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 is up 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 off 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 values. 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 the 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…

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.

[Operator Instructions] 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 drop 8 basis points on the linked quarter basis. Our NIM was down 1 basis point. And so, we would expect excluding the tax loans that our NIM 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 -- not 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?

Yeah. We’ll have -- we had a few divestiture related expenses. This quarter we’ll have some next quarter and obviously a fair amount of increase in expenses related to the tax business, that's variable. But if you look at our absolute expenses of roughly 76 -- non-interest expense is $76 million for this quarter. I would hope that would be a pretty good base for us outside of tax expense.

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?

Yeah. So there'll be some mix shift in there. We'll still have a $900 million portfolio that we will be paying servicing fees on. So you could see some geography shifting in the expense line from top to servicing fees or processing, as well as -- so we've talked about, we expect to continue to grow our other loan portfolios, especially commercial finance. And, staffing or variable cost to go 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 wanted to, Glen I was wondering if you could maybe just spend a minute to kind of walk us through how you're kind of thinking about what are kind of look at operating or core earnings number for the fiscal first quarter was? Obviously there was a few moving pieces it looked like in fees and expenses and the provision with regard to the divestiture. And I was just -- I was trying to piece all together, I thought it would just be easier to see how you guys are thinking about it given those moving parts I just mentioned?

Sure. I look at it as the non-core related to the -- is really all around the Community Bank divestiture. And so we look at the disposal of that OREO that had been hanging out there. The expenses that we highlighted a $900,000 of expenses in the first quarter, as well as then offset by the provision recapture the positive provision recapture when we move that portfolio to held for sale.

So was that -- does that get you to like a roughly $0.59 or $0.60 type of EPS figure for the fiscal first quarter as you guys adjust for all those tax effective?

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, helpful. And then just one last one, I wanted to ask. Just on the deposit growth in the quarter. As we try over these next couple quarters, I know there's quite a bit of seasonality in your deposit portfolio between the holidays and then tax season. So I was just curious if you can maybe give us an update of kind of the core growth that you're seeing underneath some of the seasonal inflows and outflows both in the current quarter, but also as you look out -- I mean, I know you mentioned that the non-interest bearing overall expectations for the year of Steve's question previously. But is that kind of taken into account some of the seasonal factors that 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 hope. 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 expect our charge offs and commercial finance to grow on dollar basis just because of the growth in that portfolio. But, we're happy with the credit metrics and believe that looking forward that they're going to stay within the range that that we expect and model.

Helpful. Appreciate it, guys. Thanks.

Thanks, Mike.

Thank you. [Operator Instructions] And our next question comes from the line of 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 is 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 take -- 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 said before, we would expect -- every program's a little different in different economics. But collectively, we would expect the core deposit growth in the payments division to grow at a faster rate than the fee income side of it.

Right. Okay. And then just on the tax rate, in my model, at least, the rate came in a lot lower than I had expected. I'm just curious, are you guys -- were you surprised, I mean, was this a lot lower than your budgeted number as well? Or is there something seasonal with the solar tax credit that the December quarter was always going to be 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, couple folks, certainly developers push to get deals done priority here in to maximize the tax credit.

Okay. And when you talked about the low-teens I think tax rate was that from here for the last three -- for the next few quarters or what was that for?

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

Okay. Great. And then I guess it seemed to me like a pretty good run rate versus what a lot of people were expecting in this quarter -- in the first fiscal quarter. So just curious. I mean seems like credit's a bit better than even you guys anticipated. Is there someplace else in terms of the geography of the income statement where you guys are behind schedule? Just kind of curious why obviously you guys reiterated your number for the full year versus what I thought was a pretty good strong run rate for 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. But there's no -- it doesn't sound like there is something that you guys are behind schedule on, there was just a strong, a strong start to the year and you're reiterating guidance. Is that fair?

That's correct.

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

Thank you.

Thank you. At this time, I’m showing no further questions, I would like to turn the call back over to CEO Brad Hanson for closing remarks.

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.