SIOUX FALLS, S.D., July 26, 2017 (GLOBE NEWSWIRE) -- Meta Financial Group, Inc.® (Nasdaq:CASH) (“MFG,” “Meta” or the “Company”)
Highlights for the 2017 fiscal third quarter ended June 30, 2017
- The Company recorded net income of $9.8 million, or $1.04 per diluted share, for the three months ended June 30, 2017, compared to net income of $8.9 million, or $1.04 per diluted share, for the three months ended June 30, 2016. The 2017 fiscal third quarter pre-tax results included $2.3 million in non-cash stock-related compensation associated with employment agreements for three executive officers, $1.9 million in amortization of intangible assets (see Select Quarterly Expenses table), $0.9 million payout of severance costs related to ongoing synergy efforts in our tax divisions, and $0.2 million of acquisition expenses.
- Net interest income was $24.9 million in the 2017 fiscal third quarter, an increase of $5.0 million, or 25%, compared to the third quarter of fiscal 2016. This increase was primarily due to higher volumes in specialty finance loans inclusive of the floating rate student loan portfolio, higher volume and yields attained from investments (primarily in high credit quality, tax-exempt municipal bonds and floating rate asset-backed securities), and higher loan volumes in the retail bank.
- Card fee income increased $4.3 million, or 23%, for the 2017 fiscal third quarter when compared to the same quarter in 2016. This increase was due in part to residual fees related to a wind down of one of our non-strategic partners and a promotional campaign by another partner.
- Refund transfer ("RT") product fee income increased $2.4 million, or 69%, for the 2017 fiscal third quarter when compared to the same quarter in 2016. The increase was primarily due to the acquisition of EPS Financial ("EPS") on November 1, 2016.
- The Company's 2017 fiscal third quarter average assets grew to $4.00 billion, compared to $3.07 billion in the 2016 third quarter, an increase of 30%.
- Total loans receivable, net of allowance for loan losses, increased $354.9 million, or 42%, at June 30, 2017, compared to June 30, 2016. This increase was primarily related to growth in consumer loans of $135.2 million, of which $127.6 million was attributable to the student loan portfolio purchased in December 2016. Growth in commercial real estate loans of $107.1 million, or 28%, premium finance loans of $90.3 million, or 64%, and residential mortgage loans of $40.3 million, or 27%, also contributed to the increase in loans receivable compared to June 30, 2016. Retail bank loans at June 30, 2017 were up $137.3 million, or 20%, compared to June 30, 2016. Excluding the purchased student loan portfolio and refund advance loans, total loans receivable, net of allowance for loan losses, at June 30, 2017 were up $226.9 million, or 27%, compared to June 30, 2016.
- Payments division average deposits increased $178.4 million, or 9%, for the 2017 fiscal third quarter when compared to the same quarter of 2016. Excluding a one-time promotion by one of our partners that caused the roll-off of associated deposits when it ended, Payments average deposits would have increased $266.1 million, or 14%, when comparing the 2017 fiscal third quarter to the same quarter of 2016.
- Non-performing assets (“NPAs”) were 1.17% of total assets at June 30, 2017, compared to 0.07% at June 30, 2016. The increase in NPAs was primarily related to two large, well-collateralized agricultural relationships becoming more than 90 days past due and which are still accruing along with remaining tax advance loans that are over 94% reserved, which we believe is adequate to cover losses.
"As we have closed out another successful tax season, I am delighted to report a strong fiscal third quarter has added to our record-breaking year," said Chairman and CEO J. Tyler Haahr. "We were able to seamlessly integrate our recent acquisitions of EPS and Specialty Consumer Services ("SCS") into our existing tax business, which has created opportunities for synergies and efficiencies between our tax divisions, and we believe those synergies and efficiencies will only continue to improve. We are actively working on plans for next tax season along with enhancements to our products, platforms, and systems, and we expect to be able to provide an update on the upcoming tax season in early fiscal year 2018.
“Our banking and payments businesses have also sustained positive growth during the third fiscal quarter of 2017. The Company's loan portfolio increased 42% and fee income increased 28% from the fiscal 2016 third quarter.
“In addition to the synergies noted above, we are busy building multiple credit products with strategic partners to enhance our specialty lending business that would allow us to replace lower yielding securities with higher yielding loans. Our ability to develop credit products has been enhanced with the expertise of the team that joined us from SCS. And as we have done historically, we continue to consider potential acquisitions and other opportunities that we believe would align with the Company's strategic initiatives."
Financial Summary
Revenue
Total revenue for the fiscal 2017 third quarter was $55.8 million, compared to $43.7 million for the same quarter in 2016, an increase of $12.1 million, or 28%, primarily due to growth in interest from loans and investments, as well as a favorable mix among interest-earning assets. Growth in card fee income and RT product fee income also led to the increase in total revenue.
Net Income
The Company recorded net income of $9.8 million, or $1.04 per diluted share, for the three months ended June 30, 2017, compared to net income of $8.9 million, or $1.04 per diluted share, for the three months ended June 30, 2016. The increase in net income was due to increases of $7.0 million in non-interest income and $5.0 million in net interest income, partially offset by an increase of $10.6 million in non-interest expense.
The 2017 fiscal third quarter pre-tax results included $1.9 million of amortization of intangible assets, $0.9 million payout of severance costs related to ongoing synergy efforts in our tax divisions, and $0.2 million of acquisition expenses, primarily related to the fair value originally recorded for the SCS contingent consideration cash payout. In addition, pre-tax results included $2.3 million in non-cash stock-related compensation in connection with three executive officers signing long-term employment agreements in the first and second quarters of fiscal 2017. These stock awards vest over eight years but the associated expense is heavily front loaded, particularly in the first year (see Select Quarterly Expenses table).
