What changed in this filing

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Item 1. Financial Statements

2021-02-08 compared with 2020-08-06 · 451 added, 819 removed, 1043 unchanged (55% of the section changed)

3 unchanged sentences

Condensed Consolidated Statements of Financial Condition

(Dollars in Thousands, Except Share and Per Share Data) June 30, 2020 September 30, 2019

(Dollars in Thousands, Except Share and Per Share Data) December 31, 2020 September 30, 2020

ASSETS (Unaudited) (Audited)

6 unchanged sentences

Loans and leases 3,448,675 3,322,765

Allowance for loan and lease losses ( 65,747 ) ( 29,149 )

Allowance for credit losses ( 72,389 ) ( 56,188 )

Federal Reserve Bank and Federal Home Loan Bank stocks, at cost 27,138 27,138

4 unchanged sentences

Foreclosed real estate and repossessed assets.

net 7,186 9,957

Goodwill 309,505 309,505

1 unchanged sentence

Prepaid assets 11,270 8,328

Deferred taxes 15,944 18,884

Deferred taxes, net 24,411 17,723

Other assets 82,763 82,983

14 unchanged sentences

STOCKHOLDERS’ EQUITY

Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2020 and September 30, 2019, respectively

Preferred stock, 3,000,000 shares authorized, no shares issued and no shares outstanding at December 31, 2020 and September 30, 2020, respectively

Common stock, $ 0.01 par value;

90,000,000 shares authorized, 34,735,217 and 37,821,508 shares issued, 34,631,160 and 37,807,064 shares outstanding at June 30, 2020 and September 30, 2019, respectively

90,000,000 shares authorized, 32,817,626 and 34,479,164 shares issued, 32,620,251 and 34,360,890 shares outstanding at December 31, 2020 and September 30, 2020, respectively

Common stock, Nonvoting, $ 0.01 par value;

3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2020 and September 30, 2019, respectively

3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2020 and September 30, 2020, respectively

Additional paid-in capital 598,669 594,569

1 unchanged sentence

Accumulated other comprehensive income 20,119 17,542

Treasury stock, at cost, 104,057 and 14,444 common shares at June 30, 2020 and September 30, 2019, respectively

Treasury stock, at cost, 197,375 and 118,274 common shares at December 31, 2020 and September 30, 2020, respectively

( 5,440 ) ( 3,677 )

7 unchanged sentences

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended

(Dollars in Thousands, Except Share and Per Share Data) 2020 2019

7 unchanged sentences

FHLB advances and other borrowings 1,350 3,634

5,269 14,664 29,909 46,312

Net interest income 65,999 64,651

Provision for loan and lease losses 15,093 9,112 55,796 51,529

Net interest income after provision for loan and lease losses 47,044 57,856 138,729 147,061

Provision for credit losses 6,089 3,407

Net interest income after provision for credit losses 59,910 61,244

Noninterest income:

4 unchanged sentences

Rental income 9,885 12,351

Gain on sale of securities available for sale, net (includes $ 0 and $ 440 reclassified from accumulated other comprehensive income (loss) for net gain (loss) on securities available for sale for the three months ended June 30, 2020 and 2019, respectively and $ 0 and $ 649 for the nine months ended June 30, 2020 and 2019, respectively)

Gain on divestitures — — 19,275 —

Gain on sale of other 1,214 2,620 969 6,117

Gain (loss) on sale of other 2,847 ( 2,568 )

Other income 7,315 3,246

2 unchanged sentences

Compensation and benefits 32,331 34,268

Refund transfer product expense (income) ( 139 ) 287 7,482 7,478

Tax advance product expense (Income) ( 11 ) 425 2,820 3,101

Refund transfer product expense 61 173

Tax advance product expense 370 1,132

Card processing 6,117 5,607

7 unchanged sentences

Income before income tax expense 32,790 22,929

Income tax expense (benefit) (includes $ 0 and $ 110 reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2020 and 2019, respectively and $ 0 and $ 162 for the nine months ended June 30, 2020 and 2019, respectively)

( 2,426 ) ( 1,158 ) 3,870 ( 3,244 )

Income tax expense 3,533 680

Net income before noncontrolling interest 29,257 22,249

8 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in Thousands) 2020 2019

1 unchanged sentence

Other comprehensive income (loss):

Change in net unrealized (loss) gain on debt securities 8,067 16,897 2,576 48,157

Gain realized in net income — ( 440 ) — ( 649 )

Change in net unrealized gain (loss) on debt securities 2,846 ( 3,412 )

2,846 ( 3,412 )

Unrealized (loss) gain on currency translation 295 221 ( 269 ) ( 24 )

Unrealized gain on currency translation 445 116

Deferred income tax effect 714 ( 852 )

Total other comprehensive income 6,341 12,572 1,656 35,894

Total other comprehensive income (loss) 2,577 ( 2,444 )

Total comprehensive income 31,834 19,805

7 unchanged sentences

Stockholders' Equity

Three Months Ended June 30, 2020

Three Months Ended December 31, 2020

Earnings Accumulated

3 unchanged sentences

Equity Noncontrolling Interest Total Equity

Balance, March 31, 2020 $ 346 $ 590,682 $ 212,027 $ 1,654 $ ( 3,397 ) $ 801,312 $ 3,762 $ 805,074

Cash dividends declared on common stock ($ 0.05 per share)

— — ( 1,717 ) — — ( 1,717 ) — ( 1,717 )

Issuance of common shares due to exercise of stock options — 88 — — — 88 — 88

Shares repurchased — — — — ( 15 ) ( 15 ) — ( 15 )

Stock compensation — 1,923 — — — 1,923 — 1,923

Total other comprehensive income — — — 6,341 — 6,341 — 6,341

Net income — — 18,190 — — 18,190 1,087 19,277

Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,062 ) ( 1,062 )

Balance, June 30, 2020 $ 346 $ 592,693 $ 228,500 $ 7,995 $ ( 3,412 ) $ 826,122 $ 3,787 $ 829,909

Nine Months Ended June 30, 2020

Balance, September 30, 2020 $ 344 $ 594,569 $ 234,927 $ 17,542 $ ( 3,677 ) $ 843,705 $ 3,603 $ 847,308

Adoption of Accounting Standards Update 2016-13, net of income taxes — — ( 8,351 ) — — ( 8,351 ) ( 2,452 ) ( 10,803 )

Cash dividends declared on common stock ($ 0.05 per share)

— — ( 1,613 ) — — ( 1,613 ) — ( 1,613 )

Issuance of common shares due to exercise of stock options — 293 — — — 293 — 293

Issuance of common shares due to restricted stock 2 — — — — 2 — 2

Issuance of common shares due to ESOP 2 3,034 — — — 3,036 — 3,036

4 unchanged sentences

Net investment by (distribution to) noncontrolling interests — — — — — — ( 835 ) ( 835 )

Balance, June 30, 2020 $ 346 $ 592,693 $ 228,500 $ 7,995 $ ( 3,412 ) $ 826,122 $ 3,787 $ 829,909

Balance, December 31, 2020 $ 326 $ 598,669 $ 198,000 $ 20,119 $ ( 5,440 ) $ 811,674 $ 1,536 $ 813,210

(Dollars in Thousands, Except Share and Per Share Data) Meta Financial Group, Inc.

Stockholders' Equity

Three Months Ended June 30, 2019

Three Months Ended December 31, 2019

Earnings Accumulated

1 unchanged sentence

Income (Loss)

Stock Total Meta

Stockholders’

Equity Noncontrolling Interest Total Equity

Balance, March 31, 2019 $ 395 $ 576,406 $ 258,600 $ ( 10,264 ) $ ( 4,956 ) $ 820,181 $ 3,528 $ 823,709

Cash dividends declared on common stock ($ 0.05 per share)

— — ( 1,931 ) — — ( 1,931 ) — ( 1,931 )

Issuance of common shares due to exercise of stock options — 37 — — — 37 — 37

Shares repurchases ( 16 ) 16 ( 43,000 ) — ( 13 ) ( 43,013 ) — ( 43,013 )

Retirement of treasury stock — — ( 4,956 ) — 4,956 — — —

Stock compensation — 2,256 — — — 2,256 — 2,256

Total other comprehensive income — — — 12,572 — 12,572 — 12,572

Net income — — 29,291 — — 29,291 1,045 30,336

Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,065 ) ( 1,065 )

Balance, June 30, 2019 $ 379 $ 578,715 $ 238,004 $ 2,308 $ ( 13 ) $ 819,393 $ 3,508 $ 822,901

Nine Months Ended June 30, 2019

Balance, September 30, 2019 $ 378 $ 580,826 $ 252,813 $ 6,339 $ ( 445 ) $ 839,911 $ 4,047 $ 843,958

Adoption of Accounting Standards Update 2014-09, net of income taxes — — 1,502 — — 1,502 — 1,502

Adoption of Accounting Standards Update 2016-01, net of income taxes — — 475 ( 475 ) — — — —

Cash dividends declared on common stock ($ 0.05 per share)

4 unchanged sentences

Shares repurchased ( 9 ) 9 ( 28,006 ) — ( 2,742 ) ( 30,748 ) — ( 30,748 )

Retirement of treasury stock — — ( 4,956 ) — 4,956 — — —

Stock compensation — 3,506 — — — 3,506 — 3,506

2 unchanged sentences

Net investment by (distribution to) noncontrolling interests — — — — — — ( 923 ) ( 923 )

Balance, June 30, 2019 $ 379 $ 578,715 $ 238,004 $ 2,308 $ ( 13 ) $ 819,393 $ 3,508 $ 822,901

Balance, December 31, 2019 $ 372 $ 587,678 $ 244,005 $ 3,895 $ ( 3,187 ) $ 832,763 $ 4,305 $ 837,068

See Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in Thousands) 2020 2019

9 unchanged sentences

Originations ( 303,501 ) ( 16,175 )

Purchases — ( 12,643 )

Proceeds from sales 451,652 143,035

3 unchanged sentences

Other assets — 108

Divestitures ( 19,275 ) —

Foreclosed real estate and repossessed assets — 5,039

Securities available for sale, net — ( 649 )

Loans held for sale ( 3,492 ) ( 1,851 )

1 unchanged sentence

Other assets ( 2,075 ) ( 12,917 )

Deposits held for sale 1,535 —

Accrued interest payable 145 ( 2,794 )

2 unchanged sentences

Change in bank-owned life insurance value ( 621 ) ( 631 )

Impairment on assets held for sale 242 —

Impairment on rental equipment — 6,194

Impairment of intangibles — 111

Net cash provided by operating activities 170,108 135,497

2 unchanged sentences

Purchases ( 23,963 ) —

Proceeds from sales — 720,376

Proceeds from maturities and principal repayments 64,982 52,592

15 unchanged sentences

Purchases ( 582 ) ( 2,108 )

Proceeds from sales — 101

Proceeds from divestitures 3,498 —

Net cash (used in) investing activities ( 182,379 ) ( 94,474 )

16 unchanged sentences

Shares repurchased ( 56,763 ) ( 30,748 )

Net cash (used in) provided by financing activities 2,771,000 114,264

Net cash provided by (used in) financing activities 1,170,910 ( 15,495 )

Effect of exchange rate changes on cash 445 116

2 unchanged sentences

Cash and cash equivalents at end of fiscal period $ 1,586,451 $ 152,189

Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in Thousands) 2020 2019

13 unchanged sentences

Recognition of operating lease ROU assets, net of remeasurements — 27,019

Purchases/sales of securities accrued, not settled

Purchases - available for sale — 1,721

Short- and long-term borrowings transferred from other liabilities — 20,026

See Notes to Condensed Consolidated Financial Statements.

5 unchanged sentences

Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

The results of the three and nine months ended June 30, 2020 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2020.

The results of the three months ended December 31, 2020 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2021.

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

1 unchanged sentence

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")

Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, 2019 remain substantially unchanged with the exception of the policies impacted by the adoption of noted ASUs below.

Certain accounting policies were impacted by the events of the novel Coronavirus ("COVID-19"), and are discussed in Note 3.

Significant Events.

Leases -- The Company adopted ASU 2016-02, Leases (Topic 842) , and subsequent related updates (collectively ASU 2016-02) on October 1, 2019, which requires lessees to recognize most leases on their balance sheet.

Lessor accounting is largely unchanged.

The ASU requires both quantitative and qualitative disclosures regarding key information about lease arrangements from both lessees and lessors.

The Company elected the effective date transition method utilizing the adoption date as the first date of application of the revised guidance.

As a result, prior period amounts have not been restated.

Upon adoption, the Company elected certain transitional practical expedients offered through the guidance, including the 'package of practical expedients' whereby it did not reassess (i) whether any expired or existing contracts contain leases, (ii) the lease classification of any expired or existing leases, and (iii) initial direct costs for any existing leases, which resulted in the Company not recognizing a cumulative effect adjustment to retained earnings.

Management evaluated Meta’s leasing contracts and activities and developed methodologies and processes to estimate and account for the right-of-use ("ROU") assets and lease liabilities for building leases based on the present value of future lease payments.

On October 1, 2019, the Company recorded ROU assets and lease liabilities totaling $ 27.4 million and $ 28.6 million, respectively.

The impact to capital ratios as a result of increased risk-weighted assets was immaterial.

The adoption of this guidance did not result in a material change to lessee expense recognition.

The changes to lessor accounting, as well as change in customer behavior driven by the adoption of these ASUs, impact the results of Meta’s lease financing businesses, including earlier recognition of expense due to a narrower definition of initial direct costs.

As a lessee, the Company enters into contracts to lease real estate, information technology equipment and other various types of equipment.

Leases that transfer substantially all of the benefits and risks of ownership to the Company are classified as finance leases, while all others are classified as operating leases.

At lease commencement for buildings, a lease liability and ROU asset are calculated and recognized on both types of leases.

The lease liability is equal to the present value of the future minimum lease payments.

The ROU asset is equal to the lease liability, plus any initial direct costs and prepaid lease payments, less any lessor incentives received.

Operating lease ROU assets are included in other assets and finance lease ROU assets are included in premises and equipment, net.

The Company uses the appropriate term Federal Home Loan Bank ("FHLB") rate to determine the discount rate for the present value calculation of future minimum lease payments when an implicit rate is not known for a given lease.

The lease term used in the calculation includes any options to extend that the Company is reasonably certain to exercise.

The Company has elected to not recognize assets or liabilities on its balance sheet related to short-term leases.

Subsequent to lease commencement, lease liabilities recorded for finance leases are measured using the effective interest rate method and the related ROU assets are amortized on a straight-line basis over the lease term.

