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Meta Financial Group, Inc.(R) Reports Record Earnings for Fiscal 2016 Second Quarter

2016 Second Quarter Net Income $14.3 million;

Completes Successful Tax Season

Highlights for the fiscal 2016 second quarter and six months ended March 31, 2016

  • MFG's fiscal 2016 second quarter net income totaled $14.3 million versus $5.2 million in the second quarter of fiscal 2015. Excluding $1.3 million of pre-tax acquisition-related expenses, and amortization of intangibles, fiscal 2016 second quarter earnings after tax would have been $15.1 million.
  • Tax product revenues from our Payments segment of $19.6 million was the biggest earnings driver during the second quarter. This revenue primarily consists of professional tax refund-transfer software fees for services used by independent Electronic Refund Originators ("EROs") and their customers. To a lesser extent, the growth also included tax preparer fees for our new credit advance product offered to our Refund Advantage EROs and Liberty Tax franchisees. MFG began generating these tax refund-transfer software fees and tax preparer fees following its purchase of Refund Advantage in September 2015. While there were some delays in the tax season that will push a small amount of expected second quarter revenue into our third fiscal quarter this year, we expect the vast majority of revenue from these fees to continue to occur during the second fiscal quarter in future years, coinciding with the tax season.
  • Net income for the six months ended March 31, 2016 was $18.3 million compared to $8.8 million for the comparable prior year period. Excluding $2.6 million of pre-tax acquisition-related expenses, and amortization of intangibles, fiscal year-to-date earnings after taxes would have been $20.0 million.
  • Net interest income was $19.9 million in the second quarter of fiscal 2016, an improvement of $4.6 million, or 30%, compared to $15.3 million in the second quarter of fiscal 2015. The increase was primarily driven by higher volumes and yields attained from other investments, primarily high credit quality, tax-exempt municipal bonds, while increased volume in higher yielding loans as well as higher yields achieved in the mortgage-backed securities ("MBS") portfolio also aided net interest income.
  • MFG's fiscal 2016 second quarter average assets grew to $3.08 billion, compared to $2.38 billion in the fiscal 2015 second quarter; an increase of 29%. Growth in loans and additions to the securities portfolio were primarily facilitated by 21% growth in average deposits from our Meta Payment Systems ("MPS") division.
  • Total loans, net of allowance for loan losses, increased $71.2 million, or 10%, to $777.5 million at March 31, 2016, compared to September 30, 2015. This increase primarily relates to growth in Banking segment loans of $72.2 million (including $56.5 million and $15.1 million from retail bank and premium finance loans, respectively) and Payments segment loans of $2.9 million. Total loans, net of allowance for loan losses, increased $40.3 million, or 6%, from December 31, 2015 to March 31, 2016. Total loans, net of allowance for loan losses, increased $158.7 million, or 26%, from March 31, 2015. This increase primarily relates to growth in Banking segment loans of $158.8 million, which included a year-over-year increase in premium finance loans of $38.4 million, or 46%, from March 31, 2015.
  • Non-performing assets ("NPAs") were 0.15% of total assets at March 31, 2016, compared to 0.31% at September 30, 2015.
  • Overall cost of funds for the Company averaged 0.10% during the fiscal 2016 second quarter, compared to 0.09% for the prior year second quarter. The Company's low cost of funds is driven by non-interest bearing deposits generated by MPS. Total MPS fiscal 2016 second quarter average non-interest bearing deposits increased by $366.1 million, or 20%, compared to the same period in fiscal 2015, due to growth in existing prepaid card programs and the addition of several new business partners, which was partially offset by the delay in timing of receiving tax-related deposits in 2016.
  • Tangible book value per common share outstanding increased by $4.23, or 17%, to $28.83 per share at March 31, 2016, from $24.60 per share at September 30, 2015. This increase is primarily attributable to increases in additional paid-in capital due to the Company's first quarter capital raise. The tangible book value per common share outstanding excluding accumulated other comprehensive income ("AOCI") was $27.14 as of March 31, 2016, compared to $24.30 as of September 30, 2015. Book value per common share outstanding increased by $3.61, or 11%, to $36.85 per share at March 31, 2016, from $33.24 per share at September 30, 2015.
  • Return on average assets ("ROA") for the six months ended March 31, 2016, was 1.27%, compared to 0.78% for the same period in fiscal 2015. ROA for the six months ended March 31, 2016, would have been 1.39%, after giving effect to the aforementioned excluded expenses.
  • Return on average equity ("ROE") for the six months ended March 31, 2016, was 12.73%, compared to 9.30% for the same period in fiscal 2015. ROE for the six months ended March 31, 2016, would have been 13.92%, after giving effect to the aforementioned excluded expenses.
  • Card fee income increased $4.9 million, or 36%, for the fiscal 2016 second quarter when compared to the same quarter in fiscal 2015, further accelerating growth seen in the prior fiscal year. Card fee income increased $7.1 million, or 27% for the six months ended March 31, 2016, compared to the same period in fiscal 2015. These increases are primarily driven by tax-related products and current promotional programs from one of our largest business partners and the addition of new and increased business from other existing business partners.

"We are excited that we were able to deliver to our investors the highest quarterly earnings in Meta's history," said Chairman and CEO J. Tyler Haahr. "Earnings for the first six months of fiscal 2016 of $18.3 million exceeded total 2015 fiscal year earnings of $18.1 million. Our successful integration of Refund Advantage and investment in and launch of additional consumer tax products were highlights over the past three months. They helped add over $19.6 million in revenue in the second quarter alone, and we expect a small run over of tax product earnings into the third quarter mainly due to IRS processing delays during the tax season. We continue to strategize current product enhancements and new product launches for fiscal year 2016 and the 2017 tax season in order to provide our partners best-in-class product offerings.

"We are also pleased that we have continued to grow our payments and banking businesses during the quarter. We have grown our MFG average deposit base over 19% from the 2015 second quarter and have increased NIM by 16 basis points from the fiscal 2015 second quarter. In addition, we continue to evaluate acquisition opportunities to grow profits and diversify our business."

Summary Financial Data * Three Months Ended Six Months Ended
3/31/2016 12/31/2015 3/31/2015 3/31/2016 3/31/2015
Net Interest Income - millions $ 19.9 $ 17.6 $ 15.3 $ 37.5 $ 28.9
Non-Interest Income - millions 40.9 16.8 15.0 57.7 27.6
Net Income - millions 14.3 4.1 5.2 18.3 8.8
Diluted Earnings per Share 1.68 0.49 0.78 2.18 1.37
Net Interest Margin 3.22 % 3.21 % 3.06 % 3.22 % 3.03 %
Non-Performing Assets - % of Total Assets 0.15 % 0.22 % 0.07 %

* See a more detailed Financial Highlights table at the end of this earnings release.

Financial Summary

Revenue

Total revenue for the fiscal 2016 second quarter was $60.8 million, compared to $30.3 million for the same quarter last year, an increase of $30.5 million, or 101%. Total revenue for the six months ended March 31, 2016 was $95.2 million, compared to $56.5 million for the same period in 2015, an increase of $38.7 million, or 69%, primarily due to growth in tax product fee income, income from tax-exempt securities (included in other investment securities), card fee income, and interest from loans.

Net Income

The Company recorded net income of $14.3 million, or $1.68 per diluted share, for the three months ended March 31, 2016, compared to net income of $5.2 million, or 78 cents per diluted share, for the same period in fiscal year 2015. The increase in net income was primarily due to increases of $25.9 million in non-interest income and $4.6 million in net interest income, partially offset by an increase of $18.4 million in non-interest expense.

The Company recorded net income of $18.3 million, or $2.18 per diluted share, for the six months ended March 31, 2016, compared to $8.8 million, or $1.37 per diluted share, for the same period in fiscal year 2015. Net earnings for the six months ended March 31, 2016 were primarily impacted by increases of $30.1 million in non-interest income and $8.6 million in net interest income, partially offset by an increase of $26.0 million in non-interest expense.

Net Interest Income

Net interest income for the fiscal 2016 second quarter was $19.9 million, up $4.6 million, or 30%, from the same quarter last year, primarily due to increases in loans and other investments and continued significant non-interest bearing deposit growth. Additionally, the overall increase was driven by a better mix and higher percentage of loans and other investments, primarily high credit quality tax-exempt municipal bonds and MBS.

Net interest income for the six months ended March 31, 2016, was $37.5 million, up $8.6 million, or 30%, from the same period in fiscal 2015. Contributing to this increase was a 19 basis point increase in asset yields, an increased percentage of loans as a percentage of total interest earning assets, and increased volume in the loan and securities portfolio. Also contributing to this increase was a seven basis point decrease in the average rate paid on interest-bearing liabilities.

Net Interest Margin

NIM increased from 3.06% in the fiscal 2015 second quarter to 3.22% in the fiscal 2016 second quarter. This expansion in NIM relates to an improved mix of interest-earning assets highlighted by high credit quality loan volume and purchases of highly-rated tax-exempt municipal securities at relatively...


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