Our tax business is expected to continue to generate the vast majority of its revenues in the Company's fiscal second quarter, with some additional revenues in the third quarter, while most expenses are spread throughout the year with some elevated expenses in the quarters ending in December and March related to the Bank's tax related business.
Net Interest Income
Net interest income for the fiscal 2017 third quarter was $24.9 million, up $5.0 million, or 25%, from the same quarter in 2016, primarily due to the significant increases in volume in the specialty finance loan segment, which includes premium finance loans and the purchased student loan portfolio. Growth in investment security balances and yields attained also contributed to the increase in net interest income. Additionally, the overall increase was driven by a better mix and higher percentage of loans as a percentage of interest earning assets. The quarterly average outstanding balance of loans from all sources as a percentage of interest earning assets increased from 29% as of the end of the third fiscal quarter of 2016 to 33% as of the end of the third fiscal quarter of 2017. Offsetting this increase, lower yielding agency Mortgage-Backed Securities ("MBS") decreased from 26% of interest earning assets in the fiscal third quarter of 2016 compared to 22% of interest earning assets for the same quarter in 2017. Net interest income for the fiscal 2017 third quarter was up $1.0 million from the Company's fiscal 2017 second quarter, as anticipated, due to a better mix of earning assets, even though the quarterly average earning assets decreased substantially from the fiscal second quarter of 2017 to the fiscal third quarter of 2017. The decrease, as anticipated, was related to lower uninvested cash balances and seasonal tax advance loans.
Net Interest Margin
Net Interest Margin ("NIM") decreased from 3.27% in the fiscal 2016 third quarter to 3.25% in the fiscal 2017 third quarter. When excluding the subordinated debt issued in the 2016 fourth fiscal quarter, NIM would have been 3.38%, or an additional 13 basis points, in the fiscal 2017 third quarter. Excluding tax advance loans, NIM would have increased by an additional one basis point to 3.39% for the current quarter. Also, with the securities portfolio transactions which took place in the fiscal 2017 third quarter, in concert with the balance sheet utilizing the trade date of a securities transaction and the income statement utilizing the settlement date of a securities transaction and with many purchases of securities being new issues with long first settle periods, the Company estimates removal of this trade date/settle date timing would add one basis point to reported NIM to 3.26% and 3.27% when excluding tax advance loans, but before removing the impact of the subordinated debt.
The overall reported tax equivalent yield (“TEY”) on average earning asset yields increased by 31 basis points to 3.69% when comparing the fiscal 2017 third quarter to the 2016 third quarter, which was driven primarily by the Company's improved earning asset mix with increased exposure to its high-quality premium finance, student, and retail bank loan portfolios and highlights the beneficial tailwind provided by this rotation. The Company seeks to remain diligent and disciplined when evaluating loan pool deal flow to continue to optimize the deployment of our national, non-interest-bearing deposit base. We anticipate that many of these loan pools could add immediate earnings accretion with acceptable risk parameters, as we believe to be the case with the recent student loan portfolio purchase.
The fiscal 2017 third quarter TEY on the securities portfolio increased by 25 basis points compared to the comparable prior year fiscal third quarter primarily due to a shifting mix in the investment portfolio with new investments in overall higher yielding investment securities, primarily mortgage-related, tax-exempt municipal securities rather than traditional agency MBS and a higher rate environment when significant purchases were made in our fiscal second quarter.
The Company’s average interest-earning assets for the fiscal 2017 third quarter grew by $775.8 million, or 27%, to $3.63 billion, from the same quarter in 2016, primarily from growth in loan portfolios, tax-exempt investment securities, and cash and fed funds sold of $378.1 million, $249.8 million, and $19.1 million, respectively.
Overall, the Company's cost of funds for all deposits and borrowings averaged 0.45% during the fiscal 2017 third quarter, compared to 0.13% for the 2016 third quarter. This increase was primarily due to the issuance of the Company's subordinated debt in fiscal year 2016 along with an increase in the overnight borrowing rates and higher average overnight borrowings as the Company fully utilizes its capital during non-tax season with higher investments and borrowings. Notwithstanding this increase, the Company believes that its growing, low-cost deposit base gives it a distinct and significant competitive advantage over most banks, and even more so if interest rates continue to rise, because the Company anticipates that its cost of funds will likely remain relatively low, increasing less than at many other banks. While the subordinated debt issuance in 2016 increased the cost of funds at the Company level, MetaBank's cost of funds for the fiscal 2017 third quarter remained at levels much lower than the overall Company cost of funds and as the Company's deposit base grows, the Company expects that the subordinated debt will have a more muted effect on overall Company cost of funds.
Average interest-earning assets for the nine months ended June 30, 2017 increased 31% from the comparable prior fiscal year period, while interest-bearing liabilities increased by 106% primarily related to wholesale deposits and the aforementioned subordinated debt. The TEY of MBS and other investments was 3.13% for the nine months ended June 30, 2017, and 2.95% for the same period in 2016.
Non-Interest Income
Fiscal 2017 third quarter non-interest income of $30.8 million increased $7.0 million, or 29%, from $23.8 million in the same quarter of 2016, largely due to increases in card fee income of $4.3 million, or 23%, primarily driven by residual fees related to a wind down of one of our non-strategic partners and a promotional campaign by another partner and also an increase in RT product fee income of $2.4 million, primarily due to the acquisition of EPS.
