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Meta Financial Group, Inc.® Announces Results for 2021 Fiscal First Quarter

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MetaBank
·44 min read
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- Earnings Per Share Increased 50% Year-over-Year to $0.84

- Efficiency Ratio Improved 9% from Prior Year

SIOUX FALLS, S.D., Jan. 27, 2021 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq: CASH) (“Meta” or the “Company”) reported net income of $28.0 million, or $0.84 per share, for the three months ended December 31, 2020, compared to net income of $21.1 million, or $0.56 per share, for the three months ended December 31, 2019.

“Solid revenues, lower expenses, and better efficiency ratios combined to deliver excellent results in the first quarter of fiscal year 2021. I am extremely proud of my team's ability to persevere during the pandemic, delivering significant value to customers and shareholders from a remote working environment," said President and CEO Brad Hanson. "During the quarter, we spent time getting ready for the upcoming tax season, implementing H&R Block, and preparing for the distribution of the second round of Economic Impact Payments while advancing our long-standing mission of Financial Inclusion for All®, with increased resources and prioritization of Environmental, Social and Governance initiatives."

"Our quarterly results demonstrate ongoing progress in optimizing our business platforms, enabling us to improve our efficiency ratio by over 600 basis points compared with the prior year. Our loan portfolios continue to perform well, as our credit metrics demonstrate the Company's ability to weather the worst of the pandemic, leaving us well-positioned to continue to remix our balance sheet with higher yield and return earning assets," said Executive Vice President and CFO Glen Herrick.

Business Development Highlights for the 2021 Fiscal First Quarter

  • Began our new three-year program with Emerald Financial Services, LLC, a wholly-owned indirect subsidiary of H&R Block, Inc., which we announced in the fourth quarter of fiscal 2020. Have already moved more than $150 million in deposits and began issuing Emerald Prepaid Mastercard® to applicants.

  • Completed negotiations with the U.S. Department of the Treasury's Bureau of the Fiscal Service ("Fiscal Service") to disperse a second round of Economic Income Payment ("EIP") stimulus payments through the distribution of prepaid cards. The Company began distributing cards under this authorization January 4, 2021.

  • Expanded our solar lending business, increasing our solar credit balance 29% to $323.9 million.

  • Increased resources dedicated to our Environmental, Social, and Governance ("ESG") activities by hiring an experienced Vice President of ESG and Community Impact and forming a Board-level ESG committee to provide oversight.

Financial Highlights for the 2021 Fiscal First Quarter

  • Total revenue for the first quarter was $111.5 million, an increase of 9% compared to $102.1 million for the same quarter in fiscal 2020.

  • Operating efficiency ratio improved to 62.2% at December 31, 2020, compared to 68.2% at December 31, 2019. See non-GAAP reconciliation table below.

  • Net interest income for the first quarter was $66.0 million, compared to $64.7 million in the comparable quarter last year.

  • Net interest margin ("NIM") decreased to 4.65% for the first quarter from 4.94% during the same period of last year, while the tax-equivalent net interest margin ("NIM, TE") decreased to 4.67% from 4.99% for that same period in fiscal 2020. The decrease in NIM during the first quarter was primarily driven by excess cash associated with the Company's participation in the EIP program, as described further below.

  • Total gross loans and leases at December 31, 2020 decreased $143.7 million, or 4%, to $3.44 billion, compared to December 31, 2019 and increased $125.4 million, or 4% when compared to September 30, 2020.

  • Average deposits from the payments division for the fiscal 2021 first quarter increased nearly 83% to $5.07 billion when compared to the same quarter in fiscal 2020. A significant portion of the year-over-year increase reflected the Company's participation in the EIP program, as described further below.

  • The Company repurchased 1,864,474 shares during the first quarter at an average price of $29.46. Through January 20, 2021, the Company repurchased an additional 300,000 of its shares, at a weighted average price of $38.73.

COVID-19 Business Update

As of December 31, 2020, the Company had 612 loans outstanding with total loan balances of $194.3 million originated as part of the Paycheck Protection Program ("PPP"), compared with 689 loans outstanding with total loan balances of $219.0 million for the quarter ended September 30, 2020.

As of December 31, 2020, $84.2 million of the loans and leases that were granted deferral payments by the Company were still in their deferment period. As of September 30, 2020, loans and leases totaling $170.0 million were within their deferment period. In addition, the Company has made other COVID-19 related modifications, of which $1.1 million were still active as of December 31, 2020 compared to $23.3 million at September 30, 2020. The majority of the other modifications were related to adjusting the type or amount of the customer's payments.

The Company's capital position remained strong as of December 31, 2020, even while absorbing the temporary impact resulting from the receipt of deposits in conjunction with EIP payments described below. In addition, the Company has options available that can be used to effectively manage capital levels, including a strong and flexible balance sheet.

