0000907471cash:~~LoansHeldforInvestmentMemberus-gaap:PerformingFinancingReceivableMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2019-09-30~~ConsumerMember2019-10-012019-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR ~~15 (d)~~15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~December 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR ~~15 (d)~~15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 0-22140

META FINANCIAL GROUP INC.®

(Exact name of registrant as specified in its charter)


Delaware			42-1406262
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5501 South Broadband Lane, Sioux Falls, South Dakota 57108

(Address of principal executive offices and Zip Code)

(605) 782-1767

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	CASH	The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company See the definitions of "large accelerated filer." "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated
filer

☐

Non-accelerated
filer

☐

Smaller reporting
company

☐

Emerging growth
company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class:

Outstanding at ~~August~~February 3, ~~2020:~~

2021:

Common Stock, $.01 par value

~~34,627,599~~32,248,629

Nonvoting Common Stock, $.01 par value

Nonvoting shares

META FINANCIAL GROUP, INC.

FORM 10-Q

Table of Contents


PART I - FINANCIAL INFORMATION			2

Item 1.	Financial Statements (Unaudited)	2

	Condensed Consolidated Statements of Financial Condition as of ~~June 30~~December 31,, 2020 and September 30, ~~2019~~20 20	2

	Condensed Consolidated Statements of Operations for the Three ~~and~~ ~~Nine~~Months Ended ~~June 30~~December 3 1 , 2020 and 2019	3

	Condensed Consolidated Statements of Comprehensive Income for the Three ~~and~~ ~~Nine~~Months Ended ~~June 30~~December 3 1 , 2020 and 2019	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three ~~and~~ ~~Nine~~Months Ended ~~June 30~~December 3 1 , 2020 and 2019	5

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~June 30~~December 31 , 2020 and 2019	76

	Notes to Condensed Consolidated Financial Statements	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5545

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7259

Item 4.	Controls and Procedures	7561

PART II - OTHER INFORMATION			7762

Item 1.	Legal Proceedings	7762

Item 1A.	Risk Factors	7762

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7962







Item 6.	Exhibits	8063

SIGNATURES			8164

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

META FINANCIAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition


(Dollars in Thousands, Except Share and Per Share Data)	(Dollars in Thousands, Except Share and Per Share Data)	June 30, 2020		September 30, 2019		(Dollars in Thousands, Except Share and Per Share Data)	December 31, 2020		September 30, 2020
ASSETS	ASSETS	(Unaudited)		(Audited)		ASSETS	(Unaudited)		(Audited)
Cash and cash equivalents	Cash and cash equivalents	$	3,108,141	$	126,545	Cash and cash equivalents	$	1,586,451	$	427,367
Investment securities available for sale, at fair value	Investment securities available for sale, at fair value	825,579		889,947		Investment securities available for sale, at fair value	797,363		814,495
Mortgage-backed securities available for sale, at fair value	Mortgage-backed securities available for sale, at fair value	338,250		382,546		Mortgage-backed securities available for sale, at fair value	430,761		453,607
Investment securities held to maturity, at cost	Investment securities held to maturity, at cost	98,205		127,582		Investment securities held to maturity, at cost	76,176		87,183
Mortgage-backed securities held to maturity, at cost	Mortgage-backed securities held to maturity, at cost	6,382		7,182		Mortgage-backed securities held to maturity, at cost	5,152		5,427
Loans held for sale	Loans held for sale	79,905		148,777		Loans held for sale	133,659		183,577
Loans and leases	Loans and leases	3,502,646		3,658,847		Loans and leases	3,448,675		3,322,765
Allowance for loan and lease losses		(65,747)		(29,149)
Allowance for credit losses						Allowance for credit losses	(72,389)		(56,188)
Federal Reserve Bank and Federal Home Loan Bank stocks, at cost	Federal Reserve Bank and Federal Home Loan Bank stocks, at cost	31,836		30,916		Federal Reserve Bank and Federal Home Loan Bank stocks, at cost	27,138		27,138
Accrued interest receivable	Accrued interest receivable	17,545		20,400		Accrued interest receivable	17,133		16,628
Premises, furniture, and equipment, net	Premises, furniture, and equipment, net	40,361		45,932		Premises, furniture, and equipment, net	39,932		41,608
Rental equipment, net	Rental equipment, net	216,336		208,537		Rental equipment, net	206,732		205,964
Bank-owned life insurance	Bank-owned life insurance	91,697		89,827		Bank-owned life insurance	92,937		92,315
Foreclosed real estate and repossessed assets		6,784		29,494
Foreclosed real estate and repossessed assets. net						Foreclosed real estate and repossessed assets. net	7,186		9,957
Goodwill	Goodwill	309,505		309,505		Goodwill	309,505		309,505
Intangible assets	Intangible assets	43,974		52,810		Intangible assets	39,660		41,692
Prepaid assets	Prepaid assets	6,806		9,476		Prepaid assets	11,270		8,328
Deferred taxes		15,944		18,884
Deferred taxes, net						Deferred taxes, net	24,411		17,723
Other assets	Other assets	104,877		54,832		Other assets	82,763		82,983

Total assets	Total assets	$	8,779,026	$	6,182,890	Total assets	$	7,264,515	$	6,092,074

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES	LIABILITIES					LIABILITIES
Deposits:	Deposits:					Deposits:
Noninterest-bearing checking	Noninterest-bearing checking	6,537,809		2,358,010		Noninterest-bearing checking	5,581,597		4,356,630
Interest-bearing checking	Interest-bearing checking	187,003		185,768		Interest-bearing checking	274,504		157,571
Savings deposits	Savings deposits	55,896		49,773		Savings deposits	54,080		47,866
Money market deposits	Money market deposits	40,811		76,911		Money market deposits	56,440		48,494
Time certificates of deposit	Time certificates of deposit	25,000		109,275		Time certificates of deposit	13,522		20,223
Wholesale deposits	Wholesale deposits	743,806		1,557,268		Wholesale deposits	227,648		348,416
Total deposits	Total deposits	7,590,325		4,337,005		Total deposits	6,207,791		4,979,200
Short-term borrowings	Short-term borrowings	—		646,019		Short-term borrowings	0		0
Long-term borrowings	Long-term borrowings	209,781		215,838		Long-term borrowings	96,760		98,224
Accrued interest payable	Accrued interest payable	4,332		9,414		Accrued interest payable	2,068		1,923
Accrued expenses and other liabilities	Accrued expenses and other liabilities	144,679		130,656		Accrued expenses and other liabilities	144,686		165,419
Total liabilities	Total liabilities	7,949,117		5,338,932		Total liabilities	6,451,305		5,244,766

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
Preferred stock, 3,000,000 shares authorized, 0 shares issued, NaN outstanding at June 30, 2020 and September 30, 2019, respectively		—		—
Common stock, $0.01 par value; 90,000,000 shares authorized, 34,735,217 and 37,821,508 shares issued, 34,631,160 and 37,807,064 shares outstanding at June 30, 2020 and September 30, 2019, respectively		346		378
Common stock, Nonvoting, $0.01 par value; 3,000,000 shares authorized, 0 shares issued, NaN outstanding at June 30, 2020 and September 30, 2019, respectively		—		—
Preferred stock, 3,000,000 shares authorized, 0 shares issued and 0 shares outstanding at December 31, 2020 and September 30, 2020, respectively						Preferred stock, 3,000,000 shares authorized, 0 shares issued and 0 shares outstanding at December 31, 2020 and September 30, 2020, respectively	0		0
Common stock, $0.01 par value; 90,000,000 shares authorized, 32,817,626 and 34,479,164 shares issued, 32,620,251 and 34,360,890 shares outstanding at December 31, 2020 and September 30, 2020, respectively						Common stock, $0.01 par value; 90,000,000 shares authorized, 32,817,626 and 34,479,164 shares issued, 32,620,251 and 34,360,890 shares outstanding at December 31, 2020 and September 30, 2020, respectively	326		344
Common stock, Nonvoting, $0.01 par value; 3,000,000 shares authorized, 0 shares issued, NaN outstanding at December 31, 2020 and September 30, 2020, respectively						Common stock, Nonvoting, $0.01 par value; 3,000,000 shares authorized, 0 shares issued, NaN outstanding at December 31, 2020 and September 30, 2020, respectively	0		0
Additional paid-in capital	Additional paid-in capital	592,693		580,826		Additional paid-in capital	598,669		594,569
Retained earnings	Retained earnings	228,500		252,813		Retained earnings	198,000		234,927
Accumulated other comprehensive income	Accumulated other comprehensive income	7,995		6,339		Accumulated other comprehensive income	20,119		17,542
Treasury stock, at cost, 104,057 and 14,444 common shares at June 30, 2020 and September 30, 2019, respectively		(3,412)		(445)
Treasury stock, at cost, 197,375 and 118,274 common shares at December 31, 2020 and September 30, 2020, respectively						Treasury stock, at cost, 197,375 and 118,274 common shares at December 31, 2020 and September 30, 2020, respectively	(5,440)		(3,677)
Total equity attributable to parent	Total equity attributable to parent	826,122		839,911		Total equity attributable to parent	811,674		843,705
Noncontrolling interest	Noncontrolling interest	3,787		4,047		Noncontrolling interest	1,536		3,603
Total stockholders’ equity	Total stockholders’ equity	829,909		843,958		Total stockholders’ equity	813,210		847,308

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	8,779,026	$	6,182,890	Total liabilities and stockholders’ equity	$	7,264,515	$	6,092,074

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


		Three Months Ended June 30,						Nine Months Ended June 30,					Three Months Ended December 31,
(Dollars in Thousands, Except Share and Per Share Data)	(Dollars in Thousands, Except Share and Per Share Data)	2020		2019		2020		2019		(Dollars in Thousands, Except Share and Per Share Data)	2020		2019
Interest and dividend income:	Interest and dividend income:									Interest and dividend income:
Loans and leases, including fees	Loans and leases, including fees	$	59,911	$	69,732	$	199,107	$	203,900	Loans and leases, including fees	$	61,655	$	68,702
Mortgage-backed securities	Mortgage-backed securities	2,269		3,063		7,151		8,622		Mortgage-backed securities	2,123		2,389
Other investments	Other investments	5,226		8,837		18,176		32,380		Other investments	4,368		6,534
		67,406		81,632		224,434		244,902			68,146		77,625
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	3,130		10,395		20,712		35,731		Deposits	797		9,340
FHLB advances and other borrowings	FHLB advances and other borrowings	2,139		4,269		9,197		10,581		FHLB advances and other borrowings	1,350		3,634
		5,269		14,664		29,909		46,312			2,147		12,974

Net interest income	Net interest income	62,137		66,968		194,525		198,590		Net interest income	65,999		64,651

Provision for loan and lease losses		15,093		9,112		55,796		51,529
Provision for credit losses										Provision for credit losses	6,089		3,407

Net interest income after provision for loan and lease losses		47,044		57,856		138,729		147,061
Net interest income after provision for credit losses										Net interest income after provision for credit losses	59,910		61,244

Noninterest income:	Noninterest income:									Noninterest income:
Refund transfer product fees	Refund transfer product fees	4,595		6,697		33,726		38,559		Refund transfer product fees	647		192
Tax advance product fees	Tax advance product fees	28		34		31,840		34,757		Tax advance product fees	1,960		2,276
Payment card and deposit fees	Payment card and deposit fees	21,302		21,377		65,957		66,855		Payment card and deposit fees	22,564		21,499
Other bank and deposit fees	Other bank and deposit fees	214		495		1,083		1,449		Other bank and deposit fees	237		487
Rental income	Rental income	11,231		9,386		34,682		30,167		Rental income	9,885		12,351
Gain on sale of securities available for sale, net (includes $0 and $440 reclassified from accumulated other comprehensive income (loss) for net gain (loss) on securities available for sale for the three months ended June 30, 2020 and 2019, respectively and $0 and $649 for the nine months ended June 30, 2020 and 2019, respectively)		—		440		—		649
Gain on divestitures		—		—		19,275		—
Gain on sale of other		1,214		2,620		969		6,117

Gain (loss) on sale of other										Gain (loss) on sale of other	2,847		(2,568)
Other income	Other income	2,464		2,741		11,512		8,012		Other income	7,315		3,246
Total noninterest income	Total noninterest income	41,048		43,790		199,044		186,565		Total noninterest income	45,455		37,483

Noninterest expense:	Noninterest expense:									Noninterest expense:
Compensation and benefits	Compensation and benefits	32,102		35,176		100,631		117,350		Compensation and benefits	32,331		34,268
Refund transfer product expense (income)		(139)		287		7,482		7,478
Tax advance product expense (Income)		(11)		425		2,820		3,101
Refund transfer product expense										Refund transfer product expense	61		173
Tax advance product expense										Tax advance product expense	370		1,132
Card processing	Card processing	7,128		4,613		19,432		18,670		Card processing	6,117		5,607
Occupancy and equipment expense	Occupancy and equipment expense	6,502		7,136		20,169		20,806		Occupancy and equipment expense	6,888		6,655
Operating lease equipment depreciation	Operating lease equipment depreciation	8,536		6,029		25,237		18,280		Operating lease equipment depreciation	7,581		8,280
Legal and consulting	Legal and consulting	4,660		4,065		15,242		12,341		Legal and consulting	5,247		4,674
Intangible amortization	Intangible amortization	2,636		4,374		8,714		14,352		Intangible amortization	2,013		2,676
Impairment expense	Impairment expense	—		—		750		9,660		Impairment expense	1,159		242
Other expense	Other expense	9,827		10,363		38,291		34,978		Other expense	10,808		12,091
Total noninterest expense	Total noninterest expense	71,241		72,468		238,768		257,016		Total noninterest expense	72,575		75,798

Income before income tax expense	Income before income tax expense	16,851		29,178		99,005		76,610		Income before income tax expense	32,790		22,929

Income tax expense (benefit) (includes $0 and $110 reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2020 and 2019, respectively and $0 and $162 for the nine months ended June 30, 2020 and 2019, respectively)		(2,426)		(1,158)		3,870		(3,244)
Income tax expense										Income tax expense	3,533		680

Net income before noncontrolling interest	Net income before noncontrolling interest	19,277		30,336		95,135		79,854		Net income before noncontrolling interest	29,257		22,249
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	1,087		1,045		3,573		3,045		Net income attributable to noncontrolling interest	1,220		1,181
Net income attributable to parent	Net income attributable to parent	$	18,190	$	29,291	$	91,562	$	76,809	Net income attributable to parent	$	28,037	$	21,068

Earnings per common share	Earnings per common share									Earnings per common share
Basic	Basic	$	0.53	$	0.75	$	2.54	$	1.96	Basic	$	0.84	$	0.56
Diluted	Diluted	$	0.53	$	0.75	$	2.54	$	1.95	Diluted	$	0.84	$	0.56

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
(Dollars in Thousands)	(Dollars in Thousands)	2020		2019		2020		2019		(Dollars in Thousands)	2020		2019
Net income before noncontrolling interest	Net income before noncontrolling interest	$	19,277	$	30,336	$	95,135	$	79,854	Net income before noncontrolling interest	$	29,257	$	22,249

Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Change in net unrealized (loss) gain on debt securities		8,067		16,897		2,576		48,157
Gain realized in net income		—		(440)		—		(649)
Change in net unrealized gain (loss) on debt securities										Change in net unrealized gain (loss) on debt securities	2,846		(3,412)
		8,067		16,457		2,576		47,508
Unrealized (loss) gain on currency translation		295		221		(269)		(24)
											2,846		(3,412)
Unrealized gain on currency translation										Unrealized gain on currency translation	445		116
Deferred income tax effect	Deferred income tax effect	2,021		4,106		651		11,590		Deferred income tax effect	714		(852)
Total other comprehensive income		6,341		12,572		1,656		35,894
Total other comprehensive income (loss)										Total other comprehensive income (loss)	2,577		(2,444)
Total comprehensive income	Total comprehensive income	25,618		42,908		96,791		115,748		Total comprehensive income	31,834		19,805
Total comprehensive income attributable to noncontrolling interest	Total comprehensive income attributable to noncontrolling interest	1,087		1,045		3,573		3,045		Total comprehensive income attributable to noncontrolling interest	1,220		1,181
Comprehensive income attributable to parent	Comprehensive income attributable to parent	$	24,531	$	41,863	$	93,218	$	112,703	Comprehensive income attributable to parent	$	30,614	$	18,624

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

META FINANCIAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)


(Dollars in Thousands, Except Share and Per Share Data)	(Dollars in Thousands, Except Share and Per Share Data)	Meta Financial Group, Inc. Stockholders' Equity																											(Dollars in Thousands, Except Share and Per Share Data)	Meta Financial Group, Inc. Stockholders' Equity
Three Months Ended June 30, 2020		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock		Total Meta Stockholders’ Equity		Noncontrolling Interest		Total Equity
Balance, March 31, 2020		$	346	$	590,682	$	212,027	$	1,654	$	(3,397)	$	801,312	$	3,762	$	805,074
Three Months Ended December 31, 2020																		Three Months Ended December 31, 2020	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock			Total Meta Stockholders’ Equity		Noncontrolling Interest		Total Equity
Balance, September 30, 2020																		Balance, September 30, 2020	$	344	$	594,569	$	234,927	$	17,542	$	(3,677)		$	843,705	$	3,603	$	847,308
Adoption of Accounting Standards Update 2016-13, net of income taxes																		Adoption of Accounting Standards Update 2016-13, net of income taxes	—		—		(8,351)		—		—			(8,351)		(2,452)		(10,803)
Cash dividends declared on common stock ($0.05 per share)	Cash dividends declared on common stock ($0.05 per share)	—		—		(1,717)		—		—		(1,717)		—		(1,717)		Cash dividends declared on common stock ($0.05 per share)	—		—		(1,613)		—		—			(1,613)		—		(1,613)
Issuance of common shares due to exercise of stock options		—		88		—		—		—		88		—		88

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

Stock compensation		—		1,923		—		—		—		1,923		—		1,923
Total other comprehensive income		—		—		—		6,341		—		6,341		—		6,341
Net income		—		—		18,190		—		—		18,190		1,087		19,277
Net investment by (distribution to) noncontrolling interests		—		—		—		—		—		—		(1,062)		(1,062)
Balance, June 30, 2020		$	346	$	592,693	$	228,500	$	7,995	$	(3,412)	$	826,122	$	3,787	$	829,909

Nine Months Ended June 30, 2020
Balance, September 30, 2019		$	378	$	580,826	$	252,813	$	6,339	$	(445)	$	839,911	$	4,047	$	843,958
Cash dividends declared on common stock ($0.15 per share)		—		—		(5,370)		—		—		(5,370)		—		(5,370)
Issuance of common shares due to exercise of stock options		—		293		—		—		—		293		—		293
Issuance of common shares due to restricted stock		2		—		—		—		—		2		—		2
Issuance of common shares due to ESOP	Issuance of common shares due to ESOP	1		3,219		—		—		—		3,220		—		3,220		Issuance of common shares due to ESOP	2		3,034		—		—		—			3,036		—		3,036
Shares repurchased	Shares repurchased	(35)		35		(110,505)		—		(2,967)		(113,472)		—		(113,472)		Shares repurchased	(20)		20		(55,000)		—		(1,763)			(56,763)		—		(56,763)

Stock compensation	Stock compensation	—		8,320		—		—		—		8,320		—		8,320		Stock compensation	—		1,046		—		—		—			1,046		—		1,046
Total other comprehensive income	Total other comprehensive income	—		—		—		1,656		—		1,656		—		1,656		Total other comprehensive income	—		—		—		2,577		—			2,577		—		2,577
Net income	Net income	—		—		91,562		—		—		91,562		3,573		95,135		Net income	—		—		28,037		—		—			28,037		1,220		29,257
Net investment by (distribution to) noncontrolling interests	Net investment by (distribution to) noncontrolling interests	—		—		—		—		—		—		(3,833)		(3,833)		Net investment by (distribution to) noncontrolling interests	—		—		—		—		—			—		(835)		(835)
Balance, June 30, 2020		$	346	$	592,693	$	228,500	$	7,995	$	(3,412)	$	826,122	$	3,787	$	829,909
Balance, December 31, 2020																		Balance, December 31, 2020	$	326	$	598,669	$	198,000	$	20,119	$	(5,440)		$	811,674	$	1,536	$	813,210

~~Table of Contents~~


(Dollars in Thousands, Except Share and Per Share Data)	(Dollars in Thousands, Except Share and Per Share Data)	Meta Financial Group, Inc. Stockholders' Equity																											(Dollars in Thousands, Except Share and Per Share Data)	Meta Financial Group, Inc. Stockholders' Equity
Three Months Ended June 30, 2019		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders’ Equity		Noncontrolling Interest		Total Equity
Balance, March 31, 2019		$	395	$	576,406	$	258,600	$	(10,264)	$	(4,956)	$	820,181	$	3,528	$	823,709
Three Months Ended December 31, 2019																		Three Months Ended December 31, 2019	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Meta Stockholders’ Equity		Noncontrolling Interest		Total Equity
Balance, September 30, 2019																		Balance, September 30, 2019	$	378	$	580,826	$	252,813	$	6,339	$	(445)		$	839,911	$	4,047	$	843,958
Cash dividends declared on common stock ($0.05 per share)	Cash dividends declared on common stock ($0.05 per share)	—		—		(1,931)		—		—		(1,931)		—		(1,931)		Cash dividends declared on common stock ($0.05 per share)	—		—		(1,870)		—		—			(1,870)		—		(1,870)
Issuance of common shares due to exercise of stock options	Issuance of common shares due to exercise of stock options	—		37		—		—		—		37		—		37		Issuance of common shares due to exercise of stock options	—		118		—		—		—			118		—		118
Issuance of common shares due to restricted stock																		Issuance of common shares due to restricted stock	2		—		—		—		—			2		—		2
Issuance of common shares due to ESOP																		Issuance of common shares due to ESOP	1		3,219		—		—		—			3,220		—		3,220
Shares repurchased																		Shares repurchased	(9)		9		(28,006)		—		(2,742)			(30,748)		—		(30,748)

Shares repurchases		(16)		16		(43,000)		—		(13)		(43,013)		—		(43,013)
Retirement of treasury stock		—		—		(4,956)		—		4,956		—		—		—
Stock compensation	Stock compensation	—		2,256		—		—		—		2,256		—		2,256		Stock compensation	—		3,506		—		—		—			3,506		—		3,506
Total other comprehensive income	Total other comprehensive income	—		—		—		12,572		—		12,572		—		12,572		Total other comprehensive income	—		—		—		(2,444)		—			(2,444)		—		(2,444)
Net income	Net income	—		—		29,291		—		—		29,291		1,045		30,336		Net income	—		—		21,068		—		—			21,068		1,181		22,249
Net investment by (distribution to) noncontrolling interests	Net investment by (distribution to) noncontrolling interests	—		—		—		—		—		—		(1,065)		(1,065)		Net investment by (distribution to) noncontrolling interests	—		—		—		—		—			—		(923)		(923)
Balance, June 30, 2019		$	379	$	578,715	$	238,004	$	2,308	$	(13)	$	819,393	$	3,508	$	822,901
Balance, December 31, 2019																		Balance, December 31, 2019	$	372	$	587,678	$	244,005	$	3,895	$	(3,187)		$	832,763	$	4,305	$	837,068

Nine Months Ended June 30, 2019
Balance, September 30, 2018		$	393	$	565,811	$	213,048	$	(33,111)	$	(1,989)	$	744,152	$	3,574	$	747,726
Adoption of Accounting Standards Update 2014-09, net of income taxes		—		—		1,502		—		—		1,502		—		1,502
Adoption of Accounting Standards Update 2016-01, net of income taxes		—		—		475		(475)		—		—		—		—
Cash dividends declared on common stock ($0.15 per share)		—		—		(5,874)		—		—		(5,874)		—		(5,874)
Issuance of common shares due to exercise of stock options		—		92		—		—		—		92		—		92
Issuance of common shares due to restricted stock		3		—		—		—		—		3		—		3
Issuance of common shares due to ESOP		—		2,010		—		—		—		2,010		—		2,010
Shares repurchased		(17)		17		(43,000)		—		(2,980)		(45,980)		—		(45,980)
Retirement of treasury stock		—		—		(4,956)		—		4,956		—		—		—
Stock compensation		—		10,785		—		—		—		10,785		—		10,785
Total other comprehensive income		—		—		—		35,894		—		35,894		—		35,894
Net income		—		—		76,809		—		—		76,809		3,045		79,854
Net investment by (distribution to) noncontrolling interests		—		—		—		—		—		—		(3,111)		(3,111)
Balance, June 30, 2019		$	379	$	578,715	$	238,004	$	2,308	$	(13)	$	819,393	$	3,508	$	822,901

See Notes to Condensed Consolidated Financial Statements.

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META FINANCIAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Nine Months Ended June 30,							Three Months Ended December 31,
(Dollars in Thousands)	(Dollars in Thousands)	2020		2019		(Dollars in Thousands)	2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income before noncontrolling interest	Net income before noncontrolling interest	$	95,135	$	79,854	Net income before noncontrolling interest	$	29,257	$	22,249
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	Adjustments to reconcile net income to net cash provided by (used in) operating activities:					Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net	Depreciation, amortization and accretion, net	46,123		41,290		Depreciation, amortization and accretion, net	14,068		15,302
Stock compensation	Stock compensation	8,320		10,785		Stock compensation	1,046		3,506

Provision (recovery):	Provision (recovery):					Provision (recovery):
Loan and lease losses	Loan and lease losses	55,796		51,529		Loan and lease losses	6,089		3,407
Deferred taxes	Deferred taxes	2,289		(14,468)		Deferred taxes	(7,402)		(16)
Loans held for sale:	Loans held for sale:					Loans held for sale:
Originations	Originations	(63,396)		(104,121)		Originations	(303,501)		(16,175)
Purchases		—		(12,643)

Proceeds from sales	Proceeds from sales	168,814		95,663		Proceeds from sales	451,652		143,035
Net change	Net change	22,612		15,925		Net change	5,425		11,111
Fair value adjustment of foreclosed real estate	Fair value adjustment of foreclosed real estate	568		139		Fair value adjustment of foreclosed real estate	123		83
Net realized (gain) loss:	Net realized (gain) loss:					Net realized (gain) loss:
Other assets	Other assets	361		(54)		Other assets	0		108
Divestitures		(19,275)		—

Foreclosed real estate and repossessed assets	Foreclosed real estate and repossessed assets	5,039		185		Foreclosed real estate and repossessed assets	0		5,039
Securities available for sale, net		—		(649)

Loans held for sale	Loans held for sale	(4,069)		(3,650)		Loans held for sale	(3,492)		(1,851)
Leases receivable and equipment	Leases receivable and equipment	(2,302)		(2,598)		Leases receivable and equipment	633		(685)
Net change:	Net change:					Net change:
Other assets	Other assets	(20,623)		(15,957)		Other assets	(2,075)		(12,917)
Deposits held for sale		1,535		—

Accrued interest payable	Accrued interest payable	(5,082)		4,556		Accrued interest payable	145		(2,794)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(10,218)		18,785		Accrued expenses and other liabilities	(20,733)		(33,892)
Accrued interest receivable	Accrued interest receivable	1,738		2,294		Accrued interest receivable	(506)		618
Change in bank-owned life insurance value	Change in bank-owned life insurance value	(1,870)		(1,900)		Change in bank-owned life insurance value	(621)		(631)
Impairment on assets held for sale		242		—
Impairment on rental equipment		—		6,194
Impairment of intangibles		—		111

Net cash provided by operating activities	Net cash provided by operating activities	281,737		171,270		Net cash provided by operating activities	170,108		135,497

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Securities available for sale:	Securities available for sale:					Securities available for sale:
Purchases	Purchases	(60,024)		(297,548)		Purchases	(23,963)		0
Proceeds from sales		—		720,376

Proceeds from maturities and principal repayments	Proceeds from maturities and principal repayments	166,477		110,810		Proceeds from maturities and principal repayments	64,982		52,592
Securities held to maturity:	Securities held to maturity:					Securities held to maturity:

Proceeds from maturities and principal repayments	Proceeds from maturities and principal repayments	28,642		24,809		Proceeds from maturities and principal repayments	10,755		11,062

Loans and leases:	Loans and leases:					Loans and leases:
Purchases	Purchases	(120,406)		(219,551)		Purchases	(64,930)		(18,813)
Proceeds from sales	Proceeds from sales	3,099		13,069		Proceeds from sales	6,923		3,099
Net change	Net change	(73,360)		(530,215)		Net change	(170,684)		(167,929)
Proceeds from sales of foreclosed real estate and repossessed assets	Proceeds from sales of foreclosed real estate and repossessed assets	23,086		1,905		Proceeds from sales of foreclosed real estate and repossessed assets	2,657		23,085
Federal Reserve Bank and Federal Home Loan Bank stock:	Federal Reserve Bank and Federal Home Loan Bank stock:					Federal Reserve Bank and Federal Home Loan Bank stock:
Purchases	Purchases	(472,000)		(606,756)		Purchases	0		(244,240)
Redemption	Redemption	471,080		612,920		Redemption	0		261,360
Rental equipment:	Rental equipment:					Rental equipment:
Purchases	Purchases	(48,279)		(111,150)		Purchases	(13,146)		(17,956)
Proceeds from sales	Proceeds from sales	13,262		6,551		Proceeds from sales	5,609		2,250
Net change	Net change	2,625		1,868		Net change	0		3,124
Premises, furniture, and equipment:	Premises, furniture, and equipment:					Premises, furniture, and equipment:
Purchases	Purchases	(8,573)		(11,944)		Purchases	(582)		(2,108)
Proceeds from sales		—		101
Proceeds from divestitures		3,498		—

Net cash (used in) investing activities	Net cash (used in) investing activities	(70,873)		(284,755)		Net cash (used in) investing activities	(182,379)		(94,474)

Cash flows from financing activities:						Cash flows from financing activities:
Net change:						Net change:
Checking, savings, and money market deposits						Checking, savings, and money market deposits	1,356,060		674,696
Time certificates of deposit						Time certificates of deposit	(6,701)		(86,683)
Wholesale deposits						Wholesale deposits	(120,768)		(118,481)
FHLB and other borrowings						FHLB and other borrowings	0		(20,000)
Federal funds						Federal funds	0		(428,000)
Securities sold under agreements to repurchase						Securities sold under agreements to repurchase	0		(4,019)

Distribution to noncontrolling interests						Distribution to noncontrolling interests	(835)		(923)
Proceeds from other liabilities						Proceeds from other liabilities	0		1,205
Principal payments:						Principal payments:

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Cash flows from financing activities:
Net change:
Checking, savings, and money market deposits 4,440,032 408,951
Time certificates of deposit (84,285) (159,611)
Wholesale deposits (813,495) 96,763
FHLB and other borrowings (165,000) 110,000
Federal funds (477,000) (287,000)
Securities sold under agreements to repurchase (4,019) (36)
Distribution to noncontrolling interests (3,833) (3,111)
Proceeds from other liabilities 1,633 7,525
Principal payments:
Other liabilities (5,977) (9,404)
Capital lease obligations (1,729) (64)
Cash dividends paid (5,370) (5,874)
Issuance of common stock due to ESOP 3,220 2,010
Issuance of common stock due to restricted stock 2 3
Proceeds from exercise of stock options and issuance of common stock 293 92
Shares repurchased (113,472) (45,980)
Net cash (used in) provided by financing activities 2,771,000 114,264
Effect of exchange rate changes on cash (268) (24)
Net change in cash and cash equivalents 2,981,596 755
Cash and cash equivalents at beginning of fiscal year 126,545 99,977
Cash and cash equivalents at end of fiscal period $ 3,108,141 $ 100,732


Other liabilities	(1,498)		(2,194)
Capital lease obligations	(8)		(1,818)
Cash dividends paid	(1,613)		(1,870)
Issuance of common stock due to ESOP	3,036		3,220

Issuance of common stock due to restricted stock	0		2
Proceeds from exercise of stock options and issuance of common stock	0		118
Shares repurchased	(56,763)		(30,748)






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

Effect of exchange rate changes on cash	445		116

Net change in cash and cash equivalents	1,159,084		25,644

Cash and cash equivalents at beginning of fiscal year	427,367		126,545
Cash and cash equivalents at end of fiscal period	$	1,586,451	$	152,189


		Nine Months Ended June 30,							Three Months Ended December 31,
(Dollars in Thousands)	(Dollars in Thousands)	2020		2019		(Dollars in Thousands)	2020		2019
Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	34,991	$	41,756	Interest	$	2,002	$	10,180
Income taxes	Income taxes	5,775		(247)		Income taxes	289		220
Franchise taxes	Franchise taxes	231		184		Franchise taxes	50		40
Other taxes	Other taxes	492		539		Other taxes	14		12

Supplemental schedule of non-cash investing activities	Supplemental schedule of non-cash investing activities					Supplemental schedule of non-cash investing activities
Transfers	Transfers					Transfers
Loans and leases to foreclosed real estate and repossessed assets	Loans and leases to foreclosed real estate and repossessed assets	5,983		105		Loans and leases to foreclosed real estate and repossessed assets	9		41
Loans and leases to rental equipment	Loans and leases to rental equipment	(573)		229		Loans and leases to rental equipment	1,353		759
Rental equipment to loan and leases	Rental equipment to loan and leases	691		—		Rental equipment to loan and leases	37		599

Loans and leases to held for sale	Loans and leases to held for sale	325,092		39,452		Loans and leases to held for sale	100,442		251,913
Other assets to held for sale	Other assets to held for sale	7,858		—		Other assets to held for sale	284		7,836
Deposits to held for sale	Deposits to held for sale	288,975		—		Deposits to held for sale	0		286,648
Recognition of operating lease ROU assets, net of remeasurements	Recognition of operating lease ROU assets, net of remeasurements	27,019		—		Recognition of operating lease ROU assets, net of remeasurements	0		27,019
Purchases/sales of securities accrued, not settled
Purchases - available for sale		—		1,721

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

See Notes to Condensed Consolidated Financial Statements.

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NOTE 1. BASIS OF PRESENTATION

The interim unaudited Condensed Consolidated Financial Statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended September 30, ~~2019~~2020 included in Meta Financial Group, Inc.’s (“Meta” or the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November ~~26, 2019.~~30, 2020. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted.

The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 are not necessarily indicative of the results expected for the fiscal year ending September 30, ~~2020.~~2021.

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")

Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, ~~2019~~2020 remain substantially unchanged with the exception of the accounting policies ~~impacted~~for allowance for credit losses and securities impairment as a result of adopting ASU 2016-13, Financial Instruments – Credit Losses(Topic 326): Measurement of Credit Losses on Financial Instruments, and related ASUs, as described below.

Allowance for Credit Losses ("ACL"). The ACL represents management’s estimate of current credit losses expected to be incurred by the ~~adoption~~loan and lease portfolio over the life of ~~noted ASUs below. Certain accounting policies were impacted by the events~~each financial asset as of the ~~novel Coronavirus ("COVID-19"),~~balance sheet date. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets for impairment, which generally means loans and leases identified as troubled debt restructures or loans and leases on nonaccrual status. All other loans and leases are ~~discussed~~evaluated collectively for impairment. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Condensed Consolidated Statements of Financial Condition.

Individually evaluated loans and leases are a key component of the ACL. Generally, the Company measures impairment on individually evaluated loans based on the fair value of the collateral less estimated selling costs, as the Company considers these financial assets to be collateral dependent. If an individually evaluated loan or lease is not collateral dependent, impairment is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate.

The impairment of all other loans and leases is evaluated collectively by various characteristics. The collective evaluation of expected losses in all commercial finance portfolios is based on a cohort loss rate and adjustments for forward-looking information, including industry and macroeconomic forecasts. The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a twelve-month reasonable and supportable forecast for forward-looking information. Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts and measurement date credit characteristics such as product type, delinquency, and industry. The unfunded credit commitments depend on these same factors, as well as estimates of lines of credit usage. The various quantitative and qualitative factors used in the methodologies are reviewed quarterly.

The collective evaluation of expected credit losses for certain consumer lending portfolios utilize different methodologies when estimating expected credit losses. The Company’s student loan portfolio utilizes a roll-rate historical loss rate and adjustments for forward-looking information, including macroeconomic conditions. Management has elected to use a twelve-month reasonable and supportable forecast with an immediate reversion to historical loss rates. Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts, and measurement date credit characteristics including delinquency.

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

The amount of ACL depends significantly on management’s estimates or key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods. Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees, properties or economic conditions. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known.

Accrued interest receivable is presented separately on the Condensed Consolidated Statements of Financial Condition, and an ACL is not recorded for these balances. Generally, when a loan or lease is placed on nonaccrual status, typically when the collection of interest or principal is 90 days or more past due, uncollected interest accrued in prior years is charged off against the ACL and interest accrued in the current year is reversed against interest income.

Management maintains a framework of controls over the estimation process for the ACL, including review of collective reserve methodologies for compliance with GAAP. Management has a quarterly process to review the appropriateness of historical observation periods and loss assumptions and risk ratings assigned to loans and leases, if applicable. Management reviews its qualitative framework and the effect on the collective reserve compared with relevant credit risk factors and consistency with credit trends. Management also maintains controls over information systems, models and spreadsheets used in the quantitative components of the reserve estimate. This includes the quality and accuracy of historical data used to derive loss rates, the inputs to industry and macroeconomic forecasts and the reversion periods utilized. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance. See Note ~~3. Significant Events.~~6. Loans and Leases, Net for further information.

Securities Impairment.The Company evaluates investment securities held-to-maturity for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Condensed Consolidated Statements of Operations. The Company has concluded its portfolio as of December 31, 2020 has a zero risk of credit loss due to the U.S. Government financial guarantees underlying the securities within the held-to-maturity portfolio and as a result has not recorded an allowance for credit loss.

The Company evaluates investment securities available-for-sale for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Condensed Consolidated Statements of Operations. See Note 5. Securities for further information.

Adopted ASUs

~~Leases --~~Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses(Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively “Topic 326”), which changes the impairment model for most financial assets, including trade and other receivables, debt securities held-to-maturity, loans, net investments in leases, purchased financial assets with credit deterioration, and off-balance sheet credit exposures. ASU 2016-13 requires the use of a current expected credit loss (“CECL”) methodology to determine the allowance for credit losses for loans and debt securities held-to-maturity. CECL requires loss estimates for the remaining estimated life of the assets to be measured using historical loss data, adjustments for current conditions, and adjustments for reasonable and supportable forecasts of future economic conditions. The Company adopted ~~ASU 2016-02,~~ ~~Leases (Topic 842)~~, and subsequent related updates (collectively ASU 2016-02) on October 1, 2019, which requires lessees to recognize most leases on their balance sheet. Lessor accounting is largely unchanged. The ASU requires both quantitative and qualitative disclosures regarding key information about lease arrangements from both lessees and lessors. The Company electedCECL using the effective date transition method utilizing the adoption date as the first date of application of the revised guidance. As a result, prior period amounts have not been restated. Upon adoption, the Company elected certain transitional practical expedients offered through the guidance, including the 'package of practical expedients' whereby it did not reassess (i) whether any expired or existing contracts contain leases, (ii) the lease classification of any expired or existing leases, and (iii) initial direct costs for any existing leases, which resulted in the Company not recognizingmodified retrospective approach with a cumulative effect adjustment to retained earnings. Management evaluated Meta’s leasing contracts and activities and developed methodologies and processes to estimate and account for the right-of-use ("ROU") assets and lease liabilities for building leases basedRetained Earnings recorded on ~~the present value of future lease payments. On~~ October 1, 2019, the Company recorded ROU assets and lease liabilities totaling $27.4 million and $28.6 million, respectively. The impact to capital ratios as a result of increased risk-weighted assets was immaterial. The adoption of this guidance did not result in a material change to lessee expense recognition. The changes to lessor accounting, as well as change in customer behavior driven by the adoption of these ASUs, impact the results of Meta’s lease financing businesses, including earlier recognition of expense due to a narrower definition of initial direct costs.2020.

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AsOur adoption resulted in an ACL as of October 1, 2020 that is larger than the allowance for loan and lease losses (“ALLL”) that would have been recorded under legacy guidance on the same date by $12.8 million in total for all portfolios. A portion of this increase is a ~~lessee,~~result of new requirements to record ACL on acquired loans and leases, regardless of any credit mark recorded. Under legacy guidance, credit marks were included in the ~~Company enters into contracts to lease real estate, information technology equipment and other various types~~determination of ~~equipment. Leases that transfer substantially all of the benefits and risks of ownership~~fair value adjustments reflected as a discount to the Company are classified as finance leases, while all others are classified as operating leases. At lease commencement for buildings, a lease liability and ROU asset are calculated and recognized on both types of leases. The lease liability is equal to the presentcarrying value of the ~~future minimum~~loans and leases and an ALLL was not recorded on acquired loans and leases until evidence of credit deterioration existed post acquisition. The remaining credit and interest mark will continue to accrete over the life of the loan or lease ~~payments.~~but will no longer be considered when estimating the ACL for acquired loans and leases under CECL. The ~~ROU asset is equal~~adoption of CECL also resulted in an increase in the liability of unfunded commitments of $0.8 million. For other assets in scope of the standard such as held-to-maturity debt securities and trade and other receivables, the impact from this ASU was inconsequential. The cumulative tax effected adjustment to record ACL and to increase the unfunded commitments liability resulted in a reduction to retained earnings of $8.4 million along with $2.5 million attributable to noncontrolling interests. Post adoption, as loans and leases are added to the ~~lease liability, plus any initial direct costs~~portfolio, the Company expects higher levels of ACL determined by CECL assumptions, resulted in accelerated recognition of provision for credit losses, as compared to historical results. In response to the COVID-19 pandemic, regulatory agencies have published a final rule that provides the option to delay the cumulative effect of the day 1 impact to CECL adoption on regulatory capital for two years, followed by a three-year phase in period. Management has elected this five-year transition period consistent with the final rule. Additional and ~~prepaid lease payments, less any lessor incentives received. Operating lease ROU assets~~modified disclosure requirements under CECL are included in ~~other assets~~Note 5. Securities and ~~finance lease ROU assets are included in premises~~Note 6. Loans and equipment, net. The Company uses the appropriate term Federal Home Loan Bank ("FHLB") rate to determine the discount rate for the present value calculation of future minimum lease payments when an implicit rate is not known for a given lease. The lease term used in the calculation includes any options to extend that the Company is reasonably certain to exercise. The Company has elected to not recognize assets or liabilities on its balance sheet related to short-term leases.

Subsequent to lease commencement, lease liabilities recorded for finance leases are measured using the effective interest rate method and the related ROU assets are amortized on a straight-line basis over the lease term. Interest expense and amortization expense are recorded separately on the Condensed Consolidated Statements of Operations in interest expense on borrowings and occupancy and equipment noninterest expense, respectively. At June 30, 2020, the Company had no finance lease ROU assets or lease liabilities. For operating leases, total lease cost is comprised of lease expense, short-term lease cost, variable lease cost and sublease income. Lease expense includes future minimum lease payments, which are recognized on a straight-line basis over the lease term, as well as common area maintenance charges, real estate taxes, insurance and other expenses, where applicable, which are expensed as incurred. Total lease cost for operating leases is recorded in occupancy and equipment noninterest expense. See Note 11. Operating Lease Right-of-Use Assets and Liabilities for further information.Leases, Net.

The Company also adopted the following ASUs on October 1, ~~2019,~~2020, none of which had a material impact on the Company’s Condensed Consolidated Financial Statements:

–~~ASU 2018-02,~~ ~~Income Statement -- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ ~~The Company elected to not reclassify tax effects stranded in accumulated other comprehensive income.~~

–ASU ~~2018-09,~~2018-13, ~~Codification Improvements.~~Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.

–ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

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

ASUs to be Adopted

ASU ~~2016-13, Financial Instruments - Credit Losses~~2019-12,Income Taxes (Topic ~~326)~~740): ~~Measurement~~Simplifying the Accounting for Income Taxes. The amendments in this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general rules found in Topic 740, Income Taxes. The majority of ~~Credit Losses~~the amendments are to be applied on ~~Financial Instruments.~~ ~~This ASU, along with subsequent ASUs published as clarifications to Topic 326, requires entities to replace the incurred loss impairment methodology with~~ a methodology reflecting expected credit losses with considerations for a broader range of reasonable and supportable information to substantiate credit loss estimates and applies to loans, net investments in leases, debt securities, certain financial assets not accounted for at fair value through net income, and certain off-balance sheet credit exposures.prospective basis. This ASU is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating the ~~Company~~impact of this guidance on ~~October 1, 2020~~the consolidated financial statements.

ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and ~~will be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as~~Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying Interactions between Topics 321, 323 and 815. This ASU clarifies the interactions between Topic 321, Topic 323 and Topic 815, including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments in this ASU are effective for fiscal years beginning ofafter December 15, 2020. Management is currently evaluating the year of adoption. The Company's implementation process includes loss forecasting model development, evaluation of technical accounting topics, updates to the Company's allowance documentation, reporting processes and related internal controls, and operational readiness for the adoptionimpact of this ~~ASU.~~guidance on the consolidated financial statements.

ASU 2020-04,Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional expedients and exceptions to applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform if certain criteria are met. The amendments include a one-time sale or transfer election of held-to-maturity debt securities impacted by reference rate reform. The amendments in this ASU are effective upon issuance through December 31, 2022. The Company is ~~utilizing a third-party vendor software for its credit loss estimate and is in process~~currently evaluating the impact of reviewing model assumptions and other validation tasks. The Company is running its key processes parallel with current incurred loss models and will continue to refine its estimates throughout 2020 as CECL models are implemented and results are vetted.this guidance on the consolidated financial statements.

ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. This ASU clarifies that an entity should amortize any premium, if applicable, to the next call date, which is the first date when a call option at a specified price becomes exercisable. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Management is currently evaluating the impact of this guidance on the consolidated financial statements.

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~~The amount~~ASU 2020-10,Codification Improvements. This ASU provides clarification, corrects unintended application of ~~the change in the Company's allowance for loan~~guidance, and ~~lease losses will be impacted by the portfolio composition and credit quality at the adoption date as well as economic conditions and forecasts at~~makes minor improvements to various Topics that ~~time. At adoption, the Company expects~~are not expected to have a ~~cumulative-effect adjustment to retained earnings for~~significant impact on the ~~change in the allowance for loan~~Company’s current accounting policies and ~~lease losses, which will impact capital. Federal banking regulations permit institutions to limit the initial capital impact of~~practices. Amendments within this ASU ~~by allowing a deferral of two~~are effective for fiscal years followed by three-year transition period to phase out the cumulative benefit to regulatory capital. An increase in the Company's allowance for loan and lease losses will result in a reduction to regulatory capital amounts and ratios; however, at this point of implementation, the Company is unable to provide a more precise estimate of the impact as results are still being vetted, including validation of model assumptions and estimation techniques as well as the build-out of operational and control structure supporting the end-to-end process.

~~Other Upcoming ASUs -~~ Refer to the Company’s most recently audited consolidated financial statements for the year ended September 30, 2019 for the latest update on other ASUs relevant to the Company and not yet adopted at June 30,beginning after December 15, 2020.

NOTE 3. SIGNIFICANT EVENTS

COVID-19 Pandemic

The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020. In March 2020, the U.S. declared a national emergency and imposed travel restrictions, limitations of business operations in certain industries, and other efforts in order to impede the spread of COVID-19. Since the onset of this pandemic, macroeconomic conditions and markets have significantly deteriorated. ~~While the process of phased re-openings of the economies of many states began in May and June, COVID-19 continues to have a significant effect on individuals, businesses and the economy.~~ In response to the impacts of COVID-19, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

~~Accommodations~~ In addition to ~~Borrowers~~the CARES Act, the U.S. federal government enacted the Consolidated Appropriations Act of 2021 ("CAA") on December 27, 2020, which provides additional COVID-19 relief to American families and business.

The Company is participating in the Paycheck Protection Program ("PPP"), which is being administered by the Small Business Administration ("SBA"). It is the Company's understanding that loans funded through the PPP program are fully guaranteed by the U.S. government and that a portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. See Note 6. Loans and Leases, Net for further information related to this program.

In response to the COVID-19 pandemic impact on customers, the Company is engaging in more frequent communication with borrowers to better understand their situation and challenges and has been offering credit-worthy borrowers experiencing temporary hardship certain loan and lease modifications ("COVID modifications"), such as payment deferrals, as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19. The Company elected to treat COVID modifications on leases as part of the enforceable rights and obligations of the parties under the existing lease contract, resulting in these payment deferrals being treated as variable lease payments under the existing lease versus lease modifications. Additionally, for COVID modifications on loans, the Company adjusted its effective interest rate to reflect the payment deferral modification and continued accruing interest during this period. Short-term modifications made on a good faith basis in response to COVID-19 borrowers whose payments were current prior to any relief, are not to be considered troubled debt restructurings, and will not be considered delinquent so long as they meet their revised obligations in the modification agreement.

Through June 30, 2020, the Company has granted deferral payments on a total of $352.1 million of loan, lease and rental equipment balances. As of June 30, 2020, $292.2 million of those balances were still in their deferment period. In addition, the Company has made other COVID-19 related modifications on a total of $52.9 million, of which $34.6 million are still active as of June 30, 2020. The majority of the other modifications were related to adjusting the type or amount of the customer's payments.

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

June 30, 2020
(Dollars in Thousands) COVID-19 Related Payment Deferrals Other COVID-19 Related Modifications
National Lending
Term lending $ 88,227 $ —
Asset based lending 324 17,333
Factoring 3,564 17,295
Lease financing 27,310 —
Insurance premium finance 5,505 —
SBA/USDA 7,724 —
Other commercial finance 74 —
Commercial finance 132,728 34,628
Consumer credit products 462 —
Other consumer finance 6,855 —
Consumer finance 7,317 —
Total National Lending 140,045 34,628
Community Banking
Commercial real estate and operating 148,838 —
Consumer one-to-four family real estate and other 2,534 —
Total Community Banking 151,372 —
Total loans and leases 291,417 34,628
Rental equipment 819 —
Total COVID-19 related modifications $ 292,236 $ 34,628
modifications.

~~Financial Impact~~

The Company recorded $15.1 million in provision expense during the three months ended June 30, 2020, compared to $9.1 million for the comparable period in the prior year. The increase in provision was primarily within the remaining community banking and commercial finance portfolios and was attributable to the increased stress that the hospitality loans and small ticket loan and lease relationships have experienced stemming from the ongoing uncertainty related to the COVID-19 pandemic. Loans and leases that received short-term payment deferrals were also analyzed and additional provision was applied as appropriate. As the Company obtains additional information on the macroeconomic reactions and impact on borrowers, the provision estimate will be revised as necessary in future periods to maintain an appropriate and supportable level. The Company’s approach to estimating the COVID-19 impact on credit quality is presented in Note 6. Loans and Leases, Net.

The Company's interest and fee income could be reduced as a result of COVID-19. While interest and fees will continue to accrue in accordance with GAAP, a decrease in loan demand could lead to slower loan growth or even a contraction in loan balances in the near term. In addition, should eventual credit losses emerge, interest income and fees accrued may need to be reversed in future periods. At this time, the Company is unable to project the materiality of such an impact. While the Company has seen a slight contraction in loan balances in some categories during the third quarter of fiscal 2020, such as asset-based lending and factoring, other categories have continued to grow. No additional significant financial impacts directly related to COVID-19 were identified for the nine months ended June 30, 2020.

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~~Asset Valuation~~

In June 2020, the Company assessed its financial assets potentially impacted by the deteriorating market conditions due to the COVID-19 outbreak occurring globally. Included in the assessment were the loan and lease portfolios, other-than-temporary impairment ("OTTI") in investment portfolios, collectability of operating lease payments, goodwill impairment and intangible asset impairment. Based on the known events and circumstances at the time of the assessment, the Company has determined no impairment is needed as of June 30, 2020, other than the provision for loan and lease losses noted above. The Company will continue to observe and monitor the pandemic-related circumstances to determine whether further impairment assessments are needed in future periods. In the event it is determined that all or a portion of its goodwill or intangible assets is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings, but would not impact regulatory capital.


	As of the Period Ended
(Dollars in Thousands)	December 31, 2020		September 30, 2020		June 30, 2020
National Lending
Term lending	$	18,321	$	26,559	$	88,227
Asset based lending	1,124		7,924		17,657
Factoring	0		18,434		20,859
Lease financing	1,637		5,896		27,310
Insurance premium finance	0		230		5,505
SBA/USDA	0		7,724		7,724
Other commercial finance	0		69		74
Commercial finance	21,082		66,836		167,356
Consumer credit products	1,210		1,574		462
Other consumer finance	2,682		4,223		6,855
Consumer finance	3,892		5,797		7,317


Total National Lending	24,974		72,633		174,673
Community Banking
Commercial real estate and operating	60,319		120,695		148,838
Consumer one-to-four family real estate and other	0		0		2,534

Total Community Banking	60,319		120,695		151,372
Total loans and leases	85,293		193,328		326,045
Rental equipment	0		0		819
Total COVID-19 related modifications	$	85,293	$	193,328	$	326,864

NOTE 4. DIVESTITURES

~~On February 29,~~During the fiscal year ended September 30, 2020, ~~(the "Closing Date"),~~ the Company sold ~~MetaBank's~~the Bank's Community Bank division, a component of the Company's Corporate segment, to Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa. The sale included ~~all~~$290.5 million of ~~the Community Bank's deposits, branch locations, fixed~~deposits; $268.6 million of loans; $4.9 million of premises, furniture, and equipment; and $1.3 million of other assets and ~~employees and~~closed February 29, 2020 (the "Closing Date"). The sale resulted in a ~~portion~~gain of ~~the Community Bank’s loan portfolio. The Company has summarized the results of the transaction below.~~


~~(Dollars in Thousands)~~	Fair Value at February 29, 2020
~~Cash and cash equivalents~~	$	~~2,504~~
~~Loans~~	~~268,584~~
~~Premises, furniture and equipment~~	~~4,945~~
~~Other assets~~	~~1,250~~
~~Total assets~~	$	~~277,283~~

~~Deposits~~	$	~~290,493~~
~~Borrowings~~	—
~~Other liabilities~~	~~1,720~~
~~Total liabilities~~	$	~~292,213~~

~~Net assets~~	$	~~(14,930)~~
~~Purchase price~~	~~4,345~~
~~Gain on sale~~	$	~~19,275~~

~~The~~ $19.3 million ~~gain on sale (before tax)~~before tax that was recognized within noninterest income on the Company's Condensed Consolidated ~~Statement~~Statements of Operations for the three and nine months ended June 30, 2020. In addition to what's reflected above, the Company also recognized $0.6 million, $0.2 million, $0.8 million, and $0.3 million in legal, IT, consulting, and nonrecurring compensation expenses related to the sale of the Community Bank division, respectively.Operations.

The Company entered a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on the Closing Date. The Company recognized ~~$1.4~~$1.1 million and NaN in servicing fee expense during the ~~nine~~three months ended ~~June~~December 31, 2020 and 2019, respectively, and $3.5 million for the fiscal year ended September 30, 2020.

~~On August 4, 2020,~~Since the Closing Date, the Company has entered into subsequent loan portfolio sale agreements with Central Bank. The Company sold an additional ~~$58.6 million of~~loans from the retained Community Bank portfolio ~~to Central Bank.~~in the amount of $129.8 million and NaN in the three months ended December 31, 2020 and 2019, respectively, and $135.0 million for the fiscal year ended September 30, 2020. The ~~sale~~sales did not result in any ~~material gain~~significant gains or losses to the Company. The loans included in the sale were classified as held for sale for the quarter ended June 30, 2020. See Note 6. Loans and Leases, Net, and Note 19. Subsequent Events, for additional information.Condensed Consolidated Statements of Operations.

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

(Dollars in Thousands)
Community Bank Sold⁽¹⁾
Community Bank Retained⁽²⁾
Total Community Bank
Three Months Ended June 30, 2020
Net interest income $ — $ 7,955 $ 7,955
(Reversal) Provision for loan and lease losses (491) 7,547 7,056
Noninterest income — 11 11
Noninterest expense 39 1,562 1,601
Net income (loss) before income tax expense $ 452 $ (1,143) $ (691)
Nine Months Ended June 30, 2020
Net interest income $ 2,512 $ 25,348 $ 27,860
(Reversal) Provision for loan and lease losses (2,241) 14,521 12,280
Noninterest income 19,694 (3,473) 16,221
Noninterest expense 4,955 5,113 10,068
Net income (loss) before income tax expense $ 19,492 $ 2,241 $ 21,733

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

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

NOTE 5. SECURITIES

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


(Dollars in Thousands)	(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value		(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
At June 30, 2020
At December 31, 2020										At December 31, 2020
Debt securities AFS	Debt securities AFS									Debt securities AFS
SBA securities	SBA securities	$	165,299	$	5,109	$	(141)	$	170,267	SBA securities	$	156,929	$	5,255	$	(175)	$	162,009
Obligations of states and political subdivisions	Obligations of states and political subdivisions	826		17		—		843		Obligations of states and political subdivisions	2,823		17		0		2,840
Non-bank qualified obligations of states and political subdivisions	Non-bank qualified obligations of states and political subdivisions	327,423		4,803		(902)		331,324		Non-bank qualified obligations of states and political subdivisions	299,830		9,808		0		309,638
Asset-backed securities	Asset-backed securities	334,075		1,575		(12,505)		323,145		Asset-backed securities	323,589		2,752		(3,465)		322,876
Mortgage-backed securities	Mortgage-backed securities	325,025		13,381		(156)		338,250		Mortgage-backed securities	418,390		12,685		(314)		430,761
Total debt securities AFS	Total debt securities AFS	$	1,152,648	$	24,885	$	(13,704)	$	1,163,829	Total debt securities AFS	$	1,201,561	$	30,517	$	(3,954)	$	1,228,124


(Dollars in Thousands)	(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value		(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
At September 30, 2019
At September 30, 2020										At September 30, 2020
Debt securities AFS	Debt securities AFS									Debt securities AFS
SBA securities	SBA securities	$	182,327	$	3,655	$	—	$	185,982	SBA securities	$	159,722	$	5,391	$	(158)	$	164,955
Obligations of states and political subdivisions	Obligations of states and political subdivisions	858		16		—		874		Obligations of states and political subdivisions	825		16		0		841
Non-bank qualified obligations of states and political subdivisions	Non-bank qualified obligations of states and political subdivisions	396,430		5,030		(903)		400,557		Non-bank qualified obligations of states and political subdivisions	314,819		8,978		(23)		323,774
Asset-backed securities	Asset-backed securities	305,603		262		(3,331)		302,534		Asset-backed securities	329,139		2,015		(6,229)		324,925
Mortgage-backed securities	Mortgage-backed securities	378,670		5,731		(1,855)		382,546		Mortgage-backed securities	439,879		14,567		(839)		453,607
Total debt securities AFS	Total debt securities AFS	$	1,263,888	$	14,694	$	(6,089)	$	1,272,493	Total debt securities AFS	$	1,244,384	$	30,967	$	(7,249)	$	1,268,102

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(Dollars in Thousands)	(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value		(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
At June 30, 2020
At December 31, 2020										At December 31, 2020
Debt securities HTM	Debt securities HTM									Debt securities HTM
Non-bank qualified obligations of states and political subdivisions	Non-bank qualified obligations of states and political subdivisions	$	98,205	$	133	$	(1,016)	$	97,322	Non-bank qualified obligations of states and political subdivisions	$	76,176	$	1,414	$	0	$	77,590
Mortgage-backed securities	Mortgage-backed securities	6,382		128		—		6,510		Mortgage-backed securities	5,152		185		0		5,337
Total debt securities HTM	Total debt securities HTM	$	104,587	$	261	$	(1,016)	$	103,832	Total debt securities HTM	$	81,328	$	1,599	$	0	$	82,927

(Dollars in Thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized (Losses) Fair Value
At September 30, 2019
Debt securities HTM
Non-bank qualified obligations of states and political subdivisions $ 127,582 $ 108 $ (1,403) $ 126,287
Mortgage-backed securities 7,182 14 (13) 7,183
Total debt securities HTM $ 134,764 $ 122 $ (1,416) $ 133,470

Management has implemented processes to identify securities that could potentially have a credit impairment that is other-than-temporary. This process can include, but is not limited to, evaluating the length of time and extent to which the fair value has been less than the amortized cost basis, reviewing available information regarding the financial position of the issuer, interest and dividend payment status, monitoring the rating of the security, monitoring changes in value, and projecting cash flows. Management also determines whether the Company intends to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity. To the extent the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.

For all securities considered temporarily impaired, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which may occur at maturity. The Company believes collection will occur for all principal and interest due on all investments with amortized cost in excess of fair value and considered only temporarily impaired.

GAAP requires that, at acquisition, an enterprise classify debt securities into one of three categories: AFS, HTM or trading. AFS securities are carried at fair value on the consolidated statements of financial condition, and unrealized holding gains and losses are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income (“AOCI”). HTM debt securities are measured at amortized cost. Both AFS and HTM are subject to review for other-than-temporary impairment. The Company had no trading securities at June 30, 2020 or September 30, 2019.


(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Losses)		Fair Value
At September 30, 2020
Debt securities HTM
Non-bank qualified obligations of states and political subdivisions	$	87,183	$	1,040	$	(29)	$	88,194
Mortgage-backed securities	5,427		124		0		5,551
Total debt securities HTM	$	92,610	$	1,164	$	(29)	$	93,745

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


		LESS THAN 12 MONTHS						OVER 12 MONTHS								TOTAL					LESS THAN 12 MONTHS				OVER 12 MONTHS		TOTAL
(Dollars in Thousands)	(Dollars in Thousands)	Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		(Dollars in Thousands)	Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)
At June 30, 2020
At December 31, 2020														At December 31, 2020
Debt securities AFS	Debt securities AFS													Debt securities AFS
SBA securities	SBA securities	$	34,402	$	(141)	$	—	$	—	$	34,402	$	(141)	SBA securities	$	40,938	$	(81)	$	18,623	$	(94)	$	59,561	$	(175)

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

Asset-backed securities	Asset-backed securities	103,915		(2,423)		178,986		(10,082)		282,901		(12,505)		Asset-backed securities	60,713		(136)		200,240		(3,329)		260,953		(3,465)
Mortgage-backed securities	Mortgage-backed securities	32,214		(156)		—		—		32,214		(156)		Mortgage-backed securities	62,494		(314)		0		0		62,494		(314)
Total debt securities AFS	Total debt securities AFS	$	217,336	$	(2,999)	$	219,411	$	(10,705)	$	436,747	$	(13,704)	Total debt securities AFS	$	164,145	$	(531)	$	218,863	$	(3,423)	$	383,008	$	(3,954)


		LESS THAN 12 MONTHS						OVER 12 MONTHS								TOTAL					LESS THAN 12 MONTHS				OVER 12 MONTHS		TOTAL
(Dollars in Thousands)	(Dollars in Thousands)	Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		(Dollars in Thousands)	Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)
At September 30, 2019
At September 30, 2020														At September 30, 2020
Debt securities AFS	Debt securities AFS													Debt securities AFS
SBA securities	SBA securities	$	10,262	$	—	$	—	$	—	$	10,262	$	—	SBA securities	$	32,257	$	(102)	$	9,875	$	(56)	$	42,132	$	(158)

Non-bank qualified obligations of states and political subdivisions	Non-bank qualified obligations of states and political subdivisions	66,326		(177)		55,428		(726)		121,754		(903)		Non-bank qualified obligations of states and political subdivisions	6,265		(6)		3,103		(17)		9,368		(23)
Asset-backed securities	Asset-backed securities	158,176		(1,823)		93,259		(1,508)		251,435		(3,331)		Asset-backed securities	106,474		(1,089)		178,686		(5,140)		285,160		(6,229)
Mortgage-backed securities	Mortgage-backed securities	1,713		(1)		89,634		(1,854)		91,347		(1,855)		Mortgage-backed securities	138,338		(839)		0		0		138,338		(839)
Total debt securities AFS	Total debt securities AFS	$	236,477	$	(2,001)	$	238,321	$	(4,088)	$	474,798	$	(6,089)	Total debt securities AFS	$	283,334	$	(2,036)	$	191,664	$	(5,213)	$	474,998	$	(7,249)

LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
(Dollars in Thousands) Fair
Value Unrealized
(Losses) Fair
Value Unrealized
(Losses) Fair
Value Unrealized
(Losses)
At June 30, 2020
Debt securities HTM
Non-bank qualified obligations of states and political subdivisions $ — $ — $ 83,207 $ (1,016) $ 83,207 $ (1,016)
Total debt securities HTM $ — $ — $ 83,207 $ (1,016) $ 83,207 $ (1,016)
There were no debt securities HTM with a continuous loss position at December 31, 2020.


		LESS THAN 12 MONTHS						OVER 12 MONTHS								TOTAL					LESS THAN 12 MONTHS				OVER 12 MONTHS		TOTAL
(Dollars in Thousands)	(Dollars in Thousands)	Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		(Dollars in Thousands)	Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value		Unrealized (Losses)
At September 30, 2019
At September 30, 2020														At September 30, 2020
Debt securities HTM	Debt securities HTM													Debt securities HTM
Non-bank qualified obligations of states and political subdivisions	Non-bank qualified obligations of states and political subdivisions	$	5,967	$	(6)	$	109,368	$	(1,397)	$	115,335	$	(1,403)	Non-bank qualified obligations of states and political subdivisions	7,397		(9)		3,637		(20)		11,034		(29)
Mortgage-backed securities		1,471		—		1,803		(13)		3,274		(13)

Total debt securities HTM	Total debt securities HTM	$	7,438	$	(6)	$	111,171	$	(1,410)	$	118,609	$	(1,416)	Total debt securities HTM	$	7,397	$	(9)	$	3,637	$	(20)	$	11,034	$	(29)

~~Table~~The adoption of ~~Contents~~

CECL was inconsequential to debt securities AFS. At ~~June 30,~~December 31, 2020, ~~the~~there was no ACL for debt securities AFS. At December 31, 2020, there were 27 securities AFS in an unrealized loss position. Management assessed each investment ~~portfolio included securities~~security with ~~current~~ unrealized losses ~~that have existed~~ for ~~longer than one year. All of~~credit impairment and determined substantially all unrealized losses on these securities ~~are considered to be acceptable credit risks. Because (i) the declines in fair value~~ were due to ~~changes in market~~credit spreads and interest rates ~~not in estimated cash flows, (ii) the Company does not intend or has not made a decision to sell these securities~~versus credit impairment. As part of that assessment, management evaluated and ~~(iii)~~concluded that it is ~~not more likely than not~~more-likely-than-not that the Company will not be required and does not intend to sell any of the securities ~~before~~prior to recovery of ~~their~~the amortized ~~cost basis, which may occur at maturity, 0 other-than-temporary impairment was recorded at June 30, 2020.~~cost.

The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features that allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in mortgage-backed securities ("MBS") because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, MBS are not included in the maturity categories in the following maturity summary. The expected maturities of certain SBA securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply.

Securities AFS at Fair Value Amortized Cost Fair Value
(Dollars in Thousands)
At June 30, 2020
Due in one year or less $ 1,130 $ 1,133
Due after one year through five years 12,688 13,205
Due after five years through ten years 44,891 47,174
Due after ten years 768,914 764,067
827,623 825,579
Mortgage-backed securities 325,025 338,250
Total securities AFS, at fair value $ 1,152,648 $ 1,163,829

(Dollars in Thousands) Amortized Cost Fair Value
At September 30, 2019
Due in one year or less $ — $ —
Due after one year through five years 16,749 17,143
Due after five years through ten years 50,263 51,840
Due after ten years 818,206 820,964
885,218 889,947
Mortgage-backed securities 378,670 382,546
Total securities AFS, at fair value $ 1,263,888 $ 1,272,493

Securities HTM at Fair Value Amortized Cost Fair Value
(Dollars in Thousands)
At June 30, 2020
Due after ten years $ 98,205 $ 97,322
98,205 97,322
Mortgage-backed securities 6,382 6,510
Total securities HTM, at cost $ 104,587 $ 103,832

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(Dollars in Thousands) Amortized Cost Fair Value
At September 30, 2019
Due after ten years $ 127,582 $ 126,287
127,582 126,287
Mortgage-backed securities 7,182 7,183
Total securities HTM, at cost $ 134,764 $ 133,470


Securities AFS at Fair Value	Amortized Cost		Fair Value
(Dollars in Thousands)
At December 31, 2020
Due in one year or less	$	720	$	724
Due after one year through five years	22,799		23,707
Due after five years through ten years	32,099		33,738
Due after ten years	727,553		739,194
	783,171		797,363
Mortgage-backed securities	418,390		430,761
Total securities AFS, at fair value	$	1,201,561	$	1,228,124


(Dollars in Thousands)	Amortized Cost		Fair Value
At September 30, 2020
Due in one year or less	$	1,385	$	1,398
Due after one year through five years	20,805		21,769
Due after five years through ten years	32,441		34,025
Due after ten years	749,874		757,303
	804,505		814,495
Mortgage-backed securities	439,879		453,607
Total securities AFS, at fair value	$	1,244,384	$	1,268,102


Securities HTM at Fair Value	Amortized Cost		Fair Value
(Dollars in Thousands)
At December 31, 2020



Due after ten years	$	76,176	$	77,590
	76,176		77,590
Mortgage-backed securities	5,152		5,337
Total securities HTM, at cost	$	81,328	$	82,927


(Dollars in Thousands)	Amortized Cost		Fair Value
At September 30, 2020



Due after ten years	$	87,183	$	88,194
	87,183		88,194
Mortgage-backed securities	5,427		5,551
Total securities HTM, at cost	$	92,610	$	93,745

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

Equity Securities

Equity securities without a readily determinable fair value totaled ~~$11.0~~$13.7 million at ~~June 30,~~December 31, 2020 and ~~$6.5~~$11.0 million at September 30, ~~2019. Upon conversion to a national bank on April 1, 2020, the Company's wholly-owned subsidiary, MetaBank,~~2020.

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FRB Stock

The Bank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus. One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System. FRB of Minneapolis stock held by ~~MetaBank~~the Bank totaled $19.7 million at ~~June~~December 31, 2020 and September 30, ~~2020 totaled $20.0 million.~~2020. These equity securities are 'restricted' in that they can only be owned by member banks.

FHLB Stock

The Company's borrowings from the FHLB are secured by a blanket collateral agreement with respect to a percentage of unencumbered loans and the pledge of specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.

The investments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of Des Moines. The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency.

The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held ~~by MetaBank~~ at ~~June 30,~~the FHLB was $7.5 million at December 31, 2020 and September 30, ~~2019 totaled $11.9 million and $30.9 million, respectively.~~2020. The ~~decrease~~absence of change in FHLB stock directly correlates with ~~lower~~no short-term borrowings balances at ~~June 30,~~both December 31, 2020 ~~compared to~~and September 30, ~~2019. The Company’s wholly-owned subsidiary, MetaBank, is required by federal law to maintain FHLB stock as a member of FHLB of Des Moines.~~ 2020.

These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par. Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the fair value approximates cost. The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate recoverability of the par value. ~~NaN~~There was a $0.9 million impairment ~~was~~ recognized for such investments for the ~~nine~~three months ended ~~June 30,~~December 31, 2020.

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NOTE 6. LOANS AND LEASES, NET

Loans and leases consist of the following:

(Dollars in Thousands) June 30, 2020 September 30, 2019
National Lending
Term lending⁽¹⁾
$ 738,454 $ 641,742
Asset based lending⁽¹⁾
181,130 250,465
Factoring 206,361 296,507
Lease financing⁽¹⁾
264,988 177,915
Insurance premium finance 359,147 361,105
SBA/USDA 308,611 88,831
Other commercial finance 100,214 99,665
Commercial finance 2,158,905 1,916,230
Consumer credit products 102,808 106,794
Other consumer finance 138,777 161,404
Consumer finance 241,585 268,198
Tax services 19,168 2,240
Warehouse finance 277,614 262,924
Total National Lending 2,697,272 2,449,592
Community Banking
Commercial real estate and operating 608,303 883,932
Consumer one-to-four family real estate and other 166,479 259,425
Agricultural real estate and operating 24,655 58,464
Total Community Banking 799,437 1,201,821
Total loans and leases 3,496,709 3,651,413
Net deferred loan origination fees (costs) 5,937 7,434
Total gross loans and leases 3,502,646 3,658,847
Allowance for loan and lease losses (65,747) (29,149)
Total loans and leases, net⁽²⁾
$ 3,436,899 $ 3,629,698

⁽¹⁾ The Company has updated the presentation of its loan and lease table beginning in the fiscal 2020 first quarter. The new presentation includes a new category called term lending. Certain balances previously included in the asset based lending and lease financing categories have been reclassified into the new term lending category during the fiscal 2020 first quarter. Prior period balances have been conformed to the new presentation.

⁽²⁾ As of June 30, 2020, the remaining balance of acquired loans and leases from the acquisition of Crestmark Bancorp, Inc. ("Crestmark") and its bank subsidiary, Crestmark Bank (the "Crestmark Acquisition") was $188.3 million and the remaining balances of the credit and interest rate mark discounts related to the acquired loans and leases held for investment were $3.4 million and $2.9 million, respectively. On August 1, 2018, the Company acquired loans and leases from the Crestmark Acquisition totaling $1.06 billion and recorded related credit and interest rate mark discounts of $12.3 million and $6.0 million, respectively.


(Dollars in Thousands)	December 31, 2020		September 30, 2020
National Lending
Term lending	$	881,306	$	805,323
Asset based lending	242,298		182,419
Factoring	275,650		281,173
Lease financing	283,722		281,084
Insurance premium finance	338,227		337,940
SBA/USDA	300,707		318,387
Other commercial finance	101,209		101,658
Commercial finance	2,423,119		2,307,984
Consumer credit products	88,595		89,809
Other consumer finance	162,423		134,342
Consumer finance	251,018		224,151
Tax services	92,548		3,066
Warehouse finance	318,937		293,375
Total National Lending	3,085,622		2,828,576
Community Banking
Commercial real estate and operating	339,141		457,371
Consumer one-to-four family real estate and other	5,077		16,486
Agricultural real estate and operating	9,724		11,707
Total Community Banking	353,942		485,564
Total loans and leases	3,439,564		3,314,140
Net deferred loan origination fees (costs)	9,111		8,625
Total gross loans and leases	3,448,675		3,322,765

Allowance for credit losses	(72,389)		(56,188)
Total loans and leases, net	$	3,376,286	$	3,266,577

During the ~~nine~~three months ended ~~June 30,~~December 31, 2020, the Company transferred ~~$325.1~~$100.4 million of Community Banking loans to held for sale. During the ~~nine~~three months ended ~~June 30,~~December 31, 2019, the Company transferred ~~$39.5~~$251.9 million of ~~consumer credit product~~Community Banking loans to held for sale.

During the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019, the Company originated ~~$63.4~~$303.5 million of other consumer finance, SBA/USDA, and ~~$104.1~~consumer credit product loans as held for sale and $16.2 million ~~respectively,~~ of SBA/USDA and consumer credit product loans as held for ~~sale.~~sale, respectively.

The Company sold held for sale loans resulting in proceeds of ~~$440.5~~$451.7 million and gains on sale of ~~$7.0~~$3.5 million during the ~~nine~~three months ended ~~June 30,~~December 31, 2020. The Company sold held for sale loans resulting in proceeds of ~~$95.7~~$143.0 million and gains on sale of ~~$3.7~~$1.9 million during the ~~nine~~three months ended ~~June 30,~~December 31, 2019.

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Table of Contents

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


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
(Dollars in Thousands)	(Dollars in Thousands)	2020		2019		2020		2019		(Dollars in Thousands)	2020		2019
Loans Purchased	Loans Purchased									Loans Purchased
Loans held for sale:
Total National Lending		$	—	$	6,703	$	—	$	12,643

Loans held for investment:	Loans held for investment:									Loans held for investment:
Total National Lending	Total National Lending	—		72,737		103,888		198,328		Total National Lending	$	62,631	$	14,464
Total Community Banking	Total Community Banking	2,728		2,710		16,518		21,223		Total Community Banking	2,299		4,349
Total purchases	Total purchases	$	2,728	$	82,150	$	120,406	$	232,194	Total purchases	$	64,930	$	18,813
Loans Sold	Loans Sold									Loans Sold
Loans held for sale:	Loans held for sale:									Loans held for sale:
Total National Lending	Total National Lending	$	8,524	$	57,661	$	168,814	$	92,565	Total National Lending	$	321,864	$	143,035
Total Community Banking	Total Community Banking	—		—		271,681		—		Total Community Banking	129,788		0
Loans held for investment:	Loans held for investment:									Loans held for investment:

Total Community Banking	Total Community Banking	—		2,212		3,099		13,069		Total Community Banking	0		3,099
Total sales	Total sales	$	8,524	$	59,873	$	443,594	$	105,634	Total sales	$	451,652	$	146,134

Leasing ~~Portfolio~~

Effective October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) and related ASUs on a modified retrospective basis, electing the practical expedients and optional transition method. As such, the following leasing disclosures include information at, or for the three and nine months ended, June 30, 2020.

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


(Dollars in Thousands)	(Dollars in Thousands)	June 30, 2020		September 30, 2019		(Dollars in Thousands)	December 31, 2020		September 30, 2020
Carrying Amount	Carrying Amount	$	283,003	$	191,733	Carrying Amount	$	300,748	$	299,487
Unguaranteed residual assets	Unguaranteed residual assets	16,662		13,353		Unguaranteed residual assets	17,488		17,203
Unamortized initial direct costs	Unamortized initial direct costs	1,967		1,790		Unamortized initial direct costs	2,056		2,078
Unearned income	Unearned income	(34,677)		(27,171)		Unearned income	(34,514)		(35,606)
Total net investment in direct financing and sales-type leases	Total net investment in direct financing and sales-type leases	$	266,955	$	179,705	Total net investment in direct financing and sales-type leases	$	285,778	$	283,162

The carrying amount of direct financing and sales-type leases subject to residual value guarantees was ~~$9.0~~$8.4 million at ~~June 30,~~December 31, 2020.

~~Table of Contents~~

The components of total lease income were as follows:


		June 30, 2020							Three Months Ended December 31,
(Dollars in Thousands)	(Dollars in Thousands)	Three Months Ended		Nine Months Ended		(Dollars in Thousands)	2020		2019
Interest income - loans and leases	Interest income - loans and leases					Interest income - loans and leases
Interest income on net investments in direct financing and sales-type leases	Interest income on net investments in direct financing and sales-type leases	$	4,496	$	12,958	Interest income on net investments in direct financing and sales-type leases	$	5,319	$	4,087

Leasing and equipment finance noninterest income	Leasing and equipment finance noninterest income					Leasing and equipment finance noninterest income
Lease income from operating lease payments	Lease income from operating lease payments	11,391		33,857		Lease income from operating lease payments	10,041		11,203
Profit (loss) recorded on commencement date on sales-type leases	Profit (loss) recorded on commencement date on sales-type leases	103		590		Profit (loss) recorded on commencement date on sales-type leases	71		471
Other⁽¹⁾	Other⁽¹⁾	554		3,135		Other(1)	69		750
Total leasing and equipment finance noninterest income	Total leasing and equipment finance noninterest income	12,048		37,582		Total leasing and equipment finance noninterest income	10,181		12,424
Total lease income	Total lease income	$	16,544	$	50,540	Total lease income	$	15,500	$	16,511

⁽¹⁾ Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases.

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

(Dollars in Thousands)
Remaining in 2020 $ 25,308
2021 95,008
2022 74,899
2023 49,197
2024 29,178
Thereafter 9,413
Equipment under leases not yet commenced
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 283,003
Third-party residual value guarantees —
Total carrying amount of direct financing and sales-type leases $ 283,003


(Dollars in Thousands)	December 31, 2020
Remaining in 2021	$	85,352
2022	95,224
2023	66,168
2024	36,759
2025	13,669
Thereafter	3,576
Equipment under leases not yet commenced	0
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases	300,748
Third-party residual value guarantees	0
Total carrying amount of direct financing and sales-type leases	$	300,748

The Company did not record any contingent rental income from direct financing and sales-type leases in the ~~nine~~three months ended ~~June 30,~~December 31, 2020.

During the Company's fiscal 2020 second quarter, the COVID-19 pandemic began impacting global and US markets and macroeconomic conditions, and continues to have an impact. Although the ultimate impact of the pandemic on the Company's loan and lease portfolio iscontinues to be difficult to predict, management ~~performed an evaluation of~~continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional ~~losses. The framework for the analysis was based on the Company's then-current allowance for loan~~losses and lease losses ("ALLL") methodology with additional considerations. From this impact assessment, additional reserve levels were estimated by increasing qualitative factors. The additional reserves were estimated for loans that were granted short-term payment deferrals related to financial stress stemming from the COVID-19 pandemic along with other loans within certain industries that were considered higher risk for credit loss (e.g. transportation, hospitality, travel, entertainment and retail). The Company continues to assess the impact to our customers and businesses as a result of COVID-19 and will refine our estimate as more information becomes available.

~~Based on the Company's ongoing assessment of the COVID-19 pandemic,~~Effective October 1, 2020, the Company ~~recognized an additional provision~~adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs on a modified retrospective basis. Financial information at and for ~~loan and lease losses of $9.4 million and $25.2 million during~~ the ~~three and nine months~~quarter ended ~~June 30,~~December 31, 2020 ~~respectively.~~is reflected as such. The ~~Company will continue to assess the impact to their customers and businesses as a result of COVID-19 and refine their estimate as more~~historical information ~~becomes available.~~disclosed is in accordance with Topic 310.

2119

Table of Contents

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


		Three Months Ended June 30, 2020																			Three Months Ended December 31, 2020
(Dollars in Thousands)	(Dollars in Thousands)	Beginning balance		Provision (recovery) for loan and lease losses		Charge-offs		Recoveries		Ending balance		(Dollars in Thousands)	Beginning Balance		Impact of CECL Adoption		Provision (Recovery) for Credit Losses(2)		Charge-offs		Recoveries		Ending Balance
Allowance for loan and lease losses:
Allowance for credit losses:												Allowance for credit losses:
National Lending	National Lending											National Lending
Term lending	Term lending	$	11,647	$	5,672	$	(2,831)	$	25	$	14,513	Term lending	$	15,211	$	9,999	$	6,026	$	(3,312)	$	296	$	28,220
Asset based lending	Asset based lending	2,826		(953)		(42)		—		1,831		Asset based lending	1,406		164		839		(600)		0		1,809
Factoring	Factoring	4,444		(1,997)		(140)		362		2,669		Factoring	3,027		987		(1,416)		(1)		1,122		3,719
Lease financing	Lease financing	2,683		4,293		(357)		91		6,710		Lease financing	7,023		(556)		1,112		(876)		81		6,784
Insurance premium finance	Insurance premium finance	2,142		596		(736)		367		2,369		Insurance premium finance	2,129		(965)		488		(656)		289		1,285
SBA/USDA	SBA/USDA	1,558		716		(1,134)		—		1,140		SBA/USDA	940		2,720		(497)		0		1		3,164
Other commercial finance	Other commercial finance	552		(381)		—		—		171		Other commercial finance	182		364		(67)		0		0		479
Commercial finance	Commercial finance	25,852		7,946		(5,240)		845		29,403		Commercial finance	29,918		12,713		6,485		(5,445)		1,789		45,460
Consumer credit products	Consumer credit products	1,082		(111)		—		—		971		Consumer credit products	845		0		(10)		0		0		835
Other consumer finance	Other consumer finance	3,414		358		(567)		44		3,249		Other consumer finance	2,821		5,998		1,482		(218)		93		10,176
Consumer finance	Consumer finance	4,496		247		(567)		44		4,220		Consumer finance	3,666		5,998		1,472		(218)		93		11,011
Tax services	Tax services	21,320		(100)		(9,797)		14		11,437		Tax services	2		0		454		0		956		1,412
Warehouse finance	Warehouse finance	334		(56)		—		—		278		Warehouse finance	294		(1)		26		0		0		319
Total National Lending	Total National Lending	52,002		8,037		(15,604)		903		45,338		Total National Lending	33,880		18,710		8,437		(5,663)		2,838		58,202
Community Banking	Community Banking											Community Banking
Commercial real estate and operating	Commercial real estate and operating	10,069		6,688		—		—		16,757		Commercial real estate and operating	21,867		(5,616)		(2,119)		(11)		0		14,121
Consumer one-to-four family real estate and other	Consumer one-to-four family real estate and other	2,350		586		—		—		2,936		Consumer one-to-four family real estate and other	298		(247)		(32)		0		0		19
Agricultural real estate and operating	Agricultural real estate and operating	934		(218)		—		—		716		Agricultural real estate and operating	143		(74)		(22)		0		0		47
Total Community Banking	Total Community Banking	13,353		7,056		—		—		20,409		Total Community Banking	22,308		(5,937)		(2,173)		(11)		0		14,187
Total loans and leases												Total loans and leases	56,188		12,773		6,264		(5,674)		2,838		72,389
Unfunded commitments(1)												Unfunded commitments(1)	32		831		(175)		0		0		688
Total	Total	$	65,355	$	15,093	$	(15,604)	$	903	$	65,747	Total	$	56,220	$	13,604	$	6,089	$	(5,674)	$	2,838	$	73,077

Nine Months Ended June 30, 2020
(Dollars in Thousands) Beginning balance Provision (recovery) for loan and lease losses Charge-offs Recoveries Ending balance
Allowance for loan and lease losses:
National Lending
Term lending $ 5,533 $ 14,753 $ (6,003) $ 230 $ 14,513
Asset based lending 2,437 (611) (42) 47 1,831
Factoring 3,261 (509) (875) 792 2,669
Lease financing 1,275 5,841 (725) 319 6,710
Insurance premium finance 1,024 2,671 (1,809) 483 2,369
SBA/USDA 383 2,007 (1,250) — 1,140
Other commercial finance 683 (512) — — 171
Commercial finance 14,596 23,640 (10,704) 1,871 29,403
Consumer credit products 1,044 (73) — — 971
Other consumer finance 5,118 (474) (2,208) 813 3,249
Consumer finance 6,162 (547) (2,208) 813 4,220
Tax services — 20,407 (9,797) 827 11,437
Warehouse finance 263 15 — — 278
Total National Lending 21,021 43,515 (22,709) 3,511 45,338
Community Banking
Commercial real estate and operating 6,208 10,549 — — 16,757
Consumer one-to-four family real estate and other 1,053 1,883 — — 2,936
Agricultural real estate and operating 867 (151) — — 716
Total Community Banking 8,128 12,281 — — 20,409
Total $ 29,149 $ 55,796 $ (22,709) $ 3,511 $ 65,747
(1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statement of Financial Condition.

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

2220

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		Three Months Ended June 30, 2019																			Three Months Ended December 31, 2019
(Dollars in Thousands)	(Dollars in Thousands)	Beginning balance		Provision (recovery) for loan and lease losses		Charge-offs		Recoveries		Ending balance		(Dollars in Thousands)	Beginning Balance		Provision (Recovery) for Loan and Lease Losses		Charge-offs		Recoveries		Ending Balance
Allowance for loan and lease losses:	Allowance for loan and lease losses:											Allowance for loan and lease losses:
National Lending	National Lending											National Lending
Term lending	Term lending	$	3,121	$	2,564	$	(1,969)	$	45	$	3,761	Term lending	$	5,533	$	3,401	$	(2,295)	$	111	$	6,750
Asset based lending	Asset based lending	1,410		417		(37)		3		1,793		Asset based lending	2,437		(461)		0		19		1,995
Factoring	Factoring	1,761		2,747		(1,335)		31		3,204		Factoring	3,261		257		(389)		419		3,548
Lease financing	Lease financing	933		(309)		(110)		158		672		Lease financing	1,275		504		(215)		131		1,695
Insurance premium finance	Insurance premium finance	919		201		(275)		171		1,016		Insurance premium finance	1,024		141		(285)		90		970
SBA/USDA	SBA/USDA	474		449		—		—		923		SBA/USDA	383		382		0		0		765
Other commercial finance	Other commercial finance	525		432		—		—		957		Other commercial finance	683		(523)		0		0		160
Commercial finance	Commercial finance	9,143		6,501		(3,726)		408		12,326		Commercial finance	14,596		3,701		(3,184)		770		15,883
Consumer credit products	Consumer credit products	1,314		142		—		—		1,456		Consumer credit products	1,044		63		0		0		1,107
Other consumer finance	Other consumer finance	5,130		1,890		(1,398)		28		5,650		Other consumer finance	5,118		476		(734)		29		4,889
Consumer finance	Consumer finance	6,444		2,032		(1,398)		28		7,106		Consumer finance	6,162		539		(734)		29		5,996
Tax services	Tax services	24,102		914		(9,627)		36		15,425		Tax services	0		911		0		739		1,650
Warehouse finance	Warehouse finance	185		65		—		—		250		Warehouse finance	263		6		0		0		269
Total National Lending	Total National Lending	39,874		9,512		(14,751)		472		35,107		Total National Lending	21,021		5,157		(3,918)		1,538		23,798
Community Banking	Community Banking											Community Banking
Commercial real estate and operating	Commercial real estate and operating	6,673		(249)		—		—		6,424		Commercial real estate and operating	6,208		(1,543)		0		0		4,665
Consumer one-to-four family real estate and other	Consumer one-to-four family real estate and other	958		(65)		—		—		893		Consumer one-to-four family real estate and other	1,053		(22)		0		0		1,031
Agricultural real estate and operating	Agricultural real estate and operating	1,167		(86)		—		—		1,081		Agricultural real estate and operating	867		(185)		0		0		682
Total Community Banking	Total Community Banking	8,798		(400)		—		—		8,398		Total Community Banking	8,218		(1,750)		0		0		6,378
Total	Total	$	48,672	$	9,112	$	(14,751)	$	472	$	43,505	Total	$	29,149	$	3,407	$	(3,918)	$	1,538	$	30,176

Nine Months Ended June 30, 2019
(Dollars in Thousands) Beginning balance Provision (recovery) for loan and lease losses Charge-offs Recoveries Ending balance
Allowance for loan and lease losses:
National Lending
Term lending $ 89 $ 4,928 $ (2,751) $ 1,495 $ 3,761
Asset based lending 47 1,775 (37) 8 1,793
Factoring 64 5,769 (2,711) 82 3,204
Lease financing 30 1,039 (1,052) 655 672
Insurance premium finance 1,031 2,091 (2,359) 253 1,016
SBA/USDA 13 910 — — 923
Other commercial finance 28 929 — — 957
Commercial finance 1,302 17,441 (8,910) 2,493 12,326
Consumer credit products 785 671 — — 1,456
Other consumer finance 2,820 8,249 (5,477) 58 5,650
Consumer finance 3,605 8,920 (5,477) 58 7,106
Tax services — 24,883 (9,670) 212 15,425
Warehouse finance 65 185 — — 250
Total National Lending 4,972 51,429 (24,057) 2,763 35,107
Community Banking
Commercial real estate and operating 6,220 204 — — 6,424
Consumer one-to-four family real estate and other 632 281 (20) — 893
Agricultural real estate and operating 1,216 (385) — 250 1,081
Total Community Banking 8,068 100 (20) 250 8,398
Total $ 13,040 $ 51,529 $ (24,077) $ 3,013 $ 43,505

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


	Allowance						Loans and Leases
(Dollars in Thousands)	Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment		Total		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment		Total
Recorded Investment
National Lending
Term lending	$	3,155	$	12,056	$	15,211	$	26,085	$	779,238	$	805,323
Asset based lending	355		1,051		1,406		5,317		177,102		182,419
Factoring	274		2,753		3,027		5,071		276,102		281,173
Lease financing	1,194		5,829		7,023		4,697		276,387		281,084
Insurance premium finance	0		2,129		2,129		0		337,940		337,940
SBA/USDA	0		940		940		1,436		316,951		318,387
Other commercial finance	0		182		182		0		101,658		101,658
Commercial finance	4,978		24,940		29,918		42,606		2,265,378		2,307,984
Consumer credit products	0		845		845		0		89,809		89,809
Other consumer finance	0		2,821		2,821		1,987		132,355		134,342
Consumer finance	0		3,666		3,666		1,987		222,164		224,151
Tax services	0		2		2		0		3,066		3,066
Warehouse finance	0		294		294		0		293,375		293,375
Total National Lending	4,978		28,902		33,880		44,593		2,783,983		2,828,576
Community Banking
Commercial real estate and operating	141		21,726		21,867		160		457,211		457,371
Consumer one-to-four family real estate and other	0		298		298		104		16,382		16,486
Agricultural real estate and operating	0		143		143		6,421		5,286		11,707
Total Community Banking	141		22,167		22,308		6,685		478,879		485,564
Total	$	5,119	$	51,069	$	56,188	$	51,278	$	3,262,862	$	3,314,140

Information on impaired loans and leases, all of which are deemed to be collateral dependent and are evaluated individually for ~~loan and lease losses and balance by type~~the ACL, as of ~~allowance:~~December 31, 2020 was as follows:

Allowance Loans and Leases
Recorded Investment Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Total Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Total
As of June 30, 2020 (Dollars in Thousands)
National Lending
Term lending $ 3,366 $ 11,147 $ 14,513 $ 31,467 $ 706,987 $ 738,454
Asset based lending — 1,831 1,831 2,805 178,325 181,130
Factoring 189 2,480 2,669 2,165 204,196 206,361
Lease financing 1,350 5,360 6,710 4,695 260,293 264,988
Insurance premium finance — 2,369 2,369 — 359,147 359,147
SBA/USDA 241 899 1,140 2,380 306,231 308,611
Other commercial finance — 171 171 — 100,214 100,214
Commercial finance 5,146 24,257 29,403 43,512 2,115,393 2,158,905
Consumer credit products — 971 971 — 102,808 102,808
Other consumer finance — 3,249 3,249 2,177 136,600 138,777
Consumer finance — 4,220 4,220 2,177 239,408 241,585
Tax services — 11,437 11,437 — 19,168 19,168
Warehouse finance — 278 278 — 277,614 277,614
Total National Lending 5,146 40,192 45,338 45,689 2,651,583 2,697,272
Community Banking
Commercial real estate and operating 141 16,616 16,757 419 607,884 608,303
Consumer one-to-four family real estate and other — 2,936 2,936 177 166,302 166,479
Agricultural real estate and operating — 716 716 2,437 22,218 24,655
Total Community Banking 141 20,268 20,409 3,033 796,404 799,437
Total $ 5,287 $ 60,460 $ 65,747 $ 48,722 $ 3,447,987 $ 3,496,709


(Dollars in Thousands)	December 31, 2020
National Lending
Term lending	$	12,879
Asset based lending	908
Factoring	842
Lease financing	2,420

SBA/USDA	600

Commercial finance	17,649





Total National Lending	17,649
Community Banking
Commercial real estate and operating	18,456
Consumer one-to-four family real estate and other	173
Agricultural real estate and operating	6,343
Total Community Banking	24,972
Total	$	42,621

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Allowance Loans and Leases
Recorded Investment Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Total Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Total
As of September 30, 2019 (Dollars in Thousands)
National Lending
Term lending $ 450 $ 5,083 $ 5,533 $ 19,568 $ 622,174 $ 641,742
Asset based lending — 2,437 2,437 378 250,087 250,465
Factoring 1,262 1,999 3,261 3,824 292,683 296,507
Lease financing 112 1,163 1,275 1,213 176,702 177,915
Insurance premium finance — 1,024 1,024 — 361,105 361,105
SBA/USDA 51 332 383 3,841 84,990 88,831
Other commercial finance — 683 683 — 99,665 99,665
Commercial finance 1,875 12,721 14,596 28,824 1,887,406 1,916,230
Consumer credit products — 1,044 1,044 — 106,794 106,794
Other consumer finance — 5,118 5,118 1,472 159,932 161,404
Consumer finance — 6,162 6,162 1,472 266,726 268,198
Tax services — — — — 2,240 2,240
Warehouse finance — 263 263 — 262,924 262,924
Total National Lending 1,875 19,146 21,021 30,296 2,419,296 2,449,592
Community Banking
Commercial real estate and operating — 6,208 6,208 258 883,674 883,932
Consumer one-to-four family real estate and other — 1,053 1,053 100 259,325 259,425
Agricultural real estate and operating — 867 867 2,985 55,479 58,464
Total Community Banking — 8,128 8,128 3,343 1,198,478 1,201,821
Total $ 1,875 $ 27,274 $ 29,149 $ 33,639 $ 3,617,774 $ 3,651,413
Information on impaired loans and leases as of September 30, 2020 was as follows:


(Dollars in Thousands)	Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans and leases without a specific valuation allowance
National Lending
Term lending	$	17,349	$	18,823	$	—
Asset based lending	3,914		3,914		—
Factoring	3,892		4,967		—
Lease financing	1,797		1,805		—

SBA/USDA	1,436		2,263		—

Commercial finance	28,388		31,772		—

Other consumer finance	1,987		2,104		—
Consumer finance	1,987		2,104		—


Total National Lending	30,375		33,876		—
Community Banking

Consumer one-to-four family real estate and other	104		104		—
Agricultural real estate and operating	6,421		6,421		—
Total Community Banking	6,525		6,525		—
Total	$	36,900	$	40,401	$	—
Loans and leases with a specific valuation allowance
National Lending
Term lending	$	8,736	$	8,736	$	3,155
Asset based lending	1,403		1,403		355
Factoring	1,179		1,191		274
Lease financing	2,900		2,900		1,194



Commercial finance	14,218		14,230		4,978





Total National Lending	14,218		14,230		4,978
Community Banking
Commercial real estate and operating	160		160		141


Total Community Banking Loans	160		160		141
Total	$	14,378	$	14,390	$	5,119

In response to the ongoing COVID-19 pandemic, the Company allowed modifications, such as payment deferrals and temporary forbearance, to credit-worthy borrowers who are experiencing temporary hardship due to the effects of COVID-19. Accordingly, if all payments were less than 30 days past due prior to the onset of the pandemic effects, the loan or lease will not be reported as past due during the deferral or forbearance period. As of ~~June 30,~~December 31, 2020, ~~the Company granted deferral payments on a total of $352.1~~$84.2 million of loan and lease balances that were granted deferral payments by the Company were still in their deferment period due to performing borrowers experiencing temporary hardship from COVID-19. These modifications consisted solely of payment deferrals ranging from 30 days to six months. These modifications are in line with applicable regulatory guidelines and, therefore, they are not reported as troubled-debt restructurings. The Company elected to accrue and recognize interest income on these modifications during the payment deferral period.

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

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

Watch- A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets.

~~Table of Contents~~

Special Mention- A special mention asset is a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.

~~The adverse classifications are as follows:~~

Substandard- A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard.

Doubtful- A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate.

Loss- A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When assets are classified as “loss,” the Company is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. The Company's determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, which may order the establishment of additional general or specific loss allowances.

The Company recognizes that concentrations of credit may naturally occur and may take the form of a large volume of related loans and leases to an individual, a specific industry, or a geographic location. Credit concentration is a direct, indirect, or contingent obligation that has a common bond where the aggregate exposure equals or exceeds a certain percentage of the Company’s Tier 1 Capital plus the Allowance for Loan and Lease Losses.

~~Beginning in~~Federal regulations provide for the ~~fiscal 2020 first quarter~~classification of loans and other assets such as debt and equity securities considered by the ~~Company implemented changes to~~Bank's primary regulator, the risk rating approach on certain commercial finance portfolios as part of a streamlining process to provide a more consistent risk rating approach across all of its lending portfolios. Based upon a studyOffice of the Company's special mention commercial finance loans and leases, the Company determined that approximately $117.0 million of those loans and leases should be rated as watch under the new approach. Prior to the fiscal 2020 first quarter, NaNComptroller of the ~~Company's commercial finance loans and leases were rated~~Currency (the “OCC”), to be of lesser quality as watch. Based on Meta's allowance methodology, these changes in risk ratings did not have a direct impact on the allowance for loan and lease losses. The aggregate balance of watch and special mention loans and leases within the commercial finance portfolio increased to $179.8 million at June 30, 2020, compared to $145.0 million at September 30, 2019.“substandard,” “doubtful” or “loss.”

Table of Contents

The Company has various portfolios of consumer finance and tax services loans that present unique risks. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for ~~loan~~credit losses on these portfolios, and as such, these loans are not included in the asset classification table ~~below, beginning in the fiscal 2020 first quarter. The September 30, 2019 asset classification table has been conformed to the current presentation.~~below. The outstanding balances of consumer finance loans and tax services loans were ~~$241.6~~$251.0 million and ~~$19.2~~$92.5 million at ~~June 30,~~December 31, 2020, respectively, and ~~$268.2~~$224.2 million and ~~$2.2~~$3.1 million at September 30, ~~2019,~~2020, respectively.

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


	Amortized Cost Basis
(Dollars in Thousands)	Term Loans and Leases by Origination Year												Revolving Loans and Leases		Total
As of December 31, 2020	2021		2020		2019		2018		2017		Prior
Term lending
Pass	$	107,414	$	321,578	$	130,293	$	68,889	$	46,776	$	123,244	$	0	$	798,194
Watch	718		4,081		8,058		915		3,850		11,660		0		29,282
Special Mention	0		6,322		4,220		1,332		269		2,101		0		14,244
Substandard	1,092		14,147		12,326		7,691		0		1,766		0		37,022
Doubtful	0		1,264		832		456		0		12		0		2,564
Total	109,224		347,392		155,729		79,283		50,895		138,783		0		881,306
Asset based lending
Pass	0		0		0		0		0		0		147,064		147,064
Watch	0		0		0		0		0		0		73,402		73,402
Special Mention	0		0		0		0		0		0		19,750		19,750
Substandard	0		0		0		0		0		0		2,082		2,082

Total	0		0		0		0		0		0		242,298		242,298
Factoring
Pass	0		0		0		0		0		0		217,566		217,566
Watch	0		0		0		0		0		0		31,257		31,257
Special Mention	0		0		0		0		0		0		18,779		18,779
Substandard	0		0		0		0		0		0		8,048		8,048

Total	0		0		0		0		0		0		275,650		275,650
Lease financing
Pass	32,970		161,904		51,762		16,780		1,282		2,297		0		266,995
Watch	132		6,619		236		954		272		55		0		8,268
Special Mention	0		2,048		1,295		213		0		0		0		3,556
Substandard	0		288		3,585		277		3		496		0		4,649
Doubtful	0		51		114		89		0		0		0		254
Total	33,102		170,910		56,992		18,313		1,557		2,848		0		283,722
Insurance premium finance
Pass	173,400		164,238		41		0		0		0		0		337,679
Watch	0		127		3		0		0		0		0		130
Special Mention	0		175		2		0		0		0		0		177
Substandard	0		135		21		0		0		0		0		156
Doubtful	0		83		2		0		0		0		0		85
Total	173,400		164,758		69		0		0		0		0		338,227
SBA/USDA
Pass	724		222,726		25,001		22,946		9,505		5,025		0		285,927
Watch	0		6,811		643		457		1,381		966		0		10,258
Special Mention	0		0		0		1,823		0		73		0		1,896
Substandard	0		0		0		1,209		703		714		0		2,626

Total	724		229,537		25,644		26,435		11,589		6,778		0		300,707

Table of Contents


Other commercial finance
Pass	2,450		4,841		8,183		4,080		4,137		74,263		0		97,954
Watch	867		0		0		0		0		2,107		0		2,974
Special Mention	0		0		0		0		0		0		0		0
Substandard	0		281		0		0		0		0		0		281

Total	3,317		5,122		8,183		4,080		4,137		76,370		0		101,209
Warehouse finance
Pass	0		0		0		0		0		0		318,937		318,937




Total	0		0		0		0		0		0		318,937		318,937
Total National Lending
Pass	316,958		875,287		215,280		112,695		61,700		204,829		683,567		2,470,316
Watch	1,717		17,638		8,940		2,326		5,503		14,788		104,659		155,571
Special Mention	0		8,545		5,517		3,368		269		2,174		38,529		58,402
Substandard	1,092		14,851		15,932		9,177		706		2,976		10,130		54,864
Doubtful	0		1,398		948		545		0		12		0		2,903
Total	319,767		917,719		246,617		128,111		68,178		224,779		836,885		2,742,056
Commercial real estate and operating
Pass	0		10,122		99,181		75,915		32,338		50		300		217,906
Watch	0		0		8,046		57,291		28,157		6,593		0		100,087
Special Mention	0		926		0		0		0		1,455		0		2,381
Substandard	0		300		700		16,896		0		311		0		18,207
Doubtful	0		0		560		0		0		0		0		560
Total	0		11,348		108,487		150,102		60,495		8,409		300		339,141
Consumer 1-4 family real estate and other
Pass	0		0		161		645		381		2,940		8		4,135
Watch	0		0		0		236		0		0		0		236
Special Mention	0		0		0		0		139		66		206		411
Substandard	0		0		111		0		41		143		0		295

Total	0		0		272		881		561		3,149		214		5,077
Agricultural real estate and other
Pass	0		0		85		0		0		0		0		85
Watch	0		1,583		0		0		0		0		0		1,583
Special Mention	0		0		0		111		0		2,694		0		2,805
Substandard	0		3,394		0		913		0		594		350		5,251

Total	0		4,977		85		1,024		0		3,288		350		9,724
Total Community Bank
Pass	0		10,122		99,427		76,560		32,719		2,990		308		222,126
Watch	0		1,583		8,046		57,527		28,157		6,593		0		101,906
Special Mention	0		926		0		111		139		4,215		206		5,597
Substandard	0		3,694		811		17,809		41		1,048		350		23,753
Doubtful	0		0		560		0		0		0		0		560
Total	0		16,325		108,844		152,007		61,056		14,846		864		353,942
Total Loans and Leases
Pass	316,958		885,409		314,707		189,255		94,419		207,819		683,875		2,692,442
Watch	1,717		19,221		16,986		59,853		33,660		21,381		104,659		257,477
Special Mention	0		9,471		5,517		3,479		408		6,389		38,735		63,999
Substandard	1,092		18,545		16,743		26,986		747		4,024		10,480		78,617
Doubtful	0		1,398		1,508		545		0		12		0		3,463
Total	$	319,767	$	934,044	$	355,461	$	280,118	$	129,234	$	239,625	$	837,749	$	3,095,998

Table of Contents

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

Asset Classification Pass Watch Special Mention Substandard Doubtful Total
As of June 30, 2020 (Dollars in Thousands)
National Lending
Term lending $ 656,198 $ 42,015 $ 8,774 $ 28,579 $ 2,888 $ 738,454
Asset based lending 108,069 58,415 11,841 2,805 — 181,130
Factoring 161,075 22,255 20,865 2,166 — 206,361
Lease financing 257,540 1,875 879 4,553 141 264,988
Insurance premium finance 356,821 1,305 402 125 494 359,147
SBA/USDA 295,815 10,339 77 2,380 — 308,611
Other commercial finance 99,495 719 — — — 100,214
Commercial finance 1,935,013 136,923 42,838 40,608 3,523 2,158,905
Warehouse finance 277,614 — — — — 277,614
Total National Lending 2,212,627 136,923 42,838 40,608 3,523 2,436,519
Community Banking
Commercial real estate and operating 599,144 698 4,019 3,862 580 608,303
Consumer one-to-four family real estate and other 165,518 42 655 264 — 166,479
Agricultural real estate and operating 11,946 — 4,909 7,800 — 24,655
Total Community Banking 776,608 740 9,583 11,926 580 799,437
Total loans and leases $ 2,989,235 $ 137,663 $ 52,421 $ 52,534 $ 4,103 $ 3,235,956


Asset Classification	Asset Classification	Pass		Watch		Special Mention		Substandard		Doubtful		Total		Asset Classification	Pass		Watch		Special Mention		Substandard		Doubtful		Total
As of September 30, 2019		(Dollars in Thousands)
As of September 30, 2020														As of September 30, 2020	(Dollars in Thousands)
National Lending	National Lending													National Lending
Term lending	Term lending	$	585,382	$	—	$	36,792	$	19,024	$	544	$	641,742	Term lending	$	725,101	$	29,637	$	24,501	$	21,249	$	4,835	$	805,323
Asset based lending	Asset based lending	192,427		—		57,660		378		—		250,465		Asset based lending	102,013		62,512		12,577		5,317		0		182,419
Factoring	Factoring	256,048		—		36,635		3,824		—		296,507		Factoring	217,245		45,200		13,657		5,071		0		281,173
Lease financing	Lease financing	171,785		—		4,917		1,213		—		177,915		Lease financing	264,700		8,879		2,808		4,148		549		281,084
Insurance premium finance	Insurance premium finance	361,105		—		—		—		—		361,105		Insurance premium finance	336,364		284		222		701		369		337,940
SBA/USDA	SBA/USDA	76,609		—		8,381		3,841		—		88,831		SBA/USDA	308,549		8,328		74		1,436		0		318,387
Other commercial finance	Other commercial finance	99,057		—		608		—		—		99,665		Other commercial finance	100,727		931		0		0		0		101,658
Commercial finance	Commercial finance	1,742,413		—		144,993		28,280		544		1,916,230		Commercial finance	2,054,699		155,771		53,839		37,922		5,753		2,307,984

Warehouse finance	Warehouse finance	262,924		—		—		—		—		262,924		Warehouse finance	293,375		0		0		0		0		293,375
Total National Lending	Total National Lending	2,005,337		—		144,993		28,280		544		2,179,154		Total National Lending	2,348,074		155,771		53,839		37,922		5,753		2,601,359
Community Banking	Community Banking													Community Banking
Commercial real estate and operating	Commercial real estate and operating	875,933		1,494		2,884		3,621		—		883,932		Commercial real estate and operating	336,236		98,295		4,049		18,211		580		457,371
Consumer one-to-four family real estate and other	Consumer one-to-four family real estate and other	257,575		946		708		196		—		259,425		Consumer one-to-four family real estate and other	15,648		41		609		188		0		16,486
Agricultural real estate and operating	Agricultural real estate and operating	39,409		4,631		5,876		8,548		—		58,464		Agricultural real estate and operating	1,526		0		4,930		5,251		0		11,707
Total Community Banking	Total Community Banking	1,172,917		7,071		9,468		12,365		—		1,201,821		Total Community Banking	353,410		98,336		9,588		23,650		580		485,564
Total loans and leases	Total loans and leases	$	3,178,254	$	7,071	$	154,461	$	40,645	$	544	$	3,380,975	Total loans and leases	$	2,701,484	$	254,107	$	63,427	$	61,572	$	6,333	$	3,086,923

~~Table of Contents~~

~~National Lending~~

~~Commercial Finance~~

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

~~Term Lending~~. Through its Crestmark division, the Bank originates a variety of collateralized conventional term loans and notes receivable, while terms range from three years to 25 years, the weighted average life is approximately 53 months. These term loans may be secured by equipment, recurring revenue streams, or real estate. Credit risk is managed through setting loan amounts appropriate for the collateral by utilizing information ranging from equipment cost, appraisals, valuations, or lending history. The Bank follows standardized loan policies and established and authorized credit limits and applies attentive portfolio management, which includes monitoring past dues, financial performance, financial covenants, and industry trends. As of June 30, 2020, 20% of the term lending portfolio exposure is concentrated in solar/alternative energy, most of which are construction projects that will convert to longer term government guaranteed facilities upon completion of the construction phase. Equipment Finance Agreements ("EFAs") and Installment Purchase Agreements ("IPAs") make up $299.1 million, or 41%, of the term lending total as of June 30, 2020. The remaining 39% are a variety of investment advisory loans and other more traditional term equipment and general purpose commercial loans.

~~Asset Based Lending~~. Through its Crestmark division, the Bank provides asset based loans secured by short-term assets such as inventory, accounts receivable, and work-in-process. Asset based loans may also be secured by real estate and equipment. The primary sources of repayment are the operating income of the borrower, the collection of the receivables securing the loan, and/or the sale of the inventory securing the loan. Loans are typically revolving lines of credit with terms of one year to three years, whereby the Bank withholds a contingency reserve representing the difference between the amount advanced and the fair value of the invoice amount or other collateral value. Credit risk is managed through advance rates appropriate for the collateral (generally, advance rates on accounts receivable is 85% and inventory advance rates range from 40% to 50%), standardized loan policies, established and authorized credit limits, attentive portfolio management and the use of lock box agreements and similar arrangements that result in the Company receiving and controlling the debtors' cash receipts. As of June 30, 2020, approximately 50% of these loans were backed by accounts receivable.

~~Factoring.~~ Through its Crestmark division, the Bank provides factoring lending where clients provide detailed inventory, accounts receivable, and work-in-process reports for lending arrangements. The factoring clients are diversified as to industry and geography. With these loans, the Crestmark division withholds a contingency reserve, which is the difference between the fair value of the invoice amount or other collateral value and the amount advanced (generally, advance rates are 85% on accounts receivable). This reserve is withheld for nonpayment of factored receivables, service fees and other adjustments. Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements that result in the Company receiving and controlling the client's cash receipts. In addition, clients generally guarantee the payment of purchased accounts receivable. As of June 30, 2020, approximately 80% of these loans were backed by accounts receivable.

~~Lease Financing.~~ Through its Crestmark division, the Bank provides creative, flexible lease solutions for technology, capital equipment and select transportation assets like tractors and trailers. Direct financing leases and sales-type leases substantially transfer the benefits and risks of equipment ownership to the lessee. The lease may contain provisions that transfer ownership to the lessee at the end of the initial term, contain a bargain purchase option or allow for purchase of the equipment at fair market value. Residual values are estimated at the inception of the lease. Lease maturities are generally no greater than 84 months. The focus in this lease financing category is to support middle market companies by providing a variety of financing products to help them meet their business objectives.

~~Table of Contents~~

~~Insurance Premium Finance.~~ Through its AFS/IBEX division the Bank provides, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk, otherwise known as insurance premium financing. This includes, but is not limited to, policies for commercial property, casualty and liability risk. Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term. The policyholder generally makes a 20% to 25% down payment to the insurance broker and finances the remainder over nine months to 10 months on average. The down payment is set such that if the policy is canceled, the unearned premium is typically sufficient to cover the loan balance and accrued interest and is returned by the insurer to the Bank on a pro rata basis. Over 99% of the portfolio finances policies provided by investment grade-rated insurance company partners.

~~Small Business Administration ("SBA") and United States Department of Agriculture ("USDA").~~ The Bank originates loans through programs partially guaranteed by the SBA or USDA. These loans are made to small businesses and professionals with what the Bank believes are lower risk characteristics. Certain guaranteed portions of these loans are generally sold to the secondary market. Also see Note 3 to the Condensed Consolidated Financial Statements included in this quarterly report. As part of the SBA's coronavirus debt relief efforts, the SBA will pay six months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020. As of June 30, 2020, there were 145 loans with a retained outstanding balance of $48.4 million receiving six months principal and interest from the SBA. The Company is also participating in the PPP, which is being administered by the SBA. The Company expects that some portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. Loans funded through the PPP program are fully guaranteed by the U.S. government. As of June 30, 2020, the Company authorized 686 applications, totaling $215.5 million in PPP loan requests as part of the program.

~~Other Commercial Finance.~~ Included in this category of loans are the Company's healthcare receivables loan portfolio primarily comprised of loans to individuals for medical services received. The majority of these loans are guaranteed by the hospital providing the service to the debtor and this guarantee serves to reduce credit risk as the guarantors agree to repurchase severely delinquent loans. Credit risk is minimized on these loans based on the guarantor’s repurchase agreement. This loan category also includes commercial real estate loans to customers of the Crestmark division.

~~Consumer Finance~~

~~Consumer Credit Products.~~ The Bank designs its credit program relationships with certain desired outcomes. Three high priority outcomes are liquidity, credit protection, and risk retention. The Bank believes the benefits of these outcomes not only support its goals but the goals of the credit program partner as well. The Bank designs its program credit protections in a manner so that the Bank earns a reasonable risk adjusted return, but is protected by certain layers of credit support, similar to what you would find in structured finance. The Bank will hold a sizable portion of the originated asset on its own balance sheet, but retains the flexibility to sell a portion of the originated asset to other interested parties, thereby supporting program liquidity.

Through June 30, 2020, the Bank has launched two consumer credit programs. The loan products offered under these programs are generally closed-end installment loans with terms between 12 months and 84 months and revolving lines of credit with durations between six months and 60 months.

~~Other Consumer Finance.~~ The Bank's purchased student loan portfolios are seasoned, floating rate, private portfolios that are serviced by a third-party servicer. The portfolio purchased during the fiscal 2018 first quarter is indexed to one-month of the London Interbank Offered Rate ("LIBOR"), while the portfolio purchased in the fiscal 2017 first quarter is indexed to three-month LIBOR plus various margins. The Company received written notification on June 18, 2018 from ReliaMax Surety Company ("ReliaMax"), the company that provided insurance coverage for the student loan portfolios, which informed policy holders that the South Dakota Division of Insurance filed a petition to have ReliaMax declared insolvent and to adopt a plan of liquidation. An Order of Liquidation was entered on June 27, 2018 by the Sixth Circuit Court in Hughes County, South Dakota, declaring ReliaMax insolvent and appointing the South Dakota Division of Insurance as liquidator to adopt a plan of liquidation. The Company expects to ultimately recover a portion of the unearned premiums, though the Company can provide no assurance as to the timing and amount of any such recovery.

~~Table of Contents~~

~~Tax Services~~

The Bank's tax services division provides short-term taxpayer advance loans. Taxpayers are underwritten to determine eligibility for these unsecured loans. Due to the nature of taxpayer advance loans, it typically takes no more than three e-file cycles (the period of time between scheduled IRS payments) from when the return is accepted by the IRS to collect from the borrower. In the event of default, the Bank has no recourse against the tax consumer. The Bank will charge off the balance of a taxpayer advance loan if there is a balance at the end of the calendar year, or when collection of principal becomes doubtful.

Through its tax services division, the Bank provides short-term electronic return originator ("ERO") advance loans on a nationwide basis. These loans are typically utilized by tax preparers to purchase tax preparation software and to prepare tax office operations for the upcoming tax season. EROs go through an underwriting process to determine eligibility for the unsecured advances. ERO loans are not collateralized. Collection on ERO advances begins once the ERO begins to process refund transfers. Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful.

~~Warehouse Finance~~

The Bank participates in several asset-backed warehouse lines of credit whereby the Bank is in a senior, secured position as the first out participant. These facilities are primarily collateralized by consumer receivables, with the Bank holding a senior collateral position enhanced by a subordinate party structure.

~~Community Banking~~

Effective on the Closing Date of the Community Bank division sale to Central Bank, the Company substantially ceased originating loans within its Community Banking loan portfolio. The Company entered a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on the Closing Date. See Note 4. Divestitures for further information related to the Community Banking lending portfolio.

~~Commercial Real Estate and Operating~~

The Company's commercial and multi-family real estate loans are secured primarily by apartment buildings, office buildings, and hotels. Commercial and multi-family real estate loans generally were underwritten with terms not exceeding 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property securing the loan, and are typically secured by guarantees of the borrowers. As of June 30, 2020, multi-family real estate loan balances totaled $138.7 million, over 94% of which were located within the Community Bank division's footprint of South Dakota and Iowa. The average loan-to-value ratio on multi-family real estate loans at the time of the Company's most recently completed annual stress test analysis was approximately 69%.

As of June 30, 2020, hospitality loan balances totaled $169.0 million, of which approximately 28% were located in the Community Bank division's footprint of South Dakota and Iowa, while the majority of the remaining balances were through developers headquartered in the Community Bank division footprint with properties located in Minnesota, North Dakota, Nebraska, Wisconsin, Kansas, Arizona, Colorado and California. Over 98% of the outstanding loan balances are flagged hotel relationships and a large majority of the loans have guarantors by individuals with a strong combined net worth. Based on the latest appraisals the Company has on file, the average loan-to-value ratio on hospitality loans was approximately 60%.

Most of the Company's commercial operating loans were extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory and accounts receivable. Commercial operating loans also may involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies. The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Generally, the maximum term on non-mortgage lines of credit is one year.

~~Table of Contents~~

~~Consumer One-to-Four Family Real Estate and Other~~

The Company's one-to-four family residential mortgage loans have terms up to a maximum of 30 years and with loan-to-value ratios up to 100% of the lesser of the appraised value of the property securing the loan or the contract price. However, the vast majority of these loans were originated with loan-to-value ratios below 80%. The Company also has five year and ten year ARM loans. As of June 30, 2020, over 93% of the one-to-four family real estate loans were located within the Community Bank division's footprint of South Dakota and Iowa.

The Company also has a variety of secured consumer loans, primarily made up of home equity and home improvement loans. Substantially all of the Company’s home equity loans and lines of credit are secured by second mortgages on principal residences. The Bank lent amounts which, together with all prior liens, may have been up to 90% of the appraised value of the property securing the loan. Home equity loans and lines of credit generally have maximum terms of five years. As of June 30, 2020, the outstanding balance in these secured consumer loans was less than $4.0 million and approximately 99% of those were located within the Community Bank division's footprint of South Dakota and Iowa.

~~Agricultural Real Estate and Operating~~

The Company's agricultural loans finance the purchase of farmland, livestock, farm machinery and equipment, seed, fertilizer, and other farm-related products. Agricultural operating loans are at either an adjustable- or fixed-rate of interest for up to a one year term or, in the case of livestock, are due upon sale. Agricultural real estate loans were frequently originated with adjustable rates of interest. Generally, such loans provide for a fixed rate of interest for the first five years to 10 years, after which the loan will balloon or the interest rate will adjust annually. These loans generally amortize over a period of 20 years to 25 years. Fixed-rate agricultural real estate loans typically have terms up to 10 years. Agricultural real estate loans are generally limited to 75% of the value of the property securing the loan. As of June 30, 2020, 70% of the agricultural loans were real estate loans while the remaining 30% were agricultural operating loans and approximately 91% of the total agricultural loans were located within the Community Bank division's footprint of South Dakota and Iowa.

3126

Table of Contents

Past due loans and leases were as follows:


		Accruing and Nonaccruing Loans and Leases																								Nonperforming Loans and Leases									Accruing and Nonaccruing Loans and Leases				Nonperforming Loans and Leases
(Dollars in Thousands)	(Dollars in Thousands)	30-59 Days Past Due		60-89 Days Past Due		> 89 Days Past Due		Total Past Due		Current		Total Loans and Leases Receivable		> 89 Days Past Due and Accruing		Non-accrual balance		Total		(Dollars in Thousands)	30-59 Days Past Due		60-89 Days Past Due		> 89 Days Past Due		Total Past Due		Current		Total Loans and Leases Receivable		> 89 Days Past Due and Accruing		Non-accrual balance		Total
As of June 30, 2020
As of December 31, 2020																				As of December 31, 2020
Loans held for sale	Loans held for sale	$	—	$	—	$	—	$	—	$	79,905	$	79,905	$	—	$	—	$	—	Loans held for sale	$	165	$	0	$	0	$	165	$	133,494	$	133,659	$	0	$	0	$	0

National Lending	National Lending																			National Lending
Term lending	Term lending	7,371		6,957		16,965		31,293		707,161		738,454		2,578		16,524		19,102		Term lending	8,467		2,442		10,211		21,120		860,186		881,306		385		13,741		14,126
Asset based lending	Asset based lending	—		—		—		—		181,130		181,130		—		—		—		Asset based lending	0		0		0		0		242,298		242,298		0		917		917
Factoring	Factoring	—		—		—		—		206,361		206,361		—		733		733		Factoring	0		0		0		0		275,650		275,650		0		842		842
Lease financing	Lease financing	4,623		5,669		4,583		14,875		250,113		264,988		1,907		3,518		5,425		Lease financing	11,257		4,144		3,424		18,825		264,897		283,722		1,042		2,607		3,649
Insurance premium finance	Insurance premium finance	1,711		3,379		3,723		8,813		350,334		359,147		3,723		—		3,723		Insurance premium finance	3,349		772		665		4,786		333,441		338,227		665		0		665
SBA/USDA	SBA/USDA	160		—		1,879		2,039		306,572		308,611		427		1,510		1,937		SBA/USDA	375		0		600		975		299,732		300,707		0		600		600
Other commercial finance	Other commercial finance	—		—		—		—		100,214		100,214		—		—		—		Other commercial finance	0		0		0		0		101,209		101,209		0		0		0
Commercial finance	Commercial finance	13,865		16,005		27,150		57,020		2,101,885		2,158,905		8,635		22,285		30,920		Commercial finance	23,448		7,358		14,900		45,706		2,377,413		2,423,119		2,092		18,707		20,799
Consumer credit products	Consumer credit products	506		412		337		1,255		101,553		102,808		337		—		337		Consumer credit products	661		301		457		1,419		87,176		88,595		457		0		457
Other consumer finance	Other consumer finance	144		211		572		927		137,850		138,777		572		—		572		Other consumer finance	754		103		675		1,532		160,891		162,423		675		0		675
Consumer finance	Consumer finance	650		623		909		2,182		239,403		241,585		909		—		909		Consumer finance	1,415		404		1,132		2,951		248,067		251,018		1,132		0		1,132
Tax services	Tax services	—		19,168		—		19,168		—		19,168		—		—		—		Tax services	0		0		0		0		92,548		92,548		0		0		0
Warehouse finance	Warehouse finance	—		—		—		—		277,614		277,614		—		—		—		Warehouse finance	0		0		0		0		318,937		318,937		0		0		0
Total National Lending	Total National Lending	14,515		35,796		28,059		78,370		2,618,902		2,697,272		9,544		22,285		31,829		Total National Lending	24,863		7,762		16,032		48,657		3,036,965		3,085,622		3,224		18,707		21,931
Community Banking	Community Banking																			Community Banking
Commercial real estate and operating	Commercial real estate and operating	2,791		580		258		3,629		604,674		608,303		258		580		838		Commercial real estate and operating	13		0		560		573		338,568		339,141		0		18,456		18,456
Consumer one-to-four family real estate and other	Consumer one-to-four family real estate and other	863		—		121		984		165,495		166,479		—		121		121		Consumer one-to-four family real estate and other	0		0		50		50		5,027		5,077		0		164		164
Agricultural real estate and operating	Agricultural real estate and operating	1,256		45		6,506		7,807		16,848		24,655		4,737		1,769		6,506		Agricultural real estate and operating	0		0		1,769		1,769		7,955		9,724		0		1,769		1,769
Total Community Banking	Total Community Banking	4,910		625		6,885		12,420		787,017		799,437		4,995		2,470		7,465		Total Community Banking	13		0		2,379		2,392		351,550		353,942		0		20,389		20,389
Total loans and leases held for investment	Total loans and leases held for investment	19,425		36,421		34,944		90,790		3,405,919		3,496,709		14,539		24,755		39,294		Total loans and leases held for investment	24,876		7,762		18,411		51,049		3,388,515		3,439,564		3,224		39,096		42,320

Total loans and leases	Total loans and leases	$	19,425	$	36,421	$	34,944	$	90,790	$	3,485,824	$	3,576,614	$	14,539	$	24,755	$	39,294	Total loans and leases	$	25,041	$	7,762	$	18,411	$	51,214	$	3,522,009	$	3,573,223	$	3,224	$	39,096	$	42,320

3227

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		Accruing and Nonaccruing Loans and Leases																								Nonperforming Loans and Leases									Accruing and Nonaccruing Loans and Leases				Nonperforming Loans and Leases
(Dollars in Thousands)	(Dollars in Thousands)	30-59 Days Past Due		60-89 Days Past Due		> 89 Days Past Due		Total Past Due		Current		Total Loans and Leases Receivable		> 89 Days Past Due and Accruing		Non-accrual balance		Total		(Dollars in Thousands)	30-59 Days Past Due		60-89 Days Past Due		> 89 Days Past Due		Total Past Due		Current		Total Loans and Leases Receivable		> 89 Days Past Due and Accruing		Non-accrual balance		Total
As of September 30, 2019
As of September 30, 2020																				As of September 30, 2020
Loans held for sale	Loans held for sale	$	1,122	$	755	$	964	$	2,841	$	145,936	$	148,777	$	964	$	—	$	964	Loans held for sale	$	0	$	0	$	0	$	0	$	183,577	$	183,577	$	0	$	0	$	0

National Lending	National Lending																			National Lending
Term lending	Term lending	2,162		910		14,098		17,170		624,572		641,742		2,241		12,146		14,387		Term lending	11,900		3,851		6,390		22,141		783,182		805,323		266		16,274		16,540
Asset based lending	Asset based lending	—		—		—		—		250,465		250,465		—		—		—		Asset based lending	17		0		0		17		182,402		182,419		0		0		0
Factoring	Factoring	—		—		—		—		296,507		296,507		—		1,669		1,669		Factoring	0		0		0		0		281,173		281,173		0		1,096		1,096
Lease financing	Lease financing	1,160		1,134		1,736		4,030		173,885		177,915		1,530		308		1,838		Lease financing	194		9,746		6,882		16,822		264,262		281,084		4,344		3,583		7,927
Insurance premium finance	Insurance premium finance	1,999		2,881		3,807		8,687		352,418		361,105		3,807		—		3,807		Insurance premium finance	1,227		748		2,364		4,339		333,601		337,940		2,364		0		2,364
SBA/USDA	SBA/USDA	83		—		255		338		88,493		88,831		—		255		255		SBA/USDA	0		0		1,027		1,027		317,360		318,387		427		600		1,027
Other commercial finance	Other commercial finance	—		—		—		—		99,665		99,665		—		—		—		Other commercial finance	0		0		0		0		101,658		101,658		0		0		0
Commercial finance	Commercial finance	5,404		4,925		19,896		30,225		1,886,005		1,916,230		7,578		14,378		21,956		Commercial finance	13,338		14,345		16,663		44,346		2,263,638		2,307,984		7,401		21,553		28,954
Consumer credit products	Consumer credit products	627		557		239		1,423		105,371		106,794		239		—		239		Consumer credit products	377		358		499		1,233		88,576		89,809		499		0		499
Other consumer finance	Other consumer finance	932		1,005		1,078		3,015		158,389		161,404		1,078		—		1,078		Other consumer finance	600		536		373		1,509		132,833		134,342		373		0		373
Consumer finance	Consumer finance	1,559		1,562		1,317		4,438		263,760		268,198		1,317		—		1,317		Consumer finance	977		894		872		2,743		221,408		224,151		872		0		872
Tax services	Tax services	—		—		2,240		2,240		—		2,240		2,240		—		2,240		Tax services	0		0		1,743		1,743		1,323		3,066		1,743		0		1,743
Warehouse finance	Warehouse finance	—		—		—		—		262,924		262,924		—		—		—		Warehouse finance	0		0		0		0		293,375		293,375		0		0		0
Total National Lending	Total National Lending	6,963		6,487		23,453		36,903		2,412,689		2,449,592		11,135		14,378		25,513		Total National Lending	14,315		15,239		19,278		48,832		2,779,744		2,828,576		10,016		21,553		31,569
Community Banking	Community Banking																			Community Banking
Commercial real estate and operating	Commercial real estate and operating	565		—		—		565		883,367		883,932		—		—		—		Commercial real estate and operating	0		0		630		630		456,741		457,371		50		580		630
Consumer one-to-four family real estate and other	Consumer one-to-four family real estate and other	458		—		9		467		258,958		259,425		—		44		44		Consumer one-to-four family real estate and other	905		114		50		1,069		15,417		16,486		0		50		50
Agricultural real estate and operating	Agricultural real estate and operating	49		—		—		49		58,415		58,464		—		—		—		Agricultural real estate and operating	0		0		1,769		1,769		9,938		11,707		0		1,769		1,769
Total Community Banking	Total Community Banking	1,072		—		9		1,081		1,200,740		1,201,821		—		44		44		Total Community Banking	905		114		2,449		3,468		482,096		485,564		50		2,399		2,449
Total loans and leases held for investment	Total loans and leases held for investment	8,035		6,487		23,462		37,984		3,613,429		3,651,413		11,135		14,422		25,557		Total loans and leases held for investment	15,220		15,353		21,727		52,300		3,261,840		3,314,140		10,066		23,952		34,018

Total loans and leases	Total loans and leases	$	9,157	$	7,242	$	24,426	$	40,825	$	3,759,365	$	3,800,190	$	12,099	$	14,422	$	26,521	Total loans and leases	$	15,220	$	15,353	$	21,727	$	52,300	$	3,445,417	$	3,497,717	$	10,066	$	23,952	$	34,018

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


	Amortized Cost Basis
(Dollars in Thousands)	Term Loans and Leases by Origination Year												Revolving Loans and Leases		Total
December 31, 2020	2021		2020		2019		2018		2017		Prior
National Lending
Term lending	$	42	$	4,051	$	2,117	$	3,051	$	11	$	4,469	$	0	$	13,741
Asset based lending	0		0		0		0		0		0		917		917
Factoring	0		0		0		0		0		0		842		842
Lease financing	0		90		2,106		411		0		0		0		2,607

SBA/USDA	0		0		0		0		0		600		0		600

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





Total National Lending	42		4,141		4,223		3,462		11		5,069		1,759		18,707
Community Banking															—
Commercial real estate and operating	0		1,260		0		300		13,618		3,278		0		18,456
Consumer one-to-four family real estate and other	0		0		41		9		0		114		0		163
Agricultural real estate and operating	0		0		0		1,419		0		0		350		1,769
Total Community Banking	0		1,260		41		1,727		13,618		3,392		350		20,388
Total nonaccrual loans and leases	$	42	$	5,401	$	4,264	$	5,189	$	13,629	$	8,461	$	2,109	$	39,096

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


	Amortized Cost Basis
(Dollars in Thousands)	Term Loans and Leases by Origination Year												Revolving Loans and Leases		Total
December 31, 2020	2021		2020		2019		2018		2017		Prior
National Lending
Term lending	$	0	$	0	$	131	$	232	$	0	$	22	$	0	$	385


Lease financing	0		543		311		184		3		1		0		1,042
Insurance premium finance	0		641		24		0		0		0		0		665


Commercial finance	0		1,184		466		416		3		23		0		2,092

Other consumer finance	0		0		0		0		0		675		0		675
Consumer finance (1)	0		0		0		0		0		675		0		675


Total National Lending	0		1,184		466		416		3		698		0		2,767





Total 90 days or more delinquent and accruing	$	0	$	1,184	$	466	$	416	$	3	$	698	$	0	$	2,767

(1) Consumer credit products are not included in the table as they are evaluated under a separate methodology for allowance for credit loss purposes that considers the overall Program structure. Refer to the Company’s most recent audited financial statements for additional information on these Programs.

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

When analysis of borrower or lessee operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan or lease is evaluated for impairment. Often, this is associated with a delay or shortfall in scheduled payments, as described above.

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


	Three Months Ended December 31, 2020
(Dollars in Thousands)	Average Recorded Investment
National Lending
Term lending	$	14,876
Asset based lending	1,074
Factoring	935
Lease financing	3,556

SBA/USDA	600

Commercial finance	21,041





Total National Lending	21,041
Community Banking
Commercial real estate and operating	6,539
Consumer one-to-four family real estate and other	125
Agricultural real estate and operating	1,769
Total Community Banking	8,433
Total loans and leases	$	29,474

The recognized interest income on the Company's nonaccrual loans and leases ~~were as follows:~~

As of June 30, 2020 Recorded
Balance Unpaid Principal
Balance Specific
Allowance
Loans and leases without a specific valuation allowance (Dollars in Thousands)
National Lending
Term lending $ 17,442 $ 20,217 $ —
Asset based lending 2,805 2,805 —
Factoring 1,282 2,357 —
Lease financing 1,474 1,482 —
SBA/USDA 870 870 —
Commercial finance 23,873 27,731 —
Other consumer finance 2,177 2,314 —
Consumer finance 2,177 2,314 —
Total National Lending 26,050 30,045 —
Community Banking
Commercial real estate and operating 259 259 —
Consumer one-to-four family real estate and other 177 177 —
Agricultural real estate and operating 2,437 2,437 —
Total Community Banking 2,873 2,873 —
Total $ 28,923 $ 32,918 $ —
Loans and leases with a specific valuation allowance
National Lending
Term lending $ 14,025 $ 14,037 $ 3,366
Factoring 883 883 189
Lease financing 3,221 3,221 1,350
SBA/USDA 1,510 1,510 241
Commercial finance 19,639 19,651 5,146
Total National Lending 19,639 19,651 5,146
Community Banking
Commercial real estate and operating 160 160 141
Total Community Banking Loans 160 160 141
Total $ 19,799 $ 19,811 $ 5,287
during the quarter ended December 31, 2020 was not significant.

~~Table of Contents~~

As of September 30, 2019 Recorded
Balance Unpaid Principal
Balance Specific
Allowance
Loans and leases without a specific valuation allowance (Dollars in Thousands)
National Lending
Term lending $ 12,644 $ 13,944 $ —
Asset based lending 378 378 —
Factoring 1,563 2,638 —
Lease financing 1,062 1,062 —
SBA/USDA 2,595 2,595 —
Commercial finance 18,242 20,617 —
Other consumer finance 1,472 1,539 —
Consumer finance 1,472 1,539 —
Total National Lending 19,714 22,156 —
Community Banking
Commercial real estate and operating 258 258 —
Consumer one-to-four family real estate and other 100 100 —
Agricultural real estate and operating 2,985 2,985 —
Total Community Banking 3,343 3,343 —
Total $ 23,057 $ 25,499 $ —
Loans and leases with a specific valuation allowance
National Lending
Term lending $ 6,924 $ 6,951 $ 450
Factoring 2,261 3,601 1,262
Lease financing 151 151 112
SBA/USDA 1,246 1,246 51
Commercial finance 10,582 11,949 1,875
Total National Lending 10,582 11,949 1,875
Total $ 10,582 $ 11,949 $ 1,875

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

Three Months Ended June 30,
2020 2019
(Dollars in Thousands) Average
Recorded
Investment Recognized Interest Income Average
Recorded
Investment Recognized Interest Income
National Lending
Term lending $ 28,848 $ 121 $ 3,906 $ 88
Asset based lending 935 — 2,777 —
Factoring 4,715 — 6,621 —
Lease financing 2,946 2 3,351 —
SBA/USDA 3,162 — 425 —
Commercial finance 40,606 123 17,080 88
Other consumer finance 1,999 37 1,190 28
Consumer finance 1,999 37 1,190 28
Total National Lending 42,605 160 18,270 116
Community Banking
Commercial real estate and operating 405 1 106 5
Consumer one-to-four family real estate and other 131 — 186 1
Agricultural real estate and operating 2,437 10 1,226 28
Total Community Banking 2,973 11 1,518 34
Total loans and leases $ 45,578 $ 171 $ 19,788 $ 150

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leases:


		Nine Months Ended June 30,
		2020						2019							Three Months Ended December 31, 2019
(Dollars in Thousands)	(Dollars in Thousands)	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		(Dollars in Thousands)	Average Recorded Investment		Recognized Interest Income
National Lending	National Lending									National Lending
Term lending	Term lending	$	24,946	$	240	$	4,667	$	262	Term lending	$	19,537	$	74
Asset based lending	Asset based lending	571		—		1,267		—		Asset based lending	427		0
Factoring	Factoring	4,387		—		4,178		5		Factoring	3,849		0
Lease financing	Lease financing	2,929		14		3,070		17		Lease financing	3,686		0

SBA/USDA	SBA/USDA	3,530		—		142		—		SBA/USDA	3,788		0

Commercial finance	Commercial finance	36,363		254		13,325		284		Commercial finance	31,287		74

Other consumer finance	Other consumer finance	1,775		111		1,215		38		Other consumer finance	1,551		35
Consumer finance	Consumer finance	1,775		111		1,215		38		Consumer finance	1,551		35

Total National Lending	Total National Lending	38,138		365		14,540		322		Total National Lending	32,838		109
Community Banking	Community Banking									Community Banking
Commercial real estate and operating	Commercial real estate and operating	511		27		259		9		Commercial real estate and operating	446		13
Consumer one-to-four family real estate and other	Consumer one-to-four family real estate and other	101		9		154		3		Consumer one-to-four family real estate and other	90		8
Agricultural real estate and operating	Agricultural real estate and operating	2,677		(134)		1,371		63		Agricultural real estate and operating	2,921		42
Total Community Banking	Total Community Banking	3,289		(98)		1,784		75		Total Community Banking	3,457		63
Total loans and leases	Total loans and leases	$	41,427	$	267	$	16,324	$	397	Total loans and leases	$	36,295	$	172

The Company’s troubled debt restructurings ("TDRs") typically involve forgiving a portion of interest or principal on existing loans, making loans at a rate materially less than current market rates, or extending the term of the loan. There were ~~$1.4~~$0.1 million of national lending loans that were modified in a TDR during the three months ended ~~June 30,~~December 31, 2020, all of which were modified to extend the term of the loan, and 0 community banking loans. There were ~~$0.7~~$0.6 million community banking loans and ~~$0.1~~$0.4 million of national lending loans and leases that were modified in a TDR during the three months ended ~~June 30,~~December 31, 2019.

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During the ~~nine~~three months ended ~~June 30,~~December 31, 2020, ~~there were $5.5~~the Company had $0.4 million of national lending loans and ~~$0.6 million of~~0 community ~~bank loans that were modified in a TDR, all of which were modified to extend the term of the loan. There were $1.7 million of national lending loans and leases and $0.7 million of community~~ banking ~~loans that were modified in a TDR during the nine months ended June 30, 2019.~~

~~During the nine months ended June 30, 2020, the Company had $3.3 million of community banking loans and $1.3 million of national lending~~ loans that were modified in a TDR within the previous 12 months and for which there was a payment default. During the ~~nine~~three months ended ~~June 30,~~December 31, 2019, the Company had ~~$0.9~~$1.2 million of community banking loans and 0$0.3 million national lending loans that were modified in a TDR within the previous 12 months and for which there was a payment default. TDR net charge-offs and the impact of TDRs on the Company's allowance for loan and lease losses were insignificant during the quarters ended ~~June 30,~~December 31, 2020 and ~~June 30,~~December 31, 2019.

NOTE 7. EARNINGS PER COMMON SHARE ("EPS")

~~Earnings per common share is computed after deducting any preferred dividends, if applicable.~~ The Company has granted restricted share awards with dividend rights that are considered to be participating securities. Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the earnings per share ~~calculation.~~calculation under the two-class method. Basic earnings per common share is computed using the two-class method by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated using the more dilutive of the treasury stock method or the two-class method. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options, performance share units, and ~~after~~nonvested restricted stock, where applicable. Diluted EPS under the two-class method also considers the allocation of earnings to the participating securities. Antidilutive ~~options~~securities are disregarded in earnings per share calculations. Diluted EPS shown below reflects the two-class method, as diluted EPS under the two-class method was more dilutive than under the treasury stock method.

~~Table of Contents~~

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

Three Months Ended June 30,
(Dollars in Thousands, Except Share and Per Share Data) 2020 2019
Basic income per common share:
     Net income attributable to Meta Financial Group, Inc. $ 18,190 $ 29,291
Weighted average common shares outstanding 34,616,038 38,903,266
     Basic income per common share $ 0.53 $ 0.75
Diluted income per common share:
     Net income attributable to Meta Financial Group, Inc. $ 18,190 $ 29,291
Weighted average common shares outstanding 34,616,038 38,903,266
     Outstanding options - based upon the two-class method 7,076 74,424
Weighted average diluted common shares outstanding 34,623,114 38,977,690
     Diluted income per common share $ 0.53 $ 0.75


	Three Months Ended December 31,
(Dollars in Thousands, Except Share and Per Share Data)	2020		2019
Basic income per common share:
Net income attributable to Meta Financial Group, Inc.	$	28,037	$	21,068
Dividends and undistributed earnings allocated to participating securities	(554)		(460)
Basic net earnings available to common stockholders	27,483		20,608
Undistributed earnings allocated to nonvested restricted stockholders	521		420
Reallocation of undistributed earnings to nonvested restricted stockholders	(521)		(420)
Diluted net earnings available to common stockholders	$	27,483	$	20,608

Total weighted-average basic common shares outstanding	32,782,285		36,613,699
Effect of dilutive securities(1)
Stock options	0		34,090
Performance share units	8,610		0
Total effect of dilutive securities	8,610		34,090
Total weighted-average diluted common shares outstanding	32,790,895		36,647,789

Net earnings per common share:
Basic earnings per common share	$	0.84	$	0.56
Diluted earnings per common share(2)	$	0.84	$	0.56

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

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

Nine Months Ended June 30,
(Dollars in Thousands, Except Share and Per Share Data) 2020 2019
Basic income per common share:
     Net income attributable to Meta Financial Group, Inc. $ 91,562 $ 76,809
Weighted average common shares outstanding 36,004,877 39,220,793
     Basic income per common share $ 2.54 $ 1.96
Diluted income per common share:
     Net income attributable to Meta Financial Group, Inc. $ 91,562 $ 76,809
Weighted average common shares outstanding 36,004,877 39,220,793
     Outstanding options - based upon the two-class method 11,160 68,218
Weighted average diluted common shares outstanding 36,016,037 39,289,011
     Diluted income per common share $ 2.54 $ 1.95

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NOTE 8. RENTAL EQUIPMENT, NET

Rental equipment consists of the following:


(Dollars in Thousands)	(Dollars in Thousands)	June 30, 2020		September 30, 2019		(Dollars in Thousands)	December 31, 2020		September 30, 2020
Computers and IT networking equipment	Computers and IT networking equipment	$	29,846	$	37,352	Computers and IT networking equipment	$	16,026	$	15,926
Motor vehicles and other	Motor vehicles and other	122,995		98,149		Motor vehicles and other	47,800		52,913
Office furniture and equipment	Office furniture and equipment	2,576		2,875		Office furniture and equipment	78,850		74,197
Solar panels and equipment	Solar panels and equipment	118,583		116,505		Solar panels and equipment	122,071		118,808
Total	Total	274,000		254,881		Total	264,747		261,844

Accumulated depreciation	Accumulated depreciation	(59,576)		(46,344)		Accumulated depreciation	(59,673)		(57,601)
Unamortized initial direct costs	Unamortized initial direct costs	1,912		—		Unamortized initial direct costs	1,658		1,721
Net book value	Net book value	$	216,336	$	208,537	Net book value	$	206,732	$	205,964

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Undiscounted future minimum lease payments expected to be received for operating leases were as follows:


(Dollars in Thousands)	(Dollars in Thousands)			(Dollars in Thousands)
Remaining in 2020		$	9,345
2021		32,668
Remaining in 2021				Remaining in 2021	$	23,422
2022	2022	26,109		2022	27,390
2023	2023	21,461		2023	23,644
2024	2024	15,601		2024	17,173
2025				2025	12,313
Thereafter	Thereafter	27,915		Thereafter	18,295
Total undiscounted future minimum lease payments receivable for operating leases	Total undiscounted future minimum lease payments receivable for operating leases	$	133,099	Total undiscounted future minimum lease payments receivable for operating leases	$	122,237

NOTE 9. FORECLOSED REAL ESTATE AND REPOSSESSED ASSETS

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


		Nine Months Ended June 30,							Three Months Ended December 31,
(Dollars in Thousands)	(Dollars in Thousands)	2020		2019		(Dollars in Thousands)	2020		2019
Balance, beginning of period	Balance, beginning of period	$	29,494	$	31,638	Balance, beginning of period	$	9,957	$	29,494
Additions	Additions	5,983		105		Additions	9		41
Reductions:	Reductions:					Reductions:
Write-downs	Write-downs	568		339		Write-downs	123		83
Net proceeds from sale	Net proceeds from sale	23,086		1,905		Net proceeds from sale	2,657		23,085
Gain (loss) on sale		(5,039)		15
(Gain) loss on sale						(Gain) loss on sale	0		5,039
Total reductions	Total reductions	28,693		2,229		Total reductions	2,780		28,207
Balance, ending of period	Balance, ending of period	$	6,784	$	29,514	Balance, ending of period	$	7,186	$	1,328

At ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, the Company had established a valuation allowance of ~~$0.5~~$0.6 million and ~~$0.1~~$0.5 million for repossessed assets, respectively. As of ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, the Company had 0 loans or leases in the process of foreclosure.

During the ~~nine months~~fiscal year ended ~~June~~September 30, 2020, the Company sold $28.1 million of other real estate owned ("OREO"), which consisted of assets related to a Community Bank agriculture real estate customer. The sale ~~occurred via public auction and~~ consisted of 30-plus parcels of ~~land. The sale of 30-plus parcels closed in~~land and the ~~fiscal 2020 first quarter. The Company applied Subtopic ASC 610-20,~~ ~~Gains and Losses from the Derecognition of Nonfinancial Assets~~ ~~to record the sale. The following table is a summary of the sale transaction, as reflected in the Company's financial statements:~~


~~(Dollars in Thousands)~~	~~June 30, 2020~~
~~Purchase price~~	$	~~23,083~~
~~Carrying value of OREO~~	~~28,122~~
~~Loss on sale~~	~~(5,039)~~
~~Deferred income recognized~~	~~1,096~~
~~Net impact~~	$	~~(3,943)~~

~~The~~ Company recognized a $5.0 million loss ~~from the sale of foreclosed property during the nine months ended June 30, 2020, which is~~that was included in the "Gain (loss) on sale of other" line on the Condensed Consolidated Statements of Operations. The Company also recognized $1.1 million in deferred rental income and $0.2 million in OREO expenses related to these foreclosed ~~properties during the nine months ended June 30, 2020.~~

properties.

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NOTE 10. GOODWILL AND INTANGIBLE ASSETS

The Company held a total of $309.5 million of goodwill at ~~June 30,~~December 31, 2020. The recorded goodwill is a result of multiple business combinations that have been consummated since fiscal year 2015, with the most recent being the merger with Crestmark pursuant to the Crestmark Acquisition that closed on August 1, 2018. Goodwill is assessed for impairment at least annually or more often if conditions indicate a possible impairment. The assessment is done at a reporting unit level, which is one level below the operating segments. ~~The Company has changed its basis of presentation for segments. See Note 17. Segment Reporting for additional information on the Company's segment reporting.~~

~~Due~~There have been 0 changes to the ongoing economic impacts from the COVID-19 pandemic, the Company conducted a quantitative interim goodwill impairment assessment at June 30, 2020. The impairment assessment compares the fair value of each reporting unit with its carrying amount (including goodwill). If the carrying amount of goodwill during the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The Company's interim assessment estimated fair value for each reporting unit using an income approach that incorporated a discounted cash flow model that involves many management assumptions based upon future growth projections which include estimates of COVID-19 impacts on our various business lines. Assumptions include estimates of future after-tax cash flows, growth rates, and discount rates based upon industry and competitor analyses. Results of the interim assessment indicated 0 goodwill impairment for any of the reporting units as of June 30,three months ended December 31, 2020.

The changes in the carrying amount of the Company’s ~~goodwill and~~ intangible assets for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019 were as follows:

(Dollars in Thousands) Consumer Commercial Corporate Services/Other Total
Goodwill
September 30, 2019 $ 87,145 $ 222,360 $ — $ 309,505
Acquisitions — — — —
Impairment — — — —
June 30, 2020 $ 87,145 $ 222,360 $ — $ 309,505
September 30, 2018 $ 87,145 $ 216,125 $ — $ 303,270
Acquisitions — — — —
Measurement Period Adjustments⁽¹⁾
— 4,671 — 4,671
Impairment — — — —
June 30, 2019 $ 87,145 $ 220,796 $ — $ 307,941

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


(Dollars in Thousands)	Trademark(1)		Non-Compete(2)		Customer Relationships(3)		All Others(4)		Total
Intangible Assets
Balance as of September 30, 2020	$	10,901	$	422	$	24,333	$	6,036	$	41,692
Acquisitions during the period	0		0		0		5		5
Amortization during the period	(272)		(95)		(1,486)		(160)		(2,013)
Write-offs during the period	0		0		0		(24)		(24)
Balance as of December 31, 2020	$	10,629	$	327	$	22,847	$	5,857	$	39,660

Gross carrying amount	$	14,624	$	2,481	$	82,088	$	10,123	$	109,316
Accumulated amortization	(3,995)		(2,154)		(48,993)		(4,047)		(59,189)
Accumulated impairment	0		0		(10,248)		(219)		(10,467)
Balance as of December 31, 2020	$	10,629	$	327	$	22,847	$	5,857	$	39,660

~~Table of Contents~~

(Dollars in Thousands)
Trademark⁽¹⁾
Non-Compete⁽²⁾
Customer Relationships⁽³⁾
All Others⁽⁴⁾
Total
Intangible Assets
Balance as of September 30, 2019 $ 11,959 $ 827 $ 33,207 $ 6,817 $ 52,810
Acquisitions during the period — — — 35 35
Amortization during the period (793) (310) (7,112) (499) (8,714)
Write-offs during the period — — — (157) (157)
Balance as of June 30, 2020 $ 11,166 $ 517 $ 26,095 $ 6,196 $ 43,974
Gross carrying amount $ 14,624 $ 2,480 $ 82,088 $ 10,112 $ 109,304
Accumulated amortization (3,458) (1,963) (45,745) (3,726) (54,892)
Accumulated impairment — — (10,248) (190) (10,438)
Balance as of June 30, 2020 $ 11,166 $ 517 $ 26,095 $ 6,196 $ 43,974

⁽¹⁾Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.

⁽²⁾ Book amortization period of 3-5 years. Amortized using the straight line method.

⁽³⁾ Book amortization period of 10-30 years. Amortized using the accelerated method.

⁽⁴⁾ Book amortization period of 3-20 years. Amortized using the straight line method.


(Dollars in Thousands)	(Dollars in Thousands)	Trademark⁽¹⁾		Non-Compete⁽²⁾		Customer Relationships⁽³⁾		All Others⁽⁴⁾		Total		(Dollars in Thousands)	Trademark(1)		Non-Compete(2)		Customer Relationships(3)		All Others(4)		Total
Intangible Assets	Intangible Assets											Intangible Assets
Balance as of September 30, 2018		$	12,987	$	1,297	$	48,455	$	7,980	$	70,719
Balance as of September 30, 2019												Balance as of September 30, 2019	$	11,959	$	827	$	33,207	$	6,817	$	52,810
Acquisitions during the period	Acquisitions during the period	—		—		—		100		100		Acquisitions during the period	0		0		0		17		17
Amortization during the period	Amortization during the period	(771)		(353)		(12,504)		(724)		(14,352)		Amortization during the period	(264)		(113)		(2,115)		(184)		(2,676)
Write-offs during the period		—		—		—		(314)		(314)
Balance as of June 30, 2019		$	12,216	$	944	$	35,951	$	7,042	$	56,153

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

Gross carrying amount	Gross carrying amount	$	14,624	$	2,480	$	82,088	$	10,688	$	109,880	Gross carrying amount	$	14,624	$	2,480	$	82,088	$	10,719	$	109,911
Accumulated amortization	Accumulated amortization	(2,408)		(1,536)		(35,889)		(2,987)		(42,820)		Accumulated amortization	(2,929)		(1,766)		(40,748)		(3,410)		(48,853)
Accumulated impairment	Accumulated impairment	—		—		(10,248)		(659)		(10,907)		Accumulated impairment	0		0		(10,248)		(659)		(10,907)
Balance as of June 30, 2019		$	12,216	$	944	$	35,951	$	7,042	$	56,153
Balance as of December 31, 2019												Balance as of December 31, 2019	$	11,695	$	714	$	31,092	$	6,650	$	50,151

⁽¹⁾ Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.

⁽²⁾ Book amortization period of 3-5 years. Amortized using the straight line method.

⁽³⁾ Book amortization period of 10-30 years. Amortized using the accelerated method.

⁽⁴⁾ Book amortization period of 3-20 years. Amortized using the straight line method.

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The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining ~~three~~nine months of fiscal ~~2020~~2021 and subsequent fiscal years ~~at June 30, 2020~~ was as follows:


(Dollars in Thousands)	(Dollars in Thousands)			(Dollars in Thousands)	December 31, 2020
Remaining in 2020		$	2,283
2021		8,545
Remaining in 2021				Remaining in 2021	$	6,532
2022	2022	6,419		2022	6,420
2023	2023	5,101		2023	5,102
2024	2024	4,383		2024	4,384
2025	2025	3,826		2025	3,826
2026				2026	3,252
Thereafter	Thereafter	13,417		Thereafter	10,144
Total anticipated intangible amortization	Total anticipated intangible amortization	$	43,974	Total anticipated intangible amortization	$	39,660

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The Company tests intangible assets for impairment at least annually or more often if conditions indicate a possible impairment. There were 0 impairments to intangible assets during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~or the three months ended June 30, 2019. There was $0.1 million in impairments to intangible assets during the nine months ended June 30,~~and 2019.

NOTE 11. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES

Operating lease ROU assets, included in other assets, were ~~$26.5~~$25.2 million at ~~June 30,~~December 31, 2020.

Operating lease liabilities, included in accrued expenses and other liabilities, were ~~$28.0~~$26.7 million at ~~June 30,~~December 31, 2020.

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


(Dollars in Thousands)	(Dollars in Thousands)			(Dollars in Thousands)	December 31, 2020
Remaining in 2020		$	958
2021		3,742
Remaining in 2021				Remaining in 2021	$	2,880
2022	2022	3,479		2022	3,580
2023	2023	2,799		2023	2,899
2024	2024	2,808		2024	2,908
2025				2025	2,755
Thereafter	Thereafter	18,520		Thereafter	15,765
Total undiscounted future minimum lease payments	Total undiscounted future minimum lease payments	32,306		Total undiscounted future minimum lease payments	30,787
Discount	Discount	(4,347)		Discount	(4,082)
Total operating lease liabilities	Total operating lease liabilities	$	27,959	Total operating lease liabilities	$	26,705

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


	~~June 30,~~December 31, 2020
Weighted-average discount rate	~~2.35~~2.34	%
Weighted-average remaining lease term (years)	~~11.51~~11.23

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


(Dollars in Thousands)	~~Nine~~Three Months Ended ~~June 30,~~December 31, 2020
Lease expense	$	~~2,533~~954
Short-term and variable lease cost	~~452~~63
ROU asset impairment	224
Sublease income	~~(552)~~(108)
Total lease cost for operating leases	$	~~2,433~~1,133

NOTE 12. STOCKHOLDERS' EQUITY

Repurchase of Common Stock

During the nine months ended June 30, 2020, the Company repurchased 3,498,394 of its shares, at an average price of $34.34, which exhausted the remaining shares available for repurchase by the Company under the March 26, 2019 share repurchase program. The Company's Board of Directors authorized the November 20, 2019 share repurchase program to repurchase up to ~~an additional~~ 7,500,000 shares of the Company's outstanding common ~~stock~~stock. This authorization is effective from November 21, 2019 through December 31, 2022. During the three months ended ~~June 30,~~December 31, 2020, and 2019, the Company ~~did 0t repurchase~~repurchased 1,943,575 and 899,371 shares, respectively, as part of the share repurchase program.

Under the repurchase program, ~~because the Company suspended its share repurchase activity in March 2020.~~

~~Table of Contents~~

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

~~Repurchase of Treasury Stock~~

~~On June 25, 2019, the Company retired 114,558 shares of common stock held in treasury.~~designated as authorized but unissued shares. The Company accounts for ~~the retirement of~~ repurchased shares ~~including treasury stock,~~ using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. ~~NaN~~As of December 31, 2020, the remaining number of shares available for repurchase under this program was 2,285,157 shares of common ~~stock held in treasury were retired in~~stock.

For the ~~nine~~three months ended ~~June 30, 2020.~~December 31, 2020, and 2019, the Company also repurchased 79,101 and 82,971 shares, or $1.8 million and $2.7 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

NOTE 13. STOCK COMPENSATION

The Company maintains the Meta Financial Group, Inc. 2002 Omnibus Incentive Plan, as amended and restated (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options, ~~and~~ nonvested (restricted) shares, and performance share units ("PSUs") to certain officers and directors of the Company. Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant. The exercise price of options or fair value of nonvested (restricted) shares and performance share units granted under the Company’s incentive plan is equal to the fair market value of the underlying stock at the grant ~~date.~~date, adjusted for dividends where applicable. The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur.

The following tables show the activity of ~~options and~~ nonvested (restricted) shares and PSUs granted, exercised, or forfeited under the 2002 Omnibus Incentive Plan for the ~~nine~~three months ended ~~June 30, 2020:~~December 31, 2020. There were 0 options granted, exercised or forfeited under this plan during the three months ended December 31, 2020.

(Dollars in Thousands, Except Per Share Data) Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Yrs) Aggregate Intrinsic Value
Options outstanding, September 30, 2019 59,835 $ 8.06 1.54 $ 1,469
Granted — — — —
Exercised (41,949) 6.98 1.01 866
Forfeited or expired — — — —
Options outstanding, June 30 2020 17,886 $ 10.60 0.25 $ 135
Options exercisable, June 30, 2020 17,886 $ 10.60 0.25 $ 135


(Dollars in Thousands, Except Per Share Data)	Number of Shares	Weighted Average Fair Value at Grant
Nonvested shares outstanding, September 30, 2020	790,083	$	30.03
Granted	136,087	26.22
Vested	(237,413)	28.86
Forfeited or expired	(91,060)	29.74
Nonvested shares outstanding, December 31, 2020	597,697	$	29.67

(Dollars in Thousands, Except Per Share Data) Number of Shares Weighted Average Fair Value at Grant
Nonvested shares outstanding, September 30, 2019 926,122 $ 29.54
Granted 191,372 32.32
Vested (276,193) 30.04
Forfeited or expired (9,584) 31.48
Nonvested shares outstanding, June 30, 2020 831,717 $ 29.99

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(Dollars in Thousands, Except Per Share Data)	Number of Units	Weighted Average Fair Value at Grant
Performance share units outstanding, September 30, 2020	0	$	0
Granted(1)	60,984	34.03
Vested	0	0
Forfeited or expired	0	0
Performance share units outstanding, December 31, 2020	60,984	$	34.03

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

At ~~June 30,~~December 31, 2020, stock-based compensation expense not yet recognized in income totaled $9.4 million, which is expected to be recognized over a weighted average remaining period of ~~2.46~~2.26 years.

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NOTE 14. INCOME TAXES

The Company recorded an income tax expense of ~~$3.9~~$3.5 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2020, resulting in an effective tax rate of ~~3.91%~~10.77%, compared to an income tax benefit of ~~$3.2~~$0.7 million, or an effective tax rate of ~~(4.20%)~~2.97%, for the ~~nine~~three months ended ~~June 30,~~December 31, 2019. The Company’s effective tax rate was lower than the U.S. statutory rate of 21% primarily because of the anticipated effect of investment tax credits during fiscal year 2019. The Company’s effective tax rate in the future will depend in part on actual investment tax credits earned as part of its financing of solar energy projects.

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

Nine Months Ended June 30,
(Dollars in Thousands) 2020 2019
Provision at statutory rate $ 20,041 $ 15,449
Tax-exempt income (936) (2,360)
State income taxes 4,475 3,243
Interim period effective rate adjustment (8,850) 1,397
Tax credit investments, net - federal (9,863) (22,484)
Research tax credit (1,709) —
IRC 162(m) nondeductible compensation 1,250 1,612
Other, net (538) (101)
Income tax expense (benefit) $ 3,870 $ (3,244)
Effective tax rate 3.91 % (4.20) %


	Three Months Ended December 31,
(Dollars in Thousands)	2020			2019
Provision at statutory rate	$	6,630		$	4,567
Tax-exempt income	(249)			(294)
State income taxes	1,488			1,090
Interim period effective rate adjustment	5,467			860
Tax credit investments, net - federal	(10,123)			(4,800)
Research tax credit	(323)			(1,709)
IRC 162(m) nondeductible compensation	334			838
Other, net	309			128
Income tax expense (benefit)	$	3,533		$	680
Effective tax rate	10.77		%	2.97		%

The Company does not expect significant income tax impacts due to the CARES Act or the CAA, which ~~was~~were signed in response to the COVID-19 pandemic.

NOTE 15. COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Bank makes various commitments to extend credit that are not reflected in the accompanying Condensed Consolidated Financial Statements as described below.

At ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, unfunded loan commitments approximated ~~$1.12~~$1.35 billion and ~~$978.1 million,~~$1.22 billion, respectively, excluding undisbursed portions of loans in process. Commitments, which are disbursed subject to certain limitations, extend over various periods of time. Generally, unused commitments are canceled upon expiration of the commitment term as outlined in each individual contract.

The Company had 0 commitments to purchase securities at ~~June 30,~~December 31, 2020 or September 30, ~~2019.~~2020. The Company had 0 commitments to sell securities at ~~June 30,~~December 31, 2020 or September 30, ~~2019.~~2020.

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The exposure to credit loss in the event of non-performance by other parties to financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The same credit policies and collateral requirements are used in making commitments and conditional obligations as are used for on-balance-sheet instruments. At June 30, 2020 and at September 30, 2019, the Company had an allowance for credit losses on off-balance sheet credit exposures of $0.1 million. This amount is maintained as a separate liability account within other liabilities.

Since certain commitments to make loans and to fund lines of credit ~~and loans in process~~ expire without being used, the amount does not necessarily represent future cash commitments. In addition, commitments used to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

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Legal Proceedings

The Bank was served, on October 14, 2016, with a lawsuit captioned Card Limited, LLC v. MetaBank dba Meta Payment Systems, Civil No. 2:16-cv-00980 in the United States District Court for the District of Utah. This action was initiated by a former prepaid program manager of the Bank, which was terminated by the Bank in fiscal year 2016. Card Limited alleges that, after all of the programs were wound down, there were two accounts with positive balances to which Card Limited is entitled. The Bank’s position is that Card Limited is not entitled to the funds contained in said accounts. The total amount to which Card Limited claims it is entitled is $4.0 million. The Court ruled in favor of MetaBank on cross motions for summary judgment and vacated the trial. Card Limited has ~~the right to appeal once the ruling is finalized.~~appealed this decision. The Bank intends to continue to vigorously defend this ~~claim, if appealed.~~claim. An estimate of a range of reasonably possible loss cannot be made at this stage of the litigation.

On February 9, 2018, the Bank’s AFS/IBEX division filed a lawsuit in the United States District Court for the Eastern District of New York captioned AFS/IBEX, a division of MetaBank v. Aegis Managing Agency Limited ("AMA"), Aegis Syndicate 1225 (together with AMA, the "Aegis defendants"), CRC Insurance Services, Inc. ("CRC"), and Transportation Underwriters, Inc. The suit was filed against commercial insurance underwriters and brokers that facilitated the issuance of commercial insurance policies to Red Hook Construction Group-II, LLC (“Red Hook”). The Bank’s position is that both CRC and Transportation Underwriters represented to the Bank that, upon cancellation of the insurance policies prior to their stated terms, any unearned premiums would be refunded. The Bank then provided insurance premium financing to Red Hook, and Red Hook executed a written premium finance agreement pursuant to which Red Hook assigned its rights to any unearned premiums to the Bank. After the policies were cancelled, the Aegis defendants failed to return the unearned insurance premiums totaling just over $1.6 million owed to the Bank under the insurance policies and the premium finance agreement. The Bank is seeking recovery of all amounts to which it is entitled at law or equity and intends to vigorously pursue its claims against the defendants.

The Bank was served on December 24, 2018, with a lawsuit captioned The Ohio Valley Bank Company v. MetaBank dba Refund Advantage, Case No. 18 CV 134 in the Court of Common Pleas, Gallia County, Ohio. This action alleges that MetaBank breached a contract with The Ohio Valley Bank Company by terminating the contract before the term expired, resulting in over $3.0 million in damages. This matter was settled between the parties upon terms agreeable to the Bank, and has been dismissed.

From time to time, the Company or its subsidiaries are subject to certain legal proceedings and claims in the ordinary course of business. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s financial position or its results of operations, legal proceedings are inherently uncertain and unfavorable resolution of some or all of these matters could, individually or in the aggregate, have a material adverse effect on the Company’s and its subsidiaries’ respective businesses, financial condition or results of operations.

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NOTE 16. REVENUE FROM CONTRACTS WITH CUSTOMERS

Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 17. Segment Reporting to the Condensed Consolidated Financial Statements.

(Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company
Three Months Ended June 30, 2020 2019 2020 2019 2020 2019 2020 2019
Net interest income⁽¹⁾
$ 29,507 $ 22,981 $ 36,104 $ 39,688 $ (3,474) $ 4,299 $ 62,137 $ 66,968
Noninterest income:
Refund transfer product fees 4,595 6,697 — — — — 4,595 6,697
Tax advance product fees⁽¹⁾
28 34 — — — — 28 34
Payment card and deposit fees 21,302 21,377 — — — — 21,302 21,377
Other bank and deposit fees — — 213 296 1 199 214 495
Rental income⁽¹⁾
5 5 11,226 9,091 — 290 11,231 9,386
Gain on sale of securities available-for-sale, net⁽¹⁾
— — — — — 440 — 440
Gain on sale of other⁽¹⁾
— 115 1,214 2,498 — 7 1,214 2,620
Other income⁽¹⁾
324 344 1,267 934 873 1,463 2,464 2,741
Total noninterest income 26,254 28,572 13,920 12,819 874 2,399 41,048 43,790
Revenue $ 55,761 $ 51,553 $ 50,024 $ 52,507 $ (2,600) $ 6,698 $ 103,185 $ 110,758

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^{(Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company
Three Months Ended December 31, 2020 2019 2020 2019 2020 2019 2020 2019
Net interest income(1) $ 22,347 $ 16,557 $ 41,848 $ 39,736 $ 1,804 $ 8,358 $ 65,999 $ 64,651
Noninterest income:
Refund transfer product fees 647 192 0 0 0 0 647 192
Tax advance product fees(1) 1,960 2,276 0 0 0 0 1,960 2,276
Payment card and deposit fees 22,564 21,499 0 0 0 0 22,564 21,499
Other bank and deposit fees 0 0 234 278 3 209 237 487
Rental income(1) 5 4 9,880 11,034 0 1,313 9,885 12,351
Gain (loss) on sale of other(1) 0 240 2,591 2,339 256 (5,147) 2,847 (2,568)
Other income(1) 159 553 2,461 1,329 4,695 1,364 7,315 3,246
Total noninterest income (expense) 25,335 24,764 15,166 14,980 4,954 (2,261) 45,455 37,483
Revenue $ 47,682 $ 41,321 $ 57,014 $ 54,716 $ 6,758 $ 6,097 $ 111,454 $ 102,134}

(1) These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.

(Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company
Nine Months Ended June 30, 2020 2019 2020 2019 2020 2019 2020 2019
Net interest income⁽¹⁾
$ 69,684 $ 56,484 $ 112,866 $ 113,604 $ 11,975 $ 28,502 $ 194,525 $ 198,590
Noninterest income:
Refund transfer product fees 33,726 38,559 — — — — 33,726 38,559
Tax advance product fees⁽¹⁾
31,840 34,757 — — — — 31,840 34,757
Payment card and deposit fees 65,957 66,855 — — — — 65,957 66,855
Other bank and deposit fees — — 759 872 324 577 1,083 1,449
Rental income⁽¹⁾
14 5 33,354 29,871 1,314 291 34,682 30,167
Gain on sale of securities available-for-sale, net⁽¹⁾
— — — — — 649 — 649
Gain on divestitures⁽¹⁾
— — — — 19,275 — 19,275 —
(Loss) gain on sale of other⁽¹⁾
(19) 173 6,131 5,874 (5,143) 70 969 6,117
Other income⁽¹⁾
2,709 871 4,178 3,789 4,625 3,352 11,512 8,012
Total noninterest income 134,227 141,220 44,422 40,406 20,395 4,939 199,044 186,565
Revenue $ 203,911 $ 197,704 $ 157,288 $ 154,010 $ 32,370 $ 33,441 $ 393,569 $ 385,155

⁽¹⁾These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.

Following is a discussion of key revenues within the scope of Topic 606. The Company provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the completion of the service or over time as services are performed. Any services performed over time generally require that the Company renders services each period; therefore, the Company measures progress in completing these services based upon the passage of time. Revenue from contracts with customers did not generate significant contract assets and liabilities.

~~Table of Contents~~

Refund Transfer Product ~~Fees~~

Fees. Refund transfer fees are specific to the tax products offered by Refund Advantage and EPS. These fees are for products, services such as payment processing, and product referral commissions. Software partner fees paid and/or incurred are recorded on a net basis. The Company’s obligation for product fees and commissions is satisfied at the time of the product delivery and obligation for payment processing is satisfied at the time of processing. The transaction price for such activity is based upon stand-alone fees within the terms and conditions. At ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, there were 0 receivables related to refund transfer fees, which reflect earned revenue with unconditional rights to payment for product fee income. All refund transfer fees are recorded within the Consumer reporting segment.

Card ~~Fees~~

Fees. Card fees relate to MPS, Community Bank, Refund Advantage and EPS products. These fees are for products and services such as card activation, product support, processing, and servicing. The Company earns these fees based upon the underlying terms and conditions with each cardholder over the contract term. Agreements with the Company’s cardholders are considered daily service contracts as they are not fixed in duration. The Company’s obligation for card activation and product support fees is satisfied at the time of product delivery, while the obligation for processing and servicing is satisfied over the course of each month. The transaction price for such activity is based upon the stand-alone fees within the terms and conditions of the cardholder agreements. Card fee revenue also includes income from sponsorships, associations and networks, and interchange income. Sponsorship income relates to fees charged to the Company’s ATM sponsorship partners, where the obligation is satisfied over the course of each month. Association and network income reflect incentives, performance bonuses and rebates with MasterCard and Visa. The obligation for such income is satisfied at the time when certain thresholds of transaction volume have been met. Interchange income is generated by cardholder activity, and therefore the Company’s obligations are satisfied as activity occurs. The transaction price for such activity is based on underlying rates and activity thresholds within the terms and conditions of the applicable agreements. Card fee revenue also includes breakage revenue. Breakage represents the estimated amount that will not be redeemed by the holder of unregistered, unused prepaid cards for goods or services. Breakage revenue is recognized ratably over the expected customer usage period and is an estimate based on cardholder behavior and breakage rates. Breakage is also impacted by escheatment laws. Card fees are recorded within both the Consumer and Commercial reporting segments, the substantial majority of which is derived from the Company's payments divisions and reported in payments card and deposit fees. Card fees related to the Community Bank are reported within other bank and deposit fees.

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Bank and Deposit ~~Fees~~

Fees. Fees are earned on depository accounts for consumer and commercial customers and include fees for account services, overdraft services, safety deposit box rentals, and event-driven services (i.e. returned checks, ATM surcharge, card replacement, wire transfers, and stop pays). The Company’s obligation for event-driven services is satisfied at the time of the event when the service is delivered, while its obligation for account services is satisfied over the course of each month. The Company’s obligation for overdraft services is satisfied at the time of overdraft. The transaction price for such activity is based upon stand-alone fees within the terms and conditions of the deposit agreements. Bank and deposit fees are recorded within both the Consumer and Commercial reporting segments, the majority of which are derived from the Company's payments divisions. Bank and deposit fees related to the Community Bank are reported within other bank and deposit fees.

Principal vs ~~Agent~~

Agent. The Consumer reporting segment includes principal/agent relationships. Within this segment, MPS relationships are recorded on a gross basis within the Condensed Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of association/network contracts and partner/processor contracts for prepaid cards, which are recorded on a net basis within the Condensed Consolidated Statements of Operations as Meta is the agent in these contracts. Also within this segment, Tax Service relationships are recorded on a gross basis within the Condensed Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of contracts with software providers and merchants, which are recorded on a net basis within the Condensed Consolidated Statements of Operations as Meta is the agent in these contracts.

~~Table of Contents~~

NOTE 17. SEGMENT REPORTING

An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met.

~~In the Annual Report on Form 10-K for the fiscal year ended September 30, 2019, the Company reported its results of operations through 3 business segments:~~ ~~Payments, Banking,~~ ~~and~~ ~~Corporate Services/Other. Beginning October 1, 2019, segments are now aligned with the new management operating structure implemented by the Company for fiscal year 2020.~~ The Company ~~accordingly has changed its basis of presentation for segments, and following such change,~~ reports its results of operations through the following 3 business segments: Consumer, Commercial, and Corporate Services/~~Other~~.Other. The Meta Payment Systems and Tax Services divisions, ~~formerly reported in~~as well as the~~Payments~~ ~~segment, are now included in the~~ ~~Consumer~~ ~~segment. The Warehouse Finance,~~ Consumer Credit Products and ClearBalance business lines, ~~previously~~are reported in the ~~Banking~~ ~~segment, are now included in the~~ Consumer segment. The Crestmark and AFS divisions ~~formerly~~are reported in the ~~Banking~~ ~~segment, are now included in the~~ Commercial segment. The Community Bank division, Warehouse Finance, and Student Loan lending portfolio ~~previously reported in the~~ ~~Banking~~ ~~segment,~~ are ~~now~~ included in the Corporate Services/Other segment. The Corporate Services/Other segment also includes certain shared services as well as treasury related functions such as the investment portfolio, wholesale deposits and borrowings. ~~Prior periods have been reclassified to conform to the current period presentation.~~ The Company does not report indirect general and administrative expenses in the Consumer and Commercial segments. Beginning October 1, 2020, Warehouse Finance, formerly reported in the Consumer segment, is now included in the Corporate Services/Other segment. Prior periods have been reclassified to conform to the current presentation.

~~Commercial~~
~~segments.~~

The Company adopted ASU 2018-02 as of October 1, 2020. The amendments in this ASU allow for a reclassification from AOCI to Retained Earnings for stranded tax effects from the Tax Cuts and Jobs Act ("TCJA"). For the Company, these amendments are limited to any unrealized gains and losses held in Other Comprehensive Income for debt securities AFS held at the time of the TCJA enactment. The Company determined there were no stranded tax effects from the TCJA enactment and has not made any reclassification from AOCI to Retained Earnings upon adoption of this ASU.

The following tables present segment data for the ~~Company for the three and nine months ended:~~Company:

(Dollars in Thousands) Consumer Commercial Corporate
Services/Other Total
Three Months Ended June 30, 2020
Net interest income $ 29,507 $ 36,104 $ (3,474) $ 62,137
Provision for loan and lease losses (267) 7,946 7,414 15,093
Noninterest income 26,254 13,920 874 41,048
Noninterest expense 15,249 26,729 29,263 71,241
Income (loss) before income tax expense (benefit) 40,779 15,349 (39,277) 16,851
Total assets 650,814 2,690,719 5,437,493 8,779,026
Total goodwill 87,145 222,360 — 309,505
Total deposits 6,767,516 9,243 813,566 7,590,325

(Dollars in Thousands) Consumer Commercial Corporate
Services/Other Total
Nine Months Ended June 30, 2020
Net interest income $ 69,684 $ 112,866 $ 11,975 $ 194,525
Provision for loan and lease losses 20,348 23,641 11,807 55,796
Noninterest income 134,227 44,422 20,395 199,044
Noninterest expense 62,567 80,815 95,386 238,768
Income (loss) before income tax expense (benefit) 120,996 52,832 (74,823) 99,005
Total assets 650,814 2,690,719 5,437,493 8,779,026
Total goodwill 87,145 222,360 — 309,505
Total deposits 6,767,516 9,243 813,566 7,590,325


	Three Months Ended December 31, 2020
(Dollars in Thousands)	Consumer		Commercial		Corporate Services/Other		Total


Net interest income	$	22,347	$	41,848	$	1,804	$	65,999
Provision for credit losses	2,366		6,467		(2,744)		6,089
Noninterest income	25,335		15,166		4,954		45,455
Noninterest expense	18,162		27,168		27,245		72,575
Income (loss) before income tax expense (benefit)	27,154		23,379		(17,743)		32,790

Total assets	430,067		2,917,142		3,917,306		7,264,515
Total goodwill	87,145		222,360		0		309,505
Total deposits	5,884,638		13,230		309,923		6,207,791

4739

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(Dollars in Thousands) Consumer Commercial Corporate
Services/Other Total
Three Months Ended June 30, 2019
Net interest income $ 22,981 $ 39,688 $ 4,299 $ 66,968
Provision for loan and lease losses 1,121 6,501 1,490 9,112
Noninterest income 28,572 12,819 2,399 43,790
Noninterest expense 14,730 28,564 29,174 72,468
Income (loss) before income tax expense (benefit) 35,702 17,442 (23,966) 29,178
Total assets 663,579 2,320,589 3,116,904 6,101,072
Total goodwill 87,145 220,796 — 307,941
Total deposits 2,811,582 5,988 1,957,644 4,775,214


											Three Months Ended December 31, 2019
(Dollars in Thousands)	(Dollars in Thousands)	Consumer		Commercial		Corporate Services/Other		Total		(Dollars in Thousands)	Consumer		Commercial		Corporate Services/Other		Total
Nine Months Ended June 30, 2019

Net interest income	Net interest income	$	56,484	$	113,604	$	28,502	$	198,590	Net interest income	$	16,557	$	39,736	$	8,358	$	64,651
Provision for loan losses		25,739		17,441		8,349		51,529
Provision for loan and lease losses										Provision for loan and lease losses	974		3,701		(1,268)		3,407
Noninterest income	Noninterest income	141,220		40,406		4,939		186,565		Noninterest income	24,764		14,980		(2,261)		37,483
Noninterest expense	Noninterest expense	62,834		95,567		98,615		257,016		Noninterest expense	16,741		26,726		32,331		75,798
Income (loss) before income tax expense (benefit)	Income (loss) before income tax expense (benefit)	109,131		41,002		(73,523)		76,610		Income (loss) before income tax expense (benefit)	23,606		24,289		(24,966)		22,929

Total assets	Total assets	663,579		2,320,589		3,116,904		6,101,072		Total assets	447,963		2,494,253		3,238,710		6,180,926
Total goodwill	Total goodwill	87,145		220,796		—		307,941		Total goodwill	87,145		222,360		0		309,505
Total deposits	Total deposits	2,811,582		5,988		1,957,644		4,775,214		Total deposits	2,999,184		13,855		1,793,541		4,806,580

NOTE 18. FAIR VALUES OF FINANCIAL INSTRUMENTS

~~Accounting Standards Codification ("ASC")~~ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.

The fair value hierarchy is as follows:

Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.

Level 2 Inputs - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.

Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. ~~Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.~~

~~There were no transfers between levels of the fair value hierarchy at June 30, 2020 or September 30, 2019.~~

~~Table of Contents~~

Debt Securities Available for Sale and Held to Maturity. Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost.

The fair ~~values~~value of debt securities available for sale, ~~are determined by obtaining quoted~~categorized primarily as Level 2, is recorded using prices on nationally recognized securities exchanges (Level 1 inputs), or valuation based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in marketsobtained from independent asset pricing services that are based on observable transactions, but not active and model-based valuation techniques for which significant assumptions are observable in the market (Level 2 inputs). The Company considers these valuations supplied by a third-party provider, which utilizes several sources for valuing fixed-income securities. These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology and the third-party provider’s own matrix and desk pricing. The Company, no less than annually,quoted markets. Management reviews the ~~third-party provider’s methods~~prices obtained from independent asset pricing servicing for unusual fluctuations and ~~source’s methodology for reasonableness and~~comparison to ensure an understanding of inputs utilized in determining fair value. Sources utilized by the third-party provider include but are not limited to pricing models that vary based on asset class and include available trade, bid, and othercurrent market information. This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs. Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third-party provider; and our Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.trading activity.

Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs).

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The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis:


		Fair Value At June 30, 2020															Fair Value At December 31, 2020
(Dollars in Thousands)	(Dollars in Thousands)	Total		Level 1		Level 2		Level 3		(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Debt securities AFS	Debt securities AFS									Debt securities AFS
SBA securities	SBA securities	$	170,267	$	—	$	170,267	$	—	SBA securities	$	162,009	$	0	$	162,009	$	0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	843		—		843		—		Obligations of states and political subdivisions	2,840		0		2,840		0
Non-bank qualified obligations of states and political subdivisions	Non-bank qualified obligations of states and political subdivisions	331,324		—		331,324		—		Non-bank qualified obligations of states and political subdivisions	309,638		0		309,638		0
Asset-backed securities	Asset-backed securities	323,145		—		323,145		—		Asset-backed securities	322,876		0		322,876		0
Mortgage-backed securities	Mortgage-backed securities	338,250		—		338,250		—		Mortgage-backed securities	430,761		0		430,761		0
Total debt securities AFS	Total debt securities AFS	$	1,163,829	$	—	$	1,163,829	$	—	Total debt securities AFS	$	1,228,124	$	0	$	1,228,124	$	0
Common equities and mutual funds⁽¹⁾	Common equities and mutual funds⁽¹⁾	$	3,012	$	3,012	$	—	$	—	Common equities and mutual funds(1)	$	3,148	$	3,148	$	0	$	0
Non-marketable equity securities⁽²⁾	Non-marketable equity securities⁽²⁾	$	2,741	$	—	$	—	$	—	Non-marketable equity securities(2)	$	3,896	$	0	$	0	$	0

⁽¹⁾Equity securities at fair value are included within other assets on the ~~consolidated statement~~Condensed Consolidated Statements of ~~financial condition~~Financial Condition at ~~June 30,~~December 31, 2020 and September 30, ~~2019.~~2020.

⁽²⁾Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

~~Table of Contents~~


	Fair Value At September 30, 2020
(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Debt securities AFS
SBA securities	$	164,955	$	0	$	164,955	$	0
Obligations of states and political subdivisions	841		0		841		0
Non-bank qualified obligations of states and political subdivisions	323,774		0		323,774		0
Asset-backed securities	324,925		0		324,925		0
Mortgage-backed securities	453,607		0		453,607		0
Total debt securities AFS	$	1,268,102	$	0	$	1,268,102	$	0
Common equities and mutual funds(1)	$	2,969	$	2,969	$	0	$	0
Non-marketable equity securities(2)	$	2,784	$	0	$	0	$	0

Fair Value At September 30, 2019
(Dollars in Thousands) Total Level 1 Level 2 Level 3
Debt securities AFS
SBA securities $ 185,982 $ — $ 185,982 $ —
Obligations of states and political subdivisions 874 — 874 —
Non-bank qualified obligations of states and political subdivisions 400,557 — 400,557 —
Asset-backed securities 302,534 — 302,534 —
Mortgage-backed securities 382,546 — 382,546 —
Total debt securities AFS $ 1,272,493 $ — $ 1,272,493 $ —
Common equities and mutual funds⁽¹⁾
$ 2,606 $ 2,606 $ — $ —
Non-marketable equity securities⁽²⁾
$ 1,669 $ — $ — $ —

⁽²⁾Consists of certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

Foreclosed Real Estate and Repossessed Assets. Real estate properties and repossessed assets are initially recorded at the fair value less selling costs at the date of foreclosure, establishing a new cost basis. The carrying amount represents the lower of the new cost basis or the fair value less selling costs of foreclosed assets that were measured at fair value subsequent to their initial classification as foreclosed assets.

Loans and Leases. The Company does not record loans and leases at fair value on a recurring basis. However, if a loan or lease is ~~considered impaired, an allowance~~individually evaluated for ~~loan~~risk of credit loss and ~~lease losses~~repayment is ~~established. Once~~expected to be solely provided by the values of the underlying collateral, the Company measures fair value on a ~~loan~~ nonrecurring basis. Fair value is determined by the fair value of the underlying collateral less estimated costs to sell. The fair value of the collateral is determined based on internal estimates and/or ~~lease is identified as individually impaired, management measures impairment in accordance with ASC 310,~~ ~~Receivables. See Note 5. Loans~~assessments provided by third-party appraisers and ~~Leases, Net for further information.~~the valuation relies on discount rates ranging from 4% to 90%.

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The following table summarizes the assets of the Company that are measured at fair value in the Condensed Consolidated Statements of Financial Condition on a non-recurring basis:


		Fair Value At June 30, 2020															Fair Value At December 31, 2020
(Dollars in Thousands)	(Dollars in Thousands)	Total		Level 1		Level 2		Level 3		(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired loans and leases, net	Impaired loans and leases, net									Impaired loans and leases, net

Commercial finance	Commercial finance	$	14,493	$	—	$	—	$	14,493	Commercial finance	$	4,080	$	0	$	0	$	4,080

Total National Lending	Total National Lending	14,493		—		—		14,493		Total National Lending	4,080		0		0		4,080

Commercial real estate and operating	Commercial real estate and operating	20		—		—		20		Commercial real estate and operating	9,029		0		0		9,029

Total Community Banking	Total Community Banking	20		—		—		20		Total Community Banking	9,029		0		0		9,029
Total impaired loans and leases, net	Total impaired loans and leases, net	14,513		—		—		14,513		Total impaired loans and leases, net	13,109		0		0		13,109
Foreclosed assets, net	Foreclosed assets, net	6,784		—		—		6,784		Foreclosed assets, net	7,186		0		0		7,186
Total	Total	$	21,297	$	—	$	—	$	21,297	Total	$	20,295	$	0	$	0	$	20,295


		Fair Value At September 30, 2019															Fair Value At September 30, 2020
(Dollars in Thousands)	(Dollars in Thousands)	Total		Level 1		Level 2		Level 3		(Dollars in Thousands)	Total		Level 1		Level 2		Level 3
Impaired loans and leases, net	Impaired loans and leases, net									Impaired loans and leases, net

Commercial finance	Commercial finance	$	8,707	$	—	$	—	$	8,707	Commercial finance	$	9,240	$	0	$	0	$	9,240

Total National Lending	Total National Lending	8,707		—		—		8,707		Total National Lending	9,240		0		0		9,240

Commercial real estate and operating										Commercial real estate and operating	20		0		0		20

Total Community Banking										Total Community Banking	20		0		0		20
Total impaired loans and leases, net	Total impaired loans and leases, net	8,707		—		—		8,707		Total impaired loans and leases, net	9,260		0		0		9,260
Foreclosed assets, net	Foreclosed assets, net	29,494		—		—		29,494		Foreclosed assets, net	9,957		0		0		9,957
Total	Total	$	38,201	$	—	$	—	$	38,201	Total	$	19,217	$	0	$	0	$	19,217

Quantitative Information About Level 3 Fair Value Measurements

(Dollars in Thousands)

Fair Value at

December 31, 2020

Fair Value at

September 30, 2020

Valuation
Technique

Unobservable Input

Range of Inputs

Impaired loans and leases, net

13,109

9,260

Market approach

Appraised values(1)

4% - 90%

Foreclosed assets, net

7,186

9,957

Market approach

Appraised values(1)

4% - 30%

~~Table of Contents~~

Quantitative Information About Level 3 Fair Value Measurements
(Dollars in Thousands) Fair Value at
June 30, 2020 Fair Value at
September 30, 2019 Valuation
Technique Unobservable Input Range of Inputs
Impaired loans and leases, net $ 14,513 8,707 Market approach
Appraised values⁽¹⁾
4% - 10%
Foreclosed assets, net $ 6,784 29,494 Market approach
Appraised values⁽¹⁾
4% - 30%

⁽¹⁾The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs and other inputs in a range of 4% to ~~30%~~90%.

~~The following tables disclose~~Management discloses the ~~Company’s~~ estimated fair value ~~amounts~~ of ~~its~~ financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at ~~the dates set forth below. It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company at June 30,~~December 31, 2020 and September 30, ~~2019, as more fully described below. The operations~~2020 based on relevant market information and information about financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, since there is no active market for certain financial instruments of the Company, the estimates of fair value are ~~managed from~~subjective in nature, involve uncertainties, and include matters of significant judgment. Changes in assumptions as well as tax considerations could significantly affect the estimated values. Accordingly, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern ~~basis and not~~or a liquidation basis. As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value. Neither of these components have been given consideration in the presentation of fair values below.

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The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company:


		June 30, 2020																			December 31, 2020
(Dollars in Thousands)	(Dollars in Thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		(Dollars in Thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets	Financial assets											Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	3,108,141	$	3,108,141	$	3,108,141	$	—	$	—	Cash and cash equivalents	$	1,586,451	$	1,586,451	$	1,586,451	$	0	$	0
Debt securities available for sale	Debt securities available for sale	1,163,829		1,163,829		—		1,163,829		—		Debt securities available for sale	1,228,124		1,228,124		0		1,228,124		0
Debt securities held to maturity	Debt securities held to maturity	104,587		103,832		—		103,832		—		Debt securities held to maturity	81,328		82,927		0		82,927		0
Common equities and mutual funds⁽¹⁾	Common equities and mutual funds⁽¹⁾	3,012		3,012		3,012		—		—		Common equities and mutual funds(1)	3,148		3,148		3,148		0		0
Non-marketable equity securities⁽¹⁾⁽²⁾	Non-marketable equity securities⁽¹⁾⁽²⁾	13,741		13,741		—		11,000		—		Non-marketable equity securities(1)(2)	17,646		17,646		0		13,750		0
Loans held for sale	Loans held for sale	79,905		79,905		—		79,905		—		Loans held for sale	133,659		133,659		0		133,659		0
Loans and leases receivable	Loans and leases receivable	3,496,709		3,488,875		—		—		3,488,875		Loans and leases receivable	3,439,564		3,426,720		0		0		3,426,720
Federal Reserve Bank and Federal Home Loan Bank stocks	Federal Reserve Bank and Federal Home Loan Bank stocks	31,836		31,836		—		31,836		—		Federal Reserve Bank and Federal Home Loan Bank stocks	27,138		27,138		0		27,138		0
Accrued interest receivable	Accrued interest receivable	17,545		17,545		17,545		—		—		Accrued interest receivable	17,133		17,133		17,133		0		0

Financial liabilities	Financial liabilities											Financial liabilities

Deposits	Deposits	7,590,325		7,592,382		7,037,218		555,164		—		Deposits	6,207,791		6,208,167		6,040,903		167,265		0

Federal Home Loan Bank advances		110,000		111,877		—		111,877		—

Other short- and long-term borrowings	Other short- and long-term borrowings	99,781		100,342		—		100,342		—		Other short- and long-term borrowings	96,760		98,873		0		98,873		0
Accrued interest payable	Accrued interest payable	4,332		4,332		4,332		—		—		Accrued interest payable	2,068		2,068		2,068		0		0

⁽²⁾ Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.


	September 30, 2020
(Dollars in Thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	427,367	$	427,367	$	427,367	$	0	$	0
Debt securities available for sale	1,268,102		1,268,102		0		1,268,102		0
Debt securities held to maturity	92,610		93,745		0		93,745		0
Common equities and mutual funds(1)	2,969		2,969		2,969		0		0
Non-marketable equity securities(1)(2)	14,784		14,784		0		12,000		0
Loans held for sale	183,577		183,577		0		183,577		0
Loans and leases receivable	3,314,140		3,307,037		0		0		3,307,037
Federal Reserve Bank and Federal Home Loan Bank stocks	27,138		27,138		0		27,138		0
Accrued interest receivable	16,628		16,628		16,628		0		0
Financial liabilities
Deposits	4,979,200		4,980,073		4,705,028		275,045		0
Overnight federal funds purchased	0		0		0		0		0
Federal Home Loan Bank advances	0		0		0		0		0
Other short- and long-term borrowings	98,224		100,185		0		100,185		0
Accrued interest payable	1,923		1,923		1,923		0		0

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2020 and September 30, 2020.

(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

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September 30, 2019
(Dollars in Thousands) Carrying
Amount Estimated
Fair Value Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 126,545 $ 126,545 $ 126,545 $ — $ —
Debt securities available for sale 1,272,493 1,272,493 — 1,272,493 —
Debt securities held to maturity 134,764 133,470 — 133,470 —
Common equities and mutual funds(¹⁾
2,606 2,606 2,606 — —
Non-marketable equity securities⁽¹⁾⁽²⁾
8,169 8,169 — 6,500 —
Loans held for sale 148,777 148,777 — 148,777 —
Loans and leases receivable 3,651,413 3,622,597 — — 3,622,597
Federal Home Loan Bank stock 30,916 30,916 — 30,916 —
Accrued interest receivable 20,400 20,400 20,400 — —
Financial liabilities
Deposits 4,337,005 4,338,510 2,920,516 1,417,994 —
Overnight federal funds purchased 642,000 642,000 642,000 — —
Federal Home Loan Bank advances 110,000 110,691 — 110,691 —
Other short- and long-term borrowings 109,857 113,876 — 113,876 —
Accrued interest payable 9,414 9,414 9,414 — —

⁽¹⁾~~Equity securities at fair value are included within other assets on the consolidated statement of financial condition at June 30, 2020 and September 30, 2019.~~

⁽²⁾ ~~Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.~~

~~Table of Contents~~

~~The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at June 30, 2020 and September 30, 2019.~~

~~CASH AND CASH EQUIVALENTS~~

~~The carrying amount of cash and short-term investments is assumed to approximate the fair value.~~

~~DEBT SECURITIES AVAILABLE FOR SALE AND EQUITY SECURITIES~~

Debt securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair values for these investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. Non-marketable equity securities are measured at fair value using NAV per share (or its equivalent) as a practical expedient.

~~LOANS HELD FOR SALE~~

~~The carrying amount of loans held for sale is assumed to approximate the fair value.~~

~~LOANS AND LEASES, NET~~

The fair values of loans and leases were estimated using an exit price methodology. The exit price estimation of fair value is based on the present value of expected cash flows, which are based on the contractual terms of the loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows. Other considerations include the loan type, remaining life of the loan and credit risk.

~~FEDERAL RESERVE BANK AND FEDERAL HOME LOAN BANK STOCKS~~

~~The fair value of FRB and FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value.~~

~~ACCRUED INTEREST RECEIVABLE~~

~~The carrying amount of accrued interest receivable is assumed to approximate the fair value.~~

~~DEPOSITS~~

The carrying values of noninterest-bearing checking deposits, interest-bearing checking deposits, savings, money markets, and wholesale non-maturing deposits are assumed to approximate fair value since deposits are immediately withdrawable without penalty. The fair value of time certificate deposits and wholesale certificate of deposits are estimated using a discounted cash flows calculation that applies the FHLB Des Moines curve to aggregated expected maturities of time deposits. In accordance with Subtopic 825-10, ~~Financial Instruments~~, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) as such intangibles are not financial instruments as defined under Subtopic 825-10.

~~OVERNIGHT FEDERAL FUNDS PURCHASED~~

~~The carrying amount of federal funds purchased is assumed to approximate the fair value.~~

~~FEDERAL HOME LOAN BANK ADVANCES~~

~~The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.~~

~~SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, SUBORDINATED DEBENTURES AND OTHER BORROWINGS~~

~~The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.~~

~~ACCRUED INTEREST PAYABLE~~

~~The carrying amount of accrued interest payable is assumed to approximate the fair value.~~

~~Table of Contents~~

~~LIMITATIONS~~

Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision. Changes in assumptions as well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

NOTE 19. SUBSEQUENT EVENTS

Management has evaluated subsequent events that occurred after ~~June 30,~~December 31, 2020. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management identified the following subsequent events:

•On August 5, 2020, MetaBank, N.A., a wholly-owned subsidiary of the Company (“MetaBank”) entered into a three-year program management agreement (the “PMA”) with Emerald Financial Services, LLC (“EFS”), a wholly owned indirect subsidiary of H&R Block, Inc. (“H&R Block”), pursuant to which MetaBank will serve as a facilitator for H&R Block’s suite of financial services products, which include: Emerald Prepaid MasterCard®, Refund Transfers, Refund Advances, Emerald Advance® lines of credit, and other products through H&R Block’s distribution channels. EFS has the right to terminate the PMA under certain circumstances, including if the Bank should lose its exemption from certain provisions of the Dodd-Frank Act known as the “Durbin Amendment.” Based on current projections (or forecasts) MetaBank does not anticipate losing its Durbin Amendment exemption during the initial term of the PMA. Upon termination of the PMA or any of the related product schedules, EFS has the right to purchase or arrange the purchase of all of the affected accounts related to its ongoing product offerings.

•~~On August 4, 2020,~~January 13, 2021, the Company sold an additional ~~$58.6~~$103.2 million of the retained Community Bank loan portfolio to Central Bank. The sale did not result in any material gain to the Company. The loans included in the sale were classified as held for sale ~~for the quarter ended June 30,~~at December 31, 2020.

•~~As a result~~Beginning January 4, 2021, the Bank disbursed approximately $7.10 billion of ~~interagency guidance issued~~the second round of Economic Impact Payments ("EIP") under the CAA, pursuant to the Company's amendment of its existing agreement with the U.S. Department Treasury's Bureau of the Fiscal Service ("Fiscal Service") entered into on March 22, 2020 encouraging companies to work with customers impacted by COVID-19, the Company has granted deferral of payments or has made other COVID-19 related modifications. As of July 31, 2020, loans and leases totaling $175.8 million were still in their deferment period and $33.9 million of other COVID-19 related modifications were still active.

December 27, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

META FINANCIAL GROUP, INC.®

AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

Meta Financial Group, Inc.® ("Meta" or "the Company" or "us") and its wholly-owned subsidiary, MetaBank®, National Association ("MetaBank" or "the Bank") may from time to time make written or oral “forward-looking statements,” including statements contained in this Quarterly Report on Form 10-Q, the Company’s other filings with the Securities and Exchange Commission (the "SEC"), the Company’s reports to stockholders, and other communications by the Company and MetaBank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; expectations in connection with the impact of the ongoing COVID-19 pandemic and related governmental actions on the Company and MetaBank; customer retention; loan and other product demand; expectations concerning acquisitions and divestitures; new products and services, including those offered by the Meta Payment Systems, Refund Advantage, EPS Financial and Specialty Consumer Services divisions; credit ~~quality~~quality; the level of net charge-offs on loans and leases and the adequacy of ~~reserves;~~the allowance for credit losses; technology; and the Company's 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; 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 ~~conducts operations;~~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”); 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 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; 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 such as the CARES Act 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; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by MetaBank of its status as a well-capitalized institution, particularly in light of our growing deposit base, a portion of which has been characterized as “brokered;” changes in consumer spending and saving habits; the impact of our participation as prepaid card issuer for the EIP program and potentially similar programs in the future; losses from fraudulent or illegal activity; technological risks and developments, and cyber threats, attacks or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date ~~hereof.~~hereof, and the Company does not undertake any obligation to update, revise, or clarify these forward-looking statements whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in its entirety by the cautionary statements contained or referred to in this section. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, ~~2019,~~2020, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

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GENERAL

The Company, a registered bank holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a national bank. Unless the context otherwise requires, references herein to the Company include Meta and the Bank, and all direct or indirect subsidiaries of Meta on a consolidated basis.

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,~~December 31, 2020, compared to September 30, ~~2019,~~2020, and the consolidated results of operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019. This discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended September 30, ~~2019~~2020 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, ~~2019.~~2020.

EXECUTIVE SUMMARY

~~COVID-19~~ Business ~~Update~~Developments

The following highlights certain business developments during the quarter ended December 31, 2020:

•Began our new three-year program with Emerald Financial Services, LLC, a wholly-owned indirect subsidiary of H&R Block, Inc., which the Company announced in the fourth quarter of fiscal 2020. Have already moved more than $150 million in deposits and began issuing Emerald Prepaid Mastercard® to applicants.

•Completed negotiations with the Fiscal Service to disperse a second round of EIP stimulus payments through the distribution of prepaid cards. The Company began distributing cards under this authorization on January 4, 2021.

•Expanded our solar lending business, increasing our solar credit balance 29% to $323.9 million.

•Increased resources dedicated to our Environmental, Social, and Governance ("ESG") activities by hiring an experienced Vice President of ESG and Community Impact and forming a Board-level ESG committee to provide oversight.

Financial Highlights for the 2021 Fiscal First Quarter

The Company ~~continues~~recorded net income of $28.0 million, or $0.84 per diluted share, for the three months ended December 31, 2020, compared to ~~focus on~~net income of $21.1 million, or $0.56 per diluted share, that was recorded for the ~~well-being~~fiscal 2020 first quarter. Total revenue for the fiscal 2021 first quarter was $111.5 million, compared to $102.1 million for the same quarter in fiscal 2020, an increase of ~~its employees, partners~~9%.

During the fiscal 2021 first quarter, the Company recognized net interest income of $66.0 million, NIM of 4.65% and customers. Preventative health measures remain in place to protect employees and customers including mandating remote work options and social distancing measures where possible, restricting non-essential business travel and enhancing preventative cleaning services at all office locations.net interest margin, tax-equivalent ("NIM, TE") of 4.67%. The Company's ~~COVID-19 Crisis Command Center consisting of leadership~~average gross loans and ~~business continuity planning resources throughout the organization continues to effectively monitor possible interruptions related~~leases decreased by $239.5 million, or 6%, while average noninterest-bearing deposits increased by $2.15 billion, or 79%, when compared to the ~~pandemic~~same quarter in fiscal 2020. Average deposits from the payments divisions for the fiscal 2021 first quarter increased nearly 83% to $5.07 billion when compared to the same quarter in fiscal 2020. A significant portion of the year-over-year increase reflected the Company's participation in the EIP program, as described further below. The growth in deposits led to excess cash balances held at the Federal Reserve during the fiscal 2021 first quarter. This increase in lower yielding cash balances resulted in a net drag to the net interest margin. Overall, the Company's cost of funds for all deposits and borrowings averaged 0.15% during the fiscal 2021 first quarter, compared to ~~ensure business continuity.~~1.01% during the prior year quarter, primarily due to a decrease in overnight borrowings rates as well as an increase in the average balance of the Company's noninterest-bearing deposits.

Noninterest income for the three months ended December 31, 2020 was $45.5 million, compared to $37.5 million for the same period of the prior year. This was primarily due to an increase within gain on sale of other, an increase in other income, and an increase in payments cards and deposit fees, partially offset by a decrease in rental income. The increase within gain on sale of other was primarily due to a loss on sale of foreclosed and repossessed assets recognized during the first quarter of fiscal year 2020.

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Noninterest expense decreased 4% to $72.6 million for the fiscal 2021 first quarter, from $75.8 million for the same quarter of last year, primarily driven by decreases in compensation and benefits, other expense, tax product expense, operating lease depreciation, and amortization expense, partially offset by increases within impairment expense, legal and consulting expense, and card processing expense.

The Company ~~is participating in~~repurchased 1,864,474 shares during the ~~PPP, which is being administered by~~first quarter at an average price of $29.46. Through January 20, 2021, the ~~SBA.~~ Company repurchased an additional 300,000 of its shares, at a weighted average price of $38.73.

COVID-19 Business Update

As of ~~June 30,~~December 31, 2020, the Company had ~~686~~612 loans outstanding with a total ~~of $215.5 million in~~ loan balances ~~that were~~of $194.3 million originated as part of the ~~program.~~

~~From a credit perspective, the Company continues to monitor each of its lending portfolios through these unprecedented times. Significant focus has been placed on the Company's hospitality~~PPP, compared with 689 loans ~~and its small ticket equipment finance relationships. The credit management team has increased the monitoring of these relationships and has been in regular contact~~outstanding with ~~these borrowers.~~

~~The Company's community bank hospitality~~total loan balances ~~increased to $169.0~~of $219.0 million ~~as of June~~for the quarter ended September 30, ~~2020 from $160.1 million as of March 31, 2020 and based on the most recently obtained appraisals, the average loan-to-value ratio on those loans improved to 60% at June 30, 2020 from 61% at March 31,~~ 2020. ~~67% of the loan balances for these hotel relationships received PPP loans and 51% received some form of COVID-19 related payment deferral modification.~~

As of ~~June 30,~~December 31, 2020, ~~the Company had $245.9~~$84.2 million ~~in small ticket equipment finance balances, of which $217.3 million were categorized within term lending and $28.6 million were categorized within lease financing. 27%~~ of the ~~loan balances on these small ticket equipment finance relationships received some form of COVID-19 related payment deferral or other modifications.~~

~~The Company has~~loans and leases that were granted deferral payments ~~on a total~~by the Company were still in their deferment period. As of ~~$352.1 million of loan, lease and rental equipment balances through June~~September 30, 2020, ~~as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19. As of June 30, 2020, $292.2~~loans and leases totaling $170.0 million ~~of those balances~~ were ~~still in~~within their deferment period. In addition, the Company has made other COVID-19 related modifications, ~~on a total of $52.9 million,~~ of which ~~$34.6~~$1.1 million were still active as of ~~June~~December 31, 2020 compared to $23.3 million at September 30, 2020. The majority of the other modifications were related to adjusting the type or amount of the customer's payments.

The Company increased its allowance for loan and lease losses during the fiscal third quarter primarily as a result of the ongoing economic uncertainty related to COVID-19 pandemic. The Company will continue to diligently monitor the allowance for loan and lease losses and adjust as necessary in future periods to maintain an appropriate and supportable level.

~~Table of Contents~~

~~The~~ Company's capital position remained strong as of ~~June 30,~~December 31, 2020, even while absorbing the temporary impact resulting from the ~~Economic Impact Payment ("EIP") program, as~~receipt of deposits in conjunction with EIP payments described ~~further~~ below. ~~As of June 30, 2020, the Bank's capital leverage ratio based on average assets was 6.89%.~~ In addition, the Company has options available that can be used to effectively manage capital levels, ~~through these turbulent times,~~ including a ~~very~~ strong and flexible balance sheet. ~~The Company's capital leverage ratio was impacted by approximately 278 basis points due to the increase in total asset balances as a result of the EIP program.~~

~~For additional related information, see "Regulation~~EIP Program Update

The Bank is serving as the sole Financial Agent for distributing prepaid debit cards used in the EIP program. Under the first round of EIP, approximately $6.42 billion in stimulus payments on 3.6 million prepaid cards were mailed to individuals across the United States. The total balances remaining on the first round of EIP cards were $605.1 million as of December 31, 2020 and ~~Supervision" and "Risk Factors."~~$569.2 million as of January 20, 2021.

~~Economic Impact Payment Program Update~~

On ~~April 29,~~December 27, 2020, the U.S. Congress, through the CAA, directed the Internal Revenue Service (“IRS”) to distribute a second round of EIP via the U.S. Treasury to persons in the U.S. eligible to receive them. The Bank entered into an amendment of its existing agreement with the ~~U.S. Department of the Treasury’s Bureau of the~~ Fiscal Service, (“under which the Bank will act as a Financial Agent to Fiscal ~~Service”) to provide~~Service in connection with the provision of prepaid debit card services to ~~support the distribution of~~disburse a ~~segment~~portion of the ~~Economic Impact Payments payable by the Internal Revenue Service under the CARES Act.~~EIP payments to eligible recipients via Bank-issued prepaid cards.

Under the second round, the Bank disbursed approximately $7.10 billion of EIP ~~program, 3.6 million~~payments, with initial payments having begun January 4, 2021. The total balances remaining on the second round of EIP cards were ~~delivered with total loads~~$5.80 billion as of ~~$6.42 billion. As a result of~~January 20, 2021.

While the ~~program, the Company saw a quick influx of deposits to its balance sheet in mid-May 2020 with limited visibility into the duration of those deposits. While this program's~~EIP Program's impact to earnings ~~was negligible,~~is expected to be slightly positive, it ~~did~~continues to temporarily have a significant impact on cash and deposit balances, leading to a ~~net drag~~reduced NIM along with a corresponding impact on the ~~net interest margin along~~Company's leverage capital ratios. In conjunction with ~~pressuring~~the Program and its balance sheet impacts, the Bank was granted temporary exemption from its requirements to maintain minimum regulatory capital leverage ratios by the Officer of the Comptroller of the Currency due to deposits received as part of the EIP program. The influx of EIP deposits is not expected to have any material impact on the Company's ~~leverage~~risk-weighted capital ratios.

The ~~total balances remaining on~~Company is working with other banks to transfer deposits off-balance sheet in an effort to relieve the ~~EIP cards as~~impact of ~~June 30, 2020 were $2.68 billion and $1.72 billion as of July 31, 2020. The funds on these cards increased~~ the ~~Company's quarterly average noninterest deposit balances by $2.32 billion, leading to an overall improvement in cost of deposits. This short term~~substantial influx of deposits also led to excess cash balances held at the Federal Reserve during the current period, which yielded approximately 10 basis points in interest income, and increased the quarterly average of interest-earning assets compared to previous periods. This increase of lower yielding cash balances resulted in a dragrelated to the ~~overall yield on total interest-earning assets during the current period. The net impact to NIM was approximately 140 basis points.~~second round of EIP.

~~Conversions of the Bank and the Company~~

Following receipt of the necessary regulatory approvals from the Office of the Comptroller of the Currency and the Federal Reserve Bank of Minneapolis (the "FRB"), on April 1, 2020, the Bank converted from a federal thrift charter to a national bank charter and the Company converted from a savings and loan holding company to a bank holding company that has elected treatment as a financial holding company. The Bank now operates under the name "MetaBank, National Association". The Company and the Bank effected these conversions in order to more closely align the Bank's regulatory charter to its current and planned focus on national business that provides innovative financial solutions to consumers and businesses in niche markets often overlooked by traditional banks. See "Regulation and Supervision" and "Risk Factors" for additional related information.

~~Business Developments~~

The sale of MetaBank's Community Bank division to Central Bank closed on February 29, 2020 and included all of the Community Bank's deposits, branch locations, fixed assets, employees, and a portion of the Community Bank’s loan portfolio. The final deposit and loan balances included in the transaction totaled $290.5 million and $268.6 million, respectively. The remaining Community Bank loans, which totaled $799.4 million at June 30, 2020, have been retained by the Company and are under a servicing agreement with Central Bank. As of June 30, 2020 the Company also held $48.1 million in Community Bank loan balances as held for sale.

On August 5, 2020, MetaBank, N.A., a wholly-owned subsidiary of the Company (“MetaBank”) entered into a three-year program management agreement (the “PMA”) with Emerald Financial Services, LLC (“EFS”), a wholly owned indirect subsidiary of H&R Block, Inc. (“H&R Block”), pursuant to which MetaBank will serve as a facilitator for H&R Block’s suite of financial services products, which include: Emerald Prepaid MasterCard®, Refund Transfers, Refund Advances, Emerald Advance® lines of credit, and other products through H&R Block’s distribution channels. EFS has the right to terminate the PMA under certain circumstances, including if the Bank should lose its exemption from certain provisions of the Dodd-Frank Act known as the “Durbin Amendment.” Based on current projections (or forecasts) MetaBank does not anticipate losing its Durbin Amendment exemption during the initial term of the PMA. Upon termination of the PMA or any of the related product schedules, EFS has the right to purchase or arrange the purchase of all of the affected accounts related to its ongoing product offerings.

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On June 23, 2020, Brett Pharr was promoted to Co-President and Chief Operating Officer of MetaBank to better align business lines with Meta’s strategic initiatives. Brad Hanson remains Co-President and Chief Executive Officer of MetaBank and President and Chief Executive Officer of the Company.

During the fiscal 2020 third quarter, the Company extended its agreement with Blackhawk Network, Inc. ("BlackHawk") through 2040. Blackhawk is a leading prepaid and payments company, which supports the program management and distribution of gift cards, prepaid telecom products and financial service products in a number of different retail, digital and incentive channels.

~~Financial Highlights~~

The Company recorded net income of $18.2 million, or $0.53 per diluted share, for the three months ended June 30, 2020, compared to net income of $29.3 million, or $0.75 per diluted share, that was recorded for the fiscal 2019 third quarter. Total revenue for the fiscal 2020 third quarter was $103.2 million, compared to $110.8 million for the same quarter in fiscal 2019, a decrease of 7%.

During the fiscal 2020 third quarter, the Company recognized net interest income of $62.1 million, net interest margin ("NIM") of 3.28% and net interest margin, tax-equivalent ("NIM, TE") of 3.31%. The Company's average gross loans and leases increased by $23.8 million, or 1%, while average noninterest-bearing deposits increased by $3.35 billion, or 123%, when compared to the same period in fiscal 2019. Average deposits from the payments divisions increased nearly 131% to $6.32 billion when compared to the same period in fiscal 2019. The significant increase in deposits led to excess cash balances held at the Federal Reserve during the third quarter of fiscal 2020. This increase in lower yielding cash balances resulted in a net drag to the net interest margin of approximately 140 basis points. Overall, the Company's cost of funds averaged 0.28% during the fiscal 2020 third quarter, compared to 1.14% during the prior year period, primarily due to a decrease in overnight borrowings rates along with an increase in the average balance of the Company's noninterest-bearing deposits.

Noninterest income for the three months ended June 30, 2020 was $41.0 million, compared to $43.8 million for the same period of the prior year. This year-over-year decrease was primarily due to lower total tax product fee income and a reduction in gains on loan sales, partially offset by an increase in rental income. For the three months ended June 30, 2020, noninterest expense was $71.2 million, compared to $72.5 million for the same period of the prior year. The decrease in noninterest expense over the prior year fiscal third quarter was primarily driven by lower compensation and benefits, intangible amortization, total tax product expense, and occupancy and equipment expenses, partially offset by higher card processing expenses and operating lease equipment depreciation.

FINANCIAL CONDITION

At ~~June 30,~~December 31, 2020, the Company’s total assets increased by ~~$2.60~~$1.17 billion to ~~$8.78~~$7.26 billion compared to September 30, ~~2019,~~2020, primarily due to a ~~$2.98~~$1.16 billion increase in cash and cash ~~equivalents partially offset by decreases in loans and leases and investments.~~equivalents.

Total cash and cash equivalents was ~~$3.11~~$1.59 billion at ~~June 30,~~December 31, 2020, increasing from ~~$126.5~~$427.4 million at September 30, ~~2019.~~2020. The increase ~~stemmed~~primarily resulted from the ~~large influx~~receipt of EIP related deposits in the ~~third quarter of~~ fiscal ~~2020.~~2021 first quarter. The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB. At ~~June 30,~~December 31, 2020, the Company did not have any federal funds sold.

The total investment portfolio decreased ~~$138.8~~$51.3 million, or ~~10%~~4%, to ~~$1.27~~$1.31 billion at ~~June 30,~~December 31, 2020, compared to ~~$1.41~~$1.36 billion at September 30, ~~2019,~~2020, as maturities ~~sales,~~ and principal pay downs exceeded purchases. The Company’s portfolio of securities customarily consists primarily of MBS, which have expected lives much shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions, 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,~~December 31, 2020 were issued by a U.S. Government agency or instrumentality. Of the total MBS at ~~June 30,~~December 31, 2020, ~~$338.3~~$430.8 million, at fair value, were classified as available for sale, and ~~$6.4~~$5.2 million, at cost, were classified as held to maturity. Of the total investment securities at ~~June 30,~~December 31, 2020, ~~$825.6~~$797.4 million, at fair value, were classified as available for sale and ~~$98.2~~$76.2 million, at cost, were classified as held to maturity. During the ~~nine-months~~three-months ended ~~June 30,~~December 31, 2020, the Company purchased ~~$60.0~~$24.0 million of investment securities.

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Loans held for sale at ~~June 30,~~December 31, 2020 totaled ~~$79.9~~$133.7 million, decreasing from ~~$148.8~~$183.6 million at September 30, ~~2019.~~2020. This decrease was primarily driven by the sale $129.8 million of ~~held for sale loans resulting in proceeds of $168.8 million~~the retained Community Bank loan portfolio to Central Bank during the fiscal ~~2020~~2021 first ~~quarter, which was primarily comprised of $111.7 million of consumer credit product loans sold.~~quarter.

The Company’s ~~portfolio of gross~~total loans and leases ~~decreased~~increased by ~~$154.7~~$125.4 million, or 4%, to ~~$3.50~~$3.44 billion at ~~June 30,~~December 31, 2020, from ~~$3.65~~$3.31 billion at September 30, ~~2019.~~2020. The ~~decrease~~increase was primarily driven by ~~the sale of community banking loans, partially offset by an increase~~increases in national lending loans and ~~leases.~~leases, partially offset by a decrease in community banking loans. See Note 36 to the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

National ~~Lending~~lending loans and leases increased ~~$247.7~~$257.0 million, or ~~10%~~9% to ~~$2.70~~$3.09 billion at ~~June 30,~~December 31, 2020 compared to September 30, ~~2019.~~2020. Within the National Lending portfolios, commercial finance loans and leases increased ~~$242.7~~$115.1 million, tax services loans increased ~~$16.9~~$89.5 million, consumer finance increased $26.9 million and warehouse finance ~~portfolio~~ increased ~~$14.7 million, while the consumer finance portfolio decreased $26.6~~$25.6 million at ~~June 30,~~December 31, 2020 compared to September 30, ~~2019.~~2020. The increase in commercial finance loan balances was largely driven by ~~$215.5 million in PPP loans as of June 30, 2020.~~the term lending and asset based lending categories. The seasonality of the Company's tax services business led to the increase in tax services loans at ~~June 30,~~December 31, 2020 compared to September 30, ~~2019.~~2020.

Community banking loans decreased ~~$402.4~~$131.6 million, or ~~33%~~27%, at ~~June 30,~~December 31, 2020 compared to September 30, ~~2019,~~2020, primarily due to the aforementioned sale of the Community Bank division in the second quarter of fiscal 2020. See Note 4 to the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q. The remainder of the decrease is attributable to ~~the classification~~$100.4 million of ~~$48.1 million in~~ loan balances classified as held for sale along with continued principal payments and payoffs.

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 $0.9 million, or 3%, to $31.8 million at June~~remained unchanged from September 30, 2020 ~~from $30.9~~at $27.1 million ~~at September 30, 2019. The increase in stock was driven by the addition of stock in the Federal Reserve Bank as part of the conversion of the Bank from a federal thrift charter~~ to a national bank charter. Partially offsetting that increase was a decrease in FHLB stock, which directly correlates with lower overnight borrowings balances from the FHLB at June 30, 2020 compared to September 30, 2019.December 31, 2020.

Total end-of-period deposits increased ~~$3.25~~$1.23 billion, or ~~75%~~25%, at ~~June 30,~~December 31, 2020 to ~~$7.59~~$6.21 billion as compared to September 30, ~~2019,~~2020, primarily driven by an increase in ~~noninterest bearing~~noninterest-bearing deposits of ~~$4.18~~$1.22 billion, of which ~~$2.68 billion~~ was largely attributable to balances on the EIP cards. Lower levels of consumer spending and various stimulus payments loaded on partner cards also contributed to the overall increase in total deposits. Partially offsetting those increases were decreases of $813.5 million in wholesale deposits, $84.3 million in certificates of deposit, and $36.1 million in money market deposits. The decrease in wholesale deposits was primarily due to a shift in the Company's deposit balances from wholesale deposits to noninterest bearing deposits stemming from the balances on the EIP cards. The decrease in certificate of deposits and money market deposits was related to the sale of $290.5 million of total deposits included in the sale of the Community Bank division. See Note 4 to the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

The average balance of total deposits and interest-bearing liabilities was ~~$6.09~~$5.52 billion for the ~~nine-months~~three-months ended ~~June 30,~~December 31, 2020, compared to ~~$5.37~~$5.13 billion for the same period of the prior fiscal year. The average balance of noninterest-bearing deposits for the ~~nine-months~~three-months ended ~~June 30,~~December 31, 2020 increased ~~by $1.28~~$2.15 billion, or ~~47%~~79%, to ~~$3.99~~$4.88 billion compared to the same period in the prior year. These increases were primarily attributable to ~~the~~EIP related deposit ~~balances on the EIP cards.~~balances.

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The Company's total borrowings decreased ~~$652.1~~$1.5 million, or ~~76%~~1%, from ~~$861.9~~$98.2 million at September 30, ~~2019~~2020 to ~~$209.8~~$96.8 million at June 30, 2020, primarily due to the increase in total deposits. The Company’s short-term borrowings fluctuate on a daily basis due to the nature of a portion of its noninterest-bearing deposit base, primarily related to payroll processing timing with a higher volume of short-term borrowings on Monday and Tuesday, which are typically paid down throughout the week. This predictable fluctuation may be augmented near a month-end by a prefunding of certain programs.December 31, 2020. 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,~~December 31, 2020.

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At ~~June 30,~~December 31, 2020, the Company’s stockholders’ equity totaled ~~$829.9~~$813.2 million, ana decrease of ~~$14.0~~$34.1 million, from ~~$844.0~~$847.3 million at September 30, ~~2019.~~2020. The decrease was primarily attributable to a reduction in retained earnings related to activity from the Company's share repurchase programs, offset in part by an increase in additional paid-in capital. At ~~June 30,~~December 31, 2020, the Bank continued to exceed all regulatory requirements for classification as a well-capitalized institution. See “Liquidity and Capital Resources” for further information.

Payments Noninterest-bearing Checking Deposits

The Company may hold negative balances associated with cardholder programs in the payments ~~divisions~~division that are included within noninterest-bearing deposits on the Company's consolidated statement of financial condition. Negative balances can relate to any of the following payments functions:

–Prefundings: The Company deploys funds to ~~consumer~~ cards prior to receiving cash (typically 2-3 days) where the prefunding balance is netted at a pooled partner level utilizing ASC 210-20.

–Discount fundings: The Company funds ~~prepaid~~ cards in an amount that is estimated to be less than ~~the face value as a form of revenue sharing with partners.~~final breakage values on card programs. Consumers may spend more than is estimated. These discounts are netted at a pooled partner level using ASC 210-20. The majority of these discount fundings relate to one partner.

–Demand Deposit Account ("DDA") overdrafts: Certain programs offered allow cardholders traditional DDA overdraft protection services whereby cardholders can spend a limited amount in excess of their available card balance. When overdrawn, these accounts are re-classed as loans on the balance sheet within the Consumer Finance category.

The Company meets the Right of Set off criteria in ASC 210-20, Balance Sheet - Offsetting, for all ~~Payments~~payments negative deposit balances with the exception of DDA overdrafts. The following table summarizes the Company's negative deposit balances within the payments ~~division at June 30, 2020 and September 30, 2019:~~division:


(Dollars in Thousands)	(Dollars in Thousands)	June 30, 2020		September 30, 2019		(Dollars in Thousands)	December 31, 2020		September 30, 2020
Noninterest-bearing deposits	Noninterest-bearing deposits	$	6,952,615	$	2,827,808	Noninterest-bearing deposits	$	6,101,971	$	4,960,276
Prefunding	Prefunding	(351,454)		(379,035)		Prefunding	(441,082)		(528,131)
Discount funding	Discount funding	(51,580)		(79,694)		Discount funding	(69,567)		(62,443)
DDA overdrafts	DDA overdrafts	(11,772)		(11,069)		DDA overdrafts	(9,725)		(13,072)
Noninterest-bearing checking, net	Noninterest-bearing checking, net	$	6,537,809	$	2,358,010	Noninterest-bearing checking, net	$	5,581,597	$	4,356,630

RESULTS OF OPERATIONS

General

The Company recorded net income of $28.0 million, or $0.84 per diluted share, for the three months ended December 31, 2020, compared to net income of $21.1 million, or $0.56 per diluted share, for the three months ended December 31, 2019. Total revenue for the fiscal 2021 first quarter was $111.5 million, compared to $102.1 million for the same quarter in fiscal 2020, an increase of 9%. The increase in net income was primarily driven by an increase in noninterest income and a decrease in noninterest expense.

Net Interest Income

Net interest income for the fiscal 2021 first quarter increased by 2%, to $66.0 million from $64.7 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 balances and yields realized on interest earning assets. The quarterly average outstanding balance of loans and leases as a percentage of interest-earning assets for the three months ended December 31, 2020 decreased to 62%, from 72% for the three months ended December 31, 2019, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 23% from 26% over that same period. These decreases were primarily due to the increase in interest-earning cash balances related to the EIP program.

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NIM was 4.65% in the fiscal 2021 first quarter, a decrease of 29 basis points from 4.94% in the fiscal 2020 first quarter. NIM,TE was 4.67% in the fiscal 2021 first quarter, a decrease of 32 basis points from 4.99% in the fiscal 2020 first quarter. The decreases in NIM and NIM, TE in the fiscal 2021 first quarter, compared to the same period of the prior year were primarily driven by the effects of the EIP program.

The overall reported tax equivalent yield (“TEY”) on average earning assets decreased by 116 basis points to 4.82% when comparing the fiscal 2021 first quarter to the same period of the prior fiscal year. The fiscal 2021 first quarter TEY on the securities portfolio decreased by 86 basis points to 1.79% compared to the same period of the prior year TEY of 2.65%. The decrease in TEY on the securities portfolio was primarily due to a lower interest rate environment during the current period compared to the prior year period while the decrease in TEY on average earning assets was primarily driven by excess low-yielding cash held at the Federal Reserve.

The Company’s average interest-earning assets for the fiscal 2021 first quarter increased by $432.9 million to $5.64 billion, from the comparable quarter in 2020. The increase was primarily attributable a significant increase in interest-earning cash driven by the effects of the EIP program. Total investment securities continued to decrease through sales of securities and cash flow from the Company's amortizing securities portfolio. Quarterly average loans and leases decreased $239.5 million, of which $665.0 million was related to a decrease in Community Banking loans partially offset by a $425.5 million increase in National Lending loans.

The Company’s average balance of total deposits and interest-bearing liabilities was $5.52 billion for the three months ended December 31, 2020, compared to $5.13 billion for the same period in the prior year, representing an increase of 8%. This increase was primarily driven by an increase in average noninterest-bearing deposits of $2.15 billion. The increase in average noninterest-bearing deposits was largely driven by the EIP related funding. Partially offsetting those increases were decreases in average wholesale deposits of $1.21 billion, average balances of total borrowings of $422.3 million, average time deposits of $97.5 million, and average money market deposits of $27.9 million.

Overall, the Company's cost of funds for all deposits and borrowings averaged 0.15% during the fiscal 2021 first quarter, compared to 1.01% for the fiscal 2020 first quarter. This decrease was primarily due to a decrease in overnight borrowings rates as well as an increase in the average balance of the Company's noninterest-bearing deposits. The Company's overall cost of deposits was 0.06% in the fiscal 2021 first quarter, compared to 0.81% in the same quarter of 2020.

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. Tax-equivalent adjustments have been made in yield on interest-bearing assets and net interest margin. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield.

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	Three Months Ended December 31,
	2020						2019
(Dollars in Thousands)	Average Outstanding Balance		Interest Earned / Paid		Yield / Rate(1)		Average Outstanding Balance		Interest Earned / Paid		Yield / Rate(1)
Interest-earning assets:
Cash & fed funds sold	$	820,108	$	842	0.41	%	$	99,597	$	412	1.65	%
Mortgage-backed securities	438,610		2,123		1.92	%	376,358		2,389		2.53	%
Tax exempt investment securities	333,729		1,215		1.83	%	490,982		2,339		2.40	%
Asset-backed securities	326,315		1,200		1.46	%	303,885		2,354		3.08	%
Other investment securities	221,986		1,111		1.98	%	197,513		1,429		2.88	%
Total investments	1,320,640		5,649		1.79	%	1,368,738		8,511		2.65	%
Total commercial finance	2,417,691		45,630		7.49	%	1,980,509		44,781		9.00	%
Total consumer finance	239,618		4,748		7.86	%	270,612		5,790		8.51	%
Total tax services	25,104		8		0.13	%	24,429		33		0.54	%
Total warehouse finance	284,199		4,933		6.89	%	265,564		4,174		6.25	%
National Lending loans and leases	2,966,612		55,319		7.40	%	2,541,114		54,778		8.58	%
Community Banking loans	529,085		6,336		4.75	%	1,194,082		13,924		4.64	%
Total loans and leases	3,495,697		61,655		7.00	%	3,735,196		68,702		7.32	%
Total interest-earning assets	5,636,445		$	68,146	4.82	%	5,203,531		$	77,625	5.98	%
Noninterest-earning assets	845,378						918,973
Total assets	$	6,481,823					$	6,122,504

Interest-bearing liabilities:
Interest-bearing checking(2)	$	162,748	$	—	—	%	$	163,693	$	153	0.37	%
Savings	52,198		2		0.01	%	48,776		9		0.08	%
Money markets	52,620		39		0.30	%	80,528		205		1.01	%
Time deposits	17,390		57		1.30	%	114,924		595		2.06	%
Wholesale deposits	261,136		699		1.06	%	1,472,820		8,378		2.26	%
Total interest-bearing deposits	546,092		797		0.58	%	1,880,741		9,340		1.98	%
Overnight fed funds purchased	11		—		0.25	%	302,804		1,450		1.91	%
FHLB advances	—		—		—	%	110,000		678		2.45	%
Subordinated debentures	73,822		1,147		6.16	%	73,658		1,160		6.26	%
Other borrowings	23,870		203		3.37	%	33,589		346		4.10	%
Total borrowings	97,703		1,350		5.48	%	520,051		3,634		2.78	%
Total interest-bearing liabilities	643,795		2,147		1.32	%	2,400,792		12,974		5.15	%
Noninterest-bearing deposits	4,880,352		—		—	%	2,732,062		—		—	%
Total deposits and interest-bearing liabilities	5,524,147		$	2,147	0.15	%	5,132,854		$	12,974	1.01	%
Other noninterest-bearing liabilities	151,528						150,319
Total liabilities	5,675,675						5,283,173
Shareholders' equity	806,148						839,331
Total liabilities and shareholders' equity	$	6,481,823					$	6,122,504
Net interest income and net interest rate spread including noninterest-bearing deposits			$	65,999	4.67	%			$	64,651	4.97	%

Net interest margin					4.65	%					4.94	%
Tax-equivalent effect					0.02	%					0.05	%
Net interest margin, tax-equivalent(3)					4.67	%					4.99	%

(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2020 and 2019 was 21%.

(2) Of the total balance, $162.5 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.

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Provision for Credit Losses

The Company recorded a $6.1 million provision for loan and lease losses for the three months ended December 31, 2020, as compared to a $3.4 million provision for loan and lease losses for the same period of the prior year. The increase in provision for the quarter ended December 31, 2020 compared to the same period of the prior year was primarily driven by the commercial finance and consumer finance portfolios, partially offset by a decrease within the retained community bank portfolio. The Company adopted CECL effective October 1, 2020, and its day one entry to increase the allowance for credit losses was $12.8 million. While this specific adoption amount did not have a direct impact to provision for credit loss for the December 31, 2020 quarter as the cumulative effect adjustment was recorded to retained earnings, the CECL accounting standard does accelerate the recognition of the reserves due to the forward-looking elements of the modeling. See Note 2 and Note 6 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Noninterest Income

Noninterest income for the fiscal 2021 first quarter increased to $45.5 million from $37.5 million for the same period in the prior fiscal year. This was due primarily to an increase within gain on sale of other, an increase in other income, and an increase in payments cards and deposit fees, partially offset by a decrease in rental income. The increase within gain on sale of other was primarily due to a loss on sale of foreclosed and repossessed assets recognized during the first quarter of fiscal year 2020. The increase within other income was primarily due to the receipt of a portion of the Company’s liquidation insurance claims of unearned premiums on the ReliaMax estate related to the Company’s student loan portfolio. The amount received in the first quarter of fiscal 2021 was $3.5 million.

Noninterest Expense

Noninterest expense decreased 4% to $72.6 million for the fiscal 2021 first quarter, from $75.8 million for the same quarter of fiscal 2020. The decrease in noninterest expense when comparing the fiscal 2021 first quarter to the same period of the prior year was primarily driven by decreases in compensation and benefits, other expense, tax product expense, operating lease depreciation, and amortization expense, partially offset by increases within impairment expense, legal and consulting expense, and card processing expense.

Income Tax Expense

The Company recorded an income tax expense of $3.5 million, representing an effective tax rate of 10.8%, for the fiscal 2021 first quarter, compared to an income tax expense of $0.7 million, representing an effective tax rate of 3.0%, for the fiscal 2020 first quarter. The recorded income tax expense during the current quarter was primarily due to ratably recognized investment tax credits and lower forecast earnings due to COVID-19.

The Company originated $38.5 million in solar leases during the fiscal 2021 first quarter, compared to $17.9 million during the fiscal 2020 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. 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. Certain relationships in the table below are over 90 days past due and still accruing. The Company considers these relationships as being in the process of collection. Insurance premium finance loans, consumer finance and tax services loans are generally not placed on non-accrual status, but are instead written off when the collection of principal and interest become doubtful.

Loans and leases, or portions thereof, are charged-off when collection of principal becomes doubtful. Generally, this is associated with a delay or shortfall in payments of greater than 210 days for insurance premium finance, 180 days for tax and other specialty lending loans, 120 days for consumer credit products and 90 days for other loans. Action is taken to charge off ERO loans if such loans have not been collected by the end of June and taxpayer advance loans if such loans have not been collected by the end of the calendar year. Non-accrual loans and troubled debt restructurings are generally considered impaired.

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The Company believes that the level of allowance for ~~loan and lease~~credit losses at ~~June 30,~~December 31, 2020 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 ~~Loan and Lease~~Credit Losses” for further information.

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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, 2020			September 30, 2019
(Dollars in Thousands)								(Dollars in Thousands)	December 31, 2020			September 30, 2020
Nonperforming loans and leases	Nonperforming loans and leases							Nonperforming loans and leases
Nonaccruing loans and leases:	Nonaccruing loans and leases:							Nonaccruing loans and leases:
Term lending	Term lending	$	16,524		$	12,146		Term lending	$	13,741		$	16,274

Asset based lending								Asset based lending	917			—
Factoring	Factoring	733			1,669			Factoring	842			1,096
Lease financing	Lease financing	3,518			308			Lease financing	2,607			3,583

SBA/USDA	SBA/USDA	1,510			255			SBA/USDA	600			600

Commercial finance	Commercial finance	22,285			14,378			Commercial finance	18,707			21,553

Total National Lending	Total National Lending	22,285			14,378			Total National Lending	18,707			21,553
Commercial real estate and operating	Commercial real estate and operating	580			—			Commercial real estate and operating	18,456			580
Consumer one-to-four family real estate and other	Consumer one-to-four family real estate and other	121			44			Consumer one-to-four family real estate and other	164			50
Agricultural real estate and operating	Agricultural real estate and operating	1,769			—			Agricultural real estate and operating	1,769			1,769
Total Community Banking	Total Community Banking	2,470			44			Total Community Banking	20,389			2,399
Total	Total	24,755			14,422			Total	39,096			23,952

Accruing loans and leases delinquent 90 days or more:
Accruing loans and leases delinquent >89 days past due:								Accruing loans and leases delinquent >89 days past due:
Held for sale loans	Held for sale loans	—			964			Held for sale loans	—			—

Term lending	Term lending	2,578			2,241			Term lending	385			266

Lease financing	Lease financing	1,907			1,530			Lease financing	1,042			4,344
Insurance premium finance	Insurance premium finance	3,723			3,807			Insurance premium finance	665			2,364
SBA/USDA	SBA/USDA	427			—			SBA/USDA	—			427

Commercial finance	Commercial finance	8,635			7,578			Commercial finance	2,092			7,401
Consumer credit products	Consumer credit products	337			239			Consumer credit products	457			499
Other consumer finance	Other consumer finance	572			1,078			Other consumer finance	675			373
Consumer finance	Consumer finance	909			1,317			Consumer finance	1,132			872
Tax services	Tax services	—			2,240			Tax services	—			1,743

Total National Lending	Total National Lending	9,544			11,135			Total National Lending	3,224			10,016
Commercial real estate and operating	Commercial real estate and operating	258			—			Commercial real estate and operating	—			50

Agricultural real estate and operating	Agricultural real estate and operating	4,737			—			Agricultural real estate and operating	—			—
Total Community Banking	Total Community Banking	4,995			—			Total Community Banking	—			50
Total	Total	14,539			11,135			Total	3,224			10,066

Total nonperforming loans and leases	Total nonperforming loans and leases	39,294			26,521			Total nonperforming loans and leases	42,320			34,018

Other assets	Other assets							Other assets
Nonperforming operating leases	Nonperforming operating leases	9,983			457			Nonperforming operating leases	3,713			4,045

Foreclosed and repossessed assets:	Foreclosed and repossessed assets:							Foreclosed and repossessed assets:
Commercial finance	Commercial finance	6,784			1,372			Commercial finance	7,178			9,957
Commercial real estate and operating								Commercial real estate and operating	8			—

Agricultural real estate and operating		—			28,122
Total	Total	6,784			29,494			Total	7,186			9,957

Total other assets	Total other assets	16,767			29,951			Total other assets	10,899			14,002

Total nonperforming assets	Total nonperforming assets	$	56,061		$	56,472		Total nonperforming assets	$	53,219		$	48,020
Total as a percentage of total assets	Total as a percentage of total assets	0.64		%	0.91		%	Total as a percentage of total assets	0.73		%	0.79		%

At December 31, 2020, nonperforming loans and leases totaled $42.3 million, representing 1.18% of total loans and leases, compared to $34.0 million, or 0.97% of total loans and leases at September 30, 2020.

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~~Through June 30,~~As of December 31, 2020, $84.2 million of the ~~Company has~~loans and leases that were granted deferral payments ~~on a total of $352.1 million of loan, lease and rental equipment balances as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted~~ by ~~COVID-19. As of June 30, 2020, $292.2 million of those balances~~the Company were still in their deferment period.

~~At June~~ As of September 30, 2020, ~~nonperforming~~ loans and leases ~~totaled $39.3~~totaling $170.0 million ~~representing 1.10%~~were within their deferment period. In addition, the Company has made other COVID-19 related modifications, of ~~total loans and leases,~~which $1.1 million were still active as of December 31, 2020 compared to ~~$26.5~~$23.3 million ~~or 0.70% of total loans and leases~~ at September 30, ~~2019.~~

~~During~~2020. The majority of the ~~fiscal 2020 first quarter, the Company disposed of assets~~other modifications were related to ~~a previously disclosed Community Bank agricultural relationship that were held in other real estate owned (“OREO”), which represented 46 basis points~~adjusting the type or amount of ~~nonperforming assets as of September 30, 2019.~~the customer's payments.

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. 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. “Substandard” assets include those characterized by the “distinct possibility” that the Bank will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such minimal value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When assets are classified as “loss,” the Bank is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. The 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.

On the basis of management’s review of its loans, leases, and other assets, at ~~June 30,~~December 31, 2020, the Company had classified ~~$52.5~~$78.6 million of its assets as substandard, ~~$4.1~~$3.5 million as doubtful and none as loss. At September 30, ~~2019,~~2020, the Company classified ~~$40.6~~$61.6 million of its assets as substandard, ~~$0.5~~$6.3 million as doubtful and none as loss.

Allowance for ~~Loan and Lease~~Credit Losses. ~~The allowance~~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 ~~loan~~most financial assets, including trade and ~~lease losses is established through~~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 ~~provision~~CECL methodology to determine the ACL for ~~loan~~loans and ~~lease losses based on management’s evaluation~~debt securities held-to-maturity. CECL requires loss estimates for the remaining estimated life of the ~~risk inherent in its~~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 ~~and changes in~~over the ~~nature and volume~~life of ~~its loan and lease activity, including those~~each financial asset as of the balance sheet date. The Company individually evaluates loans and leases that ~~are being specifically monitored by management. Such evaluation, which includes a review of~~do not share similar risk characteristics with other financial assets for impairment, generally this means loans and leases identified as troubled debt restructures or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for ~~which full collectability may not be reasonably assured, includes consideration~~impairment. A reserve for unfunded credit commitments such as letters of ~~among~~credit and binding unfunded loan commitments is recorded in other ~~matters,~~liabilities on the ~~estimated~~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 ~~underlying~~ collateral economic conditions, historical loan and lease loss experience and other factors that warrant recognition in providing for an appropriate loan and lease loss allowance. Each loan and lease segment is evaluated using both historical loss factorsless estimated selling costs, as ~~well as other qualitative factors, in order to determine the amount of risk~~ the Company ~~believes exists within that segment. The Bank’s average loss rates over~~considers these financial assets to be collateral dependent. If an individually evaluated loan or lease is not collateral dependent, impairment is measured at the ~~past three years were low relative to industry averages for such years. The Bank does not believe it is likely that these low loss conditions will continue indefinitely.~~

~~At June 30, 2020,~~present value of expected future cash flows discounted at the ~~Company had established an allowance for~~ loan ~~and~~or lease losses totaling $65.7 million, compared to $29.1 million at September 30, 2019. The increase in the Company's allowance for loan and lease losses was driven primarily by increases in the allowance of $14.8 million in commercial finance, $12.3 million in the community banking portfolio, and $11.4 million in tax service loans, partially offset by a decrease of $1.9 million in consumer finance.initial effective interest rate.

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At December 31, 2020, the Company had established an ACL totaling $72.4 million, compared to $56.2 million at September 30, 2020. The increase in the allowance at December 31, 2020 when compared to September 30, 2020, was primarily due to the adoption of the CECL accounting standard noted above, as well as additional increases during the fiscal 2021 first quarter in the commercial finance portfolio of $2.8 million, tax services portfolio of $1.4 million, and consumer finance portfolio of $1.4 million, partially offset by an additional decrease within the retained community bank portfolio of $2.2 million. 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.


		As of the Period Ended																			As of the Period Ended
		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019			December 31, 2020		October 1, 2020(1)		September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019

Commercial finance	Commercial finance	1.36	%	1.28	%	0.80	%	0.76	%	0.67	%	Commercial finance	1.88	%	1.85	%	1.30	%	1.36	%	1.28	%	0.80	%
Consumer finance	Consumer finance	1.75	%	1.74	%	2.22	%	2.30	%	2.22	%	Consumer finance	4.39	%	4.31	%	1.64	%	1.75	%	1.74	%	2.22	%
Tax services	Tax services	59.67	%	22.22	%	1.62	%	—	%	63.19	%	Tax services	1.53	%	0.06	%	0.06	%	59.67	%	22.22	%	1.62	%
Warehouse finance	Warehouse finance	0.10	%	0.10	%	0.10	%	0.10	%	0.10	%	Warehouse finance	0.10	%	0.10	%	0.10	%	0.10	%	0.10	%	0.10	%
National Lending	National Lending	1.68	%	1.92	%	0.90	%	0.86	%	1.44	%	National Lending	1.89	%	1.86	%	1.20	%	1.68	%	1.92	%	0.90	%
Community Banking	Community Banking	2.55	%	1.49	%	0.68	%	0.68	%	0.70	%	Community Banking	4.01	%	3.37	%	4.59	%	2.55	%	1.49	%	0.68	%
Total loans and leases	Total loans and leases	1.88	%	1.81	%	0.84	%	0.80	%	1.20	%	Total loans and leases	2.10	%	2.08	%	1.70	%	1.88	%	1.81	%	0.84	%

(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 ~~both regionally and nationwide,~~ and considers these factors when assessing the appropriateness of its ~~allowance for loan and lease losses.~~ACL. The Company continued to assess each of its loan and lease portfolios during the fiscal ~~third quarter and increased its allowance for loan and lease losses as a percentage~~2021 first quarter. The increase from September 30, 2020 to December 31, 2020 was primarily due to the adoption of ~~total loans and leases~~ASU 2016-13 on October 1, 2020. The increase in the ~~community bank and commercial finance portfolios primarily as a result of the ongoing COVID-19 pandemic. Tax~~tax services coverage rates were driven ~~only~~ by typical seasonal ~~activity and are not expected to be materially impacted by COVID-19 as the tax lending season is now complete.~~activity. The Company expects to continue to diligently monitor the ~~allowance for loan and lease losses~~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 ~~allowance for loan and lease losses~~ACL at ~~June 30,~~December 31, 2020 reflected an appropriate allowance against ~~probable incurred~~inherent credit losses from the lending portfolio. Although the Company maintains its ~~allowance for loan and lease losses~~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 ~~allowance for loan and lease losses~~ACL is subject to review by the OCC, which can require the establishment of additional general or specific allowances.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements are prepared in accordance with GAAP. The financial information contained within these financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Management has identified its critical accounting policies, which are those policies that, in management's view, are most important in the portrayal of our financial condition and results of operations, and include those for the ~~allowance for loan and lease losses,~~ACL, goodwill and identifiable intangible assets. These policies involve complex and subjective decisions and assessments. Some of these estimates may be uncertain at the time they are made, could change from period to period, and could have a material impact on the financial statements. 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, ~~2019.~~2020. There were no significant changes to these critical accounting policies and estimates during the first ~~nine~~three months of fiscal ~~year 2020.~~

~~RESULTS OF OPERATIONS~~

~~General~~. The Company recorded net income of $18.2 million, or $0.53 per diluted share, for the three months ended June 30, 2020, compared to net income of $29.3 million, or $0.75 per diluted share, for the three months ended June 30, 2019. Total revenue for the fiscal 2020 third quarter was $103.2 million, compared to $110.8 million for the same quarter in fiscal 2019, a decrease of 7%. The decrease in net income was primarily due to an increase in provision expense along with a decrease in interest income.

2021.

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The Company recorded net income of $91.6 million, or $2.54 per diluted share, for the nine months ended June 30, 2020, compared to $76.8 million, or $1.95 per diluted share, for the same period in fiscal year 2019. Total revenue for the nine months ended June 30, 2020 was $393.6 million, compared to $385.2 million for the same period of the prior year, an increase of $8.4 million, or 2%. The increase in net income was primarily due to an increase in noninterest income and a decrease in noninterest expense.

Net interest income for the fiscal 2020 third quarter decreased by 7%, to $62.1 million from $67.0 million for the same quarter in fiscal 2019. The decrease was driven primarily by lower overall balances and yields realized on the loan and lease portfolios along with a decrease in investment securities balances, partially offset by a reduction in total interest expense. The quarterly average outstanding balance of loans and leases as a percentage of interest-earning assets for the three months ended June 30, 2020 decreased to 48%, from 68% for the three months ended June 30, 2019, while the quarterly average balance of total investments as a percentage of interest-earning assets decreased to 17% from 31% over that same period. These decreases were primarily due to the $2.31 billion increase in quarterly average interest-earning cash balances related to the EIP program.

~~For the nine months ended June 30, 2020, net interest income was $194.5 million compared to $198.6 million for the same period in the prior year.~~

Net interest margin was 3.28% in the fiscal 2020 third quarter, a decrease of 179 basis points from 5.07% in the fiscal 2019 third quarter. NIM,TE was 3.31% in the fiscal 2020 third quarter, a decrease of 184 basis points from 5.15% in the fiscal 2019 third quarter. The decreases in NIM and NIM, TE in the fiscal 2020 third quarter, compared to the same period of the prior year, were primarily driven by excess low-yielding cash held at the Federal Reserve stemming from the short term influx of EIP deposits, along with a lower interest rate environment. The increase of lower yielding cash balances resulted in a drag to the overall yield on total interest-earning assets during the current period. The net impact to NIM was approximately 140 basis points. The net effect of purchase accounting accretion contributed two basis points to NIM for the fiscal 2020 third quarter as compared to 25 basis points for the same period of the prior year.

For the nine months ended June 30, 2020, NIM was 4.21%, a decrease of 69 basis points from 4.90% during the comparable prior year period. NIM, TE for the nine months ended June 30, 2020 was 4.25%, a decrease of 77 basis points for the same period of the prior year.

The overall reported tax equivalent yield (“TEY”) on average earning assets decreased by 267 basis points to 3.59% when comparing the fiscal 2020 third quarter to the same period of the prior fiscal year. The fiscal 2020 third quarter TEY on the securities portfolio decreased by 87 basis points to 2.22% compared to the same period of the prior year TEY of 3.09%. The decrease TEY on the securities portfolio was primarily due to a lower interest rate environment during the current period compared to the prior year period while the decrease on the TEY on average earning assets most primarily driven by excess low-yielding cash held at the Federal Reserve.

The Company’s average interest-earning assets for the fiscal 2020 third quarter increased by $2.31 billion to $7.61 billion, from the comparable quarter in 2019. The increase was primarily attributable a significant increase in interest-earning cash driven by the effects of the EIP program. Total investment securities continued to decrease through sales of securities and cash flow from the Company's amortizing securities portfolio. Quarterly average loans and leases increased $23.8 million, of which $343.5 million was related to an increase in National Lending loans, partially offset by a $319.7 million decrease in Community Banking loans.

The Company’s average balance of total deposits and interest-bearing liabilities was $7.49 billion for the three months ended June 30, 2020, compared to $5.14 billion for the same period in the prior year, representing an increase of 46%. This increase was primarily driven by increases in average noninterest-bearing deposits of $3.35 billion and average interest-bearing checking of $88.4 million. The increase in average noninterest-bearing deposits was largely driven by $2.32 billion in funds on EIP cards. Partially offsetting those increases were decreases in average wholesale deposits of $704.2 million, average balances of total borrowings of $262.6 million, average time deposits of $102.8 million, and average money market deposits of $18.7 million.

Overall, the Company's cost of funds for all deposits and borrowings averaged 0.28% during the fiscal 2020 third quarter, compared to 1.14% for the fiscal 2019 third quarter. This decrease was primarily due to a decrease in overnight borrowings rates as well as an increase in the average balance of the Company's noninterest-bearing deposits. The Company's overall cost of deposits was 0.17% in the fiscal 2020 third quarter, compared to 0.90% in the same quarter of 2019.

~~Table of Contents~~

Three Months Ended June 30,
2020 2019
(Dollars in Thousands) Average
Outstanding
Balance Interest
Earned /
Paid
Yield /
Rate⁽¹⁾
Average
Outstanding
Balance Interest
Earned /
Paid
Yield /
Rate⁽¹⁾
Interest-earning assets:
Cash & fed funds sold $ 2,692,270 $ 783 0.12 % $ 80,100 $ 521 2.61 %
Mortgage-backed securities 342,174 2,269 2.67 % 421,725 3,063 2.91 %
Tax exempt investment securities 417,042 1,658 2.02 % 690,732 4,058 2.98 %
Asset-backed securities 336,562 1,770 2.11 % 307,581 2,701 3.52 %
Other investment securities 197,643 1,014 2.06 % 199,681 1,557 3.13 %
Total investments 1,293,420 6,711 2.22 % 1,619,719 11,379 3.09 %
Total commercial finance 2,160,175 40,375 7.52 % 1,775,905 44,332 10.01 %
Total consumer finance 247,824 4,635 7.52 % 364,633 8,178 9.00 %
Total tax services 39,845 — — % 45,142 — — %
Total warehouse finance 304,839 4,582 6.05 % 223,546 3,491 6.26 %
National Lending loans and leases 2,752,683 49,592 7.25 % 2,409,226 56,001 9.32 %
Community Banking loans 870,245 10,319 4.77 % 1,189,912 13,731 4.63 %
Total loans and leases 3,622,928 59,911 6.65 % 3,599,138 69,732 7.77 %
Total interest-earning assets 7,608,618 $ 67,406 3.59 % 5,298,957 $ 81,632 6.26 %
Noninterest-earning assets 830,589 820,474
Total assets $ 8,439,206 $ 6,119,431
Interest-bearing liabilities:
Interest-bearing checking⁽²⁾
$ 226,382 $ — — % $ 137,950 $ 85 0.25 %
Savings 55,572 1 0.01 % 54,247 9 0.07 %
Money markets 40,091 33 0.33 % 58,782 107 0.73 %
Time deposits 25,392 113 1.78 % 128,165 633 1.98 %
Wholesale deposits 817,414 2,983 1.47 % 1,521,594 9,561 2.52 %
Total interest-bearing deposits 1,164,852 3,130 1.08 % 1,900,738 10,395 2.19 %
Overnight fed funds purchased 59,055 48 0.33 % 363,857 2,368 2.61 %
FHLB advances 110,000 670 2.45 % 54,341 324 2.39 %
Subordinated debentures 73,738 1,153 6.29 % 73,583 1,163 6.34 %
Other borrowings 27,032 268 3.98 % 40,653 414 4.08 %
Total borrowings 269,825 2,139 3.19 % 532,434 4,269 3.22 %
Total interest-bearing liabilities 1,434,677 5,269 1.48 % 2,443,172 14,664 2.42 %
Noninterest-bearing deposits 6,057,314 — — % 2,710,288 — — %
Total deposits and interest-bearing liabilities 7,491,991 $ 5,269 0.28 % 5,143,460 $ 14,664 1.14 %
Other noninterest-bearing liabilities 122,940 149,207
Total liabilities 7,614,931 5,292,667
Shareholders' equity 824,276 826,764
Total liabilities and shareholders' equity $ 8,439,206 $ 6,119,431
Net interest income and net interest rate spread including noninterest-bearing deposits $ 62,137 3.30 % $ 66,968 5.12 %
Net interest margin 3.28 % 5.07 %
Tax-equivalent effect 0.02 % 0.08 %
Net interest margin, tax-equivalent⁽³⁾
3.31 % 5.15 %

⁽¹⁾ ~~Tax rate used to arrive at the TEY for the three months ended June 30, 2020 and 2019 was 21%.~~

⁽²⁾ ~~Of the total balance, $226.1 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.

~~Table of Contents~~

Nine Months Ended June 30,
2020 2019
(Dollars in Thousands) Average
Outstanding
Balance Interest
Earned /
Paid
Yield /
Rate⁽¹⁾
Average
Outstanding
Balance Interest
Earned /
Paid
Yield /
Rate⁽¹⁾
Interest-earning assets:
Cash & fed funds sold $ 992,935 $ 1,934 0.26 % $ 148,751 $ 2,989 2.69 %
Mortgage-backed securities 358,942 7,151 2.66 % 392,395 8,622 2.94 %
Tax exempt investment securities 454,202 6,130 2.28 % 952,501 17,999 3.20 %
Asset-backed securities 315,000 6,395 2.71 % 297,316 8,090 3.64 %
Other investment securities 195,851 3,718 2.54 % 150,888 3,301 2.93 %
Total investments 1,323,994 23,394 2.52 % 1,793,100 38,012 3.19 %
Total commercial finance 2,053,414 126,799 8.25 % 1,662,322 125,566 10.10 %
Total consumer finance 260,950 15,811 8.09 % 327,700 21,697 8.85 %
Total tax services 192,971 6,384 4.42 % 140,515 8,206 7.81 %
Total warehouse finance 294,852 13,542 6.13 % 168,081 7,912 6.29 %
National Lending loans and leases 2,802,186 162,536 7.75 % 2,298,618 163,382 9.50 %
Community Banking loans 1,048,689 36,571 4.66 % 1,175,667 40,519 4.61 %
Total loans and leases 3,850,875 199,106 6.91 % 3,474,285 203,901 7.85 %
Total interest-earning assets 6,167,804 $ 224,434 4.90 % 5,416,137 $ 244,902 6.16 %
Noninterest-earning assets 886,320 877,130
Total assets $ 7,054,124 $ 6,293,267
Interest-bearing liabilities:
Interest-bearing checking⁽²⁾
$ 222,772 $ 480 0.29 % $ 129,656 $ 220 0.23 %
Savings 50,308 16 0.04 % 54,643 28 0.07 %
Money markets 63,077 390 0.83 % 56,987 263 0.62 %
Time deposits 75,231 1,134 2.01 % 160,740 2,229 1.85 %
Wholesale deposits 1,224,090 18,690 2.04 % 1,832,237 32,990 2.41 %
Total interest-bearing deposits 1,635,478 20,712 1.69 % 2,234,264 35,731 2.14 %
Overnight fed funds purchased 245,030 2,805 1.53 % 287,985 5,485 2.55 %
FHLB advances 110,000 2,019 2.45 % 18,114 324 2.39 %
Subordinated debentures 73,698 3,471 6.29 % 73,543 3,486 6.34 %
Other borrowings 29,792 903 4.05 % 43,690 1,286 3.93 %
Total borrowings 458,520 9,197 2.68 % 423,332 10,581 3.34 %
Total interest-bearing liabilities 2,093,998 29,909 1.91 % 2,657,595 46,312 2.33 %
Noninterest-bearing deposits 3,991,561 — — % 2,715,870 — — %
Total deposits and interest-bearing liabilities 6,085,559 $ 29,909 0.66 % 5,373,465 $ 46,312 1.15 %
Other noninterest-bearing liabilities 136,722 128,924
Total liabilities 6,222,281 5,502,389
Shareholders' equity 831,843 790,878
Total liabilities and shareholders' equity $ 7,054,124 $ 6,293,267
Net interest income and net interest rate spread including noninterest-bearing deposits $ 194,525 4.24 % $ 198,590 5.01 %
Net interest margin 4.21 % 4.90 %
Tax-equivalent effect 0.04 % 0.12 %
Net interest margin, tax-equivalent⁽³⁾
4.25 % 5.02 %

⁽¹⁾ ~~Tax rate used to arrive at the TEY for the nine months ended June 30, 2020 and 2019 was 21%.~~

⁽²⁾ ~~Of the total balance, $226.1 million are interest-bearing deposits where interest expense is paid by a third party and not by the Company.~~

~~Table of Contents~~

~~Provision for Loan and Lease Losses~~. The Company recorded a $15.1 million and a $55.8 million provision for loan and lease losses for the three and nine months ended June 30, 2020, as compared to a $9.1 million and a $51.5 million provision for loan and lease losses for the same period of the prior year. The increase in provision for the quarter ended June 30, 2020 compared to the same period of the prior year was primarily driven by the community banking and commercial finance portfolios, partially offset by decreases in the consumer finance and tax services portfolios. Provision increases in the community banking and commercial finance portfolios was primarily attributable to the increased stress that the hospitality loans and the small ticket equipment finance relationships have experienced stemming from the ongoing economic uncertainty related to the COVID-19 pandemic. Loans and leases that received short-term payment deferrals were also analyzed and additional provision was applied as appropriate.

~~Also see Note 6 to the Condensed Consolidated Financial Statements included in this quarterly report.~~

~~Noninterest Income~~. Noninterest income for the fiscal 2020 third quarter decreased to $41.0 million from $43.8 million for the same period in the prior fiscal year. This year-over-year decrease was primarily due to lower tax product fee income and a reduction in gains on loan sales, partially offset by an increase in rental income.

Noninterest income for the nine months ended June 30, 2020 of $199.0 million, increased $12.5 million, or 7%, from $186.6 million in the same period in the prior fiscal year. This increase was primarily due to a $19.3 million gain on divestiture of the Community Bank division during the fiscal 2020 second quarter. See Note 4 to the Condensed Consolidated Financial Statements included in this quarterly report.

~~Noninterest Expense~~. Noninterest expense decreased 2% to $71.2 million for the fiscal 2020 third quarter, from $72.5 million for the same quarter of fiscal 2019. The decrease in noninterest expense when comparing the fiscal 2020 third quarter to the same period of the prior year was primarily driven by lower compensation and benefits, intangible amortization, total tax product expense, and occupancy and equipment expenses, partially offset by higher card processing expenses and operating lease equipment depreciation.

~~Noninterest expense for the nine months ended June 30, 2020 decreased by $18.2 million, or 7%, to $238.8 million compared to the same period in the prior fiscal year.~~

~~Income Tax~~. The Company recorded an income tax benefit of $2.4 million, representing an effective tax rate of (14.4%), for the fiscal 2020 third quarter, compared to an income tax benefit of $1.2 million, representing an effective tax rate of (4.0)%, for the fiscal 2019 third quarter. The recorded income tax expense during the current quarter was primarily due to ratably recognized investment tax credits and lower forecast earnings due to COVID-19.

The Company originated $1.3 million in solar leases during the fiscal 2020 third quarter, compared to $49.1 million during the fiscal 2019 third 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. Insignificant income tax impacts are expected related to COVID-19.

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. In addition, the Company utilizes wholesale deposit sources to provide temporary funding when necessary or when favorable terms are available. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are influenced by the level of interest rates, general economic conditions and competition. 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,~~December 31, 2020, the Company had commitments to originate and purchase loans and unused lines of credit totaling ~~$1.12~~$1.35 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.

~~Table of Contents~~

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,~~December 31, 2020, both the Bank and the Company exceeded federal regulatory minimum capital requirements to be classified as well-capitalized under the prompt corrective action requirements. The Company and the Bank took the accumulated other comprehensive income (“AOCI”) opt-out election; under the rule, non-advanced approach banking organizations were given a one-time option to exclude certain AOCI components.

The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis.


						Minimum to be		Minimum to be							Minimum to be		Minimum to be
						Adequately		Well Capitalized							Adequately		Well Capitalized
						Capitalized Under		Under Prompt							Capitalized Under		Under Prompt
						Prompt Corrective		Corrective Action							Prompt Corrective		Corrective Action
At June 30, 2020		Company		Bank		Action Provisions		Provisions

At December 31, 2020										At December 31, 2020	Company		Bank		Action Provisions		Provisions
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	5.91	%	6.89	%	4.00	%	5.00	%	Tier 1 leverage capital ratio	7.39	%	8.60	%	4.00	%	5.00	%
Common equity Tier 1 capital ratio	Common equity Tier 1 capital ratio	11.51		13.82		4.50		6.50		Common equity Tier 1 capital ratio	10.72		12.87		4.50		6.50
Tier 1 capital ratio	Tier 1 capital ratio	11.90		13.86		6.00		8.00		Tier 1 capital ratio	11.07		12.89		6.00		8.00
Total capital ratio	Total capital ratio	14.99		15.12		8.00		10.00		Total capital ratio	14.14		14.14		8.00		10.00

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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:


(Dollars in Thousands)	Standardized Approach⁽¹⁾ ~~June 30,~~December 31, 2020
Total stockholders' equity	$	~~829,909~~813,210
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities	~~302,814~~301,999
LESS: Certain other intangible assets	~~42,865~~39,403
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards	~~10,360~~24,105
LESS: Net unrealized gains on available-for-sale securities	~~8,382~~19,894
LESS: Noncontrolling interest	~~3,787~~1,536
ADD: Adoption of Accounting Standards Update 2016-13	10,439
Common Equity Tier 1 Capital ⁽¹⁾	~~461,701~~436,712
Long-term borrowings and other instruments qualifying as Tier 1	13,661
Tier 1 minority interest not included in common equity tier 1 capital	~~1,894~~749
Total Tier 1 Capital	~~477,256~~451,122
Allowance for loan and lease losses	~~50,338~~51,070
Subordinated debentures (net of issuance costs)	~~73,765~~73,850
Total Capital	~~601,359~~ $	576,042

⁽¹⁾ Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum common equity tier 1 capital ratio; those changes are being fully phased in through the end of 2021.

The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry.


(Dollars in Thousands)	~~June 30,~~December 31, 2020
Total Stockholders' Equity	$	~~829,909~~813,210
LESS: Goodwill	309,505
LESS: Intangible assets	~~43,974~~39,660
Tangible common equity	~~476,430~~464,045
LESS: AOCI	~~7,995~~20,119
Tangible common equity excluding AOCI	~~468,435~~ $	443,926

Since January 1, 2016, the Company and the Bank have been required to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of Common Equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. The required Common Equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios with the buffer are currently 7.0%, 8.5% and 10.5%, respectively.

Based on current and expected continued profitability and subject to continued access to capital markets, we believe that the Company and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios.

CONTRACTUAL OBLIGATIONS

See "Item 7. 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, ~~2019~~2020 for a summary of our contractual obligations as of September 30, ~~2019.~~2020. There were no material changes outside the ordinary course of our business in contractual obligations from September 30, ~~2019~~2020 through ~~June 30,~~December 31, 2020.

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OFF-BALANCE SHEET FINANCING ARRANGEMENTS

For discussion of the Company’s off-balance sheet financing arrangements at ~~June 30,~~December 31, 2020, see Note 15 to our ~~consolidated financial statements~~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.

~~REGULATION AND SUPERVISION~~

The following information is intended to update, and should be read in conjunction with, the information contained under the caption “Regulation and Supervision” in the Company’s Annual Report on Form 10-K.

~~Updates Related to COVID-19~~

~~The CARES Act~~

In response to the COVID-19 pandemic, the CARES Act was signed into law by President Trump on March 27, 2020. The CARES Act provides for approximately $2.2 trillion in emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as the Company and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including new bills comparable in scope to the CARES Act, prior to the end of 2020.

The following description of certain provisions of the CARES Act and other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the Company and the Bank is qualified in its entirety by reference to the full text of CARES Act and the statutes, regulations, and policies described herein. Future amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the Company. Such legislation and related regulations and supervisory guidance will be implemented over time and will remain subject to review by Congress and the implementing regulations issued by federal regulatory authorities. The Company continues to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to the COVID-19 pandemic.

~~Paycheck Protection Program.~~ The CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (“PPPFA”) into law, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of the COVID-19 pandemic, the President signed additional legislation authorizing the SBA to resume accepting PPP applications on July 6, 2020 and extending the PPP application deadline to August 8, 2020. It is anticipated that additional revisions to the SBA’s interim final rules on forgiveness and loan review procedures will be forthcoming to address these and related changes. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.

~~Troubled Debt Restructuring and Loan Modifications for Affected Borrowers.~~ The CARES Act permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so. The Company is applying this guidance to qualifying loan modifications. See Note 19. Subsequent Events for further information about the COVID-19-related loan modifications completed by the company.

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~~Temporary Community Bank Leverage Ratio Relief.~~ Pursuant to the CARES Act, federal bank regulatory authorities adopted an interim rule, effective until the earlier of the termination of the coronavirus emergency declaration and December 31, 2020, to (i) reduce the minimum Community Bank Leverage Ratio from 9% to 8% percent and (ii) give community banks two-quarter grace period to satisfy such ratio if such ratio falls out of compliance by no more than 1%.

~~Federal Reserve Programs and Other Recent Initiatives~~

~~Main Street Lending Program.~~ The CARES Act encouraged the Federal Reserve, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities. On April 9, 2020, the Federal Reserve proposed the creation of the Main Street Lending Program (“MSLP”) to implement certain of these recommendations. On June 15, 2020, the Federal Reserve Bank of Boston opened the MSLP for lender registration. The MSLP supports lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The MSLP operates through three facilities: the Main Street New Loan Facility, the Main Street Priority Loan Facility, and the Main Street Expanded Loan Facility. The Federal Reserve is currently working to refine the MSLP’s operational infrastructure and facilities and is expected to release further rules and operational guidance. The Bank continues to monitor developments thereto.

~~Temporary Regulatory Capital Relief related to Impact of CECL.~~Concurrent with enactment of the CARES Act, federal bank regulatory authorities issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. The Company does expect to elect this option.

~~Updates Related to the Conversions of the Company and the Bank~~

As a result of the April 1, 2020 conversions, the Company is a bank holding company that has elected to be a financial holding company, which is supervised and examined by the FRB and the Bank is a national bank supervised and examined by the OCC. Except as otherwise noted, the Company’s and the Bank’s post-conversion regulatory obligations under the National Bank Act (“NBA”) and under the BHC Act and Regulation Y, respectively, are substantially consistent with the pre-conversion regulatory obligations of the Bank and the Company under HOLA and Regulation LL.

~~Regulation and Supervision.~~ As a BHC that has elected to become a FHC, the Company is supervised by the Federal Reserve and may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the Federal Reserve). Activities that are financial in nature include securities underwriting and dealing, insurance underwriting, and making merchant banking investments.

As a result of the conversion of the Bank to a national bank charter, the Bank derives its lending and investment powers from the National Bank Act (“NBA”) and the OCC’s implementing regulations promulgated thereunder. Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities and certain other assets. The Bank may also invest in operating subsidiaries, bank service companies (but not service corporations generally), financial subsidiaries, and may make non-controlling investments in other entities, in each case subject to the statutory provisions of the NBA and the OCC’s regulatory requirements and limitations.

In general, the Bank’s legal lending limit totals 15 percent of its capital and surplus plus an additional 10 percent of capital and surplus if the amount that exceeds the 15 percent general limit is fully secured by readily marketable collateral (together, referred to as the “combined general limit”). At June 30, 2020, the Bank was in compliance with the combined general limit.

~~No Qualified Thrift Lender Test.~~ ~~As a national bank, the Bank is no longer required to be a qualified thrift lender (a “QTL”) or satisfy any element of the QTL test applicable to federal savings associations.~~

~~Table of Contents~~

~~Limitations on Dividends and Other Capital Distributions.~~ The NBA and related federal regulations govern the permissibility of dividends and capital distributions by a national bank. As a national bank, the Bank’s board of directors may declare and pay dividends of as much of the undivided profits as the directors judge to be expedient, subject to the certain key restrictions, including:

•unless approved by the OCC, the Bank may not declare a dividend if the total amount of all dividends (common and preferred), including the proposed dividend, declared in any current year exceeds the total of the Bank’s net income of the current year to date, combined with the retained net income of current year minus one and current year minus two, less the sum of transfers required by the OCC (if any) and transfers required to be made to a fund for the retirement of any preferred stock (if any);

•~~the Bank may not declare a dividend if the Bank has sustained losses at any time that equal or exceed its undivided profits (i.e., retained earnings); and~~

•~~the Bank may not declare or pay any dividend if, after making the dividend, the Bank would be “undercapitalized” as defined in the OCC’s Prompt Corrective Action regulations.~~

~~Acquisitions.~~ Federal law prohibits a BHC directly or indirectly, from: (a) acquiring control (as defined under the BHC Act) of another depository institution (or a holding company parent) without prior Federal Reserve approval; or (b) through merger, consolidation or purchase of assets, acquiring another depository institution or a holding company thereof, or acquiring all or substantially all of the assets of such institution (or a holding company), without prior Federal Reserve approval. In evaluating applications by bank holding companies to acquire insured depository institutions, the Federal Reserve must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the DIF, the convenience and needs of the community and competitive factors.

On April 1, 2020, the Federal Reserve’s final rule for determining whether a company has control over a bank or other company for purposes of the BHC Act and the control presumptions promulgated under Regulation Y (the “Control Rule”) became effective. The Control Rule provides specific guidance in place of the Federal Reserve’s prior facts-and-circumstances approach to control evaluations under the BHC Act and Regulation Y.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

MARKET RISK

The Company derives a portion of its income from the excess of interest collected over interest paid. The rates of interest the Company earns on assets and pays on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, the Company’s results of operations, like those of most financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of its assets and liabilities. The risk associated with changes in interest rates and the Company’s ability to adapt to these changes is known as interest rate risk and is the Company’s only significant “market” risk.

The Company monitors and measures its exposure to changes in interest rates in order to comply with applicable government regulations and risk policies established by the Board of Directors, and in order to preserve stockholder value. In monitoring interest rate risk, the Company analyzes assets and liabilities based on characteristics including size, coupon rate, repricing frequency, maturity date and likelihood of prepayment.

The Company’s primary objective for its investment portfolio is to provide a source of liquidity for the Company. In addition, the investment portfolio may be used in the management of the Company’s interest rate risk profile. The investment policy generally calls for funds to be invested among various categories of security types and maturities based upon the Company’s need for liquidity, desire to achieve a proper balance between minimizing risk while maximizing yield, the need to provide collateral for borrowings, and the need to fulfill the Company’s asset/liability management goals.

~~Table of Contents~~

The Company’s cost of funds responds to changes in interest rates due to the relatively short-term nature of its wholesale deposit portfolio, and due to the relatively short-term nature of its borrowed funds. The Company believes that its growing portfolio of longer duration, low-cost deposits generated from its payments ~~divisions~~division provides a stable and profitable funding vehicle, but also subjects the Company to greater risk in a falling interest rate environment than it would otherwise have without this portfolio. This risk is due to the fact that, while asset yields may decrease in a falling interest rate environment, the Company cannot significantly reduce interest costs associated with these deposits, which thereby compress the Company’s net interest margin.

The Board of Directors and relevant government regulations establish limits on the level of acceptable interest rate risk at the Company, to which management adheres. There can be no assurance, however, that, in the event of an adverse change in interest rates, the Company’s efforts to limit interest rate risk will be successful.

Interest Rate Risk (“IRR”)

Overview. The Company actively manages interest rate risk, as changes in market interest rates can have a significant impact on reported earnings. The ~~Bank, like other financial institutions, is subject to interest rate risk to the extent that its interest-bearing liabilities mature or reprice more rapidly than its interest-earning assets. The~~ Company's interest rate risk analysis is designed to compare income and economic valuation simulations in market scenarios designed to alter the direction, magnitude and speed of interest rate changes, as well as the slope of the yield curve. The Company does not currently engage in trading activities to control interest rate risk although it may do so in the future, if deemed necessary, to help manage interest rate risk.

Earnings at risk and economic value analysis. As a continuing part of its financial strategy, the Bank considers methods of managing an asset/liability mismatch consistent with maintaining acceptable levels of net interest income. In order to monitor interest rate risk, the Board of Directors has created an Asset/Liability Committee whose principal responsibilities are to assess the Bank’s asset/liability mix and implement strategies that will enhance income while managing the Bank’s vulnerability to changes in interest rates.

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The Company uses two approaches to model interest rate risk: Earnings at Risk (“EAR analysis”) and Economic Value of Equity (“EVE analysis”). Under EAR analysis, net interest income is calculated for each interest rate scenario to the net interest income forecast in the base case. EAR analysis measures the sensitivity of interest-sensitive earnings over a one-year minimum time horizon. The results are affected by projected rates, prepayments, caps and floors. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit re-pricing, as well as events outside of management's control, such as customer behavior on loan and deposit activity and the effect that competition has on both ~~loan~~lending and deposit pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude, and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. ~~We perform~~The Company performs various sensitivity analyses on assumptions of deposit attrition and deposit re-pricing, as well as market-implied forward rates and various likely and extreme interest rate scenarios, including rapid and gradual interest rate ramps, rate shocks and yield curve twists.

The EAR analysis used in the following table reflects the required analysis used no less than quarterly by management. It models -100, +100, +200, +300, and +400 basis point parallel shifts in market interest rates over the next one-year period. ~~Due to the current low level of interest rates, only -100 basis point parallel shift is represented.~~

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The Company was within Board approved policy limits for all interest rate ~~scenarios.~~scenarios using the snapshot as of December 31, 2020. The following table shows the results of the scenarios ~~at June 30,~~as of December 31, 2020:


Net Sensitive Earnings at Risk	Net Sensitive Earnings at Risk																							Net Sensitive Earnings at Risk
			Change in Interest Income/Expense for a Given Change in Interest Rates																									Change in Interest Income/Expense for a given change in interest rates
			Over / (Under) Base Case Parallel Shift																									Over / (Under) Base Case Parallel Shift
(Dollars in Thousands)	(Dollars in Thousands)	Book Value	-100		Base		100		200		300		400		(Dollars in Thousands)	Book Value	-100		Base		100		200			300		400

Total interest-sensitive income	Total interest-sensitive income	7,897,080	238,898		246,992		295,264		344,100		393,644		442,948		Total interest-sensitive income	6,438,633	248,670		257,579		292,907		328,098			364,143		400,195

Total interest-sensitive expense	Total interest-sensitive expense	1,174,871	6,173		7,494		13,727		19,985		26,286		32,631		Total interest-sensitive expense	635,443	1,163		1,459		3,735		6,021			8,335		10,687
Net interest-sensitive income	Net interest-sensitive income	6,722,209	232,725		239,498		281,537		324,115		367,358		410,317		Net interest-sensitive income	5,803,190	247,507		256,120		289,172		322,077			355,808		389,508

Percentage change from base	Percentage change from base	—	-2.8	%	—	%	17.6	%	35.3	%	53.4	%	71.3	%	Percentage change from base	—	-3.4	%	—	%	12.9	%	25.8		%	38.9	%	52.1	%
Board policy limits	Board policy limits	—	-8.0	%	—	%	-8.0	%	-10.0	%	-15.0	%	-20.0	%	Board policy limits	—	-8.0	%	—	%	-8.0	%	-10.0		%	-15.0	%	-20.0	%

The EAR analysis reported at ~~June 30,~~December 31, 2020, shows that ~~in all rising rate scenarios,~~Total Interest Sensitive Income will change more ~~assets~~rapidly than ~~liabilities would reprice~~Total Interest Sensitive Expense over the modeled one-year period. Because of the static balance sheet assumption, excess interest-bearing cash and reduced wholesale funding at the end of the period result in more income sensitivity than would be typical,next year. IRR is a snapshot in time. The Company’s business and deposits are ~~very~~ predictably cyclical on a weekly, monthly and yearly basis. The Company’s static IRR results could vary depending on which day of the week and timing in relation to certain payrolls, as well as time of the month in regard to early funding of certain programs, when this snapshot is taken. The Company’s overnight federal funds purchased fluctuates on a predictable daily and monthly basis due to fluctuations in a portion of its noninterest-bearing deposit base, primarily related to payroll processing and timing of when certain programs are prefunded and when the funds are received.

The Company believes that its growing portfolio of noninterest-bearing deposits provides a stable and profitable funding vehicle and a significant competitive advantage in a rising interest rate environment, as the Company’s cost of funds would likely remain low, with less of an increase in the cost of funds expected relative to many other banks.

Under EVE analysis, the economic value of financial assets, liabilities and off-balance sheet instruments is derived under each rate scenario. The economic value of equity is calculated as the difference between the estimated market value of assets and liabilities, net of the impact of off-balance sheet instruments.

The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management. It models immediate -100, +100, +200, +300 and +400 basis point parallel shifts in market interest rates. ~~Due to the current low level~~

Table of ~~interest rates, only -100 basis point parallel shift is represented.~~Contents

The Company was within Board policy limits for ~~rising rate scenarios and exceeded the limit for -100 due to rapid growth in noninterest-bearing deposits.~~all scenarios. The following table shows the results of the scenarios ~~at June 30,~~as December 31, 2020:

~~Economic Value Sensitivity~~


Economic Value Sensitivity													Economic Value Sensitivity
		Standard (Parallel Shift)																				Standard (Parallel Shift)
		Economic Value of Equity at Risk%																				Economic Value of Equity at Risk%
			-100		100		200		300		400			-100		100		200		300		400
Percentage change from base	Percentage change from base		-10.8	%	10.4	%	18.5	%	25.0	%	30.6	%	Percentage change from base	-15.5	%	14.8	%	26.4	%	36.1	%	44.6	%
Board policy limits	Board policy limits		-10.0	%	-10.0	%	-20.0	%	-25.0	%	-35.0	%	Board policy limits	-10.0	%	-10.0	%	-20.0	%	-25.0	%	-35.0	%

The EVE at risk reported at ~~June 30,~~December 31, 2020 shows that ~~as interest rates increase,~~ the economic value of equity position will be ~~asset~~more sensitive to changes in interest rates due to ~~growth in~~the large amount of noninterest-bearing ~~deposits.~~

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funding.

Item 4. Controls and Procedures.

CONTROLS AND PROCEDURES

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.

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 Quarterly Report on Form 10-Q, 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, ~~at June 30,~~as of December 31, 2020, 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 ~~June 30,~~December 31, 2020, 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 2019 third quarter, the Company identified a material weakness in the control environment of the Crestmark division, which was acquired by the Company on August 1, 2018. The material weakness resulted from the aggregation of control deficiencies at the Crestmark division relating to Information Technology ("IT") system access, program change controls and review procedures related to new loan accounts and client record maintenance changes. Accordingly, management determined the aggregation of these deficiencies represents a material weakness in internal controls over financial reporting on the basis that they could result in a material misstatement potentially impacting the Company's financial statement accounts and disclosures that would not be prevented or detected on a timely basis. Also, the deficiencies could impact maintaining effective segregation of duties, as well as the effectiveness of dependent controls relating to the financial statements. In addition, these deficiencies could affect the controls and underlying data that support the effectiveness of system-generated reports.

~~REMEDIATION FOR REPORTED MATERIAL WEAKNESS~~

The Company is in process of implementing a remediation plan to address the material weakness described above with respect to the internal controls environment of the Crestmark division and is committed to maintaining a strong internal controls environment. To address the material weakness, the Company re-evaluated IT governance and controls, updated procedures related to access management, trained IT personnel related to user access to IT systems, and is in process of rolling out an education plan for end users and management and automating change management applications. At June 30, 2020, management was continuing its remediation efforts. If the material weakness is not remediated, however, these deficiencies could result in material misstatements to the Company's Condensed Consolidated Financial Statements.

~~Table of Contents~~

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 ~~June 30,~~December 31, 2020 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, 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 ~~third~~first 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 except as set forth above.

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META FINANCIAL GROUP, INC.

PART II - OTHER INFORMATION

FORM 10-Q

Item 1. Legal ~~Proceedings.~~Proceedings

See “Legal Proceedings” under Note 15 to the ~~Notes~~"Notes to Condensed Consolidated Financial ~~Statements,~~Statements" which is incorporated herein by reference.

Item 1A. Risk ~~Factors.~~Factors

A description of our risk factors can be found in "Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019.~~2020. There were no material changes to those risk factors during the ~~nine~~three months ended ~~June 30, 2020, except for the following:~~

~~Removal of Risk Factor~~

~~There are risks associated with the proposed transaction with Central Bank, including Central's receipt of required regulatory approvals and timing for completion of the transaction.~~

~~As a result of the transaction with Central Bank closing on February 29, 2020, the Company is no longer subject to this risk.~~

~~Additional Risk Factors~~

The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted our business and results and could have a more material adverse impact on our business, financial condition and results of operations.

Our business is dependent on the willingness and ability of our customers to conduct banking and other financial transactions. The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets. The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Phased re-openings have begun and are in various stages in different jurisdictions.

Although the Bank continued operating during the shutdowns, the COVID-19 pandemic has caused disruptions to our business and could cause material disruptions in the future. Impacts to our business have included costs due to additional health and safety precautions implemented at our offices and the transition of a portion of our workforce to home locations, increases in customers' inability to make scheduled loan payments, increases in requests for forbearance and loan modifications, and an adverse effect on accounting estimates that we use to determine our provision and allowance for credit losses. A worsening or prolonged continuation of the current unfavorable economic conditions could further impact our provision and allowance for credit losses, and could impact the value of certain assets that we carry on our balance sheet such as goodwill.

While we have taken and are continuing to take precautions to protect the safety and well-being of our employees, customers and partners, including as local economies undergo phased re-openings, no assurance can be given that the steps being taken will be adequate or appropriate. The continued or renewed spread of COVID-19 could negatively impact the availability of key personnel necessary to conduct our business, the business and operations of our third-party service providers who perform critical services for our business, or the businesses of many of our customers and borrowers. In addition, as a result of the pandemic and the related increase in remote working, the risk of cyber-attacks, breaches or similar events, whether through our systems or those of third parties on which we rely, has increased.

~~Table of Contents~~

~~Among the factors outside our control that are likely to affect the impact the COVID-19 pandemic will ultimately have on our business are:~~

•~~the pandemic's course and severity;~~

•the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, consumer spending and real estate market values;

•~~declines in collateral values;~~

•political, legal and regulatory actions and policies in response to the pandemic, including the effects on restrictions on commerce and banking, such as moratoria and other suspensions of collections, foreclosures, and related obligations;

•the timing, magnitude and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity;

•~~the timing and availability of direct and indirect governmental support for various financial assets;~~

•~~potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties; and~~

•~~the ability of our employees and our third-party vendors to work effectively during the course of the pandemic; and~~

•~~any increase in cyber and payment fraud related to COVID-19, as cybercriminals attempt to profit from disruption, given increased online banking, e-commerce and other online activity.~~

The ongoing COVID-19 pandemic has also resulted in severe volatility in the financial markets and meaningfully lower stock prices for many companies, including our common stock. Depending on the extent and duration of the COVID-19 pandemic, the price of our common stock may continue to experience volatility and declines.

We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on us. However, if the pandemic continues to spread or otherwise result in a continuation or worsening of the current economic environment, our business, financial condition, results of operations could be materially adversely affected.

~~We are exposed to losses from customer accounts.~~

Fraudulent activity involving our products may lead to customer disputed transactions, for which we may be liable under banking regulations and payment network rules. Our fraud detection and risk control mechanisms may not prevent all fraudulent or illegal activity. To the extent we incur losses from disputed transactions, our business, results of operations and financial condition could be materially and adversely affected. Additionally, our cardholders can incur charges in excess of the funds available in their accounts, and we may become liable for these overdrafts.

While we decline authorization attempts for amounts that exceed the available balance in a cardholder's account, the application of card association rules, the timing of the settlement of transactions and the assessment of the card's monthly maintenance fee, among other things, can result in overdrawn accounts.

In addition, we face settlement risks from our distributors and banking partners, which may increase during an economic downturn. Depending on contract terms, we may prefund partner accounts. If a partner becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers. At June 30, 2020, we had assets subject to settlement risk of $0.4 million. We are not insured against these risks. Significant settlement losses could have a material adverse effect on our business, results of operations and financial condition.

A failure in or breach of operational or security systems of our loan service provider, could disrupt our business, result in unintentional disclosure or misuse of confidential information, damage our reputation, increase our costs and cause losses.

We have an agreement with Central Bank to service our loans retained from MetaBank's sale of the Community Bank division. Loan servicing includes administrative tasks such as receiving payments, sending monthly statements, and managing escrow accounts. We rely heavily on the secure data processing, storage and transmission of confidential and other information on computer systems and networks.

~~Table of Contents~~

We face the risk of operational disruption, failure, termination or capacity constraints from our loan service provider that facilitate our business activities, including exchanges and clearings. They could also be the source of an attack on, or breach of, our loan customers information. Any failures, interruptions or security breaches could damage our reputation, result in a violation of privacy or other laws, or expose us to civil litigation, regulatory fines or losses not covered by insurance.

The conversion from a SLHC to a BHC and from a federal savings bank to a national bank charter imposes new capital and other regulatory requirements on us that could limit our ability to maintain or expand our business or subject us to regulatory action.

As a BHC and a FHC, we are subject to the comprehensive, consolidated supervision and regulation of the FRB, including risk-based and leverage capital requirements, investment practices, dividend policy and growth. We must maintain certain risk-based and leverage capital ratios as required by the FRB which can change depending upon general economic conditions and our particular condition, risk profile and plans. Compliance with the capital requirements, including leverage ratios, may limit operations that require the intensive use of capital and could adversely affect our ability to maintain or expand present business levels.

Our failure to meet applicable capital requirements could subject us to a variety of enforcement actions available to the federal regulatory authorities. These include limitations on our ability to pay dividends and/or repurchase shares, the issuance by the regulatory authority of a capital directive to increase capital, loss of FHC status and the termination of deposit insurance by the FDIC.December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) ~~None~~None.

(b) ~~None~~None.

Meta's Board of Directors authorized a ~~2,000,000~~7,500,000 share repurchase program ~~that was scheduled to expire~~ on ~~September 30, 2021. The share repurchase program was announced on March 26,~~November 20, 2019 ~~and became effective on May 1, 2019. All remaining shares available for repurchase under this program were repurchased during the fiscal 2020 first quarter.~~

~~In addition, Meta's Board of Directors authorized a 7,500,000 share repurchase program~~ that is scheduled to expire on December 31, 2022. The share repurchase program ~~was announced on November 20, 2019 and~~ became effective on November 21, 2019. The Company suspended its share repurchase activity in March 2020 and resumed repurchase activity during September 2020.

The table below sets forth information regarding repurchases of our common stock during the fiscal 2020 ~~third~~first quarter.

Period
Total Number of Shares Repurchased⁽¹⁾
Average Price Paid per Share⁽¹⁾⁽²⁾
Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that may yet be Repurchased Under the Programs
April 1 to 30 — $ — — 4,404,634
May 1 to 31 829 17.20 — 4,404,634
June 1 to 30 — — — 4,404,634
Total 829 —


Period	Total Number of Shares Repurchased(1)	Average Price Paid per Share(1)(2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
October 1 to 31	921,641	$	23.29	850,000	3,299,631
November 1 to 30	410,960	34.12		403,500	2,896,131
December 1 to 31	610,974	34.68		610,974	2,285,157
Total	1,943,575			1,864,474

⁽¹⁾ All shares in these columns reflect shares acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter.

⁽²⁾ The average price paid per share is calculated on a trade date basis for all open market transactions and excludes commissions and other transaction expenses.

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Item 6. Exhibits.


Exhibit Number			Description

10.1			Employment Agreement, effective as of October 1, 2020, among MetaBank, Meta Financial Group, Inc. and Bradley C. Hanson, filed on November 30, 2020 as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K and incorporated herein by reference.

10.2			Employment Agreement, effective as of October 1, 2020, among MetaBank, Meta Financial Group, Inc. and Glen W. Herrick, filed on November 30, 2020 as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K and incorporated herein by reference.

10.3			Independent Contractor Agreement, effective as of December 14, 2020, by MetaBank NA and Michael Goik, filed on December 17, 2020 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference.

31.1			Section 302 certification of Chief Executive Officer.

31.2			Section 302 certification of Chief Financial Officer.

32.1			Section 906 certification of Chief Executive Officer.

32.2			Section 906 certification of Chief Financial Officer.

101			Interactive Data Files (formatted in iXBRL) pursuant to Rule 405 of Regulation S-T.
~~101.INS~~			~~Instance Document~~
104
~~101.SCH~~			~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~			~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~			~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~			~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~			~~XBRL Taxonomy Extension Presentation Linkbase Document~~Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101).

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META FINANCIAL GROUP, INC.

SIGNATURES

Pursuant to the requirements 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: ~~August 6, 2020~~February 8, 2021	By:	/s/ Bradley C. Hanson
		Bradley C. Hanson,
		President, Chief Executive Officer and Director

Date: ~~August 6, 2020~~February 8, 2021	By:	/s/ Glen W. Herrick
		Glen W. Herrick, Executive Vice President
		and Chief Financial Officer

8164


	June 30, 2020
(Dollars in Thousands)	COVID-19 Related Payment Deferrals		Other COVID-19 Related Modifications
National Lending
Term lending	$	88,227	$	—
Asset based lending	324		17,333
Factoring	3,564		17,295
Lease financing	27,310		—
Insurance premium finance	5,505		—
SBA/USDA	7,724		—
Other commercial finance	74		—
Commercial finance	132,728		34,628
Consumer credit products	462		—
Other consumer finance	6,855		—
Consumer finance	7,317		—


Total National Lending	140,045		34,628
Community Banking
Commercial real estate and operating	148,838		—
Consumer one-to-four family real estate and other	2,534		—

Total Community Banking	151,372		—
Total loans and leases	291,417		34,628
Rental equipment	819		—
Total COVID-19 related modifications	$	292,236	$	34,628


(Dollars in Thousands)	Community Bank Sold⁽¹⁾		Community Bank Retained⁽²⁾		Total Community Bank
Three Months Ended June 30, 2020
Net interest income	$	—	$	7,955	$	7,955
(Reversal) Provision for loan and lease losses	(491)		7,547		7,056
Noninterest income	—		11		11
Noninterest expense	39		1,562		1,601
Net income (loss) before income tax expense	$	452	$	(1,143)	$	(691)
Nine Months Ended June 30, 2020
Net interest income	$	2,512	$	25,348	$	27,860
(Reversal) Provision for loan and lease losses	(2,241)		14,521		12,280
Noninterest income	19,694		(3,473)		16,221
Noninterest expense	4,955		5,113		10,068
Net income (loss) before income tax expense	$	19,492	$	2,241	$	21,733


(Dollars in Thousands)
Remaining in 2020	$	25,308
2021	95,008
2022	74,899
2023	49,197
2024	29,178
Thereafter	9,413
Equipment under leases not yet commenced
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases	283,003
Third-party residual value guarantees	—
Total carrying amount of direct financing and sales-type leases	$	283,003


(Dollars in Thousands, Except Per Share Data)	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Yrs)	Aggregate Intrinsic Value
Options outstanding, September 30, 2019	59,835	$	8.06	1.54	$	1,469
Granted	—	—		—	—
Exercised	(41,949)	6.98		1.01	866
Forfeited or expired	—	—		—	—
Options outstanding, June 30 2020	17,886	$	10.60	0.25	$	135

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


Period	Total Number of Shares Repurchased⁽¹⁾	Average Price Paid per Share⁽¹⁾⁽²⁾		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Repurchased Under the Programs
April 1 to 30	—	$	—	—	4,404,634
May 1 to 31	829	17.20		—	4,404,634
June 1 to 30	—	—		—	4,404,634
Total	829			—