Non-Interest Expense
Non-interest expense increased $10.6 million, or 33%, to $42.2 million for the 2017 fiscal third quarter, compared to the same quarter in 2016. This increase was largely caused by a $6.8 million increase in compensation expense, a $1.3 million increase in refund transfer product expense, and a $0.7 million increase in amortization expense. The increase in compensation expense was primarily due to increased staffing from the EPS and SCS acquisitions, non-cash stock-related compensation expense associated with three executive officers signing long-term employment agreements, and $0.9 million payout of severance costs related to ongoing synergy efforts in our tax divisions. The increase in tax product expense was related to the increased activity from our tax distribution channels and recent tax agreements that carried over into the 2017 third fiscal quarter. Amortization expense increased from the third quarter of 2016 due to the EPS and SCS acquisitions. See Select Quarterly Expenses table for a breakdown of anticipated intangible asset amortization for future quarters. Occupancy and equipment and other expenses increased in large part due to the recent EPS and SCS acquisitions.
Income tax expense for the fiscal 2017 third quarter was $2.5 million, resulting in an effective tax rate of 20.5%, compared to $1.1 million, or an effective tax rate of 11.3%, for the 2016 third quarter. For the first nine months of fiscal 2017, our effective tax rate was 20.7%, compared to an effective tax rate of 13.5% for the same period of 2016. Our effective tax rate is not expected to change significantly for the remainder of 2017.
The Company early adopted Accounting Standard Update ("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The requirement to report the excess tax benefit related to settlements of share-based awards in earnings as an increase or (decrease) to income tax expense has been applied utilizing the prospective method and resulted in a tax benefit of $0.5 million in the third quarter of fiscal 2017. In addition, the Company recognized $0.3 million in compensation expense related to the reversal of forfeitures in accordance with the adoption of ASU 2016-09. While the adoption of ASU 2016-09 requires retrospective application to all fiscal year periods presented, the Company elected to not recast previously reported financial statements as the impact was considered insignificant.
Loans
Total loans receivable, net of allowance for loan losses, increased $354.9 million, or 42%, from $854.5 million at June 30, 2016 to $1.21 billion at June 30, 2017. Among lending categories, this included a $135.2 million, or 365%, increase in consumer loans, $127.6 million of which was attributable to the student loan portfolio purchased during the first quarter of fiscal 2017. Also contributing to the growth was commercial real estate loans, which increased $107.1 million, or 28%, from $386.8 million at June 30, 2016 to $493.9 million at June 30, 2017 and premium finance loans, which increased $90.3 million, or 64%, from $141.3 million at June 30, 2016 to $231.6 million at June 30, 2017. The growth in net loans receivable from June 30, 2016 to June 30, 2017 was partially offset by a decrease of $6.6 million, or 6%, from $104.6 million to $98.0 million in total agricultural loans, which made up only 2.44% of total assets at June 30, 2017. Retail bank loans increased $137.3 million, or 20%, from $701.8 million at June 30, 2016 to $839.1 million at June 30, 2017. Excluding the purchased student loan portfolio and refund advance loans, total loans receivable, net of allowance for loan losses, at June 30, 2017 were up $226.9 million, or 27%, compared to June 30, 2016.
The Company recorded a provision for loan losses of $1.2 million during the three months ended June 30, 2017. The provision was primarily comprised of a $0.7 million reserve related to retail bank loans driven by increases in both loan volume and qualitative factors and a $0.4 million reserve related to tax advance loans.
The Company’s allowance for loan losses was $15.0 million, or 1.2% of total loans, at June 30, 2017, compared to an allowance of $6.1 million, or 0.7% of total loans, at June 30, 2016. This increase was primarily due to the additional provision expense related to tax advance loans. As of June 30, 2017, we are currently over 94% reserved for the tax advance loans, which we view as adequately reserved, and we expect them all to be collected or written off by September 30, 2017.
Credit Quality
MetaBank’s NPAs at June 30, 2017 were $47.0 million, representing 1.17% of total assets, compared to $2.2 million and 0.07% of total assets at June 30, 2016 and $1.2 million and 0.03% at September 30, 2016. The increase in NPAs is primarily related to two large agricultural relationships becoming more than 90 days past due and which are still accruing. The Company believes our strong collateral positions on the relationships (less than 75% loan-to-value secured by agricultural real estate) support this decision to continue to accrue interest as we work with these borrowers. Generally, while our agricultural borrowers have been hurt by lower commodity prices over the last few years, many of the producers in our markets have generated record yields to help offset the pricing issues. Given the underlying values of collateral (primarily land related to our agricultural loans), we believe we have minimal loss exposure in the portfolio. The Payments segment had $8.3 million of NPAs at June 30, 2017 related to tax advance loans, compared to none at both June 30, 2016 and September 30, 2016. The increase in Payments segment NPAs at June 30, 2017 compared to June 30, 2016 was mainly due to growth in our tax lending program.
Investments
Total investment securities and MBS increased by $342.8 million, or 17%, to $2.39 billion at June 30, 2017, as compared to June 30, 2016. This included an increase in investment securities of $277.5 million, primarily from purchases of high credit quality non-bank-qualified (“NBQ”) municipal securities and government-related asset-backed securities, and an increase in MBS of $65.4 million as purchases exceeded sales and pay downs.
Average TEY on the securities portfolio increased 25 basis points to 3.20% in the third quarter of fiscal 2017 from 2.95% in the same quarter of 2016. Overall TEY increased by 16 basis points from 3.47% to 3.63% in the third quarter of 2017 on non-MBS investment securities over that same time period in the prior year. Average yields increased within MBS by 27 basis points to 2.33% in the third quarter of 2017 from 2.06% in the same quarter of 2016.
Average TEY on the securities portfolio decreased by four basis points to 3.20% from 3.24% when comparing the 2017 fiscal third quarter to the 2017 fiscal second quarter. Investment securities TEY decreased three basis points to 3.63% from 3.66% and MBS decreased five basis points to 2.33% from 2.38% when comparing the 2017 fiscal third quarter to the 2017 fiscal second quarter. This decrease in other investments is primarily due to the trade date/settle date issue discussed earlier which the Company estimates, when removed, would have added two basis points to the other investment segment yield for an adjusted yield of 3.65%. The decrease was also due, in part, to a small increase in prepayment speeds of the Company's municipal, tax-exempt mortgage related securities which receive principal and tax exempt interest payments directly from the Ginnie Mae MBS pool which collateralizes them and into which the securities can be converted. These municipal, tax exempt mortgage related securities were purchased at slight premiums, as increased prepayment speeds can affect the yield of such securities. The Company believes this increase in prepayment speeds is likely driven by seasonal factors and the decrease in longer term interest rates within the quarter. While speeds increased in these securities, due to the makeup and profile of the borrowers in this program, the Company believes and has observed the prepayment speeds to be slower and more stable historically than the mortgage market in general. The Company attributes the slight quarter over quarter decrease in agency MBS yields to increased prepayment speeds due to the decline in longer term rates throughout the quarter. Within the quarter, the Company completed opportunistic sales of, and additions to, the securities portfolio which it believes will help sustain, if not improve, yields on a go- forward basis in a multitude of rate scenarios. The Company estimates when removing the trade date/settle date issue, the adjusted overall securities portfolio yield would be 3.21%.
The focus of the MBS portfolio remains on minimizing prepayment speed volatility by selecting agency MBS with characteristics intended to make the Company’s agency MBS holdings less susceptible to increased prepayment speeds, while still allowing yields to increase if interest rates increase with controlled extension risk. The Company continues to purchase high-quality investments within certain sectors of the municipal market, at what it believes to be attractive yields. Many of these new purchases are tax-exempt and also backed, or collateralized, by Ginnie Mae, Fannie Mae, and Freddie Mac, thereby enhancing credit quality. The Company also has opportunistically and carefully selected certain government related and guaranteed floating rate securities at yields that are expected to enhance the portfolio's projected performance in a rising interest rate environment.
The Company continues to execute its investment strategy of primarily purchasing U.S. Government-related securities and U.S. Government-related MBS, as well as AAA- and AA- rated NBQ municipal bonds; however, the Company is also reviewing opportunities to add other diverse, high-quality securities at attractive relative rates when opportunities arise. With the Company’s large percentage of non-interest bearing deposits, the TEY for these NBQ bonds is higher than a similar term investment in other investment categories of similar risk and higher than many other banks can realize on the same instruments due to the Company’s current cost of funds and its projected cost of funds if interest rates rise.
Deposits and Other Liabilities
Total end-of-period deposits increased $966.3 million, or 44%, to $3.15 billion at June 30, 2017, compared to June 30, 2016. The increase in end-of-period deposits was primarily a result of an increase in non-interest bearing deposits of $558.9 million and an increase in wholesale deposits of $444.9 million, offset by decreases in savings deposits of $23.3 million and certificates of deposits of $16.6 million. Wholesale deposits have been added during fiscal year 2017 at advantageous rates when compared to the overnight borrowing rates thereby lowering borrowing costs, or have been added to target strategic maturities which are expected to aid in tax season tax advance loan funding.
Total average deposits for the fiscal 2017 third quarter increased by $559.2 million, or 24%, compared to the same period in 2016. Average non-interest bearing deposits for the 2017 third quarter were up $215.6 million, or 10%, compared to the same period in 2016. Excluding a one-time promotion by one of our partners that caused the roll-off of associated deposits when it ended, average non-interest bearing deposits would have increased 16% when comparing the 2017 third quarter to the same quarter of 2016.
The average balance of total deposits and interest-bearing liabilities was $3.48 billion for the three-month period ended June 30, 2017, compared to $2.69 billion for the same period in fiscal 2016, representing an increase of 29%. A portion of this increase was due to the utilization of advantageous pricing and strategic maturities on certain wholesale deposits, as well as the Company's completion of the public offering of its subordinated notes in August 2016, which are due August 15, 2026.
Business Segment Performance
Payments
For the fiscal 2017 third quarter, the Payments segment recorded income before tax of $7.4 million, compared to $8.5 million during the same period last year. Total third quarter 2017 average Payments-generated deposits increased by $178.4 million, or 9%, compared to the same quarter in 2016. Excluding the aforementioned promotion that caused the roll-off of associated deposits, average Payments-generated deposits would have increased $266.1 million, or 14%, when comparing the 2017 fiscal quarter to the same period of the prior year.
Banking
The Banking segment recorded income before tax of $7.9 million for the third quarter of fiscal 2017, compared to $3.3 million in the third quarter of 2016. This increase was primarily driven by the increase in interest income of $4.3 million as a result of growth in our loan portfolio.
Capital Ratios
The Company and the Bank remain above the federal regulatory minimum capital requirements to remain classified as well-capitalized institutions. Regulatory capital ratios at June 30, 2017 are stated in the table below.
The tables below also 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.
Regulatory Capital Data (1)
| Minimum | |||||||||||
| Requirement to Be | |||||||||||
| Minimum | Well Capitalized | ||||||||||
| Requirement For | Under Prompt | ||||||||||
| Capital Adequacy | Corrective Action | ||||||||||
| At June 30, 2017 | Company | Bank | Purposes | Provisions | |||||||
| Tier 1 leverage ratio | 7.39 | % | 9.44 | % | 4.00 | % | 5.00 | % | |||
| Common equity Tier 1 capital ratio | 14.03 | 18.56 | 4.50 | 6.50 | |||||||
| Tier 1 capital ratio | 14.54 | 18.56 | 6.00 | 8.00 | |||||||
| Total qualifying capital ratio | 19.08 | 19.34 | 8.00 | 10.00 | |||||||
(1)
Regulatory ratios are estimated.
The following table provides certain 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, 2017 | |||
| (Dollars in Thousands) | |||
| Total equity | $ | 430,213 | |
| Adjustments: | |||
| LESS: Goodwill, net of associated deferred tax liabilities | 96,273 | ||
| LESS: Certain other intangible assets | 51,839 | ||
| LESS: Net deferred tax assets from operating loss and tax credit carry-forwards | 874 | ||
| LESS: Net unrealized gains (losses) on available-for-sale securities | 7,397 | ||
| Common Equity Tier 1 (1) | 273,830 | ||
| Long-term debt and other instruments qualifying as Tier 1 | 10,310 | ||
| LESS: Additional Tier 1 capital deductions | 218 | ||
| Total Tier 1 capital | 283,922 | ||
| Allowance for loan losses | 15,203 | ||
| Subordinated debentures (net of issuance costs) | 73,312 | ||
| Total qualifying capital | 372,437 | ||
(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 used in calculating tangible book value data.
| June 30, 2017 | |||
| (Dollars in Thousands) | |||
| Total Stockholders' Equity | $ | 430,213 | |
| Less: Goodwill | 98,723 | ||
| Less: Intangible assets | 64,798 | ||
| Tangible common equity | 266,692 | ||
| Less: AOCI | 7,397 | ||
| Tangible common equity excluding AOCI | 259,295 | ||
Due to the predictable, quarterly cyclicality of MPS deposits in conjunction with tax season business activity, management believes that a six-month capital calculation is a useful metric to monitor the Company’s overall capital management process. As such, the Bank’s six-month average Tier 1 leverage ratio, Common equity Tier 1 capital ratio, Tier 1 capital ratio, and Total qualifying capital ratio as of June 30, 2017 were 8.95%, 18.26%, 18.26%, and 19.02%, respectively.
The Company and MetaBank (the “Bank”) may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the Securities and Exchange Commission (“SEC”), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; customer retention; loan and other product demand; important components of the Company's statements of financial condition and operations; growth and expansion; new products and services, such as those offered by the Bank or MPS, a division of the Bank; credit quality and adequacy of reserves; technology; and the Company's employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; the strength of the United States' economy, in general, and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), as well as efforts of the United States Treasury in conjunction with bank regulatory agencies to stimulate the economy and protect the financial system; inflation, interest rate, market, and monetary fluctuations; the timely development and acceptance of new products and services offered by the Company, 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; any actions which may be initiated by our regulators in the future; the impact of changes in financial services laws and regulations, including, but not limited to, laws and regulations relating to the tax refund industry and the insurance premium finance industry, our relationship with our primary regulators, the Office of the Comptroller of the Currency and the Federal Reserve, as well as the Federal Deposit Insurance Corporation, which insures the Bank’s deposit accounts up to applicable limits; technological changes, including, but not limited to, the protection of electronic files or databases; acquisitions; litigation risk, in general, including, but not limited to, those risks involving the Bank's divisions; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution, particularly in light of our growing deposit base, a portion of which has been characterized as “brokered”; changes in consumer spending and saving habits; and the success of the Company at maintaining its high-quality asset level and managing and collecting assets of borrowers in default should problem assets increase.
The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2016, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances or future events or for any other reason.
| Condensed Consolidated Statements of Operations (Unaudited) (Dollars in Thousands, Except Share and per Share Data) | |||||||||||||||||||
| ASSETS | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | ||||||||||||||
| Cash and cash equivalents | $ | 65,630 | $ | 67,293 | $ | 695,731 | $ | 773,830 | $ | 36,830 | |||||||||
| Investment securities available for sale | 1,141,684 | 1,184,440 | 936,832 | 910,309 | 863,468 | ||||||||||||||
| Mortgage-backed securities available for sale | 666,424 | 642,833 | 534,939 | 558,940 | 579,330 | ||||||||||||||
| Investment securities held to maturity | 464,729 | 474,306 | 478,611 | 486,095 | 465,451 | ||||||||||||||
| Mortgage-backed securities held to maturity | 117,399 | 122,497 | 126,365 | 133,758 | 139,138 | ||||||||||||||
| Loans held for sale | — | — | 1,223 | — | — | ||||||||||||||
| Loans receivable | 1,224,359 | 1,151,192 | 1,113,485 | 925,105 | 860,626 | ||||||||||||||
| Allowance for loan loss | (14,968 | ) | (14,602 | ) | (6,415 | ) | (5,635 | ) | (6,120 | ) | |||||||||
| Federal Home Loan Bank Stock, at cost | 16,323 | 25,043 | 3,832 | 47,512 | 25,311 | ||||||||||||||
| Accrued interest receivable | 21,831 | 20,902 | 21,375 | 17,199 | 17,911 | ||||||||||||||
| Premises, furniture, and equipment, net | 20,107 | 20,019 | 20,093 | 18,626 | 18,695 | ||||||||||||||
| Bank-owned life insurance | 84,035 | 58,378 | 57,934 | 57,486 | 57,038 | ||||||||||||||
| Foreclosed real estate and repossessed assets | 364 | — | 76 | 76 | — | ||||||||||||||
| Goodwill | 98,723 | 98,723 | 98,898 | 36,928 | 36,928 | ||||||||||||||
| Intangible assets | 64,798 | 66,633 | 73,472 | 28,921 | 30,088 | ||||||||||||||
| Prepaid assets | 31,265 | 34,596 | 35,722 | 9,443 | 10,434 | ||||||||||||||
| Deferred taxes | 6,858 | 10,589 | 12,420 | — | 407 | ||||||||||||||
| Meta Payment Systems accounts receivable | 5,858 | 6,005 | 6,885 | 6,334 | 6,694 | ||||||||||||||
| Other assets | 4,274 | 16,749 | 1,851 | 1,492 | 1,937 | ||||||||||||||
| Total assets | $ | 4,019,693 | $ | 3,985,596 | $ | 4,213,329 | $ | 4,006,419 | $ | 3,144,166 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| LIABILITIES | |||||||||||||||||||
| Non-interest-bearing checking | $ | 2,481,673 | $ | 2,637,167 | $ | 2,473,275 | $ | 2,167,522 | $ | 1,922,802 | |||||||||
| Interest-bearing checking | 40,928 | 44,264 | 41,119 | 38,077 | 39,946 | ||||||||||||||
| Savings deposits | 55,292 | 65,367 | 52,566 | 50,742 | 78,547 | ||||||||||||||
| Money market deposits | 46,709 | 42,340 | 46,856 | 47,749 | 45,325 | ||||||||||||||
| Time certificates of deposit | 83,760 | 61,170 | 122,334 | 125,992 | 100,336 | ||||||||||||||
| Wholesale deposits | 444,857 | 21,923 | 926,987 | — | — | ||||||||||||||
| Total deposits | 3,153,219 | 2,872,231 | 3,663,137 | 2,430,082 | 2,186,956 | ||||||||||||||
| Short-term debt | 277,166 | 494,919 | 3,857 | 1,095,118 | 439,234 | ||||||||||||||
| Long-term debt | 92,514 | 92,497 | 92,479 | 92,460 | 119,358 | ||||||||||||||
| Accrued interest payable | 2,463 | 722 | 2,255 | 875 | 337 | ||||||||||||||
| Deferred taxes | — | — | — | 4,600 | — | ||||||||||||||
| Accrued expenses and other liabilities | 64,118 | 113,479 | 79,815 | 48,309 | 65,612 | ||||||||||||||
| Total liabilities | 3,589,480 | 3,573,848 | 3,841,543 | 3,671,444 | 2,811,497 | ||||||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016 | — | — | — | — | — | ||||||||||||||
| Common stock, $.01 par value; 15,000,000 shares authorized, 9,349,989, 9,349,989, 9,305,079, 8,523,641, and 8,523,641 shares issued and outstanding at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016, respectively. | 94 | 94 | 93 | 85 | 85 | ||||||||||||||
| Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016 | — | — | — | — | — | ||||||||||||||
| Additional paid-in capital | 256,088 | 253,473 | 249,476 | 184,780 | 184,700 | ||||||||||||||
| Retained earnings | 166,634 | 158,167 | 127,239 | 127,190 | 122,292 | ||||||||||||||
| Accumulated other comprehensive income (loss) | 7,397 | 14 | (5,022 | ) | 22,920 | 25,592 | |||||||||||||
| Treasury stock, at cost, no common shares at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016 | — | — | — | — | — | ||||||||||||||
| Total stockholders’ equity | 430,213 | 411,748 | 371,786 | 334,975 | 332,669 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 4,019,693 | $ | 3,985,596 | $ | 4,213,329 | $ | 4,006,419 | $ | 3,144,166 | |||||||||
| Condensed Consolidated Statements of Operations (Unaudited) (Dollars in Thousands, Except Share and Per Share Data) | |||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| 6/30/2017 | 3/31/2017 | 6/30/2016 | 6/30/2017 | 6/30/2016 | |||||||||||||||
| Interest and dividend income: | |||||||||||||||||||
| Loans receivable, including fees | $ | 14,089 | $ | 12,773 | $ | 9,280 | $ | 37,540 | $ | 26,147 | |||||||||
| Mortgage-backed securities | 4,544 | 4,481 | 3,777 | 12,345 | 12,258 | ||||||||||||||
| Other investments | 10,228 | 10,464 | 7,706 | 29,269 | 21,262 | ||||||||||||||
| 28,861 | 27,718 | 20,763 | 79,154 | 59,667 | |||||||||||||||
| Interest expense: | |||||||||||||||||||
| Deposits | 1,039 | 2,184 | 136 | 4,161 | 434 | ||||||||||||||
| FHLB advances and other borrowings | 2,879 | 1,568 | 708 | 6,251 | 1,821 | ||||||||||||||
| 3,918 | 3,752 | 844 | 10,412 | 2,255 | |||||||||||||||
| Net interest income | 24,943 | 23,966 | 19,919 | 68,742 | 57,412 | ||||||||||||||
| Provision for loan losses | 1,240 | 8,649 | 2,098 | 10,732 | 4,057 | ||||||||||||||
| Net interest income after provision for loan losses | 23,703 | 15,317 | 17,821 | 58,010 | 53,355 | ||||||||||||||
| Non-interest income: | |||||||||||||||||||
| Refund transfer product fees | 5,785 | 32,487 | 3,424 | 38,448 | 23,062 | ||||||||||||||
| Tax advance product fees | (108 | ) | 31,119 | 7 | 31,460 | 1,575 | |||||||||||||
| Card fees | 23,052 | 26,547 | 18,779 | 68,013 | 52,614 | ||||||||||||||
| Loan fees | 982 | 1,182 | 1,084 | 3,034 | 2,551 | ||||||||||||||
| Bank-owned life insurance | 656 | 444 | 454 | 1,548 | 1,208 | ||||||||||||||
| Deposit fees | 190 | 168 | 144 | 508 | 457 | ||||||||||||||
| Gain (loss) on sale of securities available-for-sale | 47 | (144 | ) | (102 | ) | (1,331 | ) | (52 | ) | ||||||||||
| Gain on foreclosed real estate | — | 7 | — | 7 | — | ||||||||||||||
| Other income | 216 | 360 | 17 | 652 | 127 | ||||||||||||||
| Total non-interest income | 30,820 | 92,170 | 23,807 | 142,339 | 81,542 | ||||||||||||||
| Non-interest expense: | |||||||||||||||||||
| Compensation and benefits | 22,193 | 26,766 | 15,375 | 66,809 | 47,140 | ||||||||||||||
| Refund transfer product expense | 1,623 | 10,178 | 359 | 11,852 | 8,615 | ||||||||||||||
| Tax advance product expense | 72 | 3,140 | — | 3,239 | — | ||||||||||||||
| Card processing | 5,755 | 7,043 | 5,607 | 18,377 | 16,858 | ||||||||||||||
| Occupancy and equipment | 4,034 | 4,191 | 3,413 | 12,202 | 10,451 | ||||||||||||||
| Legal and consulting | 1,375 | 1,505 | 1,221 | 5,603 | 3,211 | ||||||||||||||
| Marketing | 381 | 610 | 490 | 1,461 | 1,531 | ||||||||||||||
| Data processing | 344 | 392 | 324 | 1,099 | 1,022 | ||||||||||||||
| Amortization expense | 1,887 | 7,082 | 1,216 | 10,494 | 3,644 | ||||||||||||||
| Other expense | 4,555 | 6,039 | 3,622 | 14,782 | 10,953 | ||||||||||||||
| Total non-interest expense | 42,219 | 66,946 | 31,627 | 145,918 | 103,425 | ||||||||||||||
| Income before income tax expense | 12,304 | 40,541 | 10,001 | 54,431 | 31,472 | ||||||||||||||
| Income tax expense | 2,517 | 8,399 | 1,128 | 11,258 | 4,258 | ||||||||||||||
| Net income | $ | 9,787 | 32,142 | $ | 8,873 | $ | 43,173 | $ | 27,214 | ||||||||||
| Earnings per common share(1) | |||||||||||||||||||
| Basic | $ | 1.05 | 3.44 | $ | 1.04 | $ | 4.69 | $ | 3.23 | ||||||||||
| Diluted | $ | 1.04 | 3.42 | $ | 1.04 | $ | 4.66 | $ | 3.21 | ||||||||||
(1) As of March 31, 2017, certain adjustments to previously reported EPS have been made to correctly reflect the effect of participating securities on basic and diluted EPS calculations in accordance with Accounting Standards Codification 260. These adjustments were a result of the correction of the weighted average number of shares outstanding in the basic EPS calculation and common stock equivalents in the diluted EPS calculation. These changes were immaterial to the overall EPS calculation. June 2016 QTD basic EPS of $1.05 was corrected to $1.04; diluted EPS of $1.04 was not changed. June 2016 YTD basic EPS of $3.24 was corrected to $3.23 and diluted EPS of $3.22 was corrected to $3.21.
Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Only the yield/rate has tax-equivalent adjustments. Non-Accruing loans have been included in the table as loans carrying a zero yield.
| Three Months Ended June 30, | 2017 | 2016 | |||||||||||||||||||
| (Dollars in Thousands) | Average Outstanding Balance | Interest Earned / Paid | Yield / Rate | Average Outstanding Balance | Interest Earned / Paid | Yield / Rate | |||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||
| Specialty Finance Loans* | $ | 356,257 | $ | 4,864 | 5.48 | % | $ | 135,643 | $ | 1,885 | 5.59 | % | |||||||||
| Retail Bank Loans | 837,539 | 9,225 | 4.42 | % | 689,105 | 7,395 | 4.32 | % | |||||||||||||
| Tax Advance Loans | 10,508 | — | — | % | 1,475 | — | — | % | |||||||||||||
| Mortgage-Backed Securities | 783,164 | 4,544 | 2.33 | % | 737,666 | 3,777 | 2.06 | % | |||||||||||||
| Tax-Exempt Investment Securities | 1,348,589 | 8,314 | 3.80 | % | 1,098,775 | 6,544 | 3.63 | % | |||||||||||||
| Asset-Backed Securities | 117,834 | 782 | 2.66 | % | 66,845 | 380 | 2.29 | % | |||||||||||||
| Other Investment Securities | 133,169 | 903 | 2.72 | % | 100,890 | 638 | 2.54 | % | |||||||||||||
| Cash & Fed Funds Sold | 40,833 | 229 | 2.24 | % | 21,693 | 144 | 2.66 | % | |||||||||||||
| Total interest-earning assets | 3,627,893 | $ | 28,861 | 3.69 | % | 2,852,092 | $ | 20,763 | 3.38 | % | |||||||||||
| Non-interest-earning assets | 371,685 | 215,703 | |||||||||||||||||||
| Total assets | $ | 3,999,578 | $ | 3,067,795 | |||||||||||||||||
