What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-08 compared with 2021-08-09 · 148 added, 250 removed, 211 unchanged (65% of the section changed)

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future operating results;

expectations in connection with the impact of the ongoing COVID-19 pandemic and related governmental actions on the Company and MetaBank;

industry and the capital markets;

our ability to remediate the material weakness in our internal controls over financial reporting and otherwise maintain effective internal controls over financial reporting;

the expected impact of the ongoing COVID-19 pandemic and related governmental actions on our business, industry, and the capital markets;

customer retention;

expectations regarding the Company's and the Bank's ability to meet minimum capital ratios and capital conservation buffers;

loan and other product demand;

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the level of net charge-offs and the adequacy of the allowance for credit losses;

and the Company's employees.

and management and other employees.

The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements:

maintaining our executive management team;

successfully transitioning and maintaining our executive management team;

expected growth opportunities may not be realized or may take longer to realize than expected;

the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto including the deployment and efficacy of the COVID-19 vaccines, or other unusual and infrequently occurring events;

actual changes in interest rates and the Fed Funds rate;

additional changes in tax laws;

the strength of the United States' economy, in general, and the strength of the local economies in which the Company operates;

changes in trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto including the efficacy of the COVID-19 vaccines, or other unusual and infrequently occurring events;

successfully completing our announced rebranding and our ability to achieve brand recognition equal to or greater than we currently enjoy;

changes in tax laws;

the strength of the United States' economy, and the local economies in which the Company operates;

changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed funds rate;

inflation, market, and monetary fluctuations;

the timely and efficient development of, and acceptance of, new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users;

the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users;

the Bank's ability to maintain its Durbin Amendment exemption;

the risks of dealing with or utilizing third parties, including, in connection with the Company’s refund advance business, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of Meta’s strategic partners’ refund advance products;

the risks of dealing with or utilizing third parties, including, in connection with the Company’s tax refund advance business;

the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of Meta’s strategic partners’ refund advance products;

our relationship with, and any actions which may be initiated by our regulators;

the impact of changes in financial services laws and regulations, including, but not limited to, laws and regulations relating to the tax refund industry and the insurance premium finance industry and recent and potential changes in response to the ongoing COVID-19 pandemic, including various laws and the rules and regulations that may be promulgated thereunder;

technological changes, including, but not limited to, the protection of our electronic systems and information;

changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry and recent and potential changes in response to the ongoing COVID-19 pandemic;

technological changes, including, but not limited to, the security of our electronic systems and information;

the impact of acquisitions and divestitures;

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changes in consumer spending and saving habits;

the impact of our participation as prepaid card issuer for government stimulus and other programs and potentially similar programs in the future;

losses from fraudulent or illegal activity;

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The Company’s common stock trades on the NASDAQ Global Select Market under the symbol “CASH.”

The following discussion focuses on the consolidated financial condition of the Company at June 30, 2021, compared to September 30, 2020, and the consolidated results of operations for the three and nine months ended June 30, 2021 and 2020.

The following discussion focuses on the consolidated financial condition of the Company at December 31, 2021, compared to September 30, 2021, and the consolidated results of operations for the three months ended December 31, 2021 and 2020.

This discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended September 30, 2021 and the related management's discussion and analysis of financial condition and results of operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

EXECUTIVE SUMMARY

Business Development Highlights for the 2021 Fiscal Third Quarter

The following highlights certain business developments during the quarter ended June 30, 2021:

• Published our inaugural 2020 Environmental, Social and Governance ("ESG") Report, highlighting the Company's vision, culture, and mission of financial inclusion for all®.

The Company's 2020 ESG report can be downloaded at https://www.metafinancialgroup.com/environmental-social-governance.

• Launched the Company's Community Impact Program, focused on financial inclusion, personal and family financial empowerment, educational support, and disaster relief.

Concentrating on these four areas positions MetaBank to encourage long-lasting positive impact in our communities.

• Expanded our renewable energy investment tax credit ("ITC") financing, originating $72.0 million for the first nine months of fiscal 2021, resulting in $18.9 million in total net ITC.

• Entered into a new Banking as a Service ("BaaS") partnership with Clair, a social impact embedded fintech startup.

The Company will act as both the issuing bank and bank services provider, offering digital banking services for users of Clair.

Financial Highlights for the 2021 Fiscal Third Quarter

Total revenue for the third quarter was $130.9 million, an increase of $27.7 million compared to $103.2 million for the same quarter in fiscal 2020, primarily driven by a timing shift of refund transfer product fee and additional payments card fee income from government stimulus programs.

Net interest income for the third quarter was $68.5 million, an increase of $6.4 million compared to $62.1 million in the third quarter last year, reflecting a decrease in deposit interest expense.

Net interest margin ("NIM") improved to 3.75% for the third quarter from 3.28% during the same period of last year, chiefly due to the decrease of cash associated with the Company's participation in the EIP program and an increase in national lending loans and leases.

Total gross loans and leases at June 30, 2021 decreased $1.5 million, to $3.50 billion, compared to June 30, 2020 and decreased $152.8 million, or 4%, when compared to March 31, 2021.

The decrease compared to the linked quarter was primarily driven by the seasonal nature of the taxpayer advance loans.

Average deposits from the Payments division for the fiscal 2021 third quarter increased nearly 8% to $6.79 billion when compared to the prior year quarter largely driven by excess cash on consumer cards related to government stimulus programs.

Tax Season Recap

During the fiscal 2021 third quarter, total tax services product revenue was $13.6 million compared to $4.6 million in the prior year quarter.

The significant increase for the quarter was mostly related to delayed timing of refund transfer income due to the extension of the tax filing deadline by the Internal Revenue Service ("IRS").

Total tax services product income, net of losses and direct product expen ses, increased 19% when comparing the first nine months of fiscal 2021 to the prior year period.

The 2021 tax season benefited by the addition of the H&R Block relationship and has been successful despite the challenges caused by an increase in consumer liquidity due to stimulus payments throughout the 2021 tax season.

EIP Program Update

Of the 16.5 million prepaid cards issued in conjunction with the three EIP stimulus programs, totaling approximately $24.15 billion, $2.81 billion remain outstanding as of June 30, 2021, of which only $98.1 million remain on Meta's balance sheet with the remainder being held at other banks.

Business Development Highlights for the 2022 Fiscal First Quarter

• Entered into an agreement with Beige Key LLC to sell the Meta names and trademarks for $60 million, of which $50 million was recognized as noninterest income in the first fiscal quarter.

The Company plans to use a portion of the proceeds to implement its new corporate name and brand, which is expected to be completed by the end of 2022, and estimates its rebranding expenses will range between $15.0 million to $20.0 million.

The remainder of the proceeds will be used for general corporate purposes including tax-efficient capital allocation.

• Sold all remaining $192.5 million of community banking loans, reducing this portfolio to zero and generating a favorable pre-tax impact of approximat ely $3.9 million after netting the recovery of provision expense from the portfolio's $12.3 million allowance and the loss on sale of loans of $8.4 million .

• Extended the agreement with Emerald Financial Services, LLC, a wholly-owned, indirect subsidiary of H&R Block, through June 30, 2025.

The agreement adds valuable new financial product offerings and capabilities for customers, including Spruce Accounts, a spending account with an attached debit card, and a connected savings account.

These innovative products, designed to help a consumer better manage their financial resources, are powered by MetaBank.

• Originated $21.2 million in aggregate principal of renewable energy loan financing for the first quarter of fiscal 2022, resulting in $5.7 million in total net investment tax credits.

• Repurchased 1,711,501 shares, at an average price of $58.97, in the first fiscal quarter.

The company purchased an additional 230,000 shares through February 3, 2022 at an average share price of $59.85 and has 5,374,375 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021.

Financial Highlights for the 2022 Fiscal First Quarter

Total revenue for the first quarter was $158.2 million, an increase of $46.7 million, or 42%, compared to the same quarter in fiscal 2021, primarily driven by the gain on sale of Meta names and trademarks.

Net interest income for the first quarter was $71.6 million, an increase of $5.6 million compared to $66.0 million in the first quarter last year.

Net interest margin ("NIM") was essentially unchanged, declining to 4.59% for the first quarter from 4.65% during the same period of last year.

The increase in higher-yielding loans and leases was offset by an increase in lower-yielding investment securities balances and the continued low interest rate environment.

Total gross loans and leases at December 31, 2021 increased $243.0 million, to $3.68 billion, or 7%, compared to December 31, 2020 and increased $74.8 million, or 2%, when compared to September 30, 2021.

The increase was driven by growth across our loan portfolios, partially offset by the sale of all remaining community banking loans during the quarter.

FINANCIAL CONDITION

At June 30, 2021, the Company’s total assets increased by $959.7 million to $7.05 billion compared to September 30, 2020, primarily due to increases of $649.5 million in investment securities available for sale and $292.9 million in cash and cash equivalents.

Total cash and cash equivalents was $720.2 million at June 30, 2021, increasing from $427.4 million at September 30, 2020, primarily resulting from the receipt of EIP related deposits.

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

At December 31, 2021, the Company’s total assets increased by $919.0 million to $7.61 billion compared to September 30, 2021, primarily due to an increase of $916.1 million in cash and cash equivalents.

Total cash and cash equivalents was $1.23 billion at December 31, 2021, increasing from $314.0 million at September 30, 2021, primarily resulting from an increase in noninterest-bearing deposits of $808.2 million and the net cash proceeds from the sale of our remaining legacy community bank loans of $147.1 million.

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

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

The total investment portfolio increased $621.1 million, or 46%, to $1.98 billion at June 30, 2021, compared to $1.36 billion at September 30, 2020, as purchases exceeded maturities and principal pay downs.

At December 31, 2021, the Company did not have any federal funds sold.

The total investment portfolio decreased $87.8 million, or 5%, to $1.83 billion at December 31, 2021, compared to $1.92 billion at September 30, 2021, as maturities and principal pay downs exceeded purchases.

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

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

All MBS held by the Company at December 31, 2021 were issued by a U.S.

Government agency or instrumentality.

Of the total MBS at June 30, 2021, $1.06 billion, at fair value, were classified as available for sale, and $4.0 million, at cost, were classified as held to maturity.

Of the total investment securities at June 30, 2021, $854.0 million, at fair value, were classified as available for sale and $60.2 million, at cost, were classified as held to maturity.

During the nine months ended June 30, 2021, the Company purchased $976.5 million of investment securities.

Loans held for sale at June 30, 2021 totaled $87.9 million, decreasing from $183.6 million at September 30, 2020.

This decrease was primarily driven by sales of the retained Community Bank loan portfolio to Central Bank during the nine months ended June 30, 2021.

The Company’s total loans and leases increased $181.1 million, or 5%, to $3.50 billion at June 30, 2021, from $3.31 billion at September 30, 2020.

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

During the three months ended December 31, 2021, the Company purchased $20.9 million of investment securities.

Loans held for sale at December 31, 2021 totaled $36.2 million, decreasing from $56.2 million at September 30, 2021.

This decrease was primarily driven by a reduction in SBA/USDA loans held for sale during the three months ended December 31, 2021.

The Company’s total loans and leases increased $74.8 million, or 2%, to $3.68 billion at December 31, 2021, from $3.61 billion at September 30, 2021.

The increase was primarily driven by growth in the commercial finance and warehouse finance portfolios, partially offset by the sales of the remaining community banking loans.

See Note 5 to the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

National lending loans and leases increased $362.7 million, or 13% to $3.19 billion at June 30, 2021 compared to September 30, 2020.

Within the National Lending portfolios, commercial finance loans and leases increased $278.5 million, tax services loans increased $38.2 million, consumer finance increased $3.6 million and warehouse finance increased $42.3 million at June 30, 2021 compared to September 30, 2020.

The increase in commercial finance loan balances was largely driven by the asset based lending and commercial insurance premium finance categories.

The seasonality of the Company's tax services business led to the increase in tax services loans at June 30, 2021 compared to September 30, 2020.

Community banking loans decreased $181.6 million, or 37%, at June 30, 2021 compared to September 30, 2020, primarily attributable to loan portfolio sales along with continued principal payments and payoffs.

As of June 30, 2021, the Company had $18.1 million community banking loans classified as held for sale.

Tax services loans increased $89.9 million, commercial finance loans increased $72.3 million, consumer finance increased $64.9 million, and warehouse finance increased $46.9 million at December 31, 2021 compared to September 30, 2021.

The increase in commercial finance loan balances was largely driven by the term lending category.

The seasonality of the Company's tax services business led to the increase in tax services loans at December 31, 2021 compared to September 30, 2021.

Community banking loans decreased $199.1 million, or 100%, at December 31, 2021 compared to September 30, 2021, attributable to the sales of the remaining community banking loans.

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

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

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

Total end-of-period deposits increased $909.7 million, or 18%, at June 30, 2021 to $5.89 billion as compared to September 30, 2020, primarily driven by an increase in noninterest-bearing deposits of $1.03 billion, which was largely attributable to the balances on the EIP cards.

The increase in deposits has been mitigated as a result of Meta's ability to shift most of the remaining EIP program card balances from its balance sheet to other banks.

As of June 30, 2021, EIP program card balances outstanding totaled $2.81 billion, of which Meta held $98.1 million on its balance sheet.

The average balance of total deposits and interest-bearing liabilities was $7.41 billion for the nine-months ended June 30, 2021, compared to $6.09 billion for the same period of the prior fiscal year.

The average balance of noninterest-bearing deposits for the nine-months ended June 30, 2021 increased $2.74 billion, or 69%, to $6.73 billion compared to the same period in the prior year.

These increases were primarily attributable to EIP related deposit balances.

The Company's total borrowings decreased $4.6 million, or 5%, from $98.2 million at September 30, 2020 to $93.6 million at June 30, 2021.

The Company also has an available no-fee line of credit with JP Morgan of $25.0 million with no funds advanced at June 30, 2021.

At June 30, 2021, the Company’s stockholders’ equity totaled $876.6 million, an increase of $29.3 million, from $847.3 million at September 30, 2020.

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

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

The Company’s investment in these stocks remained unchanged from $28.4 million at September 30, 2021 to December 31, 2021.

Total end-of-period deposits increased 18% to $6.53 billion at December 31, 2021, compared to September 30, 2021, primarily driven by an increase in noninterest-bearing deposits of $1.25 billion partially offset by a decrease in interest-bearing checking of $254.3 million.

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

As of December 31, 2021, EIP program card balances outstanding totaled $1.38 billion, of which only $28.1 million was on Meta's balance sheet with the remainder being held by other banks.

The Company's total borrowings decreased $0.6 million, or 1%, from $92.8 million at September 30, 2021 to $92.3 million at December 31, 2021.

At December 31, 2021, the Company’s stockholders’ equity totaled $826.2 million, a decrease of $45.7 million, from $871.9 million at September 30, 2021.

The decrease was primarily attributable to a reduction in retained earnings related to activity from the Company's share repurchase programs.

The Company and Bank remained above the federal regulatory minimum capital requirements at December 31, 2021, continued to be classified as well-capitalized, and in good standing with the regulatory agencies.

See “Liquidity and Capital Resources” for further information.

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The following table summarizes the Company's negative deposit balances within the payments division:

(Dollars in Thousands) June 30, 2021 September 30, 2020

(Dollars in Thousands) December 31, 2021 September 30, 2021

Noninterest-bearing deposits $ 6,625,632 $ 5,492,646

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RESULTS OF OPERATIONS

The Company recorded net income of $38.7 million, or $1.21 per diluted share, for the three months ended June 30, 2021, compared to net income of $18.2 million, or $0.53 per diluted share, for the three months ended June 30, 2020.

Total revenue for the fiscal 2021 third quarter was $130.9 million, compared to $103.2 million for the same quarter in fiscal 2020.

The increase in net income was primarily driven by a decrease in provision for credit loss expense and an increase in noninterest income.

The Company recorded net income of $125.8 million, or $3.87 per diluted share, for the nine months ended June 30, 2021, compared to $91.6 million, or $2.54 per diluted share, compared to the same period in the prior year.

Total revenue for the nine months ended June 30, 2021 was $429.7 million, compared to $393.6 million for the same period of the prior year, an increase of 9%.

The Company recorded net income of $61.3 million, or $2.00 per diluted share, for the three months ended December 31, 2021, compared to net income of $28.0 million, or $0.84 per diluted share, for the three months ended December 31, 2020.

Total revenue for the fiscal 2022 first quarter was $158.2 million, compared to $111.5 million for the same quarter in fiscal 2021.

The increase in net income was primarily driven by the gain on sale of the Meta names and trademarks.

Net Interest Income

Net interest income for the fiscal 2021 third quarter was $68.5 million, an increase of 10%, from $62.1 million for the same quarter in fiscal 2020.

The increase was primarily driven by a reduction in total interest expense, partially offset by lower overall yields realized on investments and loans and leases.

For the nine months ended June 30, 2021, net interest income was $208.3 million, an increase of 7%, from $194.5 million compared to the same period in the prior year.

During the fiscal 2021 third quarter, interest expense decreased $3.8 million, and loan and lease interest income increased $2.4 million.

The third quarter average outstanding balance of loans and leases decreased by $4.2 million compared to the prior year quarter, primarily due to the decrease in community bank and healthcare receivable loan portfolios offset by growth of the remaining commercial loan portfolios.

The Company’s average interest-earning assets for the fiscal 2021 third quarter decreased by $291.8 million, to $7.32 billion compared with the prior year quarter, primarily due to the decrease in cash and fed funds sold, total investments, and community bank loans offset by growth of the national lending loans and leases.

Fiscal 2021 third quarter NIM increased to 3.75% from 3.28% for the third quarter last year.

The overall reported tax equivalent yield (“TEY”) on average earning assets increased by 26 basis points to 3.85% compared to the prior year quarter, primarily driven by a reduction in low-yielding cash held at the Federal Reserve.

Net interest income for the fiscal 2022 first quarter was $71.6 million, an increase of 9%, from the same quarter in fiscal 2021.

The increase was mainly attributable to an improved earning asset and liability mix, along with increased loan balances.

The first quarter average outstanding balance of loans and leases increased $211.3 million compared to the same quarter of the prior year, primarily due to increases in our core loan and lease portfolios, partially offset by the sale of the remaining community bank portfolio.

The Company’s average interest-earning assets for the first quarter increased by $547.2 million to $6.18 billion compared with the same quarter in fiscal 2021, primarily due to growth in total investments and total loans and leases.

Fiscal 2022 first quarter NIM decreased to 4.59% from 4.65% in the first quarter of last year.

The overall reported tax equivalent yield (“TEY”) on average earning assets decreased by 13 basis points to 4.69% compared to the prior year quarter, primarily driven by an increase in lower-yielding investment securities balances of $561.4 million.

The TEY on the securities portfolio was 1.58% compared to 1.79% for the comparable period last year.

For the nine months ended June 30, 2021, NIM was 3.68%, decreasing 53 basis points from 4.21% compared to the same period in the prior year.

Net interest margin, tax-equivalent for the nine months ended June 30, 2021 was 3.70%, a decrease of 55 basis points compared to the same period in the prior year.

The Company's cost of funds for all deposits and borrowings averaged 0.09% during the fiscal 2021 third quarter, compared to 0.28% during the prior year quarter, primarily driven by a reduction in wholesale deposit balances.

The Company's overall cost of deposits was 0.01% in the fiscal 2021 third quarter, compared to 0.17% in the same quarter last year.

The Company's cost of funds for all deposits and borrowings averaged 0.08% during the fiscal 2022 first quarter, compared to 0.15% during the prior year quarter, primarily driven by a reduction in wholesale deposit balances along with an increase in noninterest-bearing deposits.

The Company's overall cost of deposits was 0.01% in the fiscal 2022 first quarter, compared to 0.06% in the same quarter last year.

The following tables present, for the periods indicated, the Company’s total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates.

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

Three Months Ended June 30,

(Dollars in Thousands) Average

Balance Interest

Interest-earning assets:

Cash & fed funds sold $ 1,867,988 $ 528 0.11 % $ 2,692,270 $ 783 0.12 %

Mortgage-backed securities 882,042 3,446 1.57 % 342,174 2,269 2.67 %

Tax exempt investment securities 263,401 884 1.70 % 417,042 1,658 2.02 %

Asset-backed securities 438,163 1,651 1.51 % 336,562 1,770 2.11 %

Other investment securities 246,493 1,187 1.93 % 197,643 1,014 2.06 %

Total investments 1,830,099 7,168 1.62 % 1,293,420 6,711 2.22 %

Total commercial finance 2,616,942 48,641 7.46 % 2,160,175 40,375 7.52 %

Total consumer finance 241,813 3,916 6.50 % 247,824 4,635 7.52 %

Total tax services 91,804 604 2.64 % 39,845 — — %

Total warehouse finance 332,759 5,151 6.21 % 304,839 4,582 6.05 %

National Lending loans and leases 3,283,318 58,312 7.12 % 2,752,683 49,592 7.25 %

Community Banking loans 335,415 3,975 4.75 % 870,245 10,319 4.77 %

Total loans and leases 3,618,733 62,287 6.90 % 3,622,928 59,911 6.65 %

Total interest-earning assets 7,316,820 $ 69,983 3.85 % 7,608,618 $ 67,406 3.59 %

Noninterest-earning assets 841,738 830,589

Total assets $ 8,158,558 $ 8,439,206

Interest-bearing liabilities:

Interest-bearing checking (2)

$ 336,576 $ — — % $ 226,382 $ — — %

Savings 107,803 5 0.02 % 55,572 1 0.01 %

Money markets 58,517 66 0.45 % 40,091 33 0.33 %

Time deposits 11,877 27 0.91 % 25,392 113 1.78 %

Wholesale deposits 86,295 90 0.42 % 817,414 2,983 1.47 %

Total interest-bearing deposits 601,068 188 0.13 % 1,164,852 3,130 1.08 %

Overnight fed funds purchased 11 — 0.25 % 59,055 48 0.33 %

FHLB advances — — — % 110,000 670 2.45 %

Subordinated debentures 73,907 1,148 6.23 % 73,738 1,153 6.29 %

Other borrowings 20,657 172 3.35 % 27,032 268 3.98 %

Total borrowings 94,575 1,320 5.60 % 269,825 2,139 3.19 %

Total interest-bearing liabilities 695,643 1,508 0.87 % 1,434,677 5,269 1.48 %

Noninterest-bearing deposits 6,380,371 — — % 6,057,314 — — %

Total deposits and interest-bearing liabilities 7,076,014 $ 1,508 0.09 % 7,491,991 $ 5,269 0.28 %

Other noninterest-bearing liabilities 225,862 122,940

Total liabilities 7,301,876 7,614,931

Shareholders' equity 856,682 824,276

Total liabilities and shareholders' equity $ 8,158,558 $ 8,439,206

Net interest income and net interest rate spread including noninterest-bearing deposits $ 68,475 3.76 % $ 62,137 3.30 %

Net interest margin 3.75 % 3.28 %

Tax-equivalent effect 0.02 % 0.02 %

Net interest margin, tax-equivalent (3)

3.77 % 3.31 %

(1) Tax rate used to arrive at the TEY for the three months ended June 30, 2021 and 2020 was 21%.

(2) Of the total balance, $336.2 million are interest-bearing deposits where interest expense is paid by a third party and not by the Company.

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

The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income.

The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) Average

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Interest-earning assets:

Cash & fed funds sold $ 2,279,550 $ 2,461 0.14 % $ 992,935 $ 1,934 0.26 %

Cash and fed funds sold $ 594,614 $ 560 0.37 % $ 820,108 $ 842 0.41 %

Mortgage-backed securities 1,007,030 3,864 1.52 % 438,610 2,123 1.92 %

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Total investments 1,882,057 7,296 1.58 % 1,320,640 5,649 1.79 %

Total commercial finance 2,501,911 140,570 7.51 % 2,053,414 126,799 8.25 %

Total consumer finance 245,627 15,632 8.51 % 260,950 15,811 8.09 %

Total tax services 274,706 7,156 3.48 % 192,971 6,384 4.42 %

Total warehouse finance 310,593 14,930 6.43 % 294,852 13,542 6.13 %

National Lending loans and leases 3,332,837 178,288 7.15 % 2,802,186 162,536 7.75 %

Community Banking loans 409,869 14,127 4.61 % 1,048,689 36,571 4.66 %

Commercial finance 2,775,394 49,021 7.01 % 2,417,691 45,630 7.49 %

Consumer finance 316,573 6,114 7.66 % 239,618 4,748 7.86 %

Tax services 33,604 1,474 17.40 % 25,104 8 0.13 %

Warehouse finance 443,506 6,901 6.17 % 284,199 4,933 6.89 %

Community banking 137,898 1,525 4.39 % 529,085 6,336 4.75 %

Total loans and leases 3,706,975 65,035 6.96 % 3,495,697 61,655 7.00 %

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Overnight fed funds purchased 327 — 0.31 % 11 — 0.25 %

FHLB advances — — — % 110,000 2,019 2.45 %

Subordinated debentures 73,995 986 5.28 % 73,822 1,147 6.16 %

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4.61 % 4.67 %

(1) Tax rate used to arrive at the TEY for the six months ended June 30, 2021 and 2020 was 21%.

(2) Of the total balance, $218.5 million are interest-bearing deposits where interest expense is paid by a third party and not by the Company.

(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2021 and 2020 was 21%.

(2) At December 31, 2020, $162.5 million of the total balance were interest-bearing deposits where interest expense was paid by a third party and not by the Company.

On October 1, 2021, the Company reclassified the balances related to that program to noninterest bearing checking due to the product moving to noninterest bearing.

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

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Provision for Credit Losses

The Company recorded a $4.6 million and a $41.0 million provision for credit losses for the three and nine months ended June 30, 2021, as compared to a $15.1 million and $55.8 million provision for credit losses for the same period of the prior year.

The decrease in the overall provision compared to the prior year was due in large part to the increase in the allowance as part of the Company's response to the emerging COVID-19 pandemic during the fiscal 2020 third quarter.

Net charge-offs were $12.3 million for the quarter ended June 30, 2021, compared to $14.7 million for the quarter ended June 30, 2020.

The majority of the net charge-offs for the quarter were attributable to seasonal tax-related loan products .

The Company recognized provision for credit losses of $0.2 million for the three months ended December 31, 2021, as compared to $6.1 million for the comparable period in the prior fiscal year.

Net charge-offs were $1.1 million for the quarter ended December 31, 2021, compared to $2.8 million for the quarter ended December 31, 2020.

The majority of the net charge-offs for the quarter were attributable to the commercial finance portfolio .

Noninterest Income

Noninterest income for the fiscal 2021 third quarter increased to $62.5 million from $41.0 million for the same period of the prior year.

This increase was primarily related to card fee income and refund transfer fee income.

Card fees benefited from increased card balances related to stimulus programs.

Refund transfer fee income was higher compared to last year due to refund transfer volume shift from the second fiscal quarter because of the delay in the 2021 tax season.

Noninterest income for the nine months ended June 30, 2021 increased by $22.3 million, or 11%, to $221.4 million compared to the same period in the prior fiscal year.

Fiscal 2022 first quarter noninterest income increased to $86.6 million from $45.5 million for the same period of the prior year.

The significant increase was driven by the $50 million gain on sale of the Meta names and trademarks and to a lesser extent an increase in payments fee income and rental income.

The Company also recognized a loss on sale of other during the quarter of $3.5 million , a $6.3 million decrease from the prior year period, primarily consisting of a $8.4 million loss attributable to the sale of the remaining community bank loans and a $3.4 million gain on sale of SBA loans.

Also partially offsetting the increase in noninterest income during the quarter was a decrease in other income, which includes a net unrealized loss of $3.3 million on a prior investment in MoneyLion Inc.

This loss partially offsets a net unrealized gain o f $4.1 million recognized by the Company during the fourth quarter of fiscal 2021 following the completion of MoneyLion's de-SPAC process and listing on the New York Stock Exchange on September 22, 2021.

Noninterest Expense

Noninterest expense increased 14% to $81.5 million for the fiscal 2021 third quarter, from $71.2 million for the same quarter last year, primarily driven by increases in compensation and benefits due to a return to more normalized incentive accruals in fiscal year 2021 and additional employees to support growth.

Refund transfer product expense was also higher than the same quarter last year, due largely to a shift in volume into the fiscal 2021 third quarter as a result of the delayed IRS filing date.

Noninterest expense for the nine months ended June 30, 2021 increased by $11.3 million, or 5%, to $250.1 million compared to the same period in the prior year.

Noninterest expense increased 14% to $82.4 million for the fiscal 2022 first quarter, from $72.6 million for the same quarter last year.

The increase in expense was primarily driven by an increase in compensation expense, other expense, occupancy and equipment expense, and card processing expense.

When comparing the fiscal 2022 first quarter to the fourth quarter of 2021, non-interest expense decreased by $11.2 million.

Income Tax Expense

The Company recorded an income tax expense of $4.9 million, representing an effective tax rate of 11.0%, for the fiscal 2021 third quarter, compared to an income tax benefit of $2.4 million, representing an effective tax rate of (14.4)%, for the fiscal 2020 third quarter.

The increase in the recorded income tax expense reflected an increase in fiscal 2021 third quarter earnings, whereas the prior year’s income tax benefit was chiefly the result of adjustments needed for the ratably recognized investment tax credits and lower earnings forecast at that time due to COVID-19.

The Company originated $13.5 million in solar leases during the fiscal 2021 third quarter, compared to $1.3 million during last year's third quarter.

The Company recorded an income tax expense of $14.3 million, representing an effective tax rate of 18.9%, for the fiscal 2022 first quarter, compared to $3.5 million, representing an effective tax rate of 10.8%, for the first quarter last year.

The increase in income tax expense was primarily due to increased earnings.

The Company originated $21.2 million in solar leases during the fiscal 2022 first quarter, compared to $38.5 million during last year's first quarter.

Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year.

The timing and impact of future solar tax credits are expected to vary from period to period, and Meta intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Nonperforming Assets and Allowance for Loan and Lease Losses

Generally, when a loan or lease becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Company will place the loan or lease on a non-accrual status and, as a result, previously accrued interest income on the loan or lease is reversed against current income.

Asset Quality

Generally, when a loan or lease becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Company will place the loan or lease on a nonaccrual status and, as a result, previously accrued interest income on the loan or lease is reversed against current income.

The loan or lease will generally remain on a non-accrual status until six months of good payment history has been established or management believes the financial status of the borrower has been significantly restored.

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Non-accrual loans and troubled debt restructurings are generally considered impaired.

The Company believes that the level of allowance for credit losses at June 30, 2021 was appropriate and reflected probable losses related to these loans and leases;

The Company believes that the level of allowance for credit losses at December 31, 2021 was appropriate and reflected probable losses related to these loans and leases;

however, there can be no assurance that all loans and leases will be fully collectible or that the present level of the allowance will be adequate in the future.

See the section below titled “Allowance for Credit Losses” for further information.

The table below sets forth the amounts and categories of nonperforming assets in the Company’s portfolio as of the dates set forth below.

Foreclosed assets include assets acquired in settlement of loans.

(Dollars in Thousands) June 30, 2021 September 30, 2020

The table below sets forth the amounts and categories of the Company's nonperforming assets.

(Dollars in thousands) December 31, 2021 September 30, 2021

Nonperforming Loans and Leases

Nonaccruing loans and leases:

Term lending $ 14,470 $ 16,274

Factoring 37 1,096

Lease financing 2,208 3,583

SBA/USDA 600 600

Commercial finance $ 37,760 $ 19,330

Total National Lending 17,315 21,553

Commercial real estate and operating 17,896 580

Consumer one-to-four family real estate and other 108 50

Agricultural real estate and operating 1,769 1,769

Total Community Banking 19,773 2,399

Total 37,088 23,952

Accruing loans and leases delinquent >89 days past due:

Term lending 2,073 266

Lease financing 1,403 4,344

Insurance premium finance 874 2,364

SBA/USDA — 427

Community banking — 14,915

Total nonaccruing loans and leases 37,760 34,245

Accruing loans and leases delinquent 90 days or more:

Commercial finance 3,896 12,489

Consumer credit products 469 499

Other consumer finance — 373

Consumer finance 1,534 1,236

Tax services (1)

Total National Lending 4,819 10,016

Commercial real estate and operating — 50

Total Community Banking — 50

Total 4,819 10,066

Total accruing loans and leases delinquent 90 days or more 5,430 21,687

Total nonperforming loans and leases 43,190 55,932

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Commercial finance 298 2,077

Total 1,204 9,957

Total foreclosed and repossessed assets 298 2,077

Total other assets 1,148 5,901

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Total as a percentage of total assets 0.58 % 0.92 %

At June 30, 2021, nonperforming loans and leases totaled $41.9 million, representing 1.17% of total loans and leases, compared to $34.0 million, or 0.97% of total loans and leases at September 30, 2020.

As of June 30, 2021, $41.5 million of the loans and leases that were granted deferral payments by the Company were still in their deferment period.

As of September 30, 2020, loans and leases totaling $170.0 million were within their deferment period.

(1) Certain tax services loans do not bear interest.

At December 31, 2021, nonperforming loans and leases totaled $43.2 million, representing 1.2% of total loans and leases, compared to $55.9 million, or 1.52% of total loans and leases at September 30, 2021.

Classified Assets .

Federal regulations provide for the classification of loans, leases, and other assets such as debt and equity securities considered by our primary regulator, the OCC, to be of lesser quality as “substandard,” “doubtful” or “loss,” with each such classification dependent on the facts and circumstances surrounding the assets in question.

Federal regulations provide for the classification of certain loans, leases, 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,” with each such classification dependent on the facts and circumstances surrounding the assets in question.

An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

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

Meta is now revising its credit administration policies and reviewing its loan portfolio to better align with OCC guidance for national banks, a process that began during the quarter ending June 30, 2021 and is expected to be completed by September 30, 2021.

We expect these credit policy revisions will have an impact on our loan and lease risk ratings, resulting in downgrades of certain credits in several categories.

Our loan and collateral management practices have proven effective in managing losses during previous economic cycles;

and while we expect this process will result in setting a new baseline for portfolio metrics going forward, it does not indicate a deterioration in our portfolio's expected performance.

On the basis of management’s review of its loans, leases, and other assets, at June 30, 2021, the Company had classified $135.1 million of its assets as substandard, $7.2 million as doubtful and none as loss.

At September 30, 2020, the Company classified $61.6 million of its assets as substandard, $6.3 million as doubtful and none as loss.

On the basis of management’s review of its loans, leases, and other assets, at December 31, 2021, the Company had classified loans and leases of $176.3 million as substandard, $19.9 million as doubtful and none as loss.

At September 30, 2021, the Company classified loans and leases of $264.2 million as substandard, $12.1 million as doubtful and none as loss.

Allowance for Credit Losses .

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

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

ASU 2016-13 requires the use of a CECL methodology to determine the ACL for loans and debt securities held-to-maturity.

Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively “Topic 326”), which measures credit loss 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 losses ("CECL") methodology to determine the allowance for credit losses ("ACL") 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 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, generally this 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 impairment.

The ACL represents management’s estimate of expected credit losses 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 credit loss, generally this 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 Condensed Consolidated Statements of Financial Condition.

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

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

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

At June 30, 2021, the Company had established an ACL totaling $91.2 million, compared to $56.2 million at September 30, 2020.

The increase in the allowance at June 30, 2021 was driven primarily by the adoption of the CECL accounting standard noted above, along with the seasonal allowance build in the tax services portfolio.

The CECL methodology requires loss estimates for the remaining estimated life of the assets to be measured using historical loss data, adjustments for current conditions, and adjustments for reasonable and supportable forecasts of future economic conditions, which led to the increase in the ACL as of the October 1, 2020 adoption date.

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

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.

The Company's ACL totaled $67.6 million at December 31, 2021, a decrease compared to $68.3 million at September 30, 2021.

The reduction in the ACL at December 31, 2021 was primarily due to a $12.3 million decrease attributable to the community banking portfolio, as all loans have now been sold.

This decrease was partially offset by increases within commercial finance of $8.7 million, tax services of $1.6 million, and consumer finance of $1.2 million.

The following table presents the Company's ACL as a percentage of its total loans and leases.

As of the Period Ended

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

September 30, 2020 June 30, 2020

December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020

Commercial finance 2.04 % 1.77 % 1.73 % 1.77 % 1.88 %

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

National Lending 2.44 % 2.57 % 1.89 % 1.86 % 1.20 % 1.68 %

Community banking — % 6.16 % 4.36 % 4.03 % 4.01 %

Total loans and leases 1.84 % 1.89 % 2.61 % 2.71 % 2.10 %

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

Management closely monitors economic developments and considers these factors when assessing the appropriateness of its ACL.

The Company's allowance for credit losses as a percentage of total loans and leases decreased to 2.61% at June 30, 2021 from 2.71% at March 31, 2021.

The decrease in the total loans and leases coverage ratio reflected a seasonal reduction in the allowance of the tax services loan portfolios.

The coverage ratios for the other non-tax-related loan categories remained relatively similar to the March 31, 2021 quarter.

The Company's ACL as a percentage of total loans and leases decreased to 1.84% at December 31, 2021 from 1.89% at September 30, 2021.

The decrease in the total loans and leases coverage ratio reflected the release of the community banking portfolio allowance.

The coverage ratio for the commercial finance portfolio increased compared to September 30, 2021 quarter due to specific reserves on two individually evaluated loan relationships.

The consumer finance coverage decreased primarily due to an improved overall macroeconomic outlook.

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

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

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

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

Management believes that, based on a detailed review of the loan and lease portfolio, historic loan and lease losses, current economic conditions, the size of the loan and lease portfolio and other factors, the level of the ACL at December 31, 2021 reflected an appropriate allowance against expected credit losses from the lending portfolio.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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A discussion of the Company’s critical accounting policies and estimates can be found in the Company's Annual Report on Form 10-K for the year ended September 30, 2021.

There were no significant changes to these critical accounting policies and estimates during the first nine months of fiscal 2021.

There were no significant changes to these critical accounting policies and estimates during the first three months of fiscal 2022.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

At June 30, 2021, the Company had commitments to originate and purchase loans and unused lines of credit totaling $1.32 billion.

The Company believes that loan repayments and other sources of funds will be adequate to meet its foreseeable short- and long-term liquidity needs.

Pursuant to the Basel III Capital Rules, the Company and the Bank, respectively, are subject to regulatory capital adequacy requirements promulgated by the Federal Reserve and the OCC.

The Basel III Capital Rules became effective for us and the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions.

Failure by the Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by our regulators that could have a material adverse effect on our consolidated financial statements.

Under the capital requirements and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Company’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy 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 June 30, 2021, both the Bank and the Company remained above the applicable federal regulatory minimum capital requirements, continued to be classified as well-capitalized, and remained in good standing with the regulatory agencies.

The Company and the Bank made the accumulated other comprehensive income (“AOCI”) opt-out election;

At December 31, 2021, the Company had unfunded loan and lease commitments of $1.36 billion.

Management believes that loan repayment and other sources of funds will be adequate to meet its foreseeable short- and long-term liquidity needs.

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 December 31, 2021, both the Company and the Bank 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 analysis.

Minimum to be Minimum to be

Adequately Well Capitalized

Capitalized Under Under Prompt

Prompt Corrective Corrective Action

At June 30, 2021 Company Bank Action Provisions Provisions

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 corresponding reconciliation to total equity.

At December 31, 2021 Company Bank Minimum

to be Adequately Capitalized Under Prompt Corrective Action Provisions Minimum to be Well Capitalized Under Prompt Corrective Action Provisions

Tier 1 leverage capital ratio 7.39 % 8.52 % 4.00 % 5.00 %

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Total capital ratio 13.80 14.16 8.00 10.00

The following table provides certain non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP:

The following table provides a reconciliation of the amounts included in the table above for the Company.

(Dollars in thousands) Standardized Approach (1)

June 30, 2021

December 31, 2021

Total stockholders' equity $ 826,157

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Net deferred tax assets from operating loss and tax credit carry-forwards 19,855

Net unrealized gains on available-for-sale securities 14,750

Net unrealized gains (losses) on available for sale securities 403

Noncontrolling interest 642

Adoption of Accounting Standards Update 2016-13 6,527

Common Equity Tier 1 Capital (1)

Common Equity Tier 1 (1)

Long-term borrowings and other instruments qualifying as Tier 1 13,661

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Total Tier 1 capital 493,213

Allowance for loan and lease losses 51,317

Allowance for credit losses 55,125

Subordinated debentures (net of issuance costs) 59,220

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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) June 30, 2021

(Dollars in thousands) At December 31, 2021

Total stockholders' equity $ 826,157

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Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations " in the Company’s Annual Report on Form 10-K for its fiscal year ended September 30, 2021 for a summary of our contractual obligations as of September 30, 2021.

There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 2020 through June 30, 2021.

There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 2021 through December 31, 2021.

OFF-BALANCE SHEET FINANCING ARRANGEMENTS

For discussion of the Company’s off-balance sheet financing arrangements at June 30, 2021, see Note 15 to our Condensed Consolidated Financial Statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

Depending on the extent to which the commitments or contingencies described in Note 15 occur, the effect on the Company’s capital and net income could be significant.

Commitments and Contingencies in "Item 8.

Financial Statements and Supplementary Data" in the Company's Annual Report on Form 10-K for its fiscal year ended September 30, 2021 for discussion of the Company’s off-balance sheet financing arrangements as of September 30, 2021.

There were no material changes from September 30, 2021 through December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis