Ladies and gentlemen, thank you for standing by and welcome to the Meta Financial Group Fiscal Year 2020 First Quarter Investor Conference Call. During the presentation, all participants will be in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Brittany Elsasser, Director of Investor Relations. Please go ahead.

Thank you, and welcome to Meta's conference call and webcast to discuss our financial results for the first fiscal quarter ended December 31, 2019, released earlier this afternoon. Additional information including the earnings release and investor presentation may be found on our website at metafinancialgroup.com. President and CEO, Brad Hanson; and Executive Vice President and CFO, Glen Herrick, will be sharing some prepared remarks today before we open up the call for questions. Today's call may contain forward-looking statements, including statements related to Meta and its operating subsidiaries, which may generally be identified as describing the company's future plans, objectives or goals. We caution you not to place undue reliance on these forward-looking statements, which are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated or that we otherwise discuss today. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the factors that could affect Meta's future results, please see the company's most recent annual and quarterly reports filed on Forms 10-K and 10-Q and its other filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. Meta expressly disclaims any intent or obligation to update any forward-looking statements on behalf of the company or its subsidiaries, whether as a result of new information, changed circumstances, future events or for any other reasons. At this time, I would like to turn the call over to President and CEO, Brad Hanson.

Thank you, Brittany. I'd like to welcome everyone to our fiscal 2020 first quarter earnings call. We are pleased to report fiscal 2020 first quarter results, including earnings of $21.1 million or $0.56 per diluted share, representing growth of 44% over the prior year's first quarter EPS. These results are reflective of our key strategic initiatives, increasing the percentage of balance sheet funding from core deposits, optimizing the interest-earning asset mix of the balance sheet, and improving our operating efficiencies. Executing on these initiatives is having a positive impact on the earnings power of the company and driving shareholder value. In November, we announced that MetaBank entered into an agreement with Central Bank for the sale of our community bank division. This transaction has strategic value to both companies and will enable us to focus our attention on our national payments and lending platforms, streamlining operations and serving key markets often overlooked by traditional banks. The transaction with Central Bank is expected to close in the second fiscal quarter of 2020. As always, credit quality remains a top priority for our company, and we remain disciplined in our underwriting decisions, which Glen will discuss further in his prepared remarks. During the quarter, we disposed of the assets related to the previously disclosed agricultural relationship that were formerly held and other real estate owned. Resolution of this matter resulted in market improvement of our non-performing asset ratios over previous quarters. In November, the Board also authorized a new share repurchase program for up to 7.5 million shares of Meta's common stock. During the quarter, we bought back roughly 319,000 shares completing the first program announced in June of 2019, and another 580,000 shares utilizing the new program. As previously stated, we intend to use the expected pre-tax gain on the pending sale of the community bank division of approximately $18.5 million for share repurchases, as well as other corporate purposes. We will continue to consider repurchase activity within the context of a balanced capital management approach designed to support the company's growth prospects and maximize shareholder value. Now, let me turn the call over to Glen Herrick, our CFO to provide more detail on our fiscal 2020 first quarter financial results.

Thank you, Brad, and good afternoon, everyone. For the first quarter of fiscal 2020, we reported GAAP net income of $21.1 million or $0.56 per diluted share, compared to $15.4 million or $0.39 per diluted share for the same quarter of the prior year. Earnings per share growth of 44% over the prior year's first quarter primarily reflected higher net interest income as a result of efforts to optimize our balance sheet. During the first quarter of fiscal 2020, we originated $17.9 million in solar leases, with related tax investment credits, further improving after-tax income. So the timing and impact of future investment tax credits are expected to vary from period to period. We continue to expect the tax rate for fiscal year 2020 to settle in the low teens. Total gross loans and leases were $3.58 billion at December 31, a decrease of 2% on a linked quarter basis, which was mostly a function of the transfer of $252 million of Community Banking loans to held for sale during the quarter in connection with the pending sale of the Community Bank division to Central Bank. Compared to December 31, 2018, total gross loans and leases increased 8%. Our commercial finance loan portfolio totaled $1.99 billion at December 31, an increase of 4% on a linked quarter basis and a 23% increase year-over-year, driven by growth in term lending, asset-based lending, and government guaranteed loan portfolios. Turning to the liability side of the balance sheet, average payments deposits were $2.78 billion for the quarter, rising nearly 12% versus the average for the same quarter in the prior fiscal year and represented 60% of total average deposits. As a result of our continued balance sheet optimization efforts, we generated $64.7 million of net interest income in the fiscal 2020 first quarter, up 7% compared to the first quarter of fiscal 2019. Our net interest margin expanded by 34 basis points year-over-year to 4.94% for the fiscal 2020 first quarter. Loan yields were 7.32% for the quarter compared to 7.51% for the previous quarter and 7.69% for the first quarter of the prior fiscal year, reflecting the impact of a lower rate environment. Purchase accounting accretion added 8 basis points to loan yields in the first fiscal 2020 quarter versus 20 basis points in the prior quarter and 31 basis points in the first fiscal 2019 quarter. Non-performing assets at December 31, 2019, represented 48 basis points of total assets compared to 91 basis points of total assets at September 30, 2019. As Brad mentioned, during the quarter we disposed of assets related to our previously disclosed Community Bank agricultural relationship that were held and other real estate owned, which represented 46 basis points of non-performing assets as of September 30, 2019. The company recognized a pretax net loss of $4.1 million related to the sale of a foreclosed property during the quarter. While the levels of non-performing assets and charge-offs often exhibit some degree of volatility, the company continuously monitors its various loan and lease portfolios for trends of deterioration. As of December 31, management remains comfortable with the trends in the risk characteristics of our loan portfolios. Non-interest income was $37.5 million for the fiscal first quarter, a decrease of less than 1% from the same quarter of fiscal 2019, due primarily to the previously mentioned loss on sale of foreclosed real estate. Excluding the loss on sale, non-interest income benefited from higher rental income, gain on sale of loans and leases, other income, and tax product fee income. Non-interest expense increased by 2% to $75.8 million for the fiscal first quarter compared to the same quarter of fiscal 2019. Looking ahead, we remain committed to allocating capital and resources to businesses with the most attractive growth and profitability profiles while improving our overall efficiency ratio. Finally, let me discuss our earnings per share outlook. We are reiterating our fiscal 2020 GAAP earnings per share guidance range of $3.58 to $3.78. We're also reiterating our fiscal 2020 EPS guidance range of $3.30 to $3.50 excluding the expected gain on branch sale and the incurred loss of foreclosed property previously discussed. With that, I'll turn the conversation back to Brad for closing comments.