Interest expense and amortization expense are recorded separately on the Condensed Consolidated Statements of Operations in interest expense on borrowings and occupancy and equipment noninterest expense, respectively.

At June 30, 2020, the Company had no finance lease ROU assets or lease liabilities.

For operating leases, total lease cost is comprised of lease expense, short-term lease cost, variable lease cost and sublease income.

Lease expense includes future minimum lease payments, which are recognized on a straight-line basis over the lease term, as well as common area maintenance charges, real estate taxes, insurance and other expenses, where applicable, which are expensed as incurred.

Total lease cost for operating leases is recorded in occupancy and equipment noninterest expense.

Operating Lease Right-of-Use Assets and Liabilities for further information.

Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, 2020 remain substantially unchanged with the exception of the accounting policies for allowance for credit losses and securities impairment as a result of adopting ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, and related ASUs, as described below.

Allowance for Credit Losses ("ACL").

The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date.

The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets for impairment, which generally means loans and leases identified as troubled debt restructures or loans and leases on nonaccrual status.

All other loans and leases are evaluated collectively for impairment.

A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Condensed Consolidated Statements of Financial Condition.

Individually evaluated loans and leases are a key component of the ACL.

Generally, the Company measures impairment on individually evaluated loans based on the fair value of the collateral less estimated selling costs, as the Company considers these financial assets to be collateral dependent.

If an individually evaluated loan or lease is not collateral dependent, impairment is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate.

The impairment of all other loans and leases is evaluated collectively by various characteristics.

The collective evaluation of expected losses in all commercial finance portfolios is based on a cohort loss rate and adjustments for forward-looking information, including industry and macroeconomic forecasts.

The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset.

Management has elected to use a twelve-month reasonable and supportable forecast for forward-looking information.

Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts and measurement date credit characteristics such as product type, delinquency, and industry.

The unfunded credit commitments depend on these same factors, as well as estimates of lines of credit usage.

The various quantitative and qualitative factors used in the methodologies are reviewed quarterly.

The collective evaluation of expected credit losses for certain consumer lending portfolios utilize different methodologies when estimating expected credit losses.

The Company’s student loan portfolio utilizes a roll-rate historical loss rate and adjustments for forward-looking information, including macroeconomic conditions.

Management has elected to use a twelve-month reasonable and supportable forecast with an immediate reversion to historical loss rates.

Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts, and measurement date credit characteristics including delinquency.

Loans and leases are charged off to the extent they are deemed uncollectible.

Net charge-offs are included in historical data utilized for calculating the ACL.

For commercial loans, the Company generally fully charges off or charges down to net realized value (fair value of collateral, less estimated costs to sell) for loans secured by collateral when management judges the loan to be uncollectible, repayment is deemed to be protracted beyond a reasonable timeframe, the loan has been classified as a loss by either the Company’s internal loan review process or its banking regulatory agencies, the Company has filed bankruptcy and the loss becomes evident owing to lack of assets, or the loans meets a defined number of days past due unless the loan is both well-secured and is in the process of collection.

For consumer loans, the Company fully charges off or charges down to net realizable value when deemed uncollectible due to bankruptcy or other factors or meets a defined number of days past due.

The amount of ACL depends significantly on management’s estimates or key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods.

Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees, properties or economic conditions.

These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known.

Accrued interest receivable is presented separately on the Condensed Consolidated Statements of Financial Condition, and an ACL is not recorded for these balances.

Generally, when a loan or lease is placed on nonaccrual status, typically when the collection of interest or principal is 90 days or more past due, uncollected interest accrued in prior years is charged off against the ACL and interest accrued in the current year is reversed against interest income.

Management maintains a framework of controls over the estimation process for the ACL, including review of collective reserve methodologies for compliance with GAAP.

Management has a quarterly process to review the appropriateness of historical observation periods and loss assumptions and risk ratings assigned to loans and leases, if applicable.

Management reviews its qualitative framework and the effect on the collective reserve compared with relevant credit risk factors and consistency with credit trends.

Management also maintains controls over information systems, models and spreadsheets used in the quantitative components of the reserve estimate.

This includes the quality and accuracy of historical data used to derive loss rates, the inputs to industry and macroeconomic forecasts and the reversion periods utilized.

The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance.

Loans and Leases, Net for further information.

Securities Impairment.

The Company evaluates investment securities held-to-maturity for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Condensed Consolidated Statements of Operations.

The Company has concluded its portfolio as of December 31, 2020 has a zero risk of credit loss due to the U.S.

Government financial guarantees underlying the securities within the held-to-maturity portfolio and as a result has not recorded an allowance for credit loss.

The Company evaluates investment securities available-for-sale for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Condensed Consolidated Statements of Operations.

Securities for further information.

Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively “Topic 326”), which changes the impairment model for most financial assets, including trade and other receivables, debt securities held-to-maturity, loans, net investments in leases, purchased financial assets with credit deterioration, and off-balance sheet credit exposures.

ASU 2016-13 requires the use of a current expected credit loss (“CECL”) methodology to determine the allowance for credit losses for loans and debt securities held-to-maturity.

CECL requires loss estimates for the remaining estimated life of the assets to be measured using historical loss data, adjustments for current conditions, and adjustments for reasonable and supportable forecasts of future economic conditions.

The Company adopted CECL using the modified retrospective approach with a cumulative effect adjustment to Retained Earnings recorded on October 1, 2020.

Our adoption resulted in an ACL as of October 1, 2020 that is larger than the allowance for loan and lease losses (“ALLL”) that would have been recorded under legacy guidance on the same date by $ 12.8 million in total for all portfolios.

A portion of this increase is a result of new requirements to record ACL on acquired loans and leases, regardless of any credit mark recorded.

Under legacy guidance, credit marks were included in the determination of fair value adjustments reflected as a discount to the carrying value of the loans and leases and an ALLL was not recorded on acquired loans and leases until evidence of credit deterioration existed post acquisition.

The remaining credit and interest mark will continue to accrete over the life of the loan or lease but will no longer be considered when estimating the ACL for acquired loans and leases under CECL.

The adoption of CECL also resulted in an increase in the liability of unfunded commitments of $ 0.8 million.

For other assets in scope of the standard such as held-to-maturity debt securities and trade and other receivables, the impact from this ASU was inconsequential.

The cumulative tax effected adjustment to record ACL and to increase the unfunded commitments liability resulted in a reduction to retained earnings of $ 8.4 million along with $ 2.5 million attributable to noncontrolling interests.

Post adoption, as loans and leases are added to the portfolio, the Company expects higher levels of ACL determined by CECL assumptions, resulted in accelerated recognition of provision for credit losses, as compared to historical results.

In response to the COVID-19 pandemic, regulatory agencies have published a final rule that provides the option to delay the cumulative effect of the day 1 impact to CECL adoption on regulatory capital for two years, followed by a three-year phase in period.

Management has elected this five-year transition period consistent with the final rule.

Additional and modified disclosure requirements under CECL are included in Note 5.

Securities and Note 6.

Loans and Leases, Net.

The Company also adopted the following ASUs on October 1, 2020, none of which had a material impact on the Company’s Condensed Consolidated Financial Statements:

– ASU 2018-02, Income Statement -- Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

The Company elected to not reclassify tax effects stranded in accumulated other comprehensive income.

– ASU 2018-09, Codification Improvements.

– ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.

– ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

– ASU 2018-17, Consolidation (Topic 810) – Targeted Improvements to Related Party Guidance for Variable Interest Entities.

ASUs to be Adopted

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This ASU, along with subsequent ASUs published as clarifications to Topic 326, requires entities to replace the incurred loss impairment methodology with a methodology reflecting expected credit losses with considerations for a broader range of reasonable and supportable information to substantiate credit loss estimates and applies to loans, net investments in leases, debt securities, certain financial assets not accounted for at fair value through net income, and certain off-balance sheet credit exposures.

This ASU is effective for the Company on October 1, 2020 and will be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.

The Company's implementation process includes loss forecasting model development, evaluation of technical accounting topics, updates to the Company's allowance documentation, reporting processes and related internal controls, and operational readiness for the adoption of this ASU.

The Company is utilizing a third-party vendor software for its credit loss estimate and is in process of reviewing model assumptions and other validation tasks.

The Company is running its key processes parallel with current incurred loss models and will continue to refine its estimates throughout 2020 as CECL models are implemented and results are vetted.

The amount of the change in the Company's allowance for loan and lease losses will be impacted by the portfolio composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

At adoption, the Company expects to have a cumulative-effect adjustment to retained earnings for the change in the allowance for loan and lease losses, which will impact capital.

Federal banking regulations permit institutions to limit the initial capital impact of this ASU by allowing a deferral of two years followed by three-year transition period to phase out the cumulative benefit to regulatory capital.

An increase in the Company's allowance for loan and lease losses will result in a reduction to regulatory capital amounts and ratios;

however, at this point of implementation, the Company is unable to provide a more precise estimate of the impact as results are still being vetted, including validation of model assumptions and estimation techniques as well as the build-out of operational and control structure supporting the end-to-end process.

Other Upcoming ASUs - Refer to the Company’s most recently audited consolidated financial statements for the year ended September 30, 2019 for the latest update on other ASUs relevant to the Company and not yet adopted at June 30, 2020.

ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The amendments in this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general rules found in Topic 740, Income Taxes .

The majority of the amendments are to be applied on a prospective basis.

This ASU is effective for fiscal years beginning after December 15, 2020.

The Company is currently evaluating the impact of this guidance on the consolidated financial statements.

ASU 2020-01 , Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying Interactions between Topics 321, 323 and 815.

This ASU clarifies the interactions between Topic 321, Topic 323 and Topic 815, including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2020.

Management is currently evaluating the impact of this guidance on the consolidated financial statements.

ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The amendments in this ASU provide optional expedients and exceptions to applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform if certain criteria are met.

The amendments include a one-time sale or transfer election of held-to-maturity debt securities impacted by reference rate reform.

The amendments in this ASU are effective upon issuance through December 31, 2022.

The Company is currently evaluating the impact of this guidance on the consolidated financial statements.

ASU 2020-08 , Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs.

This ASU clarifies that an entity should amortize any premium, if applicable, to the next call date, which is the first date when a call option at a specified price becomes exercisable.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2020.

Management is currently evaluating the impact of this guidance on the consolidated financial statements.

ASU 2020-10, Codification Improvements.

This ASU provides clarification, corrects unintended application of guidance, and makes minor improvements to various Topics that are not expected to have a significant impact on the Company’s current accounting policies and practices.

Amendments within this ASU are effective for fiscal years beginning after December 15, 2020.

SIGNIFICANT EVENTS

2 unchanged sentences

and global economies in the first calendar quarter of 2020.

In March 2020, the U.S.

declared a national emergency and imposed travel restrictions, limitations of business operations in certain industries, and other efforts in order to impede the spread of COVID-19.

Since the onset of this pandemic, macroeconomic conditions and markets have significantly deteriorated.

While the process of phased re-openings of the economies of many states began in May and June, COVID-19 continues to have a significant effect on individuals, businesses and the economy.

In response to the impacts of COVID-19, the U.S.

1 unchanged sentence

The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

Accommodations to Borrowers

In addition to the CARES Act, the U.S.

federal government enacted the Consolidated Appropriations Act of 2021 ("CAA") on December 27, 2020, which provides additional COVID-19 relief to American families and business.

The Company is participating in the Paycheck Protection Program ("PPP"), which is being administered by the Small Business Administration ("SBA").

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Short-term modifications made on a good faith basis in response to COVID-19 borrowers whose payments were current prior to any relief, are not to be considered troubled debt restructurings, and will not be considered delinquent so long as they meet their revised obligations in the modification agreement.

Through June 30, 2020, the Company has granted deferral payments on a total of $ 352.1 million of loan, lease and rental equipment balances.

As of June 30, 2020, $ 292.2 million of those balances were still in their deferment period.

In addition, the Company has made other COVID-19 related modifications on a total of $ 52.9 million, of which $ 34.6 million are still active as of June 30, 2020.

The majority of the other modifications were related to adjusting the type or amount of the customer's payments.

The table below presents the outstanding balance of active COVID-19 related modifications by type and category as of June 30, 2020.

June 30, 2020

(Dollars in Thousands) COVID-19 Related Payment Deferrals Other COVID-19 Related Modifications

The table below presents the outstanding balances of active COVID-19 related modifications.

As of the Period Ended

(Dollars in Thousands) December 31, 2020 September 30, 2020 June 30, 2020

National Lending

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Total COVID-19 related modifications $ 85,293 $ 193,328 $ 326,864

Financial Impact

The Company recorded $ 15.1 million in provision expense during the three months ended June 30, 2020, compared to $ 9.1 million for the comparable period in the prior year.

The increase in provision was primarily within the remaining community banking and commercial finance portfolios and was attributable to the increased stress that the hospitality loans and small ticket loan and lease relationships have experienced stemming from the ongoing uncertainty related to the COVID-19 pandemic.

Loans and leases that received short-term payment deferrals were also analyzed and additional provision was applied as appropriate.

As the Company obtains additional information on the macroeconomic reactions and impact on borrowers, the provision estimate will be revised as necessary in future periods to maintain an appropriate and supportable level.

The Company’s approach to estimating the COVID-19 impact on credit quality is presented in Note 6.

Loans and Leases, Net.

The Company's interest and fee income could be reduced as a result of COVID-19.

While interest and fees will continue to accrue in accordance with GAAP, a decrease in loan demand could lead to slower loan growth or even a contraction in loan balances in the near term.

In addition, should eventual credit losses emerge, interest income and fees accrued may need to be reversed in future periods.

At this time, the Company is unable to project the materiality of such an impact.

While the Company has seen a slight contraction in loan balances in some categories during the third quarter of fiscal 2020, such as asset-based lending and factoring, other categories have continued to grow.

No additional significant financial impacts directly related to COVID-19 were identified for the nine months ended June 30, 2020.

Asset Valuation

In June 2020, the Company assessed its financial assets potentially impacted by the deteriorating market conditions due to the COVID-19 outbreak occurring globally.

Included in the assessment were the loan and lease portfolios, other-than-temporary impairment ("OTTI") in investment portfolios, collectability of operating lease payments, goodwill impairment and intangible asset impairment.

Based on the known events and circumstances at the time of the assessment, the Company has determined no impairment is needed as of June 30, 2020, other than the provision for loan and lease losses noted above.

The Company will continue to observe and monitor the pandemic-related circumstances to determine whether further impairment assessments are needed in future periods.

In the event it is determined that all or a portion of its goodwill or intangible assets is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings, but would not impact regulatory capital.

On February 29, 2020 (the "Closing Date"), the Company sold MetaBank's Community Bank division, a component of the Company's Corporate segment, to Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa.

The sale included all of the Community Bank's deposits, branch locations, fixed assets and employees and a portion of the Community Bank’s loan portfolio.

The Company has summarized the results of the transaction below.

(Dollars in Thousands) Fair Value at

February 29, 2020

Cash and cash equivalents $ 2,504

Loans 268,584

Premises, furniture and equipment 4,945

Other assets 1,250

Total assets $ 277,283

Deposits $ 290,493

Other liabilities 1,720

Total liabilities $ 292,213

Net assets $ ( 14,930 )

Purchase price 4,345

Gain on sale $ 19,275

The $ 19.3 million gain on sale (before tax) was recognized within noninterest income on the Company's Condensed Consolidated Statement of Operations for the three and nine months ended June 30, 2020.

In addition to what's reflected above, the Company also recognized $ 0.6 million, $ 0.2 million, $ 0.8 million, and $ 0.3 million in legal, IT, consulting, and nonrecurring compensation expenses related to the sale of the Community Bank division, respectively.

During the fiscal year ended September 30, 2020, the Company sold the Bank's Community Bank division, a component of the Company's Corporate segment, to Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa.

The sale included $ 290.5 million of deposits;

$ 268.6 million of loans;

$ 4.9 million of premises, furniture, and equipment;

and $ 1.3 million of other assets and closed February 29, 2020 (the "Closing Date").

The sale resulted in a gain of $ 19.3 million before tax that was recognized within noninterest income on the Company's Condensed Consolidated Statements of Operations.

The Company entered a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on the Closing Date.

The Company recognized $ 1.4 million in servicing fee expense during the nine months ended June 30, 2020.

On August 4, 2020, the Company sold an additional $ 58.6 million of the retained Community Bank portfolio to Central Bank.

The sale did not result in any material gain to the Company.

The loans included in the sale were classified as held for sale for the quarter ended June 30, 2020.

Loans and Leases, Net, and Note 19.

Subsequent Events, for additional information.

The Company has summarized the Community Bank division results for the three and nine months ended June 30, 2020 below.

(Dollars in Thousands) Community Bank Sold (1)

Community Bank Retained (2)

Total Community Bank

Three Months Ended June 30, 2020

Net interest income $ — $ 7,955 $ 7,955

(Reversal) Provision for loan and lease losses ( 491 ) 7,547 7,056

Noninterest income — 11 11

Noninterest expense 39 1,562 1,601

Net income (loss) before income tax expense $ 452 $ ( 1,143 ) $ ( 691 )

Nine Months Ended June 30, 2020

Net interest income $ 2,512 $ 25,348 $ 27,860

(Reversal) Provision for loan and lease losses ( 2,241 ) 14,521 12,280

Noninterest income 19,694 ( 3,473 ) 16,221

Noninterest expense 4,955 5,113 10,068

Net income (loss) before income tax expense $ 19,492 $ 2,241 $ 21,733

(1) Reflects the activity of the assets and liabilities included in the disposal of the Community Bank division through June 30, 2020.

(2) Reflects the activity of the retained Community Bank loan portfolio as of June 30, 2020.

The Company recognized $ 1.1 million and none in servicing fee expense during the three months ended December 31, 2020 and 2019, respectively, and $ 3.5 million for the fiscal year ended September 30, 2020.

Since the Closing Date, the Company has entered into subsequent loan portfolio sale agreements with Central Bank.

The Company sold additional loans from the retained Community Bank portfolio in the amount of $ 129.8 million and none in the three months ended December 31, 2020 and 2019, respectively, and $ 135.0 million for the fiscal year ended September 30, 2020.

The sales did not result in any significant gains or losses to the Condensed Consolidated Statements of Operations.

The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities are presented below.

(Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value

At June 30, 2020

At December 31, 2020

Debt securities AFS

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(Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value

At June 30, 2020

At December 31, 2020

Debt securities HTM

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Total debt securities HTM $ 92,610 $ 1,164 $ ( 29 ) $ 93,745

Management has implemented processes to identify securities that could potentially have a credit impairment that is other-than-temporary.

This process can include, but is not limited to, evaluating the length of time and extent to which the fair value has been less than the amortized cost basis, reviewing available information regarding the financial position of the issuer, interest and dividend payment status, monitoring the rating of the security, monitoring changes in value, and projecting cash flows.

Management also determines whether the Company intends to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity.

To the extent the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.

For all securities considered temporarily impaired, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which may occur at maturity.

The Company believes collection will occur for all principal and interest due on all investments with amortized cost in excess of fair value and considered only temporarily impaired.

GAAP requires that, at acquisition, an enterprise classify debt securities into one of three categories:

AFS, HTM or trading.

AFS securities are carried at fair value on the consolidated statements of financial condition, and unrealized holding gains and losses are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income (“AOCI”).

HTM debt securities are measured at amortized cost.

Both AFS and HTM are subject to review for other-than-temporary impairment.

The Company had no trading securities at June 30, 2020 or September 30, 2019.

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, were as follows:

LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL

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Value Unrealized

At June 30, 2020

At December 31, 2020

Debt securities AFS

SBA securities $ 40,938 $ ( 81 ) $ 18,623 $ ( 94 ) $ 59,561 $ ( 175 )

Non-bank qualified obligations of states and political subdivisions 46,805 ( 279 ) 40,425 ( 623 ) 87,230 ( 902 )

Asset-backed securities 60,713 ( 136 ) 200,240 ( 3,329 ) 260,953 ( 3,465 )

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Total debt securities AFS $ 283,334 $ ( 2,036 ) $ 191,664 $ ( 5,213 ) $ 474,998 $ ( 7,249 )

There were no debt securities HTM with a continuous loss position at December 31, 2020.

LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL

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Value Unrealized

At June 30, 2020

Debt securities HTM

Non-bank qualified obligations of states and political subdivisions $ — $ — $ 83,207 $ ( 1,016 ) $ 83,207 $ ( 1,016 )

Total debt securities HTM $ — $ — $ 83,207 $ ( 1,016 ) $ 83,207 $ ( 1,016 )

LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL

(Dollars in Thousands) Fair

Value Unrealized

(Losses) Fair

Value Unrealized

(Losses) Fair Value Unrealized

At September 30, 2020

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Non-bank qualified obligations of states and political subdivisions 7,397 ( 9 ) 3,637 ( 20 ) 11,034 ( 29 )

Mortgage-backed securities 1,471 — 1,803 ( 13 ) 3,274 ( 13 )

Total debt securities HTM $ 7,397 $ ( 9 ) $ 3,637 $ ( 20 ) $ 11,034 $ ( 29 )

At June 30, 2020, the investment portfolio included securities with current unrealized losses that have existed for longer than one year.

All of these securities are considered to be acceptable credit risks.

Because (i) the declines in fair value were due to changes in market interest rates, not in estimated cash flows, (ii) the Company does not intend or has not made a decision to sell these securities and (iii) it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis, which may occur at maturity, no other-than-temporary impairment was recorded at June 30, 2020.

The adoption of CECL was inconsequential to debt securities AFS.

At December 31, 2020, there was no ACL for debt securities AFS.

At December 31, 2020, there were 27 securities AFS in an unrealized loss position.

Management assessed each investment security with unrealized losses for credit impairment and determined substantially all unrealized losses on these securities were due to credit spreads and interest rates versus credit impairment.

As part of that assessment, management evaluated and concluded that it is more-likely-than-not that the Company will not be required and does not intend to sell any of the securities prior to recovery of the amortized cost.

The amortized cost and fair value of debt securities by contractual maturity are shown below.

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(Dollars in Thousands)

At June 30, 2020

At December 31, 2020

Due in one year or less $ 720 $ 724

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(Dollars in Thousands)

At June 30, 2020

At December 31, 2020

Due after ten years $ 76,176 $ 77,590

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Total securities HTM, at cost $ 92,610 $ 93,745

Other investments, at cost, include equity securities without a readily determinable fair value, which are included in other assets on the consolidated statement of financial condition, and shares of stock in the Federal Reserve Bank ("FRB") of Minneapolis and the FHLB of Des Moines.

Equity securities without a readily determinable fair value totaled $ 11.0 million at June 30, 2020 and $ 6.5 million at September 30, 2019.

Upon conversion to a national bank on April 1, 2020, the Company's wholly-owned subsidiary, MetaBank, is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus.

Other investments, at cost, include equity securities without a readily determinable fair value, which are included in other assets on the Condensed Consolidated Statements of Financial Condition, and shares of stock in the Federal Reserve Bank (the "FRB") of Minneapolis and the FHLB of Des Moines.

Equity Securities

Equity securities without a readily determinable fair value totaled $ 13.7 million at December 31, 2020 and $ 11.0 million at September 30, 2020.

The Bank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus.

One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System.

FRB of Minneapolis stock held by MetaBank at June 30, 2020 totaled $ 20.0 million.

FRB of Minneapolis stock held by the Bank totaled $ 19.7 million at December 31, 2020 and September 30, 2020.

These equity securities are 'restricted' in that they can only be owned by member banks.

FHLB of Des Moines stock held by MetaBank at June 30, 2020 and September 30, 2019 totaled $ 11.9 million and $ 30.9 million, respectively.

The decrease in FHLB stock directly correlates with lower short-term borrowings balances at June 30, 2020 compared to September 30, 2019.

The Company’s wholly-owned subsidiary, MetaBank, is required by federal law to maintain FHLB stock as a member of FHLB of Des Moines.

The Company's borrowings from the FHLB are secured by a blanket collateral agreement with respect to a percentage of unencumbered loans and the pledge of specific investment securities.

Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.

The investments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of Des Moines.

The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency.

The FHLB stock is carried at cost since it is generally redeemable at par value.

The carrying value of the stock held at the FHLB was $ 7.5 million at December 31, 2020 and September 30, 2020.

The absence of change in FHLB stock directly correlates with no short-term borrowings balances at both December 31, 2020 and September 30, 2020.

These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par.

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The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate recoverability of the par value.

No impairment was recognized for such investments for the nine months ended June 30, 2020.

There was a $ 0.9 million impairment recognized for such investments for the three months ended December 31, 2020.

LOANS AND LEASES, NET

Loans and leases consist of the following:

(Dollars in Thousands) June 30, 2020 September 30, 2019

(Dollars in Thousands) December 31, 2020 September 30, 2020

National Lending

Term lending $ 881,306 $ 805,323

$ 738,454 $ 641,742

Asset based lending 242,298 182,419

181,130 250,465

Factoring 275,650 281,173

Lease financing 283,722 281,084

264,988 177,915

Insurance premium finance 338,227 337,940

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Total gross loans and leases 3,448,675 3,322,765

Allowance for loan and lease losses ( 65,747 ) ( 29,149 )

Allowance for credit losses ( 72,389 ) ( 56,188 )

Total loans and leases, net $ 3,376,286 $ 3,266,577

$ 3,436,899 $ 3,629,698

(1) The Company has updated the presentation of its loan and lease table beginning in the fiscal 2020 first quarter.

The new presentation includes a new category called term lending.

Certain balances previously included in the asset based lending and lease financing categories have been reclassified into the new term lending category during the fiscal 2020 first quarter.

Prior period balances have been conformed to the new presentation.

(2) As of June 30, 2020, the remaining balance of acquired loans and leases from the acquisition of Crestmark Bancorp, Inc.

("Crestmark") and its bank subsidiary, Crestmark Bank (the "Crestmark Acquisition") was $ 188.3 million and the remaining balances of the credit and interest rate mark discounts related to the acquired loans and leases held for investment were $ 3.4 million and $ 2.9 million, respectively.

On August 1, 2018, the Company acquired loans and leases from the Crestmark Acquisition totaling $ 1.06 billion and recorded related credit and interest rate mark discounts of $ 12.3 million and $ 6.0 million, respectively.

During the nine months ended June 30, 2020, the Company transferred $ 325.1 million of Community Banking loans to held for sale.

During the nine months ended June 30, 2019, the Company transferred $ 39.5 million of consumer credit product loans to held for sale.

During the nine months ended June 30, 2020 and 2019, the Company originated $ 63.4 million and $ 104.1 million, respectively, of SBA/USDA and consumer credit product loans as held for sale.

The Company sold held for sale loans resulting in proceeds of $ 440.5 million and gains on sale of $ 7.0 million during the nine months ended June 30, 2020.

The Company sold held for sale loans resulting in proceeds of $ 95.7 million and gains on sale of $ 3.7 million during the nine months ended June 30, 2019.

Loans purchased and sold by portfolio segment, including participation interests, for the three and nine months ended were as follows:

Three Months Ended June 30, Nine Months Ended June 30,

During the three months ended December 31, 2020, the Company transferred $ 100.4 million of Community Banking loans to held for sale.

During the three months ended December 31, 2019, the Company transferred $ 251.9 million of Community Banking loans to held for sale.

During the three months ended December 31, 2020 and 2019, the Company originated $ 303.5 million of other consumer finance, SBA/USDA, and consumer credit product loans as held for sale and $ 16.2 million of SBA/USDA and consumer credit product loans as held for sale, respectively.

The Company sold held for sale loans resulting in proceeds of $ 451.7 million and gains on sale of $ 3.5 million during the three months ended December 31, 2020.

The Company sold held for sale loans resulting in proceeds of $ 143.0 million and gains on sale of $ 1.9 million during the three months ended December 31, 2019.

Loans purchased and sold by portfolio segment, including participation interests, for the three months ended were as follows:

Three Months Ended December 31,

(Dollars in Thousands) 2020 2019

Loans Purchased

Loans held for sale:

Total National Lending $ — $ 6,703 $ — $ 12,643

Loans held for investment:

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Leasing Portfolio.

Effective October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) and related ASUs on a modified retrospective basis, electing the practical expedients and optional transition method.

As such, the following leasing disclosures include information at, or for the three and nine months ended, June 30, 2020.

The net investment in direct financing and sales-type leases was comprised of the following:

(Dollars in Thousands) June 30, 2020 September 30, 2019

(Dollars in Thousands) December 31, 2020 September 30, 2020

Carrying Amount $ 300,748 $ 299,487

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Total net investment in direct financing and sales-type leases $ 285,778 $ 283,162

The carrying amount of direct financing and sales-type leases subject to residual value guarantees was $ 9.0 million at June 30, 2020.

The carrying amount of direct financing and sales-type leases subject to residual value guarantees was $ 8.4 million at December 31, 2020.

The components of total lease income were as follows:

June 30, 2020

(Dollars in Thousands) Three Months Ended Nine Months Ended

Three Months Ended December 31,

(Dollars in Thousands) 2020 2019

Interest income - loans and leases

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Undiscounted future minimum lease payments receivable for direct financing and sales-type leases and a reconciliation to the carrying amount recorded were as follows:

(Dollars in Thousands)

(Dollars in Thousands) December 31, 2020

Remaining in 2021 $ 85,352

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Total carrying amount of direct financing and sales-type leases $ 300,748

The Company did not record any contingent rental income from direct financing and sales-type leases in the nine months ended June 30, 2020.

The Company did not record any contingent rental income from direct financing and sales-type leases in the three months ended December 31, 2020.

During the Company's fiscal 2020 second quarter, the COVID-19 pandemic began impacting global and US markets and macroeconomic conditions, and continues to have an impact.

Although the ultimate impact of the pandemic on the Company's loan and lease portfolio is difficult to predict, management performed an evaluation of the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses.

The framework for the analysis was based on the Company's then-current allowance for loan and lease losses ("ALLL") methodology with additional considerations.

From this impact assessment, additional reserve levels were estimated by increasing qualitative factors.

The additional reserves were estimated for loans that were granted short-term payment deferrals related to financial stress stemming from the COVID-19 pandemic along with other loans within certain industries that were considered higher risk for credit loss (e.g.

transportation, hospitality, travel, entertainment and retail).

The Company continues to assess the impact to our customers and businesses as a result of COVID-19 and will refine our estimate as more information becomes available.

Based on the Company's ongoing assessment of the COVID-19 pandemic, the Company recognized an additional provision for loan and lease losses of $ 9.4 million and $ 25.2 million during the three and nine months ended June 30, 2020, respectively.

The Company will continue to assess the impact to their customers and businesses as a result of COVID-19 and refine their estimate as more information becomes available.

Activity in the allowance for loan and lease losses and balances of loans and leases by portfolio segment for each of the three and nine months ended was as follows:

Three Months Ended June 30, 2020

(Dollars in Thousands) Beginning balance Provision (recovery) for loan and lease losses Charge-offs Recoveries Ending balance

Allowance for loan and lease losses:

Although the ultimate impact of the pandemic on the Company's loan and lease portfolio continues to be difficult to predict, management continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses and continues to assess the impact to our customers and businesses as a result of COVID-19 and will refine our estimate as more information becomes available.

Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments and related ASUs on a modified retrospective basis.

Financial information at and for the quarter ended December 31, 2020 is reflected as such.

The historical information disclosed is in accordance with Topic 310.

Activity in the allowance for credit losses and balances of loans and leases by portfolio segment for each of the three months ended was as follows:

Three Months Ended December 31, 2020

(Dollars in Thousands) Beginning Balance Impact of CECL Adoption Provision (Recovery) for Credit Losses (2)

Charge-offs Recoveries Ending Balance

Allowance for credit losses:

National Lending

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Total Community Banking 22,308 ( 5,937 ) ( 2,173 ) ( 11 ) — 14,187

Total loans and leases 56,188 12,773 6,264 ( 5,674 ) 2,838 72,389

Unfunded commitments (1)

32 831 ( 175 ) — — 688

Total $ 56,220 $ 13,604 $ 6,089 $ ( 5,674 ) $ 2,838 $ 73,077

Nine Months Ended June 30, 2020

(1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statement of Financial Condition.

(2) As a result of the adoption of CECL, effective October 1, 2020, the provision for credit losses includes the provision for unfunded commitments that was previously included within other noninterest expense.

Three Months Ended December 31, 2019

(Dollars in Thousands) Beginning Balance Provision (Recovery) for Loan and Lease Losses Charge-offs Recoveries Ending Balance

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Total $ 29,149 $ 3,407 $ ( 3,918 ) $ 1,538 $ 30,176

Three Months Ended June 30, 2019

(Dollars in Thousands) Beginning balance Provision (recovery) for loan and lease losses Charge-offs Recoveries Ending balance

Allowance for loan and lease losses:

The following tables provide additional disclosures previously required by ASC Topic 310 related to the Company's September 30, 2020 balances.

Allowance Loans and Leases

(Dollars in Thousands) Ending Balance:

Individually Evaluated for Impairment Ending Balance:

Collectively Evaluated for Impairment Total Ending Balance:

Individually Evaluated for Impairment Ending Balance:

Collectively Evaluated for Impairment Total

Recorded Investment

National Lending

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Total $ 5,119 $ 51,069 $ 56,188 $ 51,278 $ 3,262,862 $ 3,314,140

Nine Months Ended June 30, 2019

(Dollars in Thousands) Beginning balance Provision (recovery) for loan and lease losses Charge-offs Recoveries Ending balance

Allowance for loan and lease losses:

Information on impaired loans and leases, all of which are deemed to be collateral dependent and are evaluated individually for the ACL, as of December 31, 2020 was as follows:

(Dollars in Thousands) December 31, 2020

National Lending

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Lease financing 2,420

Insurance premium finance 1,031 2,091 ( 2,359 ) 253 1,016

SBA/USDA 13 910 — — 923

Other commercial finance 28 929 — — 957

Commercial finance 17,649

Consumer credit products 785 671 — — 1,456

Other consumer finance 2,820 8,249 ( 5,477 ) 58 5,650

Consumer finance 3,605 8,920 ( 5,477 ) 58 7,106

Tax services — 24,883 ( 9,670 ) 212 15,425

Warehouse finance 65 185 — — 250

Total National Lending 17,649

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Total $ 42,621

The following tables provide details regarding the allowance for loan and lease losses and balance by type of allowance:

Allowance Loans and Leases

Recorded Investment Ending balance:

individually evaluated for impairment Ending balance:

collectively evaluated for impairment Total Ending balance:

individually evaluated for impairment Ending balance:

collectively evaluated for impairment Total

As of June 30, 2020 (Dollars in Thousands)

Information on impaired loans and leases as of September 30, 2020 was as follows:

(Dollars in Thousands) Recorded

Balance Unpaid Principal

Balance Specific

Loans and leases without a specific valuation allowance

National Lending

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Lease financing 1,797 1,805 —

Insurance premium finance — 2,369 2,369 — 359,147 359,147

SBA/USDA 1,436 2,263 —

Other commercial finance — 171 171 — 100,214 100,214

Commercial finance 28,388 31,772 —

Consumer credit products — 971 971 — 102,808 102,808

Other consumer finance 1,987 2,104 —

Consumer finance 1,987 2,104 —

Tax services — 11,437 11,437 — 19,168 19,168

Warehouse finance — 278 278 — 277,614 277,614

Total National Lending 30,375 33,876 —

Community Banking

Commercial real estate and operating 141 16,616 16,757 419 607,884 608,303

Consumer one-to-four family real estate and other 104 104 —

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Total $ 36,900 $ 40,401 $ —

Allowance Loans and Leases

Recorded Investment Ending balance:

individually evaluated for impairment Ending balance:

collectively evaluated for impairment Total Ending balance:

individually evaluated for impairment Ending balance:

collectively evaluated for impairment Total

As of September 30, 2019 (Dollars in Thousands)

Loans and leases with a specific valuation allowance

National Lending

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Lease financing 2,900 2,900 1,194

Insurance premium finance — 1,024 1,024 — 361,105 361,105

SBA/USDA 51 332 383 3,841 84,990 88,831

Other commercial finance — 683 683 — 99,665 99,665

Commercial finance 14,218 14,230 4,978

Consumer credit products — 1,044 1,044 — 106,794 106,794

Other consumer finance — 5,118 5,118 1,472 159,932 161,404

Consumer finance — 6,162 6,162 1,472 266,726 268,198

Tax services — — — — 2,240 2,240

Warehouse finance — 263 263 — 262,924 262,924

Total National Lending 14,218 14,230 4,978

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Commercial real estate and operating 160 160 141

Consumer one-to-four family real estate and other — 1,053 1,053 100 259,325 259,425

Agricultural real estate and operating — 867 867 2,985 55,479 58,464

Total Community Banking — 8,128 8,128 3,343 1,198,478 1,201,821

Total Community Banking Loans 160 160 141

Total $ 14,378 $ 14,390 $ 5,119

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Accordingly, if all payments were less than 30 days past due prior to the onset of the pandemic effects, the loan or lease will not be reported as past due during the deferral or forbearance period.

As of June 30, 2020, the Company granted deferral payments on a total of $ 352.1 million of loan and lease balances due to performing borrowers experiencing temporary hardship from COVID-19.

As of December 31, 2020, $ 84.2 million of loan and lease balances that were granted deferral payments by the Company were still in their deferment period due to performing borrowers experiencing temporary hardship from COVID-19.

These modifications consisted solely of payment deferrals ranging from 30 days to six months .

1 unchanged sentence

The Company elected to accrue and recognize interest income on these modifications during the payment deferral period.

Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the Bank's primary regulator, the Office of the Comptroller of the Currency (the “OCC”), to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan and lease classification and risk rating definitions are as follows:

Pass- A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.

Watch- A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures.

Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention.

These assets are of better quality than special mention assets.

Special Mention- A special mention asset is a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset.

Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.

The adverse classifications are as follows:

Substandard- A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position.

Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected.

Loss potential does not have to exist for an asset to be classified as substandard.

Doubtful- A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort.

Due to pending factors, the asset’s classification as loss is not yet appropriate.

Loss- A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted.

This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.

When assets are classified as “loss,” the Company is required either to establish a specific allowance for losses equal to 100 % of that portion of the asset so classified or to charge-off such amount.

The Company's determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, which may order the establishment of additional general or specific loss allowances.

The Company recognizes that concentrations of credit may naturally occur and may take the form of a large volume of related loans and leases to an individual, a specific industry, or a geographic location.

Credit concentration is a direct, indirect, or contingent obligation that has a common bond where the aggregate exposure equals or exceeds a certain percentage of the Company’s Tier 1 Capital plus the Allowance for Loan and Lease Losses.

Beginning in the fiscal 2020 first quarter the Company implemented changes to the risk rating approach on certain commercial finance portfolios as part of a streamlining process to provide a more consistent risk rating approach across all of its lending portfolios.

Based upon a study of the Company's special mention commercial finance loans and leases, the Company determined that approximately $ 117.0 million of those loans and leases should be rated as watch under the new approach.

Prior to the fiscal 2020 first quarter, none of the Company's commercial finance loans and leases were rated as watch.

Based on Meta's allowance methodology, these changes in risk ratings did not have a direct impact on the allowance for loan and lease losses.

The aggregate balance of watch and special mention loans and leases within the commercial finance portfolio increased to $ 179.8 million at June 30, 2020, compared to $ 145.0 million at September 30, 2019.

The Company has various portfolios of consumer finance and tax services loans that present unique risks.

Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for loan losses on these portfolios, and as such, these loans are not included in the asset classification table below, beginning in the fiscal 2020 first quarter.

The September 30, 2019 asset classification table has been conformed to the current presentation.

The outstanding balances of consumer finance loans and tax services loans were $ 241.6 million and $ 19.2 million at June 30, 2020, respectively, and $ 268.2 million and $ 2.2 million at September 30, 2019, respectively.

The asset classifications of loans and leases were as follows:

Asset Classification Pass Watch Special Mention Substandard Doubtful Total

As of June 30, 2020 (Dollars in Thousands)

National Lending

Term lending $ 656,198 $ 42,015 $ 8,774 $ 28,579 $ 2,888 $ 738,454

Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below.

The outstanding balances of consumer finance loans and tax services loans were $ 251.0 million and $ 92.5 million at December 31, 2020, respectively, and $ 224.2 million and $ 3.1 million at September 30, 2020, respectively.

The amortized cost basis of loans and leases by asset classification and year of origination was as follows:

Amortized Cost Basis

(Dollars in Thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total

As of December 31, 2020 2021 2020 2019 2018 2017 Prior

Pass $ 107,414 $ 321,578 $ 130,293 $ 68,889 $ 46,776 $ 123,244 $ — $ 798,194

Watch 718 4,081 8,058 915 3,850 11,660 — 29,282

Special Mention — 6,322 4,220 1,332 269 2,101 — 14,244

Substandard 1,092 14,147 12,326 7,691 — 1,766 — 37,022

Doubtful — 1,264 832 456 — 12 — 2,564

Total 109,224 347,392 155,729 79,283 50,895 138,783 — 881,306

Asset based lending

Factoring 161,075 22,255 20,865 2,166 — 206,361

Pass — — — — — — 147,064 147,064

Watch — — — — — — 73,402 73,402

Special Mention — — — — — — 19,750 19,750

Substandard — — — — — — 2,082 2,082

Total — — — — — — 242,298 242,298

Pass — — — — — — 217,566 217,566

Watch — — — — — — 31,257 31,257

Special Mention — — — — — — 18,779 18,779

Substandard — — — — — — 8,048 8,048

Total — — — — — — 275,650 275,650

Lease financing

Pass 32,970 161,904 51,762 16,780 1,282 2,297 — 266,995

Watch 132 6,619 236 954 272 55 — 8,268

Special Mention — 2,048 1,295 213 — — — 3,556

Substandard — 288 3,585 277 3 496 — 4,649

Doubtful — 51 114 89 — — — 254

Total 33,102 170,910 56,992 18,313 1,557 2,848 — 283,722

Insurance premium finance

SBA/USDA 295,815 10,339 77 2,380 — 308,611

Pass 173,400 164,238 41 — — — — 337,679

Watch — 127 3 — — — — 130

Special Mention — 175 2 — — — — 177

Substandard — 135 21 — — — — 156

Doubtful — 83 2 — — — — 85

Total 173,400 164,758 69 — — — — 338,227

Pass 724 222,726 25,001 22,946 9,505 5,025 — 285,927

Watch — 6,811 643 457 1,381 966 — 10,258

Special Mention — — — 1,823 — 73 — 1,896

Substandard — — — 1,209 703 714 — 2,626

Total 724 229,537 25,644 26,435 11,589 6,778 — 300,707

Other commercial finance

Commercial finance 1,935,013 136,923 42,838 40,608 3,523 2,158,905

Pass 2,450 4,841 8,183 4,080 4,137 74,263 — 97,954

Watch 867 — — — — 2,107 — 2,974

Special Mention — — — — — — — —

Substandard — 281 — — — — — 281

Total 3,317 5,122 8,183 4,080 4,137 76,370 — 101,209

Warehouse finance

Pass — — — — — — 318,937 318,937

Total — — — — — — 318,937 318,937

Total National Lending

Community Banking

Pass 316,958 875,287 215,280 112,695 61,700 204,829 683,567 2,470,316

Watch 1,717 17,638 8,940 2,326 5,503 14,788 104,659 155,571

Special Mention — 8,545 5,517 3,368 269 2,174 38,529 58,402

Substandard 1,092 14,851 15,932 9,177 706 2,976 10,130 54,864

Doubtful — 1,398 948 545 — 12 — 2,903

Total 319,767 917,719 246,617 128,111 68,178 224,779 836,885 2,742,056

Commercial real estate and operating

Consumer one-to-four family real estate and other 165,518 42 655 264 — 166,479

Agricultural real estate and operating 11,946 — 4,909 7,800 — 24,655

Total Community Banking 776,608 740 9,583 11,926 580 799,437

Pass — 10,122 99,181 75,915 32,338 50 300 217,906

Watch — — 8,046 57,291 28,157 6,593 — 100,087

Special Mention — 926 — — — 1,455 — 2,381

Substandard — 300 700 16,896 — 311 — 18,207

Doubtful — — 560 — — — — 560

Total — 11,348 108,487 150,102 60,495 8,409 300 339,141

Consumer 1-4 family real estate and other

Pass — — 161 645 381 2,940 8 4,135

Watch — — — 236 — — — 236

Special Mention — — — — 139 66 206 411

Substandard — — 111 — 41 143 — 295

Total — — 272 881 561 3,149 214 5,077

Agricultural real estate and other

Pass — — 85 — — — — 85

Watch — 1,583 — — — — — 1,583

Special Mention — — — 111 — 2,694 — 2,805

Substandard — 3,394 — 913 — 594 350 5,251

Total — 4,977 85 1,024 — 3,288 350 9,724

Total Community Bank

Pass — 10,122 99,427 76,560 32,719 2,990 308 222,126

Watch — 1,583 8,046 57,527 28,157 6,593 — 101,906

Special Mention — 926 — 111 139 4,215 206 5,597

Substandard — 3,694 811 17,809 41 1,048 350 23,753

Doubtful — — 560 — — — — 560

Total — 16,325 108,844 152,007 61,056 14,846 864 353,942

Total Loans and Leases

Pass 316,958 885,409 314,707 189,255 94,419 207,819 683,875 2,692,442

Watch 1,717 19,221 16,986 59,853 33,660 21,381 104,659 257,477

Special Mention — 9,471 5,517 3,479 408 6,389 38,735 63,999

Substandard 1,092 18,545 16,743 26,986 747 4,024 10,480 78,617

Doubtful — 1,398 1,508 545 — 12 — 3,463

Total $ 319,767 $ 934,044 $ 355,461 $ 280,118 $ 129,234 $ 239,625 $ 837,749 $ 3,095,998

The recorded investment of loans and leases by asset classification was as follows:

Asset Classification Pass Watch Special Mention Substandard Doubtful Total

17 unchanged sentences

Total loans and leases $ 2,701,484 $ 254,107 $ 63,427 $ 61,572 $ 6,333 $ 3,086,923

National Lending

Commercial Finance

The Company's commercial finance product lines include term lending, asset based lending, factoring, leasing, insurance premium finance, government guaranteed lending and other commercial finance products offered on a nationwide basis.

Term Lending .

Through its Crestmark division, the Bank originates a variety of collateralized conventional term loans and notes receivable, while terms range from three years to 25 years, the weighted average life is approximately 53 months.

These term loans may be secured by equipment, recurring revenue streams, or real estate.

Credit risk is managed through setting loan amounts appropriate for the collateral by utilizing information ranging from equipment cost, appraisals, valuations, or lending history.

The Bank follows standardized loan policies and established and authorized credit limits and applies attentive portfolio management, which includes monitoring past dues, financial performance, financial covenants, and industry trends.

As of June 30, 2020, 20 % of the term lending portfolio exposure is concentrated in solar/alternative energy, most of which are construction projects that will convert to longer term government guaranteed facilities upon completion of the construction phase.

Equipment Finance Agreements ("EFAs") and Installment Purchase Agreements ("IPAs") make up $ 299.1 million, or 41 %, of the term lending total as of June 30, 2020.

The remaining 39 % are a variety of investment advisory loans and other more traditional term equipment and general purpose commercial loans.

Asset Based Lending .

Through its Crestmark division, the Bank provides asset based loans secured by short-term assets such as inventory, accounts receivable, and work-in-process.

Asset based loans may also be secured by real estate and equipment.

The primary sources of repayment are the operating income of the borrower, the collection of the receivables securing the loan, and/or the sale of the inventory securing the loan.

Loans are typically revolving lines of credit with terms of one year to three years , whereby the Bank withholds a contingency reserve representing the difference between the amount advanced and the fair value of the invoice amount or other collateral value.

Credit risk is managed through advance rates appropriate for the collateral (generally, advance rates on accounts receivable is 85 % and inventory advance rates range from 40 % to 50 %), standardized loan policies, established and authorized credit limits, attentive portfolio management and the use of lock box agreements and similar arrangements that result in the Company receiving and controlling the debtors' cash receipts.

As of June 30, 2020, approximately 50 % of these loans were backed by accounts receivable.

Through its Crestmark division, the Bank provides factoring lending where clients provide detailed inventory, accounts receivable, and work-in-process reports for lending arrangements.

The factoring clients are diversified as to industry and geography.

With these loans, the Crestmark division withholds a contingency reserve, which is the difference between the fair value of the invoice amount or other collateral value and the amount advanced (generally, advance rates are 85 % on accounts receivable).

This reserve is withheld for nonpayment of factored receivables, service fees and other adjustments.

Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements that result in the Company receiving and controlling the client's cash receipts.

In addition, clients generally guarantee the payment of purchased accounts receivable.

As of June 30, 2020, approximately 80 % of these loans were backed by accounts receivable.

Lease Financing.

Through its Crestmark division, the Bank provides creative, flexible lease solutions for technology, capital equipment and select transportation assets like tractors and trailers.

Direct financing leases and sales-type leases substantially transfer the benefits and risks of equipment ownership to the lessee.

The lease may contain provisions that transfer ownership to the lessee at the end of the initial term, contain a bargain purchase option or allow for purchase of the equipment at fair market value.

Residual values are estimated at the inception of the lease.

Lease maturities are generally no greater than 84 months.

The focus in this lease financing category is to support middle market companies by providing a variety of financing products to help them meet their business objectives.

Insurance Premium Finance.

Through its AFS/IBEX division the Bank provides, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk, otherwise known as insurance premium financing.

This includes, but is not limited to, policies for commercial property, casualty and liability risk.

Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term.

The policyholder generally makes a 20 % to 25 % down payment to the insurance broker and finances the remainder over nine months to 10 months on average.

The down payment is set such that if the policy is canceled, the unearned premium is typically sufficient to cover the loan balance and accrued interest and is returned by the insurer to the Bank on a pro rata basis.

Over 99 % of the portfolio finances policies provided by investment grade-rated insurance company partners.

Small Business Administration ("SBA") and United States Department of Agriculture ("USDA").

The Bank originates loans through programs partially guaranteed by the SBA or USDA.

These loans are made to small businesses and professionals with what the Bank believes are lower risk characteristics.

Certain guaranteed portions of these loans are generally sold to the secondary market.

Also see Note 3 to the Condensed Consolidated Financial Statements included in this quarterly report.

As part of the SBA's coronavirus debt relief efforts, the SBA will pay six months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020.

As of June 30, 2020, there were 145 loans with a retained outstanding balance of $ 48.4 million receiving six months principal and interest from the SBA.

The Company is also participating in the PPP, which is being administered by the SBA.

The Company expects that some portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

Loans funded through the PPP program are fully guaranteed by the U.S.

As of June 30, 2020, the Company authorized 686 applications, totaling $ 215.5 million in PPP loan requests as part of the program.

Other Commercial Finance.

Included in this category of loans are the Company's healthcare receivables loan portfolio primarily comprised of loans to individuals for medical services received.

The majority of these loans are guaranteed by the hospital providing the service to the debtor and this guarantee serves to reduce credit risk as the guarantors agree to repurchase severely delinquent loans.

Credit risk is minimized on these loans based on the guarantor’s repurchase agreement.

This loan category also includes commercial real estate loans to customers of the Crestmark division.

Consumer Finance

Consumer Credit Products.

The Bank designs its credit program relationships with certain desired outcomes.

Three high priority outcomes are liquidity, credit protection, and risk retention.

The Bank believes the benefits of these outcomes not only support its goals but the goals of the credit program partner as well.

The Bank designs its program credit protections in a manner so that the Bank earns a reasonable risk adjusted return, but is protected by certain layers of credit support, similar to what you would find in structured finance.

The Bank will hold a sizable portion of the originated asset on its own balance sheet, but retains the flexibility to sell a portion of the originated asset to other interested parties, thereby supporting program liquidity.

Through June 30, 2020, the Bank has launched two consumer credit programs.

The loan products offered under these programs are generally closed-end installment loans with terms between 12 months and 84 months and revolving lines of credit with durations between six months and 60 months.

Other Consumer Finance.

The Bank's purchased student loan portfolios are seasoned, floating rate, private portfolios that are serviced by a third-party servicer.

The portfolio purchased during the fiscal 2018 first quarter is indexed to one-month of the London Interbank Offered Rate ("LIBOR"), while the portfolio purchased in the fiscal 2017 first quarter is indexed to three-month LIBOR plus various margins.

The Company received written notification on June 18, 2018 from ReliaMax Surety Company ("ReliaMax"), the company that provided insurance coverage for the student loan portfolios, which informed policy holders that the South Dakota Division of Insurance filed a petition to have ReliaMax declared insolvent and to adopt a plan of liquidation.

An Order of Liquidation was entered on June 27, 2018 by the Sixth Circuit Court in Hughes County, South Dakota, declaring ReliaMax insolvent and appointing the South Dakota Division of Insurance as liquidator to adopt a plan of liquidation.

The Company expects to ultimately recover a portion of the unearned premiums, though the Company can provide no assurance as to the timing and amount of any such recovery.

The Bank's tax services division provides short-term taxpayer advance loans.

Taxpayers are underwritten to determine eligibility for these unsecured loans.

Due to the nature of taxpayer advance loans, it typically takes no more than three e-file cycles (the period of time between scheduled IRS payments) from when the return is accepted by the IRS to collect from the borrower.

In the event of default, the Bank has no recourse against the tax consumer.

The Bank will charge off the balance of a taxpayer advance loan if there is a balance at the end of the calendar year, or when collection of principal becomes doubtful.

Through its tax services division, the Bank provides short-term electronic return originator ("ERO") advance loans on a nationwide basis.

These loans are typically utilized by tax preparers to purchase tax preparation software and to prepare tax office operations for the upcoming tax season.

EROs go through an underwriting process to determine eligibility for the unsecured advances.

ERO loans are not collateralized.

Collection on ERO advances begins once the ERO begins to process refund transfers.

Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful.

Warehouse Finance

The Bank participates in several asset-backed warehouse lines of credit whereby the Bank is in a senior, secured position as the first out participant.

These facilities are primarily collateralized by consumer receivables, with the Bank holding a senior collateral position enhanced by a subordinate party structure.

Community Banking

Effective on the Closing Date of the Community Bank division sale to Central Bank, the Company substantially ceased originating loans within its Community Banking loan portfolio.

The Company entered a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on the Closing Date.

Divestitures for further information related to the Community Banking lending portfolio.

Commercial Real Estate and Operating

The Company's commercial and multi-family real estate loans are secured primarily by apartment buildings, office buildings, and hotels.

Commercial and multi-family real estate loans generally were underwritten with terms not exceeding 20 years, have loan-to-value ratios of up to 80 % of the appraised value of the property securing the loan, and are typically secured by guarantees of the borrowers.

As of June 30, 2020, multi-family real estate loan balances totaled $ 138.7 million, over 94 % of which were located within the Community Bank division's footprint of South Dakota and Iowa.

The average loan-to-value ratio on multi-family real estate loans at the time of the Company's most recently completed annual stress test analysis was approximately 69 %.

As of June 30, 2020, hospitality loan balances totaled $ 169.0 million, of which approximately 28 % were located in the Community Bank division's footprint of South Dakota and Iowa, while the majority of the remaining balances were through developers headquartered in the Community Bank division footprint with properties located in Minnesota, North Dakota, Nebraska, Wisconsin, Kansas, Arizona, Colorado and California.

Over 98 % of the outstanding loan balances are flagged hotel relationships and a large majority of the loans have guarantors by individuals with a strong combined net worth.

Based on the latest appraisals the Company has on file, the average loan-to-value ratio on hospitality loans was approximately 60 %.

Most of the Company's commercial operating loans were extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory and accounts receivable.

Commercial operating loans also may involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.

Generally, the maximum term on non-mortgage lines of credit is one year .

Consumer One-to-Four Family Real Estate and Other

The Company's one-to-four family residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100 % of the lesser of the appraised value of the property securing the loan or the contract price.

However, the vast majority of these loans were originated with loan-to-value ratios below 80 %.

The Company also has five year and ten year ARM loans.

As of June 30, 2020, over 93 % of the one-to-four family real estate loans were located within the Community Bank division's footprint of South Dakota and Iowa.

The Company also has a variety of secured consumer loans, primarily made up of home equity and home improvement loans.

Substantially all of the Company’s home equity loans and lines of credit are secured by second mortgages on principal residences.

The Bank lent amounts which, together with all prior liens, may have been up to 90 % of the appraised value of the property securing the loan.

Home equity loans and lines of credit generally have maximum terms of five years .

As of June 30, 2020, the outstanding balance in these secured consumer loans was less than $ 4.0 million and approximately 99 % of those were located within the Community Bank division's footprint of South Dakota and Iowa.

Agricultural Real Estate and Operating

The Company's agricultural loans finance the purchase of farmland, livestock, farm machinery and equipment, seed, fertilizer, and other farm-related products.

Agricultural operating loans are at either an adjustable- or fixed-rate of interest for up to a one year term or, in the case of livestock, are due upon sale.

Agricultural real estate loans were frequently originated with adjustable rates of interest.

Generally, such loans provide for a fixed rate of interest for the first five years to 10 years, after which the loan will balloon or the interest rate will adjust annually.

These loans generally amortize over a period of 20 years to 25 years.

Fixed-rate agricultural real estate loans typically have terms up to 10 years.

Agricultural real estate loans are generally limited to 75 % of the value of the property securing the loan.

As of June 30, 2020, 70 % of the agricultural loans were real estate loans while the remaining 30 % were agricultural operating loans and approximately 91 % of the total agricultural loans were located within the Community Bank division's footprint of South Dakota and Iowa.

