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 per share data) December 31, 2021 September 30, 2021 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 1,230,100 $ 314,019 Securities available for sale, at fair value 1,782,739 1,864,899 Securities held to maturity, at amortized cost (fair value $ 50,364 and $ 56,391 , respectively) 50,994 56,669 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 28,400 28,400 Loans held for sale 36,182 56,194 Loans and leases 3,684,261 3,609,563 Allowance for credit losses ( 67,623 ) ( 68,281 ) Accrued interest receivable 17,240 16,254 Premises, furniture, and equipment, net 44,130 44,888 Rental equipment, net 234,693 213,116 Foreclosed real estate and repossessed assets, net 298 2,077 Goodwill and intangible assets 341,166 342,653 Prepaid assets 17,007 10,513 Other assets 210,071 199,686 Total assets $ 7,609,658 $ 6,690,650 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits $ 6,525,569 $ 5,514,971 Long-term borrowings 92,274 92,834 Accrued expenses and other liabilities 165,658 210,961 Total liabilities 6,783,501 5,818,766 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued and no shares outstanding at December 31, 2021 and September 30, 2021, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 30,158,420 and 31,686,483 shares issued, 30,080,717 and 31,669,952 shares outstanding at December 31, 2021 and September 30, 2021, respectively 301 317 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2021 and September 30, 2021, respectively — — Additional paid-in capital 610,816 604,484 Retained earnings 217,992 259,189 Accumulated other comprehensive income 724 7,599 Treasury stock, at cost, 77,703 and 16,531 common shares at December 31, 2021 and September 30, 2021, respectively ( 4,318 ) ( 860 ) Total equity attributable to parent 825,515 870,729 Noncontrolling interest 642 1,155 Total stockholders’ equity 826,157 871,884 Total liabilities and stockholders’ equity $ 7,609,658 $ 6,690,650 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 December 31, (Dollars in thousands, except per share data) 2021 2020 Interest and dividend income: Loans and leases, including fees $ 65,035 $ 61,655 Mortgage-backed securities 3,864 2,123 Other investments 3,992 4,368 72,891 68,146 Interest expense: Deposits 141 797 FHLB advances and other borrowings 1,137 1,350 1,278 2,147 Net interest income 71,613 65,999 Provision for credit losses 186 6,089 Net interest income after provision for credit losses 71,427 59,910 Noninterest income: Refund transfer product fees 579 647 Tax advance product fees 1,233 1,960 Payments card and deposit fees 25,132 22,564 Other bank and deposit fees 237 237 Rental income 11,077 9,885 Gain on sale of securities 137 — Gain on sale of trademarks 50,000 — (Loss) gain on sale of other ( 3,465 ) 2,847 Other income 1,661 7,315 Total noninterest income 86,591 45,455 Non-interest expense: Compensation and benefits 38,225 32,331 Refund transfer product expense 138 61 Tax advance product expense 183 370 Card processing 7,172 6,117 Occupancy and equipment expense 8,349 6,888 Operating lease equipment depreciation 8,449 7,581 Legal and consulting 6,208 5,247 Intangible amortization 1,488 2,013 Impairment expense — 1,159 Other expense 12,224 10,808 Total noninterest expense 82,436 72,575 Income before income tax expense 75,582 32,790 Income tax expense 14,276 3,533 Net income before noncontrolling interest 61,306 29,257 Net income (loss) attributable to noncontrolling interest ( 18 ) 1,220 Net income attributable to parent $ 61,324 $ 28,037 Earnings per common share: Basic $ 2.00 $ 0.84 Diluted $ 2.00 $ 0.84 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 December 31, (Dollars in thousands) 2021 2020 Net income before noncontrolling interest $ 61,306 $ 29,257 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities ( 9,140 ) 2,846 Net (gain) realized on investment securities ( 137 ) — ( 9,277 ) 2,846 Unrealized gain on currency translation 66 445 Deferred income tax effect ( 2,336 ) 714 Total other comprehensive income (loss) ( 6,875 ) 2,577 Total comprehensive income 54,431 31,834 Total comprehensive income (loss) attributable to noncontrolling interest ( 18 ) 1,220 Comprehensive income attributable to parent $ 54,449 $ 30,614 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 per share data) Meta Financial Group, Inc. Three Months Ended December 31, 2021 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Meta Stockholders’ Equity Noncontrolling interest Total Stockholders’ Equity Balance, September 30, 2021 $ 317 $ 604,484 $ 259,189 $ 7,599 $ ( 860 ) $ 870,729 $ 1,155 $ 871,884 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,521 ) — — ( 1,521 ) — ( 1,521 ) Issuance of common stock due to ESOP 1 2,885 — — — 2,886 — 2,886 Repurchases of common stock ( 17 ) 17 ( 101,000 ) — ( 3,458 ) ( 104,458 ) — ( 104,458 ) Stock compensation — 3,430 — — — 3,430 — 3,430 Total other comprehensive loss — — — ( 6,875 ) — ( 6,875 ) — ( 6,875 ) Net income — — 61,324 — — 61,324 ( 18 ) 61,306 Net investment by (distribution to) noncontrolling interests — — — — — — ( 495 ) ( 495 ) Balance, December 31, 2021 $ 301 $ 610,816 $ 217,992 $ 724 $ ( 4,318 ) $ 825,515 $ 642 $ 826,157 Three Months Ended December 31, 2020 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 ($ 0.05 per share) — — ( 1,613 ) — — ( 1,613 ) — ( 1,613 ) Issuance of common stock due to ESOP 2 3,034 — — — 3,036 — 3,036 Repurchases of common stock ( 20 ) 20 ( 55,000 ) — ( 1,763 ) ( 56,763 ) — ( 56,763 ) Stock compensation — 1,046 — — — 1,046 — 1,046 Total other comprehensive income — — — 2,577 — 2,577 — 2,577 Net income — — 28,037 — — 28,037 1,220 29,257 Net investment by (distribution to) noncontrolling interests — — — — — — ( 835 ) ( 835 ) Balance, December 31, 2020 $ 326 $ 598,669 $ 198,000 $ 20,119 $ ( 5,440 ) $ 811,674 $ 1,536 $ 813,210 See Notes to Condensed Consolidated Financial Statements. 5 Table of Contents META FINANCIAL GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended December 31, (Dollars in thousands) 2021 2020 Cash flows from operating activities: Net income before noncontrolling interest $ 61,306 $ 29,257 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 15,322 14,068 Provision for credit losses 186 6,089 Provision (reversal of) for deferred taxes 8,015 ( 7,402 ) Originations of loans held for sale ( 385,558 ) ( 303,501 ) Proceeds from sales of loans held for sale 562,689 451,652 Net change in loans held for sale 8,805 5,425 Fair value adjustment of foreclosed real estate 120 123 Net realized (gain) on securities held to maturity, net ( 137 ) — Net realized (gain) loss on loans held for sale 4,365 ( 3,492 ) Net realized (gain) on premise, furniture, and equipment ( 23 ) — Net realized (gain) loss on lease receivables and equipment ( 924 ) 633 Net realized (gain) on trademarks ( 50,000 ) — Change in bank-owned life insurance value ( 610 ) ( 621 ) Net change in accrued interest receivable ( 987 ) ( 506 ) Net change in other assets ( 23,569 ) ( 2,075 ) Net change in accrued expenses and other liabilities ( 45,303 ) ( 20,588 ) Stock compensation 3,430 1,046 Net cash provided by operating activities 157,127 170,108 Cash flows from investing activities: Purchases of securities available for sale ( 20,894 ) ( 23,963 ) Proceeds from maturities of and principal collected on securities available for sale 91,297 64,982 Proceeds from sales of securities held to maturity 200 — Proceeds from maturities of and principal collected on securities held to maturity 5,409 10,755 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 800 ) — Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 800 — Purchases of loans and leases ( 57,713 ) ( 64,930 ) Proceeds from sales of loans and leases 30,235 6,923 Net change in loans and leases ( 145,311 ) ( 170,684 ) Purchases of premises, furniture, and equipment ( 1,949 ) ( 582 ) Proceeds from sales of premises, furniture, and equipment 35 — Purchases of rental equipment ( 103,643 ) ( 13,146 ) Proceeds from sales of rental equipment 4,999 5,609 Net change in rental equipment ( 1,841 ) — Proceeds from sales of foreclosed real estate and repossessed assets 1,659 2,657 Proceeds from sale of trademarks 50,000 — Net cash (used in) investing activities ( 147,517 ) ( 182,379 ) Cash flows from financing activities: Net change in deposits 1,010,598 1,228,591 Principal payments on capital lease obligations ( 7 ) ( 8 ) Principal payments on other liabilities ( 598 ) ( 1,498 ) Dividends paid on common stock ( 1,521 ) ( 1,613 ) Issuance of common stock due to ESOP 2,886 3,036 Repurchases of common stock ( 104,458 ) ( 56,763 ) Distributions to noncontrolling interest ( 495 ) ( 835 ) Net cash provided by financing activities 906,405 1,170,910 Effect of exchange rate changes on cash 66 445 Net change in cash and cash equivalents 916,081 1,159,084 Cash and cash equivalents at beginning of fiscal year 314,019 427,367 Cash and cash equivalents at end of fiscal period $ 1,230,100 $ 1,586,451 6 Table of Contents Three Months Ended December 31, (Dollars in thousands) 2021 2020 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 1,196 $ 2,002 Income taxes 308 289 Franchise taxes 50 50 Other taxes 13 14 Supplemental schedule of non-cash investing activities: Transfers Held for sale to loans and leases 12 — Loans and leases to held for sale 168,426 100,442 Loans and leases to rental equipment 988 1,353 Loans and leases to foreclosed real estate and repossessed assets — 9 Rental equipment to loan and leases 72,267 37 Other assets to held for sale — 284 See Notes to Condensed Consolidated Financial Statements. 7 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, 2021 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 23, 2021. 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 months ended December 31, 2021 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2022. 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, 2021 remain substantially unchanged. The following ASUs became effective for the Company on October 1, 2021, none of which had a material impact on the Company’s significant accounting policies or Condensed Consolidated Financial Statements: – ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. – ASU 2020-08 , Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. – ASU 2020-10, Codification Improvements. NOTE 3. SIGNIFICANT EVENTS Rebranding On December 7, 2021, the Company executed a Purchase Agreement (the “Agreement”) with Beige Key, LLC (the “Assignee”) for the sale of all of the Company’s worldwide right, title and interest in and to company names and tradenames including Meta and other "Meta" formative names including MetaBank and Meta Financial Group, and the domain names, social media accounts and goodwill associated with the foregoing (collectively, the “Meta” tradenames) in exchange for $ 60.0 million in cash. Subject to the terms and conditions set forth in the Agreement, the Company has one year from the Agreement execution date to phase out and cease all use of the Meta tradenames. From the date of the Agreement until the date such phase out is completed (the “Phase Out Period”), Assignee has granted the Company a non-exclusive royalty free license in the United States and Canada to use the Meta tradenames in the manner in which they were used by the Company prior to the Agreement. The Company received $ 50.0 million upon execution and delivery of the Agreement, at which time the Meta tradenames were assigned to the Assignee. The Company has recognized the $ 50.0 million as noninterest income during the period ended December 31, 2021. The remaining $ 10.0 million was paid by the Assignee and is being held in an escrow account by a third-party agent until the agreed upon activities within the Phase Out Period have been completed, at which time the funds will be released to the Company. The Company’s receipt of the $ 10.0 million payment is contingent upon phase out activities that have not yet been completed and has not been recognized in the Company’s consolidated financial statements for the fiscal quarter ended December 31, 2021. The Company has not incurred any material expenses related to rebranding efforts as of December 31, 2021; however, the Company is expecting to incur $ 15.0 million to $ 20.0 million in rebranding expenses over the next fiscal year. 8 Table of Contents NOTE 4. 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. Debt Securities AFS (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value At December 31, 2021 Corporate securities $ 25,000 $ — $ — $ 25,000 SBA securities 146,639 4,200 — 150,839 Obligations of states and political subdivisions 2,793 6 — 2,799 Non-bank qualified obligations of states and political subdivisions 250,241 2,056 ( 1,425 ) 250,872 Asset-backed securities 379,192 2,331 ( 2,674 ) 378,849 Mortgage-backed securities 978,336 6,962 ( 10,918 ) 974,380 Total debt securities AFS $ 1,782,201 $ 15,555 $ ( 15,017 ) $ 1,782,739 At September 30, 2021 Corporate securities $ 25,000 $ — $ — $ 25,000 SBA securities 151,958 5,251 — 157,209 Obligations of states and political subdivisions 2,497 10 — 2,507 Non-bank qualified obligations of states and political subdivisions 266,048 3,347 ( 1,100 ) 268,295 Asset-backed securities 393,103 3,003 ( 1,247 ) 394,859 Mortgage-backed securities 1,016,478 9,728 ( 9,177 ) 1,017,029 Total debt securities AFS $ 1,855,084 $ 21,339 $ ( 11,524 ) $ 1,864,899 Debt Securities HTM (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value At December 31, 2021 Non-bank qualified obligations of states and political subdivisions $ 47,751 $ 14 $ ( 679 ) $ 47,086 Mortgage-backed securities 3,243 35 — 3,278 Total debt securities HTM $ 50,994 $ 49 $ ( 679 ) $ 50,364 At September 30, 2021 Non-bank qualified obligations of states and political subdivisions $ 52,944 $ 103 $ ( 471 ) $ 52,576 Mortgage-backed securities 3,725 90 — 3,815 Total debt securities HTM $ 56,669 $ 193 $ ( 471 ) $ 56,391 9 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) Debt Securities AFS At December 31, 2021 Non-bank qualified obligations of states and political subdivisions $ 110,535 $ ( 1,425 ) $ — $ — $ 110,535 $ ( 1,425 ) Asset-backed securities 198,807 ( 2,376 ) 46,215 ( 298 ) 245,022 ( 2,674 ) Mortgage-backed securities 702,224 ( 8,427 ) 90,298 ( 2,491 ) 792,522 ( 10,918 ) Total debt securities AFS $ 1,011,566 $ ( 12,228 ) $ 136,513 $ ( 2,789 ) $ 1,148,079 $ ( 15,017 ) At September 30, 2021 Non-bank qualified obligations of states and political subdivisions $ 101,046 $ ( 1,100 ) $ — $ — $ 101,046 $ ( 1,100 ) Asset-backed securities 127,110 ( 283 ) 91,553 ( 964 ) 218,663 ( 1,247 ) Mortgage-backed securities 759,035 ( 7,418 ) 60,792 ( 1,759 ) 819,827 ( 9,177 ) Total debt securities AFS $ 987,191 $ ( 8,801 ) $ 152,345 $ ( 2,723 ) $ 1,139,536 $ ( 11,524 ) Debt Securities HTM At December 31, 2021 Non-bank qualified obligations of states and political subdivisions $ 42,068 $ ( 679 ) $ — $ — $ 42,068 $ ( 679 ) Total debt securities HTM $ 42,068 $ ( 679 ) $ — $ — $ 42,068 $ ( 679 ) At September 30, 2021 Non-bank qualified obligations of states and political subdivisions $ 26,096 $ ( 471 ) $ — $ — $ 26,096 $ ( 471 ) Total debt securities HTM $ 26,096 $ ( 471 ) $ — $ — $ 26,096 $ ( 471 ) At December 31, 2021, there were 80 securities AFS in an unrealized loss position. Management assessed each investment security with unrealized losses for credit loss and determined substantially all unrealized losses on these securities were due to credit spreads and interest rates versus credit loss. 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. At December 31, 2021, there was no ACL for debt securities AFS. 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. 10 Table of Contents (Dollars in thousands) At December 31, 2021 At September 30, 2021 Securities AFS at Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 810 $ 814 $ 810 $ 822 Due after one year through five years 13,009 13,245 13,026 13,378 Due after five years through ten years 76,762 77,893 50,785 52,357 Due after ten years 713,284 716,407 773,985 781,313 803,865 808,359 838,606 847,870 Mortgage-backed securities 978,336 974,380 1,016,478 1,017,029 Total securities AFS, at fair value $ 1,782,201 $ 1,782,739 $ 1,855,084 $ 1,864,899 At December 31, 2021 At September 30, 2021 (Dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Securities HTM at Fair Value Due after ten years $ 47,751 $ 47,086 $ 52,944 $ 52,576 47,751 47,086 52,944 52,576 Mortgage-backed securities 3,243 3,278 3,725 3,815 Total securities HTM, at cost $ 50,994 $ 50,364 $ 56,669 $ 56,391 Equity Securities The Company held $ 9.9 million at December 31, 2021 and $ 12.7 million at September 30, 2021 in marketable equity securities. The Company recognized $ 2.3 million in unrealized loss in an investee during the three months ended December 31, 2021. All other marketable equity securities and related activity were insignificant for the three months ended December 31, 2021 and 2020. No marketable securities were sold during the first quarter of fiscal year 2022. Non-marketable equity securities with a readily determinable fair value totaled $ 5.6 million at December 31, 2021 and $ 4.6 million at September 30, 2021. The Company recognized $ 0.3 million in unrealized losses and $ 0.1 million in unrealized gains during the three months ended December 31, 2021 and 2020, respectively. No such securities were sold during the first quarter of fiscal year 2022. Non-marketable equity securities without readily determinable fair value totaled $ 15.9 million at December 31, 2021 and $ 16.0 million at September 30, 2021. There was one security sold during the first quarter of fiscal year 2022 for a $ 0.1 million gain . 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 December 31, 2021 and September 30, 2021. 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 specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The investments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of Des Moines. The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency. The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held at the FHLB was $ 8.7 million at December 31, 2021 and $ 8.7 million at September 30, 2021. 11 Table of Contents These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par. Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the fair value approximates cost. Equity Security Impairment The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate 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 no impairment for such investments for the three months ended December 31, 2021. NOTE 5. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in thousands) December 31, 2021 September 30, 2021 Term lending $ 1,038,378 $ 961,019 Asset based lending 337,236 300,225 Factoring 402,972 363,670 Lease financing 245,315 266,050 Insurance premium finance 385,473 428,867 SBA/USDA 209,521 247,756 Other commercial finance 178,853 157,908 Commercial finance 2,797,748 2,725,495 Consumer credit products 173,343 129,251 Other consumer finance 144,412 123,606 Consumer finance 317,755 252,857 Tax services 100,272 10,405 Warehouse finance 466,831 419,926 Community banking — 199,132 Total loans and leases 3,682,606 3,607,815 Net deferred loan origination costs 1,655 1,748 Total gross loans and leases 3,684,261 3,609,563 Allowance for credit losses ( 67,623 ) ( 68,281 ) Total loans and leases, net $ 3,616,638 $ 3,541,282 During the three months ended December 31, 2021, the Company transferred $ 168.4 million of Community Banking loans to held for sale. During the three months ended December 31, 2020, the Company transferred $ 100.4 million of Community Banking loans to held for sale. During the three months ended December 31, 2021 and 2020, the Company originated $ 385.6 million and $ 303.5 million of SBA/USDA, consumer credit product loans, and other consumer finance as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 562.7 million and loss on sale of $ 4.4 million during the three months ended December 31, 2021. The Company sold held for sale loans resulting in proceeds of $ 451.7 million and gains on sale of $ 3.5 million during the three months ended December 31, 2020. In connection with the Company's sale of the Bank's Community Bank division to Central Bank, the Company entered into a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on February 29, 2020 (the "Closing Date"). The Company recognized $ 0.2 million and $ 1.1 million in servicing fee expense during the three months ended December 31, 2021 and 2020, respectively, and $ 3.3 million for the fiscal year ended September 30, 2021. 12 Table of Contents Since the Closing Date, the Company has entered into subsequent loan portfolio sale agreements with Central Bank and other third parties. The Company sold additional loans from the retained Community Bank portfolio in the amount of $ 192.5 million and $ 129.8 million in the three months ended December 31, 2021 and 2020, respectively, and $ 308.1 million for the fiscal year ended September 30, 2021. All loans from the retained Community Bank portfolio have been sold as of December 31, 2021. Loans purchased and sold by portfolio segment, including participation interests, were as follows: Three Months Ended December 31, (Dollars in thousands) 2021 2020 Loans Purchased Loans held for investment: Commercial finance $ 1,720 $ — Warehouse finance 55,993 62,631 Community banking — 2,299 Total purchases $ 57,713 $ 64,930 Loans Sold Loans held for sale: Commercial finance $ 33,023 $ 30,324 Consumer finance 376,444 291,540 Community banking 153,222 129,788 Loans held for investment: Community banking 30,235 — Total sales $ 592,924 $ 451,652 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in thousands) December 31, 2021 September 30, 2021 Carrying amount $ 255,907 $ 278,341 Unguaranteed residual assets 13,329 14,393 Unamortized initial direct costs 435 490 Unearned income ( 23,921 ) ( 26,684 ) Total net investment in direct financing and sales-type leases $ 245,750 $ 266,540 The carrying amount of direct financing and sales-type leases subject to residual value guarantees was $ 4.0 million at December 31, 2021. The components of total lease income were as follows: Three Months Ended December 31, (Dollars in thousands) 2021 2020 Interest income - loans and leases Interest income on net investments in direct financing and sales-type leases $ 4,573 $ 5,319 Leasing and equipment finance noninterest income Lease income from operating lease payments 11,086 10,041 Profit recorded on commencement date on sales-type leases — 71 Other (1) 1,325 69 Total leasing and equipment finance noninterest income 12,411 10,181 Total lease income $ 16,984 $ 15,500 (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. 13 Table of Contents Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at December 31, 2021 were as follows: (Dollars in thousands) Remaining in 2022 $ 78,421 2023 86,354 2024 54,978 2025 26,113 2026 7,124 Thereafter 2,918 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 255,908 Total carrying amount of direct financing and sales-type leases $ 255,908 The Company did not record any contingent rental income from direct financing and sales-type leases in the three months ended December 31, 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 remains 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 its estimate as more information becomes available. Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows: Three Months Ended December 31, 2021 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 29,351 $ ( 858 ) $ ( 2,085 ) $ 314 $ 26,722 Asset based lending 1,726 911 ( 16 ) 137 2,758 Factoring 3,997 12,502 ( 1,275 ) 18 15,242 Lease financing 7,629 ( 822 ) ( 16 ) 66 6,857 Insurance premium finance 1,394 ( 270 ) ( 177 ) 97 1,044 SBA/USDA 2,978 233 ( 217 ) 2 2,996 Other commercial finance 1,168 181 — — 1,349 Commercial finance 48,243 11,877 ( 3,786 ) 634 56,968 Consumer credit products 1,242 385 — — 1,627 Other consumer finance 6,112 1,560 ( 819 ) 107 6,960 Consumer finance 7,354 1,945 ( 819 ) 107 8,587 Tax services 2 ( 714 ) ( 254 ) 2,567 1,601 Warehouse finance 420 47 — — 467 Community banking 12,262 ( 12,684 ) — 422 — Total loans and leases 68,281 471 ( 4,859 ) 3,730 67,623 Unfunded commitments (1) 690 ( 285 ) — — 405 Total $ 68,971 $ 186 $ ( 4,859 ) $ 3,730 $ 68,028 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 14 Table of Contents Three Months Ended December 31, 2020 (Dollars in thousands) Beginning Balance Impact of CECL Adoption Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 15,211 $ 9,999 $ 6,026 $ ( 3,312 ) $ 296 $ 28,220 Asset based lending 1,406 164 839 ( 600 ) — 1,809 Factoring 3,027 987 ( 1,416 ) ( 1 ) 1,122 3,719 Lease financing 7,023 ( 556 ) 1,112 ( 876 ) 81 6,784 Insurance premium finance 2,129 ( 965 ) 488 ( 656 ) 289 1,285 SBA/USDA 940 2,720 ( 497 ) — 1 3,164 Other commercial finance 182 364 ( 67 ) — — 479 Commercial finance 29,918 12,713 6,485 ( 5,445 ) 1,789 45,460 Consumer credit products 845 — ( 10 ) — — 835 Other consumer finance 2,821 5,998 1,482 ( 218 ) 93 10,176 Consumer finance 3,666 5,998 1,472 ( 218 ) 93 11,011 Tax services 2 — 454 — 956 1,412 Warehouse finance 294 ( 1 ) 26 — — 319 Community banking 22,308 ( 5,937 ) ( 2,173 ) ( 11 ) — 14,187 Total loans and leases 56,188 12,773 6,264 ( 5,674 ) 2,838 72,389 Unfunded commitments (1) 32 831 ( 175 ) — — 688 Total $ 56,220 $ 13,604 $ 6,089 $ ( 5,674 ) $ 2,838 $ 73,077 (1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition. Information on loans and leases that are deemed to be collateral dependent and are evaluated individually for the ACL was as follows: (Dollars in thousands) At December 31, 2021 At September 30, 2021 Term lending $ 68,838 $ 20,965 Asset based lending 5,992 — Factoring 16,503 1,268 Lease financing 13,254 3,882 SBA/USDA 797 — Commercial finance (1) 105,384 26,115 Community banking — 14,915 Total $ 105,384 $ 41,030 (1) For commercial finance, collateral dependent financial assets have collateral in the form of cash, equipment, or other business assets. 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 December 31, 2021, $ 0.4 million of loan and lease balances that were granted deferral payments by the Company were still in their deferment period. 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. Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the Bank's primary regulator, the Office of the Comptroller of the Currency (the “OCC”), to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan classification and risk rating definitions are as follows: 15 Table of Contents Pass - A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating. Watch - A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets. Special Mention - A special mention asset is a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher. The adverse classifications are as follows: Substandard - A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard. Doubtful - A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate. Loss - A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value, leaving room for future collection efforts. Loans and leases, or portions thereof, are generally charged off when collection of principal becomes doubtful. Typically, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 180 days or more for the purchased student loan portfolios, 120 days or more for consumer credit products and leases, and 90 days or more for community banking loans and commercial finance loans. Action is taken to charge off ERO loans if such loans have not been collected by the end of June and taxpayer advance loans if such loans have not been collected by the end of the calendar year. Nonaccrual loans and troubled debt restructurings are generally individually evaluated for expected credit losses. 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. The Company has various portfolios of consumer finance and tax services loans that present unique risks that are statistically managed. 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 $ 317.8 million and $ 100.3 million at December 31, 2021, respectively, and $ 252.9 million and $ 10.4 million at September 30, 2021, 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 At December 31, 2021 2022 2021 2020 2019 2018 Prior Term lending Pass $ 145,763 $ 337,426 $ 175,447 $ 54,833 $ 37,328 $ 12,940 $ — $ 763,737 Watch 9,627 53,179 70,323 27,372 7,346 2,979 — 170,826 Special Mention 194 888 21,679 4,409 697 3,127 — 30,994 Substandard 5,040 16,035 18,469 23,418 3,582 3,922 — 70,466 16 Table of Contents Doubtful — 140 780 1,361 74 — — 2,355 Total 160,624 407,668 286,698 111,393 49,027 22,968 — 1,038,378 Asset based lending Pass — — — — — — 235,577 235,577 Watch — — — — — — 30,560 30,560 Special Mention — — — — — — 53,240 53,240 Substandard — — — — — — 17,859 17,859 Total — — — — — — 337,236 337,236 Factoring Pass — — — — — — 299,672 299,672 Watch — — — — — — 37,974 37,974 Special Mention — — — — — — 30,587 30,587 Substandard — — — — — — 19,425 19,425 Doubtful — — — — — — 15,314 15,314 Total — — — — — — 402,972 402,972 Lease financing Pass 5,592 47,808 61,345 13,162 6,148 365 — 134,420 Watch 1,122 21,300 18,565 6,966 2,693 2,095 — 52,741 Special Mention 765 17,737 14,560 3,768 1,263 55 — 38,148 Substandard — 600 11,208 5,302 786 21 — 17,917 Doubtful — — — 2,089 — — — 2,089 Total 7,479 87,445 105,678 31,287 10,890 2,536 — 245,315 Insurance premium finance Pass 169,134 215,844 46 3 — — — 385,027 Watch — 183 — — — — — 183 Special Mention — 66 — — — — — 66 Substandard — 78 20 — — — — 98 Doubtful — 95 4 — — — — 99 Total 169,134 216,266 70 3 — — — 385,473 SBA/USDA Pass 2,851 77,090 25,399 13,028 12,525 9,859 — 140,752 Watch — — 19,705 1,963 — 1,350 — 23,018 Special Mention — — 696 1,147 4,971 1,005 — 7,819 Substandard — — 17,732 9,502 8,177 2,455 — 37,866 Doubtful — — — — — 66 — 66 Total 2,851 77,090 63,532 25,640 25,673 14,735 — 209,521 Other commercial finance Pass 20,130 28,666 764 5,885 2,428 67,777 — 125,650 Watch — 20,000 16,807 3,322 — — — 40,129 Special Mention — — — — 447 — — 447 Substandard — 10,255 — — 270 2,102 — 12,627 Total 20,130 58,921 17,571 9,207 3,145 69,879 — 178,853 Warehouse finance Pass — — — — — — 466,831 466,831 Total — — — — — — 466,831 466,831 Total loans and leases Pass 343,470 706,834 263,000 86,911 58,428 90,942 1,002,081 2,551,666 Watch 10,750 94,662 125,398 39,623 10,039 6,426 68,533 355,431 Special Mention 959 18,690 36,935 9,324 7,380 4,186 83,827 161,301 Substandard 5,040 26,967 47,433 38,221 12,814 8,499 37,284 176,258 17 Table of Contents Doubtful — 235 784 3,450 73 66 15,315 19,923 Total $ 360,219 $ 847,388 $ 473,550 $ 177,529 $ 88,734 $ 110,119 $ 1,207,040 $ 3,264,579 Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At September 30, 2021 2021 2020 2019 2018 2017 Prior Term lending Pass $ 362,443 $ 192,305 $ 63,708 $ 34,381 $ 3,195 $ 1,236 $ — $ 657,268 Watch 63,046 71,701 32,941 21,419 76 3,628 — 192,811 Special Mention 6,422 26,673 4,821 932 70 633 — 39,551 Substandard 18,569 16,810 26,920 3,529 928 641 — 67,397 Doubtful 252 1,673 1,756 311 — — — 3,992 Total 450,732 309,162 130,146 60,572 4,269 6,138 — 961,019 Asset based lending Pass — — — — — — 185,432 185,432 Watch — — — — — — 52,072 52,072 Special Mention — — — — — — 43,135 43,135 Substandard — — — — — — 19,586 19,586 Total — — — — — — 300,225 300,225 Factoring Pass — — — — — — 294,124 294,124 Watch — — — — — — 17,984 17,984 Special Mention — — — — — — 33,035 33,035 Substandard — — — — — — 18,527 18,527 Total — — — — — — 363,670 363,670 Lease financing Pass 54,434 73,629 17,153 7,511 1,857 203 — 154,787 Watch 22,061 20,455 9,274 2,739 1,454 — — 55,983 Special Mention 15,402 20,595 4,148 1,546 61 — — 41,752 Substandard 479 4,765 4,981 831 25 — — 11,081 Doubtful — 6 2,402 38 1 — — 2,447 Total 92,376 119,450 37,958 12,665 3,398 203 — 266,050 Insurance premium finance Pass 428,131 144 9 — — — — 428,284 Watch 262 5 — — — — — 267 Special Mention 58 5 — — — — — 63 Substandard 68 107 — — — — — 175 Doubtful 58 20 — — — — — 78 Total 428,577 281 9 — — — — 428,867 SBA/USDA Pass 110,122 37,006 14,461 12,760 6,525 3,779 — 184,653 Watch — 20,431 1,996 1,670 1,394 298 — 25,789 Special Mention — 8,333 214 3,348 177 919 — 12,991 Substandard — 3,812 9,550 8,079 2,169 713 — 24,323 Total 110,122 69,582 26,221 25,857 10,265 5,709 — 247,756 Other commercial finance Pass 56,957 642 5,786 6,075 3,345 60,965 — 133,770 Watch — 17,404 3,409 451 — — — 21,264 Substandard 466 — — 273 837 1,299 — 2,875 Total 57,423 18,046 9,195 6,799 4,182 62,264 — 157,909 18 Table of Contents Warehouse finance Pass — — — — — — 419,926 419,926 Total — — — — — — 419,926 419,926 Community banking Pass — — 4,159 — 5,683 472 — 10,314 Watch — 10,134 — 10,854 6,133 — — 27,121 Special Mention — — 35,916 — — — — 35,916 Substandard — 119 49,449 50,626 13,933 6,110 — 120,237 Doubtful — 122 — 5,422 — — — 5,544 Total — 10,375 89,524 66,902 25,749 6,582 — 199,132 Total loans and leases Pass 1,012,088 303,727 105,274 60,727 20,605 66,655 899,481 2,468,557 Watch 85,369 140,131 47,620 37,132 9,057 3,926 70,056 393,291 Special Mention 21,882 55,606 45,099 5,826 307 1,552 76,171 206,443 Substandard 19,584 25,613 90,900 63,338 17,891 8,762 38,113 264,201 Doubtful 310 1,822 4,158 5,770 1 — — 12,061 Total $ 1,139,233 $ 526,899 $ 293,051 $ 172,793 $ 47,861 $ 80,895 $ 1,083,821 $ 3,344,553 Past due loans and leases were as follows: At December 31, 2021 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 Nonaccrual Balance Total Loans held for sale $ 9 $ 2 $ — $ 11 $ 36,171 $ 36,182 $ — $ — $ — Term lending 25,308 4,350 4,331 33,989 1,004,389 1,038,378 679 12,732 13,411 Asset based lending 216 — — 216 337,020 337,236 — 5,995 5,995 Factoring — — — — 402,972 402,972 — 15,335 15,335 Lease financing 11,721 3,227 1,803 16,751 228,564 245,315 1,783 3,051 4,834 Insurance premium finance 1,409 777 721 2,907 382,566 385,473 721 — 721 SBA/USDA 2,414 185 713 3,312 206,209 209,521 713 647 1,360 Other commercial finance 405 — — 405 178,448 178,853 — — — Commercial finance 41,473 8,539 7,568 57,580 2,740,168 2,797,748 3,896 37,760 41,656 Consumer credit products 3,307 1,838 617 5,762 167,581 173,343 617 — 617 Other consumer finance 1,573 439 917 2,929 141,483 144,412 917 — 917 Consumer finance 4,880 2,277 1,534 8,691 309,064 317,755 1,534 — 1,534 Tax services — — — — 100,272 100,272 — — — Warehouse finance — — — — 466,831 466,831 — — — Community banking — — — — — — — — — Total loans and leases held for investment 46,353 10,816 9,102 66,271 3,616,335 3,682,606 5,430 37,760 43,190 Total loans and leases $ 46,362 $ 10,818 $ 9,102 $ 66,282 $ 3,652,506 $ 3,718,788 $ 5,430 $ 37,760 $ 43,190 19 Table of Contents At September 30, 2021 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 Nonaccrual Balance Total Loans held for sale $ — $ — $ — $ — $ 56,194 $ 56,194 $ — $ — $ — Term lending 11,879 2,703 5,452 20,034 940,985 961,019 2,558 14,904 17,462 Asset based lending — — — — 300,225 300,225 — — — Factoring — — — — 363,670 363,670 — 1,268 1,268 Lease financing 4,909 3,336 8,401 16,646 249,404 266,050 8,345 3,158 11,503 Insurance premium finance 1,415 375 599 2,389 426,478 428,867 599 — 599 SBA/USDA 66 974 987 2,027 245,729 247,756 987 — 987 Other commercial finance — — — — 157,908 157,908 — — — Commercial finance 18,269 7,388 15,439 41,096 2,684,399 2,725,495 12,489 19,330 31,819 Consumer credit products 713 527 511 1,751 127,500 129,251 511 — 511 Other consumer finance 963 285 725 1,973 121,633 123,606 725 — 725 Consumer finance 1,676 812 1,236 3,724 249,133 252,857 1,236 — 1,236 Tax services — — 7,962 7,962 2,443 10,405 7,962 — 7,962 Warehouse finance — — — — 419,926 419,926 — — — Community banking — — — — 199,132 199,132 — 14,915 14,915 Total loans and leases held for investment 19,945 8,200 24,637 52,782 3,555,033 3,607,815 21,687 34,245 55,932 Total loans and leases $ 19,945 $ 8,200 $ 24,637 $ 52,782 $ 3,611,227 $ 3,664,009 $ 21,687 $ 34,245 $ 55,932 Nonaccrual loans and leases by year of origination at December 31, 2021 were as follows: Amortized Cost Basis Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual with No ACL (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Term lending $ — $ 765 $ 3,106 $ 8,123 $ 611 $ 127 $ — $ 12,732 $ 3,025 Asset based lending — — — — — — 5,995 5,995 — Factoring — — — — — — 15,335 15,335 — Lease financing — 87 18 2,380 546 20 — 3,051 — SBA/USDA — — 647 — — — — 647 326 Commercial finance — 852 3,771 10,503 1,157 147 21,330 37,760 3,351 Total nonaccrual loans and leases $ — $ 852 $ 3,771 $ 10,503 $ 1,157 $ 147 $ 21,330 $ 37,760 $ 3,351 20 Table of Contents Loans and leases that are 90 days or more delinquent and accruing by year of origination at December 31, 2021 were as follows: Amortized Cost Basis Term Loans and Leases by Origination Year Revolving Loans and Leases Total (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Term lending $ — $ 84 $ 595 $ — $ — $ — $ — $ 679 Lease financing 132 973 79 380 126 93 — 1,783 Insurance premium finance 19 702 — — — — — 721 SBA/USDA — — 647 — — 66 — 713 Commercial finance 151 1,759 1,321 380 126 159 — 3,896 Consumer credit products — 471 5 141 — — — 617 Other consumer finance — 7 — — — 910 — 917 Consumer finance — 478 5 141 — 910 — 1,534 Total 90 days or more delinquent and accruing $ 151 $ 2,237 $ 1,326 $ 521 $ 126 $ 1,069 $ — $ 5,430 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) consumer loans exempt under regulatory rules from being classified as nonaccrual 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. The following table provides the average recorded investment in nonaccrual loans and leases: Three Months Ended December 31, (Dollars in thousands) 2021 2020 Term lending $ 13,922 $ 14,876 Asset based lending 4,011 1,074 Factoring 12,247 935 Lease financing 3,033 3,556 SBA/USDA 216 600 Commercial finance 33,429 21,041 Community banking — 8,433 Total loans and leases $ 33,429 $ 29,474 The recognized interest income on the Company's nonaccrual loans and leases for the three months ended December 31, 2021 and 2020 was not significant. 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 $ 10.1 million of commercial finance loans and $ 0.1 million of consumer finance loans that were modified in a TDR during the three months ended December 31, 2021, all of which were modified to extend the term of the loan. There were $ 0.1 million of consumer finance loans that were modified in a TDR during the three months ended December 31, 2020 and no community banking loans. During the three months ended December 31, 2021, the Company had $ 2.3 million of commercial finance loans and $ 0.5 million of consumer finance loans that were modified in a TDR within the previous 12 months and for which there was a payment default. During the three months ended December 31, 2020, the Company had $ 0.3 million of commercial finance loans, $ 0.1 million of consumer finance 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. TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the three months ended December 31, 2021 and December 31, 2020. 21 Table of Contents NOTE 6. 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 EPS 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 EPS is calculated using the more dilutive of the treasury stock method or the two-class method. Diluted EPS 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. 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 December 31, (Dollars in thousands, except per share data) 2021 2020 Basic income per common share: Net income attributable to Meta Financial Group, Inc. $ 61,324 $ 28,037 Dividends and undistributed earnings allocated to participating securities ( 953 ) ( 554 ) Basic net earnings available to common stockholders 60,371 27,483 Undistributed earnings allocated to nonvested restricted stockholders 929 521 Reallocation of undistributed earnings to nonvested restricted stockholders ( 929 ) ( 521 ) Diluted net earnings available to common stockholders $ 60,371 $ 27,483 Total weighted-average basic common shares outstanding 30,238,621 32,782,285 Effect of dilutive securities (1) Performance share units 22,034 8,610 Total effect of dilutive securities 22,034 8,610 Total weighted-average diluted common shares outstanding 30,260,655 32,790,895 Net earnings per common share: Basic earnings per common share $ 2.00 $ 0.84 Diluted earnings per common share (2) $ 2.00 $ 0.84 (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 December 31, 2021 and 2020, respectively, were 477,488 and 660,659 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. 22 Table of Contents NOTE 7. RENTAL EQUIPMENT, NET Rental equipment consists of the following: (Dollars in thousands) December 31, 2021 September 30, 2021 Computers and IT networking equipment $ 16,267 $ 17,683 Motor vehicles and other 95,255 87,396 Office furniture and equipment 47,400 48,828 Solar panels and equipment 147,532 125,457 Total 306,454 279,364 Accumulated depreciation ( 73,301 ) ( 67,825 ) Unamortized initial direct costs 1,540 1,577 Net book value $ 234,693 $ 213,116 Undiscounted future minimum lease payments expected to be received for operating leases at December 31, 2021 were as follows: (Dollars in thousands) Remaining in 2022 $ 27,557 2023 31,660 2024 23,698 2025 17,366 2026 10,508 Thereafter 14,227 Total undiscounted future minimum lease payments receivable for operating leases $ 125,016 NOTE 8. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at December 31, 2021. The recorded goodwill is a result of multiple business combinations that have been consummated since fiscal year 2015, with the most recent 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. See Note 14. Segment Reporting for additional information on the Company's segment reporting. There have been no changes to the carrying amount of goodwill during the three months ended December 31, 2021. 23 Table of Contents The changes in the carrying amount of the Company’s intangible assets were as follows: (Dollars in thousands) Trademark (1) Non-Compete (2) Customer Relationships (3) All Others (4) Total Intangible Assets At September 30, 2021 $ 9,823 $ 40 $ 17,868 $ 5,417 $ 33,148 Acquisitions during the period — — — 1 1 Amortization during the period ( 263 ) ( 39 ) ( 1,054 ) ( 132 ) ( 1,488 ) At December 31, 2021 $ 9,560 $ 1 $ 16,814 $ 5,286 $ 31,661 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 10,142 $ 109,335 Accumulated amortization ( 5,064 ) ( 2,480 ) ( 55,026 ) ( 4,638 ) ( 67,208 ) Accumulated impairment — — ( 10,248 ) ( 218 ) ( 10,466 ) At December 31, 2021 $ 9,560 $ 1 $ 16,814 $ 5,286 $ 31,661 At September 30, 2020 $ 10,901 $ 422 $ 24,333 $ 6,036 $ 41,692 Acquisitions during the period — — — 5 5 Amortization during the period ( 272 ) ( 95 ) ( 1,486 ) ( 160 ) ( 2,013 ) Write-offs during the period — — — ( 24 ) ( 24 ) At December 31, 2020 $ 10,629 $ 327 $ 22,847 $ 5,857 $ 39,660 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 10,123 $ 109,316 Accumulated amortization ( 3,995 ) ( 2,154 ) ( 48,993 ) ( 4,047 ) ( 59,189 ) Accumulated impairment — — ( 10,248 ) ( 219 ) ( 10,467 ) At December 31, 2020 $ 10,629 $ 327 $ 22,847 $ 5,857 $ 39,660 (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 nine months of fiscal 2022 and subsequent fiscal years was as follows: (Dollars in thousands) Remaining in 2022 $ 4,933 2023 5,102 2024 4,384 2025 3,826 2026 3,252 Thereafter 10,164 Total anticipated intangible amortization $ 31,661 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 three months ended December 31, 2021 and 2020. Intangible expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations. 24 Table of Contents NOTE 9. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease ROU assets, included in other assets , were $ 32.7 million and $ 25.2 million at December 31, 2021 and 2020, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 34.5 million and $ 26.7 million at December 31, 2021 and 2020, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at December 31, 2021 were as follows: (Dollars in thousands) Remaining in 2022 $ 3,301 2023 3,892 2024 3,854 2025 3,718 2026 3,195 Thereafter 21,732 Total undiscounted future minimum lease payments 39,692 Discount ( 5,167 ) Total operating lease liabilities $ 34,525 The weighted-average discount rate and remaining lease term for operating leases at December 31, 2021 were as follows: Weighted-average discount rate 2.33 % Weighted-average remaining lease term (years) 10.90 The components of total lease costs for operating leases were as follows: Three Months Ended December 31, (Dollars in thousands) 2021 2020 Lease expense $ 1,137 $ 954 Short-term and variable lease cost 35 63 ROU asset impairment — 224 Sublease income ( 176 ) ( 108 ) Total lease cost for operating leases $ 996 $ 1,133 NOTE 10. 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. All remaining shares available for repurchase under this program were repurchased during the fiscal 2022 first quarter. This authorization was effective from November 21, 2019 through December 31, 2022. On September 7, 2021, the Company's Board of Directors announced a new share repurchase program to repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock. This authorization is effective from September 3, 2021 through September 30, 2024. During the three months ended December 31, 2021, and 2020, the Company repurchased 1,711,501 and 1,864,474 shares, respectively, as part of the share repurchase programs. Under the repurchase programs, 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 December 31, 2021, 5,604,375 shares of common stock remained available for repurchase. 25 Table of Contents For the three months ended December 31, 2021, and 2020, the Company also repurchased 61,172 and 79,101 shares, or $ 3.4 million and $ 1.8 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock. NOTE 11. 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 2002 Omnibus 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 three months ended December 31, 2021. There were no options granted, exercised, or forfeited under this plan during the three months ended December 31, 2021. (Dollars in thousands, except per share data) Number of Shares Weighted Average Fair Value at Grant Nonvested shares outstanding, September 30, 2021 547,063 $ 30.22 Granted 136,883 57.90 Vested ( 187,198 ) 34.38 Forfeited or expired ( 8,430 ) 42.59 Nonvested shares outstanding, December 31, 2021 488,318 $ 36.17 (Dollars in thousands, except per share data) Number of Units Weighted Average Fair Value at Grant Performance share units outstanding, September 30, 2021 60,894 $ 34.03 Granted (1) 34,235 57.03 Vested — — Forfeited or expired — — Performance share units outstanding, December 31, 2021 95,219 $ 42.30 (1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award. At December 31, 2021, stock-based compensation expense not yet recognized in income totaled $ 11.6 million, which is expected to be recognized over a weighted average remaining period of 1.88 years. 26 Table of Contents NOTE 12. INCOME TAXES The Company recorded an income tax expense of $ 14.3 million for the three months ended December 31, 2021, resulting in an effective tax rate of 18.89 %, compared to an income tax expense of $ 3.5 million, or an effective tax rate of 10.77 %, for the three months ended December 31, 2020. The Company’s effective tax rate was lower than the U.S. statutory rate of 21% primarily because of the anticipated effect of investment tax credits during fiscal year 2022. The Company’s effective tax rate in the future will depend in part on actual investment tax credits earned as part of its financing of solar energy projects. The table below compares the income tax expense components for the periods presented. Three Months Ended December 31, (Dollars in thousands) 2021 2020 Provision at statutory rate $ 15,876 $ 6,630 Tax-exempt income ( 172 ) ( 249 ) State income taxes 3,087 1,488 Interim period effective rate adjustment 1,827 5,467 Tax credit investments, net - federal ( 5,670 ) ( 10,123 ) Research tax credit — ( 323 ) IRC 162(m) nondeductible compensation 263 334 Other, net ( 935 ) 309 Income tax expense $ 14,276 $ 3,533 Effective tax rate 18.89 % 10.77 % NOTE 13. 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 14. Segment Reporting to the Condensed Consolidated Financial Statements. (Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company Three Months Ended December 31, 2021 2020 2021 2020 2021 2020 2021 2020 Net interest income (1) $ 26,271 $ 22,347 $ 44,926 $ 41,848 $ 416 $ 1,804 $ 71,613 $ 65,999 Noninterest income: Refund transfer product fees 579 647 — — — — 579 647 Tax advance product fees (1) 1,233 1,960 — — — — 1,233 1,960 Payment card and deposit fees 25,132 22,564 — — — — 25,132 22,564 Other bank and deposit fees — — 231 234 6 3 237 237 Rental income (1) — 5 11,077 9,880 — — 11,077 9,885 Net gain realized on investment securities (1) — — — — 137 — 137 — Gain on sale of trademarks — — — — 50,000 — 50,000 — Gain (loss) on sale of other (1) — — 4,864 2,591 ( 8,329 ) 256 ( 3,465 ) 2,847 Other income (1) 765 159 2,785 2,461 ( 1,889 ) 4,695 1,661 7,315 Total noninterest income 27,709 25,335 18,957 15,166 39,925 4,954 86,591 45,455 Revenue $ 53,980 $ 47,682 $ 63,883 $ 57,014 $ 40,341 $ 6,758 $ 158,204 $ 111,454 (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. 27 Table of Contents 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 December 31, 2021 and September 30, 2021, 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. Card Fees. Card fees relate to Meta Payments, 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 not related to the Company's payments divisions 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, and event-driven services (i.e. returned checks, ATM surcharge, card replacement, and wire transfers). 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. Principal vs Agent. The Consumer reporting segment includes principal/agent relationships. Within this segment, Meta Payments division 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. 28 Table of Contents NOTE 14. SEGMENT REPORTING An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met. The Company reports its results of operations through the following three business segments: Consumer, Commercial, and Corporate Services/Other. The Meta Payments 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 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, warehouse finance, wholesale deposits and borrowings. The Company does not report indirect general and administrative expenses in the Consumer and Commercial segments. The following tables present segment data for the Company: Three Months Ended December 31, 2021 (Dollars in thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 26,271 $ 44,926 $ 416 $ 71,613 Provision (reversal of) for credit losses 1,262 11,591 ( 12,667 ) 186 Noninterest income 27,709 18,957 39,925 86,591 Noninterest expense 19,661 33,046 29,729 82,436 Income (loss) before income tax expense 33,057 19,246 23,279 75,582 Total assets 550,336 3,260,619 3,798,703 7,609,658 Total goodwill 87,145 222,360 — 309,505 Total deposits 6,325,193 6,840 193,536 6,525,569 Three Months Ended December 31, 2020 (Dollars in thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 22,347 $ 41,848 $ 1,804 $ 65,999 Provision (reversal of) for credit losses 2,366 6,467 ( 2,744 ) 6,089 Noninterest income 25,335 15,166 4,954 45,455 Noninterest expense 18,162 27,168 27,245 72,575 Income (loss) before income tax expense 27,154 23,379 ( 17,743 ) 32,790 Total assets 430,067 2,917,142 3,917,306 7,264,515 Total goodwill 87,145 222,360 — 309,505 Total deposits 5,884,638 13,230 309,923 6,207,791 29 Table of Contents NOTE 15. 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 services for unusual fluctuations and compares 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). 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 December 31, 2021 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 25,000 $ — $ 25,000 $ — SBA securities 150,839 — 150,839 — Obligations of states and political subdivisions 2,799 — 2,799 — Non-bank qualified obligations of states and political subdivisions 250,872 — 250,872 — Asset-backed securities 378,849 — 378,849 — Mortgage-backed securities 974,380 — 974,380 — Total debt securities AFS $ 1,782,739 $ — $ 1,782,739 $ — Common equities and mutual funds (1) $ 9,854 $ 9,854 $ — $ — Non-marketable equity securities (2) $ 5,618 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2021 and September 30, 2021. (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. 30 Table of Contents Fair Value At September 30, 2021 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 25,000 $ — $ 25,000 $ — SBA securities 157,209 — 157,209 — Obligations of states and political subdivisions 2,507 — 2,507 — Non-bank qualified obligations of states and political subdivisions 268,295 — 268,295 — Asset-backed securities 394,859 — 394,859 — Mortgage-backed securities 1,017,029 — 1,017,029 — Total debt securities AFS $ 1,864,899 $ — $ 1,864,899 $ — Common equities and mutual funds (1) $ 12,668 $ 12,668 $ — $ — Non-marketable equity securities (2) $ 4,560 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2021 and September 30, 2021. (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 35 %. 31 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 December 31, 2021 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 13,095 $ — $ — $ 13,095 Total loans and leases, net individually evaluated for credit loss 13,095 — — 13,095 Foreclosed assets, net 298 — — 298 Total $ 13,393 $ — $ — $ 13,393 Fair Value At September 30, 2021 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 3,404 $ — $ — $ 3,404 Community banking 9,371 — — 9,371 Total loans and leases, net individually evaluated for credit loss 12,775 — — 12,775 Foreclosed assets, net 2,077 — — 2,077 Total $ 14,852 $ — $ — $ 14,852 Quantitative Information About Level 3 Fair Value Measurements (Dollars in thousands) Fair Value at December 31, 2021 Fair Value at September 30, 2021 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 13,095 12,775 Market approach Appraised values (1) 4 % - 35 % Foreclosed assets, net $ 298 2,077 Market approach Appraised values (1) 9 % - 20 % (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 35 %. 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 December 31, 2021 and September 30, 2021 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. 32 Table of Contents The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company: At December 31, 2021 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 1,230,100 $ 1,230,100 $ 1,230,100 $ — $ — Debt securities available for sale 1,782,739 1,782,739 — 1,782,739 — Debt securities held to maturity 50,994 50,364 — 50,364 — Common equities and mutual funds (1) 9,854 9,854 9,854 — — Non-marketable equity securities (1)(2) 18,567 18,567 — 12,949 — Loans held for sale 36,182 36,182 — 36,182 — Loans and leases 3,682,606 3,624,832 — — 3,624,832 Federal Reserve Bank and Federal Home Loan Bank stocks 28,400 28,400 — 28,400 — Accrued interest receivable 17,240 17,240 17,240 — — Financial liabilities Deposits 6,525,569 6,525,579 6,494,700 30,879 — Other short- and long-term borrowings 92,274 93,309 — 93,309 — Accrued interest payable 661 661 661 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 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. At September 30, 2021 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 314,019 $ 314,019 $ 314,019 $ — $ — Debt securities available for sale 1,864,899 1,864,899 — 1,864,899 — Debt securities held to maturity 56,669 56,391 — 56,391 — Common equities and mutual funds( 1) 12,668 12,668 12,668 — — Non-marketable equity securities (1)(2) 17,509 17,509 — 12,949 — Loans held for sale 56,194 56,194 — 56,194 — Loans and leases 3,607,815 3,616,646 — — 3,616,646 Federal Reserve Bank and Federal Home Loan Bank stocks 28,400 28,400 — 28,400 — Accrued interest receivable 16,254 16,254 16,254 — — Financial liabilities Deposits 5,514,971 5,515,035 5,482,471 32,564 — Other short- and long-term borrowings 92,834 93,938 — 93,938 — Accrued interest payable 579 579 579 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at September 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. NOTE 16. SUBSEQUENT EVENTS Management has evaluated subsequent events that occurred after December 31, 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 December 31, 2021. 33 Table of Contents