What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-11-23 compared with 2020-11-30 · 164 added, 259 removed, 194 unchanged (69% of the section changed)

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This section should be read in conjunction with the following parts of this Form 10-K:

Part II, Item 8 “Financial Statements and Supplementary Data,” Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” and Part I, Item 1 “Business.”

Part I, Item 1 “Business,” Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” and Part II, Item 8 “Financial Statements and Supplementary Data.”

The Company, a registered bank holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a national bank.

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EXECUTIVE SUMMARY

COVID-19 Business Update

The Company continues to focus on the well-being of its employees, partners and customers.

Preventative health measures remain in place to protect employees and customers including offering remote work options, implementing social distancing measures where possible, restricting non-essential business travel and enhancing preventative cleaning services at all office locations.

The Company's COVID-19 Crisis Command Center consisting of leadership and business continuity planning resources throughout the organization continues to effectively monitor possible interruptions related to the pandemic and to ensure business continuity.

The Company is participating in the PPP under the CARES Act, which is being administered by the SBA.

As of September 30, 2020, the Company had 689 loans outstanding with a total of $219.0 million in loan balances that were originated as part of the program.

From a credit perspective, the Company continues to monitor each of its lending portfolios.

The Company has placed significant focus on its hospitality and movie theater loans and its small ticket equipment finance relationships.

The credit management team has remained in regular contact with these borrowers.

The Company's community bank hospitality loan balances increased to $179.3 million as of September 30, 2020 from $169.0 million as of June 30, 2020 and the average loan-to-value ratio on those loans was 60% at both September 30, 2020 and June 30, 2020.

67% of these hospitality relationships received PPP loans and, as of September 30, 2020, 44% of the hospitality loan balances received some form of payment deferral modification and were still in their active deferment period.

Community Bank loans to borrowers operating in the movie theater industry totaled $17.9 million as of both September 30, 2020 and June 30, 2020.

As of September 30, 2020, all movie theater loan balances were still in their active deferment period.

As of September 30, 2020, the Company had $287.2 million in small ticket equipment finance balances, of which $255.1 million were categorized within term lending and $32.1 million were categorized within lease financing.

Borrowers with respect to 8% of the balances on these small ticket equipment finance relationships that received some form of payment deferral modification were still in their active deferment period.

As of September 30, 2020, $170.0 million of the loans and leases that were granted deferral payments by the Company were still in their deferment period.

As of June 30, 2020, loans and leases totaling $292.2 million were within their deferment period.

In addition, the Company has made other COVID-19 related modifications, of which $23.3 million were still active as of September 30, 2020 compared to $34.6 million at June 30, 2020.

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

When excluding its seasonal tax services lending portfolio, the Company increased its allowance for loan and lease losses by $1.9 million at September 30, 2020, as compared to June 30, 2020.

This was primarily due to the effects of the on-going COVID-19 pandemic and the continued economic uncertainty that it has caused.

The Company will continue to diligently monitor the allowance for loan and lease losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

The Company's capital position remained strong as of September 30, 2020, even while absorbing the temporary impact from the EIP program, as described further below.

As of September 30, 2020, the Bank's capital leverage ratio based on average assets was 7.56%.

The Bank's capital leverage ratio based on September 30, 2020 period-end assets was 9.66%, which management believes better reflects the Company's anticipated balance sheet going forward.

In addition, the Company has options available that can be used to effectively manage capital levels through these turbulent times, including a strong and flexible balance sheet.

For additional related information, see "Regulation and Supervision" and "Risk Factors."

EIP Program Update

On April 29, 2020, the Bank entered into an amendment of its existing agreement with the Fiscal Service to provide debit card services to support the distribution of a segment of the Economic Impact Payments payable by the Internal Revenue Service under the CARES Act.

Under the EIP program, 3.6 million cards were delivered with total loads of $6.42 billion.

As a result of the program, the Company saw a quick influx of deposits to its balance sheet in mid-May 2020 with limited visibility into the duration of those deposits.

While this program's impact to earnings was negligible, it did have a significant impact on cash and deposit balances, leading to a net drag on the net interest margin along with pressuring the Company's leverage capital ratios.

The total balances remaining on the EIP cards were $942.2 million as of September 30, 2020 and $728.7 million as of November 20, 2020.

The funds on these cards increased the Company's quarterly average noninterest deposit balances by $1.62 billion, leading to an overall improvement in cost of deposits.

This short-term influx of deposits also led to excess cash balances held at the Federal Reserve during the current period, which yielded approximately 10 basis points in interest income, and increased the quarterly average of interest-earning assets compared to previous periods.

This increase of lower yielding cash balances resulted in a drag to the overall yield on total interest-earning assets during the quarter ended September 30, 2020.

The net impact to NIM was approximately 110 basis points.

Conversions of the Bank and the Company

Following receipt of the necessary regulatory approvals from the Office of the Comptroller of the Currency and the Federal Reserve Bank of Minneapolis (the "FRB"), on April 1, 2020, the Bank converted from a federal thrift charter to a national bank charter and the Company converted from a savings and loan holding company to a bank holding company that has elected treatment as a financial holding company.

The Bank now operates under the name "MetaBank, National Association." The Company and the Bank effected these conversions in order to more closely align the Bank's regulatory charter to its current and planned focus on national business that provides innovative financial solutions to consumers and businesses in niche markets often overlooked by traditional banks.

See "Regulation and Supervision" and "Risk Factors" for additional related information.

Business Developments

The Company resumed its share repurchase program (the "Program"), which it had suspended during March 2020 as a result of the uncertainty related to the COVID-19 pandemic.

During the quarter ended September 30, 2020, the Company repurchased 260,816 shares, at an average price of $19.13, under its Program, which is authorized through December 31, 2022.

Through November 20, 2020, the Company has repurchased a total of 1,364,416 of its shares, at a weighted average price of $24.66, since the Company resumed repurchasing shares under the Program in September 2020.

On August 5, 2020, the Bank entered into a three-year program management agreement with Emerald Financial Services, LLC, a wholly owned indirect subsidiary of H&R Block., pursuant to which the Bank 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.

The Company continued its support of various COVID-19 relief efforts including the EIP program and the PPP.

Financial Highlights

Total gross loans and leases at September 30, 2020 decreased $337.3 million, or 9%, to $3.31 billion, compared to September 30, 2019 and decreased $182.6 million, or 5% when compared to June 30, 2020.

Average deposits from the payments divisions for the fiscal 2020 fourth quarter increased nearly 121% to $5.82 billion when compared to the same quarter in fiscal 2019.

A significant portion of the year-over-year increase reflected the Company's participation in the EIP program.

Excluding the balances on the EIP cards, average payments deposits for the fiscal 2020 fourth quarter were approximately $4.20 billion, representing an increase of 60% compared to the same quarter in fiscal 2019.

Total revenue for the fiscal 2020 fourth quarter was $105.3 million, compared to $101.6 million for the same quarter in fiscal 2019.

Total revenue for the fiscal year ended September 30, 2020 was $498.8 million, an increase of 2% from the fiscal year ended September 30, 2019.

Net interest income for the fiscal 2020 fourth quarter was $64.5 million, compared to $65.6 million in the comparable quarter in fiscal 2019.

Total fiscal year 2020 net interest income was $259.0 million versus $264.2 million in the prior fiscal year.

NIM decreased to 3.77% for the fiscal 2020 fourth quarter from 4.95% over the same period of the prior fiscal year, while the tax-equivalent net interest margin ("NIM, TE") decreased to 3.79% from 5.00% for that same period in fiscal 2019.