EIP Program Update

The Bank is serving as the sole Financial Agent for distributing prepaid debit cards used in the EIP program. The Company's Payments division, in collaboration with Fiserv and Visa, is proud to have provided a safe and secure mechanism for individuals, including the underbanked, to receive their stimulus payments. Under the first round of EIP, approximately $6.42 billion in stimulus payments on 3.6 million prepaid cards were mailed to individuals across the United States. The total balances remaining on the first round of EIP cards were $605.1 million as of December 31, 2020 and $569.2 million as of January 20, 2021.

On December 27, 2020, the U.S. Congress, through the Consolidated Appropriations Act of 2021 (“CAA”), directed the Internal Revenue Service (“IRS”) to distribute a second round of EIP via the U.S. Treasury to persons in the U.S. eligible to receive them. 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"), under which the Bank will act as a Financial Agent to Fiscal Service in connection with the provision of prepaid debit card services to disburse a portion of the EIP payments to eligible recipients via Bank-issued prepaid cards.

Under the second round, the Bank disbursed approximately $7.10 billion of EIP payments, with initial payments having begun January 4, 2021. The total balances remaining on the second round of EIP cards were $5.80 billion as of January 20, 2021.

While the EIP Program's impact to earnings is expected to be slightly positive, it continues to temporarily have a significant impact on cash and deposit balances, leading to a reduced NIM along with a corresponding impact on the Company's leverage capital ratios. In conjunction with the Program and its balance sheet impacts, the Bank was granted temporary exemption from its requirements to maintain minimum regulatory capital leverage ratios by the Officer of the Comptroller of the Currency due to deposits received as part of the EIP program. The influx of EIP deposits is not expected to have any material impact on the Company's risk-weighted capital ratios.

The Company is working with other banks to transfer deposits off-balance sheet in an effort to relieve the impact of the substantial influx of deposits related to the second round of EIP.

Net Interest Income
Net interest income for the fiscal 2021 first quarter was $66.0 million, an increase of 2% from the same quarter in fiscal 2020. The increase was primarily driven by a reduction in total interest expense, partially offset by lower overall balances and yields realized on interest earning assets.

During the first fiscal quarter of 2021, loan and lease interest income decreased $7.0 million and investment securities interest income decreased $2.4 million, compared to the prior year quarter, while interest expense decreased $10.8 million over the same period. The quarterly average outstanding balance of loans and leases as a percentage of interest-earning assets for the first quarter decreased to 62%, from 72% for the comparable quarter last year, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 23% from 26% over the 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 2021 first quarter increased by $432.9 million, to $5.64 billion compared with the first quarter in fiscal 2020, primarily due to the effects of the EIP program.

NIM decreased to 4.65% for the fiscal 2021 first quarter from 4.94% for the comparable quarter last year, primarily due to the effects of the EIP program.

The overall reported tax-equivalent yield (“TEY”) on average earning asset yields decreased by 116 basis points to 4.82% for the fiscal 2021 first quarter compared to the prior year quarter, driven primarily by excess low-yielding cash held at the Federal Reserve, as well as the lower interest rate environment. The fiscal 2021 first quarter TEY on the securities portfolio was 1.79% compared to 2.65% for the comparable period last year.

The Company's cost of funds for all deposits and borrowings averaged 0.15% during the fiscal 2021 first quarter, compared to 1.01% during the prior year quarter. This reflected primarily 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 0.06% in the fiscal first quarter of 2021, compared to 0.81% in the same quarter last year.

Noninterest Income
Fiscal 2021 first quarter noninterest income increased to $45.5 million, compared with $37.5 million for the same period of the prior year. This was due primarily to an increase within gain on sale of other, an increase in other income, and an increase in payments cards and deposit fees, partially offset by a decrease in rental income. The increase within gain on sale of other was primarily due to a loss on sale of foreclosed and repossessed assets recognized during the first quarter of fiscal year 2020. The increase within other income was primarily due to the receipt of a portion of the Company’s liquidation insurance claims of unearned premiums on the ReliaMax estate related to the Company’s student loan portfolio. The amount received in the first quarter of fiscal 2021 was $3.5 million.

Noninterest Expense
Noninterest expense decreased 4% to $72.6 million for the fiscal 2021 first quarter, from $75.8 million for the same quarter of last year, primarily driven by decreases in compensation and benefits, other expense, tax product expense, operating lease depreciation, and amortization expense, partially offset by increases within impairment expense, legal and consulting expense, and card processing expense.

Income Tax Expense
The Company recorded income tax expense of $3.5 million, representing an effective tax rate of 10.8%, for the fiscal 2021 first quarter, compared to an income tax expense of $0.7 million, representing an effective tax rate of 3.0%, for the first quarter last year.

