PATHWARD FINANCIAL, INC. 10-K

Item 8. Financial Statements and Supplementary Data. Table of Contents Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Statements of Financial Condition Statements of Operations Statements of Comprehensive Income Statements of Changes in Stockholders’ Equity Statements of Cash Flows Notes to Consolidated Financial Statements 74 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and the Board of Directors of Pathward Financial, Inc. Sioux Falls, South Dakota Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of Pathward Financial, Inc. and Subsidiaries (the "Company") as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated November 21, 2023 expressed an unqualified opinion. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective October 1, 2020 due to the adoption of Financial Accounting Standards Board’s Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 75 Table of Contents Allowance for Credit Losses (ACL) – Qualitative Adjustments As described in Notes 1 and 4 to the financial statements, the Company adopted ASC 326 as of October 1, 2020, which, among other things, required the Company to recognize expected credit losses over the contractual lives of financial assets carried at amortized cost, including loans receivable, utilizing the Current Expected Credit Losses (“CECL”) methodology. Estimates of expected credit losses are based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts. For most of its loan segments, the Company utilized a cohort model which computes the historical life-of-loan loss rate for each identified loan segment (also referred to as the “quantitative loss rates”). The quantitative loss rates are then adjusted, as deemed necessary, based on current economic forecasts over a twelve to twenty-four month reasonable and supportable forecast period as well as for measurement date credit characteristics including problem loan and delinquency trends, portfolio growth and other factors (also referred to as the “qualitative adjustments”). We have identified auditing the qualitative adjustments as a critical audit matter as management’s determination of the qualitative adjustments used in the ACL is subjective and involves significant management judgments; and our audit procedures related to the qualitative adjustments involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel. The primary procedures we performed to address this critical audit matter included: • Testing the effectiveness of controls over the qualitative adjustments used in the ACL calculation including controls addressing: ◦ Testing the design and operating effectiveness of controls pertaining to the key assumptions and judgments applied in the development of the qualitative adjustments. ◦ Testing the design and operating effectiveness of the controls around the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation. • Substantively testing management’s determination of the qualitative adjustments used in the ACL estimate, including evaluating their judgements and assumptions, including: ◦ Testing management’s process for developing the qualitative adjustments and assessing the reasonableness, relevance and reliability of data used to develop the adjustments, including evaluating their judgments and assumptions for reasonableness. Among other procedures, our evaluation considered evidence from internal and external sources, loan portfolio performance and whether such assumptions were applied consistently from period to period. ◦ Analytically evaluating the qualitative adjustments for directional consistency. ◦ Testing the qualitative adjustments for reasonableness, including evaluating significant changes. ◦ Testing the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation. /s/ Crowe LLP We have served as the Company’s auditor since 2018. South Bend, Indiana November 21, 2023 76 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Financial Condition (Dollars in thousands, except per share data) ASSETS September 30, 2023 September 30, 2022 Cash and cash equivalents $ 375,580 $ 388,038 Securities available for sale, at fair value 1,804,228 1,882,869 Securities held to maturity, at amortized cost (fair value $ 31,425 and $ 38,171 , respectively) 36,591 41,682 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 28,210 28,812 Loans held for sale 77,779 21,071 Loans and leases 4,366,116 3,536,305 Allowance for credit losses ( 49,705 ) ( 45,947 ) Accrued interest receivable 23,282 17,979 Premises, furniture, and equipment, net 39,160 41,710 Rental equipment, net 211,750 204,371 Goodwill and intangible assets 330,225 335,196 Other assets 292,327 295,324 Total assets $ 7,535,543 $ 6,747,410 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits $ 6,589,182 $ 5,866,037 Short-term borrowings 13,000 — Long-term borrowings 33,873 36,028 Accrued expenses and other liabilities 248,863 200,205 Total liabilities 6,884,918 6,102,270 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at September 30, 2023 and 2022, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 26,225,563 and 28,878,177 shares issued, 26,183,583 and 28,788,124 shares outstanding at September 30, 2023 and 2022, respectively 262 288 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at September 30, 2023 and 2022, respectively — — Additional paid-in capital 628,500 617,403 Retained earnings 278,655 245,394 Accumulated other comprehensive loss ( 255,443 ) ( 213,080 ) Treasury stock, at cost, 41,980 and 90,053 common shares at September 30, 2023 and 2022, respectively ( 344 ) ( 4,835 ) Total equity attributable to parent 651,630 645,170 Noncontrolling interest ( 1,005 ) ( 30 ) Total stockholders’ equity 650,625 645,140 Total liabilities and stockholders’ equity $ 7,535,543 $ 6,747,410 See Notes to Consolidated Financial Statements. 77 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal Year Ended September 30, (Dollars in thousands, except per share data) 2023 2022 2021 Interest and dividend income: Loans and leases, including fees $ 323,602 $ 268,078 $ 256,080 Mortgage-backed securities 41,197 26,846 12,155 Other investments 33,936 17,272 17,619 398,735 312,196 285,854 Interest expense: Deposits 4,356 500 1,593 FHLB advances and other borrowings 6,518 4,372 5,270 10,874 4,872 6,863 Net interest income 387,861 307,324 278,991 Provision for credit losses 57,354 28,538 49,766 Net interest income after provision for credit losses 330,507 278,786 229,225 Noninterest income: Refund transfer product fees 39,452 39,809 37,967 Refund advance fee income 37,433 40,557 47,639 Card and deposit fees 150,746 105,733 108,121 Rental income 54,190 46,558 39,416 Gain (loss) on sale of securities 91 ( 1,287 ) 6 Gain on sale of trademarks 10,000 50,000 — Gain (loss) on sale of other 2,572 ( 4,920 ) 11,515 Other income 22,115 17,357 26,240 Total noninterest income 316,599 293,807 270,904 Noninterest expense: Compensation and benefits 184,318 171,126 151,090 Refund transfer product expense 9,723 8,908 11,861 Refund advance expense 1,863 2,157 2,564 Card processing 105,498 38,785 27,201 Occupancy and equipment expense 34,691 34,909 29,269 Operating lease equipment depreciation 45,710 35,636 30,987 Legal and consulting 27,102 40,634 31,341 Intangible amortization 4,971 6,585 8,545 Impairment expense 3,273 670 2,818 Other expense 47,826 45,865 48,007 Total noninterest expense 464,975 385,275 343,683 Income before income tax expense 182,131 187,318 156,446 Income tax expense 16,324 27,964 10,701 Net income before noncontrolling interest 165,807 159,354 145,745 Net income attributable to noncontrolling interest 2,192 2,968 4,037 Net income attributable to parent $ 163,615 $ 156,386 $ 141,708 Earnings per common share: Basic $ 6.01 $ 5.26 $ 4.38 Diluted $ 5.99 $ 5.26 $ 4.38 See Notes to Consolidated Financial Statements. 78 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Net income before noncontrolling interest $ 165,807 $ 159,354 $ 145,745 Other comprehensive income (loss): Change in net unrealized (loss) on debt securities ( 56,164 ) ( 293,952 ) ( 13,896 ) Net (gain) loss realized on investment securities ( 91 ) 1,287 ( 6 ) ( 56,255 ) ( 292,665 ) ( 13,902 ) Unrealized gain (loss) on currency translation 331 ( 1,736 ) 476 Deferred income tax effect ( 13,561 ) ( 73,722 ) ( 3,483 ) Total other comprehensive (loss) ( 42,363 ) ( 220,679 ) ( 9,943 ) Total comprehensive income (loss) 123,444 ( 61,325 ) 135,802 Total comprehensive income attributable to noncontrolling interest 2,192 2,968 4,037 Comprehensive income (loss) attributable to parent $ 121,252 $ ( 64,293 ) $ 131,765 See Notes to Consolidated Financial Statements. 79 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Dollars in thousands, except per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Pathward Financial, Inc. Stockholders’ Equity Noncontrolling interest Total Stockholders’ Equity Balance, September 30, 2020 $ 344 $ 594,569 $ 234,927 $ 17,542 $ ( 3,677 ) $ 843,705 $ 3,603 $ 847,308 Adoption of Accounting Standards Update 2016-13, net of income taxes — — ( 8,351 ) — — ( 8,351 ) ( 2,452 ) ( 10,803 ) Cash dividends declared on common stock ($ 0.20 per share) — — ( 6,400 ) — — ( 6,400 ) — ( 6,400 ) Issuance of common stock due to ESOP 2 3,034 — — — 3,036 — 3,036 Repurchases of common stock ( 29 ) 29 ( 96,999 ) — ( 2,879 ) ( 99,878 ) — ( 99,878 ) Retirement of treasury stock — — ( 5,696 ) — 5,696 — — — Stock compensation — 6,852 — — — 6,852 — 6,852 Total other comprehensive loss — — — ( 9,943 ) — ( 9,943 ) — ( 9,943 ) Net income — — 141,708 — — 141,708 4,037 145,745 Net distribution to noncontrolling interests — — — — — — ( 4,033 ) ( 4,033 ) Balance, September 30, 2021 $ 317 $ 604,484 $ 259,189 $ 7,599 $ ( 860 ) $ 870,729 $ 1,155 $ 871,884 Balance, September 30, 2021 $ 317 $ 604,484 $ 259,189 $ 7,599 $ ( 860 ) $ 870,729 $ 1,155 $ 871,884 Cash dividends declared on common stock ($ 0.20 per share) — — ( 5,921 ) — — ( 5,921 ) — ( 5,921 ) Issuance of common stock due to ESOP 1 2,885 — — — 2,886 — 2,886 Repurchases of common stock ( 30 ) 30 ( 164,260 ) — ( 3,975 ) ( 168,235 ) — ( 168,235 ) Stock compensation — 10,004 — — — 10,004 — 10,004 Total other comprehensive loss — — — ( 220,679 ) — ( 220,679 ) — ( 220,679 ) Net income — — 156,386 — — 156,386 2,968 159,354 Net distribution to noncontrolling interests — — — — — — ( 4,153 ) ( 4,153 ) Balance, September 30, 2022 $ 288 $ 617,403 $ 245,394 $ ( 213,080 ) $ ( 4,835 ) $ 645,170 $ ( 30 ) $ 645,140 Balance, September 30, 2022 $ 288 $ 617,403 $ 245,394 $ ( 213,080 ) $ ( 4,835 ) $ 645,170 $ ( 30 ) $ 645,140 Cash dividends declared on common stock ($ 0.20 per share) — — ( 5,426 ) — — ( 5,426 ) — ( 5,426 ) Issuance of common stock due to restricted stock 1 — — — — 1 — 1 Repurchases of common stock ( 27 ) 27 ( 117,985 ) — ( 2,452 ) ( 120,437 ) — ( 120,437 ) Retirement of treasury stock — — ( 6,943 ) — 6,943 — — — Stock compensation — 11,070 — — — 11,070 — 11,070 Total other comprehensive loss — — — ( 42,363 ) — ( 42,363 ) — ( 42,363 ) Net income — — 163,615 — — 163,615 2,192 165,807 Net distribution to noncontrolling interests — — — — — — ( 3,167 ) ( 3,167 ) Balance, September 30, 2023 $ 262 $ 628,500 $ 278,655 $ ( 255,443 ) $ ( 344 ) $ 651,630 $ ( 1,005 ) $ 650,625 See Notes to Consolidated Financial Statements. 80 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Cash flows from operating activities: Net income before noncontrolling interest $ 165,807 $ 159,354 $ 145,745 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 64,955 61,601 59,047 Provision for credit losses 57,354 28,538 49,766 Provision for deferred taxes ( 175 ) 17,587 ( 1,639 ) Originations of loans held for sale ( 1,208,684 ) ( 985,330 ) ( 601,481 ) Proceeds from sales of loans held for sale 1,139,881 1,059,361 890,340 Net change in loans held for sale 25,922 12,819 588 Fair value adjustment of foreclosed real estate — 301 591 Net realized (gain) on securities available for sale — ( 154 ) ( 6 ) Net realized (gain) loss on loans held for sale ( 268 ) 3,694 ( 8,610 ) Net realized loss on premise, furniture, and equipment 65 55 — Net realized (gain) on lease receivables and equipment ( 1,741 ) ( 3,397 ) ( 2,257 ) Net realized (gain) on foreclosed real estate and repossessed assets — — ( 4 ) Net realized (gain) on trademarks ( 10,000 ) ( 50,000 ) — Net realized (gain) on other assets ( 91 ) 1,441 28 Change in bank-owned life insurance value ( 1,497 ) ( 2,434 ) ( 2,434 ) Impairment on rental equipment 24 — — Impairment of intangibles — 670 — Net change in accrued interest receivable ( 5,303 ) ( 1,725 ) 374 Net change in other assets 17,134 ( 32,936 ) 825 Net change in accrued expenses and other liabilities 48,658 ( 10,640 ) 43,920 Stock compensation 11,070 10,004 6,852 Net cash provided by operating activities 303,111 268,809 581,645 Cash flows from investing activities: Purchases of securities available for sale ( 156,885 ) ( 907,361 ) ( 1,041,768 ) Proceeds from sales of securities available for sale — 265,951 50,468 Proceeds from maturities of and principal collected on securities available for sale 177,296 324,234 371,898 Proceeds from maturities of and principal collected on securities held to maturity 4,835 14,281 34,268 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 330,144 ) ( 173,653 ) ( 1,296 ) Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 330,746 173,240 34 Purchases of loans and leases ( 215,266 ) ( 115,353 ) ( 311,332 ) Proceeds from sales of loans and leases — 123,241 13,850 Net change in loans and leases ( 307,473 ) 358,635 ( 196,356 ) Purchases of premises, furniture, and equipment ( 8,623 ) ( 8,177 ) ( 12,961 ) Proceeds from sales of premises, furniture, and equipment — 35 86 Purchases of rental equipment ( 441,047 ) ( 424,919 ) ( 50,437 ) Proceeds from sales of rental equipment 14,998 9,372 16,822 Net change in rental equipment ( 236 ) ( 5,772 ) ( 630 ) Proceeds from sales of foreclosed real estate and repossessed assets 1 1,824 8,952 Proceeds from death benefit of bank-owned life insurance 1,040 — — Proceeds from sale of trademarks 10,000 50,000 — Proceeds from sale of other assets — 3,550 — Net cash (used in) investing activities ( 920,758 ) ( 310,872 ) ( 1,118,402 ) Cash flows from financing activities: Net change in deposits 723,145 351,066 535,771 Net change in short-term borrowings 13,000 — — Redemption of long-term borrowings — ( 75,000 ) — Proceeds from long-term borrowings — 20,000 — Principal payments on capital lease obligations — ( 75 ) ( 32 ) 81 Table of Contents Principal payments on other liabilities ( 1,747 ) ( 2,751 ) ( 5,611 ) Proceeds from other liabilities — — 80 Payment of debt issuance costs ( 511 ) — — Dividends paid on common stock ( 5,426 ) ( 5,921 ) ( 6,400 ) Issuance of common stock due to restricted stock 1 1 — Issuance of common stock due to ESOP — 2,886 3,036 Repurchases of common stock ( 120,437 ) ( 168,235 ) ( 99,878 ) Distributions to noncontrolling interest ( 3,167 ) ( 4,153 ) ( 4,033 ) Net cash provided by financing activities 604,858 117,818 422,933 Effect of exchange rate changes on cash 331 ( 1,736 ) 476 Net change in cash and cash equivalents ( 12,458 ) 74,019 ( 113,348 ) Cash and cash equivalents at beginning of fiscal year 388,038 314,019 427,367 Cash and cash equivalents at end of fiscal period $ 375,580 $ 388,038 $ 314,019 Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 10,819 $ 5,259 $ 8,207 Income taxes 14,056 13,940 8,038 Franchise taxes 250 250 250 Other taxes 1,109 541 722 Supplemental schedule of non-cash investing activities: Transfers Held for sale to loans and leases $ 158 $ 115,934 $ 36,919 Loans and leases to held for sale 13,421 169,045 188,638 Loans and leases to rental equipment 3,122 3,893 28,604 Loans and leases to foreclosed real estate and repossessed assets — 49 9 Rental equipment to loan and leases 377,250 400,148 24,324 Rental equipment to foreclosed real estate and repossessed assets — — 1,650 Recognition of operating lease ROU assets, net of measurements — 117 12,954 Retirement of treasury stock 6,943 — — See Notes to Consolidated Financial Statements. 