PATHWARD FINANCIAL, INC. 10-K

Item 8. Financial Statements and Supplementary Data Table of Contents Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Statements of Financial Condition Statements of Operations Statements of Comprehensive Income Statements of Changes in Stockholders’ Equity Statements of Cash Flows Notes to Consolidated Financial Statements 73 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and the Board of Directors of Meta Financial Group, Inc. Sioux Falls, South Dakota Opinion on the Financial Statements We have audited the accompanying consolidated statement of financial condition of Meta Financial Group, Inc. and Subsidiaries (the "Company") as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the years ended in the three-year period ended September 30, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated November 23, 2021 expressed an adverse opinion. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective October 1, 2020 due to the adoption of Financial Accounting Standards Board’s Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 74 Table of Contents Allowance for Credit Losses (ACL) – Qualitative Adjustments As described in Notes 1 and 5 to the financial statements and referred to in the change in accounting principle explanatory paragraph above, the Company adopted ASC 326 as of October 1, 2020, which, among other things, required the Company to recognize expected credit losses over the contractual lives of financial assets carried at amortized cost, including loans receivable, utilizing the Current Expected Credit Losses (“CECL”) methodology. Estimates of expected credit losses are based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts. For most of its loan segments, the Company utilized a cohort model which computes the historical life-of-loan loss rate for each identified loan segment (also referred to as the “quantitative loss rates”). The quantitative loss rates are then adjusted, as deemed necessary, based on current economic forecasts over a twelve-month reasonable and supportable forecast period as well as for measurement date credit characteristics including problem loan and delinquency trends, portfolio growth and other factors (also referred to as the “qualitative adjustments”). We have identified auditing the qualitative adjustments as a critical audit matter as management’s determination of the qualitative adjustments used in the ACL is subjective and involves significant management judgements; and our audit procedures related to the qualitative adjustments involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel. The primary procedures we performed to address this critical audit matter included: • Testing the effectiveness of controls over the qualitative adjustments used in the ACL calculation including controls addressing: ◦ Testing the design and operating effectiveness of controls pertaining to the key assumptions and judgments applied in the development of the qualitative adjustments. ◦ Testing the design and operating effectiveness of the controls around the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation. • Substantively testing management’s determination of the qualitative adjustments used in the ACL estimate, including evaluating their judgements and assumptions, including: ◦ Testing management’s process for developing the qualitative adjustments and assessing the reasonableness, relevance and reliability of data used to develop the adjustments, including evaluating their judgments and assumptions for reasonableness. Among other procedures, our evaluation considered evidence from internal and external sources, loan portfolio performance and whether such assumptions were applied consistently from period to period. ◦ Analytically evaluating the qualitative adjustments for directional consistency, testing for reasonableness, and obtaining evidence for significant changes. ◦ Testing the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation. /s/ Crowe LLP We have served as the Company’s auditor since 2018. Grand Rapids, Michigan November 23, 2021 75 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition (Dollars in Thousands, Except Per Share Data) ASSETS September 30, 2021 September 30, 2020 Cash and cash equivalents $ 314,019 $ 427,367 Investment securities available for sale, at fair value 847,870 814,495 Mortgage-backed securities available for sale, at fair value 1,017,029 453,607 Investment securities held to maturity, at amortized cost (fair value $ 52,576 and $ 88,194 , respectively) 52,944 87,183 Mortgage-backed securities held to maturity, at amortized cost 3,725 5,427 Loans held for sale 56,194 183,577 Loans and leases 3,609,563 3,322,765 Allowance for credit losses ( 68,281 ) ( 56,188 ) Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 28,400 27,138 Accrued interest receivable 16,254 16,628 Premises, furniture, and equipment, net 44,888 41,608 Rental equipment, net 213,116 205,964 Bank-owned life insurance 94,749 92,315 Foreclosed real estate and repossessed assets, net 2,077 9,957 Goodwill 309,505 309,505 Intangible assets 33,148 41,692 Prepaid assets 10,513 8,328 Deferred taxes, net 25,173 17,723 Other assets 79,764 82,983 Total assets $ 6,690,650 $ 6,092,074 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits: Noninterest-bearing checking $ 5,018,233 $ 4,356,630 Interest-bearing checking 254,721 157,571 Savings deposits 86,356 47,866 Money market deposits 67,204 48,494 Time certificates of deposit 9,091 20,223 Wholesale deposits 79,366 348,416 Total deposits 5,514,971 4,979,200 Long-term borrowings 92,834 98,224 Accrued interest payable 579 1,923 Accrued expenses and other liabilities 210,382 165,419 Total liabilities 5,818,766 5,244,766 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at September 30, 2021 and 2020, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 31,686,483 and 34,479,164 shares issued, 31,669,952 and 34,360,890 shares outstanding at September 30, 2021 and 2020, respectively 317 344 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at September 30, 2021 and 2020, respectively — — Additional paid-in capital 604,484 594,569 Retained earnings 259,189 234,927 Accumulated other comprehensive income (loss) 7,599 17,542 Treasury stock, at cost, 16,531 and 118,274 common shares at September 30, 2021 and 2020, respectively ( 860 ) ( 3,677 ) Total equity attributable to parent 870,729 843,705 Noncontrolling interest 1,155 3,603 Total stockholders’ equity 871,884 847,308 Total liabilities and stockholders’ equity $ 6,690,650 $ 6,092,074 See Notes to Consolidated Financial Statements. 76 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal Year Ended September 30, (Dollars in Thousands, Except Per Share Data) 2021 2020 2019 Interest and dividend income: Loans and leases, including fees $ 256,080 $ 261,128 $ 274,528 Mortgage-backed securities 12,155 9,028 11,390 Other investments 17,619 22,685 39,811 285,854 292,841 325,729 Interest expense: Deposits 1,593 22,616 46,648 FHLB advances and other borrowings 5,270 11,187 14,874 6,863 33,803 61,522 Net interest income 278,991 259,038 264,207 Provision for credit losses 49,766 64,776 55,650 Net interest income after provision for credit losses 229,225 194,262 208,557 Noninterest income: Refund transfer product fees 37,967 36,061 39,198 Tax advance product fees 47,639 31,826 34,687 Payment card and deposit fees 107,182 87,379 87,130 Other bank and deposit fees 939 1,310 1,942 Rental income 39,416 44,826 41,053 Net gain realized on investment securities 6 51 729 Gain on divestitures — 19,275 — Gain on sale of other 11,515 4,425 7,831 Other income 26,240 14,641 9,975 Total noninterest income 270,904 239,794 222,545 Noninterest expense: Compensation and benefits 151,090 136,247 155,811 Refund transfer product expense 11,861 7,644 7,526 Tax advance product expense 2,564 2,723 3,102 Card processing 27,201 25,956 23,677 Occupancy and equipment expense 29,269 26,995 28,071 Operating lease equipment depreciation 30,987 32,831 26,181 Legal and consulting 31,341 20,858 17,310 Intangible amortization 8,545 10,997 17,711 Impairment expense 2,818 1,982 9,660 Other expense 48,007 52,818 44,111 Total noninterest expense 343,683 319,051 333,160 Income before income tax expense 156,446 115,005 97,942 Income tax expense (benefit) 10,701 5,661 ( 3,374 ) Net income before noncontrolling interest 145,745 109,344 101,316 Net income attributable to noncontrolling interest 4,037 4,624 4,312 Net income attributable to parent $ 141,708 $ 104,720 $ 97,004 Earnings per common share: Basic $ 4.38 $ 2.94 $ 2.49 Diluted $ 4.38 $ 2.94 $ 2.49 See Notes to Consolidated Financial Statements. 77 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Net income before noncontrolling interest $ 145,745 $ 109,344 $ 101,316 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities ( 13,896 ) 15,164 53,739 Net (gain) realized on investment securities ( 6 ) ( 51 ) ( 729 ) ( 13,902 ) 15,113 53,010 Unrealized gain (loss) on currency translation 476 ( 101 ) ( 122 ) Deferred income tax effect ( 3,483 ) 3,809 12,963 Total other comprehensive income (loss) ( 9,943 ) 11,203 39,925 Total comprehensive income 135,802 120,547 141,241 Total comprehensive income attributable to noncontrolling interest 4,037 4,624 4,312 Comprehensive income attributable to parent $ 131,765 $ 115,923 $ 136,929 See Notes to Consolidated Financial Statements. 78 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Meta Financial Group (Dollars in Thousands, Except Per Share Data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Meta Stockholders’ Equity Non-controlling interest Total Stockholders’ Equity Balance, September 30, 2018 $ 393 $ 565,811 $ 213,048 $ ( 33,111 ) $ ( 1,989 ) $ 744,152 $ 3,574 $ 747,726 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 ($ 0.20 per share) — — ( 7,760 ) — — ( 7,760 ) — ( 7,760 ) Issuance of common shares due to exercise of stock options — 44 — — — 44 — 44 Issuance of common shares due to restricted stock 3 — — — — 3 — 3 Issuance of common shares due to ESOP — 2,011 — — — 2,011 — 2,011 Shares repurchased ( 18 ) 18 ( 46,500 ) — ( 3,412 ) ( 49,912 ) — ( 49,912 ) Retirement of treasury stock — — ( 4,956 ) — 4,956 — — — Stock compensation — 12,942 — — — 12,942 — 12,942 Total other comprehensive income — — — 39,925 — 39,925 — 39,925 Net income — — 97,004 — — 97,004 4,312 101,316 Net investment by (distribution to) noncontrolling interests — — — — — — ( 3,839 ) ( 3,839 ) Balance, September 30, 2019 $ 378 $ 580,826 $ 252,813 $ 6,339 $ ( 445 ) $ 839,911 $ 4,047 $ 843,958 Balance, September 30, 2019 $ 378 $ 580,826 $ 252,813 $ 6,339 $ ( 445 ) $ 839,911 $ 4,047 $ 843,958 Cash dividends declared on common stock ($ 0.20 per share) — — ( 7,100 ) — — ( 7,100 ) — ( 7,100 ) Issuance of common shares due to exercise of stock options 1 265 — — — 266 — 266 Issuance of common shares due to restricted stock 2 — — — — 2 — 2 Issuance of common shares due to ESOP 1 3,219 — — — 3,220 — 3,220 Shares repurchased ( 38 ) 38 ( 115,506 ) — ( 3,232 ) ( 118,738 ) — ( 118,738 ) Stock compensation — 10,221 — — — 10,221 — 10,221 Total other comprehensive income — — — 11,203 — 11,203 — 11,203 Net income — — 104,720 — — 104,720 4,624 109,344 Net investment by (distribution to) noncontrolling interests — — — — — — ( 5,068 ) ( 5,068 ) Balance, September 30, 2020 $ 344 $ 594,569 $ 234,927 $ 17,542 $ ( 3,677 ) $ 843,705 $ 3,603 $ 847,308 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 ($ 0.20 per share) — — ( 6,400 ) — — ( 6,400 ) — ( 6,400 ) Issuance of common shares due to ESOP 2 3,034 — — — 3,036 — 3,036 Shares repurchased ( 29 ) 29 ( 96,999 ) — ( 2,879 ) ( 99,878 ) — ( 99,878 ) Retirement of treasury stock — — ( 5,696 ) — 5,696 — — — Stock compensation — 6,852 — — — 6,852 — 6,852 Total other comprehensive loss — — — ( 9,943 ) — ( 9,943 ) — ( 9,943 ) Net income — — 141,708 — — 141,708 4,037 145,745 Net investment by (distribution to) noncontrolling interests — — — — — — ( 4,033 ) ( 4,033 ) Balance, September 30, 2021 $ 317 $ 604,484 $ 259,189 $ 7,599 $ ( 860 ) $ 870,729 $ 1,155 $ 871,884 See Notes to Consolidated Financial Statements. 79 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Cash flows from operating activities: Net income before noncontrolling interest $ 145,745 $ 109,344 $ 101,316 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 59,047 60,745 55,149 Stock compensation 6,852 10,221 12,942 Provision (recovery): Credit losses 49,766 64,776 55,650 Deferred taxes ( 1,639 ) ( 2,347 ) ( 14,301 ) Loans held for sale: Originations ( 601,481 ) ( 98,798 ) ( 171,260 ) Purchases — — ( 15,443 ) Proceeds from sales 890,340 319,123 125,357 Net change 588 22,855 31,819 Fair value adjustment of foreclosed real estate 591 568 139 Net realized (gain) loss: Other assets 28 361 ( 89 ) Divestitures — ( 19,275 ) — Foreclosed real estate and repossessed assets ( 4 ) 4,960 278 Securities available for sale, net ( 6 ) ( 51 ) ( 729 ) Loans held for sale ( 8,610 ) ( 5,389 ) ( 5,089 ) Lease receivables and equipment ( 2,257 ) ( 4,335 ) ( 2,930 ) Net change: Other assets 825 1,524 ( 5,427 ) Deposits held for sale — 1,535 — Accrued interest payable ( 1,344 ) ( 7,491 ) 1,620 Accrued expenses and other liabilities 45,264 8,643 16,623 Accrued interest receivable 374 2,050 1,616 Change in bank-owned life insurance value ( 2,434 ) ( 2,488 ) ( 2,534 ) Impairment on assets held for sale — 242 — Impairment on rental equipment — 447 6,194 Impairment of intangibles — — 111 Net cash provided by operating activities 581,645 467,220 191,012 Cash flows from investing activities: Securities available for sale: Purchases ( 1,041,768 ) ( 229,326 ) ( 299,269 ) Proceeds from sales 50,468 4,904 755,616 Proceeds from maturities and principal repayments 371,898 237,254 164,044 Securities held to maturity: Proceeds from maturities and principal repayments 34,268 40,017 35,025 Loans and leases: Purchases ( 311,332 ) ( 151,435 ) ( 262,622 ) Proceeds from sales 13,850 9,991 13,838 Net change ( 196,356 ) ( 100,508 ) ( 591,785 ) Proceeds from sales of foreclosed real estate and repossessed assets 8,952 23,992 1,905 Federal Reserve Bank and Federal Home Loan Bank stock: Purchases ( 1,296 ) ( 472,000 ) ( 878,316 ) Redemption 34 475,778 870,800 Rental equipment: Purchases ( 50,437 ) ( 53,637 ) ( 144,432 ) Proceeds from sales 16,822 14,692 8,301 Net change ( 630 ) 2,623 1,567 Premises, furniture, and equipment: Purchases ( 12,961 ) ( 12,266 ) ( 13,971 ) 80 Table of Contents Proceeds from sales 86 107 101 Proceeds from divestitures — 3,498 — Net cash (used in) investing activities ( 1,118,402 ) ( 206,316 ) ( 339,198 ) Cash flows from financing activities: Net change: Checking, savings, and money market deposits 815,953 2,229,075 48,897 Time certificates of deposit ( 11,132 ) ( 89,062 ) ( 167,044 ) Wholesale deposits ( 269,050 ) ( 1,208,885 ) 26,014 FHLB and other borrowings — ( 275,000 ) 275,000 Federal funds — ( 477,000 ) 55,000 Securities sold under agreements to repurchase — ( 4,019 ) 325 Distribution to noncontrolling interest ( 4,033 ) ( 5,068 ) ( 3,839 ) Proceeds from other liabilities 80 1,633 7,916 Principal payments: Other liabilities ( 5,611 ) ( 7,568 ) ( 11,691 ) Capital lease obligations ( 32 ) ( 1,737 ) ( 88 ) Cash dividends paid ( 6,400 ) ( 7,100 ) ( 7,760 ) Issuance of common stock due to ESOP 3,036 3,220 2,011 Issuance of common stock due to restricted stock — 2 3 Proceeds from exercise of stock options and issuance of common stock — 266 44 Shares repurchased ( 99,878 ) ( 118,738 ) ( 49,912 ) Net cash provided by financing activities 422,933 40,019 174,876 Effect of exchange rate changes on cash 476 ( 101 ) ( 122 ) Net change in cash and cash equivalents ( 113,348 ) 300,822 26,568 Cash and cash equivalents at beginning of fiscal year 427,367 126,545 99,977 Cash and cash equivalents at end of fiscal period $ 314,019 $ 427,367 $ 126,545 Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 8,207 $ 41,294 $ 59,902 Income taxes 8,038 6,223 ( 2,821 ) Franchise taxes 250 281 223 Other taxes 722 535 557 Supplemental schedule of non-cash investing activities: Transfers Loans and leases to foreclosed real estate and repossessed assets $ 9 $ 9,983 $ — Loans and leases to rental equipment 28,604 2,134 — Rental equipment to loan and leases 24,324 8,924 210 Rental equipment to foreclosed real estate and repossessed assets 1,650 — — Loans and leases to held for sale 188,638 542,101 99,992 Held for sale to loans and leases 36,919 — — Other assets to held for sale — 7,858 — Deposits to held for sale — 288,975 — Recognition of operating lease ROU assets, net of measurements 12,954 28,666 — Short and long term debt transferred from other liabilities — — 20,026 See Notes to Consolidated Financial Statements. 