PATHWARD FINANCIAL, INC. 10-Q

Item 1. Financial Statements. META FINANCIAL GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Financial Condition (Dollars in Thousands, Except Share and Per Share Data) March 31, 2021 September 30, 2020 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 3,724,242 $ 427,367 Investment securities available for sale, at fair value 921,947 814,495 Mortgage-backed securities available for sale, at fair value 558,833 453,607 Investment securities held to maturity, at cost 67,709 87,183 Mortgage-backed securities held to maturity, at cost 4,403 5,427 Loans held for sale 67,635 183,577 Loans and leases 3,657,531 3,322,765 Allowance for credit losses ( 98,892 ) ( 56,188 ) Federal Reserve Bank and Federal Home Loan Bank stocks, at cost 28,433 27,138 Accrued interest receivable 17,429 16,628 Premises, furniture, and equipment, net 41,510 41,608 Rental equipment, net 211,397 205,964 Bank-owned life insurance 93,542 92,315 Foreclosed real estate and repossessed assets. net 1,483 9,957 Goodwill 309,505 309,505 Intangible assets 36,903 41,692 Prepaid assets 10,201 8,328 Deferred taxes, net 25,435 17,723 Other assets 110,877 82,983 Total assets $ 9,790,123 $ 6,092,074 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits: Noninterest-bearing checking 7,928,235 4,356,630 Interest-bearing checking 416,164 157,571 Savings deposits 126,834 47,866 Money market deposits 55,045 48,494 Time certificates of deposit 12,614 20,223 Wholesale deposits 103,521 348,416 Total deposits 8,642,413 4,979,200 Short-term borrowings — — Long-term borrowings 95,336 98,224 Accrued interest payable 679 1,923 Accrued expenses and other liabilities 216,437 165,419 Total liabilities 8,954,865 5,244,766 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued and no shares outstanding at March 31, 2021 and September 30, 2020, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 32,128,403 and 34,479,164 shares issued, 31,926,008 and 34,360,890 shares outstanding at March 31, 2021 and September 30, 2020, respectively 319 344 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at March 31, 2021 and September 30, 2020, respectively — — Additional paid-in capital 601,222 594,569 Retained earnings 225,471 234,927 Accumulated other comprehensive income 12,809 17,542 Treasury stock, at cost, 202,395 and 118,274 common shares at March 31, 2021 and September 30, 2020, respectively ( 5,655 ) ( 3,677 ) Total equity attributable to parent 834,166 843,705 Noncontrolling interest 1,092 3,603 Total stockholders’ equity 835,258 847,308 Total liabilities and stockholders’ equity $ 9,790,123 $ 6,092,074 See Notes to Condensed Consolidated Financial Statements. 2 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, Six Months Ended March 31, (Dollars in Thousands, Except Share and Per Share Data) 2021 2020 2021 2020 Interest and dividend income: Loans and leases, including fees $ 68,472 $ 70,493 $ 130,128 $ 139,195 Mortgage-backed securities 2,608 2,493 4,730 4,882 Other investments 4,589 6,417 8,956 12,952 75,669 79,403 143,814 157,029 Interest expense: Deposits 445 8,242 1,241 17,583 FHLB advances and other borrowings 1,374 3,424 2,724 7,058 1,819 11,666 3,965 24,641 Net interest income 73,850 67,737 139,849 132,388 Provision for credit losses 30,290 37,296 36,379 40,703 Net interest income after provision for credit losses 43,560 30,441 103,470 91,685 Noninterest income: Refund transfer product fees 22,680 28,939 23,327 29,131 Tax advance product fees 44,562 29,536 46,522 31,812 Payment card and deposit fees 29,875 23,156 52,439 44,655 Other bank and deposit fees 133 381 370 868 Rental income 9,846 11,100 19,731 23,451 Net gain realized on investment securities 6 — 6 — Gain on divestitures — 19,275 — 19,275 Gain (loss) on sale of other 2,133 2,325 4,981 ( 244 ) Other income 4,218 5,801 11,532 9,047 Total noninterest income 113,453 120,513 158,908 157,995 Noninterest expense: Compensation and benefits 43,932 34,260 76,263 68,529 Refund transfer product expense 6,146 7,449 6,207 7,621 Tax advance product expense 2,189 1,698 2,559 2,830 Card processing 7,212 6,696 13,329 12,303 Occupancy and equipment expense 6,748 7,013 13,636 13,668 Operating lease equipment depreciation 7,419 8,421 15,000 16,701 Legal and consulting 6,045 5,909 11,292 10,583 Intangible amortization 2,757 3,402 4,770 6,077 Impairment expense 554 507 1,713 750 Other expense 12,969 16,374 23,777 28,464 Total noninterest expense 95,971 91,729 168,546 167,526 Income before income tax expense 61,042 59,225 93,832 82,154 Income tax expense 1,133 5,617 4,665 6,297 Net income before noncontrolling interest 59,909 53,608 89,167 75,857 Net income attributable to noncontrolling interest 843 1,304 2,064 2,485 Net income attributable to parent $ 59,066 $ 52,304 $ 87,103 $ 73,372 Earnings per common share Basic $ 1.84 $ 1.45 $ 2.66 $ 2.00 Diluted $ 1.84 $ 1.45 $ 2.65 $ 2.00 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, Six Months Ended March 31, (Dollars in Thousands) 2021 2020 2021 2020 Net income before noncontrolling interest $ 59,909 $ 53,608 $ 89,167 $ 75,857 Other comprehensive income (loss): Change in net unrealized (loss) on debt securities ( 9,923 ) ( 2,079 ) ( 7,077 ) ( 5,492 ) Net (gain) realized on investment securities ( 6 ) — ( 6 ) — ( 9,929 ) ( 2,079 ) ( 7,083 ) ( 5,492 ) Unrealized gain (loss) on currency translation 126 ( 680 ) 571 ( 564 ) Deferred income tax effect ( 2,493 ) ( 518 ) ( 1,779 ) ( 1,371 ) Total other comprehensive (loss) ( 7,310 ) ( 2,241 ) ( 4,733 ) ( 4,685 ) Total comprehensive income 52,599 51,367 84,434 71,172 Total comprehensive income attributable to noncontrolling interest 843 1,304 2,064 2,485 Comprehensive income attributable to parent $ 51,756 $ 50,063 $ 82,370 $ 68,687 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Dollars in Thousands, Except Share and Per Share Data) Meta Financial Group, Inc. Stockholders' Equity Three Months Ended March 31, 2021 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss), Net of Tax Treasury Stock Total Meta Stockholders’ Equity Noncontrolling Interest Total Equity Balance, December 31, 2020 $ 326 $ 598,669 $ 198,000 $ 20,119 $ ( 5,440 ) $ 811,674 $ 1,536 $ 813,210 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,595 ) — — ( 1,595 ) — ( 1,595 ) Shares repurchased ( 7 ) 7 ( 30,000 ) — ( 215 ) ( 30,215 ) — ( 30,215 ) Stock compensation — 2,546 — — — 2,546 — 2,546 Total other comprehensive (loss) — — — ( 7,310 ) — ( 7,310 ) — ( 7,310 ) Net income — — 59,066 — — 59,066 843 59,909 Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,287 ) ( 1,287 ) Balance, March 31, 2021 $ 319 $ 601,222 $ 225,471 $ 12,809 $ ( 5,655 ) $ 834,166 $ 1,092 $ 835,258 Balance, December 31, 2019 $ 372 $ 587,678 $ 244,005 $ 3,895 $ ( 3,187 ) $ 832,763 $ 4,305 $ 837,068 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,783 ) — — ( 1,783 ) — ( 1,783 ) Issuance of common shares due to exercise of stock options — 87 — — — 87 — 87 Shares repurchased ( 26 ) 26 ( 82,499 ) — ( 210 ) ( 82,709 ) — ( 82,709 ) Stock compensation — 2,891 — — — 2,891 — 2,891 Total other comprehensive (loss) — — — ( 2,241 ) — ( 2,241 ) — ( 2,241 ) Net income — — 52,304 — — 52,304 1,304 53,608 Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,847 ) ( 1,847 ) Balance, March 31, 2020 $ 346 $ 590,682 $ 212,027 $ 1,654 $ ( 3,397 ) $ 801,312 $ 3,762 $ 805,074 5 Table of Contents (Dollars in Thousands, Except Share and Per Share Data) Meta Financial Group, Inc. Stockholders' Equity Six Months Ended March 31, 2021 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Meta Stockholders’ Equity Noncontrolling Interest Total Equity Balance, September 30, 2020 $ 344 $ 594,569 $ 234,927 $ 17,542 $ ( 3,677 ) $ 843,705 $ 3,603 $ 847,308 Adoption of Accounting Standards Update 2016-13, net of income taxes — — ( 8,351 ) — — ( 8,351 ) ( 2,452 ) ( 10,803 ) Cash dividends declared on common stock ($ 0.10 per share) — — ( 3,209 ) — — ( 3,209 ) — ( 3,209 ) Issuance of common shares due to ESOP 2 3,034 — — — 3,036 — 3,036 Shares repurchased ( 27 ) 27 ( 84,999 ) — ( 1,978 ) ( 86,977 ) — ( 86,977 ) Stock compensation — 3,592 — — — 3,592 — 3,592 Total other comprehensive (loss) — — — ( 4,733 ) — ( 4,733 ) — ( 4,733 ) Net income — — 87,103 — — 87,103 2,064 89,167 Net investment by (distribution to) noncontrolling interests — — — — — — ( 2,123 ) ( 2,123 ) Balance, March 31, 2021 $ 319 $ 601,222 $ 225,471 $ 12,809 $ ( 5,655 ) $ 834,166 $ 1,092 $ 835,258 Six Months Ended March 31, 2020 Balance, September 30, 2019 $ 378 $ 580,826 $ 252,813 $ 6,339 $ ( 445 ) $ 839,911 $ 4,047 $ 843,958 Cash dividends declared on common stock ($ 0.10 per share) — — ( 3,653 ) — — ( 3,653 ) — ( 3,653 ) Issuance of common shares due to exercise of stock options — 205 — — — 205 — 205 Issuance of common shares due to restricted stock 2 — — — — 2 — 2 Issuance of common shares due to ESOP 1 3,219 — — — 3,220 — 3,220 Shares repurchased ( 35 ) 35 ( 110,505 ) — ( 2,952 ) ( 113,457 ) — ( 113,457 ) Stock compensation — 6,397 — — — 6,397 — 6,397 Total other comprehensive (loss) — — — ( 4,685 ) — ( 4,685 ) — ( 4,685 ) Net income — — 73,372 — — 73,372 2,485 75,857 Net investment by (distribution to) noncontrolling interests — — — — — — ( 2,770 ) ( 2,770 ) Balance, March 31, 2020 $ 346 $ 590,682 $ 212,027 $ 1,654 $ ( 3,397 ) $ 801,312 $ 3,762 $ 805,074 See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended March 31, (Dollars in Thousands) 2021 2020 Cash flows from operating activities: Net income before noncontrolling interest $ 89,167 $ 75,857 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 28,414 33,713 Stock compensation 3,592 6,397 Provision (recovery): Credit losses 36,379 40,703 Deferred taxes ( 5,933 ) ( 633 ) Loans held for sale: Originations ( 361,722 ) ( 32,234 ) Proceeds from sales 575,931 160,290 Net change 5,500 17,860 Fair value adjustment of foreclosed real estate 466 104 Net realized (gain) loss: Other assets — 361 Divestitures — ( 19,275 ) Foreclosed real estate and repossessed assets ( 4 ) 5,039 Securities available for sale, net ( 6 ) — Loans held for sale ( 4,610 ) ( 3,265 ) Leases receivable and equipment ( 360 ) ( 1,893 ) Net change: Other assets ( 28,635 ) ( 4,588 ) Deposits held for sale — 1,535 Accrued interest payable ( 1,244 ) ( 5,807 ) Accrued expenses and other liabilities 51,018 ( 10,470 ) Accrued interest receivable ( 801 ) 2,325 Change in bank-owned life insurance value ( 1,227 ) ( 1,254 ) Impairment on assets held for sale — 242 Net cash provided by operating activities 385,925 265,007 Cash flows from investing activities: Securities available for sale: Purchases ( 411,458 ) ( 40,686 ) Proceeds from sales 50,468 — Proceeds from maturities and principal repayments 137,635 106,049 Securities held to maturity: Proceeds from maturities and principal repayments 19,536 18,897 Loans and leases: Purchases ( 99,083 ) ( 117,677 ) Proceeds from sales 12,005 3,099 Net change ( 353,781 ) ( 130,037 ) Proceeds from sales of foreclosed real estate and repossessed assets 8,021 23,085 Federal Reserve Bank and Federal Home Loan Bank stock: Purchases ( 1,295 ) ( 421,068 ) Redemption — 422,040 Rental equipment: Purchases ( 26,212 ) ( 22,675 ) Proceeds from sales 7,830 10,508 Net change — 3,131 Premises, furniture, and equipment: Purchases ( 4,254 ) ( 4,817 ) Proceeds from divestitures — 3,498 Net cash (used in) investing activities ( 660,588 ) ( 146,653 ) Cash flows from financing activities: Net change: Checking, savings, and money market deposits 3,915,717 746,382 Time certificates of deposit ( 7,609 ) ( 83,793 ) Wholesale deposits ( 244,895 ) ( 748,258 ) 7 Table of Contents FHLB and other borrowings — 100,000 Federal funds — ( 25,000 ) Securities sold under agreements to repurchase — ( 4,019 ) Distribution to noncontrolling interests ( 2,123 ) ( 2,770 ) Proceeds from other liabilities — 1,633 Principal payments: Other liabilities ( 2,957 ) ( 4,372 ) Capital lease obligations ( 16 ) ( 1,722 ) Cash dividends paid ( 3,209 ) ( 3,653 ) Issuance of common stock due to ESOP 3,036 3,220 Issuance of common stock due to restricted stock — 2 Proceeds from exercise of stock options and issuance of common stock — 205 Shares repurchased ( 86,977 ) ( 113,457 ) Net cash provided by (used in) financing activities 3,570,967 ( 135,602 ) Effect of exchange rate changes on cash 571 ( 564 ) Net change in cash and cash equivalents 3,296,875 ( 17,812 ) Cash and cash equivalents at beginning of fiscal year 427,367 126,545 Cash and cash equivalents at end of fiscal period $ 3,724,242 $ 108,733 Six Months Ended March 31, (Dollars in Thousands) 2021 2020 Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 3,063 $ 17,473 Income taxes 3,176 5,148 Franchise taxes 100 131 Other taxes 591 415 Supplemental schedule of non-cash investing activities Transfers Loans and leases to foreclosed real estate and repossessed assets 9 5,983 Loans and leases to rental equipment 2,378 430 Rental equipment to loan and leases 62 605 Loans and leases to held for sale 99,922 277,016 Other assets to held for sale — 7,858 Deposits to held for sale — 288,975 Recognition of operating lease ROU assets, net of remeasurements 12,681 27,019 See Notes to Condensed Consolidated Financial Statements. 8 Table of Contents 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, 2020 included in Meta Financial Group, Inc.’s (“Meta” or the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 30, 2020. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted. The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the three and six months ended March 31, 2021 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2021. Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU") Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, 2020 remain substantially unchanged with the exception of the accounting policies for allowance for credit losses and securities impairment as a result of adopting ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and related ASUs, as described below. Allowance for Credit Losses ("ACL"). The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets for impairment, which generally means loans and leases identified as troubled debt restructurings or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for impairment. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Condensed Consolidated Statements of Financial Condition. Individually evaluated loans and leases are a key component of the ACL. Generally, the Company measures impairment on individually evaluated loans based on the fair value of the collateral less estimated selling costs, as the Company considers these financial assets to be collateral dependent. If an individually evaluated loan or lease is not collateral dependent, impairment is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate. The impairment of all other loans and leases is evaluated collectively by various characteristics. The collective evaluation of expected losses in all commercial finance portfolios is based on a cohort loss rate and adjustments for forward-looking information, including industry and macroeconomic forecasts. The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a twelve-month reasonable and supportable forecast for forward-looking information. Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts and measurement date credit characteristics such as product type, delinquency, and industry. The unfunded credit commitments depend on these same factors, as well as estimates of lines of credit usage. The various quantitative and qualitative factors used in the methodologies are reviewed quarterly. The collective evaluation of expected credit losses for certain consumer lending portfolios utilize different methodologies when estimating expected credit losses. The Company’s student loan portfolio utilizes a roll-rate historical loss rate and adjustments for forward-looking information, including macroeconomic conditions. Management has elected to use a twelve-month reasonable and supportable forecast with an immediate reversion to historical loss rates. Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts, and measurement date credit characteristics including delinquency. 9 Table of Contents Loans and leases are charged off to the extent they are deemed uncollectible. Net charge-offs are included in historical data utilized for calculating the ACL. For commercial loans, the Company generally fully charges off or charges down to net realizable value (fair value of collateral, less estimated costs to sell) for loans secured by collateral when management judges the loan to be uncollectible, repayment is deemed to be protracted beyond a reasonable timeframe, the loan has been classified as a loss by either the Company’s internal loan review process or its banking regulatory agencies, the Company has filed bankruptcy and the loss becomes evident owing to lack of assets, or the loans meets a defined number of days past due unless the loan is both well-secured and is in the process of collection. For consumer loans, the Company fully charges off or charges down to net realizable value when deemed uncollectible due to bankruptcy or other factors or meets a defined number of days past due. The amount of ACL depends significantly on management’s estimates or key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods. Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees, properties or economic conditions. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known. Accrued interest receivable is presented separately on the Condensed Consolidated Statements of Financial Condition, and an ACL is not recorded for these balances. Generally, when a loan or lease is placed on nonaccrual status, typically when the collection of interest or principal is 90 days or more past due, uncollected interest accrued in prior years is charged off against the ACL and interest accrued in the current year is reversed against interest income. Management maintains a framework of controls over the estimation process for the ACL, including review of collective reserve methodologies for compliance with GAAP. Management has a quarterly process to review the appropriateness of historical observation periods and loss assumptions and risk ratings assigned to loans and leases, if applicable. Management reviews its qualitative framework and the effect on the collective reserve compared with relevant credit risk factors and consistency with credit trends. Management also maintains controls over information systems, models and spreadsheets used in the quantitative components of the reserve estimate. This includes the quality and accuracy of historical data used to derive loss rates, the inputs to industry and macroeconomic forecasts and the reversion periods utilized. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance. See Note 6. Loans and Leases, Net for further information. Securities Impairment. The Company evaluates investment securities held-to-maturity for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Condensed Consolidated Statements of Operations. The Company has concluded that its portfolio as of March 31, 2021 has a zero risk of credit loss due to the U.S. Government financial guarantees underlying the securities within the held-to-maturity portfolio and as a result has not recorded an allowance for credit loss. The Company evaluates investment securities available-for-sale for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Condensed Consolidated Statements of Operations. See Note 5. Securities for further information. Adopted ASUs Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively “Topic 326”), which changes the impairment model for most financial assets, including trade and other receivables, debt securities held-to-maturity, loans, net investments in leases, purchased financial assets with credit deterioration, and off-balance sheet credit exposures. ASU 2016-13 requires the use of a current expected credit loss (“CECL”) methodology to determine the allowance for credit losses for loans and debt securities held-to-maturity. CECL requires loss estimates for the remaining estimated life of the assets to be measured using historical loss data, adjustments for current conditions, and adjustments for reasonable and supportable forecasts of future economic conditions. The Company adopted CECL using the modified retrospective approach with a cumulative effect adjustment to Retained Earnings recorded on October 1, 2020. 10 Table of Contents Our adoption resulted in an ACL as of October 1, 2020 that is larger than the allowance for loan and lease losses (“ALLL”) that would have been recorded under legacy guidance on the same date by $ 12.8 million in total for all portfolios. A portion of this increase is a result of new requirements to record ACL on acquired loans and leases, regardless of any credit mark recorded. Under legacy guidance, credit marks were included in the determination of fair value adjustments reflected as a discount to the carrying value of the loans and leases and an ALLL was not recorded on acquired loans and leases until evidence of credit deterioration existed post acquisition. The remaining credit and interest mark will continue to accrete over the life of the loan or lease but will no longer be considered when estimating the ACL for acquired loans and leases under CECL. The adoption of CECL also resulted in an increase in the liability of unfunded commitments of $ 0.8 million. For other assets in scope of the standard such as held-to-maturity debt securities and trade and other receivables, the impact from this ASU was inconsequential. The cumulative tax effected adjustment to record ACL and to increase the unfunded commitments liability resulted in a reduction to retained earnings of $ 8.4 million along with $ 2.5 million attributable to noncontrolling interests. Post adoption, as loans and leases are added to the portfolio, the Company expects higher levels of ACL determined by CECL assumptions, resulting in accelerated recognition of provision for credit losses, as compared to historical results. In response to the COVID-19 pandemic, regulatory agencies have published a final rule that provides the option to delay the cumulative effect of the day 1 impact to CECL adoption on regulatory capital for two years, followed by a three-year phase in period. Management has elected this five-year transition period consistent with the final rule. Additional and modified disclosure requirements under CECL are included in Note 5. Securities and Note 6. Loans and Leases, Net. The Company also adopted the following ASUs on October 1, 2020, none of which had a material impact on the Company’s Condensed Consolidated Financial Statements: – ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. – ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. – ASU 2018-17, Consolidation (Topic 810) – Targeted Improvements to Related Party Guidance for Variable Interest Entities. ASUs to be Adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general rules found in Topic 740, Income Taxes . The majority of the amendments are to be applied on a prospective basis. This ASU is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of this guidance on the consolidated financial statements. ASU 2020-01 , Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying Interactions between Topics 321, 323 and 815. This ASU clarifies the interactions between Topic 321, Topic 323 and Topic 815, including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Management is currently evaluating the impact of this guidance on the consolidated financial statements. ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional expedients and exceptions to applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform if certain criteria are met. The amendments include a one-time sale or transfer election of held-to-maturity debt securities impacted by reference rate reform. The amendments in this ASU are effective upon issuance through December 31, 2022. The Company is currently evaluating the impact of this guidance on the consolidated financial statements. ASU 2020-08 , Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. This ASU clarifies that an entity should amortize any premium, if applicable, to the next call date, which is the first date when a call option at a specified price becomes exercisable. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Management is currently evaluating the impact of this guidance on the consolidated financial statements. 11 Table of Contents ASU 2020-10, Codification Improvements. This ASU provides clarification, corrects unintended application of guidance, and makes minor improvements to various Topics that are not expected to have a significant impact on the Company’s current accounting policies and practices. Amendments within this ASU are effective for fiscal years beginning after December 15, 2020. NOTE 3. SIGNIFICANT EVENTS COVID-19 Pandemic The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020. Since the onset of this pandemic, macroeconomic conditions and markets have significantly deteriorated. In response to the impacts of COVID-19, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") on March 27, 2020. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. In addition to the CARES Act, the U.S. federal government enacted the Consolidated Appropriations Act of 2021 ("CAA") on December 27, 2020 and the American Rescue Plan Act of 2021 ("ARP Act") on March 11, 2021, which provide additional COVID-19 relief to American families and business. The Company is participating in the Paycheck Protection Program ("PPP"), which is being administered by the Small Business Administration ("SBA"). It is the Company's understanding that loans funded through the PPP program are fully guaranteed by the U.S. government and that a portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. See Note 6. Loans and Leases, Net for further information related to this program. In response to the COVID-19 pandemic impact on customers, the Company is engaging in more frequent communication with borrowers to better understand their situation and challenges and has been offering credit-worthy borrowers experiencing temporary hardship certain loan and lease modifications ("COVID modifications"), such as payment deferrals, as a result of interagency guidance issued on March 22, 2020 encouraging companies to work with customers impacted by COVID-19. The Company elected to treat COVID modifications on leases as part of the enforceable rights and obligations of the parties under the existing lease contract, resulting in these payment deferrals being treated as variable lease payments under the existing lease versus lease modifications. Additionally, for COVID modifications on loans, the Company adjusted its effective interest rate to reflect the payment deferral modification and continued accruing interest during this period. Short-term modifications made on a good faith basis in response to COVID-19 borrowers whose payments were current prior to any relief, are not to be considered troubled debt restructurings, and will not be considered delinquent so long as they meet their revised obligations under the modification agreement. 12 Table of Contents The table below presents the outstanding balances of active COVID-19 related modifications. As of the Period Ended (Dollars in Thousands) March 31, 2021 December 31, 2020 September 30, 2020 National Lending Term lending $ 5,460 $ 18,321 $ 26,559 Asset based lending — 1,124 7,924 Factoring — — 18,434 Lease financing 379 1,637 5,896 Insurance premium finance — — 230 SBA/USDA — — 7,724 Other commercial finance — — 69 Commercial finance 5,839 21,082 66,836 Consumer credit products 301 1,210 1,574 Other consumer finance 1,627 2,682 4,223 Consumer finance 1,928 3,892 5,797 Total National Lending 7,767 24,974 72,633 Community Banking Commercial real estate and operating 58,707 60,319 120,695 Total Community Banking 58,707 60,319 120,695 Total loans and leases 66,474 85,293 193,328 Total COVID-19 related modifications $ 66,474 $ 85,293 $ 193,328 NOTE 4. DIVESTITURES During the fiscal year ended September 30, 2020, the Company sold the Bank's Community Bank division, a component of the Company's Corporate segment, to Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa. The sale included $ 290.5 million of deposits; $ 268.6 million of loans; $ 4.9 million of premises, furniture, and equipment; and $ 1.3 million of other assets and closed February 29, 2020 (the "Closing Date"). The sale resulted in a gain of $ 19.3 million before tax that was recognized within noninterest income on the Company's Condensed Consolidated Statements of Operations. The Company entered a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on the Closing Date. The Company recognized $ 1.6 million and $ 0.3 million in servicing fee expense during the six months ended March 31, 2021 and 2020, respectively, and $ 3.5 million for the fiscal year ended September 30, 2020. Since the Closing Date, the Company has entered into subsequent loan portfolio sale agreements with Central Bank. The Company sold additional loans from the retained Community Bank portfolio in the amount of $ 103.2 million and none in the three months ended March 31, 2021 and 2020, respectively, and $ 233.0 million and none for the six months ended March 31, 2021 and 2020, respectively. The sales did not result in any significant gains or losses to the Condensed Consolidated Statements of Operations. 13 Table of Contents NOTE 5. SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities are presented below. Securities Available For Sale (Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value At March 31, 2021 Debt securities AFS SBA securities $ 166,348 $ 3,846 $ ( 188 ) $ 170,006 Obligations of states and political subdivisions 2,807 10 ( 1 ) 2,816 Non-bank qualified obligations of states and political subdivisions 288,119 8,285 ( 682 ) 295,722 Asset-backed securities 453,686 2,726 ( 3,009 ) 453,403 Mortgage-backed securities 553,184 11,613 ( 5,964 ) 558,833 Total debt securities AFS $ 1,464,144 $ 26,480 $ ( 9,844 ) $ 1,480,780 At September 30, 2020 Debt securities AFS SBA securities $ 159,722 $ 5,391 $ ( 158 ) $ 164,955 Obligations of states and political subdivisions 825 16 — 841 Non-bank qualified obligations of states and political subdivisions 314,819 8,978 ( 23 ) 323,774 Asset-backed securities 329,139 2,015 ( 6,229 ) 324,925 Mortgage-backed securities 439,879 14,567 ( 839 ) 453,607 Total debt securities AFS $ 1,244,384 $ 30,967 $ ( 7,249 ) $ 1,268,102 Securities Held To Maturity (Dollars in Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value At March 31, 2021 Debt securities HTM Non-bank qualified obligations of states and political subdivisions $ 67,709 $ 1,083 $ — $ 68,792 Mortgage-backed securities 4,403 99 — 4,502 Total debt securities HTM $ 72,112 $ 1,182 $ — $ 73,294 At September 30, 2020 Debt securities HTM Non-bank qualified obligations of states and political subdivisions $ 87,183 $ 1,040 $ ( 29 ) $ 88,194 Mortgage-backed securities 5,427 124 — 5,551 Total debt securities HTM $ 92,610 $ 1,164 $ ( 29 ) $ 93,745 14 Table of Contents Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, were as follows: LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL (Dollars in Thousands) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) At March 31, 2021 Debt securities AFS SBA securities $ 25,310 $ ( 24 ) $ 31,825 $ ( 164 ) $ 57,135 $ ( 188 ) Obligations of state and political subdivisions 1,980 ( 1 ) — — 1,980 ( 1 ) Non-bank qualified obligations of states and political subdivisions 53,328 ( 682 ) — — 53,328 ( 682 ) Asset-backed securities 75,473 ( 782 ) 189,365 ( 2,227 ) 264,838 ( 3,009 ) Mortgage-backed securities 291,358 ( 5,088 ) 35,484 ( 876 ) 326,842 ( 5,964 ) Total debt securities AFS $ 447,449 $ ( 6,577 ) $ 256,674 $ ( 3,267 ) $ 704,123 $ ( 9,844 ) LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL (Dollars in Thousands) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) At September 30, 2020 Debt securities AFS SBA securities $ 32,257 $ ( 102 ) $ 9,875 $ ( 56 ) $ 42,132 $ ( 158 ) Non-bank qualified obligations of states and political subdivisions 6,265 ( 6 ) 3,103 ( 17 ) 9,368 ( 23 ) Asset-backed securities 106,474 ( 1,089 ) 178,686 ( 5,140 ) 285,160 ( 6,229 ) Mortgage-backed securities 138,338 ( 839 ) — — 138,338 ( 839 ) Total debt securities AFS $ 283,334 $ ( 2,036 ) $ 191,664 $ ( 5,213 ) $ 474,998 $ ( 7,249 ) There were no debt securities HTM with a continuous loss position at March 31, 2021. LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL (Dollars in Thousands) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) At September 30, 2020 Debt securities HTM Non-bank qualified obligations of states and political subdivisions $ 7,397 $ ( 9 ) $ 3,637 $ ( 20 ) $ 11,034 $ ( 29 ) Total debt securities HTM $ 7,397 $ ( 9 ) $ 3,637 $ ( 20 ) $ 11,034 $ ( 29 ) The adoption of CECL was inconsequential to debt securities AFS. At March 31, 2021, there were no ACL for debt securities AFS. At March 31, 2021, there were 49 securities AFS in an unrealized loss position. Management assessed each investment security with unrealized losses for credit impairment and determined substantially all unrealized losses on these securities were due to credit spreads and interest rates versus credit impairment. As part of that assessment, management evaluated and concluded that it is more-likely-than-not that the Company will not be required and does not intend to sell any of the securities prior to recovery of the amortized cost. 15 Table of Contents The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features that allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in mortgage-backed securities ("MBS") because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, MBS are not included in the maturity categories in the following maturity summary. The expected maturities of certain SBA securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply. At March 31, 2021 At September 30, 2020 (Dollars in Thousands) Amortized Cost Fair Value Amortized Cost Fair Value Securities AFS at Fair Value Due in one year or less $ 245 $ 247 $ 1,385 $ 1,398 Due after one year through five years 17,621 18,199 20,805 21,769 Due after five years through ten years 51,152 52,585 32,441 34,025 Due after ten years 841,942 850,916 749,874 757,303 910,960 921,947 804,505 814,495 Mortgage-backed securities 553,184 558,833 439,879 453,607 Total securities AFS, at fair value $ 1,464,144 $ 1,480,780 $ 1,244,384 $ 1,268,102 At March 31, 2021 At September 30, 2020 (Dollars in Thousands) Amortized Cost Fair Value Amortized Cost Fair Value Securities HTM at Fair Value Due after ten years $ 67,709 $ 68,792 $ 87,183 $ 88,194 67,709 68,792 87,183 88,194 Mortgage-backed securities 4,403 4,502 5,427 5,551 Total securities HTM, at cost $ 72,112 $ 73,294 $ 92,610 $ 93,745 Other investments, at cost, include equity securities without a readily determinable fair value, which are included in other assets on the Condensed Consolidated Statements of Financial Condition, and shares of stock in the Federal Reserve Bank (the "FRB") of Minneapolis and the FHLB of Des Moines. Equity Securities Equity securities without a readily determinable fair value totaled $ 13.7 million at March 31, 2021 and $ 11.0 million at September 30, 2020. FRB Stock The Bank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus. One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System. FRB of Minneapolis stock held by the Bank totaled $ 19.7 million at March 31, 2021 and September 30, 2020. These equity securities are 'restricted' in that they can only be owned by member banks. FHLB Stock The Company's borrowings from the FHLB are secured by a blanket collateral agreement with respect to a percentage of unencumbered loans and the pledge of specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The investments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of Des Moines. The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency. The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held at the FHLB was $ 8.8 million and $ 7.5 million at March 31, 2021 and September 30, 2020, respectively. 16 Table of Contents These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par. Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the fair value approximates cost. The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate recoverability of the par value. Equity Security Impairment For investments held at cost, impairment is evaluated on at least an annual basis on the recoverability of the par value. All other equity investments, including those under the equity method, are reviewed for other-than-temporary impairment on at least a quarterly basis. The Company recognized $ 1.5 million in impairment recognized for such investments for the six months ended March 31, 2021. NOTE 6. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in Thousands) March 31, 2021 September 30, 2020 National Lending Term lending $ 891,414 $ 805,323 Asset based lending 248,735 182,419 Factoring 277,612 281,173 Lease financing 308,169 281,084 Insurance premium finance 344,841 337,940 SBA/USDA 331,917 318,387 Other commercial finance 103,234 101,658 Commercial finance 2,505,922 2,307,984 Consumer credit products 104,842 89,809 Other consumer finance 130,822 134,342 Consumer finance 235,664 224,151 Tax services 225,921 3,066 Warehouse finance 332,456 293,375 Total National Lending 3,299,963 2,828,576 Community Banking Commercial real estate and operating 335,587 457,371 Consumer one-to-four family real estate and other 4,567 16,486 Agricultural real estate and operating 7,911 11,707 Total Community Banking 348,065 485,564 Total loans and leases 3,648,028 3,314,140 Net deferred loan origination costs (fees) 9,503 8,625 Total gross loans and leases 3,657,531 3,322,765 Allowance for credit losses ( 98,892 ) ( 56,188 ) Total loans and leases, net $ 3,558,639 $ 3,266,577 During the six months ended March 31, 2021, the Company transferred $ 99.9 million of Community Banking loans to held for sale. During the six months ended March 31, 2020, the Company transferred $ 277.0 million of Community Banking loans to held for sale. During the six months ended March 31, 2021 and 2020, the Company originated $ 361.7 million of other consumer finance, SBA/USDA, and consumer credit product loans as held for sale and $ 32.2 million of SBA/USDA and consumer credit product loans as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 476.0 million and gains on sale of $ 4.6 million during the six months ended March 31, 2021. The Company sold held for sale loans resulting in proceeds of $ 432.0 million and gains on sale of $ 6.2 million during the six months ended March 31, 2020. 17 Table of Contents Loans purchased and sold by portfolio segment, including participation interests, for the three and six months ended were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in Thousands) 2021 2020 2021 2020 Loans Purchased Loans held for investment: Total National Lending $ 33,605 $ 89,424 $ 96,236 $ 103,888 Total Community Banking 548 9,440 2,847 13,789 Total purchases $ 34,153 $ 98,864 $ 99,083 $ 117,677 Loans Sold Loans held for sale: Total National Lending $ 24,382 $ 17,255 $ 346,246 $ 160,290 Total Community Banking — 271,681 129,788 271,681 Loans held for investment: Total Community Banking — — — 3,099 Total sales $ 24,382 $ 288,936 $ 476,034 $ 435,070 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in Thousands) March 31, 2021 September 30, 2020 Carrying amount $ 327,238 $ 299,487 Unguaranteed residual assets 17,835 17,203 Unamortized initial direct costs 2,247 2,078 Unearned income ( 36,904 ) ( 35,606 ) Total net investment in direct financing and sales-type leases $ 310,416 $ 283,162 The carrying amount of direct financing and sales-type leases subject to residual value guarantees was $ 8.1 million at March 31, 2021. The components of total lease income were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in Thousands) 2021 2020 2021 2020 Interest income - loans and leases Interest income on net investments in direct financing and sales-type leases $ 6,116 $ 4,375 $ 11,435 $ 8,462 Leasing and equipment finance noninterest income Lease income from operating lease payments 9,735 11,263 19,776 22,466 Profit (loss) recorded on commencement date on sales-type leases 59 16 130 487 Other (1) 1,687 1,831 1,756 2,581 Total leasing and equipment finance noninterest income 11,481 13,110 21,662 25,534 Total lease income $ 17,597 $ 17,485 $ 33,097 $ 33,996 (1) Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases. 18 Table of Contents Undiscounted future minimum lease payments receivable for direct financing and sales-type leases and a reconciliation to the carrying amount recorded were as follows: (Dollars in Thousands) March 31, 2021 Remaining in 2021 $ 63,369 2022 108,413 2023 79,701 2024 47,563 2025 20,468 Thereafter 7,724 Equipment under leases not yet commenced — Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 327,238 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type lease $ 327,238 The Company did not record any contingent rental income from direct financing and sales-type leases in the six months ended March 31, 2021. The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020. Since the onset of this pandemic, macroeconomic conditions and markets have significantly deteriorated. Although the ultimate impact of this pandemic on the Company's loan and lease portfolio is difficult to predict, management continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses and the impact to our customers and businesses as a result of COVID-19 and will refine our estimate as more information becomes available. Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs on a modified retrospective basis. Financial information at and for the quarter ended March 31, 2021 is reflected as such. The historical information disclosed is in accordance with Topic 310. 19 Table of Contents Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows: Three Months Ended March 31, 2021 (Dollars in Thousands) Beginning Balance Provision (Recovery) for Credit Losses (2) Charge-offs Recoveries Ending Balance Allowance for credit losses: National Lending Term lending $ 28,220 $ 1,396 $ ( 2,477 ) $ 176 $ 27,315 Asset based lending 1,809 539 ( 599 ) — 1,749 Factoring 3,719 ( 545 ) — 36 3,210 Lease financing 6,784 420 ( 471 ) 130 6,863 Insurance premium finance 1,285 103 ( 149 ) 87 1,326 SBA/USDA 3,164 136 — — 3,300 Other commercial finance 479 62 — — 541 Commercial finance 45,460 2,111 ( 3,696 ) 429 44,304 Consumer credit products 835 155 — — 990 Other consumer finance 10,176 266 ( 419 ) 70 10,093 Consumer finance 11,011 421 ( 419 ) 70 11,083 Tax services 1,412 27,680 — 54 29,146 Warehouse finance 319 13 — — 332 Total National Lending 58,202 30,225 ( 4,115 ) 553 84,865 Community Banking Commercial real estate and operating 14,121 ( 22 ) ( 134 ) — 13,965 Consumer one-to-four family real estate and other 19 ( 2 ) — — 17 Agricultural real estate and operating 47 ( 2 ) — — 45 Total Community Banking 14,187 ( 26 ) ( 134 ) — 14,027 Total loans and leases 72,389 30,199 ( 4,249 ) 553 98,892 Unfunded commitments (1) 688 91 — — 779 Total $ 73,077 $ 30,290 $ ( 4,249 ) $ 553 $ 99,671 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. (2) As a result of the adoption of CECL, effective October 1, 2020, the provision for credit losses includes the provision for unfunded commitments that was previously included within other noninterest expense. 20 Table of Contents Six Months Ended March 31, 2021 (Dollars in Thousands) Beginning Balance Impact of CECL Adoption Provision (Recovery) for Credit Losses (2) Charge-offs Recoveries Ending Balance Allowance for credit losses: National Lending Term lending $ 15,211 $ 9,999 $ 7,422 $ ( 5,789 ) $ 472 $ 27,315 Asset based lending 1,406 164 1,378 ( 1,199 ) — 1,749 Factoring 3,027 987 ( 1,961 ) ( 1 ) 1,158 3,210 Lease financing 7,023 ( 556 ) 1,532 ( 1,347 ) 211 6,863 Insurance premium finance 2,129 ( 965 ) 591 ( 805 ) 376 1,326 SBA/USDA 940 2,720 ( 361 ) — 1 3,300 Other commercial finance 182 364 ( 5 ) — — 541 Commercial finance 29,918 12,713 8,596 ( 9,141 ) 2,218 44,304 Consumer credit products 845 — 145 — — 990 Other consumer finance 2,821 5,998 1,748 ( 637 ) 163 10,093 Consumer finance 3,666 5,998 1,893 ( 637 ) 163 11,083 Tax services 2 — 28,134 — 1,010 29,146 Warehouse finance 294 ( 1 ) 39 — — 332 Total National Lending 33,880 18,710 38,662 ( 9,778 ) 3,391 84,865 Community Banking Commercial real estate and operating 21,867 ( 5,616 ) ( 2,141 ) ( 145 ) — 13,965 Consumer one-to-four family real estate and other 298 ( 247 ) ( 34 ) — — 17 Agricultural real estate and operating 143 ( 74 ) ( 24 ) — — 45 Total Community Banking 22,308 ( 5,937 ) ( 2,199 ) ( 145 ) — 14,027 Total loans and leases 56,188 12,773 36,463 ( 9,923 ) 3,391 98,892 Unfunded commitments (1) 32 831 ( 84 ) — — 779 Total $ 56,220 $ 13,604 $ 36,379 $ ( 9,923 ) $ 3,391 $ 99,671 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. (2) As a result of the adoption of CECL, effective October 1, 2020, the provision for credit losses includes the provision for unfunded commitments that was previously included within other noninterest expense. 21 Table of Contents Three Months Ended March 31, 2020 (Dollars in Thousands) Beginning Balance Provision (Recovery) for Loan and Lease Losses Charge-offs Recoveries Ending Balance Allowance for loan and lease losses: National Lending Term lending $ 6,750 $ 5,679 $ ( 877 ) $ 95 $ 11,647 Asset based lending 1,995 803 — 28 2,826 Factoring 3,548 1,231 ( 345 ) 10 4,444 Lease financing 1,695 1,043 ( 152 ) 97 2,683 Insurance premium finance 970 1,935 ( 789 ) 26 2,142 SBA/USDA 765 910 ( 117 ) — 1,558 Other commercial finance 160 392 — — 552 Commercial finance 15,883 11,993 ( 2,280 ) 256 25,852 Consumer credit products 1,107 ( 25 ) — — 1,082 Other consumer finance 4,889 ( 1,308 ) ( 907 ) 740 3,414 Consumer finance 5,996 ( 1,333 ) ( 907 ) 740 4,496 Tax services 1,650 19,596 — 74 21,320 Warehouse finance 269 65 — — 334 Total National Lending 23,798 30,321 ( 3,187 ) 1,070 52,002 Community Banking Commercial real estate and operating 4,665 5,404 — — 10,069 Consumer one-to-four family real estate and other 1,031 1,319 — — 2,350 Agricultural real estate and operating 682 252 — — 934 Total Community Banking 6,378 6,975 — — 13,353 Total $ 30,176 $ 37,296 $ ( 3,187 ) $ 1,070 $ 65,355 Six Months Ended March 31, 2020 (Dollars in Thousands) Beginning balance Provision (recovery) for loan and lease losses Charge-offs Recoveries Ending balance Allowance for loan and lease losses: National Lending Term lending $ 5,533 $ 9,081 $ ( 3,172 ) $ 205 $ 11,647 Asset based lending 2,437 342 — 47 2,826 Factoring 3,261 1,489 ( 735 ) 429 4,444 Lease financing 1,275 1,546 ( 367 ) 229 2,683 Insurance premium finance 1,024 2,076 ( 1,074 ) 116 2,142 SBA/USDA 383 1,292 ( 117 ) — 1,558 Other commercial finance 683 ( 131 ) — — 552 Commercial finance 14,596 15,695 ( 5,465 ) 1,026 25,852 Consumer credit products 1,044 38 — — 1,082 Other consumer finance 5,118 ( 833 ) ( 1,640 ) 769 3,414 Consumer finance 6,162 ( 795 ) ( 1,640 ) 769 4,496 Tax services — 20,507 — 813 21,320 Warehouse finance 263 71 — — 334 Total National Lending 21,021 35,478 ( 7,105 ) 2,608 52,002 Community Banking Commercial real estate and operating 6,208 3,861 — — 10,069 Consumer one-to-four family real estate and other 1,053 1,297 — — 2,350 Agricultural real estate and operating 867 67 — — 934 Total Community Banking 8,128 5,225 — — 13,353 Total $ 29,149 $ 40,703 $ ( 7,105 ) $ 2,608 $ 65,355 22 Table of Contents The following table provide additional disclosures previously required by ASC Topic 310 related to the Company's September 30, 2020 balances. Allowance Loans and Leases (Dollars in Thousands) Ending Balance: Individually Evaluated for Impairment Ending Balance: Collectively Evaluated for Impairment Total Ending Balance: Individually Evaluated for Impairment Ending Balance: Collectively Evaluated for Impairment Total Recorded Investment National Lending Term lending $ 3,155 $ 12,056 $ 15,211 $ 26,085 $ 779,238 $ 805,323 Asset based lending 355 1,051 1,406 5,317 177,102 182,419 Factoring 274 2,753 3,027 5,071 276,102 281,173 Lease financing 1,194 5,829 7,023 4,697 276,387 281,084 Insurance premium finance — 2,129 2,129 — 337,940 337,940 SBA/USDA — 940 940 1,436 316,951 318,387 Other commercial finance — 182 182 — 101,658 101,658 Commercial finance 4,978 24,940 29,918 42,606 2,265,378 2,307,984 Consumer credit products — 845 845 — 89,809 89,809 Other consumer finance — 2,821 2,821 1,987 132,355 134,342 Consumer finance — 3,666 3,666 1,987 222,164 224,151 Tax services — 2 2 — 3,066 3,066 Warehouse finance — 294 294 — 293,375 293,375 Total National Lending 4,978 28,902 33,880 44,593 2,783,983 2,828,576 Community Banking Commercial real estate and operating 141 21,726 21,867 160 457,211 457,371 Consumer one-to-four family real estate and other — 298 298 104 16,382 16,486 Agricultural real estate and operating — 143 143 6,421 5,286 11,707 Total Community Banking 141 22,167 22,308 6,685 478,879 485,564 Total $ 5,119 $ 51,069 $ 56,188 $ 51,278 $ 3,262,862 $ 3,314,140 23 Table of Contents Information on impaired loans and leases, all of which are deemed to be collateral dependent and are evaluated individually for the ACL was as follows: (Dollars in Thousands) March 31, 2021 National Lending Term lending $ 13,794 Asset based lending 373 Factoring 35 Lease financing 2,389 SBA/USDA 600 Commercial finance 17,191 Consumer credit products 2,097 Consumer finance 2,097 Total National Lending 19,288 Community Banking Commercial real estate and operating 17,896 Consumer one-to-four family real estate and other 170 Agricultural real estate and operating 4,658 Total Community Banking 22,724 Total $ 42,012 24 Table of Contents Information on impaired loans and leases as of September 30, 2020 was as follows: (Dollars in Thousands) Recorded Balance Unpaid Principal Balance Specific Allowance Loans and leases without a specific valuation allowance National Lending Term lending $ 17,349 $ 18,823 $ — Asset based lending 3,914 3,914 — Factoring 3,892 4,967 — Lease financing 1,797 1,805 — SBA/USDA 1,436 2,263 — Commercial finance 28,388 31,772 — Other consumer finance 1,987 2,104 — Consumer finance 1,987 2,104 — Total National Lending 30,375 33,876 — Community Banking Consumer one-to-four family real estate and other 104 104 — Agricultural real estate and operating 6,421 6,421 — Total Community Banking 6,525 6,525 — Total $ 36,900 $ 40,401 $ — Loans and leases with a specific valuation allowance National Lending Term lending $ 8,736 $ 8,736 $ 3,155 Asset based lending 1,403 1,403 355 Factoring 1,179 1,191 274 Lease financing 2,900 2,900 1,194 Commercial finance 14,218 14,230 4,978 Total National Lending 14,218 14,230 4,978 Community Banking Commercial real estate and operating 160 160 141 Total Community Banking Loans 160 160 141 Total $ 14,378 $ 14,390 $ 5,119 In response to the ongoing COVID-19 pandemic, the Company allowed modifications, such as payment deferrals and temporary forbearances, to credit-worthy borrowers who are experiencing temporary hardship due to the effects of COVID-19. Accordingly, if all payments were less than 30 days past due prior to the onset of the pandemic effects, the loan or lease will not be reported as past due during the deferral or forbearance period. As of March 31, 2021, $ 66.5 million of loan and lease balances that were granted deferral payments by the Company were still in their deferment period due to performing borrowers experiencing temporary hardship from COVID-19. These modifications consisted solely of payment deferrals ranging from 30 days to six months . These modifications are in line with applicable regulatory guidelines and, therefore, they are not reported as troubled debt restructurings. Other than the loan modifications that are on nonaccrual status, the Company is accruing and recognizing interest income on these modifications during the payment deferral period. The Company continues to regularly assess the collectability of the income on these active deferral relationships and considers adjustments to the accruing status on an individual case basis. The Company recognizes that concentrations of credit may naturally occur and may take the form of a large volume of related loans and leases to an individual, a specific industry, or a geographic location. Credit concentration is a direct, indirect, or contingent obligation that has a common bond where the aggregate exposure equals or exceeds a certain percentage of the Company’s Tier 1 Capital plus the allowable Allowance for Credit Losses. 25 Table of Contents 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 Company has various portfolios of consumer finance and tax services loans that present unique risks. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The outstanding balances of consumer finance loans and tax services loans were $ 235.7 million and $ 225.9 million at March 31, 2021, respectively, and $ 224.2 million and $ 3.1 million at September 30, 2020, respectively. The amortized cost basis of loans and leases by asset classification and year of origination was as follows: Amortized Cost Basis (Dollars in Thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total As of March 31, 2021 2021 2020 2019 2018 2017 Prior Term lending Pass $ 200,824 $ 392,195 $ 123,457 $ 67,408 $ 5,541 $ 19,373 $ — $ 808,798 Watch 1,807 12,959 8,322 682 564 1,564 — 25,898 Special Mention — 6,292 5,694 1,377 42 7,871 — 21,276 Substandard — 4,745 23,344 4,520 142 770 — 33,521 Doubtful 58 919 601 343 — — — 1,921 Total 202,689 417,110 161,418 74,330 6,289 29,578 — 891,414 Asset based lending Pass — — — — — — 166,247 166,247 Watch — — — — — — 61,887 61,887 Special Mention — — — — — — 16,854 16,854 Substandard — — — — — — 3,747 3,747 Total — — — — — — 248,735 248,735 Factoring Pass — — — — — — 233,225 233,225 Watch — — — — — — 20,262 20,262 Special Mention — — — — — — 16,220 16,220 Substandard — — — — — — 7,905 7,905 Total — — — — — — 277,612 277,612 Lease financing Pass 77,907 133,720 44,897 16,476 7,843 1,008 — 281,851 Watch 4,750 12,832 325 478 341 438 — 19,164 Special Mention 125 1,753 183 223 44 — — 2,328 Substandard — 304 3,241 887 3 — — 4,435 Doubtful — 118 273 — — — — 391 Total 82,782 148,727 48,919 18,064 8,231 1,446 — 308,169 Insurance premium finance Pass 292,948 50,092 23 — — — — 343,063 Watch 35 301 — — — — — 336 Special Mention 1,236 107 — — — — — 1,343 Substandard — 33 — — — — — 33 Doubtful — 66 — — — — — 66 Total 294,219 50,599 23 — — — — 344,841 SBA/USDA Pass 97,498 155,760 24,689 22,832 9,093 7,384 — 317,256 Watch — 6,782 643 449 1,379 952 — 10,205 Special Mention — — — 1,814 — 69 — 1,883 26 Table of Contents Substandard — — — 1,203 698 672 — 2,573 Total 97,498 162,542 25,332 26,298 11,170 9,077 — 331,917 Other commercial finance Pass — 20,603 9,259 6,305 3,801 60,162 — 100,130 Watch 642 — — — 857 1,327 — 2,826 Substandard — — — 278 — — — 278 Total 642 20,603 9,259 6,583 4,658 61,489 — 103,234 Warehouse finance Pass — — — — — — 332,456 332,456 Total — — — — — — 332,456 332,456 Total National Lending Pass 669,178 752,369 202,325 113,022 26,278 87,926 731,928 2,583,026 Watch 7,233 32,873 9,291 1,608 3,142 4,282 82,149 140,578 Special Mention 1,361 8,153 5,876 3,414 86 7,940 33,074 59,904 Substandard — 5,083 26,585 6,888 842 1,442 11,652 52,492 Doubtful 58 1,103 874 343 — — — 2,378 Total 677,830 799,581 244,951 125,275 30,348 101,590 858,803 2,838,378 Commercial real estate and operating Pass — 13,109 105,549 80,399 33,003 533 — 232,593 Watch — 926 4,182 52,490 20,496 6,013 — 84,107 Special Mention — — — — — 684 — 684 Substandard — 300 700 16,897 — 306 — 18,203 Total — 14,335 110,431 149,786 53,499 7,536 — 335,587 Consumer 1-4 family real estate and other Pass — — 159 875 374 2,869 — 4,277 Substandard — — 110 — 41 139 — 290 Total — — 269 875 415 3,008 — 4,567 Agricultural real estate and other Pass — — 85 108 — 2,586 — 2,779 Substandard — 3,278 — 1,263 — 591 — 5,132 Total — 3,278 85 1,371 — 3,177 — 7,911 Total Community Bank Pass — 13,109 105,793 81,382 33,377 5,988 — 239,649 Watch — 926 4,182 52,490 20,496 6,013 — 84,107 Special Mention — — — — — 684 — 684 Substandard — 3,578 810 18,160 41 1,036 — 23,625 Total — 17,613 110,785 152,032 53,914 13,721 — 348,065 Total Loans and Leases Pass 669,178 765,478 308,118 194,404 59,655 93,914 731,928 2,822,675 Watch 7,233 33,799 13,473 54,098 23,638 10,295 82,149 224,685 Special Mention 1,361 8,153 5,876 3,414 86 8,624 33,074 60,588 Substandard — 8,661 27,395 25,048 883 2,478 11,652 76,117 Doubtful 58 1,103 874 343 — — — 2,378 Total $ 677,830 $ 817,194 $ 355,736 $ 277,307 $ 84,262 $ 115,311 $ 858,803 $ 3,186,443 27 Table of Contents The recorded investment of loans and leases by asset classification was as follows: Asset Classification Pass Watch Special Mention Substandard Doubtful Total As of September 30, 2020 (Dollars in Thousands) National Lending Term lending $ 725,101 $ 29,637 $ 24,501 $ 21,249 $ 4,835 $ 805,323 Asset based lending 102,013 62,512 12,577 5,317 — 182,419 Factoring 217,245 45,200 13,657 5,071 — 281,173 Lease financing 264,700 8,879 2,808 4,148 549 281,084 Insurance premium finance 336,364 284 222 701 369 337,940 SBA/USDA 308,549 8,328 74 1,436 — 318,387 Other commercial finance 100,727 931 — — — 101,658 Commercial finance 2,054,699 155,771 53,839 37,922 5,753 2,307,984 Warehouse finance 293,375 — — — — 293,375 Total National Lending 2,348,074 155,771 53,839 37,922 5,753 2,601,359 Community Banking Commercial real estate and operating 336,236 98,295 4,049 18,211 580 457,371 Consumer one-to-four family real estate and other 15,648 41 609 188 — 16,486 Agricultural real estate and operating 1,526 — 4,930 5,251 — 11,707 Total Community Banking 353,410 98,336 9,588 23,650 580 485,564 Total loans and leases $ 2,701,484 $ 254,107 $ 63,427 $ 61,572 $ 6,333 $ 3,086,923 28 Table of Contents Past due loans and leases were as follows: Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in Thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Non-accrual balance Total As of March 31, 2021 Loans held for sale $ — $ — $ — $ — $ 67,635 $ 67,635 $ — $ — $ — National Lending Term lending 22,074 7,628 2,592 32,294 859,120 891,414 353 14,665 15,018 Asset based lending 13 — — 13 248,722 248,735 — 382 382 Factoring — — — — 277,612 277,612 — 35 35 Lease financing 10,216 662 3,882 14,760 293,409 308,169 2,043 2,623 4,666 Insurance premium finance 1,290 440 2,414 4,144 340,697 344,841 2,414 — 2,414 SBA/USDA — — 600 600 331,317 331,917 — 600 600 Other commercial finance 1,082 — — 1,082 102,152 103,234 — — — Commercial finance 34,675 8,730 9,488 52,893 2,453,029 2,505,922 4,810 18,305 23,115 Consumer credit products 1,737 3,898 2,019 7,654 97,188 104,842 243 — 243 Other consumer finance 296 264 275 835 129,987 130,822 274 — 274 Consumer finance 2,033 4,162 2,294 8,489 227,175 235,664 517 — 517 Tax services 507 — — 507 225,414 225,921 — — — Warehouse finance — — — — 332,456 332,456 — — — Total National Lending 37,215 12,892 11,782 61,889 3,238,074 3,299,963 5,327 18,305 23,632 Community Banking Commercial real estate and operating 12 — — 12 335,575 335,587 — 17,896 17,896 Consumer one-to-four family real estate and other — — 49 49 4,518 4,567 — 159 159 Agricultural real estate and operating — — 1,769 1,769 6,142 7,911 — 1,769 1,769 Total Community Banking 12 — 1,818 1,830 346,235 348,065 — 19,824 19,824 Total loans and leases held for investment 37,227 12,892 13,600 63,719 3,584,309 3,648,028 5,327 38,129 43,456 Total loans and leases $ 37,227 $ 12,892 $ 13,600 $ 63,719 $ 3,651,944 $ 3,715,663 $ 5,327 $ 38,129 $ 43,456 29 Table of Contents Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in Thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Non-accrual balance Total As of September 30, 2020 Loans held for sale $ — $ — $ — $ — $ 183,577 $ 183,577 $ — $ — $ — National Lending Term lending 11,900 3,851 6,390 22,141 783,182 805,323 266 16,274 16,540 Asset based lending 17 — — 17 182,402 182,419 — — — Factoring — — — — 281,173 281,173 — 1,096 1,096 Lease financing 194 9,746 6,882 16,822 264,262 281,084 4,344 3,583 7,927 Insurance premium finance 1,227 748 2,364 4,339 333,601 337,940 2,364 — 2,364 SBA/USDA — — 1,027 1,027 317,360 318,387 427 600 1,027 Other commercial finance — — — — 101,658 101,658 — — — Commercial finance 13,338 14,345 16,663 44,346 2,263,638 2,307,984 7,401 21,553 28,954 Consumer credit products 377 358 499 1,233 88,576 89,809 499 — 499 Other consumer finance 600 536 373 1,509 132,833 134,342 373 — 373 Consumer finance 977 894 872 2,743 221,408 224,151 872 — 872 Tax services — — 1,743 1,743 1,323 3,066 1,743 — 1,743 Warehouse finance — — — — 293,375 293,375 — — — Total National Lending 14,315 15,239 19,278 48,832 2,779,744 2,828,576 10,016 21,553 31,569 Community Banking Commercial real estate and operating — — 630 630 456,741 457,371 50 580 630 Consumer one-to-four family real estate and other 905 114 50 1,069 15,417 16,486 — 50 50 Agricultural real estate and operating — — 1,769 1,769 9,938 11,707 — 1,769 1,769 Total Community Banking 905 114 2,449 3,468 482,096 485,564 50 2,399 2,449 Total loans and leases held for investment 15,220 15,353 21,727 52,300 3,261,840 3,314,140 10,066 23,952 34,018 Total loans and leases $ 15,220 $ 15,353 $ 21,727 $ 52,300 $ 3,445,417 $ 3,497,717 $ 10,066 $ 23,952 $ 34,018 30 Table of Contents Nonaccrual loans and leases by year of origination were as follows: Amortized Cost Basis (Dollars in Thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual With No ACL March 31, 2021 2021 2020 2019 2018 2017 Prior National Lending Term lending $ 72 $ 2,746 $ 8,834 $ 2,426 $ 23 $ 564 $ — $ 14,665 $ 7,942 Asset based lending — — — — — — 382 382 9 Factoring — — — — — — 35 35 — Lease financing — 358 1,906 359 — — — 2,623 1,118 SBA/USDA — — — — 600 — — 600 600 Commercial finance 72 3,104 10,740 2,785 623 564 417 18,305 9,669 Total National Lending 72 3,104 10,740 2,785 623 564 417 18,305 9,669 Community Banking Commercial real estate and operating — 300 700 16,896 — — — 17,896 — Consumer one-to-four family real estate and other — — 110 — 41 8 — 159 159 Agricultural real estate and operating — — — 1,263 — 506 — 1,769 1,769 Total Community Banking — 300 810 18,159 41 514 — 19,824 1,928 Total nonaccrual loans and leases $ 72 $ 3,404 $ 11,550 $ 20,944 $ 664 $ 1,078 $ 417 $ 38,129 $ 11,597 Loans and leases that are 90 days or more delinquent and accruing by year of origination were as follows: Amortized Cost Basis (Dollars in Thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total March 31, 2021 2021 2020 2019 2018 2017 Prior National Lending Term lending $ — $ — $ — $ 220 $ 112 $ 21 $ — $ 353 Lease financing 1,247 323 139 301 33 — — 2,043 Insurance premium finance 1,313 1,101 — — — — — 2,414 Commercial finance 2,560 1,424 139 521 145 21 — 4,810 Other consumer finance — — — — — 274 — 274 Consumer finance (1) — — — — — 274 — 274 Total National Lending 2,560 1,424 139 521 145 295 — 5,084 Total 90 days or more delinquent and accruing $ 2,560 $ 1,424 $ 139 $ 521 $ 145 $ 295 $ — $ 5,084 (1) Consumer credit products are not included in the table as they are evaluated under a separate methodology for allowance for credit loss purposes that considers the overall Program structure. Refer to the Company’s most recent audited financial statements for additional information on these Programs. Certain loans and leases 90 days or more past due as to interest or principal continue to accrue because they are (1) well-secured and in the process of collection or (2) one-to-four family real estate loans or consumer loans exempt under regulatory rules from being classified as non-accrual until later delinquency, usually 120 days past due. When analysis of borrower or lessee operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan or lease is evaluated for impairment. Often, this is associated with a delay or shortfall in scheduled payments, as described above. 31 Table of Contents The following table provides the average recorded investment in non-accrual loans and leases: Average Recorded Investment (Dollars in Thousands) Three Months Ended March 31, 2021 Six Months Ended March 31, 2021 National Lending Term lending $ 12,729 $ 13,802 Asset based lending 572 823 Factoring 44 490 Lease financing 2,990 3,273 SBA/USDA 600 600 Commercial finance 16,935 18,988 Total National Lending 16,935 18,988 Community Banking Commercial real estate and operating 18,269 12,404 Consumer one-to-four family real estate and other 161 143 Agricultural real estate and operating 1,769 1,769 Total Community Banking 20,199 14,316 Total loans and leases $ 37,134 $ 33,304 The recognized interest income on the Company's nonaccrual loans and leases for the three and six months ended March 31, 2021 was not significant. The following table provides the average recorded investment in impaired loans and leases: Three Months Ended March 31, 2020 Six Months Ended March 31, 2020 (Dollars in Thousands) Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income National Lending Term lending $ 26,454 $ 46 $ 22,995 $ 120 Asset based lending 350 — 389 — Factoring 4,596 — 4,223 — Lease financing 2,154 12 2,920 12 SBA/USDA 3,640 — 3,714 — Commercial finance 37,194 58 34,241 132 Other consumer finance 1,775 39 1,663 73 Consumer finance 1,775 39 1,663 73 Total National Lending 38,970 97 35,904 205 Community Banking Commercial real estate and operating 682 12 564 25 Consumer one-to-four family real estate and other 82 1 85 9 Agricultural real estate and operating 2,674 ( 186 ) 2,798 ( 144 ) Total Community Banking 3,438 ( 173 ) 3,447 ( 110 ) Total loans and leases $ 42,408 $ ( 76 ) $ 39,351 $ 95 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 $ 2.1 million of national lending loans that were modified in a TDR during the three months ended March 31, 2021, all of which were modified to extend the term of the loan, and no community banking loans. There were $ 3.7 million of national lending loans and leases that were modified in a TDR during the three months ended March 31, 2020 and no community banking loans. 32 Table of Contents During the six months ended March 31, 2021, there were $ 2.2 million of national lending loans and no community bank loans that were modified in a TDR, all of which were modified to extend the term of the loan. There were $ 4.1 million of national lending loans and leases and $ 0.6 million of community banking loans that were modified in a TDR during the six months ended March 31, 2020. During the six months ended March 31, 2021, the Company had $ 0.1 million of national lending loans and no community banking loans that were modified in a TDR within the previous 12 months and for which there was a payment default. During the six months ended March 31, 2020, the Company had $ 3.2 million of community banking loans and $ 2.9 million national lending loans that were modified in a TDR within the previous 12 months and for which there was a payment default. TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the quarters ended March 31, 2021 and March 31, 2020. NOTE 7. EARNINGS PER COMMON SHARE ("EPS") The Company has granted restricted share awards with dividend rights that are considered to be participating securities. Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the earnings per share calculation under the two-class method. Basic earnings per common share is computed using the two-class method by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated using the more dilutive of the treasury stock method or the two-class method. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options, performance share units, and nonvested restricted stock, where applicable. Diluted EPS under the two-class method also considers the allocation of earnings to the participating securities. Antidilutive securities are disregarded in earnings per share calculations. Diluted EPS shown below reflects the two-class method, as diluted EPS under the two-class method was more dilutive than under the treasury stock method. 33 Table of Contents A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below. Three Months Ended March 31, Six Months Ended March 31, (Dollars in Thousands, Except Share and Per Share Data) 2021 2020 2021 2020 Basic income per common share: Net income attributable to Meta Financial Group, Inc. $ 59,066 $ 52,304 $ 87,103 $ 73,372 Dividends and undistributed earnings allocated to participating securities ( 1,113 ) ( 1,215 ) ( 1,683 ) ( 1,652 ) Basic net earnings available to common stockholders 57,953 51,089 85,420 71,720 Undistributed earnings allocated to nonvested restricted stockholders 1,083 1,173 1,620 1,570 Reallocation of undistributed earnings to nonvested restricted stockholders ( 1,082 ) ( 1,172 ) ( 1,619 ) ( 1,569 ) Diluted net earnings available to common stockholders $ 57,954 $ 51,090 $ 85,421 $ 71,721 Total weighted-average basic common shares outstanding 31,520,505 35,114,053 32,158,994 35,865,443 Effect of dilutive securities (1) Stock options — 21,497 — 21,634 Performance share units 14,517 — 16,490 — Total effect of dilutive securities 14,517 21,497 16,490 21,634 Total weighted-average diluted common shares outstanding 31,535,022 35,135,550 32,175,484 35,887,077 Net earnings per common share: Basic earnings per common share $ 1.84 $ 1.45 $ 2.66 $ 2.00 Diluted earnings per common share (2) $ 1.84 $ 1.45 $ 2.65 $ 2.00 (1) Represents the effect of the assumed exercise of stock options and vesting of performance share units and restricted stock, as applicable, utilizing the treasury stock method. (2) Excluded from the computation of diluted earnings per share for the three months ended March 31, 2021 and 2020, respectively, were 605,459 and 834,746 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. Excluded from the computation of diluted earnings per share for the six months ended March 31, 2021 and 2020, respectively, were 633,553 and 826,262 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. NOTE 8. RENTAL EQUIPMENT, NET Rental equipment consists of the following: (Dollars in Thousands) March 31, 2021 September 30, 2020 Computers and IT networking equipment $ 16,313 $ 15,926 Motor vehicles and other 56,012 52,913 Office furniture and equipment 73,889 74,197 Solar panels and equipment 128,430 118,808 Total 274,644 261,844 Accumulated depreciation ( 65,013 ) ( 57,601 ) Unamortized initial direct costs 1,766 1,721 Net book value $ 211,397 $ 205,964 34 Table of Contents Undiscounted future minimum lease payments expected to be received for operating leases were as follows: (Dollars in Thousands) March 31, 2021 Remaining in 2021 $ 17,689 2022 30,532 2023 26,189 2024 18,948 2025 13,843 Thereafter 20,269 Total undiscounted future minimum lease payments receivable for operating leases $ 127,470 NOTE 9. FORECLOSED REAL ESTATE AND REPOSSESSED ASSETS The following table provides an analysis of changes in foreclosed real estate and repossessed assets: Six Months Ended March 31, (Dollars in Thousands) 2021 2020 Balance, beginning of period $ 9,957 $ 29,494 Additions 9 5,983 Reductions: Write-downs 466 104 Sales 8,021 23,085 (Gain) loss on sale ( 4 ) 5,039 Total reductions 8,483 28,228 Balance, ending of period $ 1,483 $ 7,249 At March 31, 2021 and September 30, 2020, the Company had established a valuation allowance of $ 1.0 million and $ 0.5 million for repossessed assets, respectively. As of March 31, 2021 and September 30, 2020, the Company had no loans or leases in the process of foreclosure. During the fiscal year ended September 30, 2020, the Company sold $ 28.1 million of other real estate owned ("OREO"), which consisted of assets related to a Community Bank agriculture real estate customer. The sale consisted of 30-plus parcels of land and the Company recognized a $ 5.0 million loss that was included in the "Gain (loss) on sale of other" line on the Condensed Consolidated Statements of Operations. The Company also recognized $ 1.1 million in deferred rental income and $ 0.2 million in OREO expenses related to these foreclosed properties. NOTE 10. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at March 31, 2021. The recorded goodwill is a result of multiple business combinations that have been consummated since fiscal year 2015, with the most recent being the merger with Crestmark pursuant to the Crestmark Acquisition that closed on August 1, 2018. Goodwill is assessed for impairment at least annually or more often if conditions indicate a possible impairment. The assessment is done at a reporting unit level, which is one level below the operating segments. There have been no changes to the carrying amount of goodwill during the six months ended March 31, 2021. 35 Table of Contents The changes in the carrying amount of the Company’s intangible assets for the six months ended March 31, 2021 and 2020 were as follows: (Dollars in Thousands) Trademark (1) Non-Compete (2) Customer Relationships (3) All Others (4) Total Balance as of September 30, 2020 $ 10,901 $ 422 $ 24,333 $ 6,036 $ 41,692 Acquisitions during the period — — — 5 5 Amortization during the period ( 544 ) ( 191 ) ( 3,716 ) ( 319 ) ( 4,770 ) Write-offs during the period — — — ( 24 ) ( 24 ) Balance as of March 31, 2021 $ 10,357 $ 231 $ 20,617 $ 5,698 $ 36,903 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 10,123 $ 109,316 Accumulated amortization ( 4,267 ) ( 2,250 ) ( 51,223 ) ( 4,207 ) ( 61,947 ) Accumulated impairment — — ( 10,248 ) ( 218 ) ( 10,466 ) Balance as of March 31, 2021 $ 10,357 $ 231 $ 20,617 $ 5,698 $ 36,903 (1) Book amortization period of 5 - 15 years. Amortized using the straight line and accelerated methods. (2) Book amortization period of 3 - 5 years. Amortized using the straight line method. (3) Book amortization period of 10 - 30 years. Amortized using the accelerated method. (4) Book amortization period of 3 - 20 years. Amortized using the straight line method. (Dollars in Thousands) Trademark (1) Non-Compete (2) Customer Relationships (3) All Others (4) Total Balance as of September 30, 2019 $ 11,959 $ 827 $ 33,207 $ 6,817 $ 52,810 Acquisitions during the period — — — 33 33 Amortization during the period ( 528 ) ( 212 ) ( 4,997 ) ( 340 ) ( 6,077 ) Balance as of March 31, 2020 $ 11,431 $ 615 $ 28,210 $ 6,510 $ 46,766 Gross carrying amount $ 14,624 $ 2,480 $ 82,088 $ 10,736 $ 109,928 Accumulated amortization ( 3,193 ) ( 1,865 ) ( 43,630 ) ( 3,567 ) ( 52,255 ) Accumulated impairment — — ( 10,248 ) ( 659 ) ( 10,907 ) Balance as of March 31, 2020 $ 11,431 $ 615 $ 28,210 $ 6,510 $ 46,766 (1) Book amortization period of 5 - 15 years. Amortized using the straight line and accelerated methods. (2) Book amortization period of 3 - 5 years. Amortized using the straight line method. (3) Book amortization period of 10 - 30 years. Amortized using the accelerated method. (4) Book amortization period of 3 - 20 years. Amortized using the straight line method. The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining six months of fiscal 2021 and subsequent fiscal years was as follows: (Dollars in Thousands) March 31, 2021 Remaining in 2021 $ 3,775 2022 6,419 2023 5,101 2024 4,383 2025 3,827 2026 3,253 Thereafter 10,145 Total anticipated intangible amortization $ 36,903 The Company tests intangible assets for impairment at least annually or more often if conditions indicate a possible impairment. There were no impairments to intangible assets during the six months ended March 31, 2021 and 2020. 36 Table of Contents NOTE 11. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease ROU assets, included in other assets, were $ 36.1 million at March 31, 2021. Operating lease liabilities, included in accrued expenses and other liabilities, were $ 38.1 million at March 31, 2021. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities were as follows: (Dollars in Thousands) March 31, 2021 Remaining in 2021 $ 2,219 2022 4,596 2023 3,999 2024 4,152 2025 4,027 Thereafter 24,926 Total undiscounted future minimum lease payments 43,919 Discount ( 5,817 ) Total operating lease liabilities $ 38,102 The weighted-average discount rate and remaining lease term for operating leases were as follows: March 31, 2021 Weighted-average discount rate 2.31 % Weighted-average remaining lease term (years) 11.23 The components of total lease costs for operating leases were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in Thousands) 2021 2020 2021 2020 Lease expense $ 991 $ 869 $ 1,945 $ 1,613 Short-term and variable lease cost 69 156 132 334 ROU asset impairment — — 224 — Sublease income ( 177 ) ( 175 ) ( 285 ) ( 364 ) Total lease cost for operating leases $ 883 $ 850 $ 2,016 $ 1,583 NOTE 12. STOCKHOLDERS' EQUITY Repurchase of Common Stock The Company's Board of Directors authorized the November 20, 2019 share repurchase program to repurchase up to 7,500,000 shares of the Company's outstanding common stock. This authorization is effective from November 21, 2019 through December 31, 2022. During the six months ended March 31, 2021, and 2020, the Company repurchased 2,683,579 and 3,497,565 shares, respectively, as part of the share repurchase program. Under the repurchase program, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of March 31, 2021, the remaining number of shares available for repurchase under this program was 1,550,173 shares of common stock. For the six months ended March 31, 2021, and 2020, the Company also repurchased 84,121 and 88,784 shares, or $ 1.9 million and $ 2.9 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock. 37 Table of Contents NOTE 13. STOCK COMPENSATION The Company maintains the Meta Financial Group, Inc. 2002 Omnibus Incentive Plan, as amended and restated (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options, nonvested (restricted) shares, and performance share units ("PSUs") to certain officers and directors of the Company. Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors. Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant. The exercise price of options or fair value of nonvested (restricted) shares and performance share units granted under the Company’s incentive plan is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur. The following tables show the activity of nonvested (restricted) shares and PSUs granted, exercised, or forfeited under the 2002 Omnibus Incentive Plan for the six months ended March 31, 2021. There were no options granted, exercised or forfeited under this plan during the six months ended March 31, 2021. (Dollars in Thousands, Except Per Share Data) Number of Shares Weighted Average Fair Value at Grant Nonvested shares outstanding, September 30, 2020 790,083 $ 30.03 Granted 189,187 30.78 Vested ( 274,096 ) 30.22 Forfeited or expired ( 98,399 ) 29.66 Nonvested shares outstanding, March 31, 2021 606,775 $ 30.24 (Dollars in Thousands, Except Per Share Data) Number of Units Weighted Average Fair Value at Grant Performance share units outstanding, September 30, 2020 — $ — Granted (1) 60,984 34.03 Vested — — Forfeited or expired — — Performance share units outstanding, March 31, 2021 60,984 $ 34.03 (1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award. At March 31, 2021, stock-based compensation expense not yet recognized in income totaled $ 8.9 million, which is expected to be recognized over a weighted average remaining period of 2.10 years. NOTE 14. INCOME TAXES The Company recorded an income tax expense of $ 4.7 million for the six months ended March 31, 2021, resulting in an effective tax rate of 4.97 %, compared to an income tax expense of $ 6.3 million, or an effective tax rate of 7.66 %, for the six months ended March 31, 2020. The Company’s effective tax rate was lower than the U.S. statutory rate of 21% primarily because of the anticipated effect of investment tax credits during fiscal year 2019. The Company’s effective tax rate in the future will depend in part on actual investment tax credits earned as part of its financing of solar energy projects. 38 Table of Contents The table below compares the income tax expense components for the periods presented. Six Months Ended March 31, (Dollars in Thousands) 2021 2020 Provision at statutory rate $ 19,271 $ 16,730 Tax-exempt income ( 486 ) ( 591 ) State income taxes 4,135 3,682 Interim period effective rate adjustment ( 3,116 ) ( 3,321 ) Tax credit investments, net - federal ( 15,464 ) ( 9,536 ) Research tax credit ( 323 ) ( 1,709 ) IRC 162(m) nondeductible compensation 487 1,019 Other, net 161 23 Income tax expense (benefit) $ 4,665 $ 6,297 Effective tax rate 4.97 % 7.66 % NOTE 15. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Bank makes various commitments to extend credit that are not reflected in the accompanying Condensed Consolidated Financial Statements as described below. At March 31, 2021 and September 30, 2020, unfunded loan commitments approximated $ 1.28 billion and $ 1.22 billion, respectively, excluding undisbursed portions of loans in process. Commitments, which are disbursed subject to certain limitations, extend over various periods of time. Generally, unused commitments are canceled upon expiration of the commitment term as outlined in each individual contract. The Company had no commitments to purchase securities at March 31, 2021 or September 30, 2020. The Company had no commitments to sell securities at March 31, 2021 or September 30, 2020. 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. Since certain commitments to make loans and to fund lines of credit 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. Legal Proceedings The Bank was served, on October 14, 2016, with a lawsuit captioned Card Limited, LLC v. MetaBank dba Meta Payment Systems, Civil No. 2:16-cv-00980 in the United States District Court for the District of Utah. This action was initiated by a former prepaid program manager of the Bank, which was terminated by the Bank in fiscal year 2016. Card Limited alleges that, after all of the programs were wound down, there were two accounts with positive balances to which Card Limited is entitled. The Bank’s position is that Card Limited is not entitled to the funds contained in said accounts. The total amount to which Card Limited claims it is entitled is $ 4.0 million. The Court ruled in favor of MetaBank on cross motions for summary judgment and vacated the trial. Card Limited has appealed the decision, but thereafter agreed to settle this claim for a nominal amount. This payment has been made and the case has been dismissed. 39 Table of Contents 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 filed a Motion for Summary Judgment which was granted by the trial court, but is subject to appeal. 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 16. REVENUE FROM CONTRACTS WITH CUSTOMERS Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 17. Segment Reporting to the Condensed Consolidated Financial Statements. (Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company Three Months Ended March 31, 2021 2020 2021 2020 2021 2020 2021 2020 Net interest income (1) $ 25,085 $ 16,162 $ 42,404 $ 37,026 $ 6,361 $ 14,549 $ 73,850 $ 67,737 Noninterest income: Refund transfer product fees 22,680 28,939 — — — — 22,680 28,939 Tax advance product fees (1) 44,562 29,536 — — — — 44,562 29,536 Payment card and deposit fees 29,875 23,156 — — — — 29,875 23,156 Other bank and deposit fees — — 126 268 7 113 133 381 Rental income (1) 5 5 9,841 11,094 — 1 9,846 11,100 Net gain realized on investment securities (1) — — — — 6 — 6 — Gain on divestitures (1) — — — — — 19,275 — 19,275 Gain (loss) on sale of other (1) — ( 259 ) 1,624 2,579 509 5 2,133 2,325 Other income (1) 919 1,831 2,349 1,582 950 2,388 4,218 5,801 Total noninterest income 98,041 83,208 13,940 15,523 1,472 21,782 113,453 120,513 Revenue $ 123,126 $ 99,370 $ 56,344 $ 52,549 $ 7,833 $ 36,331 $ 187,303 $ 188,250 (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. 40 Table of Contents (Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company Six Months Ended March 31, 2021 2020 2021 2020 2021 2020 2021 2020 Net interest income (1) $ 47,432 $ 32,719 $ 84,252 $ 76,762 $ 8,165 $ 22,907 $ 139,849 $ 132,388 Noninterest income: Refund transfer product fees 23,327 29,131 — — — — 23,327 29,131 Tax advance product fees (1) 46,522 31,812 — — — — 46,522 31,812 Payment card and deposit fees 52,439 44,655 — — — — 52,439 44,655 Other bank and deposit fees — — 360 546 10 322 370 868 Rental income (1) 10 9 19,721 22,128 — 1,314 19,731 23,451 Net gain realized on investment securities (1) — — — — 6 — 6 — Gain on divestitures (1) — — — — — 19,275 — 19,275 Gain (loss) on sale of other (1) — ( 19 ) 4,216 4,917 765 ( 5,142 ) 4,981 ( 244 ) Other income (1) 1,078 2,384 4,809 2,911 5,645 3,752 11,532 9,047 Total noninterest income 123,376 107,972 29,106 30,502 6,426 19,521 158,908 157,995 Revenue $ 170,808 $ 140,691 $ 113,358 $ 107,264 $ 14,591 $ 42,428 $ 298,757 $ 290,383 (1) These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities. Following is a discussion of key revenues within the scope of Topic 606. The Company provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the completion of the service or over time as services are performed. Any services performed over time generally require that the Company renders services each period; therefore, the Company measures progress in completing these services based upon the passage of time. Revenue from contracts with customers did not generate significant contract assets and liabilities. Refund Transfer Product Fees. Refund transfer fees are specific to the tax products offered by Refund Advantage and EPS. These fees are for products, services such as payment processing, and product referral commissions. Software partner fees paid and/or incurred are recorded on a net basis. The Company’s obligation for product fees and commissions is satisfied at the time of the product delivery and obligation for payment processing is satisfied at the time of processing. The transaction price for such activity is based upon stand-alone fees within the terms and conditions. At March 31, 2021 and September 30, 2020, there were no receivables related to refund transfer fees, which reflect earned revenue with unconditional rights to payment for product fee income. All refund transfer fees are recorded within the Consumer reporting segment. 41 Table of Contents Card Fees. Card fees relate to MPS, Community Bank, Refund Advantage and EPS products. These fees are for products and services such as card activation, product support, processing, and servicing. The Company earns these fees based upon the underlying terms and conditions with each cardholder over the contract term. Agreements with the Company’s cardholders are considered daily service contracts as they are not fixed in duration. The Company’s obligation for card activation and product support fees is satisfied at the time of product delivery, while the obligation for processing and servicing is satisfied over the course of each month. The transaction price for such activity is based upon the stand-alone fees within the terms and conditions of the cardholder agreements. Card fee revenue also includes income from sponsorships, associations and networks, and interchange income. Sponsorship income relates to fees charged to the Company’s ATM sponsorship partners, where the obligation is satisfied over the course of each month. Association and network income reflect incentives, performance bonuses and rebates with MasterCard and Visa. The obligation for such income is satisfied at the time when certain thresholds of transaction volume have been met. Interchange income is generated by cardholder activity, and therefore the Company’s obligations are satisfied as activity occurs. The transaction price for such activity is based on underlying rates and activity thresholds within the terms and conditions of the applicable agreements. Card fee revenue also includes breakage revenue. Breakage represents the estimated amount that will not be redeemed by the holder of unregistered, unused prepaid cards for goods or services. Breakage revenue is recognized ratably over the expected customer usage period and is an estimate based on cardholder behavior and breakage rates. Breakage is also impacted by escheatment laws. Card fees are recorded within both the Consumer and Commercial reporting segments, the substantial majority of which is derived from the Company's payments divisions and reported in payments card and deposit fees. Card fees related to the Community Bank are reported within other bank and deposit fees. Bank and Deposit Fees. Fees are earned on depository accounts for consumer and commercial customers and include fees for account services, overdraft services, safety deposit box rentals, and event-driven services (i.e. returned checks, ATM surcharge, card replacement, wire transfers, and stop pays). The Company’s obligation for event-driven services is satisfied at the time of the event when the service is delivered, while its obligation for account services is satisfied over the course of each month. The Company’s obligation for overdraft services is satisfied at the time of overdraft. The transaction price for such activity is based upon stand-alone fees within the terms and conditions of the deposit agreements. Bank and deposit fees are recorded within both the Consumer and Commercial reporting segments, the majority of which are derived from the Company's payments divisions. Bank and deposit fees related to the Community Bank are reported within other bank and deposit fees. Principal vs Agent. The Consumer reporting segment includes principal/agent relationships. Within this segment, MPS relationships are recorded on a gross basis within the Condensed Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of association/network contracts and partner/processor contracts for prepaid cards, which are recorded on a net basis within the Condensed Consolidated Statements of Operations as Meta is the agent in these contracts. Also within this segment, Tax Service relationships are recorded on a gross basis within the Condensed Consolidated Statements of Operations, as Meta is the principal in the contract, with the exception of contracts with software providers and merchants, which are recorded on a net basis within the Condensed Consolidated Statements of Operations as Meta is the agent in these contracts. NOTE 17. SEGMENT REPORTING An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met. The Company reports its results of operations through the following three business segments: Consumer, Commercial, and Corporate Services/Other. The Meta Payment Systems and Tax Services divisions, as well as the Consumer Credit Products and ClearBalance business lines, are reported in the Consumer segment . The Crestmark and AFS divisions are reported in the Commercial segment. The Community Bank division, Warehouse Finance, and Student Loan lending portfolio are included in the Corporate Services/Other segment. The Corporate Services/Other segment also includes certain shared services as well as treasury related functions such as the investment portfolio, wholesale deposits and borrowings. The Company does not report indirect general and administrative expenses in the Consumer and Commercial segments. Beginning October 1, 2020, Warehouse Finance, formerly reported in the Consumer segment, is now included in the Corporate Services/Other segment. Prior periods have been reclassified to conform to the current presentation. 42 Table of Contents The Company adopted ASU 2018-02 as of October 1, 2020. The amendments in this ASU allow for a reclassification from AOCI to Retained Earnings for stranded tax effects from the Tax Cuts and Jobs Act of 2017 ("TCJA"). For the Company, these amendments are limited to any unrealized gains and losses held in Other Comprehensive Income for debt securities AFS held at the time of the TCJA enactment. The Company determined there were no stranded tax effects from the TCJA enactment and has not made any reclassification from AOCI to Retained Earnings upon adoption of this ASU. The following tables present segment data for the Company: Three Months Ended March 31, 2021 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 25,085 $ 42,404 $ 6,361 $ 73,850 Provision for credit losses 28,020 2,203 67 30,290 Noninterest income 98,041 13,940 1,472 113,453 Noninterest expense 30,189 27,829 37,953 95,971 Income (loss) before income tax expense 64,917 26,312 ( 30,187 ) 61,042 Total assets 531,305 3,030,088 6,228,730 9,790,123 Total goodwill 87,145 222,360 — 309,505 Total deposits 8,447,910 12,177 182,326 8,642,413 Three Months Ended March 31, 2020 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 16,162 $ 37,026 $ 14,549 $ 67,737 Provision for loan and lease losses 19,570 11,994 5,732 37,296 Noninterest income 83,208 15,523 21,782 120,513 Noninterest expense 30,450 27,361 33,918 91,729 Income (loss) before income tax expense 49,350 13,194 ( 3,319 ) 59,225 Total assets 387,871 2,529,665 2,926,329 5,843,865 Total goodwill 87,145 222,360 — 309,505 Total deposits 3,078,481 9,214 874,709 3,962,404 Six Months Ended March 31, 2021 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 47,432 $ 84,252 $ 8,165 $ 139,849 Provision for credit losses 30,386 8,670 ( 2,677 ) 36,379 Noninterest income 123,376 29,106 6,426 158,908 Noninterest expense 48,351 54,997 65,198 168,546 Income (loss) before income tax expense 92,071 49,691 ( 47,930 ) 93,832 Total assets 531,305 3,030,088 6,228,730 9,790,123 Total goodwill 87,145 222,360 — 309,505 Total deposits 8,447,910 12,177 182,326 8,642,413 43 Table of Contents Six Months Ended March 31, 2020 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 32,719 $ 76,762 $ 22,907 $ 132,388 Provision for loan and lease losses 20,544 15,695 4,464 40,703 Noninterest income 107,972 30,502 19,521 157,995 Noninterest expense 47,190 54,086 66,250 167,526 Income (loss) before income tax expense 72,957 37,483 ( 28,286 ) 82,154 Total assets 387,871 2,529,665 2,926,329 5,843,865 Total goodwill 87,145 222,360 — 309,505 Total deposits 3,078,481 9,214 874,709 3,962,404 NOTE 18. FAIR VALUES OF FINANCIAL INSTRUMENTS ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The fair value hierarchy is as follows: Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date. Level 2 Inputs - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market. Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Debt Securities Available for Sale and Held to Maturity . Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost. The fair value of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing servicing for unusual fluctuations and comparison to current market trading activity. Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). 44 Table of Contents The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis: Fair Value At March 31, 2021 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Debt securities AFS SBA securities $ 170,006 $ — $ 170,006 $ — Obligations of states and political subdivisions 2,816 — 2,816 — Non-bank qualified obligations of states and political subdivisions 295,722 — 295,722 — Asset-backed securities 453,403 — 453,403 — Mortgage-backed securities 558,833 — 558,833 — Total debt securities AFS $ 1,480,780 $ — $ 1,480,780 $ — Common equities and mutual funds (1) $ 3,235 $ 3,235 $ — $ — Non-marketable equity securities (2) $ 4,265 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2021 and September 30, 2020. (2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy. Fair Value At September 30, 2020 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Debt securities AFS SBA securities $ 164,955 $ — $ 164,955 $ — Obligations of states and political subdivisions 841 — 841 — Non-bank qualified obligations of states and political subdivisions 323,774 — 323,774 — Asset-backed securities 324,925 — 324,925 — Mortgage-backed securities 453,607 — 453,607 — Total debt securities AFS $ 1,268,102 $ — $ 1,268,102 $ — Common equities and mutual funds (1) $ 2,969 $ 2,969 $ — $ — Non-marketable equity securities (2) $ 2,784 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2021 and September 30, 2020. (2) Consists of certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy. Foreclosed Real Estate and Repossessed Assets. Real estate properties and repossessed assets are initially recorded at the fair value less selling costs at the date of foreclosure, establishing a new cost basis. The carrying amount represents the lower of the new cost basis or the fair value less selling costs of foreclosed assets that were measured at fair value subsequent to their initial classification as foreclosed assets. Loans and Leases. The Company does not record loans and leases at fair value on a recurring basis. However, if a loan or lease is individually evaluated for risk of credit loss and repayment is expected to be solely provided by the values of the underlying collateral, the Company measures fair value on a nonrecurring basis. Fair value is determined by the fair value of the underlying collateral less estimated costs to sell. The fair value of the collateral is determined based on internal estimates and/or assessments provided by third-party appraisers and the valuation relies on discount rates ranging from 4 % to 90 %. 45 Table of Contents The following table summarizes the assets of the Company that are measured at fair value in the Condensed Consolidated Statements of Financial Condition on a non-recurring basis: Fair Value At March 31, 2021 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Impaired loans and leases, net Commercial finance $ 6,830 $ — $ — $ 6,830 Total National Lending 6,830 — — 6,830 Commercial real estate and operating 9,029 — — 9,029 Total Community Banking 9,029 — — 9,029 Total impaired loans and leases, net 15,859 — — 15,859 Foreclosed assets, net 1,483 — — 1,483 Total $ 17,342 $ — $ — $ 17,342 Fair Value At September 30, 2020 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Impaired loans and leases, net Commercial finance $ 9,240 $ — $ — $ 9,240 Total National Lending 9,240 — — 9,240 Commercial real estate and operating 20 — — 20 Total Community Banking 20 — — 20 Total impaired loans and leases, net 9,260 — — 9,260 Foreclosed assets, net 9,957 — — 9,957 Total $ 19,217 $ — $ — $ 19,217 Quantitative Information About Level 3 Fair Value Measurements (Dollars in Thousands) Fair Value at March 31, 2021 Fair Value at September 30, 2020 Valuation Technique Unobservable Input Range of Inputs Impaired loans and leases, net $ 15,859 9,260 Market approach Appraised values (1) 4 % - 90 % Foreclosed assets, net $ 1,483 9,957 Market approach Appraised values (1) 4 % - 30 % (1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs and other inputs in a range of 4 % to 90 %. Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at March 31, 2021 and September 30, 2020 based on relevant market information and information about financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, since there is no active market for certain financial instruments of the Company, the estimates of fair value are subjective in nature, involve uncertainties, and include matters of significant judgment. Changes in assumptions as well as tax considerations could significantly affect the estimated values. Accordingly, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis. 46 Table of Contents The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company: March 31, 2021 (Dollars in Thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 3,724,242 $ 3,724,242 $ 3,724,242 $ — $ — Debt securities available for sale 1,480,780 1,480,780 — 1,480,780 — Debt securities held to maturity 72,112 73,294 — 73,294 — Common equities and mutual funds (1) 3,235 3,235 3,235 — — Non-marketable equity securities (1)(2) 18,015 18,015 — 13,750 — Loans held for sale 67,635 67,635 — 67,635 — Loans and leases receivable 3,648,028 3,655,832 — — 3,655,832 Federal Reserve Bank and Federal Home Loan Bank stocks 28,433 28,433 — 28,433 — Accrued interest receivable 17,429 17,429 17,429 — — Financial liabilities Deposits 8,642,413 8,642,560 8,600,335 42,225 — Other short- and long-term borrowings 95,336 97,259 — 97,259 — Accrued interest payable 679 679 679 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2021 and September 30, 2020. (2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy. September 30, 2020 (Dollars in Thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 427,367 $ 427,367 $ 427,367 $ — $ — Debt securities available for sale 1,268,102 1,268,102 — 1,268,102 — Debt securities held to maturity 92,610 93,745 — 93,745 — Common equities and mutual funds( 1) 2,969 2,969 2,969 — — Non-marketable equity securities (1)(2) 14,784 14,784 — 12,000 — Loans held for sale 183,577 183,577 — 183,577 — Loans and leases receivable 3,314,140 3,307,037 — — 3,307,037 Federal Reserve Bank and Federal Home Loan Bank stocks 27,138 27,138 — 27,138 — Accrued interest receivable 16,628 16,628 16,628 — — Financial liabilities Deposits 4,979,200 4,980,073 4,705,028 275,045 — Overnight federal funds purchased — — — — — Federal Home Loan Bank advances — — — — — Other short- and long-term borrowings 98,224 100,185 — 100,185 — Accrued interest payable 1,923 1,923 1,923 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2021 and September 30, 2020. (2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy. 47 Table of Contents NOTE 19. SUBSEQUENT EVENTS Management has evaluated subsequent events that occurred after March 31, 2021. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management identified the following subsequent event: • The Bank is reorganizing its payments team to best support its emerging and established customers. In connection with this realignment, Sheree S. Thornsberry, Executive Vice President and Head of Payments of the Bank, will no longer be employed in her position effective May 7, 2021. 48 Table of Contents