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) March 31, 2023 September 30, 2022 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 432,598 $ 388,038 Securities available for sale, at fair value 1,825,563 1,882,869 Securities held to maturity, at amortized cost (fair value $ 35,028 and $ 38,171 , respectively) 38,713 41,682 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 29,387 28,812 Loans held for sale 24,780 21,071 Loans and leases 3,725,616 3,536,305 Allowance for credit losses ( 84,304 ) ( 45,947 ) Accrued interest receivable 22,434 17,979 Premises, furniture, and equipment, net 39,735 41,710 Rental equipment, net 210,844 204,371 Goodwill and intangible assets 332,503 335,196 Other assets 270,387 295,324 Total assets $ 6,868,256 $ 6,747,410 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits $ 5,902,696 $ 5,866,037 Short-term borrowings 43,000 — Long-term borrowings 34,543 36,028 Accrued expenses and other liabilities 214,773 200,205 Total liabilities 6,195,012 6,102,270 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at March 31, 2023 and September 30, 2022, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 27,205,406 and 28,878,177 shares issued, 27,055,727 and 28,788,124 shares outstanding at March 31, 2023 and September 30, 2022, respectively 271 288 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at March 31, 2023 and September 30, 2022, respectively — — Additional paid-in capital 623,250 617,403 Retained earnings 245,046 245,394 Accumulated other comprehensive loss ( 187,829 ) ( 213,080 ) Treasury stock, at cost, 149,679 and 90,053 common shares at March 31, 2023 and September 30, 2022, respectively ( 6,943 ) ( 4,835 ) Total equity attributable to parent 673,795 645,170 Noncontrolling interest ( 551 ) ( 30 ) Total stockholders’ equity 673,244 645,140 Total liabilities and stockholders’ equity $ 6,868,256 $ 6,747,410 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 March 31, Six Months Ended March 31, (Dollars in thousands, except per share data) 2023 2022 2023 2022 Interest and dividend income: Loans and leases, including fees $ 83,879 $ 75,540 $ 152,275 $ 140,575 Mortgage-backed securities 10,326 5,446 20,738 9,310 Other investments 10,482 4,191 16,734 8,183 104,687 85,177 189,747 158,068 Interest expense: Deposits 2,096 165 2,238 306 FHLB advances and other borrowings 1,186 1,212 2,047 2,349 3,282 1,377 4,285 2,655 Net interest income 101,405 83,800 185,462 155,413 Provision for credit losses 36,763 32,302 46,539 32,488 Net interest income after provision for credit losses 64,642 51,498 138,923 122,925 Noninterest income: Refund transfer product fees 30,205 27,805 30,882 28,384 Refund advance fee income 37,995 39,299 38,612 40,532 Card and deposit fees 42,087 26,520 79,805 51,889 Rental income 12,940 11,375 25,648 22,452 Gain (loss) on sale of securities 82 260 82 397 Gain on sale of trademarks — — 10,000 50,000 Gain (loss) on sale of other ( 748 ) 626 ( 246 ) ( 2,839 ) Other income 4,477 3,881 8,032 5,542 Total noninterest income 127,038 109,766 192,815 196,357 Noninterest expense: Compensation and benefits 47,547 45,047 90,564 83,272 Refund transfer product expense 7,863 6,260 7,968 6,398 Refund advance expense 1,603 2,002 1,630 2,185 Card processing 26,924 7,457 49,607 14,629 Occupancy and equipment expense 8,510 8,500 16,822 16,849 Operating lease equipment depreciation 14,719 8,737 24,347 17,185 Legal and consulting 4,921 9,347 14,380 15,555 Intangible amortization 1,435 2,169 2,693 3,657 Impairment expense 500 — 524 — Other expense 13,114 13,641 23,660 25,866 Total noninterest expense 127,136 103,160 232,195 185,596 Income before income tax expense 64,544 58,104 99,543 133,686 Income tax expense 9,176 8,002 15,753 22,278 Net income before noncontrolling interest 55,368 50,102 83,790 111,408 Net income (loss) attributable to noncontrolling interest 597 851 1,177 833 Net income attributable to parent $ 54,771 $ 49,251 $ 82,613 $ 110,575 Earnings per common share: Basic $ 1.99 $ 1.66 $ 2.95 $ 3.66 Diluted $ 1.99 $ 1.66 $ 2.95 $ 3.66 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 March 31, Six Months Ended March 31, (Dollars in thousands) 2023 2022 2023 2022 Net income before noncontrolling interest $ 55,368 $ 50,102 $ 83,790 $ 111,408 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities 18,530 ( 93,632 ) 33,238 ( 102,774 ) Net loss (gain) realized on investment securities ( 82 ) ( 260 ) ( 82 ) ( 397 ) 18,448 ( 93,892 ) 33,156 ( 103,171 ) Unrealized gain (loss) on currency translation 60 143 447 209 Deferred income tax effect 4,647 ( 23,651 ) 8,352 ( 25,989 ) Total other comprehensive income (loss) 13,861 ( 70,098 ) 25,251 ( 76,973 ) Total comprehensive income (loss) 69,229 ( 19,996 ) 109,041 34,435 Total comprehensive income attributable to noncontrolling interest 597 851 1,177 833 Comprehensive income (loss) attributable to parent $ 68,632 $ ( 20,847 ) $ 107,864 $ 33,602 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 March 31, 2023 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Pathward Financial Stockholders’ Equity Noncontrolling interest Total Stockholders’ Equity Balance, December 31, 2022 $ 282 $ 620,681 $ 246,891 $ ( 201,690 ) $ ( 6,824 ) $ 659,340 $ ( 207 ) $ 659,133 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,386 ) — — ( 1,386 ) — ( 1,386 ) Repurchases of common stock ( 11 ) 11 ( 55,230 ) — ( 119 ) ( 55,349 ) — ( 55,349 ) Stock compensation — 2,558 — — — 2,558 — 2,558 Total other comprehensive income — — — 13,861 — 13,861 — 13,861 Net income — — 54,771 — — 54,771 597 55,368 Net investment by (distribution to) noncontrolling interests — — — — — — ( 941 ) ( 941 ) Balance, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ ( 187,829 ) $ ( 6,943 ) $ 673,795 $ ( 551 ) $ 673,244 Three Months Ended March 31, 2022 Balance, December 31, 2021 $ 301 $ 610,816 $ 217,991 $ 724 $ ( 4,318 ) $ 825,514 $ 642 $ 826,156 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,482 ) — — ( 1,482 ) — ( 1,482 ) Repurchases of common stock ( 7 ) 7 ( 42,000 ) — ( 195 ) ( 42,195 ) — ( 42,195 ) Stock compensation — 2,094 — — — 2,094 — 2,094 Total other comprehensive (loss) — — — ( 70,098 ) — ( 70,098 ) — ( 70,098 ) Net income — — 49,251 — — 49,251 851 50,102 Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,171 ) ( 1,171 ) Balance, March 31, 2022 $ 294 $ 612,917 $ 223,760 $ ( 69,374 ) $ ( 4,513 ) $ 763,084 $ 322 $ 763,406 5 Table of Contents (Dollars in thousands, except per share data) Pathward Financial, Inc. Six Months Ended March 31, 2023 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Pathward Financial Stockholders’ Equity Noncontrolling interest Total Stockholders’ Equity Balance, September 30, 2022 $ 288 $ 617,403 $ 245,394 $ ( 213,080 ) $ ( 4,835 ) $ 645,170 $ ( 30 ) $ 645,140 Cash dividends declared on common stock ($ 0.10 per share) — — ( 2,788 ) — — ( 2,788 ) — ( 2,788 ) Issuance of common stock due to restricted stock 1 — — — — 1 — 1 Repurchases of common stock ( 18 ) 18 ( 80,173 ) — ( 2,108 ) ( 82,281 ) — ( 82,281 ) Stock compensation — 5,829 — — — 5,829 — 5,829 Total other comprehensive income — — — 25,251 — 25,251 — 25,251 Net income — — 82,613 — — 82,613 1,177 83,790 Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,698 ) ( 1,698 ) Balance, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ ( 187,829 ) $ ( 6,943 ) $ 673,795 $ ( 551 ) $ 673,244 Six Months Ended March 31, 2022 Balance, September 30, 2021 $ 317 $ 604,484 $ 259,189 $ 7,599 $ ( 860 ) $ 870,729 $ 1,155 $ 871,884 Cash dividends declared on common stock ($ 0.10 per share) — — ( 3,004 ) — — ( 3,004 ) — ( 3,004 ) Issuance of common stock due to ESOP 1 2,885 — — — 2,886 — 2,886 Repurchases of common stock ( 24 ) 24 ( 143,000 ) — ( 3,653 ) ( 146,653 ) — ( 146,653 ) Stock compensation — 5,524 — — — 5,524 — 5,524 Total other comprehensive (loss) — — — ( 76,973 ) — ( 76,973 ) — ( 76,973 ) Net income — — 110,575 — — 110,575 833 111,408 Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,666 ) ( 1,666 ) Balance, March 31, 2022 $ 294 $ 612,917 $ 223,760 $ ( 69,374 ) $ ( 4,513 ) $ 763,084 $ 322 $ 763,406 See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended March 31, (Dollars in thousands) 2023 2022 Cash flows from operating activities: Net income before noncontrolling interest $ 83,790 $ 111,408 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 34,390 30,753 Provision for credit losses 46,539 32,488 Provision for deferred taxes 2,545 14,091 Originations of loans held for sale ( 608,628 ) ( 555,397 ) Proceeds from sales of loans held for sale 604,363 723,942 Net change in loans held for sale 652 8,834 Net realized (gain) loss on loans held for sale ( 110 ) 4,065 Net realized loss on premise, furniture, and equipment — 43 Net realized (gain) on lease receivables and equipment 354 ( 1,063 ) Net realized (gain) on trademarks ( 10,000 ) ( 50,000 ) Net realized (gain) loss on other assets ( 82 ) ( 397 ) Impairment on rental equipment 24 — Net change in accrued interest receivable ( 4,455 ) ( 2,862 ) Net change in other assets 14,050 ( 21,680 ) Net change in accrued expenses and other liabilities 14,568 ( 8,400 ) Stock compensation 5,829 5,524 Net cash provided by operating activities 183,829 291,349 Cash flows from investing activities: Purchases of securities available for sale — ( 470,067 ) Proceeds from maturities of and principal collected on securities available for sale 89,162 184,107 Proceeds from maturities of and principal collected on securities held to maturity 2,822 8,937 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 120,160 ) ( 103,573 ) Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 119,586 103,160 Purchases of loans and leases ( 187,834 ) ( 88,913 ) Proceeds from sales of loans and leases — 45,784 Net change in loans and leases 191,195 ( 69,966 ) Purchases of premises, furniture, and equipment ( 3,428 ) ( 3,718 ) Proceeds from sales of premises, furniture, and equipment — 35 Purchases of rental equipment ( 238,999 ) ( 196,043 ) Proceeds from sales of rental equipment 6,736 6,811 Net change in rental equipment ( 153 ) ( 1,567 ) Proceeds from sales of foreclosed real estate and repossessed assets 1 1,715 Proceeds from sale of trademarks 10,000 50,000 Proceeds from sale of other assets — 460 Net cash provided by (used in) investing activities ( 131,072 ) ( 532,838 ) Cash flows from financing activities: Net change in deposits 36,659 314,915 Net change in short-term borrowings 43,000 — Principal payments on capital lease obligations — ( 74 ) Principal payments on other liabilities — ( 1,463 ) Proceeds from other liabilities ( 1,026 ) — Payment of debt issuance costs ( 511 ) — Dividends paid on common stock ( 2,788 ) ( 3,004 ) Issuance of common stock due to restricted stock 1 — Issuance of common stock due to ESOP — 2,886 Repurchases of common stock ( 82,281 ) ( 146,653 ) Distributions to noncontrolling interest ( 1,698 ) ( 1,666 ) Net cash provided by (used in) financing activities ( 8,644 ) 164,941 Effect of exchange rate changes on cash 447 209 Net change in cash and cash equivalents 44,560 ( 76,339 ) Cash and cash equivalents at beginning of fiscal year 388,038 314,019 Cash and cash equivalents at end of fiscal period $ 432,598 $ 237,680 7 Table of Contents Six Months Ended March 31, (Dollars in thousands) 2023 2022 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 4,273 $ 2,663 Income taxes 7,842 9,381 Franchise taxes 100 100 Other taxes 372 432 Supplemental schedule of non-cash investing activities: Transfers Held for sale to loans and leases — 14,731 Loans and leases to held for sale — 169,045 Loans and leases to rental equipment 1,449 2,634 Rental equipment to loan and leases 202,330 177,193 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, 2022 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 22, 2022. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted. The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the three and six months ended March 31, 2023 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2023. Certain prior fiscal 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, 2022 remain substantially unchanged. The following ASU became effective for the Company on October 1, 2022, and did not have a material impact on the Company’s significant accounting policies or Condensed Consolidated Financial Statements: – ASU 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. 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 had one year from the Agreement execution date to phase out and cease all use of the Meta tradenames. The Company received $ 50.0 million upon execution and delivery of the Agreement and was reflected in noninterest income for the fiscal year ended September 30, 2022. The remaining $ 10.0 million was received by the Company upon completion of phase out activities during the quarter ended December 31, 2022. There have been no additional rebrand activities since completion of these activities. 9 Table of Contents NOTE 4. SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities are presented below. (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value Debt Securities AFS At March 31, 2023 Corporate securities $ 25,000 $ — $ ( 6,250 ) $ 18,750 SBA securities 99,670 — ( 5,422 ) 94,248 Obligations of states and political subdivisions 2,436 — ( 79 ) 2,357 Non-bank qualified obligations of states and political subdivisions 277,767 37 ( 28,311 ) 249,493 Asset-backed securities 136,028 — ( 9,324 ) 126,704 Mortgage-backed securities 1,534,356 — ( 200,345 ) 1,334,011 Total debt securities AFS $ 2,075,257 $ 37 $ ( 249,731 ) $ 1,825,563 At September 30, 2022 Corporate securities $ 25,000 $ — $ ( 2,813 ) $ 22,187 SBA securities 105,238 — ( 7,470 ) 97,768 Obligations of states and political subdivisions 2,469 — ( 125 ) 2,344 Non-bank qualified obligations of states and political subdivisions 290,754 — ( 26,971 ) 263,783 Asset-backed securities 160,806 — ( 13,016 ) 147,790 Mortgage-backed securities 1,581,452 — ( 232,455 ) 1,348,997 Total debt securities AFS $ 2,165,719 $ — $ ( 282,850 ) $ 1,882,869 Debt Securities HTM At March 31, 2023 Non-bank qualified obligations of states and political subdivisions $ 36,407 $ — $ ( 3,474 ) $ 32,933 Mortgage-backed securities 2,306 — ( 211 ) 2,095 Total debt securities HTM $ 38,713 $ — $ ( 3,685 ) $ 35,028 At September 30, 2022 Non-bank qualified obligations of states and political subdivisions $ 39,093 $ — $ ( 3,190 ) $ 35,903 Mortgage-backed securities 2,589 — ( 321 ) 2,268 Total debt securities HTM $ 41,682 $ — $ ( 3,511 ) $ 38,171 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 March 31, 2023 Corporate securities $ — $ — $ 18,750 $ ( 6,250 ) $ 18,750 $ ( 6,250 ) SBA securities 41,231 ( 1,166 ) 53,016 ( 4,256 ) 94,247 ( 5,422 ) Obligations of state and political subdivisions — — 2,357 ( 79 ) 2,357 ( 79 ) Non-bank qualified obligations of states and political subdivisions 65,300 ( 4,118 ) 183,201 ( 24,193 ) 248,501 ( 28,311 ) Asset-backed securities — — 126,704 ( 9,324 ) 126,704 ( 9,324 ) Mortgage-backed securities 296,523 ( 14,199 ) 1,037,488 ( 186,146 ) 1,334,011 ( 200,345 ) Total debt securities AFS $ 403,054 $ ( 19,483 ) $ 1,421,516 $ ( 230,248 ) $ 1,824,570 $ ( 249,731 ) At September 30, 2022 Corporate securities $ — $ — $ 22,187 $ ( 2,813 ) $ 22,187 $ ( 2,813 ) SBA securities 97,767 ( 7,470 ) — — 97,767 ( 7,470 ) Obligations of state and political subdivisions 2,345 ( 125 ) — — 2,345 ( 125 ) Non-bank qualified obligations of states and political subdivisions 195,816 ( 19,743 ) 67,967 ( 7,228 ) 263,783 ( 26,971 ) Asset-backed securities 64,886 ( 1,838 ) 82,904 ( 11,178 ) 147,790 ( 13,016 ) Mortgage-backed securities 816,657 ( 106,583 ) 532,340 ( 125,872 ) 1,348,997 ( 232,455 ) Total debt securities AFS $ 1,177,471 $ ( 135,759 ) $ 705,398 $ ( 147,091 ) $ 1,882,869 $ ( 282,850 ) Debt Securities HTM At March 31, 2023 Non-bank qualified obligations of states and political subdivisions $ — $ — $ 32,934 $ ( 3,474 ) $ 32,934 $ ( 3,474 ) Mortgage-backed securities — — 2,096 ( 211 ) 2,096 ( 211 ) Total debt securities HTM $ — $ — $ 35,030 $ ( 3,685 ) $ 35,030 $ ( 3,685 ) At September 30, 2022 Non-bank qualified obligations of states and political subdivisions $ 3,984 $ ( 300 ) $ 31,919 $ ( 2,890 ) $ 35,903 $ ( 3,190 ) Mortgage-backed securities 2,268 ( 321 ) — — 2,268 ( 321 ) Total debt securities HTM $ 6,252 $ ( 621 ) $ 31,919 $ ( 2890 ) $ 38,171 $ ( 3,511 ) At March 31, 2023, there were 192 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at March 31, 2023 were government guaranteed. 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 March 31, 2023, there was no allowance for credit losses ("ACL") for debt securities AFS. 11 Table of Contents The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features that allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in 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 Small Business Administration ("SBA") securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply. (Dollars in thousands) At March 31, 2023 At September 30, 2022 Securities AFS at Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 3,785 $ 3,728 $ 718 $ 715 Due after one year through five years 5,830 5,468 9,921 9,395 Due after five years through ten years 86,540 76,745 89,921 81,819 Due after ten years 444,746 405,611 483,707 441,943 540,901 491,552 584,267 533,872 Mortgage-backed securities 1,534,356 1,334,011 1,581,452 1,348,997 Total securities AFS, at fair value $ 2,075,257 $ 1,825,563 $ 2,165,719 $ 1,882,869 Securities HTM at Fair Value Due after ten years $ 36,407 $ 32,933 $ 39,093 $ 35,903 36,407 32,933 39,093 35,903 Mortgage-backed securities 2,306 2,095 2,589 2,268 Total securities HTM, at cost $ 38,713 $ 35,028 $ 41,682 $ 38,171 Equity Securities The Company held $ 3.5 million at March 31, 2023 and $ 2.9 million at September 30, 2022 in marketable equity securities. The Company recognized none and $ 3.8 million in unrealized losses on marketable equity securities during the six months ended March 31, 2023 and 2022, 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 six months ended March 31, 2023 and 2022. No such securities were sold during the six months ended March 31, 2023. Non-marketable equity securities with a readily determinable fair value totaled $ 7.7 million at March 31, 2023 and $ 7.2 million at September 30, 2022. The Company recognized $ 0.1 million in unrealized losses and $ 0.3 million in unrealized gains during the six months ended March 31, 2023 and 2022, respectively. No such securities were sold during the six months ended March 31, 2023. Non-marketable equity securities without readily determinable fair value totaled $ 17.7 million at March 31, 2023 and $ 18.2 million at September 30, 2022. No such securities were sold during the six months ended March 31, 2023 . Federal Reserve Bank ("FRB") Stock The Bank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus. One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System. FRB of Minneapolis stock held by the Bank totaled $ 19.7 million at March 31, 2023 and September 30, 2022. These equity securities are 'restricted' in that they can only be owned by member banks. 12 Table of Contents Federal Home Loan Bank ("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 $ 9.7 million and $ 9.1 million at March 31, 2023 and at September 30, 2022, respectively. These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par. Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the fair value approximates cost. 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 $ 0.5 million and no impairment for such investments for the six months ended March 31, 2023 and 2022, respectively. NOTE 5. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in thousands) March 31, 2023 September 30, 2022 Term lending $ 1,235,453 $ 1,090,289 Asset based lending 377,965 351,696 Factoring 338,884 372,595 Lease financing 170,645 210,692 Insurance premium finance 437,700 479,754 SBA/USDA 405,612 359,238 Other commercial finance 166,402 159,409 Commercial finance 3,132,661 3,023,673 Consumer credit products 120,739 144,353 Other consumer finance 27,909 25,306 Consumer finance 148,648 169,659 Tax services 61,553 9,098 Warehouse finance 377,036 326,850 Total loans and leases 3,719,898 3,529,280 Net deferred loan origination costs 5,718 7,025 Total gross loans and leases 3,725,616 3,536,305 Allowance for credit losses ( 84,304 ) ( 45,947 ) Total loans and leases, net $ 3,641,312 $ 3,490,358 During the six months ended March 31, 2023 and 2022, the Company originated $ 608.6 million and $ 555.4 million of consumer finance and SBA/USDA as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 604.4 million and gain on sale of $ 0.1 million during the six months ended March 31, 2023. The Company sold held for sale loans resulting in proceeds of $ 723.9 million and loss on sale of $ 4.1 million during the six months ended March 31, 2022. 13 Table of Contents Loans purchased and sold by portfolio segment, including participation interests, were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2023 2022 2023 2022 Loans Purchased Loans held for investment: Commercial finance $ — $ 1,378 $ — $ 3,098 Warehouse finance 120,185 29,822 187,834 85,815 Total purchases $ 120,185 $ 31,200 $ 187,834 $ 88,913 Loans Sold Loans held for sale: Commercial finance $ 294 $ 14,090 $ 1,149 $ 47,113 Consumer finance 201,199 147,163 603,214 523,607 Community banking — — — 153,222 Loans held for investment: Commercial finance — 15,549 — 15,549 Community banking — — — 30,235 Total sales $ 201,493 $ 176,802 $ 604,363 $ 769,726 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in thousands) March 31, 2023 September 30, 2022 Carrying amount $ 173,621 $ 216,880 Unguaranteed residual assets 11,849 13,037 Unamortized initial direct costs 202 295 Unearned income ( 14,825 ) ( 19,225 ) Total net investment in direct financing and sales-type leases $ 170,847 $ 210,987 Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at March 31, 2023 were as follows: (Dollars in thousands) Remaining in 2023 $ 43,358 2024 67,521 2025 37,603 2026 15,265 2027 7,418 Thereafter 2,456 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 173,621 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type leases $ 173,621 The Company did not record any contingent rental income from direct financing and sales-type leases in the six months ended March 31, 2023. 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 and 2023 including geopolitical conflict, supply chain disruptions, inflation, rising interest rates, and recent bank failures brought on by, among other things, rising interest rates, deposit outflows and liquidity crises. 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. 15 Table of Contents Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows: Three Months Ended March 31, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 26,752 $ 3,974 $ ( 2,705 ) $ 394 $ 28,415 Asset based lending 3,903 51 ( 2,873 ) — 1,081 Factoring 5,674 ( 40 ) ( 62 ) 16 5,588 Lease financing 5,238 ( 183 ) ( 607 ) 101 4,549 Insurance premium finance 1,261 155 ( 224 ) 71 1,263 SBA/USDA 2,632 2 — 6 2,640 Other commercial finance 3,356 976 — — 4,332 Commercial finance 48,816 4,935 ( 6,471 ) 588 47,868 Consumer credit products 1,263 ( 44 ) — — 1,219 Other consumer finance 1,624 276 ( 154 ) — 1,746 Consumer finance 2,887 232 ( 154 ) — 2,965 Tax services 609 31,422 — 1,063 33,094 Warehouse finance 280 97 — — 377 Total loans and leases 52,592 36,686 ( 6,625 ) 1,651 84,304 Unfunded commitments (1) 279 77 — — 356 Total $ 52,871 $ 36,763 $ ( 6,625 ) $ 1,651 $ 84,660 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. Three Months Ended March 31, 2022 (Dollars in thousands) Beginning Balance Provision (Reversal) (2) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 26,722 $ 1,954 $ ( 1,822 ) $ 714 $ 27,568 Asset based lending 2,758 ( 175 ) — — 2,583 Factoring 15,242 823 ( 9,590 ) 51 6,526 Lease financing 6,857 ( 395 ) ( 95 ) 104 6,471 Insurance premium finance 1,044 59 ( 106 ) 60 1,057 SBA/USDA 2,996 ( 53 ) — — 2,943 Other commercial finance 1,349 ( 152 ) — — 1,197 Commercial finance 56,968 2,061 ( 11,613 ) 929 48,345 Consumer credit products 1,627 ( 6 ) — — 1,621 Other consumer finance 6,960 1,157 ( 802 ) 73 7,388 Consumer finance 8,587 1,151 ( 802 ) 73 9,009 Tax services 1,601 28,972 — 184 30,757 Warehouse finance 467 ( 26 ) — — 441 Community banking — ( 2 ) — 2 — Total loans and leases 67,623 32,156 ( 12,415 ) 1,188 88,552 Unfunded commitments (1) 405 146 — — 551 Total $ 68,028 $ 32,302 $ ( 12,415 ) $ 1,188 $ 89,103 (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. 16 Table of Contents Six Months Ended March 31, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 24,621 $ 7,645 $ ( 4,522 ) $ 671 $ 28,415 Asset based lending 1,050 2,904 ( 2,873 ) — 1,081 Factoring 6,556 ( 804 ) ( 183 ) 19 5,588 Lease financing 5,902 ( 621 ) ( 1,013 ) 281 4,549 Insurance premium finance 1,450 108 ( 409 ) 114 1,263 SBA/USDA 3,263 ( 649 ) — 26 2,640 Other commercial finance 1,310 3,022 — — 4,332 Commercial finance 44,152 11,605 ( 9,000 ) 1,111 47,868 Consumer credit products 1,400 ( 181 ) — — 1,219 Other consumer finance 63 2,016 ( 333 ) — 1,746 Consumer finance 1,463 1,835 ( 333 ) — 2,965 Tax services 5 33,059 ( 1,731 ) 1,761 33,094 Warehouse finance 327 50 — — 377 Total loans and leases 45,947 46,549 ( 11,064 ) 2,872 84,304 Unfunded commitments (1) 366 ( 10 ) — — 356 Total $ 46,313 $ 46,539 $ ( 11,064 ) $ 2,872 $ 84,660 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. Six Months Ended March 31, 2022 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 29,351 $ 1,095 $ ( 3,906 ) $ 1,028 $ 27,568 Asset based lending 1,726 736 ( 16 ) 137 2,583 Factoring 3,997 13,324 ( 10,864 ) 69 6,526 Lease financing 7,629 ( 1,217 ) ( 112 ) 171 6,471 Insurance premium finance 1,394 ( 211 ) ( 283 ) 157 1,057 SBA/USDA 2,978 180 ( 217 ) 2 2,943 Other commercial finance 1,168 29 — — 1,197 Commercial finance 48,243 13,936 ( 15,398 ) 1,564 48,345 Consumer credit products 1,242 379 — — 1,621 Other consumer finance 6,112 2,718 ( 1,622 ) 180 7,388 Consumer finance 7,354 3,097 ( 1,622 ) 180 9,009 Tax services 2 28,259 ( 254 ) 2,750 30,757 Warehouse finance 420 21 — — 441 Community banking 12,262 ( 12,686 ) — 424 — Total loans and leases 68,281 32,627 ( 17,274 ) 4,918 88,552 Unfunded commitments (1) 690 ( 139 ) — — 551 Total $ 68,971 $ 32,488 $ ( 17,274 ) $ 4,918 $ 89,103 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 17 Table of Contents 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 March 31, 2023 At September 30, 2022 Term lending $ 2,809 $ 2,885 Factoring — 550 Lease financing 2,284 2,787 SBA/USDA 1,113 1,199 Commercial finance (1) 6,206 7,421 Total $ 6,206 $ 7,421 (1) For Commercial Finance, collateral dependent financial assets have collateral in the form of cash, equipment, or other business assets. Management has identified certain structured finance credits for alternative energy projects in which a substantial cash collateral account has been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually. The balance of these pass rated cash collateral loans totaled $ 70.8 million and $ 120.7 million at March 31, 2023 and at September 30, 2022, respectively. 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: 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. 18 Table of Contents 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, 120 days or more for consumer credit products and leases, and 90 days or more for 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 refund 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 $ 148.6 million and $ 61.6 million at March 31, 2023, respectively, and $ 169.7 million and $ 9.1 million at September 30, 2022, respectively. The amortized cost basis of loans and leases by asset classification and year of origination was as follows: Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At March 31, 2023 2023 2022 2021 2020 2019 Prior Term lending Pass $ 327,992 $ 255,383 $ 139,016 $ 94,309 $ 23,151 $ 104,467 $ — $ 944,318 Watch 32,477 45,370 53,429 13,430 7,324 9,780 — 161,810 Special mention 1,226 6,498 20,181 212 1,263 1,120 — 30,500 Substandard 5,986 31,094 21,996 25,660 5,632 4,576 — 94,944 Doubtful — 1,553 1,130 804 307 87 — 3,881 Total 367,681 339,898 235,752 134,415 37,677 120,030 — 1,235,453 Asset based lending Pass — — — — — — 178,436 178,436 Watch — — — — — — 153,311 153,311 Special mention — — — — — — 20,731 20,731 Substandard — — — — — — 24,828 24,828 Doubtful — — — — — — 659 659 Total — — — — — — 377,965 377,965 Factoring Pass — — — — — — 246,196 246,196 Watch — — — — — — 66,221 66,221 Special mention — — — — — — 10,973 10,973 Substandard — — — — — — 15,494 15,494 Total — — — — — — 338,884 338,884 Lease financing Pass 6,352 21,369 23,704 38,157 2,776 4,761 — 97,119 Watch 2,625 11,398 8,506 5,906 5,425 5,509 — 39,369 Special mention — — 805 556 366 53 — 1,780 Substandard — 8,142 5,122 4,400 4,875 8,932 — 31,471 Doubtful — — 521 206 43 136 — 906 Total 8,977 40,909 38,658 49,225 13,485 19,391 — 170,645 Insurance premium finance Pass 363,501 72,407 79 6 — — — 435,993 Watch 221 578 — — — — — 799 Special mention 13 353 — — — — — 366 Substandard 83 213 — — — — — 296 19 Table of Contents Doubtful — 246 — — — — — 246 Total 363,818 73,797 79 6 — — — 437,700 SBA/USDA Pass 70,249 199,198 31,679 45,386 9,041 17,908 — 373,461 Watch — — — 55 400 2,843 — 3,298 Special mention — — — — 210 — — 210 Substandard 252 1,540 78 7,037 8,489 11,247 — 28,643 Total 70,501 200,738 31,757 52,478 18,140 31,998 — 405,612 Other commercial finance Pass — 18,900 30,637 1,003 10,176 69,598 — 130,314 Watch 1,735 — — — — — — 1,735 Substandard 5,214 478 28,400 — — 261 — 34,353 Total 6,949 19,378 59,037 1,003 10,176 69,859 — 166,402 Warehouse finance Pass — — — — — — 377,036 377,036 Total — — — — — — 377,036 377,036 Total loans and leases Pass 768,094 567,257 225,115 178,861 45,144 196,734 801,668 2,782,873 Watch 37,058 57,346 61,935 19,391 13,149 18,132 219,532 426,543 Special mention 1,239 6,851 20,986 768 1,839 1,173 31,704 64,560 Substandard 11,535 41,467 55,596 37,097 18,996 25,016 40,322 230,029 Doubtful — 1,799 1,651 1,010 350 223 659 5,692 Total $ 817,926 $ 674,720 $ 365,283 $ 237,127 $ 79,478 $ 241,278 $ 1,093,885 $ 3,509,697 Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At September 30, 2022 2022 2021 2020 2019 2018 Prior Term lending Pass $ 246,627 $ 240,018 $ 105,170 $ 60,417 $ 89,072 $ 61,229 $ — $ 802,533 Watch 45,539 24,318 45,052 11,698 21,077 9,799 — 157,483 Special mention 9,500 24,885 14,300 2,861 619 242 — 52,407 Substandard 10,627 16,694 12,248 23,266 10,457 2,255 — 75,547 Doubtful 175 407 469 872 204 192 — 2,319 Total 312,468 306,322 177,239 99,114 121,429 73,717 — 1,090,289 Asset based lending Pass — — — — — — 154,494 154,494 Watch — — — — — — 162,990 162,990 Special mention — — — — — — 13,770 13,770 Substandard — — — — — — 20,442 20,442 Total — — — — — — 351,696 351,696 Factoring Pass — — — — — — 254,883 254,883 Watch — — — — — — 86,219 86,219 Special mention — — — — — — 9,174 9,174 Substandard — — — — — — 22,319 22,319 Total — — — — — — 372,595 372,595 Lease financing Pass 7,407 38,818 31,408 26,552 12,361 823 — 117,369 Watch 8,799 17,098 10,284 6,655 2,899 151 — 45,886 Special mention 151 6,151 2,644 481 2,876 2,811 — 15,114 Substandard 825 9,486 11,819 7,273 1,245 — — 30,648 Doubtful 144 163 1,280 88 — — — 1,675 Total 17,326 71,716 57,435 41,049 19,381 3,785 — 210,692 Insurance premium finance 20 Table of Contents Pass 478,504 307 8 — — — — 478,819 Watch 539 7 — — — — — 546 Special mention 169 40 — — — — — 209 Substandard 106 46 — — — — — 152 Doubtful 14 14 — — — — — 28 Total 479,332 414 8 — — — — 479,754 SBA/USDA Pass 54,512 111,907 40,474 56,538 28,874 24,305 — 316,610 Watch — 13,836 1,266 702 — 710 — 16,514 Special mention — 211 — 869 — — — 1,080 Substandard 4,149 10,968 4,278 — 1,094 4,545 — 25,034 Total 58,661 136,922 46,018 58,109 29,968 29,560 — 359,238 Other commercial finance Pass 5,886 13,607 26,040 20,458 23,098 40,782 — 129,871 Substandard — 9,538 — — — 20,000 — 29,538 Total 5,886 23,145 26,040 20,458 23,098 60,782 — 159,409 Warehouse finance Pass — — — — — — 294,350 294,350 Special mention — — — — — — 32,500 32,500 Total — — — — — — 326,850 326,850 Total loans and leases Pass 792,936 404,657 203,100 163,965 153,405 127,139 703,727 2,548,929 Watch 54,877 55,259 56,602 19,055 23,976 10,660 249,209 469,638 Special mention 9,820 31,287 16,944 4,211 3,495 3,053 55,444 124,254 Substandard 15,707 46,732 28,345 30,539 12,796 26,800 42,761 203,680 Doubtful 333 584 1,749 960 204 192 — 4,022 Total $ 873,673 $ 538,519 $ 306,740 $ 218,730 $ 193,876 $ 167,844 $ 1,051,141 $ 3,350,523 Past due loans and leases were as follows: (Dollars in thousands) Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases At March 31, 2023 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 $ — $ — $ — $ — $ 24,780 $ 24,780 $ — $ — $ — Term lending 26,127 1,170 6,530 33,827 1,201,626 1,235,453 1,952 10,891 12,843 Asset based lending — — — — 377,965 377,965 — 3,493 3,493 Factoring — — — — 338,884 338,884 — 512 512 Lease financing 3,154 — 2,378 5,532 165,113 170,645 1,807 3,323 5,130 Insurance premium finance 2,741 698 1,871 5,310 432,390 437,700 1,871 — 1,871 SBA/USDA 2,043 2,291 252 4,586 401,026 405,612 — 1,366 1,366 Other commercial finance — — 94 94 166,308 166,402 94 — 94 Commercial finance 34,065 4,159 11,125 49,349 3,083,312 3,132,661 5,724 19,585 25,309 Consumer credit products 2,653 2,248 2,140 7,041 113,698 120,739 2,140 — 2,140 Other consumer finance 608 1,609 1,077 3,294 24,615 27,909 1,077 — 1,077 Consumer finance 3,261 3,857 3,217 10,335 138,313 148,648 3,217 — 3,217 Tax services 639 — — 639 60,914 61,553 — — — Warehouse finance — — — — 377,036 377,036 — — — Total loans and leases held for investment 37,965 8,016 14,342 60,323 3,659,575 3,719,898 8,941 19,585 28,526 Total loans and leases $ 37,965 $ 8,016 $ 14,342 $ 60,323 $ 3,684,355 $ 3,744,678 $ 8,941 $ 19,585 $ 28,526 21 Table of Contents (Dollars in thousands) Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases At September 30, 2022 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 $ — $ — $ — $ — $ 21,071 $ 21,071 $ — $ — $ — Term lending 14,066 2,576 4,458 21,100 1,069,189 1,090,289 2,035 7,576 9,611 Asset based lending — — 68 68 351,628 351,696 39 29 68 Factoring — — — — 372,595 372,595 — 569 569 Lease financing 8,265 2,253 1,714 12,232 198,460 210,692 440 3,750 4,190 Insurance premium finance 2,550 1,379 1,628 5,557 474,197 479,754 1,628 — 1,628 SBA/USDA — — — — 359,238 359,238 — 1,451 1,451 Other commercial finance — — — — 159,409 159,409 — — — Commercial finance 24,881 6,208 7,868 38,957 2,984,716 3,023,673 4,142 13,375 17,517 Consumer credit products 3,209 2,558 2,669 8,436 135,917 144,353 2,669 — 2,669 Other consumer finance 113 51 124 288 25,018 25,306 124 — 124 Consumer finance 3,322 2,609 2,793 8,724 160,935 169,659 2,793 — 2,793 Tax services — — 8,873 8,873 225 9,098 8,873 — 8,873 Warehouse finance — — — — 326,850 326,850 — — — Total loans and leases held for investment 28,203 8,817 19,534 56,554 3,472,726 3,529,280 15,808 13,375 29,183 Total loans and leases $ 28,203 $ 8,817 $ 19,534 $ 56,554 $ 3,493,797 $ 3,550,351 $ 15,808 $ 13,375 $ 29,183 Nonaccrual loans and leases by year of origination were as follows: Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual with No ACL At March 31, 2023 2023 2022 2021 2020 2019 Prior Term lending $ 103 $ 5,123 $ 2,507 $ 2,351 $ 739 $ 68 $ — $ 10,891 $ 2,370 Asset based lending — — — — — — 3,493 3,493 — Factoring — — — — — — 512 512 — Lease financing — — 609 891 1,681 142 — 3,323 645 SBA/USDA — 1,114 — — — 252 — 1,366 1,114 Commercial finance 103 6,237 3,116 3,242 2,420 462 4,005 19,585 4,129 Total nonaccrual loans and leases $ 103 $ 6,237 $ 3,116 $ 3,242 $ 2,420 $ 462 $ 4,005 $ 19,585 $ 4,129 Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual with No ACL At September 30, 2022 2022 2021 2020 2019 2018 Prior Term lending $ 251 $ 1,110 $ 1,964 $ 989 $ 3,096 $ 166 $ — $ 7,576 $ 2,885 Asset based lending — — — — — — 29 29 — Factoring — — — — — — 569 569 550 Lease financing 977 310 2,442 13 8 — — 3,750 — SBA/USDA — — 1,199 — — 252 — 1,451 1,199 Commercial finance 1,228 1,420 5,605 1,002 3,104 418 598 13,375 4,634 Total nonaccrual loans and leases $ 1,228 $ 1,420 $ 5,605 $ 1,002 $ 3,104 $ 418 $ 598 $ 13,375 $ 4,634 22 Table of Contents Loans and leases that are 90 days or more delinquent and accruing by year of origination were as follows: Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At March 31, 2023 2023 2022 2021 2020 2019 Prior Term lending $ 1,346 $ 35 $ 132 $ 211 $ 40 $ 188 $ — $ 1,952 Lease financing 90 468 953 198 30 68 — 1,807 Insurance premium finance — 1,849 10 8 4 — — 1,871 Other commercial finance — — — — — 94 — 94 Commercial finance 1,436 2,352 1,095 417 74 350 — 5,724 Consumer credit products 174 1,437 404 92 30 3 — 2,140 Other consumer finance 1,032 — — — — — 45 1,077 Consumer finance 1,206 1,437 404 92 30 3 45 3,217 Total 90 days or more delinquent and accruing $ 2,642 $ 3,789 $ 1,499 $ 509 $ 104 $ 353 $ 45 $ 8,941 Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At September 30, 2022 2022 2021 2020 2019 2018 Prior Term lending $ 207 $ 720 $ 716 $ 130 $ 70 $ 192 $ — $ 2,035 Asset based lending — — — — — — 39 39 Lease financing 8 158 98 131 45 — — 440 Insurance premium finance 1,513 110 5 — — — — 1,628 Commercial finance 1,728 988 819 261 115 192 39 4,142 Consumer credit products 2,123 481 42 23 — — — 2,669 Other consumer finance — 124 — — — — — 124 Consumer finance 2,123 605 42 23 — — — 2,793 Tax services 8,873 — — — — — — 8,873 Total 90 days or more delinquent and accruing $ 12,724 $ 1,593 $ 861 $ 284 $ 115 $ 192 $ 39 $ 15,808 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. The following table provides the average recorded investment in nonaccrual loans and leases: Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2023 2022 2022 2021 Term lending $ 9,758 $ 10,688 $ 9,277 $ 12,305 Asset based lending 5,292 5,993 4,782 5,002 Factoring 523 9,791 615 11,019 Lease financing 3,627 3,020 3,625 3,027 SBA/USDA 1,379 1,464 1,400 840 Commercial finance 20,579 30,956 19,699 32,193 Total loans and leases $ 20,579 $ 30,956 $ 19,699 $ 32,193 The recognized interest income on the Company's nonaccrual loans and leases for the three and six months ended March 31, 2023 and 2022 was not significant. 23 Table of Contents 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. No loans were modified in a TDR during the three months ended March 31, 2023. There were $ 0.2 million of commercial finance loans and $ 0.2 million of consumer finance loans that were modified in a TDR during the three months ended March 31, 2022, all of which were modified to extend the term of the loan. During the six months ended March 31, 2023, there were no loans that were modified in a TDR. There were $ 10.3 million of commercial finance loans and $ 0.2 million of consumer finance loans that were modified in a TDR during the six months ended March 31, 2022, all of which were modified to extend the term of the loan. During the three months ended March 31, 2023, there was an immaterial amount of commercial finance loans that were modified in a TDR within the previous 12 months and for which there was a payment default. During the three months ended March 31, 2022, the Company had $ 0.3 million of commercial finance loans and $ 0.3 million of consumer finance loans that were modified in a TDR with the previous 12 months and for which there was a payment default. During the six months ended March 31, 2023, the Company had $ 0.1 million of commercial finance loans that were modified in a TDR within the previous 12 months and for which there was a payment default. During the six months ended March 31, 2022, the Company had $ 2.6 million of commercial finance loans and $ 0.8 million of consumer finance 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 six months ended March 31, 2023 and March 31, 2022. 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. 24 Table of Contents A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below. Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands, except per share data) 2023 2022 2023 2022 Basic income per common share: Net income attributable to Pathward Financial, Inc. $ 54,771 $ 49,251 $ 82,613 $ 110,575 Dividends and undistributed earnings allocated to participating securities ( 841 ) ( 815 ) ( 1,231 ) ( 1,773 ) Basic net earnings available to common stockholders 53,930 48,436 81,382 108,802 Undistributed earnings allocated to nonvested restricted stockholders 820 791 1,190 1,724 Reallocation of undistributed earnings to nonvested restricted stockholders ( 818 ) ( 791 ) ( 1,187 ) ( 1,723 ) Diluted net earnings available to common stockholders $ 53,932 $ 48,436 $ 81,385 $ 108,803 Total weighted-average basic common shares outstanding 27,078,048 29,212,301 27,555,197 29,731,797 Effect of dilutive securities (1) Performance share units 91,521 12,061 77,540 17,035 Total effect of dilutive securities 91,521 12,061 77,540 17,035 Total weighted-average diluted common shares outstanding 27,169,569 29,224,362 27,632,737 29,748,832 Net earnings per common share: Basic earnings per common share $ 1.99 $ 1.66 $ 2.95 $ 3.66 Diluted earnings per common share (2) $ 1.99 $ 1.66 $ 2.95 $ 3.66 (1) Represents the effect of the assumed exercise of stock options and vesting of performance share units and restricted stock, as applicable, utilizing the treasury stock method. (2) Excluded from the computation of diluted earnings per share for the three months ended March 31, 2023 and 2022, respectively, were 422,461 and 491,621 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. Excluded from the computation of diluted earnings per share for the six months ended March 31, 2023 and 2022, respectively, were 417,012 and 484,457 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. NOTE 7. RENTAL EQUIPMENT, NET Rental equipment consists of the following: (Dollars in thousands) March 31, 2023 September 30, 2022 Computers and IT networking equipment $ 20,589 $ 21,669 Motor vehicles and other 121,014 107,648 Other furniture and equipment 35,604 34,254 Solar panels and equipment 137,548 133,765 Total 314,755 297,336 Accumulated depreciation ( 105,073 ) ( 94,355 ) Unamortized initial direct costs 1,162 1,390 Net book value $ 210,844 $ 204,371 During the quarter, certain solar panels and equipment assets had a change in depreciable life that resulted in additional depreciation expense of $ 4.8 million occurring during the three-month period ended March 31, 2023. The assets impacted are now carried at their residual value and will not be subject to depreciation going forward. 25 Table of Contents Future minimum lease payments expected to be received for operating leases at March 31, 2023 were as follows: (Dollars in thousands) Remaining in 2023 $ 20,951 2024 35,326 2025 27,772 2026 19,091 2027 12,569 Thereafter 12,758 Total $ 128,467 NOTE 8. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at March 31, 2023. The recorded goodwill is a result of multiple business combinations that occurred from 2015 to 2018. There have been no changes to the carrying amount of goodwill during the six months ended March 31, 2023. The changes in the carrying amount of the Company’s intangible assets were as follows: (Dollars in thousands) Trademark (1) Non-Compete Customer Relationships (2) All Others (3) Total Intangible Assets At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691 Amortization during the period ( 609 ) — ( 1,819 ) ( 265 ) ( 2,693 ) At March 31, 2023 $ 7,996 $ — $ 10,576 $ 4,426 $ 22,998 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133 Accumulated amortization ( 6,628 ) ( 2,481 ) ( 60,594 ) ( 5,296 ) ( 74,999 ) Accumulated impairment — ( 10,918 ) ( 218 ) ( 11,136 ) At March 31, 2023 $ 7,996 $ — $ 10,576 $ 4,426 $ 22,998 At September 30, 2021 $ 9,823 $ 40 $ 17,868 $ 5,417 $ 33,148 Acquisitions during the period — — — 1 1 Amortization during the period ( 526 ) ( 40 ) ( 2,829 ) ( 262 ) ( 3,657 ) Write-offs during the period — — — ( 202 ) ( 202 ) At March 31, 2022 $ 9,297 $ — $ 15,039 $ 4,954 $ 29,290 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133 Accumulated amortization ( 5,327 ) ( 2,481 ) ( 56,801 ) ( 4,768 ) ( 69,377 ) Accumulated impairment — — ( 10,248 ) ( 218 ) ( 10,466 ) At March 31, 2022 $ 9,297 $ — $ 15,039 $ 4,954 $ 29,290 (1) Book amortization period of 5 - 15 years. Amortized using the straight line and accelerated methods. (2) Book amortization period of 10 - 30 years. Amortized using the accelerated method. (3) Book amortization period of 3 - 20 years. Amortized using the straight line method. 26 Table of Contents The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining six months of fiscal 2023 and subsequent fiscal years at March 31, 2023 was as follows: (Dollars in thousands) Remaining in 2023 $ 2,250 2024 4,128 2025 3,566 2026 3,220 2027 2,574 Thereafter 7,260 Total anticipated intangible amortization $ 22,998 There were no impairments to intangible assets during the six months ended March 31, 2023 and 2022. Intangible impairment expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations. NOTE 9. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease ROU assets, included in other assets , were $ 28.5 million and $ 31.8 million at March 31, 2023 and 2022, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 30.4 million and $ 33.6 million at March 31, 2023 and 2022, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at March 31, 2023 were as follows: (Dollars in thousands) Remaining in 2023 $ 2,045 2024 3,913 2025 3,718 2026 3,195 2027 3,092 Thereafter 18,639 Total undiscounted future minimum lease payments 34,602 Discount ( 4,169 ) Total operating lease liabilities $ 30,433 The weighted-average discount rate and remaining lease term for operating leases at March 31, 2023 were as follows: Weighted-average discount rate 2.36 % Weighted-average remaining lease term (years) 9.98 The components of total lease costs for operating leases were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2023 2022 2023 2022 Lease expense $ 982 $ 1,119 $ 1,996 $ 2,256 Short-term and variable lease cost 42 40 84 75 Sublease income ( 339 ) ( 355 ) ( 672 ) ( 531 ) Total lease cost for operating leases $ 685 $ 804 $ 1,408 $ 1,800 27 Table of Contents NOTE 10. STOCKHOLDERS' EQUITY Repurchase of Common Stock The Company's Board of Directors authorized the September 3, 2021 share repurchase program to repurchase up to 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 six months ended March 31, 2023, and 2022, the Company repurchased 1,826,694 and 2,447,699 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 March 31, 2023, 2,468,283 shares of common stock remained available for repurchase. For the six months ended March 31, 2023, and 2022, the Company also repurchased 59,626 and 64,536 shares, or $ 2.1 million and $ 3.7 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock. Retirement of Treasury Stock The Company accounts for the retirement of repurchased shares, including treasury stock, 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. The Company retired zero shares of common stock held in treasury during the six months ended March 31, 2023 and 2022, respectively. NOTE 11. STOCK COMPENSATION The Company maintains the Pathward Financial, 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 six months ended March 31, 2023. There were no options granted, exercised, or forfeited under this plan during the six months ended March 31, 2023. 28 Table of Contents (Dollars in thousands, except per share data) Number of Shares Weighted Average Fair Value at Grant Nonvested shares outstanding, September 30, 2022 474,348 $ 36.52 Granted 160,881 38.95 Vested ( 209,440 ) 36.59 Forfeited or expired ( 6,958 ) 42.55 Nonvested shares outstanding, March 31, 2023 418,831 $ 37.31 Performance share units outstanding, September 30, 2022 96,689 $ 42.59 Granted (1) 59,115 38.94 Vested — — Forfeited or expired — — Performance share units outstanding, March 31, 2023 155,804 $ 41.20 (1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award. At March 31, 2023, stock-based compensation expense not yet recognized in income totaled $ 10.2 million, which is expected to be recognized over a weighted average remaining period of 1.53 years. NOTE 12. INCOME TAXES The Company recorded an income tax expense of $ 15.8 million for the six months ended March 31, 2023, resulting in an effective tax rate of 15.83 %, compared to an income tax expense of $ 22.3 million, or an effective tax rate of 16.66 %, for the six months ended March 31, 2022. 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 2023. The Company's effective tax rate in the future will depend in part on actual investment tax credits generated from qualified renewable energy property. The table below compares the income tax expense components for the periods presented. Six Months Ended March 31, (Dollars in thousands) 2023 2022 Provision at statutory rate $ 20,657 $ 27,899 Tax-exempt income ( 398 ) ( 362 ) State income taxes 4,285 5,543 Interim period effective rate adjustment ( 483 ) ( 3,870 ) Tax credit investments, net - federal ( 7,916 ) ( 5,978 ) Research tax credit ( 805 ) ( 355 ) IRC 162(m) nondeductible compensation 576 505 Other, net ( 163 ) ( 1,104 ) Income tax expense $ 15,753 $ 22,278 Effective tax rate 15.83 % 16.66 % 29 Table of Contents NOTE 13. REVENUE FROM CONTRACTS WITH CUSTOMERS Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 14. Segment Reporting to the Condensed Consolidated Financial Statements. (Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company Three Months Ended March 31, 2023 2022 2023 2022 2023 2022 2023 2022 Net interest income (1) $ 41,418 $ 30,156 $ 46,758 $ 44,879 $ 13,229 $ 8,765 $ 101,405 $ 83,800 Noninterest income: Refund transfer product fees 30,205 27,805 — — — — 30,205 27,805 Refund advance fee income (1) 37,995 39,299 — — — — 37,995 39,299 Card and deposit fees 41,828 26,270 252 244 7 6 42,087 26,520 Rental income (1) — — 12,737 11,225 203 150 12,940 11,375 Gain (loss) on sale of securities (1) — — — — 82 260 82 260 Gain (loss) on sale of other (1) — — ( 748 ) 1,229 — ( 603 ) ( 748 ) 626 Other income (1) 1,748 1,387 1,935 2,839 794 ( 345 ) 4,477 3,881 Total noninterest income 111,776 94,761 14,176 15,537 1,086 ( 532 ) 127,038 109,766 Revenue $ 153,194 $ 124,917 $ 60,934 $ 60,416 $ 14,315 $ 8,233 $ 228,443 $ 193,566 Six Months Ended March 31, Net interest income (1) $ 75,690 $ 56,427 $ 89,082 $ 89,805 $ 20,690 $ 9,181 $ 185,462 $ 155,413 Noninterest income: Refund transfer product fees 30,882 28,384 — — — — 30,882 28,384 Refund advance fee income (1) 38,612 40,532 — — — — 38,612 40,532 Card and deposit fees 79,280 51,402 513 475 12 12 79,805 51,889 Rental income (1) — — 25,252 22,302 396 150 25,648 22,452 Gain (loss) on sale of securities (1) — — — — 82 397 82 397 Gain on sale of trademarks — — — — 10,000 50,000 10,000 50,000 Gain (loss) on sale of other (1) — — ( 246 ) 6,093 — ( 8,932 ) ( 246 ) ( 2,839 ) Other income (1) 2,541 2,152 3,019 5,624 2,472 ( 2,234 ) 8,032 5,542 Total noninterest income 151,315 122,470 28,538 34,494 12,962 39,393 192,815 196,357 Revenue $ 227,005 $ 178,897 $ 117,620 $ 124,299 $ 33,652 $ 48,574 $ 378,277 $ 351,770 (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. 30 Table of Contents Refund Transfer Product Fees. Refund transfer fees are specific to the Banking as a Service ("BaaS") business line and reflect product fees offered by the Company through third-party tax preparers and tax preparation software providers where the Company acts as the partnering financial institution. A refund transfer allows a taxpayer to pay tax preparation and filing fees directly from their federal or state government tax refund, with the remainder of the refund being disbursed in accordance with the terms and conditions of the taxpayer agreement, which may include satisfaction of other disbursement obligations before going directly to the taxpayer via check, direct deposit, or prepaid card. Refund transfer fees are recognized by the Company immediately after the taxpayer's refund has been disbursed in accordance with the contract and is based on standalone pricing included within the terms and conditions. Certain expenses to tax preparation software providers are netted with refund transfer fee income as the Company is considered the agent in these contractual relationships. All refund transfer fees are recorded within the Consumer reporting segment. Card and Deposit Fees. Card fees relate to the BaaS business line and consists of income from prepaid cards and merchant services, including interchange fees from prepaid cards processed through card association networks, merchant services and other card related services. Interchange rates are generally set by card association networks based on transaction volume and other factors. Since interchange fees are generated by cardholder activity, the Company recognizes the income as transactions occur. Fee income for merchant services and other card related services reflect account management and transaction fees charged to merchants for processing card association network transactions. The associated income is recognized as transactions occur or as services are performed. For the Company's internally managed prepaid card programs, fees are based on standalone pricing within the terms and conditions of the cardholder agreement. The Company is considered the principal of these relationships resulting in all fee income being presented on a gross basis within the Condensed Consolidated Statement of Operations. For the Company's sponsorship prepaid card programs where a third-party is considered the Program Manager, the fees are based on standalone pricing within the terms and conditions of the Program Agreement. For these relationships, the Company is considered the agent and certain expenses with the Program Manager, networks and associations are netted with card fee revenue. All card fee income is included in the Consumer reporting segment. Deposit fees relate to the BaaS and Commercial Finance business lines and consist of income from banking and deposit-related services, including account services, overdraft protection, and wire transfers. Fee income for account services is recognized over the course of the month as the performance obligation is satisfied. Fee income for overdraft protection and wire transfers is recognized point in time when such event occurs. For BaaS, the fees for account services and overdraft protection are based on standalone pricing within the terms and conditions of the Program Agreement with the sponsorship partner. For these relationships, the Company is considered the agent and certain expenses with the partner are netted with deposit fee revenue. For Commercial Finance, fees for wire transfers are based on standalone pricing within the terms and conditions of the customer deposit agreement. Bank and deposit fees for the BaaS and Commercial Finance business lines are included in the Consumer and Commercial reporting segments, respectively. Also included within Card and Deposit Fees for the Consumer reporting segment are servicing fees the Company recognizes for custodial off-balance sheet deposits. This fee income is for services the Bank performs to maintain records of cardholder funds placed at one or more third-party banks insured by the FDIC. The servicing fee is typically reflective of the effective federal funds rate ("EFFR"). 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 BaaS business line is reported in the Consumer segment. The Commercial Finance business line is reported in the Commercial segment. The Corporate Services/Other segment includes certain shared services as well as treasury related functions such as the investment portfolio, warehouse finance, wholesale deposits and borrowings. 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 March 31, 2023 2022 2023 2022 2023 2022 2023 2022 Net interest income $ 41,418 $ 30,156 $ 46,758 $ 44,879 $ 13,229 $ 8,765 $ 101,405 $ 83,800 Provision for credit losses 31,654 29,685 5,012 2,205 97 412 36,763 32,302 Noninterest income (loss) 111,776 94,761 14,176 15,537 1,086 ( 532 ) 127,038 109,766 Noninterest expense 49,910 29,892 38,846 31,457 38,380 41,811 127,136 103,160 Income (loss) before income tax expense 71,630 65,340 17,076 26,754 ( 24,162 ) ( 33,990 ) 64,544 58,104 Total assets 361,528 456,335 3,581,677 3,355,196 2,925,051 3,075,708 6,868,256 6,887,239 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 5,744,278 5,693,063 9,313 6,882 149,105 129,941 5,902,696 5,829,886 Six Months Ended March 31, Net interest income $ 75,690 $ 56,427 $ 89,082 $ 89,805 $ 20,690 $ 9,181 $ 185,462 $ 155,413 Provision (reversal of) for credit losses 34,894 30,946 11,595 13,797 50 ( 12,255 ) 46,539 32,488 Noninterest income 151,315 122,470 28,538 34,494 12,962 39,393 192,815 196,357 Noninterest expense 84,404 49,553 71,595 64,504 76,196 71,539 232,195 185,596 Income (loss) before income tax expense 107,707 98,398 34,430 45,998 ( 42,594 ) ( 10,710 ) 99,543 133,686 Total assets 361,528 456,335 3,581,677 3,355,196 2,925,051 3,075,708 6,868,256 6,887,239 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 5,744,278 5,693,063 9,313 6,882 149,105 129,941 5,902,696 5,829,886 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. 32 Table of Contents The fair value of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and compares to current market trading activity. Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis. At March 31, 2023 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 18,750 $ — $ 18,750 $ — SBA securities 94,248 — 94,248 — Obligations of states and political subdivisions 2,357 — 2,357 — Non-bank qualified obligations of states and political subdivisions 249,493 — 249,493 — Asset-backed securities 126,704 — 126,704 — Mortgage-backed securities 1,334,011 — 1,334,011 — Total debt securities AFS $ 1,825,563 $ — $ 1,825,563 $ — Common equities and mutual funds (1) $ 3,545 $ 3,545 $ — $ — Non-marketable equity securities (2) $ 7,749 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2023. (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. At September 30, 2022 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 22,187 $ — $ 22,187 $ — SBA securities 97,768 — 97,768 — Obligations of states and political subdivisions 2,344 — 2,344 — Non-bank qualified obligations of states and political subdivisions 263,783 — 263,783 — Asset-backed securities 147,790 — 147,790 — Mortgage-backed securities 1,348,997 — 1,348,997 — Total debt securities AFS $ 1,882,869 $ — $ 1,882,869 $ — Common equities and mutual funds (1) $ 2,874 $ 2,874 $ — $ — Non-marketable equity securities (2) $ 7,212 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Consolidated Statements of Financial Condition at September 30, 2022. (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. 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 the internal estimates and/or assessment provided by third-party appraisers and the valuation relies on discount rates ranging from 4 %% to 62 %. 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: At March 31, 2023 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 625 $ — $ — $ 625 Total loans and leases, net individually evaluated for credit loss 625 — — 625 Total $ 625 $ — $ — $ 625 At September 30, 2022 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 1,575 $ — $ — $ 1,575 Total loans and leases, net individually evaluated for credit loss 1,575 — — 1,575 Foreclosed assets, net 1 — — 1 Total $ 1,576 $ — $ — $ 1,576 Quantitative Information About Level 3 Fair Value Measurements (Dollars in thousands) Fair Value at March 31, 2023 Fair Value at September 30, 2022 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 625 $ 1,575 Market approach Appraised values (1) 4 % - 62 % (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 62 %. Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at March 31, 2023 and September 30, 2022 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 March 31, 2023 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 432,598 $ 432,598 $ 432,598 $ — $ — Debt securities available for sale 1,825,563 1,825,563 — 1,825,563 — Debt securities held to maturity 38,713 35,028 — 35,028 — Common equities and mutual funds (1) 3,545 3,545 3,545 — — Non-marketable equity securities (1)(2) 22,563 22,563 — 14,814 — Loans held for sale 24,780 24,780 — 24,780 — Loans and leases 3,719,898 3,710,718 — — 3,710,718 Federal Reserve Bank and Federal Home Loan Bank stocks 29,387 29,387 — 29,387 — Accrued interest receivable 22,434 22,434 22,434 — — Financial liabilities Deposits 5,902,696 5,902,526 5,896,367 6,159 — Overnight federal funds purchased 43,000 43,000 43,000 — — Other short- and long-term borrowings 34,543 32,961 — 32,961 — Accrued interest payable 204 204 204 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2023. (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, 2022 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 388,038 $ 388,038 $ 388,038 $ — $ — Debt securities available for sale 1,882,869 1,882,869 — 1,882,869 — Debt securities held to maturity 41,682 38,171 — 38,171 — Common equities and mutual funds( 1) 2,874 2,874 2,874 — — Non-marketable equity securities (1)(2) 22,526 22,526 — 15,314 — Loans held for sale 21,071 21,071 — 21,071 — Loans and leases 3,529,280 3,525,803 — — 3,525,803 Federal Reserve Bank and Federal Home Loan Bank stocks 28,812 28,812 — 28,812 — Accrued interest receivable 17,979 17,979 17,979 — — Financial liabilities Deposits 5,866,037 5,865,854 5,858,283 7,571 — Other short- and long-term borrowings 36,028 35,986 — 35,986 — Accrued interest payable 192 192 192 — — (1) Equity securities at fair value are included within other assets on the Consolidated Statements of Financial Condition at September 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. NOTE 16. SUBSEQUENT EVENTS Management has evaluated subsequent events that occurred after March 31, 2023. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in our Condensed Consolidated Financial Statements as of or for the quarter ended March 31, 2023. 35 Table of Contents