impacted by a few significant items. Total revenue for the fiscal 2019 second quarter was $176.4 million, compared to $124.8 million for the same quarter in fiscal 2018, representing an increase of $51.5 million, or 41%.

“We expanded net interest margin again this quarter as we were able to enhance our interest-earning asset mix reflecting ongoing growth in noninterest-bearing deposits, while replacing lower yielding investment portfolio balances with higher yielding loans and leases during the second quarter of fiscal 2019 driving a sizeable increase in net interest income,” said President and CEO Brad Hanson. "We also delivered another successful tax season, and made progress on our key strategic initiatives, which positions us well to continue to drive growth across our core businesses."

Highlights for the 2019 Fiscal Second Quarter Ended March 31, 2019

  • Total gross loans and leases at March 31, 2019 more than doubled to $3.44 billion, compared to March 31, 2018, and increased $106.7 million, or 3%, when compared to December 31, 2018.

  • Average noninterest-bearing deposits of $2.95 billion increased by $296.8 million, or 11%, when compared to the same period in fiscal 2018.

  • Net interest income more than doubled to $71.4 million, compared to $27.4 million in the comparable quarter in fiscal 2018.

  • Net interest margin ("NIM") increased to 5.06% for the fiscal 2019 second quarter from 2.61% over the same period of the prior fiscal year, while the tax-equivalent net interest margin ("NIM, TE") increased to 5.18% from 2.89% over that same period.

  • Total tax services product revenue, inclusive of interest income from the launch of a new interest-bearing refund advance product, was $72.8 million, an increase of 6% compared to the second quarter of fiscal 2018. The Company recorded $22.5 million in loan loss provision expense related to $1.49 billion in tax services loans originated during the fiscal second quarter of 2019.

  • Tax services product income, net of losses and direct product expenses, increased 5% when comparing the fiscal 2019 second quarter to the same period of the prior fiscal year.

  • Related to the previously disclosed DC Solar relationship, the Company recognized a $6.6 million after-tax net non-cash charge to earnings and recorded a $2.0 million increase to goodwill.

  • The Company recorded previously disclosed $6.1 million of pre-tax executive transition costs.

Net Interest Income
Net interest income for the fiscal 2019 second quarter was $71.4 million, an increase of $44.0 million, or 160%, compared to the same quarter in fiscal 2018.  This increase was primarily due to growth in loan and lease balances, continued expansion in net interest margin, and an increase in tax services interest income of $7.4 million, which increase in tax services interest income was due in large part to the launch of a new interest-bearing refund advance product. The growth in loan and lease balances, along with the expansion in net interest margin, were largely attributable to the Company's acquisition of Crestmark in the fourth quarter of fiscal 2018 (the "Crestmark acquisition").

During the second quarter of fiscal year 2019, loan and lease interest income grew $55.8 million, offset in part by an increase in interest expense of $11.0 million, in each case, when compared to the same quarter in fiscal 2018. The quarterly average outstanding balance of loans and leases as a percentage of interest-earning assets for the quarter ended March 31, 2019 increased to 65%, from 44% for the quarter ended March 31, 2018, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 30% from 53% over that same period.  The Company’s average interest-earning assets for the fiscal 2019 second quarter grew by $1.5 billion, or 35%, to $5.72 billion from the comparable quarter in 2018.  This was primarily due to growth in the loan and lease portfolio of $1.86 billion, of which $1.67 billion was attributable to an increase in national lending loans and leases along with an increase of $190.2 million in community banking loans, partially offset by a reduction in total investment securities of $534.0 million.

NIM increased to 5.06% for the fiscal 2019 second quarter from 2.61%, while NIM, TE was 5.18% for the fiscal 2019 second quarter, with the net effect of purchase accounting accretion contributing 18 basis points.

The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased by 292 basis points to 6.38% for the fiscal 2019 second quarter compared to the 2018 second fiscal quarter.  The increase was driven primarily by the Company's improved earning asset mix, which reflects higher balances for the national lending portfolio and the launch of a new interest-bearing refund advance product. The fiscal 2019 second quarter TEY on the securities portfolio increased by 18 basis points to 3.36% compared to a 3.18% TEY for the same period of the prior year.

