NOTE 1. BASIS OF PRESENTATION
The interim unaudited Condensed Consolidated Financial Statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended
September 30, 2018
included in Meta Financial Group, Inc.’s (“Meta” or the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 29, 2018. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted.
The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the
three and six
month periods ended
March 31, 2019
are not necessarily indicative of the results expected for the fiscal year ending
September 30, 2019
.
All share and per share data reported in this Form 10-Q has been adjusted to reflect the 3-for-1 forward stock split of the Company's common stock effected by the Company on October 4, 2018.
Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.
Certain amounts in the Recorded Investment table presented in Note 4 to the consolidated financial statements have been restated from what was previously reported as of
September 30, 2018
on Form 10-K.
Loan and lease tables have been conformed to be consistent with the Company's updated presentation of its lending portfolio. The new presentation includes expanding the commercial and consumer finance portfolio to present the lending categories that are included in each, presenting the warehouse finance portfolio as its own category, and condensing the community bank loan categories. Warehouse finance loans were previously included in the consumer finance portfolio. All current and prior period numbers are reflective of this new presentation and total loan and lease balances remained unchanged.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")
Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of
September 30, 2018
remain substantially unchanged with the exception of the policies impacted by the adoption of noted ASUs below.
Adopted ASUs
Revenue Recognition -
The Company adopted ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, subsequent related Updates (collectively, ASU 2014-09), and ASU 2016-04,
Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage of Certain Prepaid Stored-Value Products
on October 1, 2018. ASU 2014-09 modifies the guidance used to recognize revenue from contracts with customers for transfers of goods or services and transfers of non-financial assets, unless those contracts are within the scope of other guidance. Upon adoption, the Company recorded a cumulative-effect adjustment of
$1.5 million
to retained earnings, net of tax, due to changes in timing of revenue recognition from breakage of unregistered, unused prepaid cards in the Company’s Meta Payment Systems (MPS) division. Refer to Note 12. Revenue from Contracts with Customers for additional information.
Financial Instruments -
The Company adopted ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities
and related Updates (collectively, ASU 2016-01) on October 1, 2018. ASU 2016-01 makes several revisions to Subtopic 825-10, including that ASU 2016-01: (1) requires equity investments to be measured at fair value with changes in fair value recognized in net income, (2) simplifies impairment assessment of equity investments without readily determinable fair value, (3) eliminates requirement to disclose methods and significant assumptions used to estimate fair value of financial instruments measured at amortized cost, (4) requires the use of an exit price notion when measuring fair value of financial instruments for disclosure purposes, and (5) requires separate presentation of financial assets and liabilities by measurement category and form of financial asset on the balance sheet and accompanying notes. Upon adoption, the Company recorded a cumulative-effect adjustment that reclassed
$0.5 million
, net of tax, from accumulated other comprehensive income to retained earnings, due to the Company’s cumulative change in fair value of equity securities with readily determinable fair value. Refer to Note 6. Securities for additional information.
The Company also adopted the following ASUs on October 1, 2018, none of which had a material impact on the Company’s consolidated financial statements.
|
|
–
|
ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
|
|
|
–
|
ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
|
|
|
–
|
ASU 2017-01,
Clarifying the Definition of a Business
|
|
|
–
|
ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
|
|
|
–
|
ASU 2017-05,
Other Income - Gains and Losses from Derecognition of Non-Financial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and accounting for Partial Sales of Non-Financial Assets
|
|
|
–
|
ASU 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
|
ASUs to be Adopted
Leases -
ASU 2016-02,
Leases (Topic 842)
, and related Updates (collectively Topic 842) will become effective for the Company on October 1, 2019. For lessees, Topic 842 establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with such classification affecting the pattern and classification of expense recognition in the income statement. For lessors, the guidance with Topic 842 is largely unchanged from current guidance.
A modified retrospective transition approach is required. An entity may choose to use either (1) the standard’s effective date or (2) the beginning of the earliest comparative period presented in the financial statements, as the date of initial application. The Company expects to adopt Topic 842 using the effective date, October 1, 2019, as the date of initial application. Consequently, financial information will not be updated and disclosures required under Topic 842 will not be provided for dates and periods before October 1, 2019.
FASB has released several updates to Topic 842 through subsequent ASUs, many of which allow for practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements, with the latter not being applicable to the Company. The new standard also provides practical expedients for a lessee’s and lessor’s ongoing accounting. The Company expects to elect the short-term lease recognition exemption for all leases that qualify. The Company (as a lessee and lessor) also expects to elect the practical expedient to not separate lease and non-lease components for all of its leases that qualify.
As a lessee, the Company expects Topic 842 to have a material effect on its financial statements. While the Company continues to assess the effects of adoption, the Company believes the significant effects will relate to (1) recognition of ROU assets and lease liabilities on the balance sheet for the Company’s office and equipment operating leases; (2) recognition of ROU assets and lease liabilities on the balance sheet for the Company’s service contracts that meet the revised definition of a lease under Topic 842; and (3) providing significant new disclosures about the Company’s leasing activities. The Company is currently implementing a methodology and process to estimate and account for the ROU assets and lease liabilities.
As a lessor, the Company continues to assess the effects of adoption, however the Company believes the significant effects will relate to (1) earlier recognition of expense due to a narrower definition of initial direct costs; (2) gross presentation of costs excluded from contract consideration that are reimbursed by the lessee as revenue and expenses on the income statement; and (3) presentation of leasing activities on the Company’s financial statements. The Company is currently in the process of implementing a new lease accounting system, processes and procedures to reflect the new standard.
Other Upcoming ASUs -
Refer to the Company’s most recently audited consolidated financial statements for the year ended
September 30, 2018
for the latest update on ASUs relevant to the Company and not yet adopted as of
March 31, 2019
.
NOTE 3. ACQUISITIONS
The Company acquired Crestmark Bancorp, Inc. ("Crestmark") and its bank subsidiary, Crestmark Bank, on
August 1, 2018
for a purchase price of
$295.8 million
paid by issuance of
9,919,512
shares of Meta common stock. The initial accounting for certain liabilities and goodwill were incomplete and the amounts recorded were considered provisional. The Company recognized certain measurement period adjustments as disclosed below during the three months ended March 31, 2019. The amount of goodwill recorded remains provisional, as well as the other assets and liabilities noted in the table below, as more information becomes available related to DC Solar. The measurement period remains open for the Crestmark acquisition until August 1, 2019. The following table summarizes the allocation of the purchase price to net assets of Crestmark as of the
August 1, 2018
acquisition date.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Estimated fair value as previously reported
(a)
|
|
Measurement period adjustments
|
|
Fair value as adjusted
|
Rental Equipment
|
$
|
98,977
|
|
|
$
|
(3,355
|
)
|
|
$
|
95,622
|
|
Intangible assets
|
28,253
|
|
|
(117
|
)
|
|
28,136
|
|
Goodwill
|
204,547
|
|
|
4,194
|
|
|
208,742
|
|
Accrued expenses and other liabilities
|
88,301
|
|
|
723
|
|
|
89,024
|
|
Net other assets
|
55,464
|
|
|
—
|
|
|
55,464
|
|
Noncontrolling interest
|
3,167
|
|
|
—
|
|
|
3,167
|
|
Purchase price
|
295,773
|
|
|
—
|
|
|
295,773
|
|
(a)
As previously reported in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018
Measurement Period Adjustments and Impairment - DC Solar
The Company previously purchased a portfolio of mobile solar generators ("MSGs") from DC Solar Solutions, Inc. and certain of its affiliates, a relationship in the Company's solar leasing business, and, in turn, leased the MSGs to DC Solar Distribution, Inc., an affiliate of DC Solar Solutions. During the second fiscal quarter of 2019, the Company became aware that the DC Solar entities and their affiliates filed for bankruptcy and the entities, including their principals, are subjects of ongoing federal investigations involving allegations of fraudulent misconduct. The Company had three separate operating leases with DC Solar - two of the transactions were included in the acquired Crestmark balances on August 1, 2018. The third transaction was originated in August 2018 after the Crestmark acquisition date. The Company considered the bankruptcy filing and fraud allegations as new facts and circumstances and concluded the alleged fraud existed at the acquisition date for the acquired DC Solar transactions. As a result, the identified impairment for the acquired DC Solar transactions and other related adjustments were recorded as measurement period adjustments to the acquired assets and liability amounts recognized and were offset through provisional goodwill. The impairment and related adjustments for the DC Solar transaction originated post-acquisition are reflected in current earnings.
The Company continues to gather information about the situation and, as of the date of this filing, has identified and located 175 of 176 of the underlying assets, however the timing and extent to which the Company will be able to recover and re-lease the underlying assets remains uncertain, due in part to claims by third parties as to their potential interests in the underlying assets. The adjustments to goodwill and impairment recognized for the DC Solar events reflect the Company's best estimate of the potential loss incurred, based on the Company's present understanding of the relevant facts. Assumptions utilized in the estimate included recoverability of the MSGs and the Company's ability to re-lease them, contractual rents, and residual values. As new facts and circumstances become available, the Company will assess any remaining exposure with respect to these DC Solar matters to determine whether additional adjustments to goodwill and/or impairment loss is necessary. As long as the required criteria under GAAP are met, the Company will continue to account for adjustments to the acquired DC Solar transactions as adjustments to goodwill until the measurement period closes, which will not extend beyond August 1, 2019.
The table below reflects the net impact of the foregoing DC Solar matters, based upon the Company's present understanding of the relevant facts and circumstances, to the Company's financial statements at March 31, 2019 and for the three months ended March 31, 2019.
|
|
|
|
|
|
|
|
Increase (Decrease)
|
Balance Sheet:
|
(Dollars in Thousands)
|
|
Operating lease equipment
|
$
|
(12,589
|
)
|
|
Goodwill
|
1,968
|
|
|
Other assets
|
(394
|
)
|
|
Liabilities
|
(4,461
|
)
|
|
Total balance sheet impact
|
$
|
(6,554
|
)
|
|
|
|
|
Regulatory capital impact
|
$
|
(8,522
|
)
|
|
|
|
|
|
Income (Expense)
|
Income Statement:
|
|
|
Rental income
|
$
|
1,633
|
|
|
Other income
|
315
|
|
|
Impairment
|
(9,549
|
)
|
|
Income tax benefit
|
1,047
|
|
|
Impact to net income
|
$
|
(6,554
|
)
|
Measurement Period Adjustments - Other
The Company recorded additional measurement period adjustments in the second fiscal quarter of 2019 for provisional tax and compensation liabilities assumed through the Crestmark acquisition. The Company obtained additional information about facts and circumstances existing at the Crestmark acquisition date that resulted in an increase to liabilities and goodwill recognized of
$2.2 million
.
NOTE 4. LOANS AND LEASES, NET
Loan and lease tables have been conformed to be consistent with the Company's updated categorization of its lending portfolio between National Lending and Community Banking.
Loans and leases at
March 31, 2019
and
September 30, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
September 30, 2018
|
National Lending
|
(Dollars in Thousands)
|
Asset based lending
|
$
|
572,210
|
|
|
$
|
477,917
|
|
Factoring
|
287,955
|
|
|
284,221
|
|
Lease financing
|
321,414
|
|
|
265,315
|
|
Insurance premium finance
|
307,875
|
|
|
337,877
|
|
SBA/USDA
|
77,481
|
|
|
59,374
|
|
Other commercial finance
|
98,956
|
|
|
85,145
|
|
Commercial finance
|
1,665,891
|
|
|
1,509,849
|
|
Consumer credit products
|
139,617
|
|
|
80,605
|
|
Other consumer finance
|
170,824
|
|
|
189,756
|
|
Consumer finance
(1)
|
310,441
|
|
|
270,361
|
|
Tax services
|
84,824
|
|
|
1,073
|
|
Warehouse finance
(1)
|
186,697
|
|
|
65,000
|
|
Total National Lending
|
2,247,853
|
|
|
1,846,283
|
|
Community Banking
|
|
|
|
Commercial real estate and operating
|
869,917
|
|
|
790,890
|
|
Consumer one-to-four family real estate and other
|
257,079
|
|
|
247,318
|
|
Agricultural real estate and operating
|
60,167
|
|
|
60,498
|
|
Total Community Banking
|
1,187,163
|
|
|
1,098,706
|
|
Total gross loans and leases
|
3,435,016
|
|
|
2,944,989
|
|
|
|
|
|
Allowance for loan and lease losses
|
(48,672
|
)
|
|
(13,040
|
)
|
Net deferred loan origination fees (costs)
|
2,964
|
|
|
(250
|
)
|
Total loans and leases, net
(2)
|
$
|
3,389,308
|
|
|
$
|
2,931,699
|
|
(1)
Warehouse finance loans are presented in their own line. Previously these balances were included with consumer finance loans. Prior period balances have also been adjusted to reflect this change.
(2)
As of March 31, 2019, the remaining balance of acquired loans and leases from the Crestmark acquisition was
$591.1 million
and the remaining balances of the credit and interest rate mark discounts related to the acquired loans and leases held for investment were
$8.7 million
and
$4.5 million
, respectively, while the remaining balance of the interest rate mark premium related to the acquired loans held for sale was
$0.8 million
. On August 1, 2018, the Company acquired loans and leases from the Crestmark acquisition totaling
$1.06 billion
and recorded related credit and interest rate mark discounts of
$12.3 million
and
$6.0 million
, respectively.
During the six months ended March 31, 2019, the Company transferred
$39.5 million
of consumer credit product loans to held for sale and originated
$43.0 million
of SBA/USDA and consumer credit product loans as held for sale. The Company sold held for sale loans resulting in proceeds of
$36.5 million
and gains on sale of
$1.7 million
during the six months ended March 31, 2019. During the six months ended March 31, 2018, the Company did not designate any loans as held for sale or sell any held for sale loans.
Loans purchased and sold by portfolio segment, including participation interests, for the three and six months ended
March 31, 2019
and
2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
March 31, 2019
|
|
March 31, 2018
|
|
March 31, 2019
|
|
March 31, 2018
|
Loans Purchased
|
(Dollars in Thousands)
|
Loans held for sale
|
$
|
5,940
|
|
|
$
|
—
|
|
|
$
|
5,940
|
|
|
$
|
—
|
|
Loans held for investment:
|
|
|
|
|
|
|
|
Total National Lending
|
10,621
|
|
|
—
|
|
|
125,591
|
|
|
72,751
|
|
Total Community Banking
|
7,432
|
|
|
13,823
|
|
|
18,513
|
|
|
16,235
|
|
Total purchases
|
23,933
|
|
|
13,823
|
|
|
150,044
|
|
|
88,986
|
|
Loans Sold
|
|
|
|
|
|
|
|
Loans held for sale
|
28,051
|
|
|
—
|
|
|
34,904
|
|
|
—
|
|
Loans held for investment:
|
|
|
|
|
|
|
|
Total Community Banking
|
10,479
|
|
|
3,666
|
|
|
10,857
|
|
|
9,582
|
|
Total sales
|
$
|
38,530
|
|
|
$
|
3,666
|
|
|
$
|
45,761
|
|
|
$
|
9,582
|
|
The net investment in direct financing and sales-type leases is comprised of the following as of
March 31, 2019
and
September 30, 2018
.
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
September 30, 2018
|
|
(Dollars in Thousands)
|
Minimum lease payments receivable
|
$
|
366,361
|
|
|
$
|
301,835
|
|
Estimated residual value of leased equipment
|
11,328
|
|
|
12,406
|
|
Unamortized initial direct costs
|
4,190
|
|
|
1,806
|
|
Premium on acquired leases
|
9
|
|
|
26
|
|
Unearned income
|
(56,266
|
)
|
|
(48,949
|
)
|
Net investment in direct financing and sales-type leases
|
$
|
325,622
|
|
|
$
|
267,124
|
|
Future minimum lease payments receivable on noncancelable direct financing and sales-type leases were as follows as of
March 31, 2019
.
|
|
|
|
|
|
As of March 31, 2019
|
|
(Dollars in thousands)
|
Remaining in 2019
|
$
|
69,316
|
|
2020
|
115,307
|
|
2021
|
90,333
|
|
2022
|
55,328
|
|
2023
|
29,147
|
|
2024 and thereafter
|
6,930
|
|
Total
|
$
|
366,361
|
|
The Company did not record any contingent rental income from sales-type and direct financing leases in the
six months ended
March 31, 2019
.
Activity in the allowance for loan and lease losses and balances of loans and leases by portfolio segment for each of the
three and six
months ended
March 31, 2019
and
2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
Beginning balance
|
|
Provision (recovery) for loan and lease losses
|
|
Charge-offs
|
|
Recoveries
|
|
Ending balance
|
Three Months Ended March 31, 2019
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
2,065
|
|
|
$
|
1,365
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
3,499
|
|
Factoring
|
1,062
|
|
|
1,799
|
|
|
(1,125
|
)
|
|
25
|
|
|
1,761
|
|
Lease financing
|
1,084
|
|
|
1,671
|
|
|
(1,044
|
)
|
|
254
|
|
|
1,965
|
|
Insurance premium finance
|
972
|
|
|
1,797
|
|
|
(1,877
|
)
|
|
27
|
|
|
919
|
|
SBA/USDA
|
253
|
|
|
221
|
|
|
—
|
|
|
—
|
|
|
474
|
|
Other commercial finance
|
291
|
|
|
234
|
|
|
—
|
|
|
—
|
|
|
525
|
|
Commercial finance
|
5,727
|
|
|
7,087
|
|
|
(4,046
|
)
|
|
375
|
|
|
9,143
|
|
Consumer credit products
|
1,151
|
|
|
163
|
|
|
—
|
|
|
—
|
|
|
1,314
|
|
Other consumer finance
|
4,222
|
|
|
3,336
|
|
|
(2,456
|
)
|
|
28
|
|
|
5,130
|
|
Consumer finance
|
5,373
|
|
|
3,499
|
|
|
(2,456
|
)
|
|
28
|
|
|
6,444
|
|
Tax services
|
1,546
|
|
|
22,473
|
|
|
(1
|
)
|
|
84
|
|
|
24,102
|
|
Warehouse finance
|
176
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
185
|
|
Total National Lending
|
12,822
|
|
|
33,068
|
|
|
(6,503
|
)
|
|
487
|
|
|
39,874
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
6,570
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
6,673
|
|
Consumer one-to-four family real estate and other
|
719
|
|
|
259
|
|
|
(20
|
)
|
|
—
|
|
|
958
|
|
Agricultural real estate and operating
|
1,179
|
|
|
(112
|
)
|
|
—
|
|
|
100
|
|
|
1,167
|
|
Total Community Banking
|
8,468
|
|
|
250
|
|
|
(20
|
)
|
|
100
|
|
|
8,798
|
|
Total
|
$
|
21,290
|
|
|
$
|
33,318
|
|
|
$
|
(6,523
|
)
|
|
$
|
587
|
|
|
$
|
48,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
Beginning balance
|
|
Provision (recovery) for loan and lease losses
|
|
Charge-offs
|
|
Recoveries
|
|
Ending balance
|
Six Months Ended March 31, 2019
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
107
|
|
|
$
|
3,528
|
|
|
$
|
(262
|
)
|
|
$
|
126
|
|
|
$
|
3,499
|
|
Factoring
|
64
|
|
|
3,022
|
|
|
(1,375
|
)
|
|
50
|
|
|
1,761
|
|
Lease financing
|
59
|
|
|
1,542
|
|
|
(1,462
|
)
|
|
1,826
|
|
|
1,965
|
|
Insurance premium finance
|
1,031
|
|
|
1,890
|
|
|
(2,085
|
)
|
|
83
|
|
|
919
|
|
SBA/USDA
|
13
|
|
|
461
|
|
|
—
|
|
|
—
|
|
|
474
|
|
Other commercial finance
|
28
|
|
|
497
|
|
|
—
|
|
|
—
|
|
|
525
|
|
Commercial finance
|
1,302
|
|
|
10,940
|
|
|
(5,184
|
)
|
|
2,085
|
|
|
9,143
|
|
Consumer credit products
|
785
|
|
|
529
|
|
|
—
|
|
|
—
|
|
|
1,314
|
|
Other consumer finance
|
2,820
|
|
|
6,359
|
|
|
(4,079
|
)
|
|
30
|
|
|
5,130
|
|
Consumer finance
|
3,605
|
|
|
6,888
|
|
|
(4,079
|
)
|
|
30
|
|
|
6,444
|
|
Tax services
|
—
|
|
|
23,969
|
|
|
(43
|
)
|
|
176
|
|
|
24,102
|
|
Warehouse finance
|
65
|
|
|
120
|
|
|
—
|
|
|
—
|
|
|
185
|
|
Total National Lending
|
4,972
|
|
|
41,917
|
|
|
(9,306
|
)
|
|
2,291
|
|
|
39,874
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
6,220
|
|
|
453
|
|
|
—
|
|
|
—
|
|
|
6,673
|
|
Consumer one-to-four family real estate and other
|
632
|
|
|
346
|
|
|
(20
|
)
|
|
—
|
|
|
958
|
|
Agricultural real estate and operating
|
1,216
|
|
|
(299
|
)
|
|
—
|
|
|
250
|
|
|
1,167
|
|
Total Community Banking
|
8,068
|
|
|
500
|
|
|
(20
|
)
|
|
250
|
|
|
8,798
|
|
Total
|
$
|
13,040
|
|
|
$
|
42,417
|
|
|
$
|
(9,326
|
)
|
|
$
|
2,541
|
|
|
$
|
48,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
Beginning balance
|
|
Provision (recovery) for loan and lease losses
|
|
Charge-offs
|
|
Recoveries
|
|
Ending balance
|
Three Months Ended March 31, 2018
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
Insurance premium finance
|
$
|
725
|
|
|
$
|
214
|
|
|
$
|
(339
|
)
|
|
$
|
146
|
|
|
$
|
746
|
|
Other commercial finance
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Commercial finance
|
729
|
|
|
214
|
|
|
(339
|
)
|
|
146
|
|
|
750
|
|
Tax services
|
1,435
|
|
|
18,129
|
|
|
—
|
|
|
9
|
|
|
19,573
|
|
Total National Lending
|
2,164
|
|
|
18,343
|
|
|
(339
|
)
|
|
155
|
|
|
20,323
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
3,149
|
|
|
951
|
|
|
—
|
|
|
—
|
|
|
4,100
|
|
Consumer one-to-four family real estate and other
|
665
|
|
|
233
|
|
|
—
|
|
|
3
|
|
|
901
|
|
Agricultural real estate and operating
|
1,984
|
|
|
(1,273
|
)
|
|
—
|
|
|
54
|
|
|
765
|
|
Unallocated
|
900
|
|
|
89
|
|
|
—
|
|
|
—
|
|
|
989
|
|
Total Community Banking
|
6,698
|
|
|
—
|
|
|
—
|
|
|
57
|
|
|
6,755
|
|
Total
|
$
|
8,862
|
|
|
$
|
18,343
|
|
|
$
|
(339
|
)
|
|
$
|
212
|
|
|
$
|
27,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses:
|
Beginning balance
|
|
Provision (recovery) for loan and lease losses
|
|
Charge-offs
|
|
Recoveries
|
|
Ending balance
|
Six Months Ended March 31, 2018
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
Insurance premium finance
|
$
|
796
|
|
|
$
|
265
|
|
|
$
|
(468
|
)
|
|
$
|
153
|
|
|
$
|
746
|
|
Other commercial finance
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Commercial finance
|
800
|
|
|
265
|
|
|
(468
|
)
|
|
153
|
|
|
750
|
|
Tax services
|
5
|
|
|
19,146
|
|
|
—
|
|
|
422
|
|
|
19,573
|
|
Total National Lending
|
805
|
|
|
19,411
|
|
|
(468
|
)
|
|
575
|
|
|
20,323
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
2,820
|
|
|
1,280
|
|
|
—
|
|
|
—
|
|
|
4,100
|
|
Consumer one-to-four family real estate and other
|
809
|
|
|
120
|
|
|
(31
|
)
|
|
3
|
|
|
901
|
|
Agricultural real estate and operating
|
2,574
|
|
|
(1,863
|
)
|
|
—
|
|
|
54
|
|
|
765
|
|
Unallocated
|
526
|
|
|
463
|
|
|
—
|
|
|
—
|
|
|
989
|
|
Total Community Banking
|
6,729
|
|
|
—
|
|
|
(31
|
)
|
|
57
|
|
|
6,755
|
|
Total
|
$
|
7,534
|
|
|
$
|
19,411
|
|
|
$
|
(499
|
)
|
|
$
|
632
|
|
|
$
|
27,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
Loans and Leases
|
Recorded Investment
|
Ending balance: individually evaluated for impairment
|
|
Ending balance: collectively evaluated for impairment
|
|
Total
|
|
Ending balance: individually evaluated for impairment
|
|
Ending balance: collectively evaluated for impairment
|
|
Total
|
As of March 31, 2019
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
62
|
|
|
$
|
3,437
|
|
|
$
|
3,499
|
|
|
$
|
5,965
|
|
|
$
|
566,245
|
|
|
$
|
572,210
|
|
Factoring
|
12
|
|
|
1,749
|
|
|
1,761
|
|
|
6,034
|
|
|
281,921
|
|
|
287,955
|
|
Lease financing
|
67
|
|
|
1,898
|
|
|
1,965
|
|
|
2,299
|
|
|
319,115
|
|
|
321,414
|
|
Insurance premium finance
|
—
|
|
|
919
|
|
|
919
|
|
|
—
|
|
|
307,875
|
|
|
307,875
|
|
SBA/USDA
|
—
|
|
|
474
|
|
|
474
|
|
|
—
|
|
|
77,481
|
|
|
77,481
|
|
Other commercial finance
|
—
|
|
|
525
|
|
|
525
|
|
|
—
|
|
|
98,956
|
|
|
98,956
|
|
Commercial finance
|
141
|
|
|
9,002
|
|
|
9,143
|
|
|
14,298
|
|
|
1,651,593
|
|
|
1,665,891
|
|
Consumer credit products
|
—
|
|
|
1,314
|
|
|
1,314
|
|
|
—
|
|
|
139,617
|
|
|
139,617
|
|
Other consumer finance
|
—
|
|
|
5,130
|
|
|
5,130
|
|
|
1,236
|
|
|
169,588
|
|
|
170,824
|
|
Consumer finance
|
—
|
|
|
6,444
|
|
|
6,444
|
|
|
1,236
|
|
|
309,205
|
|
|
310,441
|
|
Tax services
|
—
|
|
|
24,102
|
|
|
24,102
|
|
|
—
|
|
|
84,824
|
|
|
84,824
|
|
Warehouse finance
|
—
|
|
|
185
|
|
|
185
|
|
|
—
|
|
|
186,697
|
|
|
186,697
|
|
Total National Lending
|
141
|
|
|
39,733
|
|
|
39,874
|
|
|
15,534
|
|
|
2,232,319
|
|
|
2,247,853
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
—
|
|
|
6,673
|
|
|
6,673
|
|
|
—
|
|
|
869,917
|
|
|
869,917
|
|
Consumer one-to-four family real estate and other
|
—
|
|
|
958
|
|
|
958
|
|
|
134
|
|
|
256,945
|
|
|
257,079
|
|
Agricultural real estate and operating
|
—
|
|
|
1,167
|
|
|
1,167
|
|
|
1,220
|
|
|
58,947
|
|
|
60,167
|
|
Total Community Banking
|
—
|
|
|
8,798
|
|
|
8,798
|
|
|
1,354
|
|
|
1,185,809
|
|
|
1,187,163
|
|
Total
|
$
|
141
|
|
|
$
|
48,531
|
|
|
$
|
48,672
|
|
|
$
|
16,888
|
|
|
$
|
3,418,128
|
|
|
$
|
3,435,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
Loans and Leases
|
Recorded Investment
|
Ending balance: individually evaluated for impairment
(1)
|
|
Ending balance: collectively evaluated for impairment
(1)
|
|
Total
|
|
Ending balance: individually evaluated for impairment
|
|
Ending balance: collectively evaluated for impairment
|
|
Total
|
As of September 30, 2018
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
107
|
|
|
$
|
1,404
|
|
|
$
|
476,513
|
|
|
$
|
477,917
|
|
Factoring
|
—
|
|
|
64
|
|
|
64
|
|
|
3,331
|
|
|
280,890
|
|
|
284,221
|
|
Lease financing
|
—
|
|
|
59
|
|
|
59
|
|
|
8,877
|
|
|
256,438
|
|
|
265,315
|
|
Insurance premium finance
|
—
|
|
|
1,031
|
|
|
1,031
|
|
|
—
|
|
|
337,877
|
|
|
337,877
|
|
SBA/USDA
|
—
|
|
|
13
|
|
|
13
|
|
|
—
|
|
|
59,374
|
|
|
59,374
|
|
Other commercial finance
|
—
|
|
|
28
|
|
|
28
|
|
|
—
|
|
|
85,145
|
|
|
85,145
|
|
Commercial finance
|
—
|
|
|
1,302
|
|
|
1,302
|
|
|
13,612
|
|
|
1,496,237
|
|
|
1,509,849
|
|
Consumer credit products
|
—
|
|
|
785
|
|
|
785
|
|
|
—
|
|
|
80,605
|
|
|
80,605
|
|
Other consumer finance
|
—
|
|
|
2,820
|
|
|
2,820
|
|
|
—
|
|
|
189,756
|
|
|
189,756
|
|
Consumer finance
|
—
|
|
|
3,605
|
|
|
3,605
|
|
|
—
|
|
|
270,361
|
|
|
270,361
|
|
Tax services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,073
|
|
|
1,073
|
|
Warehouse finance
|
—
|
|
|
65
|
|
|
65
|
|
|
—
|
|
|
65,000
|
|
|
65,000
|
|
Total National Lending
|
—
|
|
|
4,972
|
|
|
4,972
|
|
|
13,612
|
|
|
1,832,671
|
|
|
1,846,283
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
—
|
|
|
6,220
|
|
|
6,220
|
|
|
451
|
|
|
790,439
|
|
|
790,890
|
|
Consumer one-to-four family real estate and other
|
—
|
|
|
632
|
|
|
632
|
|
|
94
|
|
|
247,224
|
|
|
247,318
|
|
Agricultural real estate and operating
|
—
|
|
|
1,216
|
|
|
1,216
|
|
|
1,454
|
|
|
59,044
|
|
|
60,498
|
|
Total Community Banking
|
—
|
|
|
8,068
|
|
|
8,068
|
|
|
1,999
|
|
|
1,096,707
|
|
|
1,098,706
|
|
Total
|
$
|
—
|
|
|
$
|
13,040
|
|
|
$
|
13,040
|
|
|
$
|
15,611
|
|
|
$
|
2,929,378
|
|
|
$
|
2,944,989
|
|
(1)
Balances have been restated from what was previously reported as of September 30, 2018 on the Company's Annual Report on Form 10-K for its fiscal year ended September 30, 2018.
Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the Bank's primary regulator, the Office of the Comptroller of the Currency (the “OCC”), to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan and lease classification and risk rating definitions are as follows:
Pass- A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.
Watch- A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets.
Special Mention- Special mention assets are a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.
The adverse classifications are as follows:
Substandard- A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard.
Doubtful- A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate.
Loss- A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.
General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When assets are classified as “loss,” the Company is required either to establish a specific allowance for losses equal to
100%
of that portion of the asset so classified or to charge-off such amount. The Company's determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, which may order the establishment of additional general or specific loss allowances.
The Company recognizes that concentrations of credit may naturally occur and may take the form of a large volume of related loans and leases to an individual, a specific industry, or a geographic location. Credit concentration is a direct, indirect, or contingent obligation that has a common bond where the aggregate exposure equals or exceeds a certain percentage of the Company’s Tier 1 Capital plus the Allowance for Loan and Lease Losses.
The asset classification of loans and leases at
March 31, 2019
and
September 30, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Classification
|
Pass
|
|
Watch
|
|
Special Mention
|
|
Substandard
|
|
Total
|
March 31, 2019
|
(Dollars in Thousands)
|
|
National Lending
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
493,351
|
|
|
$
|
—
|
|
|
$
|
72,894
|
|
|
$
|
5,965
|
|
|
$
|
572,210
|
|
Factoring
|
237,880
|
|
|
—
|
|
|
44,041
|
|
|
6,034
|
|
|
287,955
|
|
Lease financing
|
303,742
|
|
|
—
|
|
|
14,652
|
|
|
3,020
|
|
|
321,414
|
|
Insurance premium finance
|
307,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
307,875
|
|
SBA/USDA
|
63,428
|
|
|
—
|
|
|
14,053
|
|
|
—
|
|
|
77,481
|
|
Other commercial finance
|
98,380
|
|
|
—
|
|
|
576
|
|
|
—
|
|
|
98,956
|
|
Commercial finance
|
1,504,656
|
|
|
—
|
|
|
146,216
|
|
|
15,019
|
|
|
1,665,891
|
|
Consumer credit products
|
139,617
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
139,617
|
|
Other consumer finance
|
170,824
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
170,824
|
|
Consumer finance
|
310,441
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
310,441
|
|
Tax services
|
84,824
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84,824
|
|
Warehouse finance
|
186,697
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186,697
|
|
Total National Lending
|
2,086,618
|
|
|
—
|
|
|
146,216
|
|
|
15,019
|
|
|
2,247,853
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
857,897
|
|
|
6,672
|
|
|
5,348
|
|
|
—
|
|
|
869,917
|
|
Consumer one-to-four family real estate and other
|
253,698
|
|
|
2,999
|
|
|
306
|
|
|
76
|
|
|
257,079
|
|
Agricultural real estate and operating
|
43,260
|
|
|
5,331
|
|
|
3,038
|
|
|
8,538
|
|
|
60,167
|
|
Total Community Banking
|
1,154,855
|
|
|
15,002
|
|
|
8,692
|
|
|
8,614
|
|
|
1,187,163
|
|
Total loans and leases
|
$
|
3,241,473
|
|
|
$
|
15,002
|
|
|
$
|
154,908
|
|
|
$
|
23,633
|
|
|
$
|
3,435,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Classification
|
Pass
|
|
Watch
|
|
Special Mention
|
|
Substandard
|
|
Total
|
September 30, 2018
|
(Dollars in Thousands)
|
|
National Lending
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
418,635
|
|
|
$
|
—
|
|
|
$
|
57,877
|
|
|
$
|
1,405
|
|
|
$
|
477,917
|
|
Factoring
|
248,246
|
|
|
—
|
|
|
32,644
|
|
|
3,331
|
|
|
284,221
|
|
Lease financing
|
252,487
|
|
|
—
|
|
|
3,951
|
|
|
8,877
|
|
|
265,315
|
|
Insurance premium finance
|
336,296
|
|
|
—
|
|
|
1,581
|
|
|
—
|
|
|
337,877
|
|
SBA/USDA
|
39,093
|
|
|
—
|
|
|
20,281
|
|
|
—
|
|
|
59,374
|
|
Other commercial finance
|
85,145
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85,145
|
|
Commercial finance
|
1,379,902
|
|
|
—
|
|
|
116,334
|
|
|
13,613
|
|
|
1,509,849
|
|
Consumer credit products
|
80,605
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
80,605
|
|
Other consumer finance
|
189,756
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189,756
|
|
Consumer finance
|
270,361
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
270,361
|
|
Tax services
|
1,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,073
|
|
Warehouse finance
|
65,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65,000
|
|
Total National Lending
|
1,716,336
|
|
|
—
|
|
|
116,334
|
|
|
13,613
|
|
|
1,846,283
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
778,445
|
|
|
12,251
|
|
|
194
|
|
|
—
|
|
|
790,890
|
|
Consumer one-to-four family real estate and other
|
246,463
|
|
|
537
|
|
|
239
|
|
|
79
|
|
|
247,318
|
|
Agricultural real estate and operating
|
42,292
|
|
|
2,447
|
|
|
4,872
|
|
|
10,887
|
|
|
60,498
|
|
Total Community Banking
|
1,067,200
|
|
|
15,235
|
|
|
5,305
|
|
|
10,966
|
|
|
1,098,706
|
|
Total loans and leases
|
$
|
2,783,536
|
|
|
$
|
15,235
|
|
|
$
|
121,639
|
|
|
$
|
24,579
|
|
|
$
|
2,944,989
|
|
National Lending (Commercial Finance, Consumer Finance, Tax Services and Warehouse Finance)
Commercial Finance
The Company's commercial finance product lines include asset-based lending, factoring, leasing, commercial insurance premium finance, and other commercial finance products offered on a nationwide basis. Asset-based lending and factoring primarily service small businesses that are startups, distressed and/or generally that may not otherwise qualify for traditional bank financing. Leasing focuses on providing equipment finance solutions to mid-market companies. These product offerings supplement the asset generation capacity in our community bank and tax services divisions and enhance the overall yield of our loan and lease portfolio, enabling us to earn attractive risk-adjusted net interest margins.
Asset-Based Lending
.
Through its Crestmark division, the Bank provides asset-based loans secured by debtors' short-term assets such as inventory, accounts receivable, and work-in-process. Asset-based loans may also be secured by real estate and equipment. The primary sources of repayment are the operating income of the borrower, the collection of the receivables securing the loan, and/or the sale of the inventory securing the loan. Loans are typically revolving lines of credit with terms of one 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, standardized loan policies, established and authorized credit limits, attentive portfolio management and the use of lock box agreements and similar arrangements that result in the Company receiving and controlling the debtors' cash receipts. The Bank also originates collateralized term loans and notes receivable, with terms ranging from three to 25 years.
Factoring.
Through its Crestmark division, the Bank provides factoring lending where clients provide detailed inventory, accounts receivable, and work-in-process reports for lending arrangements. The factoring clients are diversified as to industry and geography. With these loans, the Crestmark division withholds a contingency reserve, which is the difference between the fair value of the invoice amount or other collateral value and the amount advanced. This reserve is withheld for nonpayment of factored receivables, service fees and other adjustments. Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements that result in the Company receiving and controlling the client's cash receipts. In addition, clients generally guarantee the payment of purchased accounts receivable.
Lease Financing.
Through its Crestmark division, the Bank provides creative, flexible lease solutions for technology, capital equipment and select transportation assets like tractors and trailers. Direct financing leases and sales-type leases substantially transfer the benefits and risks of equipment ownership to the lessee. The lease may contain provisions that transfer ownership to the lessee at the end of the initial term, contain a bargain purchase option or allow for purchase of the equipment at fair market value. Residual values are estimated at the inception of the lease. Lease maturities are generally no greater than 84 months. The focus in this lease financing category is to support middle market companies by providing a variety of financing products to help them meet their business objectives.
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 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. The AFS/IBEX division markets itself to the insurance community as a competitive option based on service, reputation, competitive terms, cost and ease of operation.
Small Business Administration ("SBA") and United States Department of Agriculture ("USDA").
The Bank originates loans through programs partially guaranteed by the SBA or USDA. These loans are made to small businesses and professionals with what the Bank believes are lower risk characteristics.
Other Commercial Finance.
Included in this category of loans are the Company's healthcare receivables loan portfolio primarily comprised of loans to individuals for medical services received. The majority of these loans are guaranteed by the hospital providing the service to the debtor and this guarantee serves to reduce credit risk as the guarantors agree to repurchase severely delinquent loans. Credit risk is minimized on these loans based on the guarantor’s repurchase agreement. This loan category also includes commercial real estate loans to customers of the Crestmark division.
Consumer Finance
Consumer Credit Products.
Through the acquisition of Specialty Consumer Services, the Bank acquired a platform that provides a total solution for marketplace lending, including underwriting and loan management in the direct-to-consumer credit business. The acquired platform allows the Bank to provide innovative lending solutions through consumer credit products. The Company designs and structures its credit programs in an effort to insulate the Company from program losses and to potentially increase the liquidity attributes of such lending programs' marketability to potential bank or other purchasers. While each program is different, all contain one or more types of credit enhancements, loss protections, or trigger events. When determining the applicable program enhancement, generally, the Company uses proprietary data provided by the Company’s partner, with respect to such program, supplemented with public data to design and shape appropriate loss curves, as well as implement stresses significantly higher than base to provide protection in changing credit cycles. Credit enhancements are typically built through holding excess program interest and fees in a reserve account to pay program credit losses. Cash flow waterfall positioning allows for losses and Company program principal and interest to be paid, under certain circumstances, before servicing or other program expenses. Trigger events allow programs and originations to be suspended if certain vintage loss limits, during a specific period of time, are triggered or if cumulative loss percentages are triggered. These triggers are designed to allow the Company to address potential issues quickly. Other trigger events in certain programs provide for excess credit or reserve enhancements, which could be beyond excess interest amounts, if certain loss triggers are breached. The Bank applies a reserve for loan losses of approximately 1% on outstanding loan balances within each of the consumer credit product programs.
Through
March 31, 2019
, the Bank has launched two consumer credit programs. During the second quarter of fiscal 2018, the Bank entered into a three-year program agreement with Liberty Lending, LLC ("Liberty Lending") whereby the Bank provides personal loans to Liberty Lending customers. The Bank and Liberty Lending market the program jointly through a wide variety of marketing channels. The loan products under the agreement with Liberty Lending are closed-end installment loans ranging from $3,500 to $45,000 in initial principal amount with durations of between 13 and 60 months.
The Bank entered into a three-year agreement with Health Credit Services ("HCS") during the third quarter of fiscal 2018. The Bank approves and originates loans for elective medical procedures for select HCS provider offices throughout the United States. HCS works with its provider partners to market the loans, as well as provide servicing for them. The loan products offered are unsecured, closed-end installment loans with terms between 12 and 84 months and revolving lines of credit with durations between six and 60 months.
Other Consumer Finance.
The Bank's purchased student loan portfolios are seasoned, floating rate, private portfolios that are serviced by a third-party servicer. The portfolio purchased during the first quarter of fiscal year 2018 is indexed to one-month LIBOR, while the portfolio purchased in the first quarter of fiscal year 2017 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, which could take a year or longer.
Tax Services
The Bank's tax services division provides short-term taxpayer advance loans. Taxpayers are underwritten to determine eligibility for these unsecured loans. Due to the nature of taxpayer advance loans, it typically takes no more than three e-file cycles (the period of time between scheduled IRS payments) from when the return is accepted by the IRS to collect from the borrower. In the event of default, the Bank has no recourse against the tax consumer. The Bank will charge off the balance of a taxpayer advance loan if there is a balance at the end of the calendar year, or when collection of principal becomes doubtful.
Through its tax services division, the Bank provides short-term electronic return originator ("ERO") advance loans on a nationwide basis. These loans are typically utilized by tax preparers to purchase tax preparation software and to prepare tax office operations for the upcoming tax season. EROs go through an underwriting process to determine eligibility for the unsecured advances. ERO loans are not collateralized. Collection on ERO advances begins once the ERO begins to process refund transfers. Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful.
Warehouse Finance
In fiscal 2018, the Bank entered into a first-out participation agreement in a consumer receivable asset-backed warehouse line of credit, with the Bank holding a senior collateral position enhanced by a subordinate party structure. During the first quarter of fiscal 2019, the Bank entered into two additional first-out participation agreements in asset-backed warehouse lines of credit, including consumer loan receivables and small business loan receivables. The senior collateral position of the Bank is supported by a subordinate party position.
Community Banking
Commercial Real Estate and Operating
.
The Company engages in commercial and multi-family real estate lending in the community bank's primary market areas and surrounding areas. These loans are secured primarily by apartment buildings, office 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. The Company has a variety of rate adjustment features and other terms in its commercial and multi-family real estate loan portfolio. Commercial and multi-family real estate loans provide for a margin over a number of different indices. In underwriting these loans, the Company analyzes the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.
The repayment of loans secured by commercial and multi-family real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.
The Company originates its community banking commercial operating loans primarily in its market areas. Most of these commercial operating loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory and accounts receivable. Commercial loans also may involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies. The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Generally, the maximum term on non-mortgage lines of credit is
one year
.
The Company’s commercial operating lending policy includes credit file documentation and analysis of the borrower’s management ability, capacity to repay the loan, the adequacy of the borrower’s capital and collateral as well as an evaluation of conditions affecting the borrower. Analysis of the borrower’s past, present and future cash flows is also an important aspect of the Company’s current credit analysis. Commercial operating loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial operating loans may be substantially dependent on the success of the business itself (which, in turn, is likely to be dependent upon the general economic environment). The Company’s commercial operating loans are usually secured by business assets and personal guarantees. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
Consumer One-to-Four Family Real Estate and Other
. One-to-four family real estate loan originations are typically generated by the Company’s marketing efforts, its present customers, walk-in customers and referrals. The Company offers fixed-rate loans and adjustable-rate mortgage ("ARM") loans for both permanent structures and those under construction. The Company’s one-to-four family real estate loan originations are secured primarily by properties located in the community bank's primary market areas and surrounding areas.
The Company originates one-to-four family real estate loans with terms up to a maximum of
30 years
and with loan-to-value ratios up to
100%
of the lesser of the appraised value of the property securing the loan or the contract price. However, the vast majority of these loans are originated with loan-to-value ratios below
80%
. The Company generally requires that private mortgage insurance be obtained in an amount sufficient to reduce the Company’s exposure to at or below the
80%
loan‑to‑value level. Due to consumer demand, the Company also offers fixed-rate mortgage loans with terms up to
30 years
, which may conform to secondary market standards such as those imposed by Fannie Mae, Ginnie Mae, and Freddie Mac. The Company typically holds all fixed-rate mortgage loans and does not engage in secondary market sales. The Company also currently offers
five
- and
ten
-year ARM loans.
In underwriting one-to-four family real estate loans, the Company evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan. Properties securing real estate loans made by the Company are appraised by independent appraisers approved by the Board of Directors of the Company. The Company generally requires borrowers to obtain an attorney’s title opinion or title insurance, as well as fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. Real estate loans originated by the Company generally contain a “due on sale” clause that allows the Company to declare the unpaid principal balance due and payable upon the sale of the security property. The Company has not engaged in sub-prime residential mortgage originations.
The Company originates a variety of secured consumer loans, including home equity, home improvement, automobile and boat loans, as well as loans secured by savings deposits in its primary market areas and surrounding areas. Substantially all of the Company’s home equity loans and lines of credit are secured by second mortgages on principal residences. The Bank will lend amounts that, together with all prior liens, may be up to 90% of the appraised value of the property securing the loan. Home equity loans and lines of credit generally have maximum terms of five years.
Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also may include a comparison of the value of the security, if any, in relation to the proposed loan amount.
Agricultural Real Estate and Operating
. The Company originates loans to finance the purchase of farmland, livestock, farm machinery and equipment, seed, fertilizer, and other farm-related products, primarily in its market areas. Agricultural operating loans are originated at either an adjustable- or fixed-rate of interest for up to a
one
-year term or, in the case of livestock, are due upon sale. Agricultural real estate loans are frequently originated with adjustable rates of interest. Generally, such loans provide for a fixed rate of interest for the first
five
to
10 years
, after which the loan will balloon or the interest rate will adjust annually. These loans generally amortize over a period of
20
to
25 years
. Fixed-rate agricultural real estate loans typically have terms up to
10 years
. Agricultural real estate loans are generally limited to
75%
of the value of the property securing the loan.
Payments on loans are dependent on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. The success of the loan may also be affected by many factors outside the control of the borrower such as weather, government support programs and grain and livestock prices. These risks may be reduced, by the farmer, with the use of crop insurance coverage and futures contracts or options to mitigate price risk, both of which the Company frequently requires of the borrowers to help ensure loan repayment. Many farms are also dependent on a limited number of key individuals whose injury or death may result in an inability to successfully operate the farm.
Past due loans and leases at
March 31, 2019
and
September 30, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing and Non-accruing Loans and Leases
|
|
Non-performing Loans and Leases
|
Past Due Loans and Leases
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
>
89 Days Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans and Leases
Receivable
|
|
> 89 Days Past Due and Accruing
|
|
Non-accrual balance
|
|
Total
|
March 31, 2019
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
799
|
|
|
$
|
1,712
|
|
|
$
|
78
|
|
|
$
|
2,589
|
|
|
$
|
569,621
|
|
|
$
|
572,210
|
|
|
$
|
—
|
|
|
$
|
266
|
|
|
$
|
266
|
|
Factoring
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
287,955
|
|
|
287,955
|
|
|
—
|
|
|
716
|
|
|
716
|
|
Lease financing
|
9,291
|
|
|
1,227
|
|
|
1,761
|
|
|
12,279
|
|
|
309,135
|
|
|
321,414
|
|
|
645
|
|
|
1,802
|
|
|
2,447
|
|
Insurance premium finance
|
2,009
|
|
|
767
|
|
|
1,640
|
|
|
4,416
|
|
|
303,459
|
|
|
307,875
|
|
|
1,640
|
|
|
—
|
|
|
1,640
|
|
SBA/USDA
|
1,078
|
|
|
—
|
|
|
—
|
|
|
1,078
|
|
|
76,403
|
|
|
77,481
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other commercial finance
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98,956
|
|
|
98,956
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial finance
|
13,177
|
|
|
3,706
|
|
|
3,479
|
|
|
20,362
|
|
|
1,645,529
|
|
|
1,665,891
|
|
|
2,285
|
|
|
2,784
|
|
|
5,069
|
|
Consumer credit products
|
1,080
|
|
|
667
|
|
|
420
|
|
|
2,167
|
|
|
137,450
|
|
|
139,617
|
|
|
420
|
|
|
—
|
|
|
420
|
|
Other consumer finance
|
1,256
|
|
|
504
|
|
|
1,853
|
|
|
3,613
|
|
|
167,211
|
|
|
170,824
|
|
|
1,853
|
|
|
—
|
|
|
1,853
|
|
Consumer finance
|
2,336
|
|
|
1,171
|
|
|
2,273
|
|
|
5,780
|
|
|
304,661
|
|
|
310,441
|
|
|
2,273
|
|
|
—
|
|
|
2,273
|
|
Tax services
|
667
|
|
|
—
|
|
|
—
|
|
|
667
|
|
|
84,157
|
|
|
84,824
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Warehouse finance
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186,697
|
|
|
186,697
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total National Lending
|
16,180
|
|
|
4,877
|
|
|
5,752
|
|
|
26,809
|
|
|
2,221,044
|
|
|
2,247,853
|
|
|
4,558
|
|
|
2,784
|
|
|
7,342
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
271
|
|
|
—
|
|
|
—
|
|
|
271
|
|
|
869,646
|
|
|
869,917
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer one-to-four family real estate and other
|
110
|
|
|
250
|
|
|
76
|
|
|
436
|
|
|
256,643
|
|
|
257,079
|
|
|
—
|
|
|
76
|
|
|
76
|
|
Agricultural real estate and operating
|
—
|
|
|
—
|
|
|
2,200
|
|
|
2,200
|
|
|
57,967
|
|
|
60,167
|
|
|
2,200
|
|
|
—
|
|
|
2,200
|
|
Total Community Banking
|
381
|
|
|
250
|
|
|
2,276
|
|
|
2,907
|
|
|
1,184,256
|
|
|
1,187,163
|
|
|
2,200
|
|
|
76
|
|
|
2,276
|
|
Total Loans and Leases
|
$
|
16,561
|
|
|
$
|
5,127
|
|
|
$
|
8,028
|
|
|
$
|
29,716
|
|
|
$
|
3,405,300
|
|
|
$
|
3,435,016
|
|
|
$
|
6,758
|
|
|
$
|
2,860
|
|
|
$
|
9,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing and Non-accruing Loans and Leases
|
|
Non-performing Loans and Leases
|
Past Due Loans and Leases
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
>
89 Days Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans and Leases
Receivable
|
|
> 89 Days Past Due and Accruing
|
|
Non-accrual balance
|
|
Total
|
September 30, 2018
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
1,235
|
|
|
$
|
2,151
|
|
|
$
|
94
|
|
|
$
|
3,480
|
|
|
$
|
474,437
|
|
|
$
|
477,917
|
|
|
$
|
94
|
|
|
$
|
—
|
|
|
$
|
94
|
|
Factoring
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
284,221
|
|
|
284,221
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Lease financing
|
16,542
|
|
|
532
|
|
|
2,921
|
|
|
19,995
|
|
|
245,320
|
|
|
265,315
|
|
|
726
|
|
|
2,864
|
|
|
3,590
|
|
Insurance premium finance
|
1,864
|
|
|
1,019
|
|
|
2,981
|
|
|
5,864
|
|
|
332,013
|
|
|
337,877
|
|
|
2,981
|
|
|
—
|
|
|
2,981
|
|
SBA/USDA
|
1,067
|
|
|
—
|
|
|
—
|
|
|
1,067
|
|
|
58,307
|
|
|
59,374
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other commercial finance
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85,145
|
|
|
85,145
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial finance
|
20,708
|
|
|
3,702
|
|
|
5,996
|
|
|
30,406
|
|
|
1,479,443
|
|
|
1,509,849
|
|
|
3,801
|
|
|
2,864
|
|
|
6,665
|
|
Consumer credit products
|
532
|
|
|
284
|
|
|
147
|
|
|
963
|
|
|
79,642
|
|
|
80,605
|
|
|
147
|
|
|
—
|
|
|
147
|
|
Other consumer finance
|
2,677
|
|
|
1,311
|
|
|
2,237
|
|
|
6,225
|
|
|
183,531
|
|
|
189,756
|
|
|
2,237
|
|
|
—
|
|
|
2,237
|
|
Consumer finance
|
3,209
|
|
|
1,595
|
|
|
2,384
|
|
|
7,188
|
|
|
263,173
|
|
|
270,361
|
|
|
2,384
|
|
|
—
|
|
|
2,384
|
|
Tax services
|
—
|
|
|
—
|
|
|
1,073
|
|
|
1,073
|
|
|
—
|
|
|
1,073
|
|
|
1,073
|
|
|
—
|
|
|
1,073
|
|
Warehouse finance
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65,000
|
|
|
65,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total National Lending
|
23,917
|
|
|
5,297
|
|
|
9,453
|
|
|
38,667
|
|
|
1,807,616
|
|
|
1,846,283
|
|
|
7,258
|
|
|
2,864
|
|
|
10,122
|
|
Community Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
790,890
|
|
|
790,890
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer one-to-four family real estate and other
|
105
|
|
|
—
|
|
|
79
|
|
|
184
|
|
|
247,134
|
|
|
247,318
|
|
|
79
|
|
|
—
|
|
|
79
|
|
Agricultural real estate and operating
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,498
|
|
|
60,498
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Community Banking
|
105
|
|
|
—
|
|
|
79
|
|
|
184
|
|
|
1,098,522
|
|
|
1,098,706
|
|
|
79
|
|
|
—
|
|
|
79
|
|
Total Loans and Leases
|
$
|
24,022
|
|
|
$
|
5,297
|
|
|
$
|
9,532
|
|
|
$
|
38,851
|
|
|
$
|
2,906,138
|
|
|
$
|
2,944,989
|
|
|
$
|
7,337
|
|
|
$
|
2,864
|
|
|
$
|
10,201
|
|
Certain loans and leases 89 days or more past due as to interest or principal continue to accrue because they are (1) well-secured and in the process of collection or (2) one-to-four family real estate loans or consumer loans exempt under regulatory rules from being classified as non-accrual until later delinquency, usually 120 days past due.
When analysis of borrower or lessee operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan or lease is evaluated for impairment. Often, this is associated with a delay or shortfall in scheduled payments, as described above.
Impaired loans and leases at
March 31, 2019
and
September 30, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
Recorded
Balance
|
|
Unpaid Principal
Balance
|
|
Specific
Allowance
|
Loans and leases without a specific valuation allowance
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
Asset based lending
|
$
|
4,887
|
|
|
$
|
5,399
|
|
|
$
|
—
|
|
Factoring
|
6,009
|
|
|
7,084
|
|
|
—
|
|
Lease financing
|
2,209
|
|
|
2,209
|
|
|
—
|
|
Commercial finance
|
13,105
|
|
|
14,692
|
|
|
—
|
|
Other consumer finance
|
1,236
|
|
|
1,304
|
|
|
—
|
|
Consumer finance
|
1,236
|
|
|
1,304
|
|
|
—
|
|
Total National Lending
|
14,341
|
|
|
15,996
|
|
|
—
|
|
Community Banking
|
|
|
|
|
|
Consumer one-to-four family real estate and other
|
134
|
|
|
153
|
|
|
—
|
|
Agricultural real estate and operating
|
1,220
|
|
|
1,220
|
|
|
—
|
|
Total Community Banking
|
1,354
|
|
|
1,373
|
|
|
—
|
|
Total
|
$
|
15,695
|
|
|
$
|
17,370
|
|
|
$
|
—
|
|
Loans and leases with a specific valuation allowance
|
|
|
|
|
|
National Lending
|
|
|
|
|
|
Asset based lending
|
$
|
1,078
|
|
|
$
|
1,078
|
|
|
$
|
62
|
|
Factoring
|
25
|
|
|
25
|
|
|
12
|
|
Lease financing
|
90
|
|
|
90
|
|
|
67
|
|
Commercial finance
|
1,193
|
|
|
1,193
|
|
|
141
|
|
Total National Lending
|
1,193
|
|
|
1,193
|
|
|
141
|
|
Total
|
$
|
1,193
|
|
|
$
|
1,193
|
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
Recorded
Balance
|
|
Unpaid Principal
Balance
|
|
Specific
Allowance
|
Loans and leases without a specific valuation allowance
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
Asset based lending
|
$
|
1,325
|
|
|
$
|
1,325
|
|
|
$
|
—
|
|
Factoring
|
1,383
|
|
|
1,713
|
|
|
—
|
|
Lease financing
|
5,491
|
|
|
5,491
|
|
|
—
|
|
Commercial finance
|
8,199
|
|
|
8,529
|
|
|
—
|
|
Total National Lending
|
8,199
|
|
|
8,529
|
|
|
—
|
|
Community Banking
|
405
|
|
|
405
|
|
|
—
|
|
Commercial real estate and operating
|
140
|
|
|
140
|
|
|
—
|
|
Consumer one-to-four family real estate and other
|
1,454
|
|
|
1,454
|
|
|
—
|
|
Agricultural real estate and operating
|
1,999
|
|
|
1,999
|
|
|
—
|
|
Total
|
$
|
10,198
|
|
|
$
|
10,528
|
|
|
$
|
—
|
|
Loans and leases with a specific valuation allowance
|
|
|
|
|
|
National Lending
|
|
|
|
|
|
Asset based lending
|
$
|
79
|
|
|
$
|
79
|
|
|
$
|
22
|
|
Factoring
|
1,948
|
|
|
2,198
|
|
|
49
|
|
Lease financing
|
3,386
|
|
|
3,386
|
|
|
517
|
|
Commercial finance
|
5,413
|
|
|
5,663
|
|
|
588
|
|
Total National Lending
|
5,413
|
|
|
5,663
|
|
|
588
|
|
Total
|
$
|
5,413
|
|
|
$
|
5,413
|
|
|
$
|
588
|
|
The following table provides the average recorded investment in impaired loans and leases for the
three and six
month periods ended
March 31, 2019
and
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2019
|
|
2018
|
|
Average
Recorded
Investment
|
|
Recognized Interest Income
|
|
Average
Recorded
Investment
|
|
Recognized Interest Income
|
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
3,569
|
|
|
$
|
95
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Factoring
|
3,131
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Lease financing
|
4,100
|
|
|
7
|
|
|
—
|
|
|
—
|
|
Commercial finance
|
10,800
|
|
|
102
|
|
|
—
|
|
|
—
|
|
Other consumer finance
|
1,232
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Consumer finance
|
1,232
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Total National Lending
|
12,032
|
|
|
112
|
|
|
—
|
|
|
—
|
|
Community Banking
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
268
|
|
|
—
|
|
|
705
|
|
|
5
|
|
Consumer one-to-four family real estate and other
|
137
|
|
|
—
|
|
|
229
|
|
|
6
|
|
Agricultural real estate and operating
|
1,414
|
|
|
10
|
|
|
1,680
|
|
|
50
|
|
Total Community Banking
|
1,819
|
|
|
10
|
|
|
2,614
|
|
|
61
|
|
Total loans and leases
|
$
|
13,851
|
|
|
$
|
122
|
|
|
$
|
2,614
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
2019
|
|
2018
|
|
Average
Recorded
Investment
|
|
Recognized Interest Income
|
|
Average
Recorded
Investment
|
|
Recognized Interest Income
|
|
(Dollars in Thousands)
|
National Lending
|
|
|
|
|
|
|
|
Asset based lending
|
$
|
2,648
|
|
|
$
|
174
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Factoring
|
2,956
|
|
|
5
|
|
|
—
|
|
|
—
|
|
Lease financing
|
5,842
|
|
|
17
|
|
|
—
|
|
|
—
|
|
Commercial finance
|
11,446
|
|
|
196
|
|
|
—
|
|
|
—
|
|
Other consumer finance
|
1,227
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Consumer finance
|
1,227
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Total National Lending
|
12,673
|
|
|
206
|
|
|
—
|
|
|
—
|
|
Community Banking
|
|
|
|
|
|
|
|
Commercial real estate and operating
|
336
|
|
|
4
|
|
|
840
|
|
|
10
|
|
Consumer one-to-four family real estate and other
|
138
|
|
|
2
|
|
|
165
|
|
|
9
|
|
Agricultural real estate and operating
|
1,443
|
|
|
35
|
|
|
1,015
|
|
|
64
|
|
Total Community Banking
|
1,917
|
|
|
41
|
|
|
2,020
|
|
|
83
|
|
Total loans and leases
|
$
|
14,590
|
|
|
$
|
247
|
|
|
$
|
2,020
|
|
|
$
|
83
|
|
The Company’s troubled debt restructurings ("TDRs") typically involve forgiving a portion of interest or principal on existing loans, making loans at a rate materially less than current market rates, or extending the term of the loan. There were
$1.5 million
of national lending loans and leases that were modified in a TDR during the three months ended
March 31, 2019
, all of which were modified to extend the term of the loan, and
no
community banking loans that were modified in a TDR. There were
$2.6 million
of community banking loans that were modified in a TDR during the three months ended
March 31, 2018
.
There were
$1.6 million
of national lending loans and leases and
$0.1 million
of community banking loans that were modified in a TDR during the
six
months ended
March 31, 2019
, all of which were modified to extend the term of the loan. There were
$3.8 million
of community banking loans that were modified in a TDR during the
six
months ended
March 31, 2018
. During the six months ended March 31, 2019, the Company had
$0.9 million
of community banking loans that were modified as a TDR within the previous 12 months and for which there was a payment default. During the six months ended March 31, 2018, the Company had
$0.1 million
of community banking loans that were modified as a TDR within the previous 12 months and for which there was a payment default.
At
March 31, 2019
, foreclosed and repossessed assets totaled
$29.5 million
, compared to
$31.6 million
at
September 30, 2018
. There were no impairments on or valuation allowances established for any foreclosed and repossess assets at either date. The Company did not have any loans or leases in the process of foreclosure at
March 31, 2019
.
NOTE 5. EARNINGS PER COMMON SHARE
Earnings per common share is computed after deducting any preferred dividends, if applicable. The Company has granted restricted share awards with dividend rights that are considered to be participating securities. Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the earnings per share calculation. Basic earnings per common share is computed by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and after the allocation of earnings to the participating securities. Antidilutive options are disregarded in earnings per share calculations. The share and per share amounts for fiscal year 2018 have been restated to reflect the 3-for-1 forward stock split of the Company's common stock that was effected by the Company on October 4, 2018.
A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share for the
three and six
months ended
March 31, 2019
and
2018
is presented below.
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2019
|
|
2018
|
(Dollars in Thousands, Except Share and Per Share Data)
|
|
|
|
Basic income per common share:
|
|
|
|
Net income attributable to Meta Financial Group, Inc.
|
$
|
32,120
|
|
|
$
|
31,436
|
|
Weighted average common shares outstanding
|
39,429,595
|
|
|
29,061,180
|
|
Basic income per common share
|
0.81
|
|
|
1.08
|
|
|
|
|
|
Diluted income per common share:
|
|
|
|
Net income attributable to Meta Financial Group, Inc.
|
$
|
32,120
|
|
|
$
|
31,436
|
|
Weighted average common shares outstanding
|
39,429,595
|
|
|
29,061,180
|
|
Outstanding options - based upon the two-class method
|
67,237
|
|
|
118,956
|
|
Weighted average diluted common shares outstanding
|
39,496,832
|
|
|
29,180,136
|
|
Diluted income per common share
|
0.81
|
|
|
1.08
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
2019
|
|
2018
|
(Dollars in Thousands, Except Share and Per Share Data)
|
|
|
|
Basic income per common share:
|
|
|
|
Net income attributable to Meta Financial Group, Inc.
|
$
|
47,518
|
|
|
$
|
36,106
|
|
Weighted average common shares outstanding
|
39,381,682
|
|
|
29,015,376
|
|
Basic income per common share
|
1.21
|
|
|
1.24
|
|
|
|
|
|
Diluted income per common share:
|
|
|
|
Net income attributable to Meta Financial Group, Inc.
|
$
|
47,518
|
|
|
$
|
36,106
|
|
Weighted average common shares outstanding
|
39,381,682
|
|
|
29,015,376
|
|
Outstanding options - based upon the two-class method
|
68,581
|
|
|
115,038
|
|
Weighted average diluted common shares outstanding
|
39,450,263
|
|
|
29,130,414
|
|
Diluted income per common share
|
1.20
|
|
|
1.24
|
|
NOTE 6. SECURITIES
On October 1, 2018, the Company adopted ASU 2016-01 on a prospective basis, which redefined the definition of equity securities and required their segregation from available for sale debt securities. While changes in the fair value of debt securities continue to be recorded in the equity category of accumulated other comprehensive income, the new guidance requires that changes in fair value of equity securities with readily determinable fair value be recorded in current earnings. As required by the new guidance, the unrealized gain in fair value on equity securities with readily determinable fair value (recorded in accumulated other comprehensive income at September 30, 2018) was reclassified to retained earnings on October 1, 2018. The amount of the reclassification was
$0.5 million
, net of tax. Equity securities with readily determinable fair value include mutual funds of
$1.8 million
at cost and
$1.9 million
at fair value at
March 31, 2019
.
The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities at
March 31, 2019
and
September 30, 2018
are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2019
|
AMORTIZED
COST
|
|
GROSS
UNREALIZED
GAINS
|
|
GROSS
UNREALIZED
(LOSSES)
|
|
FAIR
VALUE
|
|
(Dollars in Thousands)
|
Debt securities AFS
|
|
|
|
|
|
|
|
SBA securities
|
$
|
163,621
|
|
|
$
|
637
|
|
|
$
|
(155
|
)
|
|
$
|
164,103
|
|
Obligations of states and political subdivisions
|
11,432
|
|
|
106
|
|
|
(9
|
)
|
|
11,529
|
|
Non-bank qualified obligations of states and political subdivisions
|
629,732
|
|
|
1,357
|
|
|
(9,447
|
)
|
|
621,642
|
|
Asset-backed securities
|
284,701
|
|
|
1,286
|
|
|
(1,598
|
)
|
|
284,389
|
|
Mortgage-backed securities
|
419,024
|
|
|
1,064
|
|
|
(6,595
|
)
|
|
413,493
|
|
Total debt securities AFS
|
$
|
1,508,510
|
|
|
$
|
4,450
|
|
|
$
|
(17,804
|
)
|
|
$
|
1,495,156
|
|
Common equities and mutual funds
(1)(2)
|
$
|
3,592
|
|
|
$
|
619
|
|
|
$
|
—
|
|
|
$
|
4,211
|
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
(2)
ASU 2016-01 adopted on October 1, 2018, on a prospective basis, removed equity securities from AFS category at March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2018
|
AMORTIZED
COST
|
|
GROSS
UNREALIZED
GAINS
|
|
GROSS
UNREALIZED
(LOSSES)
|
|
FAIR
VALUE
|
|
(Dollars in Thousands)
|
Debt securities AFS
|
|
|
|
|
|
|
|
SBA securities
|
$
|
45,591
|
|
|
$
|
1
|
|
|
$
|
(1,255
|
)
|
|
$
|
44,337
|
|
Obligations of states and political subdivisions
|
17,154
|
|
|
49
|
|
|
(293
|
)
|
|
16,910
|
|
Non-bank qualified obligations of states and political subdivisions
|
1,140,884
|
|
|
826
|
|
|
(31,825
|
)
|
|
1,109,885
|
|
Asset-backed securities
|
310,700
|
|
|
2,585
|
|
|
(257
|
)
|
|
313,028
|
|
Mortgage-backed securities
|
378,301
|
|
|
—
|
|
|
(14,236
|
)
|
|
364,065
|
|
Total debt securities AFS
|
$
|
1,892,630
|
|
|
$
|
3,461
|
|
|
$
|
(47,866
|
)
|
|
$
|
1,848,225
|
|
Common equities and mutual funds
(1)
|
3,172
|
|
|
635
|
|
|
(7
|
)
|
|
3,800
|
|
Total AFS securities
(1)
|
$
|
1,895,802
|
|
|
$
|
4,096
|
|
|
$
|
(47,873
|
)
|
|
$
|
1,852,025
|
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
At March 31, 2019
|
AMORTIZED
COST
|
|
GROSS
UNREALIZED
GAINS
|
|
GROSS
UNREALIZED
(LOSSES)
|
|
FAIR
VALUE
|
|
(Dollars in Thousands)
|
Debt securities
|
|
|
|
|
|
|
|
Non-bank qualified obligations of states and political subdivisions
|
$
|
146,992
|
|
|
$
|
—
|
|
|
$
|
(5,224
|
)
|
|
$
|
141,768
|
|
Mortgage-backed securities
|
7,606
|
|
|
—
|
|
|
(210
|
)
|
|
7,396
|
|
Total held to maturity securities
|
$
|
154,598
|
|
|
$
|
—
|
|
|
$
|
(5,434
|
)
|
|
$
|
149,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2018
|
AMORTIZED
COST
|
|
GROSS
UNREALIZED
GAINS
|
|
GROSS
UNREALIZED
(LOSSES)
|
|
FAIR
VALUE
|
|
(Dollars in Thousands)
|
Debt securities
|
|
|
|
|
|
|
|
Non-bank qualified obligations of states and political subdivisions
|
$
|
163,893
|
|
|
$
|
—
|
|
|
$
|
(10,758
|
)
|
|
$
|
153,135
|
|
Mortgage-backed securities
|
7,850
|
|
|
—
|
|
|
(422
|
)
|
|
7,428
|
|
Total held to maturity securities
|
$
|
171,743
|
|
|
$
|
—
|
|
|
$
|
(11,180
|
)
|
|
$
|
160,563
|
|
Management has implemented a process to identify securities with potential credit impairment that are other-than-temporary. This process involves evaluation of the length of time and extent to which the fair value has been less than the amortized cost basis, review of available information regarding the financial position of the issuer, monitoring the rating, watch, and outlook of the security, monitoring changes in value, cash flow projections, and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity. To the extent the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.
For all securities considered temporarily impaired, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which may occur at maturity. The Company believes it will collect all principal and interest due on all investments with amortized cost in excess of fair value and considered only temporarily impaired.
GAAP requires that, at acquisition, an enterprise classify debt securities into one of three categories: AFS, HTM or trading. AFS securities are carried at fair value on the consolidated statements of financial condition, and unrealized holding gains and losses are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income (“AOCI”). HTM debt securities are measured at amortized cost. Both AFS and HTM are subject to review for other-than-temporary impairment. The Company did not have any trading securities at
March 31, 2019
or
September 30, 2018
.
Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at
March 31, 2019
and
September 30, 2018
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS THAN 12 MONTHS
|
|
OVER 12 MONTHS
|
|
TOTAL
|
At March 31, 2019
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
(Dollars in Thousands)
|
Debt securities AFS
|
|
|
|
|
|
|
|
|
|
|
|
SBA securities
|
$
|
41,845
|
|
|
$
|
(29
|
)
|
|
$
|
27,214
|
|
|
$
|
(126
|
)
|
|
$
|
69,059
|
|
|
$
|
(155
|
)
|
Obligations of states and political subdivisions
|
—
|
|
|
—
|
|
|
2,052
|
|
|
(9
|
)
|
|
2,052
|
|
|
(9
|
)
|
Non-bank qualified obligations of states and political subdivisions
|
10,210
|
|
|
(2
|
)
|
|
448,680
|
|
|
(9,445
|
)
|
|
458,890
|
|
|
(9,447
|
)
|
Asset-backed securities
|
148,254
|
|
|
(1,539
|
)
|
|
12,184
|
|
|
(59
|
)
|
|
160,438
|
|
|
(1,598
|
)
|
Mortgage-backed securities
|
32,722
|
|
|
(13
|
)
|
|
282,789
|
|
|
(6,582
|
)
|
|
315,511
|
|
|
(6,595
|
)
|
Total debt securities AFS
|
$
|
233,031
|
|
|
$
|
(1,583
|
)
|
|
$
|
772,919
|
|
|
$
|
(16,221
|
)
|
|
$
|
1,005,950
|
|
|
$
|
(17,804
|
)
|
Common equities and mutual funds
(1)(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
(2)
ASU 2016-01 adopted on October 1, 2018, on a prospective basis, removed equity securities from AFS category at March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS THAN 12 MONTHS
|
|
OVER 12 MONTHS
|
|
TOTAL
|
At September 30, 2018
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
(Dollars in Thousands)
|
Debt securities AFS
|
|
|
|
|
|
|
|
|
|
|
|
SBA securities
|
$
|
43,097
|
|
|
$
|
(1,255
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,097
|
|
|
$
|
(1,255
|
)
|
Obligations of state and political subdivisions
|
11,036
|
|
|
(279
|
)
|
|
881
|
|
|
(14
|
)
|
|
11,917
|
|
|
(293
|
)
|
Non-bank qualified obligations of states and political subdivisions
|
626,693
|
|
|
(13,539
|
)
|
|
358,095
|
|
|
(18,286
|
)
|
|
984,788
|
|
|
(31,825
|
)
|
Asset-backed securities
|
146,638
|
|
|
(257
|
)
|
|
—
|
|
|
—
|
|
|
146,638
|
|
|
(257
|
)
|
Mortgage-backed securities
|
121,217
|
|
|
(3,292
|
)
|
|
242,849
|
|
|
(10,944
|
)
|
|
364,066
|
|
|
(14,236
|
)
|
Total debt securities AFS
|
$
|
948,681
|
|
|
$
|
(18,622
|
)
|
|
$
|
601,825
|
|
|
$
|
(29,244
|
)
|
|
$
|
1,550,506
|
|
|
$
|
(47,866
|
)
|
Common equities and mutual funds
(1)
|
1,818
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
1,818
|
|
|
(7
|
)
|
Total debt AFS securities
(1)
|
$
|
950,499
|
|
|
$
|
(18,629
|
)
|
|
$
|
601,825
|
|
|
$
|
(29,244
|
)
|
|
$
|
1,552,324
|
|
|
$
|
(47,873
|
)
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held To Maturity
|
LESS THAN 12 MONTHS
|
|
OVER 12 MONTHS
|
|
TOTAL
|
At March 31, 2019
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
(Dollars in Thousands)
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
Non-bank qualified obligations of states and political subdivisions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141,768
|
|
|
$
|
(5,225
|
)
|
|
$
|
141,768
|
|
|
$
|
(5,225
|
)
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
7,396
|
|
|
(210
|
)
|
|
7,396
|
|
|
(210
|
)
|
Total held to maturity securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
149,164
|
|
|
$
|
(5,435
|
)
|
|
$
|
149,164
|
|
|
$
|
(5,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS THAN 12 MONTHS
|
|
OVER 12 MONTHS
|
|
TOTAL
|
At September 30, 2018
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair
Value
|
|
Unrealized
(Losses)
|
|
Fair Value
|
|
Unrealized
(Losses)
|
|
(Dollars in Thousands)
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
Non-bank qualified obligations of states and political subdivisions
|
$
|
5,767
|
|
|
$
|
(287
|
)
|
|
$
|
147,368
|
|
|
$
|
(10,471
|
)
|
|
$
|
153,135
|
|
|
$
|
(10,758
|
)
|
Mortgage-backed securities
|
—
|
|
|
—
|
|
|
7,428
|
|
|
(422
|
)
|
|
7,428
|
|
|
(422
|
)
|
Total held to maturity securities
|
$
|
5,767
|
|
|
$
|
(287
|
)
|
|
$
|
154,796
|
|
|
$
|
(10,893
|
)
|
|
$
|
160,563
|
|
|
$
|
(11,180
|
)
|
At
March 31, 2019
, the investment portfolio included securities with current unrealized losses that have existed for longer than one year. All of these securities are considered to be acceptable credit risks. Because (i) the declines in fair value were due to changes in market interest rates, not in estimated cash flows, (ii) the Company does not intend or has not made a decision to sell these securities and (iii) it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis, which may occur at maturity, no other-than-temporary impairment was recorded at
March 31, 2019
.
The amortized cost and fair value of debt securities by contractual maturity as of the dates set forth below are shown below. Certain securities have call features which allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary. The expected maturities of certain housing related municipal securities, SBA and asset-backed securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply.
|
|
|
|
|
|
|
|
|
Securities at Fair Value
|
AMORTIZED
COST
|
|
FAIR
VALUE
|
|
At March 31, 2019
|
(Dollars in Thousands)
|
|
|
|
|
Due in one year or less
|
$
|
1,020
|
|
|
$
|
1,019
|
|
Due after one year through five years
|
15,058
|
|
|
15,285
|
|
Due after five years through ten years
|
64,894
|
|
|
65,335
|
|
Due after ten years
|
1,008,514
|
|
|
1,000,024
|
|
|
1,089,486
|
|
|
1,081,663
|
|
Mortgage-backed securities
|
419,024
|
|
|
413,493
|
|
Total securities at fair value
|
$
|
1,508,510
|
|
|
$
|
1,495,156
|
|
|
|
|
|
|
|
|
|
|
|
AMORTIZED
COST
|
|
FAIR
VALUE
|
At September 30, 2018
|
(Dollars in Thousands)
|
|
|
|
|
Due in one year or less
|
$
|
2,532
|
|
|
$
|
2,529
|
|
Due after one year through five years
|
41,415
|
|
|
41,504
|
|
Due after five years through ten years
|
352,099
|
|
|
350,143
|
|
Due after ten years
|
1,118,283
|
|
|
1,089,984
|
|
|
1,514,329
|
|
|
1,484,160
|
|
Mortgage-backed securities
|
378,301
|
|
|
364,065
|
|
Common equities and mutual funds
(1)
|
3,172
|
|
|
3,800
|
|
Total securities at fair value
|
$
|
1,895,802
|
|
|
$
|
1,852,025
|
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
|
|
|
|
|
|
|
|
|
Held To Maturity
|
AMORTIZED
COST
|
|
FAIR
VALUE
|
|
At March 31, 2019
|
(Dollars in Thousands)
|
|
|
|
|
Due after ten years
|
$
|
146,992
|
|
|
$
|
141,768
|
|
|
146,992
|
|
|
141,768
|
|
Mortgage-backed securities
|
7,606
|
|
|
7,396
|
|
Total held to maturity securities at cost
|
$
|
154,598
|
|
|
$
|
149,164
|
|
|
|
|
|
|
|
|
|
|
|
AMORTIZED
COST
|
|
FAIR
VALUE
|
At September 30, 2018
|
(Dollars in Thousands)
|
Due after ten years
|
$
|
163,893
|
|
|
$
|
153,135
|
|
|
163,893
|
|
|
153,135
|
|
Mortgage-backed securities
|
7,850
|
|
|
7,428
|
|
Total held to maturity securities at cost
|
$
|
171,743
|
|
|
$
|
160,563
|
|
Other investments, at cost, which are included in other assets on the consolidated statement of financial condition, include equity securities without a readily determinable fair value and shares of stock in the Federal Home Loan Bank ("FHLB") of Des Moines. Equity securities without a readily determinable fair value totaled
$2.4 million
at
March 31, 2019
and
$2.0 million
at September 30, 2018, respectively. FHLB of Des Moines stock at
March 31, 2019
and September 30, 2018 totaled
$7.4 million
and
$23.4 million
, respectively. The decrease in FHLB stock directly correlates with lower short-term borrowings balances at
March 31, 2019
compared to September 30, 2018. The Company’s wholly-owned subsidiary, MetaBank, is required by federal law to maintain FHLB stock as a member of FHLB of Des Moines. These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par. Therefore, FHLB stock is less liquid than other marketable equity securities, and the fair value approximates cost. The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate recoverability of the par value.
No
impairment was recognized for such investments for the six months ended
March 31, 2019
.
NOTE 7. RENTAL EQUIPMENT, NET
Rental equipment was as follows as of
March 31, 2019
and
September 30, 2018
.
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
September 30, 2018
|
|
(Dollars in thousands)
|
Computers and IT networking equipment
|
$
|
43,896
|
|
|
$
|
53,035
|
|
Motor vehicles and other
|
59,589
|
|
|
43,505
|
|
Office furniture and equipment
|
3,409
|
|
|
3,590
|
|
Solar panels and equipment
|
81,498
|
|
|
57,242
|
|
Total
|
188,392
|
|
|
157,372
|
|
|
|
|
|
Accumulated depreciation
|
(48,305
|
)
|
|
(50,082
|
)
|
Net book value
|
$
|
140,087
|
|
|
$
|
107,290
|
|
During the second quarter of fiscal year 2019, an impairment was recorded related to solar panels and equipment. Please refer to Note 3 for further discussion.
Future minimum lease payments receivable on equipment under operating leases was as follows as of
March 31, 2019
.
|
|
|
|
|
|
March 31, 2019
|
|
(Dollars in thousands)
|
2019
|
$
|
12,849
|
|
2020
|
20,737
|
|
2021
|
16,290
|
|
2022
|
10,135
|
|
2023
|
8,220
|
|
2024 and thereafter
|
10,164
|
|
Total
|
$
|
78,395
|
|
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
The Company held a total of $
307.5 million
of goodwill as of
March 31, 2019
. The recorded goodwill is a result of multiple business combinations that have occurred since fiscal year 2015, the most recent being the merger with Crestmark pursuant to the Crestmark acquisition that closed on August 1, 2018. Goodwill is assessed for impairment at a reporting unit level, which is one level below the operating segments.
The changes in the carrying amount of the Company’s goodwill and intangible assets for the
six months ended
March 31, 2019
and
2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
Banking
|
|
Corporate Services/Other
|
|
Total
|
Goodwill
|
(Dollars in Thousands)
|
September 30, 2018
|
$
|
87,145
|
|
|
$
|
216,125
|
|
|
$
|
—
|
|
|
$
|
303,270
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Measurement Period Adjustments
(1)
|
—
|
|
|
4,194
|
|
|
—
|
|
|
4,194
|
|
Impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
March 31, 2019
|
$
|
87,145
|
|
|
$
|
220,319
|
|
|
$
|
—
|
|
|
$
|
307,464
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
$
|
87,145
|
|
|
$
|
11,578
|
|
|
$
|
—
|
|
|
$
|
98,723
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
March 31, 2018
|
$
|
87,145
|
|
|
$
|
11,578
|
|
|
$
|
—
|
|
|
$
|
98,723
|
|
(1)
The Company recognized measurement period adjustments on provisional goodwill during the second fiscal quarter of 2019 related to the Crestmark acquisition. Refer to Note 3. Acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark(1)
|
|
Non-Compete(2)
|
|
Customer Relationships(3)
|
|
All Others(4)
|
|
Total
|
Intangibles
|
(Dollars in Thousands)
|
Balance as of September 30, 2018
|
$
|
12,987
|
|
|
$
|
1,297
|
|
|
$
|
48,455
|
|
|
$
|
7,980
|
|
|
$
|
70,719
|
|
Acquisitions during the period
|
—
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
78
|
|
Amortization during the period
|
(514
|
)
|
|
(235
|
)
|
|
(8,742
|
)
|
|
(487
|
)
|
|
(9,978
|
)
|
Write-offs during the period
|
—
|
|
|
—
|
|
|
—
|
|
|
(313
|
)
|
|
(313
|
)
|
Balance as of March 31, 2019
|
$
|
12,473
|
|
|
$
|
1,062
|
|
|
$
|
39,713
|
|
|
$
|
7,258
|
|
|
$
|
60,506
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
14,624
|
|
|
$
|
2,480
|
|
|
$
|
82,088
|
|
|
$
|
10,667
|
|
|
$
|
109,859
|
|
Accumulated amortization
|
(2,151
|
)
|
|
(1,418
|
)
|
|
(32,127
|
)
|
|
(2,750
|
)
|
|
(38,446
|
)
|
Accumulated impairment
|
—
|
|
|
—
|
|
|
(10,248
|
)
|
|
(659
|
)
|
|
(10,907
|
)
|
Balance as of March 31, 2019
|
$
|
12,473
|
|
|
$
|
1,062
|
|
|
$
|
39,713
|
|
|
$
|
7,258
|
|
|
$
|
60,506
|
|
(1)
Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.
(2)
Book amortization period of 3-5 years. Amortized using the straight line method.
(3)
Book amortization period of 10-30 years. Amortized using the accelerated method.
(4)
Book amortization period of 3-20 years. Amortized using the straight line method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark(1)
|
|
Non-Compete(2)
|
|
Customer Relationships(3)
|
|
All Others(4)
|
|
Total
|
Intangibles
|
(Dollars in Thousands)
|
Balance as of September 30, 2017
|
$
|
10,051
|
|
|
$
|
1,782
|
|
|
$
|
31,707
|
|
|
$
|
8,638
|
|
|
$
|
52,178
|
|
Acquisitions during the period
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
47
|
|
Amortization during the period
|
(319
|
)
|
|
(249
|
)
|
|
(3,388
|
)
|
|
(456
|
)
|
|
(4,412
|
)
|
Write-offs during the period
|
—
|
|
|
—
|
|
|
—
|
|
|
(89
|
)
|
|
(89
|
)
|
Balance as of March 31, 2018
|
$
|
9,732
|
|
|
$
|
1,533
|
|
|
$
|
28,319
|
|
|
$
|
8,140
|
|
|
$
|
47,724
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
10,990
|
|
|
$
|
2,480
|
|
|
$
|
57,810
|
|
|
$
|
10,550
|
|
|
$
|
81,830
|
|
Accumulated amortization
|
(1,258
|
)
|
|
(947
|
)
|
|
(19,243
|
)
|
|
(1,792
|
)
|
|
(23,240
|
)
|
Accumulated impairment
|
—
|
|
|
—
|
|
|
(10,248
|
)
|
|
(618
|
)
|
|
(10,866
|
)
|
Balance as of March 31, 2018
|
$
|
9,732
|
|
|
$
|
1,533
|
|
|
$
|
28,319
|
|
|
$
|
8,140
|
|
|
$
|
47,724
|
|
(1)
Book amortization period of 15 years. Amortized using the straight line and accelerated methods.
(2)
Book amortization period of 3 years. Amortized using the straight line method.
(3)
Book amortization period of 10-30 years. Amortized using the accelerated method.
(4)
Book amortization period of 3-20 years. Amortized using the straight line method.
The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining
six
months of fiscal
2019
and subsequent fiscal years is as follows:
|
|
|
|
|
|
(Dollars in Thousands)
|
Remaining in 2019
|
$
|
7,731
|
|
2020
|
10,984
|
|
2021
|
8,525
|
|
2022
|
6,399
|
|
2023
|
5,081
|
|
2024
|
4,363
|
|
Thereafter
|
17,423
|
|
Total anticipated intangible amortization
|
$
|
60,506
|
|
The Company tests intangible assets for impairment at least annually or more often if conditions indicate a possible impairment. There was
$0.1 million
in impairments to intangible assets during the three and six months ended
March 31, 2019
and no impairments to intangible assets during the three and six months ended March 31,
2018
.
NOTE 9. STOCK COMPENSATION
The Company maintains the amended and restated Meta Financial Group, Inc. 2002 Omnibus Incentive Plan, as amended (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options and nonvested (restricted) shares to certain officers and directors of the Company. Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.
Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant. The exercise price of options or fair value of non-vested (restricted) shares granted under the Company’s incentive plan is equal to the fair market value of the underlying stock at the grant date. The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur.
The following tables show the activity of options and nonvested (restricted) shares granted, exercised, or forfeited under the 2002 Omnibus Incentive Plan for the
six
months ended
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (Yrs)
|
|
Aggregate Intrinsic Value
|
|
(Dollars in Thousands, Except Per Share Data
(1)
)
|
Options outstanding, September 30, 2018
|
155,961
|
|
|
$
|
8.48
|
|
|
1.78
|
|
|
$
|
2,974
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
(45,132
|
)
|
|
8.95
|
|
|
—
|
|
|
742
|
|
Forfeited or expired
|
(3,027
|
)
|
|
10.60
|
|
|
—
|
|
|
33
|
|
Options outstanding, March 31, 2019
|
107,802
|
|
|
$
|
8.23
|
|
|
1.47
|
|
|
$
|
1,235
|
|
|
|
|
|
|
|
|
|
Options exercisable, March 31, 2019
|
107,802
|
|
|
$
|
8.23
|
|
|
1.47
|
|
|
$
|
1,235
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Fair Value at Grant
|
(Dollars in Thousands, Except Per Share Data
(1)
)
|
Nonvested (restricted) shares outstanding, September 30, 2018
|
1,005,813
|
|
|
$
|
29.89
|
|
Granted
|
296,302
|
|
|
24.84
|
|
Vested
|
(347,354
|
)
|
|
26.78
|
|
Forfeited or expired
|
(1,623
|
)
|
|
26.17
|
|
Nonvested (restricted) shares outstanding, March 31, 2019
|
953,138
|
|
|
$
|
29.46
|
|
(1)
All share and per share data has been adjusted to reflect the 3-for-1 forward stock split effected by the Company on October 4, 2018.
At
March 31, 2019
, stock-based compensation expense not yet recognized in income totaled
$15.8 million
, which is expected to be recognized over a weighted average remaining period of
3.11
years.
NOTE 10. INCOME TAXES
The Company recorded an income tax benefit of $
2.1
million for the
six months ended March 31, 2019
, resulting in an effective tax rate of
(4.40%)
, compared to an income tax expense of $
12.2
million, or an effective tax rate of
25.31%
, for the
six months ended March 31, 2018
. The Company’s effective tax rate is lower than the U.S. statutory rate of 21% primarily because of the anticipated effect of investment tax credits during fiscal year 2019. The Company’s effective tax rate in the future will depend in part on actual investment tax credits earned as part of its financing of solar energy projects.
The table below compares the income tax expense components for the periods presented.
|
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
2019
|
|
2018
|
(Dollars in Thousands)
|
|
|
|
Provision at statutory rate
|
$
|
9,541
|
|
|
$
|
11,857
|
|
Tax-exempt income
|
(1,824
|
)
|
|
(3,728
|
)
|
State income taxes
|
2,143
|
|
|
2,003
|
|
Interim period effective rate adjustment
|
(3,968
|
)
|
|
(1,277
|
)
|
Tax credit investments, net - federal
|
(9,568
|
)
|
|
—
|
|
Tax Reform rate adjustment
|
—
|
|
|
3,635
|
|
IRC 162(m) nondeductible compensation
|
1,561
|
|
|
—
|
|
Other, net
|
29
|
|
|
(258
|
)
|
Income tax expense
|
$
|
(2,086
|
)
|
|
$
|
12,232
|
|
Effective tax rate
|
(4.40
|
%)
|
|
25.31
|
%
|
NOTE 11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes various commitments to extend credit that are not reflected in the accompanying Consolidated Financial Statements.
At
March 31, 2019
and
September 30, 2018
, unfunded loan commitments approximated
$860.4 million
and
$748.8 million
, respectively, excluding undisbursed portions of loans in process. Commitments, which are disbursed subject to certain limitations, extend over various periods of time. Generally, unused commitments are canceled upon expiration of the commitment term as outlined in each individual contract.
The Company had
no
commitments to purchase securities at
March 31, 2019
and
$1.4 million
in commitments to purchase securities at
September 30, 2018
. The Company had
no
commitments to sell securities at
March 31, 2019
or
September 30, 2018
.
The exposure to credit loss in the event of non-performance by other parties to financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The same credit policies and collateral requirements are used in making commitments and conditional obligations as are used for on-balance-sheet instruments. At
March 31, 2019
and at
September 30, 2018
, the Company had an allowance for credit losses on off-balance sheet credit exposures of
$0.1 million
. This amount is maintained as a separate liability account within other liabilities.
Since certain commitments to make loans and to fund lines of credit and loans in process expire without being used, the amount does not necessarily represent future cash commitments. In addition, commitments used to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
As disclosed in Note 3. Acquisitions, the Company continues to monitor the bankruptcy proceedings and federal investigations of DC Solar. As of the date of the filing of this quarterly report, the Company has not accrued for any additional loss contingencies related to DC Solar as of March 31, 2019.
Legal Proceedings
The Bank was served on April 15, 2013, with a lawsuit captioned Inter National Bank v. NetSpend Corporation, MetaBank, BDO USA, LLP d/b/a BDO Seidman, Cause No. C-2084-12-I filed in the District Court of Hidalgo County, Texas. The Plaintiff’s Second Amended Original Petition and Application for Temporary Restraining Order and Temporary Injunction adds both MetaBank and BDO Seidman to the original causes of action against NetSpend. NetSpend acts as a prepaid card program manager and processor for both Inter National Bank ("INB") and MetaBank. According to the Petition, NetSpend has informed INB that the depository accounts at INB for the NetSpend program supposedly contained
$10.5 million
less than they should. INB alleges that NetSpend has breached its fiduciary duty by making affirmative misrepresentations to INB about the safety and stability of the program, and by failing to timely disclose the nature and extent of any alleged shortfall in settlement of funds related to cardholder activity and the nature and extent of NetSpend’s systemic deficiencies in its accounting and settlement processing procedures. To the extent that an accounting reveals that there is an actual shortfall, INB alleges that MetaBank may be liable for portions or all of said sum due to the fact that funds have been transferred from INB to MetaBank, and thus MetaBank would have been unjustly enriched. The Bank is vigorously contesting this matter. In January 2014, NetSpend was granted summary judgment in this matter which is under appeal. Because the theory of liability against both NetSpend and the Bank is the same, the Bank views the NetSpend summary judgment as a positive in support of its position. An estimate of a range of reasonably possible loss cannot be made at this stage of the litigation because discovery is still being conducted.
The Bank was served, on October 14, 2016, with a lawsuit captioned Card Limited, LLC v. MetaBank dba Meta Payment Systems, Civil No. 2:16-cv-00980 in the United States District Court for the District of Utah. This action was initiated by a former prepaid program manager of the Bank, which was terminated by the Bank in fiscal year 2016. Card Limited alleges that after all of the programs were wound down, there were two accounts with a positive balance to which they are entitled. The Bank’s position is that Card Limited is not entitled to the funds contained in said accounts. The total amount to which Card Limited claims it is entitled is
$4.0 million
. The Bank intends to vigorously defend this claim. An estimate of a range of reasonably possible loss cannot be made at this stage of the litigation because discovery is still being conducted.
On February 9, 2018, the Bank’s AFS/IBEX division filed a lawsuit in the United States District Court for the Eastern District of New York captioned AFS/IBEX, a division of MetaBank v. Aegis Managing Agency Limited ("AMA"), Aegis Syndicate 1225 (together with AMA, the "Aegis defendants"), CRC Insurance Services, Inc. ("CRC"), and Transportation Underwriters, Inc. The suit was filed against commercial insurance underwriters and brokers that facilitated the issuance of commercial insurance policies to Red Hook Construction Group-II, LLC (“Red Hook”). The Bank’s position is that both CRC and Transportation Underwriters represented to the Bank that, upon cancellation of the insurance policies prior to their stated terms, any unearned premiums would be refunded. The Bank then provided insurance premium financing to Red Hook, and Red Hook executed a written premium finance agreement pursuant to which Red Hook assigned its rights to any unearned premiums to the Bank. After the policies were cancelled, the Aegis defendants failed to return the unearned insurance premiums totaling just over
$1.6 million
owed to the Bank under the insurance policies and the premium finance agreement. The Bank is seeking recovery of all amounts to which it is entitled at law or equity and intends to vigorously pursue its claims against the defendants.
The Bank was served on December 24, 2018, with a lawsuit captioned The Ohio Valley Bank Company v. MetaBank dba Refund Advantage, Case No. 18 CV 134 in the Court of Common Pleas, Gallia County, Ohio. This action alleges that MetaBank breached a contract with The Ohio Valley Bank Company by terminating the contract before the term expired, resulting in over
$3.0 million
in damages. The Bank intends to vigorously defend this claim. The Company has established an accrual for this related claim.
From time to time, the Company or its subsidiaries are subject to certain legal proceedings and claims in the ordinary course of business. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s financial position or its results of operations, legal proceedings are inherently uncertain and unfavorable resolution of some or all of these matters could, individually or in the aggregate, have a material adverse effect on the Company’s and its subsidiaries’ respective businesses, financial condition or results of operations.
NOTE 12. REVENUE FROM CONTRACTS WITH CUSTOMERS
On October 1, 2018, the Company adopted Topic 606 on a modified retrospective basis. Prior period amounts have not been adjusted to reflect the adoption of Topic 606 and continue to be reported in accordance with the Company’s historical accounting policies. The impact of the Company’s adoption of Topic 606 was limited to the MPS division within the Payments reporting segment. Upon adoption, Meta recorded a cumulative-effect adjustment that increased retained earnings by
$1.5 million
, net of tax.
Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 14. Segment Reporting to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Payments
|
|
Banking
|
|
Corporate Services/Other
|
|
Consolidated Company
|
Three Months Ended March 31,
|
2019
|
2018
|
|
2019
|
2018
|
|
2019
|
2018
|
|
2019
|
2018
|
Net interest income
(1)
|
$
|
13,607
|
|
$
|
4,933
|
|
|
$
|
56,271
|
|
$
|
16,120
|
|
|
$
|
1,472
|
|
$
|
6,352
|
|
|
$
|
71,350
|
|
$
|
27,405
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
Refund transfer product fees
|
31,601
|
|
33,803
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
31,601
|
|
33,803
|
|
Tax advance product fees
(1)
|
33,038
|
|
33,838
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
33,038
|
|
33,838
|
|
Card fees
|
22,960
|
|
26,771
|
|
|
92
|
|
85
|
|
|
—
|
|
—
|
|
|
23,052
|
|
26,856
|
|
Rental income
(1)
|
—
|
|
—
|
|
|
9,890
|
|
—
|
|
|
—
|
|
—
|
|
|
9,890
|
|
—
|
|
Loan and lease fees
(1)
|
—
|
|
—
|
|
|
925
|
|
1,042
|
|
|
—
|
|
—
|
|
|
925
|
|
1,042
|
|
Bank-owned life insurance
(1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
631
|
|
650
|
|
|
631
|
|
650
|
|
Deposit fees
|
1,711
|
|
879
|
|
|
382
|
|
103
|
|
|
—
|
|
—
|
|
|
2,093
|
|
982
|
|
Gain (loss) on sale of securities available-for-sale, net
(1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
231
|
|
(166
|
)
|
|
231
|
|
(166
|
)
|
Gain on sale of loans and leases
(1)
|
—
|
|
—
|
|
|
1,085
|
|
—
|
|
|
—
|
|
—
|
|
|
1,085
|
|
—
|
|
Loss on foreclosed real estate
(1)
|
—
|
|
—
|
|
|
(200
|
)
|
—
|
|
|
—
|
|
—
|
|
|
(200
|
)
|
—
|
|
Other income
(1)
|
442
|
|
382
|
|
|
1,774
|
|
11
|
|
|
463
|
|
21
|
|
|
2,679
|
|
414
|
|
Total noninterest income
|
89,752
|
|
95,673
|
|
|
13,948
|
|
1,241
|
|
|
1,325
|
|
505
|
|
|
105,025
|
|
97,419
|
|
Revenue
|
$
|
103,359
|
|
$
|
100,606
|
|
|
$
|
70,219
|
|
$
|
17,361
|
|
|
$
|
2,797
|
|
$
|
6,857
|
|
|
$
|
176,375
|
|
$
|
124,824
|
|
(1)
These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Payments
|
|
Banking
|
|
Corporate Services/Other
|
|
Consolidated Company
|
Six Months Ended March 31,
|
2019
|
2018
|
|
2019
|
2018
|
|
2019
|
2018
|
|
2019
|
2018
|
Net interest income
(1)
|
$
|
23,007
|
|
$
|
9,602
|
|
|
$
|
108,063
|
|
$
|
31,717
|
|
|
$
|
552
|
|
$
|
12,282
|
|
|
$
|
131,622
|
|
$
|
53,601
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
Refund transfer product fees
|
31,862
|
|
33,995
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
31,862
|
|
33,995
|
|
Tax advance product fees
(1)
|
34,723
|
|
35,785
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
34,723
|
|
35,785
|
|
Card fees
|
42,233
|
|
51,945
|
|
|
170
|
|
158
|
|
|
—
|
|
—
|
|
|
42,403
|
|
52,103
|
|
Rental income
(1)
|
—
|
|
—
|
|
|
20,780
|
|
—
|
|
|
—
|
|
—
|
|
|
20,780
|
|
—
|
|
Loan and lease fees
(1)
|
—
|
|
—
|
|
|
2,173
|
|
2,334
|
|
|
—
|
|
—
|
|
|
2,173
|
|
2,334
|
|
Bank-owned life insurance
(1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
1,273
|
|
1,319
|
|
|
1,273
|
|
1,319
|
|
Deposit fees
|
3,245
|
|
1,607
|
|
|
786
|
|
223
|
|
|
—
|
|
—
|
|
|
4,031
|
|
1,830
|
|
Gain (loss) on sale of securities available-for-sale, net
(1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
209
|
|
(1,176
|
)
|
|
209
|
|
(1,176
|
)
|
Gain on sale of loans and leases
(1)
|
—
|
|
—
|
|
|
1,951
|
|
—
|
|
|
—
|
|
—
|
|
|
1,951
|
|
—
|
|
Loss on foreclosed real estate
(1)
|
—
|
|
—
|
|
|
(185
|
)
|
(19
|
)
|
|
—
|
|
—
|
|
|
(185
|
)
|
(19
|
)
|
Other income
(1)
|
515
|
|
442
|
|
|
2,542
|
|
30
|
|
|
499
|
|
44
|
|
|
3,556
|
|
516
|
|
Total noninterest income
|
112,578
|
|
123,774
|
|
|
28,217
|
|
2,726
|
|
|
1,981
|
|
187
|
|
|
142,776
|
|
126,687
|
|
Revenue
|
$
|
135,585
|
|
$
|
133,376
|
|
|
$
|
136,280
|
|
$
|
34,443
|
|
|
$
|
2,533
|
|
$
|
12,469
|
|
|
$
|
274,398
|
|
$
|
180,288
|
|
(1)
These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.
Following is a discussion of key revenues within the scope of Topic 606. The Company provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the completion of the service or over time as services are performed. Any services performed over time generally require that the Company renders services each period, therefore the Company measures progress in completing these services based upon the passage of time. Revenue from contracts with customers did not generate significant contract assets and liabilities.
Refund Transfer Product Fees
Refund transfer fees are specific to the tax products offered by Refund Advantage and EPS. These fees are for products, services such as payment processing, and product referral commissions. Software partner fees paid and/or incurred are recorded on a net basis. The Company’s obligation for product fees and commissions is satisfied at the time of the product delivery and obligation for payment processing is satisfied at the time of processing. The transaction price for such activity is based upon stand-alone fees within the terms and conditions. As of
March 31, 2019
, there were
no
receivables related to refund transfer fees, which reflect earned revenue with unconditional rights to payment for product fee income, while as of
September 30, 2018
,
there were
$827,039
of such receivables. All refund transfer fees are recorded within the Payments reporting segment.
Card Fees
Card fees relate to MPS, retail bank, Refund Advantage and EPS products. These fees are for products and services such as card activation, product support, processing, and servicing. The Company earns these fees based upon the underlying terms and conditions with each cardholder over the contract term. Agreements with the Company’s cardholders are considered daily service contracts as they are not fixed in duration. The Company’s obligation for card activation and product support fees is satisfied at the time of product delivery, while the obligation for processing and servicing is satisfied over the course of each month. The transaction price for such activity is based upon the stand-alone fees within the terms and conditions of the cardholder agreements. Card fee revenue also includes income from sponsorships, associations and networks, and interchange income. Sponsorship income relates to fees charged to the Company’s ATM sponsorship partners, where the obligation is satisfied over the course of each month. Association and network income reflect incentives, performance bonuses and rebates with MasterCard and Visa. The obligation for such income is satisfied at the time when certain thresholds of transaction volume have been met. Interchange income is generated by cardholder activity, and therefore the Company’s obligations are satisfied as activity occurs. The transaction price for such activity is based on underlying rates and activity thresholds within the terms and conditions of the applicable agreements. Card fee revenue also includes breakage revenue. Breakage represents the estimated amount that will not be redeemed by the holder of unregistered, unused prepaid cards for goods or services. Breakage revenue is recognized ratably over the expected customer usage period and is an estimate based on cardholder behavior and breakage rates. Breakage is also impacted by escheatment laws. Card fees are recorded within the Payments and Banking reporting segments.
Deposit Fees
Fees are earned on depository accounts for commercial and consumer customers and include fees for account services, overdraft services, safety deposit box rentals, and event-driven services (i.e. returned checks, ATM surcharge, card replacement, wire transfers, and stop pays). The Company’s obligation for event-driven services is satisfied at the time of the event when the service is delivered, while its obligation for account services is satisfied over the course of each month. The Company’s obligation for overdraft services is satisfied at the time of overdraft. The transaction price for such activity is based upon stand-alone fees within the terms and conditions of the deposit agreements. Deposit fees are recorded within the Payments and Banking reporting segment.
Principal vs Agent
The Payments reporting segment includes principal/agent relationships. Within this segment, MPS relationships are recorded on a gross basis within the income statement, as Meta is the principal in the contract, with the exception of association/network contracts and partner/processer contracts for prepaid cards, which are recorded on a net basis within the income statement as Meta is the agent in these contracts. Also within this segment, Tax service relationships are recorded on a gross basis within the income statement, as Meta is the principal in the contract, with the exception of contracts with software providers and merchants, which are recorded on a net basis within the income statement as Meta is the agent in these contracts.
NOTE 13. FAIR VALUE MEASUREMENTS
Accounting Standards Codification (“ASC”) 820,
Fair Value Measurements
defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.
The fair value hierarchy is as follows:
Level 1 Inputs
- Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.
Level 2 Inputs
- Valuation is based upon (1) quoted prices for similar instruments in active markets, (2) quoted prices for identical or similar instruments in markets that are not active and (3) model-based valuation techniques for which significant assumptions are observable in the market.
Level 3 Inputs
- Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
Debt Securities Available for Sale and Equity Securities
. Debt securities available for sale and equity securities are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using an independent pricing service. For both Level 1 and Level 2 securities, management uses various methods and techniques to corroborate prices obtained from the pricing service, including but not limited to reference to dealer or other market quotes, and by reviewing valuations of comparable instruments. The Company’s Level 1 securities include equity securities and mutual funds. Level 2 securities include U.S. Government agency and instrumentality securities, U.S. Government agency and instrumentality mortgage-backed securities, municipal bonds and corporate debt securities. The Company had no Level 3 securities at
March 31, 2019
or
September 30, 2018
.
The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or valuation based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model based valuation techniques for which significant assumptions are observable in the market (Level 2 inputs). The Company considers these valuations supplied by a third party provider which utilizes several sources for valuing fixed-income securities. These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology, and the third party provider’s own matrix and desk pricing. The Company, no less than annually, reviews the third party’s methods and source’s methodology for reasonableness and to ensure an understanding of inputs utilized in determining fair value. Sources utilized by the third party provider include but are not limited to pricing models that vary based by asset class and include available trade, bid, and other market information. This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs. Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third party provider. On a monthly basis, the Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.
The following table summarizes the fair values of debt securities available for sale and equity securities at
March 31, 2019
and
September 30, 2018
, as they are measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value At March 31, 2019
|
(Dollars in Thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Debt securities AFS
|
|
|
|
|
|
|
|
Small business administration securities
|
$
|
164,103
|
|
|
$
|
—
|
|
|
$
|
164,103
|
|
|
$
|
—
|
|
Obligations of states and political subdivisions
|
11,529
|
|
|
—
|
|
|
11,529
|
|
|
—
|
|
Non-bank qualified obligations of states and political subdivisions
|
621,642
|
|
|
—
|
|
|
621,642
|
|
|
—
|
|
Asset-backed securities
|
284,389
|
|
|
—
|
|
|
284,389
|
|
|
—
|
|
Mortgage-backed securities
|
413,493
|
|
|
—
|
|
|
413,493
|
|
|
—
|
|
Total debt securities AFS
|
1,495,156
|
|
|
—
|
|
|
1,495,156
|
|
|
—
|
|
Common equities and mutual funds
(1)(2)
|
$
|
4,211
|
|
|
$
|
4,211
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
(2)
ASU 2016-01 adopted on October 1, 2018, on a prospective basis, removed equity securities from AFS category at March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value At September 30, 2018
|
|
Available For Sale
|
|
(Dollars in Thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Debt securities AFS
|
|
|
|
|
|
|
|
|
Small business administration securities
|
$
|
44,337
|
|
|
$
|
—
|
|
|
$
|
44,337
|
|
|
$
|
—
|
|
|
Obligations of states and political subdivisions
|
16,910
|
|
|
—
|
|
|
16,910
|
|
|
—
|
|
|
Non-bank qualified obligations of states and political subdivisions
|
1,109,885
|
|
|
—
|
|
|
1,109,885
|
|
|
—
|
|
|
Asset-backed securities
|
313,028
|
|
|
—
|
|
|
313,028
|
|
|
—
|
|
|
Mortgage-backed securities
|
364,065
|
|
|
—
|
|
|
364,065
|
|
|
—
|
|
|
Total debt securities AFS
|
1,848,225
|
|
|
—
|
|
|
1,848,225
|
|
|
—
|
|
|
Common equities and mutual funds
(1)
|
3,800
|
|
|
3,800
|
|
|
—
|
|
|
—
|
|
|
Total securities
|
$
|
1,852,025
|
|
|
$
|
3,800
|
|
|
$
|
1,848,225
|
|
|
$
|
—
|
|
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
The Company did not transfer any AFS debt securities or equity securities between fair value hierarchy categories at
March 31, 2019
or
September 30, 2018
.
Loans and Leases.
The Company does not record loans and leases at fair value on a recurring basis. If a loan or lease is identified as individually impaired, management then measures impairment in accordance with ASC 310,
Receivables
. See Note 4 Loans and Leases, Net for further information.
The following table summarizes the assets of the Company that were measured at fair value in the consolidated statements of financial condition on a non-recurring basis as of
March 31, 2019
and
September 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value At March 31, 2019
|
(Dollars in Thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Impaired Loans and Leases, net
|
|
|
|
|
|
|
|
Asset Based Lending
|
$
|
1,218
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,218
|
|
Factoring
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Lease Financing
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
Commercial finance
|
1,254
|
|
|
—
|
|
|
—
|
|
|
1,254
|
|
Total National Lending
|
1,254
|
|
|
—
|
|
|
—
|
|
|
1,254
|
|
Total Impaired Loans and Leases
|
1,254
|
|
|
—
|
|
|
—
|
|
|
1,254
|
|
Foreclosed Assets, net
|
29,548
|
|
|
—
|
|
|
—
|
|
|
29,548
|
|
Total
|
$
|
30,802
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value At September 30, 2018
|
(Dollars in Thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Impaired loans and leases, net
|
|
|
|
|
|
|
|
Asset Based Lending
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
57
|
|
Factoring
|
1,899
|
|
|
—
|
|
|
—
|
|
|
1,899
|
|
Lease Financing
|
2,869
|
|
|
—
|
|
|
—
|
|
|
2,869
|
|
Commercial finance
|
4,825
|
|
|
—
|
|
|
—
|
|
|
4,825
|
|
Total National Lending
|
4,825
|
|
|
—
|
|
|
—
|
|
|
4,825
|
|
Total impaired loans and leases
|
4,825
|
|
|
—
|
|
|
—
|
|
|
4,825
|
|
Foreclosed assets, net
|
31,638
|
|
|
—
|
|
|
—
|
|
|
31,638
|
|
Total
|
$
|
36,463
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information About Level 3 Fair Value Measurements
|
(Dollars in Thousands)
|
Fair Value at
March 31, 2019
|
|
Fair Value at
September 30, 2018
|
|
Valuation
Technique
|
|
Unobservable Input
|
|
Range of Inputs
|
Impaired loans and leases, net
|
$
|
1,254
|
|
|
4,825
|
|
|
Market approach
|
|
Appraised values (1)
|
|
4.00 - 10.00%
|
Foreclosed Assets, net
|
$
|
29,548
|
|
|
31,638
|
|
|
Market approach
|
|
Appraised values (1)
|
|
4.00 - 10.00%
|
|
|
(1)
|
The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs in a range of
4%
to
10%
.
|
The following table discloses the Company’s estimated fair value amounts of its financial instruments as of the dates set forth below. It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of
March 31, 2019
and
September 30, 2018
, as more fully described below. The operations of the Company are managed from a going concern basis and not a liquidation basis. As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations. Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value. Neither of these components have been given consideration in the presentation of fair values below.
The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at
March 31, 2019
and
September 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(Dollars in Thousands)
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
156,461
|
|
|
$
|
156,461
|
|
|
$
|
156,461
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available for sale
|
1,495,156
|
|
|
1,495,156
|
|
|
—
|
|
|
1,495,156
|
|
|
—
|
|
Debt securities held to maturity
|
154,598
|
|
|
149,164
|
|
|
—
|
|
|
149,164
|
|
|
—
|
|
Equity securities
(1)
|
4,211
|
|
|
4,211
|
|
|
4,211
|
|
|
—
|
|
|
—
|
|
Total securities
|
1,653,965
|
|
|
1,648,531
|
|
|
4,211
|
|
|
1,644,320
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
59,745
|
|
|
59,745
|
|
|
—
|
|
|
59,745
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
572,210
|
|
|
551,579
|
|
|
—
|
|
|
—
|
|
|
551,579
|
|
Factoring
|
287,955
|
|
|
283,337
|
|
|
—
|
|
|
—
|
|
|
283,337
|
|
Lease financing
|
321,414
|
|
|
320,411
|
|
|
—
|
|
|
—
|
|
|
320,411
|
|
Insurance premium finance
|
307,875
|
|
|
307,732
|
|
|
—
|
|
|
—
|
|
|
307,732
|
|
SBA/USDA
|
77,481
|
|
|
74,407
|
|
|
—
|
|
|
—
|
|
|
74,407
|
|
Other commercial finance
|
98,956
|
|
|
100,038
|
|
|
—
|
|
|
—
|
|
|
100,038
|
|
Commercial finance
|
1,665,891
|
|
|
1,637,504
|
|
|
—
|
|
|
—
|
|
|
1,637,504
|
|
Consumer credit products
|
139,617
|
|
|
138,748
|
|
|
—
|
|
|
—
|
|
|
138,748
|
|
Other consumer finance
|
170,824
|
|
|
166,925
|
|
|
—
|
|
|
—
|
|
|
166,925
|
|
Consumer finance
|
310,441
|
|
|
305,673
|
|
|
—
|
|
|
—
|
|
|
305,673
|
|
Tax services
|
84,824
|
|
|
60,722
|
|
|
—
|
|
|
—
|
|
|
60,722
|
|
Warehouse finance
|
186,697
|
|
|
186,764
|
|
|
—
|
|
|
—
|
|
|
186,764
|
|
Total National Lending
|
2,247,853
|
|
|
2,190,663
|
|
|
—
|
|
|
—
|
|
|
2,190,663
|
|
Commercial real estate and operating
|
869,917
|
|
|
861,524
|
|
|
—
|
|
|
—
|
|
|
861,524
|
|
Consumer one to four family real estate and other
|
257,079
|
|
|
254,642
|
|
|
—
|
|
|
—
|
|
|
254,642
|
|
Agricultural real estate and operating
|
60,167
|
|
|
58,454
|
|
|
—
|
|
|
—
|
|
|
58,454
|
|
Total Community Banking
|
1,187,163
|
|
|
1,174,620
|
|
|
—
|
|
|
—
|
|
|
1,174,620
|
|
Total loans and leases
|
3,435,016
|
|
|
3,365,283
|
|
|
—
|
|
|
—
|
|
|
3,365,283
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
7,436
|
|
|
7,436
|
|
|
—
|
|
|
7,436
|
|
|
—
|
|
Accrued interest receivable
|
20,281
|
|
|
20,281
|
|
|
20,281
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
3,034,428
|
|
|
3,034,428
|
|
|
3,034,428
|
|
|
—
|
|
|
—
|
|
Interest-bearing demand deposits, savings, and money markets
|
300,033
|
|
|
300,033
|
|
|
300,033
|
|
|
—
|
|
|
—
|
|
Certificates of deposits
|
154,401
|
|
|
153,951
|
|
|
—
|
|
|
153,951
|
|
|
—
|
|
Wholesale non-maturing deposits
|
207,795
|
|
|
207,795
|
|
|
207,795
|
|
|
—
|
|
|
—
|
|
Wholesale certificates of deposits
|
1,273,650
|
|
|
1,272,291
|
|
|
—
|
|
|
1,272,291
|
|
|
—
|
|
Total deposits
|
4,970,307
|
|
|
4,968,498
|
|
|
3,542,256
|
|
|
1,426,242
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
2,804
|
|
|
2,804
|
|
|
—
|
|
|
2,804
|
|
|
—
|
|
Capital leases
|
1,996
|
|
|
1,996
|
|
|
—
|
|
|
1,996
|
|
|
—
|
|
Trust preferred securities
|
13,661
|
|
|
13,878
|
|
|
—
|
|
|
13,878
|
|
|
—
|
|
Subordinated debentures
|
73,566
|
|
|
75,188
|
|
|
—
|
|
|
75,188
|
|
|
—
|
|
Other borrowings
|
19,357
|
|
|
19,162
|
|
|
—
|
|
|
19,162
|
|
|
—
|
|
Accrued interest payable
|
9,239
|
|
|
9,239
|
|
|
9,239
|
|
|
—
|
|
|
—
|
|
(1)
Equity securities at fair value are included within other assets on the consolidated statement of financial condition at March 31, 2019 and September 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
(Dollars in Thousands)
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
99,977
|
|
|
$
|
99,977
|
|
|
$
|
99,977
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
1,852,025
|
|
|
1,852,025
|
|
|
3,800
|
|
|
1,848,225
|
|
|
—
|
|
Securities held to maturity
|
172,154
|
|
|
160,974
|
|
|
—
|
|
|
160,974
|
|
|
—
|
|
Total securities
|
2,024,179
|
|
|
2,012,999
|
|
|
3,800
|
|
|
2,009,199
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
15,606
|
|
|
15,606
|
|
|
—
|
|
|
15,606
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
Asset based lending
|
477,917
|
|
|
477,471
|
|
|
—
|
|
|
—
|
|
|
477,471
|
|
Factoring
|
284,221
|
|
|
283,424
|
|
|
—
|
|
|
—
|
|
|
283,424
|
|
Lease financing
|
265,315
|
|
|
264,679
|
|
|
—
|
|
|
—
|
|
|
264,679
|
|
Insurance premium finance
|
337,877
|
|
|
337,212
|
|
|
—
|
|
|
—
|
|
|
337,212
|
|
SBA/USDA
|
59,374
|
|
|
61,072
|
|
|
—
|
|
|
—
|
|
|
61,072
|
|
Other commercial finance
|
85,145
|
|
|
83,111
|
|
|
—
|
|
|
—
|
|
|
83,111
|
|
Commercial finance
|
1,509,849
|
|
|
1,506,969
|
|
|
—
|
|
|
—
|
|
|
1,506,969
|
|
Consumer credit products
|
80,605
|
|
|
80,633
|
|
|
—
|
|
|
—
|
|
|
80,633
|
|
Other consumer finance
|
189,756
|
|
|
197,320
|
|
|
—
|
|
|
—
|
|
|
197,320
|
|
Consumer finance
|
270,361
|
|
|
277,953
|
|
|
—
|
|
|
—
|
|
|
277,953
|
|
Tax services
|
1,073
|
|
|
1,073
|
|
|
—
|
|
|
—
|
|
|
1,073
|
|
Warehouse finance
|
65,000
|
|
|
64,978
|
|
|
—
|
|
|
—
|
|
|
64,978
|
|
Total National Lending
|
1,846,283
|
|
|
1,850,973
|
|
|
—
|
|
|
—
|
|
|
1,850,973
|
|
Commercial real estate and operating
|
790,890
|
|
|
773,203
|
|
|
—
|
|
|
—
|
|
|
773,203
|
|
Consumer one to four family real estate and other
|
247,318
|
|
|
244,730
|
|
|
—
|
|
|
—
|
|
|
244,730
|
|
Agricultural real estate and operating
|
60,498
|
|
|
58,849
|
|
|
—
|
|
|
—
|
|
|
58,849
|
|
Total Community Banking
|
1,098,706
|
|
|
1,076,782
|
|
|
—
|
|
|
—
|
|
|
1,076,782
|
|
Total loans and leases
|
2,944,989
|
|
|
2,927,755
|
|
|
—
|
|
|
—
|
|
|
2,927,755
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
23,400
|
|
|
23,400
|
|
|
—
|
|
|
23,400
|
|
|
—
|
|
Accrued interest receivable
|
22,016
|
|
|
22,016
|
|
|
22,016
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
2,405,274
|
|
|
2,405,274
|
|
|
2,405,274
|
|
|
—
|
|
|
—
|
|
Interest-bearing demand deposits, savings, and money markets
|
218,347
|
|
|
218,347
|
|
|
218,347
|
|
|
—
|
|
|
—
|
|
Certificates of deposits
|
276,180
|
|
|
273,800
|
|
|
—
|
|
|
273,800
|
|
|
—
|
|
Wholesale non-maturing deposits
|
94,384
|
|
|
94,384
|
|
|
94,384
|
|
|
—
|
|
|
—
|
|
Wholesale certificates of deposits
|
1,436,802
|
|
|
1,432,146
|
|
|
—
|
|
|
1,432,146
|
|
|
—
|
|
Total deposits
|
4,430,987
|
|
|
4,423,951
|
|
|
2,718,005
|
|
|
1,705,946
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
422,000
|
|
|
422,000
|
|
|
422,000
|
|
|
—
|
|
|
—
|
|
Securities sold under agreements to repurchase
|
3,694
|
|
|
3,694
|
|
|
—
|
|
|
3,694
|
|
|
—
|
|
Capital leases
|
1,876
|
|
|
1,876
|
|
|
—
|
|
|
1,876
|
|
|
—
|
|
Trust preferred securities
|
13,661
|
|
|
13,866
|
|
|
—
|
|
|
13,866
|
|
|
—
|
|
Subordinated debentures
|
73,491
|
|
|
75,563
|
|
|
—
|
|
|
75,563
|
|
|
—
|
|
Accrued interest payable
|
7,794
|
|
|
7,794
|
|
|
7,794
|
|
|
—
|
|
|
—
|
|
The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at
March 31, 2019
and
September 30, 2018
.
CASH AND CASH EQUIVALENTS
The carrying amount of cash and short-term investments is assumed to approximate the fair value.
DEBT SECURITIES AVAILABLE FOR SALE AND EQUITY SECURITIES
Debt securities available for sale and equity securities are recorded at fair value on a recurring basis. Fair values for these investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.
LOANS HELD FOR SALE
The carrying amount of loans held for sale is assumed to approximate the fair value.
LOANS AND LEASES, NET
Upon adoption of ASU 2016-01, the fair value of loans and leases were estimated using an exit price methodology. The exit price estimation of fair value is based on the present value of expected cash flows, which are based on the contractual terms of the loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows. Other considerations include the loan type, remaining life of the loan and credit risk. In comparison, loan and lease fair values as of
September 30, 2018
were estimated on an entrance price methodology, which discounts future cash flows using the then-current rates at which a similar loan would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of non-impaired loans and leases as of
March 31, 2019
and
September 30, 2018
are not comparable.
FEDERAL HOME LOAN BANK (“FHLB”) STOCK
The fair value of FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value.
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable is assumed to approximate the fair value.
DEPOSITS
The carrying values of noninterest-bearing checking deposits, interest-bearing checking deposits, savings, money markets, and wholesale non-maturing deposits are assumed to approximate fair value since deposits are immediately withdrawable without penalty. The fair value of time certificate deposits and wholesale certificate deposits are estimated using a discounted cash flows calculation that applies the FHLB Des Moines curve to aggregated expected maturities of time deposits. In accordance with Subtopic 825-10,
Financial Instruments
, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) since such intangible is not a financial instrument as defined under Subtopic 825-10.
ADVANCES FROM FHLB
The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.
FEDERAL FUNDS PURCHASED
The carrying amount of federal funds purchased is assumed to approximate the fair value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, SUBORDINATED DEBENTURES AND OTHER BORROWINGS
The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable is assumed to approximate the fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision. Changes in assumptions as well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.
NOTE 14. SEGMENT REPORTING
An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met.
The Company reports its results of operations through the following
three
business segments:
Payments, Banking, and Corporate Services/Other
. The Meta Payment Systems and Tax Services divisions are reported in the
Payments
segment. The Community Banking, Commercial Finance and Consumer Finance divisions are reported in the
Banking
segment. Certain shared services, including the investment portfolio, wholesale deposits and borrowings, are included in the
Corporate Services/Other
segment.
The following tables present segment data for the Company for the
three and six
months ended
March 31, 2019
and
2018
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
Banking
|
|
Corporate
Services/Other
|
|
Total
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
Net interest income (expense)
|
$
|
13,607
|
|
|
$
|
56,271
|
|
|
$
|
1,472
|
|
|
$
|
71,350
|
|
Provision for loan and lease losses
|
22,474
|
|
|
10,844
|
|
|
—
|
|
|
33,318
|
|
Noninterest income
|
89,752
|
|
|
13,948
|
|
|
1,325
|
|
|
105,025
|
|
Noninterest expense
|
32,178
|
|
|
42,522
|
|
|
35,554
|
|
|
110,254
|
|
Income (loss) before income tax expense (benefit)
|
48,707
|
|
|
16,853
|
|
|
(32,757
|
)
|
|
32,803
|
|
|
|
|
|
|
|
|
|
Total assets
|
245,872
|
|
|
3,884,673
|
|
|
1,919,497
|
|
|
6,050,042
|
|
Total goodwill
|
87,145
|
|
|
220,319
|
|
|
—
|
|
|
307,464
|
|
Total deposits
|
3,107,264
|
|
|
482,033
|
|
|
1,381,010
|
|
|
4,970,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
Banking
|
|
Corporate
Services/Other
|
|
Total
|
Six Months Ended March 31, 2019
|
|
|
|
|
|
|
|
Net interest income (expense)
|
$
|
23,007
|
|
|
$
|
108,063
|
|
|
$
|
552
|
|
|
$
|
131,622
|
|
Provision for loan and lease losses
|
23,969
|
|
|
18,448
|
|
|
—
|
|
|
42,417
|
|
Noninterest income
|
112,578
|
|
|
28,217
|
|
|
1,981
|
|
|
142,776
|
|
Noninterest expense
|
53,539
|
|
|
76,365
|
|
|
54,645
|
|
|
184,549
|
|
Income (loss) before income tax expense (benefit)
|
58,077
|
|
|
41,467
|
|
|
(52,112
|
)
|
|
47,432
|
|
|
|
|
|
|
|
|
|
Total assets
|
245,872
|
|
|
3,884,673
|
|
|
1,919,497
|
|
|
6,050,042
|
|
Total goodwill
|
87,145
|
|
|
220,319
|
|
|
—
|
|
|
307,464
|
|
Total deposits
|
3,107,264
|
|
|
482,033
|
|
|
1,381,010
|
|
|
4,970,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
Banking
|
|
Corporate
Services/Other
|
|
Total
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
Net interest income
|
$
|
4,933
|
|
|
$
|
16,120
|
|
|
$
|
6,352
|
|
|
$
|
27,405
|
|
Provision for loan losses
|
18,129
|
|
|
214
|
|
|
—
|
|
|
18,343
|
|
Noninterest income
|
95,673
|
|
|
1,241
|
|
|
505
|
|
|
97,419
|
|
Noninterest expense
|
44,841
|
|
|
6,984
|
|
|
16,672
|
|
|
68,497
|
|
Income (loss) before income tax expense (benefit)
|
37,636
|
|
|
10,163
|
|
|
(9,815
|
)
|
|
37,984
|
|
|
|
|
|
|
|
|
|
Total assets
|
243,140
|
|
|
1,510,939
|
|
|
2,547,614
|
|
|
4,301,693
|
|
Total goodwill
|
87,145
|
|
|
11,578
|
|
|
—
|
|
|
98,723
|
|
Total deposits
|
2,882,441
|
|
|
244,149
|
|
|
213,907
|
|
|
3,340,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
Banking
|
|
Corporate
Services/Other
|
|
Total
|
Six Months Ended March 31, 2018
|
|
|
|
|
|
|
|
Net interest income
|
$
|
9,602
|
|
|
$
|
31,717
|
|
|
$
|
12,282
|
|
|
$
|
53,601
|
|
Provision for loan losses
|
19,146
|
|
|
265
|
|
|
—
|
|
|
19,411
|
|
Noninterest income
|
123,774
|
|
|
2,726
|
|
|
187
|
|
|
126,687
|
|
Noninterest expense
|
71,796
|
|
|
13,552
|
|
|
27,191
|
|
|
112,539
|
|
Income (loss) before income tax expense (benefit)
|
42,434
|
|
|
20,626
|
|
|
(14,722
|
)
|
|
48,338
|
|
|
|
|
|
|
|
|
|
Total assets
|
243,140
|
|
|
1,510,939
|
|
|
2,547,614
|
|
|
4,301,693
|
|
Total goodwill
|
87,145
|
|
|
11,578
|
|
|
—
|
|
|
98,723
|
|
Total deposits
|
2,882,441
|
|
|
244,149
|
|
|
213,907
|
|
|
3,340,497
|
|
NOTE 15. SUBSEQUENT EVENTS
Management has evaluated subsequent events that occurred after March 31, 2019. During this period, up to the filing date, management did not identify any material subsequent events that would require recognition or disclosure in our consolidated financial statements as of or for the quarter ended March 31, 2019.