NIM for fiscal year 2020 was 4.09% compared to 4.91% during fiscal year 2019 while NIM, TE, decreased to 4.12% for fiscal year 2020 from 5.02% for fiscal year 2019.

The decrease in NIM during the fiscal 2020 fourth quarter and fiscal year 2020 was primarily driven by excess cash associated with the Company's participation in the EIP program.

Business Development Highlights for the 2021 Fiscal Fourth Quarter and Full Fiscal Year 2021

• Named the Visa card issuer, in conjunction with Blackhawk Network, for the Excluded Workers Fund, a New York State Department of Labor program that provides one-time payments to certain New Yorkers who lost income due to COVID-19.

• Recognized a net unrealized gain of $4.1 million on a prior investment in MoneyLion Inc.

("MoneyLion") following the completion of its de-SPACing process and listing on the New York Stock Exchange on September 22, 2021.

• Expanded our renewable energy financing, originating $101.1 million for the fiscal year 2021, resulting in $26.5 million in total net investment tax credits.

• Announced a new share repurchase program and repurchased 234,297 shares during the 2021 fiscal fourth quarter , at an average price of $ 51.18, r eflecting the momentum of the business and confidence in the Company's strategy and growth trajectory.

An additional 1,252,145 shares were repurchased subsequent to September 30, 2021 through November 18, 2021.

Hanson, President and Chief Executive Officer of the Company retired from his positions at Meta Financial and MetaBank.

He will remain on the Company’s Board until the next annual stockholders’ meeting, expected to take place in February 2022.

He also will serve as a Strategic Advisor to Meta on industry and partner relations until the end of 2022.

The Board appointed Brett L.

Pharr as Chief Executive Officer and Anthony M.

Sharett as President of Meta Financial Group and MetaBank effective October 1, 2021.

Financial Highlights for the 2021 Fiscal Fourth Quarter

Total revenue for the fourth quarter was $120.2 million, an increase of $14.9 million compared to the same quarter in fiscal 2020, primarily driven by higher net interest income, payments fee income and $4.1 million in other income related to the MoneyLion valuation.

Net interest income for the fourth quarter was $70.7 million, an increase of $6.2 million compared to $64.5 million in the fourth quarter last year.

Net interest margin ("NIM") improved to 4.35% for the fourth quarter from 3.77% during the same period of last year, chiefly due to the decrease of cash associated with the Company's participation in the EIP program, as well as an increase in commercial and warehouse finance loans and leases.

Total gross loans and leases at September 30, 2021 increased $293.7 million, to $3.61 billion, or 9%, compared to September 30, 2020 and increased $112.6 million, or 3%, when compared to June 30, 2021.

The increase was primarily driven by growth in commercial finance, and consumer finance loans partially offset by a decrease in community bank loans, which was driven by a loan sale of $75.1 million during the quarter.

Subsequent Events

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FINANCIAL CONDITION

At September 30, 2020, the Company’s total assets decreased by $90.8 million, or 1%, to $6.09 billion, compared to $6.18 billion at September 30, 2019.

The reduction in assets was primarily due to a decrease in loans and leases and decrease in the investment portfolio, partially offset by an increase in cash and cash equivalents.

Total cash and cash equivalents were $427.4 million at September 30, 2020, an increase of $300.8 million from $126.5 million at September 30, 2019.

The increase stemmed from the large influx of EIP deposits in the third quarter of fiscal 2020, as discussed further above under "EIP Program Update." The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB.

At September 30, 2021, the Company’s total assets increased by $598.6 million to $6.69 billion compared to September 30, 2020, primarily due to an increase of $596.8 million in investment securities available for sale.

Total cash and cash equivalents was $314.0 million at September 30, 2021, decreasing from $427.4 million at September 30, 2020, primarily resulting from the withdraw of EIP related deposits.

The Bank has been working with other banks to transfer these temporary deposits off the balance sheet.

Otherwise, the Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB.

At September 30, 2021, the Company did not have any federal funds sold.

The total investment portfolio decreased by $46.5 million, or 3%, to $1.36 billion at September 30, 2020, compared to September 30, 2019, as maturities, sales and principal pay downs exceeded purchases.

The Company’s portfolio of securities customarily consists primarily of MBS, which have expected lives much shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions (“NBQ”) that mature in approximately 15 years or less, and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities.

The total investment portfolio increased $560.9 million, or 41%, to $1.92 billion at September 30, 2021, compared to $1.36 billion at September 30, 2020, as purchases exceeded maturities and principal pay downs.

The Company’s portfolio of securities customarily consists primarily of MBS, which have expected lives much shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions, which mature in approximately 15 years or less, and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities.

All MBS held by the Company at September 30, 2021 were issued by a U.S.

Government agency or instrumentality.

Of the total MBS, which had a fair value of $459.0 million at September 30, 2020, $453.6 million were classified as AFS, and $5.4 million were classified as HTM.

Of the total investment securities, which had a fair value of $901.7 million at September 30, 2020, $814.5 million were classified as AFS and $87.2 million were classified as HTM.

During fiscal 2020, the Company purchased $229.3 million of investment securities available for sale and did not purchase any investment securities held to maturity or MBS securities.

Loans held for sale at September 30, 2020 totaled $183.6 million, increasing from $148.8 million at September 30, 2019.

This increase was primarily driven by the classification of community bank loans expected to sell during the first quarter of fiscal 2021.

The Company’s portfolio of loans and leases receivable decreased by $336.1 million, or 9%, to $3.32 billion at September 30, 2020, from $3.66 billion at September 30, 2019.

The decrease was primarily driven by the sale of community banking loans, partially offset by an increase in national lending loans and leases.

Of the total MBS at September 30, 2021, $1.02 billion, at fair value, were classified as available for sale, and $3.7 million, at cost, were classified as held to maturity.

Of the total investment securities at September 30, 2021, $847.9 million, at fair value, were classified as available for sale and $52.9 million, at cost, were classified as held to maturity.

During the fiscal year ended September 30, 2021, the Company purchased $1.04 billion of investment securities.

Loans held for sale at September 30, 2021 totaled $56.2 million, decreasing from $183.6 million at September 30, 2020.

This decrease was primarily driven by a portion of the retained Community Bank loan portfolio transferred to loans held for sale at September 30, 2020 compared to none at September 30, 2021.

The Company’s total loans and leases increased $293.7 million, or 9%, to $3.61 billion at September 30, 2021, from $3.31 billion at September 30, 2020.

The increase was primarily driven by growth in the commercial finance, tax services, and warehouse finance portfolios partially offset by the continued decrease in community banking loan balances.

See Note 5 to the “Notes to Consolidated Financial Statements” of this Annual Report on Form 10-K.

National lending loans and leases increased $379.0 million, or 15%, to $2.83 billion at September 30, 2020 compared to September 30, 2019.

Within the national lending portfolio, commercial finance loans and leases increased $391.8 million and warehouse finance loans increased $30.5 million, while the consumer finance portfolio decreased by $44.0 million at September 30, 2020 compared to September 30, 2019.

Community banking loans decreased $716.3 million, or 60%, at September 30, 2020 compared to September 30, 2019, due to reduction in commercial real estate and operating loans of $426.6 million and consumer one-to-four family real estate and other loans of $242.9 million.

See Note 3 and Note 5 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Through the Bank, the Company owns stock in the FHLB due to the Bank’s membership and participation in the banking system as well as stock in the Federal Reserve Bank.

Commercial finance loans increased $417.5 million, or 18% to $2.73 billion at September 30, 2021 compared to September 30, 2020.

Consumer finance loans, tax services loans and warehouse finance loans increased $28.7 million, $7.3 million, and $126.6 million at September 30, 2021, respectively, compared to September 30, 2020.

