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) June 30, 2021 September 30, 2020 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 720,243 $ 427,367 Investment securities available for sale, at fair value 854,023 814,495 Mortgage-backed securities available for sale, at fair value 1,063,582 453,607 Investment securities held to maturity, at cost 60,228 87,183 Mortgage-backed securities held to maturity, at cost 4,019 5,427 Loans held for sale 87,905 183,577 Loans and leases 3,496,670 3,322,765 Allowance for credit losses ( 91,208 ) ( 56,188 ) Federal Reserve Bank and Federal Home Loan Bank stocks, at cost 28,433 27,138 Accrued interest receivable 16,230 16,628 Premises, furniture, and equipment, net 44,107 41,608 Rental equipment, net 211,368 205,964 Bank-owned life insurance 94,142 92,315 Foreclosed real estate and repossessed assets. net 1,204 9,957 Goodwill 309,505 309,505 Intangible assets 34,898 41,692 Prepaid assets 7,482 8,328 Deferred taxes, net 20,072 17,723 Other assets 88,909 82,983 Total assets $ 7,051,812 $ 6,092,074 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits: Noninterest-bearing checking 5,385,569 4,356,630 Interest-bearing checking 255,509 157,571 Savings deposits 93,608 47,866 Money market deposits 63,920 48,494 Time certificates of deposit 11,425 20,223 Wholesale deposits 78,840 348,416 Total deposits 5,888,871 4,979,200 Short-term borrowings — — Long-term borrowings 93,634 98,224 Accrued interest payable 1,853 1,923 Accrued expenses and other liabilities 190,821 165,419 Total liabilities 6,175,179 5,244,766 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued and no shares outstanding at June 30, 2021 and September 30, 2020, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 32,123,004 and 34,479,164 shares issued, 31,919,780 and 34,360,890 shares outstanding at June 30, 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 June 30, 2021 and September 30, 2020, respectively — — Additional paid-in capital 602,720 594,569 Retained earnings 262,578 234,927 Accumulated other comprehensive income 15,222 17,542 Treasury stock, at cost, 203,224 and 118,274 common shares at June 30, 2021 and September 30, 2020, respectively ( 5,696 ) ( 3,677 ) Total equity attributable to parent 875,143 843,705 Noncontrolling interest 1,490 3,603 Total stockholders’ equity 876,633 847,308 Total liabilities and stockholders’ equity $ 7,051,812 $ 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 June 30, Nine Months Ended June 30, (Dollars in Thousands, Except Share and Per Share Data) 2021 2020 2021 2020 Interest and dividend income: Loans and leases, including fees $ 62,287 $ 59,911 $ 192,415 $ 199,107 Mortgage-backed securities 3,446 2,269 8,176 7,151 Other investments 4,250 5,226 13,207 18,176 69,983 67,406 213,798 224,434 Interest expense: Deposits 188 3,130 1,429 20,712 FHLB advances and other borrowings 1,320 2,139 4,045 9,197 1,508 5,269 5,474 29,909 Net interest income 68,475 62,137 208,324 194,525 Provision for credit losses 4,612 15,093 40,991 55,796 Net interest income after provision for credit losses 63,863 47,044 167,333 138,729 Noninterest income: Refund transfer product fees 12,073 4,595 35,400 33,726 Tax advance product fees 891 28 47,413 31,840 Payment card and deposit fees 29,203 21,302 81,641 65,957 Other bank and deposit fees 338 214 709 1,083 Rental income 9,976 11,231 29,707 34,682 Net gain realized on investment securities — — 6 — Gain on divestitures — — — 19,275 Gain (loss) on sale of other 5,955 1,214 10,935 969 Other income 4,017 2,464 15,550 11,512 Total noninterest income 62,453 41,048 221,361 199,044 Noninterest expense: Compensation and benefits 38,604 32,102 114,867 100,631 Refund transfer product expense 2,435 ( 139 ) 8,642 7,482 Tax advance product expense ( 25 ) ( 11 ) 2,534 2,820 Card processing 6,809 7,128 20,138 19,432 Occupancy and equipment expense 7,381 6,502 21,017 20,169 Operating lease equipment depreciation 8,122 8,536 23,122 25,237 Legal and consulting 5,680 4,660 16,972 15,242 Intangible amortization 2,013 2,636 6,784 8,714 Impairment expense 505 — 2,217 750 Other expense 9,999 9,827 33,775 38,291 Total noninterest expense 81,523 71,241 250,068 238,768 Income before income tax expense 44,793 16,851 138,626 99,005 Income tax expense (benefit) 4,934 ( 2,426 ) 9,600 3,870 Net income before noncontrolling interest 39,859 19,277 129,026 95,135 Net income attributable to noncontrolling interest 1,158 1,087 3,221 3,573 Net income attributable to parent $ 38,701 $ 18,190 $ 125,805 $ 91,562 Earnings per common share Basic $ 1.21 $ 0.53 $ 3.87 $ 2.54 Diluted $ 1.21 $ 0.53 $ 3.87 $ 2.54 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 June 30, Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 2021 2020 Net income before noncontrolling interest $ 39,859 $ 19,277 $ 129,026 $ 95,135 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities 3,081 8,067 ( 3,996 ) 2,576 Net (gain) realized on investment securities — — ( 6 ) — 3,081 8,067 ( 4,002 ) 2,576 Unrealized gain (loss) on currency translation 121 295 692 ( 269 ) Deferred income tax effect 789 2,021 ( 990 ) 651 Total other comprehensive income (loss) 2,413 6,341 ( 2,320 ) 1,656 Total comprehensive income 42,272 25,618 126,706 96,791 Total comprehensive income attributable to noncontrolling interest 1,158 1,087 3,221 3,573 Comprehensive income attributable to parent $ 41,114 $ 24,531 $ 123,485 $ 93,218 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 June 30, 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, March 31, 2021 $ 319 $ 601,222 $ 225,471 $ 12,809 $ ( 5,655 ) $ 834,166 $ 1,092 $ 835,258 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,594 ) — — ( 1,594 ) — ( 1,594 ) Shares repurchased — — — — ( 41 ) ( 41 ) — ( 41 ) Stock compensation — 1,498 — — — 1,498 — 1,498 Total other comprehensive income — — — 2,413 — 2,413 — 2,413 Net income — — 38,701 — — 38,701 1,158 39,859 Net investment by (distribution to) noncontrolling interests — — — — — — ( 760 ) ( 760 ) Balance, June 30, 2021 $ 319 $ 602,720 $ 262,578 $ 15,222 $ ( 5,696 ) $ 875,143 $ 1,490 $ 876,633 Three Months Ended June 30, 2020 Balance, March 31, 2020 $ 346 $ 590,682 $ 212,027 $ 1,654 $ ( 3,397 ) $ 801,312 $ 3,762 $ 805,074 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,717 ) — — ( 1,717 ) — ( 1,717 ) Issuance of common shares due to exercise of stock options — 88 — — — 88 — 88 Shares repurchased — — — — ( 15 ) ( 15 ) — ( 15 ) Stock compensation — 1,923 — — — 1,923 — 1,923 Total