The Company originated $38.5 million in solar leases during the fiscal 2021 first quarter, compared to $17.9 million during last year's first quarter. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. The timing and impact of future solar tax credits are expected to vary from period to period, and Meta intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Investments, Loans and Leases

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Total investments

$

1,309,452

$

1,360,712

$

1,268,416

$

1,310,476

$

1,337,840

Loans held for sale

Consumer credit products

234

962

391

SBA/USDA

32,983

52,542

31,438

13,610

13,883

Community Bank(1)

100,442

130,073

48,076

250,383

Total loans held for sale

133,659

183,577

79,905

13,610

264,266

National Lending

Term lending

881,306

805,323

738,454

725,581

695,347

Asset based lending

242,298

182,419

181,130

250,211

250,633

Factoring

275,650

281,173

206,361

285,495

285,776

Lease financing

283,722

281,084

264,988

238,788

223,715

Insurance premium finance

338,227

337,940

359,147

332,800

349,299

SBA/USDA

300,707

318,387

308,611

92,000

90,269

Other commercial finance

101,209

101,658

100,214

101,472

99,617

Commercial Finance

2,423,119

2,307,984

2,158,905

2,026,347

1,994,656

Consumer credit products

88,595

89,809

102,808

113,544

115,843

Other consumer finance

162,423

134,342

138,777

144,895

154,772

Consumer Finance

251,018

224,151

241,585

258,439

270,615

Tax Services

92,548

3,066

19,168

95,936

101,739

Warehouse Finance

318,937

293,375

277,614

333,829

272,522

Total National Lending loans and leases

3,085,622

2,828,576

2,697,272

2,714,551

2,639,532

Community Banking

Commercial real estate and operating

339,141

457,371

608,303

654,429

682,399

Consumer one-to-four family real estate and other

5,077

16,486

166,479

205,046

220,588

Agricultural real estate and operating

9,724

11,707

24,655

36,759

40,778

Total Community Banking loans

353,942

485,564

799,437

896,234

943,765

Total gross loans and leases

3,439,564

3,314,140

3,496,709

3,610,785

3,583,297

Allowance for credit losses

(72,389

)

(56,188

)

(65,747

)

(65,355

)

(30,176

)

Net deferred loan and lease origination fees

9,111

8,625

5,937

8,139

7,177

Total loans and leases, net of allowance

$

3,376,286

$

3,266,577

$

3,436,899

$

3,553,569

$

3,560,298

(1) The December 31, 2020 balance included approximately $95.5 million of commercial real estate and operating loans, $3.5 million of consumer one-to-four family real estate and other loans, and $1.4 million of agricultural real estate and operating loans. The September 30, 2020 balance included approximately $77.5 million of commercial real estate and operating loans, $50.1 million of consumer one-to-four family real estate and other loans, and $2.5 million of agricultural real estate and operating loans. 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.

The Company's investment security balances at December 31, 2020 totaled $1.31 billion, as compared to $1.36 billion at September 30, 2020 and $1.34 billion at December 31, 2019.

Total gross loans and leases decreased $143.7 million, or 4%, to $3.44 billion at December 31, 2020, from $3.58 billion at December 31, 2019, with most of the decline attributable to the sale of community bank loan balances during the second and fourth quarters of fiscal 2020 and first quarter of fiscal 2021, along with a decrease in the consumer finance portfolio, partially offset by growth in the commercial finance and warehouse finance portfolios.

At December 31, 2020, commercial finance loans, which comprised 70% of the Company's gross loan and lease portfolio, totaled $2.42 billion, reflecting growth of $115.1 million, or 5%, from September 30, 2020. The increase in commercial finance loans was primarily due to increases in term lending and asset based lending loans of $76.0 million and $59.9 million, respectively, partially offset by a $17.7 million decrease in SBA/USDA loans.

Consumer finance loans totaled $251.0 million at December 31, 2020, increasing from $224.2 million at September 30, 2020. This increase was primarily driven by seasonal lending products for tax customers associated with the aforementioned three-year program with Emerald Financial Services.

Tax services loans totaled $92.5 million at December 31, 2020, increasing from $3.1 million at September 30, 2020, as the Company began originating taxpayer advances and ERO loans in preparation of the 2020 tax season during the fiscal 2021 first quarter. Warehouse finance loans totaled $318.9 million at December 31, 2020, a 9% increase from September 30, 2020.

Community bank loans held for investment totaled $353.9 million as of December 31, 2020, as compared to $485.6 million at September 30, 2020 and $943.8 million at December 31, 2019. On November 18, 2020, the Company sold an additional $129.8 million of the retained Community Bank portfolio to Central Bank. The sale did not result in any material gain to the Company. As of December 31, 2020, the Company had $100.4 million of community bank loans classified as held for sale and expects to sell those loans during the second quarter of fiscal year 2021.

