PATHWARD FINANCIAL, INC. 10-Q

Item 1. Financial Statements. PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Financial Condition (Dollars in thousands, except per share data) June 30, 2022 September 30, 2021 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 157,260 $ 314,019 Securities available for sale, at fair value 1,956,523 1,864,899 Securities held to maturity, at amortized cost (fair value $ 41,963 and $ 56,391 , respectively) 43,877 56,669 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 28,812 28,400 Loans held for sale 67,571 56,194 Loans and leases 3,688,566 3,609,563 Allowance for credit losses ( 75,206 ) ( 68,281 ) Accrued interest receivable 16,818 16,254 Premises, furniture, and equipment, net 42,076 44,888 Rental equipment, net 222,023 213,116 Foreclosed real estate and repossessed assets, net 13 2,077 Goodwill and intangible assets 336,593 342,653 Prepaid assets 11,408 10,513 Other assets 231,844 199,686 Total assets $ 6,728,178 $ 6,690,650 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits $ 5,710,799 $ 5,514,971 Long-term borrowings 16,616 92,834 Accrued expenses and other liabilities 275,989 210,961 Total liabilities 6,003,404 5,818,766 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued and no shares outstanding at June 30, 2022 and September 30, 2021, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 29,440,396 and 31,686,483 shares issued, 29,356,707 and 31,669,952 shares outstanding at June 30, 2022 and September 30, 2021, respectively 294 317 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2022 and September 30, 2021, respectively — — Additional paid-in capital 615,159 604,484 Retained earnings 244,686 259,189 Accumulated other comprehensive income (loss) ( 131,407 ) 7,599 Treasury stock, at cost, 83,689 and 16,531 common shares at June 30, 2022 and September 30, 2021, respectively ( 4,623 ) ( 860 ) Total equity attributable to parent 724,109 870,729 Noncontrolling interest 665 1,155 Total stockholders’ equity 724,774 871,884 Total liabilities and stockholders’ equity $ 6,728,178 $ 6,690,650 See Notes to Condensed Consolidated Financial Statements. 2 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands, except per share data) 2022 2021 2022 2021 Interest and dividend income: Loans and leases, including fees $ 62,541 $ 62,287 $ 203,115 $ 192,415 Mortgage-backed securities 7,381 3,446 16,690 8,176 Other investments 3,984 4,250 12,169 13,207 73,906 69,983 231,974 213,798 Interest expense: Deposits 94 188 400 1,429 FHLB advances and other borrowings 1,661 1,320 4,010 4,045 1,755 1,508 4,410 5,474 Net interest income 72,151 68,475 227,564 208,324 Provision (reversal of) for credit losses ( 1,302 ) 4,612 31,186 40,991 Net interest income after provision for credit losses 73,453 63,863 196,378 167,333 Noninterest income: Refund transfer product fees 10,289 12,073 38,674 35,400 Tax advance product fees ( 20 ) 891 40,513 47,413 Payments card and deposit fees 24,673 29,203 76,075 81,641 Other bank and deposit fees 262 338 750 709 Rental income 12,082 9,976 34,534 29,707 Gain on sale of securities 198 — 595 6 Gain on sale of trademarks — — 50,000 — Gain (loss) on sale of other 1,239 5,955 ( 1,601 ) 10,935 Other income 5,271 4,017 10,811 15,550 Total noninterest income 53,994 62,453 250,351 221,361 Noninterest expense: Compensation and benefits 45,091 38,604 128,364 114,867 Refund transfer product expense 2,457 2,435 8,855 8,642 Tax advance product expense ( 29 ) ( 25 ) 2,156 2,534 Card processing 8,438 6,809 23,067 20,138 Occupancy and equipment expense 8,996 7,381 25,845 21,017 Operating lease equipment depreciation 9,145 8,122 26,331 23,122 Legal and consulting 11,724 5,680 27,279 16,972 Intangible amortization 1,532 2,013 5,188 6,784 Impairment expense 670 505 670 2,217 Other expense 8,626 9,999 34,491 33,775 Total noninterest expense 96,650 81,523 282,246 250,068 Income before income tax expense 30,797 44,793 164,483 138,626 Income tax expense 6,958 4,934 29,236 9,600 Net income before noncontrolling interest 23,839 39,859 135,247 129,026 Net income attributable to noncontrolling interest 1,448 1,158 2,281 3,221 Net income attributable to parent $ 22,391 $ 38,701 $ 132,966 $ 125,805 Earnings per common share: Basic $ 0.76 $ 1.21 $ 4.44 $ 3.87 Diluted $ 0.76 $ 1.21 $ 4.44 $ 3.87 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands) 2022 2021 2022 2021 Net income before noncontrolling interest $ 23,839 $ 39,859 $ 135,247 $ 129,026 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities ( 81,841 ) 3,081 ( 184,614 ) ( 3,996 ) Net (gain) realized on investment securities ( 198 ) — ( 595 ) ( 6 ) ( 82,039 ) 3,081 ( 185,209 ) ( 4,002 ) Unrealized gain on currency translation ( 520 ) 121 ( 311 ) 692 Deferred income tax effect ( 20,526 ) 789 ( 46,514 ) ( 990 ) Total other comprehensive (loss) ( 62,033 ) 2,413 ( 139,006 ) ( 2,320 ) Total comprehensive income (loss) ( 38,194 ) 42,272 ( 3,759 ) 126,706 Total comprehensive income attributable to noncontrolling interest 1,448 1,158 2,281 3,221 Comprehensive income (loss) attributable to parent $ ( 39,642 ) $ 41,114 $ ( 6,040 ) $ 123,485 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Dollars in thousands, except per share data) Pathward Financial, Inc. Three Months Ended June 30, 2022 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Pathward Stockholders’ Equity Noncontrolling interest Total Stockholders’ Equity Balance, March 31, 2022 $ 294 $ 612,917 $ 223,760 $ ( 69,374 ) $ ( 4,513 ) $ 763,084 $ 322 $ 763,406 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,465 ) — — ( 1,465 ) — ( 1,465 ) Repurchases of common stock — — — — ( 