What changed in this filing

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Item 1. Financial Statements

2024-02-08 compared with 2023-08-08 · 208 added, 366 removed, 871 unchanged (40% of the section changed)

3 unchanged sentences

Condensed Consolidated Statements of Financial Condition

(Dollars in thousands, except per share data) June 30, 2023 September 30, 2022

(Dollars in thousands, except per share data) December 31, 2023 September 30, 2023

ASSETS (Unaudited) (Audited)

20 unchanged sentences

STOCKHOLDERS’ EQUITY

Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2023 and September 30, 2022, respectively

Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2023 and September 30, 2023, respectively

Common stock, $ 0.01 par value;

90,000,000 shares authorized, 26,688,951 and 28,878,177 shares issued, 26,539,272 and 28,788,124 shares outstanding at June 30, 2023 and September 30, 2022, respectively

90,000,000 shares authorized, 26,099,348 and 26,225,563 shares issued, 25,988,230 and 26,183,583 shares outstanding at December 31, 2023 and September 30, 2023, respectively

Common stock, Nonvoting, $ 0.01 par value;

3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2023 and September 30, 2022, respectively

3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2023 and September 30, 2023, respectively

Additional paid-in capital 629,737 628,500

1 unchanged sentence

Accumulated other comprehensive loss ( 188,433 ) ( 255,443 )

Treasury stock, at cost, 149,679 and 90,053 common shares at June 30, 2023 and September 30, 2022, respectively

Treasury stock, at cost, 111,118 and 41,980 common shares at December 31, 2023 and September 30, 2023, respectively

( 5,235 ) ( 344 )

7 unchanged sentences

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands, except per share data) 2023 2022

7 unchanged sentences

FHLB advances and other borrowings 2,336 861

1,881 1,755 6,166 4,410

Net interest income 110,036 84,057

Provision for (reversal of) credit losses 1,773 ( 1,302 ) 48,312 31,186

Net interest income after provision for credit losses 95,692 73,453 234,615 196,378

Provision for credit loss 9,890 9,776

Net interest income after provision for credit loss 100,146 74,281

Noninterest income:

3 unchanged sentences

Rental income 13,459 12,708

Gain on sale of securities 9 198 91 595

Gain on sale of trademarks — 10,000

Gain (loss) on sale of other 812 1,239 566 ( 1,601 )

Gain on sale of other 2,840 502

Other income 5,179 3,555

24 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

1 unchanged sentence

Other comprehensive income (loss):

Change in net unrealized gain (loss) on debt securities ( 26,664 ) ( 81,841 ) 6,574 ( 184,614 )

Net (gain) realized on investment securities ( 9 ) ( 198 ) ( 91 ) ( 595 )

Change in net unrealized gain on debt securities 88,535 14,708

88,535 14,708

Unrealized gain (loss) on currency translation 495 ( 520 ) 942 ( 311 )

Unrealized gain on currency translation 618 387

Deferred income tax effect 22,143 3,705

Total other comprehensive income (loss) ( 20,067 ) ( 62,033 ) 5,184 ( 139,006 )

Total comprehensive income (loss) 25,537 ( 38,194 ) 134,578 ( 3,759 )

Total other comprehensive income 67,010 11,390

Total comprehensive income 94,924 39,812

Total comprehensive income attributable to noncontrolling interest 257 580

Comprehensive income (loss) attributable to parent $ 25,029 $ ( 39,642 ) $ 132,893 $ ( 6,040 )

Comprehensive income attributable to parent $ 94,667 $ 39,232

See Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(Dollars in thousands, except per share data) Pathward Financial, Inc.

Three Months Ended June 30, 2023 Common

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss) Treasury

Stock Total Pathward Financial

Stockholders’

Equity Noncontrolling interest Total

Stockholders’

Balance, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ ( 187,829 ) $ ( 6,943 ) $ 673,795 $ ( 551 ) $ 673,244

Cash dividends declared on common stock ($ 0.05 per share)

— — ( 1,327 ) — — ( 1,327 ) — ( 1,327 )

Repurchases of common stock ( 5 ) 5 ( 21,715 ) — — ( 21,715 ) — ( 21,715 )

Stock compensation — 2,570 — — — 2,570 — 2,570

Total other comprehensive (loss) — — — ( 20,067 ) — ( 20,067 ) — ( 20,067 )

Net income — — 45,096 — — 45,096 508 45,604

Net investment by (distribution to) noncontrolling interests — — — — — — ( 588 ) ( 588 )

Balance, June 30, 2023

$ 266 $ 625,825 $ 267,100 $ ( 207,896 ) $ ( 6,943 ) $ 678,352 $ ( 631 ) $ 677,721

Three Months Ended June 30, 2022

Balance, March 31, 2022 $ 294 $ 612,917 $ 223,760 $ ( 69,374 ) $ ( 4,513 ) $ 763,084 $ 322 $ 763,406

Cash dividends declared on common stock ($ 0.05 per share)

— — ( 1,465 ) — — ( 1,465 ) — ( 1,465 )

Repurchases of common stock — — — — ( 110 ) ( 110 ) — ( 110 )

Stock compensation — 2,242 — — — 2,242 — 2,242

Total other comprehensive (loss) — — — ( 62,033 ) — ( 62,033 ) — ( 62,033 )

Net income — — 22,391 — — 22,391 1,448 23,839

Net investment by (distribution to) noncontrolling interests — — — — — — ( 1,105 ) ( 1,105 )

Balance, June 30, 2022

$ 294 $ 615,159 $ 244,686 $ ( 131,407 ) $ ( 4,623 ) $ 724,109 $ 665 $ 724,774

(Dollars in thousands, except per share data) Pathward Financial, Inc.

Nine Months Ended June 30, 2023 Common

(Dollars in thousands, except per share data) Common

Stock Additional

3 unchanged sentences

Income (Loss) Treasury

Stock Total Pathward Financial

Stock Total Pathward Financial, Inc.

Stockholders’

1 unchanged sentence

Stockholders’

Three Months Ended December 31, 2023

Balance, September 30, 2023 $ 262 $ 628,500 $ 278,655 $ ( 255,443 ) $ ( 344 ) $ 651,630 $ ( 1,005 ) $ 650,625

$ 288 $ 617,403 $ 245,394 $ ( 213,080 ) $ ( 4,835 ) $ 645,170 $ ( 30 ) $ 645,140

Cash dividends declared on common stock ($ 0.05 per share)

4 unchanged sentences

Total other comprehensive income — — — 67,010 — 67,010 — 67,010

Joint venture membership interest divestiture — — ( 523 ) — — ( 523 ) — ( 523 )

Net income — — 27,657 — — 27,657 257 27,914

Net investment by (distribution to) noncontrolling interests — — — — — — ( 2,286 ) ( 2,286 )

Balance, June 30, 2023

Net distribution to noncontrolling interests — — — — — — 238 238

Balance, December 31, 2023

$ 260 $ 629,737 $ 293,463 $ ( 188,433 ) $ ( 5,235 ) $ 729,792 $ ( 510 ) $ 729,282

Nine Months Ended June 30, 2022

Three Months Ended December 31, 2022

Balance, September 30, 2022 $ 288 $ 617,403 $ 245,394 $ ( 213,080 ) $ ( 4,835 ) $ 645,170 $ ( 30 ) $ 645,140

$ 317 $ 604,484 $ 259,189 $ 7,599 $ ( 860 ) $ 870,729 $ 1,155 $ 871,884

Cash dividends declared on common stock ($ 0.05 per share)

1 unchanged sentence

Issuance of common stock due to restricted stock 1 — — — — 1 — 1

Issuance of common stock due to ESOP 1 2,885 — — — 2,886 — 2,886

Repurchases of common stock ( 7 ) 7 ( 24,943 ) — ( 1,989 ) ( 26,932 ) — ( 26,932 )

Stock compensation — 3,271 — — — 3,271 — 3,271

Total other comprehensive (loss) — — — ( 139,006 ) — ( 139,006 ) — ( 139,006 )

Total other comprehensive income — — — 11,390 — 11,390 — 11,390

Net income — — 27,842 — — 27,842 580 28,422

Net investment by (distribution to) noncontrolling interests — — — — — — ( 2,771 ) ( 2,771 )

Balance, June 30, 2022

Net distribution to noncontrolling interests — — — — — — ( 757 ) ( 757 )

Balance, December 31, 2022

$ 282 $ 620,681 $ 246,891 $ ( 201,690 ) $ ( 6,824 ) $ 659,340 $ ( 207 ) $ 659,133

3 unchanged sentences

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

2 unchanged sentences

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation, amortization and accretion, net 49,506 47,193

Provision for credit losses 48,312 31,186

Depreciation and amortization 14,689 14,566

Provision for credit loss 9,890 9,776

Provision for deferred taxes 1,162 2,255

2 unchanged sentences

Net change in loans held for sale 13,829 ( 84 )

Net realized (gain) on securities available for sale — ( 161 )

Net realized (gain) loss on loans held for sale ( 235 ) 3,933

Net realized loss on premise, furniture, and equipment — 45

Net realized (gain) on lease receivables and equipment ( 335 ) ( 2,180 )

Net realized (gain) on trademarks — ( 10,000 )

Net realized (gain) on other assets ( 91 ) ( 434 )

Net realized (gain) on other ( 2,840 ) ( 502 )

Impairment on rental equipment — 24

Impairment of intangibles — 670

Net change in accrued interest receivable ( 3,798 ) ( 2,191 )

4 unchanged sentences

Cash flows from investing activities:

Purchases of securities available for sale ( 150,751 ) ( 689,515 )

Proceeds from sales of securities available for sale — 244,305

Proceeds from maturities of and principal collected on securities available for sale 41,936 49,069

3 unchanged sentences

Purchases of loans and leases ( 89,390 ) ( 67,649 )

Proceeds from sales of loans and leases — 45,784

Net change in loans and leases 98,895 217,812

Purchases of premises, furniture, and equipment ( 1,885 ) ( 1,989 )

Proceeds from sales of premises, furniture, and equipment — 35

Purchases of rental equipment ( 106,160 ) ( 164,245 )

4 unchanged sentences

Proceeds from sale of other assets 4,077 —

Net cash (used in) investing activities ( 620,974 ) ( 410,941 )

Net cash (used in) provided by investing activities ( 43,623 ) 45,443

Cash flows from financing activities:

1 unchanged sentence

Net change in short-term borrowings ( 13,000 ) —

Redemption of long-term borrowings — ( 75,000 )

Principal payments on capital lease obligations — ( 75 )

Principal payments on other liabilities ( 284 ) ( 573 )

Proceeds from other liabilities — —

Payment of debt issuance costs — ( 504 )

1 unchanged sentence

Issuance of common stock due to restricted stock 1 1

Issuance of common stock due to ESOP — 2,886

Repurchases of common stock ( 15,918 ) ( 26,932 )

5 unchanged sentences

Cash and cash equivalents at end of fiscal period $ 671,630 $ 369,169

Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

3 unchanged sentences

Income taxes 641 492

Franchise taxes 200 200

Other taxes 449 516

Franchise and other taxes 66 66

Supplemental schedule of non-cash investing activities:

Purchases/sales of securities accrued, not settled

Trade Date Purchases - AFS 3,026 101,993

Held for sale to loans and leases 158 14,731

Loans and leases to held for sale — 169,045

Loans and leases to rental equipment 1,430 1,405

1 unchanged sentence

Recognition of operating lease ROU assets, net of measurements 654 —

Joint venture membership interest divestiture 523 —

See Notes to Condensed Consolidated Financial Statements.

BASIS OF PRESENTATION

The interim unaudited Condensed Consolidated Financial Statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended September 30, 2022 included in Pathward Financial, Inc.’s (“Pathward” or the “Company”) Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 22, 2022.

The interim unaudited Condensed Consolidated Financial Statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended September 30, 2023 included in Pathward Financial, Inc.’s ("Pathward Financial" or the “Company") Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 21, 2023.

Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted.

2 unchanged sentences

Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

The results of the three and nine months ended June 30, 2023 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2023.

The results of the three months ended December 31, 2023 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2024.

Certain prior fiscal year amounts have been reclassified to conform to the current year financial statement presentation.

These changes and reclassifications did not impact previously reported net income or comprehensive income.

These reclassifications did not impact previously reported net income, comprehensive income or the statement of financial condition.

Additionally, certain prior fiscal year amounts within Note 4.

Loans and Leases, Net have been revised.

Prior fiscal year tables that were revised include the amortized cost basis of loans and leases by asset classification and year of origination, nonaccrual loans and leases by year of origination, and loans and leases that are 90 days or more delinquent and accruing by year of origination.

The revisions were related to the year of origination and did not impact total loan balances, total asset classification balances, total nonaccrual balances, or total past due loan balances.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")

Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, 2022 remain substantially unchanged, except for the following:

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Pathward Financial, Inc.

("Pathward Financial" or the “Company” or "us"), a registered bank holding company located in Sioux Falls, South Dakota, and its wholly-owned subsidiaries.

The Company's subsidiaries include Pathward ® , National Association ("Pathward ® , N.A." or "Pathward" or "the “Bank”), a national bank whose primary federal regulator is the Office of the Comptroller of the Currency (the "OCC"), and Pathward Venture Capital, LLC, a wholly-owned service corporation subsidiary of Pathward, N.A.

which invests in companies in the financial services industry.

All significant intercompany balances and transactions have been eliminated.

The Company also owns 100% of First Midwest Financial Capital Trust I (the “Trust”), which was formed in July 2001 for the purpose of issuing trust preferred securities, and Crestmark Capital Trust I, which was acquired from the Crestmark Acquisition in August 2018.

The Trust and Crestmark Capital Trust I are not included in the Consolidated Financial Statements of the Company.

In addition, the Company is a variable interest holder in certain entities in which the equity holders do not have the characteristics of a controlling financial interest or where the entity does not have enough equity at risk to finance its activities without additional subordinated financial support (referred to as variable interest entities or "VIEs").

The Company's variable interest arises from contractual ownership or other monetary interests that change with fluctuations in the VIE's net asset value.

The primary beneficiary is the entity which has both:

(1) the power to direct the activities of the VIE that most significantly impacts the VIE's economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE.

Further, the Company assesses whether or not the Company is the primary beneficiary of a VIE on an ongoing basis.

If the determination is made that the Company is the primary beneficiary, then that entity is included in the Consolidated Financial Statements.

Noncontrolling interests represent the portion of net income and equity attributable to third-party owners of consolidated subsidiaries that are not wholly-owned by Pathward Financial.

All of the Company's noncontrolling interests relate to the Company's Commercial Finance business line.

Variable Interest Entities

In the normal course of business, the Company enters into off-balance sheet transactions with special purpose entities ("SPEs"), which can be structured as corporations, trusts, limited liability companies, or partnerships and are established for a limited purpose.

Currently, the Company utilizes a SPE facility for certain term lending products within the Company's Commercial Finance business line.

The Company participated in the structuring of the SPE, has a minority ownership interest in the SPE, and acts as servicer for the SPE in exchange for a servicing fee.

Pathward is not the primary beneficiary of the SPE as our risk of loss or right to benefits from the SPE are not significant.

As of June 30, 2023, there are $ 9.9 million of commercial term loans held at the SPE, and the Company’s equity investment in the SPE is $ 0.9 million.

The Company’s maximum exposure to loss from the SPE is limited to its equity investment.

As of June 30, 2023, there are $ 3.0 million of commercial term loans classified as held for sale related to this VIE.

Additional information on loans transferred during the period is included in Note 5.

Loans and Leases, Net.

Loan Servicing and Transfers of Financial Assets

Transfers of loans, portions of loans meeting the definition of a participating interest, and other financial assets are accounted for as sales on the transaction settlement date when control has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been legally isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of such right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through a repurchase agreement or other means.

Upon sale, the loans or other financial assets are derecognized from the Company’s Consolidated Statements of Financial Condition.

If the transfer does not satisfy the aforementioned control criteria, the transaction is recorded as a secured borrowing with the loans or other financial assets remaining on the Company’s Consolidated Statements of Financial Condition and proceeds recognized as a liability.

The Company sells loan participations, generally without recourse, in both the commercial and consumer segments.

The Company also sells commercial Small Business Administration ("SBA") and United States Department of Agriculture ("USDA") loans to third parties, generally without recourse.

The Bank generally retains the right to service the sold loans for a fee.

If the fee is determined commensurate and customary with market terms, no servicing asset or liability is recorded.

Any fee that is above or below market terms results in a servicing asset or liability and is included within Other Assets on the Consolidated Statements of Financial Condition.

Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, 2023 remain substantially unchanged.

The following ASU became effective for the Company on October 1, 2023, and did not have a material impact on the Company’s significant accounting policies or Condensed Consolidated Financial Statements:

– ASU 2021-05, Leases (Topic 842):

Lessors - Certain Leases with Variable Lease Payments.

SIGNIFICANT EVENTS

On December 7, 2021, the Company executed a Purchase Agreement (the “Agreement”) with Beige Key, LLC (the “Assignee”) for the sale of all of the Company’s worldwide right, title and interest in and to company names and tradenames including Meta and other "Meta" formative names including MetaBank and Meta Financial Group, and the domain names, social media accounts and goodwill associated with the foregoing (collectively, the “Meta” tradenames) in exchange for $ 60.0 million in cash.

Subject to the terms and conditions set forth in the Agreement, the Company had one year from the Agreement execution date to phase out and cease all use of the Meta tradenames.

The Company received $ 50.0 million upon execution and delivery of the Agreement and was reflected in noninterest income for the fiscal year ended September 30, 2022.

The remaining $ 10.0 million was received by the Company upon completion of phase out activities during the quarter ended December 31, 2022.

There have been no additional rebrand activities since completion of these activities.

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 amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities are presented below.

1 unchanged sentence

Debt Securities AFS

At June 30, 2023

At December 31, 2023

Corporate securities $ 25,000 $ — $ ( 6,625 ) $ 18,375

14 unchanged sentences

Debt Securities HTM

At June 30, 2023

At December 31, 2023

Non-bank qualified obligations of states and political subdivisions $ 33,337 $ — $ ( 3,050 ) $ 30,287

12 unchanged sentences

Debt Securities AFS

At June 30, 2023

At December 31, 2023

Corporate securities $ — $ — $ 18,375 $ ( 6,625 ) $ 18,375 $ ( 6,625 )

14 unchanged sentences

Debt Securities HTM

At June 30, 2023

At December 31, 2023

Non-bank qualified obligations of states and political subdivisions $ — $ — $ 30,287 $ ( 3,050 ) $ 30,287 $ ( 3,050 )

5 unchanged sentences

Total debt securities HTM $ — $ — $ 31,425 $ ( 5166 ) $ 31,425 $ ( 5,166 )

At June 30, 2023, there were 203 securities AFS in an unrealized loss position.

All of the mortgage-backed securities ("MBS") in an unrealized loss position at June 30, 2023 were government guaranteed.

Management assessed each investment security with unrealized losses for credit loss and determined substantially all unrealized losses on these securities were due to adverse market conditions and/or changes in interest rates versus credit loss.

The increase in the fair value of investment securities balances when comparing December 31, 2023 to September 30, 2023 was primarily driven by decreases in unrealized losses due to steady interest rates during the three months.

At December 31, 2023, there were 199 securities AFS in an unrealized loss position.

All of the mortgage-backed securities ("MBS") in an unrealized loss position at December 31, 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 adverse market conditions and/or 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 June 30, 2023, there was no allowance for credit losses ("ACL") for debt securities AFS.

At December 31, 2023, there was no allowance for credit losses ("ACL") for debt securities AFS.

The amortized cost and fair value of debt securities by contractual maturity are shown below.

4 unchanged sentences

However, certain prepayment penalties may apply.

(Dollars in thousands) At June 30, 2023 At September 30, 2022

Securities AFS at Fair Value Amortized Cost Fair

(Dollars in thousands) At December 31, 2023 At September 30, 2023

Debt Securities AFS Amortized Cost Fair

Value Amortized Cost Fair

5 unchanged sentences

Mortgage-backed securities 1,471,376 1,275,578 1,495,636 1,225,525

Total securities AFS, at fair value $ 2,190,638 $ 1,914,271 $ 2,165,719 $ 1,882,869

Securities HTM at Fair Value

Total debt securities AFS $ 2,101,149 $ 1,850,581 $ 2,143,333 $ 1,804,228

Debt Securities HTM

Due after ten years $ 33,337 $ 30,287 $ 34,415 $ 29,571

1 unchanged sentence

Mortgage-backed securities 2,103 1,893 2,176 1,854

Total securities HTM, at cost $ 37,725 $ 33,670 $ 41,682 $ 38,171

Total debt securities HTM $ 35,440 $ 32,180 $ 36,591 $ 31,425

Federal Reserve Bank ("FRB") Stock.

1 unchanged sentence

One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System.

FRB of Minneapolis stock held by the Bank totaled $ 19.7 million at June 30, 2023 and September 30, 2022.

FRB of Minneapolis stock held by the Bank totaled $ 19.7 million at December 31, 2023 and September 30, 2023.

These equity securities are 'restricted' in that they can only be owned by member banks.

5 unchanged sentences

The FHLB stock is carried at cost since it is generally redeemable at par value.

The carrying value of the stock held at the FHLB was $ 11.2 million and $ 9.1 million at June 30, 2023 and at September 30, 2022, respectively.

The carrying value of the stock held at the FHLB was $ 4.0 million and $ 8.5 million at December 31, 2023 and at September 30, 2023, 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.

Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the cost approximates fair value.

Equity Securities.

The Company held $ 3.5 million at June 30, 2023 and $ 2.9 million at September 30, 2022 in marketable equity securities.

The Company recognized $ 0.2 million and $ 3.8 million in unrealized losses on marketable equity securities during the nine months ended June 30, 2023 and 2022, respectively, which is attributable to an investee becoming publicly traded during fiscal year 2021.

All other marketable equity securities and related activity were insignificant for the nine months ended June 30, 2023 and 2022.

No such securities were sold during the nine months ended June 30, 2023.

Non-marketable equity securities with a readily determinable fair value totaled $ 8.5 million at June 30, 2023 and $ 7.2 million at September 30, 2022.

The Company recognized $ 0.1 million in unrealized losses and $ 0.6 million in unrealized gains during the nine months ended June 30, 2023 and 2022, respectively.

No such securities were sold during the nine months ended June 30, 2023.

Non-marketable equity securities without readily determinable fair value totaled $ 15.8 million at June 30, 2023 and $ 18.2 million at September 30, 2022.

There were two such securities were sold during the nine months ended June 30, 2023 .

The Company held $ 4.2 million and $ 3.4 million in marketable equity securities within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023 and September 30, 2023, respectively.

The Company recognized $ 0.1 million and zero in unrealized gains on marketable equity securities during the three months ended December 31, 2023 and 2022, respectively.

No such securities were sold during the three months ended December 31, 2023.

Non-marketable equity securities with a readily determinable fair value totaled $ 9.7 million and $ 8.4 million at December 31, 2023 and September 30, 2023, respectively.

The Company recognized $ 0.3 million and $ 0.1 million in unrealized gains during the three months ended December 31, 2023 and 2022, respectively.

No such securities were sold during the three months ended December 31, 2023.

Non-marketable equity securities without readily determinable fair value totaled $ 14.9 million and $ 16.2 million at December 31, 2023 and September 30, 2023, respectively.

There was one such security sold during the three months ended December 31, 2023 for a $ 2.5 million gain.

Equity Securities Impairment.

1 unchanged sentence

All other equity investments, including those under the equity method, are reviewed for other-than-temporary impairment on at least a quarterly basis.

The Company recognized $ 3.2 million and no impairment for such investments for the nine months ended June 30, 2023 and 2022, respectively.

The Company recognized no impairment for such investments for the three months ended December 31, 2023 and 2022, respectively.

LOANS AND LEASES, NET

Loans and leases consist of the following:

(Dollars in thousands) June 30, 2023 September 30, 2022

(Dollars in thousands) December 31, 2023 September 30, 2023

Term lending $ 1,452,274 $ 1,308,133

6 unchanged sentences

Commercial finance 3,734,508 3,723,158

Consumer credit products 175,158 144,353

Other consumer finance 24,963 25,306

Consumer finance 301,510 254,416

6 unchanged sentences

Total loans and leases, net $ 4,372,496 $ 4,316,411

During the nine months ended June 30, 2023 and 2022, the Company originated $ 941.5 million and $ 769.7 million of consumer finance and SBA/USDA as held for sale, respectively.

The Company sold held for sale loans resulting in proceeds of $ 870.1 million and gain on sale of $ 0.2 million during the nine months ended June 30, 2023.

The Company sold held for sale loans resulting in proceeds of $ 898.4 million and loss on sale of $ 3.9 million during the nine months ended June 30, 2022.

During the three months ended December 31, 2023 and 2022, the Company originated $ 631.9 million and $ 398.8 million of commercial finance and consumer finance as held for sale, respectively.

The Company sold held for sale loans resulting in proceeds of $ 626.3 million and a nominal gain on sale during the three months ended December 31, 2023.

The Company sold held for sale loans resulting in proceeds of $ 402.9 million and gain on sale of $ 0.1 million during the three months ended December 31, 2022.

Loans purchased and sold by portfolio segment, including participation interests, were as follows:

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

1 unchanged sentence

Loans held for investment:

Commercial finance $ — $ — $ — $ 3,098

Warehouse finance $ 89,390 $ 67,649

3 unchanged sentences

Consumer finance 622,464 402,015

Community banking — — — 153,222

Loans held for investment:

Commercial finance — — — 15,549

Community banking — — — 30,235

Total sales $ 626,336 $ 402,870

1 unchanged sentence

The net investment in direct financing and sales-type leases was comprised of the following:

(Dollars in thousands) June 30, 2023 September 30, 2022

Carrying amount $ 212,275 $ 216,880

(Dollars in thousands) December 31, 2023 September 30, 2023

Minimum lease payments receivable $ 197,829 $ 191,807

Unguaranteed residual assets 14,388 12,709

2 unchanged sentences

Total net investment in direct financing and sales-type leases $ 189,150 $ 183,533

Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at June 30, 2023 were as follows:

The components of total lease income were as follows:

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

Interest income - loans and leases

Interest income on net investments in direct financing and sales-type leases $ 3,108 $ 3,143

Leasing and equipment finance noninterest income

Lease income from operating lease payments 13,255 12,554

Total leasing and equipment finance noninterest income 13,979 13,256

Total lease income $ 17,087 $ 16,399

(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.

Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at December 31, 2023 were as follows:

(Dollars in thousands)

Remaining in 2024 $ 60,302

3 unchanged sentences

Total carrying amount of direct financing and sales-type leases $ 197,829

The Company did not record any contingent rental income from direct financing and sales-type leases in the nine months ended June 30, 2023.

The COVID-19 pandemic began impacting the U.S.

and global economies in the first calendar quarter of 2020, with significant deterioration of macroeconomic conditions and markets into 2021.

Although macroeconomic conditions and markets have improved since the beginning of 2021, other factors have been affecting the economic environment in 2022 and 2023 including geopolitical conflict, supply chain disruptions, inflation, rising interest rates, and bank failures brought on by, among other things, rising interest rates, deposit outflows and liquidity crises.

While the ultimate impact of the pandemic and these other factors on the Company's loan and lease portfolio remains difficult to predict, management continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses and the impact to our customers and businesses as a result of COVID-19 and other factors impacting the economy and will refine its estimate as developments occur and more information becomes available.

The Company did not record any contingent rental income from direct financing and sales-type leases in the three months ended December 31, 2023.

A number of factors affected 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 and balances of loans and leases by portfolio segment was as follows:

Three Months Ended June 30, 2023

(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance

Allowance for credit losses:

Term lending $ 28,415 $ 250 $ ( 2,852 ) $ 825 $ 26,638

Asset based lending 1,081 68 — 154 1,303

Factoring 5,588 493 ( 140 ) 1 5,942

Lease financing 4,549 ( 355 ) ( 302 ) ( 26 ) 3,866

Insurance premium finance 1,263 1,094 ( 443 ) 158 2,072

SBA/USDA 2,640 24 — — 2,664

Other commercial finance 4,332 ( 253 ) — — 4,079

Commercial finance 47,868 1,321 ( 3,737 ) 1,112 46,564

Consumer credit products 1,219 522 — — 1,741

Other consumer finance 1,746 216 ( 1,860 ) — 102

Consumer finance 2,965 738 ( 1,860 ) — 1,843

Tax services 33,094 ( 229 ) ( 404 ) 671 33,132

Warehouse finance 377 — — — 377

Total loans and leases 84,304 1,830 ( 6,001 ) 1,783 81,916

Unfunded commitments (1)

356 ( 57 ) — — 299

Total $ 84,660 $ 1,773 $ ( 6,001 ) $ 1,783 $ 82,215

(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.

Three Months Ended June 30, 2022

(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance

Allowance for credit losses:

Term lending $ 27,568 $ 9 $ ( 3,086 ) $ 1,316 $ 25,807

Asset based lending 2,583 ( 1,553 ) — 295 1,325

Factoring 6,526 533 ( 194 ) 268 7,133

Lease financing 6,471 ( 429 ) — 107 6,149

Insurance premium finance 1,057 583 ( 230 ) 41 1,451

SBA/USDA 2,943 338 ( 408 ) 25 2,898

Other commercial finance 1,197 ( 79 ) — — 1,118

Commercial finance 48,345 ( 598 ) ( 3,918 ) 2,052 45,881

Consumer credit products 1,621 ( 170 ) — — 1,451

Other consumer finance 7,388 ( 205 ) ( 2,428 ) 88 4,843

Consumer finance 9,009 ( 375 ) ( 2,428 ) 88 6,294

Tax services 30,757 ( 166 ) ( 7,998 ) 6 22,599

Warehouse finance 441 ( 9 ) — — 432

Total loans and leases 88,552 ( 1,148 ) ( 14,344 ) 2,146 75,206

Unfunded commitments (1)

551 ( 154 ) — — 397

Total $ 89,103 $ ( 1,302 ) $ ( 14,344 ) $ 2,146 $ 75,603

(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.

Nine Months Ended June 30, 2023

Three Months Ended December 31, 2023

(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance

8 unchanged sentences

Commercial finance 46,980 6,140 ( 5,662 ) 1,090 48,548

Consumer credit products 1,400 341 — — 1,741

Other consumer finance 63 2,232 ( 2,193 ) — 102

Consumer finance 2,346 2,097 ( 63 ) — 4,380

6 unchanged sentences

(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.

Nine Months Ended June 30, 2022

Three Months Ended December 31, 2022

(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance

8 unchanged sentences

Commercial finance 44,152 6,670 ( 2,529 ) 523 48,816

Consumer credit products 1,242 209 — — 1,451

Other consumer finance 6,112 2,513 ( 4,049 ) 267 4,843

Consumer finance 1,463 1,603 ( 179 ) — 2,887

1 unchanged sentence

Warehouse finance 327 ( 47 ) — — 280

Community banking 12,262 ( 12,686 ) — 424 —

Total loans and leases 45,947 9,863 ( 4,439 ) 1,221 52,592

4 unchanged sentences

Information on loans and leases that are deemed to be collateral dependent and are evaluated individually for the ACL was as follows:

(Dollars in thousands) At June 30, 2023 At September 30, 2022

(Dollars in thousands) At December 31, 2023 At September 30, 2023

Term lending $ 4,160 $ 3,516

4 unchanged sentences

Commercial finance (1)

18,637 25,255

Total $ 18,637 $ 25,255

2 unchanged sentences

Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually.

The balance of these pass rated cash collateral loans totaled $ 68.2 million and $ 120.7 million at June 30, 2023 and at September 30, 2022, respectively.

The balance of these pass rated cash collateral loans totaled $ 114.3 million and $ 117.0 million at December 31, 2023 and at September 30, 2023, 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:

15 unchanged sentences

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.

Typically, this is associated with a delay or shortfall in payments of 210 days or more for insurance premium finance, 120 days or more for consumer credit products and leases, and 90 days or more for commercial finance loans.

Action is taken to charge off electronic return originator ("ERO") loans if such loans have not been collected by the end of June and refund advance loans if such loans have not been collected by the end of the calendar year.

Nonaccrual loans and troubled debt restructurings are generally individually evaluated for expected credit losses.

The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as modifications or loans and leases on nonaccrual status.

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.

2 unchanged sentences

Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in its evaluation of the appropriateness of the ACL on these portfolios, and as such, these loans are not included in the asset classification table below.

The outstanding balances of consumer finance loans and tax services loans were $ 200.1 million and $ 47.2 million at June 30, 2023, respectively, and $ 169.7 million and $ 9.1 million at September 30, 2022, respectively.

The outstanding balances of consumer finance loans and tax services loans were $ 301.5 million and $ 33.4 million at December 31, 2023, respectively, and $ 254.4 million and $ 5.2 million at September 30, 2023, respectively.

The amortized cost basis of loans and leases by asset classification and year of origination was as follows:

1 unchanged sentence

(Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total

At June 30, 2023 2023 2022 2021 2020 2019 Prior

At December 31, 2023 2024 2023 2022 2021 2020 Prior

Pass $ 234,250 $ 496,789 $ 138,710 $ 110,564 $ 59,710 $ 55,391 $ — $ 1,095,414

4 unchanged sentences

Total 306,798 580,021 227,164 175,119 98,679 64,493 — 1,452,274

Current period charge-offs — 118 2,524 1,673 618 188 — 5,121

Asset-based lending

3 unchanged sentences

Substandard — — — — — — 9,506 9,506

Doubtful — — — — — — 7,532 7,532

Total — — — — — — 379,681 379,681

Current period charge-offs — — — — — — — —

Pass — — — — — — 253,129 253,129

3 unchanged sentences

Total — — — — — — 335,953 335,953

Current period charge-offs — — — — — — 23 23

Lease financing

5 unchanged sentences

Total 27,456 69,519 25,599 29,918 29,435 6,962 — 188,889

Current period charge-offs — — 44 42 67 — — 153

Insurance premium finance

5 unchanged sentences

Total 238,408 432,263 364 — — — — 671,035

Current period charge-offs — 202 163 — — — — 365

Pass 27,424 154,580 147,067 24,847 35,508 26,629 — 416,055

3 unchanged sentences

Total 27,424 208,307 197,780 27,728 40,946 43,863 — 546,048

Current period charge-offs — — — — — — — —

Other commercial finance

1 unchanged sentence

Watch — 1,736 — — — — — 1,736

Special mention — — 18,000 — — — — 18,000

Substandard — 2,717 58 24,228 — — — 27,003

Total — 6,753 19,016 56,843 1,105 76,911 — 160,628

Current period charge-offs — — — — — — — —

Warehouse finance

1 unchanged sentence

Total — — — — — — 349,911 349,911

Current period charge-offs — — — — — — — —

Total loans and leases

5 unchanged sentences

Total $ 600,086 $ 1,296,863 $ 469,923 $ 289,608 $ 170,165 $ 192,229 $ 1,065,545 $ 4,084,419

Current period charge-offs $ — $ 320 $ 2,731 $ 1,715 $ 685 $ 188 $ 23 $ 5,662

Amortized Cost Basis

12 unchanged sentences

Substandard — — — — — — 19,501 19,501

Doubtful — — — — — — 501 501

Total — — — — — — 382,371 382,371

25 unchanged sentences

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

2 unchanged sentences

Pass — — — — — — 376,915 376,915

Special mention — — — — — — 32,500 32,500

Total — — — — — — 376,915 376,915

7 unchanged sentences

Past due loans and leases were as follows:

(Dollars in thousands) Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases

At June 30, 2023 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total

At December 31, 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 $ 1,173 $ 786 $ 661 $ 2,620 $ 66,898 $ 69,518 $ 661 $ — $ 661

7 unchanged sentences

Commercial finance 33,406 8,341 20,739 62,486 3,672,022 3,734,508 7,862 28,099 35,961

Consumer credit products 2,512 2,030 2,058 6,600 168,558 175,158 2,058 — 2,058

Other consumer finance 26 20 29 75 24,888 24,963 29 — 29

Consumer finance 4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859

3 unchanged sentences

Total loans and leases $ 38,837 $ 12,472 $ 24,259 $ 75,568 $ 4,413,314 $ 4,488,882 $ 11,382 $ 28,099 $ 39,481

(Dollars in thousands) Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases

At September 30, 2022 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total

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

7 unchanged sentences

Commercial finance 23,434 9,143 20,352 52,929 3,670,229 3,723,158 11,242 37,372 48,614

Consumer credit products 3,209 2,558 2,669 8,436 135,917 144,353 2,669 — 2,669

Other consumer finance 113 51 124 288 25,018 25,306 124 — 124

Consumer finance 2,992 2,425 2,210 7,627 246,789 254,416 2,210 — 2,210

6 unchanged sentences

(Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual with No ACL

At June 30, 2023 2023 2022 2021 2020 2019 Prior

At December 31, 2023 2024 2023 2022 2021 2020 Prior

Term lending $ 1,264 $ 2,002 $ 7,666 $ 2,082 $ 1,925 $ 3,039 $ — $ 17,978 $ —

18 unchanged sentences

(Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total

At June 30, 2023 2023 2022 2021 2020 2019 Prior

At December 31, 2023 2024 2023 2022 2021 2020 Prior

Loans held for sale $ — $ 661 $ — $ — $ — $ — $ — $ 661

Term lending — 1,139 2,290 186 383 8 — 4,006

Asset based lending — — — — — — 218 218

Lease financing — — 498 895 95 — — 1,488

1 unchanged sentence

SBA/USDA — — — — 191 253 — 444

Other commercial finance — — — — — 92 — 92

Commercial finance — 1,139 3,698 1,086 669 1,270 — 7,862

Consumer credit products 335 1,239 415 50 19 — — 2,058

Other consumer finance — — — — — — 29 29

Consumer finance — 1,898 706 235 — — 20 2,859

Total loans and leases held for investment — 3,037 4,404 1,321 669 1,270 20 10,721

Total 90 days or more delinquent and accruing $ — $ 3,698 $ 4,404 $ 1,321 $ 669 $ 1,270 $ 20 $ 11,382

2 unchanged sentences

At September 30, 2023 2023 2022 2021 2020 2019 Prior

Loans held for sale $ 306 $ — $ — $ — $ — $ — $ — $ 306

Term lending 1,604 1,371 500 233 29 — — 3,737

Asset based lending — — — — — — 39 39

Lease financing 151 490 979 784 1,794 44 — 4,242

Insurance premium finance — 414 114 — 334 1,477 — 2,339

SBA/USDA — — — 833 — — — 833

Other commercial finance — — — — — 91 — 91

Commercial finance 1,755 2,275 1,593 1,850 2,157 1,612 — 11,242

Consumer credit products 2,123 481 42 23 — — — 2,669

Other consumer finance — 124 — — — — — 124

Consumer finance 891 1,045 246 — — — 28 2,210

Tax services 5,082 — — — — — — 5,082

Total loans and leases held for investment 7,728 3,320 1,839 1,850 2,157 1,612 28 18,534

Total 90 days or more delinquent and accruing $ 8,034 $ 3,320 $ 1,839 $ 1,850 $ 2,157 $ 1,612 $ 28 $ 18,840

1 unchanged sentence

The following table provides the average recorded investment in nonaccrual loans and leases:

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

6 unchanged sentences

Total loans and leases $ 31,421 $ 18,819

The recognized interest income on the Company's nonaccrual loans and leases for the three and nine months ended June 30, 2023 and 2022 was not significant.

The Company’s troubled debt restructurings ("TDRs") typically involve forgiving a portion of interest or principal on existing loans, making loans at a rate materially less than current market rates, or extending the term of the loan.

No loans were modified in a TDR during the three months ended June 30, 2023.

There were $ 0.2 million of commercial finance loans and $ 0.5 million of consumer finance loans that were modified in a TDR during the three months ended June 30, 2022, all of which were modified to extend the term of the loan.

During the nine months ended June 30, 2023, there were no loans that were modified in a TDR.

There were $ 10.4 million of commercial finance loans and $ 0.7 million of consumer finance loans that were modified in a TDR during the nine months ended June 30, 2022, all of which were modified to extend the term of the loan.

During the three months ended June 30, 2023, there was an immaterial amount of commercial finance loans that were modified in a TDR within the previous 12 months and for which there was a payment default.

During the three months ended June 30, 2022, the Company had $ 1.4 million of commercial finance loans and $ 0.3 million of consumer finance loans that were modified in a TDR with the previous 12 months and for which there was a payment default.

During the nine months ended June 30, 2023, the Company had $ 0.4 million of commercial finance loans that were modified in a TDR within the previous 12 months and for which there was a payment default.

During the nine months ended June 30, 2022, the Company had $ 3.9 million of commercial finance loans and $ 1.1 million of consumer finance loans that were modified in a TDR within the previous 12 months and for which there was a payment default.

TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the nine months ended June 30, 2023 and June 30, 2022.

The recognized interest income on the Company's nonaccrual loans and leases for the three months ended December 31, 2023 and 2022 was not significant.

Effective October 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures on a prospective basis.

Financial information at and for the quarter ended December 31, 2023 is reflected as such.

The historical information disclosed is in accordance with Subtopic ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors .

Modifications made to borrowers experiencing financial difficulty during the three months ended December 31, 2023 were insignificant.

No loans were modified in a TDR during the three months ended December 31, 2022.

The Company had $ 0.1 million of commercial finance loans that were modified within the previous 12 months experience a payment default during the three months ended December 31, 2022.

TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the three months ended December 31, 2022.

EARNINGS PER COMMON SHARE ("EPS")

2 unchanged sentences

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.

Diluted EPS is calculated using the more dilutive of the two-class method or the treasury stock 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 upon vesting of restricted stock grants and after the allocation of earnings to the participating securities.

Antidilutive securities are disregarded in earnings per share calculations.

1 unchanged sentence

A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below.

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands, except per share data) 2023 2022

17 unchanged sentences

(1) Represents the effect of the assumed exercise of stock options and vesting of performance share units and restricted stock, as applicable, utilizing the treasury stock method.

(2) Excluded from the computation of diluted earnings per share for the three months ended June 30, 2023 and 2022, respectively, were 409,666 and 493,800 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

Excluded from the computation of diluted earnings per share for the nine months ended June 30, 2023 and 2022, respectively, were 414,539 and 487,538 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

(2) Excluded from the computation of diluted earnings per share for the three months ended December 31, 2023 and 2022, respectively, were 207,074 and 411,794 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

RENTAL EQUIPMENT, NET

Rental equipment consists of the following:

(Dollars in thousands) June 30, 2023 September 30, 2022

(Dollars in thousands) December 31, 2023 September 30, 2023

Computers and IT networking equipment $ 23,958 $ 25,094

6 unchanged sentences

Net book value $ 228,916 $ 211,750

Future minimum lease payments expected to be received for operating leases at June 30, 2023 were as follows:

Future minimum lease payments expected to be received for operating leases at December 31, 2023 were as follows:

(Dollars in thousands)

3 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

The Company held a total of $ 309.5 million of goodwill at June 30, 2023.

The Company held a total of $ 309.5 million of goodwill at December 31, 2023.

The recorded goodwill is a result of multiple business combinations that occurred from 2015 to 2018.

There have been no changes to the carrying amount of goodwill during the nine months ended June 30, 2023.

There have been no changes to the carrying amount of goodwill during the three months ended December 31, 2023.

The changes in the carrying amount of the Company’s intangible assets were as follows:

2 unchanged sentences

All Others (3)

Intangible Assets

At September 30, 2023 $ 7,477 $ — $ 9,110 $ 4,133 $ 20,720

Amortization during the period ( 264 ) — ( 587 ) ( 133 ) ( 984 )

At June 30, 2023 $ 7,737 $ — $ 9,800 $ 4,293 $ 21,830

At December 31, 2023 $ 7,213 $ — $ 8,523 $ 4,000 $ 19,736

Gross carrying amount $ 13,774 $ 301 $ 77,578 $ 7,798 $ 99,451

1 unchanged sentence

Accumulated impairment — — ( 10,918 ) ( 219 ) ( 11,137 )

At June 30, 2023 $ 7,737 $ — $ 9,800 $ 4,293 $ 21,830

At December 31, 2023 $ 7,213 $ — $ 8,523 $ 4,000 $ 19,736

At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691

Acquisitions during the period — — — 1 1

Amortization during the period ( 351 ) — ( 776 ) ( 131 ) ( 1,258 )

Write-offs during the period — — ( 670 ) ( 203 ) ( 873 )

At June 30, 2022 $ 8,952 $ — $ 13,314 $ 4,822 $ 27,088

At December 31, 2022 $ 8,254 $ — $ 11,619 $ 4,560 $ 24,433

Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133

1 unchanged sentence

Accumulated impairment — — ( 10,918 ) ( 218 ) ( 11,136 )

At June 30, 2022 $ 8,952 $ — $ 13,314 $ 4,822 $ 27,088

At December 31, 2022 $ 8,254 $ — $ 11,619 $ 4,560 $ 24,433

(1) Book amortization period of 5 - 15 years.

5 unchanged sentences

The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets.

Estimated amortization expense of intangible assets in the remaining three months of fiscal 2023 and subsequent fiscal years at June 30, 2023 was as follows:

Estimated amortization expense of intangible assets in the remaining nine months of fiscal 2024 and subsequent fiscal years at December 31, 2023 was as follows:

(Dollars in thousands)

2 unchanged sentences

Total anticipated intangible amortization $ 19,736

There were no impairments to intangible assets during the nine months ended June 30, 2023 and 2022.

There were no impairments to intangible assets during the three months ended December 31, 2023 and 2022.

Intangible impairment expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations.

OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES

Operating lease right-of-use ("ROU") assets, included in other assets , were $ 27.7 million and $ 31.0 million at June 30, 2023 and 2022, respectively.

Operating lease liabilities, included in accrued expenses and other liabilities , were $ 29.6 million and $ 32.9 million at June 30, 2023 and 2022, respectively.

Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at June 30, 2023 were as follows:

Operating lease right-of-use ("ROU") assets, included in other assets , were $ 26.8 million and $ 26.9 million at December 31, 2023 and September 30, 2023, respectively.

Operating lease liabilities, included in accrued expenses and other liabilities , were $ 28.6 million and $ 28.8 million at December 31, 2023 and September 30, 2023, respectively.

Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at December 31, 2023 were as follows:

(Dollars in thousands)

4 unchanged sentences

Total operating lease liabilities $ 28,650

The weighted-average discount rate and remaining lease term for operating leases at June 30, 2023 were as follows:

The weighted-average discount rate and remaining lease term for operating leases at December 31, 2023 were as follows:

Weighted-average discount rate 2.43 %

1 unchanged sentence

The components of total lease costs for operating leases were as follows:

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

1 unchanged sentence

Short-term and variable lease cost ( 7 ) 42

ROU asset impairment — 670 — 670

Sublease income ( 370 ) ( 333 )

4 unchanged sentences

This authorization is effective from September 3, 2021 through September 30, 2024.

During the nine months ended June 30, 2023 and 2022, the Company repurchased 2,316,814 and 2,447,699 shares, respectively, as part of the share repurchase program.

Under the repurchase program, repurchased shares were retired and designated as authorized but unissued shares.

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 three months ended December 31, 2023 and 2022, the Company repurchased 232,588 and 653,994 shares, respectively, as part of the share repurchase programs.

Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares.

The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares.

When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings.

As of June 30, 2023, 1,978,163 shares of common stock remained available for repurchase.

For the nine months ended June 30, 2023 and 2022, the Company also repurchased 59,626 and 67,158 shares, or $ 2.1 million and $ 3.8 million of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

As of December 31, 2023, 8,433,848 shares of common stock remained available for repurchase.

For the three months ended December 31, 2023 and 2022, the Company also repurchased 103,641 and 57,291 shares, or $ 4.9 million and $ 2.0 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

Retirement of Treasury Stock.

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When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings.

The Company retired zero shares of common stock held in treasury during the nine months ended June 30, 2023 and 2022, respectively.

The Company retired no shares of common stock held in treasury during the three months ended December 31, 2023 and 2022.

STOCK COMPENSATION

The Company maintains the Pathward Financial, Inc.

2002 Omnibus Incentive Plan, as amended and restated (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options, nonvested (restricted) shares, and performance share units ("PSUs") to certain officers and directors of the Company.

Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

No new awards are made under the 2002 Omnibus Incentive Plan following November 25, 2022, the date that the 2002 Omnibus Incentive Plan expired by its terms.

Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant.

The exercise price of options or fair value of nonvested (restricted) shares and performance share units granted under the Company’s 2002 Omnibus Incentive Plan is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable.

The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur.

The following tables show the activity of nonvested (restricted) shares and PSUs granted, vested, or forfeited under the 2002 Omnibus Incentive Plan for the nine months ended June 30, 2023.

There were no options granted, exercised, or forfeited under this plan during the nine months ended June 30, 2023.

On September 27, 2023, the Board adopted the Pathward Financial, Inc.

2023 Omnibus Incentive Plan (the "2023 Omnibus Incentive Plan") contingent on stockholder approval at the Annual Meeting of Stockholders expected to be held on February 27, 2024.

The 2023 Omnibus Incentive Plan permits the granting of various types of awards including but not limited to nonvested (restricted) shares and performance share units ("PSUs") to certain officers and directors of the Company.

Awards may be granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

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 three months ended December 31, 2023.

Number of Shares Weighted Average Fair Value at Grant

Nonvested shares outstanding, September 30, 2023 370,151 $ 35.87

474,348 $ 36.52

Granted 160,881 38.95

Vested ( 176,700 ) 36.44

Forfeited or expired ( 1,863 ) 39.23

Nonvested shares outstanding, June 30, 2023

392,496 $ 36.42

Nonvested shares outstanding, December 31, 2023 191,588 $ 35.31

Number of Units (2)

Weighted Average Fair Value at Grant

Performance share units outstanding, September 30, 2023 155,804 $ 41.20

96,689 $ 42.59

Vested ( 60,984 ) 55.47

Forfeited or expired — —

Performance share units outstanding, June 30, 2023

155,804 $ 41.20

(1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award.

At June 30, 2023, stock-based compensation expense not yet recognized in income totaled $ 8.2 million, which is expected to be recognized over a weighted average remaining period of 1.45 years.

The Company recorded an income tax expense of $ 19.0 million for the nine months ended June 30, 2023, resulting in an effective tax rate of 12.80 %, compared to an income tax expense of $ 29.2 million, or an effective tax rate of 17.77 %, for the nine months ended June 30, 2022.

Performance share units outstanding, December 31, 2023 94,820 $ 55.47

(1) While no shares were granted during the first quarter of fiscal year 2024, 150,522 of nonvested shares and 44,800 of target performance share units were issued under awards contingent on the stockholder approval of the 2023 Omnibus Incentive Plan.

(2) The activity in this table includes 60,984 shares related to the fiscal year 2021 performance share units, which are included in this table under the assumption of a target performance achievement.

The final performance was assessed after September 30, 2023, resulted in an achievement greater than target, and an additional 47,252 shares were allocated to the participants in the plan.

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.

At December 31, 2023, stock-based compensation expense not yet recognized in income totaled $ 4.1 million, which is expected to be recognized over a weighted average remaining period of 1.27 years.

The Company recorded an income tax expense of $ 5.7 million for the three months ended December 31, 2023, resulting in an effective tax rate of 17.00 %, compared to an income tax expense of $ 6.6 million, or an effective tax rate of 18.79 %, for the three months ended December 31, 2022.

The Company’s effective tax rate was lower than the U.S.

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The table below compares the income tax expense components for the periods presented.

Nine Months Ended June 30,

Three Months Ended December 31,

(Dollars in thousands) 2023 2022

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Tax credit investments, net - federal ( 4,377 ) ( 3,062 )

Research tax credit ( 805 ) ( 355 )

IRC 162(m) nondeductible compensation ( 280 ) 136

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(Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company

Three Months Ended June 30, 2023 2022 2023 2022 2023 2022 2023 2022

Net interest income (1)

$ 40,683 $ 23,213 $ 53,067 $ 46,802 $ 3,715 $ 2,136 $ 97,465 $ 72,151

Noninterest income:

Refund transfer product fees 8,262 10,289 — — — — 8,262 10,289

Refund advance fee income (1)

( 927 ) ( 20 ) — — — — ( 927 ) ( 20 )

Card and deposit fees 39,450 24,673 253 252 5 10 39,708 24,935

Rental income (1)

— — 13,756 11,890 224 192 13,980 12,082

Gain on sale of securities (1)

— — — — 9 198 9 198

Gain on sale of other (1)

— — 812 1,239 — — 812 1,239

Other income (1)

1,929 1,284 1,888 2,479 2,072 1,508 5,889 5,271

Total noninterest income 48,714 36,226 16,709 15,860 2,310 1,908 67,733 53,994

Revenue $ 89,397 $ 59,439 $ 69,776 $ 62,662 $ 6,025 $ 4,044 $ 165,198 $ 126,145

Nine Months Ended June 30,

Three Months Ended December 31, 2023 2022 2023 2022 2023 2022 2023 2022

Net interest income (1)

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— — 13,235 12,515 224 193 13,459 12,708

Gain on sale of securities (1)

— — — — 91 595 91 595

Gain on sale of trademarks — — — — — 10,000 — 10,000

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therefore, the Company measures progress in completing these services based upon the passage of time.

Revenue from contracts with customers did not generate significant contract assets and liabilities for the nine months ended June 30, 2023.

Revenue from contracts with customers did not generate significant contract assets and liabilities for the three months ended December 31, 2023.

Refund Transfer Product Fees.

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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:

The following table presents segment data for the Company:

(Dollars in thousands) Consumer Commercial Corporate Services/Other Total

Three Months Ended June 30, 2023 2022 2023 2022 2023 2022 2023 2022

Net interest income $ 40,683 $ 23,213 $ 53,067 $ 46,802 $ 3,715 $ 2,136 $ 97,465 $ 72,151

Provision for (reversal of) credit losses 508 ( 279 ) 1,265 ( 752 ) — ( 271 ) 1,773 ( 1,302 )

Noninterest income 48,714 36,226 16,709 15,860 2,310 1,908 67,733 53,994

Noninterest expense 39,666 23,960 33,594 31,336 41,318 41,354 114,578 96,650

Income (loss) before income tax expense 49,223 35,758 34,917 32,078 ( 35,293 ) ( 37,039 ) 48,847 30,797

Total assets 455,540 373,019 3,914,924 3,457,004 3,088,161 2,898,155 7,458,625 6,728,178

Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505

Total deposits 6,130,524 5,573,768 7,550 11,177 168,902 125,854 6,306,976 5,710,799

Nine Months Ended June 30,

Three Months Ended December 31, 2023 2022 2023 2022 2023 2022 2023 2022

Net interest income $ 59,356 $ 34,272 $ 45,881 $ 42,324 $ 4,799 $ 7,461 $ 110,036 $ 84,057

Provision for (reversal of) credit losses 35,402 30,667 12,860 13,045 50 ( 12,526 ) 48,312 31,186

Provision for (reversal of) credit loss 3,454 3,240 6,463 6,583 ( 27 ) ( 47 ) 9,890 9,776

Noninterest income 32,787 39,539 15,999 14,362 3,975 11,876 52,761 65,777

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The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis.

At June 30, 2023

At December 31, 2023

(Dollars in thousands) Total Level 1 Level 2 Level 3

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$ 9,700 $ — $ — $ —

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 2023.

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023.

(2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

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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 44 %.

The following table summarizes the assets of the Company that are measured at fair value in the Condensed Consolidated Statements of Financial Condition on a non-recurring basis:

At June 30, 2023

The following tables summarize the assets of the Company that are measured at fair value in the Condensed Consolidated Statements of Financial Condition on a nonrecurring basis:

At December 31, 2023

(Dollars in thousands) Total Level 1 Level 2 Level 3

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Total loans and leases, net individually evaluated for credit loss 21,829 — — 21,829

Foreclosed assets, net 1 — — 1

Total $ 21,829 $ — $ — $ 21,829

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(Dollars in thousands) Fair Value at

June 30, 2023

December 31, 2023

Fair Value at

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Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value.

These fair value estimates were made at June 30, 2023 and September 30, 2022 based on relevant market information and information about financial instruments.

These fair value estimates were made at December 31, 2023 and September 30, 2023 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.

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The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company:

At June 30, 2023

At December 31, 2023

(Dollars in thousands) Carrying

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Deposits 6,936,055 6,937,613 6,795,322 142,292 —

Overnight federal funds purchased 230,000 230,000 230,000 — —

Other short- and long-term borrowings 33,614 31,421 — 31,421 —

Accrued interest payable 1,941 1,941 1,941 — —

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 2023.

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023.

(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

22 unchanged sentences

SUBSEQUENT EVENTS

Management has evaluated subsequent events that occurred after June 30, 2023.

During this period, up to the filing date of this Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in our Condensed Consolidated Financial Statements as of or for the quarter ended June 30, 2023.

Management has evaluated subsequent events that occurred after December 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements