Ladies and gentlemen, thank you for standing by. And welcome to the Meta Financial Group First Fiscal 2018 Investor Conference Call. During the presentation, all participants will be in a listen-only mode. And afterwards, 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 over to Brittany Elsasser, Director of Investor Relations. Please go ahead.

Thank you and welcome to Meta Financial’s conference call and webcast to discuss our financial results for the fiscal 2018 first quarter ended December 31, 2017, which were released earlier this afternoon. Additional information including the earnings release and investor presentation may be found on our website at www.metafinancialgroup.com. The Company Chairman and CEO, J. Tyler Haahr; President, 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 related to Meta and it’s operating subsidiaries which may generally be identified as describing the Company's future plans, objective or goal. 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 effect Meta’s future results, please see the Company's most recent Annual and Quarterly Reports filed on Forms 10-K and 10-Q and it’s other fillings with the Securities and Exchange Commission. Forward-looking statements speaks 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 or future event or for any other reasons. With those formalities out of the way, I would like to now turn the conference over to CEO, Tyler Haahr.

Thanks Brittany. I would like to welcome everyone to our first ever quarterly investor call and webcast. Over the last few months, we have formally asked investors and analysts about initiating the call and received very positive feedback. As Meta continues to grow, we believe introducing a quarterly call as another enhancement to our corporate communications, consistent with our desire to be highly accessible and transparent with the company's owners. With this call, we aim to provide shareholders with an opportunity to hear from us on key items from our results which were our particular attention. Even more importantly, we want to provide the investment community with the chance to ask questions in this public forum, and for us to give you timely information and insights on our performance and prospects. Before we open up the call to Q&A, I do want to share a few thoughts with you on the business, and I'll ask Brad and Glen to do the same. I know many of you saw our January 9 announcement of our all-stock transaction to acquire the national commercial lender Crestmark Bank. This acquisition will further diversify Meta’s national lending platform, immediately add a new pipeline for AFS/IBEX, Meta’s commercial insurance premium finance division and provide opportunities for other synergies. Crestmark has been a very profitable operator, posting impressive loan growth rates of nearly 19% on a compound basis over the last five years, despite the reliance on wholesale funding and capital limitations that constrained growth. By combining Meta’s low cost deposits, higher capital, and legal lending limits with Crestmark’s loan platform, we believe there exists significant financial upside in addition to the deals high strategic value. The transaction also delivers on Meta’s goal of growth and innovation through diversification. In addition, the deal supports our strategy to…

Thank you, Tyler. We could spend a lot of time reviewing MetaBank’s prepaid solutions and tax service businesses in detail. But I'd like to focus my remarks on some timely topics. Let’s start with a brief update of our 2018 tax filing season. We believe that we have the right infrastructure in place and are well-positioned. Things are doing well in the early days of the filing season as expected. We also believe we’re well prepared to deliver best-in-class execution thanks to the hard work of our multiple tax partners in collaboration with the MetaBank team. Accordingly, we remain comfortable with the tax season guidance we shared in October. During the 2018 tax season compared to 2017, we continue to expect modest growth in contribution from refund transfer income as well as nearly the same contribution from refund advance loans. While we also expect originate over $1 billion and refund advance loans during the 2018 tax season, we expect to hold all of these loans on our balance sheet. We're also very excited about some innovative programs created through collaboration with our tax partners. For example, earlier this month our partner Credit Karma Tax launched Earlybird Advance program, the first entirely online refund advance program of its kind. I want to note that Credit Karma’s program was included in our assumptions when we provided our tax season guidance last fall. We also wanted to take this opportunity to share our thinking on how December’s Tax Cuts and Jobs Act might impact our tax service business. In short, we believe the changes in Federal Tax Law will be neutral to slightly positive for Meta’s refund advance loan and refund transfer programs. Demand for these products is largely driven by individual tax payers who qualify for the earned income tax credit. Under…

Thank you, Brad, and good afternoon, everyone. For those of you who have followed Meta for some time that many of our businesses are seasonal. But as Tyler mentioned, the Crestmark transaction is expected to significantly reduce our earnings seasonality. Turning to fiscal 2018, we believe that all of our businesses are enjoying an outstanding start and that should be evident in our consolidated financial results. We reported record first quarter GAAP net income of $4.7 million and nearly four-fold increase from the same period last year. On a per share basis, we grew earnings to $0.48 in the first quarter of 2018, a $0.34 year-over-year increase. This earnings growth is even more impressive when considering the reported earnings included the impact of $3.6 million in additional income tax expense related to passage of the Tax Cuts and Jobs Act as previously disclosed. $1.3 million of acquisition expenses in the quarter and a $1 million loss on sale of investments, which were replaced with the $73 million of seasoned, floating rate, private student loans early in the first quarter of fiscal 2018, which carried an earn back at just four months. The previously disclosed student loan portfolio purchase and our organic loan growth supported by our investment portfolio contributed to net interest income growth. Net interest income was $26.2 million in the first quarter of 2018, a 32% increase over the same period last year. Total loans of $1.5 billion at the end of the first quarter reflected growth of 36% from one-year prior. Excluding purchase portfolios, loan growth of 30% was driven particularly by the commercial insurance premium finance portfolio at 31% year-over-year and community bank portfolio at 29% year-over-year. Average cost of funds increased to 51 basis points in Meta’s first quarter. The increase was largely due to…

I would like to thank Glen and Brad for their comments and participation today. These are just two of the outstanding leaders we have on our deep bench at Meta and I look forward to giving our shareholders a better appreciation for the quality of our talented team through these calls in the quarters ahead. That completes for prepared remarks, so I’ll ask Brad and Glen to join me for Q&A. Operator, could you please open up the line for any questions.

My pleasures sir. [Operator Instructions] And our first question will come from the line of Steve Moss with B. Riley FBR. Your line is now open.

Hi, good afternoon.

Hi, Steve.

Good quarter here, I just want to start with the strategic initiatives that you mentioned. Does the announcement earlier this or last week regarding with Liberty, is that kind of the format we should look for in terms of additional commitments in the future like a three-year term billion dollar type commitment?

Yes. So I guess what I would say is each of the individual deals will have different sizes and scope to them. But we have talked about material agreements with strategic partners. So we do think there's opportunities for significant growth in the credit area.

Okay. And will they be consumer secured or unsecured kind of how should we think about the different offerings?

Yes. I think, I don't want to get into too much specifics on any individual agreement that we haven't announced yet. But again, I think it will be consumer related in the customer demographic that frankly we spend a lot of time and have a lot of knowledge with respect to that group.

Okay, that's helpful. And then with regard to the residual wind down of the two non-strategic programs, is that largely over at this point here with this quarter or is there a little bit more left?

I would say the majority of that is already included. I would add – to guess a little bit, when you look at the wind downs. We wind down programs all along, to some degree it's similar to what happens with loan portfolios. You have payoffs, you rollout some deals, maybe you get some prepayment penalties on deals and that creates some lumpy income a little bit. With that said, we continue to grow deposits and fee income even as we rolled off or wind down some partners, and again, I would expect us to continue to grow. But there's always going to be a little bit of lumpiness for that reason just like I said, just like you look at a normal bank's loan portfolio, you have some prepayment penalties that might kind of pop-up. Again, we will have some income that comes in a little lumpier manner as we’re winding down some programs. We did call it out because the dollar amounts involved were little larger than normal new lines of programs down.

Right. And then my other question here just as it relates to the margin a little bit. Wondering what are your thoughts on the March quarter’s margin excluding the impact of the tax refund?

Yes, I think we continue to have upside to our margin opportunities. Again, between the student loans, frankly even more so when we get the Crestmark acquisition done, the majority of their loans are either variable rate or very short-term in nature. You have the growth with AFS, which again are roughly five-month average life loans, some variable rate securities we've added as well. So for me as long as rates keep moving up that's a good thing for us and gives us upside to margin. Again, excluding as you said, the wholesale funding and the fee-based instead of interest-based income that we earn on the tax loans.

Okay. Thanks Tyler. That's helpful.

Thank you. And our next question will come from the line of Michael Perito with KBW. Your line is now open.

Hey. Good afternoon, guys. Thanks for taking my questions.

Yes. Happy to do it.

A few different areas I want to touch on. I guess first, in the prepared remarks you guys mentioned about kind of driving efficiencies next year. I guess is that to be kind of [contributed] as you guys thinking to kind of keep driving down the efficiency ratio from here and generating positive operating leverage. I guess just a quick follow-up, I mean can you guys maybe give us kind of a core starting point as you look at your fiscal 2017 that you think you can improve upon?

So again, the way I would answer the question is based on the existing businesses as we're doing it. We talked about with tax, now that we've got EPS and refund advantaging and SCS kind of all integrated. We do expect to see some improved efficiencies from our ongoing banking and payment systems as well Looking at the credit opportunities, there are startup expenses associated with that in addition when you start booking loans or some cost of acquisition and then you've got to take the provision expense all upfront. So again, there will be some startup costs related to some new things we're doing. We’ve talked about Liberty Lending as one, but again there's other initiatives both in the credit space and other places. Again, as it is clear with our other businesses as well. We do have some startup expenses and some ramp up before we really start to scale and see the efficiencies. So I would rather break it out and say the businesses that we have that are ongoing. Yes, I expect to see increasing improvement in the efficiencies with respect to the other things. We will have some other new businesses that are starting and have some associated startup costs. So with that said, I'm really not prepared to give you a core starting point for the efficiency numbers. As we get further into some of these new initiatives, we will try to provide some additional guidance on how quickly things will ramp. But again, especially with the credit initiatives, we're really looking at that as being a significant opportunity for increased earnings in 2019 more so than in 2018 between the startup costs and the upfront provisioning.

And Mike, this is Glen. I would just add. We are focused very heavily on creating positive operating leverage at each of our businesses. I would say all of them now have different operating efficiencies inherent in their business. Payments is different from tax, different from consumer lending, which should be different from our community bank or Crestmark’s commercial lending business. So at those business levels, we're certainly looking to generate positive operating leverage and improve efficiencies. Also all the businesses are at different maturity points in their cycles. We kind of have a layering in of more matured businesses like our community bank, even though it's grown very quickly, still growing well to those that are starting up as in our consumer lending initiative.

Helpful. Thank you. And then just maybe switching over, as you guys kind of think about incremental investment portfolio purchases, how does tax reform is clearly that tax equivalent yield on some of this municipal stuff you guys have been doing would theoretically go down. But just curious how it's still kind of looks internally from a profitability standpoint and how you guys kind of first see incremental securities purchases trending now that tax reform has been passed?

It's a great question. The municipal portfolio still provides us significantly better yields than what we could get in other investments, not as good as what it was before the Tax Act. On top of that that's part of why what we're doing the things we're doing on the lending side by replacing securities, especially securities grow with what we think will be a great loan generator with Crestmark in addition to what's been strong loan growth both in the retail community bank and at AFS and now you add in the consumer credit products that we're having. Over time, I would look for a de-emphasis of the securities portfolio and all.

Okay. And then I had a couple questions on the Liberty Lending announcement. I guess first off, were they doing this relationship with a different bank previously and was there any type of loss history that you could maybe share with us with their consumer book?

Yes. Go ahead Brad.

Yes. There was another bank that has – so there is some experience out there. We're not in a position to divulge the numbers right now of what that was. But we do have some insight into the performance and expectations within our modeling.

Okay. So maybe last question a bit more broadly. I mean I think over the last few years where the emphasis was more on fee income, the credit performance was pretty stable and the loan portfolio as a percentage of the balance sheet was much smaller. I mean it seems like pro forma first for the Crestmark deal on this new relationship. Obviously that percentage is rising while definitely off of low numbers I think the overall credit risk of the franchise is certainly going to be a little higher. Can you talk about maybe kind of your credit outlook in comfort with the rising credit risk in the nature of these – some of these newer relationships and expanding loan book related to the whole balance sheet?

Yes, I'm going to start with Crestmark because I think your assumption is not necessarily true. The yields are higher on the Crestmark loans. They do a lot of small business related lending with the average ticket size of bought 180 some thousand dollars. So if you look at the types of lending they do with receivables, leasing asset-based lending. There's a lot more administrative costs associated with those loans. So part of the rate is not because of they're dramatically higher in credit risk, but there is significantly higher administrative costs and that's why if you look at their overall performance their average loss rates been barely over 50 basis points over the last five years. So again I think – one of the things that we were most impressed with Crestmark is their needs on our credit people. They know credit, they know underwriting, they know administration, they know how to securitize – properly securitized their collateral to make sure that that they don't have those kind of losses. So if you look at their earnings over the last few years, I mean basically we're talking about a 2% ROA and 20% ROE Bank. So again they understand credit and we're very comfortable, frankly we've looked that a lot of whether would be bank or finance company opportunities and this one team we were definitely impressed with that's why again the team was a big part of the deal it's not just buying that portfolio or that the set up that they have, but we want the people because of the expertise they've bring. With respect to the consumer credit again there is history associated with that we will be implementing our own underwriting as well, but there is history and background as Brad sat and this is also a demographic that we've spend a lot of time and have a lot of background and as a reminder when we bought SCS, we talked about they have the best-in-class underwriting model for tax. But we also talked a lot about their underwriting model and their platform for consumer credit relationships they had throughout the country and our ability just to really grow that business. So while with a number of tax partnerships and the acquisitions we've done over the last couple years. Frankly, it took us a little longer to rollout those credit relationships and products and what we would have planned a year or two ago we started talking about it. We think we're well-positioned with very seasoned teams leading those initiatives with very solid underwriting models and we're comfortable with the credit.

Helpful color, Tyler, thank you and thanks for taking my question.

Yes, you bet.

Thank you. [Operator Instructions] And our next question will come from the line of Frank Schiraldi with Sandler O'Neill. Your line is now open.

Good afternoon.

Hey, good afternoon, Frank.

Just a couple of questions I had left. First, on the – look like a pretty strong start to tax season I know you guys reiterated the numbers you put out in October. Just wondering as we think about those that guidance. Obviously there was a greater drag in the first quarter of this year from EPS and SCS because you had a full quarter though. So is that greater drag taken into account when you talk about what pre-tax earnings should look like in 2008 from refund advance and then refund transfer?

I'm not sure I'm clear on your question. Could you repeat it or rephrase it?

Yes, so you're going to have more expenses this year because you got a full quarter of 1Q expenses related to SCS and EPS. So all us equal that would reduce pre-tax earnings year-over-year. I'm just wondering if we should if that greater drag is taken into account in your guidance?

Yes.

Okay.

It's taken in. So yes, I mean, when we talked about making the same – at least the same on the refund advances and the refund – and a little more on the refund transfers that was all inclusive.

Okay, gotcha. And then just wondered if you could – just back to the prepaid or the card fee income, obviously, it was tremendous again this quarter and you talked about why and you gave full-year guidance. It seems that to get to that full-year guidance after the first quarter that you had, we should expect to see the growth rate year-over-year fall from levels we saw last year. So just wondering if that’s more of a pull forward in terms of what we've got with 1Q earnings or maybe you could just talk about what a good normalized expectation is of the prepaid business and fee income?

Yes. Again, we had a couple of those lumpy things in last year, which affects then the year-over-year growth. So that would be one comment. Another comment, again we've made a couple of different times as – we’re trying to take advantage of the best opportunities with higher margin business. So there could be some opportunities out there for lower margin business and prepaid space that we would rather pass on, so we can do more things in the credit, which will add more income overall. Again, that doesn't mean we won't be growing deposits or we won't be growing fee income. But again, we're trying to make sure that we prioritize the opportunities that come to us. So with the Crestmark acquisition even though, again, we're assuming low cost saves and still have an incredi-deal. We want to make sure that we have the right discipline and proper approach to make sure that integration goes well and Crestmark is ready to hit the ground running. Again, we've talked about other potential strategic credit announcements that would be coming. So again, we don't want to bite off more than we can choose. So if there are better opportunities, again, for the same reason last year, frankly, we were working on some credit opportunities last year, and we looked at EPS and SCS acquisitions and some other partnerships as things we just had to do at that time. So again, it really becomes a prioritization thing. So I don't think – again, I don’t view it as a negative, I just view it as us taking advantage of what we think the best opportunities are.