Thank you, Glen. To recap, we are pleased with our results for the first quarter of fiscal year 2020. The progress we've made thus far towards our three key strategic initiatives and the opportunities ahead in 2020. That completes our prepared remarks, so I'll ask Glen to join me for Q&A. Operator, please open up the line for any questions.

And our first question comes from the line of Steve Moss from B. Riley FBR. Your line is now open.

Good afternoon.

Good afternoon, Steve.

I guess to start off on just the overall loan trends here. Just curious as to what you're seeing for loan pipeline, and your expectations for commercial finance here going forward?

Hi, Steve, it's Glen. We're seeing a lot of opportunity and quite frankly a fair amount of customer confidence, especially with a lot of the small market businesses that we serve today.

And so when we think about loan growth for 2020, still thinking like a mid-teens type of number perhaps for loan growth?

Yes.

Okay. And then, in terms of just loan yields here, obviously, a lot less purchase account accretion I think that I was looking for. Just kind of wondering, one is where our loan yields headed here given a low rate environment? I'm assuming a little bit lower to go. But then also does purchase account accretion come back a little bit as we end the next couple quarters?

No, given the nature of the portfolio that purchase accounting really goes away after this quarter. So, it dropped 8 basis points on the linked quarter basis. Our net interest margin was down 1 basis point. And so, we would expect excluding the tax loans that our net interest margin would move north from here; it will cross over 5% in 2020.

Okay. And then, where you guys seeing loan yields for the commercial finance portfolio these days?

There's a lot of different portfolios. But that plus or minus the 9% is kind of a good weighted average rate today.

Okay, that's helpful. And then in terms of just barring deposit growth looks like pretty good increase on the average year-over-year. Is it still consistent to expect, more or less high single digits, low double digits for non-interest rate deposit growth going forward here?

Brad?

I think that's a fair assumption.

Okay, good. And then I guess one more thing on expenses here. Any color around expenses, I think to me a little bit of a messy quarter perhaps with the Bank. Not exactly sure, but maybe if you could give a color around expenses ex tax for expecting the third quarter?

We had some expenses related to divestitures this quarter and will have more next quarter, along with a significant increase in variable expenses tied to the tax business. However, our total non-interest expenses this quarter are approximately $76 million. I believe this figure will serve as a solid baseline for us, excluding tax expenses.

Okay. And then…

Our tax season.

Right, and then I guess with the sale of the Bank, can we back off a little bit, perhaps like the low to mid-70s, or, like from the June quarter?

There will be a shift in the mix. We will maintain a $900 million portfolio for which we will incur servicing fees. You may notice some changes in expenses from top-line costs to servicing fees or processing. We also anticipate continued growth in our other loan portfolios, particularly in commercial finance, and will need to account for staffing or variable costs associated with that.

Okay. That's helpful. Thank you very much.

You bet.

Thank you. Our next question comes from the line of Michael Perito from KBW. Your line is now open.

Hey, good afternoon, everybody.

Good afternoon, Mike.

I was wondering if you could take a moment to explain how you are approaching the operating or core earnings figure for the fiscal first quarter. It seems there were several factors involved, particularly regarding fees, expenses, and the provision related to the divestiture. I thought it would be helpful to understand your perspective on these components.