Past due loans and leases were as follows:

5 unchanged sentences

Receivable > 89 Days Past Due and Accruing Non-accrual balance Total

As of June 30, 2020

As of December 31, 2020

Loans held for sale $ 165 $ — $ — $ 165 $ 133,494 $ 133,659 $ — $ — $ —

51 unchanged sentences

Total loans and leases $ 15,220 $ 15,353 $ 21,727 $ 52,300 $ 3,445,417 $ 3,497,717 $ 10,066 $ 23,952 $ 34,018

Certain loans and leases 90 days or more past due as to interest or principal continue to accrue because they are (1) well-secured and in the process of collection or (2) one-to-four family real estate loans or consumer loans exempt under regulatory rules from being classified as non-accrual until later delinquency, usually 120 days past due.

When analysis of borrower or lessee operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan or lease is evaluated for impairment.

Often, this is associated with a delay or shortfall in scheduled payments, as described above.

Impaired loans and leases were as follows:

As of June 30, 2020 Recorded

Balance Unpaid Principal

Balance Specific

Loans and leases without a specific valuation allowance (Dollars in Thousands)

Nonaccrual loans and leases by year of origination were as follows:

Amortized Cost Basis

(Dollars in Thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total

December 31, 2020 2021 2020 2019 2018 2017 Prior

National Lending

5 unchanged sentences

Commercial finance 42 4,141 4,223 3,462 11 5,069 1,759 18,707

Other consumer finance 2,177 2,314 —

Consumer finance 2,177 2,314 —

Total National Lending 42 4,141 4,223 3,462 11 5,069 1,759 18,707

4 unchanged sentences

Total Community Banking — 1,260 41 1,727 13,618 3,392 350 20,388

Total $ 28,923 $ 32,918 $ —

Loans and leases with a specific valuation allowance

National Lending

Term lending $ 14,025 $ 14,037 $ 3,366

Factoring 883 883 189

Lease financing 3,221 3,221 1,350

SBA/USDA 1,510 1,510 241

Commercial finance 19,639 19,651 5,146

Total National Lending 19,639 19,651 5,146

Community Banking

Commercial real estate and operating 160 160 141

Total Community Banking Loans 160 160 141

Total $ 19,799 $ 19,811 $ 5,287

As of September 30, 2019 Recorded

Balance Unpaid Principal

Balance Specific

Loans and leases without a specific valuation allowance (Dollars in Thousands)

Total nonaccrual loans and leases $ 42 $ 5,401 $ 4,264 $ 5,189 $ 13,629 $ 8,461 $ 2,109 $ 39,096

Loans and leases that are 90 days or more delinquent and accruing by year of origination were as follows:

Amortized Cost Basis

(Dollars in Thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total

December 31, 2020 2021 2020 2019 2018 2017 Prior

National Lending

Term lending $ — $ — $ 131 $ 232 $ — $ 22 $ — $ 385

Asset based lending 378 378 —

Factoring 1,563 2,638 —

Lease financing — 543 311 184 3 1 — 1,042

SBA/USDA 2,595 2,595 —

Insurance premium finance — 641 24 — — — — 665

Commercial finance — 1,184 466 416 3 23 — 2,092

1 unchanged sentence

Consumer finance (1)

Total National Lending 19,714 22,156 —

Community Banking

Commercial real estate and operating 258 258 —

Consumer one-to-four family real estate and other 100 100 —

Agricultural real estate and operating 2,985 2,985 —

Total Community Banking 3,343 3,343 —

Total $ 23,057 $ 25,499 $ —

Loans and leases with a specific valuation allowance

National Lending

Term lending $ 6,924 $ 6,951 $ 450

Factoring 2,261 3,601 1,262

Lease financing 151 151 112

SBA/USDA 1,246 1,246 51

Commercial finance 10,582 11,949 1,875

— — — — — 675 — 675

Total National Lending — 1,184 466 416 3 698 — 2,767

Total $ 10,582 $ 11,949 $ 1,875

The following table provides the average recorded investment in impaired loans and leases for the three and nine months ended:

Three Months Ended June 30,

(Dollars in Thousands) Average

Investment Recognized Interest Income Average

Investment Recognized Interest Income

Total 90 days or more delinquent and accruing $ — $ 1,184 $ 466 $ 416 $ 3 $ 698 $ — $ 2,767

(1) Consumer credit products are not included in the table as they are evaluated under a separate methodology for allowance for credit loss purposes that considers the overall Program structure.

Refer to the Company’s most recent audited financial statements for additional information on these Programs.

Often, this is associated with a delay or shortfall in scheduled payments, as described above.

The following table provides the average recorded investment in non-accrual loans and leases:

Three Months Ended December 31, 2020

(Dollars in Thousands) Average Recorded Investment

National Lending

3 unchanged sentences

Lease financing 3,556

SBA/USDA 3,162 — 425 —

Commercial finance 21,041

Other consumer finance 1,999 37 1,190 28

Consumer finance 1,999 37 1,190 28

Total National Lending 21,041

5 unchanged sentences

Total loans and leases $ 29,474

Nine Months Ended June 30,

(Dollars in Thousands) Average

Investment Recognized Interest Income Average

Investment Recognized Interest Income

The recognized interest income on the Company's nonaccrual loans and leases during the quarter ended December 31, 2020 was not significant.

The following table provides the average recorded investment in impaired loans and leases:

Three Months Ended December 31, 2019

(Dollars in Thousands) Average Recorded Investment Recognized Interest Income

National Lending

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The Company’s troubled debt restructurings ("TDRs") typically involve forgiving a portion of interest or principal on existing loans, making loans at a rate materially less than current market rates, or extending the term of the loan.

There were $ 1.4 million of national lending loans that were modified in a TDR during the three months ended June 30, 2020, all of which were modified to extend the term of the loan, and no community banking loans.

There were $ 0.7 million community banking loans and $ 0.1 million of national lending loans and leases that were modified in a TDR during the three months ended June 30, 2019.

During the nine months ended June 30, 2020, there were $ 5.5 million of national lending loans and $ 0.6 million of community bank loans that were modified in a TDR, all of which were modified to extend the term of the loan.

There were $ 1.7 million of national lending loans and leases and $ 0.7 million of community banking loans that were modified in a TDR during the nine months ended June 30, 2019.

During the nine months ended June 30, 2020, the Company had $ 3.3 million of community banking loans and $ 1.3 million of national lending loans that were modified in a TDR within the previous 12 months and for which there was a payment default.

During the nine months ended June 30, 2019, the Company had $ 0.9 million of community banking loans and no national lending loans that were modified in a TDR within the previous 12 months and for which there was a payment default.

TDR net charge-offs and the impact of TDRs on the Company's allowance for loan and lease losses were insignificant during the quarters ended June 30, 2020 and June 30, 2019.

EARNINGS PER COMMON SHARE

Earnings per common share is computed after deducting any preferred dividends, if applicable.

There were $ 0.1 million of national lending loans that were modified in a TDR during the three months ended December 31, 2020, all of which were modified to extend the term of the loan, and no community banking loans.

There were $ 0.6 million community banking loans and $ 0.4 million of national lending loans and leases that were modified in a TDR during the three months ended December 31, 2019.

During the three months ended December 31, 2020, the Company had $ 0.4 million of national lending loans and no community banking loans that were modified in a TDR within the previous 12 months and for which there was a payment default.

During the three months ended December 31, 2019, the Company had $ 1.2 million of community banking loans and $ 0.3 million national lending loans that were modified in a TDR within the previous 12 months and for which there was a payment default.

TDR net charge-offs and the impact of TDRs on the Company's allowance for loan and lease losses were insignificant during the quarters ended December 31, 2020 and December 31, 2019.

EARNINGS PER COMMON SHARE ("EPS")

The Company has granted restricted share awards with dividend rights that are considered to be participating securities.

Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the earnings per share calculation.

Basic earnings per common share is computed by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period.

Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and after the allocation of earnings to the participating securities.

Antidilutive options are disregarded in earnings per share calculations.

Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the earnings per share calculation under the two-class method.

Basic earnings per common share is computed using the two-class method by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period.

Diluted earnings per common share is calculated using the more dilutive of the treasury stock method or the two-class method.

Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options, performance share units, and nonvested restricted stock, where applicable.

Diluted EPS under the two-class method also considers the allocation of earnings to the participating securities.

Antidilutive securities are disregarded in earnings per share calculations.

Diluted EPS shown below reflects the two-class method, as diluted EPS under the two-class method was more dilutive than under the treasury stock method.

A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below.

Three Months Ended June 30,

(Dollars in Thousands, Except Share and Per Share Data) 2020 2019

Basic income per common share:

Net income attributable to Meta Financial Group, Inc.

$ 18,190 $ 29,291

Weighted average common shares outstanding

34,616,038 38,903,266

Basic income per common share

$ 0.53 $ 0.75

Diluted income per common share:

Net income attributable to Meta Financial Group, Inc.

$ 18,190 $ 29,291

Weighted average common shares outstanding

34,616,038 38,903,266

Outstanding options - based upon the two-class method

Weighted average diluted common shares outstanding

34,623,114 38,977,690

Diluted income per common share

$ 0.53 $ 0.75

Nine Months Ended June 30,

Three Months Ended

(Dollars in Thousands, Except Share and Per Share Data) 2020 2019

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$ 28,037 $ 21,068

Weighted average common shares outstanding

36,004,877 39,220,793

Basic income per common share

$ 2.54 $ 1.96

Diluted income per common share:

Net income attributable to Meta Financial Group, Inc.

$ 91,562 $ 76,809

Weighted average common shares outstanding

36,004,877 39,220,793

Outstanding options - based upon the two-class method

11,160 68,218

Weighted average diluted common shares outstanding

36,016,037 39,289,011

Diluted income per common share

Dividends and undistributed earnings allocated to participating securities ( 554 ) ( 460 )

Basic net earnings available to common stockholders 27,483 20,608

Undistributed earnings allocated to nonvested restricted stockholders 521 420

Reallocation of undistributed earnings to nonvested restricted stockholders ( 521 ) ( 420 )

Diluted net earnings available to common stockholders $ 27,483 $ 20,608

Total weighted-average basic common shares outstanding 32,782,285 36,613,699

Effect of dilutive securities (1)

Stock options — 34,090

Performance share units 8,610 —

Total effect of dilutive securities 8,610 34,090

Total weighted-average diluted common shares outstanding 32,790,895 36,647,789

Net earnings per common share:

Basic earnings per common share $ 0.84 $ 0.56

Diluted earnings per common share (2)

$ 0.84 $ 0.56

(1) Represents the effect of the assumed exercise of stock options and vesting of performance share units and restricted stock, as applicable, utilizing the treasury stock method.

(2) Excluded from the computation of diluted earnings per share for the three months ended December 31, 2020 and 2019, respectively, were 660,659 and 818,089 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

RENTAL EQUIPMENT, NET

Rental equipment consists of the following:

(Dollars in Thousands) June 30, 2020 September 30, 2019

(Dollars in Thousands) December 31, 2020 September 30, 2020

Computers and IT networking equipment $ 16,026 $ 15,926

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The following table provides an analysis of changes in foreclosed real estate and repossessed assets:

Nine Months Ended June 30,

Three Months Ended

(Dollars in Thousands) 2020 2019

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Balance, ending of period $ 7,186 $ 1,328

At June 30, 2020 and September 30, 2019, the Company had established a valuation allowance of $ 0.5 million and $ 0.1 million for repossessed assets, respectively.

As of June 30, 2020 and September 30, 2019, the Company had no loans or leases in the process of foreclosure.

During the nine months ended June 30, 2020, the Company sold $ 28.1 million of other real estate owned ("OREO"), which consisted of assets related to a Community Bank agriculture real estate customer.

The sale occurred via public auction and consisted of 30-plus parcels of land.

The sale of 30-plus parcels closed in the fiscal 2020 first quarter.

The Company applied Subtopic ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets to record the sale.

The following table is a summary of the sale transaction, as reflected in the Company's financial statements:

(Dollars in Thousands) June 30, 2020

Purchase price $ 23,083

Carrying value of OREO 28,122

Loss on sale ( 5,039 )

Deferred income recognized 1,096

Net impact $ ( 3,943 )

The Company recognized a $ 5.0 million loss from the sale of foreclosed property during the nine months ended June 30, 2020, which is included in the "Gain (loss) on sale of other" line on the Consolidated Statements of Operations.

The Company also recognized $ 1.1 million in deferred rental income and $ 0.2 million in OREO expenses related to these foreclosed properties during the nine months ended June 30, 2020.

At December 31, 2020 and September 30, 2020, the Company had established a valuation allowance of $ 0.6 million and $ 0.5 million for repossessed assets, respectively.

As of December 31, 2020 and September 30, 2020, the Company had no loans or leases in the process of foreclosure.

During the fiscal year ended September 30, 2020, the Company sold $ 28.1 million of other real estate owned ("OREO"), which consisted of assets related to a Community Bank agriculture real estate customer.

The sale consisted of 30-plus parcels of land and the Company recognized a $ 5.0 million loss that was included in the "Gain (loss) on sale of other" line on the Condensed Consolidated Statements of Operations.

The Company also recognized $ 1.1 million in deferred rental income and $ 0.2 million in OREO expenses related to these foreclosed properties.

GOODWILL AND INTANGIBLE ASSETS

The Company held a total of $ 309.5 million of goodwill at June 30, 2020.

The Company held a total of $ 309.5 million of goodwill at December 31, 2020.

The recorded goodwill is a result of multiple business combinations that have been consummated since fiscal year 2015, with the most recent being the merger with Crestmark pursuant to the Crestmark Acquisition that closed on August 1, 2018.

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The assessment is done at a reporting unit level, which is one level below the operating segments.

The Company has changed its basis of presentation for segments.

Segment Reporting for additional information on the Company's segment reporting.

Due to the ongoing economic impacts from the COVID-19 pandemic, the Company conducted a quantitative interim goodwill impairment assessment at June 30, 2020.

The impairment assessment compares the fair value of each reporting unit with its carrying amount (including goodwill).

If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

The Company's interim assessment estimated fair value for each reporting unit using an income approach that incorporated a discounted cash flow model that involves many management assumptions based upon future growth projections which include estimates of COVID-19 impacts on our various business lines.

Assumptions include estimates of future after-tax cash flows, growth rates, and discount rates based upon industry and competitor analyses.

Results of the interim assessment indicated no goodwill impairment for any of the reporting units as of June 30, 2020.

The changes in the carrying amount of the Company’s goodwill and intangible assets for the nine months ended June 30, 2020 and 2019 were as follows:

(Dollars in Thousands) Consumer Commercial Corporate Services/Other Total

September 30, 2019 $ 87,145 $ 222,360 $ — $ 309,505

Acquisitions — — — —

Impairment — — — —

June 30, 2020 $ 87,145 $ 222,360 $ — $ 309,505

September 30, 2018 $ 87,145 $ 216,125 $ — $ 303,270

Acquisitions — — — —

Measurement Period Adjustments (1)

— 4,671 — 4,671

Impairment — — — —

June 30, 2019 $ 87,145 $ 220,796 $ — $ 307,941

(1) The Company recognized measurement period adjustments on provisional goodwill during the fiscal 2019 second quarter related to the Crestmark acquisition .

There have been no changes to the carrying amount of goodwill during the three months ended December 31, 2020.

The changes in the carrying amount of the Company’s intangible assets for the three months ended December 31, 2020 and 2019 were as follows:

(Dollars in Thousands) Trademark (1)

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Write-offs during the period — — — ( 24 ) ( 24 )

Balance as of June 30, 2020 $ 11,166 $ 517 $ 26,095 $ 6,196 $ 43,974

Balance as of December 31, 2020 $ 10,629 $ 327 $ 22,847 $ 5,857 $ 39,660

Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 10,123 $ 109,316

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Accumulated impairment — — ( 10,248 ) ( 219 ) ( 10,467 )

Balance as of June 30, 2020 $ 11,166 $ 517 $ 26,095 $ 6,196 $ 43,974

Balance as of December 31, 2020 $ 10,629 $ 327 $ 22,847 $ 5,857 $ 39,660

(1) Book amortization period of 5 - 15 years.

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Amortization during the period ( 264 ) ( 113 ) ( 2,115 ) ( 184 ) ( 2,676 )

Write-offs during the period — — — ( 314 ) ( 314 )

Balance as of June 30, 2019 $ 12,216 $ 944 $ 35,951 $ 7,042 $ 56,153

Balance as of December 31, 2019 $ 11,695 $ 714 $ 31,092 $ 6,650 $ 50,151

Gross carrying amount $ 14,624 $ 2,480 $ 82,088 $ 10,719 $ 109,911

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Accumulated impairment — — ( 10,248 ) ( 659 ) ( 10,907 )

Balance as of June 30, 2019 $ 12,216 $ 944 $ 35,951 $ 7,042 $ 56,153

Balance as of December 31, 2019 $ 11,695 $ 714 $ 31,092 $ 6,650 $ 50,151

(1) Book amortization period of 5 - 15 years.

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The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets.

Estimated amortization expense of intangible assets in the remaining three months of fiscal 2020 and subsequent fiscal years at June 30, 2020 was as follows:

(Dollars in Thousands)

Estimated amortization expense of intangible assets in the remaining nine months of fiscal 2021 and subsequent fiscal years was as follows:

(Dollars in Thousands) December 31, 2020

Remaining in 2021 $ 6,532

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The Company tests intangible assets for impairment at least annually or more often if conditions indicate a possible impairment.

There were no impairments to intangible assets during the three and nine months ended June 30, 2020 or the three months ended June 30, 2019.

There was $ 0.1 million in impairments to intangible assets during the nine months ended June 30, 2019.

There were no impairments to intangible assets during the three months ended December 31, 2020 and 2019.

OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES

Operating lease ROU assets, included in other assets, were $ 26.5 million at June 30, 2020.

Operating lease liabilities, included in accrued expenses and other liabilities, were $ 28.0 million at June 30, 2020.

Operating lease ROU assets, included in other assets, were $ 25.2 million at December 31, 2020.

Operating lease liabilities, included in accrued expenses and other liabilities, were $ 26.7 million at December 31, 2020.

Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities were as follows:

(Dollars in Thousands)

(Dollars in Thousands) December 31, 2020

Remaining in 2021 $ 2,880

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The weighted-average discount rate and remaining lease term for operating leases were as follows:

June 30, 2020

December 31, 2020

Weighted-average discount rate 2.34 %

Weighted-average remaining lease term (years) 11.23

The components of total lease costs for operating leases, included in occupancy and equipment noninterest expense, were as follows:

(Dollars in Thousands) Nine Months Ended June 30, 2020

The components of total lease costs for operating leases were as follows:

(Dollars in Thousands) Three Months Ended December 31, 2020

Lease expense $ 954

Short-term and variable lease cost 63

ROU asset impairment 224

Sublease income ( 108 )

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Repurchase of Common Stock

During the nine months ended June 30, 2020, the Company repurchased 3,498,394 of its shares, at an average price of $ 34.34 , which exhausted the remaining shares available for repurchase by the Company under the March 26, 2019 share repurchase program.

The Company's Board of Directors authorized the November 20, 2019 share repurchase program to repurchase up to an additional 7,500,000 shares of the Company's outstanding common stock through December 31, 2022.

During the three months ended June 30, 2020, the Company did no t repurchase shares as part of the share repurchase program because the Company suspended its share repurchase activity in March 2020.

For the nine months ended June 30, 2020, and 2019, the Company also repurchased 89,613 and 90,264 shares, or $ 3.0 million and $ 3.0 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

Repurchase of Treasury Stock

On June 25, 2019, the Company retired 114,558 shares of common stock held in treasury.

The Company accounts for the retirement of repurchased shares, including treasury stock, using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares.

The Company's Board of Directors authorized the November 20, 2019 share repurchase program to repurchase up to 7,500,000 shares of the Company's outstanding common stock.

This authorization is effective from November 21, 2019 through December 31, 2022.

During the three months ended December 31, 2020, and 2019, the Company repurchased 1,943,575 and 899,371 shares, respectively, as part of the share repurchase program.

Under the repurchase program, repurchased shares were retired and designated as authorized but unissued shares.

The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares.

When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings.

No shares of common stock held in treasury were retired in the nine months ended June 30, 2020.

As of December 31, 2020, the remaining number of shares available for repurchase under this program was 2,285,157 shares of common stock.

For the three months ended December 31, 2020, and 2019, the Company also repurchased 79,101 and 82,971 shares, or $ 1.8 million and $ 2.7 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

STOCK COMPENSATION

The Company maintains the Meta Financial Group, Inc.

2002 Omnibus Incentive Plan, as amended and restated (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options and nonvested (restricted) shares to certain officers and directors of the Company.

2002 Omnibus Incentive Plan, as amended and restated (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options, nonvested (restricted) shares, and performance share units ("PSUs") to certain officers and directors of the Company.

Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant.

The exercise price of options or fair value of nonvested (restricted) shares granted under the Company’s incentive plan is equal to the fair market value of the underlying stock at the grant date.

The exercise price of options or fair value of nonvested (restricted) shares and performance share units granted under the Company’s incentive plan is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable.

The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur.

The following tables show the activity of options and nonvested (restricted) shares granted, exercised, or forfeited under the 2002 Omnibus Incentive Plan for the nine months ended June 30, 2020:

(Dollars in Thousands, Except Per Share Data) Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Yrs) Aggregate Intrinsic Value

Options outstanding, September 30, 2019 59,835 $ 8.06 1.54 $ 1,469

Granted — — — —

Exercised ( 41,949 ) 6.98 1.01 866

Forfeited or expired — — — —

Options outstanding, June 30 2020 17,886 $ 10.60 0.25 $ 135

Options exercisable, June 30, 2020 17,886 $ 10.60 0.25 $ 135

The following tables show the activity of nonvested (restricted) shares and PSUs granted, exercised, or forfeited under the 2002 Omnibus Incentive Plan for the three months ended December 31, 2020.

There were no options granted, exercised or forfeited under this plan during the three months ended December 31, 2020.

(Dollars in Thousands, Except Per Share Data) Number of Shares Weighted Average Fair Value at Grant

Nonvested shares outstanding, September 30, 2020

790,083 $ 30.03

Granted 136,087 26.22

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Forfeited or expired ( 91,060 ) 29.74

Nonvested shares outstanding, June 30, 2020 831,717 $ 29.99

At June 30, 2020, stock-based compensation expense not yet recognized in income totaled $ 9.4 million, which is expected to be recognized over a weighted average remaining period of 2.46 years.

The Company recorded an income tax expense of $ 3.9 million for the nine months ended June 30, 2020, resulting in an effective tax rate of 3.91 %, compared to an income tax benefit of $ 3.2 million, or an effective tax rate of ( 4.20 %), for the nine months ended June 30, 2019.

Nonvested shares outstanding, December 31, 2020

597,697 $ 29.67

(Dollars in Thousands, Except Per Share Data) Number of Units Weighted Average Fair Value at Grant

Performance share units outstanding, September 30, 2020

Forfeited or expired — —

Performance share units outstanding, December 31, 2020

60,984 $ 34.03

(1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award.

At December 31, 2020, stock-based compensation expense not yet recognized in income totaled $ 9.4 million, which is expected to be recognized over a weighted average remaining period of 2.26 years.

The Company recorded an income tax expense of $ 3.5 million for the three months ended December 31, 2020, resulting in an effective tax rate of 10.77 %, compared to an income tax benefit of $ 0.7 million, or an effective tax rate of 2.97 %, for the three months ended December 31, 2019.

The Company’s effective tax rate was lower than the U.S.

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The table below compares the income tax expense components for the periods presented.

Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in Thousands) 2020 2019

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Effective tax rate 10.77 % 2.97 %

The Company does not expect significant income tax impacts due to the CARES Act, which was signed in response to the COVID-19 pandemic.

The Company does not expect significant income tax impacts due to the CARES Act or the CAA, which were signed in response to the COVID-19 pandemic.

COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Bank makes various commitments to extend credit that are not reflected in the accompanying Condensed Consolidated Financial Statements as described below.

At June 30, 2020 and September 30, 2019, unfunded loan commitments approximated $ 1.12 billion and $ 978.1 million, respectively, excluding undisbursed portions of loans in process.

At December 31, 2020 and September 30, 2020, unfunded loan commitments approximated $ 1.35 billion and $ 1.22 billion, respectively, excluding undisbursed portions of loans in process.

Commitments, which are disbursed subject to certain limitations, extend over various periods of time.

Generally, unused commitments are canceled upon expiration of the commitment term as outlined in each individual contract.

The Company had no commitments to purchase securities at June 30, 2020 or September 30, 2019.

The Company had no commitments to sell securities at June 30, 2020 or September 30, 2019.

The Company had no commitments to purchase securities at December 31, 2020 or September 30, 2020.

The Company had no commitments to sell securities at December 31, 2020 or September 30, 2020.

The exposure to credit loss in the event of non-performance by other parties to financial instruments for commitments to extend credit is represented by the contractual amount of those instruments.

The same credit policies and collateral requirements are used in making commitments and conditional obligations as are used for on-balance-sheet instruments.

At June 30, 2020 and at September 30, 2019, the Company had an allowance for credit losses on off-balance sheet credit exposures of $ 0.1 million.

This amount is maintained as a separate liability account within other liabilities.

Since certain commitments to make loans and to fund lines of credit and loans in process expire without being used, the amount does not necessarily represent future cash commitments.

Since certain commitments to make loans and to fund lines of credit expire without being used, the amount does not necessarily represent future cash commitments.

In addition, commitments used to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

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The Court ruled in favor of MetaBank on cross motions for summary judgment and vacated the trial.

Card Limited has the right to appeal once the ruling is finalized.

The Bank intends to continue to vigorously defend this claim, if appealed.

Card Limited has appealed this decision.

The Bank intends to continue to vigorously defend this claim.

An estimate of a range of reasonably possible loss cannot be made at this stage of the litigation.

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The Bank is seeking recovery of all amounts to which it is entitled at law or equity and intends to vigorously pursue its claims against the defendants.

The Bank was served on December 24, 2018, with a lawsuit captioned The Ohio Valley Bank Company v.

MetaBank dba Refund Advantage, Case No.

18 CV 134 in the Court of Common Pleas, Gallia County, Ohio.

This action alleges that MetaBank breached a contract with The Ohio Valley Bank Company by terminating the contract before the term expired, resulting in over $ 3.0 million in damages.

This matter was settled between the parties upon terms agreeable to the Bank, and has been dismissed.

From time to time, the Company or its subsidiaries are subject to certain legal proceedings and claims in the ordinary course of business.

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(Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company

Three Months Ended June 30, 2020 2019 2020 2019 2020 2019 2020 2019

Net interest income (1)

$ 29,507 $ 22,981 $ 36,104 $ 39,688 $ ( 3,474 ) $ 4,299 $ 62,137 $ 66,968

Noninterest income:

Refund transfer product fees 4,595 6,697 — — — — 4,595 6,697

Tax advance product fees (1)

28 34 — — — — 28 34

Payment card and deposit fees 21,302 21,377 — — — — 21,302 21,377

Other bank and deposit fees — — 213 296 1 199 214 495

Rental income (1)

5 5 11,226 9,091 — 290 11,231 9,386

Gain on sale of securities available-for-sale, net (1)

— — — — — 440 — 440

Gain on sale of other (1)

— 115 1,214 2,498 — 7 1,214 2,620

Other income (1)

324 344 1,267 934 873 1,463 2,464 2,741

Total noninterest income 26,254 28,572 13,920 12,819 874 2,399 41,048 43,790

Revenue $ 55,761 $ 51,553 $ 50,024 $ 52,507 $ ( 2,600 ) $ 6,698 $ 103,185 $ 110,758

(1) These revenues are not within the scope of Topic 606.

Additional details are included in other footnotes to the accompanying financial statements.

The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.

(Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company

Nine Months Ended June 30, 2020 2019 2020 2019 2020 2019 2020 2019

Three Months Ended December 31, 2020 2019 2020 2019 2020 2019 2020 2019

Net interest income (1)

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5 4 9,880 11,034 — 1,313 9,885 12,351

Gain on sale of securities available-for-sale, net (1)

— — — — — 649 — 649

Gain on divestitures (1)

— — — — 19,275 — 19,275 —

(Loss) gain on sale of other (1)

Gain (loss) on sale of other (1)

— 240 2,591 2,339 256 ( 5,147 ) 2,847 ( 2,568 )

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159 553 2,461 1,329 4,695 1,364 7,315 3,246

Total noninterest income 134,227 141,220 44,422 40,406 20,395 4,939 199,044 186,565

Total noninterest income (expense) 25,335 24,764 15,166 14,980 4,954 ( 2,261 ) 45,455 37,483

Revenue $ 47,682 $ 41,321 $ 57,014 $ 54,716 $ 6,758 $ 6,097 $ 111,454 $ 102,134

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The transaction price for such activity is based upon stand-alone fees within the terms and conditions.