81 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the accounts of Meta Financial Group, Inc. (the “Company”), a registered bank holding company located in Sioux Falls, South Dakota, and its wholly-owned subsidiaries. The Company's subsidiaries include MetaBank (the “Bank”), a national bank whose primary federal regulator is the Office of the Comptroller of the Currency (the "OCC"), and Meta Capital, LLC, a wholly-owned service corporation subsidiary of MetaBank which invests in companies in the financial services industry. All significant intercompany balances and transactions have been eliminated. The Company also owns 100 % of First Midwest Financial Capital Trust I (the “Trust”), which was formed in July 2001 for the purpose of issuing trust preferred securities, and Crestmark Capital Trust I, which was acquired from the Crestmark Acquisition in August 2018. The Trust and Crestmark Capital Trust I are not included in the Consolidated Financial Statements of the Company. In addition, the Company evaluates its relationships with other entities to identify whether they are variable interest entities ("VIEs") and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is included in the Consolidated Financial Statements. Variable Interest Entities VIEs are defined by contractual ownership or other interests that change with fluctuations in the VIE's net asset value. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impacts the VIE’s economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. Further, the Company assesses whether or not the Company is the primary beneficiary of a VIE on an ongoing basis. Crestmark Capital Trust I qualifies as a VIE for which the Company is not the primary beneficiary. Consequently, the accounts of that entity are not consolidated in the Company’s Financial Statements. As a result of the Crestmark Acquisition, the Company acquired existing membership interests of five joint venture limited liability companies (the "LLCs"). The Company holds 80 % of the membership interests in each of the five LLC entities, which offer commercial lending and other financing arrangements. In connection with these LLCs, the Company exclusively provides funding for each entity's activities. The Company determined it is the primary beneficiary of all five LLCs as it has the managing power under the terms of each of the LLC operating agreements. Results of the five LLCs are reflected in the Company's September 30, 2021 Consolidated Financial Statements and are summarized below. The assets recognized as a result of consolidating the LLCs are the property of the LLCs and are not available for any other purpose. (Dollars in Thousands) At September 30, 2021 Cash and cash equivalents $ 1,776 Loans and leases 117,544 Allowance for credit losses ( 4,971 ) Accrued interest receivable 261 Foreclosed real estate and repossessed assets, net 258 Other assets 3,913 Total assets 118,781 Accrued expenses and other liabilities 1,876 Noncontrolling interest 1,155 Net assets less noncontrolling assets $ 115,750 82 Table of Contents Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interest in the following entities: • Capital Equipment Solutions, LLC (“CES”) - CES engages in the business of providing equipment financing term loans. • CM Help, LLC - CM Help provides flexible patient loan programs to hospitals and patient clients of hospitals as a financing alternative for the self-pay and co-pay portions of patients’ hospital expenses. • CM Southgate II, LLC - CM Southgate II engages in the business of acquiring fleet leases and semi-trailer/tractor loans and leases. • CM Sterling, LLC - CM Sterling engages in asset based lending and factoring. • CM TFS, LLC - CM TFS engages in the business of acquiring equipment financing term loans and leases. NATURE OF BUSINESS AND INDUSTRY SEGMENT INFORMATION One of the Company's primary sources of revenue relates to payment processing services for prepaid debit cards, ATM sponsorship, tax refund transfer and other money transfer systems and services. Additionally, a significant source of revenue for the Company is interest from the purchase or origination of commercial finance loans, consumer finance loans, and warehouse finance loans. The Company accepts deposits from customers in the normal course of business on a national basis through its Meta Payments and tax services divisions, and through wholesale funding. The Company operates in the banking industry, which accounts for the majority of its revenues and assets. The Company uses the “management approach” for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the management approach model, the Company has determined that its business is comprised of three reporting segments. See Note 21. Segment Reporting for additional information on the Company's segment reporting. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain significant estimates include the valuation of residual values within lease receivables, allowance for credit losses, the valuation of goodwill and intangible assets and the fair values of securities and other financial instruments. These estimates are reviewed by management regularly; however, they are particularly susceptible to significant changes in the future. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents is defined to include the Company’s cash on hand and due from financial institutions and short-term interest-bearing deposits in other financial institutions. The Company reports cash flows net for customer loan transactions, securities purchased under agreement to resell, federal funds purchased, deposit transactions, securities sold under agreements to repurchase, and Federal Home Loan Bank ("FHLB") advances with terms less than 90 days. The Bank is required to maintain reserve balances in cash or on deposit with the FRB, based on a percentage of deposits. The total of those reserve balances was zero at September 30, 2021, and zero at September 30, 2020. The Company at times maintains balances in excess of insured limits at various financial institutions including the FHLB, the FRB and other private institutions. At September 30, 2021, the Company had $ 2.3 million interest-bearing deposits held at the FHLB and $ 184.7 million in interest-bearing deposits held at the FRB. The Company does not believe these instruments carry a significant risk of loss, but cannot provide assurances that no losses could occur if these institutions were to become insolvent. 83 Table of Contents SECURITIES GAAP requires that, at acquisition, an enterprise classify debt securities into one of three categories: Available for Sale (“AFS”), Held to Maturity (“HTM”) or trading. AFS debt securities are carried at fair value on the Consolidated Statements of Financial Condition. Unrealized holding gains and losses due to risk of credit loss are recognized in earnings while unrealized holding gains and losses due to market conditions and other non-credit risk factors are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income (loss) (“AOCI”). See Note 24. Fair Values of Financial Instruments for additional information on fair value of AFS debt securities. HTM debt securities are measured at amortized cost. The Company classifies the majority of its debt securities as AFS, which are those the Company may decide to sell if needed for liquidity, asset/liability management, or other reasons. Both AFS and HTM are subject to an allowance for credit loss. Meta did not hold trading securities at September 30, 2021 or 2020. Gains and losses on the sale of securities are determined using the specific identification method based on amortized cost and are reflected in results of operations at the time of sale. Interest and dividend income, adjusted by amortization of purchase premium or discount using the level yield method, is included in income as earned. For callable debt securities, any purchase premium is amortized to the first call date while any discount is accreted over the contractual life of the security. Debt Securities Credit Losses The Company evaluates HTM debt securities for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Consolidated Statements of Operations. The Company has concluded that its portfolio as of September 30, 2021 has a zero risk of credit loss due to the U.S. Government financial guarantees underlying the securities within the HTM portfolio and as a result has not recorded an allowance for credit loss. The Company evaluates AFS debt securities for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Consolidated Statements of Operations. The Company has concluded that any unrealized holding losses in its portfolio as of September 30, 2021 are not related to credit loss and as a result has not recorded an allowance for credit loss. See Note 4. Securities for further information. Equity Investments The Company holds marketable equity securities, which have readily determinable fair value, and include common equity and mutual funds. These securities are recorded at fair value with unrealized gains and losses, due to changes in fair value, reflected in earnings. Interest and dividend income from these securities is recognized in interest income. See Note 4. Securities for additional information on marketable equity securities. The Company also holds non-marketable equity investments that are included in Other Assets in the Company’s Consolidated Financial Statements. The Company generally accounts for these investments under the equity method or the provisions of Accounting Standards Codification ("ASC") 321. Equity Securities. Investments where the Company has significant influence, but not control, over the investee are accounted for under the equity method. Investments where the Company cannot exercise significant influence over the investee are measured at fair value, with changes in fair value recognized in earnings, unless those investments have no readily determinable fair value. Investments without readily determinable fair value are measured under the measurement alternative, which reflects cost less impairment, with adjustments in value resulting from observable price changes arising from orderly transactions of the same or a similar security from the same issuer ("measurement alternative investments"). The Company reviews for impairment for equity method and measurement alternative investments and includes an analysis of the facts and circumstances for each investment, expectations of cash flows, capital needs, and viability of its business model. For equity method, the asset carrying value is reduced when the decline in fair value is considered to be other than temporary. For measurement alternative investments, the asset carrying value is reduced when the fair value is less than the carrying value, without the consideration of recovery. 84 Table of Contents The Company held the following non-marketable equity investments: • Equity Method - The Company held equity method investments of $ 3.1 million within other assets as of September 30, 2021 and $ 11.0 million at September 30, 2020. The Company’s ownership of such investments typically ranges from 5 % - 25 % of the investee. The Company recognized net earnings from these investments in the amount of $ 0.3 million within noninterest income for the fiscal year ended September 30, 2021. The Company elected to classify distributions received from equity method investments using the cumulative earnings approach on the Consolidated Statements of Cash Flows. • Fair Value Method - The Company held equity investments measured at net asset value (NAV) per share (or its equivalent) of $ 4.6 million at September 30, 2021 and $ 2.8 million at September 30, 2020 where NAV is considered the fair value practical expedient. These investments are recorded within other assets on the Company’s Consolidated Financial Statements. Fluctuations in fair value are recognized in earnings within noninterest Income. • Measurement Alternative - The Company held equity investments measured using the measurement alternative of $ 12.9 million as of September 30, 2021 and $ 12.0 million at September 30, 2020 within other assets on the Company’s Consolidated Financial Statements. The Company recognized a fair value increase of $ 8.0 million and none during the fiscal years ended September 30, 2021 and 2020, respectively. The Company recognized impairment losses of $ 2.6 million and $ 1.3 million on such investments during the fiscal years ended September 30, 2021 and 2020, respectively. LOANS HELD FOR SALE ("LHFS") LHFS include commercial loans originated under the guidelines of the SBA or USDA, consumer loans, and loans retained in the community bank portfolio. LHFS are held at the lower of cost or fair value. Generally, LHFS are valued on an aggregate portfolio basis. Any amount by which the cost exceeds fair value is initially recorded as a valuation allowance and subsequently reflected in the gain or loss on sale when sold. At September 30, 2021 and 2020, there was no valuation allowance recorded for LHFS. Gains and losses on LHFS are recorded in noninterest income on the Consolidated Statements of Operations. Loan costs and fees are deferred at origination and are recognized in income at the time of sale. Interest income is calculated based on the note rate of the loan and is recorded as interest income. For loans transferred to LHFS due to change in intent of holding the loans to maturity or for the foreseeable future, such loans are transferred at lower of cost or fair value. LOANS AND LEASES Loans Receivable Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balances net of any unearned income, cumulative charge-offs, unamortized deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans. Interest income on loans is accrued over the term of the loans based upon the amount of principal outstanding except when serious doubt exists as to the collectability of a loan, in which case the accrual of interest is discontinued. Unearned income, deferred loan fees and costs, and discounts and premiums are amortized to interest income over the contractual life of the loan using the interest method. The Company generally places Community Banking loans on nonaccrual status when: the full and timely collection of interest or principal becomes uncertain; they are 90 days past due for interest or principal, unless they are both well-secured and in the process of collection; or part of the principal balance has been charged off. The majority of the Company's National Lending loans follow the same nonaccrual policy as Community Banking loans with certain commercial finance, consumer finance and tax service loans not generally being placed on non-accrual status, but instead are charged off when the collection of principal and interest become doubtful. When placed on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income and any remaining amortizing of net deferred fees is suspended. Cash collected on these loans is applied to first reduce the carrying value of the loan with any remainder being recognized as interest income. Generally, a loan can return to accrual status when all delinquent interest and principal become current under the terms of the loan agreement and collectability of the remaining principal and interest is no longer doubtful. Loans are considered past due when contractually required principal or interest payments have not been made on the due dates. Prior to the adoption of CECL, loans and leases on nonaccrual status were accounted for and disclosed as impaired loans and leases. 85 Table of Contents For commercial loans, the Company generally fully charges off or charges down to net realizable value (fair value of collateral, less estimated costs to sell) for loans secured by collateral when: management judges the loans to be uncollectible; repayment is deemed to be protracted beyond reasonable time frames; the loan has been classified as a loss by either the Company's internal loan review process or its banking regulatory agencies; the customer has filed bankruptcy and the loss becomes evident owing to lack of assets; or the loan meets a defined number of days past due unless the loan is both well-secured and 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. As part of the Company’s ongoing risk management practices, management generally attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Modified loan terms may include interest rate reductions, principal forgiveness, term extensions, payment forbearance or other actions intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of the collateral. Each occurrence is unique to the borrower and is evaluated separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, the Company identifies and reports that loan as a troubled debt restructuring (“TDR”). Management considers regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. As such, qualification criteria and payment terms consider the borrower’s current and prospective ability to comply with the modified terms of the loan. Additionally, the Company structures loan modifications with the intent of strengthening repayment prospects. Loans that are reported as TDRs apply the identical criteria in the determination of whether the loan should be accruing or not accruing. The event of classifying the loan as a TDR due to a modification of terms may be independent from the determination of accruing interest on a loan. Prior to the adoption of CECL, loans and leases designated as TDRs were accounted for and disclosed as impaired loans and leases. Leases Receivable The Company provides various types of commercial lease financing that are classified for accounting purposes as direct financing, sales-type or operating leases. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are classified as direct financing or sales-type leases and are included in loans and leases receivable on the Consolidated Statements of Financial Condition. Direct financing and sales-type leases are carried at the combined present value of future minimum lease payments and lease residual values. The determination of lease classification requires various judgments and estimates by management, including the fair value of equipment at lease inception, useful life of the equipment under lease, lease residual value, and collectability of minimum lease payments. Sales-type leases generate dealer profit, which is recognized at lease inception by recording lease revenue net of lease cost. Lease revenue consists of the present value of the future minimum lease payments. Lease cost consists of the lease equipment’s book value, less the present value of its residual. Interest income on direct financing and sales-type leases is recognized using methods that approximate a level yield over the fixed, non-cancelable term of the lease. Recognition of interest income is generally discontinued at the time the lease becomes 90 days delinquent, unless the lease is well-secured and in process of collection. Delinquency and past due status is based on the contractual terms of the lease. The Company receives pro rata rent payments for the interim period until the lease contract commences and the fixed, non-cancelable lease term begins. Interim payments are recognized in the month they are earned and are recorded in interest income. Management has policies and procedures in place for the determination of lease classification and review of the related judgments and estimates for all lease financings. The Company generally fully charges off or charges down to net realizable value (fair value of collateral, less estimated costs to sell) for leases when management judges the lease to be uncollectible; repayment is deemed to be protracted beyond reasonable time frames; the lease has been classified as a loss by either the Company's internal review process or its banking regulatory agencies; the customer has filed bankruptcy and the loss becomes evident owing to lack of assets; or the lease meets a defined number of days past due unless the lease is both well-secured and in the process of collection. 86 Table of Contents Some lease financings include a residual value component, which represents the estimated fair value of the leased equipment at the expiration of the initial term of the transaction. The estimation of the residual value involves judgments regarding product and technology changes, customer behavior, shifts in supply and demand, and other economic assumptions. The Company reviews residual assumptions at least annually and records impairment, if necessary, which is charged to non-interest expense in the period it becomes known. The Company may purchase and sell minimum lease payments, primarily as a credit risk reduction tool, to third-party financial institutions at fixed rates on a non-recourse basis with its underlying equipment as collateral. For those transactions that achieve sale treatment, the related lease cash flow stream and the non-recourse financing are derecognized. For those transactions that do not achieve sale treatment, the underlying lease remains on the Company’s Consolidated Statements of Financial Condition and non-recourse debt is recorded in the amount of the proceeds received. The Company retains servicing of these leases and bills, collects, and remits funds to the third-party financial institution. Upon default by the lessee, the third-party financial institutions may take control of the underlying collateral which the Company would otherwise retain as residual value. Leases that do not transfer substantially all benefits and risks of ownership to the lessee are classified as operating leases. Such leased equipment are included in rental equipment on the Consolidated Statements of Financial Condition and are depreciated on a straight-line basis over the term of the lease to its estimated residual value. Depreciation expense is recorded as operating lease equipment depreciation expense within noninterest expense. Operating lease rental income is recognized when it becomes due and is reflected as a component of noninterest income. An ACL is not provided on operating leases. LOAN SERVICING AND TRANSFERS OF FINANCIAL ASSETS The Company, from time to time, sells loan participations, generally without recourse. The Company also sells commercial SBA and USDA loans to third parties, generally without recourse. Sold loans are not included in the Consolidated Financial Statements. The Bank generally retains the right to service the sold loans for a fee and records a servicing asset, which is included within other assets on the Consolidated Statements of Financial Condition. At September 30, 2021 and 2020, the Bank was servicing loans for others with aggregate unpaid principal balances of $ 307.3 million and $ 232.3 million, respectively. The service fees and ancillary income related to these loans were immaterial. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been legally isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. ALLOWANCE FOR CREDIT LOSSES 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 restructurings or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for credit loss. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Consolidated Statements of Financial Condition. Individually evaluated loans and leases are a key component of the ACL. Generally, the Company measures credit loss 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, credit loss is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate. 87 Table of Contents Credit loss for 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 realizable 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 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. See Note 5. Loans and Leases, Net for further information. 88 Table of Contents The following are risk characteristics of the Company’s loan and lease portfolio: 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 that are subject to adverse market conditions which may impact the borrower’s ability to make repayment on the loan or lease or could cause a decline in the value of the collateral that secures the loan or lease. The loans or leases are primarily made based on the operating cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of borrowers may be volatile and the value of the collateral securing these loans and leases may be difficult to measure. Most commercial finance loans and leases are secured by the assets being financed or other business assets such as accounts receivable or inventory. Although the loans and leases are often collateralized by equipment, inventory, accounts receivable, insurance premiums or other business assets, the liquidation of collateral in the event of a borrower default may be an insufficient source of repayment, because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors. Consumer Finance 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. Tax Services 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 February 29, 2020 (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. See Note 3. Divestitures and Note 25. Subsequent Events for further information related to the Community Banking lending portfolio. 89 Table of Contents EARNINGS PER COMMON SHARE (“EPS”) Basic earnings per 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 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. See Note 6. Earnings per Common Share for further information. PREMISES, FURNITURE, AND EQUIPMENT Land is carried at cost. Buildings, furniture, fixtures, leasehold improvements and equipment are carried at cost, less accumulated depreciation and amortization. The Company primarily uses the straight-line method of depreciation over the estimated useful lives of the assets, which is 39 years for buildings, and range from two years to 15 years for leasehold improvements, and for furniture, fixtures and equipment. Assets are reviewed for impairment when events indicate the carrying amount may not be recoverable. See Note 7. Premises, Furniture and Equipment, Net for further information. BANK-OWNED LIFE INSURANCE Bank-owned life insurance represents the cash surrender value of investments in life insurance contracts. Earnings on the contracts are based on the earnings on the cash surrender value, less mortality costs. GOODWILL Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as business acquisitions. Goodwill is evaluated annually for impairment at a reporting unit level. The Company has determined that its reporting units are one level below the operating segments and distinguish these reporting units based on how the segments and reporting units are managed, taking into consideration the economic characteristics, nature of the products, and customers of the segments and reporting units. The Company performs its impairment evaluation as of September 30 of each fiscal year unless a triggering event occurs that would require an interim impairment evaluation. If the carrying amount of the reporting unit with goodwill exceeds its fair value, goodwill is considered impaired and is written down by the excess carrying value of the reporting unit. Subsequent increases in goodwill are not recognized in the Consolidated Financial Statements. No goodwill impairment was recognized during the fiscal years ended September 30, 2021, 2020 or 2019. See Note 10. Goodwill and Intangible Assets for further information. INTANGIBLE ASSETS Intangible assets other than goodwill are amortized over their respective estimated lives. All intangible assets are subject to an impairment test at least annually or more often if conditions indicate a possible impairment. See Note 10. Goodwill and Intangible Assets for further information. EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP”) The cost of shares issued to the ESOP, but not yet allocated to participants, are presented in the Consolidated Statements of Financial Condition as a reduction of stockholders’ equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings. Dividends on unallocated shares are used to reduce the accrued interest and principal amount of the ESOP’s loan payable to the Company. At September 30, 2021 and 2020, all shares in the ESOP were allocated. See Note 15. Employee Stock Ownership and Profit Sharing Plans for further information. Effective September 30, 2021, the ESOP terminated, and all participant balances became immediately vested. See Note 25. Subsequent Events for further information. STOCK COMPENSATION Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The exercise price of options or fair value of non-vested (restricted) shares and performance share units granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected to record forfeitures as they occur. See Note 16. Stock Compensation for further information. 90 Table of Contents INCOME TAXES The Company records income tax expense based on the amount of taxes due on its tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In accordance with ASC 740, Income Taxes , the Company recognizes a tax position as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in noninterest income or noninterest expense. The effect on deferred tax assets and liabilities from a change in tax rates is recorded in income tax expense in the Consolidated Statements of Operations in the period in which the enactment date occurs. If current period income tax rates change, the impact on the annual effective income tax rate is applied year to date in the period of enactment. See Note 17. Income Taxes for further information. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company, in the normal course of business, makes commitments to make loans which are not reflected in the Consolidated Financial Statements. The reserve for these unfunded commitments is included within Other Liabilities on the Consolidated Statements of Financial Condition. REVENUE RECOGNITION Interest revenue from loans, leases, and investments is recognized on the accrual basis of accounting as the interest is earned according to the terms of the particular loan, lease, or investment. Income from service and other customer charges is recognized as earned. Revenue within the Consumer segment is recognized as services are performed and service charges are earned in accordance with the terms of the various programs. Refer to Note 20. Revenue from Contracts with Customers for additional information. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) consists of net income and other comprehensive income or loss. Other comprehensive income or loss includes the change in net unrealized holding gains and losses due to market conditions and other non-credit risk factors on AFS debt securities, net of reclassification adjustments and tax effects. Accumulated other comprehensive income (loss) is recognized as a separate component of stockholders’ equity. RELATED PARTY TRANSACTIONS The Company has disclosed information on its equity investments and relationships with variable interest entities in Note 1. Summary of Significant Accounting Policies . At September 30, 2021 and 2020, the Company had no loans outstanding with individuals deemed under Regulation O to be directors, executive officers and/or employees of the Company. RECLASSIFICATION AND REVISION OF PRIOR PERIOD BALANCES Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income. 91 Table of Contents RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU") The following ASUs were adopted by the Company during the fiscal year ended September 30, 2021: ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and 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, resulting 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 such final rule. Additional and modified disclosure requirements under CECL are included in Note 4. Securities and Note 5. Loans and Leases, Net. The Company also adopted the following ASUs effective October 1, 2020, none of which had a material impact on the Company’s Consolidated Financial Statements: – 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 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. 92 Table of Contents 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. ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946) – Amendments to SEC Paragraphs, Amendments to Financial Disclosures, and Update of Statistical Disclosures. This ASU amends and adds various SEC paragraphs pursuant to final SEC rules released 33-10786 and 33-10835. Amendments within this ASU are effect for fiscal years ending after December 15, 2021 and are not expected to have a significant impact on the Company’s financial statement disclosures. NOTE 2. SIGNIFICANT EVENTS COVID-19 Pandemic The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020, with significant deterioration of macroeconomic conditions and markets into 2021. In response to the impacts of COVID-19, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. In addition to the CARES Act, the U.S. federal government enacted the Consolidated Appropriations Act 2021 ("CAA") on December 27, 2020 and the American Rescue Plan Act of 2021 ("ARP Act") on March 11, 2021, which provide additional COVID-19 relief to American families and businesses. The Company is participating in the Paycheck Protection Program ("PPP"), which is being administered by the Small Business Administration ("SBA"). It is the Company's understanding that loans funded through the PPP program are fully guaranteed by the U.S. government and that a portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. See Note 5. Loans and Leases, Net for further information related to this program. In response to the COVID-19 pandemic impact on customers, the Company engaged and continues to engage in more frequent communication with borrowers to better understand their situation and challenges and offered credit-worthy borrowers experiencing temporary hardship certain loan and lease modifications ("COVID modifications"), such as payment deferrals, as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19. The Company elected to treat COVID modifications on leases as part of the enforceable rights and obligations of the parties under the existing lease contract, resulting in these payment deferrals being treated as variable lease payments under the existing lease versus lease modifications. Additionally, for COVID modifications on loans, the Company adjusted its effective interest rate to reflect the payment deferral modification and continued accruing interest during this period. 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 under the modification agreement. 93 Table of Contents The table below presents the outstanding balances of active COVID-19 related modifications. As of the Period Ended (Dollars in Thousands) September 30, 2021 June 30, 2021 March 31, 2021 September 30, 2020 Term lending $ 1,619 $ 2,955 $ 5,460 $ 26,559 Asset based lending — — — 7,924 Factoring — — — 18,434 Lease financing 64 275 379 5,896 Insurance premium finance — — — 230 SBA/USDA — — — 7,724 Other commercial finance — — — 69 Commercial finance 1,683 3,230 5,839 66,836 Consumer credit products 133 19 301 1,574 Other consumer finance 980 1,609 1,627 4,223 Consumer finance 1,113 1,628 1,928 5,797 Community banking 36,296 36,632 58,707 120,695 Total loans and leases 39,092 41,490 66,474 193,328 Total COVID-19 related modifications $ 39,092 $ 41,490 $ 66,474 $ 193,328 NOTE 3. DIVESTITURES 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 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 $ 3.3 million and $ 3.5 million for the fiscal years ended September 30, 2021 and 2020, respectively. 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 $ 308.1 million and $ 135.0 million for the fiscal years ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the Company had no community bank loans classified as held for sale. See Note 5. Loans and Leases, Net and Note 25. Subsequent Events for additional information. 94 Table of Contents NOTE 4. SECURITIES 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. Debt Securities AFS (Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value At September 30, 2021 Corporate securities $ 25,000 $ — $ — $ 25,000 SBA securities 151,958 5,251 — 157,209 Obligations of states and political subdivisions 2,497 10 — 2,507 Non-bank qualified obligations of states and political subdivisions 266,048 3,347 ( 1,100 ) 268,295 Asset-backed securities 393,103 3,003 ( 1,247 ) 394,859 Mortgage-backed securities 1,016,478 9,728 ( 9,177 ) 1,017,029 Total debt securities AFS $ 1,855,084 $ 21,339 $ ( 11,524 ) $ 1,864,899 At September 30, 2020 SBA securities $ 159,722 $ 5,391 $ ( 158 ) $ 164,955 Obligations of states and political subdivisions 825 16 — 841 Non-bank qualified obligations of states and political subdivisions 314,819 8,978 ( 23 ) 323,774 Asset-backed securities 329,139 2,015 ( 6,229 ) 324,925 Mortgage-backed securities 439,879 14,567 ( 839 ) 453,607 Total debt securities AFS $ 1,244,384 $ 30,967 $ ( 7,249 ) $ 1,268,102 Debt Securities HTM (Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value At September 30, 2021 Non-bank qualified obligations of states and political subdivisions $ 52,944 $ 103 $ ( 471 ) $ 52,576 Mortgage-backed securities 3,725 90 — 3,815 Total debt securities HTM $ 56,669 $ 193 $ ( 471 ) $ 56,391 At September 30, 2020 Non-bank qualified obligations of states and political subdivisions $ 87,183 $ 1,040 $ ( 29 ) $ 88,194 Mortgage-backed securities 5,427 124 — 5,551 Total debt securities HTM $ 92,610 $ 1,164 $ ( 29 ) $ 93,745 95 Table of Contents Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, were as follows: LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL (Dollars in Thousands) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) Debt Securities AFS At September 30, 2021 Non-bank qualified obligations of states and political subdivisions $ 101,046 $ ( 1,100 ) $ — $ — $ 101,046 $ ( 1,100 ) Asset-backed securities 127,110 ( 283 ) 91,553 ( 964 ) 218,663 ( 1,247 ) Mortgage-backed securities 759,035 ( 7,418 ) 60,792 ( 1,759 ) 819,827 ( 9,177 ) Total debt securities AFS $ 987,191 $ ( 8,801 ) $ 152,345 $ ( 2,723 ) $ 1,139,536 $ ( 11,524 ) At September 30, 2020 SBA securities $ 32,257 $ ( 102 ) $ 9,875 $ ( 56 ) $ 42,132 $ ( 158 ) Non-bank qualified obligations of states and political subdivisions 6,265 ( 6 ) 3,103 ( 17 ) 9,368 ( 23 ) Asset-backed securities 106,474 ( 1,089 ) 178,686 ( 5,140 ) 285,160 ( 6,229 ) Mortgage-backed securities 138,338 ( 839 ) — — 138,338 ( 839 ) Total debt securities AFS $ 283,334 $ ( 2,036 ) $ 191,664 $ ( 5,213 ) $ 474,998 $ ( 7,249 ) Debt Securities HTM At September 30, 2021 Non-bank qualified obligations of states and political subdivisions $ 26,096 $ ( 471 ) $ — $ — $ 26,096 $ ( 471 ) Total debt securities HTM $ 26,096 $ ( 471 ) $ — $ — $ 26,096 $ ( 471 ) At September 30, 2020 Non-bank qualified obligations of states and political subdivisions $ 7,397 $ ( 9 ) $ 3,637 $ ( 20 ) $ 11,034 $ ( 29 ) Total debt securities HTM $ 7,397 $ ( 9 ) $ 3,637 $ ( 20 ) $ 11,034 $ ( 29 ) The adoption of CECL was inconsequential to debt securities AFS. At September 30, 2021, there were 67 securities AFS in an unrealized loss position. Management assessed each investment security with unrealized losses for credit loss and determined substantially all unrealized losses on these securities were due to credit spreads and interest rates versus credit loss. 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. At September 30, 2021, there was no ACL for debt securities AFS. The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features which allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in MBS because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, MBS are not included in the maturity categories in the following maturity summary. The expected maturities of certain SBA securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply. 96 Table of Contents At September 30, (Dollars in Thousands) 2021 2020 Securities AFS at Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 810 $ 822 $ 1,385 $ 1,398 Due after one year through five years 13,026 13,378 20,805 21,769 Due after five years through ten years 50,785 52,357 32,441 34,025 Due after ten years 773,985 781,313 749,874 757,303 838,606 847,870 804,505 814,495 Mortgage-backed securities 1,016,478 1,017,029 439,879 453,607 Total securities AFS, at fair value $ 1,855,084 $ 1,864,899 $ 1,244,384 $ 1,268,102 At September 30, (Dollars in Thousands) 2021 2020 Securities HTM at Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Due after ten years $ 52,944 $ 52,576 $ 87,183 $ 88,194 52,944 52,576 87,183 88,194 Mortgage-backed securities 3,725 3,815 5,427 5,551 Total securities HTM, at cost $ 56,669 $ 56,391 $ 92,610 $ 93,745 Activity related to the sale of securities available for sale is summarized below. Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Available For Sale Proceeds from sales $ 50,468 $ 4,904 $ 755,616 Gross gains on sales 179 51 6,006 Gross losses on sales 173 — 5,277 Net gain (loss) on securities AFS $ 6 $ 51 $ 729 There was no activity related to the sale of securities held to maturity during the fiscal years ended September 30, 2021, 2020, and 2019. No securities were pledged as collateral for public funds on deposit at September 30, 2021 and 2020. No securities were pledged as collateral for individual, trust and estate deposits at September 30, 2021 and 2020. Equity Securities The Company held $ 12.7 million and $ 3.0 million in marketable equity securities at September 30, 2021 and 2020, respectively. The addition of marketable equity securities was a result of an investee becoming publicly traded in fiscal year ended September 30, 2021. Upon becoming publicly traded, the Company recognized a fair value adjustment of $ 7.5 million to reflect the increase in value since the Company's initial investment in May 2018. Subsequent fair value adjustments for this investee during fiscal year 2021 totaled $ 3.4 million in unrealized losses, or a net position of $ 4.1 million unrealized gain as of September 30, 2021. All other marketable equity securities and related activity were insignificant for the fiscal years ended September 30, 2021 and 2020, respectively. No marketable equity securities were sold during fiscal year 2021. Non-marketable equity securities with a readily determinable fair value totaled $ 4.6 million and $ 2.8 million as of September 30, 2021 and 2020, respectively. The Company’s recognized $ 0.6 million and zero in unrealized gains during the fiscal years ended September 30, 2021 and 2020, respectively. No such securities were sold during fiscal year 2021. 97 Table of Contents Non-marketable equity securities without readily determinable fair value totaled $ 16.0 million and $ 23.0 million at September 30, 2021 and 2020, respectively. FRB Stock 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 the Bank totaled $ 19.7 million at September 30, 2021 and 2020. These equity securities are 'restricted' in that they can only be owned by member banks. At fiscal year-end 2021 and 2020, the Company pledged securities with fair values of approximately $ 236.1 million and $ 359.7 million against FRB advances, respectively. Included in interest and dividend income from other investments is $ 1.5 million and $ 0.3 million related to dividend income on FRB stock for the fiscal years ended September 30, 2021 and 2020, respectively. FHLB Stock 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 $ 8.7 million and $ 7.5 million at September 30, 2021 and 2020, respectively. At fiscal year-end 2021 and 2020, the Company pledged securities with fair values of approximately $ 644.7 million and $ 673.8 million, respectively, to be used against FHLB advances. In addition, a combination of qualifying residential and other real estate loans of zero and approximately $ 333.8 million were pledged as collateral at September 30, 2021 and 2020, respectively. Included in interest and dividend income from other investments is $ 0.2 million, $ 0.8 million and $ 1.0 million related to dividend income on FHLB stock for the fiscal years ended September 30, 2021, 2020 and 2019, respectively. 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. Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the fair value approximates cost. Equity Security Impairment The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate recoverability of the par value. All other equity investments, including those under the equity method, are reviewed for other-than-temporary impairment on at least a quarterly basis. The Company recognized $ 2.6 million and $ 1.3 million in impairment for such investments for the fiscal years ended September 30, 2021 and 2020, respectively, and zero for the fiscal year ended September 30, 2019. 98 Table of Contents NOTE 5. LOANS AND LEASES, NET Loans and leases consist of the following: At September 30, (Dollars in Thousands) 2021 2020 Term lending $ 961,019 $ 805,323 Asset based lending 300,225 182,419 Factoring 363,670 281,173 Lease financing 266,050 281,084 Insurance premium finance 428,867 337,940 SBA/USDA 247,756 318,387 Other commercial finance 157,908 101,658 Commercial finance 2,725,495 2,307,984 Consumer credit products 129,251 89,809 Other consumer finance 123,606 134,342 Consumer finance 252,857 224,151 Tax services 10,405 3,066 Warehouse finance 419,926 293,375 Community banking 199,132 485,564 Total loans and leases 3,607,815 3,314,140 Net deferred loan origination costs 1,748 8,625 Total gross loans and leases 3,609,563 3,322,765 Allowance for credit losses ( 68,281 ) ( 56,188 ) Total loans and leases, net $ 3,541,282 $ 3,266,577 During the fiscal years ended September 30, 2021 and 2020, the Company transferred $ 188.6 million and $ 542.1 million, respectively, of community banking loans to held for sale. During the fiscal year ended September 30, 2021, the Company originated $ 601.5 million of other consumer finance, SBA/USDA, and consumer credit product loans as held for sale. During the fiscal year ended September 30, 2020, the Company originated $ 98.8 million of SBA/USDA and consumer credit product loans as held for sale. The Company sold held for sale loans resulting in proceeds of $ 890.3 million and gains on sale of $ 8.6 million during the fiscal year ended September 30, 2021. The Company sold held for sale loans resulting in proceeds of $ 590.8 million and gains on sale of $ 7.7 million during the fiscal year ended September 30, 2020. 99 Table of Contents Loans purchased and sold by portfolio segment, including participation interests, were as follows: Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 Loans Purchased Loans held for investment: Commercial Finance — 2,400 Warehouse Finance 308,014 130,130 Community banking 3,318 18,905 Total purchases 311,332 151,435 Loans Sold Loans held for sale: Commercial Finance 89,276 60,114 Consumer Finance 494,585 123,394 Community banking 308,082 407,296 Loans held for investment: Community banking 13,850 9,991 Total sales 905,793 600,795 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: At September 30, (Dollars in Thousands) 2021 2020 Carrying amount $ 278,341 $ 299,487 Unguaranteed residual assets 14,393 17,203 Unamortized initial direct costs 490 2,078 Unearned income ( 26,684 ) ( 35,606 ) Total net investment in direct financing and sales-type leases $ 266,540 $ 283,162 The carrying amount of direct financing and sales-type leases subject to residual value guarantees was $ 4.2 million at September 30, 2021. The components of total lease income were as follows: Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 Interest income - loans and leases Interest income on net investments in direct financing and sales-type leases $ 22,876 $ 18,300 Leasing and equipment finance noninterest income Lease income from operating lease payments 39,553 44,319 Profit (loss) recorded on commencement date on sales-type leases 337 2,152 Other (1) 4,986 4,357 Total leasing and equipment finance noninterest income 44,876 50,828 Total lease income $ 67,752 $ 69,128 (1) Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases. 100 Table of Contents Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at September 30, 2021 were as follows: (Dollars in Thousands) 2022 $ 109,680 2023 83,438 2024 51,901 2025 24,838 2026 5,941 Thereafter 2,543 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 278,341 Total carrying amount of direct financing and sales-type leases $ 278,341 The Company did not record any contingent rental income from sales-type and direct financing leases in the fiscal year ended September 30, 2021. The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020, with significant deterioration of macroeconomic conditions and markets into 2021. Although macroeconomic conditions and markets have improved since the beginning of 2021, the ultimate impact of this pandemic on the Company's loan and lease portfolio is 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 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 subsequent related ASUs on a modified retrospective basis. Financial information at and for the quarter ended September 30, 2021 is reflected as such. The historical information disclosed is in accordance with ASC Topic 310, Receivables . Activity in the allowance for credit losses was as follows: Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Beginning balance $ 56,188 $ 29,149 $ 13,040 Impact of CECL adoption 12,773 — — Provision for credit losses 49,939 64,776 55,650 Charge-offs ( 57,273 ) ( 41,761 ) ( 42,854 ) Recoveries 6,654 4,024 3,313 Ending balance $ 68,281 $ 56,188 $ 29,149 101 Table of Contents Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows: At September 30, 2021 (Dollars in Thousands) Beginning Balance Impact of CECL Adoption Provision (Recovery) for Credit Losses (2) Charge-offs Recoveries Ending Balance Allowance for credits losses: Term lending $ 15,211 $ 9,999 $ 16,944 $ ( 14,090 ) $ 1,287 $ 29,351 Asset based lending 1,406 164 933 ( 1,200 ) 423 1,726 Factoring 3,027 987 ( 1,192 ) — 1,175 3,997 Lease financing 7,023 ( 556 ) 3,758 ( 2,969 ) 373 7,629 Insurance premium finance 2,129 ( 965 ) ( 555 ) ( 1,192 ) 1,977 1,394 SBA/USDA 940 2,720 ( 703 ) — 21 2,978 Other commercial finance 182 364 622 — — 1,168 Commercial finance 29,918 12,713 19,807 ( 19,451 ) 5,256 48,243 Consumer credit products 845 — 397 — — 1,242 Other consumer finance 2,821 5,998 297 ( 3,324 ) 320 6,112 Consumer finance 3,666 5,998 694 ( 3,324 ) 320 7,354 Tax services 2 — 33,276 ( 34,354 ) 1,078 2 Warehouse finance 294 ( 1 ) 127 — — 420 Community banking 22,308 ( 5,937 ) ( 3,965 ) ( 144 ) — 12,262 Total loans and leases 56,188 12,773 49,939 ( 57,273 ) 6,654 68,281 Unfunded commitments (1) 32 831 ( 173 ) — — 690 Total $ 56,220 $ 13,604 $ 49,766 $ ( 57,273 ) $ 6,654 $ 68,971 (1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements 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. Activity in the allowance for loan and lease losses and balances of loans and leases by portfolio segment was as follows: At September 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: Term lending $ 5,533 $ 19,796 $ ( 10,458 ) $ 340 $ 15,211 Asset based lending 2,437 ( 1,036 ) ( 42 ) 47 1,406 Factoring 3,261 ( 245 ) ( 915 ) 926 3,027 Lease financing 1,275 6,105 ( 728 ) 371 7,023 Insurance premium finance 1,024 2,489 ( 2,004 ) 620 2,129 SBA/USDA 383 2,688 ( 2,131 ) — 940 Other commercial finance 683 ( 501 ) — — 182 Commercial finance 14,596 29,296 ( 16,278 ) 2,304 29,918 Consumer credit products 1,044 ( 199 ) — — 845 Other consumer finance 5,118 ( 538 ) ( 2,649 ) 890 2,821 Consumer finance 6,162 ( 737 ) ( 2,649 ) 890 3,666 Tax services — 22,006 ( 22,834 ) 830 2 Warehouse finance 263 31 — — 294 Community banking 8,128 14,180 — — 22,308 Total loans and leases $ 29,149 $ 64,776 $ ( 41,761 ) $ 4,024 $ 56,188 102 Table of Contents The following table provides 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: Term lending $ 3,155 $ 12,056 $ 15,211 $ 26,085 $ 779,238 $ 805,323 Asset based lending 355 1,051 1,406 5,317 177,102 182,419 Factoring 274 2,753 3,027 5,071 276,102 281,173 Lease financing 1,194 5,829 7,023 4,697 276,387 281,084 Insurance premium finance — 2,129 2,129 — 337,940 337,940 SBA/USDA — 940 940 1,436 316,951 318,387 Other commercial finance — 182 182 — 101,658 101,658 Commercial finance 4,978 24,940 29,918 42,606 2,265,378 2,307,984 Consumer credit products — 845 845 — 89,809 89,809 Other consumer finance — 2,821 2,821 1,987 132,355 134,342 Consumer finance — 3,666 3,666 1,987 222,164 224,151 Tax services — 2 2 — 3,066 3,066 Warehouse finance — 294 294 — 293,375 293,375 Community banking 141 22,167 22,308 6,685 478,879 485,564 Total $ 5,119 $ 51,069 $ 56,188 $ 51,278 $ 3,262,862 $ 3,314,140 Information on loans and leases that are deemed to be collateral dependent and are evaluated individually for the ACL was as follows: (Dollars in Thousands) At September 30, 2021 Term lending $ 20,965 Factoring 1,268 Lease financing 3,882 Commercial finance 26,115 Community banking 14,915 Total $ 41,030 In response to the ongoing COVID-19 pandemic, the Company allowed modifications, such as payment deferrals and temporary forbearance, to credit-worthy borrowers who are experiencing temporary hardship due to the effects of COVID-19. 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 September 30, 2021, $ 39.1 million of loan and lease that were granted deferral payments by the Company were still in their deferment period compared to $ 193.3 million as of September 30, 2020. These modifications consisted solely of payment deferrals ranging from 30 days to six months . These modifications are in line with applicable regulatory guidelines and, therefore, they are not reported as troubled debt restructurings. Other than the loan modifications that are on nonaccrual status, the Company is accruing and recognizing interest income on these modifications during the payment deferral period. 103 Table of Contents 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 OCC, to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan 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. Meta has 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 our loan and lease risk ratings, resulting in downgrades of certain credits in several categories. Loans and leases, or portions thereof, are charged off when collection of principal becomes doubtful. Generally, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 180 days or more for the purchased student loan portfolios, 120 days or more for consumer credit products and leases, and 90 days or more for community banking loans and commercial finance loans. Action is taken to charge off ERO loans if such loans have not been collected by the end of June and taxpayer advance loans if such loans have not been collected by the end of the calendar year. Non-accrual loans and troubled debt restructurings are generally individually evaluated for expected credit losses. 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 allowable Allowance for Credit Losses. 104 Table of Contents The Company has various portfolios of consumer finance and tax services loans that present unique risks that are statistically managed. 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, beginning in the fiscal 2020 first quarter. The outstanding balances of consumer finance loans and tax services loans were $ 252.9 million and $ 10.4 million at September 30, 2021, 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 as of September 30, 2021 was as follows: Amortized Cost Basis Term Loans and Leases by Origination Year Revolving Loans and Leases Total (Dollars in Thousands) 2021 2020 2019 2018 2017 Prior Term lending Pass $ 362,443 $ 192,305 $ 63,708 $ 34,381 $ 3,195 $ 1,236 $ — $ 657,268 Watch 63,046 71,701 32,941 21,419 76 3,628 — 192,811 Special Mention 6,422 26,673 4,821 932 70 633 — 39,551 Substandard 18,569 16,810 26,920 3,529 928 641 — 67,397 Doubtful 252 1,673 1,756 311 — — — 3,992 Total 450,732 309,162 130,146 60,572 4,269 6,138 — 961,019 Asset based lending Pass — — — — — — 185,432 185,432 Watch — — — — — — 52,072 52,072 Special Mention — — — — — — 43,135 43,135 Substandard — — — — — — 19,586 19,586 Doubtful — — — — — — — — Total — — — — — — 300,225 300,225 Factoring Pass — — — — — — 294,124 294,124 Watch — — — — — — 17,984 17,984 Special Mention — — — — — — 33,035 33,035 Substandard — — — — — — 18,527 18,527 Total — — — — — — 363,670 363,670 Lease financing Pass 54,434 73,629 17,153 7,511 1,857 203 — 154,787 Watch 22,061 20,455 9,274 2,739 1,454 — — 55,983 Special Mention 15,402 20,595 4,148 1,546 61 — — 41,752 Substandard 479 4,765 4,981 831 25 — — 11,081 Doubtful — 6 2,402 38 — 2,447 Total 92,376 119,450 37,958 12,665 3,398 203 — 266,050 Insurance premium finance Pass 428,131 144 9 — — — — 428,284 Watch 262 5 — — — — — 267 Special Mention 58 5 — — — — — 63 Substandard 68 107 — — — — — 175 Doubtful 58 20 — — — — — 78 Total 428,577 281 9 — — — — 428,867 SBA/USDA Pass 110,122 37,006 14,461 12,760 6,525 3,779 — 184,653 Watch — 20,431 1,996 1,670 1,394 298 — 25,789 Special Mention — 8,333 214 3,348 177 919 — 12,991 Substandard — 3,812 9,550 8,079 2,169 713 — 24,323 Total 110,122 69,582 26,221 25,857 10,265 5,709 — 247,756 105 Table of Contents Other commercial finance Pass 56,957 642 5,786 6,075 3,345 60,965 — 133,770 Watch — 17,404 3,409 451 — — — 21,264 Substandard 466 — — 273 837 1,299 — 2,875 Total 57,423 18,046 9,195 6,799 4,182 62,264 — 157,909 Warehouse finance Pass — — — — — — 419,926 419,926 Total — — — — — — 419,926 419,926 Community banking Pass — — 4,159 — 5,683 472 — 10,314 Watch — 10,134 — 10,854 6,133 — — 27,121 Special Mention — — 35,916 — — — — 35,916 Substandard — 119 49,449 50,626 13,933 6,110 — 120,237 Doubtful — 122 — 5,422 — — — 5,544 Total — 10,375 89,524 66,902 25,749 6,582 — 199,132 Total Loans and Leases Pass 1,012,088 303,727 105,274 60,727 20,605 66,655 899,481 2,468,557 Watch 85,369 140,131 47,620 37,132 9,057 3,926 70,056 393,291 Special Mention 21,882 55,606 45,099 5,826 307 1,552 76,171 206,443 Substandard 19,584 25,613 90,900 63,338 17,891 8,762 38,113 264,201 Doubtful 310 1,822 4,158 5,770 1 — — 12,061 Total $ 1,139,233 $ 526,899 $ 293,051 $ 172,793 $ 47,861 $ 80,895 $ 1,083,821 $ 3,344,553 The recorded investment of loans and leases by asset classification was as follows: (Dollars in Thousands) At September 30, 2020 Asset Classification Pass Watch Special Mention Substandard Doubtful Total Term lending $ 725,101 $ 29,637 $ 24,501 $ 21,249 $ 4,835 $ 805,323 Asset based lending 102,013 62,512 12,577 5,317 — 182,419 Factoring 217,245 45,200 13,657 5,071 — 281,173 Lease financing 264,700 8,879 2,808 4,148 549 281,084 Insurance premium finance 336,364 284 222 701 369 337,940 SBA/USDA 308,549 8,328 74 1,436 — 318,387 Other commercial finance 100,727 931 — — — 101,658 Commercial finance 2,054,699 155,771 53,839 37,922 5,753 2,307,984 Warehouse finance 293,375 — — — — 293,375 Community banking 353,410 98,336 9,588 23,650 580 485,564 Total loans and leases $ 2,701,484 $ 254,107 $ 63,427 $ 61,572 $ 6,333 $ 3,086,923 106 Table of Contents Past due loans and leases were as follows : At September 30, 2021 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in Thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ — $ — $ — $ — $ 56,194 $ 56,194 $ — $ — $ — Term lending 11,879 2,703 5,452 20,034 940,985 961,019 2,558 14,904 17,462 Asset based lending — — — — 300,225 300,225 — — — Factoring — — — — 363,670 363,670 — 1,268 1,268 Lease financing 4,909 3,336 8,401 16,646 249,404 266,050 8,345 3,158 11,503 Insurance premium finance 1,415 375 599 2,389 426,478 428,867 599 — 599 SBA/USDA 66 974 987 2,027 245,729 247,756 987 — 987 Other commercial finance — — — — 157,908 157,908 — — — Commercial finance 18,269 7,388 15,439 41,096 2,684,399 2,725,495 12,489 19,330 31,819 Consumer credit products 713 527 511 1,751 127,500 129,251 511 — 511 Other consumer finance 963 285 725 1,973 121,633 123,606 725 — 725 Consumer finance 1,676 812 1,236 3,724 249,133 252,857 1,236 — 1,236 Tax services — — 7,962 7,962 2,443 10,405 7,962 — 7,962 Warehouse finance — — — — 419,926 419,926 — — — Community banking — — — — 199,132 199,132 — 14,915 14,915 Total loans and leases held for investment 19,945 8,200 24,637 52,782 3,555,033 3,607,815 21,687 34,245 55,932 Total loans and leases $ 19,945 $ 8,200 $ 24,637 $ 52,782 $ 3,611,227 $ 3,664,009 $ 21,687 $ 34,245 $ 55,932 At September 30, 2020 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in Thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ — $ — $ — $ — $ 183,577 $ 183,577 $ — $ — $ — Term lending 11,900 3,851 6,390 22,141 783,182 805,323 266 16,274 16,540 Asset based lending 17 — — 17 182,402 182,419 — — — Factoring — — — — 281,173 281,173 — 1,096 1,096 Lease financing 194 9,746 6,882 16,822 264,262 281,084 4,344 3,583 7,927 Insurance premium finance 1,227 748 2,364 4,339 333,601 337,940 2,364 — 2,364 SBA/USDA — — 1,027 1,027 317,360 318,387 427 600 1,027 Other commercial finance — — — — 101,658 101,658 — — — Commercial finance 13,338 14,345 16,663 44,346 2,263,638 2,307,984 7,401 21,553 28,954 Consumer credit products 377 358 499 1,233 88,576 89,809 499 — 499 Other consumer finance 600 536 373 1,509 132,833 134,342 373 — 373 Consumer finance 977 894 872 2,743 221,408 224,151 872 — 872 Tax services — — 1,743 1,743 1,323 3,066 1,743 — 1,743 Warehouse finance — — — — 293,375 293,375 — — — Community banking 905 114 2,449 3,468 482,096 485,564 50 2,399 2,449 Total loans and leases held for investment 15,220 15,353 21,727 52,300 3,261,840 3,314,140 10,066 23,952 34,018 Total loans and leases $ 15,220 $ 15,353 $ 21,727 $ 52,300 $ 3,445,417 $ 3,497,717 $ 10,066 $ 23,952 $ 34,018 107 Table of Contents Nonaccrual loans and leases by year of origination at September 30, 2021 were as follows: Amortized Cost Basis Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual with No ACL (Dollars in Thousands) 2021 2020 2019 2018 2017 Prior Term lending $ 131 $ 3,812 $ 10,072 $ 756 $ 133 $ — $ — $ 14,904 $ 12,103 Factoring — — — — — — 1,268 1,268 1,268 Lease financing 30 2,471 632 25 — — 3,158 541 Commercial finance 131 3,842 12,543 1,388 158 — 1,268 19,330 13,912 Community Banking — 242 — 14,673 — — — 14,915 — Total nonaccrual loans and leases $ 131 $ 4,084 $ 12,543 $ 16,061 $ 158 $ — $ 1,268 $ 34,245 $ 13,912 Loans and leases that are 90 days or more delinquent and accruing by year of origination at September 30, 2021 were as follows: Amortized Cost Basis Term Loans and Leases by Origination Year Revolving Loans and Leases Total (Dollars in Thousands) 2021 2020 2019 2018 2017 Prior Term lending $ 2,546 $ — $ 12 $ — $ — $ — $ — $ 2,558 Lease financing 429 7,558 224 99 31 4 — 8,345 Insurance premium finance 468 131 — — — — — 599 SBA/USDA — 987 — — — — — 987 Commercial finance 3,443 8,676 236 99 31 4 — 12,489 Consumer credit products 206 77 224 3 — — — 510 Other consumer finance — — — — — 725 — 725 Consumer finance 206 77 224 3 — 725 — 1,235 Tax services 7,962 — — — — — — 7,962 Total 90 days or more delinquent and accruing $ 11,611 $ 8,753 $ 460 $ 102 $ 31 $ 729 $ — $ 21,686 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) 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 is evaluated for impairment. Often, this is associated with a delay or shortfall in scheduled payments, as described above. 108 Table of Contents Information on impaired loans and leases, all of which are deemed to be collateral dependent and are evaluated individually for the ACL was as follows: (Dollars in Thousands) Fiscal Year Ended September 30, 2021 Term lending $ 20,965 Factoring 1,268 Lease financing 3,882 Commercial finance 26,115 Other consumer finance 2,294 Consumer finance 2,294 Community banking 14,915 Total loans and leases $ 43,324 The recognized interest income on the Company's nonaccrual loans and leases for the fiscal year ended September 30, 2021 was not significant. The following table provides the average recorded investment in impaired loans and leases: Fiscal Year Ended September 30, 2020 (Dollars in Thousands) Average Recorded Investment Recognized Interest Income Term lending $ 26,126 $ 386 Asset based lending 1,339 — Factoring 4,075 13 Lease financing 3,370 16 SBA/USDA 3,164 — Commercial finance 38,074 415 Other consumer finance 1,860 143 Consumer finance 1,860 143 Community banking 3,529 ( 37 ) Total loans and leases $ 43,463 $ 521 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 $ 5.9 million of commercial finance loans, and $ 0.3 million of consumer finance loans that were modified in a TDR during the fiscal year ended September 30, 2021, all of which were modified to extend the term of the loan, and no community banking loans. There were $ 8.7 million of commercial finance loans, and $ 0.8 million of consumer finance loans that were modified in a TDR during the fiscal year ended September 30, 2020 and $ 5.2 million community banking loans. During the fiscal year ended September 30, 2021, the Company had $ 3.4 million of commercial finance loans, $ 0.3 million of consumer finance 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 fiscal year ended September 30, 2020, the Company had $ 3.3 million of commercial finance loans, $ 0.6 million of consumer finance loans, and $ 3.3 million of community banking 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 credit losses were insignificant during the fiscal years ended September 30, 2021 and September 30, 2020. 109 Table of Contents NOTE 6. EARNINGS PER COMMON SHARE 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 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. Fiscal Year Ended September 30, (Dollars in Thousands, Except Per Share Data) 2021 2020 2019 Basic income per common share: Net income attributable to Meta Financial Group, Inc. $ 141,708 $ 104,720 $ 97,004 Dividends and undistributed earnings allocated to participating securities ( 2,698 ) ( 2,414 ) ( 2,378 ) Basic net earnings available to common stockholders 139,010 102,306 94,626 Undistributed earnings allocated to nonvested restricted stockholders 2,575 2,249 2,187 Reallocation of undistributed earnings to nonvested restricted stockholders ( 2,573 ) ( 2,249 ) ( 2,185 ) Diluted net earnings available to common stockholders $ 139,012 $ 102,306 $ 94,628 Total weighted-average basic common shares outstanding 31,729,596 34,829,971 37,927,734 Effect of dilutive securities (1) Stock options — — 40,718 Performance share units 21,926 — — Total effect of dilutive securities 21,926 — 40,718 Total weighted-average diluted common shares outstanding 31,751,522 34,829,971 37,968,452 Net earnings per common share: Basic earnings per common share $ 4.38 $ 2.94 $ 2.49 Diluted earnings per common share (2) $ 4.38 $ 2.94 $ 2.49 (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 fiscal years ended September 30, 2021, 2020, and 2019, respectively, were 615,811 , 821,738 , and 953,185 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. 110 Table of Contents NOTE 7. PREMISES, FURNITURE, AND EQUIPMENT, NET Premises, furniture, and equipment consists of the following: At September 30, (Dollars in Thousands) 2021 2020 Land $ 1,354 $ 1,354 Buildings 21,196 20,170 Furniture, fixtures, and equipment 76,662 67,302 99,212 88,826 Less: accumulated depreciation and amortization ( 54,324 ) ( 47,218 ) Net book value $ 44,888 $ 41,608 Depreciation expense of premises, furniture and equipment included in occupancy and equipment expense was approximately $ 9.6 million, $ 9.2 million and $ 8.6 million for the fiscal years ended September 30, 2021, 2020 and 2019, respectively. NOTE 8. RENTAL EQUIPMENT, NET Rental equipment consists of the following: At September 30, (Dollars in Thousands) 2021 2020 Computers and IT networking equipment $ 17,683 $ 15,926 Motor vehicles and other 87,396 52,913 Office furniture and equipment 48,828 74,197 Solar panels and equipment 125,457 118,808 Total 279,364 261,844 Accumulated depreciation ( 67,825 ) ( 57,601 ) Unamortized initial direct costs 1,577 1,721 Net book value $ 213,116 $ 205,964 Undiscounted future minimum lease payments expected to be received for operating leases at September 30, 2021 were as follows: (Dollars in Thousands) 2022 $ 34,532 2023 29,709 2024 21,762 2025 15,602 2026 9,069 Thereafter 12,603 Total undiscounted future minimum lease payments receivable for operating leases $ 123,277 111 Table of Contents NOTE 9. FORECLOSED REAL ESTATE AND REPOSSESSED ASSETS The following table provides an analysis of changes in foreclosed real estate and repossessed assets: Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 Balance, beginning of period $ 9,957 $ 29,494 Additions 1,659 9,983 Reductions: Write-downs 591 568 Sales 8,952 23,992 (Gain) loss on sale ( 4 ) 4,960 Total reductions 9,539 29,520 Balance, ending of period $ 2,077 $ 9,957 At September 30, 2021 and 2020, the Company had established a valuation allowance of $ 1.1 million and $ 0.5 million for repossessed assets, respectively. As of September 30, 2021 and 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 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. NOTE 10. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at September 30, 2021. The recorded goodwill is a result of multiple business combinations that have been consummated since fiscal year 2015, with the most recent pursuant to the Crestmark Acquisition that closed on August 1, 2018. Goodwill is assessed for impairment at least annually or more often if conditions indicate a possible impairment. The assessment is done at a reporting unit level, which is one level below the operating segments. See Note 21. Segment Reporting for additional information on the Company's segment reporting. There have been no changes to the carrying amount of goodwill during the fiscal years ended September 30, 2021 and 2020. The Company completed a qualitative goodwill impairment assessment as of September 30, 2021. Based on the results, it was identified that it was more likely than not the fair value of goodwill recorded exceeded the current carrying value and concluded no impairment existed as of September 30, 2021. 112 Table of Contents The changes in the carrying amount of the Company's intangible assets were as follows: (Dollars in Thousands) Trademark (1) Non-Compete (2) Customer Relationships (3) All Others (4) Total Intangible Assets At September 30, 2020 $ 10,901 $ 422 $ 24,333 $ 6,036 $ 41,692 Acquisitions during the period — — — 24 24 Amortization during the period ( 1,078 ) ( 382 ) ( 6,465 ) ( 620 ) ( 8,545 ) Write-offs during the period — — — ( 23 ) ( 23 ) At September 30, 2021 $ 9,823 $ 40 $ 17,868 $ 5,417 $ 33,148 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 10,142 $ 109,335 Accumulated amortization ( 4,801 ) ( 2,441 ) ( 53,972 ) ( 4,507 ) ( 65,721 ) Accumulated impairment — — ( 10,248 ) ( 218 ) ( 10,466 ) At September 30, 2021 $ 9,823 $ 40 $ 17,868 $ 5,417 $ 33,148 At September 30, 2019 $ 11,959 $ 827 $ 33,207 $ 6,817 $ 52,810 Acquisitions during the period — — — 35 35 Amortization during the period ( 1,058 ) ( 405 ) ( 8,874 ) ( 660 ) ( 10,997 ) Write-offs during the period — — — ( 156 ) ( 156 ) At September 30, 2020 $ 10,901 $ 422 $ 24,333 $ 6,036 $ 41,692 Gross carrying amount $ 14,624 $ 2,480 $ 82,088 $ 10,113 $ 109,305 Accumulated amortization ( 3,723 ) ( 2,058 ) ( 47,507 ) ( 3,887 ) ( 57,175 ) Accumulated impairment — — ( 10,248 ) ( 190 ) ( 10,438 ) At September 30, 2020 $ 10,901 $ 422 $ 24,333 $ 6,036 $ 41,692 (1) Book amortization period of 5 - 15 years.Amortized using the straight line and accelerated methods. (2) Book amortization period of 3 - 5 years. Amortized using the straight line method. (3) Book amortization period of 10 - 30 years. Amortized using the accelerated method. (4) Book amortization period of 3 - 20 years. Amortized using the straight line method. 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 subsequent fiscal years at September 30, 2021 was as follows: (Dollars in Thousands) 2022 $ 6,420 2023 5,102 2024 4,384 2025 3,826 2026 3,252 Thereafter 10,164 Total anticipated intangible amortization $ 33,148 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 for the fiscal years ended September 30, 2021 and 2020. Intangible impairment expense is recorded within the impairment expense line of the Consolidated Statements of Operations. 113 Table of Contents NOTE 11. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease ROU assets, included in other assets , were $ 34.4 million and $ 25.8 million at September 30, 2021 and 2020, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 36.5 million and $ 27.1 million at September 30, 2021 and 2020, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at September 30, 2021 were as follows: (Dollars in Thousands) 2022 $ 4,687 2023 4,180 2024 4,152 2025 4,027 2026 3,195 Thereafter 21,732 Total undiscounted future minimum lease payments 41,973 Discount ( 5,423 ) Total operating lease liabilities $ 36,550 The weighted-average discount rate and remaining lease term for operating leases at September 30, 2021 were as follows: Weighted-average discount rate 2.32 % Weighted-average remaining lease term (years) 10.85 The components of total lease costs for operating leases were as follows: Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 Lease expense $ 4,310 $ 3,454 Short-term and variable lease cost 193 496 ROU asset impairment 224 — Sublease income ( 591 ) ( 733 ) Total lease cost for operating leases $ 4,136 $ 3,217 114 Table of Contents NOTE 12. TIME CERTIFICATES OF DEPOSIT Time certificates of deposit in denominations of $ 250,000 or more were approximately $ 24.9 million and $ 231.0 million at September 30, 2021, and 2020, respectively. S cheduled maturities of time certificates of deposit at September 30, 2021 were as follows for the fiscal years ending: (Dollars in Thousands) 2022 $ 31,148 2023 907 2024 445 2025 — 2026 — Thereafter — Total (1) $ 32,500 (1) As of September 30, 2021, the Company had $ 23.4 million of certificates of deposit which were recorded in wholesale deposits on the Consolidated Statements of Financial Condition. Under the Dodd-Frank Act, IRA and non-IRA deposit accounts are insured up to $ 250,000 by the DIF under management of the FDIC. NOTE 13. SHORT-TERM AND LONG-TERM BORROWINGS Short-Term Borrowings The Company had no short-term borrowing at September 30, 2021 and 2020. The Bank has executed blanket pledge agreements whereby the Bank assigns, transfers, and pledges to the FHLB and grants to the FHLB a security interest in real estate and securities collateral. The Bank has the right to use, commingle, and dispose of the collateral it has assigned to the FHLB. Under the agreement, the Bank must maintain “eligible collateral” that has a “lending value” at least equal to the “required collateral amount,” all as defined by the agreement. At September 30, 2021 and 2020, the Bank pledged securities with fair values of approximately $ 644.7 million and $ 673.8 million, respectively, to be used against FHLB advances as needed. In addition, no qualifying real estate loans were pledged as collateral at September 30, 2021 compared to approximately $ 333.8 million at September 30, 2020. The Company had no securities sold under agreements to repurchase at September 30, 2021 and 2020. An analysis of securities sold under agreements to repurchase follows: At September 30, (Dollars in Thousands) 2021 2020 Highest month-end balance $ — $ 2,550 Average balance — 328 Weighted average interest rate for the fiscal year — % 2.00 % Weighted average interest rate at fiscal year end — % — % At September 30, 2021 and 2020, the Company did not have any securities pledged as collateral for securities sold under agreements to repurchase. 115 Table of Contents Long-Term Borrowings At September 30, (Dollars in Thousands) 2021 2020 Trust preferred securities 13,661 13,661 Subordinated debentures, net of issuance costs 73,980 73,807 Other long-term borrowings (1) 5,193 10,756 Total $ 92,834 $ 98,224 ( 1) Includes $ 5.1 million and $ 10.6 million of discounted leases and $ 0.1 million and $ 0.1 million of finance lease obligations at September 30, 2021 and 2020, respectively. Management extinguished its remaining long-term FHLB advances in the fiscal 2020 fourth quarter. Prior to doing so, the advances had an outstanding balance of $ 110.0 million at a weighted average cost of 2.41 %. The early extinguishment resulted in a pre-tax charge of $ 1.7 million to other expense in the fiscal 2020 fourth quarter. Scheduled maturities of the Company's long-term borrowings at September 30, 2021 were as follows for the fiscal years ending: (Dollars in Thousands) Trust preferred securities Subordinated debentures Other long-term borrowings Total 2022 $ — $ — $ 398 $ 398 2023 — — 1,924 1,924 2024 — — 2,871 2,871 2025 — — — — 2026 — 73,980 — 73,980 Thereafter 13,661 — — 13,661 Total long-term borrowings $ 13,661 $ 73,980 $ 5,193 $ 92,834 Certain trust preferred securities are due to First Midwest Financial Capital Trust I, a 100 %-owned nonconsolidated subsidiary of the Company. The securities were issued in 2001 in conjunction with the Trust’s issuance of 10,000 shares of Trust Preferred Securities. The securities bear the same interest rate and terms as the trust preferred securities. The securities are included on the Consolidated Statements of Financial Condition as liabilities. The Company issued all of the 10,310 authorized shares of trust preferred securities of First Midwest Financial Capital Trust I holding solely securities. Distributions are paid semi-annually. Cumulative cash distributions are calculated at a variable rate of LIBOR plus 3.75 % ( 3.93 % at September 30, 2021, and 4.01 % at September 30, 2020), not to exceed 12.5 %. The Company may, at one or more times, defer interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond July 25, 2031. At the end of any deferral period, all accumulated and unpaid distributions are required to be paid. The capital securities are required to be redeemed on July 25, 2031; however, the Company has a semi-annual option to shorten the maturity date. The redemption price is $ 1,000 per capital security plus any accrued and unpaid distributions to the date of redemption. Holders of the capital securities have no voting rights, are unsecured and rank junior in priority of payment to all of the Company’s indebtedness and senior to the Company’s common stock. Although the securities issued by the Trust are not included as a component of stockholders’ equity, the securities are treated as capital for regulatory purposes, subject to certain limitations. Through the Crestmark Acquisition, the Company acquired $ 3.4 million in floating rate capital securities due to Crestmark Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company. The subordinated debentures bear interest at LIBOR plus 3.00 %, have a stated maturity of 30 years and are redeemable by the Company at par, with regulatory approval. The interest rate is reset quarterly at distribution dates in February, May, August, and November. The interest rate as of September 30, 2021 was 3.13 %. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. 116 Table of Contents The Company completed the public offering of $ 75.0 million of 5.75 % fixed-to-floating rate subordinated debentures during fiscal year 2016. These notes are due August 15, 2026. The subordinated debentures were sold at par, resulting in net proceeds of approximately $ 73.9 million. At September 30, 2021, the Company had $ 74.0 million in aggregate principal amount in subordinated debentures, net of issuance costs of $ 1.0 million. NOTE 14. STOCKHOLDERS' EQUITY Repurchase of Common Stock 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. This authorization is effective from November 21, 2019 through December 31, 2022. On September 7, 2021, the Company's Board of Directors announced a new share repurchase program to repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock. This authorization is effective from September 3, 2021 through September 30, 2024. During the fiscal years ended September 30, 2021 and 2020, the Company repurchased 2,833,755 and 3,669,597 shares, respectively, as part of the share repurchase programs. Under the repurchase programs, 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. As of September 30, 2021, the remaining number of shares available for repurchase under the programs were 7,315,876 shares of common stock. For the fiscal years ended September 30, 2021, and 2020, the Company also repurchased 101,481 and 103,830 shares, or $ 2.9 million and $ 3.2 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock. Repurchase of Treasury Stock 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. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. The Company retired 203,224 and zero shares of common stock held in treasury during the fiscal years ended September 30, 2021 and 2020, respectively. NOTE 15. EMPLOYEE STOCK OWNERSHIP AND PROFIT SHARING PLANS Until September 30, 2021, the Company maintained an Employee Stock Ownership Plan (“ESOP”) for eligible employees who have 1,000 hours of employment with the Bank, have worked at least one year at the Bank and who have attained age 21. ESOP expense of $ 3.1 million, $ 3.0 million and $ 2.9 million was recorded for the fiscal years ended September 30, 2021, 2020 and 2019, respectively. Contributions to the ESOP and shares released from suspense are allocated among ESOP participants on the basis of compensation in the year of allocation. Benefits generally become 100 % vested after seven years of credited service. Prior to the completion of seven years of credited service, a participant who terminates employment for reasons other than death or disability receives a reduced benefit based on the ESOP’s vesting schedule. Forfeitures are reallocated among remaining participating employees in the same proportion as contributions. Benefits are payable in the form of stock upon termination of employment. The Company’s contributions to the ESOP are not fixed, so benefits payable under the ESOP cannot be estimated. For the fiscal years ended September 30, 2021, 2020 and 2019, 54,985 shares, 157,909 shares and 98,753 shares, from the suspense account, with a fair value of $ 52.48 , $ 19.22 and $ 32.61 per share, respectively, were released. For the fiscal years ended September 30, 2021, 2020 and 2019, allocated shares and total ESOP shares reflect 22,960 shares, 59,865 shares and 79,926 shares, respectively, withdrawn from the ESOP by participants who were no longer with the Company or by participants diversifying their holdings. At September 30, 2021, 2020 and 2019, there were 4,192 , 5,662 and 5,336 shares purchased, respectively, for dividend reinvestment. 117 Table of Contents ESOP shares were as follows: At September 30, (Dollars in Thousands) 2021 2020 2019 Allocated shares 787,299 809,116 778,088 Unearned shares — — — Total ESOP shares 787,299 809,116 778,088 Fair value of unearned shares $ — $ — $ — The Company also has a profit sharing plan covering substantially all full-time employees. Profit sharing expense included in compensation and benefits, for the fiscal years ended September 30, 2021, 2020 and 2019 was $ 3.1 million, $ 3.1 million and $ 3.0 million, respectively. As of October 1, 2021, the Company modified its profit sharing plan to incorporate a Qualified Automatic Contribution Arrangement safe harbor provision, whereby employee contributions are matched at 100 % of the first 6 % of eligible compensation contributed. NOTE 16. 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, 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. At grant date, the fair value of options awarded to recipients is estimated using a Black-Scholes valuation model. The exercise price of stock options equals the fair market value of the underlying stock at the date of grant. Options are issued for a period of 10 years with 100 % vesting generally occurring either at grant date or over a period of four years . There were no options granted during the fiscal years ended September 30, 2021, 2020 or 2019. The intrinsic value of options exercised during the fiscal years ended September 30, 2021, 2020 and 2019 were zero , $ 1.0 million and $ 1.8 million, respectively. Shares have previously been granted each year to executives and senior leadership members under the applicable Company incentive plan. These shares vest at various times ranging from immediately to four years based on circumstances at time of grant. The fair value is determined based on the fair market value of the Company’s stock on the grant date. Director shares are issued to the Company’s directors, and these shares vest immediately. The total fair value of director’s shares granted during the fiscal years ended September 30, 2021, 2020 and 2019 was $ 1.0 million, $ 0.8 million and $ 1.0 million, respectively. Under its 2002 Omnibus Incentive Plan, the Company also grants selected executives and other key employees PSU awards. The vesting of these awards is contingent on meeting company-wide performance goals, including but not limited to return on equity, earnings per share, and total shareholder return. PSUs are generally granted at the market value of the underlying share on the date of grant, adjusted for dividends, as performance share units do not participate in dividends while unearned. The awards contingently vest over a period of three years and have payout levels ranging from a threshold of 50% to a maximum of 200%. Upon vesting, each performance share unit is converted into one share of common stock. The fair value of the PSUs is determined by the dividend-adjusted fair value on the grant date for those awards subject to a performance condition. For those PSUs subject to a market condition, a simulation valuation is performed. In addition to the Company’s 2002 Omnibus Incentive Plan, the Company also maintains the 1995 Stock Option and Incentive Plan. No new options were, or could have been, awarded under the 1995 plan during the fiscal years ended September 30, 2021, 2020 or 2019. Furthermore, no options were outstanding during the year. In addition, during the first and second quarters of fiscal 2017, shares were granted to certain executive officers of the Company in connection with their signing of employment agreements with the Company. These stock awards vest in equal installments over eight years . 118 Table of Contents T he following tables show the activity of options and share awards (including shares of restricted stock subject to vesting, fully-vested restricted stock, and PSUs) granted, exercised or forfeited under all of the Company’s option and incentive plans during the fiscal year ended September 30, 2021 and 2020. There was no activity of options during the fiscal year ended September 30, 2021 and zero were outstanding or exercisable at September 30, 2021. (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 ( 59,835 ) 8.06 1.00 1,011 Forfeited or expired — — — — Options outstanding, September 30, 2020 — $ — — $ — Options exercisable, September 30, 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 190,187 30.88 Vested ( 329,409 ) 30.32 Forfeited or expired ( 103,798 ) 29.66 Nonvested shares outstanding, September 30, 2021 547,063 $ 30.22 Nonvested shares outstanding, September 30, 2019 926,122 $ 29.54 Granted 191,372 32.32 Vested ( 316,283 ) 29.92 Forfeited or expired ( 11,128 ) 31.35 Nonvested shares outstanding, September 30, 2020 790,083 $ 30.03 (Dollars in Thousands, Except Per Share Data) Number of Units Weighted Average Fair Value at Grant Performance share units outstanding, September 30, 2020 — $ — Granted (1) 60,984 34.03 Vested — — Forfeited or expired — — Performance share units outstanding, September 30, 2021 60,984 $ 34.03 (1) The number of performance share units (PSUs) granted reflects the target number of PSUs able to be earned under a given award. 119 Table of Contents 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 and PSUs granted under the Company’s 2002 Omnibus 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 table shows the effect to income, net of tax benefits, of share-based compensation expense recorded: Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Total employee stock-based compensation expense recognized in income, net of tax effects of $ 1,562 , $ 2,567 , and $ 3,230 , respectively $ 5,290 $ 7,656 $ 9,716 As of September 30, 2021, stock-based compensation expense not yet recognized in income totaled $ 5.5 million, which is expected to be recognized over a weighted-average remaining period of 2.02 years. NOTE 17. INCOME TAXES The Company and its subsidiaries file a consolidated federal income tax return on a fiscal year basis. The provision for income taxes were as follows: Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Federal: Current $ 6,402 $ 3,148 $ 5,278 Deferred ( 3,909 ) ( 4,505 ) ( 14,831 ) 2,493 ( 1,357 ) ( 9,553 ) State: Current 5,938 4,860 5,649 Deferred 2,270 2,158 530 8,208 7,018 6,179 Income tax expense (benefit) $ 10,701 $ 5,661 $ ( 3,374 ) 120 Table of Contents The tax effects of the Company's temporary differences that give rise to significant portions of its deferred tax assets and liabilities were: At September 30, (Dollars in Thousands) 2021 2020 Deferred tax assets: Bad debts $ 15,946 $ 13,968 Deferred compensation 3,733 1,288 Stock based compensation 3,314 4,073 Valuation adjustments 4,111 5,343 General business credits (1) 49,196 37,888 Accrued expenses 2,780 2,155 Lease liability 9,206 6,798 Other assets 4,253 3,215 92,539 74,728 Deferred tax liabilities: Premises and equipment ( 3,328 ) ( 2,852 ) Intangibles ( 3,032 ) ( 2,114 ) Net unrealized gains on securities available for sale ( 2,471 ) ( 5,964 ) Leased assets ( 46,355 ) ( 35,279 ) Right-of-use assets ( 8,877 ) ( 6,550 ) Other liabilities ( 3,303 ) ( 4,246 ) ( 67,366 ) ( 57,005 ) Net deferred tax assets $ 25,173 $ 17,723 (1) The general business credits are investment tax credits generated from qualified solar energy property placed in service during the fiscal years ended September 30, 2021 and 2020. These credits expire on September 30, 2041 and 2040, respectively. As of September 30, 2021, the Company had a gross deferred tax asset of $ 2.7 million for separate company state cumulative net operating loss carryforwards, for which $ 2.7 million was reserved. At September 30, 2020, the Company had a gross deferred tax asset of $ 2.4 million for separate company state cumulative net operating loss carryforwards, for which $ 2.4 million was reserved. These state operating loss carryforwards will expire in various subsequent periods. In general, management believes that the realization of its deferred tax assets is more likely than not based on the expectations as to future taxable income; therefore, there was no deferred tax valuation allowance at September 30, 2021, or 2020 with the exception of the state cumulative net operating loss carryforwards discussed above. 121 Table of Contents The table below reconciles the statutory federal income tax expense and rate to the effective income tax expense and rate for the fiscal years presented. The Company's effective tax rate is calculated by dividing income tax expense by income before income tax expense. Fiscal Year Ended September 30, 2021 2020 2019 (Dollars in Thousands) Amount Rate Amount Rate Amount Rate Statutory federal income tax expense and rate $ 32,854 21.0 % $ 24,151 21.0 % $ 20,568 21.0 % Change in tax rate resulting from: State income taxes net of federal benefits 6,452 4.1 % 5,444 4.7 % 5,000 5.1 % 162(m) disallowance 686 0.4 % 1,129 1.0 % 2,777 2.8 % Tax exempt income ( 835 ) ( 0.5 ) % ( 1,212 ) ( 1.0 ) % ( 2,714 ) ( 2.8 ) % General business credits ( 26,945 ) ( 17.2 ) % ( 22,284 ) ( 19.4 ) % ( 27,126 ) ( 27.7 ) % Other, net ( 1,511 ) ( 1.0 ) % ( 1,567 ) ( 1.4 ) % ( 1,879 ) ( 1.8 ) % Income tax expense (benefit) $ 10,701 6.8 % $ 5,661 4.9 % $ ( 3,374 ) ( 3.4 ) % The provisions of ASC 740, Income Taxes, address the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the Consolidated Financial Statements. Under ASC 740, the Company recognizes the tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination, with a tax examination being presumed to occur, including the resolution of any related appeals or litigation. The tax benefits recognized in the Consolidated Financial Statements from such a position are measured as the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company uses the flow through method of accounting for investment tax credits under which the credits are recognized as a reduction to income tax expense in the period in which the credit arises. During the fiscal years ended September 30, 2021, 2020, and 2019, $ 26.5 million, $ 20.5 million, and $ 27.1 million in investment tax credits were recognized as a reduction to income tax expense, respectively. The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review. While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company’s income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances surrounding a tax issue, and (ii) any difference from the Company’s tax position as recorded in the Consolidated Financial Statements and the final resolution of a tax issue during the period. The tax years ended September 30, 2018 and later remain subject to examination by the Internal Revenue Service. For state purposes, the tax years ended September 30, 2018 and later remain open for examination, with few exceptions. A reconciliation of the beginning and ending balances for liabilities associated with unrecognized tax benefits follows: At September 30, (Dollars in Thousands) 2021 2020 Balance at beginning of fiscal year $ 1,091 $ 368 Additions (reductions) for tax positions related to prior years ( 314 ) 723 Balance at end of fiscal year $ 777 $ 1,091 The total amount of unrecognized tax benefits that, if recognized, would impact the effective rate was $ 667,000 as of September 30, 2021. The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest related to unrecognized tax benefits was $ 112,000 as of September 30, 2021. The Company does not anticipate any significant change in the total amount of unrecognized tax benefits within the next 12 months. 122 Table of Contents NOTE 18. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS As U.S. banking organizations, the Company and the Bank are required to comply with the regulatory capital rules adopted by the Federal Reserve and the OCC (the "Capital Rules") that became effective on January 1, 2015, subject to phase-in periods for certain requirements and other provisions of the Capital Rules. Under the Capital Rules and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors. The Capital Rules require the Company and the Bank to maintain minimum ratios (set forth in the table below) of total risk-based capital and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio consisting of Tier 1 capital (as defined) to average assets (as defined). At September 30, 2021, both the Bank and the Company exceeded federal regulatory minimum capital requirements to be classified as well-capitalized under the prompt corrective action requirements. The Company and the Bank took the accumulated other comprehensive income (“AOCI”) opt-out election; under the rule, non-advanced approach banking organizations were given a one-time option to exclude certain AOCI components. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity. Company Bank Minimum to be Adequately Capitalized Under Prompt Corrective Action Provisions Minimum to be Well Capitalized Under Prompt Corrective Action Provisions At September 30, 2021 Tier 1 leverage capital ratio 7.67 % 8.69 % 4.00 % 5.00 % Common equity Tier 1 capital ratio 12.12 14.11 4.50 6.50 Tier 1 capital ratio 12.46 14.13 6.00 8.00 Total capital ratio 15.45 15.38 8.00 10.00 At September 30, 2020 Tier 1 leverage capital ratio 6.58 % 7.56 % 4.00 % 5.00 % Common equity Tier 1 capital ratio 11.78 13.96 4.50 6.50 Tier 1 capital ratio 12.18 14.00 6.00 8.00 Total capital ratio 15.30 15.26 8.00 10.00 123 Table of Contents The following table provides a reconciliation of the amounts included in the table above for the Company. (Dollars in Thousands) Standardized Approach (1) September 30, 2021 Total stockholders' equity $ 871,884 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 300,780 LESS: Certain other intangible assets 33,572 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 22,801 LESS: Net unrealized gains (losses) on available for sale securities 7,344 LESS: Noncontrolling interest 1,155 ADD: Adoption of Accounting Standards Update 2016-13 8,202 Common Equity Tier 1 (1) 514,434 Long-term borrowings and other instruments qualifying as Tier 1 13,661 Tier 1 minority interest not included in common equity Tier 1 capital 747 Total Tier 1 capital 528,842 Allowance for credit losses 53,159 Subordinated debentures (net of issuance costs) 73,980 Total capital $ 655,981 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum common equity tier 1 capital ratio; those changes are being fully phased in through the end of 2021. The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to total stockholders equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry. (Dollars in Thousands) At September 30, 2021 Total stockholders' equity $ 871,884 LESS: Goodwill 309,505 LESS: Intangible assets 33,148 Tangible common equity 529,231 LESS: AOCI 7,599 Tangible common equity excluding AOCI $ 521,632 Since January 1, 2016, the Company and the Bank have been required to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of Common Equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. The required Common Equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios with the buffer are currently 7.0 %, 8.5 % and 10.5 %, respectively. Based on current and expected continued profitability and subject to continued access to capital markets, we believe that the Company and the Bank will continue to meet the capital conservation buffer of 2.5 % in addition to required minimum capital ratios. NOTE 19. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Bank makes various commitments to extend credit which are not reflected in the accompanying Consolidated Financial Statements as described below. At September 30, 2021 and 2020, unfunded loan and lease commitments approximated $ 1.22 billion and $ 1.22 billion, respectively, excluding undisbursed portions of loans in process. Commitments, which are disbursed subject 124 Table of Contents 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 September 30, 2021 or 2020. The Company had no commitments to sell securities at September 30, 2021 or 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. 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. LEGAL PROCEEDINGS From time to time, the Company or its subsidiaries are subject to certain legal proceedings and claims in the ordinary course of business. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s financial position or its results of operations, legal proceedings are inherently uncertain and unfavorable resolution of some or all of these matters could, individually or in the aggregate, have a material adverse effect on the Company’s and its subsidiaries’ respective businesses, financial condition or results of operations. NOTE 20. REVENUE FROM CONTRACTS WITH CUSTOMERS Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 21. Segment Reporting to the Consolidated Financial Statements. (Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company Fiscal Year Ended September 30, 2021 2020 2021 2020 2021 2020 2021 2020 Net interest income (1) $ 92,133 $ 93,245 $ 173,325 $ 150,766 $ 13,533 $ 15,027 $ 278,991 $ 259,038 Noninterest income: Refund transfer product fees 37,967 36,061 — — — — 37,967 36,061 Tax advance product fees (1) 47,639 31,826 — — — — 47,639 31,826 Payment card and deposit fees 107,182 87,379 — — — — 107,182 87,379 Other bank and deposit fees — — 917 984 22 326 939 1,310 Rental income (1) 18 19 39,398 43,493 — 1,314 39,416 44,826 Net gain realized on investment securities (1) — — — — 6 51 6 51 Gain on divestitures (1) — — — — — 19,275 — 19,275 Gain (loss) on sale of other (1) — ( 19 ) 12,622 9,587 ( 1,107 ) ( 5,143 ) 11,515 4,425 Other income (1) 2,902 3,018 8,876 6,087 14,462 5,536 26,240 14,641 Total noninterest income 195,708 158,284 61,813 60,151 13,383 21,359 270,904 239,794 Revenue $ 287,841 $ 251,529 $ 235,138 $ 210,917 $ 26,916 $ 36,386 $ 549,895 $ 498,832 (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. Following is a discussion of key revenues within the scope of Topic 606. The Company provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the completion of the service or over time as services are performed. Any services performed over time generally require that the Company renders services each period; therefore, the Company measures progress in completing these services based upon the passage of time. Revenue from contracts with customers did not generate significant contract assets and liabilities. 125 Table of Contents Refund Transfer Product Fees. Refund transfer fees are specific to the tax products offered by Refund Advantage and EPS. These fees are for products, services such as payment processing, and product referral commissions. Software partner fees paid and/or incurred are recorded on a net basis. The Company’s obligation for product fees and commissions is satisfied at the time of the product delivery and obligation for payment processing is satisfied at the time of processing. The transaction price for such activity is based upon stand-alone fees within the terms and conditions. At September 30, 2021 and 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 . Card Fees. Card fees relate to Meta Payments, Community Bank, Refund Advantage and EPS products. These fees are for products and services such as card activation, product support, processing, and servicing. The Company earns these fees based upon the underlying terms and conditions with each cardholder over the contract term. Agreements with the Company’s cardholders are considered daily service contracts as they are not fixed in duration. The Company’s obligation for card activation and product support fees is satisfied at the time of product delivery, while the obligation for processing and servicing is satisfied over the course of each month. The transaction price for such activity is based upon the stand-alone fees within the terms and conditions of the cardholder agreements. Card fee revenue also includes income from sponsorships, associations and networks, and interchange income. Sponsorship income relates to fees charged to the Company’s ATM sponsorship partners, where the obligation is satisfied over the course of each month. Association and network income reflect incentives, performance bonuses and rebates with MasterCard and Visa. The obligation for such income is satisfied at the time when certain thresholds of transaction volume have been met. Interchange income is generated by cardholder activity, and therefore the Company’s obligations are satisfied as activity occurs. The transaction price for such activity is based on underlying rates and activity thresholds within the terms and conditions of the applicable agreements. Card fee revenue also includes breakage revenue. Breakage represents the estimated amount that will not be redeemed by the holder of unregistered, unused prepaid cards for goods or services. Breakage revenue is recognized ratably over the expected customer usage period and is an estimate based on cardholder behavior and breakage rates. Breakage is also impacted by escheatment laws. Card fees are recorded within both the Consumer and Commercial reporting segments, the substantial majority of which is derived from the Company's payments division and reported in payments card and deposit fees. Card fees related to the Community Bank are reported within other bank and deposit fees. Bank and Deposit Fees. Fees are earned on depository accounts for consumer and commercial customers and include fees for account services, overdraft services, safety deposit box rentals, and event-driven services (i.e. returned checks, ATM surcharge, card replacement, wire transfers, and stop pays). The Company’s obligation for event-driven services is satisfied at the time of the event when the service is delivered, while its obligation for account services is satisfied over the course of each month. The Company’s obligation for overdraft services is satisfied at the time of overdraft. The transaction price for such activity is based upon stand-alone fees within the terms and conditions of the deposit agreements. Bank and deposit fees are recorded within both the Consumer and Commercial reporting segments, the majority of which are derived from the Company's payments division. Bank and deposit fees related to the Community Bank are reported within other bank and deposit fees. Principal vs Agent. The Consumer reporting segment includes principal/agent relationships. Within this segment, the Meta Payments division 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. NOTE 21. SEGMENT REPORTING An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. 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 126 Table of Contents 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: Consumer, Commercial, and Corporate Services/Other. The Meta Payments and Tax Services divisions, formerly reported in the Payments segment, are now included in the Consumer segment. The 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 Corporate Services/Other segment also includes certain shared services as well as treasury related functions such as the investment portfolio, warehouse finance, 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: Fiscal Year Ended September 30, 2021 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 92,133 $ 173,325 $ 13,533 $ 278,991 Provision (recovery) for credit losses 35,765 19,791 ( 5,790 ) 49,766 Noninterest income 195,708 61,813 13,383 270,904 Noninterest expense 90,800 114,917 137,966 343,683 Income (loss) before income tax expense 161,276 100,430 ( 105,260 ) 156,446 Total assets 372,115 3,191,215 3,127,320 6,690,650 Total goodwill 87,145 222,360 — 309,505 Total deposits 5,342,192 6,625 166,154 5,514,971 Fiscal Year Ended September 30, 2020 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 93,245 $ 150,766 $ 15,027 $ 259,038 Provision for loan and lease losses 21,807 29,296 13,673 64,776 Noninterest income 158,284 60,151 21,359 239,794 Noninterest expense 76,521 107,802 134,728 319,051 Income (loss) before income tax expense 153,201 73,819 ( 112,015 ) 115,005 Total assets 294,937 2,836,149 2,960,988 6,092,074 Total goodwill 87,145 222,360 — 309,505 Total deposits 4,555,999 6,226 416,975 4,979,200 127 Table of Contents Fiscal Year Ended September 30, 2019 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 69,131 $ 152,565 $ 42,511 $ 264,207 Provision for loan and lease losses 25,138 21,901 8,611 55,650 Noninterest income 162,212 54,224 6,109 222,545 Noninterest expense 76,931 127,033 129,196 333,160 Income (loss) before income tax expense (benefit) 129,274 57,855 ( 89,187 ) 97,942 Total assets 436,985 2,432,381 3,313,524 6,182,890 Total goodwill 87,145 222,360 — 309,505 Total deposits 2,444,452 5,588 1,886,965 4,337,005 NOTE 22. PARENT COMPANY FINANCIAL STATEMENTS Presented below are the condensed financial statements for the parent company, Meta. Condensed Statements of Financial Condition (Dollars in Thousands) September 30, 2021 September 30, 2020 ASSETS Cash and cash equivalents $ 3,296 $ 4,783 Investment securities held to maturity, at cost 4,623 1,208 Investment in subsidiaries 956,584 933,431 Other assets 278 3,308 Total assets $ 964,781 $ 942,730 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Subordinated debentures $ 87,641 $ 87,468 Other liabilities 5,256 7,954 Total liabilities 92,897 95,422 STOCKHOLDERS' EQUITY Common stock 317 344 Additional paid-in capital 604,484 594,569 Retained earnings 259,189 234,927 Accumulated other comprehensive income (loss) 7,599 17,542 Treasury stock, at cost ( 860 ) ( 3,677 ) Total equity attributable to parent 870,729 843,705 Non-controlling interest 1,155 3,603 Total stockholders' equity 871,884 847,308 Total liabilities and stockholders' equity $ 964,781 $ 942,730 128 Table of Contents Condensed Statements of Operations Fiscal Years Ended September 30, (Dollars in Thousands) 2021 2020 2019 Interest expense $ 4,915 $ 5,168 $ 5,296 Other expense 1,287 1,256 1,044 Total expense 6,202 6,424 6,340 Loss before income taxes and equity in undistributed net income of subsidiaries ( 6,202 ) ( 6,424 ) ( 6,340 ) Income tax benefit 395 ( 3,638 ) ( 1,374 ) Loss before equity in undistributed net income of subsidiaries ( 6,597 ) ( 2,786 ) ( 4,966 ) Equity in undistributed net income of subsidiaries 147,895 107,476 101,970 Other Income 410 30 — Total Income 148,305 107,506 101,970 Net income attributable to parent $ 141,708 $ 104,720 $ 97,004 129 Table of Contents Condensed Statements of Cash Flows Fiscal Year Ended September 30, (Dollars in Thousands) 2021 2020 2019 Cash flows from operating activities: Net income attributable to parent $ 141,708 $ 104,720 $ 97,004 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 173 163 153 Equity in undistributed net income of subsidiaries ( 147,895 ) ( 107,476 ) ( 101,970 ) Stock compensation 6,852 10,221 12,942 Net change: Other assets 3,030 ( 3,149 ) ( 35 ) Accrued expenses and other liabilities ( 2,698 ) ( 2,660 ) ( 6,468 ) Cash dividend received 104,000 118,000 33,980 Net cash provided by operating activities 105,170 119,819 35,606 Cash flows from investing activities: Alternative investments ( 3,415 ) ( 797 ) — Net cash (used in) investing activities ( 3,415 ) ( 797 ) — Cash flows from financing activities: Cash dividends paid ( 6,400 ) ( 7,100 ) ( 7,760 ) Payments: Purchase of shares by ESOP 3,036 3,220 2,011 Proceeds from: Exercise of stock options and issuance of common stock — 266 44 Issuance of restricted stock — 2 3 Net increase in investment in subsidiaries — — ( 90 ) Shares repurchased for tax withholding on stock compensation ( 99,878 ) ( 118,738 ) ( 49,912 ) Net cash (used in) financing activities ( 103,242 ) ( 122,350 ) ( 55,704 ) Net change in cash and cash equivalents ( 1,487 ) ( 3,328 ) ( 20,098 ) Cash and cash equivalents at beginning of fiscal year 4,783 8,111 28,209 Cash and cash equivalents at end of fiscal year $ 3,296 $ 4,783 $ 8,111 The extent to which the Company may pay cash dividends to stockholders will depend on the cash currently available at the Company, as well as the ability of the Bank to pay dividends to the Company. For further discussion, see Note 18 herein. 130 Table of Contents NOTE 23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Quarter Ended (Dollars in Thousands, Except Per Share Data) December 31 March 31 June 30 September 30 Fiscal Year 2021 Interest and dividend income $ 68,146 $ 75,669 $ 69,983 $ 72,056 Interest expense 2,147 1,819 1,508 1,389 Net interest income 65,999 73,850 68,475 70,667 Provision for credit losses 6,089 30,290 4,612 8,775 Noninterest income 45,455 113,453 62,453 49,542 Net income attributable to parent 28,037 59,066 38,701 15,903 Earnings per common share Basic $ 0.84 $ 1.84 $ 1.21 $ 0.50 Diluted 0.84 1.84 1.21 0.50 Dividend declared per share 0.05 0.05 0.05 0.05 Fiscal Year 2020 Interest and dividend income $ 77,625 $ 79,403 $ 67,406 $ 68,407 Interest expense 12,974 11,666 5,269 3,894 Net interest income 64,651 67,737 62,137 64,513 Provision for loan and lease losses 3,407 37,296 15,093 8,980 Noninterest income 37,483 120,513 41,048 40,750 Net income attributable to parent 21,068 52,304 18,190 13,158 Earnings per common share Basic $ 0.56 $ 1.45 $ 0.53 $ 0.38 Diluted 0.56 1.45 0.53 0.38 Dividend declared per share 0.05 0.05 0.05 0.05 Fiscal Year 2019 Interest and dividend income $ 74,976 $ 88,294 $ 81,632 $ 80,828 Interest expense 14,704 16,944 14,664 15,211 Net interest income 60,272 71,350 66,968 65,617 Provision for loan and lease losses 9,099 33,318 9,112 4,121 Noninterest income 37,751 105,025 43,790 35,980 Net income attributable to parent 15,398 32,120 29,291 20,195 Earnings per common share Basic $ 0.39 $ 0.81 $ 0.75 $ 0.53 Diluted 0.39 0.81 0.75 0.53 Dividend declared per share 0.05 0.05 0.05 0.05 131 Table of Contents NOTE 24. FAIR VALUES OF FINANCIAL INSTRUMENTS 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. The fair value hierarchy is as follows: Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date. Level 2 Inputs - Valuation is 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 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. There were no transfers between levels of the fair value hierarchy for the fiscal years ended September 30, 2021 or 2020. 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, 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 services for unusual fluctuations and compares to current market trading activity. Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). 132 Table of Contents The following table summarizes 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 September 30, 2021 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 25,000 $ — $ 25,000 — SBA securities 157,209 — 157,209 — Obligations of states and political subdivisions 2,507 — 2,507 — Non-bank qualified obligations of states and political subdivisions 268,295 — 268,295 — Asset-backed securities 394,859 — 394,859 — Mortgage-backed securities 1,017,029 — 1,017,029 — Total debt securities AFS $ 1,864,899 $ — $ 1,864,899 $ — Common equities and mutual funds (1) $ 12,668 $ 12,668 $ — $ — Non-marketable equity securities (2) $ 4,560 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at September 30, 2021. (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. Fair Value At September 30, 2020 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Debt securities AFS SBA securities $ 164,955 $ — $ 164,955 $ — Obligations of states and political subdivisions 841 — 841 — Non-bank qualified obligations of states and political subdivisions 323,774 — 323,774 — Asset-backed securities 324,925 — 324,925 — Mortgage-backed securities 453,607 — 453,607 — Total debt securities AFS $ 1,268,102 $ — $ 1,268,102 $ — Common equities and mutual funds (1) $ 2,969 $ 2,969 $ — $ — Non-marketable equity securities (2) $ 2,784 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at 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. Foreclosed Real Estate and Repossessed Assets . Real estate properties and repossessed assets are initially recorded at the fair value less selling costs at the date of foreclosure, establishing a new cost basis. The carrying amount represents the lower of the new cost basis or the fair value less selling costs of foreclosed assets that were measured at fair value subsequent to their initial classification as foreclosed assets. Loans and Leases. The Company does not record loans and leases at fair value on a recurring basis. 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 underlying collateral, the Company measures fair value on a nonrecurring bases. 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 the internal estimates and/or assessment provided by third-party appraisers and the valuation relies on discount rates ranging from 4 % to 90 %. 133 Table of Contents The following table summarizes the assets of the Company that are measured at fair value in the Consolidated Statements of Financial Condition on a non-recurring basis: Fair Value At September 30, 2021 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 3,404 $ — $ — $ 3,404 Community Banking 9,371 — — 9,371 Total loans and leases, net individually evaluated for credit loss 12,775 — — 12,775 Foreclosed assets, net 2,077 — — 2,077 Total $ 14,852 $ — $ — $ 14,852 Fair Value At September 30, 2020 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Impaired loans and leases, net Commercial finance $ 9,240 $ — $ — $ 9,240 Community Banking 20 — — 20 Total impaired loans and leases, net 9,260 — — 9,260 Foreclosed assets, net 9,957 — — 9,957 Total $ 19,217 $ — $ — $ 19,217 Quantitative Information About Level 3 Fair Value Measurements (Dollars in Thousands) Fair Value at September 30, 2021 Fair Value at September 30, 2020 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 12,775 9,260 Market approach Appraised values (1) 4 % - 90 % Foreclosed assets, net $ 2,077 9,957 Market approach Appraised values (1) 4 % - 30 % (1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimated selling costs and other inputs in a range of 4 % to 90 %. Management discloses the estimated fair value amounts of its financial instruments, including assets and liabilities on and off the Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair values estimates were made at September 30, 2021 and 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. 134 Table of Contents The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company: At September 30, 2021 (Dollars in Thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 314,019 $ 314,019 $ 314,019 $ — $ — Debt securities available for sale 1,864,899 1,864,899 — 1,864,899 — Debt securities held to maturity 56,669 56,391 — 56,391 — Common equities and mutual funds (1) 12,668 12,668 12,668 — — Non-marketable equity securities (1)(2) 17,509 17,509 — 12,949 — Loans held for sale 56,194 56,194 — 56,194 — Loans and leases 3,607,815 3,616,646 — — 3,616,646 Federal Reserve Bank and Federal Home Loan Bank stocks 28,400 28,400 — 28,400 — Accrued interest receivable 16,254 16,254 16,254 — — Financial liabilities Deposits 5,514,971 5,515,035 5,482,471 32,564 — Other short- and long-term borrowings 92,834 93,938 — 93,938 — Accrued interest payable 579 579 579 — — (1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at September 30, 2021. (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. At September 30, 2020 (Dollars in Thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 427,367 $ 427,367 $ 427,367 $ — $ — Debt securities available for sale 1,268,102 1,268,102 — 1,268,102 — Debt securities held to maturity 92,610 93,745 — 93,745 — Common equities and mutual funds (1) 2,969 2,969 2,969 — — Non-marketable equity securities (1)(2) 14,784 14,784 — 12,000 — Loans held for sale 183,577 183,577 — 183,577 — Loans and leases 3,314,140 3,307,037 — — 3,307,037 Federal Reserve Bank and Federal Home Loan Bank stocks 27,138 27,138 — 27,138 — Accrued interest receivable 16,628 16,628 16,628 — — Financial liabilities Deposits 4,979,200 4,980,073 4,705,028 275,045 — Other short- and long-term borrowings 98,224 100,185 — 100,185 — 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 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. 135 Table of Contents The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at September 30, 2021 and 2020. 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. DEPOSITS 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. 136 Table of Contents LIMITATIONS 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. NOTE 25. SUBSEQUENT EVENTS Management has evaluated subsequent events that occurred after September 30, 2021. During this period, up to the filing date of this Annual Report on Form 10-K, management identified the following subsequent events: • Beginning in November 2021, all participants with shares held in the ESOP can elect their preferred distribution method due to the ESOP terminating effective September 30, 2021. Concurrent with the termination of the ESOP, the Company also increased its employee contribution match from 4 % to 6 % in the profit sharing plan. • Subsequent to September 30, 2021, a n additional 1,252,145 shares were repurchased by the Company through Novembe r 18, 2021. • On October 19, 2021, the Company executed a loan sale agreement for approximately $ 170.0 million of the retained Community Bank loan portfolio with a third party. The sale is expected to close before December 31, 2021. The overall net impact of the transaction on the Company's Consolidated Statements of Operations is not known at this time. • On October 13, 2021, the Company sold an additional $ 30.2 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 not classified as held for sale at September 30, 2021. Management estimates $ 1.0 million in allowance for credit losses at September 30, 2021 relates to this loan sale. 137 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.