S-4
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As filed with the Securities and Exchange Commission on March 19, 2018.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

META FINANCIAL GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   6035   42-1406262

(State or Other Jurisdiction

of Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(IRS Employer

Identification Number)

5501 South Broadband Lane

Sioux Falls, South Dakota 57108

(605) 782-1767

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Glen W. Herrick

Executive Vice President and Chief Financial Officer

Meta Financial Group, Inc.

5501 South Broadband Lane

Sioux Falls, South Dakota 57108

(605) 782-1767

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Lawrence D. Levin, Esq.

Mark J. Reyes, Esq.

Katten Muchin Rosenman LLP

525 W. Monroe Street

Chicago, IL 60661

(312) 902-5200

 

Jack Talkington

Chief Financial Officer

Crestmark Bancorp, Inc.

5480 Corporate Drive, Suite 350

Troy, MI 48098

(225) 906-1019

 

Bradley J. Wyatt, Esq.

Dickinson Wright PLLC

2600 W. Big Beaver Road, Suite 300

Troy, MI 48084

(248) 433-7200

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective and upon completion of the merger described in the enclosed document.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the “Securities Act”), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of securities

to be registered

 

Amount

to be

registered

 

Proposed

maximum
offering price

per share

 

Proposed

maximum

aggregate

offering price

  Amount of
registration fee

Common Stock, $0.01 par value per share

  3,575,505 shares (1)   N/A   $123,442,609 (2)   $15,369 (3)

 

 

(1)  Represents the estimated maximum number of shares of common stock of the registrant estimated to be issued upon completion of the merger described in the joint proxy statement/prospectus contained herein. This number is based upon the product of (x) 1,349,247, which represents the sum of (A) 1,247,747 shares of common stock, no par value per share, of Crestmark Bancorp, Inc. outstanding as of March 12, 2018, plus (B) 101,500 shares of common stock, no par value per share, of Crestmark Bancorp, Inc. reserved for outstanding awards under Crestmark Bancorp, Inc.’s equity incentive plans as of March 12, 2018 and issuable upon the exercise of options, multiplied by (y) 2.65, which is the aggregate number of shares of the registrant’s common stock to be issued under the Agreement and Plan of Merger, dated as of January 9, 2018, by and among Meta Financial Group, Inc., MetaBank, Crestmark Bancorp, Inc. and Crestmark Bank.
(2)  Computed pursuant to Rule 457(f)(2) of the Securities Act, and estimated solely for purposes of calculating the registration fee, the proposed maximum offering price is the product of (x) the estimated maximum number of shares of common stock of Crestmark Bancorp, Inc. that may be received by the registrant pursuant to the merger (1,349,247 shares) multiplied by (y) the book value per share of common stock of Crestmark Bancorp, Inc. as of February 28, 2018 ($91.49).
(3)  Determined in accordance with Section 6(b) of the Securities Act by multiplying the proposed maximum aggregate offering price of securities to be registered by Meta Financial Group, Inc. by 0.00012450.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Information contained in this joint proxy statement/prospectus is subject to completion or amendment. A registration statement relating to Meta Financial Group, Inc.’s common stock to be offered in this transaction has been filed with the Securities and Exchange Commission. These securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell, or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

PRELIMINARY—SUBJECT TO COMPLETION—DATED MARCH 19, 2018

 

LOGO    LOGO

[            ], 2018

Dear Stockholders of Meta Financial Group, Inc. and Shareholders of Crestmark Bancorp, Inc.:

On January 9, 2018, Meta Financial Group, Inc. (“Meta”) and MetaBank, a federally chartered stock savings bank and a wholly-owned subsidiary of Meta (“MetaBank”), entered into an Agreement and Plan of Merger (the “merger agreement”), with Crestmark Bancorp, Inc., a Michigan corporation (“Crestmark”), and Crestmark Bank, a Michigan state-chartered bank and a wholly-owned subsidiary of Crestmark (“Crestmark Bank”). Pursuant to the merger agreement, upon the terms and subject to the conditions set forth therein, Crestmark will merge with and into Meta, with Meta as the surviving entity (the “merger”), and, immediately thereafter, pursuant to the terms of a separate merger agreement between MetaBank and Crestmark Bank, Crestmark Bank will merge with and into MetaBank, with MetaBank surviving as Meta’s wholly-owned subsidiary.

At the effective time of the merger, (i) each outstanding share of common stock of Crestmark, no par value per share (“Crestmark common stock”), issued and outstanding immediately prior to the closing will automatically be converted into the right to receive 2.65 shares, subject to adjustment for stock splits, stock dividends or distributions, recapitalizations or similar transactions (the “exchange ratio”), of common stock of Meta, $0.01 par value per share (“Meta common stock”), together with cash in lieu of fractional shares (together with the shares of Meta common stock issuable to the holders of Crestmark common stock (“Crestmark shareholders”) pursuant to the merger agreement, the “stock merger consideration”) and (ii) each outstanding option to purchase Crestmark common stock (each, a “Crestmark stock option”) will be cancelled and converted into the right to receive an amount in cash equal to the product of the number of shares of Crestmark common stock underlying such Crestmark stock option, multiplied by the excess, if any, of (a) the dollar amount equal to the product of (x) the exchange ratio multiplied by (y) the average closing price per share of Meta common stock on the NASDAQ Global Select Market for the ten trading day period ending five calendar days before the closing of the merger (such product, the “per share purchase price”) over (b) the exercise price of such Crestmark stock option, less any applicable withholding taxes (together with the stock merger consideration, the “merger consideration”). Any Crestmark stock option with an exercise price that is greater than or equal to the per share purchase price will be cancelled and of no further force or effect as of the effective time of the merger, without any consideration therefor. Although the exchange ratio is fixed, the market value of the merger consideration will fluctuate with the market price of Meta common stock and will not be known at the time Crestmark shareholders vote on the merger. Based on the $91.25 closing price of Meta common stock on the NASDAQ Global Select Market (“NASDAQ”) on January 9, 2018, the last full trading day before the public announcement of the merger, the per share value of the merger consideration was equal to approximately $241.81 per share of Crestmark common stock, with a proposed aggregate value of approximately $326,261,417. Based on the $[                ] closing price of Meta common stock on NASDAQ on [                ], 2018, the latest practicable trading day before the printing of this joint proxy statement/prospectus, the per share value of the merger consideration was equal to approximately $[                ], with a proposed aggregate value of approximately $[                ] per share of Crestmark common stock. Based on the exchange ratio and the number of shares of Crestmark common stock outstanding as of [                ], 2018, the maximum number of shares of Meta common stock estimated to be issuable at the effective time of the merger is [                ]. In addition, based on the number of issued and outstanding shares of Meta common stock as of [                ], 2018 and Crestmark common stock as of [                ], 2018, and based on the exchange ratio, holders of shares of Crestmark common stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [ ]% of the issued and outstanding shares of Meta common stock immediately following the effectiveness of the merger. We urge you to obtain a current market quotation for Meta (trading symbol “CASH”).

Meta will hold a special meeting of its stockholders (the “Meta special meeting”) in connection with the merger. At the Meta special meeting, the holders of Meta common stock (the “Meta stockholders”) will be asked to vote to adopt the merger agreement and approve the merger and the other transactions contemplated by the merger agreement, including the issuance of


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shares of Meta common stock in connection with the merger (the “Meta merger proposal”), and approve an amendment to Meta’s certificate of incorporation to increase the number of authorized shares of Meta common stock to 90 million from 30 million shares (the “charter amendment proposal”) for the purpose of affecting a three-for-one forward split of issued and outstanding shares of Meta common stock through a stock dividend (the “stock split”), in each case, as described in the accompanying joint proxy statement/prospectus. The discussion above, and, unless the context otherwise requires, the information throughout the accompanying joint proxy statement/prospectus, does not give effect to the stock split. If Meta stockholders approve the charter amendment proposal and the stock split is implemented prior to the consummation of the merger, the exchange ratio pursuant to the merger agreement would be adjusted such that, upon the closing of the merger, Crestmark stockholders would receive 7.95 shares of Meta common stock for each share of Crestmark common stock held by them.

Meta stockholders are being asked to vote on the Meta merger proposal in order to satisfy the requirements of Section 252 of the Delaware General Corporation Law and NASDAQ Listing Rule 5635(b), which requires stockholder approval prior to the issuance of securities in connection with the acquisition of stock or assets of another company if the issuance would constitute more than 20% of the total number of shares of common stock outstanding before the issuance. Meta stockholders are being asked to vote on the charter amendment proposal to facilitate the stock split, and, without approval of the charter amendment proposal, Meta would not have sufficient authorized shares of Meta common stock to affect the stock split. Meta stockholder approval of the charter amendment proposal is required under Section 242 of the DGCL. Meta will transact such other business as may be properly brought before the Meta special meeting or any adjournment or postponement thereof. Approval of each of the Meta merger proposal and the charter amendment proposal requires approval by Meta stockholders holding a majority of the outstanding shares of Meta common stock entitled to vote thereon.

Crestmark will hold a special meeting of its shareholders (the “Crestmark special meeting” and, together with the Meta special meeting, the “special meetings”) in connection with the merger. At the Crestmark special meeting, Crestmark shareholders will be asked to vote to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement (the “Crestmark merger proposal”), as described in the accompanying joint proxy statement/prospectus. Certain of Crestmark’s directors and executive officers and holders of Crestmark common stock, representing an aggregate of approximately 34% of Crestmark’s outstanding common stock as of January 9, 2018, have entered into voting agreements with Meta pursuant to which, among other things, each such Crestmark shareholder agreed to vote their shares of Crestmark common stock in favor of the merger agreement, the merger and the other transactions contemplated by the merger agreement, at the Crestmark special meeting. Approval of the Crestmark merger proposal requires the prior affirmative vote from the holders of at least a majority of the outstanding shares of Crestmark common stock entitled to vote thereon.

The Meta special meeting will be held at [                ] on [                ], 2018 at [                ] local time. The Crestmark special meeting will be held at [                ] on [                ], 2018 at [                ] local time.

Meta’s board of directors unanimously recommends that Meta stockholders vote “FOR” the adoption of the merger agreement and the approval of the merger and the other transactions contemplated thereby, including the issuance of shares of Meta common stock in connection with the merger, “FOR” the charter amendment proposal and “FOR” one or more adjournments of the Meta special meeting, if necessary or appropriate, including adjournments to permit the further solicitation of proxies in favor of the foregoing proposals.

Crestmark’s board of directors unanimously recommends that Crestmark shareholders vote “FOR” the approval of the merger agreement, the merger and the other transactions contemplated by the merger agreement and “FOR” one or more adjournments of the Crestmark special meeting, if necessary or appropriate, including adjournments to permit the further solicitation of proxies in favor of the foregoing proposals.

We cannot complete the merger without shareholder approval of the Meta merger proposal and the Crestmark merger proposal. It is important that your shares be represented and voted regardless of the size of your holdings. Whether or not you plan to attend the Meta special meeting or the Crestmark special meeting, we urge you to submit a proxy to have your shares voted in advance of the respective special meetings by using one of the methods described in the accompanying joint proxy statement/prospectus.

The accompanying joint proxy statement/prospectus provides important information regarding the special meetings and a detailed description of the merger agreement, the merger, certain related transactions and agreements and the matters to be presented at the special meetings. We encourage you to read the entire accompanying joint proxy statement/prospectus carefully (including any documents incorporated therein by reference). Please pay particular attention to “Risk Factors” beginning on page 17, for a discussion of the risks relating to the proposed merger.


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We look forward to the successful completion of the merger and thank you for your prompt attention to this important matter.

Sincerely,

 

J. Tyler Haahr

Chairman of the Board and Chief Executive Officer

Meta Financial Group, Inc.

  

W. David Tull

Chairman and Chief Executive Officer

Crestmark Bancorp, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities to be issued in the merger or determined if this document is accurate or adequate. Any representation to the contrary is a criminal offense. The securities to be issued in the merger are not savings accounts, deposits or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of the accompanying joint proxy statement/prospectus is [                ], 2018, and it is first being mailed to Meta stockholders and Crestmark shareholders on or about [                ], 2018.


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LOGO

5501 South Broadband Lane

Sioux Falls, South Dakota 57108

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [                ], 2018

To the Stockholders of Meta Financial Group, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Meta Financial Group, Inc., a Delaware corporation (“Meta”), will be held at [                ] on [                ], 2018 at [                ], local time (the “Meta special meeting”) for the purpose of considering and voting upon the following matters:

 

  1. Adoption of the Agreement and Plan of Merger, dated as of January 9, 2018, by and among Meta and its wholly-owned bank subsidiary, MetaBank, and Crestmark Bancorp, Inc. and its wholly-owned bank subsidiary, Crestmark Bank, as such agreement may be amended from time to time (the “merger agreement”), a copy of which is attached as Appendix A to this joint proxy statement/prospectus, and approval of the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Meta common stock in connection with the merger (the “Meta merger proposal”);

 

  2. Approval of an amendment to Article Fourth of Meta’s Certificate of Incorporation to increase the number of authorized shares of Meta common stock, par value $0.01 per share, to 90 million shares from 30 million shares (the “charter amendment proposal”) for the purpose of affecting a three-for-one forward split of issued and outstanding shares of Meta common stock; and

 

  3. Approval of one or more adjournments of the Meta special meeting, if necessary or appropriate, including adjournments to permit the further solicitation of proxies in favor of the Meta merger proposal (the “Meta adjournment proposal”).

Meta stockholders may also transact such other business as may properly come before the Meta special meeting and any adjournments or postponements thereof. At this time, Meta’s board of directors knows of no other proposal or matters to come before the Meta special meeting.

We have fixed the close of business on [                ], 2018, as the record date for determining those stockholders entitled to notice of and to vote at the Meta special meeting and any adjournments of the Meta special meeting (the “Meta record date”). Only Meta stockholders of record at the close of business on the Meta record date are entitled to notice of and to vote at the Meta special meeting and any adjournments of the Meta special meeting. Approval of the Meta merger proposal and the charter amendment proposal requires approval by Meta stockholders holding a majority of the outstanding shares of Meta common stock entitled to vote thereon. Approval of the Meta adjournment proposal requires the affirmative vote of a majority of the total votes cast by holders of Meta common stock on such proposal at the Meta special meeting.

If you wish to attend the Meta special meeting and your shares are held in the name of a bank, broker, trust or other nominee, you must bring valid picture identification and an authorization letter from the bank, broker, trustee or other nominee indicating that you were the beneficial owner of Meta common stock on the Meta record date.

Your vote is very important. Whether or not you plan to attend the Meta special meeting in person, please complete, date, sign and return the enclosed proxy card in the enclosed envelope to ensure that your shares of Meta common stock will be represented at the Meta special meeting if you are unable to attend. You may also submit a proxy by telephone or via the Internet by following the instructions printed on the proxy card. If you hold your shares in street name, you may vote by following your broker’s instructions.

The Meta board of directors has unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the issuance of Meta common stock in connection with the merger, has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the issuance of Meta common stock in connection with the merger, are advisable and in the best interests of Meta, and recommends that Meta stockholders vote “FOR” the Meta merger proposal, “FOR” the charter amendment proposal and “FOR” the Meta adjournment proposal (if necessary or appropriate).


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We encourage you to read the entire accompanying joint proxy statement/prospectus carefully (including any documents incorporated therein by reference). Please pay particular attention to “Risk Factors” beginning on page 17, for a discussion of the risks relating to the proposed merger.

 

  

By Order of the Board of Directors,

 

J. Tyler Haahr

Chairman of the Board and Chief Executive Officer

Sioux Falls, South Dakota

                                   [        ], 2018

  


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LOGO

5480 Corporate Drive, Suite 350

Troy, Michigan 48098

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [                ], 2018

To the Shareholders of Crestmark Bancorp, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of the holders of common stock of Crestmark Bancorp, Inc., a Michigan corporation (“Crestmark”), will be held at [                ] on [                ], 2018 at [                ] local time (the “Crestmark special meeting”), for the purpose of considering and voting upon the following matters:

 

  1. Approval of the Agreement and Plan of Merger, dated as of January 9, 2018, by and among Meta Financial Group, Inc. and its wholly-owned bank subsidiary, MetaBank, and Crestmark and its wholly-owned bank subsidiary, Crestmark Bank, as such agreement may be amended from time to time (the “merger agreement”), a copy of which is attached as Appendix A to this joint proxy statement/prospectus, the merger and the other transactions contemplated by the merger agreement (the “Crestmark merger proposal”); and

 

  2. Approval of one or more adjournments of the Crestmark special meeting, if necessary or appropriate, including adjournments to permit the further solicitation of proxies in favor of the Crestmark merger proposal (the “Crestmark adjournment proposal”).

Crestmark shareholders may also transact such other business as may properly come before the Crestmark special meeting and any adjournments or postponements thereof. At this time, Crestmark’s board of directors knows of no other proposal or matters to come before the Crestmark special meeting.

We have fixed the close of business on [                ], 2018, as the record date for determining those shareholders entitled to notice of and to vote at the Crestmark special meeting and any adjournments of the Crestmark special meeting (the “Crestmark record date”). Only holders of record of Crestmark common stock at the close of business on the Crestmark record date are entitled to notice of and to vote on the respective proposals applicable to such holders at the Crestmark special meeting and any adjournments of the Crestmark special meeting. Approval of the Crestmark merger proposal requires the prior affirmative vote from the holders of at least a majority of the outstanding shares of Crestmark common stock entitled to vote thereon. Certain of Crestmark’s directors and executive officers and holders of Crestmark common stock, representing an aggregate of approximately 34% of Crestmark’s outstanding common stock as of January 9, 2018, have entered into voting agreements with Meta pursuant to which, among other things, each such Crestmark shareholder agreed to vote their shares of Crestmark common stock in favor of the merger agreement, the merger and the other transactions contemplated by the merger agreement, at the Crestmark special meeting. Approval of the Crestmark adjournment proposal requires the affirmative vote of a majority of the shares of Crestmark common stock present in person or represented by proxy.

If you wish to attend the Crestmark special meeting and your shares of Crestmark common stock are held in the name of a bank, broker, trustee or other nominee, you must bring with you an account statement showing that you owned shares of Crestmark common stock as of the Crestmark record date and a “legal proxy” form from the bank, broker, trustee or other nominee to confirm your beneficial ownership of the shares.

Your vote is very important. Whether or not you plan to attend the Crestmark special meeting in person, please complete, date, sign and return the enclosed proxy card in the enclosed envelope to ensure that your shares of Crestmark common stock will be represented at the Crestmark special meeting if you are unable to attend.

The Crestmark board of directors has unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement, has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of Crestmark and its shareholders and unanimously recommends that holders of Crestmark common stock vote “FOR” the Crestmark merger proposal and “FOR” the Crestmark adjournment proposal (if necessary or appropriate).


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We encourage you to read the entire accompanying joint proxy statement/prospectus carefully (including any documents incorporated therein by reference). Please pay particular attention to “Risk Factors” beginning on page 17, for a discussion of the risks relating to the proposed merger.

 

  

By Order of the Board of Directors,

W. David Tull

Chairman of the Board and Chief Executive Officer

Troy, Michigan

[         ], 2018

  

 


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ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates by reference important business and financial information about Meta from documents filed with the Securities and Exchange Commission (“SEC”) that are not included in or delivered with this joint proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by Meta at no cost from the SEC’s website maintained at http://www.sec.gov. You may also request copies of these documents, including documents incorporated by reference into this joint proxy statement/prospectus, at no cost by contacting Meta in writing at the address or by telephone as specified below:

Meta Financial Group, Inc.

Attention: Corporate Secretary

5501 South Broadband Lane

Sioux Falls, South Dakota 57108

(605) 782-1767

You may also request copies of these documents from Meta’s proxy solicitor, Regan & Associates, Inc., in writing at the address or by telephone as specified below:

Regan & Associates, Inc.

505 Eighth Avenue, Suite 800

New York, NY 10018

(800) 737-3426 (toll-free)

You will not be charged for any of these documents that you request. In order for you to receive timely delivery of the documents in advance of the applicable special meeting, you must request them no later than [                ], 2018.

See “Where You Can Find More Information” on page 124 of this joint proxy statement/prospectus.

In addition, if you have questions about the merger, you may contact Meta’s proxy solicitor, Regan & Associates, Inc., toll-free at (800) 737-3426.

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC, constitutes a prospectus of Meta under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Meta common stock to be issued to Crestmark shareholders as consideration in the merger of Crestmark with and into Meta, as more fully described herein. This joint proxy statement/prospectus also constitutes a proxy statement for Meta and Crestmark. In addition, it constitutes a notice of meeting with respect to the special meetings of both Meta stockholders and Crestmark shareholders.

You should rely only on the information contained in, or incorporated by reference into, this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [                ], 2018, and you should assume that the information in this joint proxy statement/prospectus is accurate only as of such date. You should assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of the date of such incorporated document. Neither the mailing of this joint proxy statement/prospectus to Meta stockholders and Crestmark shareholders nor the issuance by Meta of shares of Meta common stock in connection with the merger will create any implication to the contrary.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

Except where the context specifically requires, Meta provided all information contained in, or incorporated by reference in, this joint proxy statement/prospectus relating to Meta, and Crestmark provided all information contained in this joint proxy statement/prospectus relating to Crestmark.


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TABLE OF CONTENTS

 

Summary

     1  

Selected Historical Consolidated Financial Data of Meta

     9  

Selected Historical Consolidated Financial Data of Crestmark

     11  

Selected Unaudited Pro Forma Financial Information

     13  

Comparative Historical and Unaudited Pro Forma Per Share Data and Comparative Per Share Market Price and Dividend Information

     15  

Cautionary Statement Regarding Forward-Looking Statements

     16  

Risk Factors

     17  

Meta Special Meeting

     25  

Crestmark Special Meeting

     29  

PROPOSAL NO. 1 THE MERGER AGREEMENT AND THE MERGER

     32  

Terms of the Merger

     32  

Background of the Merger

     32  

Meta’s Reasons for the Merger and Recommendation of the Board of Meta

     36  

Opinion of Meta’s Financial Advisor

     37  

Crestmark’s Reasons for the Merger and Recommendation of the Board of Crestmark

     42  

Opinion of Crestmark’s Financial Advisor

     44  

Certain Prospective Financial Information of the Parties

     54  

Material United States Federal Income Tax Consequences of the Merger

     55  

Accounting Treatment

     58  

Interests of Certain Persons in the Merger

     58  

The Merger Agreement

     61  

Structure

     61  

Merger Consideration

     61  

Conversion of Shares; Exchange of Certificates; Fractional Shares

     61  

Effective Time

     62  

Representations and Warranties

     63  

Conduct of Business Pending the Merger

     64  

Acquisition Proposals by Third Parties

     66  

Other Agreements

     68  

Conditions to Completion of the Merger

     70  

Termination of the Merger Agreement

     71  

Waiver and Amendment of the Merger Agreement

     72  

Regulatory Approvals Required for the Merger

     73  

Stock Exchange Listing

     74  

Restrictions on Resales by Affiliates

     74  

No Dissenters’ Rights of Appraisal

     75  

Voting Agreements

     75  

PROPOSAL NO. 2 AMENDMENT TO META’S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 30 MILLION TO 90 MILLION SHARES FOR THE PURPOSE OF EFFECTING A THREE-FOR-ONE FORWARD STOCK SPLIT

     76  

Price Range of Common Stock and Dividends

     79  

Unaudited Pro Forma Condensed Combined Financial Information

     80  

Notes to Unaudited Pro Forma Condensed Combined Financial Information

     84  

Information About the Companies

     89  

Crestmark Management’s Discussion and Analysis of Crestmark’s Financial Condition and Results of Operations

     91  

Description of Meta Capital Stock

     109  

Comparison of Stockholder Rights

     112  

Security Ownership of Certain Crestmark Beneficial Owners and Management

     119  

Management of the Combined Company Following the Merger

     120  

Meta Stockholder Proposals

     122  

Crestmark Shareholder Proposals

     122  

Legal Matters

     122  

Experts

     123  

Other Matters

     123  

Where You Can Find More Information

     124  

Index to Financial Statements

     F-1  

 

i


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Appendix A—Agreement and Plan of Merger

Appendix B—Form of Voting Agreement

Appendix C—Opinion of Raymond James & Associates, Inc.

Appendix D—Opinion of Sandler O’Neill & Partners, L.P.

Appendix E—Charter Amendment

 

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SUMMARY

This summary highlights selected information from this joint proxy statement/prospectus and may not contain all the information that is important to you. We urge you to read carefully this entire document, the documents referenced herein and the documents incorporated by reference herein for a more complete understanding of the merger agreement and the merger between Meta and Crestmark. In addition, we incorporate by reference into this document important business and financial information about Meta. You may obtain the information incorporated by reference in this document without charge by following the instructions in the section entitled “Where You Can Find More Information.” Each item in this summary includes a page reference directing you to a more complete description of that item.

Unless the context otherwise requires, references in this joint proxy statement/prospectus to “Meta” refer to Meta Financial Group, Inc., a Delaware corporation; references to “MetaBank” refer to MetaBank, a federally chartered savings bank and wholly-owned subsidiary of Meta; references to “Crestmark” refer to Crestmark Bancorp, Inc., a Michigan corporation; references to “Crestmark Bank” refer to Crestmark Bank, a Michigan state-chartered bank and wholly-owned subsidiary of Crestmark; references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of January 9, 2018, among Meta, MetaBank, Crestmark and Crestmark Bank; and references to “we,” “our” or “us” refer to Meta and Crestmark.

Proposed Merger (Page 32)

We propose that Crestmark will merge with and into Meta, with Meta being the surviving company (the “merger”), and, immediately thereafter, pursuant to the terms of a separate merger agreement between MetaBank and Crestmark Bank (the “bank merger agreement”), Crestmark Bank will merge with and into MetaBank, with MetaBank surviving as Meta’s wholly-owned subsidiary (the “bank merger” and, together with the merger, the “mergers”). Following the mergers, it is intended that Crestmark will operate as a division of MetaBank from its offices in Troy, Michigan, and MetaBank will continue to operate as a federally chartered stock savings bank. We expect to complete the mergers in the second calendar quarter of 2018, although delays may occur.

Special Meeting of Meta (Page 25)

Meta plans to hold its special meeting of stockholders at [            ] on [            ], 2018 at [            ] local time (the “Meta special meeting”). At the Meta special meeting, holders of shares of common stock of Meta, $0.01 par value per share (“Meta common stock”), will be asked to vote on the following proposals:

 

    to adopt the merger agreement and approve the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Meta common stock in connection with the merger (the “Meta merger proposal”);

 

    to approve an amendment to Article Fourth of Meta’s Certificate of Incorporation to increase the number of authorized shares of Meta common stock to 90 million from 30 million shares (the “charter amendment proposal”) for the purpose of affecting a three-for-one forward split of issued and outstanding shares of Meta common stock; and

 

    to approve one or more adjournments of the Meta special meeting, if necessary or appropriate, including adjournments to permit the further solicitation of proxies in favor of the Meta merger proposal (the “Meta adjournment proposal”).

Meta stockholder approval of the Meta merger proposal is required to complete the merger. Meta stockholders are being asked to vote on the Meta merger proposal in order to satisfy the requirements of Section 252 of the Delaware General Corporation Law (the “DGCL”) and NASDAQ Listing Rule 5635(b), which requires stockholder approval prior to the issuance of securities in connection with the acquisition of stock or assets of another company if the issuance would constitute more than 20% of the total number of shares of common stock outstanding before the issuance. Meta stockholders are being asked to vote on the charter amendment proposal to facilitate a forward stock split of Meta common stock through a stock dividend, whereby each outstanding share of Meta common stock, as of a to be determined record date, would effectively be split into three shares of Meta common stock (the “stock split”), and, without approval of the charter amendment proposal, Meta would not have sufficient authorized shares of Meta common stock to affect the stock split. Meta stockholder approval of the charter amendment proposal is required under Section 242 of the DGCL. Meta will transact such other business as may be properly brought before the Meta special meeting or any adjournment or postponement thereof. At this time, Meta’s board of directors knows of no other proposals or matters to be presented. You can vote at the Meta special meeting if you owned Meta common stock at the close of business on [            ], 2018 (the “Meta record date”). As of the Meta record date, there were [            ] shares of Meta common stock outstanding and entitled to vote. A Meta stockholder can cast one vote for each share of Meta common stock owned on the Meta record date.



 

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Approval of each of the Meta merger proposal and the charter amendment proposal requires approval by Meta stockholders holding a majority of the outstanding shares of Meta common stock entitled to vote thereon. Approval of the Meta adjournment proposal requires the affirmative vote of a majority of the total votes cast by holders of Meta common stock on such proposal at the Meta special meeting. If a Meta stockholder marks “ABSTAIN” with respect to the Meta merger proposal or the charter amendment proposal or fails to either submit a proxy card or vote in person at the Meta special meeting or instruct the stockholder’s broker with respect to the Meta merger proposal or the charter amendment proposal, it will have the same effect as a vote “AGAINST” the Meta merger proposal or the charter amendment proposal, respectively. If a Meta stockholder marks “ABSTAIN” with respect to the Meta adjournment proposal, it will be counted for purposes of determining whether there is a quorum and will have the same effect as a vote “AGAINST” the Meta adjournment proposal. If a Meta stockholder fails to submit a proxy card or fails to instruct the stockholder’s broker with respect to the Meta adjournment proposal, if a quorum is present, it will have no effect on such proposal. For additional and more detailed information regarding the effect of broker non-votes, see “Meta Special Meeting—Shares Held in Street Name.”

As of the Meta record date, Meta’s directors and executive officers and their affiliates held approximately [    ]% of the outstanding shares of Meta common stock entitled to vote at the Meta special meeting.

Special Meeting of Crestmark (Page 29)

Crestmark plans to hold its special meeting of shareholders at [            ] on [            ], 2018 at [            ] local time (the “Crestmark special meeting”). At the Crestmark special meeting, holders of shares of common stock of Crestmark, no par value per share (“Crestmark common stock”), will be asked to vote on the following proposals:

 

    to adopt the merger agreement, the merger and the other transactions contemplated by the merger agreement (the “Crestmark merger proposal”); and

 

    to approve one or more adjournments of the Crestmark special meeting, if necessary or appropriate, including adjournments to permit the further solicitation of proxies in favor of the Crestmark merger proposal (the “Crestmark adjournment proposal”).

Crestmark shareholder approval of the Crestmark merger proposal is required to complete the merger. Crestmark shareholders are being asked to vote on the Crestmark merger proposal in order to satisfy the requirements of Section 703a of the MBCA. Pursuant to Section 703a of the MBCA and Crestmark’s by-laws, approval of the Crestmark merger proposal requires approval by prior affirmative vote from the holders of at least a majority of the outstanding shares of Crestmark common stock entitled to vote thereon. Shares of Crestmark common stock held in the Crestmark Employee Stock Ownership Plan (the “ESOP”) will be voted by Great Banc Trust Company (the “ESOP Trustee”), as record shareholder, in accordance with ESOP participant directions. Under the ESOP’s pass-through provision, and in accordance with applicable Internal Revenue Service (“IRS”) regulations, ESOP participants will be allowed to instruct the ESOP Trustee to vote the shares of Crestmark common stock allocated to their respective accounts to approve or disapprove the Crestmark merger proposal and the Crestmark adjournment proposal. Approval of the Crestmark adjournment proposal requires the affirmative vote of a majority of the shares of Crestmark common stock present in person or represented by proxy. Crestmark will transact such other business as may be properly brought before the Crestmark special meeting or any adjournment or postponement thereof. At this time, Crestmark’s board of directors knows of no other proposals or matters to be presented.

You can vote at the Crestmark special meeting to approve the Crestmark merger proposal if you owned Crestmark common stock at the close of business on [            ], 2018 (the “Crestmark record date”). As of the Crestmark record date, there were [            ] shares of Crestmark common stock outstanding and entitled to vote. A holder of Crestmark common stock can cast one vote for each share of Crestmark common stock owned on the Crestmark record date.

Certain of Crestmark’s directors and executive officers and holders of Crestmark common stock, representing an aggregate of approximately 34% of Crestmark’s outstanding common stock as of January 9, 2018, have entered into voting agreements with Meta pursuant to which, among other things, each such Crestmark shareholder agreed to vote such Crestmark shareholder’s shares of Crestmark common stock in favor of the merger agreement, the merger and the other transactions contemplated by the merger agreement, at the Crestmark special meeting.

For a list of the number of shares of Crestmark common stock held by (i) each director of Crestmark, (ii) each shareholder that is known to Crestmark as of [    ], 2018 to beneficially own more than 5% percent of the outstanding shares of Crestmark common stock and (iii) all directors and executive officers of Crestmark collectively, see “Security Ownership of Certain Crestmark Beneficial Owners and Management.”



 

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Meta’s Board Unanimously Recommends That Meta Stockholders Vote “FOR” the Meta Merger Proposal (Page 36)

Meta’s board of directors (i) believes that the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Meta common stock in connection with the merger, are consistent with, and will further, the business strategies of Meta and are in the best interests of Meta stockholders, (ii) has unanimously approved and adopted the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Meta common stock in connection with the merger, and (iii) unanimously recommends that Meta stockholders vote “FOR” the Meta merger proposal.

Meta’s Board Unanimously Recommends That Meta Stockholders Vote “FOR” the Charter Amendment Proposal (Page 36)

Meta’s board of directors (i) believes that the charter amendment proposal, together with the stock split, would increase the affordability, attractiveness and liquidity of shares of Meta common stock and, therefore, is in the best interests of Meta stockholders, (ii) has unanimously approved the charter amendment proposal, and (iii) unanimously recommends that Meta stockholders vote “FOR” the charter amendment proposal.

Crestmark’s Board Unanimously Recommends That Crestmark Shareholders Vote “FOR” the Crestmark Merger Proposal (Page 42)

Crestmark’s board of directors (i) believes that the merger agreement, the merger and the other transactions contemplated by the merger agreement, are advisable, fair to and in the best interest of Crestmark and its shareholders, (ii) has unanimously approved and adopted the merger agreement, the merger and the other transactions contemplated by the merger agreement, and (iii) unanimously recommends that holders of Crestmark common stock vote “FOR” the Crestmark merger proposal.

Crestmark Shareholders Will Receive Shares of Meta Common Stock in the Merger (Page 61)

Upon completion of the merger, each holder of Crestmark common stock (collectively, “Crestmark common stock”) will receive 2.65 shares of Meta common stock (the “exchange ratio”) in exchange for each share of Crestmark common stock held immediately prior to the completion of the merger, and, in lieu of fractional shares of Meta common stock, Crestmark shareholders will receive cash (rounded down to the nearest whole cent), without any interest and subject to any required withholding tax, in an amount equal to (a) the product of (i) the exchange ratio multiplied by (ii) the average closing price per share of Meta common stock on the NASDAQ Global Select Market for the ten day trading period ending five calendar days before the closing of the merger (such product, the “per share purchase price”), multiplied by (b) the fractional share interest of such Meta common stock to which such Crestmark share would otherwise be converted (together with the shares of Meta common stock issuable to Crestmark shareholders pursuant to the merger agreement, the “stock merger consideration”). The exchange ratio is subject to adjustment in the event of a stock split, stock dividend or distribution, recapitalization, reclassification, exchange or similar transaction with respect to the outstanding shares of Meta common stock and, accordingly, would be equitably adjusted to 7.95 shares of Meta common stock if the charter amendment proposal is approved at the Meta special meeting and the stock split is effected prior to the consummation of the merger. Unless the context otherwise requires, the information throughout this joint proxy statement/prospectus does not give effect to the stock split.

As of the effective time of the merger, each outstanding Crestmark stock option (each, a “Crestmark stock option”) with an exercise price less than the per share purchase price (an “in-the-money Crestmark stock option”) will be cancelled and converted into the right to receive an amount in cash (without interest) equal to the product of the number of shares of Crestmark common stock underlying such Crestmark stock option, multiplied by the excess of (a) the per share purchase price over (b) the exercise price of such Crestmark stock option, less any applicable withholding taxes (the “option merger consideration” and, together with the stock merger consideration, the “merger consideration”). Any Crestmark stock option with an exercise price that is greater than or equal to the per share purchase price (an “out-of-the-money Crestmark stock option”) will be cancelled and of no further force or effect as of the effective time of the merger, without any consideration therefor.

Tax Consequences of the Merger (Page 55)

Meta and Crestmark intend that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Based on the qualification of the merger as a “reorganization” under the Code, U.S. holders (as defined in the section entitled “The Merger—Material United States Federal Income Tax Consequences of the Merger” beginning on page 55) of Crestmark common stock generally will not recognize gain or loss for United States federal income tax purposes upon the exchange of their shares of Crestmark common stock for Meta common stock. U.S. holders will, however, recognize gain or loss in connection with any cash received in lieu of a fractional share of Meta common stock. For a description of the material United States federal income tax consequences of the merger, see “The Merger—Material United States Federal Income Tax Consequences of the Merger” beginning on page 55. Crestmark shareholders are strongly urged to consult with their tax advisors concerning the United States federal income tax consequences of the merger to them, as well as the effects of state and local, foreign and other tax laws.



 

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The Merger Will Be Accounted for as a Purchase (Page 58)

For accounting and financial reporting purposes, the merger will be treated as a purchase by Meta of Crestmark under the acquisition method of accounting for business combinations in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

Meta’s Reasons for the Merger (Page 36)

For a discussion of the factors considered by Meta’s board of directors in reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, see “The Merger—Meta’s Reasons for the Merger and Recommendation of the Board of Meta.”

Opinion of Meta’s Financial Advisor (Page 37)

At the January 8, 2018 meeting of Meta’s board of directors, representatives of Raymond James & Associates, Inc., which we refer to in this joint proxy statement/prospectus as Raymond James, rendered Raymond James’s oral opinion to Meta’s board of directors that the exchange ratio was fair, from a financial point of view, to Meta. The oral opinion was subsequently confirmed by Raymond James’s delivery of its written opinion to Meta’s board of directors, dated January 8, 2018, as to the fairness, as of such date, of the exchange ratio in the merger pursuant to the merger agreement to Meta, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion.

The full text of the written opinion of Raymond James is attached as Appendix C to this joint proxy statement/prospectus. The summary of the opinion of Raymond James set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such written opinion. Raymond James provided its opinion for the information of Meta’s board of directors (in its capacity as such) in connection with and for purposes of its consideration of the proposed merger. The opinion only addresses the fairness, from a financial point of view, of the exchange ratio provided for in the merger pursuant to the merger agreement to Meta, and does not address any other term or aspect of the merger agreement or the merger. Raymond James’s opinion does not constitute a recommendation to Meta’s board of directors, any stockholder of Meta or any other party as to how to vote or act on any matter relating to the proposed merger or otherwise.

For a more complete description of Raymond James’s opinion, see “The Merger—Opinion of Meta’s Financial Advisor” beginning on page 37 of this joint proxy statement/prospectus.

Crestmark’s Reasons for the Merger (Page 42)

For a discussion of the factors considered by Crestmark’s board of directors in reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, see “The Merger—Crestmark’s Reasons for the Merger and Recommendation of the Board of Crestmark.”

Opinion of Crestmark’s Financial Advisor (Page 44)

At the January 8, 2018 meeting at which the Crestmark board of directors considered the merger agreement, Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) delivered to the Crestmark board of directors its oral opinion, which was subsequently confirmed in writing on January 8, 2018, to the effect that, as of January 8, 2018 and subject to procedures followed, assumptions made, matters considered and qualifications and limitations described in Sandler O’Neill’s opinion, the exchange ratio provided for in the merger agreement was fair, from a financial point of view, to the holders of Crestmark common stock.

The full text of Sandler O’Neill’s opinion is attached as Appendix D to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion.

Holders of Crestmark common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed transaction.

The opinion was for the information of, and was directed to, the Crestmark board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of Crestmark to engage in the merger or enter into the merger agreement or constitute a recommendation to the Crestmark board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Crestmark common stock or any shareholder of any other entity as to how to vote in connection with the stock issuance proposal, the merger or any other matter.



 

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Certain Directors and Executive Officers May Have Interests in the Merger That Differ from Your Interests (Page 58)

Certain directors and executive officers of Crestmark and/or Crestmark Bank have interests in the merger other than their interests as shareholders, including:

 

    Crestmark has entered into a change in control agreement (the “Goik change in control agreement”) and a transaction bonus agreement (the “Goik transaction bonus agreement”) with Michael Goik, Crestmark Bank’s current President and Chief Operating Officer. The Goik change in control agreement and the Goik transaction bonus agreement provide for potential payments of transaction-based compensation in connection with a change in control of Crestmark and termination compensation to Mr. Goik in the event of a qualifying termination of employment.

 

    W. David Tull, Crestmark’s current Chairman and Chief Executive Officer, Jack Talkington, Crestmark’s current Chief Financial Officer, and Mark Matheson, Crestmark’s current Chief Credit Officer, have each entered into a change in control agreement with Crestmark that provides for the potential payment of termination compensation in the event of a qualifying termination of such person’s employment with Crestmark or any successor thereto.

 

    Immediately following the closing of the merger, Meta will enter into retention bonus agreements with each of Messrs. Talkington and Matheson (each, a “retention bonus agreement”), which will provide that each such person will be granted 1,000 shares of Meta restricted stock (the “retention units”) pursuant to a restricted stock agreement with Meta. Provided that such person remains employed by Meta as of the vesting date of the retention units set forth in the applicable restricted stock agreement, the retention units would vest as follows: 250 shares on September 1 of each of 2018, 2019, 2020 and 2021.

 

    Effective as of the effective time of the merger, each of W. David Tull, Crestmark’s Chairman and Chief Executive Officer, and Michael R. Kramer, a member at the law firm Dickinson Wright, PLLC, legal counsel to Crestmark, will be appointed to the board of directors of each of Meta and MetaBank.

 

    In connection with the execution of the merger agreement, Meta and Mr. Goik entered into an employment agreement (the “employment agreement”), pursuant to which Mr. Goik will serve as Executive Vice President of MetaBank and President of the Meta Commercial Finance Division, in each case, effective as of the closing date of the merger. The employment agreement provides for the termination of the Goik change in control agreement and the Goik transaction bonus agreement with Crestmark, described above, following the merger. In recognition of the termination of each of the Goik change in control agreement and the Goik transaction bonus agreement with Crestmark as well as Mr. Goik’s entry into the employment agreement, which contains restrictive covenants, and as a retention incentive, the new employment agreement with Meta provides for a cash payment to Mr. Goik by Meta of $2.20 million following the merger and a restricted stock award by Meta having a total value not to exceed $3.80 million as of the closing date of the merger and which is subject to vesting.

 

    To the extent a director or executive officer holds outstanding in-the-money Crestmark stock options immediately prior to the completion of the merger, the in-the-money Crestmark stock options will be cancelled and terminated in exchange for a cash payment, as discussed in “The Merger Agreement—Interest of Certain Persons in the Merger—Treatment of Crestmark Stock Options.” As of the date of the merger agreement, directors and executive officers of Crestmark, collectively, held an aggregate of 42,500 outstanding Crestmark stock options.

 

    Pursuant to the terms of the merger agreement, directors and officers of Crestmark will be entitled to certain ongoing indemnification and continued coverage under directors’ and officers’ liability insurance policies following the merger.

Crestmark’s board of directors was aware of these additional interests and considered them when they adopted the merger agreement and approved the merger. For additional details, see “The Merger—Interests of Certain Persons in the Merger” and “Management of the Combined Company Following the Merger.”

We Have Agreed When and How Crestmark Can Consider Third-Party Acquisition Proposals (Page 66)

We have agreed that neither Crestmark nor its representatives will, directly or indirectly, initiate, solicit, knowingly induce, encourage or knowingly take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an acquisition proposal (as defined in the merger agreement), including entering into any agreement in principle or letter of intent with respect to any acquisition proposal or resolve to approve any acquisition proposal; or participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person (other than Meta) any information or data with respect to Crestmark or any of its subsidiaries or otherwise relating to an acquisition proposal.

 

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In addition, we have agreed that Crestmark will not engage in negotiations with or provide confidential information to a third party regarding acquiring Crestmark or its businesses. However, if Crestmark receives an unsolicited acquisition proposal from a third party, Crestmark can participate in negotiations with and provide confidential information to the third party if, among other steps, Crestmark’s board of directors concludes in good faith that the proposal is, or is reasonably likely to lead to, a superior proposal to Meta’s merger proposal. Crestmark’s receipt of a superior proposal or participation in such negotiations does not give Crestmark the right to terminate the merger agreement.

Certain Directors, Executive Officers and Shareholders of Crestmark Have Agreed to Vote Their Shares “FOR” the Merger (Page 75 and Appendix B)

As an inducement to and condition of Meta’s willingness to enter into the merger agreement, certain of Crestmark’s directors and executive officers and holders of Crestmark common stock, representing an aggregate of approximately 34% of Crestmark’s outstanding common stock as of January 9, 2018, have entered into voting agreements with Meta, pursuant to which, among other things, they agreed to vote all of their shares of Crestmark common stock in favor of approval of the Crestmark merger proposal and other matters required to be approved or adopted to effect the merger and any other transactions contemplated by the merger agreement.

We Must Meet Several Conditions to Complete the Merger (Page 70)

Completion of the merger depends on a number of conditions being satisfied or waived, including the following:

 

    the merger agreement and the merger must be approved by the requisite vote of Crestmark shareholders;

 

    the merger agreement, the merger and the issuance of Meta common stock must be approved by the requisite vote of holders of Meta common stock;

 

    all requisite regulatory approvals must be obtained and in full force, and all statutory waiting periods in respect thereof must have terminated;

 

    all other approvals or consents must be obtained and in full force and all statutory waiting periods in respect thereof must have terminated, except for those which will not result in a material adverse effect on Meta;

 

    there must be no government action or other legal restraint or prohibition preventing completion of the merger or the other transactions contemplated by the merger agreement;

 

    the Meta common stock that is to be issued in the merger must be approved for listing on the NASDAQ Global Select Market, and the registration statement filed with the SEC, of which this joint proxy statement/prospectus is a part, must be effective;

 

    Crestmark’s adjusted tangible common equity, as defined in the merger agreement, must be greater than or equal to $97.0 million;

 

    Crestmark must have delivered to Meta Crestmark’s 2017 audited financial statements;

 

    Meta must have received (i) resolutions of Crestmark’s board of directors terminating Crestmark’s employee benefit plans, and (ii) other specified evidence of employee benefit plan compliance;

 

    Crestmark must have delivered to Meta evidence of satisfaction of any corrective actions;

 

    Meta must have received the report from BDO USA LLP regarding the valuation of certain restrictive covenants for purposes of Section 280G of the Code;

 

    Meta stockholders must have approved an amendment to Meta’s certificate of incorporation to increase the authorized number of shares of Meta common stock; and

 

    Certain other conditions customary for agreements of this sort, such as the accuracy of representations and warranties subject to materiality standards set forth in the merger agreement, the compliance in all material respects by the parties with their obligations under the merger agreement and the non-existence of a material adverse effect (as such term is defined in the merger agreement).

Where the law permits, either of Meta or Crestmark could choose to waive a condition to its obligation to complete the merger even when that condition has not been satisfied. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.



 

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We Must Obtain Regulatory Approvals to Complete the Merger (Page 73)

To complete the merger, Meta and Crestmark must receive prior approval from the Board of Governors of the Federal Reserve System or its designee (the “Federal Reserve”). Meta filed various applications and notices under the Home Owners Loan Act, 12 U.S.C. §§ 1461 et seq. (“HOLA”) and the Bank Holding Company Act of 1956, 12 U.S.C. §§ 1841 et seq. (“BHCA”) for approval of the merger with the Federal Reserve Bank of Minneapolis on March 14, 2018. In addition, completion of the bank merger is subject to the approval of the Office of the Comptroller of the Currency (the “OCC”). Meta filed an application for approval of the bank merger (the “bank merger application”) with the OCC on March 2, 2018. A copy of one or more of the applications and notices has been or will be furnished to the U.S. Department of Justice (the “DOJ”), the Federal Deposit Insurance Corporation (the “FDIC”), and the OCC. Copies of certain of the notices have been or will be filed with the DOJ and the Federal Trade Commission (the “FTC”) pursuant to the Hart-Scott-Rodino Act. As required by Michigan law, a copy of the bank merger application was filed with the Michigan Department of Insurance and Financial Services (the “DIFS”) on March 9, 2018. A courtesy copy of one or more of the applications and notices to the Federal Reserve was provided to the DIFS on March 16, 2018.

The DOJ also has the right to provide input into the approval process of federal banking agencies and would have 30 days following any approval of a federal banking agency to challenge the approval of the mergers on antitrust grounds.

There can be no assurance that the Federal Reserve, the OCC or any other regulator will approve the merger or the bank merger, or as to the date of any such approval. See “Risk Factors—Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the mergers.”

We May Terminate the Merger Agreement (Page 71)

We can mutually agree at any time to terminate the merger agreement without completing the merger, even if Meta has received approval of the Meta merger proposal by its stockholders and Crestmark has received approval of the Crestmark merger proposal by its shareholders. The merger agreement also provides certain additional termination rights, including, among others, the right of either party to terminate the merger agreement without the consent of the other if (i) any requisite regulatory approvals (as hereinafter defined) are not obtained, (ii) Meta stockholders do not approve the Meta merger proposal or if Crestmark shareholders do not approve the Crestmark merger proposal, (iii) the merger is not completed on or before June 30, 2018, as may be extended for two months in order to obtain regulatory approvals if such regulatory approvals have not obtained as of such date, unless the failure to complete the merger by such date is due to the failure of the party seeking to terminate the merger agreement to comply with any of the provisions of the merger agreement or (iv) the consummation of the merger has been enjoined or prohibited by any governmental regulatory authority.

We May Amend or Waive Merger Agreement Provisions (Page 72)

At any time before completion of the merger, either Meta or Crestmark may, to the extent legally allowed, amend in writing the merger agreement or waive in writing compliance by the other with any provision contained in the merger agreement. However, once Crestmark shareholders have approved the Crestmark merger proposal or Meta stockholders have approved the Meta merger proposal, no amendment may be made that would require further approval by Meta stockholders or Crestmark shareholders unless that approval is obtained.

Meta may also change the structure of the merger or the method effecting the merger before the effective time of the merger, so long as any change does not: (i) change the kind or amount of consideration to be received by Crestmark shareholders; (ii) materially delay receipt of regulatory approvals; (iii) adversely affect the federal income tax consequences of the merger to Crestmark’s shareholders; or (iv) cause any of the conditions to complete the merger to be incapable of being satisfied.

The Rights of Crestmark Shareholders Following the Merger Will Be Different (Page 109)

The rights of Meta stockholders are governed by Delaware law, Meta’s certificate of incorporation, as amended (“Meta’s certificate of incorporation”), and Meta’s amended and restated by-laws, as amended (“Meta’s by-laws”). The rights of Crestmark’s shareholders are governed by Michigan law, Crestmark’s amended and restated articles of incorporation, as amended (“Crestmark’s articles of incorporation”), and Crestmark’s by-laws. Upon our completion of the merger, the rights of both stockholder groups will be governed by Delaware law and Meta’s certificate of incorporation and Meta’s by-laws.



 

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Information About the Companies (Page 89)

Meta Financial Group, Inc.

5501 South Broadband Lane

Sioux Falls, South Dakota 57108

(605) 782-1767

Meta is a Delaware corporation headquartered in the Sioux Falls, South Dakota and is the holding company for MetaBank®, a federally chartered savings bank. MetaBank operates in both the Banking and Payments industries through: MetaBank, its community banking operation; Meta Payment Systems, its electronic payments division; AFS/IBEX, its commercial insurance premium financing division; and Refund Advantage, EPS Financial and Specialty Consumer Services, its tax-related financial solutions divisions. As of December 31, 2017, Meta had $5.4 billion in total assets, $3.5 billion in total deposits and $1.5 billion in total loans. Meta common stock trades on the NASDAQ Global Select Market under the symbol “CASH.”

Crestmark Bancorp, Inc.

5480 Corporate Drive, Suite 350

Troy, Michigan 48098

(225) 906-1019

Crestmark, a corporation incorporated in Michigan, is a registered bank holding company that provides working capital solutions through its wholly-owned subsidiary, Crestmark Bank. Crestmark Bank is a Michigan-chartered banking institution that specializes in the provision of commercial lending and leasing products to business customers located throughout the United States. Crestmark Bank conducts its business through its headquarters in Troy, Michigan and a network of loan production offices located in the following cities: Los Angeles, California; Boynton Beach, Florida; Baton Rouge, Louisiana; New York, New York; Franklin, Tennessee; and Toronto, Canada. Crestmark provides business-to-business working capital solutions, equipment leasing and asset-based lending services that are outside the realm of what traditional banks can offer. These services include customizable business lines of credit, machinery and equipment financing, term loans, working capital acquisition funding and expansion financing, discount factoring and traditional factoring. Crestmark customarily provides these services to customers that are not bankable under traditional lending standards, and Crestmark’s loans are based in large part on the value of and control over the borrower’s collateral. Given its specialized commercial banking focus, Crestmark currently has limited exposure to consumer banking relationships. As of December 31, 2017, Crestmark had total assets of approximately $1.2 billion, total deposits of approximately $1.0 billion, and total regulatory capital of approximately $127.5 million. Crestmark Bank’s deposits are insured by the FDIC.

See “Information About the Companies” in this joint proxy statement/prospectus.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF META

The following table presents selected historical consolidated financial data for the fiscal years ended September 30, 2017, 2016 and 2015 and as of September 30, 2017 and 2016, derived from Meta’s audited consolidated financial statements, which are included in Meta’s annual report on Form 10-K for the fiscal year ended September 30, 2017 and incorporated by reference in this joint proxy statement/prospectus. The table also presents selected historical consolidated financial data for the fiscal years ended, and as of, September 30, 2015, 2014 and 2013 derived from audited consolidated financial statements that are not included or incorporated by reference in this joint proxy statement/prospectus. Additionally, the table presents selected historical consolidated financial data for the three months ended December 31, 2017 and 2016 and as of December 31, 2017, derived from Meta’s unaudited consolidated financial statements, which are included in Meta’s quarterly report on Form 10-Q for the three months ended December 31, 2017 and incorporated by reference in this joint proxy statement/prospectus. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and notes thereto for the fiscal years ended September 30, 2017, 2016 and 2015, which are included in Meta’s annual report on Form 10-K for the fiscal year ended September 30, 2017, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and notes thereto for the three months ended December 31, 2017 and December 31, 2016, which are included in Meta’s quarterly report on Form 10-Q for the three months ended December 31, 2017, and, in each case, are incorporated by reference in this joint proxy statement/prospectus. Meta’s historical results may not be indicative of Meta’s future performance.

 

     At and for the three months
ended December 31,
     At and for the fiscal year ended September 30,  
     2017      2016      2017      2016 (1)      2015      2014      2013  

Selected Financial Condition Data

                    

(Dollars in Thousands)

                    

Total assets

   $ 5,417,963      $ 4,213,329      $ 5,228,332      $ 4,006,419      $ 2,529,705      $ 2,054,031      $ 1,691,989  

Loans receivable, net

     1,500,278        1,107,070        1,317,837        919,470        706,255        493,007        380,428  

Securities available for sale

     1,992,352        1,471,771        1,693,431        1,469,249        1,256,087        1,140,216        881,193  

Securities held to maturity

     243,492        604,976        563,529        619,853        345,744        282,933        288,026  

Goodwill and intangible assets

     149,244        172,370        150,901        65,849        70,505        2,588        2,339  

Deposits

     3,513,645        3,663,137        3,223,424        2,430,082        1,657,534        1,366,541        1,315,283  

Total borrowings

     1,398,953        96,336        1,490,067        1,187,578        561,317        497,721        216,456  

Stockholders’ equity

     437,705        371,786        434,496        334,975        271,335        174,802        142,984  

Selected Operations Data

                    

(Dollars in Thousands, Except Per Share Data)

                    

Total interest income

   $ 30,857      $ 22,575      $ 108,103      $ 81,396      $ 61,607      $ 48,660      $ 38,976  

Total interest expense

     4,661        2,742        14,873        4,091        2,387        2,398        2,954  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     26,196        19,833        93,230        77,305        59,220        46,262        36,022  

Provision loan losses

     1,068        843        10,589        4,605        1,465        1,150        -  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income after provision for loan

                    

losses

     25,128        18,990        82,641        72,700        57,755        45,112        36,022  

Total non-interest income

     29,268        19,349        172,172        100,770        58,174        51,738        55,503  

Total non-interest expense

     44,042        36,753        199,663        134,648        96,506        78,231        74,403  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     10,354        1,586        55,150        38,822        19,423        18,619        17,122  

Income tax expense

     5,684        342        10,233        5,602        1,368        2,906        3,704  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 4,670      $ 1,244      $ 44,917      $ 33,220      $ 18,055      $ 15,713      $ 13,418  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share:

                    

Basic

   $ 0.48      $ 0.14      $ 4.86      $ 3.93      $ 2.68      $ 2.57      $ 2.40  

Diluted    

   $ 0.48      $ 0.14      $ 4.83      $ 3.91      $ 2.66      $ 2.53      $ 2.38  

 

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Selected Financial Ratios and Other Data

             

Performance Ratios

             

Return on average assets

    0.45     0.14     1.13     1.10     0.78     0.81     0.78

Return on average equity

    4.30     1.41     11.20     10.80     8.83     10.01     9.36

Net interest margin, tax equivalent

    3.06     2.90     3.05     3.19     3.03     2.80     2.48

Quality Ratios

             

Non-performing assets to total assets

    0.61     0.05     0.72     0.03     0.31     0.05     0.05

Allowance for loan losses to total loans

    0.59     0.58     0.57     0.61     0.88     1.08     1.02

Allowance for loan losses to non-performing loans

    27     287     20     479     80     547     568

Excluding insured loans (2)

             

Non-performing assets to total
assets (3)

    0.58     0.05     0.70     0.03     0.31     0.05     0.05

Allowance for loan losses to total loans (4)

    0.67     0.66     0.63     0.61     0.88     1.08     1.02

Allowance for loan losses to non-performing loans (5)

    28     287     21     479     80     547     568

Capital Ratios

             

Stockholders’ equity to total assets

    8.08     8.82     8.31     8.36     10.73     8.51     8.45

Average stockholders’ equity to average assets

    10.53     10.09     10.07     10.19     8.81     8.14     8.37

Other Data

             

Book value per common share outstanding at end of year

  $ 45.29     $ 39.96     $ 45.15     $ 39.30     $ 33.24     $ 28.33     $ 23.55  

Tangible book value per common share outstanding at end of year

  $ 29.85     $ 21.43     $ 29.47     $ 31.57     $ 24.60     $ 27.91     $ 23.17  

Dividends declared per share at end of year

  $ 0.13     $ 0.13     $ 0.52     $ 0.52     $ 0.52     $ 0.52     $ 0.52  

Number of full-service offices at end of year

    10       10       10       10       10       11       11  

Common Shares Outstanding

    9,664,846       9,305,079       9,622,595       8,523,641       8,163,022       6,169,604       6,070,654  

 

(1)  See Reclassification and Revision of Prior Period Balances under Note 1—Summary of Significant Accounting Policies in Meta’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for additional information describing adjustments made to Meta’s EPS calculation. 2016 YTD basic EPS of $3.95 was corrected to $3.93 and diluted EPS of $3.92 was corrected to $3.91.
(2)  Excludes student loans that are insured by ReliaMax Surety Company.
(3)  The insured student loans that are 90 or more days past due are excluded from non-performing assets.
(4)  The insured student loan balances of $123.7 million at September 30, 2017, $190.7 million and $134 million at December 31, 2017 and December 31, 2016, respectively, are excluded from the total loan balance.
(5)  The insured student loans that are 90 or more days past due are excluded from non-performing loans.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CRESTMARK

The following table sets forth selected historical consolidated statement of operations data of Crestmark for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 and consolidated balance sheet data of Crestmark as of December 31, 2017, 2016, 2015, 2014 and 2013. The selected consolidated statements of operations data of Crestmark for the years ended December 31, 2017, 2016 and 2015 and consolidated balance sheet data of Crestmark as of December 31, 2017 and 2016 have been derived from the audited consolidated financial statements of Crestmark for such years and as of such dates included in this joint proxy statement/prospectus beginning on page F-2 and ending on page F-38. The selected consolidated statements of operations data of Crestmark for the years ended December 31, 2014 and 2013 and consolidated balance sheet data of Crestmark as of December 31, 2015, 2014 and 2013 have been derived from previously audited consolidated financial statements of Crestmark for such fiscal years and as of such dates that are not included in this joint proxy statement/prospectus. The selected consolidated financial data set forth below should be read in conjunction with the section titled “Crestmark Management’s Discussion and Analysis of Crestmark’s Financial Condition and Results of Operations” included elsewhere in this joint proxy statement/prospectus and “Consolidated Financial Statements of Crestmark and Subsidiaries” and the related notes and other financial information included elsewhere in this joint proxy statement/prospectus. Crestmark’s historical results may not be indicative of Crestmark’s future performance.

 

     At and for the fiscal year ended December 31,  
     2017     2016      2015      2014      2013  

Selected Financial Condition Data

             

(Dollars in Thousands)

             

Total assets

   $ 1,213,421     $ 908,221      $ 780,801      $ 694,527      $ 502,211  

Loans, leases and receivables, net

     882,196       676,734        567,947        513,290        417,022  

Loans held for sale

     42,060       15,108        5,115        —          —    

Securities available for sale

     27,964       20,347        23,496        20,798        16,715  

Goodwill

     10,619       9,619        9,619        9,619        5,664  

Deposits

     1,018,829       719,202        647,521        596,563        431,075  

Total borrowings

     46,367       64,078        26,505        13,548        4,101  

Stockholders’ equity

     113,929       92,008        80,988        74,874        63,405  

Selected Operations Data

             

(Dollars in Thousands, Except Per Share Data)

             

Total interest income

   $ 95,169     $ 73,921      $ 69,560      $ 70,079      $ 66,552  

Total interest expense

     12,500       7,952        6,014        3,658        2,580  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     82,669       65,969        63,546        66,421        63,972  

Provision for loan losses

     7,250       4,355        47        2,250        8,050  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     75,419       61,614        63,499        64,171        55,922  

Total non-interest income

     58,552       46,711        28,112        6,947        5,596  

Total non-interest expense

     103,564       85,980        69,676        46,880        41,157  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     30,407       22,345        21,935        24,238        20,361  

Income tax expense (benefit)

     (2,030     2,558        5,431        6,779        1,088  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     32,437       19,787        16,504        17,459        19,273  

Net income attributable to noncontrolling interests

     3,326       4,242        4,022        5,792        4,879  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to Crestmark

   $ 29,111     $ 15,545      $ 12,482      $ 11,667      $ 14,394  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

             

Basic

   $ 23.54     $ 12.25      $ 10.61      $ 10.20      $ 12.74  

Diluted

   $ 22.52     $ 11.70      $ 9.75      $ 9.34      $ 11.86  

 

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Selected Financial Ratios and Other Data

          

Performance Ratios

          

Return on average assets

     2.84     1.85     1.67     2.14     3.26

Return on average equity

     30.74     17.86     15.87     16.63     24.67

Net interest margin

     9.48     9.44     10.18     12.80     14.66

Quality Ratios

          

Non-performing assets to total assets

     0.71     0.85     0.84     1.21     2.37

Allowance for loan losses to total loans

     1.16     1.49     1.67     1.92     3.02

Allowance for loan losses to non-performing loans

     158     263     147     119     109

Capital Ratios

          

Stockholders’ equity to total assets

     9.39     10.13     10.37     10.78     12.63

Average stockholders’ equity to average assets

     9.25     10.33     10.53     12.90     13.23

Other Data

          

Book value per common share outstanding at end of year(1)

   $ 88.83     $ 71.89     $ 66.04     $ 61.70     $ 53.84  

Tangible book value per common share outstanding at end of year(1)

     80.30       64.04       57.82       53.46       48.79  

Dividends declared per share at end of year

     —         4.50       4.25       4.00       3.75  

Number of full-service offices at end of year

     7       6       6       6       6  

Common Shares Outstanding

     1,245,247       1,226,247       1,169,947       1,168,197       1,121,297  

 

(1)  For the purpose of calculating book value per common share and tangible book value per common share, stockholder’s equity excludes noncontrolling interests.

 

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SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following table shows selected unaudited pro forma condensed combined financial information about the financial condition and results of operations of Meta giving effect to the merger with Crestmark. The selected unaudited pro forma condensed combined financial information assumes that the merger is accounted for under the acquisition method of accounting for business combinations in accordance with U.S. GAAP, with Meta treated as the acquirer. Under the acquisition method of accounting, the assets and liabilities of Crestmark, as of the effective date of the merger, will be recorded by Meta at their respective estimated fair values, and the excess of the merger consideration over the fair value of Crestmark’s net assets will be allocated to goodwill.

Meta’s fiscal year ends on September 30 while Crestmark’s fiscal year ends on December 31. The unaudited pro forma condensed combined income statement information for the fiscal year ended September 30, 2017 and the three months ended December 31, 2017 is presented as if the merger was consummated on October 1, 2016, the first business day of Meta’s 2017 fiscal year. The unaudited pro forma condensed combined income statement for the fiscal year ended September 30, 2017 combines Meta’s audited consolidated statement of income for the fiscal year ended September 30, 2017 with Crestmark’s audited consolidated statement of income for the fiscal year ended December 31, 2017 (in each case, the most recently completed fiscal year). As a result of the different fiscal year ends, and in order to present results for comparable periods, the unaudited pro forma condensed combined income statement for the three-month period ended December 31, 2017 combines Meta’s unaudited consolidated statement of income for the three months ended December 31, 2017 with Crestmark’s unaudited consolidated statement of income for the three months ended December 31, 2017. The unaudited pro forma condensed combined balance sheet information as of December 31, 2017 gives effect to the merger as if it occurred on December 31, 2017, and combines the historical balance sheets of Meta and Crestmark as of December 31, 2017.

The selected unaudited pro forma condensed combined financial data has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information, including the notes thereto, which is included in this joint proxy statement/prospectus under “Unaudited Pro Forma Condensed Combined Financial Information.”

The selected unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented. The selected unaudited pro forma condensed combined financial information also does not consider any potential impacts of current market conditions on revenues, potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors. Further, as explained in more detail in the notes accompanying the more detailed unaudited pro forma condensed combined financial information included under “Unaudited Pro Forma Condensed Combined Financial Information,” the preliminary allocation of the purchase price reflected in the selected unaudited pro forma condensed combined financial information is based on preliminary estimates and currently available information, some of which assumptions cannot be finalized until the consummation of the merger, is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Additionally, the adjustments made in the unaudited pro forma condensed combined financial information, which are described in those notes, are preliminary and may be revised.

 

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     Three Months Ended December 31, 2017      Fiscal Year Ended September 30, 2017  
     (Dollars in Thousands)  

Income Statement Data:

     

Total interest and dividend income

   $ 57,433      $ 204,770  

Total interest expense

     8,728        20,431  
  

 

 

    

 

 

 

Net interest income

     48,705        184,339  

Provision for loan and lease losses

     4,318        17,839  
  

 

 

    

 

 

 

Net interest income after provision for loan and lease losses

     44,387        166,500  

Total non-interest income

     44,156        230,724  

Total non-interest expense

     72,227        310,040  
  

 

 

    

 

 

 

Income before income taxes

     16,316        87,184  

Income tax expense (benefit) (1)

     (2,024      8,658  
  

 

 

    

 

 

 

Net income

   $ 18,340      $ 78,526  
  

 

 

    

 

 

 

 

(1) Includes a one-time expense of $3.6 million for Meta and a benefit of $5.7 million for Crestmark for the three months ended December 31, 2017 related to the remeasurement of deferred tax assets and liabilities resulting from the Tax Cuts and Jobs Act.

 

     As of December 31, 2017  
     (Dollars in Thousands)  

Balance Sheet Data:

  

Total assets

   $ 6,809,181  

Investment securities

     2,263,808  

Loans receivable, net of allowance for loan and lease losses

     2,419,629  

Total deposits

     4,525,453  

Total borrowings

     1,446,320  

Total stockholders’ equity

     742,949  

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA AND COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Summarized below is the per share information for Meta and Crestmark on a historical, pro forma combined and equivalent basis. The data provided below is unaudited. The pro forma combined and pro forma equivalent data give effect to the merger as if the transaction had been effective on October 1, 2016, in the case of the per share earnings and dividend data, and on December 31, 2017, in the case of the per share book value and tangible book value data. This information should be read together with the historical consolidated financial statements and related notes of Meta filed with the SEC and/or included in and incorporated by reference into this joint proxy statement/prospectus, and with the unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus. See “Crestmark Bancorp, Inc. and Subsidiaries Financial Statements,” “Where You Can Find More Information” and “Unaudited Pro Forma Condensed Combined Financial Information.”

The pro forma combined information gives effect to the merger accounted for under the acquisition method of accounting for business combinations in accordance with U.S. GAAP. The pro forma calculations reflect the issuance of 3,306,530 shares of Meta common stock in the merger based upon 1,247,747 shares of Crestmark common stock outstanding as of January 9, 2018.

The information is presented for illustrative purposes only and does not indicate the financial results or financial condition of the combined company had the companies actually been combined at the dates indicated. The pro forma information also does not consider any integration expenses, expense efficiencies or other potential effects of the merger.

 

     Meta
Three Months
Ended December 31,
2017
     Crestmark
Three Months
Ended December 31,
2017
     Meta Pro Forma
Combined

Three Months
Ended December 31,
2017
    Crestmark Pro
Forma Equivalent
Share(1)

Three Months
Ended December 31,
2017
 

Basic earnings per common share

   $ 0.48      $ 11.22      $ 1.35     $ 3.58  

Diluted earnings per common share

     0.48        10.74        1.34       3.56  

Cash dividends paid per common share

     0.13        —         
0.13
 (2) 
 
    0.34  

Book value per common share

     45.29        88.83       
57.00
 (3) 
 
    151.06  
     Meta
Fiscal Year Ended
September 30, 2017
     Crestmark
Fiscal Year Ended
December 31, 2017
     Meta Pro Forma
Combined
    Crestmark
Pro Forma
Equivalent Share(1)
 

Basic earnings per common share

   $ 4.86      $ 23.54      $ 5.99     $ 15.87  

Diluted earnings per common share

     4.83        22.52        5.96       15.80  

Cash dividends paid per common share

     0.52        —          0.52  (2)      1.38  

Book value per common share

     45.15        88.83        57.19  (3)      151.56  

 

(1)  Pro forma equivalent per share information is calculated based on pro forma combined multiplied by the exchange ratio of 2.65.
(2)  Pro forma combined cash dividends paid per common share represent Meta’s historical dividends per share.
(3)  Pro forma combined book value per common share is calculated based on pro forma total stockholders’ equity of $739,426,000 as of December 31, 2017 divided by 12,971,376 and 12,929,125 pro forma shares of common stock outstanding at December 31, 2017 and September 30, 2017, respectively.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus, as well as Meta’s other filings with the SEC and other communications by Meta, MetaBank, Crestmark and Crestmark Bank, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated synergies of the mergers, the possibility that the mergers will facilitate Meta’s and MetaBank’s growth through complementary product and service offerings, the anticipated addition of persons to Meta’s board of directors and executive management team, and the expected timetable for completing the mergers. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information.

These forward-looking statements are based on information currently available and assumptions about future events, and include statements with respect to the beliefs, expectations, estimates, and intentions of Meta and Crestmark, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond Meta’s control and Crestmark’s control. Such risks, uncertainties and other factors may cause actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in or implied by these forward-looking statements. The potential risks, uncertainties and other factors that could cause actual results to differ from those projected include, among other things, the risk that the transaction may not occur on a timely basis or at all; the parties’ ability to obtain regulatory approvals and the shareholder approvals, and otherwise satisfy the other conditions to closing, on a timely basis or at all; the risk that the businesses of Meta and MetaBank, on the one hand, and Crestmark and Crestmark Bank, on the other hand, may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities, beneficial synergies and/or operating efficiencies from the proposed transaction may not be fully realized or may take longer to realize than expected; customer losses and business disruption following the announcement or consummation of the proposed transaction; potential litigation relating to the merger; changes in the price of Meta common stock before the closing of the merger; changes in the competitive environment among financial holding companies and banks; the risk that Meta may incur unanticipated or unknown losses or liabilities if it completes the proposed transaction with Crestmark and Crestmark Bank; and other economic, competitive, governmental, regulatory and technological factors affecting Meta’s and Crestmark’s operations, products, services and prices.

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this joint proxy statement/prospectus speak only as of the date hereof. Additional discussions of these and other risks, uncertainties and other factors applicable to Meta and Crestmark, see “Risk Factors” in this joint proxy statement/prospectus, in Meta’s Annual Report on Form 10-K for Meta’s fiscal year ended September 30, 2017, in Meta’s Quarterly Report on Form 10-Q for Meta’s fiscal quarter ended December 31, 2017 and in other filings made by Meta with the SEC incorporated by reference into this joint proxy statement/prospectus. Meta and Crestmark expressly disclaim any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of Meta, Crestmark or their respective subsidiaries, whether as a result of new information, changed circumstances or future events, or for any other reason.

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed under the heading “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote on the proposals presented in this joint proxy statement/prospectus. You should also consider the other information in, and the other documents incorporated by reference into, this joint proxy statement/prospectus, including in particular the risk factors associated with Meta’s business contained under the heading “Risk Factors” and in other sections of Meta’s Annual Report on Form 10-K for Meta’s fiscal year ended September 30, 2017 as updated by Meta’s Quarterly Reports on Form 10-Q. See “Where You Can Find More Information.”

Risks Related to the Merger

Because the market price of Meta common stock will fluctuate, Crestmark shareholders cannot be certain of the market value of the merger consideration they will receive.

Upon completion of the merger, holders of Crestmark common stock will receive for each share of Crestmark common stock they hold immediately prior to the completion of the merger a fixed exchange ratio of 2.65 shares of fully paid and non-assessable Meta common stock, and each outstanding in-the-money Crestmark stock option will be cancelled and converted into the right to receive an amount in cash equal to the product of the number of shares of Crestmark common stock underlying such in-the-money Crestmark stock option, multiplied by the excess of (a) the per share purchase price over (b) the exercise price of such in-the-money Crestmark stock option, less any applicable withholding taxes. The exchange ratio will not be adjusted for changes in the market price of Meta common stock between the date of signing the merger agreement and completion of the merger (other than to give effect to a stock split, stock dividend or similar transaction with respect to the outstanding shares of Meta common stock). Any change in the market price of Meta common stock prior to completion of the merger will affect the value of any shares of Meta common stock Crestmark shareholders receive as consideration in the merger and the option merger consideration. The market price of Meta common stock may fluctuate as a result of a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations. Many of these factors are outside our control. Accordingly, at the time of the Crestmark special meeting, Crestmark shareholders will not know or be able to calculate the market price of Meta common stock that they will receive upon completion of the merger.

The lack of a public market for Crestmark’s common stock may make it difficult to evaluate the fairness of the merger, and Crestmark shareholders may receive consideration in the merger that is greater than or less than the fair value of the shares of common stock of Crestmark.

Crestmark is privately held and its outstanding capital stock is not traded in any public market. The lack of a public market may make it difficult to determine the fair value of Crestmark or its shares of common stock. As the exchange ratio, and, accordingly, the approximate number of shares of Meta common stock to be issued to the Crestmark shareholders in the merger were determined based on negotiations between the parties, it is possible that, at the effective time of the merger, the aggregate value of the Meta common stock to be issued in connection with the merger may be greater or less than the fair value of Crestmark.

Crestmark will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Crestmark and consequently on Meta. These uncertainties may impair Crestmark’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Crestmark to seek to change existing business relationships with Crestmark. Retention of certain employees may be challenging during the pendency of the merger, as employees may experience uncertainty about their future roles with Meta. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Meta, Meta’s business following the merger could be harmed. In addition, the merger agreement restricts Crestmark from making certain acquisitions and taking other specified actions without the consent of Meta, and generally requires Crestmark to continue its operations in the ordinary course, until the merger occurs. These restrictions may prevent Crestmark from pursuing attractive business opportunities that may arise prior to the completion of the merger. For a description of the restrictive covenants to which Crestmark is subject, see “The Merger Agreement—Conduct of Business Pending the Merger.”

Combining our two companies may be more difficult, costly or time-consuming than we currently expect, and we may fail to realize the anticipated benefits of the merger.

Meta and Crestmark have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and synergies, will depend, in part, on Meta’s ability to successfully combine and integrate the Crestmark business into its own in a manner that permits growth opportunities and does not materially disrupt existing business relationships or result in decreased revenues due to loss of such relationships. It is possible that the integration process could result in uncertainty among Meta and Crestmark employees about their roles within Meta following the

 

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merger. As a result, the integration process may have an adverse effect on our ability to attract or retain key management and key employees or lead to the disruption of either company’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers and employees. As with any merger of banking institutions, there also may be business disruptions that cause us to lose customers or business partners or cause customers to take their deposits out of our banks. In particular, MetaBank has limited experience in certain areas of business in which Crestmark operates, including commercial factoring and commercial leasing. As a result of integration issues and business disruptions resulting from such limited experience, or due to a lack of familiarity with MetaBank, current Crestmark Bank customers may turn to other providers of commercial factoring and commercial leasing following the consummation of the merger. The success of the combined company following the merger and the bank merger may depend, in part, on the ability of Meta to integrate the two businesses, business models and cultures. If Meta experiences difficulties in the integration process, including those listed above, Meta may fail to realize the anticipated benefits of the merger in a timely manner or at all. Meta’s business or results of operations or the value of its common stock may be materially and adversely affected as a result.

The market price of Meta common stock after the merger may be affected by factors different from those currently affecting Meta common stock.

The businesses of Meta and Crestmark differ in some respects and, accordingly, the results of operations of the combined company and the market price of Meta common stock after the merger may be affected by factors different from those currently affecting the independent results of operations of each of Meta or Crestmark. For a discussion of the business of Meta and of certain factors to consider in connection with the business of Meta, see the documents incorporated by reference into this joint proxy statement/prospectus and referred to under “Where You Can Find More Information,” including in particular the section titled “Risk Factors” in Meta’s Annual Report on Form 10-K for Meta’s fiscal year ended September 30, 2017. For a discussion of the business of Crestmark, see “Information About the Companies” and “Crestmark Management’s Discussion and Analysis of Crestmark’s Financial Condition and Results of Operations.”

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the mergers.

Before the mergers may be completed, Meta and Crestmark must obtain approvals from the Federal Reserve and the OCC. Prior notice of the bank merger must also be provided to the DIFS, which was provided on March 9, 2018. Other approvals, waivers, non-objections or consents from regulators may also be required (all such required approvals, collectively, the “requisite regulatory approvals”). In determining whether to grant the requisite regulatory approvals, regulators consider a variety of factors, including the regulatory standing of each party and the other factors described under “The Merger Agreement—Regulatory Approvals Required for the Merger.” An adverse development in any party’s regulatory standing could cause the granting of any such requisite regulatory approval to be delayed or denied. Additionally, the regulators may impose adverse or burdensome conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on, or limiting the revenues of, the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger and the bank merger. Receipt of the requisite regulatory approvals could also be adversely impacted by the existence and status of any ongoing investigation of the parties or any of their respective customers, program managers or other marketers, including subpoenas to provide information or investigations by any federal, state or local governmental agency. We may not be able to obtain the requisite regulatory approvals within the timeframe that the parties presently expect, or at all, and we cannot provide any assurances that the regulators will not impose additional conditions to the completion of the merger or the bank merger. Our ability to obtain the requisite regulatory approvals in a timely manner, or at all, could also be adversely impacted if individuals or groups exercise their right to comment on the merger and the bank merger and raise an objection to the transactions. See “The Merger Agreement—Regulatory Approvals Required for the Merger.”

Some Crestmark directors and officers may have interests and arrangements that may have influenced their decisions to support or recommend that you approve the merger.

Certain of Crestmark’s directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of Crestmark’s shareholders generally. These interests and arrangements may create potential conflicts of interest. For a description of these interests, see “The Merger—Interests of Certain Persons in the Merger.”

The merger agreement limits Crestmark’s ability to pursue alternatives to the merger.

The merger agreement contains provisions that limit Crestmark’s ability to solicit, encourage or discuss competing third-party proposals to acquire all or a significant part of Crestmark. These provisions, which include a $10.0 million termination fee, might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Crestmark from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Crestmark than it might otherwise have proposed to pay.

 

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Termination of the merger agreement could negatively impact Meta or Crestmark.

Completion of the merger is conditioned upon the satisfaction of certain closing conditions, including the approval of the Meta merger proposal and the Crestmark merger proposal. In addition, if the merger is not completed on or before June 30, 2018, as may be extended automatically for two months in order to obtain regulatory approvals, either Meta or Crestmark may choose not to proceed with the merger. Meta and/or Crestmark may also terminate the merger agreement under certain circumstances. The required conditions to close the merger may not be satisfied in a timely manner, if at all, or, if permissible, waived. Any delay in completing the merger could cause the combined company not to realize some or all of the benefits that the combined company expects to achieve if the merger is successfully completed within its expected time frame. In the event the merger agreement is terminated, Meta’s or Crestmark’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the merger. The market price of Meta common stock might decline to the extent that the current market price reflects a market assumption that the merger will be completed. If the merger agreement is terminated and Crestmark’s board of directors seeks another merger or business combination, Crestmark shareholders cannot be certain that Crestmark will be able to find a party willing to offer equivalent or more attractive consideration than the merger consideration provided in the merger. If the merger agreement is terminated under certain circumstances, (i) Crestmark may be required to pay Meta a termination fee of $10.0 million or (ii) Meta may be required to pay Crestmark a termination fee of $10.0 million. If the merger agreement is terminated, Meta or Crestmark may experience negative reactions from its customers, vendors and employees. See “The Merger Agreement—Termination of the Merger Agreement.”

We expect to incur substantial expenses related to the merger and the integration of Crestmark into Meta.

We expect to incur synergy planning and integration costs in connection with the merger. While we have assumed the level of such expenses we expect to incur, there are many factors beyond our control that could affect the total amount or the timing of the merger and integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. To the extent these merger and integration expenses are higher than anticipated, our future operating results and financial condition may be materially adversely affected and our ability to meet the leverage ratio and fixed charged ratio mandated by our credit facilities may be impaired.

Current holders of Meta common stock and current holders of Crestmark common stock will have a reduced ownership and voting interest in their respective companies after the merger and will exercise less influence over management.

Holders of Crestmark common stock currently have the right to vote on matters affecting Crestmark, and current holders of Meta common stock currently have the right to vote on matters affecting Meta. Upon the completion of the merger, each Crestmark shareholder that receives shares of Meta common stock will become a stockholder of Meta with a percentage ownership interest in Meta with respect to such shares that is smaller than the shareholder’s current percentage ownership interest in Crestmark. Upon receiving 2.65 shares of Meta common stock per issued and outstanding share of Crestmark common stock following the effective time of the merger, the former shareholders of Crestmark would collectively receive shares in the merger constituting approximately 25%, and the current stockholders of Meta would hold shares constituting approximately 75%, of the outstanding shares of Meta common stock immediately after the merger based on the number of shares of Meta common stock and Crestmark common stock outstanding as of January 9, 2018. Because of this, current Meta stockholders will have less influence on the management and policies of Meta than they have prior to the merger, and Crestmark shareholders will have less influence on the management and policies of Meta than they have on the management and policies of Crestmark prior to the merger.

The respective opinions of Meta’s financial advisor and of Crestmark’s financial advisor will not reflect changes in circumstances between the signing of the merger agreement and the completion of the merger.

Meta and Crestmark have not obtained, as of the date of this joint proxy statement/prospectus, and do not expect to obtain, updated opinions from their respective financial advisors. The opinions of Meta’s and Crestmark’s financial advisors were each based on certain facts and assumptions regarding the operations and prospects of Meta and Crestmark, general market and economic conditions and other factors as of the dates of such opinions. Changes in the operations and prospects of Meta or Crestmark, general market and economic conditions and other factors that may be beyond the control of Meta or Crestmark may significantly alter the value of Meta or Crestmark, the price of the shares of Meta common stock by the time the merger is completed or the future price at which Meta common stock trades. The opinions do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. Because Meta and Crestmark do not currently anticipate asking their respective financial advisors to update their opinions, the opinions will not address the fairness of the merger consideration or the exchange ratio, as applicable, from a financial point of view at the time a Meta stockholder or Crestmark shareholder votes or at the time the merger is completed. For descriptions of the opinions that Meta and Crestmark received from their respective financial advisors, please refer to “The Merger—Opinion of Meta’s Financial Advisor” and “The Merger—Opinion of Crestmark’s Financial Advisor.”

 

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Our future results following the merger may differ materially from the unaudited pro forma financial information included in this document.

The unaudited pro forma financial information included in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the merger been completed on the date(s) indicated. The preparation of the pro forma financial information is based upon available information and certain assumptions and estimates that Meta and Crestmark currently believe are reasonable. The unaudited pro forma financial information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to Crestmark’s net assets. The purchase price allocation reflected in this joint proxy statement/prospectus is preliminary, and the final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Crestmark as of the date of the completion of the merger. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition and results of operations following the merger. Any change in the combined company’s financial condition or results of operations may cause significant variations in the price of Meta common stock. In addition, following the completion of the merger, there may be further refinements of the purchase price allocation as additional information becomes available. Accordingly, the final purchase accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. See “Unaudited Pro Forma Condensed Combined Financial Information.”

The shares of Meta common stock that Crestmark shareholders will receive as a result of the merger will have different rights from shares of Crestmark common stock.

The rights associated with Crestmark common stock are different from the rights associated with Meta common stock. For a discussion of the different rights associated with Meta common stock, see “Comparison of Stockholder Rights.”

Risks Related to Crestmark’s Business

Adverse changes in economic conditions or interest rates may negatively affect Crestmark’s earnings, capital and liquidity.

The results of operations for financial institutions, including Crestmark, may be materially and adversely affected by changes in prevailing economic conditions in the markets in which Crestmark operates, including increases or decreases in the value of collateral or the financial health of borrowers. Crestmark’s business may also be negatively impacted by changing interest rates and changes in the monetary and fiscal policies of the federal government. Crestmark’s profitability is heavily influenced by the spread between the interest rates it earns on loans and investments and the interest rates it pays on deposits and other interest-bearing liabilities. Like most banking institutions, Crestmark’s net interest spread and margin is affected by general economic conditions and other factors that influence market interest rates and Crestmark’s ability to respond to changes in these rates. At any given time, Crestmark’s assets and liabilities may be such that they will be affected differently by a given change in interest rates. Furthermore, a downturn in local or national economic conditions may adversely affect Crestmark’s specialty lending operations focused on certain industries or its traditional factoring services because, if Crestmark is unable to collect on purchased receivables, Crestmark will sustain losses, which in some cases may be material. Moreover, a recession may result in a reduction in demand for Crestmark’s financial services, which could lead to a reduction in fees and overall profitability of Crestmark’s loan portfolio.

Significant declines in economic conditions may stress the financial health of Crestmark’s borrowers and decrease the value of Crestmark’s collateral more significantly than traditional banks.

Crestmark provides business-to-business working capital solutions, equipment leasing and asset-based lending services that are outside the realm of what traditional banks typically offer. These services include customizable business lines of credit, machinery and equipment financing, term loans, working capital acquisition funding and expansion financing, discount factoring and traditional factoring. Crestmark typically provides these services to customers who are not “bankable” under traditional lending standards and Crestmark’s loans are based in large part on the value of and control over the borrower’s collateral. Stressed economic conditions may reduce the ability of Crestmark’s borrowers to make loan and lease payments or cause the value of Crestmark’s collateral to decline. The effect of a downturn in general economic conditions may be more significant for Crestmark’s business than for traditional banks due to the specialized nature of its financial products and collateral.

Changes in pricing, availability or regulation of brokered deposits and listing services as sources of capital could have a negative impact on Crestmark’s business.

Crestmark is a non-cash bank and does not maintain a traditional retail branch or deposit network. Crestmark primarily relies upon brokered deposits and internet listing services as sources of capital, which are supplemented by internet-based retail and commercial deposits. If brokered deposits or funds from listing services become more expensive or otherwise more difficult to obtain and Crestmark is unable to replace them with suitable sources of liquidity, Crestmark’s net interest margin, liquidity, profitability and results of operations could suffer.

 

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Crestmark’s future success is dependent on its ability to compete effectively in the highly competitive banking industry.

Crestmark faces substantial competition in all phases of its operations from a variety of different competitors, and its future growth and success depends on its ability to compete effectively in this highly competitive environment. Crestmark competes for loans, leases and other financial services with numerous national and regional banks, thrifts, credit unions and other financial institutions, as well as other entities that provide financial services, including specialty lenders, securities firms and mutual funds. Some of the financial institutions and financial service organizations with which Crestmark competes are not subject to the same degree of regulation as Crestmark. Many of Crestmark’s competitors have been in business for many years, have established customer bases, are larger, have substantially higher lending limits than Crestmark does, offer larger branch networks than Crestmark and offer other services which Crestmark does not, including trust and international banking services. Most of these entities have greater capital and other resources than Crestmark does, which, among other things, may allow them to price their services at levels more favorable to customers and to provide larger credit facilities than Crestmark does. This competition may limit Crestmark’s growth or earnings. Under specified circumstances (that have been modified by the Dodd-Frank Act), securities firms and insurance companies that elect to become financial holding companies under the BHCA may acquire banks and other financial institutions. The financial services industry may also become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

Crestmark’s risk management systems may fall short of their intended objectives.

Crestmark seeks to monitor and control its risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. While Crestmark employs risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes, which may result in Crestmark incurring losses.

Crestmark may not be able to successfully adapt to evolving industry standards and market pressures.

Crestmark’s success depends, in part, on the ability to adapt products and services to evolving industry standards. There is increasing pressure to provide financial products and services at lower prices, which may reduce net interest income and non-interest income from fee-based products and services. In addition, the widespread adoption of new technologies could require Crestmark to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services. Crestmark may not be successful in introducing new products and services in response to industry trends or developments, including trends or developments in technology, or those new products may not achieve market acceptance. As a result, Crestmark could lose business, or be forced to price products and services on less advantageous terms to retain or attract clients. As a result, Crestmark’s business, financial condition, or results of operations may be adversely affected.

The soundness of other financial institutions could adversely affect Crestmark.

Crestmark’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing and counterparty or other relationships. Crestmark has exposure to many different industries and counterparties, and it routinely executes transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by Crestmark or by other institutions. Even routine funding transactions expose Crestmark to credit risk in the event of default of its counterparty or client. In addition, Crestmark’s credit risk may be exacerbated when the collateral held by it cannot be realized upon or is liquidated at prices insufficient to recover the full amount of the financial instrument exposure due to Crestmark. There is no assurance that any such losses would not materially and adversely affect Crestmark’s results of operations.

The timing and effect of Federal Reserve Board policy normalization remains uncertain.

In September 2014, the Federal Reserve Board announced principles it would follow to implement monetary policy normalization, that is, to raise the Federal funds rate and other short-term interest rates to more historically normal levels and to reduce the Federal Reserve’s securities holdings, so as to promote its statutory mandate of maximum employment and price stability. The Federal Open Market Committee (“FOMC”) took the initial step in that process by raising the Federal funds rate by 25 basis points in December 2015, the first such action since December 2008. Subsequently, the FOMC refined the normalization principles and announced greater detail about its planned approach. In September 2017, the FOMC announced the start of gradual

 

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reduction in the Federal Reserve’s securities holdings, commencing in October 2017. In each of March, June, and December 2017, the FOMC raised the Federal funds rate by 25 basis points, and announced its intention to continue to raise the Federal funds rate gradually over the next few years. There can be no assurance that these reductions in the Federal Reserve’s securities holdings, and increases in the Federal funds rate, will continue to occur, that they will be gradual if they do occur, or as to the actual impact of those policies on the financial markets, the broader economy, or on Crestmark’s business, financial condition, results of operations, or access to credit.

The effect of financial services legislation and regulations remains uncertain.

On February 3, 2017, President Trump signed Executive Order 13772, specifying new core principles for regulating the U.S. financial system. Among other things, the President directed the Secretary of the Treasury, in consultation with federal regulatory agencies, to review existing laws and regulations and report on the extent to which they were consistent with the core principles. Beginning in February 2017, Congress passed, and the President signed, more than a dozen resolutions under the Congressional Review Act, repealing various federal regulations, including regulations adopted by the Consumer Financial Protection Bureau (the “CFPB”). Certain bills pending in Congress would, if enacted, repeal or substantially amend various provisions of the Dodd-Frank Act. Proposals to modify existing regulations in light of the new core principles are under consideration by various federal regulatory agencies, including the CFPB. There can be no assurance that any such legislation will be enacted, or that changes in existing regulations will be adopted to implement the new core principles.

Thus, the effect of financial services legislation and regulations remains uncertain. The implementation, amendment, or repeal of federal financial services laws or regulations may limit Crestmark’s business opportunities, impose additional costs on Crestmark, impact Crestmark’s revenues or the value of its assets, or otherwise adversely affect Crestmark’s business.

Crestmark’s credit losses could increase and its allowance may not be adequate to cover actual loan losses.

The risk of nonpayment of loans and leases is inherent in lending and leasing activities, and nonpayment, when it occurs, may have a materially adverse effect on Crestmark’s earnings and overall financial condition, as well as the value of its common stock. Crestmark’s focus on asset-based loans subjects Crestmark to the potential for fraud by borrowers regarding the value of underlying collateral. As a result, Crestmark may assume different or greater lending risks than other banks. Crestmark makes various assumptions and judgments about the collectability of Crestmark’s loan portfolio and provides an allowance for losses based on several factors. If Crestmark’s assumptions are wrong, Crestmark’s allowance may not be sufficient to cover Crestmark’s losses, which would have an adverse effect on Crestmark’s operating results. The actual amounts of future provisions for loan losses cannot be determined at this time and may exceed the amounts of past provisions. Additions to Crestmark’s allowance decrease Crestmark’s net income.

Crestmark relies heavily on its management and other key personnel, and the loss of any of them may adversely affect its operations.

Crestmark is dependent upon the services of its management team, including its executive officers and its other senior managers. The unanticipated loss of Crestmark’s executive officers, or any of its other senior managers, could have an adverse effect on its growth and performance.

In addition, Crestmark depends on Crestmark’s key sales managers. Several of Crestmark’s sales managers are responsible, or share responsibility, for generating and managing a significant portion of Crestmark’s loan and leasing portfolio. Crestmark’s success can be attributed in large part to the relationships these individuals, as well as members of Crestmark’s management team, have developed and are able to maintain with Crestmark’s customers as Crestmark continues to implement Crestmark’s community banking philosophy. The loss of any of these sales managers could adversely affect Crestmark’s portfolio and performance, and Crestmark’s ability to generate new loans. Many of Crestmark’s key employees have signed agreements with Crestmark agreeing not to compete with Crestmark in one or more of Crestmark’s markets for specified time periods if they leave employment with Crestmark. However, Crestmark may not be able to effectively enforce such agreements.

Some of the other financial institutions in Crestmark’s markets also require their key employees to sign agreements that preclude or limit their ability to leave their employment and compete with them or solicit their customers. These agreements make it more difficult for Crestmark to hire sales managers with experience in Crestmark’s markets who can immediately solicit their former or new customers on Crestmark’s behalf.

Crestmark’s business is subject to operational risks.

Crestmark, like most financial institutions, is exposed to many types of operational risks, including the risk of fraud by borrowers, employees or outsiders, unauthorized transactions by employees or operational errors. Operational errors may include clerical or recordkeeping errors or those resulting from faulty or disabled computer or telecommunications systems. Given Crestmark’s volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully corrected. Crestmark’s necessary dependence upon automated systems to record and process its transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect.

 

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Crestmark may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, including, for example, computer viruses or electrical or telecommunications outages, which may give rise to losses in service to customers and to loss or liability to Crestmark. Crestmark is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations to it, or will be subject to the same risk of fraud or operational errors by their respective employees as is Crestmark, and to the risk that Crestmark’s or its vendors’ business continuity and data security systems prove to be inadequate. Crestmark also faces the risk that the design of its controls and procedures proves inadequate or is circumvented, causing delays in detection or errors in information. Although Crestmark maintains a system of controls designed to keep operational risks at appropriate levels, there can be no assurance that it will not suffer losses from operational risks in the future that may be material in amount.

Crestmark is subject to significant government regulation, and any regulatory changes may adversely affect Crestmark.

The banking industry is heavily regulated under both federal and state law. These regulations are primarily intended to protect customers, the federal deposit insurance fund, and the stability of the U.S. financial system, not Crestmark’s creditors or shareholders. Existing state and federal banking laws subject Crestmark to substantial limitations with respect to the making of loans, the purchase of securities, the payment of dividends and many other aspects of Crestmark’s business. Some of these laws may benefit Crestmark, others may increase Crestmark’s costs of doing business, or otherwise adversely affect Crestmark and create competitive advantages for others. Regulations affecting banks and financial services companies undergo continuous change, which may be accelerated by the recent change in the federal administration, and Crestmark cannot predict the ultimate effect of these changes, which could have a material adverse effect on Crestmark’s profitability or financial condition. Federal economic and monetary policy may also affect Crestmark’s ability to attract deposits, make loans and achieve satisfactory interest spreads.

Minimum capital requirements have increased.

The provisions of the Dodd-Frank Act relating to capital to be maintained by financial institutions approach convergence with the standards (generally known as Basel III) adopted in December, 2010 by the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision. Among other things, those standards contain a narrower definition of elements qualifying for inclusion as Tier 1 capital and higher minimum risk-based capital levels than those specified in previous U.S. law and regulations. In July, 2013, the U.S. federal bank regulatory agencies adopted regulations to implement the provisions of the Dodd-Frank Act and Basel III for U.S. financial institutions. The new regulations became applicable to Crestmark effective January 1, 2015.

The new regulations implemented (i) revised definitions of regulatory capital elements, (ii) a new common equity Tier 1 (“CET 1”) minimum capital ratio requirement, (iii) an increase in the existing minimum Tier 1 capital ratio requirement, (iv) new limits on capital distributions and certain discretionary bonus payments if an institution does not hold a specified amount of CET 1 (called a capital conservation buffer) in addition to the amount required to meet its minimum risk-based capital requirements, (v) new risk-weightings for certain categories of assets, and (vi) other requirements applicable to banking organizations which have total consolidated assets of $250 billion or more, total consolidated on-balance sheet foreign exposure of $10 billion or more, elect to use the advanced measurement approach for calculating risk-weighted assets, or are subsidiaries of banking organizations that use the advanced measurement approach (“Advanced Approaches Entities”).

Among other things, the new regulations generally require banking organizations to recognize in regulatory capital most components of accumulated other comprehensive income (“AOCI”), including accumulated unrealized gains and losses on available for sale securities. This requirement, which was not imposed under previous risk-based capital regulations, may be avoided by banking organizations, such as Crestmark, that are not Advanced Approaches Entities, by making a one-time, irrevocable election on the first quarterly regulatory report following the date on which the regulations become effective as to them. Crestmark made the one-time, irrevocable election regarding the treatment of AOCI on March 31, 2015.

In addition, the new regulations (unlike the original proposal), permit companies such as Crestmark, which had total assets of less than $15 billion on December 31, 2009, and had issued trust preferred securities on or prior to May 19, 2010, to continue to include such securities in Tier 1 capital.

On January 1, 2015, for banking organizations such as Crestmark that are not Advanced Approaches Entities, the new regulations mandated a minimum ratio of CET 1 to standardized total risk-weighted assets (“RWA”) of 4.5%, an increased ratio of Tier 1 capital to RWA of 6.0% (compared to the prior requirement of 4.0%), a total capital ratio (that is, the sum of Tier 1 and Tier 2 capital to RWA) of 8.0%, and a minimum leverage ratio (that is, Tier 1 capital to adjusted average total consolidated assets) of 4.0%. The calculation of these amounts is affected by the new definitions of certain capital elements. The capital

 

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conservation buffer comprised solely of CET 1 is being phased-in commencing January 1, 2016, beginning at 0.625% of RWA and rising to 2.5% of RWA on January 1, 2019. Failure by a banking organization to maintain the aggregate required minimum capital ratios and capital conservation buffer will impair its ability to make certain distributions (including dividends and stock repurchases) and discretionary bonus payments to executive officers.

These increased minimum capital requirements may adversely affect Crestmark’s ability to pay cash dividends, reduce Crestmark’s profitability, or otherwise adversely affect Crestmark’s business, financial condition or results of operations. In the event of a need for additional capital to meet these requirements, there can be no assurance of Crestmark’s ability to raise funding in the equity and capital markets. Factors that Crestmark cannot control, such as the disruption of financial markets or negative views of the financial services industry generally, could impair Crestmark’s ability to raise qualifying equity capital. In addition, Crestmark’s ability to raise qualifying equity capital could be impaired if investors develop a negative perception of Crestmark’s financial prospects. If Crestmark were unable to raise qualifying equity capital, it might be necessary for Crestmark to sell assets in order to maintain required capital ratios. Crestmark may be unable to sell some of Crestmark’s assets, or Crestmark may have to sell assets at a discount from market value, either of which could adversely affect Crestmark’s results of operations, cash flow and financial condition.

Crestmark faces the risk of cyber-attack to its computer systems.

In the ordinary course of business, Crestmark collects and stores sensitive data, including proprietary business information and personally identifiable information of Crestmark’s customers and employees in systems and on networks. The secure processing, maintenance and use of this information is critical to Crestmark’s operations. Crestmark’s systems and those of Crestmark’s customers and third-party service providers are under constant threat, and it is possible that Crestmark could experience a significant event in the future. Cybersecurity threats include unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events. These threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. If one or more of these events occurs, it could result in the disclosure of confidential client information, damage to Crestmark’s reputation with Crestmark’s clients and the market, additional costs to Crestmark (such as repairing systems or adding new personnel or protection technologies), regulatory penalties and financial losses, to both Crestmark and Crestmark’s clients and customers. Such events could also cause interruptions or malfunctions in Crestmark’s operations (such as the lack of availability of Crestmark’s online banking system), as well as the operations of Crestmark’s clients, customers or other third parties. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by Crestmark and Crestmark’s customers. There can be no assurance that Crestmark will not suffer losses in the future that may be material in amount.

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If Crestmark fails to observe the regulatory guidance, Crestmark could be subject to various regulatory sanctions, including financial penalties.

Damage to Crestmark’s reputation could materially harm its business.

Crestmark’s relationship with many of its clients is predicated upon its reputation as a fiduciary and a service provider that adheres to the highest standards of ethics, service quality and regulatory compliance. Adverse publicity, regulatory actions, litigation, operational failures, the failure to meet client expectations and other issues with respect to one or more of Crestmark’s businesses could materially and adversely affect its reputation, its ability to attract and retain clients or its sources of funding for the same or other businesses. Preserving and enhancing Crestmark’s reputation also depends on maintaining systems and procedures that address known risks and regulatory requirements, as well as Crestmark’s ability to identify and mitigate additional risks that arise due to changes in its businesses and the marketplaces in which it operates, the regulatory environment and client expectations. If any of these developments has a material effect on Crestmark’s reputation, Crestmark’s business will suffer.

 

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META SPECIAL MEETING

This section contains information from Meta for Meta stockholders about the special meeting of Meta stockholders that Meta has called to consider and approve the Meta merger proposal and the charter amendment proposal, each as discussed further below. Meta is mailing this joint proxy statement/prospectus to Meta stockholders on or about [                ], 2018. Together with this joint proxy statement/prospectus, Meta is also sending to Meta stockholders a notice of the Meta special meeting and a form of proxy card that Meta’s board of directors is soliciting for use at the special meeting of Meta stockholders and at any adjournments of the meeting.

Date, Time and Place

The special meeting of Meta stockholders will be held at [                 ] on [                ], 2018 at [                ], local time.

Matters to Be Considered

At the Meta special meeting, Meta stockholders as of the Meta record date will be asked to consider and vote on the following matters:

 

    Adoption of the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus, and approval of the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Meta common stock in connection with the merger;

 

    Approval of an amendment to Article Fourth of Meta’s Certificate of Incorporation to increase the number of authorized shares of Meta common stock to 90 million from 30 million shares for the purpose of affecting a three-for-one forward split of issued and outstanding shares of Meta common stock;

 

    Approval of one or more adjournments of the Meta special meeting, if necessary or appropriate, including adjournments to permit the further solicitation of proxies in favor of the any of the foregoing proposals; and

 

    Transaction of such other business as may properly come before the Meta special meeting and any adjournments or postponements thereof.

Meta stockholders are being asked to vote on the Meta merger proposal in order to satisfy the requirements of Section 252 of the DGCL and NASDAQ Listing Rule 5635(b), which requires stockholder approval prior to the issuance of securities in connection with the acquisition of stock or assets of another company if the issuance would constitute more than 20% of the total number of shares of common stock outstanding before the issuance.

Meta stockholders are being asked to vote on the charter amendment proposal to facilitate the stock split, and, without approval of the charter amendment proposal, Meta would not have sufficient authorized shares of Meta common stock to affect the stock split. Meta stockholder approval of the charter amendment proposal is required under Section 242 of the DGCL.

Recommendation of Meta’s Board of Directors

Meta’s board of directors recommends that holders of Meta common stock vote “FOR” the Meta merger proposal, “FOR” the charter amendment proposal and “FOR” the adjournment proposal (if necessary or appropriate).

Meta Record Date and Quorum

Meta Record Date

Meta’s board of directors has fixed the close of business on [                ], 2018 as the record date for determining the Meta stockholders entitled to receive notice of and to vote at the Meta special meeting (the “Meta record date”). Each share of Meta common stock held of record at the close of business on the Meta record date entitles the holder thereof to one vote on each matter considered and voted on at the Meta special meeting. As of the Meta record date, [                ] shares of Meta common stock were issued and outstanding and held by approximately [    ] record holders.

If you hold shares of Meta common stock that are registered in your name through Meta’s transfer agent, Computershare Trust Company, N.A., as of the Meta record date, you are the stockholder of record with respect to those shares. If you hold shares of Meta common stock indirectly through a bank, broker, trustee or other nominee (a “broker”), you are considered a beneficial owner of those shares but are not the stockholder of record. In this circumstance, you are a stockholder whose shares are held in “street name” and your broker is considered the stockholder of record. Meta sent copies of this joint proxy statement/prospectus directly to all Meta stockholders of record. If you are a beneficial owner whose shares are held in street name, these materials were sent to you by the broker through which you hold your shares. As the beneficial owner, you may direct your broker how to vote your shares at the Meta special meeting, and the broker is obligated to provide you with a voting instruction form for you to use for this purpose.

 

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Quorum Requirements

A quorum is required to transact business at the Meta special meeting. The holders of one-third of the outstanding shares of Meta common stock on the Meta record date, present in person or represented by proxy and entitled to vote, will constitute a quorum for the transaction of business at the Meta special meeting. Abstentions and broker non-votes are treated as present for quorum purposes.

Vote Required; Treatment of Abstentions and Failure to Vote

Meta Merger Proposal

Approval of the Meta merger proposal requires approval by Meta stockholders holding a majority of the outstanding shares of Meta common stock entitled to vote thereon. If a Meta stockholder marks “ABSTAIN” with respect to the Meta merger proposal or fails to either submit a proxy card or vote in person at the Meta special meeting or instruct the stockholder’s broker with respect to the Meta merger proposal, it will have the same effect as a vote “AGAINST” the Meta merger proposal.

Charter Amendment Proposal

Approval of the charter amendment proposal requires approval by Meta stockholders holding a majority of the outstanding shares of Meta common stock entitled to vote thereon. If a Meta stockholder marks “ABSTAIN” with respect to the charter amendment proposal or fails to either submit a proxy card or vote in person at the Meta special meeting or instruct the stockholder’s broker with respect to the charter amendment proposal, it will have the same effect as a vote “AGAINST” the charter amendment proposal.

Meta Adjournment Proposal

Approval of the Meta adjournment proposal requires the affirmative vote of a majority of the total votes cast by holders of Meta common stock on such proposal. If a Meta stockholder marks “ABSTAIN” with respect to the Meta adjournment proposal, it will be counted for purposes of determining whether there is a quorum and will have the same effect as a vote “AGAINST” the Meta adjournment proposal. If a Meta stockholder fails to submit a proxy card or fails to vote in person or fails to instruct the stockholder’s broker with respect to the Meta adjournment proposal, if a quorum is present, it will have no effect on such proposal. For additional and more detailed information regarding the effect of broker non-votes, see “—Shares Held in Street Name” below.

Shares Held by Directors and Officers

As of the Meta record date, directors and officers of Meta and their affiliates beneficially owned and were entitled to vote an aggregate of [                ] shares of Meta common stock, representing approximately [    ]% of the shares of Meta common stock outstanding on that date. Meta currently expects that its directors and executive officers will vote their shares in favor of the Meta merger proposal, the charter amendment and the Meta adjournment proposal (if necessary or appropriate), although none of them has entered into any agreements obligating them to do so. As of the Meta record date, except in a fiduciary capacity, Crestmark and its subsidiaries did not beneficially own any shares of Meta common stock.

Meta Employee Plan Shares

Meta maintains the Meta Financial Employee Stock Ownership Plan and the MetaBank Profit Sharing 401(k) Plan (collectively, the “Employee Plans”), which hold collectively approximately [    ]% of the Meta common stock outstanding as of the Meta record date for the Meta special meeting. Subject to certain eligibility requirements, employees of Meta and MetaBank participate in one or both of the Employee Plans. Each participant in an Employee Plan is entitled to instruct the trustee of such Employee Plan as to how to vote such participant’s shares of Meta common stock allocated to his or her Employee Plan account. If an Employee Plan participant properly executes the voting instruction card distributed by the Employee Plan trustee, the Employee Plan trustee will vote such participant’s shares in accordance with the participant’s instructions. If properly executed voting instruction cards are returned to the Employee Plan trustee with no specific instruction as to how to vote at the Meta special meeting, the trustee may vote such shares in its discretion. If the Employee Plan participant fails to give timely or properly executed voting instructions to the trustee with respect to the voting of the Meta common stock that is allocated to the participant’s Employee Plan account, the Employee Plan trustee may vote such shares in its discretion. The Employee Plan trustee will vote the shares of Meta common stock held in the Employee Plans but not allocated to any participant’s account in the manner directed by the majority of the participants who directed the trustee as to the manner of voting their allocated shares. As of the Meta record date, all of the shares held in the Employee Plans were allocated.

 

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Solicitation of Proxies; Payment of Solicitation Expenses

Proxies are being solicited by Meta’s board of directors from Meta stockholders. Shares of Meta common stock represented by properly executed proxies, and that have not been revoked, will be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated, such proxies will be voted “FOR” approval of the Meta merger proposal, “FOR” approval of the charter amendment proposal and “FOR” the Meta adjournment proposal (if necessary or appropriate), and in the discretion of the individuals named as proxies as to any other matter that may come before the Meta special meeting, which will be voted in accordance with the best judgment of the named proxies.

Pursuant to the terms of the merger agreement, each of Meta and Crestmark will, at its own expense, mail (or cause to be mailed) this joint proxy statement/prospectus to its shareholders, and, otherwise, each of Meta and Crestmark has agreed to pay for the expenses incurred by it in connection with this joint proxy statement/prospectus, including all listing, filing or registration fees, including fees paid for filing the registration statement of which this joint proxy statement/prospectus is a part with the SEC and any other fees paid for filings with governmental authorities. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, officers or employees of Meta or its affiliates telephonically, electronically or by other means of communication. Directors, officers and employees will receive no additional compensation for such solicitation. Meta will reimburse brokers for costs incurred by them in mailing proxy materials to beneficial owners in accordance with applicable rules. In addition, Meta has engaged Regan & Associates, Inc. to assist in the solicitation of proxies for the Meta special meeting. Meta estimates that the fee for such services will be approximately $10,000.

Voting Your Shares

Meta stockholders may vote in person or by proxy at the Meta special meeting. If you hold your shares of Meta common stock in your name as a stockholder of record, you may cast your vote in one of four ways:

 

    By Internet. The web address for Internet voting can be found on the enclosed proxy card. Internet voting is available 24 hours a day. To be valid, your vote by Internet must be received by the deadline specified on the proxy card.

 

    By Telephone. The telephone number for telephone voting can be found on the enclosed proxy card and is available 24 hours a day. To be valid, your vote by telephone must be received by the deadline specified on the proxy card.

 

    By Mail. Mark the enclosed proxy card, sign and date it, and return it in the postage prepaid envelope provided. To be valid, your vote by mail must be received by the deadline specified on the proxy card.

 

    At the Meta Special Meeting. You can vote your shares in person at the Meta special meeting. You must present an acceptable form of identification (such as a valid driver’s license) in order to enter the Meta special meeting.

If you hold your shares in street name, you may vote by following your broker’s instructions or, in order to vote in person at the Meta special meeting, you must bring valid picture identification and an authorization letter from the broker, bank or nominee indicating that you were the beneficial owner of Meta common stock on the Meta record date.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF META COMMON STOCK YOU OWN. Accordingly, each Meta stockholder should sign, date and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not the Meta stockholder plans to attend the Meta special meeting in person.

Shares Held in Street Name

Under New York Stock Exchange rules, brokers, banks or other nominees that hold shares of Meta common stock in “street name” for their customers which are beneficial owners of those shares have discretionary authority to vote shares without instructions from beneficial owners on matters considered “routine” (as determined in accordance with the rules of the New York Stock Exchange). On non-routine matters, brokers, banks and nominees do not have discretion to vote shares without instructions from beneficial owners and, thus, are not entitled to vote on such proposals in the absence of such specific instructions. A “broker non-vote” is submitted when a member broker returns a proxy card and indicates that, with respect to a particular matter, it is not voting a specified number of shares on that matter, as it has not received voting instructions with respect to those shares from the beneficial owner and does not have discretionary authority to vote those shares on such matter. Meta believes that each of the Meta merger proposal, the charter amendment and the Meta adjournment proposal is considered a “non-routine” matter, and your broker will not be able to vote your shares with respect to those matters without your instructions. Broker non-votes will not be counted for any purpose in determining whether a matter has been approved. Shares represented by such broker non-votes will, however, be counted in determining whether there is a quorum.

 

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Revocability of Proxies and Changes to Meta Stockholder’s Vote

If you have submitted a proxy and would like to revoke it, you may revoke your proxy or change your vote at any time before your shares are voted at the Meta special meeting by timely:

 

    resubmitting your vote on a later date via the Internet or by telephone and following appropriate instructions;

 

    executing and mailing a proxy card that is dated and received on a later date (which must be received before the start of the Meta special meeting);

 

    notifying the Corporate Secretary of Meta in writing, at MetaBank Corporate Services, 5501 South Broadband Lane, Sioux Falls, South Dakota, 57108, before the Meta special meeting that you have revoked your proxy (the notification must be received by the close of business on [                ], 2018); or

 

    voting in person at the Meta special meeting (but attendance at the Meta special meeting will not by itself revoke a proxy).

If your shares are held in street name, you should contact your broker to change your vote.

Attending the Meta Special Meeting

All Meta stockholders of record at the Meta record date are invited to attend the Meta special meeting. All stockholders must bring an acceptable form of identification, such as a valid driver’s license, in order to attend the Meta special meeting in person. If you hold shares in street name and would like to attend the Meta special meeting, you will also need to bring an authorization letter from the broker, bank or nominee indicating that you were the beneficial owner of Meta common stock on the Meta record date.

 

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CRESTMARK SPECIAL MEETING

This section contains information from Crestmark for Crestmark shareholders about the Crestmark special meeting that Crestmark has called to consider and approve the Crestmark merger proposal, as discussed further below. Crestmark is mailing this joint proxy statement/prospectus to Crestmark shareholders on or about [            ], 2018. Together with this joint proxy statement/prospectus, Crestmark is also sending to Crestmark shareholders a notice of the Crestmark special meeting and a form of proxy card that Crestmark’s board of directors is soliciting for use at the special meeting of Crestmark shareholders and at any adjournments of the meeting.

This joint proxy statement/prospectus is also being furnished by Meta to Crestmark shareholders as a prospectus in connection with the issuance of shares of Meta common stock upon completion of the merger.

Date, Time and Place

The Crestmark special meeting will be held at [                 ] on [                ], 2018 at [                ], Eastern time.

Matters to Be Considered

At the Crestmark special meeting, Crestmark shareholders as of the Crestmark record date will be asked to consider and vote on the following matters:

 

    Adoption of the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus, the merger and the other transactions contemplated by the merger agreement.

 

    Approval of one or more adjournments of the Crestmark special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the Crestmark merger proposal.

 

    Transaction of such other business as may properly come before the Crestmark special meeting and any adjournments or postponements thereof.

Crestmark shareholders are being asked to vote on the Crestmark merger proposal in order to satisfy the requirements of Section 703a of the MBCA.

Recommendation of Crestmark’s Board of Directors

The Crestmark board of directors recommends that holders of Crestmark common stock vote “FOR” the Crestmark merger proposal and “FOR” the Crestmark adjournment proposal (if necessary or appropriate).

Crestmark Record Date and Quorum

Crestmark Record Date    

Crestmark’s board of directors has fixed the close of business on [                ], 2018 as the record date for determining the Crestmark shareholders entitled to receive notice of and to vote at the Crestmark special meeting (the “Crestmark record date”). Each share of Crestmark common stock held of record at the close of business on the Crestmark record date entitles the holder thereof to one vote on each matter considered and voted on at the Crestmark special meeting. As of the Crestmark record date, [                ] shares of Crestmark common stock were issued and outstanding and held by approximately [    ] record holders.

If you hold shares of Crestmark common stock indirectly through a broker, you are considered a beneficial owner of those shares but are not the shareholder of record. In this circumstance, you are a shareholder whose shares are held in “street name” and your broker is considered the shareholder of record. Crestmark sent copies of this joint proxy statement/prospectus directly to all Crestmark shareholders of record. If you are a beneficial owner whose shares are held in street name, these materials were sent to you by the broker through which you hold your shares. As the beneficial owner, you may direct your broker how to vote your shares at the Crestmark special meeting, and the broker is obligated to provide you with a voting instruction form for you to use for this purpose.

Quorum Requirements

A quorum is required to transact business and consider each proposal at the Crestmark special meeting. The holders of a majority of the outstanding shares of Crestmark common stock on the Crestmark record date, present in person or represented by proxy and entitled to vote, will constitute a quorum for the transaction of business at the Crestmark special meeting. Abstentions and broker non-votes are treated as present for quorum purposes.

 

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Vote Required; Treatment of Abstentions and Failure to Vote

Crestmark Merger Proposal

Pursuant to Section 703a of the MBCA, Crestmark’s by-laws and Section 5.04 of the merger agreement, in order to complete the merger, Crestmark must obtain the prior affirmative vote from the holders of at least a majority of the outstanding shares of Crestmark common stock entitled to vote thereon. The board of directors of Crestmark has unanimously approved the merger agreement and the transactions contemplated. If a Crestmark shareholder fails to submit a proxy card or vote in person at the Crestmark special meeting, marks “ABSTAIN” on the shareholder’s proxy card or fails to instruct the shareholder’s broker with respect to the Crestmark merger proposal, it will have the same effect as a vote “AGAINST” approval of the Crestmark merger proposal.

Crestmark Adjournment Proposal

By a vote of the majority of shareholders present, in person or by proxy, whether or not a quorum is present, the special meeting may, from time to time, be adjourned, by resolution to another place and time, for a period not exceeding fourteen (14) days in any one case. If a Crestmark shareholder marks “ABSTAIN” with respect to the Crestmark adjournment proposal, it will have the same effect as a vote “AGAINST” the Crestmark adjournment proposal. If a Crestmark shareholder fails to submit a proxy card or vote in person at the Crestmark special meeting or fails to instruct the shareholder’s broker with respect to the Crestmark adjournment proposal, it will have no effect on such proposal.

Shares Held by Directors and Officers

As of the Crestmark record date, Crestmark’s directors and executive officers and their affiliates held approximately [    ]% of the outstanding shares of Crestmark common stock entitled to vote at the Crestmark special meeting. Certain of Crestmark’s directors and executive officers and holders of Crestmark common stock, representing an aggregate of approximately 34% of Crestmark’s outstanding common stock as of January 9, 2018, have entered into voting agreements with Meta pursuant to which, among other things, each such Crestmark shareholder agreed to vote such Crestmark shareholder’s shares of Crestmark common stock in favor of the merger agreement, the merger and the other transactions contemplated by the merger agreement, at the Crestmark special meeting. See “The Merger—Interests of Certain Persons in the Merger.”

As of the Crestmark record date, Meta and its subsidiaries did not beneficially own any shares of Crestmark common stock and none of its directors and executive officers and their affiliates held shares of Crestmark common stock.

Shares Held in the Crestmark Employee Stock Ownership Plan (the “ESOP”)

Shares of Crestmark common stock held in the ESOP will be voted by the ESOP Trustee, as record shareholder, in accordance with ESOP participant directions. Under the ESOP’s pass- through provision, and in accordance with applicable IRS regulations, ESOP participants will be allowed to instruct the ESOP Trustee to vote the Crestmark shares allocated to their accounts to approve or disapprove the Crestmark merger proposal. The ESOP Trustee will vote, in its discretion, any ESOP shares for which participant instructions are not received by the deadline specified by the ESOP Trustee The ESOP Trustee will administer the vote pursuant to a confidential process that complies with the ESOP terms as well as IRS and ERISA fiduciary guidelines.

Solicitation of Proxies; Payment of Solicitation Expenses

Proxies are being solicited by Crestmark’s board of directors from Crestmark shareholders. Shares of Crestmark common stock represented by properly executed proxies, and that have not been revoked, will be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated, such proxies representing shares of Crestmark common stock will be voted “FOR” the Crestmark merger proposal and “FOR” the Crestmark adjournment proposal (if necessary or appropriate), and in the discretion of the individuals named as proxies as to any other matter that may come before the Crestmark special meeting, which will be voted in accordance with the best judgment of the named proxies.

Pursuant to the terms of the merger agreement, each of Meta and Crestmark will, at its own expense, mail (or cause to be mailed) this joint proxy statement/prospectus to its shareholders, and, otherwise, each of Meta and Crestmark has agreed to pay for the expenses incurred by it in connection with this joint proxy statement/prospectus, including all listing, filing or registration fees, including fees paid for filing the registration statement of which this joint proxy statement/prospectus is a part with the SEC and any other fees paid for filings with governmental authorities. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, officers or employees of Crestmark or its affiliates telephonically, electronically or by other means of communication. Directors, officers and employees will receive no additional compensation for such solicitation. Crestmark will reimburse brokers for costs incurred by them in mailing proxy materials to beneficial owners in accordance with applicable rules.

 

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Voting Your Shares

Crestmark shareholders may vote in person or by proxy at the Crestmark special meeting on the proposals upon which they are entitled to vote. Crestmark shareholders may also vote by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. To be valid, your vote by mail must be received by the deadline specified on the proxy card.

Shares Held in Street Name

If you hold your shares in street name, you may vote by following your broker’s instructions or, in order to vote in person at the Crestmark special meeting, you must bring an acceptable form of identification, such as a driver’s license, an account statement and a “legal proxy” form from the broker, or other acceptable evidence of ownership of Crestmark common stock as of the close of business on the Crestmark record date.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF CRESTMARK COMMON STOCK YOU OWN. Accordingly, each Crestmark shareholder should sign, date and return the enclosed proxy card whether or not the Crestmark shareholder plans to attend the Crestmark special meeting in person.

Revocability of Proxies and Changes to a Crestmark Shareholder’s Vote

A Crestmark shareholder who has submitted a proxy may revoke it or change the shareholder’s vote at any time before the shares are voted at the Crestmark special meeting by (i) giving a written notice of revocation to Gayle Finger, First Vice President – Legal Compliance of Crestmark, (ii) attending the Crestmark special meeting in person and voting by ballot at the Crestmark special meeting, or (iii) by properly submitting to Crestmark a duly executed proxy bearing a later date. All written notices of revocation and other communications with respect to revocation of proxies should be addressed to Crestmark as follows: 5480 Corporate Drive, Suite 350, Troy, Michigan 48098, Attention: Gayle Finger, First Vice President – Legal Compliance. If your shares are held in street name, you should contact your broker to change your vote.

Attending the Crestmark Special Meeting

All holders of record of Crestmark common stock are invited to attend the Crestmark special meeting. All shareholders must bring an acceptable form of identification, such as a valid driver’s license, in order to attend the Crestmark special meeting in person. If you hold shares in street name and would like to attend the Crestmark special meeting, you will also need to bring an account statement and a “legal proxy” form from the broker, or other acceptable evidence of ownership of Crestmark common stock as of the close of business on the Crestmark record date.

 

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PROPOSAL NO. 1

THE MERGER AGREEMENT AND THE MERGER

The following discussion describes certain material information about the merger. We urge you to read carefully this joint proxy statement/prospectus in its entirety, including the merger agreement, the financial advisor opinion of Raymond James delivered to the Meta board of directors and the financial advisor opinion of Sandler O’Neill & Partners, L.P., delivered to the Crestmark board of directors, copies of which are attached as Appendices A, C and D, respectively, to this joint proxy statement/prospectus, for a more complete understanding of the merger.

Terms of the Merger

On January 9, 2018, Meta, MetaBank, Crestmark and Crestmark Bank entered into the merger agreement, providing for the merger of Crestmark with and into Meta, with Meta as the surviving entity, and, immediately thereafter, pursuant to the terms of the bank merger agreement between MetaBank and Crestmark Bank (the “bank merger agreement”), Crestmark Bank will merge with and into MetaBank, with MetaBank surviving as Meta’s wholly-owned subsidiary (the “bank merger”). As a result of the merger and the bank merger, respectively, the separate existence of Crestmark and Crestmark Bank will terminate. Following the bank merger, MetaBank will continue its existence as a federally chartered stock savings bank. We expect to complete the merger and the bank merger in the second calendar quarter of 2018, although we cannot give any assurance as to whether we will receive any required consents or approvals or the satisfaction or waiver of any other conditions to the obligations of Meta and Crestmark to complete the merger.

Upon completion of the merger, each holder of Crestmark common stock will receive for each share of Crestmark common stock that such holder owns immediately prior to the completion of the merger, 2.65 fully paid and non-assessable shares of Meta common stock, subject to adjustment in the event of a stock split, stock dividend or distribution, recapitalization, reclassification, exchange or similar transaction with respect to the outstanding shares of Meta common stock. Meta will not issue fractional shares of Meta common stock in the merger. Instead, Meta will pay to each Crestmark shareholder that would otherwise be entitled to receive fractional shares an amount in cash equal to (a) the product of (i) the exchange ratio multiplied by (ii) the average closing price per share of Meta common stock on the NASDAQ Global Select Market for the ten trading day period ending five calendar days before the closing of the merger (such product, the “per share purchase price”) multiplied by (b) such fractional share interest.

As of the effective time of the merger, each outstanding in-the-money Crestmark stock option will be cancelled and converted into the right to receive an amount in cash (without interest) equal to the product of the number of shares of Crestmark common stock underlying such in-the-money Crestmark stock option, multiplied by the excess of the per share purchase price over the exercise price of such in-the-money Crestmark stock option, less any applicable withholding taxes. Any out-of-the-money Crestmark stock option will be cancelled and of no further force or effect as of the effective time of the merger, without any consideration therefor.

For additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the merger and the provisions for terminating or amending the merger agreement, see “The Merger Agreement” below.

Background of the Merger

Meta’s board of directors and senior management regularly review and assess Meta’s business strategies and objectives, including strategic opportunities for the potential of business combinations, all with the goal of maximizing shareholder value. The strategic discussions have focused on, among other things, the evaluation of potential asset generating partners, the desire to accelerate the rotation of its earning asset base from lower-yielding securities to high quality, attractive-yielding loans and the benefits of offsetting the seasonality of earnings created by Meta’s other divisions.

Crestmark’s mission is to add value to small- and medium-sized businesses by providing innovative financial solutions to niche markets. Crestmark’s board of directors believes that Crestmark’s success is derived primarily from the value and satisfaction provided to its stakeholders – including its clients, employees, shareholders, referral sources, regulators, and the industries and communities Crestmark serves. Crestmark’s board of directors regularly evaluates its strategic direction in light of this mission with the goal of fostering an atmosphere of creativity, flexibility, and integrity.

During the latter half of 2016 through the first quarter of 2017, Crestmark held internal discussions and various meetings and conversations with investment banking firms, including Sandler O’Neill, regarding the desire to develop additional sources of capital to support Crestmark’s continued growth. These discussions centered around the relative benefits, costs and risks associated with various financing options, and the services offered by the investment banking firms.

 

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On March 20, 2017, Crestmark’s board of directors and senior management met to discuss strategic alternatives to facilitate continued growth, including raising private equity, acquiring a traditional community bank to enhance its deposit base and expand its range of services, conducting an initial public offering, or merging with a strategic partner. Representatives of Sandler O’Neill were invited to participate in the March 20, 2017 meeting and made a presentation to the Crestmark board on available capital-raising alternatives and potential merger partners. The Crestmark board determined that pursuing a strategic merger presented a compelling opportunity to further Crestmark’s mission, and directed management to further develop its analysis of strategic alternatives with a focus on identifying potential merger candidates that had similar entrepreneurial culture and complementary lines of business.

On May 2 and 3, 2017, Crestmark executive management, including W. David Tull, Crestmark’s Chairman and Chief Executive Officer, and Michael “Mick” Goik, Crestmark’s Chief Operating Officer, met at an offsite meeting with representatives of Dickinson Wright PLLC (“Dickinson”), Crestmark’s outside legal counsel, and representatives of Sandler O’Neill where they identified and discussed potential transaction partners that could fit the parameters outlined by the board, and began to develop Crestmark’s confidential marketing materials.

In June 2017, Crestmark began populating an online data room with information to be used for due diligence by potential acquirers. On June 29, 2017, Crestmark formally engaged Sandler O’Neill as its financial advisor.

During the week of July 10, 2017, at the direction of Crestmark’s board of directors, representatives of Sandler O’Neill contacted nine potential acquirers, including Meta, and set up a series of meetings between Crestmark management and management of each of the potential acquirers.

On July 13, 2017, Crestmark and Meta executed a non-disclosure agreement (“NDA”), and Meta was provided with Crestmark’s confidential marketing materials. During the weeks of July 10 through July 17, 2017, five additional NDAs were distributed to potential acquirers, four of which were executed. Three of these additional parties that signed NDAs were sent Crestmark’s confidential marketing materials and met in person with Crestmark’s management team.

On July 21, 2017, management teams from Crestmark and Meta, along with representatives of Sandler O’Neill, met at Meta’s offices in Sioux Falls, South Dakota, to discuss a potential strategic partnership between Crestmark and Meta. At the meeting, Crestmark and Meta representatives reviewed Crestmark’s confidential marketing materials and discussed their respective current and historical businesses, business lines, strategic goals, corporate culture and credit quality.

On July 24, 2017, the boards of directors of Meta and MetaBank met and J. Tyler Haahr, Meta’s Chairman and Chief Executive Officer, and Glen Herrick, Meta’s Chief Financial Officer, provided an update to the Meta and MetaBank boards of directors from the meeting held on July 21 with Crestmark. Following this meeting, Meta began performing preliminary due diligence on Crestmark.

During the weeks of July 24 through August 1, 2017, Crestmark management held meetings and discussions with four additional potential acquirers, three of which were in-person meetings. On August 11, 2017, one of the potential acquirers, Company A, orally expressed its interest regarding a potential acquisition of Crestmark.

On August 18, 2017, Meta engaged Raymond James & Associates, Inc. (“Raymond James”) to serve as its financial advisor with respect to the proposed transaction with Crestmark.

On August 22, 2017, Crestmark entered into a reciprocal NDA with Meta relating to Meta’s confidential information, and began reverse due diligence on Meta.

On August 25, 2017, Meta sent a non-binding letter of intent (“LOI”) to Crestmark to acquire Crestmark at a range of $190.00 per share to $205.00 per share or $249 million to $270 million in the aggregate in an all-stock transaction based on a fixed exchange ratio to be determined at the signing of the definitive agreement. Based on Meta’s closing stock price on August 24, 2017, of $69.10, the implied exchange ratio would have been a range of 2.75 to 2.97. Meta expressed its interest in growing Crestmark’s lines of business and with minimal employee reductions, two features that were important to the Crestmark board of directors. The proposed LOI included a proposed seat on the Meta board of directors, to be filled initially by Mr. Tull, as well as the employment of Mr. Goik, by Meta as the president of a new Commercial Finance Division of Meta. The proposed LOI also included a binding 60-day exclusivity period, which required that Crestmark only negotiate a potential transaction with Meta during such time.

On August 28, 2017, members of Crestmark management had discussions with representatives of Sandler O’Neill regarding the likelihood that other potential acquirers, including Company A, would pursue a transaction with Crestmark on terms more attractive than those proposed by Meta. Following those discussions, members of Crestmark management determined that the LOI presented by Meta represented a viable proposal which was a good strategic fit for Crestmark and its shareholders and elected to focus its efforts on negotiations with Meta.

On August 28, 2017, the boards of directors of Meta and MetaBank met and Mr. Herrick provided background information regarding Crestmark and Crestmark Bank and the proposed transaction prepared by Raymond James for review and discussion. Mr. Herrick also updated the boards of directors on the progress of preliminary due diligence with respect to Crestmark.

 

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On September 8, 2017, at the direction of Crestmark, representatives of Sandler O’Neill contacted Raymond James and indicated Crestmark’s interest in continuing to explore a potential all-stock transaction with Meta, but that Crestmark was unwilling to execute an LOI prior to fixing the exchange ratio.

In September 2017, representatives of Meta and Crestmark agreed to meet to exchange information and further explore discussions of a business combination between Meta and Crestmark with the goal of agreeing upon a fixed exchange ratio that was representative of each company’s relative contribution to the combined company.

On September 25, 2017, Raymond James updated the boards of directors of Meta and MetaBank on the status of the potential transaction.

On September 28 and 29, 2017, Mr. Haahr, Brad Hanson, Meta’s President, Mr. Herrick, Scott Van Horssen, Meta’s Chief Investment Officer, Mr. Tull, Mr. Goik, Jack Talkington, Crestmark’s Chief Financial Officer and other members of both teams met at the offices of Meta, in Sioux Falls, South Dakota, with representatives of Raymond James, Sandler O’Neill and Dickinson to facilitate further due diligence of Crestmark and reverse due diligence of Meta and to discuss ways that the combined company could enhance shareholder value and further assess the cultural fit between the two companies.

On October 11, 2017, Meta sent Crestmark a revised LOI which provided for a fixed exchange ratio of 2.353 shares of Meta Common Stock for each outstanding share of Crestmark common stock, which, based on Meta’s closing stock price on October 11, 2017 of $85.00, implied a purchase price of $200.00 per share. The revised LOI provided that Crestmark stock options and other common stock equivalents would be paid out in cash and included a binding 60-day exclusivity period, which required that Crestmark only negotiate a potential transaction with Meta during such time.

On October 12, 2017, at the direction of Crestmark, representatives of Sandler O’Neill contacted Raymond James and indicated that Crestmark was unwilling to proceed with an exchange ratio of 2.353. Representatives of Sandler O’Neill, in consideration of the respective parties’ goals of maximizing shareholder value, expressed to Raymond James and Meta that an exchange ratio of between 2.85 and 2.90 may satisfy such objectives. From October 12 to October 16, 2017, negotiations between Meta and Crestmark continued.

On October 16, 2017, Meta sent to Crestmark a revised LOI, increasing the fixed exchange ratio from 2.353 to 2.65 shares of Meta Common Stock for each share of Crestmark common stock, which, based on the October 13, 2017 closing price of Meta’s common stock of $80.10, implied a purchase price of $212.27 per share and an aggregate deal value of approximately $279 million. On the same day, Crestmark convened a meeting of its board of directors at which representatives of Sandler O’Neill discussed the financial terms of Meta’s revised proposal with the Crestmark board. Representatives of Dickinson were also present and explained to the Crestmark directors their fiduciary duties in connection with their review and consideration of the proposed transaction with Meta and the proposed deal process. The Crestmark board discussed the financial terms of Meta’s proposal and the expected impact on Crestmark and its shareholders, employees and other constituencies. At the conclusion of the meeting, the Crestmark board approved, and Crestmark executed, the LOI.

On October 23, 2017, Mr. Herrick provided the signed LOI to the boards of directors of Meta and MetaBank. Mr. Herrick also provided an update on the preliminary due diligence, discussed Meta’s plan for due diligence, and identified the outside advisors and consultants Meta intended to use to assist with due diligence.

During October, November and December 2017, Meta conducted extensive due diligence, through face-to-face meetings and conference calls with select officers of Crestmark, as well as Meta’s accountants and legal advisors. Meta’s due diligence review encompassed both public and non-public information related to Crestmark, including financial, credit, operational, regulatory and compliance, corporate and legal due diligence.

During October, November and December 2017, Crestmark conducted extensive reverse due diligence on Meta, focusing on understanding Meta’s lines of business, larger credit exposures, acquisition and integration history and stock transactions. Crestmark’s due diligence of Meta also evaluated Meta’s regulatory relationships, tax lending business and customer relationships.

On November 27, 2017, Mr. Herrick provided the boards of directors of Meta and MetaBank with an update on the status of the potential acquisition of Crestmark. The boards had extensive discussions on the due diligence process and the proposed terms of the definitive transaction documents.

On November 28, 2017, Messrs. Haahr and Herrick met with Messrs. Tull and Goik to discuss certain details surrounding the merger, including personnel and reporting structures for the combined company following the consummation of the proposed merger.

Throughout the months of November and December 2017, the parties negotiated various drafts of the transaction documents. Katten Muchin Rosenman LLP (“Katten”), counsel for Meta, coordinated the review and comments of the proposed documents by Meta and Meta’s officers and directors. Dickinson coordinated the review and comments of the proposed documents by Crestmark and Crestmark’s officers and directors and certain shareholders owning in excess of 5% of the common stock of Crestmark, who were asked to enter into a voting agreement to support the transaction.

 

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On December 20, 2017, the boards of directors of Meta and MetaBank met. Mr. Herrick provided the boards with an update on the completed due diligence. Katten discussed with the boards their fiduciary duties in connection with the proposed transaction, including a discussion of the Business Judgement Rule, and discussed the key terms of the proposed merger agreement with Crestmark. Raymond James provided a review of the due diligence process and status of the negotiations to date. After updates from Mr. Herrick, Katten and Raymond James, there was a lengthy discussion on the transaction and it was agreed that the management team would continue to move forward with the transaction with Crestmark.

On January 8, 2017, Meta and MetaBank held a special joint meeting of the boards of directors to consider the transaction with Crestmark and the definitive transaction documents, including the merger agreement. Katten provided the boards with an overview of the directors’ fiduciary duties.

During the meeting, Meta’s management and legal advisors reported on, and the Meta board of directors discussed in detail, the comprehensive due diligence process undertaken by Meta and its advisors with respect to Crestmark. Management reported favorably regarding the complementary culture and business objectives of Crestmark and Meta.

Following this discussion, representatives of Raymond James reviewed the financial aspects of the proposed merger and discussed in detail their financial analyses as of the date of the meeting, including those described under “—Opinion of Meta’s Financial Advisor.” At this meeting, Raymond James delivered its oral opinion to the board, subsequently confirmed in writing, to the effect that as of January 8, 2018, and based upon and subject to various assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken described in its opinion, the exchange ratio was fair, from a financial point of view, to Meta, as described under “—Opinion of Meta’s Financial Advisor.”

After further discussion among members of Meta’s board, Katten led a comprehensive review of the definitive transaction documents, including the merger agreement, the voting agreements, the employment agreement with Mr. Goik and the schedules and exhibits that had been previously provided to each member of the board.

Following extensive discussion at the special January 8, 2018 board meeting and after considering the foregoing and the proposed terms of the transaction documents, and taking into consideration the factors described under “The Merger Agreement and the Merger— Meta’s Reasons for the Merger and Recommendations of the Board of Meta,” the board of directors of each of Meta and MetaBank, having determined that the terms of the merger agreement and the transactions contemplated thereby, including the merger, were fair to and in the best interests of Meta and its stockholders, approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger and the exchange ratio of 2.65. The boards directed that the merger agreement be submitted to its stockholders for approval, and recommended that stockholders vote in favor of the approval of the merger agreement and the transactions contemplated thereby.

On January 8, 2018, the Crestmark board of directors met with members of Crestmark’s executive management team and its financial and legal advisors to review the proposed transaction documents. Members of Crestmark’s executive management discussed with the Crestmark board of directors the strategic rationale, financial terms, consideration and integration risk for the proposed transaction with Meta. Crestmark management reported favorably regarding the complementary culture and business objectives of Meta and Crestmark. Members of Crestmark’s executive management team and representatives of Dickinson updated the Crestmark board of directors on the progression of negotiations with Meta and the material terms of the transaction documents. Representatives of Sandler O’Neill presented to the Crestmark board of directors on the financial aspects of the proposed transaction, and delivered its oral opinion to the Crestmark board of directors, which was subsequently confirmed in writing, to the effect that, as of January 8, 2018 and subject to procedures followed, assumptions made, matters considered and qualifications and limitations as described in Sandler O’Neill’s written opinion, the exchange ratio as proposed in the merger agreement was fair, from a financial point of view, to the holders of Crestmark common stock,. See “—Opinion of Crestmark’s Financial Advisor.”

Following these discussions, as well as review and discussion among Crestmark’s directors, including consideration of the factors described under “—Crestmark’s Reasons for the Merger,” and consideration of the above referenced presentations, the Crestmark board of directors unanimously approved and adopted the merger agreement and the transactions contemplated thereby, and declared the merger and other transactions contemplated by the merger agreement to be advisable and in the best interests of Crestmark and its stockholders. The Crestmark board of directors then directed management and its advisors to execute the definitive merger agreement.

The merger agreement and related documents were executed by the parties on January 9, 2017. The transaction was announced after market close on January 9, 2017, by a press release issued by Meta.

 

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Meta’s Reasons for the Merger and Recommendation of the Board of Meta

In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Meta common stock in connection with the merger, the Meta board of directors evaluated the merger in consultation with members of Meta’s management team as well as Meta’s financial and legal advisors, and considered a number of factors, including the following:

 

    management’s review of the business, operations, earnings and financial condition, including capital levels and asset quality, of Crestmark;

 

    the merger would result in the complementary combination of a low-cost deposit generator with a premier, high-margin asset generator;

 

    the projected 65% increase in Meta’s loan portfolio, providing additional recurring interest income to complement Meta’s non-interest income revenue and reduce the seasonality of Meta’s earnings;

 

    the opportunity for Meta to utilize its technology proficiency to drive new product development amongst Crestmark’s customer base;

 

    the opportunity to increase growth in Crestmark’s loan portfolio with a higher loan-to-one borrower limit, a lower loan-to-deposit ratio and access to additional core deposit funding

 

    a detailed contribution analysis;

 

    management’s due diligence review of Crestmark and the discussions thereof with Raymond James and Katten Muchin Rosenman LLP;

 

    the projected impact on Meta’s financial statements including the impact on earnings per share and tangible book value;

 

    the price paid relative to the recurring earnings stream of Crestmark;

 

    the expectation of management that Meta will maintain its strong capital ratios upon completion of the proposed Crestmark transaction;

 

    the commitment of Crestmark’s key executives to assume leadership positions in the combined company following closing of the proposed transaction;

 

    the expectation that minimal projected cost savings and minimal system conversions would lower integration risk;

 

    the complementary business cultures of Meta and Crestmark;

 

    the financial and other terms of the merger agreement, including the exchange ratio and the merger consideration, the expected tax treatment and the deal protection and termination fee provisions, which Meta reviewed with its outside financial and legal advisors;

 

    the opinion, dated January 8, 2018, of Raymond James to the Meta board of directors as to the fairness, from a financial point of view as of the date of the opinion, to Meta of the exchange ratio in the proposed merger, subject to procedures followed, assumptions made, matters considered and qualifications and limitations described in Raymond James’s opinion, as more fully described under “—Opinion of Meta’s Financial Advisor” below;

 

    that, concurrently with the execution of the merger agreement, certain of the directors and officers and large Crestmark shareholders, representing an aggregate of approximately 34% of Crestmark’s outstanding voting common stock as of January 8, 2018, entered into voting agreements with Meta agreeing to vote for approval of the Crestmark merger proposal; and

 

    the requisite regulatory approvals and other approvals required in connection with the proposed Crestmark transaction and the expected likelihood that such approvals will be received in a reasonably timely manner and without the imposition of unacceptable conditions.

 

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The preceding list is not intended to disclose all material information related to the analysis and discussion of Meta’s board of directors related to the proposed Crestmark transaction. The Meta board of directors considered numerous risks associated with the proposed Crestmark transaction, including the risks described in sections of this joint proxy statement/prospectus entitled “Risk Factors” beginning on page 17 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 16.

In reaching the decision to unanimously approve the proposed Crestmark transaction, the Meta board of directors did not assign any relative weights to the reasons for the merger and, instead, believes that the totality of the factors are favorable to and supportive of the determination to approve Meta’s and MetaBank’s entry into the merger agreement. As such, and for the reasons set forth above, the Meta board of directors unanimously approved the merger agreement and unanimously recommends that Meta stockholders vote “FOR” the Meta merger proposal, the charter amendment proposal and the Meta adjournment proposal.

Opinion of Meta’s Financial Advisor

Meta retained Raymond James as financial advisor on August 18, 2017. Meta selected Raymond James because it is a nationally recognized investment banking firm that regularly advises companies in connection with mergers and acquisitions and because of its familiarity with Meta and the financial services industry generally. Raymond James is actively engaged in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions.

At the January 8, 2018 meeting of Meta’s board of directors, representatives of Raymond James rendered Raymond James’s oral opinion to Meta’s board of directors that the exchange ratio was fair, from a financial point of view, to Meta. The oral opinion was subsequently confirmed by Raymond James’s delivery of its written opinion to Meta’s board of directors, dated January 8, 2018, as to the fairness, as of such date, from a financial point of view, of the exchange ratio in the merger pursuant to the merger agreement to Meta, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion.

The full text of the written opinion of Raymond James is attached as Appendix C to this joint proxy statement/prospectus. The summary of the opinion of Raymond James set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such written opinion. Raymond James provided its opinion for the information of Meta’s board of directors (in its capacity as such) in connection with, and for purposes of, its consideration of the proposed merger. No limitations were imposed by Meta’s board of directors upon Raymond James with respect to the investigations made or procedures followed in rendering its opinion. The opinion only addresses the fairness, from a financial point of view, of the exchange ratio provided for in the merger pursuant to the merger agreement to Meta, and does not address any other term or aspect of the merger agreement or the merger. Raymond James’s opinion does not constitute a recommendation to Meta’s board of directors, any stockholder of Meta or any other party as to how to vote or act on any matter relating to the proposed merger or otherwise.

In connection with its review of the proposed merger and the preparation of its opinion, Raymond James, among other things:

 

    reviewed the financial terms and conditions of the merger as stated in the draft of the merger agreement dated as of January 5, 2018;

 

    reviewed certain information related to the historical, current and future operations, financial condition and prospects of Meta and Crestmark made available to Raymond James by Meta or Crestmark, including, but not limited to, internal financial projections prepared by the management of Meta, for each of Meta and Crestmark for the years ending September 30, 2018 through 2022, as approved for Raymond James’s use by Meta, referred to as the “Projections”;

 

    reviewed Meta’s and Crestmark’s recent public filings and certain other publicly available information regarding Meta and Crestmark and the industry in which they operate;

 

    compared certain financial and operating information of Meta and Crestmark with that of certain public companies that Raymond James deemed to be relevant;

 

    reviewed the then-current and historical market prices and trading volume for Meta’s common stock, and the then-current market prices of the publicly traded securities of certain other companies Raymond James deemed comparable to Meta;

 

    conducted such other financial studies, analyses and inquiries and considered such other information and factors as Raymond James deemed appropriate;

 

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    reviewed and considered the pro forma financial impact of the merger on Meta based on the Projections and certain pro forma adjustments provided by the management of Meta;

 

    reviewed a certificate addressed to Raymond James from the CFO of Meta regarding, among other things, the accuracy of the information, data and other materials (financial or otherwise) Meta or its representatives provided to or discussed with, Raymond James; and

 

    discussed with members of the senior management of Meta and Crestmark certain information relating to the aforementioned and any other matters which Raymond James deemed relevant to its inquiry.

With Meta’s consent, Raymond James assumed and relied upon the accuracy and completeness of all information supplied by or on behalf of Meta or Crestmark or otherwise reviewed by or discussed with Raymond James, and Raymond James did not undertake any duty or responsibility to verify independently, and did not so verify, any of such information. In addition, Raymond James did not make or obtain an independent appraisal or valuation of the assets or liabilities (fixed, contingent, derivative, off-balance sheet or otherwise) of Meta or Crestmark.

With respect to the Projections and other information and data provided to or otherwise reviewed by or discussed with Raymond James, Raymond James, with Meta’s consent, assumed that such Projections and other information and data were reasonably prepared in good faith on bases reflecting the best available estimates and judgments of management of Meta then-available, and Raymond James relied upon Meta to advise Raymond James promptly if any information previously provided became inaccurate or was required to be updated during the period of its review. Raymond James was authorized by Meta to rely upon such Projections and Raymond James expressed no view as to any such Projections or the basis of the assumptions on which they were prepared. Raymond James relied on all such information without independent verification or analysis and does not in any respect assume any responsibility or liability for the accuracy or completeness thereof. Raymond James assumed that the final form of the merger agreement, when executed by the parties thereto would be consistent in all material respects to the draft of the merger agreement reviewed by Raymond James, and that the merger would be consummated in accordance with the terms of the merger agreement without waiver or amendment of any conditions thereto. Furthermore, Raymond James assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement are true and correct and that each such party would perform all of the covenants and agreements required to be performed by it under the merger agreement without being waived.

Raymond James relied upon and assumed, without independent verification, that (i) the merger will be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, (ii) the merger will constitute a tax-free reorganization and (iii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the merger will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have an effect on the merger or Meta that would be material to its analyses or its opinion. Raymond James expressed no opinion as to the legal, regulatory, accounting and tax matters relating to the merger and relied upon, without independent verification, the assessment of Meta’s management and its legal, tax, accounting and regulatory advisors with respect to all legal, tax, accounting and regulatory matters, including without limitation that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

Raymond James relied upon and assumed, without independent verification, that there were no changes in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of Meta or Crestmark since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Raymond James that would be material to Raymond James’s analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Raymond James incomplete or misleading in any material respect.

Raymond James expressed no opinion as the underlying business decision to effect the merger, the structure or tax consequences of the merger or the availability or advisability of any alternatives to the merger. Raymond James provided advice to Meta with respect to the merger, but did not recommend any specific amount of consideration or that any specific consideration constituted the only appropriate consideration for the merger. Raymond James did not express any opinion as to the value of Meta common stock following the merger or the likely trading range of Meta’s common stock following the merger, which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of Meta at that time.

Raymond James’s opinion is limited to the fairness, from a financial point of view, of the exchange ratio in the merger pursuant to the merger agreement to Meta. Raymond James expressed no opinion with respect to any other reasons, legal, business, or otherwise, that may support the decision of Meta’s board of directors to approve or consummate the merger. Furthermore, no opinion, advice or interpretation was intended or provided by Raymond James on matters that require legal, accounting or tax advice.

 

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In formulating its opinion, Raymond James considered only what it understood to be the exchange ratio in the merger as described in its opinion, and Raymond James did not consider and Raymond James expressed no opinion on the fairness of the amount or nature of any compensation to be paid or payable to any of Crestmark’s officers, directors or employees, or class of such persons, whether relative to the exchange ratio or otherwise. Raymond James was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things, (i) the fairness of the merger to the holders of any class of securities, creditors, or other constituencies of Meta, or to any other party or (ii) the fairness of the merger to any one class or group of Meta’s or any other party’s security holders or other constituencies vis-à-vis any other class or group of Meta’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any such consideration to be received in the merger amongst or within such classes or groups of security holders or other constituents). Raymond James did not express any opinion as to the impact of the merger on the solvency or viability of Meta or Crestmark or the ability of Meta or Crestmark to pay their respective obligations when they come due.

Material Financial Analyses. The following summarizes the material financial analyses presented by Raymond James to Meta’s board of directors during its meeting on January 8, 2018, which material was considered by Raymond James in rendering its opinion. Unless the context indicates otherwise, the analyses relied upon the closing price of the common stock of the selected companies listed below as of January 5, 2018. Unless otherwise indicated, for each of the following analyses performed by Raymond James, financial and market data and earnings per share, or EPS, estimates for the selected companies were based on the companies’ filings with the SEC and certain publicly available research analyst estimates for those companies. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by Raymond James, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by Raymond James. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Raymond James.

Contribution Analysis. Raymond James analyzed the relative contribution of Meta and Crestmark to certain financial and operating metrics for the pro forma combined company resulting from the merger. Such financial and operating metrics included: (i) gross loans; (ii) deposits; (iii) tangible common equity as of September 30, 2017; (iv) net income for the last twelve months, or LTM, ended September 30, 2017; (v) estimated net income for the twelve months ended September 30, 2018 based on the Projections; and (vi) estimated net income for the twelve months ended September 30, 2019 based on the Projections. The relative contribution analysis did not give effect to any synergies or purchase accounting adjustments as a result of the merger. The results of this analysis are summarized in the table below:

 

     Meta     Crestmark     Exchange  

Gross Loans

     60.7     39.3     4.72x  

Deposits

     77.4     22.6     2.15x  

Tangible Common Equity

     76.2     23.8     2.30x  

Last-12-Months Net Income

     68.9     31.1     3.30x  

2018E Net Income

     67.3     32.7     3.55x  

2019E Net Income

     67.6     32.4     3.50x  

Exchange Ratio in the Merger

         2.65x  

Selected Companies Analysis. Raymond James reviewed certain financial information and stock market data for two selected groups of companies with publicly traded equity securities that it deemed relevant for its analysis. The two selected groups represent companies that Raymond James believed to be comparable for Meta and Crestmark, respectively. The financial data reviewed included (i) tangible book value, or TBV, per share; (ii) LTM EPS, for which data was available (in each case, which was the twelve months ended September 30, 2017); and (iii) publicly available analysts’ consensus estimates for EPS for fiscal years 2018 and 2019. No company used in the analyses described below is identical or directly comparable to Meta or Crestmark. The selected companies and resulting data are below:

 

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Meta Comparable Group

 

    Simmons First National Corporation (SFNC)

 

    TowneBank (TOWN)

 

    Boston Private Financial Holdings, Inc. (BPFH)

 

    Ameris Bancorp (ABCB)

 

    BancFirst Corporation (BANF)

 

    First Financial Bankshares, Inc. (FFIN)

 

    First Busey Corporation (BUSE)

 

    WSFS Financial Corporation (WSFS)

 

    1st Source Corporation (SRCE)

 

    Westamerica Bancorporation (WABC)

 

    FB Financial Corporation (FBK)

 

    Washington Trust Bancorp, Inc. (WASH)

 

    City Holding Company (CHCO)

 

    Peoples Bancorp Inc. (PEBO)

 

    Bryn Mawr Bank Corporation (BMTC)

 

    Stock Yards Bancorp, Inc. (SYBT)

 

    First Financial Corporation (THFF)

 

    First Defiance Financial Corp. (FDEF)

 

    Nicolet Bankshares, Inc. (NCBS)

 

    Arrow Financial Corporation (AROW)

 

    Live Oak Bancshares, Inc. (LOB)

 

    Old Second Bancorp, Inc. (OSBC)

 

    Carolina Financial Corporation (CARO)

 

    Farmers National Banc Corp. (FMNB)

Crestmark Comparable Group

 

    Triumph Bancorp, Inc. (TBK)

 

    ECN Capital Corporation (ECN)

 

    National Commerce Corporation (NCOM)

 

    Live Oak Bancshares, Inc. (LOB)

 

    CAI International, Inc. (CAI)

 

    People’s Utah Bancorp (PUB)

 

    Northeast Bancorp (NBN)

 

    Marlin Business Services Corp. (MRLN)

The table below sets forth the mean and median data for the Meta Comparable Group and the Crestmark Comparable Group:

 

     Meta Comparable
Group Multiples
     Crestmark
Comparable Group
Multiples
 
     Mean      Median      Mean      Median  

Tangible Book Value

     247%        241%        186%        184%  

LTM EPS

     20.1x        19.6x        17.9x        18.3x  

2018E EPS

     16.4x        15.6x        15.3x        16.9x  

2019E EPS

     14.4x        14.0x        12.3x        13.2x  

Taking into account the results of the selected companies analysis, Raymond James applied the mean and median of the price to TBV multiples and price to EPS multiples to the corresponding financial data for each of Meta and Crestmark as of September 30, 2017. For Meta, Raymond James used the mean and median TBV and EPS multiples of the Meta Comparable Group. For Crestmark, Raymond James used the mean and median TBV and EPS multiples of the Crestmark Comparable Group. Raymond James reviewed the ranges of implied per share values and calculated a range of implied exchange ratios by dividing the higher implied per share value of Crestmark by the lower implied per share value of Meta to calculate the high implied

 

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exchange ratio, and by dividing the lower implied per share value of Crestmark by the higher implied per share value of Meta to calculate the low implied exchange ratio. The results of the selected companies analysis are summarized below:

 

     Implied Equity Value      Implied  
     Meta      Crestmark      Exchange Ratio  
     Mean      Median      Mean      Median      Low/High           High/Low  

Tangible Book Value

     72.85        70.94        134.42        132.70        1.82x      -      1.89x  

LTM EPS

     97.23        94.59        277.54        284.40        2.85x      -      3.01x  

2018E EPS

     115.78        110.30        386.16        424.87        3.34x      -      3.85x  

2019E EPS

     127.22        123.01        381.49        409.83        3.00x      -      3.33x  

Exchange Ratio in the Merger

                  2.65x   

Discounted Cash Flow Analysis. Raymond James performed a discounted cash flow analysis of Meta and Crestmark by calculating, based on the Projections, the estimated present value of Meta’s and Crestmark’s respective projected free cash flows during the fiscal year ended September 30, 2018 through fiscal year ending September 30, 2022. In performing this analysis, Raymond James applied two different methodologies for calculating the terminal values for each of Meta and Crestmark. Raymond James applied a range of terminal values using (i) multiples of 13.0x to 15.0x applied to estimated 2023 earnings for Meta (2022 earnings plus 2% growth) and multiples of 12.0x to 14.0x applied to estimated 2023 earnings for Crestmark (2022 earnings plus 2% growth) and (ii) perpetual growth rates of 1.0% to 3.0% applied to estimated 2022 earnings for Meta and Crestmark. Raymond James arrived at its terminal value multiple ranges by observing the price to 2019 estimated earnings for both selected company groups. For Meta, Raymond James used discount rates ranging from 10.0% to 12.0%. For Crestmark, Raymond James used discount rates ranging from 11.5% to 13.5%. Raymond James arrived at its discount ranges by using the Modified CAPM methodology as presented in the 2017 Duff & Phelps Valuation Handbook. Raymond James reviewed the ranges of implied per share values indicated by the discounted cash flow analysis for each of Meta and Crestmark and calculated a range of implied exchange ratios by dividing the maximum implied per share value of Crestmark by the minimum implied per share value of Meta common stock to calculate the maximum implied exchange ratio, and by dividing the minimum implied per share value of Crestmark by the maximum implied per share value of Meta to calculate the minimum implied exchange ratio. The results of the discounted cash flow analysis are summarized in the table below:

 

     Implied Equity Value      Implied  
     Meta      Crestmark      Exchange Ratio  
     Low      High      Low      High      Low/High           High/Low  

Net Income Terminal Multiple

   $ 129.84      $ 158.26      $ 387.83      $ 478.26        2.45x      -      3.68x  

Perpetual Growth Method

     97.97        153.19        278.61        416.37        1.82x      -      4.25x  

Exchange Ratio in the Merger

                  2.65x   

Pro Forma Impact Analysis. Raymond James performed a pro forma financial impact analysis that combined projected income statement and balance sheet information of Meta and Crestmark. In performing this analysis, Raymond James utilized the following information and assumptions: (i) closing balance sheet estimates as of June 30, 2018 for Meta and Crestmark based on Meta’s management estimates; (ii) financial forecasts and projections of Meta and Crestmark for the years ending September 30, 2018 and 2019 and (iii) pro forma assumptions (including, without limitation, the cost savings expected to result from the merger as well as the purchase accounting adjustments and restructuring charges assumed with respect thereto) provided by Meta management. This analysis indicated that the merger could be dilutive to Meta’s estimated TBV per share at June 30, 2018, accretive to Meta’s estimated full year 2018 earnings per share (excluding the impact of charges relating to the merger) and accretive to Meta’s estimated 2019 earnings per share. For all of the above analysis, the actual results achieved by Meta following the merger may vary from the projected results, and the variations may be material.

Additional Considerations. The preparation of a fairness opinion is a complex process and is not susceptible to a partial analysis or summary description. Raymond James believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering the analyses taken as a whole, would create an incomplete view of the process underlying its opinion. In addition, Raymond James considered the results of all such analyses and did not assign relative weights to any of the analyses, but rather made qualitative judgments as to significance and relevance of each analysis and factor.

In performing its analyses, Raymond James made numerous assumptions with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond the control of Meta and Crestmark. The analyses performed by Raymond James are not necessarily indicative of actual values, trading values or actual future results which might be achieved, all of which may be significantly more or less favorable than suggested by such analyses. The analyses do not purport to be appraisals or to reflect the prices at which companies may actually be sold, and such estimates are inherently subject to uncertainty. The opinion of Raymond James was one of many factors taken into account by Meta’s board of directors in making its determination to approve the merger. Neither Raymond James’s opinion nor the analyses described above should be viewed as determinative of positions held by Meta’s board of directors or Meta management with respect to Meta, Crestmark or the merger.

 

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Raymond James’s opinion was based upon market, economic, financial and other circumstances and conditions existing and disclosed to Raymond James as of January 5, 2018. Although subsequent developments may affect the opinion of Raymond James, Raymond James does not have any obligation to update, revise or reaffirm its opinion.

For its services as financial advisor to Meta in connection with the merger, Raymond James received an initial retainer of $25,000 (which will be credited against any transaction fee) and will receive a transaction fee of $1.45 million, which fee is contingent upon successful completion of the merger. Upon the rendering of its opinion, Raymond James became entitled to a fee of $300,000, which fee is not contingent upon the successful completion of the merger or the conclusion rendered in the opinion. In addition, Meta agreed to reimburse Raymond James for its expenses incurred in connection with its services, including the fees and expenses of its counsel, and to indemnify Raymond James and certain related parties against certain liabilities arising out of Raymond James’s engagement.

Over the last two years, Raymond James and its affiliates have provided certain other investment banking and financial services to Meta for which Raymond James or its affiliates have received fees totaling $25,000 (excluding out-of-pocket expenses reimbursement) from Meta. Raymond James and its affiliates have not in the past provided investment banking or other financial services to Crestmark. Raymond James and its affiliates may provide investment banking, financial advisory and other financial services to Meta and its affiliates in the future, for which Raymond James may receive compensation.

In the ordinary course of Raymond James’s business, Raymond James may trade in the securities of Meta for its own account or for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

Crestmark’s Reasons for the Merger and Recommendation of the Board of Crestmark

In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, and to recommend that the shareholders of Crestmark approve the Crestmark merger proposal, the Crestmark board of directors evaluated the merger in consultation with Crestmark management, as well as Crestmark’s financial and legal advisors, and considered a number of factors, including, without limitation, the following material factors:

 

    the approximately $316.3 million implied value of the merger consideration as of January 5, 2018, based on the closing price of Meta common stock on that date of $90.15;

 

    the Crestmark board’s evaluation, with the assistance of Crestmark’s management and financial and legal advisors, of strategic alternatives available to Crestmark for facilitating liquidity and enhancing value over the long term for Crestmark’s shareholders and the potential risks, rewards and uncertainties associated with such alternatives, and the Crestmark board’s belief that the proposed merger with Meta was the best option available to Crestmark and its shareholders;

 

    the fact that the merger consideration offers the Crestmark shareholders the opportunity to participate in the future growth and opportunities of the combined company;

 

    the expectation that shareholders will have increased liquidity upon receipt of Meta common stock in exchange for their shares of Crestmark common stock because Crestmark is a private company with no public trading market for its shares whereas Meta common stock trades on the NASDAQ Global Select Market;

 

    the expectation that receipt of the stock merger consideration will generally be tax-free to Crestmark’s shareholders based on the expected tax treatment of the merger as a “reorganization” for U.S. federal income tax purposes, as further described under “—Material Federal Income Tax Consequences of the Merger” beginning on page 55;

 

    the complementary aspects of the Crestmark and Meta businesses, including Meta’s ability to generate fee-based income and a low-cost deposit base, Crestmark’s expertise in business-to-business lending and leasing and the expectation that the combined company will be able to offer an increased breadth of banking products;

 

    the due diligence conducted on Meta during the negotiation of the merger agreement and its understanding of Meta’s management team, business, operations, financial condition, earnings and prospects;

 

    the similarity of Crestmark’s and Meta’s company cultures and their commitments to employees and other constituencies in the communities in which they operate, including their entrepreneurial focus and the compatibility of the companies’ management and operating styles;

 

    Meta’s understanding of Crestmark’s business, operations, financial condition, earnings and prospects;

 

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    Meta’s understanding of the current environment in the financial services industry, including national and regional economic conditions, the regulatory environment, evolving trends in technology, increasing competition, the current financial market and the likely effects of these factors on the potential growth of the combined company’s development, productivity, profitability and strategic options following the completion of the mergers;

 

    the financial presentation of Crestmark’s financial advisor, Sandler O’Neill, to the Crestmark board of directors on January 8, 2018, and the delivery of the written opinion of Sandler O’Neill, dated January 8, 2018, to the Crestmark board, to the effect that, as of such date and based on and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill as described in its opinion, the exchange ratio was fair, from a financial point of view, to Crestmark’s common shareholders, as further described under “—Opinion of Crestmark’s Financial Advisor” beginning on page 44; and

 

    the availability and interest of other potential merger parties that might be attractive and have sufficient market capitalization or other resources to consummate a merger with Crestmark.

The Crestmark board of directors weighed the foregoing against a number of potentially negative factors, including:

 

    the restrictions imposed by the merger agreement on the conduct of Crestmark’s business during the period between the execution of the merger agreement and the completion of the merger;

 

    the costs associated with the completion of the merger, including management’s time and energy and potential opportunity cost prior to the closing of the merger, and the risks of realizing the expected benefits of the merger;

 

    the risk that regulatory agencies may not approve the merger or may impose terms and conditions on their approvals that adversely affect the business and financial results of the combined company as more fully described under the caption “The Merger Agreement—Regulatory Approvals Required for the Merger” beginning on page 73;

 

    the risk that the merger may not be consummated or that the closing may be unduly delayed, including as a result of factors outside either party’s control;

 

    the challenges in absorbing the effect of any failure to complete the merger, including potential termination fees and shareholder and market reactions;

 

    the challenges inherent in the combination of two businesses of the size and complexity of Crestmark and Meta following the merger, including the possible diversion of management attention for an extended period of time;

 

    the risk of not being able to realize all of the anticipated synergies between Crestmark and Meta and the risk that other anticipated benefits might not be realized; and other risks described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

Crestmark’s board of directors believes that the merger and the merger agreement are fair to, and in the best interests of, Crestmark and its shareholders and recommends that Crestmark shareholders vote “FOR” the Crestmark merger proposal and “FOR” the Crestmark adjournment proposal (if necessary or appropriate). In considering the recommendation of the Crestmark board of directors, you should be aware that the directors and executive officers of Crestmark have interests in the merger that may be different from, or in addition to, interests of Crestmark shareholders generally and may create potential conflicts of interest. The Crestmark board of directors was aware of these interests and considered them when evaluating and negotiating the merger agreement, the merger and the other transactions contemplated by the merger agreement, and in recommending that Crestmark shareholders vote in favor of the Crestmark merger proposal. See “—Interests of Certain Persons in the Merger” beginning on page 58.

This discussion of the information and factors considered by the Crestmark board of directors includes the material factors considered by the board, but it is not intended to be exhaustive and may not include all the factors considered by the board. In view of the wide variety of factors considered, and the complexity of these matters, the Crestmark board of directors did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement. Rather, the Crestmark board of directors viewed its position and recommendation as being based on the totality of the information presented to and factors considered by it, including discussions with, and questioning of, Crestmark’s management and its financial and legal advisors. In addition, individual members of the Crestmark board may have given differing weights to different factors.

It should be noted that this explanation of the reasoning of the Crestmark board of directors and certain information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”

 

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Opinion of Crestmark’s Financial Advisor

Crestmark retained Sandler O’Neill on June 29, 2017 to act as an independent financial advisor to Crestmark’s board of directors in connection with Crestmark’s consideration of a possible business combination. Crestmark selected Sandler O’Neill because Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O’Neill acted as an independent financial advisor in connection with the proposed transaction and participated in certain of the negotiations leading to the execution of the merger agreement. At the January 8, 2018 meeting at which Crestmark’s board of directors considered and discussed the terms of the merger agreement and the merger, Sandler O’Neill delivered to Crestmark’s board of directors its oral opinion, which was subsequently confirmed in writing, to the effect that, as of January 8, 2018, the exchange ratio provided for in the merger agreement was fair to the Crestmark common shareholders from a financial point of view. The full text of Sandler O’Neill’s opinion is attached as Appendix C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the written opinion set forth below is qualified in its entirety by reference to the full text of the written opinion. Holders of Crestmark common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to Crestmark’s board of directors in connection with its consideration of the merger agreement and the merger and does not constitute a recommendation to any Crestmark shareholder as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger agreement and the merger. Sandler O’Neill’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the Crestmark shareholders and does not address the underlying business decision of Crestmark to engage in the merger, the form or structure of the merger or any other transactions contemplated by the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for Crestmark or the effect of any other transaction in which Crestmark might engage. Sandler O’Neill did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of Crestmark or Meta, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder, including the merger consideration to be received by the Crestmark shareholders. Sandler O’Neill’s opinion was approved by Sandler O’Neill’s fairness opinion committee.

In connection with its opinion, Sandler O’Neill reviewed and considered, among other things:

 

    A draft of the merger agreement, dated January 3, 2018;

 

    Certain publicly available financial statements and other historical financial information of Crestmark and Crestmark Bank that Sandler O’Neill deemed relevant;

 

    Certain publicly available financial statements and other historical financial information of Meta and MetaBank that Sandler O’Neill deemed relevant;

 

    Certain internal financial projections for Crestmark for the years ending December 31, 2017 through December 31, 2021, as provided by the senior management of Crestmark;

 

    Publicly available consensus mean analyst earnings per share estimates for Meta for the years ending September 30, 2018 and September 30, 2019 as confirmed by the senior management of Meta, as well as long-term earnings per share estimates for the years ending September 30, 2020 through September 30, 2022 and estimated dividends per share for the years ending September 30, 2018 through September 30, 2022, as provided by the senior management of Meta;

 

    The pro forma financial impact of the merger on Meta based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of Meta, as well as financial projections for Crestmark for the years ending September 30, 2018 through September 30, 2021, as adjusted by the senior management of Meta;

 

    The publicly reported historical price and trading activity for Meta common stock, including a comparison of certain stock market information for Meta common stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded;

 

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    A comparison of certain financial information for Crestmark and Meta with similar financial institutions for which information is publicly available;

 

    The financial terms of certain recent business combinations in the banking industry (on a nationwide basis), to the extent publicly available;

 

    The current market environment generally and the banking environment in particular; and

 

    Such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

Sandler O’Neill also discussed with certain members of the management of Crestmark and its representatives the business, financial condition, results of operations and prospects of Crestmark and held similar discussions with certain members of the management of Meta and its representatives regarding the business, financial condition, results of operations and prospects of Meta.

In performing its review, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Sandler O’Neill from public sources, that was provided to Sandler O’Neill by Crestmark or Meta or their respective representatives, or that was otherwise reviewed by Sandler O’Neill, and Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Sandler O’Neill relied on the assurances of the respective managements of Crestmark and Meta that they were not aware of any facts or circumstances that would make any of such information inaccurate or misleading. Sandler O’Neill has not been asked to and did not undertake an independent verification of any of such information and Sandler O’Neill did not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Crestmark or Meta or any of their respective subsidiaries, nor was Sandler O’Neill furnished with any such evaluations or appraisals. Sandler O’Neill rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of Crestmark or Meta. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of Crestmark or Meta, or of the combined entity after the merger, and Sandler O’Neill did not review any individual credit files relating to Crestmark or Meta. Sandler O’Neill assumed, with Crestmark’s consent, that the respective allowances for loan losses for both Crestmark and Meta were adequate to cover such losses and will be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O’Neill used certain internal financial projections for Crestmark for the years ending December 31, 2017 through December 31, 2021, as provided by the senior management of Crestmark. In addition, Sandler O’Neill used publicly available consensus mean analyst earnings per share estimates for Meta for the years ending September 30, 2018 and September 30, 2019, as well as long-term earnings per share estimates for the years ending September 30, 2020 through September 30, 2022 and estimated dividends per share for the years ending September 30, 2018 through September 30, 2022, as provided by the senior management of Meta. Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of Meta, as well as financial projections for Crestmark for the years ending September 30, 2018 through September 30, 2021, as adjusted by the senior management of Meta. With respect to the foregoing information, Crestmark’s and Meta’s management each confirmed to Sandler O’Neill that such information reflected (or, in the case of the publicly available consensus mean analyst estimates referred to above, were consistent with) the best currently available projections, estimates and judgments of those respective managements as to the future financial performance of Crestmark and Meta, respectively, and the other matters covered thereby, and Sandler O’Neill assumed that the future financial performance reflected in such information would be achieved. Sandler O’Neill expressed no opinion as to such information, or the assumptions on which such information was based. Sandler O’Neill also assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of Crestmark or Meta since the date of the most recent financial statements made available to Sandler O’Neill. Sandler O’Neill assumed in all respects material to its analysis that Crestmark and Meta would remain as going concerns for all periods relevant to its analysis.

Sandler O’Neill also assumed, with Crestmark’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements are true and correct in all material respects, that each of the parties to such agreements will perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements are not and will not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on Crestmark, Meta or the merger or any related transaction, (iii) the merger and any related transactions will be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements, and (iv) the merger will qualify as a tax-free reorganization for federal income tax purposes. Finally, with Crestmark’s consent, Sandler O’Neill relied upon the advice that Crestmark received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. Sandler O’Neill expressed no opinion as to any such matters.

 

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Sandler O’Neill’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Sandler O’Neill as of, the date thereof. Events occurring after the date thereof could materially affect Sandler O’Neill’s opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. Sandler O’Neill expressed no opinion as to the trading value of Meta common stock at any time or what the value of Meta common stock will be once it is actually received by Crestmark shareholders.

In rendering its opinion, Sandler O’Neill performed a variety of financial analyses. The summary below is not a complete description of the analyses underlying Sandler O’Neill’s opinion or the presentation made by Sandler O’Neill to Crestmark’s board of directors, but is a summary of all material analyses performed and presented by Sandler O’Neill. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to Crestmark or Meta and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Crestmark and Meta and the companies to which they are being compared. In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Sandler O’Neill made qualitative judgments as to the significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Sandler O’Neill made its determination as to the fairness of the exchange ratio on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which are beyond the control of Crestmark, Meta and Sandler O’Neill. The analyses performed by Sandler O’Neill were not necessarily indicative of actual values or future results, both of which could be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to Crestmark’s board of directors at its January 8, 2018 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of Crestmark common stock or the prices at which Meta common stock may be sold at any time. The analyses of Sandler O’Neill and its opinion were among a number of factors taken into consideration by Crestmark’s board of directors in making its determination to approve the merger agreement and should not be viewed as determinative of the exchange ratio or the decision of Crestmark’s board of directors or management with respect to the fairness of the merger. The type and amount of consideration payable in the merger were determined through negotiation between Crestmark and Meta.

Summary of Exchange Ratio and Implied Transaction Metrics. Sandler O’Neill reviewed the financial terms of the proposed merger. Subject to certain adjustments, as more fully described in the merger agreement, at closing, each share of Crestmark common stock and common stock equivalents issued and outstanding prior to the effective time, except for certain shares of Crestmark common stock as specified in the merger agreement, will receive 2.65 shares of the common stock of Meta. Based on 1,247,747 shares of Crestmark common stock and common stock equivalents issued and outstanding, as of January 5, 2018, the closing price of Meta common stock on January 5, 2018 of $90.15 and a per share exchange ratio of 2.65, Sandler O’Neill calculated an implied transaction price per share for Crestmark common stock of $238.90 and an aggregate implied transaction value of approximately $316.3 million. Based upon historical financial information for Crestmark as of or for the last twelve months (“LTM”) ended September 30, 2017, as provided by Crestmark senior management, Sandler O’Neill calculated the following implied transaction metrics.

 

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Price / Last Twelve Months Earnings Per Share:

     15.9x

Price / Book Value Per Share

     305

Price / Tangible Book Value Per Share

     343

Tangible Book Premium / Core Deposits¹

     586.3

Tangible Book Premium / Core Deposits²

     25.9

 

(1) Core deposits defined as total deposits less time deposit accounts greater than $100,000.
(2) Core deposits defined as total deposits less time deposit accounts greater than $250,000.

Crestmark Comparable Company Analyses. Sandler O’Neill used publicly available information to compare selected financial information for Crestmark with two groups of financial institutions selected by Sandler O’Neill (referred to herein, respectively, as the “High Performing Community Bank Peer Group” and the “Specialty Finance Companies Peer Group”). The High Performing Community Bank Peer Group consisted of U.S. banks and thrifts with publicly traded securities and assets between $500 million and $2.5 billion and with LTM return on average assets (“ROAA”) greater than 1.25%, excluding announced merger targets. The High Performing Community Bank Peer Group consisted of the following companies:

 

  Live Oak Bancshares, Inc.    First Commerce Bank
  Carolina Financial Corporation    Northeast Bancorp
  West Bancorporation, Inc.    CBB Bancorp, Inc.
  People’s Utah Bancorp    Thomasville Bancshares, Inc.
  First Farmers Financial Corporation    F & M Bank Corp.
  RBB Bancorp    Plumas Bancorp
  First Bancorp, Inc.    Union Bankshares, Inc.
  Pacific City Financial Corporation    Santa Cruz County Bank
  Citizens & Northern Corporation    Honat Bancorp, Inc.
  MetroCity Bankshares, Inc.¹    California First National Bancorp
  Parke Bancorp, Inc.    Crystal Valley Financial Corporation
  Bank of Utica    Farmers Bancorp²

Note:

1: Tangible common equity and tangible assets for MetroCity Bankshares, Inc. were calculated based on June 30, 2017 intangibles.

2: Sandler O’Neill relied upon financial information for Farmers Bancorp as of June 30, 2017.

The Specialty Finance Companies Peer Group consisted of two subsets: Commercial Finance Companies and Containers / Operating Leasing Companies, as further described below.

Commercial Finance Companies included:

 

               CIT Group Inc.    Marlin Business Services Corp.
  Element Fleet Management Corp.    Newtek Business Services Corp.
  ECN Capital Corp.   

Containers / Operating Leasing Companies included:

 

               Air Lease Corporation    Textainer Group Holdings Limited
  GATX Corporation    CAI International, Inc.
  Aircastle Limited    Willis Lease Finance Corporation

The analysis compared publicly available financial information for Crestmark as of or for the last twelve months ended September 30, 2017 with the corresponding publicly available data for the High Performing Community Bank Peer Group as of or for the last twelve months ended September 30, 2017 (unless otherwise noted), with pricing data as of January 5, 2018. The table below sets forth the data for Crestmark and the high, low, median and mean data for the High Performing Community Bank Peer Group.

 

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            High Performing Community Bank Peers  
     Crestmark
(Bank Level)
     High      Low     Mean      Median  

Total Assets ($ in millions)

     1,113        2,432        533       1,193        1,064  

Market Capitalization ($ in millions)

     —          942        80       275        219  

Price / Tangible Book Value (%)

     —          411        58       184        165  

Price / LTM EPS (x)

     —          26.3        8.3       15.0        13.6  

Price / Est. 2017 EPS (x)

     —          21.8        15.0       19.4        20.5  

Price / Est. 2018 EPS (x)

     —          20.4        13.9       16.6        16.0  

Dividend Yield (%)

     —          4.3        0.0       1.4        1.2  

1 Year Price D (%)

     —          64.3        (7.7     22.7        21.7  

Efficiency Ratio (%)

     74        77        33       52        54  

NIM (%)

     9.04        5.18        1.98       3.95        3.99  

ROAA (%)

     2.15        2.54        1.26       1.46        1.39  

ROATCE (%)

     23.9        25.1        5.9       13.6        13.5  

TCE / TA (%)

     8.8        31.6        7.6       12.2        10.9  

Loan / Deposits (%)

     91        121        9       91        92  

NPAs / Assets (%)

     0.68        3.13        0.00       0.95        0.66  

The analysis compared publicly available data for the Specialty Finance Companies Peer Group as of or for the last twelve months ended September 30, 2017, with pricing data as of January 5, 2018. The tables below set forth the high, low, median and mean data for the subset of Commercial Finance Companies, the subset of Containers / Operating Leasing Companies, and for both subsets combined, or the Specialty Finance Companies Peer Group.

 

     Commercial Finance Companies:  
     High      Low     Mean     Median  

Total Assets ($ in millions)

     49,336        506       14,379       3,412  

Market Capitalization ($ in millions)

     6,717        269       2,496       1,491  

Price/ Tangible Book Value (%)

     341        105       174       139  

Price / LTM EPS (x)

     19.2        7.1       12.6       12.0  

Price / Est. 2017 EPS (x)

     25.6        10.2       15.9       15.6  

Price / Est. 2018 EPS (x)

     18.9        9.7       13.3       12.4  

Price / Est. 2019 EPS (x)

     13.6        8.9       10.7       9.7  

Div. Yield (%)

     9.7        0.0       2.9       1.3  

3 Month Price D (%)

     7.0        (26.7     (3.4     1.9  

1 Year Price D (%)

     22.6        (23.5     5.3       9.0  

LTM ROAE (%)

     12.1        (6.2     6.9       8.7  

 

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     Containers /Operating Leasing Companies:  
     High      Low     Mean      Median  

Total Assets ($ in millions)

     14,902        1,436       5,626        4,197  

Market Capitalization ($ in millions)

     5,002        169       1,690        1,251  

Price / Tangible Book Value (%)

     174        86       121        118  

Price / LTM EPS (x)

     15.7        7.8       13.0        13.5  

Price / Est. 2017 EPS (x)

     13.4        9.4       11.3        11.0  

Price / Est. 2018 EPS (x)

     18.3        7.9       11.3        9.3  

Price / Est. 2019 EPS (x)

     13.7        6.8       9.1        8.8  

Dividend Yield (%)

     4.7        0.0       1.3        0.3  

3 Month Price D (%)

     25.4        (3.8     5.5        4.2  

1 Year Price D (%)

     182.1        (1.9     78.9        34.5  

LTM ROAE (%)

     13.6        0.2       8.5        8.7  

 

     Specialty Finance Companies Peer Group (including both subsets):  
     High      Low     Mean      Median  

Total Assets ($ in millions)

     49,336        506       9,902        4,197  

Market Capitalization ($ in millions)

     6,717        169       2,159        1,491  

Price / Tangible Book Value (%)

     341        86       145        118  

Price / LTM EPS (x)

     19.2        7.1       12.5        12.9  

Price / Est. 2017 EPS (x)

     25.6        9.4       13.9        11.7  

Price / Est. 2018 EPS (x)

     18.9        7.9       12.6        11.6  

Price / Est. 2019 EPS (x)

     13.7        6.8       10.2        9.6  

Dividend Yield (%)

     9.7        0.0       2.1        1.0  

3 Month Price D (%)

     25.4        (26.7     2.3        3.6  

1 Year Price D (%)

     182.1        (23.5     36.0        9.0  

LTM ROAE (%)

     13.6        (6.2     7.9        8.7  

Crestmark Net Present Value Analyses. Sandler O’Neill performed an analysis that estimated the net present value per share of Crestmark common stock assuming Crestmark performed in accordance with internal financial projections for the years ending December 31, 2017 through December 31, 2021, as provided by the senior management of Crestmark. To approximate the terminal value of a share of Crestmark common stock at December 31, 2021, Sandler O’Neill applied the implied transaction price to 2021 earnings per share multiples ranging from 7.0x to 14.0x and the implied transaction price to December 31, 2021 tangible book value per share multiples ranging from 125% to 200%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 17.0% which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Crestmark common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of Crestmark common stock of $183.58 to $453.21 when applying multiples of earnings per share, and $158.93 to $313.89 when applying multiples of tangible book value per share.

 

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Earnings Per Share Multiples

 

 

Discount

Rate

 

 

    7.0x       8.4x       9.8x       11.2x        12.6x        14.0x  
  11.0   $ 226.60     $ 271.92     $ 317.24     $ 362.57      $ 407.89      $ 453.21  
  12.0     218.62       262.34       306.07       349.79        393.51        437.24  
  13.0     210.98       253.18       295.37       337.57        379.77        421.96  
  14.0     203.68       244.41       285.15       325.88        366.62        407.35  
  15.0     196.68       236.02       275.36       314.69        354.03        393.37  
  16.0     189.99       227.99       265.98       303.98        341.98        379.98  
  17.0     183.58       220.29       257.01       293.72        330.44        367.15  

Tangible Book Value Per Share Multiples

 

 
Discount
Rate
 
 
    125     140     155     170     185      200
  11.0   $ 196.18     $ 219.72     $ 243.26     $ 266.80     $ 290.34      $ 313.89  
  12.0     189.27       211.98       234.69       257.40       280.11        302.82  
  13.0     182.65       204.57       226.49       248.41       270.33        292.25  
  14.0     176.33       197.49       218.65       239.81       260.97        282.13  
  15.0     170.28       190.71       211.14       231.57       252.01        272.44  
  16.0     164.48       184.22       203.95       223.69       243.43        263.17  
  17.0     158.93       178.00       197.07       216.14       235.21        254.28  

Sandler O’Neill also considered and discussed with the Crestmark board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Crestmark’s net income varied from 15% above projections to 15% below projections. This analysis resulted in the following range of per share values for Crestmark common stock, applying the implied transaction price to 2021 earnings per share multiples range of 7.0x to 14.0x referred to above and a discount rate of 13.09%:

Earnings Per Share Multiples

 

 


Variance
to Net
Income
Forecast
 
 
 
 
    7.0x       8.4x       9.8x       11.2x        12.6x        14.0x  
  (15.0 %)    $ 178.76     $ 214.52     $ 250.27     $ 286.02      $ 321.78      $ 357.53  
  (10.0 %)      189.28       227.14       264.99       302.85        340.70        378.56  
  (5.0 %)      199.80       239.75       279.71       319.67        359.63        399.59  
  0.0     210.31       252.37       294.44       336.50        378.56        420.62  
  5.0     220.83       264.99       309.16       353.32        397.49        441.65  
  10.0     231.34       277.61       323.88       370.15        416.42        462.68  
  15.0     241.86       290.23       338.60       386.97        435.34        483.71  

Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Analysis of Selected Merger Transactions. Sandler O’Neill reviewed a group of selected merger and acquisition transactions involving U.S. banks (the “Nationwide Precedent Transactions”). The Nationwide Precedent Transactions group consisted of bank transactions announced between January 1, 2016 and January 5, 2018 with disclosed deal values involving targets with assets between $500 million and $1.5 billion, and last twelve months return on average assets ratios greater than 1.25%.

 

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The Nationwide Precedent Transactions group was composed of the following transactions:

 

  Acquiror    Target
  Heartland Financial USA, Inc.    First Bank Lubbock Bancshares, Inc.
  Independent Bank Group, Inc.    Integrity Bancshares, Inc.
  First Federal Bancorp, MHC    Coastal Banking Company, Inc.
  Glacier Bancorp, Inc.    Inter-Mountain Bancorp., Inc.
  Home Bancorp, Inc.    Saint Martin Bancshares, Inc.
  Bryn Mawr Bank Corporation    Royal Bancshares of Pennsylvania, Inc.
  Simmons First National Corporation    Citizens National Bank
  Guaranty Bancorp    Home State Bancorp

Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to LTM earnings per share, transaction price to tangible book value per share and tangible book value premium to core deposits. Sandler O’Neill compared the indicated transaction multiples for the merger to the high, low, mean and median multiples of the Nationwide Precedent Transactions.

 

     Crestmark /
Meta
     High      Low      Mean      Median  

Price / LTM EPS (x)

     15.9        22.9        9.6        15.9        15.6  

Price / TBV (%)

     343        241        121        175        180  

Core Deposit(1) Premium (%)

     25.9¹        17.9        8.9        13.2        13.9  

 

(1)    Core deposits defined as total deposits less time deposit accounts greater than $250,000.

Meta Comparable Company Analyses. Sandler O’Neill used publicly available information to compare selected financial information for Meta with a group of financial institutions selected by Sandler O’Neill (the “Meta Peer Group”). The Meta Peer Group consisted of nationwide banks and thrifts with publicly traded securities listed on the NASDAQ Stock Market, the New York Stock Exchange or NYSE American, with assets between $4.0 billion and $6.0 billion, and with LTM ROAA greater than 1.0% excluding announced merger targets. The Meta Peer Group consisted of the following companies:

 

1st Source Corporation    Great Southern Bancorp, Inc.
Westamerica Bancorporation    Washington Trust Bancorp, Inc.
Sandy Spring Bancorp, Inc.    Lakeland Financial Corporation
Enterprise Financial Services Corp    Community Trust Bancorp, Inc.
State Bank Financial Corporation    Oritani Financial Corp.
Hanmi Financial Corporation    City Holding Company
Republic Bancorp, Inc.    Heritage Financial Corporation
TriCo Bancshares    Camden National Corporation
FB Financial Corporation   

The analysis compared publicly available financial information for Meta as of or for the twelve months ended September 30, 2017 with the corresponding publicly available data for the Meta Peer Group as of or for the twelve months ended September 30, 2017, with pricing data as of January 5, 2018. The table below sets forth the data for Meta and the high, low, median and mean data for the Meta Peer Group.

 

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           Meta Peer Group  
     Meta     High      Low     Mean      Median  

Total Assets ($ in millions)

     5,228       5,807        4,040       4,717        4,582  

Market Capitalization ($ in millions)

     871       1,541        667       1,036        974  

Price / Tangible Book Value (%)

     306       322        132       221        212  

Price / LTM EPS (x)

     18.7       30.0        14.3       19.2        18.0  

Price / Est. 2017 EPS (x)

     14.5       25.4        15.8       18.5        17.8  

Price / Est. 2018 EPS (x)

     12.4       23.6        12.7       15.9        15.1  

Dividend Yield (%)

     0.6       4.3        0.0       2.2        2.2  

1 Year Price D (%)

     (12.4     64.0        (13.9     6.0        0.3  

Efficiency Ratio (%)

     66       71        36       55        56  

NIM (%)

     2.58       4.60        2.77       3.66        3.67  

ROAA (%)

     1.13       1.47        1.07       1.18        1.15  

ROATCE (%)

     24.0       15.5        8.5       12.1        12.1  

TCE/TA (%)

     5.6       13.7        7.8       10.1        10.0  

CRE Concentration Ratio (%)

     132       550        50       245        235  

Loan/Deposits (%)

     41       123        27       94        97  

NPAs/Assets (%)

     0.03       2.49        0.18       0.68        0.56  

Meta Stock Trading History. Sandler O’Neill reviewed the historical stock price performance of Meta common stock for the one and three-year periods ended January 5, 2018. Sandler O’Neill then compared the relationship between the stock price performance of Meta’s common stock to movements in the Meta Peer Group (as described above) as well as certain stock indices.

 

Meta One-Year Stock Price Performance

 
     Beginning
January 5, 2017
    Ending
January 5, 2018
 

Meta

     100.0     87.3

Meta Peer Group

     100.0     99.9

SNL Bank and Thrift

     100.0     116.1

S&P 500 Index

     100.0     121.2

Meta Three-Year Stock Price Performance

 
     Beginning
January 5, 2015
    Ending
January 5, 2018
 

Meta

     100.0     256.0

Meta Peer Group

     100.0     157.8

SNL Bank and Thrift

     100.0     149.7

S&P 500 Index

     100.0     135.8

Meta Net Present Value Analyses. Sandler O’Neill performed an analysis that estimated the net present value per share of Meta common stock assuming that Meta performs in accordance with publicly available consensus mean analyst earnings per share estimates for the year ending September 30, 2018 and mean analyst consensus earnings per share and balance sheet estimates for the years ending September 30, 2019, as well as long-term earnings per share estimates for the years ending September 30, 2020 and September 30, 2022 and estimated dividends per share for the years ending September 30, 2018 through September 30, 2022, as provided by senior management of Meta. To approximate the terminal value of Meta common stock at September 20, 2022, Sandler O’Neill applied the implied transaction price to 2022 earnings per share multiples ranging from 12.0x to 18.0x and price to September 30, 2022 tangible book value per share multiples ranging from 150% to 275%. The terminal values were then discounted to present values using different discount rates ranging from 9.0% to 14.0% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Meta common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of Meta common stock of $91.23 to $167.99 when applying multiples of earnings per share and $66.43 to $148.59 when applying multiples of tangible book value per share.

 

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Earnings Per Share Multiples

 

 
Discount
Rate
 
 
    12.0x       13.2x       14.4x       15.6x        16.8x        18.0x  
  9.0   $ 112.68     $ 123.74     $ 134.81     $ 145.87      $ 156.93      $ 167.99  
  10.0     107.94       118.53       129.12       139.72        150.31        160.90  
  11.0     103.43       113.58       123.73       133.88        144.02        154.17  
  12.0     99.16       108.88       118.61       128.33        138.05        147.78  
  13.0     95.09       104.42       113.74       123.06        132.38        141.71  
  14.0     91.23       100.17       109.11       118.05        126.99        135.93  

Tangible Book Value Per Share Multiples

 

 
Discount
Rate
 
 
    150     175     200     225     250      275
  9.0   $ 81.99     $ 95.31     $ 108.63     $ 121.95     $ 135.27      $ 148.59  
  10.0     78.55       91.30       104.06       116.81       129.57        142.32  
  11.0     75.28       87.50       99.72       111.94       124.15        136.37  
  12.0     72.18       83.89       95.60       107.30       119.01        130.72  
  13.0     69.23       80.46       91.68       102.91       114.13        125.35  
  14.0     66.43       77.20       87.96       98.72       109.49        120.25  

Sandler O’Neill also considered and discussed with the Crestmark board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Meta’s net income varied from 15% above estimates to 15% below estimates. This analysis resulted in the following range of per share values for Meta common stock, applying the price to 2021 earnings per share multiples range of 12.0x to 18.0x referred to above and a discount rate of 11.17%:

Earnings Per Share Multiples

 

 


Variance
to Net
Income
Forecast
 
 
 
 
    12.0x       13.2x       14.4x       15.6x        16.8x        18.0x  
  -15   $ 87.58     $ 96.14     $ 104.71     $ 113.27      $ 121.83      $ 130.39  
  -10     92.62       101.68       110.75       119.82        128.88        137.95  
  -5     97.65       107.22       116.79       126.36        135.94        145.51  
  0     102.69       112.77       122.84       132.91        142.99        153.06  
  5     107.73       118.31       128.88       139.46        150.04        160.62  
  10     112.77       123.85       134.93       146.01        157.09        168.17  
  15     117.80       129.39       140.97       152.56        164.14        175.73  

Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Pro Forma Merger Analysis. Sandler O’Neill analyzed certain potential pro forma effects of the merger. In performing this analysis, Sandler O’Neill utilized the following information and assumptions: (i) the merger closes on June 30, 2018; (ii) certain purchase accounting adjustments, cost savings and transaction expenses, as well as net income estimates for Crestmark as adjusted by Meta’s senior management; and (iii) publicly available consensus mean analyst net income and EPS estimates for Meta for the years ending September 30, 2018 and September 30, 2019, as confirmed by the senior management of Meta, as well as estimated long-term earnings per share and balance sheet growth rates for the years ending September 30, 2020 and September 30, 2022 and estimated dividends per share for the years ending September 30, 2018 through September 30, 2022, as provided by the senior management of Meta. The analysis indicated that the merger could be (i) dilutive to Meta’s estimated tangible book value at the closing of the merger, (ii) accretive to Meta’s earnings per share (excluding one-time transaction costs and expenses) for the year ended September 30, 2018 and (iii) accretive to Meta’s earnings per share for the years ended September 30, 2019, September 30, 2020 and September 30, 2021.

 

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In connection with this analysis, Sandler O’Neill considered and discussed with the Crestmark board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the merger, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

Sandler O’Neill’s Relationship. Sandler O’Neill is acting as Crestmark’s financial advisor in connection with the merger and will receive a fee for its services in an amount equal to 1.50% of the aggregate purchase price, which fee at the time of announcement of the merger would have been equal to approximately $4.8 million, $500,000 of which was paid to Sandler O’Neill upon signing of the merger agreement with the remainder contingent upon consummation of the merger. Sandler O’Neill also received a fee for rendering its opinion in an amount equal to $250,000, which fairness opinion fee will be credited in full towards the fee becoming due and payable to Sandler O’Neill on the day of closing of the merger. Crestmark has also agreed to indemnify Sandler O’Neill against certain claims and liabilities arising out of Sandler O’Neill’s engagement and to reimburse Sandler O’Neill for certain of its out-of-pocket expenses incurred in connection with Sandler O’Neill’s engagement. Sandler O’Neill has not provided, nor received any compensation for, any other investment banking services provided to Crestmark in the two years preceding the date of Sandler O’Neill’s opinion.

In the two years preceding the date of Sandler O’Neill’s opinion, Sandler O’Neill has provided certain investment banking services to Meta and has received fees totaling approximately $415,000 from Meta for those services. Most recently, Sandler O’Neill acted as book manager in connection with Meta’s $75.0 million subordinated debt offering, which closed in August 2016, and advised Meta on its acquisition of substantially all of the assets of EPS Financial Services LLC, which closed November 1, 2016, and on Meta’s acquisition of substantially all of the assets of Specialty Consumer Services, L.P., which closed December 14, 2016. In the ordinary course of Sandler O’Neill’s business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to Meta and its affiliates. Sandler O’Neill may also actively trade the equity and debt securities of Meta and its affiliates for its own account and for the accounts of its customers.

Certain Prospective Financial Information of the Parties

In connection with the proposed merger, Meta and Crestmark are including in this joint proxy statement/prospectus certain prospective financial information that Crestmark made available to Meta and to Sandler O’Neill, in its capacity as Crestmark’s financial advisor, and that Meta made available to Crestmark and Raymond James, in its capacity as Meta’s financial advisor, in each case, for purposes of performing the financial analysis described above under “The Merger—Opinion of Meta’s Financial Advisor” and “The Merger—Opinion of Crestmark’s Financial Advisor.” The summary of the projections set forth below is also being included in this joint proxy statement/prospectus because such information was part of the information considered by the respective boards of directors of Meta and Crestmark, as applicable, in evaluating the merger.

The prospective financial information summary of certain significant elements reflect numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to each of Meta’s and Crestmark’s respective businesses, all of which are inherently uncertain and difficult to predict and many of which are beyond the parties’ control. The prospective financial information is subjective in many respects and, thus, is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. The prospective financial information may also be affected by the parties’ ability to achieve strategic goals, objectives and targets over the applicable periods. As such, these projections constitute forward-looking statements and are subject to risks and uncertainties, including the various risks set forth in the sections of this joint proxy statement/prospectus entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” and, with respect to Meta, in the reports that Meta files with the SEC from time to time, and with respect to Crestmark, in “Crestmark’s Management’s Discussion and Analysis of Crestmark’s Financial Condition and Results of Operations—Quantitative and Qualitative Market Risk Disclosures” included in this joint proxy statement/prospectus. The prospective financial information generally was not prepared with a view toward public disclosure or complying with U.S. GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither the respective independent registered public accounting firms of Meta or Crestmark, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information included below, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and the parties’ respective independent registered public accounting firms assume no responsibility for, and disclaim any association with, the prospective financial information. This information was prepared solely for internal use and is subjective in many respects. Neither Meta nor Crestmark can provide any assurance that the unaudited prospective financial information and the underlying estimates and assumptions will be realized. Further, these assumptions do not include all potential actions that management could or might have taken during these time periods and the financial forecasts may not reflect the manner in which Meta would operate the Crestmark business after the merger. In addition, since the unaudited prospective financial information covers multiple years, such information by its nature becomes less predictive with each successive year. Neither Meta, Crestmark nor, after completion of the merger, the combined company undertakes any obligation to update or

 

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otherwise revise the financial forecasts or financial information to reflect circumstances existing since their preparation or to reflect the occurrence of subsequent or unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions. Furthermore, the prospective financial information does not take into account any circumstances or events occurring after the date it was prepared. Neither party can give any assurance that, had the unaudited prospective financial information been prepared as of the date of this joint proxy statement/prospectus, similar estimates and assumptions would be used.

The unaudited prospective financial information does not take into account the possible financial and other effects on either Meta or Crestmark, as applicable, of the merger and does not attempt to predict or suggest future results of the combined company following the merger. The information included below does not comprise all of the prospective financial information provided by Meta to Raymond James or by Crestmark to Sandler O’Neill and does not take into account the effect on either Meta or Crestmark, as applicable, of any possible failure to complete the merger.

You are strongly cautioned not to place undue reliance on the prospective financial information set forth below. The inclusion of the prospective financial information in this joint proxy statement/prospectus should not be regarded as an indication that any of Meta, Crestmark, Raymond James, Sandler O’Neill or their respective affiliates, advisors or representatives considered or considers such information to be necessarily predictive of actual future events, and the prospective financial information should not be relied upon as such. None of Meta, Crestmark, Raymond James, Sandler O’Neill or their respective affiliates, advisors or representatives makes any representation to any shareholder or any other person regarding the prospective financial information, including the ultimate performance of Meta or Crestmark compared to such prospective financial information. The prospective financial information is not being included in this joint proxy statement/prospectus to influence any Meta stockholder’s or Crestmark shareholder’s decision regarding how to vote on any given proposal at the Meta special meeting or the Crestmark special meeting. In light of the foregoing, and considering that the parties’ respective special meetings will be held several months after the prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, Meta stockholders and Crestmark shareholders are cautioned not to place undue reliance on such information.

Meta Financial Group, Inc. Projections

     At or for the twelve months ended,  
     9/30/2018      9/30/2019      9/30/2020      9/30/2021      9/30/2022  

Net Income (Avail to Common) (in millions)

   $ 68.7      $ 85.6      $ 104.7      $ 122.6      $ 135.0  

Earnings Per Share

   $ 7.07      $ 8.81      $ 10.77      $ 12.60      $ 13.88  

 

Crestmark Bancorp Projections

 

           
     At or for the twelve months ended,  
     12/31/2017      12/31/2018      12/31/2019      12/31/2020      12/31/2021  

Net Income (Avail to Common) (in millions)

   $ 26.9      $ 37.0      $ 44.1      $ 54.6      $ 65.5  

Earnings Per Share

   $ 21.08      $ 28.28      $ 33.38      $ 41.11      $ 49.14  

 

Crestmark Bancorp Projections (as adjusted)

 

           
     At or for the twelve months ended,  
     9/30/2018      9/30/2019      9/30/2020      9/30/2021      9/30/2022  

Net Income (Avail to Common) (in millions)

   $ 33.3      $ 41.0      $ 49.4      $ 57.2      $ 66.2  

Earnings Per Share

   $ 25.19      $ 31.00      $ 37.34      $ 43.23      $ 50.01  

Material United States Federal Income Tax Consequences of the Merger

General

The following discussion describes the material United States federal income tax consequences of the merger to U.S. holders of Crestmark common stock that exchange shares of Crestmark common stock for shares of Meta common stock pursuant to the merger. For purposes of this discussion, a “U.S. holder” is a beneficial owner of Crestmark common stock that for United States federal income tax purposes is:

 

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    a citizen or individual resident of the United States;

 

    a corporation, or an entity treated as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or any state or political subdivision thereof;

 

    a trust that (1) is subject to (A) the primary supervision of a court within the United States and (B) the authority of one or more United States persons to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury Regulations to be treated as a United States person; or

 

    an estate that is subject to United States federal income tax on its income regardless of its source.

If a partnership (including for this purpose any entity treated as a partnership for United States federal income tax purposes) holds Crestmark common stock, the tax treatment of a partner generally will depend on the particular circumstances of the partner and the activities of the partnership. A Crestmark shareholder which is a partnership should consult its tax advisor concerning the tax consequences of the merger. Crestmark shareholders that are not U.S. holders may have different tax consequences than those described below, and are urged to consult their tax advisors about the tax treatment of the merger to them under United States and non-U.S. laws.

This discussion addresses only those Crestmark shareholders that hold their Crestmark common stock as a capital asset within the meaning of Section 1221 of the Code, and does not address all the United States federal income tax consequences that may be relevant to particular Crestmark shareholders in light of their individual circumstances or to Crestmark shareholders that are subject to special rules, such as:

 

    financial institutions;

 

    pass-through entities or investors in pass-through entities;

 

    insurance companies;

 

    tax-exempt organizations;

 

    dealers in securities or currencies;

 

    traders in securities that elect to use a mark-to-market method of accounting;

 

    persons that hold Crestmark common stock as part of a straddle, hedge, constructive sale or conversion transaction;

 

    regulated investment companies;

 

    real estate investment trusts;

 

    certain expatriates or persons that have a functional currency other than the U.S. dollar; and

 

    shareholders who acquired their shares of Crestmark common stock through the exercise of an employee stock option or otherwise as compensation or through a tax-qualified retirement plan.

In addition, this discussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the merger, nor does it address any tax consequences arising under the 3.8% unearned income Medicare contribution tax.

The following discussion is based on the Code, its legislative history, existing and proposed regulations thereunder, and published rulings and decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion.

Meta’s obligation to complete the merger is conditioned upon the receipt of an opinion from Meta’s counsel, Katten Muchin Rosenman LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Crestmark’s obligation to complete the merger is conditioned upon the receipt of an opinion from Crestmark’s counsel, Dickinson Wright PLLC, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Neither Meta nor Crestmark currently intends to waive this opinion condition to its obligation to complete the merger.

The following discussion, subject to the limitations and qualifications described herein, constitutes the opinion of Katten Muchin Rosenman LLP and Dickinson Wright PLLC as to the material United States federal income tax consequences of the merger applicable to a U.S. holder of Crestmark common stock that exchanges Crestmark common stock in the merger, to the extent such discussion sets forth statements of United States federal income tax law or legal conclusions with respect thereto.

 

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This opinion does not address any state, local or foreign tax consequences of the merger. This opinion is based on certain assumptions and representations as to factual matters by Meta and Crestmark, and cannot be relied upon if any of the assumptions or representations are inaccurate as of the date hereof or the effective time of the merger. In addition, this opinion is based on current law and cannot be relied upon if current law changes with retroactive effect. The opinion of counsel is not binding upon the IRS or the courts, and there is no assurance that the IRS or a court will not take a contrary position. Neither Meta nor Crestmark has requested, and neither Meta nor Crestmark intends to request, any ruling from the IRS as to the United States federal income tax consequences of the merger.

Crestmark shareholders are urged to consult their tax advisors as to the particular United States federal income tax consequences of the merger to them, as well as any tax consequences arising under any state, local and non-U.S. tax laws or any other United States federal tax laws.

Assuming that the merger is completed according to the terms of the merger agreement without waiver or modification of any provision thereof, based on and subject to the foregoing, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Based on the qualification of the merger as a “reorganization” under the Code, the following material United States federal income tax consequences will result to a U.S. holder upon the exchange of its Crestmark common stock in the merger:

 

    No gain or loss will be recognized by a U.S. holder of Crestmark that receives shares of Meta common stock in exchange for shares of Crestmark common stock pursuant to the merger (except for any gain or loss that may result from the receipt of cash in lieu of fractional shares of Meta common stock that the shareholder of Crestmark would otherwise be entitled to receive, as discussed below).

 

    Such U.S. holder generally will have an aggregate tax basis in the shares of Meta common stock received by the U.S. holder with respect to each identifiable block of shares of Crestmark common stock (generally, Crestmark common stock acquired at the same cost in a single transaction) exchanged by the U.S. holder in the merger (including any fractional share of Meta common stock deemed received and redeemed for cash, as discussed below) equal to the U.S. holder’s aggregate tax basis in the shares of Crestmark common stock in such block.

 

    The holding period of the shares of Meta common stock received by such U.S. holder with respect to each identifiable block of shares of Crestmark common stock exchanged in the merger (including any fractional share of Meta common stock deemed received and redeemed for cash, as discussed below) will include the holding period of the shares of Crestmark common stock in such block.

 

    A U.S. holder of Crestmark common stock who receives cash in lieu of a fractional share of Meta common stock will be treated as having received the fractional share pursuant to the merger and then as having exchanged the fractional share for cash in a redemption by Meta. Subject to the discussion below regarding possible dividend treatment, a U.S. holder generally will recognize capital gain or loss with respect to cash received in lieu of a fractional share, measured by the difference, if any, between the amount of cash received and the tax basis in such fractional share (determined as described above). Any gain or loss recognized generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the shares of Crestmark common stock comprising the block of shares of Crestmark common stock exchanged in the merger were held for more than one year. The deductibility of capital losses is subject to limitations. If the U.S. holder’s receipt of cash has the effect of a distribution of a dividend under the provisions of the Code, such gain will be treated as dividend income rather than capital gain. The Internal Revenue Service has indicated in rulings that any reduction in the interest of a shareholder that owns a small number of shares in a publicly and widely held corporation and that exercises no control over corporate affairs would result in capital gain as opposed to dividend treatment. Because the possibility of dividend treatment depends primarily upon a U.S. holder’s particular circumstances, including the application of constructive ownership rules, U.S. holders should consult their tax advisors regarding this possibility.

Backup Withholding and Information Reporting

U.S. holders may be subject to information reporting and backup withholding on any cash payments they receive in the merger in lieu of fractional shares of Crestmark common stock. Payments will not be subject to backup withholding if the U.S. holder (i) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (ii) provides Meta or the exchange agent, as appropriate, with a properly completed Internal Revenue Service Form W-9 (or its successor form) certifying that the U.S. holder is a United States person, the taxpayer identification number provided is correct and the U.S. holder is not subject to backup withholding. The taxpayer identification number of an individual is his or her Social Security number. Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not additional tax and will be allowed as a refund or credit against the U.S. holder’s United States federal income tax liability, provided the required information is timely furnished by the U.S. holder to the Internal Revenue Service.

 

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A U.S. holder of Crestmark common stock that receives Meta common stock as a result of the merger will be required to retain records pertaining to the merger. Each U.S. holder of Crestmark common stock that is required to file a United States federal income tax return and is a “significant holder” that receives Meta common stock in the merger will be required to file a statement with such United States federal income tax return in accordance with Treasury Regulations Section 1.368-3 setting forth information regarding the parties to the merger, the date of the merger, such holder’s basis in the Crestmark common stock surrendered and the fair market value of Meta common stock (including fractional shares) received in the merger. A “significant holder” generally is a holder of Crestmark common stock that, immediately before the merger, owned at least 1% (by vote or value) of the Crestmark common stock.

The discussion of the material United States federal income tax consequences set forth above is intended to provide only a general summary, and is not intended to be a complete analysis or description of all potential United States federal income tax consequences of the merger. Moreover, the discussion set forth above does not address tax consequences that may vary with, or are dependent on, individual circumstances. In addition, the discussion set forth above does not address any non-income tax or any foreign, state or local tax consequences of the merger and does not address the tax consequences of any transaction other than the merger.

Accounting Treatment

Meta will account for the merger as a purchase by Meta of Crestmark under the acquisition method of accounting for business combinations in accordance with U.S. GAAP. Under the acquisition method of accounting, the total consideration paid in connection with the merger is allocated among Crestmark’s assets, liabilities and identified intangibles based on the fair values of the assets acquired, the liabilities assumed and the identified intangibles. The difference between the total consideration paid in connection with the merger and the fair values of the assets acquired, the liabilities assumed and the identified intangibles, if any, is allocated to goodwill. The results of operations of Crestmark will be included in Meta’s results of operations from the date of acquisition. Financial statements of Meta issued before completion of the merger will not be restated retroactively to reflect Crestmark’s historical financial position or results of operation.

Interests of Certain Persons in the Merger

General

In considering the recommendations of Crestmark’s board of directors with respect to the merger, you should be aware that certain directors and executive officers of Crestmark and/or Crestmark Bank have agreements or arrangements that provide them with interests in the merger, including financial interests, that may be different from, or in addition to, the interests of the other shareholders of Crestmark. Crestmark’s board of directors was aware of these interests during its deliberations of the merits of the merger and in determining to recommend that Crestmark shareholders vote in favor of the Crestmark merger proposal (and thereby approve the transactions contemplated by the merger agreement, including the merger). These interests are described in more detail below, and certain of them are quantified in the narrative below.

Stock Ownership

As of March 12, 2018, Crestmark’s directors and executive officers beneficially owned, in the aggregate, 425,765 shares of Crestmark common stock (including all shares that such directors and executive officers can acquire within 60 days of March 12, 2018 through the exercise of any stock options or other rights), representing approximately 33.1% of the outstanding shares of Crestmark common stock. For more information, see “Security Ownership of Certain Crestmark Beneficial Owners and Management.”

Treatment of Crestmark Stock Options

All Crestmark stock options, including those held by a director or executive officer of Crestmark, whether vested or unvested, will be cancelled and converted into the right to receive an amount in cash equal to the product of the number of shares of Crestmark common stock underlying such Crestmark stock option, multiplied by the excess, if any, of (a) the per share purchase price over (b) the exercise price of such Crestmark stock option, less any applicable withholding taxes, upon completion of the merger, as discussed in the “The Merger Agreement—Merger Consideration.” Any Crestmark stock option with an exercise price that is greater than or equal to the per share purchase price will be cancelled and of no further force or effect. As of the date of the merger agreement, directors and executive officers of Crestmark, collectively, held 42,500 outstanding Crestmark stock options, and, assuming the closing of the merger occurred on January 9, 2018 and stock merger consideration of $241.81 per share of Crestmark common stock (based on the $91.25 closing price per share of Meta common stock as quoted on the NASDAQ Global Select Market on such date multiplied by 2.65, the exchange ratio), and a weighted average option exercise price of $52.94 with an estimated aggregate net cash value of approximately $8 million. In the event that the exercise price of any such Crestmark stock option outstanding immediately prior to the completion of the merger is greater than or equal to the per share purchase price, no cash payment or other consideration for such Crestmark stock option will be due or payable in respect thereof, and such Crestmark stock option will be cancelled and of no further force or effect as of the completion of the merger.

 

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Arrangements with Respect to the Board of Directors of each of Meta and MetaBank

Pursuant to the merger agreement, Meta and MetaBank will each be required to increase the size of their respective boards of directors, and, effective as of the effective time of the merger, each of W. David Tull, Crestmark’s Chairman and Chief Executive Officer, and Michael R. Kramer, a member at the law firm Dickinson Wright, PLLC, legal counsel to Crestmark, will be appointed to the board of directors of each of Meta and MetaBank. Each of such new directors will be entitled to compensation consistent with Meta’s current compensation practices for non-employee directors.

Change in Control Agreement, Transaction Bonus Agreement and Employment Agreement with Michael “Mick” Goik

Crestmark is party to the Goik change in control agreement and the Goik transaction bonus agreement with Mr. Goik. In connection with the merger, Mr. Goik agreed to waive those agreements and any and all such payments when otherwise due and owing to Mr. Goik thereunder.

In connection with the execution of the merger agreement, MetaBank entered into an employment agreement with Mr. Goik, Crestmark Bank’s current President and Chief Operating Officer (the “employment agreement”), pursuant to which Mr. Goik will serve as Executive Vice President and President of the Meta Commercial Finance Division as of the closing date of the merger. The employment agreement will have an initial three-year term (the “initial term”), which will commence upon the closing date of the merger, and provides for a one year extension on each anniversary of the expiration of initial term or any subsequent renewal term, unless earlier terminated in accordance with the terms of the employment agreement. The employment agreement entitles Mr. Goik to an annual base salary equal to $435,000 (subject to annual review and adjustment by the MetaBank board of directors). The employment agreement also provides for incentive compensation opportunities that are performance based and consist of Meta’s customary bonus program and incentives based upon Mr. Goik’s base salary. In addition, pursuant to the employment agreement, Mr. Goik will receive a $2.20 million signing bonus that is payable within thirty (30) days following the closing date of the merger. Mr. Goik will be entitled to participate in all MetaBank benefit plans, programs and arrangements that are commensurate with Mr. Goik’s position and responsibilities. Additionally, MetaBank will provide Mr. Goik substantially similar perquisites, in the aggregate, as he received as an officer of Crestmark Bank immediately prior to the closing date of the merger. Pursuant to, and subject to the conditions set forth in, the employment agreement, Mr. Goik and Meta will enter into a Restricted Stock Agreement as of the closing date of the merger with respect to an award of a number of restricted shares of Meta common stock to be agreed upon by the parties but not to exceed a total value of $3.80 million as of the closing date of the merger (the “initial equity award”), which will be subject to certain vesting conditions.

In the event Mr. Goik’s employment is terminated due to death, Disability, without Cause or for Good Reason (each as defined in the employment agreement), Mr. Goik (or his estate or beneficiaries, as the case may be) will be entitled to (i) receive his base salary through the effective date of termination and any earned but unpaid bonus for any completed fiscal year, and (ii) subject to execution of a release of claims Mr. Goik may have against Meta and its affiliates, (A) continued payment of Mr. Goik’s base salary (as in effect as of the termination date) for two years following his termination (his “base salary”), (B) a pro-rata portion of the annual bonus payment for the year of the termination based on actual performance, (C) payment of the premiums required to continue health care coverage for up to 18 months, and (D) acceleration of the initial equity award. In the event Mr. Goik’s employment is terminated by Meta within 12 months following a Change of Control (as defined in the employment agreement), due to death, Disability, without Cause or for Good Reason, Mr. Goik will be eligible to receive his base salary in a lump sum payment and the payments in (B)-(D) above and any accrued amounts (as noted in (i) above) will be paid at the same rate and form as noted above. In addition, the employment agreement provides for a 24-month non-solicitation period (both employees and business relationships) and a 24-month non-compete requirement in addition to other restrictive covenants. The employment agreement also provides for clawback of compensation paid to Mr. Goik under certain circumstances.

Change in Control Agreements with other Crestmark Executive Officers

W. David Tull, Crestmark’s current Chairman and Chief Executive Officer, Jack Talkington, Crestmark’s current Chief Financial Officer, and Mark Matheson, Crestmark’s current Chief Credit Officer, each entered into a Crestmark executive change in control agreement with Crestmark on July 19, 2017 (each, a “Crestmark executive change in control agreement”), that provides for the potential payment of termination compensation in the event of a qualifying termination of such person’s employment with Crestmark or any successor thereto. Each Crestmark executive change in control agreement provides that, if the Crestmark executive that is party to such agreement is terminated by Crestmark or any successor thereto for any reason other than for Cause or a Voluntary Resignation (in each case, as defined in the applicable Crestmark executive change in control agreement) within 24 months following the date of a change of control of Crestmark or any successor thereto, then, such Crestmark executive would be entitled to (i) receive a lump sum payment from Crestmark or its successor, as applicable, in an amount equal to two times such Crestmark executive’s highest base salary and bonus earned in the 24-month period prior to the date on which the change in control occurred, (ii) receive company-paid health and dental insurance for 18 months following the change in control date, except that the Crestmark executive will be responsible for the employee portion of premiums as though such Crestmark executive were an active employee, and (iii) continue receiving certain employer-paid perquisites and benefits, including but not limited to, an automobile allowance and company-paid country club dues, during the two year period following the change in control date.

 

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Other Agreements with Certain Crestmark Executive Officers

Immediately following the closing of the merger, Meta will enter into retention bonus agreements with each of Messrs. Talkington and Matheson, which will provide that each such person will be granted the retention units pursuant to a restricted stock agreement with Meta. Provided that such person remains employed by Meta as of the vesting date of the retention units set forth in the applicable restricted stock agreement, the retention units would vest as follows: 250 shares on September 1 of each of 2018, 2019, 2020 and 2021.

Indemnification and Insurance

The merger agreement provides that, upon completion of the merger, Meta will indemnify, defend and hold harmless the directors and officers of Crestmark (when acting in such capacity) against all costs and liabilities arising out of actions or omissions occurring at or before the completion of the merger, in accordance with Crestmark’s articles of incorporation and Crestmark’s by-laws, to the extent permitted by law.

The merger agreement also provides that for a period of six years after the merger is completed, Meta will maintain Crestmark’s existing directors’ and officers’ liability insurance to reimburse the present and former officers and directors of Crestmark with respect to claims against such directors and officers arising from facts or events which occurred before the completion of the merger, provided that the total premium therefor is not in excess of 200% of the last annual premium paid prior to the date of the merger agreement.

 

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THE MERGER AGREEMENT

The following discussion is a summary of what we believe are the material provisions of the merger agreement. This summary, however, is qualified in its entirety by references to the merger agreement, which is attached as Appendix A and incorporated by reference in this joint proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety.

Structure

Subject to the terms and conditions of the merger agreement, Crestmark will merge with and into Meta, with Meta being the surviving company. Immediately following such merger, pursuant to the terms and conditions of the bank merger agreement, Crestmark Bank will merge with and into MetaBank, with MetaBank being the surviving bank. As a result of the merger, the separate existence of each of Crestmark and Crestmark Bank shall terminate.

Merger Consideration

In connection with the merger, each share of Crestmark common stock outstanding at the effective time of the merger will convert into the right to receive 2.65 fully paid and non-assessable shares of Meta common stock. At the effective time of the merger, each outstanding in-the-money Crestmark stock option will be cancelled and converted into the right to receive an amount in cash (without interest) equal to the product of (a) the number of shares of Crestmark common stock underlying such in-the-money Crestmark stock option, multiplied by (b) the excess of (i) the per share purchase price over (ii) the exercise price of such in-the-money Crestmark stock option, less any applicable withholding taxes. Any out-of-the-money Crestmark stock option will be cancelled and of no further force or effect as of the effective time of the merger, without any consideration therefor.

In addition, upon the effective time of the merger, in lieu of fractional shares of Meta common stock that would otherwise be issued as stock merger consideration, all fractional shares will be converted into the right to receive cash (rounded down to the nearest whole cent), without any interest and subject to any required withholding tax, in an amount equal to the per share purchase price multiplied by the fractional share interest of such Meta common stock to which such Crestmark share would otherwise be converted.

The exchange ratio of 2.65 shares of Meta common stock for each share of Crestmark common stock is subject to adjustment in the event of a stock split, stock dividend or distribution, recapitalization, reclassification, exchange or similar transaction with respect to the outstanding shares of Meta common stock.

Based upon the closing sale price of Meta common stock on the NASDAQ Global Select Market of $[        ] on [        ], 2018, the last practicable trading date prior to the printing of this joint proxy statement/prospectus, the per share value of the stock merger consideration was equal to approximately $[        ].

The value of the shares of Meta common stock to be issued to Crestmark shareholders in the merger will fluctuate between now and the closing date of the merger. We make no assurances as to whether or when the merger will be completed, and you are advised to obtain current sale prices for Meta common stock. See “Risk Factors—Because the market price of Meta common stock will fluctuate, Crestmark shareholders cannot be certain of the market value of the merger consideration they will receive” beginning on page 17 of this joint proxy statement/prospectus.

Conversion of Shares; Exchange of Certificates; Fractional Shares

Conversion. The conversion of Crestmark common stock and Crestmark stock options into the right to receive the merger consideration will occur automatically at the effective time of the merger.

Exchange Procedures. At or prior to the effective time of the merger, Meta will deposit with the exchange agent, Computershare Trust Company, N.A. and Computershare Inc. (collectively, the “exchange agent”), which also serves as Meta’s transfer agent, (i) certificates, or, at Meta’s option, evidence of shares in book-entry form, representing the shares of Meta common stock to be issued under the merger agreement and (ii) cash payable in lieu of any fractional shares of Meta common stock to be issued under the merger agreement. As promptly as practicable after the effective time of the merger, but in no event later than five business days after the closing date of the merger, the exchange agent will provide Crestmark shareholders with appropriate and customary transmittal materials and instructions in order to exchange their shares of Crestmark common stock for the stock merger consideration to be received in the merger pursuant to the terms of the merger agreement. No interest will accrue or be paid with respect to any property to be delivered upon surrender of Crestmark common stock. Upon surrender to the exchange agent of its certificates or book-entry shares representing Crestmark common stock accompanied by a properly completed letter of transmittal timely delivered to the exchange agent, Crestmark shareholders will be entitled to receive as promptly as practicable the stock merger consideration, including any cash in lieu of fractional shares of Meta common stock.

 

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If any letter of transmittal from a holder of Crestmark common stock provides that Meta common stock is to be issued, or cash payment made, in a name other than that in which the Crestmark common stock surrendered in exchange for the stock merger consideration is registered, then the letter of transmittal must be properly endorsed with a signature guarantee from an eligible guarantor institution and accompanied by any other evidence of authority reasonably requested by the exchange agent, and otherwise put in proper form for transfer.

At or as soon as practicable following the effective time of the merger, and in each case following the receipt by Meta, as the surviving entity, of a cancellation and consent letter agreement from a holder of an in-the-money Crestmark stock option in such form as is acceptable to Meta, Meta shall pay the option cash consideration (less any applicable withholding or other required taxes) payable, pursuant to the terms of the merger agreement, to each holder of an in-the-money Crestmark stock option in accordance with Meta’s ordinary payroll practices, subject to section 409A of the Code.

Dividends and Distributions. Until your Crestmark common stock is surrendered for exchange, any dividends or other distributions declared after the effective time with respect to Meta common stock into which shares of Crestmark common stock may have been converted will accrue but will not be paid. When such Crestmark common stock has been duly surrendered, Meta will pay, without interest (i) at the time of such surrender, the dividends or other distributions with a record date after the effective time of the merger payable with respect to such whole shares of Meta common stock and not paid, and (ii) at the appropriate payment date, the dividends or other distributions payable with respect to whole shares of Meta common stock with a record date after the effective time of the merger but with a payment date subsequent to surrender.

Withholding. Meta (through the exchange agent, if applicable) will be entitled to deduct and withhold from the merger consideration payable to any Crestmark shareholder or any holder of in-the-money Crestmark stock options the amounts it is required to deduct and withhold under any federal, state, local or foreign tax law. If Meta or the exchange agent withholds any amounts, these amounts will be treated for all purposes of the merger as having been paid to the stockholders or optionholders, as applicable, from whom they were withheld.

No Fractional Shares Will Be Issued. Meta will not issue fractional shares of Meta common stock in the merger. There will be no dividends or distributions with respect to any fractional shares of common stock or any voting or other rights with respect to any fractional shares of common stock. Instead of fractional shares of Meta common stock, Meta will pay to each Crestmark shareholder that would otherwise receive fractional shares of Meta common stock an amount in cash (without interest and rounded down to the nearest whole cent) determined by multiplying the fractional share interest in Meta common stock to which such Crestmark shareholder would otherwise be entitled by the per share purchase price.

Lost, Stolen or Destroyed Crestmark Common Stock Certificates. If a Crestmark shareholder has lost a certificate representing Crestmark common stock, or it has been stolen or destroyed, Meta will issue to such shareholder the Meta common stock or cash payable under the merger agreement if such shareholder submits an affidavit of that fact and indemnity agreement, or, if requested by Meta or the exchange agent, if such shareholder posts bond in a customary amount as indemnity against any claim that may be made against Meta about ownership of the lost, stolen or destroyed certificate, together with the payment of any applicable fees.

For a description of Meta common stock and a description of the differences between the rights of Crestmark shareholders and Meta stockholders, see “Description of Meta Capital Stock” and “Comparison of Stockholder Rights.”

Effective Time

We plan to complete the merger on a business day designated by Meta and Crestmark that is no later than five business days after the satisfaction or waiver of the last remaining conditions to the merger, other than those conditions that, by their nature, are to be satisfied at the closing of the merger, but subject to the fulfillment or waiver of those conditions, or such other time as the parties may mutually agree in writing. The time the merger is completed is referred to as the “effective time” of the merger. See “—Conditions to Completion of the Merger.”

We anticipate that we will complete the merger during the second calendar quarter of 2018. However, completion could be delayed if there is a delay in obtaining the necessary regulatory approvals or the shareholder approvals or for other reasons. There can be no assurances as to if or when these approvals will be obtained or as to whether or when the merger will be completed. If we do not complete the merger by June 30, 2018, subject to an automatic two-month extension to obtain regulatory approvals if such approvals are not obtained as of June 30, 2018, then either party may terminate the merger agreement without penalty, unless the failure to complete the merger by such date is due to the material breach of the merger agreement by the party seeking to terminate the merger agreement. See “—Conditions to Completion of the Merger” and “—Regulatory Approvals Required for the Merger.”

 

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Representations and Warranties

The merger agreement includes customary representations and warranties of Meta and Crestmark relating to their respective businesses that are made as of the date of the merger agreement and as of the closing date of the merger. However, it should be noted that these representations and warranties:

 

    have been qualified by information set forth in confidential disclosure schedules delivered in connection with signing the merger agreement – the information contained in those schedules modifies, qualifies and creates exceptions to the representations and warranties in the merger agreement;

 

    will not survive consummation of the merger;

 

    may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to the merger agreement if those statements turn out to be inaccurate; and

 

    are, in some cases, subject to a materiality standard described in the merger agreement that may differ from what may be viewed as material by you.

The merger agreement contains representations and warranties of Meta and Crestmark, to each other, as to, among other things:

 

    the corporate organization and existence of each party;

 

    the capitalization of each party;

 

    the authority of each party and its respective subsidiary bank to enter into the merger agreement (and any other agreement contemplated thereby) and the enforceability of the merger agreement against each party and its respective subsidiary bank;

 

    the absence of any violation or breach of the certificate of incorporation, by-laws or other similar governing document of each party, applicable law, and certain agreements, instruments or obligations of each party as a result of entering into, delivering and performing under the merger agreement;

 

    governmental approvals and other consents and approvals in connection with the merger;

 

    each party’s financial statements and filings with applicable regulatory authorities;

 

    agreements with regulatory agencies;

 

    legal proceedings;

 

    the absence of material changes in each party’s business since (i) December 31, 2016 for Crestmark and (i) September 30, 2017 for Meta;

 

    each party’s compliance with applicable law;

 

    each party’s relationships with brokers;

 

    the filing and accuracy of material tax returns, and the tax treatment of the merger;

 

    regulatory capitalization;

 

    the absence of any misstatements and omissions of material fact supplied by such party in the merger agreement; and

 

    the absence of representations and warranties other than those that are specifically set forth in the merger agreement.

In addition, the merger agreement contains representations and warranties of Crestmark to Meta as to, among other things:

 

    the existence, organization and capitalization of its subsidiaries;

 

    regulatory investigations and orders;

 

    the absence of undisclosed obligations or liabilities;

 

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    the validity of, and the absence of material defaults under its material contracts;

 

    employee benefit plans and related matters;

 

    labor matters;

 

    environmental matters;

 

    investment securities;

 

    derivative transactions;

 

    enforceability and validity of loans;

 

    allowances for loan and lease losses;

 

    its trust business;

 

    investment management activities;

 

    repurchase agreements;

 

    deposits and deposit insurance;

 

    transactions with affiliates;

 

    title and interest in property;

 

    intellectual property;

 

    adequacy of insurance coverage;

 

    contingency planning programs;

 

    the inapplicability to the merger and the other transactions contemplated by the merger agreement of state anti-takeover laws;

 

    receipt of a fairness opinion regarding the fairness, from a financial point of view, of the merger to the Crestmark shareholders; and

 

    the absence of dissenters rights.

In addition, the merger agreement contains representations and warranties of Meta to Crestmark as to, among other things:

 

    its filings with the SEC;

 

    the sufficiency of internal controls; and

 

    disclosure controls.

Conduct of Business Pending the Merger

The merger agreement contains various restrictions on the operations of Crestmark before the effective time of the merger. Specifically, Crestmark has agreed that, except as (a) set forth in schedules to the merger agreement, (b) expressly contemplated or permitted by the merger agreement, or (c) required under applicable law, Crestmark will not, and will not agree to, unless it obtains Meta’s prior written consent:

 

    conduct its business other than in the ordinary and usual course;

 

    except for the issuance of Crestmark common stock pursuant to outstanding Crestmark stock options or the pledge of Crestmark securities to secure its line of credit, issue, sell, grant, pledge, deliver, dispose of, encumber, or otherwise permit to become outstanding, or authorize the creation of, any additional shares of its capital stock;

 

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    except in accordance with the terms of an existing Crestmark equity plan, accelerate the vesting of warrants, options, calls, rights, convertible securities or other similar commitments;

 

    except as permitted by the merger agreement, change, adjust, split, combine, redeem, reclassify, exchange, purchase or otherwise acquire any shares of its capital stock;

 

    make, declare, pay or set aside for payment any dividend or distribution on any shares of its stock, except for payments from Crestmark Bank to Crestmark or from any subsidiary of Crestmark Bank to Crestmark Bank;

 

    (i) increase the compensation or benefits payable or to become payable to any current or former employee, officer, director or consultant, (ii) establish, adopt, enter into or amend any benefit plan, (iii) increase the compensation or benefits payable under any existing severance, termination, change in control or retention pay policy or employment or other agreement or benefit plan, (iv) accelerate the vesting or time of payment of any equity or equity-based compensation or other compensation, (v) grant any awards under any bonus, incentive, performance or other compensation plan or arrangement or benefit plan, (vi) fund any trust in advance of payment under any benefit plan, or (vii) make any loan or cash advance to any current or former director, officer, employee or independent contractor, other than (w) as required under the terms of a Crestmark benefit plan, (x) as required by law, (y) as permitted or required by the merger agreement or (z) in connection with a promotion in the ordinary course of business;

 

    terminate any officer or key employee other than for cause, or hire any employee other than at-will employees with an annual salary less than a specified amount or to fill a vacancy in the ordinary course at an annual salary commensurate with the employee being replaced;

 

    enter into any agreement or consummate any transaction with an affiliate of Crestmark or its officers and directors or their immediate family members or any affiliates or associates of the officers or directors;

 

    sell, transfer, mortgage, encumber or otherwise dispose of any loans, securities, assets, deposits, business or properties, except in the ordinary course of business;

 

    acquire the assets, loans, securities, equity, business, deposits or properties of any other entity except in various specified transactions in the ordinary course of business;

 

    make any capital expenditures in excess of specified amounts;

 

    amend its articles of incorporation or by-laws;

 

    change its accounting principles, practices or methods, except as required by law or U.S. GAAP;

 

    terminate, amend, modify or renew any material contract other than renewals or amendments without material adverse changes of terms to Crestmark or its subsidiaries, or enter into a material contract other than in the ordinary course of business substantially consistent with past practice;

 

    settle any action, suit, claim or proceeding against it, other than in the ordinary course of business in an amount not in excess of $1.0 million individually or $5.0 million in the aggregate and that would not impose any material restriction on Crestmark or its subsidiaries’ business;

 

    enter into any new line of business, introduce any material new products or services or incentive programs or arrangements, materially change its banking and operating policies except as required by law or policies imposed by regulatory authorities, or make any material changes to its underwriting, pricing, origination, acquiring, selling or serving policies and practices;

 

    enter into any derivative transactions;

 

    other than draws upon, or increases in, Crestmark’s existing line of credit in the ordinary course of business, incur any indebtedness for borrowed money that can be prepaid at any time without penalty, assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person;

 

    purchase or dispose of debt securities, equity investments or any certificates of deposits issued by other banks, other than to manage liquidity in the ordinary course of business;

 

    make any loan that is not in the ordinary course of business and substantially consistent with Crestmark’s written lending guidelines, subject to exceptions consistent with past practice and not material to the credit risk assessment of the loan;

 

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    make any investment in real property other than by way of foreclosure or in satisfaction of a debt previously contracted or make any investment to develop any real property owned by Crestmark or its subsidiaries;

 

    unless required by law, make, change or revoke any material tax election, file any amended tax return, enter into any closing agreement, settle any material tax claim or assessment, or surrender any right to claim a material refund of taxes;

 

    acquire or otherwise become the owner of any real property by way of foreclosure or in satisfaction of a debt previously contracted without first obtaining an appropriate Phase I environmental site assessment;

 

    take, or knowingly fail to take, any action that would, or is reasonably likely to prevent, delay or impair Crestmark’s ability to consummate the merger, prevent Crestmark Bank’s ability to consummate the bank merger with MetaBank, or prevent the parties from consummating any of the other transactions contemplated by the merger agreement;

 

    except as a result of foreclosure or deficiency judgment settlement, redeem or otherwise acquire any shares of Crestmark capital stock or any securities convertible into or exercisable for any shares of Crestmark capital stock;

 

    propose to, file any application or make any contract or commitment for the opening or relocation of any, or open or relocate any, branch office, loan production or servicing facility;

 

    restructure, reorganize or completely or partially liquidate or dissolve itself or any of its significant subsidiaries; or

 

    other than in the ordinary course of business, propose to, compromise, resolve, or otherwise workout any delinquent or troubled loan.

Meta has agreed that, except as expressly contemplated by the merger agreement, or as disclosed in writing prior to the signing of the merger agreement or as directed in writing by any governmental authority, prior to the effective time of the merger it will not, and will not agree to, without Crestmark’s consent:

 

    partially or completely liquidate or dissolve itself;

 

    take, or knowingly fail to take, any action that would, or is reasonably likely to, prevent, delay or impair Meta’s ability to consummate the merger or the other transactions contemplated by the merger agreement; or

 

    subject to specified exclusions, issue any additional shares of Meta common stock, securities or obligations convertible into Meta common stock or any employee or director stock options, restricted stock awards, restricted stock unit awards, grants or similar equity or equity based awards, in an amount that, when aggregating all of the foregoing, exceeds three percent (3%) of the total Meta common stock issued and outstanding as of the date of execution of the merger agreement.

Acquisition Proposals by Third Parties

Crestmark has agreed that neither it nor its representatives will, directly or indirectly:

 

    initiate, solicit, knowingly induce, encourage or knowingly take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an acquisition proposal, including entering into any agreement in principle or letter of intent with respect to any acquisition proposal or resolve to approve any acquisition proposal; or

 

    participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person (other than Meta) any information or data with respect to Crestmark or any of its subsidiaries or otherwise relating to an acquisition proposal.

In addition, Crestmark agreed not to release any person from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which Crestmark is a party.

Under the merger agreement, an “acquisition proposal” means any inquiry, offer or proposal (other than an inquiry, offer or proposal from Meta), whether or not in writing, contemplating, relating to, or that could reasonably be expected to lead to, an acquisition transaction. An “acquisition transaction” means:

 

    any transaction or series of transactions involving any merger, consolidation, recapitalization, share exchange, liquidation, dissolution or similar transaction involving Crestmark or any of its subsidiaries that results in a third party acquiring 20% or more of any class of equity of Crestmark or Crestmark Bank;

 

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    any transaction pursuant to which any third party or group acquires or would acquire (whether through sale, lease or other disposition), directly or indirectly, 20% or more of the consolidated assets of Crestmark or Crestmark Bank;

 

    any issuance, sale or other disposition of (including by way of merger, consolidation, share exchange or any similar transaction) securities (or options, rights or warrants to purchase or securities convertible into, such securities) representing 20% or more of the votes attached to the outstanding securities of Crestmark or Crestmark Bank;

 

    any tender offer or exchange offer that, if consummated, would result in any third party or group beneficially owning 20% or more of any class of equity securities of Crestmark or Crestmark Bank; or

 

    any transaction which is similar in form, substance or purpose to any of the transactions listed above, or any combination of these types of transactions.

If Crestmark receives a bona fide unsolicited written acquisition proposal that did not result from a breach of the non-solicitation provisions in the merger agreement as discussed above, the Crestmark board of directors may participate in discussions or negotiations regarding the unsolicited acquisition proposal if the Crestmark board of directors first determines in good faith, after consultation with its outside legal counsel and outside financial advisor, that such acquisition proposal is or is reasonably likely to lead to a superior proposal, and its failure to take action on such proposal would be inconsistent with its fiduciary duties to its shareholders under applicable law, provided that Crestmark provides Meta with at least three business days’ prior notice of such determination and any person making such alternate proposal signs a confidentiality agreement with terms no less favorable than the confidentiality agreement with Meta.

A “superior proposal” means a bona fide, unsolicited acquisition proposal that:

 

    if consummated, would result in a third party (or in the case of a direct merger between such third party and Crestmark or its subsidiaries, the shareholders of such third party) acquiring, directly or indirectly, more than 50% of the outstanding Crestmark common stock or more than 50% of the assets of Crestmark and its subsidiaries, taken as a whole, for consideration consisting of cash and/or securities, and

 

    the Crestmark board of directors reasonably determines in good faith, after consultation with its outside financial advisor and outside legal counsel, (1) is reasonably capable of being completed on a timely basis, taking into account all financial, legal, regulatory and other aspects of such proposal, including all conditions contained therein and the person making such acquisition proposal, and (2) taking into account any changes to the merger agreement proposed by Meta in response to such acquisition proposal, and all financial, legal, regulatory and other aspects of such takeover proposal, including all conditions contained therein and the person making such proposal, is more favorable to the shareholders of Crestmark from a financial point of view than the merger with Meta.

Crestmark has agreed to promptly, and in any event within 24 hours, notify Meta in writing if any proposals or offers are received by, any information is requested from, or any negotiations or discussions are sought to be initiated or continued with, Crestmark or any of its representatives, in each case in connection with any acquisition proposal and to keep Meta informed, on a reasonably current basis, of the status and terms of any such proposal, offer, information request, negotiations or discussions (including any amendments or modifications to such proposal, offer or request). Crestmark has also agreed to provide Meta with any non-public information about Crestmark or any of its subsidiaries provided to any other person that was not previously provided to Meta, no later than the date provided to such other person.

In addition, under the merger agreement, Crestmark agreed that its board of directors, or any committee thereof, will not:

 

    withdraw, qualify, amend or modify, or propose to withdraw, qualify, amend or modify, in a manner adverse to Meta in connection with the transactions contemplated by the merger agreement (including the merger), its recommendation that Crestmark shareholders vote to approve the merger agreement (including failing to reaffirm its recommendation if requested by Meta), or make any statement, filing or release inconsistent with its recommendation;

 

    approve or recommend, or propose to approve or recommend, any acquisition proposal; or

 

    enter into any letter of intent, or other agreement related to any acquisition transaction (other than a confidentiality agreement entered into in accordance with the non-solicitation provisions of the merger agreement) or requiring Crestmark to abandon, terminate or fail to consummate the merger or any other transaction contemplated by the merger agreement;

unless, the Crestmark board determines that an unsolicited acquisition proposal that Crestmark received (that did not result from a breach of the non-solicitation provisions of the merger agreement) constitutes a superior proposal, but only if it so determines in good faith, after consultation with outside legal counsel and its financial advisor, and it is reasonably necessary to do so in order to comply with its fiduciary duties to the Crestmark shareholders under applicable law. In the event that the Crestmark board

 

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makes this determination, Crestmark must provide five business days’ prior written notice to Meta that its board has made such determination. During the five business days after Meta’s receipt of such notice, Crestmark and its board must cooperate and negotiate in good faith with Meta to make any adjustments, modifications or amendments to the terms and conditions of the merger agreement as Meta may elect to propose that would enable Crestmark to proceed with its board’s original recommendation with respect to the merger agreement. At the end of the five business day period, and after taking into account any such adjusted, modified or amended terms as may have been proposed by Meta during that period, the Crestmark board must again determine:

 

    in good faith, after consultation with outside legal counsel, whether it is reasonably necessary to withdraw, qualify, amend or modify its recommendation with respect to the merger agreement to comply with its fiduciary duties to its stockholders under applicable law; and

 

    whether the acquisition proposal is a superior proposal.

In the event of any material revisions to the superior proposal, Crestmark must provide a new notice of such superior proposal to Meta. During the three business day period following receipt of such new written notice, Crestmark and its board must cooperate and negotiate in good faith with Meta to make any adjustments, modifications or amendments to the terms and conditions of the merger agreement as would enable Crestmark to proceed with its board’s original recommendation with respect to the merger agreement without requiring Crestmark to withdraw, qualify, amend or modify its board’s recommendation with respect to the merger agreement, provided that Meta does not have any obligation to propose any such modifications, amendments or adjustments to the merger agreement.

Crestmark is obligated to submit the merger agreement to its shareholders for a vote to approve the merger agreement and the merger, with a recommendation to approve it; provided, however, in the event the Crestmark board has determined there is a superior proposal as described above, the Crestmark board may recommend such superior proposal and submit the merger agreement without recommendation, along with the basis for such recommendation and lack thereof.

Under certain circumstances, including if the merger agreement is terminated in the event Crestmark breaches certain obligations described above, Crestmark must pay Meta a fee equal to $10.0 million. See “—Termination of the Merger Agreement.”

Other Agreements

In addition to the agreements described above, the parties to the merger agreement have agreed to take several other actions, including:

 

    to use commercially reasonable efforts to consummate the merger and the other transactions contemplated by the merger agreement;

 

    to convene a special meeting of Meta stockholders within 45 days from the date the registration statement, of which this joint proxy statement/prospectus is a part, becomes effective to consider and vote on the Meta merger proposal, and that Meta will adjourn or postpone such meeting (i) if there are insufficient shares of Meta common stock to constitute a quorum, (ii) if Meta has not then received sufficient proxies to approve the Meta merger proposal, or (iii) to allow reasonable additional time for the filing or mailing of any supplemental or amended disclosure required under law;

 

    to convene a special meeting of Crestmark shareholders within 45 days from the date the registration statement, of which this joint proxy statement/prospectus is a part, becomes effective to consider and vote on the Crestmark merger proposal, and that Crestmark will adjourn or postpone such meeting (i) if there are insufficient shares of Crestmark common stock to constitute a quorum, (ii) if Crestmark has not then received sufficient proxies to approve the Crestmark merger proposal, or (iii) to allow reasonable additional time for the filing or mailing of any supplemental or amended disclosure required under law;

 

    to cooperate to schedule and convene the Meta shareholder meeting and the Crestmark shareholder meeting on the same date and to keep the other party informed regarding solicitation efforts and voting results;

 

    to, subject to applicable law, cooperate with each other and prepare promptly and file all necessary documentation to obtain all required permits, consents, approvals and authorizations of third parties and governmental entities, including this joint proxy statement/prospectus and the registration statement for the Meta common stock to be issued in the merger of which this joint proxy statement/prospectus is a part;

 

    that Meta will use its reasonable best efforts to cause the shares of Meta common stock to be issued in the merger to be approved for listing on the NASDAQ Global Select Market (subject to official notice of issuance) as promptly as practicable, and in any event before the effective time of the merger;

 

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    to consult with each other regarding press releases, subject to applicable law;

 

    to provide to each other, and to each other’s officers, employees, counsel, accountants and other authorized representatives, reasonable access during normal business hours throughout the period prior to the effective time of the merger to the books, records, properties, personnel and other information of Meta or Crestmark as either Meta or Crestmark may reasonably request;

 

    to each confer on a regular basis with representatives of the other party and to report the general status of the ongoing operations of each party and its respective subsidiaries, including promptly providing copies of each report filed by such party or any of its subsidiaries with a governmental authority, subject to confidentiality and certain other limitations;

 

    to supplement our respective disclosure schedules to the merger agreement with respect to any matter which would have been required to have been disclosed if existing on the date of the merger agreement;

 

    that, for a period of six years after the effective time of the merger, Meta will indemnify, defend and hold harmless the directors and officers of Crestmark (when acting in such capacity) against all costs and liabilities arising out of actions or omissions occurring at or before the completion of the merger, in accordance with Crestmark’s articles of incorporation and Crestmark’s by-laws, to the extent permitted by law;

 

    that, for a period of six years after the effective time of the merger, Meta will maintain Crestmark’s existing directors’ and officers’ liability insurance for liabilities that arose prior to the completion of the merger if the total premium therefor is not in excess of 200% of the last annual premium paid prior to the date of the merger agreement (see “The Merger—Interests of Certain Persons in the Merger”);

 

    that, not later than the day immediately preceding the closing date of the merger, Crestmark will cause any employee benefit plan of Crestmark to be fully funded, to terminate all such employee benefit plans of Crestmark as of the effective time of the merger, and to commence the process to pay out any vested benefits thereunder to participating and eligible employees of Crestmark;

 

    that Crestmark will terminate its employee stock ownership plan (“ESOP”) the day immediately preceding the closing date of the merger and repay the full outstanding balance of any loans under the ESOP;

 

    that Meta and Crestmark will give notice to the other party of any fact, event or circumstance that is reasonably likely to result in any material adverse effect, as defined in the merger agreement, or that would constitute a material breach of any of its or its respective subsidiaries’ representations, warranties, covenants or agreements in the merger agreement;

 

    that Meta and Crestmark will facilitate the integration of Crestmark with the business of Meta and will meet on a regular basis to discuss and plan for the conversion of the data processing and related electronic informational systems of Crestmark prior to filing regulatory approvals;

 

    that Crestmark will cooperate with certain environmental examinations, if required by Meta and at Meta’s cost, within 45 business days after the execution of the merger agreement to real property owned by Crestmark and its subsidiaries in order to determine, as provided in the merger agreement, whether certain environmental conditions exist on such real property;

 

    to increase the size of each of Meta’s and MetaBank’s board of directors by two directorships and nominate W. David Tull and another individual designated jointly by Meta and Crestmark, who has subsequently been determined to be Michael R. Kramer, to such boards as of the effective time of the merger (see “The Merger—Interests of Certain Persons in the Merger”);

 

    to cause the officers and directors of Crestmark and each of its subsidiaries to resign such positions as of the effective time of the merger;

 

    to take such actions reasonably requested by the other party for integration of the parties’ operations and to cause Crestmark Bank to merge into MetaBank;

 

    to keep any non-public confidential information of the other party confidential;

 

    to use each of our reasonable best efforts to cause the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code;

 

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    that, prior to the effective time of the merger, Crestmark will prepare and deliver to Meta a good faith determination of its adjusted tangible common equity (as such term is defined in the merger agreement);

 

    to not take any actions that would cause the transactions contemplated by the merger agreement to be subject to any takeover laws;

 

    promptly following execution of the merger agreement, to deliver evidence to the other party of stockholder approval by Meta’s and Crestmark’s respective subsidiary banks; and

 

    that Crestmark will deliver to Meta a copy of its 2017 audited financial statements as soon as such financial statements are made available.

Conditions to Completion of the Merger

The obligations of Meta and Crestmark to complete the merger are subject to the satisfaction or waiver of certain conditions, including the following:

 

    the merger agreement and the merger must be approved by the requisite vote of Crestmark shareholders;

 

    the merger agreement must be adopted, and the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Meta common stock must be approved, by the requisite vote of holders of Meta common stock;

 

    all requisite regulatory approvals must be obtained and in full force, and all statutory waiting periods in respect thereof must have terminated;

 

    all other approvals or consents must be obtained, in full force and all statutory waiting periods in respect thereof must have terminated, except for those which will not result in a material adverse effect on Meta;

 

    there must be no government action or other legal restraint or prohibition preventing completion of the merger or the other transactions contemplated by the merger agreement; and

 

    the Meta common stock that is to be issued in the merger must be approved for listing on the NASDAQ Global Select Market, and the registration statement filed with the SEC, of which this joint proxy statement/prospectus is a part, must be effective.

The obligation of Crestmark to complete the merger is subject to the satisfaction or waiver of certain conditions, including the following:

 

    each of the representations and warranties of Meta contained in the merger agreement must be true and correct in all material respects as of the date of the merger agreement and as of the closing date of the merger, and Meta must have performed all obligations and complied with all agreements and covenants required to be performed by it under the merger agreement in all material respects;

 

    since the date of the merger agreement, no condition, event, fact, circumstance or other occurrence will have occurred which has had or is reasonably expected to have a material adverse effect on Meta, as the surviving entity;

 

    the bank merger agreement must have been executed and delivered by Meta;

 

    receipt of a legal opinion from Dickinson Wright PLLC, dated as of the closing date of the merger, that, on the basis of facts, representations and assumptions set forth in the opinion, the merger will be treated as a tax-free reorganization under federal tax laws; and

 

    the board of directors of each of Meta and MetaBank must have approved the merger agreement, including the merger and the other transactions contemplated thereby, and the board of directors of Meta shall not have adversely withheld, withdrawn or modified the recommendation to Meta stockholders to approve the merger proposal with Crestmark.

In addition, the obligation of Meta to complete the merger is subject to the satisfaction or waiver of certain conditions, including the following:

 

    each of the representations and warranties of Crestmark contained in the merger agreement must be true and correct in all material respects as of the date of the merger agreement and as of the closing date of the merger and Crestmark must have performed all obligations and complied with all agreements and covenants required to be performed by it under the merger agreement in all material respects;

 

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    the bank merger agreement must have been executed and delivered by Crestmark;

 

    the board of directors of Crestmark and Crestmark Bank must have approved the merger agreement, including the merger and the other transactions contemplated thereby, and the board of directors of Crestmark shall not have adversely withheld, withdrawn or modified the recommendation to Crestmark’s shareholders to approve the merger proposal with Meta;

 

    since the date of the merger agreement, no condition, event, fact, circumstance or other occurrence will have occurred which has had or is reasonably expected to have a material adverse effect on Crestmark or Meta as the surviving entity;

 

    the employment agreement between Meta and Michael Goik must be in full force and effect as of the consummation of the merger;

 

    Meta must have received an executed option cancellation letter from each holder of a Crestmark stock option;

 

    Meta must have received resignations of each officer, director or manager of Crestmark and its subsidiaries effective as of the consummation of the merger;

 

    Crestmark must have delivered an affidavit of an officer of Crestmark and Crestmark Bank pursuant to Section 1445(b)(3) of the Code that Crestmark and Crestmark Bank are not U.S. real property holding companies;

 

    receipt of a legal opinion from Katten Muchin Rosenman LLP, dated as of the date the merger is completed, that, on the basis of facts, representations and assumptions set forth in the opinion, the merger will be treated as a tax-free reorganization under federal tax laws;

 

    Crestmark must have delivered to Meta evidence of satisfaction of any corrective actions;

 

    Meta must have received the report from BDO USA LLP regarding the valuation of certain restrictive covenants for purposes of Section 280G of the Code;

 

    Meta stockholders must have approved an amendment to Meta’s certificate of incorporation to increase the authorized number of shares of Meta common stock;

 

    Crestmark’s adjusted tangible common equity, as defined in the merger agreement, must be greater than or equal to $97.0 million;

 

    Crestmark must have delivered to Meta Crestmark’s 2017 audited financial statements; and

 

    Meta must have received (i) resolutions of Crestmark’s board of directors terminating Crestmark’s employee benefit plans, and (ii) other specified evidence of employee benefit plan compliance.

Where the law permits, either of Meta or Crestmark could choose to waive a condition to its obligation to complete the merger even when that condition has not been satisfied. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Termination of the Merger Agreement

The merger agreement may be terminated prior to the closing, before or after approval by Meta stockholders or Crestmark shareholders, for various reasons, including by:

 

    mutual consent of Meta and Crestmark;

 

    either party if any requisite regulatory approvals are not obtained or if the consummation of the merger has been enjoined or prohibited by any governmental regulatory authority;

 

    either party if Meta stockholders do not approve the merger agreement or the share issuance, or if Crestmark shareholders do not approve the merger agreement;

 

    a party who is not in material breach of the merger agreement if the other party (1) materially breaches any covenants or undertakings contained in the merger agreement or (2) materially breaches any representations or warranties contained in the merger agreement, in each case, subject to cure provisions set forth in the merger agreement;

 

    either party if the merger has not occurred on or before June 30, 2018, as shall be automatically extended for two months in order to obtain regulatory approvals if such regulatory approvals have not obtained as of such date, unless the failure to complete the merger by such date is due to the material breach of the merger agreement by the party seeking to terminate;

 

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    Meta, if the board of directors of Crestmark (1) materially breaches its non-solicitation obligations provided in the merger agreement, (2) fails to recommend, or withdraws its previous recommendation, that Crestmark shareholders approve the merger and the merger agreement, (3) recommends, proposes or publicly announces its intention to recommend or propose to engage in an acquisition transaction with any person other than Meta, (4) fails to convene the Crestmark special meeting, (5) fails to publicly recommend against an alternative acquisition proposal within five business days after being asked to do so by Meta, or (6) fails to publicly reconfirm its recommendation that Crestmark shareholders approve the merger or the merger agreement within five business days after being asked to do so by Meta; or

 

    Crestmark, if the board of directors of Meta materially breaches its obligations to call, give notice of and commence the Meta special meeting.

If the merger agreement is terminated, it will become void and have no effect and the parties will be relieved of all obligations and liabilities, except that (i) certain specified provisions of the merger agreement will survive and (ii) if the merger agreement is terminated because of a material breach of a representation, warranty, covenant or agreement, the breaching party will not be relieved of liability for any breach giving rise to the termination; provided, however, if either party is required by the terms of the merger agreement, and does pay, the termination fee described below, then such party will have no further obligations under the merger agreement.

Crestmark will be required to pay a termination fee to Meta equal to $10.0 million, in the following circumstances:

 

    Meta terminates the merger agreement because Crestmark (1) materially breaches its non-solicitation obligations provided in the merger agreement, subject to a five-day cure period, (2) fails to recommend, or withdraws its previous recommendation, that Crestmark shareholders approve the merger and the merger agreement, (3) recommends, proposes or publicly announces its intention to recommend or propose to engage in an acquisition transaction with any person other than Meta, (4) materially breaches its obligations to convene the Crestmark special meeting, subject to a 5-day cure period, or (5) fails to publicly reconfirm its recommendation that Crestmark shareholders approve the merger or the merger agreement after being asked to do so by Meta; or

 

    in the event that (1) a third party acquisition proposal had been made known to Crestmark or made directly to its shareholders and not withdrawn, and thereafter the merger agreement is terminated (x) by either party because the Crestmark shareholders fail to approve the merger agreement or because the merger is not consummated by June 30, 2018 without the Crestmark shareholders having approved the merger, or (y) by Meta because of a material uncured breach by Crestmark of its representations, warranties or covenants under the merger agreement, or (2) within six months after the date of termination, Crestmark consummates an acquisition transaction (as defined in the merger agreement) or enters into a definitive agreement with respect to such acquisition proposal.

Meta will be required to pay a termination fee to Crestmark equal to $10.0 million, in the following circumstances:

 

    Crestmark terminates the merger agreement because Meta materially breaches its obligation to convene the Meta special meeting, subject to a five-day cure period; or

 

    in the event that there is a publicly announced offer to purchase at least 20% or more of Meta’s or MetaBank’s capital stock or consolidated assets, and, thereafter, the merger agreement is terminated by Meta because the Meta stockholders fail to approve the merger agreement.

Waiver and Amendment of the Merger Agreement

At any time before completion of the merger, either Meta or Crestmark may, to the extent legally allowed, amend in writing the merger agreement or waive in writing compliance by the other with any provision contained in the merger agreement. However, once Crestmark shareholders have approved the Crestmark merger proposal or Meta stockholders have approved the Meta merger proposal, no amendment may be made that would require further approval by Meta stockholders or Crestmark shareholders unless that approval is obtained.

Meta may also change the structure of the merger or the method effecting the merger before the effective time of the merger, so long as any change does not: (i) change the kind or amount of consideration to be received by Crestmark shareholders; (ii) materially delay receipt of the requisite regulatory approvals; (iii) adversely affect the federal income tax consequences of the merger to Crestmark’s shareholders; or (iv) cause any of the conditions to complete the merger to be incapable of being satisfied.

 

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Regulatory Approvals Required for the Merger

In the merger agreement, we have agreed to use commercially reasonable efforts to obtain the requisite regulatory approvals, which include approvals from the Federal Reserve and the OCC. Meta filed applications and notices under relevant provisions of the HOLA and the BHCA for approval of the merger with the Federal Reserve Bank of Minneapolis on March 14, 2018. In addition, Meta filed an application under the Bank Merger Act, 12 U.S.C. § 1828(c), and HOLA § 10(s), for approval of the bank merger (the “bank merger application”) with the OCC on March 2, 2018. A copy of one or more of the applications and notices has been or will be furnished to the DOJ, the FDIC, and the OCC. Copies of certain of the notices have been or will be filed with the DOJ and the FTC pursuant to the Hart-Scott-Rodino Act. As required by Michigan law, a copy of the bank merger application was filed with the DIFS on March 9, 2018. A courtesy copy of one or more of the applications and notices to the Federal Reserve was provided to the DIFS on March 16, 2018. Meta and Crestmark cannot provide any assurance that the requisite regulatory approvals will be obtained in a timely manner or at all, or, if the requisite regulatory approvals are obtained, that such approvals will not contain a burdensome condition. In addition, Meta and Crestmark cannot provide any assurance that there will not be any public objection to or litigation challenging the requisite regulatory approvals, including any challenge by the DOJ, a state attorney general or a private party on antitrust grounds, or, if such a challenge is made, as to the result of any such challenge.

Federal Reserve.

The merger will be effected after a transitory conversion by Meta into a bank holding company, as such term is defined in the BHCA, for which a filing on Form FR Y-3 pursuant to BHCA Section 3(a)(1) was provided to the Federal Reserve Bank of Minneapolis (“FRB-M”) on March 14, 2018. Additionally, a FR Y-4 notice filing was provided to the FRB-M on March 14, 2018 in connection with Meta’s momentary holding of (i) Crestmark Bank’s majority interests in certain subsidiary limited liability companies, and (ii) MetaBank, a federal savings bank, during Meta’s transitory conversion into a bank holding company. The merger, the bank merger and the other transactions contemplated by the merger agreement cannot be completed unless and until the requisite regulatory approvals are received and any required waiting periods in connection with such regulatory approvals have expired.

The Federal Reserve will review the merger pursuant to the relevant provisions in the HOLA, including as set forth in Section 10 of the HOLA, 12 U.S.C. § 1467a, and the Board’s Regulation LL, 12 CFR Part 238, as well as the BHCA, including as set forth in 12 U.S.C. §§ 1842 and 1843 and the Board’s Regulation Y, 12 CFR Part 225. The Federal Reserve is prohibited from approving any merger transaction under Section 10(e) of the HOLA (i) which would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize, or attempt to monopolize, the savings and loan business in any part of the United States, or (ii) whose effect in any section of the United States may be substantially to lessen competition, or to tend to create a monopoly or which in any other manner would be in restraint of trade, unless the Federal Reserve finds that the anti-competitive effects of the merger transaction are clearly outweighed in the public interest by the probable effect of the merger transaction in meeting the convenience and needs of the community to be served.

In addition, the Federal Reserve generally considers the following specific factors in evaluating applications presented pursuant to HOLA Section 10(e): (a) the financial and managerial resources and future prospects of the company and association involved (including a consideration of the competence, experience, and integrity of the officers, directors, and principal shareholder of the company or association), (b) the effect of the acquisition on the association, (c) the insurance risk to the Deposit Insurance Fund, and (d) the convenience and needs of the community to be served (including the record of performance under the Community Reinvestment Act of 1977, as amended).

The Federal Reserve is further prohibited from approving a merger application if after consummation of the mergers, the applicant would control more than 10% of the total amount of aggregate consolidated liabilities of “financial companies” (as defined under the BHCA) in the United States. On a pro forma basis, using data as of December 31, 2017, assuming approval and consummation of the mergers, Meta would control only 0.0383% of nationwide liabilities of financial companies. Accordingly, Meta believes that this prohibition does not apply to the mergers, and will not prevent the Federal Reserve from granting approval under the HOLA.

The Federal Reserve will render a decision on the HOLA application within 90 days after submission of the complete record on the application.

In acting on the application and notice under the BHCA, the Federal Reserve will consider factors similar to those described above that are applicable under the HOLA. In addition, the Federal Reserve will consider the effectiveness of the companies in combatting money laundering services, and the extent to which the proposed merger would result in greater or more concentrated risks to the financial stability of the United States banking or financial system.

Because under the BHCA, the “home state” of MetaBank and of Crestmark Bank is not the same state, the Federal Reserve is prohibited from approving the merger if (i) the applicant is not “well capitalized” and “well managed” (as those terms are defined in the BHCA), or (ii) after consummation of the mergers, the applicant would control more than 10% of the total amount

 

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of deposits of insured depository institutions in the United States. Meta believes that it is both “well capitalized” and “well managed”, as those terms are used in the BHCA. On a pro forma basis, using deposit data as of December 31, 2017, assuming approval and consummation of the mergers, Meta would control only 0.0342% of nationwide deposits of insured depository institutions. Accordingly, Meta believes that this prohibition does not apply to the mergers, and will not prevent the Federal Reserve from granting approval under the BHCA.

Office of the Comptroller of the Currency. Under federal law, the OCC must review the bank merger as set forth in the applicable provisions of the Bank Merger Act, 12 U.S.C. § 1828(c), and Section 10(s) of the HOLA. The requisite application materials have been filed with the OCC and include information related to both depository institutions and their current and pro forma financials. The OCC will consider the following factors, among others, in evaluating the bank merger application: (a) the financial and managerial resources and future prospects of the existing and proposed institutions; (b) the convenience and needs of the community to be served; (c) the risk to the stability of the United States banking or financial system; (d) the activities of the combined institution; and (e) the existing institutions’ compliance with Bank Secrecy Act/Anti-Money Laundering requirements and obligations. Because the Federal Reserve will be reviewing the competitive effects of the merger and the holding company merger will occur before the bank merger, the OCC will not review the competitive effect of the mergers.

Because MetaBank and Crestmark Bank are located in different states, the OCC must consider additional matters under both the Bank Merger Act and Section 5(r) of the HOLA. Under the Bank Merger Act, the OCC may not approve a bank merger application if, after consummation of the mergers, the applicant would control more than 10% of the total amount of deposits of insured depository institutions in the United States. On a pro forma basis, using deposit data as of December 31, 2017, assuming approval and consummation of the mergers, Meta would control only 0.0342% of nationwide deposits of insured depository institutions. Accordingly, Meta believes that this prohibition does not apply to the mergers, and that the deposit concentration standard will not prevent the OCC from granting approval under the Bank Merger Act.

Under the bank merger, Meta proposes to operate the former principal office of Crestmark Bank as a branch office of MetaBank. Section 5(r) of the HOLA prohibits any federal savings association (which includes MetaBank) from retaining or operating a branch office located outside its home state, unless (i) that branch office (and any other branch offices located in the same state), taken as a whole, would satisfy the asset requirements of a “qualified thrift lender” (as defined in HOLA) or a “domestic building and loan association” (as defined in the Internal Revenue Code), (ii) a statutory exception applies, or (iii) the OCC grants a temporary waiver of the requirements of Section 5(r) to permit the federal savings association to bring the branch office(s) outside its home state into compliance.

Because MetaBank’s home state is South Dakota, and the principal office of Crestmark Bank is located in Michigan, HOLA § 5(r) applies to the bank merger. The assets of Crestmark Bank’s principal office do not meet the asset requirements of a “qualified thrift lender” or a “domestic building and loan association”, and it is unclear whether any of the statutory exceptions applies. Accordingly, in its bank merger application, MetaBank has requested that the OCC grant a two-year waiver of the requirements of HOLA § 5(r), as permitted by the statute.

Michigan Department of Insurance and Financial Services. Completion of the merger and the related transactions, including the bank merger, requires prior notice to the DIFS pursuant to the Michigan Banking Code of 1999, 1999 P.A. 276, as amended, M.C.L. §§ 487.11101 et seq., as set forth in M.C.L. § 487.13702(b). As required by Michigan law, a copy of the bank merger application to the OCC was filed with the DIFS on March 9, 2018.

Stock Exchange Listing

Meta has agreed to use its commercially reasonable efforts to list the shares of Meta common stock to be issued in connection with the merger on the NASDAQ Global Select Market. It is a condition to the completion of the merger that those shares be approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance. Following the merger, Meta expects that its common stock will continue to trade on the NASDAQ Global Select Market under the symbol “CASH.”

Restrictions on Resales by Affiliates

Meta is registering its shares of common stock to be issued in the merger with the SEC under the Securities Act pursuant to this joint proxy statement/prospectus. No restrictions on the sale or other transfer of shares of Meta common stock issued in the merger will be imposed solely as a result of the merger, except for restrictions on the transfer of shares of Meta common stock issued to any Crestmark shareholder who is or becomes an “affiliate” of Meta for purposes of Rule 144 under the Securities Act. The term “affiliate” is defined in Rule 144 under the Securities Act as a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, Meta or the combined company, as the case may be.

 

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No Dissenters’ Rights of Appraisal

Dissenters’ rights of appraisal are rights that, if available under applicable law or otherwise, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. Dissenters’ rights of appraisal are not available in all circumstances, and exceptions to those rights are provided in the Michigan Business Corporation Act (“MBCA”). Under the MBCA and Crestmark’s articles of incorporation and by-laws, Crestmark shareholders will not have dissenters’ rights of appraisal in connection with the merger.

Voting Agreements

In connection with the execution of, and as a condition to Meta’s willingness to enter into, the merger agreement, certain of Crestmark’s directors and executive officers and holders of Crestmark common stock, representing an aggregate of approximately 34% of Crestmark’s outstanding common stock as of January 9, 2018 have entered into voting agreements with Meta. A copy of the form of these voting agreements is attached as Appendix B to this joint proxy statement/prospectus.

Under the voting agreements, each such shareholder has agreed, with respect to the shares of Crestmark common stock owned of record or beneficially by the shareholder, that at any meeting of Crestmark shareholders in relation to the merger agreement and transactions contemplated by the merger agreement and at the special shareholders meeting or any other meeting or action of Crestmark shareholders called in relation to such matters, the shareholder shall vote, or cause to be voted, such shares as follows:

 

    vote in favor of the approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger, any other matters required to be approved or adopted in order to effect the merger and the transactions contemplated by the merger agreement; and

 

    not vote in favor of any competing acquisition proposal or any action that is intended or could reasonably be expected to materially impede, interfere with, delay or materially and adversely affect the merger or any transactions contemplated by the merger agreement.

The voting agreements also contain restrictions on the sale, transfer, assignment, pledge or other disposition of shares of Crestmark common stock held or beneficially owned by Crestmark shareholders party to the voting agreements prior to the effective time of the merger.

The voting agreement will terminate automatically upon the termination of the merger agreement.

 

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PROPOSAL NO. 2

AMENDMENT TO META’S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 30 MILLION TO 90 MILLION SHARES FOR THE PURPOSE OF EFFECTING A THREE-FOR-ONE FORWARD STOCK SPLIT

Proposal 2 contemplates an amendment to Article Fourth of Meta’s certificate of incorporation to increase the number of authorized shares of Meta common stock from 30 million shares to 90 million shares (the “charter amendment” and this proposal with respect to the approval of the charter amendment, the “charter amendment proposal”). No change in the number of authorized shares of Meta nonvoting common stock or Meta preferred stock is proposed.

The complete text of the charter amendment is set forth on Appendix E to this joint proxy statement/prospectus. Such text is, however, subject to revision for such changes as may be required by the Delaware Secretary of State or other changes consistent with this proposal that Meta may deem necessary or appropriate.

On March 15, 2018, Meta’s board of directors voted to approve and adopt, and to recommend that Meta stockholders approve and adopt, the charter amendment. If Meta stockholders approve the charter amendment proposal, Meta intends to file the charter amendment with the Delaware Secretary of State promptly following the Meta special meeting.

Meta’s certificate of incorporation authorizes up to 30 million shares of Meta common stock. As of the Meta record date:

 

    [            ] shares of Meta common stock were issued (including [            ] shares of Meta common stock held in treasury) and [            ] shares were outstanding;

 

    [            ] shares of Meta common stock have been reserved for issuance under Meta’s equity compensation plans, leaving a balance of [            ] shares of Meta common stock authorized and unissued and not reserved for any specific purpose;

 

    An additional approximate 3.3 million shares of Meta common stock are expected to be issued in connection with the merger;

 

    No shares of Meta preferred stock were issued and outstanding; and

 

    No shares of Meta nonvoting common stock were issued and outstanding.

Reasons for the charter amendment

On March 15, 2018, Meta’s board of directors approved pursuing the stock split. The closing market price of Meta common stock on March 14, 2018 was $113.75, as reported on the NASDAQ Global Select Market. In light of the rise in the market price of Meta common stock in recent years, Meta’s board of directors believes that effecting the stock split would make shares of Meta common stock more affordable and attractive to a broader group of potential investors, increase liquidity in the trading of Meta common stock and increase the attractiveness of Meta’s employee equity awards. Meta’s board of directors also considered a study published by The Ambassador Financial Group concluding that stock splits improve stockholder liquidity and market valuation. Finally, Meta’s board of directors considered the cost of effecting a stock split and believes the cost to be insignificant in light of the benefits to be obtained.

Conditioned on receiving approval by Meta stockholders of the charter amendment proposal to effect the 3-for-1 forward stock split and subject to further action by Meta’s board of directors, Meta plans to issue a dividend of two shares of Meta common stock for every one share issued and outstanding as of a record date to be determined in the future. Without approval of the charter amendment proposal, Meta would not have sufficient authorized Meta common stock to declare a three-for-one forward stock split.

Approval of the charter amendment proposal will allow Meta to declare the stock split while also maintaining Meta’s flexibility to use capital stock for various purposes, including capital raising, providing equity incentives to directors and employees to attract and retain talented personnel, paying stock dividends or effecting future stock splits, expanding Meta’s business through acquisitions or other strategic transactions involving the issuance of shares, including mergers, acquisitions and other business combinations, and other general corporate purposes.

Consistent with the currently authorized but unissued shares of Meta common stock, the additional shares of Meta common stock authorized by the charter amendment proposal, if approved by Meta stockholders, would be available for issuance without further action by Meta stockholders, unless further action is required by law, the rules of the NASDAQ Stock Market or any other stock exchange on which Meta common stock, as applicable, may be then listed.

 

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Impact of Increase in Authorized Shares and Stock Split

 

     Current      After
Authorized
Share Increase
and Stock Split
 

Authorized Shares of Common Stock

     30,000,000        90,000,000  

Shares Outstanding as of March 12, 2018

     9,700,842        29,102,526  

Shares Held in Treasury as of March 12, 2018

     20,885        62,655  

Shares Issued as of March 12, 2018

     9,721,727        29,165,181  

Shares Reserved for Issuance under Equity Plans as of March 12, 2018

     979,534        2,938,602  

Approximate Shares Reserved for Crestmark Acquisition(1)

     3,300,000        9,900,000  

Total Shares Outstanding and Reserved/Committed

     14,001,261        42,003,783  

Shares Available for Issuance – Pre-Increase

     15,998,739        N/A  

Shares Available for Issuance – Post-Increase

     N/A        47,996,217  

Shares Available as a Percent of Authorization(2)

     53.33%        53.33%  

 

1 This approximation is based upon the number of shares of Crestmark common stock outstanding as of the date of the merger agreement.
2 Reflects (a) pre-increase ratio to Authorized Shares of Common Stock in the Current column and (b) post-increase ratio to Authorized Shares of Common Stock in the After Authorized Share Increase and Stock Split column.

The board of directors of Meta believe it is in the best interests of its stockholders to increase the number of authorized shares of Meta common stock to accommodate the stock split.

Consequences of the charter amendment and stock split

If Meta stockholders approve the Meta merger proposal, upon the closing of the transactions contemplated by the merger agreement, based upon the shares of Crestmark common stock outstanding as of the date of the merger agreement, Meta would issue approximately 3.3 million shares of Meta common stock to Crestmark shareholders. If the charter amendment proposal is approved by Meta’s stockholders and the stock split is implemented prior to the consummation of the merger, the exchange ratio pursuant to the merger agreement will be adjusted such that, upon the closing of the merger, Crestmark stockholders would receive 7.95 shares of Meta common stock for each share of Crestmark common stock held by them. See the section entitled “Conversion of Shares; Exchange of Certificates; Fractional Shares” beginning on page 61.

The newly authorized shares of Meta common stock would constitute additional shares of the existing class of Meta common stock and, if and when issued, will have the same rights and privileges as the shares of Meta common stock currently authorized. Meta common stock is not entitled to preemptive rights.

The par value per share of Meta common stock will, upon approval of the charter amendment proposal and effectiveness of the charter amendment and the stock split, remain unchanged at $0.01 per share.

Following the effective date of the stock split, if approved by Meta’s board of directors, each Meta stockholder would own three times the number of shares of Meta common stock that such stockholder held prior to the effective date. The stock split, however, would affect all of Meta’s stockholders uniformly and will not affect any stockholder’s percentage ownership of Meta’s common stock.

Following the effectiveness of the charter amendment and the stock split, shares of Meta common stock issuable upon exercise of outstanding stock options, or otherwise reserved for issuance under Meta’s equity compensation plans would increase proportionately.

While the charter amendment is not intended to prevent or discourage any actual or threatened takeover of Meta, if the charter amendment proposal is adopted, under certain circumstances, the charter amendment could have anti-takeover effects. For example, in the event of a hostile attempt to acquire control of Meta, it may be possible for Meta to endeavor to impede the attempt by issuing shares of Meta common stock, thereby diluting the voting power of the other outstanding shares of Meta common stock and increasing the potential cost to acquire control of Meta. The proposed charter amendment may also have the effect of permitting Meta’s current members of management and the current members of Meta’s board of directors to retain their respective positions, and resist changes to Meta’s board of directors that Meta stockholders may wish to make if they are dissatisfied with the performance of Meta or Meta common stock. The additional shares of Meta common stock could also be issued in private placements or other transactions without stockholder approval, subject to applicable law and applicable rules and regulations of any securities exchange on which Meta’s shares of capital stock are listed, permitting the acquisition by a holder of a large number of shares of Meta common stock or Meta Preferred Stock (which may be convertible into shares of Meta common stock). Accordingly, because Meta stockholders do not have preemptive rights with respect to Meta common stock, to

 

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the extent that additional authorized shares of Meta common stock are issued in the future, they will decrease the respective percentage equity ownership of existing holders of Meta common stock, if any, and depending on the price at which they are issued, could be dilutive to existing Meta stockholders. If this proposal is adopted, the increase in the number of authorized shares of Meta common stock may render more difficult or discourage a merger, tender offer or proxy contest (and thereby potentially limit the opportunity for Meta stockholders to dispose of their shares of Meta common stock at a premium to the then-current market price generally available in takeover attempts or that may be available under a merger proposal). Any such anti-takeover effects may have an adverse impact on Meta stockholders.

Effectiveness of the charter amendment

If Meta stockholders approve and adopt the proposed charter amendment contemplated by the charter amendment proposal, Meta will (i) promptly file the charter amendment with the Delaware Secretary of State following the Meta special meeting, whereupon the charter amendment will become effective and (ii) provide additional details about the implementation of the stock split following the Meta special meeting.

Potential Impact if the Charter Amendment is Not Adopted

Rejection of the proposed charter amendment by Meta’s stockholders will not impact approval of the merger proposal. However, if the proposed charter amendment is not approved and adopted by Meta’s stockholders and Meta is unable to increase the number of authorized shares of Meta common stock, Meta will not have the ability to effect the desired three-for-one forward stock split.

Meta’s board of directors unanimously recommends a vote “FOR” the approval of the charter amendment proposal.

 

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PRICE RANGE OF COMMON STOCK AND DIVIDENDS

Crestmark common stock is not listed on an exchange or quoted on any automated services, and there is no established trading market for shares of Crestmark common stock. As of March 12, 2018, there were 1,247,747 shares of Crestmark common stock issued and outstanding, which were held by approximately 140 shareholders of record. Crestmark did not declare dividends in 2017. On December 10, 2015, Crestmark paid a cash dividend of $4.25 per share of Crestmark common stock to shareholders of record as of November 16, 2015. On December 13, 2016, Crestmark declared a cash dividend of $4.50 per share of Crestmark common stock to shareholders of record as of November 21, 2016.

Holders of Crestmark’s common stock are entitled to receive dividends that the Crestmark board of directors may declare from time to time. Crestmark may only pay dividends out of funds that are legally available for that purpose. Crestmark is a bank holding company, and substantially all of its assets are held by Crestmark Bank and its subsidiaries. Crestmark’s ability to pay dividends to its shareholders depends primarily on Crestmark Bank’s ability to pay dividends to Crestmark. Dividend payments and extensions of credit to Crestmark from Crestmark Bank are subject to legal and regulatory limitations, generally based on capital levels and current and retained earnings, imposed by law and regulatory agencies. The ability of Crestmark Bank to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements.

Crestmark Bank is subject to regulatory capital requirements administered by state and federal banking agencies. Failure to meet the various capital requirements can result in regulatory action that could have a direct material effect on Crestmark’s financial statements. Additionally, Crestmark’s credit facility and subordinated debentures issued in connection with its trust preferred securities place certain restrictions on Crestmark’s ability to pay dividends.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma combined financial information combines the historical consolidated financial position and results of operations of Meta and its subsidiaries and Crestmark and its subsidiaries, giving effect to the merger as an acquisition by Meta of Crestmark using the acquisition method of accounting for business combinations in accordance with U.S. GAAP and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Crestmark will be recorded by Meta at their respective fair values as of the date the merger is completed. The unaudited pro forma combined financial information should be read in conjunction with (i) Meta’s historical consolidated financial statements and related notes contained in Meta’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017, which is incorporated by reference in this joint proxy statement/prospectus, (ii) Meta’s historical unaudited consolidated financial statements and related notes contained in Meta’s Quarterly Report on Form 10-Q for the period ended December 31, 2017, which is incorporated by reference in this joint proxy statement/prospectus, and (iii) Crestmark’s historical consolidated financial statements and related notes as of and for the year ended December 31, 2017, which are included elsewhere in this joint proxy statement/prospectus. See “Where You Can Find More Information” and “Crestmark Bancorp, Inc. and Subsidiaries Financial Statements.”

Meta’s fiscal year ends on September 30 while Crestmark’s fiscal year ends on December 31. The unaudited pro forma condensed combined income statement information for the fiscal year ended September 30, 2017 and the three months ended December 31, 2017 is presented as if the merger was consummated on October 1, 2016, the first business day of Meta’s 2017 fiscal year. The unaudited pro forma condensed combined income statement for the fiscal year ended September 30, 2017 combines Meta’s audited consolidated statement of income for the fiscal year ended September 30, 2017 with Crestmark’s audited consolidated statement of income for the fiscal year ended December 31, 2017 (in each case, the most recently completed fiscal year). As a result of the different fiscal year ends, and in order to present results for comparable periods, the unaudited pro forma condensed combined income statement for the three-month period ended December 31, 2017 combines Meta’s unaudited consolidated statement of income for the three months ended December 31, 2017 with Crestmark’s unaudited consolidated statement of income for the three months ended December 31, 2017. The unaudited pro forma condensed combined balance sheet information as of December 31, 2017 gives effect to the merger as if it occurred on December 31, 2017, and combines the historical balance sheets of Meta and Crestmark as of December 31, 2017.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented. The unaudited pro forma condensed combined financial information also does not consider any potential effects of changes in market conditions on revenues, expense efficiencies and asset dispositions, among other factors. In addition, as explained in more detail in the accompanying notes, the preliminary allocation of the pro forma purchase price reflected in the unaudited pro forma condensed combined financial information is based on preliminary estimates and currently available information, some of which assumptions cannot be finalized until the consummation of the merger.

 

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META AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED

COMBINED BALANCE SHEET AS OF DECEMBER 31, 2017