| Non-interest-bearing deposits | $ | 2,295,046 | $ | — | 0.00 | % | $ | 2,079,457 | $ | — | 0.00 | % | |||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||
| Interest-bearing checking | 42,447 | 45 | 0.42 | % | 37,098 | 22 | 0.24 | % | |||||||||||||
| Savings | 59,081 | 8 | 0.05 | % | 77,655 | 6 | 0.03 | % | |||||||||||||
| Money markets | 43,479 | 19 | 0.18 | % | 44,396 | 18 | 0.16 | % | |||||||||||||
| Time deposits | 75,417 | 139 | 0.74 | % | 66,479 | 90 | 0.55 | % | |||||||||||||
| Wholesale deposits | 348,771 | 828 | 0.95 | % | — | — | — | % | |||||||||||||
| FHLB advances | 8,923 | 125 | 5.61 | % | 20,956 | 141 | 2.71 | % | |||||||||||||
| Overnight fed funds purchased | 512,154 | 1,470 | 1.15 | % | 354,659 | 448 | 0.51 | % | |||||||||||||
| Subordinated debentures | 73,290 | 1,112 | 6.09 | % | — | — | — | % | |||||||||||||
| Other borrowings | 16,642 | 172 | 4.13 | % | 14,140 | 119 | 3.39 | % | |||||||||||||
| Total interest-bearing liabilities | 1,180,204 | 3,918 | 1.33 | % | 615,383 | 844 | 0.55 | % | |||||||||||||
| Total deposits and interest-bearing liabilities | 3,475,250 | $ | 3,918 | 0.45 | % | 2,694,840 | $ | 844 | 0.13 | % | |||||||||||
| Other non-interest-bearing liabilities | 99,919 | 53,730 | |||||||||||||||||||
| Total liabilities | 3,575,169 | 2,748,570 | |||||||||||||||||||
| Shareholders' equity | 424,409 | 319,225 | |||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 3,999,578 | $ | 3,067,795 | |||||||||||||||||
| Net interest income and net interest rate spread including non-interest-bearing deposits | $ | 24,943 | 3.24 | % | $ | 19,919 | 3.26 | % | |||||||||||||
| Net interest margin | 3.25 | % | 3.27 | % | |||||||||||||||||
*Specialty Finance Loan Receivables include loan portfolios the Company deems as non-retail bank product offerings or loans not generated by the Retail Bank itself (for example, premium finance and purchased loan portfolios). The loan receivables included in this line item are included in the customary loan categories presented elsewhere within the Company's SEC filings.
| Selected Financial Information | ||||||||||||||||||||
| At Period Ended: | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | |||||||||||||||
| Equity to total assets | 10.70 | % | 10.33 | % | 8.82 | % | 8.36 | % | 10.58 | % | ||||||||||
| Book value per common share outstanding | $ | 46.01 | $ | 44.04 | $ | 39.96 | $ | 39.30 | $ | 39.03 | ||||||||||
| Tangible book value per common share outstanding | $ | 28.52 | $ | 26.35 | $ | 21.43 | $ | 31.57 | $ | 31.17 | ||||||||||
| Tangible book value per common share outstanding excluding AOCI | $ | 27.73 | $ | 26.35 | $ | 21.97 | $ | 28.89 | $ | 28.16 | ||||||||||
| Common shares outstanding | 9,349,989 | 9,349,989 | 9,305,079 | 8,523,641 | 8,523,641 | |||||||||||||||
| Non-performing assets to total assets | 1.17 | % | 0.12 | % | 0.05 | % | 0.03 | % | 0.07 | % | ||||||||||
| For the Nine Months Ended: | June 30, 2017 | June 30, 2016 | ||||||||||||||||||
| Average shares outstanding for diluted earnings per share | 9,269,391 | 8,468,375 | ||||||||||||||||||
| Net interest margin | 3.02 | % | 3.23 | % | ||||||||||||||||
| Return on average assets | 1.45 | % | 1.23 | % | ||||||||||||||||
| Return on average equity | 14.79 | % | 12.16 | % | ||||||||||||||||
| Select Quarterly Expenses | |||||||||||||||||||||||||||
| (Dollars in Thousands) | Actual | Anticipated | |||||||||||||||||||||||||
| For the Three Months Ended | Jun 30, 2017 | Sep 30, 2017 | Dec 31, 2017 | Mar 31, 2018 | Jun 30, 2018 | Sep 30, 2018 | Dec 31, 2018 | Mar 31, 2019 | Jun 30, 2019 | ||||||||||||||||||
| Amortization of Intangibles (1) | $ | 1,887 | $ | 1,867 | $ | 1,683 | $ | 6,874 | $ | 1,666 | $ | 1,634 | $ | 1,488 | $ | 4,634 | $ | 1,488 | |||||||||
| Executive Officer Stock Compensation (2) | $ | 2,284 | $ | 2,284 | $ | 1,268 | $ | 1,268 | $ | 1,268 | $ | 1,268 | $ | 899 | $ | 899 | $ | 899 | |||||||||
(1) These amounts are based upon the current reporting period’s intangible assets only. This table makes no assumption for expenses related to future acquired intangible assets.
(2) These amounts are based upon the long-term employment agreements signed in the first and second quarters of fiscal 2017 by the Company’s three highest paid executives. This table makes no assumption for expenses related to any additional future agreements.
About Meta Financial Group®
Meta Financial Group, Inc. ("MFG") is the holding company for MetaBank®, a federally chartered savings bank. MFG shares are traded on the NASDAQ Global Select Market® under the symbol CASH. Headquartered in Sioux Falls, SD, MetaBank operates in both the Banking and Payments industries through: MetaBank, its traditional retail banking operation; Meta Payment Systems, its electronic payments division; AFS/IBEX, its insurance premium financing division; and Refund Advantage, EPS and SCS, its tax-related financial solutions divisions.