PATHWARD FINANCIAL, INC. 10-Q

Item 1. Financial Statements. PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Financial Condition (Dollars in thousands, except per share data) March 31, 2024 September 30, 2023 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 347,888 $ 375,580 Securities available for sale, at fair value 1,779,458 1,804,228 Securities held to maturity, at amortized cost (fair value $ 31,113 and $ 31,425 , respectively) 34,682 36,591 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 25,844 28,210 Loans held for sale 25,946 77,779 Loans and leases 4,409,385 4,366,116 Allowance for credit losses ( 80,777 ) ( 49,705 ) Accrued interest receivable 30,294 23,282 Premises, furniture, and equipment, net 37,266 39,160 Rental equipment, net 215,885 211,750 Goodwill and intangible assets 328,001 330,225 Other assets 283,245 292,327 Total assets $ 7,437,117 $ 7,535,543 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits $ 6,368,344 $ 6,589,182 Short-term borrowings 31,000 13,000 Long-term borrowings 33,373 33,873 Accrued expenses and other liabilities 264,938 248,863 Total liabilities 6,697,655 6,884,918 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at March 31, 2024 and September 30, 2023, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 25,507,915 and 26,225,563 shares issued, 25,377,986 and 26,183,583 shares outstanding at March 31, 2024 and September 30, 2023, respectively 254 262 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at March 31, 2024 and September 30, 2023, respectively — — Additional paid-in capital 634,415 628,500 Retained earnings 317,964 278,655 Accumulated other comprehensive loss ( 206,570 ) ( 255,443 ) Treasury stock, at cost, 129,929 and 41,980 common shares at March 31, 2024 and September 30, 2023, respectively ( 6,181 ) ( 344 ) Total equity attributable to parent 739,882 651,630 Noncontrolling interest ( 420 ) ( 1,005 ) Total stockholders’ equity 739,462 650,625 Total liabilities and stockholders’ equity $ 7,437,117 $ 7,535,543 See Notes to Condensed Consolidated Financial Statements. 2 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands, except per share data) 2024 2023 2024 2023 Interest and dividend income: Loans and leases, including fees $ 102,750 $ 83,879 $ 197,713 $ 152,275 Mortgage-backed securities 9,998 10,326 20,047 20,738 Other investments 14,013 10,482 24,899 16,734 126,761 104,687 242,659 189,747 Interest expense: Deposits 6,685 2,096 10,211 2,238 FHLB advances and other borrowings 1,775 1,186 4,111 2,047 8,460 3,282 14,322 4,285 Net interest income 118,301 101,405 228,337 185,462 Provision for credit loss 26,052 36,763 35,942 46,539 Net interest income after provision for credit loss 92,249 64,642 192,395 138,923 Noninterest income: Refund transfer product fees 28,942 30,205 29,364 30,882 Refund advance fee income 43,200 37,995 43,311 38,612 Card and deposit fees 35,344 42,087 66,094 79,805 Rental income 13,720 12,940 27,179 25,648 Gain on sale of trademarks — — — 10,000 Gain (loss) on sale of other 1,695 ( 666 ) 4,535 ( 164 ) Other income 6,044 4,477 11,223 8,032 Total noninterest income 128,945 127,038 181,706 192,815 Noninterest expense: Compensation and benefits 54,073 47,547 100,725 90,564 Refund transfer product expense 7,366 7,863 7,558 7,968 Refund advance expense 1,846 1,603 1,876 1,630 Card processing 35,163 26,924 69,747 49,607 Occupancy and equipment expense 9,293 8,510 18,141 16,822 Operating lease equipment depreciation 10,424 14,719 20,847 24,347 Legal and consulting 6,141 4,921 11,033 14,380 Intangible amortization 1,240 1,435 2,224 2,693 Impairment expense 2,013 500 2,013 524 Other expense 12,872 13,114 25,541 23,660 Total noninterest expense 140,431 127,136 259,705 232,195 Income before income tax expense 80,763 64,544 114,396 99,543 Income tax expense 15,246 9,176 20,965 15,753 Net income before noncontrolling interest 65,517 55,368 93,431 83,790 Net income attributable to noncontrolling interest 249 597 506 1,177 Net income attributable to parent $ 65,268 $ 54,771 $ 92,925 $ 82,613 Earnings per common share: Basic $ 2.56 $ 1.99 $ 3.61 $ 2.95 Diluted $ 2.56 $ 1.99 $ 3.61 $ 2.95 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2024 2023 2024 2023 Net income before noncontrolling interest $ 65,517 $ 55,368 $ 93,431 $ 83,790 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities ( 23,414 ) 18,448 65,121 33,156 ( 23,414 ) 18,448 65,121 33,156 Unrealized gain (loss) on currency translation ( 579 ) 60 39 447 Deferred income tax effect ( 5,856 ) 4,647 16,287 8,352 Total other comprehensive income (loss) ( 18,137 ) 13,861 48,873 25,251 Total comprehensive income 47,380 69,229 142,304 109,041 Total comprehensive income attributable to noncontrolling interest 249 597 506 1,177 Comprehensive income attributable to parent $ 47,131 $ 68,632 $ 141,798 $ 107,864 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Dollars in thousands, except per share data) 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 Three Months Ended March 31, 2024 Balance, December 31, 2023 $ 260 $ 629,737 $ 293,463 $ ( 188,433 ) $ ( 5,235 ) $ 729,792 $ ( 510 ) $ 729,282 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,267 ) — — ( 1,267 ) — ( 1,267 ) Issuance of common stock due to restricted stock 2 — — — — 2 — 2 Repurchases of common stock ( 8 ) 8 ( 39,500 ) — ( 946 ) ( 40,446 ) — ( 40,446 ) Stock compensation — 4,670 — — — 4,670 — 4,670 Total other comprehensive loss — — — ( 18,137 ) — ( 18,137 ) — ( 18,137 ) Net income — — 65,268 — — 65,268 249 65,517 Net distribution to noncontrolling interest — — — — — — ( 159 ) ( 159 ) Balance, March 31, 2024 $ 254 $ 634,415 $ 317,964 $ ( 206,570 ) $ ( 6,181 ) $ 739,882 $ ( 420 ) $ 739,462 Three Months Ended March 31, 2023 Balance, December 31, 2022 $ 282 $ 620,681 $ 246,891 $ ( 201,690 ) $ ( 6,824 ) $ 659,340 $ ( 207 ) $ 659,133 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,386 ) — — ( 1,386 ) — ( 1,386 ) Repurchases of common stock ( 11 ) 11 ( 55,230 ) — ( 119 ) ( 55,349 ) — ( 55,349 ) Stock compensation — 2,558 — — — 2,558 — 2,558 Total other comprehensive income — — — 13,861 — 13,861 — 13,861 Net income — — 54,771 — — 54,771 597 55,368 Net distribution to noncontrolling interest — — — — — — ( 941 ) ( 941 ) Balance, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ ( 187,829 ) $ ( 6,943 ) $ 673,795 $ ( 551 ) $ 673,244 5 Table of Contents (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 Six Months Ended March 31, 2024 Balance, September 30, 2023 $ 262 $ 628,500 $ 278,655 $ ( 255,443 ) $ ( 344 ) $ 651,630 $ ( 1,005 ) $ 650,625 Cash dividends declared on common stock ($ 0.10 per share) — — ( 2,566 ) — — ( 2,566 ) — ( 2,566 ) Issuance of common stock due to restricted stock 3 — — — — 3 — 3 Repurchases of common stock ( 11 ) 11 ( 50,527 ) — ( 5,837 ) ( 56,364 ) — ( 56,364 ) Stock compensation — 5,904 — — — 5,904 — 5,904 Total other comprehensive income — — — 48,873 — 48,873 — 48,873 Joint venture membership interest divestiture — — ( 523 ) — — ( 523 ) — ( 523 ) Net income — — 92,925 — — 92,925 506 93,431 Net investment by noncontrolling interest — — — — — — 79 79 Balance, March 31, 2024 $ 254 $ 634,415 $ 317,964 $ ( 206,570 ) $ ( 6,181 ) $ 739,882 $ ( 420 ) $ 739,462 Six Months Ended March 31, 2023 Balance, September 30, 2022 $ 288 $ 617,403 $ 245,394 $ ( 213,080 ) $ ( 4,835 ) $ 645,170 $ ( 30 ) $ 645,140 Cash dividends declared on common stock ($ 0.10 per share) — — ( 2,788 ) — — ( 2,788 ) — ( 2,788 ) Issuance of common stock due to restricted stock 1 — — — — 1 — 1 Repurchases of common stock ( 18 ) 18 ( 80,173 ) — ( 2,108 ) ( 82,281 ) — ( 82,281 ) Stock compensation — 5,829 — — — 5,829 — 5,829 Total other comprehensive income — — — 25,251 — 25,251 — 25,251 Net income — — 82,613 — — 82,613 1,177 83,790 Net distribution to noncontrolling interest — — — — — — ( 1,698 ) ( 1,698 ) Balance, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ ( 187,829 ) $ ( 6,943 ) $ 673,795 $ ( 551 ) $ 673,244 See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended March 31, (Dollars in thousands) 2024 2023 Cash flows from operating activities: Net income before noncontrolling interest $ 93,431 $ 83,790 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 29,457 34,390 Provision for credit loss 35,942 46,539 Provision for deferred taxes 4,059 2,545 Originations of loans held for sale ( 933,786 ) ( 608,628 ) Proceeds from sales of loans held for sale 968,998 604,363 Net change in loans held for sale 17,924 652 Net realized (gain) on loans held for sale ( 1,370 ) ( 110 ) Net realized (gain) on trademarks — ( 10,000 ) Net realized (gain) loss on other ( 3,165 ) 272 Impairment on rental equipment 2,013 24 Net change in accrued interest receivable ( 7,012 ) ( 4,455 ) Net change in other assets ( 13,724 ) 14,050 Net change in accrued expenses and other liabilities 16,729 14,568 Stock compensation 5,904 5,829 Net cash provided by operating activities 215,400 183,829 Cash flows from investing activities: Proceeds from maturities of and principal collected on securities available for sale 89,476 89,162 Proceeds from maturities of and principal collected on securities held to maturity 1,811 2,822 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 183,010 ) ( 120,160 ) Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 185,377 119,586 Purchases of loans and leases ( 163,091 ) ( 187,834 ) Net change in loans and leases 255,909 191,195 Purchases of premises, furniture, and equipment ( 3,592 ) ( 3,428 ) Purchases of rental equipment ( 173,005 ) ( 238,999 ) Proceeds from sales of rental equipment 4,951 6,736 Net change in rental equipment 188 ( 153 ) Proceeds from sales of foreclosed real estate and repossessed assets — 1 Proceeds from sale of trademarks — 10,000 Proceeds from sale of other assets 4,091 — Net cash provided by (used in) investing activities 19,105 ( 131,072 ) Cash flows from financing activities: Net change in deposits ( 220,838 ) 36,659 Net change in short-term borrowings 18,000 43,000 Principal payments on other liabilities ( 550 ) — Proceeds from other liabilities — ( 1,026 ) Payment of debt issuance costs — ( 511 ) Dividends paid on common stock ( 2,566 ) ( 2,788 ) Issuance of common stock due to restricted stock 3 1 Repurchases of common stock ( 56,364 ) ( 82,281 ) Investment by (distributions to) noncontrolling interest 79 ( 1,698 ) Net cash (used in) financing activities ( 262,236 ) ( 8,644 ) Effect of exchange rate changes on cash 39 447 Net change in cash and cash equivalents ( 27,692 ) 44,560 Cash and cash equivalents at beginning of fiscal year 375,580 388,038 Cash and cash equivalents at end of fiscal period $ 347,888 $ 432,598 7 Table of Contents Six Months Ended March 31, (Dollars in thousands) 2024 2023 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 12,608 $ 4,273 Income taxes 9,694 7,842 Franchise and other taxes 398 472 Supplemental schedule of non-cash investing activities: Transfers Loans and leases to rental equipment 2,538 1,449 Rental equipment to loan and leases 143,752 202,330 Recognition of operating lease ROU assets, net of measurements 654 — Joint venture membership interest divestiture 523 — See Notes to Condensed Consolidated Financial Statements. 8 Table of Contents NOTE 1. BASIS OF PRESENTATION The interim unaudited Condensed Consolidated Financial Statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended September 30, 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. The financial information of the Company included herein has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the three and six months ended March 31, 2024 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 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. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU") Significant accounting policies in effect and disclosed within the Company’s most recent audited consolidated financial statements as of September 30, 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 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. 9 Table of Contents NOTE 3. SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities are presented below. (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value Debt Securities AFS At March 31, 2024 Corporate securities $ 25,000 $ — $ ( 6,875 ) $ 18,125 SBA securities 91,979 — ( 7,182 ) 84,797 Obligations of states and political subdivisions 540 — ( 33 ) 507 Non-bank qualified obligations of states and political subdivisions 258,421 14 ( 35,766 ) 222,669 Asset-backed securities 228,852 420 ( 5,858 ) 223,414 Mortgage-backed securities 1,448,649 12 ( 218,715 ) 1,229,946 Total debt securities AFS $ 2,053,441 $ 446 $ ( 274,429 ) $ 1,779,458 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 Debt Securities HTM At March 31, 2024 Non-bank qualified obligations of states and political subdivisions $ 32,602 $ — $ ( 3,321 ) $ 29,281 Mortgage-backed securities 2,080 — ( 248 ) 1,832 Total debt securities HTM $ 34,682 $ — $ ( 3,569 ) $ 31,113 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 10 Table of Contents Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, were as follows: LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL (Dollars in thousands) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) Fair Value Gross Unrealized (Losses) Debt Securities AFS At March 31, 2024 Corporate securities $ — $ — $ 18,125 $ ( 6,875 ) $ 18,125 $ ( 6,875 ) SBA securities 22,894 ( 978 ) 61,903 ( 6,204 ) 84,797 ( 7,182 ) Obligations of state and political subdivisions — — 506 ( 33 ) 506 ( 33 ) Non-bank qualified obligations of states and political subdivisions 940 ( 20 ) 219,665 ( 35,746 ) 220,605 ( 35,766 ) Asset-backed securities — — 103,409 ( 5,858 ) 103,409 ( 5,858 ) Mortgage-backed securities 17,317 ( 371 ) 1,211,570 ( 218,344 ) 1,228,887 ( 218,715 ) Total debt securities AFS $ 41,151 $ ( 1,369 ) $ 1,615,178 $ ( 273,060 ) $ 1,656,329 $ ( 274,429 ) 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 ) Debt Securities HTM At March 31, 2024 Non-bank qualified obligations of states and political subdivisions $ — $ — $ 29,281 $ ( 3,321 ) $ 29,281 $ ( 3,321 ) Mortgage-backed securities — — 1,832 ( 248 ) 1,832 ( 248 ) Total debt securities HTM $ — $ — $ 31,113 $ ( 3,569 ) $ 31,113 $ ( 3,569 ) 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 $ ( 5166 ) $ 31,425 $ ( 5,166 ) The decrease in the fair value of investment securities balances when comparing March 31, 2024 to September 30, 2023 was primarily driven by principal pay downs during the six months. At March 31, 2024, there were 194 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at March 31, 2024 were government guaranteed or issued by a private label where the Company held a senior tranche. 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 March 31, 2024, there was no allowance for credit losses ("ACL") for debt securities AFS or debt securities HTM. 11 Table of Contents The amortized cost and fair value of debt securities by contractual maturity are shown below. Certain securities have call features that allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in MBS because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, MBS are not included in the maturity categories in the following maturity summary. The expected maturities of certain SBA securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply. (Dollars in thousands) At March 31, 2024 At September 30, 2023 Debt Securities AFS Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 1,188 $ 1,175 $ 5,023 $ 4,971 Due after one year through five years 19,591 18,249 11,175 10,292 Due after five years through ten years 73,455 63,343 79,139 66,428 Due after ten years 510,558 466,745 552,360 497,012 604,792 549,512 647,697 578,703 Mortgage-backed securities 1,448,649 1,229,946 1,495,636 1,225,525 Total debt securities AFS $ 2,053,441 $ 1,779,458 $ 2,143,333 $ 1,804,228 Debt Securities HTM Due after ten years $ 32,602 $ 29,281 $ 34,415 $ 29,571 32,602 29,281 34,415 29,571 Mortgage-backed securities 2,080 1,832 2,176 1,854 Total debt securities HTM $ 34,682 $ 31,113 $ 36,591 $ 31,425 Federal Reserve Bank ("FRB") Stock. The Bank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus. One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System. FRB of Minneapolis stock held by the Bank totaled $ 19.7 million at March 31, 2024 and September 30, 2023. These equity securities are 'restricted' in that they can only be owned by member banks. Federal Home Loan Bank ("FHLB") Stock. The Company's borrowings from the FHLB are secured by specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The investments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of Des Moines. The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency. The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held at the FHLB was $ 6.2 million and $ 8.5 million at March 31, 2024 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 cost approximates fair value. Equity Securities. The Company held $ 4.3 million and $ 3.4 million in marketable equity securities within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024 and September 30, 2023, respectively. The Company recognized no unrealized gains on marketable equity securities during the six months ended March 31, 2024 and 2023. No such securities were sold during the six months ended March 31, 2024. 12 Table of Contents Non-marketable equity securities with a readily determinable fair value totaled $ 10.0 million and $ 8.4 million at March 31, 2024 and September 30, 2023, respectively. These securities are held within other assets on the Condensed Consolidated Statements of Financial Condition. The Company recognized $ 0.4 million in unrealized gains and $ 0.1 million in unrealized losses during the six months ended March 31, 2024 and 2023, respectively. No such securities were sold during the six months ended March 31, 2024. Non-marketable equity securities without readily determinable fair value totaled $ 14.8 million and $ 16.2 million at March 31, 2024 and September 30, 2023, respectively. There was one such security sold during the six months ended March 31, 2024 for a $ 2.5 million gain which is included in gain on sale of other on the Condensed Consolidated Statements of Operations. 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 no and $ 0.5 million impairment for such investments for the six months ended March 31, 2024 and 2023, respectively. NOTE 4. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in thousands) March 31, 2024 September 30, 2023 Term lending $ 1,489,054 $ 1,308,133 Asset-based lending 429,556 382,371 Factoring 336,442 358,344 Lease financing 168,616 183,392 Insurance premium finance 522,904 800,077 SBA/USDA 560,433 524,750 Other commercial finance 149,056 166,091 Commercial finance 3,656,061 3,723,158 Consumer finance 267,031 254,416 Tax services 84,502 5,192 Warehouse finance 394,814 376,915 Total loans and leases 4,402,408 4,359,681 Net deferred loan origination costs 6,977 6,435 Total gross loans and leases 4,409,385 4,366,116 Allowance for credit losses ( 80,777 ) ( 49,705 ) Total loans and leases, net $ 4,328,608 $ 4,316,411 During the six months ended March 31, 2024 and 2023, the Company originated $ 933.8 million and $ 608.6 million of commercial finance and consumer finance as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 969.0 million and a $ 1.4 million gain on sale during the six months ended March 31, 2024. The Company sold held for sale loans resulting in proceeds of $ 604.4 million and gain on sale of $ 0.1 million during the six months ended March 31, 2023. 13 Table of Contents Loans purchased and sold by portfolio segment, including participation interests, were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2024 2023 2024 2023 Loans Purchased Loans held for investment: Warehouse finance $ 73,701 $ 120,185 $ 163,091 $ 187,834 Total purchases $ 73,701 $ 120,185 $ 163,091 $ 187,834 Loans Sold Loans held for sale: Commercial finance $ 21,173 $ 294 $ 25,045 $ 1,149 Consumer finance 321,489 201,199 943,953 603,214 Total sales $ 342,662 $ 201,493 $ 968,998 $ 604,363 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in thousands) March 31, 2024 September 30, 2023 Minimum lease payments receivable $ 177,498 $ 191,807 Unguaranteed residual assets 12,171 12,709 Unamortized initial direct costs 82 141 Unearned income ( 21,053 ) ( 21,124 ) Total net investment in direct financing and sales-type leases $ 168,698 $ 183,533 The components of total lease income were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2024 2023 2024 2023 Interest income - loans and leases Interest income on net investments in direct financing and sales-type leases $ 2,853 $ 2,819 $ 5,961 $ 5,962 Leasing and equipment finance noninterest income Lease income from operating lease payments 13,605 12,843 26,860 25,397 Other (1) 869 ( 356 ) 1,593 346 Total leasing and equipment finance noninterest income 14,474 12,487 28,453 25,743 Total lease income $ 17,327 $ 15,306 $ 34,414 $ 31,705 (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. 14 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 March 31, 2024 were as follows: (Dollars in thousands) Remaining in 2024 $ 36,927 2025 53,952 2026 34,868 2027 21,176 2028 16,575 Thereafter 14,000 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 177,498 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type leases $ 177,498 The Company did not record any contingent rental income from direct financing and sales-type leases in the six months ended March 31, 2024. 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, some of which continue to impact the economic environment in 2024, 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. 15 Table of Contents Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows: Three Months Ended March 31, 2024 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 27,013 $ 6,303 $ ( 5,176 ) $ 487 $ 28,627 Asset-based lending 1,370 ( 254 ) — 99 1,215 Factoring 7,433 ( 623 ) ( 12 ) 16 6,814 Lease financing 4,008 ( 2,547 ) 28 62 1,551 Insurance premium finance 2,123 ( 532 ) ( 295 ) 113 1,409 SBA/USDA 3,289 ( 347 ) — — 2,942 Other commercial finance 3,312 ( 1,592 ) — — 1,720 Commercial finance 48,548 408 ( 5,455 ) 777 44,278 Consumer finance 4,380 231 ( 37 ) 2 4,576 Tax services 507 25,221 — 5,800 31,528 Warehouse finance 350 45 — — 395 Total loans and leases 53,785 25,905 ( 5,492 ) 6,579 80,777 Unfunded commitments (1) 596 147 — — 743 Total $ 54,381 $ 26,052 $ ( 5,492 ) $ 6,579 $ 81,520 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. Three Months Ended March 31, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 26,752 $ 3,974 $ ( 2,705 ) $ 394 $ 28,415 Asset-based lending 3,903 51 ( 2,873 ) — 1,081 Factoring 5,674 ( 40 ) ( 62 ) 16 5,588 Lease financing 5,238 ( 183 ) ( 607 ) 101 4,549 Insurance premium finance 1,261 155 ( 224 ) 71 1,263 SBA/USDA 2,632 2 — 6 2,640 Other commercial finance 3,356 976 — — 4,332 Commercial finance 48,816 4,935 ( 6,471 ) 588 47,868 Consumer finance 2,887 232 ( 154 ) — 2,965 Tax services 609 31,422 — 1,063 33,094 Warehouse finance 280 97 — — 377 Total loans and leases 52,592 36,686 ( 6,625 ) 1,651 84,304 Unfunded commitments (1) 279 77 — — 356 Total $ 52,871 $ 36,763 $ ( 6,625 ) $ 1,651 $ 84,660 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 16 Table of Contents Six Months Ended March 31, 2024 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 25,686 $ 12,125 $ ( 10,297 ) $ 1,113 $ 28,627 Asset-based lending 2,738 ( 1,764 ) — 241 1,215 Factoring 6,566 128 ( 35 ) 155 6,814 Lease financing 3,302 ( 1,781 ) ( 125 ) 155 1,551 Insurance premium finance 2,637 ( 771 ) ( 660 ) 203 1,409 SBA/USDA 2,962 ( 20 ) — — 2,942 Other commercial finance 3,089 ( 1,369 ) — — 1,720 Commercial finance 46,980 6,548 ( 11,117 ) 1,867 44,278 Consumer finance 2,346 2,328 ( 100 ) 2 4,576 Tax services 2 26,577 ( 1,145 ) 6,094 31,528 Warehouse finance 377 18 — — 395 Total loans and leases 49,705 35,471 ( 12,362 ) 7,963 80,777 Unfunded commitments (1) 272 471 — — 743 Total $ 49,977 $ 35,942 $ ( 12,362 ) $ 7,963 $ 81,520 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. Six Months Ended March 31, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 24,621 $ 7,645 $ ( 4,522 ) $ 671 $ 28,415 Asset-based lending 1,050 2,904 ( 2,873 ) — 1,081 Factoring 6,556 ( 804 ) ( 183 ) 19 5,588 Lease financing 5,902 ( 621 ) ( 1,013 ) 281 4,549 Insurance premium finance 1,450 108 ( 409 ) 114 1,263 SBA/USDA 3,263 ( 649 ) — 26 2,640 Other commercial finance 1,310 3,022 — — 4,332 Commercial finance 44,152 11,605 ( 9,000 ) 1,111 47,868 Consumer finance 1,463 1,835 ( 333 ) — 2,965 Tax services 5 33,059 ( 1,731 ) 1,761 33,094 Warehouse finance 327 50 — — 377 Total loans and leases 45,947 46,549 ( 11,064 ) 2,872 84,304 Unfunded commitments (1) 366 ( 10 ) — — 356 Total $ 46,313 $ 46,539 $ ( 11,064 ) $ 2,872 $ 84,660 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 17 Table of Contents Information on loans and leases that are deemed to be collateral dependent and are evaluated individually for the ACL was as follows: (Dollars in thousands) At March 31, 2024 At September 30, 2023 Term lending $ 7,100 $ 3,516 Asset-based lending 1,213 19,226 Factoring 5,103 1,133 Lease financing 647 630 SBA/USDA 1,748 750 Commercial finance (1) 15,811 25,255 Total $ 15,811 $ 25,255 (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 $ 119.1 million and $ 117.0 million at March 31, 2024 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: Pass - A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating. Watch - A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets. Special Mention - A special mention asset is a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher. The adverse classifications are as follows: Substandard - A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard. Doubtful - A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate. Loss - A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts. 18 Table of Contents Loans and leases, or portions thereof, are generally charged off when collection of principal becomes doubtful. Typically, this is associated with a delay or shortfall in payments of 210 days or more for 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. 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. 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 $ 267.0 million and $ 84.5 million at March 31, 2024, 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: Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At March 31, 2024 2024 2023 2022 2021 2020 Prior Term lending Pass $ 308,787 $ 492,087 $ 125,586 $ 97,696 $ 54,397 $ 48,457 $ — $ 1,127,010 Watch 66,389 42,282 46,196 24,715 3,456 1,549 — 184,587 Special mention 920 14,887 7,222 19,254 10,145 114 — 52,542 Substandard 9,546 35,689 23,732 21,362 22,623 4,730 — 117,682 Doubtful — 601 3,135 1,657 534 1,306 — 7,233 Total 385,642 585,546 205,871 164,684 91,155 56,156 — 1,489,054 Current period charge-offs — 1,336 5,063 2,314 1,351 233 — 10,297 Asset-based lending Pass — — — — — — 229,053 229,053 Watch — — — — — — 176,233 176,233 Special mention — — — — — — 21,530 21,530 Substandard — — — — — — 2,740 2,740 Total — — — — — — 429,556 429,556 Current period charge-offs — — — — — — — — Factoring Pass — — — — — — 272,222 272,222 Watch — — — — — — 38,237 38,237 Special mention — — — — — — 7,459 7,459 Substandard — — — — — — 16,970 16,970 Doubtful — — — — — — 1,554 1,554 Total — — — — — — 336,442 336,442 Current period charge-offs — — — — — — 35 35 Lease financing Pass 29,214 57,899 11,949 10,795 17,486 2,851 — 130,194 Watch 1,210 164 9,047 9,295 2,019 398 — 22,133 Special mention — 278 — — 1,026 45 — 1,349 Substandard 52 6,013 1,165 3,506 2,291 1,612 — 14,639 Doubtful — — — 58 — 243 — 301 Total 30,476 64,354 22,161 23,654 22,822 5,149 — 168,616 Current period charge-offs — — — 58 67 — — 125 19 Table of Contents Insurance premium finance Pass 380,580 141,340 56 — — — — 521,976 Watch 90 254 — — — — — 344 Special mention 30 270 — — — — — 300 Substandard 5 152 — — — — — 157 Doubtful — 127 — — — — — 127 Total 380,705 142,143 56 — — — — 522,904 Current period charge-offs — 487 173 — — — — 660 SBA/USDA Pass 34,482 184,511 182,889 25,243 25,614 40,539 — 493,278 Watch — 12,241 55 1,111 6,592 3,077 — 23,076 Special mention — — 1,325 — 2,783 369 — 4,477 Substandard — 10,144 11,173 1,295 5,217 11,694 — 39,523 Doubtful — — 79 — — — — 79 Total 34,482 206,896 195,521 27,649 40,206 55,679 — 560,433 Current period charge-offs — — — — — — — — Other commercial finance Pass — 2,270 10,532 32,600 1,079 73,678 — 120,159 Watch — 2,500 — — — — — 2,500 Substandard — 2,681 44 23,672 — — — 26,397 Total — 7,451 10,576 56,272 1,079 73,678 — 149,056 Current period charge-offs — — — — — — — — Warehouse finance Pass — — — — — — 394,814 394,814 Total — — — — — — 394,814 394,814 Current period charge-offs — — — — — — — — Total loans and leases Pass 753,063 878,107 331,012 166,334 98,576 165,525 896,089 3,288,706 Watch 67,689 57,441 55,298 35,121 12,067 5,024 214,470 447,110 Special mention 950 15,435 8,547 19,254 13,954 528 28,989 87,657 Substandard 9,603 54,679 36,114 49,835 30,131 18,036 19,710 218,108 Doubtful — 728 3,214 1,715 534 1,549 1,554 9,294 Total $ 831,305 $ 1,006,390 $ 434,185 $ 272,259 $ 155,262 $ 190,662 $ 1,160,812 $ 4,050,875 Current period charge-offs $ — $ 1,823 $ 5,236 $ 2,372 $ 1,418 $ 233 $ 35 $ 11,117 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 $ 539,448 $ 149,190 $ 99,677 $ 73,132 $ 14,368 $ 85,812 $ — $ 961,627 Watch 53,481 51,036 58,041 12,230 4,483 727 — 179,998 Special mention 26,539 13,853 20,463 723 2,932 75 — 64,585 Substandard 20,437 30,451 14,729 24,613 3,872 764 — 94,866 Doubtful 200 2,655 1,691 1,121 165 1,225 — 7,057 Total 640,105 247,185 194,601 111,819 25,820 88,603 — 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 20 Table of Contents Special mention — — — — — — 8,892 8,892 Substandard — — — — — — 7,865 7,865 Total — — — — — — 358,344 358,344 Lease financing Pass 57,123 15,941 15,167 27,489 4,036 1,281 — 121,037 Watch 793 10,436 12,566 4,494 1,579 55 — 29,923 Special mention — — 847 415 195 — — 1,457 Substandard 14,890 1,983 7,082 3,660 3,062 33 — 30,710 Doubtful — — 71 61 — 133 — 265 Total 72,806 28,360 35,733 36,119 8,872 1,502 — 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 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 1,554,843 333,793 173,825 138,032 37,324 175,272 809,413 3,222,502 Watch 105,884 110,339 71,265 16,775 6,419 3,354 245,076 559,112 Special mention 26,789 13,868 21,840 1,138 3,127 75 35,274 102,111 Substandard 38,423 35,260 49,237 33,691 15,443 8,773 27,366 208,193 Doubtful 380 2,807 1,762 1,182 165 1,358 501 8,155 Total $ 1,726,319 $ 496,067 $ 317,929 $ 190,818 $ 62,478 $ 188,832 $ 1,117,630 $ 4,100,073 21 Table of Contents Past due loans and leases were as follows: At March 31, 2024 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 $ 323 $ 546 $ 843 $ 1,712 $ 24,234 $ 25,946 $ 843 $ — $ 843 Term lending 31,580 20,883 10,397 62,860 1,426,194 1,489,054 890 18,960 19,850 Asset-based lending — — — — 429,556 429,556 — — — Factoring — — — — 336,442 336,442 — 4,580 4,580 Lease financing 2,655 171 1,526 4,352 164,264 168,616 752 1,605 2,357 Insurance premium finance 2,211 592 1,037 3,840 519,064 522,904 1,037 — 1,037 SBA/USDA 36 2,340 2,636 5,012 555,421 560,433 — 2,636 2,636 Other commercial finance — — — — 149,056 149,056 — — — Commercial finance 36,482 23,986 15,596 76,064 3,579,997 3,656,061 2,679 27,781 30,460 Consumer finance 4,293 3,001 3,093 10,387 256,644 267,031 3,093 — 3,093 Tax services 1,123 — — 1,123 83,379 84,502 — — — Warehouse finance — — — — 394,814 394,814 — — — Total loans and leases held for investment 41,898 26,987 18,689 87,574 4,314,834 4,402,408 5,772 27,781 33,553 Total loans and leases $ 42,221 $ 27,533 $ 19,532 $ 89,286 $ 4,339,068 $ 4,428,354 $ 6,615 $ 27,781 $ 34,396 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 22 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 March 31, 2024 2024 2023 2022 2021 2020 Prior Term lending $ 1,121 $ 2,683 $ 7,414 $ 2,222 $ 1,446 $ 4,074 $ — $ 18,960 $ — Factoring — — — — — — 4,580 4,580 — Lease financing — — 95 540 695 275 — 1,605 539 SBA/USDA — 1,307 79 — 1,005 245 — 2,636 750 Commercial finance 1,121 3,990 7,588 2,762 3,146 4,594 4,580 27,781 1,289 Total nonaccrual loans and leases $ 1,121 $ 3,990 $ 7,588 $ 2,762 $ 3,146 $ 4,594 $ 4,580 $ 27,781 $ 1,289 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 $ 865 $ 4,942 $ 2,933 $ 2,165 $ 3,134 $ 1,285 $ — $ 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 865 5,692 3,379 2,825 3,134 2,097 19,380 37,372 1 Total nonaccrual loans and leases $ 865 $ 5,692 $ 3,379 $ 2,825 $ 3,134 $ 2,097 $ 19,380 $ 37,372 $ 1 Loans and leases that are 90 days or more delinquent and accruing by year of origination were as follows: Amortized Cost Basis (Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total At March 31, 2024 2024 2023 2022 2021 2020 Prior Loans held for sale $ — $ 843 $ — $ — $ — $ — $ — $ 843 Term lending — 185 58 393 254 — — 890 Lease financing 354 121 — — 2 275 — 752 Insurance premium finance 198 839 — — — — — 1,037 Commercial finance 552 1,145 58 393 256 275 — 2,679 Consumer finance 309 1,969 658 157 — — — 3,093 Total loans and leases held for investment 861 3,114 716 550 256 275 — 5,772 Total 90 days or more delinquent and accruing $ 861 $ 3,957 $ 716 $ 550 $ 256 $ 275 $ — $ 6,615 23 Table of Contents 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 1,604 1,371 500 233 29 — — 3,737 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 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 Certain loans and leases 90 days or more past due as to interest or principal continue to accrue because they are (1) well-secured and in the process of collection or (2) consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. The following table provides the average recorded investment in nonaccrual loans and leases: Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2024 2023 2024 2023 Term lending $ 18,999 $ 9,758 $ 18,209 $ 9,277 Asset-based lending 82 5,292 4,896 4,782 Factoring 5,745 523 3,463 615 Lease financing 1,639 3,627 1,631 3,625 SBA/USDA 2,329 1,379 1,908 1,400 Commercial finance 28,794 20,579 30,107 19,699 Total loans and leases $ 28,794 $ 20,579 $ 30,107 $ 19,699 The recognized interest income on the Company's nonaccrual loans and leases for the three and six months ended March 31, 2024 and 2023 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 three and six months ended March 31, 2024 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 and six months ended March 31, 2024 were $ 1.6 million in the commercial finance loan portfolio. No loans were modified in a TDR during the three and six months ended March 31, 2023. The Company had an immaterial amount and $ 0.1 million of commercial finance loans that were modified within the previous 12 months experience a payment default during the three and six months ended March 31, 2023, respectively. TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the six months ended March 31, 2023. 24 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 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. Diluted EPS shown below reflects the two-class method, as diluted EPS under the two-class method was more dilutive than under the treasury stock method. A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below. Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands, except per share data) 2024 2023 2024 2023 Basic income per common share: Net income attributable to Pathward Financial, Inc. $ 65,268 $ 54,771 $ 92,925 $ 82,613 Dividends and undistributed earnings allocated to participating securities ( 524 ) ( 841 ) ( 744 ) ( 1,231 ) Basic net earnings available to common stockholders 64,744 53,930 92,181 81,382 Undistributed earnings allocated to nonvested restricted stockholders 514 820 724 1,190 Reallocation of undistributed earnings to nonvested restricted stockholders ( 514 ) ( 818 ) ( 724 ) ( 1,187 ) Diluted net earnings available to common stockholders $ 64,744 $ 53,932 $ 92,181 $ 81,385 Total weighted-average basic common shares outstanding 25,281,743 27,078,048 25,529,186 27,555,197 Effect of dilutive securities (1) Performance share units 29,401 91,521 26,470 77,540 Total effect of dilutive securities 29,401 91,521 26,470 77,540 Total weighted-average diluted common shares outstanding 25,311,144 27,169,569 25,555,656 27,632,737 Net earnings per common share: Basic earnings per common share $ 2.56 $ 1.99 $ 3.61 $ 2.95 Diluted earnings per common share (2) $ 2.56 $ 1.99 $ 3.61 $ 2.95 (1) Represents the effect of the assumed exercise of stock options and vesting of performance share units and restricted stock, as applicable, utilizing the treasury stock method. (2) Excluded from the computation of diluted earnings per share for the three months ended March 31, 2024 and 2023, respectively, were 204,877 and 422,461 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. Excluded from the computation of diluted earnings per share for the six months ended March 31, 2024 and 2023, respectively, were 206,060 and 417,012 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. 25 Table of Contents NOTE 6. RENTAL EQUIPMENT, NET Rental equipment consists of the following: (Dollars in thousands) March 31, 2024 September 30, 2023 Computers and IT networking equipment $ 24,435 $ 25,094 Motor vehicles and other 135,158 122,845 Other furniture and equipment 37,086 37,637 Solar panels and equipment 134,917 142,355 Total 331,596 327,931 Accumulated depreciation ( 116,864 ) ( 117,418 ) Unamortized initial direct costs 1,153 1,237 Net book value $ 215,885 $ 211,750 Future minimum lease payments expected to be received for operating leases at March 31, 2024 were as follows: (Dollars in thousands) Remaining in 2024 $ 22,318 2025 39,532 2026 29,630 2027 21,494 2028 12,248 Thereafter 11,693 Total $ 136,915 26 Table of Contents NOTE 7. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at March 31, 2024. The recorded goodwill is a result of multiple business combinations that occurred from 2015 to 2018. There have been no changes to the carrying amount of goodwill during the six months ended March 31, 2024. 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, 2023 $ 7,477 $ — $ 9,110 $ 4,133 $ 20,720 Amortization during the period ( 527 ) — ( 1,431 ) ( 266 ) ( 2,224 ) At March 31, 2024 $ 6,950 $ — $ 7,679 $ 3,867 $ 18,496 Gross carrying amount $ 13,774 $ 301 $ 77,578 $ 7,798 $ 99,451 Accumulated amortization ( 6,824 ) ( 301 ) ( 58,981 ) ( 3,712 ) ( 69,818 ) Accumulated impairment — — ( 10,918 ) ( 219 ) ( 11,137 ) At March 31, 2024 $ 6,950 $ — $ 7,679 $ 3,867 $ 18,496 At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691 Amortization during the period ( 609 ) — ( 1,819 ) ( 265 ) ( 2,693 ) At March 31, 2023 $ 7,996 $ — $ 10,576 $ 4,426 $ 22,998 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133 Accumulated amortization ( 6,628 ) ( 2,481 ) ( 60,594 ) ( 5,296 ) ( 74,999 ) Accumulated impairment — — ( 10,918 ) ( 218 ) ( 11,136 ) At March 31, 2023 $ 7,996 $ — $ 10,576 $ 4,426 $ 22,998 (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 remaining six months of fiscal 2024 and subsequent fiscal years at March 31, 2024 was as follows: (Dollars in thousands) Remaining in 2024 $ 1,904 2025 3,563 2026 3,217 2027 2,571 2028 2,261 Thereafter 4,980 Total anticipated intangible amortization $ 18,496 There were no impairments to intangible assets during the six months ended March 31, 2024 and 2023. Intangible impairment expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations. 27 Table of Contents NOTE 8. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease right-of-use ("ROU") assets, included in other assets , were $ 26.0 million and $ 26.9 million at March 31, 2024 and September 30, 2023, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 27.8 million and $ 28.8 million at March 31, 2024 and September 30, 2023, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at March 31, 2024 were as follows: (Dollars in thousands) Remaining in 2024 $ 2,132 2025 3,985 2026 3,435 2027 3,152 2028 3,095 Thereafter 15,545 Total undiscounted future minimum lease payments 31,344 Discount ( 3,526 ) Total operating lease liabilities $ 27,818 The weighted-average discount rate and remaining lease term for operating leases were as follows: March 31, 2024 September 30, 2023 Weighted-average discount rate 2.44 % 2.38 % Weighted-average remaining lease term (years) 9.11 9.66 The components of total lease costs for operating leases were as follows: Three Months Ended March 31, Six Months Ended March 31, (Dollars in thousands) 2024 2023 2024 2023 Lease expense $ 992 $ 982 $ 2,017 $ 1,996 Short-term and variable lease cost 30 42 23 84 Sublease income ( 269 ) ( 339 ) ( 639 ) ( 672 ) Total lease cost for operating leases $ 753 $ 685 $ 1,401 $ 1,408 NOTE 9. 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 six months ended March 31, 2024 and 2023, the Company repurchased 996,773 and 1,826,694 shares, respectively, as part of the share repurchase programs. Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of March 31, 2024, 7,669,663 shares of common stock remained available for repurchase. 28 Table of Contents For the six months ended March 31, 2024 and 2023, the Company also repurchased 122,452 and 59,626 shares, or $ 5.8 million and $ 2.1 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock. Retirement of Treasury Stock. The Company accounts for the retirement of repurchased shares, including treasury stock, using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. The Company retired no shares of common stock held in treasury during the six months ended March 31, 2024 and 2023. NOTE 10. STOCK COMPENSATION On February 27, 2024, the shareholders of the Company voted to approve the Pathward Financial, Inc. 2023 Omnibus Incentive Plan (the "Plan"). The 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 from immediate to up to one year from the grant date. The Company also grants selected executives PSU awards. The vesting of these awards is contingent on meeting company-wide performance goals, including earnings per share. 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 . 29 Table of Contents 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 six months ended March 31, 2024. Number of Shares Weighted Average Fair Value at Grant Nonvested shares outstanding, September 30, 2023 370,151 $ 35.87 Granted 177,317 49.53 Vested ( 277,447 ) 39.33 Forfeited or expired ( 6,428 ) 41.84 Nonvested shares outstanding, March 31, 2024 263,593 $ 41.27 Number of Units (1) Weighted Average Fair Value at Grant Performance share units outstanding, September 30, 2023 155,804 $ 41.20 Granted 52,125 50.15 Vested ( 60,984 ) 55.47 Forfeited or expired — — Performance share units outstanding, March 31, 2024 146,945 $ 47.35 (1) 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 March 31, 2024, stock-based compensation expense not yet recognized in income totaled $ 10.5 million, which is expected to be recognized over a weighted average remaining period of 1.61 years. 30 Table of Contents NOTE 11. INCOME TAXES The Company recorded an income tax expense of $ 21.0 million for the six months ended March 31, 2024, resulting in an effective tax rate of 18.33 %, compared to an income tax expense of $ 15.8 million, or an effective tax rate of 15.83 %, for the six months ended March 31, 2023. The Company’s effective tax rate was lower than the U.S. statutory rate of 21% primarily because of the effect of investment tax credits during fiscal year 2024. The Company's effective tax rate in the future will depend in part on actual investment tax credits generated from qualified renewable energy property. The table below compares the income tax expense components for the periods presented. Six Months Ended March 31, (Dollars in thousands) 2024 2023 Provision at statutory rate $ 23,917 $ 20,657 Tax-exempt income ( 341 ) ( 398 ) State income taxes 4,550 4,285 Interim period effective rate adjustment 4,581 ( 483 ) Tax credit investments, net - federal ( 11,363 ) ( 7,916 ) Research tax credit — ( 805 ) IRC 162(m) nondeductible compensation 340 576 Other, net ( 719 ) ( 163 ) Income tax expense $ 20,965 $ 15,753 Effective tax rate 18.33 % 15.83 % 31 Table of Contents NOTE 12. REVENUE FROM CONTRACTS WITH CUSTOMERS 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 13. Segment Reporting to the Condensed Consolidated Financial Statements. (Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company Three Months Ended March 31, 2024 2023 2024 2023 2024 2023 2024 2023 Net interest income (1) $ 56,527 $ 41,418 $ 44,913 $ 46,758 $ 16,861 $ 13,229 $ 118,301 $ 101,405 Noninterest income: Refund transfer product fees 28,942 30,205 — — — — 28,942 30,205 Refund advance fee income (1) 43,200 37,995 — — — — 43,200 37,995 Card and deposit fees 35,097 41,828 241 252 6 7 35,344 42,087 Rental income (1) — — 13,594 12,737 126 203 13,720 12,940 Gain (loss) on sale of other (1) 16 — 1,607 ( 748 ) 72 82 1,695 ( 666 ) Other income (1) 2,432 1,748 2,307 1,935 1,305 794 6,044 4,477 Total noninterest income 109,687 111,776 17,749 14,176 1,509 1,086 128,945 127,038 Revenue $ 166,214 $ 153,194 $ 62,662 $ 60,934 $ 18,370 $ 14,315 $ 247,246 $ 228,443 Six Months Ended March 31, Net interest income (1) $ 115,883 $ 75,690 $ 90,794 $ 89,082 $ 21,660 $ 20,690 $ 228,337 $ 185,462 Noninterest income: Refund transfer product fees 29,364 30,882 — — — — 29,364 30,882 Refund advance fee income (1) 43,311 38,612 — — — — 43,311 38,612 Card and deposit fees 65,604 79,280 477 513 13 12 66,094 79,805 Rental income (1) — — 26,829 25,252 350 396 27,179 25,648 Gain on sale of trademarks — — — — — 10,000 — 10,000 Gain (loss) on sale of other (1) ( 15 ) — 1,969 ( 246 ) 2,581 82 4,535 ( 164 ) Other income (1) 4,210 2,541 4,473 3,019 2,540 2,472 11,223 8,032 Total noninterest income 142,474 151,315 33,748 28,538 5,484 12,962 181,706 192,815 Revenue $ 258,357 $ 227,005 $ 124,542 $ 117,620 $ 27,144 $ 33,652 $ 410,043 $ 378,277 (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 six months ended March 31, 2024. Refund Transfer Product Fees. Refund transfer fees are specific to the Banking as a Service ("BaaS") business line and reflect product fees offered by the Company through third-party tax preparers and tax preparation software providers where the Company acts as the partnering financial institution. A refund transfer allows a taxpayer to pay tax preparation and filing fees directly from their federal or state government tax refund, with the remainder of the refund being disbursed in accordance with the terms and conditions of the taxpayer agreement, which may include satisfaction of other disbursement obligations before going directly to the taxpayer via check, direct deposit, or prepaid card. Refund transfer fees are recognized by the Company immediately after the taxpayer's refund has been disbursed in accordance with the contract and are based on standalone pricing included within the terms and conditions. Certain expenses to tax preparation software providers are netted with refund transfer fee income as the Company is considered the agent in these contractual relationships. All refund transfer fees are recorded within the Consumer reporting segment. 32 Table of Contents Card and Deposit Fees. Card fees relate to the BaaS business line and consists of income from prepaid cards and merchant services, including interchange fees from prepaid cards processed through card association networks, merchant services and other card related services. Interchange rates are generally set by card association networks based on transaction volume and other factors. Since interchange fees are generated by cardholder activity, the Company recognizes the income as transactions occur. Fee income for merchant services and other card related services reflect account management and transaction fees charged to merchants for processing card association network transactions. The associated income is recognized as transactions occur or as services are performed. For the Company's internally managed prepaid card programs, fees are based on standalone pricing within the terms and conditions of the cardholder agreement. The Company is considered the principal of these relationships resulting in all fee income being presented on a gross basis within the Condensed Consolidated Statement of Operations. For the Company's sponsorship prepaid card programs where a third-party is considered the Program Manager, the fees are based on standalone pricing within the terms and conditions of the Program Agreement. For these relationships, the Company is considered the agent and certain expenses with the Program Manager, networks and associations are netted with card fee revenue. All card fee income is included in the Consumer reporting segment. Deposit fees relate to the BaaS and Commercial Finance business lines and consist of income from banking and deposit-related services, including account services, overdraft protection, and wire transfers. Fee income for account services is recognized over the course of the month as the performance obligation is satisfied. Fee income for overdraft protection and wire transfers is recognized at the point in time when such event occurs. For BaaS, the fees for account services and overdraft protection are based on standalone pricing within the terms and conditions of the Program Agreement with the sponsorship partner. For these relationships, the Company is considered the agent and certain expenses with the partner are netted with deposit fee revenue. For Commercial Finance, fees for wire transfers are based on standalone pricing within the terms and conditions of the customer deposit agreement. Bank and deposit fees for the BaaS and Commercial Finance business lines are included in the Consumer and Commercial reporting segments, respectively. Also included within Card and Deposit Fees for the Consumer reporting segment are servicing fees the Company recognizes for custodial off-balance sheet deposits. This fee income is for services the Bank performs to maintain records of cardholder funds placed at one or more third-party banks insured by the Federal Deposit Insurance Corporation ("FDIC"). The servicing fee is typically reflective of the effective federal funds rate ("EFFR"). NOTE 13. 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. 33 Table of Contents The following table presents segment data for the Company: (Dollars in thousands) Consumer Commercial Corporate Services/Other Total Three Months Ended March 31, 2024 2023 2024 2023 2024 2023 2024 2023 Net interest income $ 56,527 $ 41,418 $ 44,913 $ 46,758 $ 16,861 $ 13,229 $ 118,301 $ 101,405 Provision for credit loss 25,452 31,654 555 5,012 45 97 26,052 36,763 Noninterest income 109,687 111,776 17,749 14,176 1,509 1,086 128,945 127,038 Noninterest expense 59,452 49,910 38,130 38,846 42,849 38,380 140,431 127,136 Income (loss) before income tax expense 81,310 71,630 23,977 17,076 ( 24,524 ) ( 24,162 ) 80,763 64,544 Total assets 493,718 361,528 4,124,909 3,581,677 2,818,490 2,925,051 7,437,117 6,868,256 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 6,063,339 5,744,278 7,143 9,313 297,862 149,105 6,368,344 5,902,696 Six Months Ended March 31, Net interest income $ 115,883 $ 75,690 $ 90,794 $ 89,082 $ 21,660 $ 20,690 $ 228,337 $ 185,462 Provision for credit loss 28,906 34,894 7,018 11,595 18 50 35,942 46,539 Noninterest income 142,474 151,315 33,748 28,538 5,484 12,962 181,706 192,815 Noninterest expense 109,465 84,404 72,986 71,595 77,254 76,196 259,705 232,195 Income (loss) before income tax expense 119,986 107,707 44,538 34,430 ( 50,128 ) ( 42,594 ) 114,396 99,543 Total assets 493,718 361,528 4,124,909 3,581,677 2,818,490 2,925,051 7,437,117 6,868,256 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 6,063,339 5,744,278 7,143 9,313 297,862 149,105 6,368,344 5,902,696 NOTE 14. FAIR VALUES OF FINANCIAL INSTRUMENTS ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The fair value hierarchy is as follows: Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date. Level 2 Inputs - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market. Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Debt Securities Available for Sale and Held to Maturity . Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost. The fair value of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and compares to current market trading activity. 34 Table of Contents Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis. At March 31, 2024 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 18,125 $ — $ 18,125 $ — SBA securities 84,797 — 84,797 — Obligations of states and political subdivisions 507 — 507 — Non-bank qualified obligations of states and political subdivisions 222,669 — 222,669 — Asset-backed securities 223,414 — 223,414 — Mortgage-backed securities 1,229,946 — 1,229,946 — Total debt securities AFS $ 1,779,458 $ — $ 1,779,458 $ — Common equities and mutual funds (1) $ 4,334 $ 4,334 $ — $ — Non-marketable equity securities (2) $ 10,000 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024. (2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy. At September 30, 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 Statements of Financial Condition at September 30, 2023. (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 44 %. 35 Table of Contents 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 March 31, 2024 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 9,234 $ — $ — $ 9,234 Total loans and leases, net individually evaluated for credit loss 9,234 — — 9,234 Total $ 9,234 $ — $ — $ 9,234 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 Quantitative Information About Level 3 Fair Value Measurements (Dollars in thousands) Fair Value at March 31, 2024 Fair Value at September 30, 2023 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 9,234 $ 21,829 Market approach Appraised values (1) 3 % - 44 % (1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs and other inputs in a range of 3 % to 44 %. Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at March 31, 2024 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. 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. 36 Table of Contents The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company: At March 31, 2024 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 347,888 $ 347,888 $ 347,888 $ — $ — Debt securities available for sale 1,779,458 1,779,458 — 1,779,458 — Debt securities held to maturity 34,682 31,113 — 31,113 — Common equities and mutual funds (1) 4,334 4,334 4,334 — — Non-marketable equity securities (1)(2) 20,522 20,522 — 10,522 — Loans held for sale 25,946 25,946 — 25,946 — Loans and leases 4,402,408 4,339,150 — — 4,339,150 Federal Reserve Bank and Federal Home Loan Bank stocks 25,844 25,844 — 25,844 — Accrued interest receivable 30,294 30,294 30,294 — — Financial liabilities Deposits 6,368,344 6,368,058 6,267,603 100,455 — Overnight federal funds purchased 31,000 31,000 31,000 — — Other short- and long-term borrowings 33,373 31,297 — 31,297 — Accrued interest payable 1,961 1,961 1,961 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024. (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, 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 — Overnight federal funds purchased 13,000 13,000 13,000 — — 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 Statements 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. NOTE 15. SUBSEQUENT EVENTS Management has evaluated subsequent events that occurred after March 31, 2024. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in our Condensed Consolidated Financial Statements as of or for the quarter ended March 31, 2024. 37 Table of Contents