CASH 2017 Annual Report

75 Overview of Corporate Developments Since Fiscal Year 2016 On November 1, 2016, MetaBank completed the acquisition of substantially all of the assets and certain liabilities of EPS Financial, LLC (“EPS”) from privately-held Drake Enterprises, Ltd. (“Drake”). The assets acquired by MetaBank in the EPS acquisition include the EPS trade name, operating platform, and other assets. The EPS management team and other employees were hired by MetaBank and EPS operations have continued to be based out of Easton, PA. The purchase price for the acquisition of approximately $42.5 million included the payment of approximately $21.3 million in cash and the issuance of 369,179 shares of Meta Financial common stock to Drake. The cash portion of the purchase price was funded from the proceeds of the previously announced subordinated debt issuance. On December 14, 2016, MetaBank completed the acquisition of substantially all of the assets and specified liabilities of SCS, a fintech provider of consumer tax advances and other consumer credit services through its propriety underwriting model and loan management system. The assets acquired by MetaBank in the SCS acquisition include the SCS trade name, propriety underwriting model and loan management system and other assets. The purchase price for the acquisition included the payment of approximately $7.5 million in cash to SCS and the issuance of 113,328 shares of Meta Financial common stock to SCS’ stakeholders on behalf of SCS. In addition, MetaBank paid out $17.5 million of contingent cash consideration and 264,431 shares of Meta Financial common stock due to the achievement of certain performance benchmarks during fiscal year 2017. MetaBank acquired SCS assets with estimated fair values of $28.1 million of intangible assets, including customer relationships, trademark, and non-compete agreements, and negligible other assets, resulting in goodwill of $31.6 million. On December 20, 2016, MetaBank purchased, net of purchase discount, a $133.8 million seasoned, floating rate, private student loan portfolio. All loans are indexed to three-month LIBOR plus various margins. The portfolio is serviced by ReliaMax Lending Services, LLC and insured by ReliaMax Surety Company. On July 27, 2017, MetaBank was advised they will not be providing interest-free tax advance loans for H&R Block tax preparation customers during the 2018 tax season. The Company’s relationship with H&R Block represented approximately $12.0 million in net earnings during fiscal year 2017. Given the loss of this relationship, the Company recognized a total impairment charge of $10.2 million, which was expensed during the 2017 fiscal fourth quarter. On August 2, 2017, MetaBank, entered into an extension to its current agreement with Jackson Hewitt Tax Service to offer on an annual basis up to $750 million of interest-free refund advance loans, an increase of $300 million in available funds over last year. The agreement includes underwriting, origination, servicing, and loan retention, and is supported by Specialty Consumer Services, a division of MetaBank. Under the extended agreement, MetaBank will continue to provide these services through the 2020 tax season. On September 25, 2017, Sheree Thornsberry joined the Company as Executive Vice President and Head of Payments. Ms. Thornsberry is responsible for the prepaid, debit, correspondent and ATM business lines. On October 11, 2017, the Company completed the purchase of a $73 million, seasoned, floating rate, private student loan portfolio. All loans are indexed to one-month LIBOR. The portfolio is serviced by ReliaMax Lending Services LLC and insured by ReliaMax Surety Company. The Company expects to realize initial net yields of over 6%. This portfolio purchase builds on our existing student loan platform and we expect that the acquired loan portfolio will be easily integrated with minimal impact to the business. On November 13, 2017, Shelly Schneekloth joined the Company as Executive Vice President and Head of Technology and Operations. Ms. Schneekloth is responsible for directing information technology and operations initiatives to align and support business strategies. The Company recorded net income of $44.9 million in fiscal 2017 compared to $33.2 million in fiscal 2016. The increase in net income was primarily due to increases in non-interest income and net interest income. In fiscal 2017, non-interest income increased to $172.2 million from $100.8 million in fiscal 2016, primarily due to increases in tax advance product fee income, card fee income and refund transfer product fee income. The Company’s net interest income grew to $93.2 million in fiscal 2017, compared to $77.3 million in fiscal 2016. The increase was driven by growth in both loan and investment volumes as well as increased yields in the investment portfolio. Additionally, the continuous improvement in the overall interest-earning asset mix contributed to the increased net interest income, primarily due to loan growth, including as a result of the December 2016 purchased student loan portfolio, and purchases of highly rated tax-exempt municipal securities at relatively high tax equivalent yields. Partially offsetting the higher non-interest income and net interest income was non-interest expense, which rose $65.0 million, from $134.6 million in fiscal 2016 to $199.7 million in fiscal 2017, and income tax expense which rose from $5.6 million to $10.2 million year over year.