Asset Quality
Adoption of Current Expected Credit Losses ("CECL") Accounting Standard
The Company adopted CECL effective October 1, 2020, and its day one entry to increase the allowance for credit losses was $12.8 million. Aside from the loan and lease portfolio, management does not expect any other meaningful impacts on the balance sheet or regulatory capital ratios in the near term based on the election of the two-year delay and the five-year total transition period as allowed by the Office of the Comptroller of the Currency and the Federal Reserve.

Of the total $12.8 million CECL impact to the Company's allowance, $12.7 million and $6.0 million were within the commercial and consumer finance portfolios, respectively. These increases were partially offset by a reduction in retained community bank's allowance of $5.9 million.

The Company’s allowance for credit losses was $72.4 million at December 31, 2020, compared to $56.2 million at September 30, 2020 and $30.2 million at December 31, 2019. The increase in the allowance at December 31, 2020 when compared to September 30, 2020, was primarily due to the adoption of the CECL accounting standard noted above, as well as additional increases during the fiscal 2021 first quarter in the commercial finance portfolio of $2.8 million, tax services portfolio of $1.4 million, and consumer finance portfolio of $1.4 million, partially offset by an additional decrease within the retained community bank portfolio of $2.2 million.

The year over year increase in the allowance was primarily driven by a $29.6 million increase within the commercial finance portfolio, $7.8 million increase within the retained community banking portfolio, and an increase in the consumer lending portfolio of $5.0 million.

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

As of the Period Ended

(Unaudited)

December 31, 2020

October 1, 2020(1)

September 30, 2020

December 31, 2019

Commercial finance

1.88

%

1.85

%

1.30

%

0.80

%

Consumer finance

4.39

%

4.31

%

1.64

%

2.22

%

Tax services

1.53

%

0.06

%

0.06

%

1.62

%

Warehouse finance

0.10

%

0.10

%

0.10

%

0.10

%

National Lending

1.89

%

1.86

%

1.20

%

0.90

%

Community Bank

4.01

%

3.37

%

4.59

%

0.68

%

Total loans and leases

2.10

%

2.08

%

1.70

%

0.84

%

(1) Represents the Company's allowance coverage ratio upon the adoption of the Accounting Standards Update 2016-13 using September 30, 2020 loan and lease and allowance balances plus the CECL allowance adjustment.

The Company's allowance for credit losses as a percentage of total loans and leases increased to 2.10% at December 31, 2020 from 1.70% at September 30, 2020. The increase in the coverage ratio was primarily related to the CECL adoption, along with the Company's continued assessment of the risks associated with the ongoing COVID-19 pandemic. Warehouse finance remained largely unchanged due in part to the structure of the credit protections in place. The Company expects to continue to diligently monitor the allowance for credit losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

Activity in the allowance for credit losses for the periods presented was as follows.

(Unaudited)

Three Months Ended

December 31, 2020

September 30, 2020

December 31, 2019

(Dollars in thousands)

Beginning balance

$

56,188

$

65,747

$

29,149

Adoption of CECL accounting standard

12,773

Provision - tax services loans

454

1,599

911

Provision - all other loans and leases

5,810

7,381

2,496

Charge-offs - tax services loans

(13,037

)

Charge-offs - all other loans and leases

(5,675

)

(6,015

)

(3,918

)

Recoveries - tax services loans

956

3

739

Recoveries - all other loans and leases

1,883

510

799

Ending balance

$

72,389

$

56,188

$

30,176

Provision for credit losses was $6.1 million for the quarter ended December 31, 2020, compared to $3.4 million for the comparable period in the prior fiscal year. The increase in provision was primarily within the commercial finance and consumer finance portfolios, partially offset by a decrease within the retained community bank portfolio. Net charge-offs were $2.8 million for the quarter ended December 31, 2020 compared to $2.4 million for the quarter ended December 31, 2019.

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

As of December 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

$

23,448

$

7,358

$

14,900

$

45,706

$

2,377,413

$

2,423,119

$

2,092

$

18,707

$

20,799

Consumer finance

1,415

404

1,132

2,951

248,067

251,018

1,132

1,132

Tax services

92,548

92,548

Warehouse finance

318,937

318,937

Total National Lending

24,863

7,762

16,032

48,657

3,036,965

3,085,622

3,224

18,707

21,931

Total Community Banking

13

2,379

2,392

351,550

353,942

20,389

20,389

Total loans and leases held for investment

$

24,876

$

7,762

$

18,411

$

51,049

$

3,388,515

$

3,439,564

$

3,224

$

39,096

$

42,320


As of September 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

$

13,338

$

14,345

$

16,663

$

44,346

$

2,263,638

$

2,307,984

$

7,400

$

21,553

$

28,953

Consumer finance

977

894

872

2,743

221,408

224,151

872

872

Tax services

1,743

1,743

1,323

3,066

1,744

1,744

Warehouse finance

293,375

293,375

Total National Lending

14,315

15,239

19,278

48,832

2,779,744

2,828,576

10,016

21,553

31,569

Total Community Banking

905

114

2,449

3,468

482,096

485,564

50

2,399

2,449

Total loans and leases held for investment

$

15,220

$

15,353

$

21,727

$

52,300

$

3,261,840

$

3,314,140

$

10,066

$

23,952

$

34,018

The Company's nonperforming assets at December 31, 2020, were $53.2 million, representing 0.73% of total assets, compared to $48.0 million, or 0.79% of total assets at September 30, 2020 and $29.8 million, or 0.48% of total assets at December 31, 2019. The increase in nonperforming assets on a linked quarter basis was primarily driven by an increase in community bank nonperforming loans, partially offset by decreases in commercial finance and tax services nonperforming loans and leases, and a decrease in nonperforming operating leases. The year-over-year increase in nonperforming assets was primarily within the community bank portfolio, as well as an increase in foreclosed and repossessed assets, partially offset by a reduction within the commercial and consumer finance portfolios. The increase in nonaccrual balances was driven by one Community Bank relationship operating in the movie theater industry that moved to nonaccrual status in the fiscal 2021 first quarter. The overall decrease in nonperforming assets as a percentage of total assets at December 31, 2020 was primarily due to higher period-end assets, when compared to September 30, 2020.

The Company's nonperforming loans and leases at December 31, 2020, were $42.3 million, representing 1.18% of total gross loans and leases, compared to $34.0 million, or 0.97% of total gross loans and leases at September 30, 2020 and $24.0 million, or 0.62% of total gross loans and leases at December 31, 2019.

At December 31, 2020, the balance of the Company's loans and leases past due 30 days or greater decreased 2% to $51.0 million when compared to September 30, 2020. When excluding tax services loans, the balance of loans and leases past due 30 days or greater increased to $51.0 million at December 31, 2020 from $50.6 million at September 30, 2020. Loan and lease balances that were within their active deferment period decreased to $84.2 million at December 31, 2020 from $170.0 million at September 30, 2020.

Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2021 first quarter increased by $813.6 million to $5.43 billion compared to the same period in fiscal 2020, primarily due to the effects of the EIP program. Average noninterest-bearing deposits increased $2.15 billion, or 79%, for the fiscal 2021 first quarter when compared to the same period in fiscal 2020, while average wholesale deposits decreased $1.21 billion, or 82%. Average deposits from the payments division increased 83% to $5.07 billion for the fiscal 2021 first quarter when compared to the same period in fiscal 2020. Excluding the balances on the EIP cards, average payments deposits for the fiscal 2021 first quarter were $4.32 billion, representing an increase of 55% compared to the same period of the prior year, which was largely driven by stimulus payments loaded on various partner cards along with lower levels of consumer spending.

The average balance of total deposits and interest-bearing liabilities was $5.52 billion for the three-month period ended December 31, 2020, compared to $5.13 billion for the same period in the prior fiscal year, representing an increase of 8%.

Total end-of-period deposits increased 37% to $6.21 billion at December 31, 2020, compared to $4.52 billion at December 31, 2019. The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $2.65 billion, of which $605.1 million was attributable to the balances on the EIP cards. The increase in total end-of-period deposits was partially offset by a decrease of $1.21 billion 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 December 31, 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

December 31, 2020(1)

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Company

Tier 1 leverage capital ratio

7.40

%

6.58

%

5.91

%

7.28

%

8.28

%

Common equity Tier 1 capital ratio

10.76

%

11.78

%

11.51

%

10.27

%

10.10

%

Tier 1 capital ratio

11.11

%

12.18

%

11.90

%

10.63

%

10.46

%

Total capital ratio

14.18

%

15.30

%

14.99

%

13.61

%

12.74

%

MetaBank

Tier 1 leverage capital ratio

8.62

%

7.56

%

6.89

%

8.52

%

9.70

%

Common equity Tier 1 capital ratio

12.91

%

13.96

%

13.82

%

12.39

%

12.18

%

Tier 1 capital ratio

12.93

%

14.00

%

13.86

%

12.44

%

12.24

%

Total capital ratio

14.19

%

15.26

%

15.12

%

13.69

%

12.90

%

(1) December 31, 2020 amounts are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital presented for periods in fiscal year 2021 reflect the Company's election of the five-year CECL transition for regulatory capital purposes.

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

Standardized Approach(1)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

(Dollars in Thousands)

Total stockholders' equity

$

813,210

$

847,308

$

829,909

$

805,074

$

837,068

Adjustments:

LESS: Goodwill, net of associated deferred tax liabilities

301,999

302,396

302,814

303,625

304,020

LESS: Certain other intangible assets

39,403

40,964

42,865

44,909

47,855

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

24,105

18,361

10,360

11,589

16,876

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

19,894

17,762

8,382

2,337

3,897

LESS: Non-controlling interest

1,536

3,603

3,787

3,762

4,305

ADD: Adoption of Accounting Standards Update 2016-13

10,804

Common Equity Tier 1(1)

437,077

464,222

461,701

438,852

460,115

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

749

1,894

1,894

2,036

2,372

Total Tier 1 Capital

451,487

479,777

477,256

454,549

476,148

Allowance for credit losses

51,070

49,343

50,338

53,580

30,239

Subordinated debentures (net of issuance costs)

73,850

73,807

73,765

73,724

73,684

Total qualifying capital

$

576,407

$

602,927

$

601,359

$

581,853

$

580,071

(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.

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

(Dollars in Thousands)

Total Stockholders' Equity

$

813,210

$

847,308

$

829,909

$

805,074

$

837,068

Less: Goodwill

309,505

309,505

309,505

309,505

309,505

Less: Intangible assets

39,660

41,692

43,974

46,766

50,151

Tangible common equity

464,045

496,111

476,430

448,803

477,412

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

20,119

17,542

7,995

1,654

3,895

Tangible common equity excluding AOCI

$

443,926

$

478,569

$

468,435

$

447,149

$

473,517

Conference Call

The Company will host a conference call and earnings webcast at 4:00 p.m. Central Standard Time (5:00 p.m. Eastern Time) on Wednesday, January 27, 2021. 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 1904899 upon request. International callers should dial (636) 812-6634. A webcast replay will also be archived at www.metafinancialgroup.com for one year.

Annual Meeting of Shareholders

The Annual Meeting of Shareholders will convene at 9:00 a.m. Central Standard Time on Tuesday, February 23, 2021. The meeting will be held virtually via the internet for the safety of the Company's directors, employees, and stockholders in light of the COVID-19 pandemic. Further information with regard to this meeting can be found in the proxy statement filed with the Securities and Exchange Commission (the "SEC") on January 14, 2021. Copies of the Company's Annual Report on Form 10-K for the year ended September 30, 2020 (excluding exhibits thereto) may be obtained from www.metafinancialgroup.com.

Upcoming Investor Events

  • KBW Winter Financial Services Symposium, February 10 - February 12, 2021 | Virtual

  • KBW Fintech Payments Conference, February 23 - February 25, 2021 | Virtual

  • Piper Sandler Western Financial Services Conference, March 2, 2021 | Virtual

Forward-Looking Statements

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

You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; 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 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; the level of net charge-offs and the adequacy of the allowance for credit losses; 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 including the deployment and efficacy of the COVID-19 vaccines, 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 operates; changes in trade, monetary, and fiscal policies and laws, including interest rate policies of 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 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 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; the impact of our participation as prepaid card issuer for the EIP program and potentially similar programs in the future; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; 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, 2020, 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

December 31, 2020

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

Cash and cash equivalents

$

1,586,451

$

427,367

$

3,108,141

$

108,733

$

152,189

Investment securities available for sale, at fair value

797,363

814,495

825,579

840,525

852,603

Mortgage-backed securities available for sale, at fair value

430,761

453,607

338,250

355,094

362,120

Investment securities held to maturity, at cost

76,176

87,183

98,205

108,105

116,313

Mortgage-backed securities held to maturity, at cost

5,152

5,427

6,382

6,752

6,804

Loans held for sale

133,659

183,577

79,905

13,610

264,266

Loans and leases

3,448,675

3,322,765

3,502,646

3,618,924

3,590,474

Allowance for credit losses

(72,389

)

(56,188

)

(65,747

)

(65,355

)

(30,176

)

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

27,138

27,138

31,836

29,944

13,796

Accrued interest receivable

17,133

16,628

17,545

16,958

18,687

Premises, furniture, and equipment, net

39,932

41,608

40,361

38,871

38,671

Rental equipment, net

206,732

205,964

216,336

200,837

211,673

Bank-owned life insurance

92,937

92,315

91,697

91,081

90,458

Foreclosed real estate and repossessed assets

7,186

9,957

6,784

7,249

1,328

Goodwill

309,505

309,505

309,505

309,505

309,505

Intangible assets

39,660

41,692

43,974

46,766

50,151

Prepaid assets

11,270

8,328

6,806

9,727

14,813

Deferred taxes

24,411

17,723

15,944

20,887

19,752

Other assets

82,763

82,983

104,877

85,652

97,499

Total assets

$

7,264,515

$

6,092,074

$

8,779,026

$

5,843,865

$

6,180,926

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Deposits held for sale

$

$

$

$

$

288,975

Deposits:

Noninterest-bearing checking

5,581,597

4,356,630

6,537,809

2,900,484

2,927,967

Interest-bearing checking

274,504

157,571

187,003

152,504

67,642

Savings deposits

54,080

47,866

55,896

37,615

17,436

Money market deposits

56,440

48,494

40,811

37,266

42,286

Time certificates of deposit

13,522

20,223

25,000

25,492

23,454

Wholesale deposits

227,648

348,416

743,806

809,043

1,438,820

Total deposits

6,207,791

4,979,200

7,590,325

3,962,404

4,517,605

Short-term borrowings

717,000

194,000

Long-term borrowings

96,760

98,224

209,781

211,353

213,070

Accrued interest payable

2,068

1,923

4,332

3,607

6,620

Accrued expenses and other liabilities

144,686

165,419

144,679

144,427

123,588

Total liabilities

6,451,305

5,244,766

7,949,117

5,038,791

5,343,858

STOCKHOLDERS’ EQUITY

Preferred stock

Common stock, $.01 par value

326

344

346

346

372

Common stock, Nonvoting, $.01 par value

Additional paid-in capital

598,669

594,569

592,693

590,682

587,678

Retained earnings

198,000

234,927

228,500

212,027

244,005

Accumulated other comprehensive income

20,119

17,542

7,995

1,654

3,895

Treasury stock, at cost

(5,440

)

(3,677

)

(3,412

)

(3,397

)

(3,187

)

Total equity attributable to parent

811,674

843,705

826,122

801,312

832,763

Noncontrolling interest

1,536

3,603

3,787

3,762

4,305

Total stockholders’ equity

813,210

847,308

829,909

805,074

837,068

Total liabilities and stockholders’ equity

$

7,264,515

$

6,092,074

$

8,779,026

$

5,843,865

$

6,180,926

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

Three Months Ended

December 31, 2020

September 30, 2020

December 31, 2019

Interest and dividend income:

Loans and leases, including fees

$

61,655

$

62,022

$

68,702

Mortgage-backed securities

2,123

1,877

2,389

Other investments

4,368

4,508

6,534

68,146

68,407

77,625

Interest expense:

Deposits

797

1,904

9,340

FHLB advances and other borrowings

1,350

1,990

3,634

2,147

3,894

12,974

Net interest income

65,999

64,513

64,651

Provision for credit losses

6,089

8,980

3,407

Net interest income after provision for loan and lease losses

59,910

55,533

61,244

Noninterest income:

Refund transfer product fees

647

2,335

192

Tax advance product fees

1,960

(14

)

2,276

Payments card and deposit fees

22,564

21,422

21,499

Other bank and deposit fees

237

228

487

Rental income

9,885

10,144

12,351

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

51

Gain (loss) on sale of other

2,847

3,455

(2,568

)

Other income

7,315

3,129

3,246

Total noninterest income

45,455

40,750

37,483

Noninterest expense:

Compensation and benefits

32,331

35,616

34,268

Refund transfer product expense

61

162

173

Tax advance product expense

370

(97

)

1,132

Card processing

6,117

6,524

5,607

Occupancy and equipment expense

6,888

6,826

6,655

Operating lease equipment depreciation

7,581

7,594

8,280

Legal and consulting

5,247

5,615

4,674

Intangible amortization

2,013

2,283

2,676

Impairment expense

1,159

1,232

242

Other expense

10,808

14,528

12,091

Total noninterest expense

72,575

80,283

75,798

Income before income tax expense

32,790

16,000

22,929

Income tax expense

3,533

1,791

680

Net income before noncontrolling interest

29,257

14,209

22,249

Net income attributable to noncontrolling interest

1,220

1,051

1,181

Net income attributable to parent

$

28,037

$

13,158

$

21,068

Earnings per common share

Basic

$

0.84

$

0.38

$

0.56

Diluted

$

0.84

$

0.38

$

0.56

Shares used in computing earnings per common share

Basic

32,782,285

33,783,659

36,613,699

Diluted

32,790,895

33,783,659

36,647,789

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. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield.

Three Months Ended December 31,

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

$

820,108

$

842

0.41

%

$

99,597

$

412

1.65

%

Mortgage-backed securities

438,610

2,123

1.92

%

376,358

2,389

2.53

%

Tax exempt investment securities

333,729

1,215

1.83

%

490,982

2,339

2.40

%

Asset-backed securities

326,315

1,200

1.46

%

303,885

2,354

3.08

%

Other investment securities

221,986

1,111

1.98

%

197,513

1,429

2.88

%

Total investments

1,320,640

5,649

1.79

%

1,368,738

8,511

2.65

%

Commercial finance loans and leases

2,417,691

45,630

7.49

%

1,980,509

44,781

9.00

%

Consumer finance loans

239,618

4,748

7.86

%

270,612

5,790

8.51

%

Tax services loans

25,104

8

0.13

%

24,429

33

0.54

%

Warehouse finance loans

284,199

4,933

6.89

%

265,564

4,174

6.25

%

National lending loans and leases

2,966,612

55,319

7.40

%

2,541,114

54,778

8.58

%

Community banking loans

529,085

6,336

4.75

%

1,194,082

13,924

4.64

%

Total loans and leases

3,495,697

61,655

7.00

%

3,735,196

68,702

7.32

%

Total interest-earning assets

$

5,636,445

$

68,146

4.82

%

$

5,203,531

$

77,625

5.98

%

Non-interest-earning assets

845,378

918,973

Total assets

$

6,481,823

$

6,122,504

Interest-bearing liabilities:

Interest-bearing checking(2)

$

162,748

$

%

$

163,693

$

153

0.37

%

Savings deposits

52,198

2

0.01

%

48,776

9

0.08

%

Money market deposits

52,620

39

0.30

%

80,528

205

1.01

%

Time certificates of deposit

17,390

57

1.30

%

114,924

595

2.06

%

Wholesale deposits

261,136

699

1.06

%

1,472,820

8,378

2.26

%

Total interest-bearing deposits

546,092

797

0.58

%

1,880,741

9,340

1.98

%

Overnight fed funds purchased

11

0.25

%

302,804

1,450

1.91

%

FHLB advances

%

110,000

678

2.45

%

Subordinated debentures

73,822

1,147

6.16

%

73,658

1,160

6.26

%

Other borrowings

23,870

203

3.37

%

33,589

346

4.10

%

Total borrowings

97,703

1,350

5.48

%

520,051

3,634

2.78

%

Total interest-bearing liabilities

643,795

2,147

1.32

%

2,400,792

12,974

5.15

%

Noninterest-bearing deposits

4,880,352

%

2,732,062

%

Total deposits and interest-bearing liabilities

$

5,524,147

$

2,147

0.15

%

$

5,132,854

$

12,974

1.01

%

Other noninterest-bearing liabilities

151,528

150,319

Total liabilities

5,675,675

5,283,173

Shareholders' equity

806,148

839,331

Total liabilities and shareholders' equity

$

6,481,823

$

6,122,504

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

$

65,999

4.67

%

$

64,651

4.97

%

Net interest margin

4.65

%

4.94

%

Tax-equivalent effect

0.02

%

0.05

%

Net interest margin, tax-equivalent(3)

4.67

%

4.99

%

(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2020 and 2019 was 21%.
(2) Of the total balance, $162.5 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

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Equity to total assets

11.19

%

13.91

%

9.45

%

13.78

%

13.54

%

Book value per common share outstanding

$

24.93

$

24.66

$

23.96

$

23.26

$

22.52

Tangible book value per common share outstanding

$

14.23

$

14.44

$

13.76

$

12.97

$

12.84

Tangible book value per common share outstanding excluding AOCI

$

13.61

$

13.93

$

13.53

$

12.92

$

12.74

Common shares outstanding

32,620,251

34,360,890

34,631,160

34,607,962

37,172,081

Nonperforming assets to total assets

0.73

%

0.79

%

0.64

%

0.67

%

0.48

%

Nonperforming loans and leases to total loans and leases

1.18

%

0.97

%

1.10

%

0.87

%

0.62

%

Net interest margin

4.65

%

3.77

%

3.28

%

4.78

%

4.94

%

Net interest margin, tax-equivalent

4.67

%

3.79

%

3.31

%

4.82

%

4.99

%

Return on average assets

1.73

%

0.69

%

0.86

%

3.16

%

1.38

%

Return on average equity

13.91

%

6.21

%

8.83

%

25.15

%

10.04

%

Full-time equivalent employees

1,038

1,015

999

992

1,088

Non-GAAP Reconciliation

Efficiency Ratio

For the last twelve months ended

(Dollars in Thousands)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Noninterest Expense - GAAP

$

315,828

$

319,051

$

314,911

$

316,138

$

334,663

Net Interest Income

260,386

259,038

260,142

264,973

268,586

Noninterest Income

247,766

239,794

235,024

237,766

222,278

Total Revenue: GAAP

$

508,152

$

498,832

$

495,166

$

502,739

$

490,864

Efficiency Ratio, last twelve months

62.15

%

63.96

%

63.60

%

62.88

%

68.18

%


About Meta Financial Group, Inc.®
Meta Financial Group, Inc.®(Nasdaq: CASH) is a South Dakota-based financial holding company. Meta Financial Group’s subsidiary, MetaBank®, N.A., is a financial enablement company that works with innovators to increase financial availability, choice, and opportunity for all. MetaBank strives to remove barriers that traditional institutions put in the way of financial access, and promote economic mobility by providing responsible, secure, high quality financial products that contribute to individuals and communities at the core of the real economy. Additional information can be found by visiting www.metafinancialgroup.com or www.metabank.com.

Investor Relations Contact:

Brittany Kelley Elsasser

Director of Investor Relations

605-362-2423

bkelley@metabank.com

Media Relations:

mediarelations@metabank.com