110 ) ( 110 ) — ( 110 ) Stock compensation — 2,242 — — — 2,242 — 2,242 Total other comprehensive (loss) — — — ( 62,033 ) — ( 62,033 ) — ( 62,033 ) Net income — — 22,391 — — 22,391 1,448 23,839 Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,105 ) ( 1,105 ) Balance, June 30, 2022 $ 294 $ 615,159 $ 244,686 $ ( 131,407 ) $ ( 4,623 ) $ 724,109 $ 665 $ 724,774 Three Months Ended June 30, 2021 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 ) Repurchases of common stock — — — — ( 41 ) ( 41 ) — ( 41 ) Stock compensation — 1,498 — — — 1,498 — 1,498 Total other comprehensive (loss) — — — 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 5 Table of Contents (Dollars in thousands, except per share data) Pathward Financial, Inc. Nine Months Ended June 30, 2022 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Pathward 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 ($ 0.15 per share) — — ( 4,469 ) — — ( 4,469 ) — ( 4,469 ) Issuance of common stock due to restricted stock 1 — — — — 1 — 1 Issuance of common stock due to ESOP 1 2,885 — — — 2,886 — 2,886 Repurchases of common stock ( 25 ) 25 ( 143,000 ) — ( 3,763 ) ( 146,763 ) — ( 146,763 ) Stock compensation — 7,765 — — — 7,765 — 7,765 Total other comprehensive (loss) — — — ( 139,006 ) — ( 139,006 ) — ( 139,006 ) Net income — — 132,966 — — 132,966 2,281 135,247 Net investment by (distribution to) noncontrolling interests — — — — — — ( 2,771 ) ( 2,771 ) Balance, June 30, 2022 $ 294 $ 615,159 $ 244,686 $ ( 131,407 ) $ ( 4,623 ) $ 724,109 $ 665 $ 724,774 Nine Months Ended June 30, 2021 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 stock due to ESOP 2 3,034 — — — 3,036 — 3,036 Repurchases of common stock ( 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 See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended June 30, (Dollars in thousands) 2022 2021 Cash flows from operating activities: Net income before noncontrolling interest $ 135,247 $ 129,026 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 47,193 43,561 Provision for credit losses 31,186 40,991 Provision (reversal of) for deferred taxes 18,517 ( 1,360 ) Originations of loans held for sale ( 769,672 ) ( 472,935 ) Proceeds from sales of loans held for sale 898,442 694,063 Net change in loans held for sale 12,568 2,495 Fair value adjustment of foreclosed real estate 250 481 Net realized (gain) on securities available for sale, net ( 161 ) ( 6 ) Net realized (gain) loss on loans held for sale 3,933 ( 9,804 ) Net realized loss on premise, furniture, and equipment 45 — Net realized (gain) on lease receivables and equipment ( 2,180 ) ( 1,076 ) Net realized (gain) on foreclosed real estate and repossessed assets — ( 4 ) Net realized (gain) on trademarks ( 50,000 ) — Net realized (gain) loss on other assets ( 434 ) 28 Change in bank-owned life insurance value ( 1,818 ) ( 1,827 ) Impairment of intangibles 670 — Net change in accrued interest receivable ( 564 ) 398 Net change in other assets ( 7,391 ) ( 3,742 ) Net change in accrued expenses and other liabilities ( 36,577 ) 25,332 Stock compensation 7,765 5,090 Net cash provided by operating activities 287,019 450,711 Cash flows from investing activities: Purchases of securities available for sale ( 689,515 ) ( 976,502 ) Proceeds from sales of securities available for sale 244,305 50,468 Proceeds from maturities of and principal collected on securities available for sale 264,808 266,673 Proceeds from maturities of and principal collected on securities held to maturity 12,189 27,041 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 134,293 ) ( 1,295 ) Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 133,880 — Purchases of loans and leases ( 108,570 ) ( 145,639 ) Proceeds from sales of loans and leases 45,784 13,822 Net change in loans and leases 35,462 ( 177,944 ) Purchases of premises, furniture, and equipment ( 5,860 ) ( 9,448 ) Proceeds from sales of premises, furniture, and equipment 35 86 Purchases of rental equipment ( 270,262 ) ( 36,800 ) Proceeds from sales of rental equipment 8,236 11,744 Net change in rental equipment ( 1,879 ) ( 2,303 ) Proceeds from sales of foreclosed real estate and repossessed assets 1,814 8,285 Proceeds from sale of trademarks 50,000 — Proceeds from sale of other assets 2,925 — Net cash (used in) investing activities ( 410,941 ) ( 971,812 ) Cash flows from financing activities: Net change in deposits 195,828 909,672 Redemption of long-term borrowings ( 75,000 ) — Principal payments on capital lease obligations ( 75 ) ( 24 ) Principal payments on other liabilities ( 2,163 ) ( 4,775 ) Proceeds from other liabilities — 80 Dividends paid on common stock ( 4,469 ) ( 4,804 ) Issuance of common stock due to restricted stock 1 — Issuance of common stock due to ESOP 2,886 3,036 Repurchases of common stock ( 146,763 ) ( 87,018 ) Distributions to noncontrolling interest ( 2,771 ) ( 2,882 ) Net cash (used in) financing activities ( 32,526 ) 813,285 Effect of exchange rate changes on cash ( 311 ) 692 7 Table of Contents Net change in cash and cash equivalents ( 156,759 ) 292,876 Cash and cash equivalents at beginning of fiscal year 314,019 427,367 Cash and cash equivalents at end of fiscal period $ 157,260 $ 720,243 Nine Months Ended June 30, (Dollars in thousands) 2022 2021 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 4,779 $ 5,544 Income taxes 10,898 4,147 Franchise taxes 200 200 Other taxes 516 671 Supplemental schedule of non-cash investing activities: Purchases/sales of securities accrued, not settled Trade Date Purchases - AFS 101,993 — Transfers Held for sale to loans and leases 14,731 — Loans and leases to held for sale 169,045 118,037 Loans and leases to rental equipment 3,393 14,844 Loans and leases to foreclosed real estate and repossessed assets — 9 Rental equipment to loan and leases 233,634 14,014 Recognition of operating lease ROU assets, net of measurements 389 12,954 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, 2021 included in Pathward Financial, Inc.’s (“Pathward” 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 and nine months ended June 30, 2022 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 June 30, 2022. 9 Table of Contents On July 13, 2022, the Company announced it changed its name to Pathward Financial, Inc.™, and its bank subsidiary MetaBank®, N.A. changed to Pathward™, N.A. ("Pathward"). Certain changes will be made immediately, with a full transition to Pathward expected by the end of this calendar year, including the launch of a new brand identity and website. The Company recognized $ 3.4 million and $ 6.2 million of noninterest expense related to rebranding efforts during the three and nine months ended June 30, 2022, respectively. 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 June 30, 2022 Corporate securities $ 25,000 $ — $ ( 1,562 ) $ 23,438 SBA securities 84,506 247 ( 3,404 ) 81,349 Obligations of states and political subdivisions 2,726 — ( 85 ) 2,641 Non-bank qualified obligations of states and political subdivisions 260,069 29 ( 15,137 ) 244,961 Asset-backed securities 171,623 — ( 12,291 ) 159,332 Mortgage-backed securities 1,587,992 655 ( 143,845 ) 1,444,802 Total debt securities AFS $ 2,131,916 $ 931 $ ( 176,324 ) $ 1,956,523 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 June 30, 2022 Non-bank qualified obligations of states and political subdivisions $ 41,122 $ — $ ( 1,765 ) $ 39,357 Mortgage-backed securities 2,755 — ( 149 ) 2,606 Total debt securities HTM $ 43,877 $ — $ ( 1,914 ) $ 41,963 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 10 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 June 30, 2022 Corporate securities $ 23,438 $ ( 1,562 ) $ — $ — $ 23,438 $ ( 1,562 ) SBA securities 73,758 ( 3,404 ) — — 73,758 ( 3,404 ) Obligations of state and political subdivisions 2,401 ( 85 ) — — 2,401 ( 85 ) Non-bank qualified obligations of states and political subdivisions 237,769 ( 14,823 ) 3,414 ( 314 ) 241,183 ( 15,137 ) Asset-backed securities 96,852 ( 6,435 ) 62,481 ( 5,856 ) 159,333 ( 12,291 ) Mortgage-backed securities 1,033,772 ( 111,839 ) 227,715 ( 32,006 ) 1,261,487 ( 143,845 ) Total debt securities AFS $ 1,467,990 $ ( 138,148 ) $ 293,610 $ ( 38,176 ) $ 1,761,600 $ ( 176,324 ) 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 June 30, 2022 Non-bank qualified obligations of states and political subdivisions $ 35,121 $ ( 1,530 ) $ 4,236 $ ( 235 ) $ 39,357 $ ( 1,765 ) Mortgage-backed securities 2,607 ( 149 ) — — 2,607 ( 149 ) Total debt securities HTM $ 37,728 $ ( 1,679 ) $ 4,236 $ ( 235 ) $ 41,964 $ ( 1,914 ) 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 June 30, 2022, there were 166 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 June 30, 2022, 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. 11 Table of Contents (Dollars in thousands) At June 30, 2022 At September 30, 2021 Securities AFS at Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 950 $ 955 $ 810 $ 822 Due after one year through five years 10,797 10,489 13,026 13,378 Due after five years through ten years 68,339 63,705 50,785 52,357 Due after ten years 463,838 436,572 773,985 781,313 543,924 511,721 838,606 847,870 Mortgage-backed securities 1,587,992 1,444,802 1,016,478 1,017,029 Total securities AFS, at fair value $ 2,131,916 $ 1,956,523 $ 1,855,084 $ 1,864,899 At June 30, 2022 At September 30, 2021 (Dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Securities HTM at Fair Value Due after ten years $ 41,122 $ 39,357 $ 52,944 $ 52,576 41,122 39,357 52,944 52,576 Mortgage-backed securities 2,755 2,606 3,725 3,815 Total securities HTM, at cost $ 43,877 $ 41,963 $ 56,669 $ 56,391 Equity Securities The Company held $ 3.1 million at June 30, 2022 and $ 12.7 million at September 30, 2021 in marketable equity securities. The Company recognized $ 3.8 million and none in unrealized loss on marketable equity securities during the nine months ended June 30, 2022 and 2021, respectively, which is attributable to an investee becoming publicly traded during fiscal year 2021. All other marketable equity securities and related activity were insignificant for the nine months ended June 30, 2022 and 2021. There was one marketable security sold during the nine months ended June 30, 2022 for a $ 0.3 million gain. Non-marketable equity securities with a readily determinable fair value totaled $ 6.5 million at June 30, 2022 and $ 4.6 million at September 30, 2021. The Company recognized $ 0.6 million in unrealized gains and $ 0.4 million in unrealized gains during the nine months ended June 30, 2022 and 2021, respectively. No such securities were sold during the nine months ended June 30, 2022. Non-marketable equity securities without readily determinable fair value totaled $ 20.7 million at June 30, 2022 and $ 16.0 million at September 30, 2021. There were three securities sold during the nine months ended June 30, 2022 for a $ 0.2 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 June 30, 2022 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 $ 9.1 million at June 30, 2022 and $ 8.7 million at September 30, 2021. 12 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 nine months ended June 30, 2022. NOTE 5. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in thousands) June 30, 2022 September 30, 2021 Term lending $ 1,047,764 $ 961,019 Asset based lending 402,506 300,225 Factoring 408,777 363,670 Lease financing 218,789 266,050 Insurance premium finance 481,219 428,867 SBA/USDA 215,510 247,756 Other commercial finance 173,338 157,908 Commercial finance 2,947,903 2,725,495 Consumer credit products 152,106 129,251 Other consumer finance 107,135 123,606 Consumer finance 259,241 252,857 Tax services 41,627 10,405 Warehouse finance 434,748 419,926 Community banking — 199,132 Total loans and leases 3,683,519 3,607,815 Net deferred loan origination costs 5,047 1,748 Total gross loans and leases 3,688,566 3,609,563 Allowance for credit losses ( 75,206 ) ( 68,281 ) Total loans and leases, net $ 3,613,360 $ 3,541,282 During the nine months ended June 30, 2022, the Company transferred $ 169.0 million of Community Banking loans to held for sale. 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, 2022 and 2021, the Company originated $ 769.7 million and $ 472.9 million of consumer finance and SBA/USDA as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 898.4 million and loss on sale of $ 3.9 million during the nine months ended June 30, 2022. 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. 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 $ 2.2 million in servicing fee expense during the nine months ended June 30, 2022 and 2021, respectively, and $ 3.3 million for the fiscal year ended September 30, 2021. 13 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 $ 233.0 million in the nine months ended June 30, 2022 and 2021, 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 June 30, Nine Months Ended June 30, (Dollars in thousands) 2022 2021 2022 2021 Loans Purchased Loans held for investment: Commercial finance $ — $ — $ 3,098 $ — Warehouse finance 19,657 46,153 105,472 142,389 Community banking — 403 — 3,250 Total purchases $ 19,657 $ 46,556 $ 108,570 $ 145,639 Loans Sold Loans held for sale: Commercial finance $ 1,216 $ 45,695 $ 48,329 $ 81,996 Consumer finance 173,284 72,437 696,891 382,382 Community banking — — 153,222 232,979 Loans held for investment: Commercial finance — — 15,549 — Community banking — 1,816 30,235 13,822 Total sales $ 174,500 $ 119,948 $ 944,226 $ 711,179 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in thousands) June 30, 2022 September 30, 2021 Carrying amount $ 226,347 $ 278,341 Unguaranteed residual assets 11,862 14,393 Unamortized initial direct costs 348 490 Unearned income ( 19,420 ) ( 26,684 ) Total net investment in direct financing and sales-type leases $ 219,137 $ 266,540 Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at June 30, 2022 were as follows: (Dollars in thousands) Remaining in 2022 $ 24,394 2023 93,511 2024 62,678 2025 30,942 2026 10,471 Thereafter 4,351 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 226,347 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type leases $ 226,347 The Company did not record any contingent rental income from direct financing and sales-type leases in the nine months ended June 30, 2022. 14 Table of Contents 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, other factors have been affecting the economic environment in 2022 including geopolitical conflict, supply chain disruptions, inflation, and rising interest rates. While the ultimate impact of the pandemic and these other factors 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 other factors impacting the economy and will refine its estimate as developments occur and 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 June 30, 2022 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 27,568 $ 9 $ ( 3,086 ) $ 1,316 $ 25,807 Asset based lending 2,583 ( 1,553 ) — 295 1,325 Factoring 6,526 533 ( 194 ) 268 7,133 Lease financing 6,471 ( 429 ) — 107 6,149 Insurance premium finance 1,057 583 ( 230 ) 41 1,451 SBA/USDA 2,943 338 ( 408 ) 25 2,898 Other commercial finance 1,197 ( 79 ) — — 1,118 Commercial finance 48,345 ( 598 ) ( 3,918 ) 2,052 45,881 Consumer credit products 1,621 ( 170 ) — — 1,451 Other consumer finance 7,388 ( 205 ) ( 2,428 ) 88 4,843 Consumer finance 9,009 ( 375 ) ( 2,428 ) 88 6,294 Tax services 30,757 ( 166 ) ( 7,998 ) 6 22,599 Warehouse finance 441 ( 9 ) — — 432 Total loans and leases 88,552 ( 1,148 ) ( 14,344 ) 2,146 75,206 Unfunded commitments (1) 551 ( 154 ) — — 397 Total $ 89,103 $ ( 1,302 ) $ ( 14,344 ) $ 2,146 $ 75,603 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 15 Table of Contents Three Months Ended June 30, 2021 (Dollars in thousands) Beginning Balance Provision (Reversal) (2) Charge-offs Recoveries Ending Balance Allowance for credit losses: 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 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. Nine Months Ended June 30, 2022 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 29,351 $ 1,104 $ ( 6,993 ) $ 2,345 $ 25,807 Asset based lending 1,726 ( 817 ) ( 16 ) 432 1,325 Factoring 3,997 13,857 ( 11,057 ) 336 7,133 Lease financing 7,629 ( 1,647 ) ( 112 ) 279 6,149 Insurance premium finance 1,394 374 ( 514 ) 197 1,451 SBA/USDA 2,978 517 ( 624 ) 27 2,898 Other commercial finance 1,168 ( 50 ) — — 1,118 Commercial finance 48,243 13,338 ( 19,316 ) 3,616 45,881 Consumer credit products 1,242 209 — — 1,451 Other consumer finance 6,112 2,513 ( 4,049 ) 267 4,843 Consumer finance 7,354 2,722 ( 4,049 ) 267 6,294 Tax services 2 28,093 ( 8,253 ) 2,757 22,599 Warehouse finance 420 12 — — 432 Community banking 12,262 ( 12,686 ) — 424 — Total loans and leases 68,281 31,479 ( 31,618 ) 7,064 75,206 Unfunded commitments (1) 690 ( 293 ) — — 397 Total $ 68,971 $ 31,186 $ ( 31,618 ) $ 7,064 $ 75,603 (1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition. 16 Table of Contents Nine Months Ended June 30, 2021 (Dollars in thousands) Beginning Balance Impact of CECL Adoption Provision (Reversal) (2) Charge-offs Recoveries Ending Balance Allowance for credit losses: 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 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 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. 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 June 30, 2022 At September 30, 2021 Term lending $ 65,998 $ 20,965 Asset based lending 5,992 — Factoring 27,333 1,268 Lease financing 11,684 3,882 SBA/USDA 1,249 — Commercial finance (1) 112,256 26,115 Community banking — 14,915 Total $ 112,256 $ 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. Up to January 1, 2022, when this relief ended, 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, 2022, $ 0.1 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: 17 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 electronic return originator ("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 $ 259.2 million and $ 41.6 million at June 30, 2022, 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: 18 Table of Contents Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At June 30, 2022 2022 2021 2020 2019 2018 Prior Term lending Pass $ 315,012 $ 233,436 $ 130,225 $ 39,691 $ 28,753 $ 6,710 $ — $ 753,827 Watch 27,886 92,431 27,741 6,965 2,302 3,968 — 161,293 Special Mention 4,244 14,978 23,514 4,281 1,154 2,972 — 51,143 Substandard 18,744 19,436 25,688 13,185 2,565 97 — 79,715 Doubtful 346 404 465 538 33 — — 1,786 Total 366,232 360,685 207,633 64,660 34,807 13,747 — 1,047,764 Asset based lending Pass — — — — — — 223,126 223,126 Watch — — — — — — 136,315 136,315 Special Mention — — — — — — 36,909 36,909 Substandard — — — — — — 6,156 6,156 Total — — — — — — 402,506 402,506 Factoring Pass — — — — — — 287,281 287,281 Watch — — — — — — 76,517 76,517 Special Mention — — — — — — 13,858 13,858 Substandard — — — — — — 31,101 31,101 Doubtful — — — — — — 20 20 Total — — — — — — 408,777 408,777 Lease financing Pass 30,491 50,142 53,187 8,696 5,702 29 — 148,247 Watch 308 7,534 10,514 6,113 645 17 — 25,131 Special Mention 708 13,303 4,775 1,917 236 21 — 20,960 Substandard — 5,948 11,126 4,409 320 11 — 21,814 Doubtful — 165 1,207 1,147 118 — — 2,637 Total 31,507 77,092 80,809 22,282 7,021 78 — 218,789 Insurance premium finance Pass 473,925 6,683 23 2 — — — 480,633 Watch 64 71 — — — — — 135 Special Mention 138 192 — — — — — 330 Substandard 19 28 — — — — — 47 Doubtful 43 31 — — — — — 74 Total 474,189 7,005 23 2 — — — 481,219 SBA/USDA Pass 65,066 47,690 15,532 10,724 13,748 7,807 — 160,567 Watch 3,077 — 19,513 3,154 1,092 2,883 — 29,719 Special Mention — — 1,551 212 — 286 — 2,049 Substandard — — 2,705 8,520 9,695 1,918 — 22,838 Doubtful — 23 314 — — — — 337 Total 68,143 47,713 39,615 22,610 24,535 12,894 — 215,510 Other commercial finance Pass 20,261 29,369 865 8,914 2,374 67,248 — 129,031 Watch — 20,000 13,282 — — — — 33,282 Substandard 164 9,789 — — 265 807 — 11,025 19 Table of Contents Total 20,425 59,158 14,147 8,914 2,639 68,055 — 173,338 Warehouse finance Pass — — — — — — 434,748 434,748 Total — — — — — — 434,748 434,748 Total loans and leases Pass 904,755 367,320 199,832 68,027 50,577 81,794 945,155 2,617,460 Watch 31,335 120,036 71,050 16,232 4,039 6,868 212,832 462,392 Special Mention 5,090 28,473 29,840 6,410 1,390 3,279 50,767 125,249 Substandard 18,927 35,201 39,519 26,114 12,845 2,833 37,257 172,696 Doubtful 389 623 1,986 1,685 151 — 20 4,854 Total $ 960,496 $ 551,653 $ 342,227 $ 118,468 $ 69,002 $ 94,774 $ 1,246,031 $ 3,382,651 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 20 Table of Contents 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 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 June 30, 2022 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 $ — $ — $ — $ — $ 67,571 $ 67,571 $ — $ — $ — Term lending 4,882 1,960 3,483 10,325 1,037,439 1,047,764 613 8,965 9,578 Asset based lending — — — — 402,506 402,506 — 4,508 4,508 Factoring — — — — 408,777 408,777 — 743 743 Lease financing 8,708 1,584 3,345 13,637 205,152 218,789 1,788 3,844 5,632 Insurance premium finance 1,565 611 803 2,979 478,240 481,219 803 — 803 SBA/USDA 271 — 1,564 1,835 213,675 215,510 315 1,543 1,858 Other commercial finance — — — — 173,338 173,338 — — — Commercial finance 15,426 4,155 9,195 28,776 2,919,127 2,947,903 3,519 19,603 23,122 Consumer credit products 3,298 3,039 2,886 9,223 142,883 152,106 2,886 — 2,886 Other consumer finance 510 437 615 1,562 105,573 107,135 615 — 615 Consumer finance 3,808 3,476 3,501 10,785 248,456 259,241 3,501 — 3,501 Tax services — 41,627 — 41,627 — 41,627 — — — Warehouse finance — — — — 434,748 434,748 — — — Total loans and leases held for investment 19,234 49,258 12,696 81,188 3,602,331 3,683,519 7,020 19,603 26,623 Total loans and leases $ 19,234 $ 49,258 $ 12,696 $ 81,188 $ 3,669,902 $ 3,751,090 $ 7,020 $ 19,603 $ 26,623 21 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 June 30, 2022 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 $ 540 $ 937 $ 1,291 $ 5,800 $ 300 $ 97 $ — $ 8,965 $ 2,922 Asset based lending — — — — — — 4,508 4,508 4,508 Factoring — — — — — — 743 743 743 Lease financing — — 1,286 2,083 464 11 — 3,844 — SBA/USDA — 23 1,249 — — 271 — 1,543 — Commercial finance 540 960 3,826 7,883 764 379 5,251 19,603 8,173 Total nonaccrual loans and leases $ 540 $ 960 $ 3,826 $ 7,883 $ 764 $ 379 $ 5,251 $ 19,603 $ 8,173 22 Table of Contents Loans and leases that are 90 days or more delinquent and accruing by year of origination at June 30, 2022 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 $ 285 $ 203 $ 85 $ 1 $ — $ 39 $ — $ 613 Lease financing 601 573 282 128 204 — — 1,788 Insurance premium finance 407 391 5 — — — — 803 SBA/USDA — — 315 — — — — 315 Commercial finance 1,293 1,167 687 129 204 39 — 3,519 Consumer credit products 258 2,504 63 57 4 — — 2,886 Other consumer finance — 83 — — — 532 — 615 Consumer finance 258 2,587 63 57 4 532 — 3,501 Total 90 days or more delinquent and accruing $ 1,551 $ 3,754 $ 750 $ 186 $ 208 $ 571 $ — $ 7,020 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 June 30, Nine Months Ended June 30, (Dollars in thousands) 2022 2021 2022 2021 Term lending $ 11,114 $ 14,964 $ 11,908 $ 14,190 Asset based lending 3,500 127 4,502 591 Factoring 1,903 33 7,980 337 Lease financing 3,529 2,435 3,194 2,994 SBA/USDA 1,776 600 1,152 600 Commercial finance 21,822 18,159 28,736 18,712 Community banking — 19,801 — 16,144 Total loans and leases $ 21,822 $ 37,960 $ 28,736 $ 34,856 The recognized interest income on the Company's nonaccrual loans and leases for the three and nine months ended June 30, 2022 and 2021 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 $ 0.2 million of commercial finance loans and $ 0.5 million of consumer finance loans that were modified in a TDR during the three months ended June 30, 2022, all of which were modified to extend the term of the loan. There were $ 3.7 million of commercial finance loans and $ 0.1 million of consumer finance 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. During the nine months ended June 30, 2022, there were $ 10.4 million of commercial finance loans and $ 0.7 million of consumer finance loans that were modified in a TDR, all of which were modified to extend the term of the loan. There were $ 5.9 million of commercial finance loans and $ 0.2 million of consumer finance loans that were modified in a TDR during the nine months ended June 30, 2021 and no community banking loans. 23 Table of Contents During the nine months ended June 30, 2022, the Company had $ 1.4 million of commercial finance loans and $ 0.3 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 nine months ended June 30, 2021, the Company had $ 0.4 million of commercial finance loans and $ 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 nine months ended June 30, 2022 and June 30, 2021. 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 June 30, Nine Months Ended June 30, (Dollars in thousands, except per share data) 2022 2021 2022 2021 Basic income per common share: Net income attributable to Pathward Financial, Inc. $ 22,391 $ 38,701 $ 132,966 $ 125,805 Dividends and undistributed earnings allocated to participating securities ( 377 ) ( 729 ) ( 2,166 ) ( 2,411 ) Basic net earnings available to common stockholders 22,014 37,972 130,800 123,394 Undistributed earnings allocated to nonvested restricted stockholders 352 699 2,093 2,318 Reallocation of undistributed earnings to nonvested restricted stockholders ( 352 ) ( 699 ) ( 2,092 ) ( 2,316 ) Diluted net earnings available to common stockholders $ 22,014 $ 37,972 $ 130,801 $ 123,396 Total weighted-average basic common shares outstanding 28,868,136 31,320,893 29,444,979 31,880,653 Effect of dilutive securities (1) Performance share units — 18,054 9,607 19,944 Total effect of dilutive securities — 18,054 9,607 19,944 Total weighted-average diluted common shares outstanding 28,868,136 31,338,947 29,454,586 31,900,597 Net earnings per common share: Basic earnings per common share $ 0.76 $ 1.21 $ 4.44 $ 3.87 Diluted earnings per common share (2) $ 0.76 $ 1.21 $ 4.44 $ 3.87 (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, 2022 and 2021, respectively, were 493,800 and 601,693 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, 2022 and 2021, respectively, were 487,538 and 622,954 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. 24 Table of Contents NOTE 7. RENTAL EQUIPMENT, NET Rental equipment consists of the following: (Dollars in thousands) June 30, 2022 September 30, 2021 Computers and IT networking equipment $ 21,512 $ 17,683 Motor vehicles and other 98,684 87,396 Office furniture and equipment 57,228 48,828 Solar panels and equipment 129,479 125,457 Total 306,903 279,364 Accumulated depreciation ( 86,266 ) ( 67,825 ) Unamortized initial direct costs 1,386 1,577 Net book value $ 222,023 $ 213,116 Undiscounted future minimum lease payments expected to be received for operating leases at June 30, 2022 were as follows: (Dollars in thousands) Remaining in 2022 $ 9,524 2023 36,218 2024 28,143 2025 20,536 2026 12,132 Thereafter 15,684 Total undiscounted future minimum lease payments receivable for operating leases $ 122,237 NOTE 8. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at June 30, 2022. 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 nine months ended June 30, 2022. 25 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 ( 871 ) ( 40 ) ( 3,884 ) ( 393 ) ( 5,188 ) Write-offs during the period — — ( 670 ) ( 203 ) ( 873 ) At June 30, 2022 $ 8,952 $ — $ 13,314 $ 4,822 $ 27,088 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133 Accumulated amortization ( 5,672 ) ( 2,481 ) ( 57,856 ) ( 4,900 ) ( 70,909 ) Accumulated impairment — — ( 10,918 ) ( 218 ) ( 11,136 ) At June 30, 2022 $ 8,952 $ — $ 13,314 $ 4,822 $ 27,088 At 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 ) At 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 ) At 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. 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 2022 and subsequent fiscal years was as follows: (Dollars in thousands) Remaining in 2022 $ 1,397 2023 4,938 2024 4,124 2025 3,562 2026 3,216 Thereafter 9,851 Total anticipated intangible amortization $ 27,088 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, 2022 and 2021. Intangible expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations. 26 Table of Contents NOTE 9. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease ROU assets, included in other assets , were $ 31.0 million and $ 35.4 million at June 30, 2022 and 2021, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 32.9 million and $ 37.6 million at June 30, 2022 and 2021, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at June 30, 2022 were as follows: (Dollars in thousands) Remaining in 2022 $ 1,102 2023 3,946 2024 3,913 2025 3,718 2026 3,195 Thereafter 21,732 Total undiscounted future minimum lease payments 37,606 Discount ( 4,750 ) Total operating lease liabilities $ 32,856 The weighted-average discount rate and remaining lease term for operating leases at June 30, 2022 were as follows: Weighted-average discount rate 2.34 % Weighted-average remaining lease term (years) 10.57 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) 2022 2021 2022 2021 Lease expense $ 1,119 $ 1,191 $ 3,375 $ 3,136 Short-term and variable lease cost 58 35 133 167 ROU asset impairment 670 — 670 224 Sublease income ( 375 ) ( 126 ) ( 906 ) ( 411 ) Total lease cost for operating leases $ 1,472 $ 1,100 $ 3,272 $ 3,116 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 is 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 nine months ended June 30, 2022, and 2021, the Company repurchased 2,447,699 and 2,599,458 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 June 30, 2022, 4,868,177 shares of common stock remained available for repurchase. 27 Table of Contents For the nine months ended June 30, 2022, and 2021, the Company also repurchased 67,158 and 84,950 shares, or $ 3.8 million and $ 2.0 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 nine months ended June 30, 2022. There were no options granted, exercised, or forfeited under this plan during the nine months ended June 30, 2022. (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 166,389 57.14 Vested ( 208,156 ) 34.68 Forfeited or expired ( 19,762 ) 42.98 Nonvested shares outstanding, June 30, 2022 485,534 $ 37.02 (Dollars in thousands, except per share data) Number of Units Weighted Average Fair Value at Grant Performance share units outstanding, September 30, 2021 60,984 $ 34.03 Granted (1) 35,705 57.20 Vested — — Forfeited or expired — — Performance share units outstanding, June 30, 2022 96,689 $ 42.59 (1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award. At June 30, 2022, stock-based compensation expense not yet recognized in income totaled $ 8.4 million, which is expected to be recognized over a weighted average remaining period of 1.51 years. NOTE 12. INCOME TAXES The Company recorded an income tax expense of $ 29.2 million for the nine months ended June 30, 2022, resulting in an effective tax rate of 17.77 %, compared to an income tax expense of $ 9.6 million, or an effective tax rate of 6.92 %, for the nine months ended June 30, 2021. 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. 28 Table of Contents The table below compares the income tax expense components for the periods presented. Nine Months Ended June 30, (Dollars in thousands) 2022 2021 Provision at statutory rate $ 34,063 $ 28,435 Tax-exempt income ( 541 ) ( 674 ) State income taxes 6,728 6,120 Interim period effective rate adjustment ( 2,849 ) ( 5,181 ) Tax credit investments, net - federal ( 6,994 ) ( 18,854 ) Research tax credit ( 355 ) ( 323 ) IRC 162(m) nondeductible compensation 801 677 Other, net ( 1,617 ) ( 600 ) Income tax expense $ 29,236 $ 9,600 Effective tax rate 17.77 % 6.92 % 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. 29 Table of Contents (Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company Three Months Ended June 30, 2022 2021 2022 2021 2022 2021 2022 2021 Net interest income (1) $ 23,213 $ 23,132 $ 46,802 $ 44,850 $ 2,136 $ 493 $ 72,151 $ 68,475 Noninterest income: Refund transfer product fees 10,289 12,073 — — — — 10,289 12,073 Tax advance product fees (1) ( 20 ) 891 — — — — ( 20 ) 891 Payment card and deposit fees 24,673 29,203 — — — — 24,673 29,203 Other bank and deposit fees — — 252 334 10 4 262 338 Rental income (1) — 6 11,890 9,970 192 — 12,082 9,976 Net gain realized on investment securities (1) — — — — 198 — 198 — Gain (loss) on sale of other (1) — — 1,239 5,982 — ( 27 ) 1,239 5,955 Other income (1) 1,284 1,056 2,479 1,702 1,508 1,259 5,271 4,017 Total noninterest income 36,226 43,229 15,860 17,988 1,908 1,236 53,994 62,453 Revenue $ 59,439 $ 66,361 $ 62,662 $ 62,838 $ 4,044 $ 1,729 $ 126,145 $ 130,928 Nine Months Ended June 30, Net interest income (1) $ 79,323 $ 70,205 $ 136,923 $ 129,461 $ 11,318 $ 8,658 $ 227,564 $ 208,324 Noninterest income: Refund transfer product fees 38,674 35,400 — — — — 38,674 35,400 Tax advance product fees (1) 40,513 47,413 — — — — 40,513 47,413 Payment card and deposit fees 76,075 81,641 — — — — 76,075 81,641 Other bank and deposit fees — — 728 694 22 15 750 709 Rental income (1) — 16 34,192 29,691 342 — 34,534 29,707 Net gain realized on investment securities (1) — — — — 595 6 595 6 Gain on sale of trademarks — — — — 50,000 — 50,000 — Gain (loss) on sale of other (1) — — 7,331 10,198 ( 8,932 ) 737 ( 1,601 ) 10,935 Other income (1) 3,434 2,135 8,103 6,511 ( 726 ) 6,904 10,811 15,550 Total noninterest income 158,696 166,605 50,354 47,094 41,301 7,662 250,351 221,361 Revenue $ 238,019 $ 236,810 $ 187,277 $ 176,555 $ 52,619 $ 16,320 $ 477,915 $ 429,685 (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, 2022 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. 30 Table of Contents Card Fees. Card fees relate to Banking-as-a-Service. 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, Pathward Payments division relationships are recorded on a gross basis within the Condensed Consolidated Statements of Operations, as Pathward 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 Pathward 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 Pathward 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 Pathward is the agent in these contracts. 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 Payments and Tax Services divisions, as well as the Consumer Credit Products business line, are reported in the Consumer segment . The commercial finance, insurance premium finance and ClearBalance 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. 31 Table of Contents The following tables present segment data for the Company: (Dollars in thousands) Consumer Commercial Corporate Services/Other Total Three Months Ended June 30, 2022 2021 2022 2021 2022 2021 2022 2021 Net interest income $ 23,213 $ 23,132 $ 46,802 $ 44,850 $ 2,136 $ 493 $ 72,151 $ 68,475 Provision for credit losses ( 279 ) 4,507 ( 752 ) 870 ( 271 ) ( 765 ) ( 1,302 ) 4,612 Noninterest income 36,226 43,229 15,860 17,988 1,908 1,236 53,994 62,453 Noninterest expense 23,960 20,561 31,336 28,605 41,354 32,358 96,650 81,523 Income (loss) before income tax expense 35,758 41,294 32,078 33,363 ( 37,039 ) ( 29,864 ) 30,797 44,793 Total assets 373,019 319,911 3,457,004 3,104,083 2,898,155 3,627,818 6,728,178 7,051,812 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 5,573,768 5,713,309 11,177 10,829 125,854 164,733 5,710,799 5,888,871 Nine Months Ended June 30, Net interest income $ 79,323 $ 70,205 $ 136,923 $ 129,461 $ 11,318 $ 8,658 $ 227,564 $ 208,324 Provision (reversal of) for credit losses 30,667 34,893 13,045 9,540 ( 12,526 ) ( 3,442 ) 31,186 40,991 Noninterest income 158,696 166,605 50,354 47,094 41,301 7,662 250,351 221,361 Noninterest expense 73,509 68,906 95,845 83,606 112,892 97,555 282,246 250,068 Income (loss) before income tax expense 133,843 133,010 78,387 83,409 ( 47,747 ) ( 77,793 ) 164,483 138,626 Total assets 373,019 319,911 3,457,004 3,104,083 2,898,155 3,627,818 6,728,178 7,051,812 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 5,573,768 5,713,309 11,177 10,829 125,854 164,733 5,710,799 5,888,871 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. 32 Table of Contents 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 June 30, 2022 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 23,438 $ — $ 23,438 $ — SBA securities 81,349 — 81,349 — Obligations of states and political subdivisions 2,641 — 2,641 — Non-bank qualified obligations of states and political subdivisions 244,961 — 244,961 — Asset-backed securities 159,332 — 159,332 — Mortgage-backed securities 1,444,802 — 1,444,802 — Total debt securities AFS $ 1,956,523 $ — $ 1,956,523 $ — Common equities and mutual funds (1) $ 3,065 $ 3,065 $ — $ — Non-marketable equity securities (2) $ 6,494 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 2022 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. 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 June 30, 2022 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 42 %. 33 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, 2022 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 2,172 $ — $ — $ 2,172 Total loans and leases, net individually evaluated for credit loss 2,172 — — 2,172 Foreclosed assets, net 13 — — 13 Total $ 2,185 $ — $ — $ 2,185 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 June 30, 2022 Fair Value at September 30, 2021 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 2,172 12,775 Market approach Appraised values (1) 4 % - 42 % Foreclosed assets, net $ 13 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 42 %. 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, 2022 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. 34 Table of Contents The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company: At June 30, 2022 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 157,260 $ 157,260 $ 157,260 $ — $ — Debt securities available for sale 1,956,523 1,956,523 — 1,956,523 — Debt securities held to maturity 43,877 41,963 — 41,963 — Common equities and mutual funds (1) 3,065 3,065 3,065 — — Non-marketable equity securities (1)(2) 24,308 24,308 — 17,814 — Loans held for sale 67,571 67,571 — 67,571 — Loans and leases 3,683,519 3,614,486 — — 3,614,486 Federal Reserve Bank and Federal Home Loan Bank stocks 28,812 28,812 — 28,812 — Accrued interest receivable 16,818 16,818 16,818 — — Financial liabilities Deposits 5,710,799 5,710,626 5,701,329 9,297 — Other short- and long-term borrowings 16,616 16,420 — 16,420 — Accrued interest payable 210 210 210 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 2022. (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 June 30, 2022. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management identified the following subsequent event: • A majority of the Company's student loan portfolio is considered to be held for sale after becoming subject to a sale agreement that is expected to close in August. The Company's student loan portfolio was $ 83.3 million at June 30, 2022 and is included in the Other Consumer Finance loan category within Note 5. Loans and Leases, Net. The transaction is not expected to result in a material impact to net income. 35 Table of Contents