82 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. Variable Interest Entities As a result of the Crestmark Acquisition, the Company acquired existing membership interests of certain joint venture limited liability companies (the "LLCs"). The Company holds 80 % of the membership interests in each of the LLC entities, which offer commercial lending and other financing arrangements. In connection with these LLCs, the Company exclusively provides funding for each entity's activities. The Company determined it is the primary beneficiary of all LLCs as it has the managing power under the terms of each of the LLC operating agreements. Results of the LLCs are reflected in the Company's September 30, 2023 Consolidated Financial Statements and are summarized below. The assets recognized as a result of consolidating the LLCs are the property of the LLCs and are not available for any other purpose. (Dollars in thousands) At September 30, 2023 Cash and cash equivalents $ 174 Loans and leases 63,628 Allowance for credit losses ( 3,290 ) Accrued interest receivable 183 Foreclosed real estate and repossessed assets, net — Other assets 1,368 Total assets 62,063 Accrued expenses and other liabilities 533 Noncontrolling interest ( 1,005 ) Net assets less noncontrolling assets $ 62,535 83 Table of Contents Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interest in the following entities: • Capital Equipment Solutions, LLC (“CES”) - CES engages in the business of providing equipment financing term loans. • CM Help, LLC - CM Help provides flexible patient loan programs to hospitals and patient customers of hospitals as a financing alternative for the self-pay and co-pay portions of patients’ hospital expenses. • CM Southgate II, LLC - CM Southgate II engages in the business of acquiring fleet leases and semi-trailer/tractor loans and leases. • CM TFS, LLC - CM TFS engages in the business of acquiring equipment financing term loans and leases. 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 September 30, 2023, there are $ 13.7 million commercial term loans held at the SPE, and the Company’s equity investment in the SPE is $ 1.2 million. The Company’s maximum exposure to loss from the SPE is limited to its equity investment. As of September 30, 2023, there are no commercial term loans classified as held for sale related to this SPE. NATURE OF BUSINESS AND INDUSTRY SEGMENT INFORMATION One of the Company's primary sources of revenue relates to payment processing services for prepaid debit cards, ATM sponsorship, tax refund transfer and other money transfer systems and services. Additionally, a significant source of revenue for the Company is interest from the purchase or origination of commercial finance loans, consumer finance loans, and warehouse finance loans. The Company accepts deposits from customers in the normal course of business on a national basis through its Payments and tax services divisions, and through wholesale funding. The Company operates in the banking industry, which accounts for the majority of its revenues and assets. The Company uses the “management approach” for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the management approach model, the Company has determined that its business is comprised of three reporting segments. See Note 17. Segment Reporting for additional information on the Company's segment reporting. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain significant estimates include the valuation of residual values within lease receivables, allowance for credit losses, the valuation of goodwill and intangible assets and the fair values of securities and other financial instruments. These estimates are reviewed by management regularly; however, they are particularly susceptible to significant changes in the future. 84 Table of Contents CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents is defined to include the Company’s cash on hand and due from financial institutions and short-term interest-bearing deposits in other financial institutions. The Company reports cash flows net for customer loan transactions, securities purchased under agreement to resell, federal funds purchased, deposit transactions, securities sold under agreements to repurchase, and FHLB advances with terms less than 90 days. The FRB requires all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking accounts. In response to the COVID-19 pandemic, the FRB reduced reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses. At September 30, 2023, the Bank was not required to maintain any reserve balances. The Company at times maintains balances in excess of insured limits at various financial institutions including the FHLB, the FRB and other private institutions. At September 30, 2023, the Company had $ 1.9 million interest-bearing deposits held at the FHLB and $ 260.3 million in interest-bearing deposits held at the FRB. The Company does not believe these instruments carry a significant risk of loss but cannot provide assurances that no losses could occur if these institutions were to become insolvent. SECURITIES GAAP requires that, at acquisition, an enterprise classify debt securities into one of three categories: Available for Sale (“AFS”), Held to Maturity (“HTM”) or trading. AFS debt securities are carried at fair value on the Consolidated Statements of Financial Condition. Unrealized holding gains and losses due to risk of credit loss are recognized in earnings while unrealized holding gains and losses due to market conditions and other non-credit risk factors are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income (loss) (“AOCI”). See Note 20. Fair Values of Financial Instruments for additional information on fair value of AFS debt securities. HTM debt securities are measured at amortized cost. The Company classifies the majority of its debt securities as AFS, which are those the Company may decide to sell if needed for liquidity, asset/liability management, or other reasons. Both AFS and HTM are subject to an allowance for credit loss. Pathward Financial did not hold trading securities at September 30, 2023 or 2022. Gains and losses on the sale of securities are determined using the specific identification method based on amortized cost and are reflected in results of operations at the time of sale. Interest and dividend income, adjusted by amortization of purchase premium or discount using the level yield method, is included in income as earned. For callable debt securities, any purchase premium is amortized to the first call date while any discount is accreted over the contractual life of the security. Debt Securities Credit Losses The Company evaluates HTM debt securities for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Consolidated Statements of Operations. The Company has concluded that its portfolio as of September 30, 2023 has a zero risk of credit loss due to the U.S. Government financial guarantees underlying the securities within the HTM portfolio and as a result has not recorded an allowance for credit loss. The Company evaluates AFS debt securities for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Consolidated Statements of Operations. The Company has concluded that any unrealized holding losses in its portfolio as of September 30, 2023 are not related to credit loss and as a result has not recorded an allowance for credit loss. See Note 3. Securities for further information. Equity Investments The Company holds marketable equity securities, which have readily determinable fair value, and include common equity and mutual funds. These securities are recorded at fair value with unrealized gains and losses, due to changes in fair value, reflected in earnings. Interest and dividend income from these securities is recognized in interest income. See Note 3. Securities for additional information on marketable equity securities. 85 Table of Contents The Company also holds non-marketable equity investments that are included in Other Assets in the Company’s Consolidated Financial Statements. The Company generally accounts for these investments under the equity method or the provisions of Accounting Standards Codification ("ASC") 321. Equity Securities. Investments where the Company has significant influence, but not control, over the investee are accounted for under the equity method. Investments where the Company cannot exercise significant influence over the investee are measured at fair value, with changes in fair value recognized in earnings, unless those investments have no readily determinable fair value. Investments without readily determinable fair value are measured under the measurement alternative, which reflects cost less impairment, with adjustments in value resulting from observable price changes arising from orderly transactions of the same or a similar security from the same issuer ("measurement alternative investments"). The Company reviews for impairment for equity method and measurement alternative investments and includes an analysis of the facts and circumstances for each investment, expectations of cash flows, capital needs, and viability of its business model. For equity method, the asset carrying value is reduced when the decline in fair value is considered to be other than temporary. For measurement alternative investments, the asset carrying value is reduced when the fair value is less than the carrying value, without the consideration of recovery. The Company held the following non-marketable equity investments: • Equity Method - The Company held equity method investments of $ 4.1 million within other assets as of September 30, 2023 and $ 2.9 million at September 30, 2022. The Company’s ownership of such investments typically ranges from 5 % - 25 % of the investee. The Company recognized nominal net earnings from these investments within noninterest income for the fiscal year ended September 30, 2023. The Company elected to classify distributions received from equity method investments using the cumulative earnings approach on the Consolidated Statements of Cash Flows. • Fair Value Method - The Company held equity investments measured at net asset value (NAV) per share (or its equivalent) of $ 8.4 million at September 30, 2023 and $ 7.2 million at September 30, 2022 where NAV is considered the fair value practical expedient. These investments are recorded within other assets on the Company’s Consolidated Financial Statements. Fluctuations in fair value are recognized in earnings within noninterest Income. • Measurement Alternative - The Company held equity investments measured using the measurement alternative of $ 12.1 million as of September 30, 2023 and $ 15.3 million at September 30, 2022 within other assets on the Company’s Consolidated Financial Statements. Equity investments measured using the measurement alternative are subject to fair value adjustments when observable price changes in orderly transactions for the identical or similar investment of the same issuer occur. The Company did not recognize any fair value adjustments in the fiscal year ended September 30, 2023, and recognized a decrease in fair value of $ 1.0 million in the fiscal year ended September 30, 2022. Additionally, the Company recognized impairment loss of $ 3.3 million and zero of such investments during the fiscal years ended September 30, 2023 and 2022, respectively. LOANS HELD FOR SALE ("LHFS") Loans are designated as LHFS based on management's intent to sell loans, or portions of loans, in established secondary markets or to participating third-party financial institutions. LHFS are held at the lower of cost or fair value. Any amount by which the cost exceeds fair value is initially recorded as a valuation allowance and subsequently reflected in the gain or loss on sale when sold. At September 30, 2023 and 2022, there was no valuation allowance recorded for LHFS. Gains and losses on LHFS are recorded in noninterest income on the Consolidated Statements of Operations. Loan costs and fees are deferred at origination and are recognized in income at the time of sale. Interest income is calculated based on the note rate of the loan and is recorded as interest income. The Company occasionally transfers loans between held for sale and held for investment classifications based on its intent and ability to hold or sell loans. Management's intent to sell may be impacted by secondary market conditions, loan credit quality, or other factors. 86 Table of Contents The following table summarizes the activity pertaining to loans held for sale: Fiscal Year Ended September 30, 2023 2022 (Dollars in thousands) Consumer Commercial Consumer Commercial Beginning of year balance $ 21,071 $ — $ 23,111 $ 33,083 Originations 1,206,201 2,483 856,819 128,511 Proceeds from sales ( 1,123,271 ) ( 16,610 ) ( 855,291 ) ( 50,848 ) Gain (loss) on sales — 268 — 5,813 Principal collections, net of deferred fees and costs ( 26,222 ) 280 ( 4,062 ) ( 625 ) Non-cash transfers, net — 13,579 494 ( 115,934 ) End of year balance $ 77,779 $ — $ 21,071 $ — LOANS AND LEASES Loans Receivable Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are classified as held for investment and are generally reported at their outstanding principal balances net of any unearned income, cumulative charge-offs, unamortized deferred fees and costs on originated loans, and unamortized premiums or discounts on purchased loans (amortized cost). Interest income on loans is accrued over the term of the loans based upon the amount of principal outstanding except when serious doubt exists as to the collectability of a loan, in which case the accrual of interest is discontinued. Unearned income, deferred loan fees and costs, and discounts and premiums are amortized to interest income over the contractual life of the loan using the interest method. The Company's business lines follow a nonaccrual policy with certain commercial finance, consumer finance and tax service loans not generally being placed on non-accrual status, but instead are charged off when the collection of principal and interest become doubtful. When placed on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income and any remaining amortizing of net deferred fees is suspended. Cash collected on these loans is applied to first reduce the carrying value of the loan with any remainder being recognized as interest income. Generally, a loan can return to accrual status when all delinquent interest and principal become current under the terms of the loan agreement and collectability of the remaining principal and interest is no longer doubtful. Loans are considered past due when contractually required principal or interest payments have not been made on the due dates. For commercial loans, the Company generally fully charges off or charges down to net realizable value (fair value of collateral, less estimated costs to sell) for loans secured by collateral when: management judges the loans to be uncollectible; repayment is deemed to be protracted beyond reasonable time frames; the loan has been classified as a loss by either the Company's internal loan review process or its banking regulatory agencies; the customer has filed bankruptcy and the loss becomes evident owing to lack of assets; or the loan meets a defined number of days past due unless the loan is both well-secured and in the process of collection. For consumer loans, the Company fully charges off or charges down to net realizable value when deemed uncollectible due to bankruptcy or other factors, or meets a defined number of days past due. 87 Table of Contents As part of the Company’s ongoing risk management practices, management generally attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Modified loan terms may include interest rate reductions, principal forgiveness, term extensions, payment forbearance or other actions intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of the collateral. Each occurrence is unique to the borrower and is evaluated separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, the Company identifies and reports that loan as a troubled debt restructuring (“TDR”). Management considers regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. As such, qualification criteria and payment terms consider the borrower’s current and prospective ability to comply with the modified terms of the loan. Additionally, the Company structures loan modifications with the intent of strengthening repayment prospects. Loans that are reported as TDRs apply the identical criteria in the determination of whether the loan should be accruing or not accruing. The event of classifying the loan as a TDR due to a modification of terms may be independent from the determination of accruing interest on a loan. Leases Receivable The Company provides various types of commercial lease financing that are classified for accounting purposes as direct financing, sales-type or operating leases. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are classified as direct financing or sales-type leases and are included in loans and leases receivable on the Consolidated Statements of Financial Condition. Direct financing and sales-type leases are carried at the combined present value of future minimum lease payments and lease residual values. The determination of lease classification requires various judgments and estimates by management, including the fair value of equipment at lease inception, useful life of the equipment under lease, lease residual value, and collectability of minimum lease payments. Sales-type leases generate dealer profit, which is recognized at lease inception by recording lease revenue net of lease cost. Lease revenue consists of the present value of the future minimum lease payments. Lease cost consists of the lease equipment’s book value, less the present value of its residual. Interest income on direct financing and sales-type leases is recognized using methods that approximate a level yield over the fixed, non-cancelable term of the lease. Recognition of interest income is generally discontinued at the time the lease becomes 90 days delinquent, unless the lease is well-secured and in process of collection. Delinquency and past due status is based on the contractual terms of the lease. The Company receives pro rata rent payments for the interim period until the lease contract commences and the fixed, non-cancelable lease term begins. Interim payments are recognized in the month they are earned and are recorded in interest income. Management has policies and procedures in place for the determination of lease classification and review of the related judgments and estimates for all lease financings. The Company generally fully charges off or charges down to net realizable value (fair value of collateral, less estimated costs to sell) for leases when management judges the lease to be uncollectible; repayment is deemed to be protracted beyond reasonable time frames; the lease has been classified as a loss by either the Company's internal review process or its banking regulatory agencies; the customer has filed bankruptcy and the loss becomes evident owing to lack of assets; or the lease meets a defined number of days past due unless the lease is both well-secured and in the process of collection. Some lease financings include a residual value component, which represents the estimated fair value of the leased equipment at the expiration of the initial term of the transaction. The estimation of the residual value involves judgments regarding product and technology changes, customer behavior, shifts in supply and demand, and other economic assumptions. The Company may purchase and sell minimum lease payments, primarily as a credit risk reduction tool, to third-party financial institutions at fixed rates on a non-recourse basis with its underlying equipment as collateral. For those transactions that achieve sale treatment, the related lease cash flow stream and the non-recourse financing are derecognized. For those transactions that do not achieve sale treatment, the underlying lease remains on the Company’s Consolidated Statements of Financial Condition and non-recourse debt is recorded in the amount of the proceeds received. The Company retains servicing of these leases and bills, collects, and remits funds to the third-party financial institution. Upon default by the lessee, the third-party financial institutions may take control of the underlying collateral which the Company would otherwise retain as residual value. Leases that do not transfer substantially all benefits and risks of ownership to the lessee are classified as operating leases. Such leased equipment are included in rental equipment on the Consolidated Statements of Financial Condition and are depreciated on a straight-line basis over the term of the lease to its estimated residual value. 88 Table of Contents Depreciation expense is recorded as operating lease equipment depreciation expense within noninterest expense. Operating lease rental income is recognized when it becomes due and is reflected as a component of noninterest income. The Company evaluates the carrying value of rental equipment for impairment whenever events or circumstances have occurred that would indicate the carrying amount may not be fully recoverable. If the carrying amount is not fully recoverable, an impairment loss is recognized to reduce the carrying amount to fair value, where fair value is based on the condition of the rental equipment and the projected net cash flows from rental and sale adjusted for current market conditions. A nominal impairment expense from rental equipment was recognized for the fiscal year ended September 30, 2023, and no impairment expense was recognized for fiscal years ended September 30, 2022 and 2021. Loan Servicing and Transfers of Financial Assets The Company sells loan participations, generally without recourse, in both the commercial and consumer segments. The Company also sells commercial SBA and USDA loans to third parties, generally without recourse. Sold loans are not included in the Consolidated Financial Statements. 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. At September 30, 2023 and 2022, the Bank was servicing loans for others with aggregate unpaid principal balances of $ 332.5 million and $ 336.6 million, respectively. The service fees and ancillary income related to these loans were immaterial. 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. ALLOWANCE FOR CREDIT LOSSES The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for credit loss. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Consolidated Statements of Financial Condition. Individually evaluated loans and leases are a key component of the ACL. Generally, the Company measures credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs, as the Company considers these financial assets to be collateral dependent. If an individually evaluated loan or lease is not collateral dependent, credit loss is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate. Management has also 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. Credit loss for all other loans and leases is evaluated collectively by various characteristics. The collective evaluation of expected losses in all commercial finance portfolios is based on a cohort loss rate and adjustments for forward-looking information, including industry and macroeconomic forecasts. The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a twelve to twenty-four month reasonable and supportable forecast for forward-looking information. Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts and measurement date credit characteristics such as product type, delinquency, and industry. The unfunded credit commitments depend on these same factors, as well as estimates of lines of credit usage. The various quantitative and qualitative factors used in the methodologies are reviewed quarterly. 89 Table of Contents The collective evaluation of expected credit losses for certain consumer lending portfolios utilize different methodologies when estimating expected credit losses. The determination of the allowance is governed by structured tiers that dictate how cash collections are applied to losses to assess if there are sufficient available funds to cover expected credit losses. The amount of ACL depends significantly on management’s estimates or key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods. Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees, properties or economic conditions. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known. Accrued interest receivable is presented separately on the Consolidated Statements of Financial Condition, and an ACL is not recorded for these balances. Generally, when a loan or lease is placed on nonaccrual status, typically when the collection of interest or principal is 90 days or more past due, uncollected interest accrued in prior years is charged off against the ACL and interest accrued in the current year is reversed against interest income. Management maintains a framework of controls over the estimation process for the ACL, including review of collective reserve methodologies for compliance with GAAP. Management has a quarterly process to review the appropriateness of historical observation periods and loss assumptions and risk ratings assigned to loans and leases, if applicable. Management reviews its qualitative framework and the effect on the collective reserve compared with relevant credit risk factors and consistency with credit trends. Management also maintains controls over information systems, models and spreadsheets used in the quantitative components of the reserve estimate. This includes the quality and accuracy of historical data used to derive loss rates, the inputs to industry and macroeconomic forecasts and the reversion periods utilized. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance. See Note 4. Loans and Leases, Net for further information. The following are risk characteristics of the Company’s loan and lease portfolio: Commercial Finance The Company's Commercial Finance business line offers a variety of products through its working capital, equipment finance, structured finance, and insurance premium finance lending solutions. These products include term lending, asset-based lending, factoring, lease financing, insurance premium finance, government guaranteed lending and other commercial finance products offered on a nationwide basis that are subject to adverse market conditions which may impact the borrower’s ability to make repayment on the loan or lease or could cause a decline in the value of the collateral that secures the loan or lease. The loans or leases are primarily made based on the operating cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of borrowers may be volatile and the value of the collateral securing these loans and leases may be difficult to measure. Most commercial finance loans and leases are secured by the assets being financed or other business assets such as accounts receivable or inventory. Although the loans and leases are often collateralized by equipment, inventory, accounts receivable, insurance premiums or other business assets, the liquidation of collateral in the event of a borrower default may be an insufficient source of repayment, because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors. Consumer Finance The Company's BaaS business line offers a variety of installment and revolving consumer lending products through its credit solutions. The Bank designs its credit program relationships with certain desired outcomes, including liquidity, credit protection, and risk retention by the program partner. The Bank believes the benefits of these outcomes not only support its goals but the goals of the credit program partner as well. The Bank designs its program credit protections in a manner so that the Bank earns a reasonable risk adjusted return, but is protected by certain layers of credit support, similar to what you would find in structured finance. Certain loans are sold to third parties based on terms and conditions within the Program Agreement. 90 Table of Contents Tax Services The Bank's BaaS business line also offers tax solutions, which includes short-term refund advance loans. Through this product, taxpayers are underwritten to determine eligibility for these unsecured loans. Due to the nature of refund advance loans, it typically takes no more than three e-file cycles (the period of time between scheduled IRS payments) from when the return is accepted by the IRS to collect from the borrower. In the event of default, the Bank has no recourse against the tax consumer. When collection of principal becomes doubtful, the Bank will charge off the balance of a refund advance loan on September 30. Any remaining balances are charged off at the end of the calendar year. The Bank may record recoveries of previously charged off loans if collected in subsequent tax years. The Bank offers short-term electronic return originator ("ERO") advance loans on a nationwide basis. These loans are typically utilized by tax preparers to purchase tax preparation software and to prepare tax office operations for the upcoming tax season. EROs go through an underwriting process to determine eligibility for the unsecured advances. ERO loans are not collateralized. Collection on ERO advances begins once the ERO begins to process refund transfers. Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful. Warehouse Finance The Bank participates in several collateral-based warehouse lines of credit whereby the Bank is in a senior, secured position as the first out participant. These facilities are primarily collateralized by consumer receivables, with the Bank holding a senior collateral position enhanced by a subordinate party structure. PREMISES, FURNITURE, AND EQUIPMENT Land is carried at cost. Buildings, furniture, fixtures, leasehold improvements, internal-use software and equipment are carried at cost, less accumulated depreciation and amortization. The Company primarily uses the straight-line method of depreciation and amortization over the estimated useful lives of the assets, which is 39 years for buildings, three years for internal-use software, and range from two years to 15 years for leasehold improvements and for furniture, fixtures and equipment. Assets are reviewed for impairment when events indicate the carrying amount may not be recoverable. See Note 6. Premises, Furniture and Equipment, Net for further information. GOODWILL Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as business acquisitions. Goodwill is evaluated annually for impairment at a reporting unit level. The Company has determined that its reporting units are one level below the operating segments and distinguish these reporting units based on how the segments and reporting units are managed, taking into consideration the economic characteristics, nature of the products, and customers of the segments and reporting units. The Company performs its impairment evaluation as of September 30 of each fiscal year unless a triggering event occurs that would require an interim impairment evaluation. The Company generally utilizes a qualitative approach during this annual assessment to determine whether it is more likely than not (i.e. a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value. If we determine it is more likely than not that goodwill is impaired, then a quantitative assessment is performed to determine fair value of the reporting unit. If the carrying amount of the reporting unit with goodwill exceeds its fair value, goodwill is considered impaired and is written down by the excess carrying value of the reporting unit. Subsequent increases in goodwill are not recognized in the Consolidated Financial Statements. No goodwill impairment was recognized during the fiscal years ended September 30, 2023, 2022 or 2021. See Note 8. Goodwill and Intangible Assets for further information. INTANGIBLE ASSETS Intangible assets other than goodwill are amortized over their respective estimated lives. All intangible assets are subject to an impairment test at least annually or more often if conditions indicate a possible impairment. See Note 8. Goodwill and Intangible Assets for further information. STOCK COMPENSATION Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The fair value of non-vested (restricted) shares and performance share units granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected to record forfeitures as they occur. See Note 13. Stock Compensation for further information. 91 Table of Contents INCOME TAXES The Company records income tax expense based on the amount of taxes due on its tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In accordance with ASC 740, Income Taxes , the Company recognizes a tax position as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in noninterest income or noninterest expense. The effect on deferred tax assets and liabilities from a change in tax rates is recorded in income tax expense in the Consolidated Statements of Operations in the period in which the enactment date occurs. If current period income tax rates change, the impact on the annual effective income tax rate is applied year to date in the period of enactment. See Note 14. Income Taxes for further information. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company, in the normal course of business, makes commitments to originate loans which are not reflected in the Consolidated Financial Statements. The reserve for these unfunded commitments is included within Other Liabilities on the Consolidated Statements of Financial Condition. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) consists of net income and other comprehensive income or loss. Other comprehensive income or loss includes the change in net unrealized holding gains and losses due to market conditions and other non-credit risk factors on AFS debt securities, net of reclassification adjustments and tax effects. Accumulated other comprehensive income (loss) is recognized as a separate component of stockholders’ equity. REVENUE RECOGNITION Interest revenue from loans, leases, and investments is recognized on the accrual basis of accounting as the interest is earned according to the terms of the particular loan, lease, or investment. Income from service and other customer charges is recognized as earned. Revenue within the Consumer segment is recognized as services are performed and service charges are earned in accordance with the terms of the various programs. Refer to Note 16. Revenue from Contracts with Customers for additional information. EARNINGS PER COMMON SHARE (“EPS”) Basic earnings per share is computed by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect upon vesting of restricted stock grants and after the allocation of earnings to the participating securities. See Note 5. Earnings per Common Share for further information. RELATED PARTY TRANSACTIONS The Company has disclosed information on its equity investments and relationships with variable interest entities in Note 1. Summary of Significant Accounting Policies . At September 30, 2023 and 2022, the Company had no loans or deposits outstanding with individuals deemed under Regulation O to be directors, executive officers and/or employees of the Company. RECLASSIFICATION AND REVISION OF PRIOR PERIOD BALANCES Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income (loss). 92 Table of Contents RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU") The following ASUs were adopted by the Company during the fiscal year ended September 30, 2023, none of which had a material impact on the Company's Consolidated Financial Statements. All became effective for the Company on October 1, 2022. ASU 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments. The following ASUs have been issued and are considered applicable to the Company, but have not yet been adopted as of September 30, 2023. ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate accounting guidance for troubled-debt restructurings (TDRs) by creditors in Subtopic ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, and enhance disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. The ASU also requires current-period gross charge-offs by year of origination to be disclosed for loans and leases within scope of Topic 326. The adoption of this ASU will be reflected using the prospective approach beginning October 1, 2023 in the Company's Quarterly Report on Form 10-Q for the quarter ending December 31, 2023. The Company does not expect a material impact on the Consolidated Financial Statements. NOTE 2. SIGNIFICANT EVENTS In December 2022, the Company completed its rebranding efforts to Pathward Financial, Inc., including its bank subsidiary to Pathward, N.A. In December 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. The Company received and recognized $ 50.0 million as noninterest income upon execution and delivery of the Agreement, at which time the Meta tradenames were assigned to the Assignee. The Company received and recognized the remaining $ 10.0 million as noninterest income upon completion of required phase-out activities, which occurred in December 2022. The Company incurred $ 3.7 million and $ 13.1 million of noninterest expense in the fiscal years ending September 30, 2023 and 2022, respectively, as a result of rebranding activities. 93 Table of Contents NOTE 3. SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of AFS and HTM debt securities are presented below. (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value Debt Securities AFS At September 30, 2023 Corporate securities $ 25,000 $ — $ ( 6,750 ) $ 18,250 SBA securities 95,549 — ( 10,307 ) 85,242 Obligations of states and political subdivisions 2,368 — ( 79 ) 2,289 Non-bank qualified obligations of states and political subdivisions 269,396 — ( 42,673 ) 226,723 Asset-backed securities 255,384 234 ( 9,419 ) 246,199 Mortgage-backed securities 1,495,636 — ( 270,111 ) 1,225,525 Total debt securities AFS $ 2,143,333 $ 234 $ ( 339,339 ) $ 1,804,228 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 September 30, 2023 Non-bank qualified obligations of states and political subdivisions $ 34,415 $ — $ ( 4,844 ) $ 29,571 Mortgage-backed securities 2,176 — ( 322 ) 1,854 Total debt securities HTM $ 36,591 $ — $ ( 5,166 ) $ 31,425 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 94 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 September 30, 2023 Corporate securities $ — $ — $ 18,250 $ ( 6,750 ) $ 18,250 $ ( 6,750 ) SBA securities 22,327 ( 1,919 ) 62,915 ( 8,388 ) 85,242 ( 10,307 ) Obligations of state and political subdivisions — — 2,289 ( 79 ) 2,289 ( 79 ) Non-bank qualified obligations of states and political subdivisions 5,010 ( 83 ) 221,714 ( 42,590 ) 226,723 ( 42,673 ) Asset-backed securities 46,528 ( 224 ) 115,608 ( 9,195 ) 162,136 ( 9,419 ) Mortgage-backed securities 18,311 ( 944 ) 1,207,214 ( 269,167 ) 1,225,525 ( 270,111 ) Total debt securities AFS $ 92,176 $ ( 3,170 ) $ 1,627,990 $ ( 336,169 ) $ 1,720,165 $ ( 339,339 ) 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 September 30, 2023 Non-bank qualified obligations of states and political subdivisions $ — $ — $ 29,571 $ ( 4,844 ) $ 29,571 $ ( 4,844 ) Mortgage-backed securities — — 1,854 ( 322 ) 1,854 ( 322 ) Total debt securities HTM $ — $ — $ 31,425 $ ( 5,166 ) $ 31,425 $ ( 5,166 ) 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 $ ( 2,890 ) $ 38,171 $ ( 3,511 ) The decline in the fair value of investment securities balances when comparing September 30, 2023 to the prior year was primarily driven by increases in unrealized losses due to the rise in interest rates throughout the fiscal year. At September 30, 2023, there were 206 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at September 30, 2023 were government guaranteed. Management assessed each investment security with unrealized losses for credit loss and determined all unrealized losses on these securities were due to change 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 September 30, 2023, there was no ACL for debt securities AFS. 95 Table of Contents The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features which 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. At September 30, (Dollars in thousands) 2023 2022 Securities AFS at Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 5,023 $ 4,971 $ 718 $ 715 Due after one year through five years 11,175 10,292 9,921 9,395 Due after five years through ten years 79,139 66,428 89,921 81,819 Due after ten years 552,360 497,012 483,707 441,943 647,697 578,703 584,267 533,872 Mortgage-backed securities 1,495,636 1,225,525 1,581,452 1,348,997 Total securities AFS, at fair value $ 2,143,333 $ 1,804,228 $ 2,165,719 $ 1,882,869 Securities HTM at Fair Value Due after ten years $ 34,415 $ 29,571 $ 39,093 $ 35,903 34,415 29,571 39,093 35,903 Mortgage-backed securities 2,176 1,854 2,589 2,268 Total securities HTM, at cost $ 36,591 $ 31,425 $ 41,682 $ 38,171 Activity related to the sale of securities is summarized below. Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Securities AFS Proceeds from sales $ — $ 265,951 $ 50,468 Gross gains on sales — 1,742 179 Gross losses on sales — 1,588 173 Net gain (loss) on securities AFS $ — $ 154 $ 6 There was no activity related to the sale of securities held to maturity during the fiscal years ended September 30, 2023, 2022, and 2021. No securities were pledged as collateral for public funds on deposit at September 30, 2023 and 2022. No securities were pledged as collateral for individual, trust and estate deposits at September 30, 2023 and 2022. 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 September 30, 2023 and 2022. These equity securities are 'restricted' in that they can only be owned by member banks. At fiscal year-end 2023 and 2022, the Company pledged securities with fair values of $ 773.6 million and $ 924.2 million against FRB advances, respectively. Included in interest and dividend income from other investments is $ 1.2 million, $ 1.2 million, and $ 1.5 million related to dividend income on FRB stock for the fiscal years ended September 30, 2023, 2022, and 2021, respectively. 96 Table of Contents FHLB Stock. The Company’s borrowings from the FHLB are secured by specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The investments in the FHLB stock are required investments related to the Company’s membership in and current borrowings from the FHLB of Des Moines. The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency. The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held at the FHLB was $ 8.5 million and $ 9.1 million at September 30, 2023 and 2022, respectively. At fiscal year-end 2023 and 2022, the Company pledged securities with fair values of approximately $ 996.9 million and $ 804.0 million, respectively, as collateral against FHLB advances. There was no combination of qualifying residential and other real estate loans pledged as collateral at September 30, 2023 and 2022. Included in interest and dividend income from other investments is $ 0.5 million, $ 0.3 million and $ 0.2 million related to dividend income on FHLB stock for the fiscal years ended September 30, 2023, 2022 and 2021, 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 $ 3.4 million and $ 2.9 million in marketable equity securities at September 30, 2023 and 2022, respectively. The unrealized gains and losses associated with these securities were insignificant for the fiscal years ended September 30, 2023 and 2022. No securities were sold during the fiscal year. Non-marketable equity securities with a readily determinable fair value totaled $ 8.4 million and $ 7.2 million at September 30, 2023 and 2022, respectively. The Company recognized $ 0.2 million in unrealized losses and $ 1.1 million in unrealized gains during the fiscal years ended September 30, 2023 and 2022, respectively. No securities were sold during the fiscal year. Non-marketable equity securities without readily determinable fair value totaled $ 16.2 million and $ 18.2 million at September 30, 2023 and 2022, respectively. There were two securities sold during the fiscal year for a $ 0.1 million gain . 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 $ 3.3 million, zero , and $ 2.6 million in impairment for such investments for the fiscal years ended September 30, 2023, 2022, and 2021, respectively. 97 Table of Contents NOTE 4. LOANS AND LEASES, NET Loans and leases consist of the following: At September 30, (Dollars in thousands) 2023 2022 Term lending $ 1,308,133 $ 1,090,289 Asset-based lending 382,371 351,696 Factoring 358,344 372,595 Lease financing 183,392 210,692 Insurance premium finance 800,077 479,754 SBA/USDA 524,750 359,238 Other commercial finance 166,091 159,409 Commercial finance 3,723,158 3,023,673 Consumer finance 254,416 169,659 Tax services 5,192 9,098 Warehouse finance 376,915 326,850 Total loans and leases 4,359,681 3,529,280 Net deferred loan origination costs 6,435 7,025 Total gross loans and leases 4,366,116 3,536,305 Allowance for credit losses ( 49,705 ) ( 45,947 ) Total loans and leases, net $ 4,316,411 $ 3,490,358 During the fiscal years ended September 30, 2023 and 2022, the Company originated $ 1.21 billion and $ 985.3 million of other consumer finance and SBA/USDA loans as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 1.14 billion and gain on sale of $ 0.3 million during the fiscal year ended September 30, 2023. The Company sold held for sale loans resulting in proceeds of $ 1.06 billion and gain on sale of $ 3.7 million during the fiscal year ended September 30, 2022. 98 Table of Contents Loans purchased and sold by portfolio segment, including participation interests, were as follows: Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 Loans Purchased Loans held for investment: Commercial finance $ 480 $ 3,098 Warehouse finance 214,786 112,255 Total purchases $ 215,266 $ 115,353 Loans Sold Loans held for sale: Commercial finance $ 16,610 $ 50,848 Consumer finance 1,123,271 855,291 Community banking — 153,222 Loans held for investment: Commercial finance — 15,549 Consumer finance — 77,456 Community banking — 30,235 Total sales $ 1,139,881 $ 1,182,601 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: At September 30, (Dollars in thousands) 2023 2022 Minimum lease payments receivable $ 191,807 $ 216,880 Unguaranteed residual assets 12,709 13,037 Unamortized initial direct costs 141 295 Unearned income ( 21,124 ) ( 19,225 ) Total net investment in direct financing and sales-type leases $ 183,533 $ 210,987 The components of total lease income were as follows: Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 Interest income - loans and leases Interest income on net investments in direct financing and sales-type leases $ 13,536 $ 17,081 Leasing and equipment finance noninterest income Lease income from operating lease payments 53,551 46,017 Other (1) 3,964 5,982 Total leasing and equipment finance noninterest income 57,515 51,999 Total lease income $ 71,051 $ 69,080 (1) Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases. 99 Table of Contents Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at September 30, 2023 were as follows: (Dollars in thousands) 2024 $ 76,899 2025 47,205 2026 25,478 2027 16,300 2028 13,378 Thereafter 12,547 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 191,807 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type leases $ 191,807 The Company did not record any contingent rental income from direct financing and sales-type leases in the fiscal year ended September 30, 2023. Although macroeconomic conditions and markets have improved since the COVID-19 pandemic, other factors have been affecting the economic environment in 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 these 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 these factors impacting the economy and will refine its estimate as developments occur and more information becomes available. Activity in the allowance for credit losses was as follows: Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 Beginning balance $ 45,947 $ 68,281 Provision for credit losses 57,448 28,862 Charge-offs ( 59,898 ) ( 61,061 ) Recoveries 6,208 9,865 Ending balance $ 49,705 $ 45,947 100 Table of Contents Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows: At September 30, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 24,621 $ 10,541 $ ( 11,295 ) $ 1,819 $ 25,686 Asset-based lending 1,050 4,005 ( 2,873 ) 556 2,738 Factoring 6,556 1,523 ( 1,545 ) 32 6,566 Lease financing 5,902 ( 1,424 ) ( 1,479 ) 303 3,302 Insurance premium finance 1,450 2,349 ( 1,659 ) 497 2,637 SBA/USDA 3,263 ( 296 ) ( 43 ) 38 2,962 Other commercial finance 1,310 1,779 — — 3,089 Commercial finance 44,152 18,477 ( 18,894 ) 3,245 46,980 Consumer finance 1,463 3,146 ( 2,263 ) — 2,346 Tax services 5 35,775 ( 38,741 ) 2,963 2 Warehouse finance 327 50 — — 377 Total loans and leases 45,947 57,448 ( 59,898 ) 6,208 49,705 Unfunded commitments (1) 366 ( 94 ) — — 272 Total $ 46,313 $ 57,354 $ ( 59,898 ) $ 6,208 $ 49,977 (1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition. At September 30, 2022 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 29,351 $ 4,850 $ ( 12,629 ) $ 3,049 $ 24,621 Asset-based lending 1,726 ( 1,092 ) ( 16 ) 432 1,050 Factoring 3,997 11,699 ( 11,057 ) 1,917 6,556 Lease financing 7,629 ( 2,062 ) ( 301 ) 636 5,902 Insurance premium finance 1,394 597 ( 767 ) 226 1,450 SBA/USDA 2,978 863 ( 652 ) 74 3,263 Other commercial finance 1,168 142 — — 1,310 Commercial finance 48,243 14,997 ( 25,422 ) 6,334 44,152 Consumer finance 7,354 ( 1,449 ) ( 4,787 ) 345 1,463 Tax services 2 28,093 ( 30,852 ) 2,762 5 Warehouse finance 420 ( 93 ) — — 327 Community banking 12,262 ( 12,686 ) — 424 — Total loans and leases 68,281 28,862 ( 61,061 ) 9,865 45,947 Unfunded commitments (1) 690 ( 324 ) — — 366 Total $ 68,971 $ 28,538 $ ( 61,061 ) $ 9,865 $ 46,313 (1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition. 101 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 September 30, 2023 At September 30, 2022 Term lending $ 3,516 $ 2,885 Asset-based lending 19,226 — Factoring 1,133 550 Lease financing 630 2,787 SBA/USDA 750 1,199 Commercial finance (1) 25,255 7,421 Total $ 25,255 $ 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 $ 117.0 million and $ 120.7 million at September 30, 2023 and 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. 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 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. 102 Table of Contents 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 $ 254.4 million and $ 5.2 million at September 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 September 30, 2023 2023 2022 2021 2020 2019 Prior Term lending Pass $ 301,778 $ 149,190 $ 99,677 $ 73,132 $ 14,368 $ 323,482 $ — $ 961,627 Watch 35,277 51,036 58,041 12,230 4,483 18,931 — 179,998 Special mention 15,314 13,853 20,463 723 2,932 11,300 — 64,585 Substandard 4,604 30,451 14,729 24,613 3,872 16,597 — 94,866 Doubtful 200 2,655 1,691 1,121 165 1,225 — 7,057 Total 357,173 247,185 194,601 111,819 25,820 371,535 — 1,308,133 Asset-based lending Pass — — — — — — 161,744 161,744 Watch — — — — — — 174,243 174,243 Special mention — — — — — — 26,382 26,382 Substandard — — — — — — 19,501 19,501 Doubtful — — — — — — 501 501 Total — — — — — — 382,371 382,371 Factoring Pass — — — — — — 270,754 270,754 Watch — — — — — — 70,833 70,833 Special mention — — — — — — 8,892 8,892 Substandard — — — — — — 7,865 7,865 Total — — — — — — 358,344 358,344 Lease financing Pass 7,716 15,941 15,167 27,489 4,036 50,688 — 121,037 Watch 626 10,436 12,566 4,494 1,579 222 — 29,923 Special mention — — 847 415 195 — — 1,457 Substandard — 1,983 7,082 3,660 3,062 14,923 — 30,710 Doubtful — — 71 61 — 133 — 265 Total 8,342 28,360 35,733 36,119 8,872 65,966 — 183,392 Insurance premium finance Pass 797,267 1,210 — — — — — 798,477 Watch 858 34 — — — — — 892 Special mention 250 15 — — — — — 265 Substandard 91 20 — — — — — 111 Doubtful 180 152 — — — — — 332 Total 798,646 1,431 — — — — — 800,077 SBA/USDA 103 Table of Contents Pass 158,675 148,525 26,244 36,274 8,798 18,252 — 396,768 Watch 49,010 48,833 658 51 357 2,572 — 101,481 Special mention — — 530 — — — — 530 Substandard 252 2,356 1,718 5,418 8,509 7,718 — 25,971 Total 207,937 199,714 29,150 41,743 17,664 28,542 — 524,750 Other commercial finance Pass 2,330 18,927 32,737 1,137 10,122 69,927 — 135,180 Watch 1,742 — — — — — — 1,742 Substandard 2,753 450 25,708 — — 258 — 29,169 Total 6,825 19,377 58,445 1,137 10,122 70,185 — 166,091 Warehouse finance Pass — — — — — — 376,915 376,915 Total — — — — — — 376,915 376,915 Total loans and leases Pass 1,267,766 333,793 173,825 138,032 37,324 462,349 809,413 3,222,502 Watch 87,513 110,339 71,265 16,775 6,419 21,725 245,076 559,112 Special mention 15,564 13,868 21,840 1,138 3,127 11,300 35,274 102,111 Substandard 7,700 35,260 49,237 33,691 15,443 39,496 27,366 208,193 Doubtful 380 2,807 1,762 1,182 165 1,358 501 8,155 Total $ 1,378,923 $ 496,067 $ 317,929 $ 190,818 $ 62,478 $ 536,228 $ 1,117,630 $ 4,100,073 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 — — 30,648 104 Table of Contents Doubtful 144 163 1,280 88 — — — 1,675 Total 17,326 71,716 57,435 41,049 19,381 3,785 — 210,692 Insurance premium finance 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 $ 3,350,523 105 Table of Contents Past due loans and leases were as follows : At September 30, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 626 $ 549 $ 306 $ 1,481 $ 76,298 $ 77,779 $ 306 $ — $ 306 Term lending 13,898 7,723 11,136 32,757 1,275,376 1,308,133 3,737 15,324 19,061 Asset-based lending — — 123 123 382,248 382,371 — 18,082 18,082 Factoring — — — — 358,344 358,344 — 1,298 1,298 Lease financing 6,865 158 4,828 11,851 171,541 183,392 4,242 1,666 5,908 Insurance premium finance 2,159 1,262 2,339 5,760 794,317 800,077 2,339 — 2,339 SBA/USDA 512 — 1,835 2,347 522,403 524,750 833 1,002 1,835 Other commercial finance — — 91 91 166,000 166,091 91 — 91 Commercial finance 23,434 9,143 20,352 52,929 3,670,229 3,723,158 11,242 37,372 48,614 Consumer finance 2,992 2,425 2,210 7,627 246,789 254,416 2,210 — 2,210 Tax services — — 5,082 5,082 110 5,192 5,082 — 5,082 Warehouse finance — — — — 376,915 376,915 — — — Total loans and leases held for investment 26,426 11,568 27,644 65,638 4,294,043 4,359,681 18,534 37,372 55,906 Total loans and leases $ 27,052 $ 12,117 $ 27,950 $ 67,119 $ 4,370,341 $ 4,437,460 $ 18,840 $ 37,372 $ 56,212 At September 30, 2022 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ — $ — $ — $ — $ 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 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 $ 29,183 106 Table of Contents Nonaccrual loans and leases by year of origination were as follows: Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual with No ACL At September 30, 2023 2023 2022 2021 2020 2019 Prior Term lending $ 748 $ 4,942 $ 2,933 $ 2,165 $ 3,134 $ 1,402 $ — $ 15,324 $ — Asset-based lending — — — — — — 18,082 18,082 — Factoring — — — — — — 1,298 1,298 — Lease financing — — 446 660 — 560 — 1,666 1 SBA/USDA — 750 — — — 252 — 1,002 — Commercial finance 748 5,692 3,379 2,825 3,134 2,214 19,380 37,372 1 Total nonaccrual loans and leases $ 748 $ 5,692 $ 3,379 $ 2,825 $ 3,134 $ 2,214 $ 19,380 $ 37,372 $ 1 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 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 September 30, 2023 2023 2022 2021 2020 2019 Prior Loans held for sale $ 306 $ — $ — $ — $ — $ — $ — $ 306 Term lending 1,290 1,371 500 233 29 314 — 3,737 Lease financing — 490 979 784 1,794 195 — 4,242 Insurance premium finance — 414 114 — 334 1,477 — 2,339 SBA/USDA — — — 833 — — — 833 Other commercial finance — — — — — 91 — 91 Commercial finance 1,290 2,275 1,593 1,850 2,157 2,077 — 11,242 Consumer finance 891 1,045 246 — — — 28 2,210 Tax services 5,082 — — — — — — 5,082 Total loans and leases held for investment 7,263 3,320 1,839 1,850 2,157 2,077 28 18,534 Total 90 days or more delinquent and accruing $ 7,569 $ 3,320 $ 1,839 $ 1,850 $ 2,157 $ 2,077 $ 28 $ 18,840 107 Table of Contents 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 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 non-accrual until later delinquency, usually 120 days past due. The following table provides the average recorded investment in nonaccrual loans and leases: Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 Term lending $ 11,494 $ 11,320 Asset-based lending 10,295 3,754 Factoring 578 6,344 Lease financing 2,852 3,278 SBA/USDA 1,244 1,244 Commercial finance 26,463 25,940 Total loans and leases $ 26,463 $ 25,940 The recognized interest income on the Company's nonaccrual loans and leases for the fiscal years ended September 30, 2023 and 2022 was not significant. The Company’s troubled debt restructurings ("TDRs") typically involve forgiving a portion of interest or principal on existing loans, making loans at a rate materially less than current market rates, or extending the term of the loan. There were $ 1.1 million loans that were modified in a TDR during the fiscal year ended September 30, 2023. There were $ 10.5 million of commercial finance loans and $ 0.9 million of consumer finance loans that were modified in a TDR during the fiscal year ended September 30, 2022, all of which were modified to extend the term of the loan. During the fiscal year ended September 30, 2023, the Company had $ 0.9 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 fiscal year ended September 30, 2022, the Company had $ 5.2 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 fiscal years ended September 30, 2023 and September 30, 2022. 108 Table of Contents NOTE 5. EARNINGS PER COMMON SHARE ("EPS") The Company has granted restricted share awards with dividend rights that are considered to be participating securities. Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the earnings per share calculation under the two-class method. Basic EPS is computed using the two-class method by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated using the more dilutive of the treasury stock method or the two-class method. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options, performance share units, and nonvested restricted stock, where applicable. Diluted EPS under the two-class method also considers the allocation of earnings to the participating securities. Antidilutive securities are disregarded in earnings per share calculations. Diluted EPS shown below reflects the two-class method, as diluted EPS under the two-class method was more dilutive than under the treasury stock method. A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below. Fiscal Year Ended September 30, (Dollars in thousands, except per share data) 2023 2022 2021 Basic income per common share: Net income attributable to Pathward Financial, Inc. $ 163,615 $ 156,386 $ 141,708 Dividends and undistributed earnings allocated to participating securities ( 2,453 ) ( 2,565 ) ( 2,698 ) Basic net earnings available to common stockholders 161,162 153,821 139,010 Undistributed earnings allocated to nonvested restricted stockholders 2,372 2,468 2,575 Reallocation of undistributed earnings to nonvested restricted stockholders ( 2,364 ) ( 2,468 ) ( 2,573 ) Diluted net earnings available to common stockholders $ 161,170 $ 153,821 $ 139,012 Total weighted-average basic common shares outstanding 26,833,079 29,227,071 31,729,596 Effect of dilutive securities (1) Performance share units 92,527 5,176 21,926 Total effect of dilutive securities 92,527 5,176 21,926 Total weighted-average diluted common shares outstanding 26,925,606 29,232,247 31,751,522 Net earnings per common share: Basic earnings per common share $ 6.01 $ 5.26 $ 4.38 Diluted earnings per common share (2) $ 5.99 $ 5.26 $ 4.38 (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 fiscal years ended September 30, 2023, 2022, and 2021, respectively, were 408,477 , 487,476 , and 615,811 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. 109 Table of Contents NOTE 6. PREMISES, FURNITURE, AND EQUIPMENT, NET Premises, furniture, and equipment consists of the following: At September 30, (Dollars in thousands) 2023 2022 Land $ 1,354 $ 1,354 Buildings 21,331 21,300 Furniture, fixtures, and equipment 62,312 56,631 84,997 79,285 Less: accumulated depreciation and amortization ( 45,837 ) ( 37,575 ) Net book value $ 39,160 $ 41,710 Depreciation expense of premises, furniture and equipment included in occupancy and equipment expense was approximately $ 11.1 million, $ 11.3 million and $ 9.6 million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively. NOTE 7. RENTAL EQUIPMENT, NET Rental equipment consists of the following: At September 30, (Dollars in thousands) 2023 2022 Computers and IT networking equipment $ 25,094 $ 21,669 Motor vehicles and other 122,845 107,648 Other furniture and equipment 37,637 34,254 Solar panels and equipment 142,355 133,765 Total 327,931 297,336 Accumulated depreciation ( 117,418 ) ( 94,355 ) Unamortized initial direct costs 1,237 1,390 Net book value $ 211,750 $ 204,371 Future minimum lease payments expected to be received for operating leases at September 30, 2023 were as follows: (Dollars in thousands) 2024 $ 45,612 2025 37,424 2026 27,542 2027 19,791 2028 11,495 Thereafter 13,891 Total $ 155,755 NOTE 8. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at September 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 fiscal years ended September 30, 2023 and 2022. 110 Table of Contents The changes in the carrying amount of the Company's intangible assets were as follows: (Dollars in thousands) Trademark (1) Non-Compete Customer Relationships (2) All Others (3) Total At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691 Amortization during the period ( 1,128 ) — ( 3,285 ) ( 558 ) ( 4,971 ) At September 30, 2023 $ 7,477 $ — $ 9,110 $ 4,133 $ 20,720 Gross carrying amount $ 14,314 $ 301 $ 77,578 $ 7,796 $ 99,989 Accumulated amortization ( 6,837 ) ( 301 ) ( 57,550 ) ( 3,445 ) ( 68,133 ) Accumulated impairment — — ( 10,918 ) ( 218 ) ( 11,136 ) At September 30, 2023 $ 7,477 $ — $ 9,110 $ 4,133 $ 20,720 At September 30, 2021 $ 9,823 $ 40 $ 17,868 $ 5,417 $ 33,148 Acquisitions during the period — — — 1 1 Amortization during the period ( 1,218 ) ( 40 ) ( 4,803 ) ( 524 ) ( 6,585 ) Write-offs and disposals during the period — — ( 670 ) ( 203 ) ( 873 ) At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133 Accumulated amortization ( 6,019 ) ( 2,481 ) ( 58,775 ) ( 5,031 ) ( 72,306 ) Accumulated impairment — — ( 10,918 ) ( 218 ) ( 11,136 ) At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691 (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. 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 subsequent fiscal years at September 30, 2023 was as follows: (Dollars in thousands) 2024 $ 4,116 2025 3,554 2026 3,208 2027 2,562 2028 2,251 Thereafter 5,029 Total anticipated intangible amortization $ 20,720 There was a no impairment to intangible assets for the fiscal year ended September 30, 2023 and $ 0.7 million impairment for the fiscal year ended September 30, 2022. Intangible impairment expense is recorded within the impairment expense line of the 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 $ 26.9 million and $ 30.1 million at September 30, 2023 and 2022, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 28.8 million and $ 32.1 million at September 30, 2023 and 2022, respectively. 111 Table of Contents Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at September 30, 2023 were as follows: (Dollars in thousands) 2024 $ 3,913 2025 3,718 2026 3,195 2027 3,092 2028 3,803 Thereafter 14,836 Total undiscounted future minimum lease payments 32,557 Discount ( 3,724 ) Total operating lease liabilities $ 28,833 The weighted-average discount rate and remaining lease term for operating leases at September 30, 2023 were as follows: Weighted-average discount rate 2.38 % Weighted-average remaining lease term (years) 9.66 The components of total lease costs for operating leases were as follows: Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 Lease expense $ 3,951 $ 4,431 Short-term and variable lease cost 142 194 ROU asset impairment — 670 Sublease income ( 1,409 ) ( 1,267 ) Total lease cost for operating leases $ 2,684 $ 4,028 NOTE 10. TIME CERTIFICATES OF DEPOSIT Time certificates of deposit in denominations of $ 250,000 or more were approximately $ 5.0 million and $ 6.2 million at September 30, 2023, and 2022, respectively. Scheduled maturities of time certificates of deposit at September 30, 2023 were as follows for the fiscal years ending: (Dollars in thousands) 2024 $ 5,165 2025 369 2026 — 2027 — 2028 — Thereafter — Tota l (1) $ 5,534 (1) As of September 30, 2023, the Company had no certificates of deposit recorded in wholesale deposits on the Consolidated Statements of Financial Condition. Under the Dodd-Frank Act, IRA and non-IRA deposit accounts are insured up to $ 250,000 by the DIF under management of the FDIC. 112 Table of Contents NOTE 11. SHORT-TERM AND LONG-TERM BORROWINGS Short-Term Borrowings At September 30, (Dollars in thousands) 2023 2022 Overnight fed funds purchased $ 13,000 $ — Total $ 13,000 $ — The Bank has executed blanket pledge agreements whereby the Bank assigns, transfers, and pledges to the FHLB and grants to the FHLB a security interest in real estate and securities collateral. The Bank has the right to use, commingle, and dispose of the collateral it has assigned to the FHLB. Under the agreement, the Bank must maintain “eligible collateral” that has a “lending value” at least equal to the “required collateral amount,” all as defined by the agreement. At September 30, 2023 and 2022, the Bank pledged securities with fair values of approximately $ 996.9 million and $ 804.0 million, respectively, to be used against FHLB advances as needed. In addition, qualifying real estate loans of approximately $ 21.3 million were pledged as collateral at September 30, 2023 compared to none at September 30, 2022. The Company had no securities sold under agreements to repurchase at September 30, 2023 and 2022. Long-Term Borrowings At September 30, (Dollars in thousands) 2023 2022 Trust preferred securities $ 13,661 $ 13,661 Subordinated debentures, net of issuance costs 19,591 20,000 Other long-term borrowings (1) 621 2,367 Total $ 33,873 $ 36,028 (1) Includes $ 0.6 million and $ 2.4 million of discounted leases at September 30, 2023 and 2022, respectively. Scheduled maturities of the Company's long-term borrowings at September 30, 2023 were as follows for the fiscal years ending: (Dollars in thousands) Trust preferred securities Subordinated debentures Other long-term borrowings Total 2024 $ — $ — $ — $ — 2025 — — 621 621 2026 — — — — 2027 — — — — 2028 — — — — Thereafter 13,661 19,591 — 33,252 Total long-term borrowings $ 13,661 $ 19,591 $ 621 $ 33,873 Certain trust preferred securities are due to First Midwest Financial Capital Trust I, a 100 %-owned nonconsolidated subsidiary of the Company. The securities were issued in 2001 in conjunction with the Trust’s issuance of 10,000 shares of Trust Preferred Securities. The securities bear the same interest rate and terms as the trust preferred securities. The securities are included on the Consolidated Statements of Financial Condition as liabilities. 113 Table of Contents The Company issued all of the 10,310 authorized shares of trust preferred securities of First Midwest Financial Capital Trust I holding solely securities. Distributions are paid semi-annually. Cumulative cash distributions are calculated at 6-Month CME Term SOFR plus 0.42826 % tenor spread adjustment plus 3.75 % ( 9.65 % at September 30, 2023 and 7.98 % at September 30, 2022), not to exceed 12.5 %. The Company may, at one or more times, defer interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond July 25, 2031. At the end of any deferral period, all accumulated and unpaid distributions are required to be paid. The capital securities are required to be redeemed on July 25, 2031; however, the Company has a semi-annual option to shorten the maturity date. The redemption price is $ 1,000 per capital security plus any accrued and unpaid distributions to the date of redemption. Holders of the capital securities have no voting rights, are unsecured and rank junior in priority of payment to all of the Company’s indebtedness and senior to the Company’s common stock. Although the securities issued by the Trust are not included as a component of stockholders’ equity, the securities are treated as capital for regulatory purposes, subject to certain limitations. Through the Crestmark Acquisition, the Company acquired $ 3.4 million in floating rate capital securities due to Crestmark Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company. The subordinated debentures bear interest at 3-Month CME Term SOFR plus 0.26161 % tenor spread adjustment plus 3.00 %, have a stated maturity of 30 years and are redeemable by the Company at par, with regulatory approval. The interest rate is reset quarterly at distribution dates in February, May, August, and November. The interest rate as of September 30, 2023 was 8.66 %. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years. The Company redeemed its $ 75.0 million of 5.75 % fixed-to-floating rate subordinated debentures on May 15, 2022 with payment of $ 75.0 million principal and approximately $ 1.0 million interest. On September 23, 2022, the Company completed a private placement of $ 20.0 million of its 6.625 % fixed-to-floating rate subordinated debentures due 2032 to certain qualified institutional buyers and accredited investors. These notes will mature on September 30, 2032, unless earlier redeemed. Beginning on September 30, 2027, the notes may be redeemed, in whole or in part, at the Company's option subject to regulatory approval, on any scheduled interest payment date. Prior to September 30, 2027, the notes may be redeemed, in whole but not in part, at any time upon certain other specified events. At September 30, 2023, the Company had $ 20.0 million in aggregate principal amount in subordinated debentures remains outstanding. NOTE 12. 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. On August 25, 2023, the Company's Board of Directors announced a share repurchase program to repurchase up to an additional 7,000,000 shares of the Company's outstanding common stock on or before September 30, 2028. During the fiscal years ended September 30, 2023 and 2022, the Company repurchased 2,628,541 and 3,020,899 shares, respectively, as part of the share repurchase programs. Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of September 30, 2023, 8,666,436 shares of common stock remained available for repurchase. For the fiscal years ended September 30, 2023, and 2022, the Company also repurchased 67,103 and 73,522 shares, or $ 2.5 million and $ 4.0 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock. Repurchase 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 149,679 and zero shares of common stock held in treasury during the fiscal years ended September 30, 2023 and 2022, respectively. 114 Table of Contents NOTE 13. STOCK COMPENSATION The Company previously maintained the Pathward Financial, Inc. 2002 Omnibus Incentive Plan, as amended and restated (the "Prior Omnibus Incentive Plan"). On September 27, 2023, the Board adopted the Pathward Financial, Inc. 2023 Omnibus Incentive Plan (the "New Omnibus Incentive Plan") contingent on stockholder approval at the Annual Meeting of Stockholders expected to be held on February 27, 2024. The Prior Omnibus Incentive Plan provided for the awarding of stock options, nonvested (restricted) shares, and performance share units ("PSUs") to certain officers and directors of the Company. Awards were granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors. No awards have been granted under the Prior Omnibus Incentive Plan following November 25, 2022, the date that the Prior Omnibus Incentive Plan expired by its terms. Shares have previously been granted each year to executives and senior leadership members under the applicable Company incentive plan. These shares vest at various times ranging from immediately to three years based on circumstances at time of grant. The fair value is determined based on the fair market value of the Company’s stock on the grant date. Director shares are issued to the Company’s directors, and these shares have historically vested one year from the grant date. The Company also grants selected executives and other key employees PSU awards. The vesting of these awards is contingent on meeting company-wide performance goals, including but not limited to return on equity, earnings per share, and total shareholder return. PSUs are generally granted at the market value of the underlying share on the date of grant, adjusted for dividends, as performance share units do not participate in dividends. The awards contingently vest over a period of three years and have payout levels ranging from a threshold of 50 % to a maximum of 200 %. Upon vesting, each performance share unit earned is converted into one share of common stock. The fair value of the PSUs is determined by the dividend-adjusted fair value on the grant date for those awards subject to a performance condition. For those PSUs subject to a market condition, a simulation valuation is performed. In addition, during the first and second quarters of fiscal year 2017, shares were granted to certain executive officers of the Company in connection with their signing of employment agreements with the Company. These stock awards vest in equal installments over eight years . The following tables show the activity of share awards (including shares of restricted stock subject to vesting, fully-vested restricted stock, and PSUs) granted, exercised or forfeited under all of the Company’s incentive plans during the fiscal years ended September 30, 2023 and 2022. (Dollars in thousands, except per share data) Number of Shares Weighted Average Fair Value at Grant Nonvested shares outstanding, September 30, 2022 474,348 $ 36.52 Granted 135,417 36.68 Vested ( 229,803 ) 37.46 Forfeited or expired ( 9,811 ) 41.14 Nonvested shares outstanding, September 30, 2023 370,151 $ 35.87 Nonvested shares outstanding, September 30, 2021 547,063 $ 30.22 Granted 178,631 55.56 Vested ( 230,323 ) 35.70 Forfeited or expired ( 21,023 ) 43.45 Nonvested shares outstanding, September 30, 2022 474,348 $ 36.52 115 Table of Contents (Dollars in thousands, except per share data) Number of Units Weighted Average Fair Value at Grant 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, September 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. 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 fair value of nonvested (restricted) shares and PSUs granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected to record forfeitures as they occur. The following table shows the effect to income, net of tax benefits, of share-based compensation expense recorded: Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Total employee stock-based compensation expense recognized in income, net of tax effects of $ 1,838 , $ 2,181 , and $ 1,562 , respectively $ 8,465 $ 7,824 $ 5,290 As of September 30, 2023, stock-based compensation expense not yet recognized in income totaled $ 6.1 million, which is expected to be recognized over a weighted-average remaining period of 1.45 years. NOTE 14. INCOME TAXES The Company and its subsidiaries file a consolidated federal income tax return on a fiscal year basis. The provision for income taxes were as follows: Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Federal: Current $ 8,682 $ 5,657 $ 6,402 Deferred ( 1,168 ) 12,900 ( 3,909 ) 7,514 18,557 2,493 State: Current 7,817 4,720 5,938 Deferred 993 4,687 2,270 8,810 9,407 8,208 Income tax expense $ 16,324 $ 27,964 $ 10,701 116 Table of Contents The tax effects of the Company's temporary differences that give rise to significant portions of its deferred tax assets and liabilities were: At September 30, (Dollars in thousands) 2023 2022 Deferred tax assets: Bad debts $ 11,606 $ 10,636 Deferred compensation 3,739 2,652 Stock based compensation 3,916 3,521 Valuation adjustments 393 3,047 General business credits (1) 59,783 52,684 Accrued expenses 2,558 1,948 Lease liability 7,210 8,074 Net unrealized loss on securities available for sale 84,908 71,336 Other assets 4,193 2,662 178,306 156,560 Deferred tax liabilities: Premises and equipment ( 2,016 ) ( 3,148 ) Intangibles ( 5,862 ) ( 4,099 ) Leased assets ( 66,877 ) ( 58,592 ) Right-of-use assets ( 6,877 ) ( 7,758 ) Other liabilities ( 1,349 ) ( 1,170 ) ( 82,981 ) ( 74,767 ) Net deferred tax assets $ 95,325 $ 81,793 (1) The general business credits are investment tax credits generated from qualified solar energy property placed in service during the fiscal years ended September 30, 2023 and 2022. These credits will begin to expire on September 30, 2041. As of September 30, 2023, the Company had a gross deferred tax asset of $ 2.7 million for separate company state cumulative net operating loss carryforwards, for which $ 2.7 million was reserved. At September 30, 2022, the Company had a gross deferred tax asset of $ 2.9 million for separate company state cumulative net operating loss carryforwards, for which $ 2.9 million was reserved. These state operating loss carryforwards will expire in various subsequent periods. In general, management believes that the realization of its deferred tax assets is more likely than not based on the expectations as to future taxable income; therefore, there was no deferred tax valuation allowance at September 30, 2023, or 2022 with the exception of the state cumulative net operating loss carryforwards discussed above. 117 Table of Contents The table below reconciles the statutory federal income tax expense and rate to the effective income tax expense and rate for the fiscal years presented. The Company's effective tax rate is calculated by dividing income tax expense by income before income tax expense. Fiscal Year Ended September 30, 2023 2022 2021 (Dollars in thousands) Amount Rate Amount Rate Amount Rate Statutory federal income tax expense and rate $ 38,248 21.0 % $ 38,714 21.0 % $ 32,854 21.0 % Change in tax rate resulting from: State income taxes net of federal benefits 7,047 3.9 % 7,413 4.0 % 6,452 4.1 % 162(m) disallowance 919 0.5 % 1,125 0.4 % 686 0.4 % Tax exempt income ( 783 ) ( 0.4 ) % ( 743 ) ( 0.4 ) % ( 835 ) ( 0.5 ) % General business credits ( 28,633 ) ( 15.7 ) % ( 17,589 ) ( 9.5 ) % ( 26,945 ) ( 17.2 ) % Other, net ( 474 ) ( 0.3 ) % ( 956 ) ( 0.3 ) % ( 1,511 ) ( 1.0 ) % Income tax expense $ 16,324 9.0 % $ 27,964 15.2 % $ 10,701 6.8 % The Company uses the flow through method of accounting for investment tax credits under which the credits are recognized as a reduction to income tax expense in the period in which the credit arises. During the fiscal years ended September 30, 2023, 2022, and 2021, $ 27.4 million, $ 16.8 million, and $ 26.5 million in investment tax credits were recognized as a reduction to income tax expense, respectively. The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review. While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company’s income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances surrounding a tax issue, and (ii) any difference from the Company’s tax position as recorded in the Consolidated Financial Statements and the final resolution of a tax issue during the period. The tax years ended September 30, 2020 and later remain subject to examination by the Internal Revenue Service. For state purposes, the tax years ended September 30, 2020 and later remain open for examination, with few exceptions. A reconciliation of the beginning and ending balances for liabilities associated with unrecognized tax benefits follows: At September 30, (Dollars in thousands) 2023 2022 Balance at beginning of fiscal year $ 645 $ 777 Additions (reductions) for tax positions related to prior years ( 124 ) ( 132 ) Balance at end of fiscal year $ 521 $ 645 The total amount of unrecognized tax benefits that, if recognized, would impact the effective rate was $ 164,000 as of September 30, 2023. The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest related to unrecognized tax benefits was $ 80,000 as of September 30, 2023. The Company does not anticipate any significant change in the total amount of unrecognized tax benefits within the next 12 months. 118 Table of Contents NOTE 15. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS The Company and the Bank are required to comply with the regulatory capital rules administered by federal banking agencies (the "Capital Rules"). Under the Capital Rules and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors. The Capital Rules require the Company and the Bank to maintain minimum ratios (set forth in the table below) of total risk-based capital and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio consisting of Tier 1 capital (as defined) to average assets (as defined). At September 30, 2023, the Company and the Bank exceeded federal regulatory minimum capital requirements to be classified as well-capitalized under the prompt corrective action requirements. The Company and the Bank took the AOCI opt-out election; under the rule, non-advanced approach banking organizations were given a one-time option to exclude certain AOCI components. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity. Company Bank Minimum to be Adequately Capitalized Under Prompt Corrective Action Provisions Minimum to be Well Capitalized Under Prompt Corrective Action Provisions At September 30, 2023 Tier 1 leverage capital ratio 8.11 % 8.32 % 4.00 % 5.00 % Common equity Tier 1 capital ratio 11.25 11.81 4.50 6.50 Tier 1 capital ratio 11.50 11.81 6.00 8.00 Total capital ratio 12.84 12.76 8.00 10.00 At September 30, 2022 Tier 1 leverage capital ratio 8.10 % 8.19 % 4.00 % 5.00 % Common equity Tier 1 capital ratio 12.07 12.55 4.50 6.50 Tier 1 capital ratio 12.39 12.55 6.00 8.00 Total capital ratio 13.88 13.57 8.00 10.00 119 Table of Contents The following table provides a reconciliation of the amounts included in the table above for the Company. (Dollars in thousands) Standardized Approach (1) September 30, 2023 Total stockholders' equity $ 650,625 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 297,679 LESS: Certain other intangible assets 21,228 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 19,679 LESS: Net unrealized (losses) on available for sale securities ( 254,294 ) LESS: Noncontrolling interest ( 1,005 ) ADD: Adoption of Accounting Standards Update 2016-13 2,017 Common Equity Tier 1 (1) 569,355 Long-term borrowings and other instruments qualifying as Tier 1 13,661 Tier 1 minority interest not included in common equity Tier 1 capital ( 826 ) Total Tier 1 capital 582,190 Allowance for credit losses 47,960 Subordinated debentures, net of issuance costs 19,591 Total capital $ 649,741 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum common equity tier 1 capital ratio. The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to total stockholders' equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry. (Dollars in thousands) At September 30, 2023 Total stockholders' equity $ 650,625 LESS: Goodwill 309,505 LESS: Intangible assets 20,720 Tangible common equity 320,400 LESS: AOCI ( 255,443 ) Tangible common equity excluding AOCI $ 575,843 Since January 1, 2016, the Company and the Bank have been required to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of Common Equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. The required Common Equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios with the buffer are currently 7.0 %, 8.5 % and 10.5 %, respectively. Based on current and expected continued profitability and subject to continued access to capital markets, we believe that the Company and the Bank will continue to meet the capital conservation buffer of 2.5 % in addition to required minimum capital ratios. NOTE 16. REVENUE FROM CONTRACTS WITH CUSTOMERS Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 17. Segment Reporting to the Consolidated Financial Statements. 120 Table of Contents (Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company Fiscal Year Ended September 30, 2023 2022 2023 2022 2023 2022 2023 2022 Net interest income (1) $ 154,316 $ 98,366 $ 195,239 $ 187,209 $ 38,306 $ 21,749 $ 387,861 $ 307,324 Noninterest income: Refund transfer product fees 39,452 39,809 — — — — 39,452 39,809 Refund advance fee income (1) 37,433 40,557 — — — — 37,433 40,557 Card and deposit fees 149,703 104,684 1,018 1,020 25 29 150,746 105,733 Rental income (1) — — 53,346 46,023 844 535 54,190 46,558 Gain (loss) on sale of securities (1) — — — — 91 ( 1,287 ) 91 ( 1,287 ) Gain on trademarks (1) — — — — 10,000 50,000 10,000 50,000 Gain (loss) on sale of other (1) — — 2,005 8,782 567 ( 13,702 ) 2,572 ( 4,920 ) Other income (1) 6,956 4,202 9,682 12,587 5,477 568 22,115 17,357 Total noninterest income 233,544 189,252 66,051 68,412 17,004 36,143 316,599 293,807 Revenue $ 387,860 $ 287,618 $ 261,290 $ 255,621 $ 55,310 $ 57,892 $ 704,460 $ 601,131 (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 fiscal year ended September 30, 2023. Refund Transfer Product Fees. Refund transfer fees are specific to the 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 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. 121 Table of Contents 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 FDIC. The servicing fee is typically reflective of the EFFR. NOTE 17. SEGMENT REPORTING An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met. The Company reports its results of operations through the following three business segments: Consumer, Commercial, and Corporate Services/Other. The 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. The following tables present segment data for the Company: Fiscal Year Ended September 30, 2023 (Dollars in thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 154,316 $ 195,239 $ 38,306 $ 387,861 Provision for (reversal of) credit losses 38,920 18,384 50 57,354 Noninterest income 233,544 66,051 17,004 316,599 Noninterest expense 165,782 141,627 157,566 464,975 Income (loss) before income tax expense 183,158 101,279 ( 102,306 ) 182,131 Total assets 492,964 4,179,914 2,862,665 7,535,543 Total goodwill 87,145 222,360 — 309,505 Total deposits 6,376,467 5,958 206,757 6,589,182 Fiscal Year Ended September 30, 2022 (Dollars in thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 98,366 $ 187,209 $ 21,749 $ 307,324 Provision for (reversal of) credit losses 30,680 14,674 ( 16,816 ) 28,538 Noninterest income 189,252 68,412 36,143 293,807 Noninterest expense 99,589 128,904 156,782 385,275 Income (loss) before income tax expense 157,349 112,043 ( 82,074 ) 187,318 Total assets 356,994 3,487,461 2,902,955 6,747,410 Total goodwill 87,145 222,360 — 309,505 Total deposits 5,695,776 8,965 161,296 5,866,037 122 Table of Contents Fiscal Year Ended September 30, 2021 (Dollars in thousands) Consumer Commercial Corporate Services/Other Total Net interest income $ 91,489 $ 173,969 $ 13,533 $ 278,991 Provision for (reversal of) credit losses 35,765 19,791 ( 5,790 ) 49,766 Noninterest income 195,708 61,813 13,383 270,904 Noninterest expense 90,792 114,925 137,966 343,683 Income (loss) before income tax expense 160,640 101,066 ( 105,260 ) 156,446 Total assets 354,441 3,208,889 3,127,320 6,690,650 Total goodwill 87,145 222,360 — 309,505 Total deposits 5,342,192 6,625 166,154 5,514,971 NOTE 18. PARENT COMPANY FINANCIAL STATEMENTS Presented below are the condensed financial statements for the parent company, Pathward Financial. Condensed Statements of Financial Condition (Dollars in thousands) September 30, 2023 September 30, 2022 ASSETS Cash and cash equivalents $ 1,399 $ 13,117 Investment securities held to maturity, at cost 9,220 8,003 Investment in subsidiaries 678,572 665,172 Other assets 1,312 928 Total assets $ 690,503 $ 687,220 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Subordinated debentures $ 33,252 $ 33,661 Other liabilities 6,626 8,419 Total liabilities 39,878 42,080 STOCKHOLDERS' EQUITY Common stock 262 288 Additional paid-in capital 628,500 617,403 Retained earnings 278,655 245,394 Accumulated other comprehensive income (loss) ( 255,443 ) ( 213,080 ) Treasury stock, at cost ( 344 ) ( 4,835 ) Total equity attributable to parent 651,630 645,170 Non-controlling interest ( 1,005 ) ( 30 ) Total stockholders' equity 650,625 645,140 Total liabilities and stockholders' equity $ 690,503 $ 687,220 123 Table of Contents Condensed Statements of Operations Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Interest expense $ 2,538 $ 3,982 $ 4,915 Other expense 1,409 1,062 1,287 Total expense 3,947 5,044 6,202 Loss before income taxes and equity in undistributed net income of subsidiaries ( 3,947 ) ( 5,044 ) ( 6,202 ) Income tax (benefit) expense ( 967 ) ( 1,029 ) 395 Loss before equity in undistributed net income of subsidiaries ( 2,980 ) ( 4,015 ) ( 6,597 ) Equity in undistributed net income of subsidiaries 166,738 159,652 147,895 Other income ( 143 ) 749 410 Total income 166,595 160,401 148,305 Net income attributable to parent $ 163,615 $ 156,386 $ 141,708 124 Table of Contents Condensed Statements of Cash Flows Fiscal Year Ended September 30, (Dollars in thousands) 2023 2022 2021 Cash flows from operating activities: Net income attributable to parent $ 163,615 $ 156,386 $ 141,708 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion, net 102 1,020 173 Equity in undistributed net income of subsidiaries ( 166,738 ) ( 159,652 ) ( 147,895 ) Net change in accrued interest receivable ( 30 ) ( 15 ) — Net change in other assets ( 354 ) ( 636 ) 3,030 Net change in accrued expenses and other liabilities ( 1,793 ) 3,163 ( 2,698 ) Cash dividend received 110,000 229,200 104,000 Stock compensation 11,070 10,004 6,852 Net cash provided by operating activities 115,872 239,470 105,170 Cash flows from investing activities: Alternative investments ( 1,217 ) ( 3,380 ) ( 3,415 ) Net cash (used in) investing activities ( 1,217 ) ( 3,380 ) ( 3,415 ) Cash flows from financing activities: Redemption of long-term borrowings — ( 75,000 ) — Payment of debt issuance costs ( 511 ) — — Proceeds from long-term borrowings — 20,000 — Dividends paid on common stock ( 5,426 ) ( 5,921 ) ( 6,400 ) Issuance of common stock due to restricted stock 1 1 — Issuance of common stock due to ESOP — 2,886 3,036 Repurchases of common stock ( 120,437 ) ( 168,235 ) ( 99,878 ) Net cash (used in) financing activities ( 126,373 ) ( 226,269 ) ( 103,242 ) Net change in cash and cash equivalents ( 11,718 ) 9,821 ( 1,487 ) Cash and cash equivalents at beginning of fiscal year 13,117 3,296 4,783 Cash and cash equivalents at end of fiscal year $ 1,399 $ 13,117 $ 3,296 The extent to which the Company may pay cash dividends to stockholders will depend on the cash currently available at the Company, as well as the ability of the Bank to pay dividends to the Company. For further discussion, see Note 15 herein. 125 Table of Contents NOTE 19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Quarter Ended (Dollars in thousands, except per share data) December 31 March 31 June 30 September 30 Fiscal Year 2023 Interest and dividend income $ 85,060 $ 104,687 $ 99,346 $ 109,642 Interest expense 1,003 3,282 1,881 4,708 Net interest income 84,057 101,405 97,465 104,934 Provision for credit losses 9,776 36,763 1,773 9,042 Noninterest income 65,777 127,038 67,733 56,051 Net income attributable to parent 27,842 54,771 45,096 35,906 Earnings per common share Basic $ 0.98 $ 1.99 $ 1.69 $ 1.37 Diluted 0.98 1.99 1.68 1.36 Dividend declared per share 0.05 0.05 0.05 0.05 Fiscal Year 2022 Interest and dividend income $ 72,891 $ 85,177 $ 73,906 $ 80,222 Interest expense 1,278 1,377 1,755 462 Net interest income 71,613 83,800 72,151 79,760 Provision for (reversal of) loan and lease losses 186 32,302 ( 1,302 ) ( 2,648 ) Noninterest income 86,591 109,766 53,994 43,456 Net income attributable to parent 61,324 49,251 22,391 23,420 Earnings per common share Basic $ 2.00 $ 1.66 $ 0.76 $ 0.81 Diluted 2.00 1.66 0.76 0.81 Dividend declared per share 0.05 0.05 0.05 0.05 Fiscal Year 2021 Interest and dividend income $ 68,146 $ 75,669 $ 69,983 $ 72,056 Interest expense 2,147 1,819 1,508 1,389 Net interest income 65,999 73,850 68,475 70,667 Provision for loan and lease losses 6,089 30,290 4,612 8,775 Noninterest income 45,455 113,453 62,453 49,542 Net income attributable to parent 28,037 59,066 38,701 15,903 Earnings per common share Basic $ 0.84 $ 1.84 $ 1.21 $ 0.50 Diluted 0.84 1.84 1.21 0.50 Dividend declared per share 0.05 0.05 0.05 0.05 126 Table of Contents NOTE 20. 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. There were no transfers between levels of the fair value hierarchy for the fiscal years ended September 30, 2023 or 2022. Debt Securities Available for Sale and Held to Maturity . Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost. The fair values of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and compares to current market trading activity. Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis. Fair Value At September 30, 2023 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 18,250 $ — $ 18,250 — SBA securities 85,242 — 85,242 — Obligations of states and political subdivisions 2,289 — 2,289 — Non-bank qualified obligations of states and political subdivisions 226,723 — 226,723 — Asset-backed securities 246,199 — 246,199 — Mortgage-backed securities 1,225,525 — 1,225,525 — Total debt securities AFS $ 1,804,228 $ — $ 1,804,228 $ — Common equities and mutual funds (1) $ 3,378 $ 3,378 $ — $ — Non-marketable equity securities (2) $ 8,389 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at September 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. 127 Table of Contents Fair Value 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 statement 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 25 %. The following table summarizes the assets of the Company that are measured at fair value in the Consolidated Statements of Financial Condition on a non-recurring basis: Fair Value At September 30, 2023 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 21,829 $ — $ — $ 21,829 Total loans and leases, net individually evaluated for credit loss 21,829 — — 21,829 Total $ 21,829 $ — $ — $ 21,829 Fair Value 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 September 30, 2023 Fair Value at September 30, 2022 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 21,829 1,575 Market approach Appraised values (1) 3 % - 25 % Foreclosed assets, net $ — 1 Market approach Appraised values (1) 9 % - 20 % (1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimated selling costs and other inputs in a range of 3 % to 25 %. 128 Table of Contents Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair values estimates were made at September 30, 2023 and 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. The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company: At September 30, 2023 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 375,580 $ 375,580 $ 375,580 $ — $ — Debt securities available for sale 1,804,228 1,804,228 — 1,804,228 — Debt securities held to maturity 36,591 31,425 — 31,425 — Common equities and mutual funds (1) 3,378 3,378 3,378 — — Non-marketable equity securities (1)(2) 20,453 20,453 — 12,064 — Loans held for sale 77,779 77,779 — 77,779 — Loans and leases 4,359,681 4,223,010 — — 4,223,010 Federal Reserve Bank and Federal Home Loan Bank stocks 28,210 28,210 — 28,210 — Accrued interest receivable 23,282 23,282 23,282 — — Financial liabilities Deposits 6,589,182 6,589,065 6,583,648 5,417 — Other short- and long-term borrowings 33,873 31,187 — 31,187 — Accrued interest payable 247 247 247 — — (1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at September 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 statement 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. 129 Table of Contents The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at September 30, 2023 and 2022. CASH AND CASH EQUIVALENTS The carrying amount of cash and short-term investments is assumed to approximate the fair value. DEBT SECURITIES AVAILABLE FOR SALE AND EQUITY SECURITIES Fair values for debt securities available for sale are based on quoted prices of similar securities on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. Fair values for marketable equity securities are based on unadjusted quoted prices from active markets in which the security is traded. Non-marketable equity securities are measured at fair value using NAV per share (or its equivalent) as a practical expedient. LOANS HELD FOR SALE Loans held for sale are carried at the lower of amortized cost or fair value, where fair value reflects the amount a willing market participant would pay for the loan. The Company classifies SBA/USDA loans held for sale as Level 2 in the fair value hierarchy as there is an active secondary market in which these loans are exchanged. Consumer loans held for sale are classified as Level 3 in the fair value hierarchy as the price at which these loans are sold are dictated by terms of the Program Agreements with consumer lending partners . LOANS AND LEASES The fair values of loans and leases were estimated using an exit price methodology. The exit price estimation of fair value is based on the present value of expected cash flows, which are based on the contractual terms of the loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows. Other considerations include the loan type, remaining life of the loan and credit risk. FEDERAL RESERVE BANK AND FEDERAL HOME LOAN BANK STOCKS The fair value of FRB and FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value. ACCRUED INTEREST RECEIVABLE The carrying amount of accrued interest receivable is assumed to approximate the fair value. DEPOSITS With the exception of time certificate deposits and wholesale deposits, the carrying values of deposits are assumed to approximate fair value since deposits are immediately withdrawable without penalty. The fair value of time certificate deposits and wholesale certificate of deposits are estimated using a discounted cash flows calculation that applies the FHLB Des Moines curve to aggregated expected maturities of time deposits. FEDERAL HOME LOAN BANK ADVANCES The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities. SUBORDINATED DEBENTURES AND OTHER BORROWINGS The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings. ACCRUED INTEREST PAYABLE The carrying amount of accrued interest payable is assumed to approximate the fair value. 130 Table of Contents LIMITATIONS Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision. Changes in assumptions as well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, 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. NOTE 21. SUBSEQUENT EVENTS Management has evaluated subsequent events that occurred after September 30, 2023. During this period, up to the filing date of this Annual Report on Form 10-K, management identified the following subsequent events: • On October 5, 2023 the Company announced that Gregory A. Sigrist was appointed as Executive Vice President, Chief Financial Officer effective immediately after the filing of the Company's Annual Form 10-K for the fiscal year ended September 30, 2023. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.