Okay. And then as you think about deposit growth, I think it was about 15% year-over-year. Is that something that was also impacted by the residual in the card fees line item or is there any sort of level you can share that you think is a decent run rate on that front?

Yes. I would say the deposit growth was not materially affected by those called out programs, so…

Okay.

It was the fee income that got the bump not the deposits.

Gotcha. And then finally just – I might have missed this. I know you talked a bit about Liberty and credit sponsorship in general. But did you say whether – I know there startup costs involved. Is that material that relationship in particular Liberty that material in either direction for 2018 or is that more of a 2019 impact?

Yes. So I’ll start off with one thing. It's not sponsorship. So I need to repeat that, it is not credit sponsorship. We will be underwriting. We will be holding the loans. We are originating the loans. This is a Meta credit program. It is not a sponsorship arena. And so with that said, yes, we don't expect any material impact to earnings in 2018 after credit programs give or take a little income or a little loss, but nothing that I would frankly change your numbers in 2018. But we do expect to see some significant impact going into 2019, once kind of that startup phase is done.

Okay. All right. Thank you.

Yes.

Thank you. And our last question will come from Josh Elving with Lake Street. Your line is now open.

Hey, good afternoon.

Hey. Good afternoon, Josh.

So I too had a couple of questions on Liberty and I know you've kind of provided a little bit of color on the size or the amount of loans you might add to the balance sheet over the course of the next three years. Should we think about that as kind of a ratable ramp over the three-year period?

Well, there are certainly be some sort of curve to it, but yes, and again those are origination volumes not necessarily. It's obviously not going to equal one for one in outstandings by the end of the three-year period for the Liberty Lending relationship.

And have you provided any color around the yield profile of those loans?

No we haven't.

Okay. And then…

Like I said, we will continue to provide more guidance as we roll things out.

Okay. And then I guess just and thinking about the Crestmark acquisition and this partnership and maybe from a high level perspective, can you just talk a little bit about your outlook for what you want to do with the balance sheet over the next several years? I know that there are advantages to remaining below $10 billion in assets. You obviously have the opportunity to grow fairly dramatically with the acquisition and with Liberty and with some of the other potential partnerships you've talked about. Can you maybe talk a little bit about your outlook for growth over the next couple years in the balance sheet as far – as well as maybe the potential to replace some lower yielding assets?

Yes. Actually, we have even more flexibility after the Crestmark transaction. Again, basically 100% of their funding as wholesale deposits. So to the extent, we wanted to – we could replace those wholesale deposits and let either sell or what securities roll off, securities roll off and replace loans. On top of that virtually all of the loans that Crestmark would originate if we wanted to, we could securitize them and sell them frankly in addition to some of the other loans that we have on the books. So we have a lot of flexibility on the balance sheet side or on the asset side. And again with the wholesale funding that we do incrementally. Again, there's a lot of flexibility. Again, we could strength the balance sheet well over a $1 billion overnight if we wanted to. So we are managing at this point to just stay under the $10 billion. And we think we have a lot of flexibility to do that. So I think that answers the question.

Yes. I guess maybe one last question. You obviously have a little bit new to this story and I'm using a GAAP number. I've seen some numbers out there on an adjusted basis. I know you've offered up a couple of data points that would allow for an adjusted EPS build. Have you thought more about making that a formality, just curious to hear your thoughts?

Yes. We're continuing to add additional information into our earnings announcement. We'll continue to provide more guidance each time we do an earnings call. Back to the discussion on the lumpiness with some of the card fee income when we're doing bigger agreements and big partnerships, how quickly something ramps as we work with our partners and their budgeting and expectations. We're going to continue to provide as much guidance or direction ranges and things like that as we can. But at this point, we don't have a plan to provide specific earnings guidance on a go forward basis.

All right. Thank you. End of Q&A

Thank you. And that concludes the question-and-answer session. I will now turn the call back to our presenters.

Thank you, everyone. I’d like to close by thanking all of you for participating in Meta Financials inaugural quarterly investor call. We recognize this is a very busy time for all of you and I hope you found the session to be of value. If you have any feedback or suggestions on today's call, don't hesitate to let Glen, Brittany, or me know. Thanks again and have a great evening. Thanks everyone.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we will be all disconnect. Everybody have a wonderful day.