CASH 2018 Annual Report

84 Overview The Company recorded net income of $51.6 million in fiscal 2018 compared to $44.9 million in fiscal 2017. The increase in net income was primarily due to increases in net interest income and non-interest income. The Company’s net interest income grew to $130.5 million in fiscal 2018, compared to $93.2 million in fiscal 2017. The increase was primarily attributable to improvement in the overall interest-earning asset mix due to loan and lease growth, including the loan and lease portfolio acquired in the Crestmark Acquisition. In fiscal 2018, non-interest income increased to $184.5 million from $172.2 million in fiscal 2017, primarily due to increases in rental income, tax advance product fee income, deposit fee income and refund transfer product fee income. Partially offsetting the higher non-interest income and net interest income was non-interest expense, which rose $28.6 million, from $199.7 million in fiscal 2017 to $228.2 million in fiscal 2018, and income tax expense which decreased from $10.2 million to $5.1 million year over year. Overall, the cost of funds at MetaBank averaged 0.70% during fiscal 2018, compared to 0.43% during 2017. This increase was primarily due to the addition of wholesale deposits and an increase in short-term borrowing rates. Tangible book value per common share decreased by $0.28, or 3%, to $9.54 per share at September 30, 2018, from $9.82 per share at September 30, 2017. This decrease was driven by an increase in common shares outstanding along with increases in goodwill and intangible assets, which for this calculation, are excluded from total stockholders' equity. The increases in common shares outstanding, goodwill and intangible assets were primarily attributable to the Crestmark Acquisition completed during fiscal 2018. Book value per common share outstanding increased by $4.04, or 27%, to $19.09 per share at September 30, 2018, from $15.05 per share at September 30, 2017. The Company’s non-performing assets ("NPAs") at September 30, 2018 were $41.8 million, representing 0.72% of total assets, compared to $37.9 million, or 0.72% of total assets, at September 30, 2017. The increase in NPAs is primarily attributable to the acquired loans and leases from the Crestmark Acquisition, along with increases related to loan growth in the commercial insurance premium finance, student loan, and tax services portfolios. Partially offsetting the increase in NPAs at September 30, 2018 compared to September 30, 2017 was the payment in full of a previously disclosed $7.0 million nonperforming agricultural loan relationship during the first quarter of fiscal 2018. Financial Condition As of September 30, 2018, the Company’s assets grew by $606.7 million, or 12%, to $5.84 billion, compared to $5.23 billion at September 30, 2017. The growth in assets resulted from a variety of factors but primarily due to increases in loan and lease balances from the acquired Crestmark division. Total cash and cash equivalents were $100.0 million at September 30, 2018, a decrease of $1.17 billion from $1.27 billion at September 30, 2017. The majority of this decrease was related to a temporary repositioning of the balance sheet in September 2017. The Company maintains its cash investments in interest-bearing overnight deposits with the FHLB and the FRB. At September 30, 2018, the Company had no federal funds sold. The total of MBS and investment securities decreased $232.8 million, or 10%, to $2.02 billion at September 30, 2018, compared to September 30, 2017, as investment maturities, sales and principal pay downs exceeded purchases. The Company’s portfolio of securities customarily consists primarily of MBS, which have expected lives much shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions (“NBQ”) which mature in approximately 15 years or less, and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities. All MBS held by the Company at September 30, 2018 were issued by a U.S. Government agency or instrumentality. Of the total $371.9 million of MBS at September 30, 2018, $364.1 million were classified as AFS, and $7.9 million were classified as HTM. Of the total $1.65 billion of investment securities, $1.49 billion were classified as AFS and $164.3 million were classified as HTM. During fiscal 2018, the Company purchased an aggregate of $141.6 million of MBS securities, of which all have an average life estimated at approximately five years or less or stated final maturities of approximately 30 years or less, and sold MBS in the amount of $336.8 million. In addition, the Company purchased $511.6 million of investment securities which are principally comprised of tax exempt municipal bonds primarily backed by, and/or convertible into, Ginnie Mae, Fannie Mae, or Freddie Mac MBS securities, government related and guaranteed floating rate securities, and smaller portions of other security types.