Community banking loans decreased $286.4 million, or 59%, at September 30, 2021 compared to September 30, 2020, primarily attributable to loan portfolio sales along with continued principal payments and payoffs.

As of September 30, 2021, the Company had no community banking loans classified as held for sale.

See Note 3 and Note 5 to the “Notes to Consolidated Financial Statements,” which are included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Through the Bank, the Company owns stock in the FHLB due to the Bank’s membership and participation in this banking system as well as stock in the Federal Reserve Bank.

The FHLB requires a level of stock investment based on a pre-determined formula.

The Company’s investment in these stocks decreased by $3.8 million, or 12%, to $27.1 million at September 30, 2020, from $30.9 million at September 30, 2019.

The decrease in stock was driven by a decrease in FHLB stock, which directly correlates with lower overnight borrowings balances from the FHLB at September 30, 2020 compared to the prior year.

Total end-of-period deposits increased by $642.2 million, or 15%, to $4.98 billion at September 30, 2020, as compared to September 30, 2019, primarily reflecting the Company's participation in the EIP program.

Lower levels of consumer spending and various stimulus payments loaded on partner cards also contributed to the overall increase in total deposits.

The increase in end-of-period deposits was partially offset by a decrease in wholesale deposits of $1.2 billion and a decrease in time certificate of deposits of $89.1 million.

The decrease in wholesale deposits was primarily due to a shift in the Company's deposit balances from wholesale deposits to noninterest bearing deposits stemming from the balances on the EIP cards.

The decrease in certificate of deposits and money market deposits was related to the sale of $290.5 million of total deposits included in the sale of the Community Bank division.

The Company’s total borrowings decreased $763.6 million, or 89%, from $861.9 million at September 30, 2019, to $98.2 million at September 30, 2020, primarily due to decreases in overnight borrowings and long term FHLB advances as the Company used the increase in total deposits to fund loans and lease and investment balances.

The Company’s short-term borrowings fluctuate on a daily basis due to the nature of a portion of its noninterest-bearing deposit base, primarily related to payroll processing timing with a higher volume of short-term borrowings on Monday and Tuesday, which are typically paid down throughout the week.

This predictable fluctuation may be augmented near a month-end by a prefunding of certain programs.

The Bank also has an available no fee line of credit with JP Morgan of $25.0 million with no funds advanced at September 30, 2020.

The Company’s investment in these stocks increased $1.3 million, or 5%, to $28.4 million at September 30, 2021 from $27.1 million at September 30, 2020, resulting from the purchase of FHLB membership stock.

Total end-of-period deposits increased 11% to $5.51 billion at September 30, 2021, compared to $4.98 billion at September 30, 2020.

The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $661.6 million, partially offset by a decrease in wholesale deposits of $269.1 million.

The increase in noninterest-bearing deposits was driven by government stimulus-related dollars loaded on various partner cards.

As of September 30, 2021, EIP program card balances outstanding totaled $1.64 billion, of which only $69.8 million was on Meta's balance sheet with the remainder being held by other banks.

The Company's total borrowings decreased $5.4 million, or 5%, from $98.2 million at September 30, 2020 to $92.8 million at September 30, 2021.

See Note 13 to the “Notes to Consolidated Financial Statements,” which are included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

At September 30, 2021, the Company’s stockholders’ equity totaled $871.9 million, an increase of $24.6 million, from $847.3 million at September 30, 2020.

Stockholders’ equity increased primarily as a result of an increase in additional paid in capital, accumulated other comprehensive income, and an increase in retained earnings.

At September 30, 2020, the Bank continued to meet regulatory requirements for classification as a well-capitalized institution.

The increase was primarily attributable to growth in retained earnings and an increase in additional paid-in capital.

The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2021, continued to be classified as well-capitalized, and in good standing with the regulatory agencies.

See Note 18 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

The Company’s results of operations are dependent on net interest income, provision for loan and lease losses, noninterest income, noninterest expense and income tax expense.

The Company’s results of operations are dependent on net interest income, provision for credit losses, noninterest income, noninterest expense and income tax expense.

Net interest income is the difference, or spread, between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.

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Notwithstanding that a significant amount of the Company’s deposits, primarily those attributable to the payments division, pay relatively low rates of interest or none at all, the Company, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times, or on a different basis, than its interest-bearing liabilities.

The provision for loan and lease losses is the adjustment to the allowance for loan and lease losses balance for the applicable period.

The allowance for loan and lease losses is management’s estimate of probable loan and lease losses in the lending portfolio based upon loan and lease losses that have been incurred as of the balance sheet date.

The provision for credit losses is the adjustment to the allowance for credit losses balance for the applicable period.

The allowance for credit losses 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’s noninterest income is derived primarily from tax product fees, prepaid cards, credit products, deposit and ATM fees attributable to the payments division and fees charged on bank loans, leases and transaction accounts.

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Tax-equivalent adjustments have been made in yields on interest-bearing assets and NIM.

Non-accruing loans and leases have been included in the table as loans or leases carrying a zero yield.

Nonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield.

Fiscal Year Ended September 30,

2021 2020 2019

(Dollars in Thousands) Average

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Interest-earning assets:

Cash & fed funds sold $ 1,236,027 $ 2,824 0.23 % $ 128,507 $ 3,494 2.72 % $ 87,536 $ 2,249 2.57 %

Cash and fed funds sold $ 1,919,760 $ 3,709 0.19 % $ 1,236,027 $ 2,824 0.23 % $ 128,507 $ 3,494 2.72 %

Mortgage-backed securities 728,884 12,155 1.67 % 367,869 9,028 2.45 % 393,322 11,390 2.90 %

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Total investments 1,638,198 26,065 1.66 % 1,320,313 28,889 2.34 % 1,709,931 47,707 3.11 %

Total commercial finance 2,100,464 169,189 8.05 % 1,717,869 169,941 9.89 % 474,766 36,726 7.74 %

Total consumer finance 254,293 19,808 7.79 % 341,176 29,965 8.78 % 216,128 15,086 6.98 %

Total tax services 148,650 6,390 4.30 % 110,503 8,193 7.41 % 112,583 819 0.73 %

Total warehouse finance 292,952 17,919 6.12 % 188,483 11,826 6.27 % 14,425 879 6.09 %

National Lending loans and leases 2,796,359 213,306 7.63 % 2,358,031 219,925 9.33 % 817,902 53,510 6.54 %

Community Banking loans 975,618 47,822 4.90 % 1,180,594 54,603 4.63 % 1,009,255 44,965 4.46 %

Commercial finance 2,549,335 188,855 7.41 % 2,100,464 169,189 8.05 % 1,717,869 169,941 9.89 %

Consumer finance 248,757 19,940 8.02 % 254,293 19,808 7.79 % 341,176 29,965 8.78 %

Tax services 214,835 7,321 3.41 % 148,650 6,390 4.30 % 110,503 8,193 7.41 %

Warehouse finance 330,224 21,262 6.44 % 292,952 17,919 6.12 % 188,483 11,826 6.27 %

Community banking 375,258 18,702 4.98 % 975,618 47,822 4.90 % 1,180,594 54,603 4.63 %

Total loans and leases 3,718,409 256,080 6.89 % 3,771,977 261,128 6.92 % 3,538,625 274,528 7.76 %

Total interest-earning assets 7,276,367 $ 285,854 3.94 % 6,328,317 $ 292,841 4.66 % 5,377,063 $ 325,729 6.16 %

Non-interest-earning assets 881,314 875,124 454,688

Noninterest-earning assets 849,141 881,314 875,124

Total assets $ 8,125,508 $ 7,209,631 $ 6,252,187

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Total interest-bearing liabilities 653,246 6,863 1.05 % 1,833,882 33,803 1.84 % 2,632,107 61,522 2.34 %

Non-interest bearing deposits 4,396,132 — — % 2,685,502 — 0.00 % 2,455,360 — — %

Noninterest-bearing deposits 6,440,830 — — % 4,396,132 — — % 2,685,502 — — %

Total deposits and interest-bearing liabilities 7,094,115 $ 6,863 0.10 % 6,230,014 $ 33,803 0.54 % 5,317,609 $ 61,522 1.16 %

Other non-interest bearing liabilities 143,772 132,901 100,880

Other noninterest-bearing liabilities 189,841 143,772 132,901

Total liabilities 7,283,956 6,373,786 5,450,510

Shareholders' equity 841,552 835,845 801,677

Total liabilities and stockholders' equity $ 7,209,631 $ 6,252,187 $ 4,612,172

Net interest income and net interest rate spread including non-interest bearing deposits $ 259,038 4.12 % $ 264,207 5.00 % $ 130,549 3.38 %

Total liabilities and shareholders' equity $ 8,125,508 $ 7,209,631 $ 6,252,187

Net interest income and net interest rate spread including noninterest-bearing deposits $ 278,992 3.84 % $ 259,038 4.12 % $ 264,207 5.00 %

Net interest margin 3.83 % 4.09 % 4.91 %

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3.84 % 4.12 % 5.02 %

(1) The tax rates used to arrive at the TEY for the fiscal years ended September 30, 2020, 2019, and 2018 were 21%, 21%, and 24.53%, respectively.

(1) Tax rate used to arrive at the TEY for the fiscal years ended September 30, 2021, 2020, and 2019 was 21%.

(2) Net interest margin expressed on a fully taxable equivalent basis ("net interest margin, tax equivalent") is a non-GAAP financial measure.

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For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

Fiscal Year Ended September 30, 2020 vs.

2019 2019 vs.

Fiscal Year Ended September 30,

(Dollars in Thousands) Increase /

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Interest-earning assets:

Cash & fed funds sold $ 5,181 $ (5,851) $ (670) $ 1,107 $ 138 $ 1,245

Cash and fed funds sold $ 1,408 $ (523) $ 885 $ 5,181 $ (5,851) $ (670)

Mortgage-backed securities 6,711 (3,584) 3,127 (704) (1,658) (2,362)

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Total investments 6,845 (9,668) (2,823) (8,999) (9,819) (18,818)

Total commercial finance 34,015 (34,767) (752) 120,394 12,822 133,216

Total consumer finance (7,033) (3,124) (10,157) 10,287 4,591 14,878

Total tax services 2,292 (4,095) (1,803) (15) 7,389 7,374

Total warehouse finance 6,396 (303) 6,093 10,923 24 10,947

National Lending loans and leases 37,120 (43,739) (6,619) 135,737 30,678 166,415

Community Banking Loans (9,902) 3,121 (6,781) 7,871 1,767 9,638

Commercial finance 34,013 (14,347) 19,666 34,015 (34,767) (752)

Consumer finance (441) 573 132 (7,033) (3,124) (10,157)

Tax services 2,440 (1,509) 931 2,292 (4,095) (1,803)

Warehouse finance 2,362 981 3,343 6,396 (303) 6,093

Community banking (29,872) 752 (29,120) (9,902) 3,121 (6,781)

Total loans and leases (3,784) (1,264) (5,048) 17,364 (30,764) (13,400)

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Total revenue for fiscal 2021 was $549.9 million, compared to $498.8 million for fiscal 2020, an increase of 10%.

The increase in net income and revenue was primarily due to an increase in noninterest income and a decrease in noninterest expense, partially offset by a slight decrease in net interest income.

The increases in net income and revenue was primarily due to an increase in noninterest income and a decrease in provision for credit losses, partially offset by an increase in non-interest expense.

Net Interest Income

Net interest income for fiscal 2020 decreased by $5.2 million, or 2%, to $259.0 million from $264.2 million for the same period of the prior year.

The decrease in net interest income was primarily due to a decrease in interest income of 10% to $292.8 million for fiscal 2020, from $325.7 million for the same period of the prior year.

The decrease in interest income was primarily driven by lower overall loan balances and yields realized on the loan and lease portfolios along with a decrease in investment security balances, partially offset by a reduction in total interest expense.

The average balance of loans and leases as a percentage of interest-earning assets for the fiscal year ended September 30, 2020 decreased to 60%, from 66% for the fiscal year ended September 30, 2020, while the average balance of total investments as a percentage of interest-earnings assets decreased to 21%, from 32% over that same period.

Net interest income for fiscal 2021 increased by $20.0 million, or 8%, to $279.0 million from $259.0 million for the same period of the prior year.

The increase in net interest income was mainly attributable to the continued optimization of our earning asset and liability mix, which included a decrease in interest expense of 80% to $6.9 million for fiscal 2021, from $33.8 million for the same period of the prior year.

The decrease in interest expense was primarily driven by a significant increase in noninterest-bearing deposits, which lessened the Company's need to rely on wholesale deposits during fiscal 2021.

NIM was 3.83% for fiscal 2021, a decrease of 26 basis points from 4.09% in fiscal 2020.

NIM,TE was 4.12% in fiscal 2019, an decrease of 90 basis points from 5.02% in fiscal 2019.

The decreases in NIM and NIM, TE in fiscal 2020, compared to the same period of the prior year were primarily attributable to the increase in deposit balances related to the EIP program.

This short term influx of deposits also led to excess cash balances held at the Federal Reserve during the current period, which yielded approximately 10 basis points in interest income, and increased the quarterly average of interest-earning assets compared to previous periods.

The decrease in NIM in fiscal 2021, compared to the same period of the prior year was primarily attributable to the increase in noninterest-bearing deposit balances related to government stimulus-related dollars.

This increase in deposit balances also led to excess cash balances held at the Federal Reserve during fiscal 2021, which yielded approximately 10 basis points in interest income, and increased the quarterly average of interest-earning assets compared to previous periods.

This increase of lower-yielding cash balances resulted in a drag to the overall yield on total interest-earning assets during the current period.

The overall reported tax equivalent yield ("TEY") on average interest-earning assets decreased by 72 basis points to 3.94% when comparing fiscal 2021 to fiscal 2020.

The reduction was driven primarily by excess low-yielding cash held at the Federal Reserve, along with a lower interest rate environment.

The yield on the national lending portfolio decreased by 170 basis points while the yield on the community banking loan portfolio increased by 27 basis points.

The reduction was driven primarily by an increase in low-yielding cash held at the Federal Reserve, along with an overall lower rate environment.

The yield on the commercial finance portfolio decreased by 64 basis points and the tax services portfolio decreased by 89 basis points while the yield on the warehouse finance portfolio increased by 32 basis points.

The fiscal 2021 TEY on the securities portfolio decreased by 68 basis points to 1.66% as compared to the same period of the prior year.

The Company's average interest earning assets for fiscal 2020 increased $951.3 million, or 18%, to $6.33 billion, from $5.38 billion during 2019.

The increase was primarily attributable to increases in average cash balances of $1.11 billion, average loan and lease balances of $233.4 million, partially offset by a decrease in total average investment securities of $389.6 million.

The increase in average cash balances was due to the effects of the EIP program.

The increase in the Company's average loan and lease balances was driven by an increase in national lending loans of $438.3 million, partially offset by a reduction $205.0 million in community banking loans.

The decrease average investments was driven by the Company continuing to utilize sales of securities and cash flow from its amortizing securities portfolio to fund loan growth.

The Company’s average balance of total deposits and interest-bearing liabilities increased $912.4 million, or 17%, to $6.23 billion during fiscal 2020, from $5.32 billion during 2019.

The Company's average interest-earning assets for fiscal 2021 increased $948.1 million, or 15%, to $7.28 billion, from $6.33 billion during fiscal 2020.

The increase was primarily attributable to increases in average cash balances of $683.7 million and total average investment securities of $317.9 million, partially offset by a decrease in average loan and lease balances of $53.6 million.

The increase in average cash balances was due to an increase in noninterest-bearing deposit balances related to government stimulus-related dollars.

The decrease in the Company's average loan and lease balances was driven by a reduction $600.4 million in community banking loans partially offset by increases of $448.9 million, $66.2 million, and $37.3 million in commercial finance, tax services, and warehouse finance loans, respectively.

The Company’s average balance of total deposits and interest-bearing liabilities increased $864.1 million, or 14%, to $7.09 billion during fiscal 2021, from $6.23 billion during fiscal 2020.

This increase was primarily due to increases in average noninterest-bearing deposits of $2.04 billion, partially offset by a decrease in average wholesale deposits of $931.7 million and a decrease in the average balance of total borrowings of $296.5 million.

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The cost of deposits was 0.01% during fiscal 2021, compared to 0.12% during fiscal 2020.

This decrease was primarily due to a decrease in overnight borrowings rates as well as an increase in the average balance of the Company's noninterest-bearing deposits, mainly due to the EIP program noted above.

This decrease was primarily due to a decrease in the average balance of overnight borrowings and FHLB advances as well as an increase in the average balance of the Company's noninterest-bearing deposits.

The Company believes that its growing, lower-cost deposit base gives it a distinct and significant competitive advantage, and even more so if interest rates rise, because the Company anticipates that its cost of funds will likely remain relatively low, increasing less than at many other banks.

Provision for Loan and Lease Losses

In fiscal 2020, the Company recorded $64.8 million in provision for loan and lease losses, compared to $55.7 million in fiscal 2019.

The increase in provision was primarily within the retained community bank, commercial finance, and tax services portfolios, partially offset by a decrease in the consumer finance portfolio.

Provision increases in the community bank and commercial finance portfolios were primarily attributable to movie theater, hospitality, and small ticket equipment finance relationships that have experienced ongoing stress related to the COVID-19 pandemic.

Based on the Company's ongoing assessment of the COVID-19 pandemic, the Company recognized an additional provision for loan and lease losses of $26.4 million during the fiscal year ended September 30, 2020.

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.

Additional provisions were also applied to loans and leases that received short-term payment deferrals.

Provision for Credit Losses

Effective October 1, 2020, the Company adopted the CECL accounting standard, which required a day one entry to increase the allowance for credit losses in the amount of $12.8 million.

The entry did not have a direct impact to the provision for credit losses at the time of adoption.

During fiscal 2021, the Company recorded $49.8 million in provision for credit losses, compared to $64.8 million in fiscal 2020.

The decrease in provision was largely attributable to the build in reserves during the prior year stemming from the COVID-19 pandemic.

Also see Note 5 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

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Noninterest income increased by $31.1 million, or 13%, to $270.9 million for fiscal 2021 from $239.8 million for fiscal 2020.

This increase was largely due to the gain on sale of divestiture of $19.3 million related to the sale of the Community Bank division, as well as increases in other income of $4.7 million and rental income of $3.8 million.

The increase in noninterest income was partially offset by a decrease in total tax product fee income of $6.0 million, a reduction in gain on sale of other of $3.4 million, a reduction in gain on sale of investments of $0.7 million, and a decrease in card fee income of $0.6 million.

The increase in noninterest income was primarily driven by tax advance fee income and payments fee income.

The payments fee income was aided by an increase in activity related to government stimulus programs.

Noninterest Expense

Noninterest expense decreased by $14.1 million, or 4%, to $319.1 million for fiscal 2020 from $333.2 million for fiscal 2019.

This decrease in noninterest expense was largely driven by a decrease in compensation expense of $19.6 million, a decrease in impairment expense of $7.7 million, a decrease in intangible amortization expense of $6.7 million, and a decrease in occupancy and equipment expense of $1.1 million.

The decrease in noninterest expense was partially offset by increases of $8.7 million in other expense, $6.7 million in operating depreciation expense, $3.5 million in legal and consulting expense, and $2.3 million in card processing expense.

Noninterest expense increased by $24.6 million, or 8%, to $343.7 million for fiscal 2021 from $319.1 million for fiscal 2020.

This increase in noninterest expense was primarily driven by an increase in compensation expense of $14.8 million and in legal and consulting expense of $10.5 million.

CEO transition expenses of $1.3 million related to accelerated vesting of CEO shares and associated professional expenses also contributed to the year-over-year change.

Income Tax Expense

The Company recorded an income tax expense of $5.7 million for fiscal 2020, resulting in an effective tax rate of 4.9%, compared to an income tax benefit of $3.4 million and an effective tax rate of (3.4)%, in fiscal 2019.

The recorded income tax expense during the period was primarily due to a reduction in investment tax credits from originated solar leases in fiscal year 2020 as compared to the fiscal year 2019.

The Company recorded an income tax expense of $10.7 million for fiscal 2021, resulting in an effective tax rate of 6.8%, compared to an income tax expense of $5.7 million and an effective tax rate of 4.9%, in fiscal 2020.

The increase in recorded income tax expense during the period was primarily due to an increase in taxable income.

The Company originated $101.1 million in solar leases for the 2021 fiscal year, compared to $77.8 million during the 2020 fiscal year.

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September 30, 2020, and September 30, 2019

The Company recorded net income of $97.0 million, or $2.49 per diluted share, for the fiscal year ended September 30, 2019, compared to $51.6 million, or $1.67 per diluted share, for the fiscal year ended September 30, 2018, an increase of $45.4 million.

Total revenue for fiscal 2019 was $486.8 million, compared to $315.1 million for fiscal 2018, an increase of 54%.

The increase in net income and revenue was primarily due to the improvement in net interest income, attributable to the loans and leases acquired through the Crestmark Acquisition in the fourth quarter of fiscal 2018, along with an enhanced interest-earning asset mix.

Net Interest Income

Net interest income for fiscal 2019 increased by $133.7 million, or 102%, to $264.2 million from $130.5 million for the prior year.

NIM increased to 4.91% in fiscal 2019 as compared to 3.14% in fiscal 2018.

The increase in net interest income was primarily due to an increase in interest income of 105% to $325.7 million from $158.5 million for the prior year.

The increase in interest income was primarily due to an increase in the Company’s average earning assets of 29% to $5.38 billion during fiscal 2019 from $4.16 billion during 2018.

The increase in average earnings assets was primarily attributable to growth in the Company's average loan and lease portfolio of $1.71 billion, of which $1.54 billion was related to an increase in National Lending loans and leases and $171.3 million was related to Community Banking loans.

This increase was partially offset by a decrease in total investment securities of $532.9 million, which decreased as the Company continued to utilize sales of securities and cash flow from its amortizing securities portfolio to fund loan growth.

The Company’s average balance of total deposits and interest-bearing liabilities increased $1.3 billion, or 32%, to $5.32 billion during fiscal 2019 from $4.02 billion during 2018.

This increase was primarily due to increases in average wholesale deposits of $1.03 billion and average noninterest-bearing deposits of $230.1 million, partially offset by a decrease in the average balance of total borrowings of $36.0 million.

Overall, the Company’s cost of funds for all deposits and borrowings averaged 1.16% during fiscal 2019, compared to 0.70% during fiscal 2018.

This increase was primarily due to the interest-bearing time deposits acquired by the Company in connection with the Crestmark Acquisition in the fourth quarter of fiscal 2018.

The Company's overall cost of deposits was 0.96% during fiscal 2019, compared to 0.43% during fiscal 2018.

Provision for Loan Losses

In fiscal 2019, the Company recorded $55.7 million in provision for loan losses, compared to $29.4 million in fiscal 2018.

The increase in provision expense was primarily driven by loan and lease growth and increased net charge-offs within the commercial finance portfolio.

During fiscal year 2019, the Company had net charge-offs of $24.9 million within its tax services portfolio, all of which were fully reserved for.

Non-Interest Income

Noninterest income increased by $38.0 million, or 21%, to $222.5 million for fiscal 2019 from $184.5 million for fiscal 2018, primarily attributable to a full year of business conducted by the Crestmark division following the Crestmark Acquisition in August 2018.

This increase was largely due to increases in rental income of $33.7 million, gain on sale of investments of $8.9 million, gain on sale of loans and leases of $4.9 million, deposits fees of $4.6 million, and other income of $4.5 million.

The increase in noninterest income was partially offset by decreases in card fee income of $14.5 million and total tax product fee income of $3.7 million.

The increase in rental income, gain on sale of loans, and other income was largely attributable to the Crestmark Acquisition.

The increase in deposit fee income was primarily related to the growth and transition of certain product fee income from card fees to deposit fees, attributable to the Company's payments division.

Non-Interest Expense

Non-interest expense increased by $104.9 million, or 46%, to $333.2 million for fiscal 2019 from $228.2 million for fiscal 2018, primarily due to a full year of expenses attributable to the Crestmark division.

This increase in noninterest expense was largely driven by an increase in compensation expense of $46.8 million and operating depreciation expense of $20.8 million when compared to the prior year.

Also contributing to the increase when comparing fiscal 2019 to 2018, were increases in other expense of $14.4 million, impairment expense of $9.6 million, occupancy and equipment expense of $8.3 million and intangible amortization expense of $8.1 million.

The increase in compensation and benefits was primarily due to the addition of Crestmark division employees and new hires in the second half of fiscal 2018 in support of Meta's National Lending and other business initiatives.

The increase in operating depreciation expense was attributable to the Crestmark division.

The impairment expense included $9.5 million related to the DC Solar relationship.

Income Tax Expense

The Company recorded an income tax benefit of $3.4 million for fiscal 2019, resulting in an effective tax rate of (3.4)%, compared to an income tax expense of $5.1 million and an effective tax rate of 9.0%, in fiscal 2018.

Despite the increase in earnings, the Company recorded less income tax expense than the prior year due to multiple factors.

Fiscal year 2018 included a $4.6 million income tax benefit recognized by the Company as a result of amending a historical tax return of Crestmark Bancorp, Inc.

The Company also recognized an investment tax credit in fiscal 2019, which reduced the Company's income tax expense by $27.1 million compared to $4.0 million in fiscal 2018, reflecting the generation of investment tax credits under the Company's initiatives in the renewable energy sector.

Another factor that contributed to the reduction in both the income tax expense and effective tax rate were the provisions of the Tax Cuts and Jobs Act (the "Tax Act"), which lowered Meta's statutory rate from 24.53% in fiscal 2018 to 21% in fiscal 2019.

Asset Quality

At September 30, 2020, non-performing assets, consisting of non-accruing loans and leases, accruing loans and leases delinquent 90 days or more, foreclosed real estate, repossessed property, and non-performing operating leases, totaled $48.0 million, or 0.79% of total assets, compared to $56.5 million, or 0.91% of total assets, at September 30, 2019.

The decrease in NPAs was primarily attributable to a reduction of foreclosed real estate, partially offset by an increase in the commercial finance portfolio.

As of September 30, 2020, the Company had non-accruing loans and leases totaling $24.0 million and foreclosed and repossessed assets of approximately $10.0 million, or 0.2% of total assets.

During the fiscal 2020 first quarter, the Company disposed of assets related to a previously disclosed Community Bank agricultural relationship that were held in other real estate owned (“OREO”), which represented 46 basis points of nonperforming assets as of September 30, 2019.

The Company maintains an allowance for loan and lease losses because it is probable that some loans and leases may not be repaid in full.

At September 30, 2020, the Company had an allowance for loan and lease losses of $56.2 million as compared to $29.1 million at September 30, 2019.

The increase was driven by a $15.3 million increase in the commercial finance portfolio and a $14.2 million increase in the retained community bank portfolio, partially offset by a $2.5 million decrease in the consumer finance portfolio.

The following table presents the Company's allowance for loan and lease losses as a percentage of its total loans and leases.

A comparison of the 2020 results to the 2019 results and other 2019 information not included herein can be found in the Company's Annual Report on Form 10-K:

Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” filed November 30, 2020.

Nonperforming Assets and Allowance for Credit Losses

At September 30, 2021, nonperforming assets, consisting of nonaccruing loans and leases, accruing loans and leases delinquent 90 days or more, foreclosed real estate, repossessed property, and nonperforming operating leases, totaled $61.8 million, or 0.92% of total assets, compared to $48.0 million, or 0.79% of total assets, at September 30, 2020.

The increase in NPAs was primarily attributable to one $14.9 million relationship in the community bank portfolio along with increases in tax services and commercial finance loans, partially offset by a reduction of foreclosed and repossessed assets.

As of September 30, 2021, the Company had nonaccruing loans and leases totaling $34.2 million and foreclosed and repossessed assets of approximately $2.1 million.

The Company maintains an allowance for credit losses because it is probable that some loans and leases may not be repaid in full.

At September 30, 2021, the Company had an allowance for credit losses of $68.3 million as compared to $56.2 million at September 30, 2020.

The increase was driven by a $18.3 million increase in the commercial finance portfolio and a $3.7 million increase in the consumer lending portfolio.

These increases were driven by the year-over-year loan growth and the adoption of the CECL accounting standard, which required a day one entry to increase the allowance for credit losses in the amount of $12.8 million effective October 1, 2020.

The increases noted above were partially offset by a $10.0 million reduction within the retained community banking portfolio, as the balance in community bank loans declined.

The following table presents the Company's allowance for credit losses as a percentage of its total loans and leases.

As of the Period Ended

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019

September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 October 1, 2020 (1)

September 30, 2020

Commercial finance 1.77 % 1.73 % 1.77 % 1.88 % 1.85 % 1.30 %

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Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % 0.10 %

National Lending 1.20 % 1.68 % 1.92 % 0.90 % 0.86 %

Community banking 6.16 % 4.36 % 4.03 % 4.01 % 3.37 % 4.59 %

Total loans and leases 1.89 % 2.61 % 2.71 % 2.10 % 2.08 % 1.70 %

Allowance for loan and lease losses as a percentage of the total loan and lease portfolio was 1.70% at September 30, 2020, compared to 0.80% at September 30, 2019.

This increase was primarily due to the Company's continued assessment of the risks associated with the ongoing COVID-19 pandemic.

The increase in the total Company coverage ratio was due to increases to the coverage ratio within the retained community bank portfolio and the commercial finance portfolio due to identified risks impacting its movie theater, hospitality, and small ticket equipment finance relationships stemming from the ongoing COVID-19 pandemic.

The ultimate impact of the COVID-19 pandemic on the Company's loan and lease portfolio is difficult to predict due to the unprecedented uncertainty.

Due to this uncertainty, management has 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 high risk industries.

Loans within these high risk industries include the Community Bank's, movie theater and hospitality loans as well as the Company's small ticket equipment finance relationships within its commercial finance portfolio.

Based on the Company's ongoing assessment of the COVID-19 pandemic, the Company recognized an additional provision for loan and lease losses of $26.4 million during the year ended September 30, 2020.

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.

When adding the $2.8 million balance of the credit mark to the allowance for loan and lease losses, the commercial finance coverage ratio increases to 1.41% and the total loans and leases coverage ratio increases to 1.77%, as of September 30, 2020.

Within commercial finance, the coverage ratio on Crestmark division loans and leases was 1.42% at September 30, 2020, as compared to 0.88% at September 30, 2019, and the coverage ratio on the insurance premium finance portfolio over those same periods were 0.63% and 0.28%, respectively.

(1) Represents the Company's allowance coverage ratio upon the adoption of the Accounting Standards Update 2016-13 using September 30, 2020 loan and lease and allowance balances plus the CECL allowance adjustment..

Allowance for credit losses as a percentage of the total loan and lease portfolio was 1.89% at September 30, 2021, compared to 1.70% at September 30, 2020.

This increase was driven primarily by the adoption of the CECL accounting standard noted above.

The CECL methodology 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, which led to the increase in the ACL as of the October 1, 2020 adoption date.

During fiscal year 2021, the Company had net charge-offs of $50.6 million, of which $33.3 million were related to the tax services portfolio.

During fiscal year 2020, the Company had net charge-offs of $37.7 million, of which $22.0 million were related to the tax services portfolio.

The charge-offs within the tax services portfolio were fully reserved for.

Management closely monitors economic developments both regionally and nationwide, and considers these factors when assessing the appropriateness of its allowance for loan and lease losses.

The Company continued to assess each of its loan and lease portfolios during the fiscal fourth quarter and increased its allowance for loan and lease losses as a percentage of total loans and leases in the community bank and commercial finance portfolios primarily as a result of the ongoing COVID-19 pandemic, as noted above.

Management closely monitors economic developments both regionally and nationwide, and considers these factors when assessing the appropriateness of its allowance for credit losses.

The Company continued to assess each of its loan and lease portfolios during the fiscal fourth quarter and increased its allowance for credit losses as a percentage of total loans and leases in the community bank and commercial finance portfolios primarily as a result of the ongoing COVID-19 pandemic, as noted above.

Tax services coverage rates were driven only by typical seasonal activity and are not expected to be materially impacted by COVID-19 as the tax lending season is now complete.

The Company expects to continue to diligently monitor the allowance for loan and lease losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

Management believes that, based on a detailed review of the loan and lease portfolio, historic loan and lease losses, current economic conditions, the size of the loan and lease portfolio and other factors, the level of the allowance for loan and lease losses at September 30, 2020 reflected an appropriate allowance against probable incurred losses from the lending portfolio.

Although the Company maintains its allowance for loan and lease losses at a level it considers to be appropriate, investors and others are cautioned that there can be no assurance that future losses will not exceed estimated amounts, or that additional provisions for loan and lease losses will not be required in future periods.

In addition, the Company’s determination of the allowance for loan and lease losses is subject to review by the OCC, which can require the establishment of additional general or specific allowances.

Management’s periodic review of the allowance for loan and lease losses is based on various subjective and objective factors, including the Company’s past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current economic conditions.

The Company expects to continue to diligently monitor the allowance for credit losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

Management believes that, based on a detailed review of the loan and lease portfolio, historic loan and lease losses, current economic conditions, the size of the loan and lease portfolio and other factors, the level of the allowance for credit losses at September 30, 2021 reflected an appropriate allowance against inherent credit losses from the lending portfolio.

Although the Company maintains its allowance for credit losses at a level it considers to be appropriate, investors and others are cautioned that there can be no assurance that future losses will not exceed estimated amounts, or that additional provisions for loan and lease losses will not be required in future periods.

In addition, the Company’s determination of the allowance for credit losses is subject to review by the OCC, which can require the establishment of additional general or specific allowances.

Management’s periodic review of the allowance for credit losses is based on various subjective and objective factors, including the Company’s past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current economic conditions.

While management may allocate portions of the allowance for specifically identified problem loan and lease situations, the majority of the allowance is based on both subjective and objective factors related to the overall loan and lease portfolio and is available for any loan and lease charge-offs that may occur.

As stated previously, there can be no assurance future losses will not exceed estimated amounts, or that additional provisions for loan and lease losses will not be required in future periods.

In addition, the Bank is subject to review by the OCC, which has the authority to require management to make changes to the allowance for loan and lease losses, and the Company is subject to similar review by the Federal Reserve.

In determining the allowance for loan and lease losses, the Company specifically identifies loans and leases it considers as having potential collectability problems.

Based on criteria established by ASC 310, Receivables , some of these loans and leases are considered to be “impaired” while others are not considered to be impaired, but possess weaknesses that the Company believes merit additional analysis in establishing the allowance for loan and lease losses.

As stated previously, there can be no assurance future losses will not exceed estimated amounts, or that additional provisions for credit losses will not be required in future periods.

In addition, the Bank is subject to review by the OCC, which has the authority to require management to make changes to the allowance for credit losses, and the Company is subject to similar review by the Federal Reserve.

In determining the allowance for credit losses, the Company specifically identifies loans and leases it considers as having potential collectability problems.

The Company believes these loans and leases possess weaknesses that merit additional analysis in establishing the allowance for credit losses.

All other loans and leases are evaluated by applying estimated loss ratios to various pools of loans and leases.

The Company then analyzes other applicable qualitative factors (such as economic conditions) in determining the aggregate amount of the allowance needed.

At September 30, 2020, $5.1 million of the allowance for loan and lease losses was allocated to impaired loans and leases.

At September 30, 2021, $8.9 million of the allowance for credit losses was allocated to loans and leases individually evaluated for credit losses.

See Note 5 of the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

$3.8 million of the total allowance was allocated to other identified problem loans and loan relationships, representing 1.2% of the related loan and lease balances, and $47.3 million of the total allowance, representing 1.6% of the related loan and lease balances, was allocated to the remaining overall loan and lease portfolio based on historical loss experience and qualitative factors.

At September 30, 2019, $1.9 million of the allowance for loan and lease losses was allocated to impaired loans and leases.

$2.6 million of the total allowance was allocated to other identified problem loan and lease situations or 1.8% of related loan and lease balances, and $24.6 million of the total allowance, representing 0.7%, was allocated against losses from the overall loan and leases portfolio based on historical loss experience and qualitative factors.

At September 30, 2020, $5.1 million of the allowance for credit losses was allocated to impaired loans and leases.

The Company maintains an internal loan and lease review and classification process which involves multiple officers of the Company and is designed to assess the general quality of credit underwriting and to promote early identification of potential problem loans and leases.

All loan officers are charged with the responsibility of risk rating all loans and leases in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant.

The level of potential problem loans and leases is another predominant factor in determining the relative level of risk in the loan and lease portfolio and in determining the appropriate level of the allowance for loan and lease losses.

Potential problem loans and leases are generally defined by management to include loans and leases rated as substandard by management that are not considered impaired ( i.e.

Potential problem loans and leases are generally defined by management to include loans and leases rated as substandard by management that are not considered nonperforming ( i.e.

, non-accrual loans and leases and accruing troubled debt restructurings), but there are circumstances that create doubt as to the ability of the borrower to comply with repayment terms.

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The loans and leases that have been reported as potential problem loans and leases are predominantly commercial loans and leases covering a diverse range of businesses and real estate property types.

The Company revised its credit administration policies and reviewed its loan portfolio to better align with OCC guidance for national banks, a process that began during the quarter ending June 30, 2021 and was completed as of September 30, 2021.

These credit policy revisions had an impact on the loan and lease risk ratings, resulting in downgrades of certain credits in several categories.

The Company's loan and collateral management practices have proven effective in managing losses during previous economic cycles;

and while management expects this process will result in setting a new baseline for portfolio metrics going forward, management does not believe it indicates a deterioration in expected performance of the portfolio.

At September 30, 2021, potential problem loans and leases totaled $276.7 million compared to $67.9 million at September 30, 2020.

Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, derived principally through its payments division, principal and interest payments on loans and leases and MBS, and maturing investment securities.

The Company’s primary sources of funds are deposits, derived principally through its payments division, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.

In addition, the Company utilizes wholesale deposit sources to provide temporary funding when necessary or when favorable terms are available.

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The Company uses its capital resources principally to meet ongoing commitments to fund maturing certificates of deposit and loan commitments, to maintain liquidity, and to meet operating expenses.

The low-cost checking deposits generated through the Company's payments division may carry a greater degree of concentration risk than traditional consumer checking deposits but, based on experience, the Company believes that Payments‑generated deposits are a stable source of funding.

To date, the Company has not experienced any material net outflows related to Payments-generated deposits, though no assurance can be given that this will continue to be the case.

The Bank is required by regulation to maintain sufficient liquidity to assure its safe and sound operation.

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The Company is not aware of any facts that would be reasonably likely to have a material adverse impact on the Company’s liquidity or its ability to borrow additional funds.

The primary investing activities of the Company are the origination of loans and leases, the acquisitions of companies and the purchase of securities.

The primary investing activities of the Company are the origination of loans and leases and the purchase of securities.

During the fiscal years ended September 30, 2021, 2020 and 2019, the Company originated loans and leases totaling $12.62 billion, $9.79 billion and $10.97 billion, respectively.

Purchases of loans and leases totaled $311.3 million, $151.4 million, and $278.1 million during the fiscal years ended September 30, 2021, 2020 and 2019.

During the fiscal years ended September 30, 2020, 2019 and 2018, the Company purchased MBS and other securities in the amount of $297.8 million, $653.2 million and $849.5 million, respectively.

Of these purchases, there were no securities designated as held to maturity in fiscal 2020 and fiscal 2019 and $0.9 million designated as held to maturity in fiscal 2018.

During the fiscal years ended September 30, 2021, 2020 and 2019, the Company purchased MBS and other securities in the amount of $1.04 billion, $297.8 million and $653.2 million, respectively.

Of these purchases, there were no securities designated as held to maturity in fiscal 2021, 2020 and 2019.

At September 30, 2021, the Company had unfunded loan and lease commitments of $1.22 billion.

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The following table summarizes the Company’s significant contractual obligations at September 30, 2021.

Contractual Obligations Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years

(Dollars in Thousands)

(Dollars in Thousands) Total Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years

Time deposits $ 9,091 $ 7,839 $ 1,252 $ — $ —

Wholesale time deposits 23,409 23,310 99 — —

Long-term borrowings 98,224 5,441 4,589 726 87,468

Long-term debt 92,834 398 4,795 73,980 13,661

Operating leases 45,071 4,687 8,332 7,126 24,926

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Prior to authorizing such transactions, the Board of Directors considers the effect the dividend or repurchase of shares would have on liquidity and regulatory capital ratios.

The Board of Directors approved a minimum management target, reflected in its capital plan, for the Bank to stay at or above an 8% Tier 1 capital to adjusted total assets ratio during fiscal 2018.

Management and the Board of Directors are also mindful of new capital rules that will increase bank and holding company capital requirements and liquidity requirements.

No assurance can be given that our regulators will consider our liquidity level, or our capital level, though substantially in excess of current rules pursuant to which the Company and the Bank are considered “well-capitalized,” to be sufficiently high in the future.

Off-Balance Sheet Financing Arrangements

For discussion of the Company’s off-balance sheet financing arrangements, see Note 19 of “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Depending on the extent to which the commitments or contingencies described in Note 19 occur, the effect on the Company’s capital and net income could be significant.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements and Notes thereto presented in this Annual Report on Form 10-K have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.

The primary impact of inflation is reflected in the increased cost of the Company’s operations.

Unlike most industrial companies, virtually all the assets and liabilities of the Company are monetary in nature.

As a result, interest rates generally have a more significant impact on a financial institution’s performance than do the effects of general levels of inflation.

Interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services.

There have not been any material effects on Meta's business due to inflation during any of the last three fiscal years.

Impact of New Accounting Standards

See Note 1 to the Consolidated Financial Statements for information regarding recently issued accounting pronouncements.

Critical Accounting Policies

Critical Accounting Estimates

The Company’s financial statements are prepared in accordance with GAAP.

The financial information contained within these financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred.

Management has identified the policies described below as Critical Accounting Policies.

Management has identified the policies described below as Critical Accounting Estimates.

These policies involve complex and subjective decisions and assessments.

Some of these estimates may be uncertain at the time they are made, could change from period to period, and could have a material impact on the financial statements.

Allowance for Loan and Lease Losses

The Company’s allowance for loan and lease losses methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan and lease losses that management believes is appropriate at each reporting date.

Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans and leases and other factors.

Quantitative factors also incorporate known information about individual loans and leases, including borrowers’ sensitivity to interest rate movements.

Qualitative factors include the general economic environment in the Company’s markets, including economic conditions throughout the Midwest and, in particular, the state of certain industries.

Size and complexity of individual credits in relation to loan and lease structure, existing loan and lease policies and pace of portfolio growth are other qualitative factors that are considered in the methodology.

Although management believes the levels of the allowance as of both September 30, 2020 and September 30, 2019 were adequate to absorb probable incurred losses inherent in the loan and lease portfolio, a decline in local economic conditions or other factors could result in increasing losses.

Allowance for Credit Losses

The Company’s allowance for credit losses methodology estimates expected credit losses over the life of each financial asset as of the balance sheet date.

For the loan and lease portfolio, the Company measures credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan or lease initial effective interest rate if not collateral dependent.

The majority of the Company's loans and leases subject to individual evaluation are considered collateral dependent.

Only loans and leases that are on nonaccrual status or are designated as a TDR are subject to individual evaluation.

All other loans and leases are evaluated collectively for credit loss by pooling loans and leases based on similar risk 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 and forecasted economic conditions, 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 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.

Investment debt securities held to maturity include implicit and explicit guarantees by government agencies and have an expected zero risk of loss, therefore no provision for credit loss for debt securities held to maturity has been included in the Company’s Consolidated Statement of Operations.

Investment debt securities available for sale are recorded at fair value and are assessed quarterly for credit loss.

Any such credit loss is recorded in the Company’s Provision for Credit Loss on the Company’s Consolidated Statement of Operations.

Non-credit related losses are recorded in Other Comprehensive Income in the Company’s Consolidated Statement of Condition.

Although management believes the levels of the allowance for credit losses at September 30, 2021 and September 30, 2020 are adequate to absorb expected credit losses in the financial assets evaluated, a decline in local economic conditions or other factors could result in increasing losses.

Goodwill and Identifiable Intangible Assets

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The excess of consideration paid over the fair value of the net assets acquired is recorded as goodwill.

Determining the fair value of assets acquired, including identifiable intangible assets, liabilities assumed, and any non-controlling interest often requires the use of significant estimates and assumptions.

Determining the fair value of assets acquired, including identifiable intangible assets, liabilities assumed, and any noncontrolling interest often requires the use of significant estimates and assumptions.

This may involve estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques such as estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors.

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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-K

Item 7. Management’s Discussion and Analysis