other comprehensive income — — — 6,341 — 6,341 — 6,341 Net income — — 18,190 — — 18,190 1,087 19,277 Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,062 ) ( 1,062 ) Balance, June 30, 2020 $ 346 $ 592,693 $ 228,500 $ 7,995 $ ( 3,412 ) $ 826,122 $ 3,787 $ 829,909 5 Table of Contents (Dollars in Thousands, Except Share and Per Share Data) Meta Financial Group, Inc. Stockholders' Equity Nine Months Ended June 30, 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 ($ 0.15 per share) — — ( 4,804 ) — — ( 4,804 ) — ( 4,804 ) Issuance of common shares due to ESOP 2 3,034 — — — 3,036 — 3,036 Shares repurchased ( 27 ) 27 ( 84,999 ) — ( 2,019 ) ( 87,018 ) — ( 87,018 ) Stock compensation — 5,090 — — — 5,090 — 5,090 Total other comprehensive (loss) — — — ( 2,320 ) — ( 2,320 ) — ( 2,320 ) Net income — — 125,805 — — 125,805 3,221 129,026 Net investment by (distribution to) noncontrolling interests — — — — — — ( 2,882 ) ( 2,882 ) Balance, June 30, 2021 $ 319 $ 602,720 $ 262,578 $ 15,222 $ ( 5,696 ) $ 875,143 $ 1,490 $ 876,633 Nine Months Ended June 30, 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 ($ 0.15 per share) — — ( 5,370 ) — — ( 5,370 ) — ( 5,370 ) Issuance of common shares due to exercise of stock options — 293 — — — 293 — 293 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 ) — ( 2,967 ) ( 113,472 ) — ( 113,472 ) Stock compensation — 8,320 — — — 8,320 — 8,320 Total other comprehensive income — — — 1,656 — 1,656 — 1,656 Net income — — 91,562 — — 91,562 3,573 95,135 Net investment by (distribution to) noncontrolling interests — — — — — — ( 3,833 ) ( 3,833 ) Balance, June 30, 2020 $ 346 $ 592,693 $ 228,500 $ 7,995 $ ( 3,412 ) $ 826,122 $ 3,787 $ 829,909 See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 Cash flows from operating activities: Net income before noncontrolling interest $ 129,026 $ 95,135 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 43,561 46,123 Stock compensation 5,090 8,320 Provision (recovery): Credit losses 40,991 55,796 Deferred taxes ( 1,360 ) 2,289 Loans held for sale: Originations ( 472,935 ) ( 63,396 ) Proceeds from sales 694,063 168,814 Net change 2,495 22,612 Fair value adjustment of foreclosed real estate 481 568 Net realized (gain) loss): Other assets 28 361 Divestitures — ( 19,275 ) Foreclosed real estate and repossessed assets ( 4 ) 5,039 Securities available for sale, net ( 6 ) — Loans held for sale ( 9,804 ) ( 4,069 ) Lease receivables and equipment ( 1,076 ) ( 2,302 ) Net change: Other assets ( 3,742 ) ( 20,623 ) Deposits held for sale — 1,535 Accrued interest payable ( 70 ) ( 5,082 ) Accrued expenses and other liabilities 25,402 ( 10,218 ) Accrued interest receivable 398 1,738 Change in bank-owned life insurance value ( 1,827 ) ( 1,870 ) Impairment on assets held for sale — 242 Net cash provided by operating activities 450,711 281,737 Cash flows from investing activities: Securities available for sale: Purchases ( 976,502 ) ( 60,024 ) Proceeds from sales 50,468 — Proceeds from maturities and principal repayments 266,673 166,477 Securities held to maturity: Proceeds from maturities and principal repayments 27,041 28,642 Loans and leases: Purchases ( 145,639 ) ( 120,406 ) Proceeds from sales 13,822 3,099 Net change ( 177,944 ) ( 73,360 ) Proceeds from sales of foreclosed real estate and repossessed assets 8,285 23,086 Federal Reserve Bank and Federal Home Loan Bank stock: Purchases ( 1,295 ) ( 472,000 ) Redemption — 471,080 Rental equipment: Purchases ( 36,800 ) ( 48,279 ) Proceeds from sales 11,744 13,262 Net change ( 2,303 ) 2,625 Premises, furniture, and equipment: Purchases ( 9,448 ) ( 8,573 ) Proceeds from sales 86 — Proceeds from divestitures — 3,498 Net cash (used in) investing activities ( 971,812 ) ( 70,873 ) Cash flows from financing activities: Net change: Checking, savings, and money market deposits 1,188,046 4,440,032 Time certificates of deposit ( 8,798 ) ( 84,285 ) 7 Table of Contents Wholesale deposits ( 269,576 ) ( 813,495 ) FHLB and other borrowings — ( 165,000 ) Federal funds — ( 477,000 ) Securities sold under agreements to repurchase — ( 4,019 ) Distribution to noncontrolling interest ( 2,882 ) ( 3,833 ) Proceeds from other liabilities 80 1,633 Principal payments: Other liabilities ( 4,775 ) ( 5,977 ) Capital lease obligations ( 24 ) ( 1,729 ) Cash dividends paid ( 4,804 ) ( 5,370 ) 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 — 293 Shares repurchased ( 87,018 ) ( 113,472 ) Net cash provided by financing activities 813,285 2,771,000 Effect of exchange rate changes on cash 692 ( 268 ) Net change in cash and cash equivalents 292,876 2,981,596 Cash and cash equivalents at beginning of fiscal year 427,367 126,545 Cash and cash equivalents at end of fiscal period $ 720,243 $ 3,108,141 Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 5,544 $ 34,991 Income taxes 4,147 5,775 Franchise taxes 200 231 Other taxes 671 492 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 14,844 ( 573 ) Rental equipment to loan and leases 14,014 691 Loans and leases to held for sale 118,037 325,092 Other assets to held for sale — 7,858 Deposits to held for sale — 288,975 Recognition of operating lease ROU assets, net of measurements 12,954 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 nine months ended June 30, 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 June 30, 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, with significant deterioration of macroeconomic conditions and markets into 2021. 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. 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 engaged and continues to engage in more frequent communication with borrowers to better understand their situation and challenges and offered 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. The table below presents the outstanding balances of active COVID-19 related modifications. As of the Period Ended (Dollars in Thousands) June 30, 2021 March 31, 2021 December 31, 2020 National Lending Term lending $ 2,955 $ 5,460 $ 18,321 Asset based lending — — 1,124 Lease financing 275 379 1,637 Commercial finance 3,230 5,839 21,082 Consumer credit products 19 301 1,210 Other consumer finance 1,609 1,627 2,682 Consumer finance 1,628 1,928 3,892 Total National Lending 4,858 7,767 24,974 Community Banking Commercial real estate and operating 36,632 58,707 60,319 Total Community Banking 36,632 58,707 60,319 Total loans and leases 41,490 66,474 85,293 Total COVID-19 related modifications $ 41,490 $ 66,474 $ 85,293 12 Table of Contents 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 $ 2.2 million and $ 1.4 million in servicing fee expense during the nine months ended June 30, 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 no additional loans from the retained Community Bank portfolio in the three months ended June 30, 2021 and 2020, and $ 233.0 million and none for the nine months ended June 30, 2021 and 2020, respectively. The sales did not result in any significant gains or losses to the Condensed Consolidated Statements of Operations. As of June 30, 2021, the Company had $ 18.1 million of community bank loans classified as held for sale and expects to sell those loans in the upcoming fourth fiscal quarter. See Note 6. Loans and Leases, Net for additional information. 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 June 30, 2021 Debt securities AFS SBA securities $ 162,922 $ 6,263 $ — $ 169,185 Obligations of states and political subdivisions 2,758 8 — 2,766 Non-bank qualified obligations of states and political subdivisions 267,031 7,423 ( 104 ) 274,350 Asset-backed securities 405,857 2,760 ( 895 ) 407,722 Mortgage-backed securities 1,059,321 9,866 ( 5,605 ) 1,063,582 Total debt securities AFS $ 1,897,889 $ 26,320 $ ( 6,604 ) $ 1,917,605 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 June 30, 2021 Debt securities HTM Non-bank qualified obligations of states and political subdivisions $ 60,228 $ 1,104 $ ( 2 ) $ 61,330 Mortgage-backed securities 4,019 72 — 4,091 Total debt securities HTM $ 64,247 $ 1,176 $ ( 2 ) $ 65,421 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 June 30, 2021 Debt securities AFS Non-bank qualified obligations of states and political subdivisions 24,357 ( 104 ) — — 24,357 ( 104 ) Asset-backed securities 124,158 ( 234 ) 94,726 ( 661 ) 218,884 ( 895 ) Mortgage-backed securities 695,230 ( 4,207 ) 55,415 ( 1,398 ) 750,645 ( 5,605 ) Total debt securities AFS $ 843,745 $ ( 4,545 ) $ 150,141 $ ( 2,059 ) $ 993,886 $ ( 6,604 ) 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 ) 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 June 30, 2021 Debt securities HTM Non-bank qualified obligations of states and political subdivisions 2,859 ( 2 ) — — 2,859 ( 2 ) Total debt securities HTM $ 2,859 $ ( 2 ) $ — $ — $ 2,859 $ ( 2 ) 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 ) 15 Table of Contents The adoption of CECL was inconsequential to debt securities AFS. At June 30, 2021, there were no ACL for debt securities AFS. At June 30, 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. 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 June 30, 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 $ 245 $ 1,385 $ 1,398 Due after one year through five years 17,884 18,467 20,805 21,769 Due after five years through ten years 53,273 55,337 32,441 34,025 Due after ten years 767,166 779,974 749,874 757,303 838,568 854,023 804,505 814,495 Mortgage-backed securities 1,059,321 1,063,582 439,879 453,607 Total securities AFS, at fair value $ 1,897,889 $ 1,917,605 $ 1,244,384 $ 1,268,102 At June 30, 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 $ 60,228 $ 61,330 $ 87,183 $ 88,194 60,228 61,330 87,183 88,194 Mortgage-backed securities 4,019 4,091 5,427 5,551 Total securities HTM, at cost $ 64,247 $ 65,421 $ 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 $ 14.7 million at June 30, 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 June 30, 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. 16 Table of Contents 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 June 30, 2021 and September 30, 2020, respectively. 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 $ 2.0 million in impairment recognized for such investments for the nine months ended June 30, 2021. NOTE 6. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in Thousands) June 30, 2021 September 30, 2020 National Lending Term lending $ 920,279 $ 805,323 Asset based lending 263,237 182,419 Factoring 320,629 281,173 Lease financing 282,940 281,084 Insurance premium finance 417,652 337,940 SBA/USDA 263,709 318,387 Other commercial finance 118,081 101,658 Commercial finance 2,586,527 2,307,984 Consumer credit products 105,440 89,809 Other consumer finance 122,316 134,342 Consumer finance 227,756 224,151 Tax services 41,268 3,066 Warehouse finance 335,704 293,375 Total National Lending 3,191,255 2,828,576 Community Banking Commercial real estate and operating 294,810 457,371 Consumer one-to-four family real estate and other 1,349 16,486 Agricultural real estate and operating 7,825 11,707 Total Community Banking 303,984 485,564 Total loans and leases 3,495,239 3,314,140 Net deferred loan origination costs (fees) 1,431 8,625 Total gross loans and leases 3,496,670 3,322,765 Allowance for credit losses ( 91,208 ) ( 56,188 ) Total loans and leases, net $ 3,405,462 $ 3,266,577 During the nine months ended June 30, 2021, the Company transferred $ 118.0 million of Community Banking loans to held for sale. During the nine months ended June 30, 2020, the Company transferred $ 325.1 million of Community Banking loans to held for sale. 17 Table of Contents During the nine months ended June 30, 2021 and 2020, the Company originated $ 472.9 million of other consumer finance, SBA/USDA, and consumer credit product loans as held for sale and $ 63.4 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 $ 694.1 million and gains on sale of $ 9.8 million during the nine months ended June 30, 2021. The Company sold held for sale loans resulting in proceeds of $ 440.5 million and gains on sale of $ 7.0 million during the nine months ended June 30, 2020. Loans purchased and sold by portfolio segment, including participation interests, for the three and nine months ended were as follows: Three Months Ended June 30, Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 2021 2020 Loans Purchased Loans held for investment: Total National Lending $ 46,153 $ — $ 142,389 $ 103,888 Total Community Banking 403 2,728 3,250 16,518 Total purchases $ 46,556 $ 2,728 $ 145,639 $ 120,406 Loans Sold Loans held for sale: Total National Lending $ 118,132 $ 8,524 $ 464,378 $ 168,814 Total Community Banking — — 232,979 271,681 Loans held for investment: Total Community Banking 1,816 — 13,822 3,099 Total sales $ 119,948 $ 8,524 $ 711,179 $ 443,594 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in Thousands) June 30, 2021 September 30, 2020 Carrying amount $ 297,370 $ 299,487 Unguaranteed residual assets 14,770 17,203 Unamortized initial direct costs 520 2,078 Unearned income ( 29,200 ) ( 35,606 ) Total net investment in direct financing and sales-type leases $ 283,460 $ 283,162 The carrying amount of direct financing and sales-type leases subject to residual value guarantees was $ 5.0 million at June 30, 2021. 18 Table of Contents The components of total lease income were as follows: Three Months Ended June 30, Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 2021 2020 Interest income - loans and leases Interest income on net investments in direct financing and sales-type leases $ 6,344 $ 4,496 $ 17,779 $ 12,958 Leasing and equipment finance noninterest income Lease income from operating lease payments 10,047 11,391 29,824 33,857 Profit (loss) recorded on commencement date on sales-type leases 85 103 215 590 Other (1) 901 554 2,657 3,135 Total leasing and equipment finance noninterest income 11,033 12,048 32,696 37,582 Total lease income $ 17,377 $ 16,544 $ 50,475 $ 50,540 (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. 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) June 30, 2021 Remaining in 2021 $ 28,766 2022 108,161 2023 80,606 2024 48,993 2025 22,798 Thereafter 8,046 Equipment under leases not yet commenced — Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 297,370 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type lease $ 297,370 The Company did not record any contingent rental income from direct financing and sales-type leases in the nine months ended June 30, 2021. The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020, with significant deterioration of macroeconomic conditions and markets into 2021. Although macroeconomic conditions and markets have improved since the beginning of 2021, the ultimate impact of this pandemic on the Company's loan and lease portfolio 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 June 30, 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 June 30, 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 $ 27,315 $ 1,199 $ ( 1,998 ) $ 515 $ 27,031 Asset based lending 1,749 21 — 212 1,982 Factoring 3,210 33 1 17 3,261 Lease financing 6,863 842 ( 916 ) 130 6,919 Insurance premium finance 1,326 ( 1,200 ) ( 120 ) 1,583 1,589 SBA/USDA 3,300 ( 171 ) — — 3,129 Other commercial finance 541 183 — — 724 Commercial finance 44,304 907 ( 3,033 ) 2,457 44,635 Consumer credit products 990 21 — — 1,011 Other consumer finance 10,093 ( 180 ) ( 2,327 ) 57 7,643 Consumer finance 11,083 ( 159 ) ( 2,327 ) 57 8,654 Tax services 29,146 4,685 ( 9,505 ) 17 24,343 Warehouse finance 332 — — — 332 Total National Lending 84,865 5,433 ( 14,865 ) 2,531 77,964 Community Banking Commercial real estate and operating 13,965 ( 767 ) — — 13,198 Consumer one-to-four family real estate and other 17 ( 13 ) — — 4 Agricultural real estate and operating 45 ( 3 ) — — 42 Total Community Banking 14,027 ( 783 ) — — 13,244 Total loans and leases 98,892 4,650 ( 14,865 ) 2,531 91,208 Unfunded commitments (1) 779 ( 38 ) — — 741 Total $ 99,671 $ 4,612 $ ( 14,865 ) $ 2,531 $ 91,949 (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 Nine Months Ended June 30, 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 $ 8,621 $ ( 7,787 ) $ 987 $ 27,031 Asset based lending 1,406 164 1,399 ( 1,199 ) 212 1,982 Factoring 3,027 987 ( 1,928 ) — 1,175 3,261 Lease financing 7,023 ( 556 ) 2,375 ( 2,264 ) 341 6,919 Insurance premium finance 2,129 ( 965 ) ( 609 ) ( 925 ) 1,959 1,589 SBA/USDA 940 2,720 ( 532 ) — 1 3,129 Other commercial finance 182 364 178 — — 724 Commercial finance 29,918 12,713 9,504 ( 12,175 ) 4,675 44,635 Consumer credit products 845 — 166 — — 1,011 Other consumer finance 2,821 5,998 1,568 ( 2,964 ) 220 7,643 Consumer finance 3,666 5,998 1,734 ( 2,964 ) 220 8,654 Tax services 2 — 32,819 ( 9,505 ) 1,027 24,343 Warehouse finance 294 ( 1 ) 39 — — 332 Total National Lending 33,880 18,710 44,096 ( 24,644 ) 5,922 77,964 Community Banking Commercial real estate and operating 21,867 ( 5,616 ) ( 2,909 ) ( 144 ) — 13,198 Consumer one-to-four family real estate and other 298 ( 247 ) ( 47 ) — — 4 Agricultural real estate and operating 143 ( 74 ) ( 27 ) — — 42 Total Community Banking 22,308 ( 5,937 ) ( 2,983 ) ( 144 ) — 13,244 Total loans and leases 56,188 12,773 41,113 ( 24,788 ) 5,922 91,208 Unfunded commitments (1) 32 831 ( 122 ) — — 741 Total $ 56,220 $ 13,604 $ 40,991 $ ( 24,788 ) $ 5,922 $ 91,949 (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 June 30, 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 $ 11,647 $ 5,672 $ ( 2,831 ) $ 25 $ 14,513 Asset based lending 2,826 ( 953 ) ( 42 ) — 1,831 Factoring 4,444 ( 1,997 ) ( 140 ) 362 2,669 Lease financing 2,683 4,293 ( 357 ) 91 6,710 Insurance premium finance 2,142 596 ( 736 ) 367 2,369 SBA/USDA 1,558 716 ( 1,134 ) — 1,140 Other commercial finance 552 ( 381 ) — — 171 Commercial finance 25,852 7,946 ( 5,240 ) 845 29,403 Consumer credit products 1,082 ( 111 ) — — 971 Other consumer finance 3,414 358 ( 567 ) 44 3,249 Consumer finance 4,496 247 ( 567 ) 44 4,220 Tax services 21,320 ( 100 ) ( 9,797 ) 14 11,437 Warehouse finance 334 ( 56 ) — — 278 Total National Lending 52,002 8,037 ( 15,604 ) 903 45,338 Community Banking Commercial real estate and operating 10,069 6,688 — — 16,757 Consumer one-to-four family real estate and other 2,350 586 — — 2,936 Agricultural real estate and operating 934 ( 218 ) — — 716 Total Community Banking 13,353 7,056 — — 20,409 Total $ 65,355 $ 15,093 $ ( 15,604 ) $ 903 $ 65,747 Nine Months Ended June 30, 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 $ 14,753 $ ( 6,003 ) $ 230 $ 14,513 Asset based lending 2,437 ( 611 ) ( 42 ) 47 1,831 Factoring 3,261 ( 509 ) ( 875 ) 792 2,669 Lease financing 1,275 5,841 ( 725 ) 319 6,710 Insurance premium finance 1,024 2,671 ( 1,809 ) 483 2,369 SBA/USDA 383 2,007 ( 1,250 ) — 1,140 Other commercial finance 683 ( 512 ) — — 171 Commercial finance 14,596 23,640 ( 10,704 ) 1,871 29,403 Consumer credit products 1,044 ( 73 ) — — 971 Other consumer finance 5,118 ( 474 ) ( 2,208 ) 813 3,249 Consumer finance 6,162 ( 547 ) ( 2,208 ) 813 4,220 Tax services — 20,407 ( 9,797 ) 827 11,437 Warehouse finance 263 15 — — 278 Total National Lending 21,021 43,515 ( 22,709 ) 3,511 45,338 Community Banking Commercial real estate and operating 6,208 10,549 — — 16,757 Consumer one-to-four family real estate and other 1,053 1,883 — — 2,936 Agricultural real estate and operating 867 ( 151 ) — — 716 Total Community Banking 8,128 12,281 — — 20,409 Total $ 29,149 $ 55,796 $ ( 22,709 ) $ 3,511 $ 65,747 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 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) June 30, 2021 National Lending Term lending $ 25,994 Asset based lending — Factoring 1,232 Lease financing 2,946 SBA/USDA 600 Commercial finance 30,772 Consumer credit products 2,197 Consumer finance 2,197 Total National Lending 32,969 Community Banking Commercial real estate and operating 17,896 Consumer one-to-four family real estate and other 110 Agricultural real estate and operating 4,657 Total Community Banking 22,663 Total $ 55,632 23 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 June 30, 2021, $ 41.5 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. 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.” 24 Table of Contents 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 $ 227.8 million and $ 41.3 million at June 30, 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 June 30, 2021 2021 2020 2019 2018 2017 Prior Term lending Pass $ 310,845 $ 333,608 $ 119,271 $ 62,381 $ 4,217 $ 5,433 $ — $ 835,755 Watch 6,568 9,609 5,821 450 43 1,397 — 23,888 Special Mention 595 3,934 6,579 1,026 35 1,241 — 13,410 Substandard 7,732 8,347 19,708 4,347 162 359 — 40,655 Doubtful 71 1,207 4,982 311 — — — 6,571 Total 325,811 356,705 156,361 68,515 4,457 8,430 — 920,279 Asset based lending Pass — — — — — — 162,787 162,787 Watch — — — — — — 66,290 66,290 Special Mention — — — — — — 19,253 19,253 Substandard — — — — — — 14,907 14,907 Total — — — — — — 263,237 263,237 Factoring Pass — — — — — — 278,665 278,665 Watch — — — — — — 19,261 19,261 Special Mention — — — — — — 11,853 11,853 Substandard — — — — — — 10,850 10,850 Total — — — — — — 320,629 320,629 Lease financing Pass 87,134 118,080 38,073 10,010 4,766 687 — 258,750 Watch 4,574 10,358 490 349 253 197 — 16,221 Special Mention 1,119 558 114 206 39 — — 2,036 Substandard — 571 3,961 844 36 156 — 5,568 Doubtful — 133 167 65 — 365 Total 92,827 129,700 42,805 11,474 5,094 1,040 — 282,940 Insurance premium finance Pass 411,729 5,080 14 — — — — 416,823 Watch 421 34 — — — — — 455 Special Mention 72 11 — — — — — 83 Substandard 16 45 — — — — — 61 Doubtful 187 43 — — — — — 230 Total 412,425 5,213 14 — — — — 417,652 SBA/USDA Pass 108,286 80,971 23,094 22,268 8,066 4,222 — 246,907 Watch — 926 822 2,272 935 — 4,955 Special Mention 6,755 675 1,803 — — — 9,233 Substandard 1,196 695 723 — 2,614 Total 108,286 87,726 24,695 26,089 11,033 5,880 — 263,709 Other commercial finance Pass 19,070 17,525 9,387 6,277 3,579 59,273 — 115,111 25 Table of Contents Watch 556 — — — 847 1,292 — 2,695 Substandard — — — 275 — — — 275 Total 19,626 17,525 9,387 6,552 4,426 60,565 — 118,081 Warehouse finance Pass — — — — — — 335,704 335,704 Total — — — — — — 335,704 335,704 Total National Lending Pass 937,063 555,264 189,839 100,936 20,628 69,614 777,156 2,650,500 Watch 12,120 20,001 7,237 1,621 3,415 3,820 85,551 133,765 Special Mention 1,786 11,258 7,368 3,035 76 1,241 31,106 55,870 Substandard 7,748 8,963 23,669 6,662 893 1,238 25,757 74,930 Doubtful 258 1,383 5,149 376 — — — 7,166 Total 958,975 596,869 233,262 112,630 25,012 75,913 919,570 2,922,231 Commercial real estate and operating Pass — 13,841 85,971 63,844 27,728 528 — 191,912 Watch — 924 3,128 10,952 15,834 2,656 — 33,494 Special Mention — — 224 13,681 — 669 — 14,574 Substandard — 300 1,497 44,948 4,472 3,613 — 54,830 Total — 15,065 90,820 133,425 48,034 7,466 — 294,810 Consumer 1-4 family real estate and other Pass — — 157 234 368 355 — 1,114 Substandard — — 108 — — 127 — 235 Total — — 265 234 368 482 — 1,349 Agricultural real estate and other Pass — — — 108 — 2,586 — 2,694 Substandard — 3,277 — 1,263 — 591 — 5,131 Total — 3,277 — 1,371 — 3,177 — 7,825 Total Community Bank Pass — 13,841 86,128 64,185 28,097 3,469 — 195,720 Watch — 924 3,128 10,952 15,834 2,656 — 33,494 Special Mention — — 224 13,681 — 669 — 14,574 Substandard — 3,577 1,605 46,212 4,471 4,331 — 60,196 Total — 18,342 91,085 135,030 48,402 11,125 — 303,984 Total Loans and Leases Pass 937,063 569,104 275,967 165,121 48,725 73,084 777,156 2,846,220 Watch 12,120 20,925 10,365 12,573 19,249 6,476 85,551 167,259 Special Mention 1,786 11,258 7,592 16,717 76 1,909 31,106 70,444 Substandard 7,748 12,541 25,274 52,873 5,364 5,569 25,757 135,126 Doubtful 258 1,383 5,149 376 — — — 7,166 Total $ 958,975 $ 615,211 $ 324,347 $ 247,660 $ 73,414 $ 87,038 $ 919,570 $ 3,226,215 26 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 27 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 June 30, 2021 Loans held for sale $ — $ — $ — $ — $ 87,905 $ 87,905 $ — $ — $ — National Lending Term lending 11,146 6,714 4,820 22,680 897,599 920,279 2,073 14,470 16,543 Asset based lending — — — — 263,237 263,237 — — — Factoring — — — — 320,629 320,629 — 37 37 Lease financing 9,076 3,514 2,550 15,140 267,800 282,940 1,403 2,208 3,611 Insurance premium finance 552 422 874 1,848 415,804 417,652 874 — 874 SBA/USDA 1,343 — 600 1,943 261,766 263,709 — 600 600 Other commercial finance — — — — 118,081 118,081 — — — Commercial finance 22,117 10,650 8,844 41,611 2,544,916 2,586,527 4,350 17,315 21,665 Consumer credit products 843 1,009 525 2,377 204,642 207,019 469 — 469 Other consumer finance — — — — 20,737 20,737 — — — Consumer finance 843 1,009 525 2,377 225,379 227,756 469 — 469 Tax services — 40,958 — 40,958 310 41,268 — — — Warehouse finance — — — — 335,704 335,704 — — — Total National Lending 22,960 52,617 9,369 84,946 3,106,309 3,191,255 4,819 17,315 22,134 Community Banking Commercial real estate and operating 11 — — 11 294,799 294,810 — 17,896 17,896 Consumer one-to-four family real estate and other 51 — — 51 1,298 1,349 — 108 108 Agricultural real estate and operating — — 1,769 1,769 6,056 7,825 — 1,769 1,769 Total Community Banking 62 — 1,769 1,831 302,153 303,984 — 19,773 19,773 Total loans and leases held for investment 23,022 52,617 11,138 86,777 3,408,462 3,495,239 4,819 37,088 41,907 Total loans and leases $ 23,022 $ 52,617 $ 11,138 $ 86,777 $ 3,496,367 $ 3,583,144 $ 4,819 $ 37,088 $ 41,907 28 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 29 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 June 30, 2021 2021 2020 2019 2018 2017 Prior National Lending Term lending $ 20 $ 2,506 $ 6,862 $ 2,865 $ 147 $ 2,070 $ — $ 14,470 $ 7,558 Asset based lending — — — — — — — — — Factoring — — 13 — — 24 — 37 37 Lease financing 248 1,519 276 9 156 — 2,208 824 SBA/USDA 600 — — 600 600 Commercial finance 20 2,754 8,394 3,141 756 2,250 — 17,315 9,019 Total National Lending 20 2,754 8,394 3,141 756 2,250 — 17,315 9,019 Community Banking Commercial real estate and operating — 300 700 16,896 — — — 17,896 — Consumer one-to-four family real estate and other — — 108 — — — — 108 108 Agricultural real estate and operating — — — 1,263 — 506 — 1,769 1,769 Total Community Banking — 300 808 18,159 — 506 — 19,773 1,877 Total nonaccrual loans and leases $ 20 $ 3,054 $ 9,202 $ 21,300 $ 756 $ 2,756 $ — $ 37,088 $ 10,896 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 June 30, 2021 2021 2020 2019 2018 2017 Prior National Lending Term lending $ 1,142 $ 685 $ 36 $ 196 $ 14 $ — $ — $ 2,073 Lease financing 356 426 223 372 26 — — 1,403 Insurance premium finance 769 105 — — — — — 874 Commercial finance 2,267 1,216 259 568 40 — — 4,350 Other consumer finance — — — — — 383 — 383 Consumer finance (1) — — — — — 383 — 383 Total National Lending 2,267 1,216 259 568 40 383 — 4,733 Total 90 days or more delinquent and accruing $ 2,267 $ 1,216 $ 259 $ 568 $ 40 $ 383 $ — $ 4,733 (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. 30 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 June 30, 2021 Nine Months Ended June 30, 2021 National Lending Term lending $ 14,964 $ 14,190 Asset based lending 127 591 Factoring 33 337 Lease financing 2,435 2,994 SBA/USDA 600 600 Commercial finance 18,159 18,712 Total National Lending 18,159 18,712 Community Banking Commercial real estate and operating 17,896 14,235 Consumer one-to-four family real estate and other 136 140 Agricultural real estate and operating 1,769 1,769 Total Community Banking 19,801 16,144 Total loans and leases $ 37,960 $ 34,856 The recognized interest income on the Company's nonaccrual loans and leases for the three and nine months ended June 30, 2021 was not significant. The following table provides the average recorded investment in impaired loans and leases: Three Months Ended June 30, 2020 Nine Months Ended June 30, 2020 (Dollars in Thousands) Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income National Lending Term lending $ 28,848 $ 121 $ 24,946 $ 240 Asset based lending 935 — 571 — Factoring 4,715 — 4,387 — Lease financing 2,946 2 2,929 14 SBA/USDA 3,162 — 3,530 — Commercial finance 40,606 123 36,363 254 Other consumer finance 1,999 37 1,775 111 Consumer finance 1,999 37 1,775 111 Total National Lending 42,605 160 38,138 365 Community Banking Commercial real estate and operating 405 1 511 27 Consumer one-to-four family real estate and other 131 — 101 9 Agricultural real estate and operating 2,437 10 2,677 ( 134 ) Total Community Banking 2,973 11 3,289 ( 98 ) Total loans and leases $ 45,578 $ 171 $ 41,427 $ 267 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 $ 3.9 million of national lending loans that were modified in a TDR during the three months ended June 30, 2021, all of which were modified to extend the term of the loan, and no community banking loans. There were $ 1.4 million of national lending loans and leases that were modified in a TDR during the three months ended June 30, 2020 and no community banking loans. 31 Table of Contents During the nine months ended June 30, 2021, there were $ 6.0 million of national lending loans that were modified in a TDR, all of which were modified to extend the term of the loan, and no community bank loans. There were $ 5.5 million of national lending loans and leases and $ 0.6 million of community banking loans that were modified in a TDR during the nine months ended June 30, 2020. During the nine months ended June 30, 2021, the Company had $ 0.6 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 nine months ended June 30, 2020, the Company had $ 3.3 million of community banking loans and $ 1.3 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 June 30, 2021 and June 30, 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. 32 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 June 30, Nine Months Ended June 30, (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. $ 38,701 $ 18,190 $ 125,805 $ 91,562 Dividends and undistributed earnings allocated to participating securities ( 729 ) ( 432 ) ( 2,411 ) ( 2,097 ) Basic net earnings available to common stockholders 37,972 17,758 123,394 89,465 Undistributed earnings allocated to nonvested restricted stockholders 699 391 2,318 1,974 Reallocation of undistributed earnings to nonvested restricted stockholders ( 699 ) ( 391 ) ( 2,316 ) ( 1,973 ) Diluted net earnings available to common stockholders $ 37,972 $ 17,758 $ 123,396 $ 89,466 Total weighted-average basic common shares outstanding 31,320,893 33,794,154 31,880,653 35,180,068 Effect of dilutive securities (1) Stock options — 21,497 — 21,634 Performance share units 18,054 — 19,944 — Total effect of dilutive securities 18,054 21,497 19,944 21,634 Total weighted-average diluted common shares outstanding 31,338,947 33,815,651 31,900,597 35,201,702 Net earnings per common share: Basic earnings per common share $ 1.21 $ 0.53 $ 3.87 $ 2.54 Diluted earnings per common share (2) $ 1.21 $ 0.53 $ 3.87 $ 2.54 (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 June 30, 2021 and 2020, respectively, were 601,693 and 821,884 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 nine months ended June 30, 2021 and 2020, respectively, were 622,954 and 824,809 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) June 30, 2021 September 30, 2020 Computers and IT networking equipment $ 16,878 $ 15,926 Motor vehicles and other 81,881 52,913 Office furniture and equipment 52,276 74,197 Solar panels and equipment 122,483 118,808 Total 273,518 261,844 Accumulated depreciation ( 63,766 ) ( 57,601 ) Unamortized initial direct costs 1,616 1,721 Net book value $ 211,368 $ 205,964 33 Table of Contents Undiscounted future minimum lease payments expected to be received for operating leases were as follows: (Dollars in Thousands) June 30, 2021 Remaining in 2021 $ 9,517 2022 31,311 2023 27,132 2024 19,511 2025 13,704 Thereafter 20,303 Total undiscounted future minimum lease payments receivable for operating leases $ 121,478 NOTE 9. FORECLOSED REAL ESTATE AND REPOSSESSED ASSETS The following table provides an analysis of changes in foreclosed real estate and repossessed assets: Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 Balance, beginning of period $ 9,957 $ 29,494 Additions 9 5,983 Reductions: Write-downs 481 568 Sales 8,285 23,086 (Gain) loss on sale ( 4 ) 5,039 Total reductions 8,762 28,693 Balance, ending of period $ 1,204 $ 6,784 At June 30, 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 June 30, 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 June 30, 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 nine months ended June 30, 2021. 34 Table of Contents The changes in the carrying amount of the Company’s intangible assets for the nine months ended June 30, 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 — — — 14 14 Amortization during the period ( 816 ) ( 286 ) ( 5,202 ) ( 480 ) ( 6,784 ) Write-offs during the period — — — ( 24 ) ( 24 ) Balance as of June 30, 2021 $ 10,085 $ 136 $ 19,131 $ 5,546 $ 34,898 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 10,131 $ 109,324 Accumulated amortization ( 4,539 ) ( 2,345 ) ( 52,709 ) ( 4,367 ) ( 63,960 ) Accumulated impairment — — ( 10,248 ) ( 218 ) ( 10,466 ) Balance as of June 30, 2021 $ 10,085 $ 136 $ 19,131 $ 5,546 $ 34,898 (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 — — — 35 35 Amortization during the period ( 793 ) ( 310 ) ( 7,112 ) ( 499 ) ( 8,714 ) Write-offs during the period — — — ( 157 ) ( 157 ) Balance as of June 30, 2020 $ 11,166 $ 517 $ 26,095 $ 6,196 $ 43,974 Gross carrying amount $ 14,624 $ 2,480 $ 82,088 $ 10,112 $ 109,304 Accumulated amortization ( 3,458 ) ( 1,963 ) ( 45,745 ) ( 3,726 ) ( 54,892 ) Accumulated impairment — — ( 10,248 ) ( 190 ) ( 10,438 ) Balance as of June 30, 2020 $ 11,166 $ 517 $ 26,095 $ 6,196 $ 43,974 (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 three months of fiscal 2021 and subsequent fiscal years was as follows: (Dollars in Thousands) June 30, 2021 Remaining in 2021 $ 1,762 2022 6,419 2023 5,101 2024 4,383 2025 3,827 2026 3,253 Thereafter 10,153 Total anticipated intangible amortization $ 34,898 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 nine months ended June 30, 2021 and 2020. 35 Table of Contents NOTE 11. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease ROU assets, included in other assets, were $ 35.4 million at June 30, 2021. Operating lease liabilities, included in accrued expenses and other liabilities, were $ 37.6 million at June 30, 2021. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities were as follows: (Dollars in Thousands) June 30, 2021 Remaining in 2021 $ 1,232 2022 4,687 2023 4,180 2024 4,152 2025 4,027 Thereafter 24,926 Total undiscounted future minimum lease payments 43,204 Discount ( 5,652 ) Total operating lease liabilities $ 37,552 The weighted-average discount rate and remaining lease term for operating leases were as follows: June 30, 2021 Weighted-average discount rate 2.31 % Weighted-average remaining lease term (years) 11.00 The components of total lease costs for operating leases were as follows: Three Months Ended June 30, Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 2021 2020 Lease expense $ 1,191 $ 920 $ 3,136 $ 2,533 Short-term and variable lease cost 35 118 167 452 ROU asset impairment — — 224 — Sublease income ( 126 ) ( 188 ) ( 411 ) ( 552 ) Total lease cost for operating leases $ 1,100 $ 850 $ 3,116 $ 2,433 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 nine months ended June 30, 2021, and 2020, the Company repurchased 2,684,408 and 3,498,394 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 June 30, 2021, the remaining number of shares available for repurchase under this program was 1,550,173 shares of common stock. For the nine months ended June 30, 2021, and 2020, the Company also repurchased 84,950 and 89,613 shares, or $ 2.0 million and $ 3.0 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock. 36 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, vested, or forfeited under the 2002 Omnibus Incentive Plan for the nine months ended June 30, 2021. There were no options granted, exercised, or forfeited under this plan during the nine months ended June 30, 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 ( 277,429 ) 30.19 Forfeited or expired ( 103,798 ) 29.66 Nonvested shares outstanding, June 30, 2021 598,043 $ 30.26 (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, June 30, 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 June 30, 2021, stock-based compensation expense not yet recognized in income totaled $ 7.2 million, which is expected to be recognized over a weighted average remaining period of 2.01 years. NOTE 14. INCOME TAXES The Company recorded an income tax expense of $ 9.6 million for the nine months ended June 30, 2021, resulting in an effective tax rate of 6.92 %, compared to an income tax expense of $ 3.9 million, or an effective tax rate of 3.91 %, for the nine months ended June 30, 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 2021. 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. 37 Table of Contents The table below compares the income tax expense components for the periods presented. Nine Months Ended June 30, (Dollars in Thousands) 2021 2020 Provision at statutory rate $ 28,435 $ 20,041 Tax-exempt income ( 674 ) ( 936 ) State income taxes 6,120 4,475 Interim period effective rate adjustment ( 5,181 ) ( 8,850 ) Tax credit investments, net - federal ( 18,854 ) ( 9,863 ) Research tax credit ( 323 ) ( 1,709 ) IRC 162(m) nondeductible compensation 677 1,250 Other, net ( 600 ) ( 538 ) Income tax expense $ 9,600 $ 3,870 Effective tax rate 6.92 % 3.91 % 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 June 30, 2021 and September 30, 2020, unfunded loan commitments approximated $ 1.32 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 June 30, 2021 or September 30, 2020. The Company had no commitments to sell securities at June 30, 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. 38 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. Following the trial court granting a Motion for Summary Judgment filed by the Bank, the parties have agreed to a formal settlement of this matter on terms acceptable to the Bank. 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 June 30, 2021 2020 2021 2020 2021 2020 2021 2020 Net interest income (1) $ 23,254 $ 25,754 $ 44,728 $ 36,104 $ 493 $ 279 $ 68,475 $ 62,137 Noninterest income: Refund transfer product fees 12,073 4,595 — — — — 12,073 4,595 Tax advance product fees (1) 891 28 — — — — 891 28 Payment card and deposit fees 29,203 21,302 — — — — 29,203 21,302 Other bank and deposit fees — — 334 213 4 1 338 214 Rental income (1) 6 5 9,970 11,226 — — 9,976 11,231 Gain (loss) on sale of other (1) — — 5,982 1,214 ( 27 ) — 5,955 1,214 Other income (1) 1,056 324 1,702 1,267 1,259 873 4,017 2,464 Total noninterest income 43,229 26,254 17,988 13,920 1,236 874 62,453 41,048 Revenue $ 66,483 $ 52,008 $ 62,716 $ 50,024 $ 1,729 $ 1,153 $ 130,928 $ 103,185 (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. 39 Table of Contents (Dollars in Thousands) Consumer Commercial Corporate Services/Other Consolidated Company Nine Months Ended June 30, 2021 2020 2021 2020 2021 2020 2021 2020 Net interest income (1) $ 70,686 $ 58,473 $ 128,980 $ 112,866 $ 8,658 $ 23,186 $ 208,324 $ 194,525 Noninterest income: Refund transfer product fees 35,400 33,726 — — — — 35,400 33,726 Tax advance product fees (1) 47,413 31,840 — — — — 47,413 31,840 Payment card and deposit fees 81,641 65,957 — — — — 81,641 65,957 Other bank and deposit fees — — 694 759 15 324 709 1,083 Rental income (1) 16 14 29,691 33,354 — 1,314 29,707 34,682 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 ) 10,198 6,131 737 ( 5,143 ) 10,935 969 Other income (1) 2,135 2,709 6,511 4,178 6,904 4,625 15,550 11,512 Total noninterest income 166,605 134,227 47,094 44,422 7,662 20,395 221,361 199,044 Revenue $ 237,291 $ 192,700 $ 176,074 $ 157,288 $ 16,320 $ 43,581 $ 429,685 $ 393,569 (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 June 30, 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. 40 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. 41 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 June 30, 2021 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 23,254 $ 44,728 $ 493 $ 68,475 Provision (recovery) for credit losses 4,507 870 ( 765 ) 4,612 Noninterest income 43,229 17,988 1,236 62,453 Noninterest expense 20,561 28,604 32,358 81,523 Income (loss) before income tax expense 41,415 33,242 ( 29,864 ) 44,793 Total assets 337,438 3,086,556 3,627,818 7,051,812 Total goodwill 87,145 222,360 — 309,505 Total deposits 5,715,197 8,941 164,733 5,888,871 Three Months Ended June 30, 2020 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 25,754 $ 36,104 $ 279 $ 62,137 Provision (recovery) for loan and lease losses ( 210 ) 7,946 7,357 15,093 Noninterest income 26,254 13,920 874 41,048 Noninterest expense 15,282 26,729 29,230 71,241 Income (loss) before income tax expense 36,936 15,349 ( 35,434 ) 16,851 Total assets 372,549 2,690,719 5,715,758 8,779,026 Total goodwill 87,145 222,360 — 309,505 Total deposits 6,767,516 9,243 813,566 7,590,325 Nine Months Ended June 30, 2021 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 70,686 $ 128,980 $ 8,658 $ 208,324 Provision (recovery) for credit losses 34,893 9,540 ( 3,442 ) 40,991 Noninterest income 166,605 47,094 7,662 221,361 Noninterest expense 68,912 83,601 97,555 250,068 Income (loss) before income tax expense 133,486 82,933 ( 77,793 ) 138,626 Total assets 337,438 3,086,556 3,627,818 7,051,812 Total goodwill 87,145 222,360 — 309,505 Total deposits 5,715,197 8,941 164,733 5,888,871 42 Table of Contents Nine Months Ended June 30, 2020 (Dollars in Thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 58,473 $ 112,866 $ 23,186 $ 194,525 Provision for loan and lease losses 20,334 23,641 11,821 55,796 Noninterest income 134,227 44,422 20,395 199,044 Noninterest expense 62,473 80,815 95,480 238,768 Income (loss) before income tax expense 109,893 52,832 ( 63,720 ) 99,005 Total assets 372,549 2,690,719 5,715,758 8,779,026 Total goodwill 87,145 222,360 — 309,505 Total deposits 6,767,516 9,243 813,566 7,590,325 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). 43 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 June 30, 2021 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Debt securities AFS SBA securities $ 169,185 $ — $ 169,185 $ — Obligations of states and political subdivisions 2,766 — 2,766 — Non-bank qualified obligations of states and political subdivisions 274,350 — 274,350 — Asset-backed securities 407,722 — 407,722 — Mortgage-backed securities 1,063,582 — 1,063,582 — Total debt securities AFS $ 1,917,605 $ — $ 1,917,605 $ — Common equities and mutual funds (1) $ 3,324 $ 3,324 $ — $ — Non-marketable equity securities (2) $ 4,724 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 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 June 30, 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 %. 44 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 June 30, 2021 (Dollars in Thousands) Total Level 1 Level 2 Level 3 Impaired loans and leases, net Commercial finance $ 4,312 $ — $ — $ 4,312 Total National Lending 4,312 — — 4,312 Commercial real estate and operating 9,029 — — 9,029 Total Community Banking 9,029 — — 9,029 Total impaired loans and leases, net 13,341 — — 13,341 Foreclosed assets, net 1,204 — — 1,204 Total $ 14,545 $ — $ — $ 14,545 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 June 30, 2021 Fair Value at September 30, 2020 Valuation Technique Unobservable Input Range of Inputs Impaired loans and leases, net $ 13,341 9,260 Market approach Appraised values (1) 4 % - 90 % Foreclosed assets, net $ 1,204 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 June 30, 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. 45 Table of Contents The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company: June 30, 2021 (Dollars in Thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 720,243 $ 720,243 $ 720,243 $ — $ — Debt securities available for sale 1,917,605 1,917,605 — 1,917,605 — Debt securities held to maturity 64,247 65,421 — 65,421 — Common equities and mutual funds (1) 3,324 3,324 3,324 — — Non-marketable equity securities (1)(2) 19,474 19,474 — 14,750 — Loans held for sale 87,905 87,905 — 87,905 — Loans and leases receivable 3,495,239 3,498,673 — — 3,498,673 Federal Reserve Bank and Federal Home Loan Bank stocks 28,433 28,433 — 28,433 — Accrued interest receivable 16,230 16,230 16,230 — — Financial liabilities Deposits 5,888,871 5,888,971 5,851,452 37,519 — Other short- and long-term borrowings 93,634 94,979 — 94,979 — Accrued interest payable 1,853 1,853 1,853 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 2021. (2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy. 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 — 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 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. NOTE 19. SUBSEQUENT EVENTS Management has evaluated subsequent events that occurred after June 30, 2021. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in our Condensed Consolidated Financial Statements as of or for the quarter ended June 30, 2021. 46 Table of Contents