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Meta Financial Group, Inc.® Announces Results for 2020 Fiscal Third Quarter

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MetaBank
·45 min read
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- 2020 Fiscal Third Quarter Net Income of $18.2 Million, or $0.53 Per Diluted Share -

SIOUX FALLS, S.D., July 22, 2020 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq: CASH) (“Meta” or the “Company”) reported net income of $18.2 million, or $0.53 per diluted share, for the three months ended June 30, 2020, compared to net income of $29.3 million, or $0.75 per diluted share, for the three months ended June 30, 2019.

“I am proud of our performance to date during these unique and volatile times, both operationally and financially. While credit metrics remain sound, we have taken additional provision related to the uncertainty of the COVID-19 pandemic allowing us to build our allowance and strengthen our capital position,” said President and CEO Brad Hanson. “We are keeping the health and safety of our employees at the forefront as we continue serving customers, aligning for growth, and keeping our eyes on the long game, bringing sustainable value to shareholders.”

Business Developments

  • On May 15, 2020, MetaBank, National Association (the “Bank”), a wholly owned subsidiary of the Company entered into a letter of intent ("LOI") with Emerald Financial Services, LLC (“EFS”), a wholly owned indirect subsidiary of H&R Block, Inc. (“H&R Block”). Under the LOI and subject to the negotiation and execution of a multi-year program management agreement (“PMA”), Meta will offer selected financial products to H&R Block clients, and negotiate the transition of certain financial products under an existing program manager agreement between H&R Block and a third party.

  • On June 23, 2020, Brett Pharr was promoted to Co-President and Chief Operating Officer of MetaBank to better align business lines with Meta’s strategic initiatives. Brad Hanson remains Co-President and Chief Executive Officer of MetaBank and President and Chief Executive Officer of the Company.

  • During the fiscal 2020 third quarter, the Company extended its agreement with Blackhawk Network, Inc. ("BlackHawk") through 2040. Blackhawk is a leading prepaid and payments company, which supports the program management and distribution of gift cards, prepaid telecom products and financial service products in a number of different retail, digital and incentive channels.

  • The Company supported various COVID-19 relief efforts to include the Economic Impact Payment ("EIP") program and the Paycheck Protection Program ("PPP"), which are further described below.

Financial Highlights for the 2020 Fiscal Third Quarter Ended June 30, 2020

  • Total gross loans and leases at June 30, 2020 decreased $129.3 million, or 4%, to $3.50 billion, compared to June 30, 2019 and decreased $114.1 million, or 3% when compared to March 31, 2020.

  • Average deposits from the payments divisions for the fiscal 2020 third quarter increased nearly 131% to $6.32 billion when compared to the same quarter in fiscal 2019. A significant portion of the year-over-year increase reflected the Company's participation in the EIP program, as described further below. Excluding the balances on the EIP cards, average payments deposits for the fiscal 2020 third quarter were approximately $3.99 billion, representing an increase of 46% compared to the same quarter in fiscal 2019.

  • Total revenue for the fiscal 2020 third quarter was $103.2 million, compared to $110.8 million for the same quarter in fiscal 2019.

  • Net interest income for the fiscal 2020 third quarter was $62.1 million, compared to $67.0 million in the comparable quarter in fiscal 2019.

  • Net interest margin ("NIM") decreased to 3.28% for the fiscal 2020 third quarter from 5.07% over the same period of the prior fiscal year, while the tax-equivalent net interest margin ("NIM, TE") decreased to 3.31% from 5.15% for that same period in fiscal 2019. The decrease in NIM during the fiscal 2020 third quarter was primarily driven by excess cash associated with the Company's participation in the Economic Impact Payment program, as described further below.

COVID-19 Business Update

The Company continues to focus on the well-being of its employees, partners and customers. Preventative health measures remain in place to protect employees and customers including mandating remote work options and social distancing measures where possible, restricting non-essential business travel and enhancing preventative cleaning services at all office locations. The Company's COVID-19 Crisis Command Center consisting of leadership and business continuity planning resources throughout the organization continues to effectively monitor possible interruptions related to the pandemic and to ensure business continuity.

The Company is participating in the PPP which is being administered by the Small Business Administration ("SBA"). As of June 30, 2020, the Company had 686 loans outstanding with a total of $215.5 million in loan balances that were originated as part of the program.

From a credit perspective, the Company continues to monitor each of its lending portfolios through these unprecedented times. Significant focus has been placed on the Company's hospitality loans and its small ticket equipment finance relationships. The credit management team has increased the monitoring of these relationships and has been in regular contact with these borrowers.

The Company's community bank hospitality loan balances increased to $169.0 million as of June 30, 2020 from $160.1 million as of March 31, 2020 and the average loan-to-value ratio on those loans improved to 60% at June 30, 2020 from 61% at March 31, 2020. 67% of the loan balances for these hotel relationships received PPP loans and 51% received some form of payment deferral modifications.

As of June 30, 2020, the Company had $245.9 million in small ticket equipment finance balances, of which $217.3 million were categorized within term lending and $28.6 million were categorized within lease financing. 27% of the balances on these small ticket equipment finance relationships received some form of payment deferral or other modifications.

The Company has granted deferral payments on a total of $352.1 million of loan and lease balances through June 30, 2020 as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19. As of June 30, 2020, loans and lease totaling $292.2 million were still in their deferment period. In addition, the Company has made other COVID-19 related modifications on a total of $52.9 million, of which $34.6 million are still active as of June 30, 2020. The majority of the other modifications were related to adjusting the type or amount of the customer's payments.

The Company increased its allowance for loan and lease losses during the fiscal third quarter primarily as a result of the ongoing economic uncertainty related to COVID-19 pandemic. The Company will continue to diligently monitor the allowance for loan and lease losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

The Company's capital position remained strong as of June 30, 2020, even while absorbing the temporary impact from the EIP program, as described further below. As of June 30, 2020, the Bank's capital leverage ratio based on average assets was 6.89%. In addition, the Company has options available that can be used to effectively manage capital levels through these turbulent times, including a very strong and flexible balance sheet. The Company's capital leverage ratio was impacted by approximately 278 basis points due to the increase in total asset balances as a result of the EIP program.

Economic Impact Payment Program ("EIP") Update

On April 29, 2020, the Bank entered into an amendment of its existing agreement with the U.S. Department of the Treasury’s Bureau of the Fiscal Service (“Fiscal Service”) to provide debit card services to support the distribution of a segment of the Economic Impact Payments payable by the Internal Revenue Service under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

Under the EIP program, 3.6 million cards were delivered with total loads of $6.42 billion. As a result of the program, the Company saw a quick influx of deposits to its balance sheet in mid-May 2020 with limited visibility into the duration of those deposits. While this program's impact to earnings was negligible, it did have a significant impact on cash and deposit balances, leading to a net drag on the net interest margin along with pressuring the Company's leverage capital ratios.

The total balances remaining on the EIP cards as of June 30, 2020 were $2.68 billion and $2.08 billion as of July 19, 2020. The funds on these cards increased the Company's quarterly average noninterest deposit balances by $2.32 billion, leading to an overall improvement in cost of deposits. This short term influx of deposits also led to excess cash balances held at the Federal Reserve during the current period, which yielded approximately 10 basis points in interest income, and increased the quarterly average of interest-earning assets compared to previous periods. This increase of lower yielding cash balances resulted in a drag to the overall yield on total interest-earning assets during the current period. The net impact to NIM was approximately 140 basis points.

Net Interest Income
Net interest income for the fiscal 2020 third quarter was $62.1 million, a decrease of 7%, from the same quarter in fiscal 2019. The decrease was primarily driven by lower overall balances and yields realized on the loan and lease portfolios along with a decrease in investment securities balances, partially offset by a reduction in total interest expense.

During the third quarter of fiscal year 2020, loan and lease interest income decreased $9.8 million and investment securities interest income decreased $4.4 million, when compared to the same quarter in fiscal 2019, while interest expense decreased $9.4 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 June 30, 2020 decreased to 48%, from 68% for the quarter ended June 30, 2019, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 17% from 31% over that same period. These decreases were primarily due to the increase in interest-earning cash balances related to the EIP program. The Company’s average interest-earning assets for the fiscal 2020 third quarter increased by $2.31 billion, to $7.61 billion from the comparable quarter in fiscal 2019, primarily due to the effects of the EIP program.

NIM decreased to 3.28% for the fiscal 2020 third quarter from 5.07% for the comparable quarter in fiscal 2019, primarily due to the effects of the EIP program. The net effect of purchase accounting accretion contributed two basis points to NIM for the fiscal 2020 third quarter as compared to three basis points and 25 basis points for the quarters ended March 31, 2020 and June 30, 2019, respectively.

The overall reported tax-equivalent yield (“TEY”) on average earning asset yields decreased by 267 basis points to 3.59% for the fiscal 2020 third quarter compared to the fiscal 2019 third quarter, driven primarily by excess low-yielding cash held at the Federal Reserve, along with a lower interest rate environment. The fiscal 2020 third quarter TEY on the securities portfolio was 2.22% compared to 3.09% for the same period of the prior fiscal year.

The Company's cost of funds for all deposits and borrowings averaged 0.28% during the fiscal 2020 third quarter, compared to 1.14% for the fiscal 2019 third 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, mainly due to the EIP program noted above. The Company's overall cost of deposits was 0.17% in the fiscal third quarter of 2020, compared to 0.90% in the same quarter of fiscal 2019.

Noninterest Income
Fiscal 2020 third quarter noninterest income was $41.0 million, compared to $43.8 million for the same period of the prior year. This year-over-year decrease was primarily due to lower total tax product fee income and a reduction in gains on loan sales, partially offset by an increase in rental income.

Noninterest Expense
Noninterest expense decreased 2% to $71.2 million for the fiscal 2020 third quarter, from $72.5 million for the same quarter of fiscal 2019, primarily driven by lower compensation and benefits, intangible amortization, total tax product expense, and occupancy and equipment expenses, partially offset by higher card processing expenses and operating lease equipment depreciation.

Income Tax Expense
The Company recorded an income tax benefit of $2.4 million, representing an effective tax rate of (14.4%), for the fiscal 2020 third quarter, compared to an income tax benefit of $1.2 million, representing an effective tax rate of (4.0)%, for the fiscal 2019 third quarter. The recorded income tax benefit during the current quarter was primarily due to ratably recognized investment tax credits and lower forecast earnings due to COVID-19.

The Company originated $1.3 million in solar leases during the fiscal 2020 third quarter, compared to $49.1 million during the fiscal 2019 third 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.

Investments, Loans and Leases

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

Total investments

$

1,268,416

$

1,310,476

$

1,337,840

$

1,407,257

$

1,502,640

Loans held for sale

Consumer credit products

391

122,299

45,582

SBA/USDA

31,438

13,610

13,883

26,478

17,257

Community Bank(1)

48,076

250,383

Total loans held for sale

79,905

13,610

264,266

148,777

62,839

National Lending

Term lending(2)

738,454

725,581

695,347

641,742

562,557

Asset based lending(2)

181,130

250,211

250,633

250,465

229,573

Factoring

206,361

285,495

285,776

296,507

320,344

Lease financing(2)

264,988

238,788

223,715

177,915

165,136

Insurance premium finance

359,147

332,800

349,299

361,105

358,772

SBA/USDA

308,611

92,000

90,269

88,831

99,791

Other commercial finance

100,214

101,472

99,617

99,665

99,677

Commercial Finance

2,158,905

2,026,347

1,994,656

1,916,230

1,835,850

Consumer credit products

102,808

113,544

115,843

106,794

155,539

Other consumer finance

138,777

144,895

154,772

161,404

164,727

Consumer Finance

241,585

258,439

270,615

268,198

320,266

Tax Services

19,168

95,936

101,739

2,240

24,410

Warehouse Finance

277,614

333,829

272,522

262,924

250,003

Total National Lending loans and leases

2,697,272

2,714,551

2,639,532

2,449,592

2,430,529

Community Banking

Commercial real estate and operating

608,303

654,429

682,399

883,932

877,412

Consumer one-to-four family real estate and other

166,479

205,046

220,588

259,425

256,853

Agricultural real estate and operating

24,655

36,759

40,778

58,464

61,169

Total Community Banking loans

799,437

896,234

943,765

1,201,821

1,195,434

Total gross loans and leases

3,496,709

3,610,785

3,583,297

3,651,413

3,625,963

Allowance for loan and lease losses

(65,747

)

(65,355

)

(30,176

)

(29,149

)

(43,505

)

Net deferred loan and lease origination fees

5,937

8,139

7,177

7,434

5,068

Total loans and leases, net of allowance(3)

$

3,436,899

$

3,553,569

$

3,560,298

$

3,629,698

$

3,587,526

(1) The June 30, 2020 balance included approximately $28.7 million of commercial real estate and operating loans, $11.3 million of consumer one-to-four family real estate and other loans, and $8.1 million of agricultural real estate and operating loans. The December 31, 2019 balance included approximately $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 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 were reclassified into the new term lending category during the fiscal 2020 first quarter. Prior period balances have been conformed to the new presentation.

(3) As of June 30, 2020, the remaining balance of acquired loans and leases from the acquisition of Crestmark Bancorp, Inc. ("Crestmark") and its bank subsidiary, Crestmark Bank (the "Crestmark Acquisition") was $188.3 million and the remaining balances of the credit and interest rate mark discounts related to the acquired loans and leases held for investment were $3.4 million and $2.9 million, respectively. On August 1, 2018, the Company acquired loans and leases from the Crestmark Acquisition totaling $1.06 billion and recorded related credit and interest rate mark discounts of $12.3 million and $6.0 million, respectively.

The Company's investment security balances continued to decline at June 30, 2020 to a total of $1.27 billion, as compared to $1.50 billion at June 30, 2019.

Total gross loans and leases decreased $129.3 million, or 4%, to $3.50 billion at June 30, 2020, from $3.63 billion at June 30, 2019, with most of the decline attributable to the sale of community bank loan balances during the second quarter of fiscal 2020 along with a decrease in the consumer finance portfolio, partially offset by growth in the commercial finance portfolio.

At June 30, 2020, commercial finance loans, which comprised 62% of the Company's gross loan and lease portfolio, totaled $2.16 billion, reflecting growth of $132.6 million, or 7%, from March 31, 2020. SBA/USDA loans at June 30, 2020 increased by $216.6 million compared to March 31, 2020, with $215.5 million of the sequential increase related to PPP loans. Warehouse finance loans totaled $277.6 million at June 30, 2020, a 17% decrease from March 31, 2020.

Community bank loans totaled $799.4 million as of June 30, 2020, as compared to $896.2 million at March 31, 2020 and $1.20 billion at June 30, 2019. As of June 30, 2020, the Company had $48.1 million of community bank loans classified as held for sale and expects to sell those loans during the fourth quarter of fiscal 2020.

Asset Quality
The Company’s allowance for loan and lease losses was $65.7 million at June 30, 2020, compared to $43.5 million at June 30, 2019, driven primarily by increases in the allowance of $17.1 million in commercial finance and $12.0 million in the community banking portfolio, partially offset by decreases in the tax services and consumer lending portfolios of $4.0 million and $2.9 million, respectively.

The following table presents the Company's allowance for loan and lease losses as a percentage of its total loans and leases.

As of the Period Ended

(Unaudited)

June 30, 2020

March 31, 2020

June 30, 2019

Commercial finance

1.36

%

1.28

%

0.67

%

Consumer finance

1.75

%

1.74

%

2.22

%

Tax services

59.67

%

22.22

%

63.19

%

Warehouse finance

0.10

%

0.10

%

0.10

%

National Lending

1.68

%

1.92

%

1.44

%

Community Bank

2.55

%

1.49

%

0.70

%

Total loans and leases

1.88

%

1.81

%

1.20

%

The Company continued to assess each of its loan and lease portfolios during the fiscal third quarter and increased its allowance for loan and lease losses as a percentage of total loans and leases in the community bank and commercial finance portfolios primarily as a result of the on-going COVID-19 pandemic. Tax services coverage rates were driven by typical seasonal activity and have not been materially impacted by COVID-19 as the tax-lending season is now complete. Warehouse finance remained largely unchanged due to the structure of the credit protections in place. The Company expects to continue to diligently monitor the allowance for loan and lease losses and adjust as necessary in future periods to maintain an appropriate and supportable level. When adding the $3.4 million balance of the credit mark to the allowance for loan and lease losses, the commercial finance coverage ratio increases to 1.52% and the total loans and leases coverage ratio increases to 1.98%, as of June 30, 2020. Within commercial finance, the coverage ratio on Crestmark division loans and leases was 1.52% at June 30, 2020, as compared to 1.41% at March 31, 2020 and 0.77% at June 30, 2019, and the coverage ratio on the insurance premium finance portfolio over those same periods were 0.66%, 0.64%, and 0.28%, respectively.

Activity in the allowance for loan and lease losses for the periods presented were as follows.

(Unaudited)

Three Months Ended

Nine Months Ended

June 30, 2020

March 31, 2020

June 30, 2019

June 30, 2020

June 30, 2019

(Dollars in thousands)

Beginning balance

$

65,355

$

30,176

$

48,672

$

29,149

$

13,040

Provision - tax services loans

(100

)

19,596

914

20,407

24,883

Provision - all other loans and leases

15,193

17,700

8,198

35,390

26,646

Charge-offs - tax services loans

(9,797

)

(9,627

)

(9,797

)

(9,670

)

Charge-offs - all other loans and leases

(5,808

)

(3,187

)

(5,124

)

(12,912

)

(14,407

)

Recoveries - tax services loans

15

74

36

827

212

Recoveries - all other loans and leases

889

996

436

2,684

2,801

Ending balance

$

65,747

$

65,355

$

43,505

$

65,747

$

43,505

Provision for loan and lease losses was $15.1 million for the quarter ended June 30, 2020, compared to $9.1 million for the comparable period in the prior fiscal year. The increase in provision was primarily within the remaining community banking and commercial finance portfolios, partially offset by decreases in the consumer finance and tax services portfolios. Provision increases in the community banking and commercial finance portfolios was primarily attributable to the increased stress that the hospitality loans and its small ticket equipment finance relationships have experienced stemming from the ongoing economic uncertainty related to the COVID-19 pandemic. Loans and leases that received short-term payment deferrals were also analyzed and additional provision was applied as appropriate. Management believes that given the structure of the credit protections put in place for the consumer and warehouse finance lending lines, the coverage ratio for those loan portfolios was adequate as of June 30, 2020. Net charge-offs were $14.7 million for the quarter ended June 30, 2020 compared to $14.3 million for the quarter ended June 30, 2019. Total net charge-offs for the quarter ended June 30, 2020 consisted primarily of seasonal net charge-offs of $9.8 million in the tax services loan portfolio. The overall increase in total net charge-offs from the comparable quarter of the prior fiscal year was primarily within the commercial finance portfolio, offset partially by a decrease in the consumer finance portfolio.

The Company's past due loans and leases were as follows for the periods presented.

As of June 30, 2020

Accruing and Nonaccruing Loans and Leases

Nonperforming Loans and Leases

(Dollars in Thousands)

30-59 Days
Past Due

60-89 Days
Past Due

>
89 Days Past Due

Total Past
Due

Current

Total Loans and Leases
Receivable

> 89 Days Past Due and Accruing

Non-accrual balance

Total

Commercial finance

$

13,865

$

16,005

$

27,150

$

57,020

$

2,101,885

$

2,158,905

$

8,635

$

22,285

$

30,920

Consumer finance

650

623

909

2,182

239,403

241,585

909

909

Tax services

19,168

19,168

19,168

Warehouse finance

277,614

277,614

Total National Lending

14,515

35,796

28,059

78,370

2,618,902

2,697,272

9,544

22,285

31,829

Total Community Banking

4,910

625

6,885

12,420

787,017

799,437

4,995

2,470

7,465

Total loans and leases held for investment

$

19,425

$

36,421

$

34,944

$

90,790

$

3,405,919

$

3,496,709

$

14,539

$

24,755

$

39,294


As of March 31, 2020

Accruing and Nonaccruing Loans and Leases

Nonperforming Loans and Leases

(Dollars in Thousands)

30-59 Days Past Due

60-89 Days Past Due

> 89 Days Past Due

Total Past Due

Current

Total Loans and Leases Receivable

> 89 Days Past Due and Accruing

Non-accrual balance

Total

Commercial finance

$

35,810

$

7,487

$

18,721

$

62,018

$

1,964,329

$

2,026,347

$

9,372

$

16,024

$

25,396

Consumer finance

1,781

1,078

1,345

4,204

254,235

258,439

1,345

1,345

Tax services

668

668

95,268

95,936

Warehouse finance

333,829

333,829

Total National Lending

38,259

8,565

20,066

66,890

2,647,661

2,714,551

10,717

16,024

26,741

Total Community Banking

1,012

2,735

4,723

8,470

887,764

896,234

2,905

1,818

4,723

Total loans and leases held for investment

$

39,271

$

11,300

$

24,789

$

75,360

$

3,535,425

$

3,610,785

$

13,622

$

17,842

$

31,464

The Company's nonperforming assets at June 30, 2020, were $56.1 million, representing 0.64% of total assets, compared to $39.4 million, or 0.67% of total assets at March 31, 2020 and $51.0 million, or 0.84% of total assets at June 30, 2019. The increase in nonperforming assets on a linked quarter basis was primarily driven by an increase in commercial finance and community banking nonperforming loans and leases, as well as an increase in nonperforming operating leases. The year-over-year increase in nonperforming assets was primarily driven by an increase in commercial finance nonperforming loans and leases and an increase in nonperforming operating leases, mostly offset by a reduction in foreclosed and repossessed assets. The decrease in nonperforming assets as a percentage of total assets was primarily due to higher period-end assets at June 30, 2020 related to excess cash held at the Federal Reserve stemming from the additional EIP deposit balances.

The Company's nonperforming loans and leases at June 30, 2020, were $39.3 million, representing 1.10% of total gross loans and leases, compared to $31.5 million, or 0.87% of total gross loans and leases at March 31, 2020 and $20.8 million, or 0.57% of total gross loans and leases at June 30, 2019.

Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2020 third quarter increased by $2.61 billion to $7.22 billion compared to the same period in fiscal 2019, primarily due to the effects of the EIP program. Average noninterest-bearing deposits increased $3.35 billion, or 123%, for the fiscal 2020 third quarter when compared to the same period in fiscal 2019, while average wholesale deposits decreased $704.2 million, or 46%. Average deposits from the payments divisions increased 131% to $6.32 billion for the fiscal 2020 third quarter when compared to the same period in fiscal 2019. Excluding the balances on the EIP cards, average payments deposits for the fiscal 2020 third quarter were $3.99 billion, representing an increase of 46% compared to the same period of the prior year, which was largely driven by various stimulus payments loaded on partner cards along with lower levels of consumer spending.

The average balance of total deposits and interest-bearing liabilities was $7.49 billion for the three-month period ended June 30, 2020, compared to $5.14 billion for the same period in the prior fiscal year, representing an increase of 46%.

Total end-of-period deposits increased 59% to $7.59 billion at June 30, 2020, compared to $4.78 billion at June 30, 2019. The increase in end-of-period deposits was primarily driven by an increase in noninterest bearing deposits of $4.18 billion, of which $2.68 billion was attributable to the balances on the EIP cards. The increase in total end-of-period deposits was partially offset by a decrease of $884.2 million in wholesale deposits, as well as the sale of $290.5 million of community bank deposits during the second quarter of fiscal 2020.

Regulatory Capital
The Company and MetaBank, remained above the federal regulatory minimum capital requirements at June 30, 2020 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

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

Company

Tier 1 leverage capital ratio

5.91

%

7.28

%

8.28

%

8.33

%

8.05

%

Common equity Tier 1 capital ratio

11.51

%

10.27

%

10.10

%

10.35

%

10.19

%

Tier 1 capital ratio

11.90

%

10.63

%

10.46

%

10.71

%

10.55

%

Total capital ratio

14.99

%

13.61

%

12.74

%

13.01

%

13.22

%

MetaBank

Tier 1 leverage capital ratio

6.89

%

8.52

%

9.70

%

9.65

%

9.37

%

Common equity Tier 1 capital ratio

13.82

%

12.39

%

12.18

%

12.31

%

12.22

%

Tier 1 capital ratio

13.86

%

12.44

%

12.24

%

12.37

%

12.27

%

Total capital ratio

15.12

%

13.69

%

12.90

%

13.02

%

13.26

%

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)

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(Dollars in Thousands)

Total stockholders' equity

$

829,909

$

805,074

$

837,068

$

843,958

$

822,901

Adjustments:

LESS: Goodwill, net of associated deferred tax liabilities

302,814

303,625

304,020

304,020

302,850

LESS: Certain other intangible assets

42,865

44,909

47,855

50,501

53,249

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

10,360

11,589

16,876

15,569

13,858

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

8,382

2,337

3,897

6,458

2,329

LESS: Non-controlling interest

3,787

3,762

4,305

4,047

3,508

Common Equity Tier 1(1)

461,701

438,852

460,115

463,363

447,107

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

1,894

2,036

2,372

2,350

2,119

Total Tier 1 Capital

477,256

454,549

476,148

479,374

462,887

Allowance for loan and lease losses

50,338

53,580

30,239

29,272

43,641

Subordinated debentures (net of issuance costs)

73,765

73,724

73,684

73,644

73,605

Total qualifying capital

$

601,359

$

581,853

$

580,071

$

582,290

$

580,133

(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 accumulated other comprehensive income ("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.

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

(Dollars in Thousands)

Total Stockholders' Equity

$

829,909

$

805,074

$

837,068

$

843,958

$

822,901

Less: Goodwill

309,505

309,505

309,505

309,505

307,941

Less: Intangible assets

43,974

46,766

50,151

52,810

56,153

Tangible common equity

476,430

448,803

477,412

481,643

458,807

Less: Accumulated other comprehensive income (loss) ("AOCI")

7,995

1,654

3,895

6,339

2,308

Tangible common equity excluding AOCI

$

468,435

$

447,149

$

473,517

$

475,304

$

456,499

Conference Call
The Company will host a conference call and earnings webcast at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, July 22, 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 8468707 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, N.A. ("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; expectations in connection with the impact of the ongoing COVID-19 pandemic and related government actions on our business, our industry and the capital markets; customer retention; loan and other product demand; expectations concerning the acquisitions and divestitures; new products and services, including those offered by Meta Payment Systems, Refund Advantage, EPS Financial and Specialty Consumer Services divisions; 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 potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto, or other unusual and infrequently occurring events; 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; 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”); 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 Company's ability to finalize a definitive program management agreement with H&R Block and the terms thereof; 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 usage of Meta’s strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; 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 and recent and potential changes in response to the COVID-19 pandemic such as the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and the rules and regulations that may be promulgated thereunder; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; 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 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.

Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share Data)

ASSETS

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

Cash and cash equivalents

$

3,108,141

$

108,733

$

152,189

$

126,545

$

100,732

Investment securities available for sale, at fair value

825,579

840,525

852,603

889,947

961,897

Mortgage-backed securities available for sale, at fair value

338,250

355,094

362,120

382,546

395,201

Investment securities held to maturity, at cost

98,205

108,105

116,313

127,582

138,128

Mortgage-backed securities held to maturity, at cost

6,382

6,752

6,804

7,182

7,414

Loans held for sale

79,905

13,610

264,266

148,777

62,839

Loans and leases

3,502,646

3,618,924

3,590,474

3,658,847

3,631,031

Allowance for loan and lease losses

(65,747

)

(65,355

)

(30,176

)

(29,149

)

(43,505

)

Federal Reserve Bank and Federal Home Loan Bank stocks, at cost

31,836

29,944

13,796

30,916

17,236

Accrued interest receivable

17,545

16,958

18,687

20,400

19,722

Premises, furniture, and equipment, net

40,361

38,871

38,671

45,932

46,360

Rental equipment, net

216,336

200,837

211,673

208,537

184,732

Bank-owned life insurance

91,697

91,081

90,458

89,827

89,193

Foreclosed real estate and repossessed assets

6,784

7,249

1,328

29,494

29,514

Goodwill

309,505

309,505

309,505

309,505

307,941

Intangible assets

43,974

46,766

50,151

52,810

56,153

Prepaid assets

6,806

9,727

14,813

9,476

22,023

Deferred taxes

15,944

20,887

19,752

18,884

21,630

Other assets

104,877

85,652

97,499

54,832

52,831

Total assets

$

8,779,026

$

5,843,865

$

6,180,926

6,182,890

$

6,101,072

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Deposits held for sale

$

$

$

288,975

$

$

Deposits:

Noninterest-bearing checking

6,537,809

2,900,484

2,927,967

2,358,010

2,751,931

Interest-bearing checking

187,003

152,504

67,642

185,768

157,802

Savings deposits

55,896

37,615

17,436

49,773

52,179

Money market deposits

40,811

37,266

42,286

76,911

68,604

Time certificates of deposit

25,000

25,492

23,454

109,275

116,698

Wholesale deposits

743,806

809,043

1,438,820

1,557,268

1,628,000

Total deposits

7,590,325

3,962,404

4,517,605

4,337,005

4,775,214

Short-term borrowings

717,000

194,000

646,019

146,613

Long-term borrowings

209,781

211,353

213,070

215,838

209,765

Accrued interest payable

4,332

3,607

6,620

9,414

12,350

Accrued expenses and other liabilities

144,679

144,427

123,588

130,656

134,229

Total liabilities

7,949,117

5,038,791

5,343,858

5,338,932

5,278,171

STOCKHOLDERS’ EQUITY

Preferred stock

Common stock, $.01 par value

346

346

372

378

379

Common stock, Nonvoting, $.01 par value

Additional paid-in capital

592,693

590,682

587,678

580,826

578,715

Retained earnings

228,500

212,027

244,005

252,813

238,004

Accumulated other comprehensive income

7,995

1,654

3,895

6,339

2,308

Treasury stock, at cost

(3,412

)

(3,397

)

(3,187

)

(445

)

(13

)

Total equity attributable to parent

826,122

801,312

832,763

839,911

819,393

Noncontrolling interest

3,787

3,762

4,305

4,047

3,508

Total stockholders’ equity

829,909

805,074

837,068

843,958

822,901

Total liabilities and stockholders’ equity

$

8,779,026

$

5,843,865

$

6,180,926

$

6,182,890

$

6,101,072

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

Three Months Ended

Nine Months Ended

June 30, 2020

March 31, 2020

June 30, 2019

June 30,
2020

June 30,
2019

Interest and dividend income:

Loans and leases, including fees

$

59,911

$

70,493

$

69,732

$

199,107

$

203,900

Mortgage-backed securities

2,269

2,493

3,063

7,151

8,622

Other investments

5,226

6,417

8,837

18,176

32,380

67,406

79,403

81,632

224,434

244,902

Interest expense:

Deposits

3,130

8,242

10,395

20,712

35,731

FHLB advances and other borrowings

2,139

3,424

4,269

9,197

10,581

5,269

11,666

14,664

29,909

46,312

Net interest income

62,137

67,737

66,968

194,525

198,590

Provision for loan for lease losses

15,093

37,296

9,112

55,796

51,529

Net interest income after provision for loan and lease losses

47,044

30,441

57,856

138,729

147,061

Noninterest income:

Refund transfer product fees

4,595

28,939

6,697

33,726

38,559

Tax advance product fees

28

29,536

34

31,840

34,757

Payments card and deposit fees

21,302

23,156

21,377

65,957

66,855

Other bank and deposit fees

214

381

495

1,083

1,449

Rental income

11,231

11,100

9,386

34,682

30,167

Gain on sale of securities available-for-sale, net

440

649

Gain on divestitures

19,275

19,275

Gain (loss) on sale of other

1,214

2,325

2,620

969

6,117

Other income

2,464

5,801

2,741

11,512

8,012

Total noninterest income

41,048

120,513

43,790

199,044

186,565

Noninterest expense:

Compensation and benefits

32,102

34,260

35,176

100,631

117,350

Refund transfer product expense

(139

)

7,449

287

7,482

7,478

Tax advance product expense

(11

)

1,698

425

2,820

3,101

Card processing

7,128

6,696

4,613

19,432

18,670

Occupancy and equipment expense

6,502

7,013

7,136

20,169

20,806

Operating lease equipment depreciation

8,536

8,421

6,029

25,237

18,280

Legal and consulting

4,660

5,909

4,065

15,242

12,341

Intangible amortization

2,636

3,402

4,374

8,714

14,352

Impairment expense

507

750

9,660

Other expense

9,827

16,374

10,363

38,291

34,978

Total noninterest expense

71,241

91,729

72,468

238,768

257,016

Income before income tax expense

16,851

59,225

29,178

99,005

76,610

Income tax expense (benefit)

(2,426

)

5,617

(1,158

)

3,870

(3,244

)

Net income before noncontrolling interest

19,277

53,608

30,336

95,135

79,854

Net income attributable to noncontrolling interest

1,087

1,304

1,045

3,573

3,045

Net income attributable to parent

$

18,190

$

52,304

$

29,291

$

91,562

$

76,809

Earnings per common share

Basic

$

0.53

$

1.45

$

0.75

$

2.54

$

1.96

Diluted

$

0.53

$

1.45

$

0.75

$

2.54

$

1.95

Shares used in computing earnings per share

Basic

34,616,038

35,948,799

38,903,266

36,004,877

39,220,793

Diluted

34,623,114

35,970,296

38,977,690

36,016,037

39,289,011

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 in 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 June 30,

2020

2019

(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

$

2,692,270

$

783

0.12

%

$

80,100

$

521

2.61

%

Mortgage-backed securities

342,174

2,269

2.67

%

421,725

3,063

2.91

%

Tax exempt investment securities

417,042

1,658

2.02

%

690,732

4,058

2.98

%

Asset-backed securities

336,562

1,770

2.11

%

307,581

2,701

3.52

%

Other investment securities

197,643

1,014

2.06

%

199,681

1,557

3.13

%

Total investments

1,293,420

6,711

2.22

%

1,619,719

11,379

3.09

%

Commercial finance loans and leases

2,160,175

40,375

7.52

%

1,775,905

44,332

10.01

%

Consumer finance loans

247,824

4,635

7.52

%

364,633

8,178

9.00

%

Tax services loans

39,845

%

45,142

%

Warehouse finance loans

304,839

4,582

6.05

%

223,546

3,491

6.26

%

National lending loans and leases

2,752,683

49,592

7.25

%

2,409,226

56,001

9.32

%

Community banking loans

870,245

10,319

4.77

%

1,189,912

13,731

4.63

%

Total loans and leases

3,622,928

59,911

6.65

%

3,599,138

69,732

7.77

%

Total interest-earning assets

$

7,608,618

$

67,406

3.59

%

$

5,298,957

$

81,632

6.26

%

Non-interest-earning assets

830,589

820,474

Total assets

$

8,439,206

$

6,119,431

Interest-bearing liabilities:

Interest-bearing checking(2)

$

226,382

$

%

$

137,950

$

85

0.25

%

Savings

55,572

1

0.01

%

54,247

9

0.07

%

Money markets

40,091

33

0.33

%

58,782

107

0.73

%

Time deposits

25,392

113

1.78

%

128,165

633

1.98

%

Wholesale deposits

817,414

2,983

1.47

%

1,521,594

9,561

2.52

%

Total interest-bearing deposits

1,164,852

3,130

1.08

%

1,900,738

10,395

2.19

%

Overnight fed funds purchased

59,055

48

0.33

%

363,857

2,368

2.61

%

FHLB advances

110,000

670

2.45

%

54,341

324

2.39

%

Subordinated debentures

73,738

1,153

6.29

%

73,583

1,163

6.34

%

Other borrowings

27,032

268

3.98

%

40,653

414

4.08

%

Total borrowings

269,825

2,139

3.19

%

532,434

4,269

3.22

%

Total interest-bearing liabilities

1,434,677

5,269

1.48

%

2,443,172

14,664

2.42

%

Noninterest-bearing deposits

6,057,314

%

2,710,288

%

Total deposits and interest-bearing liabilities

$

7,491,991

$

5,269

0.28

%

$

5,143,460

$

14,664

1.14

%

Other noninterest-bearing liabilities

122,940

149,207

Total liabilities

7,614,931

5,292,667

Shareholders' equity

824,276

826,764

Total liabilities and shareholders' equity

$

8,439,206

$

6,119,431

Net interest income and net interest rate spread including noninterest-bearing deposits

$

62,137

3.30

%

$

66,968

5.12

%

Net interest margin

3.28

%

5.07

%

Tax-equivalent effect

0.02

%

0.08

%

Net interest margin, tax-equivalent(3)

3.31

%

5.15

%

(1) Tax rate used to arrive at the TEY for the three months ended June 30, 2020 and 2019 was 21%.
(2) Of the total balance, $226.1 million are interest-bearing deposits where interest expense is paid by a third party and not by the Company.
(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

As of and For the Three Months Ended

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

Equity to total assets

9.45

%

13.78

%

13.54

%

13.65

%

13.49

%

Book value per common share outstanding

$

23.96

$

23.26

$

22.52

$

22.32

$

21.72

Tangible book value per common share outstanding

$

13.76

$

12.97

$

12.84

$

12.74

$

12.11

Tangible book value per common share outstanding excluding AOCI

$

13.53

$

12.92

$

12.74

$

12.57

$

12.05

Common shares outstanding

34,631,160

34,607,962

37,172,081

37,807,064

37,878,205

Non-performing assets to total assets

0.64

%

0.67

%

0.48

%

0.91

%

0.84

%

Non-performing loans and leases to total loans and leases

1.10

%

0.87

%

0.62

%

0.70

%

0.57

%

Net interest margin

3.28

%

4.78

%

4.94

%

4.95

%

5.07

%

Net interest margin, tax-equivalent

3.31

%

4.82

%

4.99

%

5.00

%

5.15

%

Return on average assets

0.86

%

3.16

%

1.38

%

1.32

%

1.91

%

Return on average equity

8.83

%

25.15

%

10.04

%

9.69

%

14.17

%

Full-time equivalent employees

999

992

1,088

1,186

1,218

Quarterly Amortization of Intangibles Expense

(Dollars in Thousands)

Actual

Anticipated

For the Three Months Ended

Jun 30,
2020

Sep 30,
2020

Dec 31,
2020

Mar 31,
2021

Jun 30,
2021

Sep 30,
2021

Dec 31,
2021

Mar 31,
2022

Jun 30,
2022

Amortization of intangibles(1)

$

2,636

$

2,265

$

2,013

$

2,757

$

2,013

$

1,761

$

1,488

$

2,170

$

1,176

(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 a South Dakota-based financial holding company. Meta Financial Group’s banking subsidiary, MetaBank®, N.A., (“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 nationwide. 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. For more information, visit the Meta Financial Group website.

Investor Relations Contact:

Brittany Kelley Elsasser

Director of Investor Relations

605-362-2423

bkelley@metabank.com

Media Relations:

mediarelations@metabank.com