I view the non-core aspects as primarily related to the Community Bank divestiture. We are addressing the disposal of the OREO that has been pending. The expenses we mentioned, amounting to $900,000 in the first quarter, are countered by the positive provision recapture that occurred when we transitioned that portfolio to held for sale.

So does that bring you to approximately $0.59 or $0.60 for the earnings per share figure for the fiscal first quarter as you adjust for all those tax effects?

Yes, I think that's a good adjustment.

Okay. Thanks for confirming that. And then Brad, on the repurchases, you mentioned the utilizing the gain in the next quarter here to put towards repurchases and other general corporate purposes. But just curious if maybe you could just comment more broadly about what the board's appetite is here for the repurchases? I mean, clearly that the authorization you guys put out is a large figure. I imagine that the reason for that is you intend to use quite a bit of it. But I was just curious if you could maybe comment more specifically just about what the appetite is as we should expect going forward?

Well, just to remember that the authorization is pretty long in term. It has several years remaining on it. So we're going to be opportunistic with it. We think at these prices that it's a good investment for us based on the capital we're bringing in here. But we monitor various factors and other opportunities that may arise along the way that may affect how much we repurchase over the course of the authorization itself.

Okay, that’s helpful. I have one last question about the deposit growth for the quarter. As we look forward over the next few quarters, I'm aware that your deposit portfolio experiences significant seasonality due to the holidays and tax season. Can you provide an update on the core growth you're observing beneath the seasonal inflows and outflows for this current quarter, and also as you project into the future? I know you previously mentioned expectations for non-interest bearing deposits for the year, but do those take into account some of the seasonal factors as well?

Yeah. So that's why we specifically called a 12% out year-over-year quarter to account for the seasonality. We really look at that as the core deposit growth. So it's continuing to ratchet up as we had hoped. As Brad, as mentioned before some of these can be a little lumpy. Some of the payments relationships, but we look at 12% core deposit growth year-over-year and would hope that that trend would continue.

All right. And then I'll just sneak one more in quickly, just on the $2.5 million of charge offs. I think you mentioned in the press release, it was mostly commercial finance related. Can you just give us a little bit more color about what the drivers were there? Thanks for taking my questions, guys.

Just a couple relationships that was a charge off from an absolute dollar standpoint. Certainly it could be expected for our charge offs and commercial finance to grow on a dollar basis just because of the growth in that portfolio. But we're happy with the credit metrics and believe that looking forward they're going to stay within the range that we expect and model.

Helpful. Appreciate it, guys. Thanks.

Thanks, Mike.

Thank you. Our next question comes from Frank Schiraldi from Piper Sandler. Your line is now open.

Hi guys. Good afternoon. I just want to ask Glen on the card fee line item, the $21.5 million. I know in the past you've had some programs winding down that has boosted that number. Is this a pretty good run rate here for the fourth fiscal quarter?

Yes. This is very clean, Frank.

Okay. And then you mentioned the 12% growth in payments related deposits, I'm assuming it's still reasonable to think about year-over-year growth in card fees and maybe assume a little bit lower rate of growth than what you're getting on the deposit? So is it, is it reasonable from here just to think about maybe a mid-single-digit rate of growth in that card fee income line year-over-year?

Yes.

Okay.

Yes, as we mentioned earlier, each program has its own unique economics. However, we anticipate that the core deposit growth in the payments division will outpace the growth in fee income.

Right. Okay. And then regarding the tax rate, in my model, the rate turned out to be much lower than I expected. I'm curious if you were surprised by this as well. Was it significantly lower than your budgeted number? Or is there a seasonal aspect with the solar tax credit that made the December quarter much lower than the rest of the year?

Well, what we are, I'd say related to our budget, we are happy with the production in this quarter. There are some step downs in the investment tax credits. And so, a couple folks, certainly developers, pushed to get deals done priority here in to maximize the tax credit.

Okay. When you mentioned the low-teens tax rate, is that expected to continue for the next few quarters or is it specific to this period?

Full year. Yes. Full fiscal year, full 12 months fiscal year.

It seems like the performance this quarter was better than many anticipated. I'm curious if there are any areas in the financial statement where you're not meeting expectations. It seems like credit has improved more than expected, so why did you maintain your full-year forecast despite what appears to be a solid start in the first quarter?

Yes. I think that kind of stands on the statement there, Frank. We're certainly happy with the quarter. We're happy with the progress against our strategic initiatives. And we're comfortable reiterating that guidance.

Okay. It seems like there's nothing you're behind on; you've had a strong start to the year and are reiterating your guidance. Is that accurate?

That's correct.

Okay. All right, great. That's all I have. Thank you.

Thank you. I'd like to close by thanking everybody for participating in Meta’s quarterly investor call. We truly appreciate your support and thank you for taking time to listen in today. Have a great evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.