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, 2023 September 30, 2022 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 515,271 $ 388,038 Securities available for sale, at fair value 1,914,271 1,882,869 Securities held to maturity, at amortized cost (fair value $ 33,670 and $ 38,171 , respectively) 37,725 41,682 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 30,890 28,812 Loans held for sale 87,351 21,071 Loans and leases 4,072,899 3,536,305 Allowance for credit losses ( 81,916 ) ( 45,947 ) Accrued interest receivable 22,332 17,979 Premises, furniture, and equipment, net 38,601 41,710 Rental equipment, net 224,212 204,371 Goodwill and intangible assets 331,335 335,196 Other assets 265,654 295,324 Total assets $ 7,458,625 $ 6,747,410 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits $ 6,306,976 $ 5,866,037 Short-term borrowings 230,000 — Long-term borrowings 34,178 36,028 Accrued expenses and other liabilities 209,750 200,205 Total liabilities 6,780,904 6,102,270 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2023 and September 30, 2022, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 26,688,951 and 28,878,177 shares issued, 26,539,272 and 28,788,124 shares outstanding at June 30, 2023 and September 30, 2022, respectively 266 288 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2023 and September 30, 2022, respectively — — Additional paid-in capital 625,825 617,403 Retained earnings 267,100 245,394 Accumulated other comprehensive loss ( 207,896 ) ( 213,080 ) Treasury stock, at cost, 149,679 and 90,053 common shares at June 30, 2023 and September 30, 2022, respectively ( 6,943 ) ( 4,835 ) Total equity attributable to parent 678,352 645,170 Noncontrolling interest ( 631 ) ( 30 ) Total stockholders’ equity 677,721 645,140 Total liabilities and stockholders’ equity $ 7,458,625 $ 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 June 30, Nine Months Ended June 30, (Dollars in thousands, except per share data) 2023 2022 2023 2022 Interest and dividend income: Loans and leases, including fees $ 81,242 $ 62,541 $ 233,517 $ 203,115 Mortgage-backed securities 10,234 7,381 30,972 16,690 Other investments 7,870 3,984 24,604 12,169 99,346 73,906 289,093 231,974 Interest expense: Deposits 164 94 2,402 400 FHLB advances and other borrowings 1,717 1,661 3,764 4,010 1,881 1,755 6,166 4,410 Net interest income 97,465 72,151 282,927 227,564 Provision for (reversal of) credit losses 1,773 ( 1,302 ) 48,312 31,186 Net interest income after provision for credit losses 95,692 73,453 234,615 196,378 Noninterest income: Refund transfer product fees 8,262 10,289 39,144 38,674 Refund advance fee income ( 927 ) ( 20 ) 37,685 40,513 Card and deposit fees 39,708 24,935 119,513 76,825 Rental income 13,980 12,082 39,628 34,534 Gain on sale of securities 9 198 91 595 Gain on sale of trademarks — — 10,000 50,000 Gain (loss) on sale of other 812 1,239 566 ( 1,601 ) Other income 5,889 5,271 13,921 10,811 Total noninterest income 67,733 53,994 260,548 250,351 Noninterest expense: Compensation and benefits 47,402 45,091 137,966 128,364 Refund transfer product expense 1,727 2,457 9,695 8,855 Refund advance expense 239 ( 29 ) 1,869 2,156 Card processing 26,342 8,438 75,949 23,067 Occupancy and equipment expense 8,595 8,996 25,417 25,845 Operating lease equipment depreciation 10,517 9,145 34,864 26,331 Legal and consulting 5,089 11,724 19,469 27,279 Intangible amortization 1,168 1,532 3,861 5,188 Impairment expense 2,749 670 3,273 670 Other expense 10,750 8,626 34,410 34,491 Total noninterest expense 114,578 96,650 346,773 282,246 Income before income tax expense 48,847 30,797 148,390 164,483 Income tax expense 3,243 6,958 18,996 29,236 Net income before noncontrolling interest 45,604 23,839 129,394 135,247 Net income attributable to noncontrolling interest 508 1,448 1,685 2,281 Net income attributable to parent $ 45,096 $ 22,391 $ 127,709 $ 132,966 Earnings per common share: Basic $ 1.69 $ 0.76 $ 4.63 $ 4.44 Diluted $ 1.68 $ 0.76 $ 4.62 $ 4.44 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) 2023 2022 2023 2022 Net income before noncontrolling interest $ 45,604 $ 23,839 $ 129,394 $ 135,247 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities ( 26,664 ) ( 81,841 ) 6,574 ( 184,614 ) Net (gain) realized on investment securities ( 9 ) ( 198 ) ( 91 ) ( 595 ) ( 26,673 ) ( 82,039 ) 6,483 ( 185,209 ) Unrealized gain (loss) on currency translation 495 ( 520 ) 942 ( 311 ) Deferred income tax effect ( 6,111 ) ( 20,526 ) 2,241 ( 46,514 ) Total other comprehensive income (loss) ( 20,067 ) ( 62,033 ) 5,184 ( 139,006 ) Total comprehensive income (loss) 25,537 ( 38,194 ) 134,578 ( 3,759 ) Total comprehensive income attributable to noncontrolling interest 508 1,448 1,685 2,281 Comprehensive income (loss) attributable to parent $ 25,029 $ ( 39,642 ) $ 132,893 $ ( 6,040 ) 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, 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, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ ( 187,829 ) $ ( 6,943 ) $ 673,795 $ ( 551 ) $ 673,244 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,327 ) — — ( 1,327 ) — ( 1,327 ) Repurchases of common stock ( 5 ) 5 ( 21,715 ) — — ( 21,715 ) — ( 21,715 ) Stock compensation — 2,570 — — — 2,570 — 2,570 Total other comprehensive (loss) — — — ( 20,067 ) — ( 20,067 ) — ( 20,067 ) Net income — — 45,096 — — 45,096 508 45,604 Net investment by (distribution to) noncontrolling interests — — — — — — ( 588 ) ( 588 ) Balance, June 30, 2023 $ 266 $ 625,825 $ 267,100 $ ( 207,896 ) $ ( 6,943 ) $ 678,352 $ ( 631 ) $ 677,721 Three Months Ended June 30, 2022 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 5 Table of Contents (Dollars in thousands, except per share data) Pathward Financial, Inc. Nine Months Ended June 30, 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 ($ 0.15 per share) — — ( 4,115 ) — — ( 4,115 ) — ( 4,115 ) Issuance of common stock due to restricted stock 1 — — — — 1 — 1 Repurchases of common stock ( 23 ) 23 ( 101,888 ) — ( 2,108 ) ( 103,996 ) — ( 103,996 ) Stock compensation — 8,399 — — — 8,399 — 8,399 Total other comprehensive income — — — 5,184 — 5,184 — 5,184 Net income — — 127,709 — — 127,709 1,685 129,394 Net investment by (distribution to) noncontrolling interests — — — — — — ( 2,286 ) ( 2,286 ) Balance, June 30, 2023 $ 266 $ 625,825 $ 267,100 $ ( 207,896 ) $ ( 6,943 ) $ 678,352 $ ( 631 ) $ 677,721 Nine Months Ended June 30, 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 ($ 0.15 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 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) 2023 2022 Cash flows from operating activities: Net income before noncontrolling interest $ 129,394 $ 135,247 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 49,506 47,193 Provision for credit losses 48,312 31,186 Provision for deferred taxes 4,895 18,517 Originations of loans held for sale ( 941,502 ) ( 769,672 ) Proceeds from sales of loans held for sale 870,132 898,442 Net change in loans held for sale 5,456 12,568 Net realized (gain) on securities available for sale — ( 161 ) Net realized (gain) loss on loans held for sale ( 235 ) 3,933 Net realized loss on premise, furniture, and equipment — 45 Net realized (gain) on lease receivables and equipment ( 335 ) ( 2,180 ) Net realized (gain) on trademarks ( 10,000 ) ( 50,000 ) Net realized (gain) on other assets ( 91 ) ( 434 ) Impairment on rental equipment 24 — Impairment of intangibles — 670 Net change in accrued interest receivable ( 4,353 ) ( 564 ) Net change in other assets 22,528 ( 8,959 ) Net change in accrued expenses and other liabilities 6,519 ( 36,577 ) Stock compensation 8,399 7,765 Net cash provided by operating activities 188,649 287,019 Cash flows from investing activities: Purchases of securities available for sale ( 150,751 ) ( 689,515 ) Proceeds from sales of securities available for sale — 244,305 Proceeds from maturities of and principal collected on securities available for sale 127,071 264,808 Proceeds from maturities of and principal collected on securities held to maturity 3,758 12,189 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 206,104 ) ( 134,293 ) Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 204,026 133,880 Purchases of loans and leases ( 197,549 ) ( 108,570 ) Proceeds from sales of loans and leases — 45,784 Net change in loans and leases ( 42,484 ) 35,462 Purchases of premises, furniture, and equipment ( 4,973 ) ( 5,860 ) Proceeds from sales of premises, furniture, and equipment — 35 Purchases of rental equipment ( 373,063 ) ( 270,262 ) Proceeds from sales of rental equipment 9,373 8,236 Net change in rental equipment ( 279 ) ( 1,879 ) Proceeds from sales of foreclosed real estate and repossessed assets 1 1,814 Proceeds from sale of trademarks 10,000 50,000 Proceeds from sale of other assets — 2,925 Net cash (used in) investing activities ( 620,974 ) ( 410,941 ) Cash flows from financing activities: Net change in deposits 440,939 195,828 Net change in short-term borrowings 230,000 — Redemption of long-term borrowings — ( 75,000 ) Principal payments on capital lease obligations — ( 75 ) Principal payments on other liabilities ( 1,416 ) ( 2,163 ) Proceeds from other liabilities — — Payment of debt issuance costs ( 511 ) — Dividends paid on common stock ( 4,115 ) ( 4,469 ) Issuance of common stock due to restricted stock 1 1 Issuance of common stock due to ESOP — 2,886 Repurchases of common stock ( 103,996 ) ( 146,763 ) Distributions to noncontrolling interest ( 2,286 ) ( 2,771 ) Net cash provided by (used in) financing activities 558,616 ( 32,526 ) Effect of exchange rate changes on cash 942 ( 311 ) 7 Table of Contents Net change in cash and cash equivalents 127,233 ( 156,759 ) Cash and cash equivalents at beginning of fiscal year 388,038 314,019 Cash and cash equivalents at end of fiscal period $ 515,271 $ 157,260 Nine Months Ended June 30, (Dollars in thousands) 2023 2022 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 5,556 $ 4,779 Income taxes 11,260 10,898 Franchise taxes 200 200 Other taxes 449 516 Supplemental schedule of non-cash investing activities: Purchases/sales of securities accrued, not settled Trade Date Purchases - AFS 3,026 101,993 Transfers Held for sale to loans and leases 158 14,731 Loans and leases to held for sale — 169,045 Loans and leases to rental equipment 2,168 3,393 Rental equipment to loan and leases 311,278 233,634 Recognition of operating lease ROU assets, net of measurements — 389 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 nine months ended June 30, 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, except for the following: PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the accounts of Pathward Financial, Inc. ("Pathward Financial" or the “Company” or "us"), a registered bank holding company located in Sioux Falls, South Dakota, and its wholly-owned subsidiaries. The Company's subsidiaries include Pathward ® , National Association ("Pathward ® , N.A." or "Pathward" or "the “Bank”), a national bank whose primary federal regulator is the Office of the Comptroller of the Currency (the "OCC"), and Pathward Venture Capital, LLC, a wholly-owned service corporation subsidiary of Pathward, N.A. which invests in companies in the financial services industry. All significant intercompany balances and transactions have been eliminated. The Company also owns 100% of First Midwest Financial Capital Trust I (the “Trust”), which was formed in July 2001 for the purpose of issuing trust preferred securities, and Crestmark Capital Trust I, which was acquired from the Crestmark Acquisition in August 2018. The Trust and Crestmark Capital Trust I are not included in the Consolidated Financial Statements of the Company. In addition, the Company is a variable interest holder in certain entities in which the equity holders do not have the characteristics of a controlling financial interest or where the entity does not have enough equity at risk to finance its activities without additional subordinated financial support (referred to as variable interest entities or "VIEs"). The Company's variable interest arises from contractual ownership or other monetary interests that change with fluctuations in the VIE's net asset value. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impacts the VIE's economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. Further, the Company assesses whether or not the Company is the primary beneficiary of a VIE on an ongoing basis. If the determination is made that the Company is the primary beneficiary, then that entity is included in the Consolidated Financial Statements. Noncontrolling interests represent the portion of net income and equity attributable to third-party owners of consolidated subsidiaries that are not wholly-owned by Pathward Financial. All of the Company's noncontrolling interests relate to the Company's Commercial Finance business line. 9 Table of Contents Variable Interest Entities In the normal course of business, the Company enters into off-balance sheet transactions with special purpose entities ("SPEs"), which can be structured as corporations, trusts, limited liability companies, or partnerships and are established for a limited purpose. Currently, the Company utilizes a SPE facility for certain term lending products within the Company's Commercial Finance business line. The Company participated in the structuring of the SPE, has a minority ownership interest in the SPE, and acts as servicer for the SPE in exchange for a servicing fee. Pathward is not the primary beneficiary of the SPE as our risk of loss or right to benefits from the SPE are not significant. As of June 30, 2023, there are $ 9.9 million of commercial term loans held at the SPE, and the Company’s equity investment in the SPE is $ 0.9 million. The Company’s maximum exposure to loss from the SPE is limited to its equity investment. As of June 30, 2023, there are $ 3.0 million of commercial term loans classified as held for sale related to this VIE. Additional information on loans transferred during the period is included in Note 5. Loans and Leases, Net. Loan Servicing and Transfers of Financial Assets Transfers of loans, portions of loans meeting the definition of a participating interest, and other financial assets are accounted for as sales on the transaction settlement date when control has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been legally isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of such right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through a repurchase agreement or other means. Upon sale, the loans or other financial assets are derecognized from the Company’s Consolidated Statements of Financial Condition. If the transfer does not satisfy the aforementioned control criteria, the transaction is recorded as a secured borrowing with the loans or other financial assets remaining on the Company’s Consolidated Statements of Financial Condition and proceeds recognized as a liability. The Company sells loan participations, generally without recourse, in both the commercial and consumer segments. The Company also sells commercial Small Business Administration ("SBA") and United States Department of Agriculture ("USDA") loans to third parties, generally without recourse. The Bank generally retains the right to service the sold loans for a fee. If the fee is determined commensurate and customary with market terms, no servicing asset or liability is recorded. Any fee that is above or below market terms results in a servicing asset or liability and is included within Other Assets on the Consolidated Statements of Financial Condition. 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. 10 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 June 30, 2023 Corporate securities $ 25,000 $ — $ ( 6,250 ) $ 18,750 SBA securities 98,342 — ( 7,737 ) 90,605 Obligations of states and political subdivisions 2,384 — ( 73 ) 2,311 Non-bank qualified obligations of states and political subdivisions 272,818 — ( 34,443 ) 238,375 Asset-backed securities 265,794 — ( 11,228 ) 254,566 Mortgage-backed securities 1,526,300 — ( 216,636 ) 1,309,664 Total debt securities AFS $ 2,190,638 $ — $ ( 276,367 ) $ 1,914,271 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 June 30, 2023 Non-bank qualified obligations of states and political subdivisions $ 35,450 $ — $ ( 3,822 ) $ 31,628 Mortgage-backed securities 2,275 — ( 233 ) 2,042 Total debt securities HTM $ 37,725 $ — $ ( 4,055 ) $ 33,670 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 11 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, 2023 Corporate securities $ — $ — $ 18,750 $ ( 6,250 ) $ 18,750 $ ( 6,250 ) SBA securities 39,964 ( 2,048 ) 50,641 ( 5,689 ) 90,605 ( 7,737 ) Obligations of state and political subdivisions — — 2,311 ( 73 ) 2,311 ( 73 ) Non-bank qualified obligations of states and political subdivisions 38,703 ( 2,128 ) 198,715 ( 32,315 ) 237,418 ( 34,443 ) Asset-backed securities 98,655 ( 1,170 ) 155,911 ( 10,058 ) 254,566 ( 11,228 ) Mortgage-backed securities 284,959 ( 16,159 ) 1,021,679 ( 200,477 ) 1,306,638 ( 216,636 ) Total debt securities AFS $ 462,281 $ ( 21,505 ) $ 1,448,007 $ ( 254,862 ) $ 1,910,288 $ ( 276,367 ) 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 June 30, 2023 Non-bank qualified obligations of states and political subdivisions $ — $ — $ 31,628 $ ( 3,822 ) $ 31,628 $ ( 3,822 ) Mortgage-backed securities — — 2,042 ( 233 ) 2,042 ( 233 ) Total debt securities HTM $ — $ — $ 33,670 $ ( 4,055 ) $ 33,670 $ ( 4,055 ) 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 June 30, 2023, there were 203 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at June 30, 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 adverse market conditions and/or changes in 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, 2023, there was no allowance for credit losses ("ACL") for debt securities AFS. 12 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 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 June 30, 2023 At September 30, 2022 Securities AFS at Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 4,784 $ 4,728 $ 718 $ 715 Due after one year through five years 4,814 4,400 9,921 9,395 Due after five years through ten years 86,500 75,126 89,921 81,819 Due after ten years 568,240 520,353 483,707 441,943 664,338 604,607 584,267 533,872 Mortgage-backed securities 1,526,300 1,309,664 1,581,452 1,348,997 Total securities AFS, at fair value $ 2,190,638 $ 1,914,271 $ 2,165,719 $ 1,882,869 Securities HTM at Fair Value Due after ten years $ 35,450 $ 31,628 $ 39,093 $ 35,903 35,450 31,628 39,093 35,903 Mortgage-backed securities 2,275 2,042 2,589 2,268 Total securities HTM, at cost $ 37,725 $ 33,670 $ 41,682 $ 38,171 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 June 30, 2023 and September 30, 2022. These equity securities are 'restricted' in that they can only be owned by member banks. 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 $ 11.2 million and $ 9.1 million at June 30, 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 Securities. The Company held $ 3.5 million at June 30, 2023 and $ 2.9 million at September 30, 2022 in marketable equity securities. The Company recognized $ 0.2 million and $ 3.8 million in unrealized losses on marketable equity securities during the nine months ended June 30, 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 nine months ended June 30, 2023 and 2022. No such securities were sold during the nine months ended June 30, 2023. 13 Table of Contents Non-marketable equity securities with a readily determinable fair value totaled $ 8.5 million at June 30, 2023 and $ 7.2 million at September 30, 2022. The Company recognized $ 0.1 million in unrealized losses and $ 0.6 million in unrealized gains during the nine months ended June 30, 2023 and 2022, respectively. No such securities were sold during the nine months ended June 30, 2023. Non-marketable equity securities without readily determinable fair value totaled $ 15.8 million at June 30, 2023 and $ 18.2 million at September 30, 2022. There were two such securities were sold during the nine months ended June 30, 2023 . Equity Securities 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 $ 3.2 million and no impairment for such investments for the nine months ended June 30, 2023 and 2022, respectively. NOTE 5. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in thousands) June 30, 2023 September 30, 2022 Term lending $ 1,253,841 $ 1,090,289 Asset based lending 373,160 351,696 Factoring 351,133 372,595 Lease financing 201,996 210,692 Insurance premium finance 666,265 479,754 SBA/USDA 422,389 359,238 Other commercial finance 171,954 159,409 Commercial finance 3,440,738 3,023,673 Consumer credit products 175,158 144,353 Other consumer finance 24,963 25,306 Consumer finance 200,121 169,659 Tax services 47,194 9,098 Warehouse finance 380,458 326,850 Total loans and leases 4,068,511 3,529,280 Net deferred loan origination costs 4,388 7,025 Total gross loans and leases 4,072,899 3,536,305 Allowance for credit losses ( 81,916 ) ( 45,947 ) Total loans and leases, net $ 3,990,983 $ 3,490,358 During the nine months ended June 30, 2023 and 2022, the Company originated $ 941.5 million and $ 769.7 million of consumer finance and SBA/USDA as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 870.1 million and gain on sale of $ 0.2 million during the nine months ended June 30, 2023. 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. 14 Table of Contents 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) 2023 2022 2023 2022 Loans Purchased Loans held for investment: Commercial finance $ — $ — $ — $ 3,098 Warehouse finance 9,715 19,657 197,549 105,472 Total purchases $ 9,715 $ 19,657 $ 197,549 $ 108,570 Loans Sold Loans held for sale: Commercial finance $ 11,114 $ 1,216 $ 12,263 $ 48,329 Consumer finance 254,655 173,284 857,869 696,891 Community banking — — — 153,222 Loans held for investment: Commercial finance — — — 15,549 Community banking — — — 30,235 Total sales $ 265,769 $ 174,500 $ 870,132 $ 944,226 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in thousands) June 30, 2023 September 30, 2022 Carrying amount $ 212,275 $ 216,880 Unguaranteed residual assets 13,152 13,037 Unamortized initial direct costs 160 295 Unearned income ( 23,431 ) ( 19,225 ) Total net investment in direct financing and sales-type leases $ 202,156 $ 210,987 Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at June 30, 2023 were as follows: (Dollars in thousands) Remaining in 2023 $ 23,963 2024 76,232 2025 46,603 2026 24,781 2027 15,865 Thereafter 24,831 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 212,275 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type leases $ 212,275 The Company did not record any contingent rental income from direct financing and sales-type leases in the nine months ended June 30, 2023. 15 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 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. 16 Table of Contents Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows: Three Months Ended June 30, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 28,415 $ 250 $ ( 2,852 ) $ 825 $ 26,638 Asset based lending 1,081 68 — 154 1,303 Factoring 5,588 493 ( 140 ) 1 5,942 Lease financing 4,549 ( 355 ) ( 302 ) ( 26 ) 3,866 Insurance premium finance 1,263 1,094 ( 443 ) 158 2,072 SBA/USDA 2,640 24 — — 2,664 Other commercial finance 4,332 ( 253 ) — — 4,079 Commercial finance 47,868 1,321 ( 3,737 ) 1,112 46,564 Consumer credit products 1,219 522 — — 1,741 Other consumer finance 1,746 216 ( 1,860 ) — 102 Consumer finance 2,965 738 ( 1,860 ) — 1,843 Tax services 33,094 ( 229 ) ( 404 ) 671 33,132 Warehouse finance 377 — — — 377 Total loans and leases 84,304 1,830 ( 6,001 ) 1,783 81,916 Unfunded commitments (1) 356 ( 57 ) — — 299 Total $ 84,660 $ 1,773 $ ( 6,001 ) $ 1,783 $ 82,215 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 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. 17 Table of Contents Nine Months Ended June 30, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 24,621 $ 7,895 $ ( 7,374 ) $ 1,496 $ 26,638 Asset based lending 1,050 2,972 ( 2,873 ) 154 1,303 Factoring 6,556 ( 311 ) ( 323 ) 20 5,942 Lease financing 5,902 ( 976 ) ( 1,315 ) 255 3,866 Insurance premium finance 1,450 1,202 ( 852 ) 272 2,072 SBA/USDA 3,263 ( 625 ) — 26 2,664 Other commercial finance 1,310 2,769 — — 4,079 Commercial finance 44,152 12,926 ( 12,737 ) 2,223 46,564 Consumer credit products 1,400 341 — — 1,741 Other consumer finance 63 2,232 ( 2,193 ) — 102 Consumer finance 1,463 2,573 ( 2,193 ) — 1,843 Tax services 5 32,830 ( 2,135 ) 2,432 33,132 Warehouse finance 327 50 — — 377 Total loans and leases 45,947 48,379 ( 17,065 ) 4,655 81,916 Unfunded commitments (1) 366 ( 67 ) — — 299 Total $ 46,312 $ 48,312 $ ( 17,065 ) $ 4,655 $ 82,215 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 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 Condensed Consolidated Statements of Financial Condition. 18 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 June 30, 2023 At September 30, 2022 Term lending $ 4,767 $ 2,885 Asset based lending 14,414 — Factoring — 550 Lease financing 591 2,787 SBA/USDA 750 1,199 Commercial finance (1) 20,522 7,421 Total $ 20,522 $ 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 $ 68.2 million and $ 120.7 million at June 30, 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 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. 19 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 its evaluation of the appropriateness of the ACL 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 $ 200.1 million and $ 47.2 million at June 30, 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 June 30, 2023 2023 2022 2021 2020 2019 Prior Term lending Pass $ 313,587 $ 201,918 $ 119,763 $ 82,834 $ 18,380 $ 203,059 $ — $ 939,541 Watch 47,005 50,336 61,125 11,832 6,964 14,399 — 191,661 Special mention 1,174 12,080 11,369 1,383 1,106 1,753 — 28,865 Substandard 2,715 34,238 19,320 25,326 4,485 2,135 — 88,219 Doubtful 103 1,934 1,110 931 235 1,242 — 5,555 Total 364,584 300,506 212,687 122,306 31,170 222,588 — 1,253,841 Asset based lending Pass — — — — — — 163,401 163,401 Watch — — — — — — 163,215 163,215 Special mention — — — — — — 23,264 23,264 Substandard — — — — — — 15,748 15,748 Doubtful — — — — — — 7,532 7,532 Total — — — — — — 373,160 373,160 Factoring Pass — — — — — — 257,636 257,636 Watch — — — — — — 71,351 71,351 Special mention — — — — — — 11,875 11,875 Substandard — — — — — — 10,271 10,271 Total — — — — — — 351,133 351,133 Lease financing Pass 8,249 18,748 21,365 34,127 2,091 50,807 — 135,387 Watch 190 10,301 11,617 3,370 2,222 477 — 28,177 Special mention — — 1,374 602 281 — — 2,257 Substandard — 8,185 8,168 3,960 6,269 9,278 — 35,860 Doubtful — — 81 100 — 134 — 315 Total 8,439 37,234 42,605 42,159 10,863 60,696 — 201,996 Insurance premium finance Pass 655,755 8,822 9 — — — — 664,586 Watch 374 239 — — — — — 613 Special mention 115 74 — — — — — 189 Substandard 55 429 — — — — — 484 20 Table of Contents Doubtful 80 313 — — — — — 393 Total 656,379 9,877 9 — — — — 666,265 SBA/USDA Pass 91,797 198,975 28,116 45,070 9,288 18,745 — 391,991 Watch — — 326 53 358 2,391 — 3,128 Special mention — — — — — — — — Substandard 252 1,680 1,156 7,185 8,303 8,694 — 27,270 Total 92,049 200,655 29,598 52,308 17,949 29,830 — 422,389 Other commercial finance Pass 3,425 18,899 32,908 1,094 10,212 73,785 — 140,323 Watch 1,740 — — — — — — 1,740 Special mention — — 18,000 — — — — 18,000 Substandard 2,789 464 8,379 — — 259 — 11,891 Total 7,954 19,363 59,287 1,094 10,212 74,044 — 171,954 Warehouse finance Pass — — — — — — 380,458 380,458 Total — — — — — — 380,458 380,458 Total loans and leases Pass 1,072,813 447,362 202,161 163,125 39,971 346,396 801,495 3,073,323 Watch 49,309 60,876 73,068 15,255 9,544 17,267 234,566 459,885 Special mention 1,289 12,154 30,743 1,985 1,387 1,753 35,139 84,450 Substandard 5,811 44,996 37,023 36,471 19,057 20,366 26,019 189,743 Doubtful 183 2,247 1,191 1,031 235 1,376 7,532 13,795 Total $ 1,129,405 $ 567,635 $ 344,186 $ 217,867 $ 70,194 $ 387,158 $ 1,104,751 $ 3,821,196 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 21 Table of Contents Insurance premium finance 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 June 30, 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 $ 10 $ — $ — $ 10 $ 87,341 $ 87,351 $ — $ — $ — Term lending 30,464 3,423 8,074 41,961 1,211,880 1,253,841 1,862 13,207 15,069 Asset based lending — — 218 218 372,942 373,160 218 14,407 14,625 Factoring — — — — 351,133 351,133 — 364 364 Lease financing 2,945 729 1,940 5,614 196,382 201,996 1,627 1,494 3,121 Insurance premium finance 1,884 874 2,394 5,152 661,113 666,265 2,394 — 2,394 SBA/USDA 51 908 1,002 1,961 420,428 422,389 349 698 1,047 Other commercial finance — — 92 92 171,862 171,954 92 — 92 Commercial finance 35,344 5,934 13,720 54,998 3,385,740 3,440,738 6,542 30,170 36,712 Consumer credit products 2,512 2,030 2,058 6,600 168,558 175,158 2,058 — 2,058 Other consumer finance 26 20 29 75 24,888 24,963 29 — 29 Consumer finance 2,538 2,050 2,087 6,675 193,446 200,121 2,087 — 2,087 Tax services — 47,194 — 47,194 — 47,194 — — — Warehouse finance — — — — 380,458 380,458 — — — Total loans and leases held for investment 37,882 55,178 15,807 108,867 3,959,644 4,068,511 8,629 30,170 38,799 Total loans and leases $ 37,892 $ 55,178 $ 15,807 $ 108,877 $ 4,046,985 $ 4,155,862 $ 8,629 $ 30,170 $ 38,799 22 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 June 30, 2023 2023 2022 2021 2020 2019 Prior Term lending $ 103 $ 3,819 $ 2,245 $ 2,017 $ 3,380 $ 1,643 $ — $ 13,207 $ — Asset based lending — — — — — — 14,407 14,407 14,407 Factoring — — — — — — 364 364 — Lease financing — 269 596 — — 629 — 1,494 591 SBA/USDA — 401 12 32 — 253 — 698 401 Commercial finance 103 4,489 2,853 2,049 3,380 2,525 14,771 30,170 15,399 Total nonaccrual loans and leases $ 103 $ 4,489 $ 2,853 $ 2,049 $ 3,380 $ 2,525 $ 14,771 $ 30,170 $ 15,399 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 23 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 June 30, 2023 2023 2022 2021 2020 2019 Prior Term lending $ 128 $ 917 $ 658 $ 107 $ 52 $ — $ — $ 1,862 Asset based lending — — — — — — 218 218 Lease financing — 479 969 152 20 7 — 1,627 Insurance premium finance 1,149 1,241 4 — — — — 2,394 SBA/USDA — 349 — — — — — 349 Other commercial finance — — — — — 92 — 92 Commercial finance 1,277 2,986 1,631 259 72 99 218 6,542 Consumer credit products 335 1,239 415 50 19 — — 2,058 Other consumer finance — — — — — — 29 29 Consumer finance 335 1,239 415 50 19 — 29 2,087 Total 90 days or more delinquent and accruing $ 1,612 $ 4,225 $ 2,046 $ 309 $ 91 $ 99 $ 247 $ 8,629 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 June 30, Nine Months Ended June 30, (Dollars in thousands) 2023 2022 2023 2022 Term lending $ 12,637 $ 11,114 $ 10,397 $ 11,908 Asset based lending 15,792 3,500 8,452 4,502 Factoring 545 1,903 592 7,980 Lease financing 2,675 3,529 3,308 3,194 SBA/USDA 1,261 1,776 1,353 1,152 Commercial finance 32,910 21,822 24,102 28,736 Total loans and leases $ 32,910 $ 21,822 $ 24,102 $ 28,736 The recognized interest income on the Company's nonaccrual loans and leases for the three and nine months ended June 30, 2023 and 2022 was not significant. 24 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 June 30, 2023. 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. During the nine months ended June 30, 2023, there were no loans that were modified in a TDR. There were $ 10.4 million of commercial finance loans and $ 0.7 million of consumer finance loans that were modified in a TDR during the nine months ended June 30, 2022, all of which were modified to extend the term of the loan. During the three months ended June 30, 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 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 with the previous 12 months and for which there was a payment default. During the nine months ended June 30, 2023, the Company had $ 0.4 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 nine months ended June 30, 2022, the Company had $ 3.9 million of commercial finance loans and $ 1.1 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 nine months ended June 30, 2023 and June 30, 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. 25 Table of Contents A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below. Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands, except per share data) 2023 2022 2023 2022 Basic income per common share: Net income attributable to Pathward Financial, Inc. $ 45,096 $ 22,391 $ 127,709 $ 132,966 Dividends and undistributed earnings allocated to participating securities ( 690 ) ( 377 ) ( 1,920 ) ( 2,166 ) Basic net earnings available to common stockholders 44,406 22,014 125,789 130,800 Undistributed earnings allocated to nonvested restricted stockholders 670 352 1,858 2,093 Reallocation of undistributed earnings to nonvested restricted stockholders ( 667 ) ( 352 ) ( 1,852 ) ( 2,092 ) Diluted net earnings available to common stockholders $ 44,409 $ 22,014 $ 125,795 $ 130,801 Total weighted-average basic common shares outstanding 26,346,693 28,868,136 27,152,773 29,444,979 Effect of dilutive securities (1) Performance share units 100,339 — 86,028 9,607 Total effect of dilutive securities 100,339 — 86,028 9,607 Total weighted-average diluted common shares outstanding 26,447,032 28,868,136 27,238,801 29,454,586 Net earnings per common share: Basic earnings per common share $ 1.69 $ 0.76 $ 4.63 $ 4.44 Diluted earnings per common share (2) $ 1.68 $ 0.76 $ 4.62 $ 4.44 (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, 2023 and 2022, respectively, were 409,666 and 493,800 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, 2023 and 2022, respectively, were 414,539 and 487,538 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) June 30, 2023 September 30, 2022 Computers and IT networking equipment $ 25,681 $ 21,669 Motor vehicles and other 123,374 107,648 Other furniture and equipment 49,214 34,254 Solar panels and equipment 137,809 133,765 Total 336,078 297,336 Accumulated depreciation ( 113,122 ) ( 94,355 ) Unamortized initial direct costs 1,256 1,390 Net book value $ 224,212 $ 204,371 26 Table of Contents Future minimum lease payments expected to be received for operating leases at June 30, 2023 were as follows: (Dollars in thousands) Remaining in 2023 $ 11,844 2024 40,640 2025 33,086 2026 23,247 2027 15,506 Thereafter 17,484 Total $ 141,807 NOTE 8. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at June 30, 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 nine months ended June 30, 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 ( 868 ) — ( 2,595 ) ( 398 ) ( 3,861 ) At June 30, 2023 $ 7,737 $ — $ 9,800 $ 4,293 $ 21,830 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133 Accumulated amortization ( 6,887 ) ( 2,481 ) ( 61,370 ) ( 5,429 ) ( 76,167 ) Accumulated impairment — — ( 10,918 ) ( 218 ) ( 11,136 ) At June 30, 2023 $ 7,737 $ — $ 9,800 $ 4,293 $ 21,830 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 (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. 27 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 three months of fiscal 2023 and subsequent fiscal years at June 30, 2023 was as follows: (Dollars in thousands) Remaining in 2023 $ 1,082 2024 4,123 2025 3,561 2026 3,215 2027 2,569 Thereafter 7,280 Total anticipated intangible amortization $ 21,830 There were no impairments to intangible assets during the nine months ended June 30, 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 right-of-use ("ROU") assets, included in other assets , were $ 27.7 million and $ 31.0 million at June 30, 2023 and 2022, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 29.6 million and $ 32.9 million at June 30, 2023 and 2022, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at June 30, 2023 were as follows: (Dollars in thousands) Remaining in 2023 $ 1,091 2024 3,913 2025 3,718 2026 3,195 2027 3,092 Thereafter 18,639 Total undiscounted future minimum lease payments 33,648 Discount ( 4,003 ) Total operating lease liabilities $ 29,645 The weighted-average discount rate and remaining lease term for operating leases at June 30, 2023 were as follows: Weighted-average discount rate 2.37 % Weighted-average remaining lease term (years) 9.82 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) 2023 2022 2023 2022 Lease expense $ 978 $ 1,119 $ 2,974 $ 3,375 Short-term and variable lease cost 22 58 106 133 ROU asset impairment — 670 — 670 Sublease income ( 368 ) ( 375 ) ( 1,040 ) ( 906 ) Total lease cost for operating leases $ 632 $ 1,472 $ 2,040 $ 3,272 28 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 nine months ended June 30, 2023 and 2022, the Company repurchased 2,316,814 and 2,447,699 shares, respectively, as part of the share repurchase program. Under the repurchase program, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of June 30, 2023, 1,978,163 shares of common stock remained available for repurchase. For the nine months ended June 30, 2023 and 2022, the Company also repurchased 59,626 and 67,158 shares, or $ 2.1 million and $ 3.8 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 nine months ended June 30, 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. No new awards are made under the 2002 Omnibus Incentive Plan following November 25, 2022, the date that the 2002 Omnibus Incentive Plan expired by its terms. 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, 2023. There were no options granted, exercised, or forfeited under this plan during the nine months ended June 30, 2023. 29 Table of Contents 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 ( 33,293 ) 48.90 Nonvested shares outstanding, June 30, 2023 392,496 $ 36.42 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, June 30, 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 June 30, 2023, stock-based compensation expense not yet recognized in income totaled $ 8.2 million, which is expected to be recognized over a weighted average remaining period of 1.45 years. NOTE 12. INCOME TAXES The Company recorded an income tax expense of $ 19.0 million for the nine months ended June 30, 2023, resulting in an effective tax rate of 12.80 %, compared to an income tax expense of $ 29.2 million, or an effective tax rate of 17.77 %, for the nine months ended June 30, 2022. The Company’s effective tax rate was lower than the U.S. statutory rate of 21% primarily because of the 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. Nine Months Ended June 30, (Dollars in thousands) 2023 2022 Provision at statutory rate $ 30,808 $ 34,063 Tax-exempt income ( 600 ) ( 541 ) State income taxes 6,109 6,728 Interim period effective rate adjustment ( 3,065 ) ( 2,849 ) Tax credit investments, net - federal ( 13,669 ) ( 6,994 ) Research tax credit ( 805 ) ( 355 ) IRC 162(m) nondeductible compensation 928 801 Other, net ( 710 ) ( 1,617 ) Income tax expense $ 18,996 $ 29,236 Effective tax rate 12.80 % 17.77 % 30 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 June 30, 2023 2022 2023 2022 2023 2022 2023 2022 Net interest income (1) $ 40,683 $ 23,213 $ 53,067 $ 46,802 $ 3,715 $ 2,136 $ 97,465 $ 72,151 Noninterest income: Refund transfer product fees 8,262 10,289 — — — — 8,262 10,289 Refund advance fee income (1) ( 927 ) ( 20 ) — — — — ( 927 ) ( 20 ) Card and deposit fees 39,450 24,673 253 252 5 10 39,708 24,935 Rental income (1) — — 13,756 11,890 224 192 13,980 12,082 Gain on sale of securities (1) — — — — 9 198 9 198 Gain on sale of other (1) — — 812 1,239 — — 812 1,239 Other income (1) 1,929 1,284 1,888 2,479 2,072 1,508 5,889 5,271 Total noninterest income 48,714 36,226 16,709 15,860 2,310 1,908 67,733 53,994 Revenue $ 89,397 $ 59,439 $ 69,776 $ 62,662 $ 6,025 $ 4,044 $ 165,198 $ 126,145 Nine Months Ended June 30, Net interest income (1) $ 116,373 $ 79,323 $ 142,149 $ 136,923 $ 24,405 $ 11,318 $ 282,927 $ 227,564 Noninterest income: Refund transfer product fees 39,144 38,674 — — — — 39,144 38,674 Refund advance fee income (1) 37,685 40,513 — — — — 37,685 40,513 Card and deposit fees 118,730 76,075 766 728 17 22 119,513 76,825 Rental income (1) — — 39,008 34,192 620 342 39,628 34,534 Gain on sale of securities (1) — — — — 91 595 91 595 Gain on sale of trademarks — — — — 10,000 50,000 10,000 50,000 Gain (loss) on sale of other (1) — — 566 7,331 — ( 8,932 ) 566 ( 1,601 ) Other income (1) 4,470 3,434 4,907 8,103 4,544 ( 726 ) 13,921 10,811 Total noninterest income 200,029 158,696 45,247 50,354 15,272 41,301 260,548 250,351 Revenue $ 316,402 $ 238,019 $ 187,396 $ 187,277 $ 39,677 $ 52,619 $ 543,475 $ 477,915 (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 for the nine months ended June 30, 2023. 31 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 are 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 at the 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 Federal Deposit Insurance Corporation ("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. 32 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, 2023 2022 2023 2022 2023 2022 2023 2022 Net interest income $ 40,683 $ 23,213 $ 53,067 $ 46,802 $ 3,715 $ 2,136 $ 97,465 $ 72,151 Provision for (reversal of) credit losses 508 ( 279 ) 1,265 ( 752 ) — ( 271 ) 1,773 ( 1,302 ) Noninterest income 48,714 36,226 16,709 15,860 2,310 1,908 67,733 53,994 Noninterest expense 39,666 23,960 33,594 31,336 41,318 41,354 114,578 96,650 Income (loss) before income tax expense 49,223 35,758 34,917 32,078 ( 35,293 ) ( 37,039 ) 48,847 30,797 Total assets 455,540 373,019 3,914,924 3,457,004 3,088,161 2,898,155 7,458,625 6,728,178 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 6,130,524 5,573,768 7,550 11,177 168,902 125,854 6,306,976 5,710,799 Nine Months Ended June 30, Net interest income $ 116,373 $ 79,323 $ 142,149 $ 136,923 $ 24,405 $ 11,318 $ 282,927 $ 227,564 Provision for (reversal of) credit losses 35,402 30,667 12,860 13,045 50 ( 12,526 ) 48,312 31,186 Noninterest income 200,029 158,696 45,247 50,354 15,272 41,301 260,548 250,351 Noninterest expense 124,070 73,509 105,189 95,845 117,514 112,892 346,773 282,246 Income (loss) before income tax expense 156,930 133,843 69,347 78,387 ( 77,887 ) ( 47,747 ) 148,390 164,483 Total assets 455,540 373,019 3,914,924 3,457,004 3,088,161 2,898,155 7,458,625 6,728,178 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 6,130,524 5,573,768 7,550 11,177 168,902 125,854 6,306,976 5,710,799 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. 33 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 June 30, 2023 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 18,750 $ — $ 18,750 $ — SBA securities 90,605 — 90,605 — Obligations of states and political subdivisions 2,311 — 2,311 — Non-bank qualified obligations of states and political subdivisions 238,375 — 238,375 — Asset-backed securities 254,566 — 254,566 — Mortgage-backed securities 1,309,664 — 1,309,664 — Total debt securities AFS $ 1,914,271 $ — $ 1,914,271 $ — Common equities and mutual funds (1) $ 3,527 $ 3,527 $ — $ — Non-marketable equity securities (2) $ 8,469 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 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 3 % to 18 %. 34 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 June 30, 2023 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 4,113 $ — $ — $ 4,113 Total loans and leases, net individually evaluated for credit loss 4,113 — — 4,113 Total $ 4,113 $ — $ — $ 4,113 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 June 30, 2023 Fair Value at September 30, 2022 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 4,113 $ 1,575 Market approach Appraised values (1) 3 % - 18 % (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 3 % to 18 %. 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, 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. 35 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, 2023 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 515,271 $ 515,271 $ 515,271 $ — $ — Debt securities available for sale 1,914,271 1,914,271 — 1,914,271 — Debt securities held to maturity 37,725 33,670 — 33,670 — Common equities and mutual funds (1) 3,527 3,527 3,527 — — Non-marketable equity securities (1)(2) 20,533 20,533 — 12,064 — Loans held for sale 87,351 87,351 — 87,351 — Loans and leases 4,068,511 4,006,176 — — 4,006,176 Federal Reserve Bank and Federal Home Loan Bank stocks 30,890 30,890 — 30,890 — Accrued interest receivable 22,332 22,332 22,332 — — Financial liabilities Deposits 6,306,976 6,306,818 6,301,147 5,671 — Overnight federal funds purchased 230,000 230,000 230,000 — — Other short- and long-term borrowings 34,178 31,853 — 31,853 — Accrued interest payable 802 802 802 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 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 June 30, 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 June 30, 2023. 36 Table of Contents