Overall, the Company's cost of funds for all deposits and borrowings averaged 1.17% during the fiscal 2019 second quarter, compared to 0.58% for the 2018 second fiscal quarter. This increase was primarily due to a rise in short-term interest rates affecting overnight borrowing rates, other wholesale funding, and the interest-bearing time deposits acquired by the Company in connection with the Crestmark acquisition in the fourth quarter of fiscal 2018. The Company's overall cost of deposits was 1.06% in the fiscal second quarter of 2019, compared to 0.33% in the same quarter of fiscal 2018. Excluding wholesale deposits, the Company's cost of deposits for the second quarter of fiscal 2019 would have been 0.11%.

Non-Interest Income
Fiscal 2019 second quarter non-interest income was $105.0 million, an increase of 8% over the same quarter of fiscal 2018, largely due to increases in rental income, other income, deposit fees, and gain on sale of loans and leases. Partially offsetting the increase in non-interest income was a decrease in card fee income compared to the same quarter of the prior fiscal year, as well as a decrease in total tax product fee income over that same period.  The card fee income decrease was related to the previously mentioned wind-down of two non-strategic partners and the transition of certain fees to deposit fees. Certain tax product revenues moved from fee income to interest income due to the launch of a new interest-bearing refund advance product.

Non-Interest Expense
Non-interest expense increased to $110.3 million for the 2019 fiscal second quarter, compared to $68.5 million for the same quarter of fiscal 2018, primarily due to the addition of the Crestmark division, which was not present in the comparable quarter in the prior fiscal year, along with $9.7 million of impairment expense and the Company's recognition of $6.1 million in executive transition agreement costs. During the fiscal 2019 second quarter, compensation and benefits expense increased $17.0 million from the same period of the prior year, primarily due to the addition of Crestmark division employees, the executive transition agreement costs and new hires in the back half of fiscal 2018 in support of Meta's national lending and other business initiatives. The impairment expense included $9.5 million related to the DC Solar relationship.

Income Tax Expense
The Company recorded an income tax benefit of $0.4 million, or an effective tax rate of (1.20%), for the fiscal 2019 second quarter, compared to an income tax expense of $6.5 million, or an effective tax rate of 17.24%, for the fiscal 2018 second quarter. The income tax benefit for the fiscal 2019 second quarter was driven by a combination of the ratably recognized investment tax credits and a tax benefit arising from the impairment charges related to the DC Solar relationship.

Investment tax credits related to the solar leasing initiatives and future originations in fiscal 2019 will be recognized ratably based on income over the duration of the current fiscal year. The timing and impact of future solar tax credits are expected to vary from period to period, and Meta intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Investments, Loans and Leases

          
 March 31, December 31, September 30, June 30, March 31,
 2019 2018 2018 2018 2018
          
Total investments$1,649,754  $1,855,792  $2,019,968  $2,149,709  $2,306,603 
          
Loans held for sale         
Consumer credit products42,342  24,233       
SBA/USDA(1)17,403  9,327  15,606     
Total loans held for sale59,745  33,560  15,606     
          
National Lending loans and leases         
Asset based lending572,210  554,072  477,917     
Factoring287,955  284,912  284,221     
Lease financing321,414  290,889  265,315     
Insurance premium finance307,875  330,712  337,877  303,603  240,640 
SBA/USDA77,481  67,893  59,374     
Other commercial finance98,956  89,402  85,145  11,418  8,041 
Commercial finance(2)1,665,891  1,617,880  1,509,849  315,021  248,681 
Consumer credit products139,617  96,144  80,605  26,583   
Other consumer finance170,824  182,510  189,756  194,344  201,942 
Consumer finance310,441  278,654  270,361  220,927  201,942 
Tax services84,824  76,575  1,073  14,281  58,794 
Warehouse finance186,697  176,134  65,000     
Total National Lending loans and leases2,247,853  2,149,243  1,846,283  550,229  509,417 
Community Banking loans         
Commercial real estate and operating869,917  863,753  790,890  751,146  723,091 
Consumer one-to-four family real estate and other257,079  256,341  247,318  237,704  228,415 
Agricultural real estate and operating60,167  58,971  60,498  60,096  58,773 
Total Community Banking loans1,187,163  1,179,065  1,098,706  1,048,946  1,010,279 
Total gross loans and leases3,435,016  3,328,308  2,944,989  1,599,175  1,519,696 
Allowance for loan and lease losses(48,672) (21,290) (13,040) (21,950) (27,078)
Net deferred loan and lease origination fees (costs)2,964  1,190  (250) (1,881) (2,080)
Total loans and leases, net of allowance$3,389,308  $3,308,208  $2,931,699  $1,575,344  $1,490,538 
 
(1) The March 31, 2019 balance included $0.8 million of an interest rate mark premium related to the acquired loans and leases from the Crestmark acquisition.
(2) The March 31, 2019 balance included $8.7 million and $4.5 million of credit and interest rate mark discounts, respectively, related to the acquired loans and leases from the Crestmark acquisition.
 

The Company continued to utilize sales of securities and cash flow from its amortizing securities portfolio to fund loan and lease growth. Investment securities totaled $1.65 billion at March 31, 2019, as compared to $2.31 billion at March 31, 2018.

Total gross loans and leases increased $1.92 billion, or 126%, to $3.44 billion at March 31, 2019, from $1.52 billion at March 31, 2018, primarily driven by loans and leases attributable to the acquired Crestmark commercial finance division, along with increases in warehouse finance and consumer credit product loans, a 28% increase in insurance premium finance loans, and an 18% increase in community banking loans.

At March 31, 2019, commercial finance loans, which comprised 48% of the Company's gross loan and lease portfolio, totaled $1.67 billion, reflecting growth of $48.0 million, or 3%, from December 31, 2018. Consumer credit product loans increased by $43.5 million, or 45%, and warehouse finance loans increased by $10.6 million, or 6%, in each case at March 31, 2019 as compared to December 31, 2018.

Asset Quality
The Company’s allowance for loan and lease losses was $48.7 million at March 31, 2019, compared to $27.1 million at March 31, 2018, driven primarily by increases in the allowance of $8.4 million in commercial finance, $6.4 million in consumer lending, $4.5 million in tax services and $2.0 million in the community banking portfolio.

    
(Unaudited)Three Months Ended Six Months Ended
 March 31, December 31, March 31, March 31, March 31,
Allowance for loan and lease loss activity2019 2018 2018 2019 2018
(Dollars in thousands)         
Beginning balance$21,290  $13,040  $8,862  $13,040  $7,534 
Provision - tax services loans22,473  1,496  18,129  23,969  19,146 
Provision - all other loans and leases10,845  7,603  214  18,448  265 
Charge-offs - tax services loans(1) (42)   (43)  
Charge-offs - all other loans and leases(6,522) (2,762) (339) (9,283) (499)
Recoveries - tax services loans84  92  9  176  422 
Recoveries - all other loans and leases503  1,863  203  2,365  210 
Ending balance$48,672  $21,290  $27,078  $48,672  $27,078 
 

Provision for loan and lease losses was $33.3 million for the quarter ended March 31, 2019, compared to $18.3 million for the comparable period in the prior fiscal year. The increase in provision was primarily driven by originations in the tax services portfolio, growth in commercial finance and provision expense to maintain allowance levels. Net charge-offs were $5.9 million for the quarter ended March 31, 2019 compared to $0.1 million for the quarter ended March 31, 2018.

The Company's non-performing assets at March 31, 2019, were $40.9 million, representing 0.68% of total assets, compared to $45.4 million, or 0.73% of total assets at December 31, 2018 and $36.1 million, or 0.84% of total assets at March 31, 2018. The Company's non-performing loans and leases at March 31, 2019 were $9.6 million, representing 0.28% of total loans and leases, compared to $13.9 million, or 0.42% of total loans and leases at December 31, 2018 and $6.0 million, or 0.40% of total loans and leases at March 31, 2018.

Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2019 second quarter increased by $1.98 billion, or 54%, compared to the same period in fiscal 2018. Average wholesale deposits increased $1.60 billion, or 233%, primarily related to the Crestmark acquisition, and noninterest-bearing deposits increased $296.8 million, or 11%, for the 2019 fiscal second quarter when compared to the same period in fiscal 2018.

The average balance of total deposits and interest-bearing liabilities was $5.86 billion for the three-month period ended March 31, 2019, compared to $4.17 billion for the same period in the prior fiscal year, representing an increase of 41%.

Total end-of-period deposits increased 49%, to $4.97 billion at March 31, 2019, compared to $3.34 billion at March 31, 2018. The increase in end-of-period deposits was primarily a result of increases in wholesale deposits, certificates of deposits and interest-bearing checking deposits.

Overview of the DC Solar Financial Impact
As previously communicated, the Company became aware that DC Solar Solutions, Inc., DC Solar Distribution, Inc. and their affiliates filed for bankruptcy and the entities, including their principals, are subjects of an ongoing federal investigation involving allegations of fraudulent misconduct. The Company previously purchased a portfolio of mobile solar generators from DC Solar Solutions, Inc. and certain of its affiliates and, in turn, leased the generators to DC Solar Distribution, Inc., another affiliate of DC Solar Solutions, pursuant to three separate operating leases. The Company has continued to monitor these matters and, in considering the facts and circumstances, the Company recorded a non-cash impairment charge and related effects to the underlying leased assets in the Company's financial statements for the three months ended March 31, 2019. The Company continues to gather information about the situation and, as of the date of this release, has identified and located nearly all 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.

In accordance with GAAP, based on the facts and circumstances surrounding these DC Solar matters, the Company  recorded the identified impairment for the DC Solar transactions acquired as a result of the Crestmark acquisition and other related adjustments through goodwill. The impairment and related adjustments for the DC Solar transaction originated post-acquisition is reflected in current earnings. 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. The Company will continue to account for adjustments to the acquired DC Solar transactions as adjustments to goodwill as long as the required criteria under GAAP are met.

In addition to the $2.0 million provisional increase to goodwill on the Company’s balance sheet at March 31, 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 income statement for the three months ended March 31, 2019.

   
  Income (Expense)
Income Statement:(Dollars in Thousands)
 Rental income$1,633 
 Other income315 
 Impairment(9,549)
 Income tax benefit1,047 
 Impact to net income$(6,554)
     

Regulatory Capital
The Company and MetaBank remained above the federal regulatory minimum capital requirements at March 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.

          
 March 31, December 31, September 30, June 30, March 31,
As of the dates indicated2019 2018 2018 2018 2018
Company         
Tier 1 leverage ratio7.45% 7.90% 8.50% 8.29% 7.26%
Common equity Tier 1 capital ratio10.94% 10.11% 10.56% 13.92% 13.74%
Tier 1 capital ratio11.31% 10.47% 10.97% 14.35% 14.18%
Total qualifying capital ratio14.20% 12.69% 13.18% 18.37% 18.48%
MetaBank         
Tier 1 leverage ratio8.42% 9.01% 9.75% 10.16% 8.93%
Common equity Tier 1 capital ratio12.72% 11.87% 12.50% 17.57% 17.43%
Tier 1 capital ratio12.76% 11.91% 12.56% 17.57% 17.43%
Total qualifying capital ratio13.92% 12.41% 12.89% 18.50% 18.59%
               

Due to the predictable, quarterly cyclicality of noninterest-bearing deposits in connection with tax season business activity, management believes that a six-month capital calculation is a useful metric to monitor the Company’s overall capital management process. As such, MetaBank’s six-month average Tier 1 leverage ratio, Common equity Tier 1 capital ratio, Tier 1 capital ratio, and Total qualifying capital ratio as of March 31, 2019, were 8.97%, 12.27%, 12.31%, and 13.42%, respectively.

The following table provides certain non-GAAP financial measures used to compute certain of the ratios included in the table above for the periods presented, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP:

          
 March 31, December 31, September 30, June 30, March 31,
Standardized Approach(1)2019 2018 2018 2018 2018
 (Dollars in Thousands)
Total stockholders' equity$823,709  $770,728  $747,726  $443,913  $443,703 
Adjustments:         
LESS: Goodwill, net of associated deferred tax liabilities302,768  299,037  299,456  94,781  95,262 
LESS: Certain other intangible assets56,456  61,317  64,716  46,098  47,724 
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards7,381  4,720       
LESS: Net unrealized gains (losses) on available-for-sale securities(10,022) (28,829) (33,114) (28,601) (21,166)
LESS: Noncontrolling interest3,528  3,267  3,574     
LESS: Unrealized currency gains (losses)(242) (357) 3     
Common Equity Tier 1 (1)463,840  431,573  413,091  331,635  321,882 
Long-term debt and other instruments qualifying as Tier 113,661  13,661  13,661  10,310  10,310 
Tier 1 minority interest not included in common equity tier 1 capital2,064  1,796  2,118     
Total Tier 1 capital479,565  447,030  428,870  341,945  332,192 
Allowance for loan and lease losses48,812  21,422  13,185  22,151  27,285 
Subordinated debentures (net of issuance costs)73,566  73,528  73,491  73,442  73,418 
Total qualifying capital$601,963  $541,980  $515,546  $437,538  $432,896 
 
(1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes are being fully phased in through the end of 2021.
 

The following table provides a reconciliation of tangible common equity 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.

          
 March 31, December 31, September 30, June 30, March 31,
 2019 2018 2018 2018 2018
 (Dollars in Thousands)
Total Stockholders' Equity$823,709  $770,728  $747,726  $443,913  $443,703 
Less: Goodwill307,464  303,270  303,270  98,723  98,723 
Less: Intangible assets60,506  66,366  70,719  46,098  47,724 
Tangible common equity455,739  401,092  373,737  299,092  297,256 
Less: Accumulated Other Comprehensive Income (Loss) ("AOCI")(10,264) (29,186) (33,111) (28,601) (21,166)
Tangible common equity excluding AOCI (Loss)466,003  430,278  406,848  327,693  318,422 
               

Future Outlook
The Company expects fiscal 2019 earnings per common share ("EPS") on an adjusted basis to range between $2.35 to $2.65. Importantly, the Company's estimates on an adjusted basis exclude the non-recurring $0.12 EPS effect, or $6.1 million, of pre-tax executive transition agreement costs incurred in the quarter ended March 31, 2019. The adjusted EPS guidance also excludes the $0.17 EPS effect, or $6.6 million, after-tax net charge to earnings related to the DC Solar matters. As a result, GAAP earnings per share for fiscal 2019 is expected to be in the range of $2.06 to $2.36 per share. The Company reaffirms the earnings outlook for fiscal year 2020 GAAP EPS to be in the range of $3.10 to $3.80.

Conference Call
The Company will host a conference call and earnings webcast at 4:00 p.m. CDT (5:00 p.m. EDT) on Thursday, April 25, 2019. 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 8878418 upon request. International callers should dial (636) 812-6634. A webcast replay will also be archived at www.metafinancialgroup.com for one year.

Forward-Looking Statements
The Company and MetaBank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the Securities and Exchange Commission (“SEC”), the Company’s reports to stockholders, and in other communications by the Company and MetaBank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.  Such statements address, among others, the following subjects: future operating results; customer retention; loan and other product demand; important components of the Company's statements of financial condition and operations; growth and expansion; new products and services, such as those offered by MetaBank or 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; the expected growth opportunities, beneficial synergies and/or operating efficiencies from the Crestmark acquisition may not be fully realized or may take longer to realize than expected; customer losses and business disruption related to the Crestmark acquisition; unanticipated or unknown losses and liabilities may be incurred by the Company following the Crestmark acquisition; the costs, risks and effects on the Company of the ongoing federal investigation and bankruptcy proceedings involving DC Solar Solutions, Inc., DC Solar Distribution, Inc., and their affiliates, including the potential financial impact of those matters on the net book value of Company assets leased to DC Solar Distribution and the Company’s ability to recognize certain investment tax credits associated with such assets, and the results of the Company’s review of its due diligence processes with respect to the Company’s alternative energy assets; factors relating to the Company’s recently announced 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; risks relating to the recent U.S. government shutdown, including any adverse impact on our ability to originate or sell SBA/USDA loans and any delay by the Internal Revenue Service in processing taxpayer refunds, thereby increasing the cost to us of our refund advance loans; 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, 2018, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data(1))

          
 March 31, December 31, September 30, June 30, March 31,
ASSETS2019 2018 2018 2018 2018
Cash and cash equivalents$156,461  $164,169  99,977  $71,276  $107,563 
Investment securities available for sale, at fair value1,081,663  1,340,870  1,484,160  1,349,642  1,417,012 
Mortgage-backed securities available for sale, at fair value413,493  354,186  364,065  575,999  654,890 
Investment securities held to maturity, at cost146,992  153,075  163,893  215,850  226,308 
Mortgage-backed securities held to maturity, at cost7,606  7,661  7,850  8,218  8,393 
Loans held for sale59,745  33,560  15,606     
Loans and leases3,437,980  3,329,498  2,944,739  1,597,294  1,517,616 
Allowance for loan and lease losses(48,672) (21,290) (13,040) (21,950) (27,078)
Federal Home Loan Bank Stock, at cost7,436  15,600  23,400  7,446  17,846 
Accrued interest receivable20,281  22,076  22,016  17,825  17,604 
Premises, furniture, and equipment, net45,457  44,299  40,458  20,374  20,278 
Rental equipment, net140,087  146,815  107,290     
Bank-owned life insurance88,565  87,934  87,293  86,655  86,021 
Foreclosed real estate and repossessed assets29,548  31,548  31,638  29,922  30,050 
Goodwill307,464  303,270  303,270  98,723  98,723 
Intangible assets60,506  66,366  70,719  46,098  47,724 
Prepaid assets26,597  31,483  27,906  23,211  26,342 
Deferred taxes19,079  23,607  18,737  23,025  20,939 
Other assets49,754  48,038  35,090  19,551  31,462 
          
Total assets$6,050,042  $6,182,765  5,835,067  $4,169,159  $4,301,693 
          
LIABILITIES AND STOCKHOLDERS’ EQUITY         
          
LIABILITIES         
Noninterest-bearing checking$3,034,428  $2,739,757  2,405,274  $2,637,987  $2,850,886 
Interest-bearing checking183,492  128,662  111,587  103,065  123,397 
Savings deposits59,978  52,229  54,765  57,356  65,345 
Money market deposits56,563  54,559  51,995  45,115  48,070 
Time certificates of deposit154,401  170,629  276,180  57,151  71,712 
Wholesale deposits1,481,445  1,790,611  1,531,186  620,959  181,087 
Total deposits4,970,307  4,936,447  4,430,987  3,521,633  3,340,497 
Short-term debt11,583  231,293  425,759  27,290  315,777 
Long-term debt99,800  88,983  88,963  85,580  85,572 
Accrued interest payable9,239  11,280  7,794  3,705  1,315 
Accrued expenses and other liabilities135,404  144,034  133,838  87,038  114,829 
Total liabilities5,226,333  5,412,037  5,087,341  3,725,246  3,857,990 
          
STOCKHOLDERS’ EQUITY         
Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and March 31, 2018         
Common stock, $.01 par value; 90,000,000 shares authorized, 39,565,496, 39,494,919, 39,192,063, 29,122,596, and 29,119,718 shares issued and 39,450,938, 39,405,508, 39,167,280, 29,101,605, and 29,098,773 shares outstanding at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and March 31, 2018395  394  393  291  291 
Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and March 31, 2018         
Additional paid-in capital576,406  572,156  565,811  267,610  265,491 
Retained earnings258,600  228,453  213,048  206,284  200,753 
Accumulated other comprehensive (loss) income(10,264) (29,186) (33,111) (28,601) (21,166)
Treasury stock, at cost, 114,558, 89,411, 24,783, 20,991, and 20,945 common shares at March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018, and March 31, 2018(4,956) (4,356) (1,989) (1,671) (1,666)
Total equity attributable to parent820,181  767,461  744,152  443,913  443,703 
Non-controlling interest3,528  3,267  3,574     
Total stockholders’ equity823,709  770,728  747,726  443,913  443,703 
          
Total liabilities and stockholders’ equity$6,050,042  $6,182,765  5,835,067  $4,169,159  $4,301,693 
 
(1) All share and per share data reported in this release for all periods presented has been adjusted to reflect the 3-for-1 forward stock split effected by the Company on October 4, 2018.
 

Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data(1))

    
 Three Months Ended Six Months Ended
   December 31,   March 31, March 31,
 March 31, 2019 2018 March 31, 2018 2019 2018
Interest and dividend income:         
Loans and leases, including fees$73,670  $60,498  $17,844  $134,168  $34,287 
Mortgage-backed securities2,861  2,698  4,047  5,559  7,805 
Other investments11,763  11,780  11,480  23,543  22,136 
 88,294  74,976  33,371  163,270  64,228 
Interest expense:         
Deposits14,740  10,596  2,957  25,336  4,842 
FHLB advances and other borrowings2,204  4,108  3,009  6,312  5,785 
 16,944  14,704  5,966  31,648  10,627 
          
Net interest income71,350  60,272  27,405  131,622  53,601 
          
Provision for loan for lease losses33,318  9,099  18,343  42,417  19,411 
          
Net interest income after provision for loan and lease losses38,032  51,173  9,062  89,205  34,190 
          
Noninterest income:         
Refund transfer product fees31,601  261  33,803  31,862  33,995 
Tax advance product fees33,038  1,685  33,838  34,723  35,785 
Card fees23,052  19,351  26,856  42,403  52,103 
Rental income9,890  10,890    20,780   
Loan and lease fees925  1,247  1,042  2,173  2,334 
Bank-owned life insurance631  642  650  1,273  1,319 
Deposit fees2,093  1,938  982  4,031  1,830 
Gain (loss) on sale of securities available-for-sale, net231  (22) (166) 209  (1,176)
Gain on sale of loans and leases1,085  867    1,951   
Gain (loss) on foreclosed real estate(200) 15    (185) (19)
Other income2,679  877  414  3,556  516 
Total noninterest income105,025  37,751  97,419  142,776  126,687 
          
Noninterest expense:         
Compensation and benefits49,164  33,010  32,172  82,174  54,512 
Refund transfer product expense7,181  10  9,871  7,191  9,972 
Tax advance product expense2,225  452  1,474  2,677  1,754 
Card processing6,971  7,085  7,190  14,056  13,730 
Occupancy and equipment7,212  6,458  4,477  13,670  9,367 
Operating lease equipment depreciation4,485  7,765    12,251   
Legal and consulting4,308  3,969  3,239  8,277  5,655 
Marketing585  539  668  1,124  1,221 
Data processing321  437  243  758  657 
Intangible amortization5,596  4,383  2,731  9,978  4,412 
Impairment expense9,660      9,660   
Other expense12,546  10,187  6,432  22,733  11,259 
Total noninterest expense110,254  74,295  68,497  184,549  112,539 
          
Income before income tax expense32,803  14,629  37,984  47,432  48,338 
          
Income tax (benefit) expense(395) (1,691) 6,548  (2,086) 12,232 
          
Net income before noncontrolling interest33,198  16,320  31,436  49,518  36,106 
Net income attributable to noncontrolling interest1,078  922    2,000   
Net income attributable to parent$32,120  $15,398  $31,436  $47,518  $36,106 
          
Earnings per common share         
Basic$0.81  $0.39  $1.08  $1.21  $1.24 
Diluted$0.81  $0.39  $1.08  $1.20  $1.24 
Shares used in computing earnings per share         
Basic39,429,595  39,335,054  29,061,180  39,381,682  29,015,376 
Diluted39,496,832  39,406,507  29,180,136  39,450,263  29,130,414 
 
(1) All share and per share data reported in this release for all periods presented has been adjusted to reflect the 3-for-1 forward stock split effected by the Company on October 4, 2018.
 

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 March 31,2019 2018
(Dollars in Thousands)Average
Outstanding
Balance
 Interest
Earned /
Paid
 Yield /
Rate(1)
 Average
Outstanding
Balance
 Interest
Earned /
Paid
 Yield /
Rate(2)
Interest-earning assets:           
Cash & fed funds sold$281,069  $1,914  2.76% $132,355  $722  2.21%
Mortgage-backed securities374,096  2,861  3.10% 642,164  4,047  2.56%
Tax exempt investment securities926,156  6,138  3.40% 1,431,974  9,001  3.38%
Asset-backed securities285,783  2,677  3.80% 112,301  1,220  4.41%
Other investment securities142,452  1,034  2.95% 76,081  537  2.86%
Total investments1,728,487  12,710  3.36% 2,262,520  14,805  3.18%
Commercial finance loans and leases1,649,973  41,954  10.31% 249,320  3,009  4.90%
Consumer finance loans327,441  7,289  9.03% 197,134  3,218  6.62%
Tax services loans369,331  8,204  9.01% 416,625  833  0.81%
Warehouse finance loans181,781  2,789  6.22%     %
National lending loans and leases2,528,526  60,236  9.66% 863,079  7,060  3.32%
Community banking loans1,181,294  13,434  4.61% 991,089  10,784  4.41%
Total loans and leases3,709,820  73,670  8.05% 1,854,168  17,844  3.90%
Total interest-earning assets$5,719,376  $88,294  6.38% $4,249,043  $33,371  3.46%
Non-interest-earning assets1,068,318      453,759     
Total assets$6,787,694      $4,702,802     
            
Interest-bearing liabilities:           
Interest-bearing checking$148,640  $78  0.21% $100,804  $51  0.20%
Savings56,048  9  0.07% 59,634  9  0.06%
Money markets57,932  92  0.64% 48,812  27  0.22%
Time deposits148,384  715  1.95% 118,933  344  1.17%
Wholesale deposits2,283,049  13,846  2.46% 685,025  2,526  1.50%
Total interest-bearing deposits2,694,053  14,740  2.22% 1,013,208  2,957  1.18%
Overnight fed funds purchased103,600  637  2.49% 407,789  1,679  1.67%
FHLB advances    % 2,333  9  1.56%
Subordinated debentures73,542  1,162  6.41% 73,395  1,114  6.15%
Other borrowings39,610  405  4.14% 19,602  207  4.29%
Total borrowings216,752  2,204  4.12% 503,119  3,009  2.43%
Total interest-bearing liabilities2,910,805  16,944  2.36% 1,516,327  5,966  1.60%
Non-interest bearing deposits2,953,275    % 2,656,516    %
Total deposits and interest-bearing liabilities$5,864,080  $16,944  1.17% $4,172,843  $5,966  0.58%
Other non-interest-bearing liabilities129,525      86,675     
Total liabilities5,993,605      4,259,518     
Shareholders' equity794,089      443,284     
Total liabilities and shareholders' equity$6,787,694      $4,702,802     
Net interest income and net interest rate spread including non-interest-bearing deposits  $71,350  5.21%   $27,405  2.88%
            
Net interest margin    5.06%     2.61%
Tax-equivalent effect    0.12%     0.28%
Net interest margin, tax-equivalent(3)    5.18%     2.89%
 

(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2019 was 21%.
(2) Tax rate used to arrive at the TEY for the three months ended March 31, 2018 was 24.53%.
(3) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully-taxable-equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

 
Selected Financial Information
 March 31, December 31, September 30, June 30, March 31,
As of and for the three months ended:2019 2018 2018 2018 2018
          
Equity to total assets13.61% 12.47% 12.81% 10.65% 10.31%
Book value per common share outstanding$20.88  $19.56  $19.09  $15.25  $15.25 
Tangible book value per common share outstanding$11.55  $10.18  $9.54  $10.28  $10.22 
Tangible book value per common share outstanding excluding AOCI$11.81  $10.92  $10.39  $11.26  $10.94 
Common shares outstanding39,450,938  39,405,508  39,167,280  29,101,605  29,098,773 
Non-performing assets to total assets0.68% 0.73% 0.72% 0.86% 0.84%
Non-performing loans and leases to total loans and leases0.28% 0.42% 0.35% 0.36% 0.40%
Net interest margin5.06% 4.60% 4.05% 2.94% 2.61%
Net interest margin, tax-equivalent5.18% 4.76% 4.27% 3.23% 2.89%
Return on average assets1.89% 1.03% 0.65% 0.64% 2.67%
Return on average equity16.18% 8.19% 5.34% 6.11% 28.37%
Full-time equivalent employees1,231  1,229  1,219  932  916 
               


Select Quarterly Expenses
(Dollars in Thousands)ActualAnticipated
 Mar 31,Jun 30,Sep 30,Dec 31,Mar 31,Jun 30,Sep 30,Dec 31,Mar 31,
For the Three Months Ended201920192019201920202020202020202021
          
Amortization of Intangibles (1)$5,596 $4,375 $3,357 $2,675 $3,400 $2,632 $2,278 $2,675 $2,752 
Executive Officer Stock Compensation (2)$917 $927 $937 $679 $669 $669 $676 $485 $473 
                            

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

(2) These amounts are based upon the long-term employment agreements signed in the first and second quarters of fiscal 2017 by the Company’s three highest paid executives at that time. This table makes no assumption for expenses related to any additional future agreements entered into, or to be entered into, after such quarters. The amounts in this table were not impacted by the Executive Separation Agreement entered into by the Company as of January 16, 2019 and filed with the Securities and Exchange Commission on January 17, 2019.

About Meta Financial Group®

Meta Financial Group, Inc. ® (Nasdaq: CASH) is the holding company for the financial services company MetaBank® (“Meta”). Founded in 1954, Meta has grown to operate in several different financial sectors: payments, commercial finance, tax services, community banking and consumer lending. Meta works with high-value niche industries, strategic-growth companies and technology adopters to grow their businesses and build more profitable customer relationships. Meta tailors solutions for bank and non-bank businesses, and provides a focused collaborative approach. The organization is helping to shape the evolving financial services landscape by directly investing in innovation and complementary businesses that strategically expand its suite of services. Meta has a national presence and over 1,200 employees, with corporate headquarters in Sioux Falls, S.D. For more information, visit the Meta Financial Group website or LinkedIn.

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