At June 30, 2020 and September 30, 2019, there were no receivables related to refund transfer fees, which reflect earned revenue with unconditional rights to payment for product fee income.

At December 31, 2020 and September 30, 2020, there were no receivables related to refund transfer fees, which reflect earned revenue with unconditional rights to payment for product fee income.

All refund transfer fees are recorded within the Consumer reporting segment.

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The Consumer reporting segment includes principal/agent relationships.

Within this segment, MPS relationships are recorded on a gross basis within the Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of association/network contracts and partner/processor contracts for prepaid cards, which are recorded on a net basis within the Consolidated Statements of Operations as Meta is the agent in these contracts.

Also within this segment, Tax Service relationships are recorded on a gross basis within the Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of contracts with software providers and merchants, which are recorded on a net basis within the Consolidated Statements of Operations as Meta is the agent in these contracts.

Within this segment, MPS relationships are recorded on a gross basis within the Condensed Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of association/network contracts and partner/processor contracts for prepaid cards, which are recorded on a net basis within the Condensed Consolidated Statements of Operations as Meta is the agent in these contracts.

Also within this segment, Tax Service relationships are recorded on a gross basis within the Condensed Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of contracts with software providers and merchants, which are recorded on a net basis within the Condensed Consolidated Statements of Operations as Meta is the agent in these contracts.

SEGMENT REPORTING

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Operating segments are aggregated into reportable segments if certain criteria are met.

In the Annual Report on Form 10-K for the fiscal year ended September 30, 2019, the Company reported its results of operations through three business segments:

Payments, Banking, and Corporate Services/Other .

Beginning October 1, 2019, segments are now aligned with the new management operating structure implemented by the Company for fiscal year 2020.

The Company accordingly has changed its basis of presentation for segments, and following such change, reports its results of operations through the following three business segments:

The Company reports its results of operations through the following three business segments:

Consumer, Commercial, and Corporate Services/Other.

The Meta Payment Systems and Tax Services divisions, formerly reported in the Payments segment, are now included in the Consumer segment.

The Warehouse Finance, Consumer Credit Products and ClearBalance business lines, previously reported in the Banking segment, are now included in the Consumer segment .

The Crestmark and AFS divisions, formerly reported in the Banking segment, are now included in the Commercial segment.

The Community Bank division and Student Loan lending portfolio, previously reported in the Banking segment, are now included in the Corporate Services/Other segment.

The Meta Payment Systems and Tax Services divisions, as well as the Consumer Credit Products and ClearBalance business lines, are reported in the Consumer segment .

The Crestmark and AFS divisions are reported in the Commercial segment.

The Community Bank division, Warehouse Finance, and Student Loan lending portfolio are included in the Corporate Services/Other segment.

The Corporate Services/Other segment also includes certain shared services as well as treasury related functions such as the investment portfolio, wholesale deposits and borrowings.

Prior periods have been reclassified to conform to the current period presentation.

The Company does not report indirect general and administrative expenses in the Consumer and Commercial segments.

The following tables present segment data for the Company for the three and nine months ended:

(Dollars in Thousands) Consumer Commercial Corporate

Services/Other Total

Three Months Ended June 30, 2020

Net interest income $ 29,507 $ 36,104 $ ( 3,474 ) $ 62,137

Provision for loan and lease losses ( 267 ) 7,946 7,414 15,093

Noninterest income 26,254 13,920 874 41,048

Noninterest expense 15,249 26,729 29,263 71,241

Income (loss) before income tax expense (benefit) 40,779 15,349 ( 39,277 ) 16,851

Total assets 650,814 2,690,719 5,437,493 8,779,026

Total goodwill 87,145 222,360 — 309,505

Total deposits 6,767,516 9,243 813,566 7,590,325

Beginning October 1, 2020, Warehouse Finance, formerly reported in the Consumer segment, is now included in the Corporate Services/Other segment.

Prior periods have been reclassified to conform to the current presentation.

The Company adopted ASU 2018-02 as of October 1, 2020.

The amendments in this ASU allow for a reclassification from AOCI to Retained Earnings for stranded tax effects from the Tax Cuts and Jobs Act ("TCJA").

For the Company, these amendments are limited to any unrealized gains and losses held in Other Comprehensive Income for debt securities AFS held at the time of the TCJA enactment.

The Company determined there were no stranded tax effects from the TCJA enactment and has not made any reclassification from AOCI to Retained Earnings upon adoption of this ASU.

The following tables present segment data for the Company:

Three Months Ended December 31, 2020

(Dollars in Thousands) Consumer Commercial Corporate

Services/Other Total

Nine Months Ended June 30, 2020

Net interest income $ 22,347 $ 41,848 $ 1,804 $ 65,999

Provision for loan and lease losses 20,348 23,641 11,807 55,796

Provision for credit losses 2,366 6,467 ( 2,744 ) 6,089

Noninterest income 25,335 15,166 4,954 45,455

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Total deposits 5,884,638 13,230 309,923 6,207,791

Three Months Ended December 31, 2019

(Dollars in Thousands) Consumer Commercial Corporate

Services/Other Total

Three Months Ended June 30, 2019

Net interest income $ 16,557 $ 39,736 $ 8,358 $ 64,651

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Total deposits 2,999,184 13,855 1,793,541 4,806,580

(Dollars in Thousands) Consumer Commercial Corporate

Services/Other Total

Nine Months Ended June 30, 2019

Net interest income $ 56,484 $ 113,604 $ 28,502 $ 198,590

Provision for loan losses 25,739 17,441 8,349 51,529

Noninterest income 141,220 40,406 4,939 186,565

Noninterest expense 62,834 95,567 98,615 257,016

Income (loss) before income tax expense (benefit) 109,131 41,002 ( 73,523 ) 76,610

Total assets 663,579 2,320,589 3,116,904 6,101,072

Total goodwill 87,145 220,796 — 307,941

Total deposits 2,811,582 5,988 1,957,644 4,775,214

FAIR VALUES OF FINANCIAL INSTRUMENTS

Accounting Standards Codification ("ASC") 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement.

ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement.

It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.

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These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.

Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

There were no transfers between levels of the fair value hierarchy at June 30, 2020 or September 30, 2019.

Debt Securities Available for Sale and Held to Maturity .

Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost.

The fair values of debt securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or valuation based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market (Level 2 inputs).

The Company considers these valuations supplied by a third-party provider, which utilizes several sources for valuing fixed-income securities.

These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology and the third-party provider’s own matrix and desk pricing.

The Company, no less than annually, reviews the third-party provider’s methods and source’s methodology for reasonableness and to ensure an understanding of inputs utilized in determining fair value.

Sources utilized by the third-party provider include but are not limited to pricing models that vary based on asset class and include available trade, bid, and other market information.

This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs.

Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third-party provider;

and our Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.

The fair value of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets.

Management reviews the prices obtained from independent asset pricing servicing for unusual fluctuations and comparison to current market trading activity.

Equity Securities.

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The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis:

Fair Value At June 30, 2020

Fair Value At December 31, 2020

(Dollars in Thousands) Total Level 1 Level 2 Level 3

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$ 3,896 $ — $ — $ —

(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2020 and September 30, 2019.

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2020 and September 30, 2020.

(2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

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$ 2,784 $ — $ — $ —

(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2020 and September 30, 2019.

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2020 and September 30, 2020.

(2) Consists of certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

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The Company does not record loans and leases at fair value on a recurring basis.

However, if a loan or lease is considered impaired, an allowance for loan and lease losses is established.

Once a loan or lease is identified as individually impaired, management measures impairment in accordance with ASC 310, Receivables .

Loans and Leases, Net for further information.

However, if a loan or lease is individually evaluated for risk of credit loss and repayment is expected to be solely provided by the values of the underlying collateral, the Company measures fair value on a nonrecurring basis.

Fair value is determined by the fair value of the underlying collateral less estimated costs to sell.

The fair value of the collateral is determined based on internal estimates and/or assessments provided by third-party appraisers and the valuation relies on discount rates ranging from 4 % to 90 %.

The following table summarizes the assets of the Company that are measured at fair value in the Condensed Consolidated Statements of Financial Condition on a non-recurring basis:

Fair Value At June 30, 2020

Fair Value At December 31, 2020

(Dollars in Thousands) Total Level 1 Level 2 Level 3

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Total National Lending 9,240 — — 9,240

Commercial real estate and operating 20 — — 20

Total Community Banking 20 — — 20

Total impaired loans and leases, net 9,260 — — 9,260

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(Dollars in Thousands) Fair Value at

June 30, 2020 Fair Value at

September 30, 2019 Valuation

December 31, 2020

Fair Value at

September 30, 2020

Technique Unobservable Input Range of Inputs

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Management reduced the appraised value by estimating selling costs and other inputs in a range of 4 % to 90 %.

The following tables disclose the Company’s estimated fair value amounts of its financial instruments at the dates set forth below.

It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company at June 30, 2020 and September 30, 2019, as more fully described below.

The operations of the Company are managed from a going concern basis and not a liquidation basis.

As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations.

Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value.

Neither of these components have been given consideration in the presentation of fair values below.

Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value.

These fair value estimates were made at December 31, 2020 and September 30, 2020 based on relevant market information and information about financial instruments.

Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled.

However, since there is no active market for certain financial instruments of the Company, the estimates of fair value are subjective in nature, involve uncertainties, and include matters of significant judgment.

Changes in assumptions as well as tax considerations could significantly affect the estimated values.

Accordingly, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company:

June 30, 2020

December 31, 2020

(Dollars in Thousands) Carrying

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Deposits 6,207,791 6,208,167 6,040,903 167,265 —

Federal Home Loan Bank advances 110,000 111,877 — 111,877 —

Other short- and long-term borrowings 96,760 98,873 — 98,873 —

Accrued interest payable 2,068 2,068 2,068 — —

(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2020 and September 30, 2019.

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2020 and September 30, 2020.

(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

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Loans and leases receivable 3,314,140 3,307,037 — — 3,307,037

Federal Home Loan Bank stock 30,916 30,916 — 30,916 —

Federal Reserve Bank and Federal Home Loan Bank stocks 27,138 27,138 — 27,138 —

Accrued interest receivable 16,628 16,628 16,628 — —

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Accrued interest payable 1,923 1,923 1,923 — —

(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2020 and September 30, 2019.

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2020 and September 30, 2020.

(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at June 30, 2020 and September 30, 2019.

CASH AND CASH EQUIVALENTS

The carrying amount of cash and short-term investments is assumed to approximate the fair value.

DEBT SECURITIES AVAILABLE FOR SALE AND EQUITY SECURITIES

Debt securities available for sale and equity securities are recorded at fair value on a recurring basis.

Fair values for these investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.

Non-marketable equity securities are measured at fair value using NAV per share (or its equivalent) as a practical expedient.

LOANS HELD FOR SALE

The carrying amount of loans held for sale is assumed to approximate the fair value.

LOANS AND LEASES, NET

The fair values of loans and leases were estimated using an exit price methodology.

The exit price estimation of fair value is based on the present value of expected cash flows, which are based on the contractual terms of the loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows.

Other considerations include the loan type, remaining life of the loan and credit risk.

FEDERAL RESERVE BANK AND FEDERAL HOME LOAN BANK STOCKS

The fair value of FRB and FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value.

ACCRUED INTEREST RECEIVABLE

The carrying amount of accrued interest receivable is assumed to approximate the fair value.

The carrying values of noninterest-bearing checking deposits, interest-bearing checking deposits, savings, money markets, and wholesale non-maturing deposits are assumed to approximate fair value since deposits are immediately withdrawable without penalty.

The fair value of time certificate deposits and wholesale certificate of deposits are estimated using a discounted cash flows calculation that applies the FHLB Des Moines curve to aggregated expected maturities of time deposits.

In accordance with Subtopic 825-10, Financial Instruments , no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) as such intangibles are not financial instruments as defined under Subtopic 825-10.

OVERNIGHT FEDERAL FUNDS PURCHASED

The carrying amount of federal funds purchased is assumed to approximate the fair value.

FEDERAL HOME LOAN BANK ADVANCES

The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, SUBORDINATED DEBENTURES AND OTHER BORROWINGS

The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.

ACCRUED INTEREST PAYABLE

The carrying amount of accrued interest payable is assumed to approximate the fair value.

Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument.

Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments.

These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time.

Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision.

Changes in assumptions as well as tax considerations could significantly affect the estimates.

Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

SUBSEQUENT EVENTS

Management has evaluated subsequent events that occurred after June 30, 2020.

Management has evaluated subsequent events that occurred after December 31, 2020.

During this period, up to the filing date of this Quarterly Report on Form 10-Q, management identified the following subsequent events:

• On August 5, 2020, MetaBank, N.A., a wholly-owned subsidiary of the Company (“MetaBank”) entered into a three-year program management agreement (the “PMA”) with Emerald Financial Services, LLC (“EFS”), a wholly owned indirect subsidiary of H&R Block, Inc.

(“H&R Block”), pursuant to which MetaBank will serve as a facilitator for H&R Block’s suite of financial services products, which include:

Emerald Prepaid MasterCard®, Refund Transfers, Refund Advances, Emerald Advance® lines of credit, and other products through H&R Block’s distribution channels.

EFS has the right to terminate the PMA under certain circumstances, including if the Bank should lose its exemption from certain provisions of the Dodd-Frank Act known as the “Durbin Amendment.” Based on current projections (or forecasts) MetaBank does not anticipate losing its Durbin Amendment exemption during the initial term of the PMA.

Upon termination of the PMA or any of the related product schedules, EFS has the right to purchase or arrange the purchase of all of the affected accounts related to its ongoing product offerings.

• On August 4, 2020, the Company sold an additional $ 58.6 million of the retained Community Bank portfolio to Central Bank.

• On January 13, 2021, the Company sold an additional $ 103.2 million of the retained Community Bank loan portfolio to Central Bank.

The sale did not result in any material gain to the Company.

The loans included in the sale were classified as held for sale for the quarter ended June 30, 2020.

• As a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19, the Company has granted deferral of payments or has made other COVID-19 related modifications.

As of July 31, 2020, loans and leases totaling $ 175.8 million were still in their deferment period and $ 33.9 million of other COVID-19 related modifications were still active.

The loans included in the sale were classified as held for sale at December 31, 2020.

• Beginning January 4, 2021, the Bank disbursed approximately $ 7.10 billion of the second round of Economic Impact Payments ("EIP") under the CAA, pursuant to the Company's amendment of its existing agreement with the U.S.

Department Treasury's Bureau of the Fiscal Service ("Fiscal Service") entered into on December 27, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements