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, 2021 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 23, 2021. 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 six months ended March 31, 2022 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2022.
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, 2021 remain substantially unchanged. The following ASUs became effective for the Company on October 1, 2021, none of which had a material impact on the Company’s significant accounting policies or Condensed Consolidated Financial Statements:
–ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
–ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs.
–ASU 2020-10, Codification Improvements.
NOTE 3. SIGNIFICANT EVENTS
Rebranding
On December 7, 2021, the Company executed a Purchase Agreement (the “Agreement”) with Beige Key, LLC (the “Assignee”) for the sale of all of the Company’s worldwide right, title and interest in and to company names and tradenames including Meta and other "Meta" formative names including MetaBank and Meta Financial Group, and the domain names, social media accounts and goodwill associated with the foregoing (collectively, the “Meta” tradenames) in exchange for $60.0 million in cash. Subject to the terms and conditions set forth in the Agreement, the Company has one year from the Agreement execution date to phase out and cease all use of the Meta tradenames. From the date of the Agreement until the date such phase out is completed (the “Phase Out Period”), Assignee has granted the Company a non-exclusive royalty free license in the United States and Canada to use the Meta tradenames in the manner in which they were used by the Company prior to the Agreement.
The Company received $50.0 million upon execution and delivery of the Agreement, at which time the Meta tradenames were assigned to the Assignee. The Company has recognized the $50.0 million as noninterest income during the period ended December 31, 2021. The remaining $10.0 million was paid by the Assignee and is being held in an escrow account by a third-party agent until the agreed upon activities within the Phase Out Period have been completed, at which time the funds will be released to the Company. The Company’s receipt of the $10.0 million payment is contingent upon phase out activities that have not yet been completed and has not been recognized in the Company’s consolidated financial statements for the fiscal quarter ended March 31, 2022.
On March 29, 2022, the Company announced it is changing its name to Pathward Financial, Inc.™ ("Pathward"), and its bank subsidiary MetaBank®, N.A. is changing to Pathward™, N.A. Certain changes will be made immediately, with a full transition to Pathward expected by the end of this calendar year, including the launch of a new brand identity and website. The Company will continue to serve its customers under existing brand names during the transition.
The Company recognized $2.8 million of noninterest expense related to rebranding efforts during the second quarter of fiscal 2022.
NOTE 4. SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities are presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Debt Securities AFS |
(Dollars in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
At March 31, 2022 | | | | | | | |
Corporate securities | $ | 25,000 | | | $ | — | | | $ | (1,750) | | | $ | 23,250 | |
SBA securities | 137,330 | | | 1,429 | | | (1,359) | | | 137,400 | |
Obligations of states and political subdivisions | 2,777 | | | 1 | | | (72) | | | 2,706 | |
Non-bank qualified obligations of states and political subdivisions | 249,576 | | | 153 | | | (9,306) | | | 240,423 | |
Asset-backed securities | 361,408 | | | 1,636 | | | (9,463) | | | 353,581 | |
Mortgage-backed securities | 1,360,741 | | | 232 | | | (74,855) | | | 1,286,118 | |
Total debt securities AFS | $ | 2,136,832 | | | $ | 3,451 | | | $ | (96,805) | | | $ | 2,043,478 | |
At September 30, 2021 | | | | | | | |
Corporate securities | $ | 25,000 | | | $ | — | | | $ | — | | | $ | 25,000 | |
SBA securities | 151,958 | | | 5,251 | | | — | | | 157,209 | |
Obligations of states and political subdivisions | 2,497 | | | 10 | | | — | | | 2,507 | |
Non-bank qualified obligations of states and political subdivisions | 266,048 | | | 3,347 | | | (1,100) | | | 268,295 | |
Asset-backed securities | 393,103 | | | 3,003 | | | (1,247) | | | 394,859 | |
Mortgage-backed securities | 1,016,478 | | | 9,728 | | | (9,177) | | | 1,017,029 | |
Total debt securities AFS | $ | 1,855,084 | | | $ | 21,339 | | | $ | (11,524) | | | $ | 1,864,899 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Debt Securities HTM |
(Dollars in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Fair Value |
At March 31, 2022 | | | | | | | |
Non-bank qualified obligations of states and political subdivisions | $ | 44,369 | | | $ | — | | | $ | (1,768) | | | $ | 42,601 | |
Mortgage-backed securities | 2,918 | | | — | | | (83) | | | 2,835 | |
Total debt securities HTM | $ | 47,287 | | | $ | — | | | $ | (1,851) | | | $ | 45,436 | |
At September 30, 2021 | |
Non-bank qualified obligations of states and political subdivisions | $ | 52,944 | | | $ | 103 | | | $ | (471) | | | $ | 52,576 | |
Mortgage-backed securities | 3,725 | | | 90 | | | — | | | 3,815 | |
Total debt securities HTM | $ | 56,669 | | | $ | 193 | | | $ | (471) | | | $ | 56,391 | |
Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LESS THAN 12 MONTHS | | OVER 12 MONTHS | | TOTAL |
(Dollars in thousands) | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) |
Debt Securities AFS | | | | | | | | | | | |
At March 31, 2022 | | | | | | | | | | | |
Corporate securities | $ | 23,250 | | | $ | (1,750) | | | $ | — | | | $ | — | | | $ | 23,250 | | | $ | (1,750) | |
SBA securities | 50,022 | | | (1,359) | | | — | | | — | | | 50,022 | | | (1,359) | |
Obligations of state and political subdivisions | 2,158 | | | (72) | | | — | | | — | | | 2,158 | | | (72) | |
Non-bank qualified obligations of states and political subdivisions | 214,073 | | | (9,180) | | | 1,314 | | | (126) | | | 215,387 | | | (9,306) | |
Asset-backed securities | 154,196 | | | (4,375) | | | 111,397 | | | (5,088) | | | 265,593 | | | (9,463) | |
Mortgage-backed securities | 1,014,462 | | | (58,435) | | | 206,040 | | | (16,420) | | | 1,220,502 | | | (74,855) | |
Total debt securities AFS | $ | 1,458,161 | | | $ | (75,171) | | | $ | 318,751 | | | $ | (21,634) | | | $ | 1,776,912 | | | $ | (96,805) | |
At September 30, 2021 | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Non-bank qualified obligations of states and political subdivisions | $ | 101,046 | | | $ | (1,100) | | | $ | — | | | $ | — | | | $ | 101,046 | | | $ | (1,100) | |
Asset-backed securities | 127,110 | | | (283) | | | 91,553 | | | (964) | | | 218,663 | | | (1,247) | |
Mortgage-backed securities | 759,035 | | | (7,418) | | | 60,792 | | | (1,759) | | | 819,827 | | | (9,177) | |
Total debt securities AFS | $ | 987,191 | | | $ | (8,801) | | | $ | 152,345 | | | $ | (2,723) | | | $ | 1,139,536 | | | $ | (11,524) | |
| | | | | | | | | | | |
Debt Securities HTM | | | | | | | | | | | |
At March 31, 2022 | | | | | | | | | | | |
Non-bank qualified obligations of states and political subdivisions | $ | 42,602 | | | $ | (1,768) | | | $ | — | | | $ | — | | | $ | 42,602 | | | $ | (1,768) | |
Mortgage-backed securities | 2,835 | | | (83) | | | — | | | — | | | 2,835 | | | (83) | |
Total debt securities HTM | $ | 45,437 | | | $ | (1,851) | | | $ | — | | | $ | — | | | $ | 45,437 | | | $ | (1,851) | |
At September 30, 2021 | | | | | | | | | | | |
Non-bank qualified obligations of states and political subdivisions | $ | 26,096 | | | $ | (471) | | | $ | — | | | $ | — | | | $ | 26,096 | | | $ | (471) | |
| | | | | | | | | | | |
Total debt securities HTM | $ | 26,096 | | | $ | (471) | | | $ | — | | | $ | — | | | $ | 26,096 | | | $ | (471) | |
At March 31, 2022, there were 80 securities AFS in an unrealized loss position. Management assessed each investment security with unrealized losses for credit loss and determined substantially all unrealized losses on these securities were due to credit spreads and interest rates versus credit loss. As part of that assessment, management evaluated and concluded that it is more-likely-than-not that the Company will not be required and does not intend to sell any of the securities prior to recovery of the amortized cost. At March 31, 2022, there was no ACL for debt securities AFS.
The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features 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.
| | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | At March 31, 2022 | | At September 30, 2021 |
Securities AFS at Fair Value | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in one year or less | $ | 240 | | | $ | 241 | | | $ | 810 | | | $ | 822 | |
Due after one year through five years | 11,029 | | | 10,855 | | | 13,026 | | | 13,378 | |
Due after five years through ten years | 74,314 | | | 71,056 | | | 50,785 | | | 52,357 | |
Due after ten years | 690,508 | | | 675,208 | | | 773,985 | | | 781,313 | |
| 776,091 | | | 757,360 | | | 838,606 | | | 847,870 | |
Mortgage-backed securities | 1,360,741 | | | 1,286,118 | | | 1,016,478 | | | 1,017,029 | |
Total securities AFS, at fair value | $ | 2,136,832 | | | $ | 2,043,478 | | | $ | 1,855,084 | | | $ | 1,864,899 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2022 | | At September 30, 2021 |
(Dollars in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Securities HTM at Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Due after ten years | $ | 44,369 | | | $ | 42,601 | | | $ | 52,944 | | | $ | 52,576 | |
| 44,369 | | | 42,601 | | | 52,944 | | | 52,576 | |
Mortgage-backed securities | 2,918 | | | 2,835 | | | 3,725 | | | 3,815 | |
Total securities HTM, at cost | $ | 47,287 | | | $ | 45,436 | | | $ | 56,669 | | | $ | 56,391 | |
Equity Securities
The Company held $3.9 million at March 31, 2022 and $12.7 million at September 30, 2021 in marketable equity securities. The Company recognized $3.8 million and none in unrealized loss on marketable equity securities during the six months ended March 31, 2022 and 2021, respectively, which is attributable to an investee becoming publicly traded during fiscal year 2021. All other marketable equity securities and related activity were insignificant for the six months ended March 31, 2022 and 2021. There was one marketable security sold during the six months ended March 31, 2022 for a $0.3 million gain.
Non-marketable equity securities with a readily determinable fair value totaled $6.2 million at March 31, 2022 and $4.6 million at September 30, 2021. The Company recognized $0.3 million in unrealized gains and $0.2 million in unrealized gains during the six months ended March 31, 2022 and 2021, respectively. No such securities were sold during the six months ended March 31, 2022.
Non-marketable equity securities without readily determinable fair value totaled $20.9 million at March 31, 2022 and $16.0 million at September 30, 2021. There was one security sold during the six months ended March 31, 2022 for a $0.1 million gain.
FRB Stock
The Bank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus. One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System. FRB of Minneapolis stock held by the Bank totaled $19.7 million at March 31, 2022 and September 30, 2021. 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 specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.
The investments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of Des Moines. The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency.
The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held at the FHLB was $9.1 million at March 31, 2022 and $8.7 million at September 30, 2021.
These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par. Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the fair value approximates cost.
Equity Security Impairment
The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate recoverability of the par value. All other equity investments, including those under the equity method, are reviewed for other-than-temporary impairment on at least a quarterly basis. The Company recognized no impairment for such investments for the six months ended March 31, 2022.
NOTE 5. LOANS AND LEASES, NET
Loans and leases consist of the following:
| | | | | | | | | | | |
(Dollars in thousands) | March 31, 2022 | | September 30, 2021 |
Term lending | $ | 1,111,076 | | | $ | 961,019 | |
Asset based lending | 382,355 | | | 300,225 | |
Factoring | 394,865 | | | 363,670 | |
Lease financing | 235,397 | | | 266,050 | |
Insurance premium finance | 403,681 | | | 428,867 | |
SBA/USDA | 214,195 | | | 247,756 | |
Other commercial finance | 173,260 | | | 157,908 | |
Commercial finance | 2,914,829 | | | 2,725,495 | |
Consumer credit products | 171,847 | | | 129,251 | |
Other consumer finance | 111,922 | | | 123,606 | |
Consumer finance | 283,769 | | | 252,857 | |
Tax services | 85,999 | | | 10,405 | |
Warehouse finance | 441,496 | | | 419,926 | |
Community banking | — | | | 199,132 | |
Total loans and leases | 3,726,093 | | | 3,607,815 | |
Net deferred loan origination costs | 4,097 | | | 1,748 | |
Total gross loans and leases | 3,730,190 | | | 3,609,563 | |
Allowance for credit losses | (88,552) | | | (68,281) | |
Total loans and leases, net | $ | 3,641,638 | | | $ | 3,541,282 | |
During the six months ended March 31, 2022, the Company transferred $169.0 million of Community Banking loans to held for sale. During the six months ended March 31, 2021, the Company transferred $99.9 million of Community Banking loans to held for sale.
During the six months ended March 31, 2022 and 2021, the Company originated $555.4 million and $361.7 million of consumer finance and SBA/USDA as held for sale, respectively.
The Company sold held for sale loans resulting in proceeds of $723.9 million and loss on sale of $4.1 million during the six months ended March 31, 2022. The Company sold held for sale loans resulting in proceeds of $476.0 million and gains on sale of $4.6 million during the six months ended March 31, 2021.
In connection with the Company's sale of the Bank's Community Bank division to Central Bank, the Company entered into a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on February 29, 2020 (the "Closing Date"). The Company recognized $0.2 million and $1.6 million in servicing fee expense during the six months ended March 31, 2022 and 2021, respectively, and $3.3 million for the fiscal year ended September 30, 2021.
Since the Closing Date, the Company has entered into subsequent loan portfolio sale agreements with Central Bank and other third parties. The Company sold additional loans from the retained Community Bank portfolio in the amount of $192.5 million and $233.0 million in the six months ended March 31, 2022 and 2021, respectively, and $308.1 million for the fiscal year ended September 30, 2021. All loans from the retained Community Bank portfolio have been sold as of December 31, 2021.
Loans purchased and sold by portfolio segment, including participation interests, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
(Dollars in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Loans Purchased | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Loans held for investment: | | | | | | | |
Commercial finance | $ | 1,378 | | | $ | — | | | $ | 3,098 | | | $ | — | |
| | | | | | | |
| | | | | | | |
Warehouse finance | 29,822 | | | 33,605 | | | 85,815 | | | 96,236 | |
Community banking | — | | | 548 | | | — | | | 2,847 | |
Total purchases | $ | 31,200 | | | $ | 34,153 | | | $ | 88,913 | | | $ | 99,083 | |
Loans Sold | | | | | | | |
Loans held for sale: | | | | | | | |
Commercial finance | $ | 14,090 | | | $ | 4,591 | | | $ | 47,113 | | | $ | 34,915 | |
Consumer finance | 147,163 | | | 19,791 | | | 523,607 | | | 311,331 | |
| | | | | | | |
| | | | | | | |
Community banking | — | | | — | | | 153,222 | | | 129,788 | |
Loans held for investment: | | | | | | | |
Commercial finance | 15,549 | | | — | | | 15,549 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Community banking | — | | | — | | | 30,235 | | | — | |
Total sales | $ | 176,802 | | | $ | 24,382 | | | $ | 769,726 | | | $ | 476,034 | |
Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2022 | | September 30, 2021 |
Carrying amount | $ | 244,030 | | | $ | 278,341 | |
Unguaranteed residual assets | 13,009 | | | 14,393 | |
Unamortized initial direct costs | 406 | | | 490 | |
Unearned income | (21,642) | | | (26,684) | |
Total net investment in direct financing and sales-type leases | $ | 235,803 | | | $ | 266,540 | |
Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at March 31, 2022 were as follows:
| | | | | |
(Dollars in thousands) | |
Remaining in 2022 | $ | 52,751 | |
2023 | 90,718 | |
2024 | 59,489 | |
2025 | 28,337 | |
2026 | 9,087 | |
Thereafter | 3,648 | |
| |
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases | 244,030 | |
Third-party residual value guarantees | — | |
Total carrying amount of direct financing and sales-type leases | $ | 244,030 | |
The Company did not record any contingent rental income from direct financing and sales-type leases in the six months ended March 31, 2022.
The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020, with significant deterioration of macroeconomic conditions and markets into 2021. Although macroeconomic conditions and markets have improved since the beginning of 2021, the ultimate impact of this pandemic on the Company's loan and lease portfolio remains difficult to predict. Management continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses and the impact to our customers and businesses as a result of COVID-19 and will refine its estimate as more information becomes available.
Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
(Dollars in thousands) | Beginning Balance | | Provision (Reversal) | | Charge-offs | | Recoveries | | Ending Balance |
Allowance for credit losses: | | | | | | | | | |
Term lending | $ | 26,722 | | | $ | 1,954 | | | $ | (1,822) | | | $ | 714 | | | $ | 27,568 | |
Asset based lending | 2,758 | | | (175) | | | — | | | — | | | 2,583 | |
Factoring | 15,242 | | | 823 | | | (9,590) | | | 51 | | | 6,526 | |
Lease financing | 6,857 | | | (395) | | | (95) | | | 104 | | | 6,471 | |
Insurance premium finance | 1,044 | | | 59 | | | (106) | | | 60 | | | 1,057 | |
SBA/USDA | 2,996 | | | (53) | | | — | | | — | | | 2,943 | |
Other commercial finance | 1,349 | | | (152) | | | — | | | — | | | 1,197 | |
Commercial finance | 56,968 | | | 2,061 | | | (11,613) | | | 929 | | | 48,345 | |
Consumer credit products | 1,627 | | | (6) | | | — | | | — | | | 1,621 | |
Other consumer finance | 6,960 | | | 1,157 | | | (802) | | | 73 | | | 7,388 | |
Consumer finance | 8,587 | | | 1,151 | | | (802) | | | 73 | | | 9,009 | |
Tax services | 1,601 | | | 28,972 | | | — | | | 184 | | | 30,757 | |
Warehouse finance | 467 | | | (26) | | | — | | | — | | | 441 | |
Community banking | — | | | (2) | | | — | | | 2 | | | — | |
Total loans and leases | 67,623 | | | 32,156 | | | (12,415) | | | 1,188 | | | 88,552 | |
Unfunded commitments(1) | 405 | | | 146 | | | — | | | — | | | 551 | |
Total | $ | 68,028 | | | $ | 32,302 | | | $ | (12,415) | | | $ | 1,188 | | | $ | 89,103 | |
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
(Dollars in thousands) | Beginning Balance | | | | Provision (Reversal)(2) | | Charge-offs | | Recoveries | | Ending Balance |
Allowance for credit losses: | | | | | | | | | | | |
Term lending | $ | 28,220 | | | | | $ | 1,396 | | | $ | (2,477) | | | $ | 176 | | | $ | 27,315 | |
Asset based lending | 1,809 | | | | | 539 | | | (599) | | | — | | | 1,749 | |
Factoring | 3,719 | | | | | (545) | | | — | | | 36 | | | 3,210 | |
Lease financing | 6,784 | | | | | 420 | | | (471) | | | 130 | | | 6,863 | |
Insurance premium finance | 1,285 | | | | | 103 | | | (149) | | | 87 | | | 1,326 | |
SBA/USDA | 3,164 | | | | | 136 | | | — | | | — | | | 3,300 | |
Other commercial finance | 479 | | | | | 62 | | | — | | | — | | | 541 | |
Commercial finance | 45,460 | | | | | 2,111 | | | (3,696) | | | 429 | | | 44,304 | |
Consumer credit products | 835 | | | | | 155 | | | — | | | — | | | 990 | |
Other consumer finance | 10,176 | | | | | 266 | | | (419) | | | 70 | | | 10,093 | |
Consumer finance | 11,011 | | | | | 421 | | | (419) | | | 70 | | | 11,083 | |
Tax services | 1,412 | | | | | 27,680 | | | — | | | 54 | | | 29,146 | |
Warehouse finance | 319 | | | | | 13 | | | — | | | — | | | 332 | |
Community banking | 14,187 | | | | | (26) | | | (134) | | | — | | | 14,027 | |
Total loans and leases | 72,389 | | | | | 30,199 | | | (4,249) | | | 553 | | | 98,892 | |
Unfunded commitments(1) | 688 | | | | | 91 | | | — | | | — | | | 779 | |
Total | $ | 73,077 | | | | | $ | 30,290 | | | $ | (4,249) | | | $ | 553 | | | $ | 99,671 | |
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.
(2) As a result of the adoption of CECL, effective October 1, 2020, the provision for credit losses includes the provision for unfunded commitments that was previously included within other noninterest expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended March 31, 2022 |
(Dollars in thousands) | Beginning Balance | | Provision (Reversal) | | Charge-offs | | Recoveries | | Ending Balance |
Allowance for credit losses: | | | | | | | | | |
Term lending | $ | 29,351 | | | $ | 1,095 | | | $ | (3,906) | | | $ | 1,028 | | | $ | 27,568 | |
Asset based lending | 1,726 | | | 736 | | | (16) | | | 137 | | | 2,583 | |
Factoring | 3,997 | | | 13,324 | | | (10,864) | | | 69 | | | 6,526 | |
Lease financing | 7,629 | | | (1,217) | | | (112) | | | 171 | | | 6,471 | |
Insurance premium finance | 1,394 | | | (211) | | | (283) | | | 157 | | | 1,057 | |
SBA/USDA | 2,978 | | | 180 | | | (217) | | | 2 | | | 2,943 | |
Other commercial finance | 1,168 | | | 29 | | | — | | | — | | | 1,197 | |
Commercial finance | 48,243 | | | 13,936 | | | (15,398) | | | 1,564 | | | 48,345 | |
Consumer credit products | 1,242 | | | 379 | | | — | | | — | | | 1,621 | |
Other consumer finance | 6,112 | | | 2,718 | | | (1,622) | | | 180 | | | 7,388 | |
Consumer finance | 7,354 | | | 3,097 | | | (1,622) | | | 180 | | | 9,009 | |
Tax services | 2 | | | 28,259 | | | (254) | | | 2,750 | | | 30,757 | |
Warehouse finance | 420 | | | 21 | | | — | | | — | | | 441 | |
Community banking | 12,262 | | | (12,686) | | | — | | | 424 | | | — | |
Total loans and leases | 68,281 | | | 32,627 | | | (17,274) | | | 4,918 | | | 88,552 | |
Unfunded commitments(1) | 690 | | | (139) | | | — | | | — | | | 551 | |
Total | $ | 68,971 | | | $ | 32,488 | | | $ | (17,274) | | | $ | 4,918 | | | $ | 89,103 | |
(1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended March 31, 2021 |
(Dollars in thousands) | Beginning Balance | | Impact of CECL Adoption | | Provision (Reversal)(2) | | Charge-offs | | Recoveries | | Ending Balance |
Allowance for credit losses: | | | | | | | | | | | |
Term lending | $ | 15,211 | | | $ | 9,999 | | | $ | 7,422 | | | $ | (5,789) | | | $ | 472 | | | $ | 27,315 | |
Asset based lending | 1,406 | | | 164 | | | 1,378 | | | (1,199) | | | — | | | 1,749 | |
Factoring | 3,027 | | | 987 | | | (1,961) | | | (1) | | | 1,158 | | | 3,210 | |
Lease financing | 7,023 | | | (556) | | | 1,532 | | | (1,347) | | | 211 | | | 6,863 | |
Insurance premium finance | 2,129 | | | (965) | | | 591 | | | (805) | | | 376 | | | 1,326 | |
SBA/USDA | 940 | | | 2,720 | | | (361) | | | — | | | 1 | | | 3,300 | |
Other commercial finance | 182 | | | 364 | | | (5) | | | — | | | — | | | 541 | |
Commercial finance | 29,918 | | | 12,713 | | | 8,596 | | | (9,141) | | | 2,218 | | | 44,304 | |
Consumer credit products | 845 | | | — | | | 145 | | | — | | | — | | | 990 | |
Other consumer finance | 2,821 | | | 5,998 | | | 1,748 | | | (637) | | | 163 | | | 10,093 | |
Consumer finance | 3,666 | | | 5,998 | | | 1,893 | | | (637) | | | 163 | | | 11,083 | |
Tax services | 2 | | | — | | | 28,134 | | | — | | | 1,010 | | | 29,146 | |
Warehouse finance | 294 | | | (1) | | | 39 | | | — | | | — | | | 332 | |
Community banking | 22,308 | | | (5,937) | | | (2,199) | | | (145) | | | — | | | 14,027 | |
Total loans and leases | 56,188 | | | 12,773 | | | 36,463 | | | (9,923) | | | 3,391 | | | 98,892 | |
Unfunded commitments(1) | 32 | | | 831 | | | (84) | | | — | | | — | | | 779 | |
Total | $ | 56,220 | | | $ | 13,604 | | | $ | 36,379 | | | $ | (9,923) | | | $ | 3,391 | | | $ | 99,671 | |
(1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition.
(2) As a result of the adoption of CECL, effective October 1, 2020, the provision for credit losses includes the provision for unfunded commitments that was previously included within other noninterest expense.
Information on loans and leases that are deemed to be collateral dependent and are evaluated individually for the ACL was as follows:
| | | | | | | | | | | |
(Dollars in thousands) | At March 31, 2022 | | At September 30, 2021 |
Term lending | $ | 60,400 | | | $ | 20,965 | |
Asset based lending | 5,992 | | | — | |
Factoring | 26,625 | | | 1,268 | |
Lease financing | 12,289 | | | 3,882 | |
| | | |
SBA/USDA | 1,282 | | | — | |
| | | |
Commercial finance(1) | 106,588 | | | 26,115 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Community banking | — | | | 14,915 | |
Total | $ | 106,588 | | | $ | 41,030 | |
(1) For commercial finance, collateral dependent financial assets have collateral in the form of cash, equipment, or other business assets.
In response to the ongoing COVID-19 pandemic, the Company allowed modifications, such as payment deferrals and temporary forbearances, 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 March 31, 2022, $0.4 million of loan and lease balances that were granted deferral payments by the Company were still in their deferment period. These modifications consisted solely of payment deferrals ranging from 30 days to six months. These modifications are in line with applicable regulatory guidelines and, therefore, they are not reported as troubled debt restructurings. Other than the loan modifications that are on nonaccrual status, the Company is accruing and recognizing interest income on these modifications during the payment deferral period.
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 classification and risk rating definitions are as follows:
Pass - A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.
Watch - A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets.
Special Mention - A special mention asset is a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.
The adverse classifications are as follows:
Substandard - A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard.
Doubtful - A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate.
Loss - A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value, leaving room for future collection efforts.
Loans and leases, or portions thereof, are generally charged off when collection of principal becomes doubtful. Typically, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 180 days or more for the purchased student loan portfolios, 120 days or more for consumer credit products and leases, and 90 days or more for community banking loans and commercial finance loans. Action is taken to charge off ERO loans if such loans have not been collected by the end of June and taxpayer advance loans if such loans have not been collected by the end of the calendar year. Nonaccrual loans and troubled debt restructurings are generally individually evaluated for expected credit losses.
The Company recognizes that concentrations of credit may naturally occur and may take the form of a large volume of related loans and leases to an individual, a specific industry, or a geographic location. Credit concentration is a direct, indirect, or contingent obligation that has a common bond where the aggregate exposure equals or exceeds a certain percentage of the Company’s Tier 1 Capital plus the allowable Allowance for Credit Losses.
The Company has various portfolios of consumer finance and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The outstanding balances of consumer finance loans and tax services loans were $283.8 million and $86.0 million at March 31, 2022, respectively, and $252.9 million and $10.4 million at September 30, 2021, 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 |
At March 31, 2022 | 2022 | 2021 | 2020 | 2019 | 2018 | Prior |
Term lending | | | | | | | | |
Pass | $ | 258,394 | | $ | 285,900 | | $ | 158,324 | | $ | 55,586 | | $ | 37,818 | | $ | 7,731 | | $ | — | | $ | 803,753 | |
Watch | 27,001 | | 94,061 | | 55,194 | | 23,806 | | 2,776 | | 2,511 | | — | | 205,349 | |
Special Mention | 1,603 | | 9,254 | | 16,083 | | 3,761 | | 607 | | 2,954 | | — | | 34,262 | |
Substandard | 6,423 | | 15,352 | | 23,760 | | 14,961 | | 2,181 | | 3,201 | | — | | 65,878 | |
Doubtful | 198 | | 346 | | 545 | | 676 | | 69 | | — | | — | | 1,834 | |
Total | 293,619 | | 404,913 | | 253,906 | | 98,790 | | 43,451 | | 16,397 | | — | | 1,111,076 | |
Asset based lending | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 234,134 | | 234,134 | |
Watch | — | | — | | — | | — | | — | | — | | 83,379 | | 83,379 | |
Special Mention | — | | — | | — | | — | | — | | — | | 49,695 | | 49,695 | |
Substandard | — | | — | | — | | — | | — | | — | | 15,147 | | 15,147 | |
| | | | | | | | |
Total | — | | — | | — | | — | | — | | — | | 382,355 | | 382,355 | |
Factoring | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 298,546 | | 298,546 | |
Watch | — | | — | | — | | — | | — | | — | | 46,702 | | 46,702 | |
Special Mention | — | | — | | — | | — | | — | | — | | 25,300 | | 25,300 | |
Substandard | — | | — | | — | | — | | — | | — | | 24,289 | | 24,289 | |
Doubtful | — | | — | | — | | — | | — | | — | | 28 | | 28 | |
Total | — | | — | | — | | — | | — | | — | | 394,865 | | 394,865 | |
Lease financing | | | | | | | | |
Pass | 22,840 | | 52,747 | | 57,885 | | 9,223 | | 4,703 | | 222 | | — | | 147,620 | |
Watch | 1,021 | | 10,724 | | 13,759 | | 7,221 | | 2,418 | | 43 | | — | | 35,186 | |
Special Mention | 730 | | 15,835 | | 7,658 | | 411 | | 310 | | 238 | | — | | 25,182 | |
Substandard | 15 | | 5,561 | | 11,160 | | 7,700 | | 1,210 | | 22 | | — | | 25,668 | |
Doubtful | — | | 140 | | 406 | | 1,195 | | — | | — | | — | | 1,741 | |
Total | 24,606 | | 85,007 | | 90,868 | | 25,750 | | 8,641 | | 525 | | — | | 235,397 | |
Insurance premium finance | | | | | | | | |
Pass | 337,078 | | 65,850 | | 24 | | 2 | | — | | — | | — | | 402,954 | |
Watch | 110 | | 133 | | — | | — | | — | | — | | — | | 243 | |
Special Mention | 4 | | 268 | | — | | — | | — | | — | | — | | 272 | |
Substandard | — | | 148 | | — | | — | | — | | — | | — | | 148 | |
Doubtful | — | | 64 | | — | | — | | — | | — | | — | | 64 | |
Total | 337,192 | | 66,463 | | 24 | | 2 | | — | | — | | — | | 403,681 | |
SBA/USDA | | | | | | | | |
Pass | 29,689 | | 72,935 | | 21,521 | | 11,737 | | 12,299 | | 8,786 | | — | | 156,967 | |
Watch | 904 | | — | | 19,595 | | 2,845 | | 968 | | 1,344 | | — | | 25,656 | |
Special Mention | — | | — | | 1,618 | | 213 | | 3,970 | | 985 | | — | | 6,786 | |
Substandard | — | | — | | 6,109 | | 7,554 | | 7,975 | | 2,811 | | — | | 24,449 | |
Doubtful | — | | 22 | | 315 | | — | | — | | — | | — | | 337 | |
Total | 30,593 | | 72,957 | | 49,158 | | 22,349 | | 25,212 | | 13,926 | | — | | 214,195 | |
Other commercial finance | | | | | | | | |
Pass | 20,122 | | 28,761 | | 799 | | 9,017 | | 2,134 | | 66,399 | | — | | 127,232 | |
Watch | — | | 20,000 | | 13,282 | | — | | 443 | | — | | — | | 33,725 | |
| | | | | | | | |
Substandard | 166 | | 9,827 | | — | | — | | 267 | | 2,043 | | — | | 12,303 | |
| | | | | | | | |
Total | 20,288 | | 58,588 | | 14,081 | | 9,017 | | 2,844 | | 68,442 | | — | | 173,260 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Warehouse finance | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 441,496 | | 441,496 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | — | | — | | — | | — | | — | | — | | 441,496 | | 441,496 | |
Total loans and leases | | | | | | | | |
Pass | 668,123 | | 506,193 | | 238,553 | | 85,565 | | 56,954 | | 83,138 | | 974,176 | | 2,612,702 | |
Watch | 29,036 | | 124,918 | | 101,830 | | 33,872 | | 6,605 | | 3,898 | | 130,081 | | 430,240 | |
Special Mention | 2,337 | | 25,357 | | 25,359 | | 4,385 | | 4,887 | | 4,177 | | 74,995 | | 141,497 | |
Substandard | 6,604 | | 30,888 | | 41,029 | | 30,215 | | 11,633 | | 8,077 | | 39,436 | | 167,882 | |
Doubtful | 198 | | 572 | | 1,266 | | 1,871 | | 69 | | — | | 28 | | 4,004 | |
Total | $ | 706,298 | | $ | 687,928 | | $ | 408,037 | | $ | 155,908 | | $ | 80,148 | | $ | 99,290 | | $ | 1,218,716 | | $ | 3,356,325 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis |
(Dollars in thousands) | Term Loans and Leases by Origination Year | Revolving Loans and Leases | Total |
At September 30, 2021 | 2021 | 2020 | 2019 | 2018 | 2017 | Prior |
Term lending | | | | | | | | |
Pass | $ | 362,443 | | $ | 192,305 | | $ | 63,708 | | $ | 34,381 | | $ | 3,195 | | $ | 1,236 | | $ | — | | $ | 657,268 | |
Watch | 63,046 | | 71,701 | | 32,941 | | 21,419 | | 76 | | 3,628 | | — | | 192,811 | |
Special Mention | 6,422 | | 26,673 | | 4,821 | | 932 | | 70 | | 633 | | — | | 39,551 | |
Substandard | 18,569 | | 16,810 | | 26,920 | | 3,529 | | 928 | | 641 | | — | | 67,397 | |
Doubtful | 252 | | 1,673 | | 1,756 | | 311 | | — | | — | | — | | 3,992 | |
Total | 450,732 | | 309,162 | | 130,146 | | 60,572 | | 4,269 | | 6,138 | | — | | 961,019 | |
Asset based lending | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 185,432 | | 185,432 | |
Watch | — | | — | | — | | — | | — | | — | | 52,072 | | 52,072 | |
Special Mention | — | | — | | — | | — | | — | | — | | 43,135 | | 43,135 | |
Substandard | — | | — | | — | | — | | — | | — | | 19,586 | | 19,586 | |
| | | | | | | | |
Total | — | | — | | — | | — | | — | | — | | 300,225 | | 300,225 | |
Factoring | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 294,124 | | 294,124 | |
Watch | — | | — | | — | | — | | — | | — | | 17,984 | | 17,984 | |
Special Mention | — | | — | | — | | — | | — | | — | | 33,035 | | 33,035 | |
Substandard | — | | — | | — | | — | | — | | — | | 18,527 | | 18,527 | |
| | | | | | | | |
Total | — | | — | | — | | — | | — | | — | | 363,670 | | 363,670 | |
Lease financing | | | | | | | | |
Pass | 54,434 | | 73,629 | | 17,153 | | 7,511 | | 1,857 | | 203 | | — | | 154,787 | |
Watch | 22,061 | | 20,455 | | 9,274 | | 2,739 | | 1,454 | | — | | — | | 55,983 | |
Special Mention | 15,402 | | 20,595 | | 4,148 | | 1,546 | | 61 | | — | | — | | 41,752 | |
Substandard | 479 | | 4,765 | | 4,981 | | 831 | | 25 | | — | | — | | 11,081 | |
Doubtful | — | | 6 | | 2,402 | | 38 | | 1 | | — | | — | | 2,447 | |
Total | 92,376 | | 119,450 | | 37,958 | | 12,665 | | 3,398 | | 203 | | — | | 266,050 | |
Insurance premium finance | | | | | | | | |
Pass | 428,131 | | 144 | | 9 | | — | | — | | — | | — | | 428,284 | |
Watch | 262 | | 5 | | — | | — | | — | | — | | — | | 267 | |
Special Mention | 58 | | 5 | | — | | — | | — | | — | | — | | 63 | |
Substandard | 68 | | 107 | | — | | — | | — | | — | | — | | 175 | |
Doubtful | 58 | | 20 | | — | | — | | — | | — | | — | | 78 | |
Total | 428,577 | | 281 | | 9 | | — | | — | | — | | — | | 428,867 | |
SBA/USDA | | | | | | | | |
Pass | 110,122 | | 37,006 | | 14,461 | | 12,760 | | 6,525 | | 3,779 | | — | | 184,653 | |
Watch | — | | 20,431 | | 1,996 | | 1,670 | | 1,394 | | 298 | | — | | 25,789 | |
Special Mention | — | | 8,333 | | 214 | | 3,348 | | 177 | | 919 | | — | | 12,991 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Substandard | — | | 3,812 | | 9,550 | | 8,079 | | 2,169 | | 713 | | — | | 24,323 | |
| | | | | | | | |
Total | 110,122 | | 69,582 | | 26,221 | | 25,857 | | 10,265 | | 5,709 | | — | | 247,756 | |
Other commercial finance | | | | | | | | |
Pass | 56,957 | | 642 | | 5,786 | | 6,075 | | 3,345 | | 60,965 | | — | | 133,770 | |
Watch | — | | 17,404 | | 3,409 | | 451 | | — | | — | | — | | 21,264 | |
| | | | | | | | |
Substandard | 466 | | — | | — | | 273 | | 837 | | 1,299 | | — | | 2,875 | |
| | | | | | | | |
Total | 57,423 | | 18,046 | | 9,195 | | 6,799 | | 4,182 | | 62,264 | | — | | 157,909 | |
Warehouse finance | | | | | | | | |
Pass | — | | — | | — | | — | | — | | — | | 419,926 | | 419,926 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | — | | — | | — | | — | | — | | — | | 419,926 | | 419,926 | |
Community banking | | | | | | | | |
Pass | — | | — | | 4,159 | | — | | 5,683 | | 472 | | — | | 10,314 | |
Watch | — | | 10,134 | | — | | 10,854 | | 6,133 | | — | | — | | 27,121 | |
Special Mention | — | | — | | 35,916 | | — | | — | | — | | — | | 35,916 | |
Substandard | — | | 119 | | 49,449 | | 50,626 | | 13,933 | | 6,110 | | — | | 120,237 | |
Doubtful | — | | 122 | | — | | 5,422 | | — | | — | | — | | 5,544 | |
Total | — | | 10,375 | | 89,524 | | 66,902 | | 25,749 | | 6,582 | | — | | 199,132 | |
Total loans and leases | | | | | | | | |
Pass | 1,012,088 | | 303,727 | | 105,274 | | 60,727 | | 20,605 | | 66,655 | | 899,481 | | 2,468,557 | |
Watch | 85,369 | | 140,131 | | 47,620 | | 37,132 | | 9,057 | | 3,926 | | 70,056 | | 393,291 | |
Special Mention | 21,882 | | 55,606 | | 45,099 | | 5,826 | | 307 | | 1,552 | | 76,171 | | 206,443 | |
Substandard | 19,584 | | 25,613 | | 90,900 | | 63,338 | | 17,891 | | 8,762 | | 38,113 | | 264,201 | |
Doubtful | 310 | | 1,822 | | 4,158 | | 5,770 | | 1 | | — | | — | | 12,061 | |
Total | $ | 1,139,233 | | $ | 526,899 | | $ | 293,051 | | $ | 172,793 | | $ | 47,861 | | $ | 80,895 | | $ | 1,083,821 | | $ | 3,344,553 | |
Past due loans and leases were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2022 |
| Accruing and Nonaccruing Loans and Leases | | Nonperforming Loans and Leases |
(Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | > 89 Days Past Due | | Total Past Due | | Current | | Total Loans and Leases Receivable | | > 89 Days Past Due and Accruing | | Nonaccrual Balance | | Total |
Loans held for sale | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 31,410 | | | $ | 31,410 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Term lending | 17,081 | | | 1,495 | | | 5,243 | | | 23,819 | | | 1,087,257 | | | 1,111,076 | | | 1,400 | | | 10,283 | | | 11,683 | |
Asset based lending | 7 | | | — | | | — | | | 7 | | | 382,348 | | | 382,355 | | | — | | | 5,996 | | | 5,996 | |
Factoring | — | | | — | | | — | | | — | | | 394,865 | | | 394,865 | | | — | | | 3,961 | | | 3,961 | |
Lease financing | 4,932 | | | — | | | 4,199 | | | 9,131 | | | 226,266 | | | 235,397 | | | 3,346 | | | 3,064 | | | 6,410 | |
Insurance premium finance | 1,149 | | | 768 | | | 955 | | | 2,872 | | | 400,809 | | | 403,681 | | | 955 | | | — | | | 955 | |
SBA/USDA | 1,462 | | | 311 | | | 1,597 | | | 3,370 | | | 210,825 | | | 214,195 | | | — | | | 2,023 | | | 2,023 | |
Other commercial finance | — | | | — | | | — | | | — | | | 173,260 | | | 173,260 | | | — | | | — | | | — | |
Commercial finance | 24,631 | | | 2,574 | | | 11,994 | | | 39,199 | | | 2,875,630 | | | 2,914,829 | | | 5,701 | | | 25,327 | | | 31,028 | |
Consumer credit products | 4,092 | | | 3,489 | | | 3,050 | | | 10,631 | | | 161,216 | | | 171,847 | | | 3,050 | | | — | | | 3,050 | |
Other consumer finance | 1,737 | | | 1,986 | | | 1,764 | | | 5,487 | | | 106,435 | | | 111,922 | | | 1,764 | | | — | | | 1,764 | |
Consumer finance | 5,829 | | | 5,475 | | | 4,814 | | | 16,118 | | | 267,651 | | | 283,769 | | | 4,814 | | | — | | | 4,814 | |
Tax services | 830 | | | — | | | — | | | 830 | | | 85,169 | | | 85,999 | | | — | | | — | | | — | |
Warehouse finance | — | | | — | | | — | | | — | | | 441,496 | | | 441,496 | | | — | | | — | | | — | |
Community banking | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total loans and leases held for investment | 31,290 | | | 8,049 | | | 16,808 | | | 56,147 | | | 3,669,946 | | | 3,726,093 | | | 10,515 | | | 25,327 | | | 35,842 | |
Total loans and leases | $ | 31,290 | | | $ | 8,049 | | | $ | 16,808 | | | $ | 56,147 | | | $ | 3,701,356 | | | $ | 3,757,503 | | | $ | 10,515 | | | $ | 25,327 | | | $ | 35,842 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At September 30, 2021 |
| Accruing and Nonaccruing Loans and Leases | | Nonperforming Loans and Leases |
(Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | > 89 Days Past Due | | Total Past Due | | Current | | Total Loans and Leases Receivable | | > 89 Days Past Due and Accruing | | Nonaccrual Balance | | Total |
Loans held for sale | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 56,194 | | | $ | 56,194 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Term lending | 11,879 | | | 2,703 | | | 5,452 | | | 20,034 | | | 940,985 | | | 961,019 | | | 2,558 | | | 14,904 | | | 17,462 | |
Asset based lending | — | | | — | | | — | | | — | | | 300,225 | | | 300,225 | | | — | | | — | | | — | |
Factoring | — | | | — | | | — | | | — | | | 363,670 | | | 363,670 | | | — | | | 1,268 | | | 1,268 | |
Lease financing | 4,909 | | | 3,336 | | | 8,401 | | | 16,646 | | | 249,404 | | | 266,050 | | | 8,345 | | | 3,158 | | | 11,503 | |
Insurance premium finance | 1,415 | | | 375 | | | 599 | | | 2,389 | | | 426,478 | | | 428,867 | | | 599 | | | — | | | 599 | |
SBA/USDA | 66 | | | 974 | | | 987 | | | 2,027 | | | 245,729 | | | 247,756 | | | 987 | | | — | | | 987 | |
Other commercial finance | — | | | — | | | — | | | — | | | 157,908 | | | 157,908 | | | — | | | — | | | — | |
Commercial finance | 18,269 | | | 7,388 | | | 15,439 | | | 41,096 | | | 2,684,399 | | | 2,725,495 | | | 12,489 | | | 19,330 | | | 31,819 | |
Consumer credit products | 713 | | | 527 | | | 511 | | | 1,751 | | | 127,500 | | | 129,251 | | | 511 | | | — | | | 511 | |
Other consumer finance | 963 | | | 285 | | | 725 | | | 1,973 | | | 121,633 | | | 123,606 | | | 725 | | | — | | | 725 | |
Consumer finance | 1,676 | | | 812 | | | 1,236 | | | 3,724 | | | 249,133 | | | 252,857 | | | 1,236 | | | — | | | 1,236 | |
Tax services | — | | | — | | | 7,962 | | | 7,962 | | | 2,443 | | | 10,405 | | | 7,962 | | | — | | | 7,962 | |
Warehouse finance | — | | | — | | | — | | | — | | | 419,926 | | | 419,926 | | | — | | | — | | | — | |
Community banking | — | | | — | | | — | | | — | | | 199,132 | | | 199,132 | | | — | | | 14,915 | | | 14,915 | |
Total loans and leases held for investment | 19,945 | | | 8,200 | | | 24,637 | | | 52,782 | | | 3,555,033 | | | 3,607,815 | | | 21,687 | | | 34,245 | | | 55,932 | |
Total loans and leases | $ | 19,945 | | | $ | 8,200 | | | $ | 24,637 | | | $ | 52,782 | | | $ | 3,611,227 | | | $ | 3,664,009 | | | $ | 21,687 | | | $ | 34,245 | | | $ | 55,932 | |
Nonaccrual loans and leases by year of origination at March 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis |
| Term Loans and Leases by Origination Year | Revolving Loans and Leases | Total | Nonaccrual with No ACL |
(Dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior |
Term lending | $ | 158 | | $ | 688 | | $ | 2,018 | | $ | 6,851 | | $ | 448 | | $ | 120 | | $ | — | | $ | 10,283 | | $ | 2,958 | |
Asset based lending | — | | — | | — | | — | | — | | — | | 5,996 | | 5,996 | | — | |
Factoring | — | | — | | — | | — | | — | | — | | 3,961 | | 3,961 | | 3,525 | |
Lease financing | — | | — | | 420 | | 2,190 | | 440 | | 14 | | — | | 3,064 | | — | |
| | | | | | | | | |
SBA/USDA | — | | 22 | | 1,690 | | — | | — | | 311 | | — | | 2,023 | | — | |
| | | | | | | | | |
Commercial finance | 158 | | 710 | | 4,128 | | 9,041 | | 888 | | 445 | | 9,957 | | 25,327 | | 6,483 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total nonaccrual loans and leases | $ | 158 | | $ | 710 | | $ | 4,128 | | $ | 9,041 | | $ | 888 | | $ | 445 | | $ | 9,957 | | $ | 25,327 | | $ | 6,483 | |
Loans and leases that are 90 days or more delinquent and accruing by year of origination at March 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis |
| Term Loans and Leases by Origination Year | Revolving Loans and Leases | Total |
(Dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior |
Term lending | $ | 421 | | $ | 330 | | $ | 549 | | $ | 100 | | $ | — | | $ | — | | $ | — | | $ | 1,400 | |
| | | | | | | | |
| | | | | | | | |
Lease financing | 1,680 | | 883 | | 398 | | 161 | | 128 | | 96 | | — | | 3,346 | |
Insurance premium finance | 188 | | 762 | | 5 | | — | | — | | — | | — | | 955 | |
| | | | | | | | |
| | | | | | | | |
Commercial finance | 2,289 | | 1,975 | | 952 | | 261 | | 128 | | 96 | | — | | 5,701 | |
Consumer credit products | 119 | | 2,781 | | 39 | | 91 | | 20 | | — | | — | | 3,050 | |
Other consumer finance | 1,034 | | 130 | | — | | — | | — | | 600 | | — | | 1,764 | |
Consumer finance | 1,153 | | 2,911 | | 39 | | 91 | | 20 | | 600 | | — | | 4,814 | |
| | | | | | | | |
| | | | | | | | |
Total 90 days or more delinquent and accruing | $ | 3,442 | | $ | 4,886 | | $ | 991 | | $ | 352 | | $ | 148 | | $ | 696 | | $ | — | | $ | 10,515 | |
Certain loans and leases 90 days or more past due as to interest or principal continue to accrue because they are (1) well-secured and in the process of collection or (2) consumer loans exempt under regulatory rules from being classified as nonaccrual 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.
The following table provides the average recorded investment in nonaccrual loans and leases:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
(Dollars in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Term lending | $ | 10,688 | | | $ | 12,729 | | | $ | 12,305 | | | $ | 13,802 | |
Asset based lending | 5,993 | | | 572 | | | 5,002 | | | 823 | |
Factoring | 9,791 | | | 44 | | | 11,019 | | | 490 | |
Lease financing | 3,020 | | | 2,990 | | | 3,027 | | | 3,273 | |
| | | | | | | |
SBA/USDA | 1,464 | | | 600 | | | 840 | | | 600 | |
| | | | | | | |
Commercial finance | 30,956 | | | 16,935 | | | 32,193 | | | 18,988 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Community banking | — | | | 20,199 | | | — | | | 14,316 | |
Total loans and leases | $ | 30,956 | | | $ | 37,134 | | | $ | 32,193 | | | $ | 33,304 | |
The recognized interest income on the Company's nonaccrual loans and leases for the three and six months ended March 31, 2022 and 2021 was not significant.
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 $0.2 million of commercial finance loans and $0.2 million of consumer finance loans that were modified in a TDR during the three months ended March 31, 2022, all of which were modified to extend the term of the loan. There were $2.1 million of commercial finance loans that were modified in a TDR during the three months ended March 31, 2021, all of which were modified to extend the term of the loan, and no community banking loans.
During the six months ended March 31, 2022, there were $10.3 million of commercial finance loans and $0.2 million of consumer finance loans that were modified in a TDR, all of which were modified to extend the term of the loan. There were $2.1 million of commercial finance loans and $0.1 million of consumer finance loans that were modified in a TDR during the six months ended March 31, 2021 and no community banking loans.
During the six months ended March 31, 2022, the Company had $2.6 million of commercial finance loans and $0.8 million of consumer finance loans that were modified in a TDR within the previous 12 months and for which there was a payment default. During the six months ended March 31, 2021, the Company had $0.1 million of consumer finance loans, and no community banking loans that were modified in a TDR within the previous 12 months and for which there was a payment default. TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the six months ended March 31, 2022 and March 31, 2021.
NOTE 6. EARNINGS PER COMMON SHARE ("EPS")
The Company has granted restricted share awards with dividend rights that are considered to be participating securities. Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the earnings per share calculation under the two-class method. Basic EPS 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 EPS is calculated using the more dilutive of the treasury stock method or the two-class method. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options, performance share units, and nonvested restricted stock, where applicable. Diluted EPS under the two-class method also considers the allocation of earnings to the participating securities. Antidilutive securities are disregarded in earnings per share calculations. Diluted EPS shown below reflects the two-class method, as diluted EPS under the two-class method was more dilutive than under the treasury stock method.
A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
(Dollars in thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
Basic income per common share: | | | | | | | |
Net income attributable to Meta Financial Group, Inc. | $ | 49,251 | | | $ | 59,066 | | | $ | 110,575 | | | $ | 87,103 | |
Dividends and undistributed earnings allocated to participating securities | (815) | | | (1,113) | | | (1,773) | | | (1,683) | |
Basic net earnings available to common stockholders | 48,436 | | | 57,953 | | | 108,802 | | | 85,420 | |
Undistributed earnings allocated to nonvested restricted stockholders | 791 | | | 1,083 | | | 1,724 | | | 1,620 | |
Reallocation of undistributed earnings to nonvested restricted stockholders | (791) | | | (1,082) | | | (1,723) | | | (1,619) | |
| | | | | | | |
| | | | | | | |
Diluted net earnings available to common stockholders | $ | 48,436 | | | $ | 57,954 | | | $ | 108,803 | | | $ | 85,421 | |
| | | | | | | |
Total weighted-average basic common shares outstanding | 29,212,301 | | | 31,520,505 | | | 29,731,797 | | | 32,158,994 | |
Effect of dilutive securities(1) | | | | | | | |
| | | | | | | |
Performance share units | 12,061 | | | 14,517 | | | 17,035 | | | 16,490 | |
| | | | | | | |
Total effect of dilutive securities | 12,061 | | | 14,517 | | | 17,035 | | | 16,490 | |
Total weighted-average diluted common shares outstanding | 29,224,362 | | | 31,535,022 | | | 29,748,832 | | | 32,175,484 | |
| | | | | | | |
Net earnings per common share: | | | | | | | |
Basic earnings per common share | $ | 1.66 | | | $ | 1.84 | | | $ | 3.66 | | | $ | 2.66 | |
Diluted earnings per common share(2) | $ | 1.66 | | | $ | 1.84 | | | $ | 3.66 | | | $ | 2.65 | |
(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 March 31, 2022 and 2021, respectively, were 491,621 and 605,459 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. Excluded from the computation of diluted earnings per share for the six months ended March 31, 2022 and 2021, respectively, were 484,457 and 633,553 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.
NOTE 7. RENTAL EQUIPMENT, NET
Rental equipment consists of the following:
| | | | | | | | | | | |
(Dollars in thousands) | March 31, 2022 | | September 30, 2021 |
Computers and IT networking equipment | $ | 21,125 | | | $ | 17,683 | |
Motor vehicles and other | 97,106 | | | 87,396 | |
Office furniture and equipment | 44,382 | | | 48,828 | |
Solar panels and equipment | 128,551 | | | 125,457 | |
Total | 291,164 | | | 279,364 | |
| | | |
Accumulated depreciation | (79,579) | | | (67,825) | |
Unamortized initial direct costs | 1,448 | | | 1,577 | |
Net book value | $ | 213,033 | | | $ | 213,116 | |
Undiscounted future minimum lease payments expected to be received for operating leases at March 31, 2022 were as follows: | | | | | |
(Dollars in thousands) | |
Remaining in 2022 | $ | 19,801 | |
2023 | 34,172 | |
2024 | 26,211 | |
2025 | 18,884 | |
2026 | 10,789 | |
Thereafter | 14,332 | |
Total undiscounted future minimum lease payments receivable for operating leases | $ | 124,189 | |
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
The Company held a total of $309.5 million of goodwill at March 31, 2022. The recorded goodwill is a result of multiple business combinations that have been consummated since fiscal year 2015, with the most recent pursuant to the Crestmark Acquisition that closed on August 1, 2018. Goodwill is assessed for impairment at least annually or more often if conditions indicate a possible impairment. The assessment is done at a reporting unit level, which is one level below the operating segments. See Note 14. Segment Reporting for additional information on the Company's segment reporting. There have been no changes to the carrying amount of goodwill during the six months ended March 31, 2022.
The changes in the carrying amount of the Company’s intangible assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Trademark(1) | | Non-Compete(2) | | Customer Relationships(3) | | All Others(4) | | Total |
Intangible Assets | | | | | | | | | |
At September 30, 2021 | $ | 9,823 | | | $ | 40 | | | $ | 17,868 | | | $ | 5,417 | | | $ | 33,148 | |
Acquisitions during the period | — | | | — | | | — | | | 1 | | | 1 | |
Amortization during the period | (526) | | | (40) | | | (2,829) | | | (262) | | | (3,657) | |
Write-offs during the period | — | | | — | | | — | | | (202) | | | (202) | |
At March 31, 2022 | $ | 9,297 | | | $ | — | | | $ | 15,039 | | | $ | 4,954 | | | $ | 29,290 | |
| | | | | | | | | |
Gross carrying amount | $ | 14,624 | | | $ | 2,481 | | | $ | 82,088 | | | $ | 9,940 | | | $ | 109,133 | |
Accumulated amortization | (5,327) | | | (2,481) | | | (56,801) | | | (4,768) | | | (69,377) | |
Accumulated impairment | — | | | — | | | (10,248) | | | (218) | | | (10,466) | |
At March 31, 2022 | $ | 9,297 | | | $ | — | | | $ | 15,039 | | | $ | 4,954 | | | $ | 29,290 | |
| | | | | | | | | |
At September 30, 2020 | $ | 10,901 | | | $ | 422 | | | $ | 24,333 | | | $ | 6,036 | | | $ | 41,692 | |
Acquisitions during the period | — | | | — | | | — | | | 5 | | | 5 | |
Amortization during the period | (544) | | | (191) | | | (3,716) | | | (319) | | | (4,770) | |
Write-offs during the period | — | | | — | | | — | | | (24) | | | (24) | |
At March 31, 2021 | $ | 10,357 | | | $ | 231 | | | $ | 20,617 | | | $ | 5,698 | | | $ | 36,903 | |
| | | | | | | | | |
Gross carrying amount | $ | 14,624 | | | $ | 2,481 | | | $ | 82,088 | | | $ | 10,123 | | | $ | 109,316 | |
Accumulated amortization | (4,267) | | | (2,250) | | | (51,223) | | | (4,207) | | | (61,947) | |
Accumulated impairment | — | | | — | | | (10,248) | | | (218) | | | (10,466) | |
At March 31, 2021 | $ | 10,357 | | | $ | 231 | | | $ | 20,617 | | | $ | 5,698 | | | $ | 36,903 | |
(1) Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.
(2) Book amortization period of 3-5 years. Amortized using the straight line method.
(3) Book amortization period of 10-30 years. Amortized using the accelerated method.
(4) Book amortization period of 3-20 years. Amortized using the straight line method.
The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining six months of fiscal 2022 and subsequent fiscal years was as follows:
| | | | | |
(Dollars in thousands) | |
Remaining in 2022 | $ | 2,763 | |
2023 | 5,101 | |
2024 | 4,383 | |
2025 | 3,826 | |
2026 | 3,252 | |
Thereafter | 9,965 | |
Total anticipated intangible amortization | $ | 29,290 | |
The Company tests intangible assets for impairment at least annually or more often if conditions indicate a possible impairment. There were no impairments to intangible assets during the six months ended March 31, 2022 and 2021. Intangible expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations.
NOTE 9. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES
Operating lease ROU assets, included in other assets, were $31.8 million and $36.1 million at March 31, 2022 and 2021, respectively.
Operating lease liabilities, included in accrued expenses and other liabilities, were $33.6 million and $38.1 million at March 31, 2022 and 2021, respectively.
Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at March 31, 2022 were as follows:
| | | | | |
(Dollars in thousands) | |
Remaining in 2022 | $ | 2,192 | |
2023 | 3,892 | |
2024 | 3,854 | |
2025 | 3,718 | |
2026 | 3,195 | |
Thereafter | 21,732 | |
Total undiscounted future minimum lease payments | 38,583 | |
Discount | (4,938) | |
Total operating lease liabilities | $ | 33,645 | |
The weighted-average discount rate and remaining lease term for operating leases at March 31, 2022 were as follows:
| | | | | |
Weighted-average discount rate | 2.34 | % |
Weighted-average remaining lease term (years) | 10.75 |
The components of total lease costs for operating leases were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
(Dollars in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Lease expense | $ | 1,119 | | | $ | 991 | | | $ | 2,256 | | | $ | 1,945 | |
Short-term and variable lease cost | 40 | | | 69 | | | 75 | | | 132 | |
ROU asset impairment | — | | | — | | | — | | | 224 | |
Sublease income | (355) | | | (177) | | | (531) | | | (285) | |
Total lease cost for operating leases | $ | 804 | | | $ | 883 | | | $ | 1,800 | | | $ | 2,016 | |
NOTE 10. STOCKHOLDERS' EQUITY
Repurchase of Common Stock
The Company's Board of Directors authorized the November 20, 2019 share repurchase program to repurchase up to 7,500,000 shares of the Company's outstanding common stock. All remaining shares available for repurchase under this program were repurchased during the fiscal 2022 first quarter. This authorization was effective from November 21, 2019 through December 31, 2022. On September 7, 2021, the Company's Board of Directors announced a new share repurchase program to repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock. This authorization is effective from September 3, 2021 through September 30, 2024. During the six months ended March 31, 2022, and 2021, the Company repurchased 2,447,699 and 2,599,458 shares, respectively, as part of the share repurchase programs.
Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of March 31, 2022, 4,868,177 shares of common stock remained available for repurchase.
For the six months ended March 31, 2022, and 2021, the Company also repurchased 64,536 and 84,121 shares, or $3.7 million and $1.9 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.
NOTE 11. STOCK COMPENSATION
The Company maintains the Meta Financial Group, Inc. 2002 Omnibus Incentive Plan, as amended and restated (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options, nonvested (restricted) shares, and performance share units ("PSUs") to certain officers and directors of the Company. Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.
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 2002 Omnibus Incentive Plan is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur.
The following tables show the activity of nonvested (restricted) shares and PSUs granted, vested, or forfeited under the 2002 Omnibus Incentive Plan for the six months ended March 31, 2022. There were no options granted, exercised, or forfeited under this plan during the six months ended March 31, 2022.
| | | | | | | | | | | |
(Dollars in thousands, except per share data) | Number of Shares | | Weighted Average Fair Value at Grant |
Nonvested shares outstanding, September 30, 2021 | 547,063 | | | $ | 30.22 | |
Granted | 161,930 | | | 57.37 | |
Vested | (197,423) | | | 34.29 | |
Forfeited or expired | (11,788) | | | 42.19 | |
Nonvested shares outstanding, March 31, 2022 | 499,782 | | | $ | 37.13 | |
| | | | | | | | | | | |
(Dollars in thousands, except per share data) | Number of Units | | Weighted Average Fair Value at Grant |
Performance share units outstanding, September 30, 2021 | 60,984 | | | $ | 34.03 | |
Granted(1) | 35,705 | | | 57.20 | |
Vested | — | | | — | |
Forfeited or expired | — | | | — | |
Performance share units outstanding, March 31, 2022 | 96,689 | | | $ | 42.59 | |
(1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award.
At March 31, 2022, stock-based compensation expense not yet recognized in income totaled $10.8 million, which is expected to be recognized over a weighted average remaining period of 1.63 years.
NOTE 12. INCOME TAXES
The Company recorded an income tax expense of $22.3 million for the six months ended March 31, 2022, resulting in an effective tax rate of 16.66%, compared to an income tax expense of $4.7 million, or an effective tax rate of 4.97%, for the six months ended March 31, 2021. 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 2022. 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.
| | | | | | | | | | | |
| Six Months Ended March 31, |
(Dollars in thousands) | 2022 | | 2021 |
Provision at statutory rate | $ | 27,899 | | | $ | 19,271 | |
Tax-exempt income | (362) | | | (486) | |
State income taxes | 5,543 | | | 4,135 | |
Interim period effective rate adjustment | (3,870) | | | (3,116) | |
Tax credit investments, net - federal | (5,978) | | | (15,464) | |
Research tax credit | (355) | | | (323) | |
IRC 162(m) nondeductible compensation | 505 | | | 487 | |
Other, net | (1,104) | | | 161 | |
Income tax expense | $ | 22,278 | | | $ | 4,665 | |
Effective tax rate | 16.66 | % | | 4.97 | % |
NOTE 13. 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 14. Segment Reporting to the Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Consumer | | Commercial | | Corporate Services/Other | | Consolidated Company |
Three Months Ended March 31, | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 |
Net interest income(1) | $ | 30,156 | | $ | 25,085 | | | $ | 44,879 | | $ | 42,404 | | | $ | 8,765 | | $ | 6,361 | | | $ | 83,800 | | $ | 73,850 | |
Noninterest income: | | | | | | | | | | | |
Refund transfer product fees | 27,805 | | 22,680 | | | — | | — | | | — | | — | | | 27,805 | | 22,680 | |
Tax advance product fees(1) | 39,299 | | 44,562 | | | — | | — | | | — | | — | | | 39,299 | | 44,562 | |
Payment card and deposit fees | 26,270 | | 29,875 | | | — | | — | | | — | | — | | | 26,270 | | 29,875 | |
Other bank and deposit fees | — | | — | | | 244 | | 126 | | | 6 | | 7 | | | 250 | | 133 | |
Rental income(1) | — | | 5 | | | 11,225 | | 9,841 | | | 150 | | — | | | 11,375 | | 9,846 | |
Net gain realized on investment securities(1) | — | | — | | | — | | — | | | 260 | | 6 | | | 260 | | 6 | |
| | | | | | | | | | | |
Gain (loss) on sale of other(1) | — | | — | | | 1,229 | | 1,624 | | | (603) | | 509 | | | 626 | | 2,133 | |
Other income(1) | 1,387 | | 919 | | | 2,839 | | 2,349 | | | (345) | | 950 | | | 3,881 | | 4,218 | |
Total noninterest income | 94,761 | | 98,041 | | | 15,537 | | 13,940 | | | (532) | | 1,472 | | | 109,766 | | 113,453 | |
Revenue | $ | 124,917 | | $ | 123,126 | | | $ | 60,416 | | $ | 56,344 | | | $ | 8,233 | | $ | 7,833 | | | $ | 193,566 | | $ | 187,303 | |
| | | | | | | | | | | |
Six Months Ended March 31, | | | | | | | | | | | |
Net interest income(1) | $ | 56,427 | | $ | 47,432 | | | $ | 89,805 | | $ | 84,252 | | | $ | 9,181 | | $ | 8,165 | | | $ | 155,413 | | $ | 139,849 | |
Noninterest income: | | | | | | | | | | | |
Refund transfer product fees | 28,384 | | 23,327 | | | — | | — | | | — | | — | | | 28,384 | | 23,327 | |
Tax advance product fees(1) | 40,532 | | 46,522 | | | — | | — | | | — | | — | | | 40,532 | | 46,522 | |
Payment card and deposit fees | 51,402 | | 52,439 | | | — | | — | | | — | | — | | | 51,402 | | 52,439 | |
Other bank and deposit fees | — | | — | | | 475 | | 360 | | | 12 | | 10 | | | 487 | | 370 | |
Rental income(1) | — | | 10 | | | 22,302 | | 19,721 | | | 150 | | — | | | 22,452 | | 19,731 | |
Net gain realized on investment securities(1) | — | | — | | | — | | — | | | 397 | | 6 | | | 397 | | 6 | |
Gain on sale of trademarks | — | | — | | | — | | — | | | 50,000 | | — | | | 50,000 | | — | |
Gain (loss) on sale of other(1) | — | | — | | | 6,093 | | 4,216 | | | (8,932) | | 765 | | | (2,839) | | 4,981 | |
Other income(1) | 2,152 | | 1,078 | | | 5,624 | | 4,809 | | | (2,234) | | 5,645 | | | 5,542 | | 11,532 | |
Total noninterest income | 122,470 | | 123,376 | | | 34,494 | | 29,106 | | | 39,393 | | 6,426 | | | 196,357 | | 158,908 | |
Revenue | $ | 178,897 | | $ | 170,808 | | | $ | 124,299 | | $ | 113,358 | | | $ | 48,574 | | $ | 14,591 | | | $ | 351,770 | | $ | 298,757 | |
(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.
Refund Transfer Product Fees. Refund transfer fees are specific to the tax products offered by Refund Advantage and EPS. These fees are for products, services such as payment processing, and product referral commissions. Software partner fees paid and/or incurred are recorded on a net basis. The Company’s obligation for product fees and commissions is satisfied at the time of the product delivery and obligation for payment processing is satisfied at the time of processing. The transaction price for such activity is based upon stand-alone fees within the terms and conditions. At March 31, 2022 and September 30, 2021, there were no receivables related to refund transfer fees, which reflect earned revenue with unconditional rights to payment for product fee income. All refund transfer fees are recorded within the Consumer reporting segment.
Card Fees. Card fees relate to Meta Payments, 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 not related to the Company's payments divisions are reported within other bank and deposit fees.
Bank and Deposit Fees. Fees are earned on depository accounts for consumer and commercial customers and include fees for account services, overdraft services, and event-driven services (i.e. returned checks, ATM surcharge, card replacement, and wire transfers). 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.
Principal vs Agent. The Consumer reporting segment includes principal/agent relationships. Within this segment, Meta Payments division 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.
NOTE 14. 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.
The Company reports its results of operations through the following three business segments: Consumer, Commercial, and Corporate Services/Other. The Meta Payments and Tax Services divisions, as well as the Consumer Credit Products and ClearBalance business lines, are reported in the Consumer segment. The Crestmark and AFS divisions are reported in the Commercial segment. The Community Bank division and Student Loan lending portfolio are included in the Corporate Services/Other segment. The Corporate Services/Other segment also includes certain shared services as well as treasury related functions such as the investment portfolio, warehouse finance, wholesale deposits and borrowings. The Company does not report indirect general and administrative expenses in the Consumer and Commercial segments.
The following tables present segment data for the Company:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Consumer | | Commercial | | Corporate Services/Other | | Total |
Three Months Ended March 31, | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net interest income | $ | 30,156 | | $ | 25,085 | | | $ | 44,879 | | $ | 42,404 | | | $ | 8,765 | | $ | 6,361 | | | $ | 83,800 | | $ | 73,850 | |
Provision for credit losses | 29,685 | | 28,020 | | | 2,205 | | 2,203 | | | 412 | | 67 | | | 32,302 | | 30,290 | |
Noninterest income | 94,761 | | 98,041 | | | 15,537 | | 13,940 | | | (532) | | 1,472 | | | 109,766 | | 113,453 | |
Noninterest expense | 29,892 | | 30,189 | | | 31,457 | | 27,829 | | | 41,811 | | 37,953 | | | 103,160 | | 95,971 | |
Income (loss) before income tax expense | 65,340 | | 64,917 | | | 26,754 | | 26,312 | | | (33,990) | | (30,187) | | | 58,104 | | 61,042 | |
| | | | | | | | | | | |
Total assets | 456,335 | | 531,305 | | | 3,355,196 | | 3,030,088 | | | 3,075,708 | | 6,228,730 | | | 6,887,239 | | 9,790,123 | |
Total goodwill | 87,145 | | 87,145 | | | 222,360 | | 222,360 | | | — | | — | | | 309,505 | | 309,505 | |
Total deposits | 5,693,063 | | 8,447,910 | | | 6,882 | | 12,177 | | | 129,941 | | 182,326 | | | 5,829,886 | | 8,642,413 | |
| | | | | | | | | | | |
Six Months Ended March 31, | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net interest income | $ | 56,427 | | $ | 47,432 | | | $ | 89,805 | | $ | 84,252 | | | $ | 9,181 | | $ | 8,165 | | | $ | 155,413 | | $ | 139,849 | |
Provision (reversal of) for credit losses | 30,946 | | 30,386 | | | 13,797 | | 8,670 | | | (12,255) | | (2,677) | | | 32,488 | | 36,379 | |
Noninterest income | 122,470 | | 123,376 | | | 34,494 | | 29,106 | | | 39,393 | | 6,426 | | | 196,357 | | 158,908 | |
Noninterest expense | 49,553 | | 48,351 | | | 64,504 | | 54,997 | | | 71,539 | | 65,198 | | | 185,596 | | 168,546 | |
Income (loss) before income tax expense | 98,398 | | 92,071 | | | 45,998 | | 49,691 | | | (10,710) | | (47,930) | | | 133,686 | | 93,832 | |
| | | | | | | | | | | |
Total assets | 456,335 | | 531,305 | | | 3,355,196 | | 3,030,088 | | | 3,075,708 | | 6,228,730 | | | 6,887,239 | | 9,790,123 | |
Total goodwill | 87,145 | | 87,145 | | | 222,360 | | 222,360 | | | — | | — | | | 309,505 | | 309,505 | |
Total deposits | 5,693,063 | | 8,447,910 | | | 6,882 | | 12,177 | | | 129,941 | | 182,326 | | | 5,829,886 | | 8,642,413 | |
NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS
ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.
The fair value hierarchy is as follows:
Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.
Level 2 Inputs - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.
Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.
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 value of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and compares to current market trading activity.
Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs).
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 March 31, 2022 |
(Dollars in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Debt securities AFS | | | | | | | |
Corporate securities | $ | 23,250 | | | $ | — | | | $ | 23,250 | | | $ | — | |
SBA securities | 137,400 | | | — | | | 137,400 | | | — | |
Obligations of states and political subdivisions | 2,706 | | | — | | | 2,706 | | | — | |
Non-bank qualified obligations of states and political subdivisions | 240,423 | | | — | | | 240,423 | | | — | |
Asset-backed securities | 353,581 | | | — | | | 353,581 | | | — | |
Mortgage-backed securities | 1,286,118 | | | — | | | 1,286,118 | | | — | |
Total debt securities AFS | $ | 2,043,478 | | | $ | — | | | $ | 2,043,478 | | | $ | — | |
Common equities and mutual funds(1) | $ | 3,853 | | | $ | 3,853 | | | $ | — | | | $ | — | |
Non-marketable equity securities(2) | $ | 6,165 | | | $ | — | | | $ | — | | | $ | — | |
(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2022 and September 30, 2021.
(2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value At September 30, 2021 |
(Dollars in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Debt securities AFS | | | | | | | |
Corporate securities | $ | 25,000 | | | $ | — | | | $ | 25,000 | | | $ | — | |
SBA securities | 157,209 | | | — | | | 157,209 | | | — | |
Obligations of states and political subdivisions | 2,507 | | | — | | | 2,507 | | | — | |
Non-bank qualified obligations of states and political subdivisions | 268,295 | | | — | | | 268,295 | | | — | |
Asset-backed securities | 394,859 | | | — | | | 394,859 | | | — | |
Mortgage-backed securities | 1,017,029 | | | — | | | 1,017,029 | | | — | |
Total debt securities AFS | $ | 1,864,899 | | | $ | — | | | $ | 1,864,899 | | | $ | — | |
Common equities and mutual funds(1) | $ | 12,668 | | | $ | 12,668 | | | $ | — | | | $ | — | |
Non-marketable equity securities(2) | $ | 4,560 | | | $ | — | | | $ | — | | | $ | — | |
(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2022 and September 30, 2021.
(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 individually evaluated for risk of credit loss and repayment is expected to be solely provided by the values of the underlying collateral, the Company measures fair value on a 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 assessments provided by third-party appraisers and the valuation relies on discount rates ranging from 4% to 35%.
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 March 31, 2022 |
(Dollars in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Loans and leases, net individually evaluated for credit loss | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Commercial finance | $ | 8,006 | | | $ | — | | | $ | — | | | $ | 8,006 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total loans and leases, net individually evaluated for credit loss | 8,006 | | | — | | | — | | | 8,006 | |
Foreclosed assets, net | 112 | | | — | | | — | | | 112 | |
Total | $ | 8,118 | | | $ | — | | | $ | — | | | $ | 8,118 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value At September 30, 2021 |
(Dollars in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Loans and leases, net individually evaluated for credit loss | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Commercial finance | $ | 3,404 | | | $ | — | | | $ | — | | | $ | 3,404 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Community banking | 9,371 | | | — | | | — | | | 9,371 | |
Total loans and leases, net individually evaluated for credit loss | 12,775 | | | — | | | — | | | 12,775 | |
Foreclosed assets, net | 2,077 | | | — | | | — | | | 2,077 | |
Total | $ | 14,852 | | | $ | — | | | $ | — | | | $ | 14,852 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quantitative Information About Level 3 Fair Value Measurements |
(Dollars in thousands) | Fair Value at March 31, 2022 | | Fair Value at September 30, 2021 | | Valuation Technique | | Unobservable Input | | Range of Inputs |
Loans and leases, net individually evaluated for credit loss | $ | 8,006 | | | 12,775 | | | Market approach | | Appraised values(1) | | 4% - 35% |
Foreclosed assets, net | $ | 112 | | | 2,077 | | | Market approach | | Appraised values(1) | | 9% - 20% |
(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 35%.
Management discloses the estimated fair value of 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 March 31, 2022 and September 30, 2021 based on relevant market information and information about financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, since there is no active market for certain financial instruments of the Company, the estimates of fair value are subjective in nature, involve uncertainties, and include matters of significant judgment. Changes in assumptions as well as tax considerations could significantly affect the estimated values. Accordingly, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.
The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2022 |
(Dollars in thousands) | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | | | |
Cash and cash equivalents | $ | 237,680 | | | $ | 237,680 | | | $ | 237,680 | | | $ | — | | | $ | — | |
Debt securities available for sale | 2,043,478 | | | 2,043,478 | | | — | | | 2,043,478 | | | — | |
Debt securities held to maturity | 47,287 | | | 45,436 | | | — | | | 45,436 | | | — | |
Common equities and mutual funds(1) | 3,853 | | | 3,853 | | | 3,853 | | | — | | | — | |
Non-marketable equity securities(1)(2) | 24,114 | | | 24,114 | | | — | | | 17,949 | | | — | |
Loans held for sale | 31,410 | | | 31,410 | | | — | | | 31,410 | | | — | |
Loans and leases | 3,726,093 | | | 3,642,987 | | | — | | | — | | | 3,642,987 | |
Federal Reserve Bank and Federal Home Loan Bank stocks | 28,812 | | | 28,812 | | | — | | | 28,812 | | | — | |
Accrued interest receivable | 19,115 | | | 19,115 | | | 19,115 | | | — | | | — | |
Financial liabilities | | | | | | | | | |
| | | | | | | | | |
Deposits | 5,829,886 | | | 5,829,791 | | | 5,818,128 | | | 11,663 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
Other short- and long-term borrowings | 91,386 | | | 92,216 | | | — | | | 92,216 | | | — | |
Accrued interest payable | 571 | | | 571 | | | 571 | | | — | | | — | |
(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2022.
(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At September 30, 2021 |
(Dollars in thousands) | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | | | |
Cash and cash equivalents | $ | 314,019 | | | $ | 314,019 | | | $ | 314,019 | | | $ | — | | | $ | — | |
Debt securities available for sale | 1,864,899 | | | 1,864,899 | | | — | | | 1,864,899 | | | — | |
Debt securities held to maturity | 56,669 | | | 56,391 | | | — | | | 56,391 | | | — | |
Common equities and mutual funds(1) | 12,668 | | | 12,668 | | | 12,668 | | | — | | | — | |
Non-marketable equity securities(1)(2) | 17,509 | | | 17,509 | | | — | | | 12,949 | | | — | |
Loans held for sale | 56,194 | | | 56,194 | | | — | | | 56,194 | | | — | |
Loans and leases | 3,607,815 | | | 3,616,646 | | | — | | | — | | | 3,616,646 | |
Federal Reserve Bank and Federal Home Loan Bank stocks | 28,400 | | | 28,400 | | | — | | | 28,400 | | | — | |
Accrued interest receivable | 16,254 | | | 16,254 | | | 16,254 | | | — | | | — | |
Financial liabilities | | | | | | | | | |
Deposits | 5,514,971 | | | 5,515,035 | | | 5,482,471 | | | 32,564 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
Other short- and long-term borrowings | 92,834 | | | 93,938 | | | — | | | 93,938 | | | — | |
Accrued interest payable | 579 | | | 579 | | | 579 | | | — | | | — | |
(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at September 30, 2021.
(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
NOTE 16. SUBSEQUENT EVENTS
Management has evaluated subsequent events that occurred after March 31, 2022. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in our Condensed Consolidated Financial Statements as of or for the quarter ended March 31, 2022.