SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 0-22140
META FINANCIAL GROUP INC.®
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of incorporation or organization)||(I.R.S. Employer Identification No.)|
5501 South Broadband Lane, Sioux Falls, South Dakota 57108
(Address of principal executive offices and Zip Code)
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|Common Stock, $.01 par value||CASH||The NASDAQ Stock Market LLC|
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant Section 13 and Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer." "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
|Large Accelerated Filer||☒||Accelerated|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of March 31, 2021, the aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the average of the closing bid and asked prices of such stock on the NASDAQ Global Select Market as of such date, was $1.4 billion.
As of November 18, 2021, there were 30,548,503 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PART III of Form 10-K -- Portions of the Proxy Statement for the Annual Meeting of Stockholders expected to be held February 22, 2022 are incorporated by reference into Part III of this report.
META FINANCIAL GROUP, INC.
Table of Contents
Meta Financial Group, Inc.® ("Meta" or "the Company" or "us") and its wholly-owned subsidiary, MetaBank®, National Association ("MetaBank" or "the Bank") may from time to time make written or oral “forward-looking statements,” including statements contained in this Annual Report on Form 10-K, the Company’s other filings with the Securities and Exchange Commission (the "SEC"), the Company’s reports to stockholders, and other communications by the Company and MetaBank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; our ability to remediate the material weakness in our internal controls over financial reporting and otherwise maintain effective internal controls over financial reporting; the expected impact of the ongoing COVID-19 pandemic and related governmental actions; on our business, industry, and the capital markets; customer retention; expectations regarding the Company's and the Bank's ability to meet minimum capital ratios and capital conservation buffers; loan and other product demand; expectations concerning acquisitions and divestitures; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; technology; and management and other employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: successfully transitioning and maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto including the efficacy of the COVID-19 vaccines, or other unusual and infrequently occurring events; changes in tax laws; the strength of the United States' economy, and the local economies in which the Company operates; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed funds rate; inflation, market, and monetary fluctuations; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s tax refund advance business; the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of Meta’s strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry and recent and potential changes in response to the ongoing COVID-19 pandemic; technological changes, including, but not limited to, the security of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by MetaBank of its status as a well-capitalized institution; changes in consumer spending and saving habits; the impact of our participation as prepaid card issuer for government stimulus and other programs and potentially similar programs in the future; losses from fraudulent or illegal activity; technological risks and developments, and cyber threats, attacks or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.
The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this Annual Report on Form 10-K speak only as of the date hereof, and the Company does not undertake any obligation to update, revise, or clarify these forward-looking statements whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors,” and in the Company’s periodic filings with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.
Item 1. Business
Meta, a registered bank holding company, was incorporated in Delaware on June 14, 1993. Meta's principal assets are all the issued and outstanding shares of the Bank, a national bank, the accounts of which are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") as administrator of the Deposit Insurance Fund (“DIF”). Unless the context otherwise requires, references herein to the Company include Meta and the Bank, and all subsidiaries of Meta, direct or indirect, on a consolidated basis.
The Company strives to remove barriers to financial access and promote economic mobility by working with third parties to provide responsible, secure, high quality financial products that contribute to the social and economic benefit of communities at the core of the real economy. Meta works to increase financial availability, choice, and opportunity for all.
The Company's national bank charter, coordination with regulators, and deep understanding of risk mitigation and compliance help to disrupt traditional banking norms, guide its partners, and deliver financial products, services, and funding to the businesses and people who need them most.
Meta believes in financial inclusion for all®.
The Bank, a wholly-owned full-service banking subsidiary of Meta, operates through three reportable segments (Consumer, Commercial, and Corporate Services/Other). See Note 21. Segment Reporting for further information on the reportable segments.
The business of the Bank primarily consists of attracting deposits and investing those funds in its loan and lease portfolios, along with providing banking-as-a-service (BaaS) solutions to third parties to offer their customers financial solutions. In addition to originating loans and leases, the Bank also occasionally contracts to sell loans, such as tax refund advance loans, consumer credit product loans, and government guaranteed loans, to third party buyers. The Bank also sells and purchases loan participations from time to time to and from other financial institutions, as well as mortgage-backed securities ("MBS") and other investments permissible under applicable regulations.
In addition to its lending and deposit gathering activities, the Bank offers BaaS solutions by issuing prepaid cards, offering innovative consumer credit products, sponsoring merchant acquiring and automated teller machines (“ATMs”) in various debit networks, and offering tax refund-transfer services and other payment industry products and services. Through its activities, the Meta Payments division generates both fee income and low-cost deposits for the Bank.
Meta Capital, LLC ("Meta Capital"), a wholly-owned service corporation subsidiary of MetaBank was formed in 2017 for the purpose of making minority equity investments. Meta Capital focuses on investing in companies in the financial services industry.
First Midwest Financial Capital Trust I, a wholly-owned subsidiary of Meta, was established in July 2001 and Crestmark Capital Trust I, acquired by the Company in August 2018, was established in June 2005 for the purpose of issuing trust preferred securities.
The Consumer segment, which provides payments products and services and lending solutions nationwide, primarily operates out of Sioux Falls, South Dakota, with additional offices in Louisville, Kentucky and Easton, Pennsylvania. Within the Company's Commercial segment, the AFS/IBEX division operates out of its headquarters in Dallas, Texas with other offices throughout the country. The Crestmark division, which was created when the Company completed its acquisition of Crestmark Bancorp, Inc. and its Michigan state-chartered bank subsidiary, Crestmark Bank (the "Crestmark Acquisition"), operates out of its headquarters in Troy, Michigan, with other offices throughout the country.
The principal executive office of the Company is located at 5501 South Broadband Lane, Sioux Falls, South Dakota 57108. Its telephone number at that address is (877) 497-7497.
The Company is subject to comprehensive regulation and supervision. See “Regulation and Supervision” herein.
The Company focuses its lending activities on the origination of commercial finance loans, consumer finance loans and taxpayer advance loans. The Company emphasizes credit quality and seeks to avoid undue concentrations of loans and leases to a single industry or based on a single class of collateral. The Company has established lending policies that include a number of underwriting factors that it considers in making a loan, including loan-to-value ratio, cash flow, interest rate and credit history of the borrower. At September 30, 2021, the Company’s loans and leases receivable, net of allowance for credit losses, totaled $3.54 billion, or 53% of the Company’s total assets, as compared to $3.27 billion, or 54%, at September 30, 2020.
Loan and lease applications are initially considered and approved at various levels of authority, depending on the type and amount of the loan or lease as directed by the Bank's lending policies. The Company has a loan committee structure in place for oversight of its lending activities. Loans and leases in excess of certain amounts require approval by an Executive Credit Committee. The Company may discontinue, adjust, or create new lending programs to respond to competitive factors.
At September 30, 2021, the Company’s largest lending relationship to a single borrower or group of related borrowers totaled $80.0 million. The Company had 24 other lending relationships in excess of $21.0 million as of September 30, 2021.
Loan and Lease Portfolio Composition
The following table provides information about the composition of the Company’s loan and lease portfolio in dollar amounts and in percentages as of the dates indicated. In general, for the fiscal year ended September 30, 2021, the aggregate principal amounts in all categories of loans and leases discussed below, except community banking loans, increased over levels from the prior fiscal year.
| ||At September 30,|
|(Dollars in Thousands)||Amount||Percent||Amount||Percent||Amount||Percent||Amount||Percent||Amount||Percent|
|Real Estate Loans|
|Commercial finance||$||154,991 ||4.3 ||%||$||52,207 ||1.6 ||%||$||42,266 ||1.2 ||%||$||14,971 ||0.5 ||%||$||— ||— ||%|
|Community banking||192,337 ||5.3 ||%||464,661 ||14.1 ||%||1,121,565 ||30.7 ||%||1,008,841 ||34.3 ||%||844,016 ||63.6 ||%|
|Total real estate loans||347,328 ||9.6 ||%||516,868 ||15.7 ||%||1,163,831 ||31.9 ||%||1,023,812 ||34.8 ||%||844,016 ||63.6 ||%|
|Other Loans and Leases|
|Commercial finance||2,570,504 ||71.3 ||%||2,255,777 ||68.1 ||%||1,873,964 ||51.3 ||%||1,494,878 ||50.8 ||%||255,308 ||19.2 ||%|
|Consumer finance||252,857 ||7.0 ||%||224,151 ||6.8 ||%||268,198 ||7.3 ||%||270,361 ||9.2 ||%||140,229 ||10.6 ||%|
|Tax services||10,405 ||0.3 ||%||3,066 ||0.1 ||%||2,240 ||0.1 ||%||1,073 ||— ||%||192 ||— ||%|
|Warehouse finance||419,926 ||11.6 ||%||293,375 ||8.8 ||%||262,924 ||7.2 ||%||65,000 ||2.2 ||%||— ||— ||%|
|Community banking||6,795 ||0.2 ||%||20,903 ||0.5 ||%||80,256 ||2.2 ||%||89,865 ||3.0 ||%||87,087 ||6.6 ||%|
|Total other loans and leases||3,260,487 ||90.4 ||%||2,797,272 ||84.3 ||%||2,487,582 ||68.1 ||%||1,921,177 ||65.2 ||%||482,816 ||36.4 ||%|
|Total loans and leases, net||$||3,607,815 ||100.0 ||%||$||3,314,140 ||100.0 ||%||$||3,651,413 ||100.0 ||%||$||2,944,989 ||100.0 ||%||$||1,326,832 ||100.0 ||%|
The following table shows the composition of the Company’s loan and lease portfolio by fixed- and adjustable-rate at the dates indicated.
| ||At September 30,|
|(Dollars in Thousands)||Amount||Percent||Amount||Percent||Amount||Percent||Amount||Percent||Amount||Percent|
|Fixed-Rate Loans and Leases|
|Commercial finance||$||1,754,706 ||48.6 ||%||$||1,687,130 ||50.9 ||%||$||1,113,071 ||30.5 ||%||$||956,920 ||32.5 ||%||$||250,459 ||18.9 ||%|
|Consumer finance||154,169 ||4.3 ||%||108,706 ||3.3 ||%||22,965 ||0.6 ||%||21,093 ||0.7 ||%||16,489 ||1.2 ||%|
|Tax services||10,405 ||0.3 ||%||3,066 ||0.1 ||%||2,240 ||0.1 ||%||1,073 ||— ||%||— ||— ||%|
|Warehouse finance||322,682 ||8.9 ||%||124,012 ||3.7 ||%||— ||— ||%||— ||— ||%||— ||— ||%|
|Community banking||190,240 ||5.3 ||%||433,458 ||13.1 ||%||1,096,750 ||30.0 ||%||1,016,361 ||34.6 ||%||854,274 ||64.5 ||%|
|Total fixed-rate loans and leases||2,432,202 ||67.4 ||%||2,356,372 ||71.1 ||%||2,235,026 ||61.2 ||%||1,995,447 ||67.8 ||%||1,121,222 ||84.5 ||%|
|Adjustable-Rate Loans and Leases|
|Commercial finance||970,789 ||26.9 ||%||620,854 ||18.7 ||%||803,159 ||22.0 ||%||552,929 ||18.8 ||%||4,849 ||0.4 ||%|
|Consumer finance||98,688 ||2.7 ||%||115,445 ||3.5 ||%||245,233 ||6.7 ||%||249,268 ||8.4 ||%||123,742 ||9.3 ||%|
Tax services (1)
|— ||— ||%||— ||— ||%||— ||— ||%||— ||— ||%||192 ||— ||%|
|Warehouse finance||97,244 ||2.7 ||%||169,363 ||5.1 ||%||262,924 ||7.2 ||%||65,000 ||2.2 ||%||— ||— ||%|
|Community banking||8,892 ||0.3 ||%||52,106 ||1.6 ||%||105,071 ||2.9 ||%||82,345 ||2.8 ||%||76,827 ||5.8 ||%|
|Total adjustable-rate loans and leases||1,175,613 ||32.6 ||%||957,768 ||28.9 ||%||1,416,387 ||38.8 ||%||949,542 ||32.2 ||%||205,610 ||15.5 ||%|
|Total loans and leases||3,607,815 ||100.0 ||%||3,314,140 ||100.0 ||%||3,651,413 ||100.0 ||%||2,944,989 ||100.0 ||%||1,326,832 ||100.0 ||%|
|Deferred fees and discounts||1,748 ||8,625 ||7,434 ||(250)||(1,461)|
|Allowance for credit losses||(68,281)||(56,188)||(29,149)||(13,040)||(7,534)|
|Total loans and leases receivable, net||$||3,541,282 ||$||3,266,577 ||$||3,629,698 ||$||2,931,699 ||$||1,317,837 |
(1) Certain tax services loans do not bear interest.
The following table illustrates the maturity analysis of the Company’s loan and lease portfolio at September 30, 2021 and reflects management’s estimate of the effects of loan and lease prepayments or curtailments based on data from the Company’s historical experiences and other third-party sources.
| ||Due In 1 Year Or Less||Due After 1 Year Through 5 Years||Due After 5 Years||Total|
|(Dollars in Thousands)||Amount||Weighted Average Rate||Amount||Weighted Average Rate||Amount||Weighted Average Rate||Amount|
|Commercial finance||$||1,843,719 ||7.43 ||%||$||758,414 ||6.48 ||%||$||123,362 ||5.57 ||%||$||2,725,495 |
|Consumer finance||125,053 ||6.71 ||%||114,608 ||6.06 ||%||13,196 ||5.74 ||%||252,857 |
|Tax services||10,404 ||— ||%||— ||— ||%||— ||— ||%||10,404 |
|Warehouse finance||80,770 ||6.09 ||%||339,156 ||6.16 ||%||— ||— ||%||419,926 |
|Community banking||33,267 ||4.15 ||%||93,965 ||4.15 ||%||71,901 ||4.05 ||%||199,133 |
|Total loans and leases||$||2,093,213 ||7.25 ||%||$||1,306,143 ||6.19 ||%||$||208,459 ||5.06 ||%||$||3,607,815 |
The Company's commercial finance product lines include term lending, asset based lending, factoring, lease financing, insurance premium finance, government guaranteed lending and other commercial finance products offered on a nationwide basis.
Term Lending. Through its Crestmark division, the Bank originates a variety of collateralized conventional term loans and notes receivable. While terms range from three years to 25 years, the weighted average life of these loans is approximately 53 months. These term loans may be secured by equipment, recurring revenue streams, or real estate. Credit risk is managed through setting loan amounts appropriate for the collateral based on information including equipment cost, appraisals, valuations, and lending history. The Bank follows standardized loan policies and established and authorized credit limits and applies attentive portfolio management, which includes monitoring past dues, financial performance, financial covenants, and industry trends. As of September 30, 2021, 33% of the term lending portfolio exposure is concentrated in solar/alternative energy, most of which are construction projects that will convert to longer term government guaranteed facilities upon completion of the construction phase. Equipment Finance Agreements make up 33%, of the term lending total as of September 30, 2021. The remaining 34% are a variety of investment advisory and insurance agency loans and other more traditional term equipment and general purpose commercial loans.
Asset Based Lending. Through its Crestmark division, the Bank provides asset based loans secured by short-term assets such as accounts receivable and inventory. Asset based loans may also be secured by real estate and equipment. The primary sources of repayment are the operating income of the borrower, the collection of the receivables securing the loan, and/or the sale of the inventory securing the loan. Loans are typically revolving lines of credit with terms of one year to three years, whereby the Bank withholds a contingency reserve representing the difference between the amount advanced and the fair value of the invoice amount or other collateral value. Credit risk is managed through advance rates appropriate for the collateral (generally, advance rates on accounts receivable ranges from 80% to 95% and inventory advance rates range from 40% to 50%), standardized loan policies, established and authorized credit limits, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the debtors' cash receipts. As of September 30, 2021, approximately 55% of these loans were backed by accounts receivable.
Factoring. Through its Crestmark division, the Bank provides factoring lending where clients provide detailed accounts receivable reports for lending arrangements. The factoring clients are diversified as to industry and geography. With these loans, the Crestmark division withholds a contingency reserve, which is the difference between the fair value of the invoice amount or other collateral value and the amount advanced (generally, advance rates range between 80% and 95% on accounts receivable). This reserve is withheld for nonpayment of factored receivables, service fees and other adjustments. Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the client's cash receipts. In addition, clients generally guarantee the payment of purchased accounts receivable.
Lease Financing. Through its Crestmark division, the Bank provides creative, flexible lease solutions for equipment needs of middle market companies. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are accounted for as sales-type or direct financing leases. The lease may contain provisions that transfer ownership to the lessee at the end of the initial term, contain a bargain purchase option or allow for purchase of the equipment at fair market value. Residual values are estimated at the inception of the lease. Lease maturities are generally no greater than 84 months.
Insurance Premium Finance. Through its AFS/IBEX division the Bank provides, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk, otherwise known as insurance premium financing. This includes, but is not limited to, policies for commercial property, casualty and liability risk. Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term. The policyholder generally makes a 20% to 25% down payment to the insurance broker and finances the remainder over nine months to 10 months on average. The down payment is set such that if the policy is canceled, the unearned premium is typically sufficient to cover the loan balance and accrued interest and is returned by the insurer to the Bank on a pro rata basis. Over 90% of the portfolio finances policies provided by investment grade-rated insurance company partners.
Small Business Administration ("SBA") and United States Department of Agriculture ("USDA"). The Bank originates loans through programs partially guaranteed by the SBA or USDA. These loans are made to small businesses and professionals. Certain guaranteed portions of these loans are generally sold to the secondary market. See "Originations, Sales and Servicing of Loans and Leases" below for further details. As part of the CARES Act, the SBA will pay six months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020. As of September 30, 2021, there were 10 loans with a retained outstanding balance of $1.8 million receiving six months principal and interest from the SBA. The Company is also participating in the Paycheck Protection Program (the "PPP") which is being administered by the SBA. The Company expects that the major portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. Loans funded through the PPP are fully guaranteed by the U.S. government. As of September 30, 2021, the Company had 370 loans outstanding with total loan balances of $96.0 million originated as part of the PPP program. In total, 69% of the PPP loan balances were forgiven through September 30, 2021.
Other Commercial Finance. Included in this category of loans are the Company's healthcare receivables loan portfolio primarily comprised of loans to individuals for medical services received. The majority of these loans are guaranteed by the hospital providing the service to the debtor and this guarantee serves to reduce credit risk as the guarantors agree to repurchase severely delinquent loans. Credit risk is minimized on these loans based on the guarantor’s repurchase agreement. This loan category also includes commercial real estate loans to customers of the Crestmark division.
Consumer Credit Products. The Bank designs its credit program relationships with certain desired outcomes. Three high priority outcomes are liquidity, credit protection, and risk retention. The Bank believes the benefits of these outcomes not only support its goals but the goals of the credit program partner as well. The Bank designs its program credit protections in a manner so that the Bank earns a reasonable risk adjusted return, but is protected by certain layers of credit support, similar to what you would find in structured finance. The Bank will hold a sizable portion of the originated asset on its own balance sheet but retains the flexibility to sell a portion of the originated asset to other interested parties, thereby supporting program liquidity.
As of September 30, 2021, the Bank has multiple consumer credit programs. The loan products offered under these programs are generally closed-end installment loans with terms between 12 months and 84 months.
Other Consumer Finance
Student Lending. The Bank's purchased student loan portfolios are seasoned, floating rate, private portfolios that are serviced by a third-party servicer. The portfolio purchased during the fiscal 2018 first quarter is indexed to one-month of the London Interbank Offered Rate ("LIBOR"), while the portfolio purchased in the fiscal 2017 first quarter is indexed to three-month LIBOR plus various margins. The Company received written notification on June 18, 2018 from ReliaMax Surety Company ("ReliaMax"), the company that provided insurance coverage for the student loan portfolios, which informed policy holders that the South Dakota Division of Insurance filed a petition to have ReliaMax declared insolvent and to adopt a plan of liquidation. An Order of Liquidation was entered on June 27, 2018 by the Sixth Circuit Court in Hughes County, South Dakota, declaring ReliaMax insolvent and appointing the South Dakota Division of Insurance as liquidator to adopt a plan of liquidation. The Company expects to ultimately recover a portion of the unearned premiums. During fiscal year 2021 the Bank recovered $4.99 million of these unearned premiums which have been recorded in other income.
Direct to Consumer. The Bank is piloting a new direct line of credit, which will enhance the products offered to many of our existing BaaS partners.
Emerald Advance. Through the Bank’s partner program, the Bank serves as a facilitator of a line of credit, where customers draw on a line of credit and the balance must be paid down to zero by February 15 to maintain an account with good standing. Funds are loaded onto a prepaid card and the line of credit gives customers the ability to repeatedly borrow and repay money and has an annual resting period from January 27 to February 15 during which draws cannot be made. The primary source of repayment is the income tax refund. Upon the end of the 2021 tax season the remaining loan balances were acquired by H&R Block in accordance with an agreement between MetaBank and H&R Block. As of September 30, 2021, there were no remaining loan balances for this product type and no new balances are expected until the 2022 tax season begins in the first quarter of fiscal 2022.
The Bank's Tax Services division provides short-term taxpayer advance loans. Taxpayers are underwritten to determine eligibility for these unsecured loans. Due to the nature of taxpayer advance loans, it typically takes no more than three e-file cycles (the period of time between scheduled IRS payments) from when the return is accepted by the IRS to collect from the borrower. In the event of default, the Bank has no recourse against the tax consumer. The Bank will charge off the balance of a taxpayer advance loan if there is a balance at the end of the calendar year, or when collection of principal becomes doubtful.
Through its tax services division and partner programs, the Bank provides short-term electronic return originator ("ERO") advance loans on a nationwide basis. These loans are typically utilized by tax preparers to purchase tax preparation software and to prepare tax office operations for the upcoming tax season. EROs go through an underwriting process to determine eligibility for the unsecured advances. ERO loans are not collateralized. Collection on ERO advances begins once the ERO begins to process refund transfers. Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful.
Under the Refund Transfer program, the Bank opens a temporary bank account for each customer who is receiving an income tax refund and elects to defer payment of his or her tax preparation fees. After the IRS and any state income tax authorities transfer the refund into the customer’s account, the net funds are transferred to the customer and the temporary deposit account is closed.
The Bank participates in several collateral-based warehouse lines of credit whereby the Bank is in a senior, secured position as the first out participant. These facilities are primarily collateralized by consumer receivables, with the Bank holding a senior collateral position enhanced by a subordinate party structure.
Effective on February 29, 2020 (the "Closing Date") of the Community Bank division sale to Central Bank, the Company substantially ceased originating loans within its Community Banking loan portfolio. The Company entered into a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on the Closing Date. See Note 3. Divestitures for further information related to the Community Banking lending portfolio.
The Company’s only remaining loan balances for the Community Bank division were commercial and multi-family real estate loans which consist primarily of hospitality and theater loans which are secured primarily by theater buildings and hotels. Commercial and multi-family real estate loans generally are underwritten with terms not exceeding 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property securing the loan, and are typically secured by guarantees of the borrowers.
Subsequent to September 30, 2021 the Company agreed to two loan sales that included the significant majority of the remaining loan balances in the community banking loan portfolio. See Note 25. Subsequent Events for further information on these sales.
ORIGINATIONS, SALES AND SERVICING OF LOANS AND LEASES
The Company, from time to time, sells loans and leases, and in some cases, loan participations, generally without recourse. At September 30, 2021, there were no outstanding loans sold by the Company with recourse. When loans or leases are sold, the Company may retain the responsibility for collecting and remitting loan payments, making certain that real estate tax payments are made on behalf of borrowers, and otherwise servicing the loans. The servicing fee is recognized as income over the life of the loans. As of September 30, 2021, the Company serviced loans that it originated and sold totaling $307.3 million, all of which were SBA/USDA guaranteed loan balances sold to the secondary market.
The Company generally sells the guaranteed portion of its SBA 7(a) loans and USDA program loans in the secondary market. These sales have resulted in premium income for the Company at the time of sale and created a stream of future servicing income. When the Company sells the guaranteed portion of its loans, it incurs credit risk on the non-guaranteed portion of the loans, and, if a customer defaults on the loan, the Company shares any loss and recovery related to the loan pro-rata with the SBA or USDA, as applicable. If the SBA or USDA establishes that a loss on a guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by the Company, the SBA or USDA may seek recovery of the principal loss related to the deficiency from the Company, which could materially adversely affect our business, results of operations and financial condition.
During the fiscal year ended September 30, 2020, the Company sold the Bank's Community Bank division, a component of the Company's Corporate segment, to Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa. The sale included $268.6 million of loans along with deposits, premises, furniture, and equipment and other assets.
Since the Closing Date, the Company has entered into subsequent loan portfolio sale agreements with Central Bank. The Company sold additional loans from the retained Community Bank portfolio in the amount of $308.1 million and $135.0 million for the fiscal years ended September 30, 2021 and 2020, respectively. See Note 3. Divestitures and Note 25. Subsequent Events for further information related to the Community Banking lending portfolio.
In periods of economic uncertainty, the Company’s ability to originate large dollar volumes of loans and leases may be substantially reduced or restricted, with a resultant decrease in related loan origination fees, other fee income and operating earnings. In addition, the Company’s ability to sell loans may substantially decrease if potential buyers (principally government agencies) reduce their purchasing activities.
The following table shows the loan and lease originations (including draws, loan and lease renewals, and undisbursed portions of loans and leases in process), purchases, and sales and repayment activities of the Company for the periods indicated.
| ||Fiscal Year Ended September 30,|
|(Dollars in Thousands)||2021||2020||2019|
|Commercial finance||$||9,678,519 ||$||7,715,696 ||$||8,232,928 |
|Consumer finance||1,098,526 ||470,052 ||688,714 |
|Tax services||1,841,326 ||1,395,348 ||1,513,509 |
|Community banking||— ||210,267 ||535,656 |
|Total loans and leases originated||12,618,372 ||9,791,363 ||10,970,807 |
|Commercial finance||— ||2,400 ||25,069 |
|Warehouse finance||308,014 ||130,130 ||226,292 |
|Community banking||3,318 ||18,905 ||26,704 |
|Total loans and leases purchased||311,332 ||151,435 ||278,065 |
|Sales and Repayments|
|Commercial finance||89,276 ||63,119 ||68,623 |
|Consumer finance||494,584 ||120,389 ||57,503 |
|Community banking||321,793 ||417,287 ||13,069 |
|Total loans and leases sales||905,793 ||600,795 ||139,195 |
|Loan and lease principal repayments||11,857,619 ||9,644,476 ||10,270,082 |
|Total principal repayments||11,857,619 ||9,644,476 ||10,270,082 |
|Total reductions||12,763,412 ||10,245,271 ||10,409,277 |
|Increase (decrease) in other items, net||(18,970)||(25,849)||(8,425)|
|Net increase (decrease)||$||147,322 ||$||(328,321)||$||831,170 |
(1) Certain tax services loans do not bear interest.
NONPERFORMING ASSETS, OTHER LOANS AND LEASES OF CONCERN AND CLASSIFIED ASSETS
The following table sets forth the Company’s loan and lease delinquencies by type, by amount and by percentage of type at September 30, 2021.
| ||30-59 Days||60-89 Days||> 89 Days Past Due|
|(Dollars in Thousands)||Number of Loans||Amount||Percent of Category||Number of Loans||Amount||Percent of Category||Number of Loans||Amount||Percent of Category|
|Commercial finance||400 ||$||18,269 ||91.6 ||%||259 ||$||7,388 ||90.1 ||%||836 ||$||15,439 ||62.7 ||%|
|Consumer finance||160 ||1,676 ||8.4 ||%||184 ||812 ||9.9 ||%||1,011 ||1,236 ||5.0 ||%|
Tax services (1)
|— ||— ||— ||%||— ||— ||— ||%||— ||7,962 ||32.3 ||%|
|Total loans and leases held for investment||560 ||$||19,945 ||100.0 ||%||443 ||$||8,200 ||100.0 ||%||1,847 ||$||24,637 ||100.0 ||%|
|Total loans and leases||560 ||$||19,945 ||100.0 ||%||443 ||$||8,200 ||100.0 ||%||1,847 ||$||24,637 ||100.0 ||%|
(1) The tax services loans past due represented the aggregate remaining balance of the tax services loan portfolio.
Delinquencies 90 days and over constituted 0.67% of total loans and leases and 0.37% of total assets.
Generally, when a loan or lease becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Company will place the loan or lease on a non-accrual status and, as a result, previously accrued interest income on the loan or lease is reversed against current income. The loan or lease will generally remain on a non-accrual status until six months of good payment history has been established or management believes the financial status of the borrower has been significantly restored. Certain relationships in the table above are over 90 days past due and still accruing. The Company considers these relationships as being in the process of collection. Insurance premium finance loans, consumer finance and tax services loans are generally not placed on non-accrual status, but are instead written off when the collection of principal and interest become doubtful.
The table below sets forth the amounts and categories of the Company’s nonperforming assets.
| ||At September 30,|
|(Dollars in Thousands)||2021||2020||2019||2018||2017|
|Nonperforming Loans and Leases|
|Nonaccruing loans and leases:|
|Commercial finance||$||19,330 ||$||21,553 ||$||14,378 ||$||2,864 ||$||— |
|Community banking||14,915 ||2,399 ||44 ||— ||685 |
|Total nonaccruing loans and leases||34,245 ||23,952 ||14,422 ||2,864 ||685 |
|Accruing loans and leases delinquent 90 days or more:|| || || || || |
|Loans held for sale||— ||— ||964 ||— ||— |
|Commercial finance||12,489 ||7,401 ||7,578 ||3,801 ||1,205 |
|Consumer finance||1,236 ||872 ||1,317 ||2,384 ||1,387 |
|7,962 ||1,743 ||2,240 ||1,073 ||— |
|Community banking||— ||50 ||— ||79 ||34,314 |
|Total accruing loans and leases delinquent 90 days or more||21,687 ||10,066 ||12,099 ||7,337 ||36,906 |
|Total nonperforming loans and leases||55,932 ||34,018 ||26,521 ||10,201 ||37,591 |
|Other Assets|| || || || || |
|Nonperforming operating leases||3,824 ||4,045 ||457 ||— ||— ||<|