Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Management, under the direction of its Chief Executive Officer and Chief Financial Officer, is responsible for maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”)) that are designed to ensure that information required to be disclosed in reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Annual Report on Form 10-K, management evaluated the Company’s disclosure controls and procedures. The evaluation was performed under the direction of the Company’s Chief Executive Officer and Chief Financial Officer to determine the effectiveness, as of September 30, 2021, of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at September 30, 2021, the Company’s disclosure controls and procedures were not effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings.
In the fiscal fourth quarter of 2021, the Company identified a material weakness in the control environment of the Crestmark Leasing division related to segregation of duties over lease disbursements. More specifically, users were identified who had the ability to both initiate and approve lease disbursements subsequent to the implementation of a new leasing system in May 2021 and there was not a monitoring control in place to ensure segregation of those duties. Additionally, the user entitlement review control, specific to this application, was determined to be not effective as it did not identify this segregation of duties issue. Management determined the deficiencies represent a material weakness in internal controls over financial reporting on the basis that the deficiencies could result in a misstatement potentially impacting the Company's financial statement accounts and disclosures that would not be prevented or detected on a timely basis.
(b) Remediation Plan for Reported Material Weakness
Management performed testing of leasing related disbursements during the impacted period and did not identify any instances where the segregation of the disbursement initiation and approval duties was not maintained. The Company has implemented a remediation plan to address the material weakness described above with respect to the internal control environment of the Crestmark Leasing division and is committed to maintaining a strong internal controls environment. To address the material weakness, the Company implemented automated controls to ensure segregation of duties is maintained for disbursements performed within the leasing system and reperformed inspection of access rights within the Leasing Division system. These immediate remediation steps were completed by October 15, 2021, and management is evaluating implementation of additional enhancements to the Leasing division system control environment.
INHERENT LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS
Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
138
Table of Contents
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Management conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on this evaluation, management concluded that, other than the aforementioned material weakness, as of the end of the period covered by this report, there were no changes in the Company’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the fiscal fourth quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company assets that could have a material effect on the financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2021, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control Integrated Framework (2013).” Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of September 30, 2021.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2021, has been audited by Crowe LLP, the independent registered public accounting firm that also has audited the Company’s Consolidated Financial Statements included in this Annual Report on Form 10-K. Crowe LLP’s attestation report on the Company’s internal controls over financial reporting appears below.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
139
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 Internal Control over Financial Reporting
We have audited Meta Financial Group, Inc. and Subsidiaries’ (the “Company”) 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). In our opinion, because of the effects of the material weakness discussed in the following paragraph, the Company has not maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's report:
A material weakness in the control environment of the Crestmark Leasing division resulting from the identification of users who had the ability to both initiate and approve lease disbursements, subsequent to the implementation of a new leasing system in May 2021. Additionally, the user entitlement review completed did not identify this segregation of duties issue.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of financial condition of 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 each of the years in the three year period ended September 30, 2021, and the related notes (collectively referred to as the "financial statements") and our report dated November 23, 2021 expressed an unqualified opinion. We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2021 financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying 2021 Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
140
Table of Contents
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Crowe LLP
Grand Rapids, Michigan
November 23, 2021
141
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
Information concerning directors of the Company required by this item will be included under the captions “Election of Directors,” “Communicating with Our Directors,” "Meetings and Committees" and “Stockholder Proposals For The Fiscal Year 2022 Annual Meeting” in the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on February 22, 2022, a copy of which will be filed no later than 120 days after September 30, 2021 (the “2022 Proxy Statement”), and is incorporated herein by reference.
Executive Officers
Information concerning the executive officers of the Company required by this item will be included under the captions “Executive Officers” and “Election of Directors” in the 2022 Proxy Statement and is incorporated herein by reference.
Compliance with Section 16(a)
Information, if applicable, required by this item regarding compliance with Section 16(a) of the Exchange Act will be included under the caption “Delinquent Section 16(a) Reports” in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
Audit Committee and Audit Committee Financial Expert
Information regarding the audit committee of the Company’s Board of Directors will be included under the captions “Meetings and Committees” and “Election of Directors” in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
Code of Business Conduct
Information regarding the Company’s Code of Business Conduct will be included under the caption “Corporate Governance” in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
Information concerning executive and director compensation will be included under the captions “Compensation of Directors” and “Executive Compensation” in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
142
Table of Contents
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners and Management
The information required by this item will be included under the caption “Stock Ownership” in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
(b) Changes in Control
Management of the Company knows of no arrangements, including any pledge by any persons of securities of the Company, the operation of which may, at a subsequent date, result in a change in control of the Registrant.
(c) Equity Compensation Plan Information
The Company maintains the 2002 Omnibus Incentive Plan for purposes of issuing stock-based compensation to employees and directors. The plan was amended and restated effective November 24, 2014 and currently authorizes 4,800,000 shares to be issued under the plan. The Company no longer has unexercised options, warrants or rights outstanding under any stock option or other incentive plan. The following table provides information about the Company’s common stock that may be issued under the Company’s omnibus incentive plans as of September 30, 2021.
Plan Category Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights Weighted-average
exercise price of
outstanding options,
warrants and rights Number of securities
remaining available
for future issuance
under equity
compensation plan
excluding securities
reflected in (a)
Equity compensation plans approved by stockholders — $ — 1,413,343
Equity compensation plans not approved by stockholders — — —
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included under the captions “Election of Directors,” “Meetings and Committees” and “Related Person Transactions” in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s 2022 Proxy Statement and is incorporated herein by reference.
143
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following is a list of documents filed as Part of this report:
(a) Financial Statements:
The following financial statements are included under Part II, Item 8 of this Annual Report on Form 10-K:
1. Report of Independent Registered Public Accounting Firm.
2. Consolidated Statements of Financial Condition as of September 30, 2021 and 2020.
3. Consolidated Statements of Operations for the Fiscal Years Ended September 30, 2021, 2020 and 2019.
4. Consolidated Statements of Comprehensive Income for the Fiscal Years ended September 30, 2021, 2020, and 2019.
5. Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended September 30, 2021, 2020, and 2019.
6. Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, 2021, 2020, and 2019.
7. Notes to Consolidated Financial Statements.
(b) Exhibits:
Exhibit
Number
Description
3.1
Registrant’s Restated Certificate of Incorporation.
3.2
Registrant’s Second Amended and Restated By-laws, filed on June 24, 2020 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
4.1
Description of the Securities of the Registrant filed on November 30, 2020 as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 2020, is incorporated herein by reference.
4.2
Registrant’s Specimen Stock Certificate, filed on June 27, 2016 as an exhibit to the Registrant’s registration statement on Form S-3 (Commission File No. 333-212269), is incorporated herein by reference.
4.3
Indenture, dated as of August 15, 2016, by and between the Registrant and U.S. Bank National Association, as trustee, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
4.4
First Supplemental Indenture, dated as of August 15, 2016, by and between the Registrant and U.S. Bank National Association, as trustee, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
4.5
Form of Global Note of the Registrant representing the 5.75% Fixed-to-Floating Rate Subordinated Notes due August 15, 2026, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10.1
Registrant’s 1995 Stock Option and Incentive Plan, filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 1996, is incorporated herein by reference.
* 10.2
Performance-Based Restricted Stock Agreement between Meta and Bradley C. Hanson, dated as of November 16, 2016, filed on November 18, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
144
Table of Contents
* 10.3
Performance-Based Restricted Stock Agreement between Meta and Glen W. Herrick, dated as of December 2, 2016, filed on December 6, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10.4
Registrant’s Supplemental Employees’ Investment Plan, originally filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 1994. First amendment to such agreement, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008, is incorporated herein by reference.
* 10.5
Registrant’s Amended and Restated 2002 Omnibus Incentive Plan, as amended, filed on January 24, 2018 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
10.6
Investor Rights Agreement by and among Meta Financial Group, Inc., BEP IV LLC and BEP Investors, LLC, dated as of December 17, 2015, filed on December 17, 2015 as an exhibit to the Registrant’s Current Report on Form 8‑K, is incorporated herein by reference.
* 10.7
Form of Meta Financial Group, Inc. 2002 Omnibus Incentive Plan Restricted Stock Agreement, filed on August 2, 2016 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q, is incorporated herein by reference.
* 10. 8
Employment Agreement among MetaBank, Meta Financial Group, Inc. and Bradley C. Hanson, effective as of October 1, 2020, filed on November 30, 2020 as an exhibit to the Registrant's Annual Report on Form 10-K, is incorporated herein by reference.
* 10. 9
Employment Agreement among MetaBank, Meta Financial Group, Inc. and Glen W. Herrick, effective as of October 1, 2020, filed on November 30, 2020 as an exhibit to the Registrant's Annual Report on Form 10-K, is incorporated herein by reference.
* 10.1 0
Form of Performance Share Unit Award Agreement, filed on November 23, 2021 as an exhibit to the Registrant's Annual Report on Form 10-K, is incorporated herein by reference.
* 10.1 1
Form of Performance-Based Restricted Stock Award Agreement, filed on November 23, 2021 as an exhibit to the Registrant's Annual Report on Form 10-K, is incorporated herein by reference.
* 10.1 2
Severance and General Release Agreement by and between MetaBank, N.A. and Sheree S. Thornsberry, effective as of April 30, 2021, filed on May 3, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10.1 3
Executive Nonqualified Deferred Compensation Plan Adoption Agreement by MetaBank, National Association, effective as of July 1, 2021, filed on May 20, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10.1 4
Executive Nonqualified Deferred Compensation Plan, effective as of July 1, 2021, filed on May 20, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10.1 5
First Amendment to the MetaBank, National Association Amended and Restated Supplemental Employees’ Investment Plan for Salaried Employees, effective as of June 30, 2021, filed on May 20, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10.1 6
Transition and General Release Agreement by and among Meta Financial Group, Inc., MetaBank, National Associate and Bradley C. Hanson, dated as of September 1, 2021, filed on September 7, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10.1 7
Executive Severance Pay Policy, effective as of November 1, 2021, filed on November 2, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
* 10. 18
Termination Agreement by and among Meta Financial Group, Inc., MetaBank, National Associate and Glen W. Herrick, effective as of November 1, 2021, filed on November 2, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
21
Subsidiaries of the Registrant is filed herewith.
23.1
Consent of Independent Registered Public Accounting Firm of Crowe LLP is filed herewith.
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 is filed herewith.
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 is filed herewith.
32.1
Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed herewith.
32.2
Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed herewith.
145
Table of Contents
101 Interactive data files formatted in Inline eXtensible Business Reporting Language - pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Financial Condition as of September 30, 2021 and September 30, 2020, (ii) the Consolidated Statements of Operations for the fiscal years ended September 30, 2021, 2020, and 2019, (iii) the Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2021, 2020, and 2019, (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended September 30, 2021, 2020, and 2019, (v) the Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2021, 2020, and 2019 and (vi) the Notes to the Consolidated Financial Statements for the fiscal years ended September 30, 2021, 2020, and 2019.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Management Contract or Compensatory Plan or Agreement
(c) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is not required under the related
instructions or is inapplicable.
Item 16. Form 10-K Summary
None.
146
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
META FINANCIAL GROUP, INC.
Date: November 23, 2021
By: /s/ Brett L. Pharr
Brett L. Pharr,
Chief Executive Officer and Director
147
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Brett L. Pharr Date: November 23, 2021
Brett L. Pharr, Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/ Douglas J. Hajek Date: November 23, 2021
Douglas J. Hajek, Director
By: /s/ Bradley C. Hanson Date: November 23, 2021
Bradley C. Hanson, Director
By: /s/ Elizabeth G. Hoople Date: November 23, 2021
Elizabeth G. Hoople, Director
By: /s/ Michael R. Kramer Date: November 23, 2021
Michael R. Kramer, Director
By: /s/ Ronald D. McCray Date: November 23, 2021
Ronald D. McCray, Director
By: /s/ Frederick V. Moore Date: November 23, 2021
Frederick V. Moore, Director
By: /s/ Becky S. Shulman Date: November 23, 2021
Becky S. Shulman, Director
By: /s/ Kendall E. Stork Date: November 23, 2021
Kendall E. Stork, Director
By: /s/ Lizabeth H. Zlatkus Date: November 23, 2021
Lizabeth H. Zlatkus, Director
By: /s/ Glen W. Herrick Date: November 23, 2021
Glen W. Herrick, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Jennifer W. Warren Date: November 23, 2021
Jennifer W. Warren, Senior Vice President
and Chief Accounting Officer
(Principal Accounting Officer)
148